STRATEGIC MANAGEMENT

Tabo Chizyuka
tabochizyuka@gmail.com
Contents
Part 1: Strategic Management Inputs...................................................................................................3
1. Strategic Management and Strategic Competitiveness...........................................................3
1.1 Definitions of strategic competitiveness, strategy, competitive advantage, Above-average
returns, and the strategic management process...........................................................................3
1.1.1 Analysing a Case Study.........................................................................................................5
1.2 Competitive landscape and how globalization and technological changes shape it................6
1.3 Using the industrial organization (I/O) model to explain how firms can earn above-average
returns...........................................................................................................................................8
1.4 The resource-based model and how firms can earn above average-returns............................9
1.5 Strategic Intent, Vision and Strategic Mission........................................................................10
1.6 Stakeholders and their ability to influence organizations......................................................11
1.6 Strategic Leaders and their influence.....................................................................................13
1.7 The Benefits of Strategic Management..................................................................................13
2. The External Environment: Opportunities, Threats, Industry Competition, and Competitor
Analysis...........................................................................................................................................15
2.1 Environmental Scanning........................................................................................................15
2.2 The importance of analysing and understanding the firm’s external environment................15
2.3 The general environment and the industry environment.......................................................16
2.4 Four activities of the external environmental analysis process..............................................17
2.5 The general environment’s segments. (PEST Analysis)...........................................................17
2.6 The five competitive forces and how they determine an industry’s profit potential. (Porters
Five Forces)..................................................................................................................................20
2.7 Implication of Competition.....................................................................................................24
3. The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive
Advantages.....................................................................................................................................26
Part 2: Strategic Actions: Strategy Formulation.................................................................................36
4. Business-Level Strategy...........................................................................................................36
5. Functional Area Strategy.........................................................................................................39
6. Corporate-Level Strategy........................................................................................................39
7. Operating-Level Strategy........................................................................................................42
8. Merger and Acquisition Strategies.........................................................................................47
Motives for acquisitions and mergers........................................................................................47
9. Strategic Alliances...................................................................................................................53
Part 3: Strategic Actions: Strategy Implementation...........................................................................54
10. Corporate Governance........................................................................................................54
11. Organizational Structure and Controls...............................................................................56
Organisational Structure in Strategy Implementation...............................................................58
Organizational Processes and Behaviour...................................................................................58
Organizational Culture................................................................................................................60
Organizational Politics................................................................................................................61
Functional Role of Politics in Organizations...............................................................................62
12. Strategic Leadership............................................................................................................63
1. General Manager as the Architect of Strategy.......................................................................68
2. General Manager as Organization Leader..............................................................................68
2.2 GM must act as mediator and integrator.................................................................................68
Part 1: Strategic Management Inputs
1. Strategic Management and Strategic Competitiveness
1.1 Definitions of strategic competitiveness, strategy, competitive advantage, Above-average
returns, and the strategic management process.
 Strategic Competitiveness is the accomplishment of a firm that successfully integrates a
value creating strategy. The key is to have a complete value creating strategy to adopt a
holistic approach that includes business strategy, financial strategy, technology strategy,
marketing strategy and investor strategy. In other words it is achieved when a firm
successfully formulates and implements a value-creating strategy.
 Strategy is an integrated and coordinated set of commitments and actions designed to
exploit core competencies and gain a competitive advantage. Chandler (1962) defined
Strategy as the determination of the basic long-term goals of an enterprise, and the
adoption of courses of action and the allocation of resources necessary for carrying out
these goals.
 Competitive Advantage in simpler terms is the advantage over competitors gained by
offering consumers greater value, either by means of lower prices or by providing greater
benefits and service that justify higher prices. A firm has a competitive advantage when it
implements a strategy competitors are unable to duplicate or find too costly to try to
imitate. An organization can be confident that its strategy has resulted in one or more useful
competitive advantages only after competitors’ efforts to duplicate its strategy have ceased
or failed. In addition, firms must understand that no competitive advantage is permanent.
The speed with which competitors are able to acquire the skills needed to duplicate the
benefits of a firm’s value creating strategy determines how long the competitive advantage
will last.
 Above Average Returns are returns in excess of what an investor expects to earn from other
investments with a similar amount of risk. Risk is an investor’s uncertainty about the
economic gains or losses that will result from a particular investment. Average returns are
returns equal to those an investor expects to earn from other investments with a similar
amount of risk. In the long run, an inability to earn at least average returns results first in
decline and, eventually, failure. Failure occurs because investors withdraw their investments
from those firms earning less-than-average returns.
 Strategic Management is all about identification and description of the strategies that
managers can carry so as to achieve better performance and a competitive advantage for
their organization. An organization is said to have competitive advantage if its profitability is
higher than the average profitability for all companies in its industry. Strategic management
is nothing but planning for both predictable as well as unfeasible contingencies. It is
applicable to both small as well as large organizations as even the smallest organization face
competition and, by formulating and implementing appropriate strategies, they can attain
sustainable competitive advantage. It includes the understanding of Strategic Position of an
organisation, Strategic Choices for the Future and managing Strategy in Action.
Characteristics of Strategic Management
 It is a systematic phenomenon meaning it is a unified, comprehensive and
integrated plan of action.
  It is multi-disciplinary meaning that functional areas such as marketing, financial,
human resource and operations are influenced by new strategy. The functional
areas can also be used to implement and formulate strategies.
 It is multi-dimensional meaning that it does not have one form and can be
combination of approaches such that strategic management not only tells us about
vision and objectives, but also the way to achieve them. So, it implies that the
organization should possess the resources and competencies appropriate for
implementation of strategy as well as strong performance culture, with clear
accountability and incentives linked to performance.
 It is hierarchical meaning that it consists of different strategic levels that attempt to
highlight the types of strategic decisions made at corporate, strategic business unit
and functional management levels.
 It is dynamic meaning that it is influenced by environmental changes and that the
process of strategic management is used to adjust to this movement.
 Strategic Management Process is the full set of commitments, decisions, and actions
required for a firm to achieve strategic competitiveness and earn above-average returns.
The firm’s first step in the process is to analyse its external environment and internal
organization to determine its resources, capabilities, and core competencies—the sources of
its “strategic inputs.” With this information, the firm develops its vision and mission and
formulates one or more strategies. To implement its strategies, the firm takes actions
toward achieving strategic competitiveness and above average returns. Effective strategic
actions that take place in the context of carefully integrated strategy formulation and
implementation efforts result in positive outcomes. This dynamic strategic management
process must be maintained as ever changing markets and competitive structures are
coordinated with a firm’s continuously evolving strategic inputs.

Strategic Management Process (Summary)

Strategic Inputs

In the form of information gained by scrutinizing the internal environment and scanning the external
environment, are used to develop the firm's strategic intent and strategic mission.

 External Environment, Internal Environment and Vision and Mission (leading to

Strategic Actions).

Strategic Actions

These are guided by the firm's strategic intent and strategic mission, and are represented by
strategies that are formulated or developed and subsequently implemented or put into action.

1. Strategy Formulation
 Business Level Strategy, Competitive Dynamics, Corporate-Level Strategy, Mergers
and Acquisitions, International Strategy and Cooperative Strategy.
2. Strategy Implementation
 Strategic Leadership, Corporate Governance, Organisational Learning and Strategic
Entrepreneurship.

Strategic Outcomes

The result of strategies when a firm is able to successfully formulate and implement value-creating
strategies that others are unable to duplicate.

 Strategic Competitiveness
 Above-Average Returns

Feedback

Links the primary elements of the strategic management process together and helps firms
continuously adjust or revise strategic inputs and strategic actions in order to achieve desired
strategic outcomes.

Terms
1.1.1 Analysing a Case Study
 The purpose of the case study is to let the student apply the concepts of strategic
management to a real or hypothesized situation facing a specific company.

 To analyse a case study, therefore, you must examine closely the issues with which the
company is confronted.

 Most often you will need to read the case several times – once to grasp the overall picture of
what is happening to the company and then several times more to discover and grasp the
specific problems.

Eight (8) steps in Conducting a detailed case study analysis

1. The history, development, and growth of the company over time.

2. The identification of the company’s internal strengths and weaknesses.
3. The nature of the external environment surrounding the company.
4. A SWOT analysis.
5. The kind of corporate-level strategy pursued by the company.
6. The nature of the company’s business-level strategy.
7. The company’s structure and control systems and how they match its strategy.
8. Recommendations.

1.2 Competitive landscape and how globalization and technological changes shape it.
 The Competitive Landscape
The competitive landscape can be described as one in which the fundamental nature of
competition is changing in a number of the world’s industries. Further, the boundaries of
industries are becoming blurred and more difficult to define. The competitive landscape thus
implies that traditional sources of competitive advantage, economies of scale and large
advertising budgets may not as important in the future as they were in the past. The rapid
and unpredictable technological change that characterizes this new competitive landscape
implies that managers must adopt new ways of thinking. The new competitive mind set
must value flexibility, speed, innovation and integration. A term often used to describe the
new realities of competition is hyper competition, a condition that results from the
dynamics of strategic moves and countermoves among innovative, global firms: a condition
of rapidly escalating competition that is based on price-quality positioning, battles to create
new know-how and achieve first-mover advantage, and battles to protect or to invade
established product or geographic markets.
 The Global Economy
A global economy is one in which goods, services, people, skills and ideas move freely across
geographic borders.
The emergence of this global economy results in a number of challenges and opportunities.
Improving a nation’s competitiveness involves several factors and outcomes:
 It creates a higher standard of living for a country’s citizens
 It requires firms to view the world as its marketplace
 It involves both additional benefits and risks
 The March of Globalization
 Globalization is the increasing economic interdependence among countries as reflected in
the flow of goods and services, financial capital, and knowledge across country borders. This
is illustrated by the following:
 Financial capital might be obtained in one national market and used to buy raw
materials in another one.
 Manufacturing equipment bought from another market produce products sold in yet
another market.
 Globalization enhances the available range of opportunities for firms.
While globalization seems an attractive strategy for competing in the competitive landscape,
there are risks as well. These include such factors as:
 The “liability of foreignness” (i.e., the risk of international diversification that
exceeds control)
 Over diversification beyond the firm’s ability to successfully manage operations in
multiple foreign markets
 The difficulties that may accompany venturing into too many international markets
too quickly
 Technology and Technological Change
Three technological trends and conditions are significantly altering the nature of
competition:
Increasing rate of technological change and diffusion
A term that is used to describe rapid and consistent replacement of current technologies by
new, information-intensive technologies is perpetual innovation. This implies that
innovation must be continuous and carry a high priority for all organizations.
The shorter product life cycles that result from rapid diffusion of innovation often means
that products may be replicated within very short time periods, placing a competitive
premium on a firm’s ability to rapidly introduce new products into the marketplace. In fact,
speed-to-market may become the sole source of competitive advantage. In fact, this rapid
diffusion of innovation may have made patents a source of competitive advantage only in
the pharmaceutical and chemical industries as many firms do not file patent applications to
safeguard (for at least a time) the technical knowledge that would be disclosed explicitly in a
patent application. Disruptive technologies (in line with the Schumpeterian notion of
“creative destruction”) can destroy the value of existing technology by replacing them with
new ones.
The Information Age
Changes in information technology have made rapid access to information available to firms
all over the world, regardless of size. Consider the rapid growth in the following
technologies: personal computers (PCs), wireless phones, computer, personal digital
assistants (PDAs), artificial intelligence, virtual reality, and massive data bases. These
examples show how information is used differently as a result of new technologies. The
ability to access and use information has become an important source of competitive
advantage in almost every industry.
 Companies are being wired to link themselves to customers, employees, vendors and
suppliers around the globe (e-business).
 E-business increased dramatically from $7.8 billion in 1997 to $251 trillion in 2000.
 The number of PCs is expected to continue growing gradually.
  The Internet and World Wide Web provide an information-carrying infrastructure
available to individuals and firms worldwide.
The ability to access a high level of relatively inexpensive information has created strategic
opportunities for many information-intensive businesses. For example, retailers now can use
the Web to provide shopping to customers virtually anywhere.
Increasing knowledge intensity
It is becoming increasingly apparent that knowledge—information, intelligence and
expertise—is a critical organizational resource, and increasingly, a source of competitive
advantage. As a result,
 Many companies are working to convert the accumulated knowledge of employees
into a corporate asset
 Shareholder value is increasingly influenced by the value of a firm’s intangible assets,
such as knowledge

Note: The implication of this discussion is that, to achieve strategic competitiveness and earn above-
average returns, firms must develop the ability to adapt rapidly to change or achieve strategic
flexibility.

Strategic flexibility represents the set of capabilities—in all areas of their operations—that firms use
to respond to respond to the various demands and opportunities that are found in dynamic,
uncertain environments. This implies that firms must develop certain capabilities, including:
Organizational slack that affords firms with the ability to respond to environmental changes
The capacity to learn continuously, which provide the firm with new skill sets Two models describing
key strategic inputs to a firm's strategic actions are discussed next: the Industrial Organization (or
externally-focused) model and the Resource-based (or internally-focused) model.

1.3 Using the industrial organization (I/O) model to explain how firms can earn above-average
returns.
 The I/O Model of Above Average Returns
The I/O or Industrial Organization model adopts an external perspective to explain that
forces outside of the organization represent the dominant influences on a firm's strategic
actions. In other words, this model presumes that the characteristics of and conditions
present in the external environment determine the appropriateness of strategies that are
formulated and implemented in order for a firm to earn above-average returns. In short, the
I/O model specifies that the choice of industries in which to compete has more influence on
firm performance than the decisions made by managers inside their firm.
The I/O model is based on the following four assumptions:
 The external environment—the general, industry and competitive environments
impose pressures and constraints on firms and determines strategies that will result
in superior returns. In other words, the external environment pressures the firm to
adopt strategies to meet that pressure while simultaneously constraining or limiting
the scope of strategies that might be appropriate and eventually successful.
 Most firms competing in an industry or in an industry segment control similar sets of
strategically relevant resources and thus pursue similar strategies. This assumption
presumes that, given a similar availability of resources, the majority of firms
competing in a specific industry—or in a segment of the industry—have similar
 capabilities and thus follow strategies that are similar. In other words, there are few
significant differences among firms in an industry.
 Resources used to implement strategies are highly mobile across firms. Significant
differences in strategically relevant resources among firms in an industry tend to
disappear because of resource mobility. Thus, any resource differences soon
disappear as they are observed and acquired or learned by other firms in the
industry.
 Organizational decision-makers are assumed to be rational and committed to acting
only in the best interests of the firm. The implication of this assumption is that
organizational decision-makers will consistently exhibit profit-maximizing
behaviours.
 The I/O Model of Above-Average Returns
According to the I/O model—which was a dominant paradigm from the 1960s through the 1980s
—firms must pay careful attention to the characteristics of the industry in which they choose to
compete, searching for one that is the most attractive to the firm, given the firm's strategically
relevant resources. Then, the firm must be able to successfully implement strategies required by
the industry's characteristics to be able to increase their level of competitiveness. The five forces
model is an analytical tool used to address and describe these industry characteristics.

Based on its four underlying assumptions, the I/O model prescribes a five-step process for firms
to achieve above-average returns:

 Study the external environment (general, industry and competitive) to

determine the characteristics of the external environment that will both determine and
constrain the firm's strategic alternatives.
 Select an industry with a high potential for returns based on the structural characteristics of the
industry.
 Based on the characteristics of the industry in which the firm chooses to compete, strategies
that are linked with above-average returns should be selected. A model or framework that can
be used to assess the requirements and risks of these strategies, the Generic Strategies that is
cost-leadership and differentiation.
 Acquire or develop the critical resources (skills and assets) needed to successfully implement
the strategy that has been selected.
 The I/O model indicates that above-average returns will accrue to firms that successfully
implement relevant strategic actions that enable the firm to leverage its strengths (skills and
resources) to meet the demands or pressures and constraints of the industry in which they
have elected to compete.

1.4 The resource-based model and how firms can earn above average-returns.
THE RESOURCE-BASED MODEL OF ABOVE-AVERAGE RETURNS
The Resource-Based model adopts an internal perspective to explain how a firm's unique bundle or
collection of internal resources and capabilities represent the foundation upon which value-creating
strategies should be built.

 Resources are inputs into a firm's production process, such as capital equipment, individual
employee's skills, patents, brand names, finance and talented managers. These resources
can be tangible or intangible.
  Capabilities are the capacity for a set of resources to integrative (or in combination) perform
a task or activity
 Core competencies are resources and capabilities that serve as a source of competitive
advantage for a firm over its rivals. Core competencies are often visible in the form of
organizational functions.

According to the resource-based model, differences in firms’ performances across time are due
primarily to their unique resources and capabilities rather than the industry’s structural
characteristics. This model also assumes that firms acquire different resources and develop unique
capabilities based on how they combine and use the resources; that resources and certainly
capabilities are not highly mobile across firms; and that the differences in resources and capabilities
are the basis of competitive advantage. Through continued use, capabilities become stronger and
more difficult for competitors to understand and imitate. As a source of competitive advantage, a
capability “should be neither so simple that it is highly imitable, nor so complex that it
defies internal steering and control.

The Resource-Based model of above-average returns is grounded in the uniqueness of a firm's

internal resources and capabilities. The five-step model describes the linkages between resource
identification and strategy selection that will lead to above-average returns.

 Firms should identify their internal resources and assess their strengths and weaknesses.
The strengths and weaknesses of firm resources should be assessed relative to competitors.
 Firms should identify the set of resources that provide the firm with capabilities that are
unique to the firm, relative to its competitors. The firm should identify those capabilities
that enable the firm to perform a task or activity better than its competitors.
 Firms should assess or determine the potential for their unique sets of resources and
capabilities to outperform its competitors in terms of returns. Determine how a firm’s
resources and capabilities can be used to gain competitive advantage .
 Locate and compete in an attractive industry. Determine the industry that provides the best
fit between the characteristics of the industry and the firm’s resources and capabilities.
 To attain a sustainable competitive advantage and earn above-average returns, firms should
formulate and implement strategies that enable them to better exploit their resources and
capabilities to take advantage of opportunities in the external environment than can their
competitors.

The industry environment and a firm’s internal assets affect that firm’s performance over time. Thus,
to form a vision and mission, and subsequently to select one or more strategies and to determine
how to implement them, firms use both the I/O and the resource-based models. In fact, these
models complement each other in that one (I/O) focuses outside the firm while the other
(resource-based) focuses inside the firm.

1.5 Strategic Intent, Vision and Strategic Mission.

STRATEGIC VISION AND STRATEGIC MISSION

After studying the external environment and the internal organization, the firm has the information
it needs to form its vision and a mission.

 Strategic Intent/Vision
Strategic Intent/Vision is internally focused and is concerned with leveraging the firm's internal
resources, capabilities and core competencies to accomplish what at first may appear to be
unattainable goals in the competitive environment. It reflects what the firm is capable of doing
 given its core competencies and the unique ways these core competencies can be used to
develop a sustainable competitive advantage that will result in above-average returns.
From a competitive perspective, strategic intent is about winning (beating the competition) in
the battle for market share and global dominance. Strategic intent focuses employee
performance through a firm wide commitment to achieve specific and significant performance
measures. To be effective, firms also must identify their competitors' strategic intent(s) and
extent of commitment to it.
 Vision is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately
achieve. Thus, a vision statement articulates the ideal description of an organization and gives
shape to its intended future. In other words, a vision statement points the firm in the direction
of where it would eventually like to be in the years to come. Vision is “big picture” thinking with
passion that helps people feel what they are supposed to be doing in the organization. People
feel what they are to do when their firm’s vision is simple, positive, and emotional. However, an
effective vision stretches and challenges people as well.
It is also important to note that vision statements reflect a firm’s values and aspirations and are
intended to capture the heart and mind of each employee and, hopefully many of its other
stakeholders. A firm’s vision tends to be enduring while its mission can change in light of
changing environmental conditions.
 Strategic Mission
A firm's strategic mission is an externally focused application of its strategic intent that states
the firm's unique purpose and the scope of its operations in product and market terms.
In competitive terms, the strategic mission provides general descriptions of products to be
provided and markets to be served using its unique sets of resources and capabilities (its core
competencies).
A Mission Statement defines the company's business, its objectives and its approach to reach
those objectives.
A firm's strategic intent and strategic mission must provide the guidance that enables the firm to
achieve the desired strategic outcomes—strategic competitiveness and above-average returns
that enable the firm to satisfy the demands of those parties having an interest in the firm's
success: organizational stakeholders.

1.6 Stakeholders and their ability to influence organizations.

STAKEHOLDERS
Stakeholders are the individuals and groups who can affect and are affected by the strategic
outcomes achieved and who have enforceable claims on a firm's performance.

Classification of Stakeholders
The stakeholder concept reflects that individuals and groups have a "stake" in the strategic
outcomes of the firm because they can be either positively or negatively affected by those outcomes
and because achieving the strategic outcomes may be dependent upon the support or active
participation of certain stakeholder groups.

 Capital Market Stakeholders

Shareholders and lenders both expect a firm to preserve and enhance the wealth they have
entrusted to it. The returns they expect are commensurate with the degree of risk accepted with
those investments (i.e., lower returns are expected with low-risk investments while higher returns
are expected with high-risk investments). Dissatisfied lenders may impose stricter covenants on
subsequent borrowing of capital. Dissatisfied shareholders may reflect their concerns through
several means, including selling their stock. When a firm is aware of potential or actual
dissatisfactions among capital market stakeholders, it may respond to their concerns. The firm’s
response to stakeholders who are dissatisfied is affected by the nature of its dependency
relationship with them (which, as noted earlier, is also influenced by a society’s values). The greater
and more significant the dependency relationship is, the more direct and significant the firm’s
response becomes

 Product Market Stakeholders

Some might think that product market stakeholders (customers, suppliers, host communities, and
unions) share few common interests. However, all four groups can benefit as firms engage in
competitive battles. For example, depending on product and industry characteristics, marketplace
competition may result in lower product prices being charged to a firm’s customers and higher
prices being paid to its suppliers (the firm might be willing to pay higher supplier prices to ensure
delivery of the types of goods and services that are linked with its competitive success). Customers,
as stakeholders, demand reliable products at the lowest possible prices. Suppliers seek loyal
customers who are willing to pay the highest sustainable prices for the goods and services they
receive. Host communities want companies willing to be long-term employers and providers of tax
revenue without placing excessive demands on public support services. Union officials are interested
in secure jobs, under highly desirable working conditions, for employees they represent. Thus,
product market stakeholders are generally satisfied when a firm’s profit margin reflects at least a
balance between the returns to capital market stakeholders (i.e., the returns lenders and
shareholders will accept and still retain their interests in the firm) and the returns in which they
share.

 Organizational Stakeholders

Employees (the firm’s organizational stakeholders) expect the firm to provide a dynamic,
stimulating, and rewarding work environment. As employees, we are usually satisfied working for a
company that is growing and actively developing our skills, especially those skills required to be
effective team members and to meet or exceed global work standards. Workers who learn how to
use new knowledge productively are critical to organizational success. In a collective sense, the
education and skills of a firm’s workforce are competitive weapons affecting strategy
implementation and firm performance. As suggested by the following statement, strategic leaders
are ultimately responsible for serving the needs of organizational stakeholders on a day-to-day basis:
“The job of strategic leadership is to fully utilize human potential, to create organizations in which
people can grow and learn while still achieving a common objective, to nurture the human spirit.”
Interestingly, research suggests that outside directors are more likely to propose layoffs compared to
inside strategic leaders, while such insiders are likely to use preventative cost-cutting measures and
seek to protect incumbent employees.

If the firm is strategically competitive and earns above average returns, it can afford to
simultaneously satisfy all stakeholders. When earning average or below-average returns, trade-offs
must be made. At the level of average returns, firms must minimally satisfy all stakeholders. When
returns are below average, some stakeholders can be minimally satisfied, while others may be
dissatisfied.

For example, reducing the level of research and development expenditures (to increase short-term
profits) enables the firm to pay out the additional short-term profits to shareholders as dividends.
However, if reducing R&D expenditures results in a decline in the long-term strategic
competitiveness of the firm's products or services, it is possible that employees will not enjoy a
secure or rewarding career environment (this also violates a primary union expectation or demand
for job security for its membership). At the same time, customers may be offered products that are
less reliable at unattractive prices, relative to those offered by firms that did not reduce R&D
expenditures.
Thus, the stakeholder management process may involve a series of trade-offs that is dependent on
the extent to which the firm is dependent on the support of each affected stakeholder and the firm's
ability to earn above-average returns.

1.6 Strategic Leaders and their influence

 Strategic leaders are people located in different parts of the firm using the strategic
management process to help the firm reach its vision and mission. Regardless of their location in
the firm, successful strategic leaders are decisive, committed to nurturing those around them
and are committed to helping the firm create value for all stakeholder groups.
 Organizational culture also affects strategic leaders and their work. In turn, strategic
leaders’ decisions and actions shape a firm’s culture. Organizational culture refers to the
complex set of ideologies, symbols, and core values that are shared throughout the firm
and that influence how the firm conducts business. It is the social energy that drives—or
fails to drive—the organization.
 Some organizational cultures are a source of disadvantage. It is important for strategic
leaders to understand, however, that whether the firm’s culture is functional or dysfunctional,
their work takes place within the context of that culture. The relationship between
organizational culture and strategic leaders’ work is reciprocal in that the culture shapes
how they work while their work helps shape an ever-evolving organizational culture

The Work of Effective Strategic Leaders

While it seems simplistic, performing their role effectively requires strategists to work hard, perform
thorough analyses of available information, be brutally honest, exercise common sense, think
clearly, and ask questions and listen. Additionally, the proliferation of e-commerce requires
strategists to emphasize speed and flexibility—key sources of competitive advantage.

Strategists face ambiguous decision situations, but also have opportunities to dream and act in
concert with a compelling strategic intent that motivates others in creating competitive advantage.

Predicting Outcomes of Strategic Decisions

Top-level managers try to predict the outcomes of their strategic decisions before they are
implemented, but this is sometimes very difficult to do. Those firms that do a better job of
anticipating the outcomes of strategic moves will obviously be in a better position to succeed. One
way to do this is by mapping out the profit pools of an industry. Profit pools are the total profits
earned in an industry at all points along the value chain. Four steps are involved:

 Define the pool’s boundaries

 Estimate the pool’s overall size
 Estimate the size of the value-chain activity in the pool
 Reconcile the calculations

1.7 The Benefits of Strategic Management

 Research has revealed that organizations that engage in strategic management generally
outperform those that do not.
  A survey of nearly 50 corporations in a variety of countries and industries found the 3 most
highly rated benefits of strategic management to be:
 Clearer sense of strategic vision for the firm
 Sharper focus on what is strategically important
 Improved understanding of a rapidly changing environment
 Keeping pace with changing environment the present day environment is so dynamic and fast
changing thus making it very difficult for any modern business enterprise to operate. Because of
uncertainties, threats and constraints, the business corporation is under great pressure and is
trying to find out the ways and means for their healthy survival. Under such circumstances, the
only last resort is to make the best use of strategic management which can help the corporate
management to explore the possible opportunities and at the same time to achieve an optimum
level of efficiency by minimizing the expected threats
 Minimizes competitive disadvantage. It minimizes competitive disadvantage and adds up to
competitive advantage. For example, a company like Hindustan Lever Ltd., realized that merely
by merging with companies like Lakme, Milk food, Ponds, Brooke bond, Lipton etc. which make
fast moving consumer goods alone will not make it market leader but venturing into retailing will
help it reap heavy profits. Then emerged its retail giant “Margin Free’ which is the market leader
in states like Kerala. Similarly, the R.P. Goenka Group and the Muruguppa group realized that
mere takeovers do not help and there is a need to reposition their products and reengineer their
brands. The strategy worked.
 Clear sense of strategic vision and sharper focus on goals and objective. Every firm competing in
an industry has a strategy, because strategy refers to how a given objective will be achieved.
‘Strategy’ defines what it is we want to achieve and charts our course in the market place; it is
the basis for the establishment of a business firm; and it is a basic requirement for a firm to
survive and to sustain itself in today’s changing environment by providing vision and
encouraging defining mission.
 Motivating employees one should note that the labour efficiency and loyalty towards
management can be expected only in an organization that operates under strategic
management. Every guidance as to what to do, when and how to do and by whom etc., is given
to every employee. This makes them more confident and free to perform their tasks without any
hesitation. Labour efficiency and their loyalty which results into industrial peace and good
returns are the results of broad-based policies adopted by the strategic management
 Strengthening Decision-Making under strategic management, the first step to be taken is to
identify the objectives of the business concern. Hence a corporation organized under the basic
principles of strategic management will find a smooth sailing due to effective decision-making.
This points out the need for strategic management.
 Efficient and effective way of implementing actions for results Strategy provides a clear
understanding of purpose, objectives and standards of performance to employees at all levels
and in all functional areas. Thereby it makes implementation very smooth allowing for maximum
harmony and synchrony. As a result, the expected results are obtained more efficiently and
economically.
 Improved understanding of internal and external environments of business Strategy formulation
requires continuous observation and understanding of environmental variables and classifying
them as opportunities and threats. It also involves knowing whether the threats are serious or
casual and opportunities are worthy or marginal. As such strategy provides for a better
understanding of environment.
2. The External Environment: Opportunities, Threats, Industry Competition,
and Competitor Analysis
2.1 Environmental Scanning
Components of Strategic Management Process
ENVIRONMENTAL SCANNING:
 Environmental scanning is the monitoring, evaluating, and dissemination
of information from the internal and external environments.
 Its purpose is to identify strategic factors those external and internal
elements will determine the future of the corporation.
 The simplest way to conduct environmental scanning is through SWOT
Analysis.
 SWOT is an acronym of strength, weakness, opportunities, and threats for
a specific company.

2.2 The importance of analysing and understanding the firm’s external environment
The external environment includes the areas of General, Industry and Competitor environment. The
external environment (includes industry in which firm competes as well as those against whom it
competes) affects competitive actions and responses firms take to outperform competitors and earn
above-average returns.

To successfully deal with this uncertainty and to achieve strategic competitiveness and thrive, firms
must be aware of and fully understand the different segments of the external environment.
Firms understand the external environment by acquiring information about competitors, customers,
and other stakeholders to build their own base of knowledge and capabilities. On the basis of the
new information, firms take actions, such as building new capabilities and core competencies, in
hopes of buffering themselves from any negative environmental effects and to pursue opportunities
as the basis for better serving their stakeholders’ needs. A firm’s strategic actions are influenced by
the conditions in the three parts (the general, industry, and competitor) of its external environment.

2.3 The general environment and the industry environment.

 The general environment is the broader society dimensions that influence an industry and the
firms within it. For example, the PEST analysis.
 Group dimensions into seven environmental segments: demographic, economic,
political/legal, sociocultural, technological, global and sustainable physical.
 Firms can’t directly control general environment’s segments.
 What company seeks to do is recognize trends in each segment of general environment
and then predict each trend’s effect on it.
 No firm can control where growth in potential customers may take place in next decade
or two. Firms must study anticipated trend as foundation for predicting its effects on their
ability to identify strategies to use that will allow them to remain successful as market
conditions change.
 The industry environment is a set of factors which directly influence a firm’s competitive
advantage and responses. For example, these factors can be analysed using Porters Five forces
model.
 Threat of new entrants, power of suppliers, power of buyers, and threat of product
substitutes, and intensity of rivalry among competing firms.
 Interactions among these five factors determine industry’s profitability potential;
industry’s profitability potential influences choices each firm makes about its competitive
actions/responses
 Challenge for firm is to locate position within industry where it can favourably influence
the five factors or where it can successfully defend itself against their influence.
 The greater a firm’s capacity to favourably influence its industry environment, the greater
the likelihood it will earn above-average returns.
 Competitor analysis is used to gather and interpret competitor information. The competitor
environment gives information about a firm’s effort to generate above average return.
 Understanding firm’s competitor environment complements insights provided by
studying general and industry environments.
 Analysis of general environment focuses on environment trends and their implications, an
analysis of industry environment focuses on factors and conditions influencing an industry’s
profitability potential, and an analysis of competitors is focused on predicting competitors’
actions, responses, and intentions.
 Results of the three analyses influences firm’s vision, mission, choice of strategies, and
competitive actions/responses it takes to implement strategies.
 Firm can develop and implement a more effective strategy when it effectively integrates
insights provided by analyses of general environment, industry environment, and
competitor environment.

2.4 Four activities of the external environmental analysis process

To cope with often ambiguous and incomplete environmental data and to increase understanding of
the general environment, firms engage in external environmental analysis. This analysis has four
parts: scanning, monitoring, forecasting, and assessing

Identifying opportunities and threats is an important objective of studying the general environment.
An opportunity is a condition in the general environment that if exploited effectively, helps a
company achieve strategic competitiveness. A threat is a condition in the general environment that
may hinder a company’s efforts to achieve strategic competitiveness.

 Scanning: This is the process of looking into any early signals that mark the existence of
emerging trends and environmental changes. Once these are identified the organization
then moves on to the next step.
  Monitoring: Once the trends and environmental changes are identified, monitoring helps in
identifying what they could mean to the organization and its activities. This is done through
constant observation of the various patterns and changes that take place in relation to the
identified particulars.
 Forecasting: Once the trends and environmental changes have been singled out and
monitored over time, forecasting is applied as the organization articulates the outcome that
could be experienced within both the organization and the business environment.
 Assessing: Finally, the organization analyses these probable outcomes with focus being on
the possible influence they could have on the organization’s predetermined strategies.

Once the environmental scanning is done, it is then up to the management to come up with possible
measures to counter identified threats or take advantage of any opportunities that have presented
themselves.

2.5 The general environment’s segments. (PEST Analysis)

 Political and Regulatory Forces Political-legal forces include the outcomes of elections,
legislation, and court judgments, as well as the decisions rendered by various commissions
and agencies. The political sector of the environment presents actual and potential
restriction on the way an organization operates. Among the most important government
actions are: regulation, taxation, expenditure, takeover (creating a crown corporation, and
privatization. The differences among local, national, and international subsectors of the
political environment are often quite dramatic. Political instability in some areas makes the
very form of government subject to revolutionary changes. In addition the basic system of
government and the laws the system promulgates, the political environment might include
such issues as monitoring government policy toward income tax, relative influence of
unions, and policies concerning utilization of natural resources. Political activity may also
have significant impacts on three additional governmental functions influencing a firm's
external environment:
 Supplier function. Government decisions regarding creation and accessibility of private
businesses to government-owned natural resources and national stockpiles of
agricultural products will profoundly affect the viability of some firm's strategies.
 Customer function. Government demand for products and services can create, sustain,
enhance, or eliminate many market opportunities.
 Competitor function. The government can operate as an almost unbeatable competitor
in the market place, therefore, knowledge of government strategies can help a firm to
avoid unfavourable confrontation with government as a competitor. In general, the
impact of government is far-reaching and increasing.
 Economic Forces Economic forces refer to the nature and direction of the economy in which
business operates. Economic factors have a tremendous impact on business firms. The
general state of the economy (e.g., depression, recession, recovery, or prosperity), interest
rate, stage of the economic cycle, balance of payments, monetary policy, fiscal policy, are
key variables in corporate investment, employment, and pricing decisions. The impact of
growth or decline in gross national product and increases or decreases in interest rates,
inflation, and the value of the dollar are considered as prime examples of significant impact
on business operations. To assess the local situation, an organization might seek information
concerning the economic base and future of the region and the effects of this outlook on
wage rates, disposable income, unemployment, and the transportation and commercial
base. The state of world economy is most critical for organizations operating in such areas.
 Technological Forces Technological forces influence organizations in several ways. A
technological innovation can have a sudden and dramatic effect on the environment of a
firm. First, technological developments can significantly alter the demand for an
organizations or industry's products or services. Technological change can decimate existing
businesses and even entire industries, since its shifts demand from one product to another.
Moreover, changes in technology can affect a firm's operations as well its products and
services. These changes might affect processing methods, raw materials, and service
delivery. In international business, one country's use of new technological developments can
make another country's products overpriced and non-competitive. In general, Technological
trends include not only the glamorous invention that revolutionizes our lives, but also the
gradual painstaking improvements in methods, in materials, in design, in application,
unemployment, and the transportation and commercial base. They diffusion into new
industries and efficiency" (John Argenti). The rate of technological change varies
considerably from one industry to another. In electronics, for example change is rapid and
constant, but in furniture manufacturing, change is slower and more gradual. Changing
technology can offer major opportunities for improving goal achievements or threaten the
existence of the firm.
Therefore, "the key concerns in the technological environment involve building the
organizational capability to (1) forecast and identify relevant developments - both within
and beyond the industry, (2) assess the impact of these developments on existing
operations, and (3) define opportunities" (Mark C. Baetz and Paul W. Beamish). These
capabilities should result in the creation of a technological strategy. Technological strategy
deals with "choices in technology, product design and development, sources of technology
and R&D management and funding" (R. Burgeleman and M. Maidique). The effect that
changing technology can have upon the competition in an industry is also dealt with other
chapters. Technological forecasting can help protect and improve the profitability of firms in
growing industries.
 Social Forces Social forces include traditions, values, societal trends, consumer psychology,
and a society's expectations of business. The following are some of the key concerns in the
social environment: ecology (e.g., global warming, pollution); demographics (e.g., population
growth rates, aging work force in industrialized countries, high educational requirements);
quality of life (e.g., education, safety, health care, standard of living); and noneconomic
activities (e.g., charities). Moreover, social issues can quickly become political and even legal
issues. Social forces are often most important because of their effect on people's behaviour.
For an organization to survive, the product or service must be wanted, thus consumer
behaviour is considered as a separate environmental behaviour. Behaviour factors also
affect organisations internally, that is, the employees and management. A society's
expectations of business present other opportunities and constraints. These expectations
emanate from diverse groups referred to as stakeholders. Stakeholders include a firm's
owners (stockholders), members of the board of directors, managers and operating
employees, suppliers, creditors, distributors, customers, and other interest groups - at the
broadest level, stakeholders include the general public. Determining the exact impact of
social forces on an organization is difficult at best. However, assessing the changing values,
attitudes, and demographic characteristics of an organization's customers is an essential
element in establishing organizational objectives.
2.6 The five competitive forces and how they determine an industry’s profit potential. (Porters
Five Forces)

An industry is a group of firms producing products that are close substitutes. In the course of
competition, these firms influence one another. Typically, industries include a rich mixture of
competitive strategies that companies use in pursuing above-average returns. In part, these
strategies are chosen because of the influence of an industry’s characteristics. Compared with the
general environment, the industry environment has a more direct effect on the firm’s strategic
competitiveness and ability to earn above-average returns.
An industry’s profit potential is a function of five forces of competition: the threats posed by new
entrants, the power of suppliers, the power of buyers, product substitutes, and the intensity of
rivalry among competitors.

 Threat of New Entrants. New entrants to an industry are important because with new
competitors, the intensity of competitive rivalry in an industry generally increases. This is
because new competitors may bring substantial resources into the industry and may be
interested in capturing a significant market share. If a new competitor brings additional
capacity to the industry when product demand is not increasing, prices that can be charged
to consumers generally will fall. One result may be a decline in sales and lower returns for
many firms in the industry.
The seriousness or extent of the threat of new entrants is affected by two factors: barriers to
entry and expected reactions from - or the potential for retaliation by - incumbent firms in
the industry.
 Barriers to Entry. Barriers to entering an industry are present when entry is difficult
or when it is too costly and places potential entrants at a competitive disadvantage
(relative to firms already competing in the industry). Seven factors represent
potentially significant entry barriers that can emerge as an industry evolves or might
be explicitly “erected” by current participants in the industry to protect profitability
by deterring new competitors from entry.
 Economies of Scale refers to the relationship between quantity produced and unit
cost. As the quantity of a product produced during a given time period increases, the
cost of manufacturing each unit declines. Economies of scale can serve as an entry
barrier when existing firms in the industry have achieved these scale economies and
a potential new entrant is only able to enter the industry on a small scale (and
produce at a higher cost per unit). Economies of scale can be overcome as a
potential entry barrier by firms that produce multiple customized products or that
enter an industry on a large-enough scale. New manufacturing technology facilitated
by advanced information systems has allowed the development of “mass
customization” in an increasing number of industries, and online ordering has
enhanced the ability of customers to obtain customized products (often referred to
as “markets of one”).
 Product Differentiation: Customers may perceive that products offered by existing
firms in the industry are unique as a result of service offered, effective advertising
campaigns, or being first to offer a product of service to the market. If customers
perceive a product or service as unique, they generally are loyal to that brand. Thus,
new entrants may be required to spend a great deal of money over a long period of
time to overcome customer loyalty to existing products. Though new entrants may
be able to overcome perceived uniqueness and brand loyalty, the cost of such
strategies generally will be high: offering lower prices, adding additional features, or
allocating significant funds to a major advertising and promotion campaign. In the
short run, new entrants that try to overcome uniqueness and brand loyalty may
suffer lower profits or may be forced to operate at a loss.
 Capital Requirements: Firms choosing to enter any industry must commit resources
for facilities - to purchase inventory, to pay salaries and benefits, etc. Though entry
may seem attractive (because there are no apparent barriers to entry) a potential
new entrant may not have sufficient capital to enter the industry.
 Switching Costs: These are the one-time costs customers will incur when buying
from a different supplier. They can include such explicit costs as retraining of
employees or retooling of equipment as well as the psychological cost of changing
relationships. Incumbent firms in the industry generally try to establish switching
costs to offset new entrants that try to win customers with substantially lower prices
or an improved (or, to some extent, different) product.
 Access to Distribution Channels: As existing firms in an industry generally have
developed effective channels for distributing products, these same channels may not
be available to new firms entering an industry. Thus, access (or lack thereof) may
serve as an effective barrier to entry. This may be particularly true for consumer
nondurable goods (because of the limited amount of shelf space available in retail
stores) and in international markets. In the case of some durable goods or industrial
 products, to overcome the barrier, new entrants must again incur costs in excess of
those paid by existing firms, either through lower prices or price breaks, costly
promotion campaigns, or advertising allowances. New entrants may have to incur
significant costs to establish a proprietary distribution channel. As in the case of
product differentiation or uniqueness barriers, new entrants may suffer lower profits
or operate at a loss as they battle to gain access to distribution channels.
 Cost Disadvantages Independent of Scale: Existing firms in an industry often are
able to achieve cost advantages that cannot be duplicated by new entrants (i.e.,
other than those related to economies of scale and access to distribution channels).
These can include proprietary process (or product) technology, more favourable
access to or control of raw materials, the best locations, or favourable government
subsidies. Potential entrants must find ways to overcome these disadvantages to be
able to effectively compete in the industry. This may mean successfully adapting
technologies from other industries and/or non-competing products for use in the
target industry, developing new sources of raw materials, making product (or
service) enhancements to overcome location related disadvantages, or selling at a
lower price to attract customers.
 Government Policy: Governments (at all levels) are able to control entry into an
industry through licensing and permit requirements. For example, at the firm level,
entry into the banking industry is regulated at both the federal and state levels,
whereas liquor sales are regulated at the state and local levels. In some cases, state
and/or federal licensing requirements limit entry into the personal services industry
(securities sales and law), while in others, only state requirements may limit entry
(barbers and beauticians).
 Bargaining Power of Suppliers. The bargaining power of suppliers depends on suppliers’
economic bargaining power relative to firms competing in the industry. Suppliers are
powerful when firm profitability is reduced by suppliers’ actions. Suppliers can exert their
power by raising prices or by restricting the quantity and/or quality of goods available for
sale. Suppliers are powerful relative to firms competing in the industry when:
 The supplier segment of the industry is dominated by a few large companies and is
more concentrated than the industry to which it sells
 Satisfactory substitute products are not available to industry firms
 Industry firms are not a significant customer group for the supplier group
 Suppliers’ goods are critical to buyers’ marketplace success
 Effectiveness of suppliers’ products has created high switching costs for buyers
 Suppliers represent a credible threat to integrate forward into the buyers’ industry,
especially when suppliers have substantial resources and provide highly
differentiated products.
 Bargaining Power of Buyers. While firms seek to maximize their return on invested capital,
buyers are interested in purchasing products at the lowest possible price (the price at which
sellers will earn the lowest acceptable return). To reduce cost or maximize value, customers
bargain for higher quality or greater levels of service at the lowest possible price by
encouraging competition among firms in the industry. Buyer groups are powerful relative to
firms competing in the industry when:
 Buyers are important to sellers because they purchase a large portion of the supply
industry’s total sales
  Products purchased from a supply industry represent a significant portion of the
seller’s annual revenues
 Buyers are able to switch to another supplier’s product at little, if any, cost
 Suppliers’ products are undifferentiated and standardized, and the buyers represent
a real threat to integrate backward into the suppliers’ industry using resources or
expertise
 Threat of Substitute Products All firms must recognize that they compete against firms
producing substitute products, those products that are capable of satisfying similar customer
needs but come from outside the industry and thus have different characteristics. In effect,
prices charged for substitute products represent the upper limit on the prices that suppliers
can charge for their products. The threat of substitute products is greatest when:
 Buyers or customers face few, if any switching costs
 Prices of the substitute products are lower
 Quality and performance capabilities of substitutes are equal to/greater than those
of the industry’s products
 Intensity of Rivalry among Competitors. The intensity of rivalry in an industry depends on
the extent to which firms in an industry compete with one another to achieve strategic
competitiveness and earn above-average returns because success is measured relative to
other firms in the industry. Competition can be based on price, quality, or innovation.
The intensity of competitive rivalry is also a function of a number of other factors;
 Numerous or Equally Balanced Competitors. Industries with a high number of firms
can be characterized by intense rivalry when firms feel that they can make
competitive moves that will go unnoticed by other firms in the industry.
 Slow Industry Growth. When a market is growing at a level where there seem to be
“enough customers for everyone,” competition generally centres around effective
use of resources so that a firm can effectively serve a larger, growing customer base.
Because of sufficient growth in the market, firms do not concentrate on taking
customers away from other firms. The intensity of competition often results in a
reduction in industry profitability.
 High Fixed Costs or High Storage Costs. When an industry is characterized by high
fixed costs relative to total costs, firms produce in quantities that are sufficient to
use a large percentage if not all of their production capacity so that fixed costs can
be spread over the maximum volume of output. The intensity of competitive rivalry
increases as firms use price reductions, rebates, and other discounts or special terms
to reduce inventory
 Lack of Differentiation or Low Switching Costs. Products that are not characterized
by brand loyalty or perceived uniqueness are generally viewed by buyers as
commodities. For such products, industry rivalry is more intense and competition is
based primarily on price, service, and other features of interest to consumers.
Switching costs can be used to decrease the likelihood that customers will switch to
competitors’ products. Products for which customers incur no or few switching costs
are subject to intense price- and service-based competition, similar to
undifferentiated products.
 High Strategic Stakes. The intensity of competitive rivalry increases when success in
an industry is important to a large number of firms (such as the domestic airline
industry following deregulation).
2.7 Implication of Competition
In coping with competition, a firm must search out a market position and a competitive approach
that will:

 Insulate it as much as possible from forces of competition;

 Influence the industry’s competition rules in its favour; and

 Give it a strong position from which to “play the game” of competition.

Alternative Strategic Responses

1. Strategic Cost Analysis

An assessment of the relative cost position of a firm.

It involves showing the make-up of costs all the way from purchase of raw materials to the end
product paid for by the customer (activity cost analysis).

2. Competitor Analysis

Competitor analysis represents a necessary adjunct to performing an industry analysis. An industry

analysis provides information regarding potential sources of competition (including the possible
strategic actions and reactions and effects on profitability for all firms competing in an industry).
However, a structured competitor analysis enables the firm to focus its attention on those firms with
which it will directly compete, and is especially important when a firm faces a few powerful
competitors.

 product design – convenience, comfort

 product innovation

 pricing strategies

 distribution network

 advertising/sales promotion

 customer service
Objective of the Competitor Analysis

 The objective of this analysis is to explore ways in which the firm might retain or improve its
standing on the competitive ladder. The rungs on the ladder can be broadly categorized by:

 Dominant leader-who usually has the largest market share and is therefore the
acknowledged leader in innovation and sales.

 One of the industry’s top leaders-this is characterized by a few firms dominating the
industry.

 Middle-of-the-pack- this category comprises a large group of firms who are basically
followers.

 Firms on the fringe-these are firms whose individual market share is small and
insignificant.

3. Product differentiation

This involves creating a difference from rivals and the difference being valued by customers. The
difference could be in:

 Procurement of materials; for instance, firms place a value on whether or not an

input is original or from a secondary source.

 Production process and product design.

 Marketing process, e.g. product branding, product appearance and packaging.

 Improved quality.

 Perceived Value

Perceived value will entail any of the following:

 Greater convenience and ease in use of product

 More economy

 The design and availability of extras to meet occasional needs, e.g. packaging for
picnics and outdoor recreation

 Non-economic wants status, prestige and image

 Comfort

 Pitfalls of differentiation
Pitfalls (caveats) of differentiation include the following:
 Buyers must quickly see the intended value implicit in the difference.
 The danger of competitors copying new features/innovation, including pricing.
 The risk of over-differentiation, that is, the resultant quality being needlessly
superfluous or the investment being too high for the perceived value.

4. Market Focus
This entails concentrating on catering to a narrower and limited segment (or niche) of the market
rather than going after the whole market with a “something-for-everyone” approach.

Segmentation of the market may be based on:

 Demographic/socioeconomic characteristics (age, gender, education etc.)

 Purchase (Size, application i.e. industrial, consumer, government etc.)

 Geographic (territories, cities, regions etc.)

 Risks of using a focus approach

 Buyers may shift their preferences away from the focuser’s special product attributes.
 The possibility that broad-range competitors will find effective ways of serving the
narrow target markets.
 The risk that competitors will find smaller segments within the target segment and
thus “out-focus” the focuser. This often happens in the electronics industry.

3. The Internal Organization: Resources, Capabilities, Core Competencies,

and Competitive Advantages

It is important to understand the internal organization because it’s necessary to develop competitive
advantages and weaknesses. Internal analysis is the systematic evaluation of the key internal
features of an organization.

Four broad areas need to be considered for internal analysis

 The organization’s resources, capabilities.

 The way in which the organization configures and co-ordinates its key value-adding
activities.
  The structure of the organization and the characteristics of its culture.

 The performance of the organization as measured by the strength of its products.

More firms are using resources to form core competencies through which they successfully
implement an international strategy as means of overcoming advantages created by most traditional
resources. Analysing internal organization requires evaluators examining firm’s entire portfolio of
resources and capabilities.

Individual firms possess at least some resources/capabilities that other companies do not. Resources
are sources of capabilities, some which lead to development of core competencies that lead to
competitive advantage for firm. Understanding how to leverage firm’s unique bundle of
resources/capabilities is key outcome decision makers seek when analysing internal organization.

Resources, Capabilities, and Core Competencies (Foundation of competitive advantage)

Resources are bundled to create organizational capabilities; capabilities are source of firm’s core
competencies, which is basis of establishing competitive advantages

 Resources. Cover spectrum of individual, scope, and organizational phenomena; don’t allow
firms to create value for customers as foundation for earning above-average returns. Some of
firm’s resources are tangible, while others are intangible.
 A resource audit would include an evaluation of resources in terms of availability, quantity
and quality, extent of employment, sources, control systems and performance.
 Perhaps the most basic concept is that of resources. Tangible resources are the physical
assets of an organisation such as plant, people and finance. Intangible resources are non-
physical assets such as information, reputation and knowledge. Typically, an organisation’s
resources can be considered under the following four broad categories:
 Physical resources – such as the machines, buildings or the production capacity of the
organisation. The nature of these resources, such as the age, condition, capacity and
location of each resource, will determine the usefulness of such resources.
 Financial resources – such as capital, cash, debtors and creditors, and suppliers of
money (shareholders, bankers, etc.).
 Human resources – including the mix (for example, demographic profile), skills and
knowledge of employees and other people in an organisation’s networks.
 Intellectual capital – as an intangible resource – includes patents, brands, business
systems and customer databases. An indication of the value of these is that when
businesses are sold, part of the value is ‘goodwill’. In a knowledge-based economy
intellectual capital is likely to be a major asset of many organisations

Tangible and Intangible Resources

 Tangible resources: assets that can be observed and quantified Intangible resources: assets
that are rooted deeply in the firm’s history, accumulative over time, and are relatively
difficult for competitors to analyse and imitate.
 Four categories: financial, organizational, physical, and technological.
 Firm’s borrowing capacity and status of physical facilities are visible.
 Value of tangible resources is established through financial statements but don’t
account for value of all of firm’s assets b/c they disregard intangible resources.
 Constrained also b/c they are hard to leverage it-difficult to derive additional
business or value from tangible resource.
  Although production assets are tangible, many processes necessary to use them are
intangible.
 Intangible Resources: assets that are rooted deeply in firm’s history, accumulate over time,
and are difficult for competitors to analyse and imitate.
 Require nurturing to maintain ability to help firms engage in competitive battles
 Categories: human, innovation, and reputational
 Superior sources of capabilities and core competencies.
 Being able to effectively manage intellectual capital is increasingly important skill for
today’s leaders to develop.
 Firms rely on them as foundation for their capabilities. The more unobservable a
resource is, the more valuable that resource is to create capabilities.
 Their use can be leveraged like sharing knowledge.
 Reputational resources are sources of firm’s capabilities and core competencies.
Value-creating reputation is product of years of superior marketplace competencies
as perceived by stakeholders. Reputation: level of awareness firm has been able to
develop among stakeholders and degree to which they hold firm in high esteem
 Well-known and high valued brand name is specific reputational resource. Continuing
commitment to innovation & aggressive advertising facilitates firms’ efforts to take
advantage of reputation associated w/ their brands. Some firms use social media as
means of influencing their reputation.

 Capabilities (Combo of individual tangible and intangible resources)

 They are assets like industry-specific skills, relationships and organizational

knowledge which are largely intangible and invisible assets.

 Competences and capabilities will often be internally generated, but may be

obtained by collaboration with other organizations.

 Used to complete organizational tasks required to produce, distribute and service

goods or services firm provides to customers for purpose of creating value for them.
Based on developing, carrying, & exchanging info and knowledge through firm’s
human capital.
 Value of human capital in developing/using capabilities and core competencies
cannot be overstated. (“Makes or breaks companies”). Developed in specific
functional areas or part of functional areas.

 Core Competencies (capabilities that serve as source of competitive advantage for firm over its
rivals). Distinguish company competitively and reflect its personality. Core competences or
distinctive capabilities are combinations of resources and capabilities which are unique to a
specific organization and which are responsible for generating its competitive advantage.

 Emerge over time through organizational process of accumulating and learning how
to deploy different resources and capabilities. At capacity to take action, core
competencies are “crown jewels of company,” Activities Company performs
compared to competitors and through which firm adds unique value to goods/
services it sells to customers. Ex: Apples are innovation and excellent customer
service.
  Two tools help firms identify core competencies:
i. Four specific criteria for sustainable competitive advantages used to determine
which capabilities are core competencies. Kay (1993) identified four potential
sources of Core competences: Reputation, Architecture (i.e., internal and
external relationship), Innovation and Strategic assets
ii. Value chain analysis to select value-creating competencies that should be
maintained, upgraded, or developed and those that should be outsourced.
 Four Criteria of Sustainable Competitive Advantage
Capabilities that are valuable, rare, costly to imitate and non-substitutable are core
competencies. Core competencies lead to competitive advantages for firm over its firms.
Although every core competence is capability, not every capability is a core competence. For
capability to be core competence, it must be valuable and unique from customer’s point of
view. For core competence to be potential source of competitive advantage, it must be
inimitable and non-substitutable by competitors.
Sustainable competitive advantage exists only when competitors are unable to duplicate
benefits of firm’s strategy or when they lack resources to attempt imitation. For some time,
firm many have core competence by using capabilities that are valuable and rare, but
imitable. Length of time firm can expect to create value by using its core competencies is
function of how quickly competitors can successfully imitate good, service, or process. Value-
creating core competencies may last for relatively long period of time only when all four of
criteria are satisfied.
i. Valuable capabilities: allow firm to exploit opportunities or neutralize threats in its
external environment to create value for customers.
ii. Rare capabilities: capabilities that few, if any, competitors possess. Capabilities
possessed by many rivals are unlikely to become core competencies for any of the
involved firms. Valuable but common capabilities are sources of competitive parity.
Competitive advantage results only when firms develop and exploit valuable
capabilities that become core competencies and differ from those shared w/
competitors.
iii. Costly-to-Imitate capabilities: capabilities that other firms can’t easily develop - (3
conditions).
 Firm sometimes develop capabilities b/c of unique historical conditions. As
firms evolve, they acquire/develop capabilities that are unique to them.
Firm w/ unique and valuable organizational culture that emerged in early
stages of company’s history may have imperfectly imitable advantage over
firms founded in another time, one in which less valuable or less
competitively useful values/beliefs strongly influenced the development of
firm’s culture. Organizational culture is set of values that are shared by
members in organization and a source of advantage when employees are
held together tightly by their belief in it and leaders who helped to create it.
 Link b/w the firm’s core competencies & its competitive advantage is
causally ambiguous. Competitors can’t clearly understand how firm uses its
capabilities that are core competencies as foundation for competitive
advantage. Firms are uncertain about capabilities they should develop to
duplicate benefits of a competitor’s value-creating strategy.
 Social complexity: at least some, and frequently many, of firm’s capabilities
are product of complex social phenomena. Interpersonal relationships, trust,
friendships among managers and b/w managers and employees, and firm’s
 reputation with suppliers/customers are examples of socially complex
capabilities.
iv. Non-substitutable capabilities: capabilities that do not have strategic equivalents.
There must be no strategically equivalent valuable resources that are themselves
either not rare or imitable. Two valuable firm resources are strategically equivalent
when they each can be separately exploited to implement same strategies. Strategic
value of capabilities increases as they become more difficult to substitute. The more
intangible and invisible capabilities are, the more difficult it is for firms to find
substitutes and greater challenge is to competitors trying to imitate firm’s value-
creating strategy.

Only using valuable, rare, costly-to-imitate, and non-substitutable capabilities has

potential for firm to create sustainable competitive advantages. Capabilities yielding
competitive parity and temporary or sustainable competitive advantage should be
supported.

 Value Chain Analysis

Value chain analysis is a technique developed by Porter (1985) for understanding an
organization’s value-adding activities and relationship between them.

Value: measured by a product’s performance characteristics and by its attributes for which
customers are willing to pay. It’s critical to create something with value as defined by the
customer so they’ll purchase it. Firms create value by innovatively bundling and leveraging
their resources to form capabilities and core competencies.
Value can be added in two ways:
 By producing products at a lower cost than competitors
 By producing products of greater perceived value than those of competitors.
 Porter extended value chain analysis to the value system, analysis of the relationship
between the organization, its suppliers, distribution channels and customers.
Allows firms to understand parts of its operations that create value and those that don’t.
Firms earning above-average returns only when value it creates is greater than costs incurred
to create that value. Template that firms use to analyse their cost position and to identify
multiple means that can be used to facilitate implementation of chosen strategy. Today’s
competitive landscape demands firms examine value chains in global context.
 Firm’s value chain is segmented into Primary activities and support functions.
 Primary activities: activities/tasks that firm completes in order to product products
and then sell, distribute, and service products in ways that create value for
customers.
 Support functions: activities/tasks that firm complete in order to support work being
done to produce, sell, distribute, and service products that firm is producing.

These nine activities are divided into five ‘primary activities’ and four ‘support activities’ as follows.
The five (5) primary activities are:

 Inbound logistics: This activity involves the movement of goods and materials etc. into the
business and can therefore include the activities of suppliers to the company.
 Operations: These activities involve the processes involved in transforming goods and
materials entering the business into finished products for market.
 Outbound logistics: These are all those activities involved in getting products out to
customers, including for example: warehousing, delivery etc. These activities can involve
distributors.
 Marketing and Sales: Obviously, these are the activities involved in actually marketing and
selling the products and services.
 Service: All those activities involved in looking after customers including e.g. technical
services, customer enquiry services etc.
The four support activities are those which to varying degrees serve to facilitate the five
primary activities outlined. These four (4) support activities are:
 Procurement
 Technology development
 Human resource management
 Company infrastructure

Firms can develop a capability and/or core competence in any of value chain activities and in any of
the support functions. Customers are the ones firms seek to serve when using value chain analysis to
identify capabilities and core competencies; when using unique core competences to create unique
value for customers that competitors cannot duplicate, firms established one or more competitive
advantages.

The “Global” Value Chain

 The configuration of an organization’s activities relates to where and in how many nations
each activities in the value chain is performed.

 Co-ordination is concerned with the management of dispersed international activities and

the linkages between them.

 Managers must examine the current configuration of value-adding activities and the extent
and methods of co-ordination as part of their strategic analysis, which may determine
possibilities for reconfiguration or improving co-ordination.

 A global business has two broad choices of

1. Configuration:

 Concentration of the activity in a limited number of locations to take advantage of benefits

offered by those locations.
  Dispersion of the activity to a large number of locations.

 Change in the business environment (e.g., technological change) may well lead to changes
over time in the configuration that gives greatest competitive advantage.

2. CO-ORDINATION:

 Co-ordination is essentially about overseeing the complexity of the organization’s

configuration such that all value-adding parts of the business act in concert with each other
to facilitate an effective overall synergy.

 Those business that overcome the potential difficulties of co-ordination are those that
sustain the greatest competitive advantage.

 Analysis of configuration and methods of co-ordination assists in the process of

understanding current competences and identifying the potential for strengthening and
adding to them.

There is little doubt that value chain analysis represents a powerful tool in conducting a resource
audit in the organisation by allowing a comprehensive and systematic analysis of a company’s value
activities in order to explore routes to competitive advantage.

Critical Success Factors (CSF)

An organisation needs core competences to support specific strategies. Many organisations find the
idea of CSFs a useful way of reflecting on strategic messages which should come out of resource
analysis. (Johnson and Scholes, 1997; 176).

CSF are associated with underpinning the strategic direction of an organisation, they are those
aspects of strategy in which an organisation must excel to outperform the competition. For example,
if the CSF quality design is associated with competitive edge in the market place, then core
competencies in creativity, design technology and customer facing activities will be expected to
underpin that CSF.

Managers need to be aware that CSFs, and therefore the linked core competencies, are very likely
to change over time. Therefore any effective CSF analysis underlies this important relationship
between resources competencies and strategic choice
Portfolio Analysis

The underpinning concept of Portfolio Analysis in Marketing Planning is that in the

multiproduct/multi-market business (such as Alpha Products) not only is it important to manage
individual Strategic Business Units (SBUs), but also it is important to take an overview of the
collection of SBUs and for them to be managed as a total portfolio of businesses. For example, as
you are aware, some SBUs may be growing and represent the businesses of the future.

On the other hand other SBUs may be coming towards the end of their useful lives but may generate
substantial amounts of cash. Yet other parts of the business may well be going nowhere and our
competitive position may be very weak. Someone in the business must decide which of the different
SBUs are to be invested in for future growth, which will be used for example as cash generators to
fund this growth and investment, and which SBUs are unattractive and need to be run down.

The various portfolio techniques are aimed at analysing the various SBUs in a company with a view
to planning a balanced mix of SBUs, i.e. a portfolio in order to increase the chances of long-term
profits. In addition, the techniques provide mechanisms for appraising the competitive position of
individual SBUs with a view to determining which are most attractive for investment purposes.
Although the underpinning concepts and rationale of most portfolio techniques are aimed at
achieving a successful balance between SBUs as described above, in fact there are several
alternative techniques available to the planner for analysing SBUs. These different techniques use
for example different criteria for evaluation of SBUs and may be based on differing methods of
assessment.

The Boston Consulting Group (BCG) Product Portfolio Matrix

The BCG matrix was created by Bruce D. Henderson for the Boston Consulting Group in 1970. This
chart was created with the purpose of helping companies analyse their different business units or
product lines. The analysis helps these companies to allocate resources where they are most
appropriate as well as to use the results in brand marketing, product management, strategic
management, and portfolio analyses. The chart is a graphical planning tool, where the company’s
products and services can be plotted to help make key business decisions. These decisions include
whether to keep a particular business unit, sell it or to invest more in it. The y-axis of the graph
represents rate of market growth while the x-axis represents market share. The matrix helps add
input to the decision making process but does not take into account all possible factors that a
company may face. The tool is not predictive and also doesn’t take into account any new or
disruptive products that may enter and change the market, nor does it account for shifts in
consumer demand.

Fig 3: The BCG Product Portfolio Matrix

The Cash Cows

The product lines that fall within this category enjoy a large share of the market in a slow growing
industry. This means that they are able to generate revenues in greater amounts than the
investment required to maintain their business. The product line may be considered boring and
settled in a mature market, with the company holding it to continue to generate revenues. The
company will attempt to milk these as much as possible with as little investment as possible. The
Dogs

The dogs are those product lines or business units that have a smaller market share in a mature and
slow-growing industry. Usually, these product lines manage to earn what is put into them, breaking-
even and maintaining the market share. Generally this unit is largely worthless to the company in
terms of earning potential but may afford other benefits to the company such as the creation of jobs
as well as synergies that assist other business units. These benefits may be enough for the company
to keep this business unit active despite its less than exciting position. However, dogs can negatively
affect how investors judge the management of a company and it is suggested that these product
lines be sold off.

The Stars

As the name makes clear, stars are those business units that have a large market share in a fast-
growing industry. These product lines have a clearly visible market or niche leading path and require
large amounts of funding to ensure that they can fight of competitors and maintain their growth
rate. Companies aim to turn stars into their next cash cows with the inevitable decline in the growth
of the industry. This can happen potentially if they are able to maintain their position as a market
leader. If this does not happen, then stars can turn into dogs.

The question marks or problem child

The unknowns (also called question marks or problem children) are those business units that have a
smaller market share in a high-growth market. This is where most businesses will start from and at
this point the business unit has the potential to grow market share and turn into a star or lose
further marker share and turn into dogs when the growth of the market itself declines. Careful study
and analysis is required for business units in this category to assess their potential and worth. If any
potential is seen then further investment can be made into them. The natural cycle for most
products is that they begin their life as question marks and turn into stars as their position clarifies.
When the market growth slows down, they turn into cash cows and at the end of the cycle, the cash
cow turns into a dog.

According to the Boston Consulting Group, a diversified company with a balanced portfolio is in the
ideal position to use its strengths to capitalize on its growth opportunities and potential. A balanced
portfolio is one which has:

 Stars to assure future success, Cash cows to bring in funds for future growth, Question marks that
can be turned into the next stars with some attention and investment, The Axes On either side of the
grid is an indicator marked on the axis.

The idea that prompted this grid as a whole was the need to manage cash flows. The model
assumes that one of the main indicators for cash generation is relative market share and the one for
cash usage was the market growth rate.

Relative Market Share – A higher market share means higher cash return. The reason behind the
selection of this metric is based on its relationship with the experience curve. The belief is that when
the company produces more products, it benefits from higher economies of scale and the
experience curve which in turn result in higher profits. The market share is measured relative to its
largest competitor. Another reason for the selection is that this indicator carries more information
than just cash flows as is the case in profits. It shows the brand’s position in relation to major
competitors and a likely indication for the future.

Market Growth Rate – A higher market growth rate means more earnings and often profits. On the
other hand, it also means a higher consumption of cash as investment to stimulate future growth.
This investment is made into those products which show a good potential for continued growth and
success and are expected to provide a return on investment. This matrix assumes that a higher
growth rate is an indicator of accompanying demands for investment. The market growth rate
provides more information about the brand position than just the cash flow and is a good indicator
of the strength of the market and its future potential as well as attractiveness to more competitors.

Limitations of the BCG Matrix

There are some limitations to the use of this popular matrix as well. These limitations mean a
decline in the once extensive use of this tool. These include:

Market growth is one of many factors that determine industry attractiveness and relative market
share is only one of many factors that determine competitive advantage. This matrix does not take
into account any other factors that may have a bearing on both industry attractiveness and
competitive advantage. There is an underlying assumption that the business units are operating in
isolation in relation to each other. In reality, a dog may be helping another unit gain a competitive
advantage for example. The definition of a market is taken in the broad sense. This fails to take into
account different situations such as a business unit that is dominating a niche but is overall less
dominant in the larger industry. The way a market is defined in such an instance may change its
definition from a dog to a cash cow.

How to Apply the BCG Matrix to a Business “To be successful, a company should have a portfolio of
products with different growth rates and different market shares. The portfolio composition is a
function of the balance between cash flows. High growth products require cash inputs to grow. Low
growth products should generate excess cash. Both kinds are needed simultaneously.” – Bruce
Henderson
Practical Useful Tips

The BCG matrix can be useful to companies if applied using the following general steps.

Step 1 – Choose the Unit. Strategic Business Units, individual brands, product lines or the firm as a
whole are all areas that can be analysed using the BCG matrix. The chosen unit drives the entire
analysis and key definitions. The market, industry, competitors and position will all be based on the
chosen unit.

Step 2 – Define the Market. Following the choice of the unit or area to be analysed, the most
important stage for the rest of the matrix is the definition of the market. An incorrectly defined
market will lead to an incorrect classification of the unit. A Mercedes-Benz analysed in a passenger
vehicle market will be a dog with a small market share. However, analysed within a luxury car
market, it will be a cash cow.

Step 3 – Calculate Relative Market Share. At this stage, the relative market share for the chosen unit
needs to be calculated. This can be done in terms or revenues or marker share. The formula used
here us a division of the selected brand’s market share or revenues by the market share or revenues
of the biggest competitor in the industry. The result in plotted on the x-axis.

Step 4 – Calculate Market Growth Rate. Online industry reports can be used to find the rate of
growth for the industry. If this is not possible, then it can be estimated by looking at the average
revenue growth of the leading firms in the industry. This measurement is a percentage and is plotted
on the y-axis.

Step 5 – Draw Circles on the Matrix. Once all the measures are calculated, they can be put onto the
matrix. This can be done by drawing a circle for each brand within a unit, or all the brands in a
company. The size of each circle should correspond to business revenue generated by the brand.

Part 2: Strategic Actions: Strategy Formulation

4. Business-Level Strategy
This chapter’s focus, is an integrated and coordinated set of commitments and actions the firm uses
to gain a competitive advantage by exploiting core competencies in specific product markets.
Business-level strategy indicates the choices the firm has made about how it intends to compete in
individual product markets. The choices are important because long-term performance is linked to a
firm’s strategies. Given the complexity of successfully competing in the global economy, the choices
about how the firm will compete can be difficult.

This usually occurs at the business unit or product level, and it emphasizes improvement of the
competitive position of a corporation’s products or services in the specific industry or market
segment served by that business unit. Business strategies may fit within the 2 overall categories of
competitive or cooperative strategies. Competitive strategies include differentiation, cost leadership
and focus.

Business strategy deals explicitly with:

 How the enterprise intends to compete in that specific business;

 What the role or thrust of each key functional area will be in building a competitive
advantage (thereby contributing to the success of the business in the marketplace);
 Developing responses to changing industry and competitive conditions,
 Controlling the pattern of resource allocation within the business unit.
The various business strategy elements are as follows: 

 How the business is being positioned to deal with industry trends, competitive conditions,
and emerging opportunities and threats
Actual role in the industry (leader, contender, also-ran, etc.) and efforts to change or solidify
this role.
 Attempts to appeal to particular customer groups, customer needs, and product end-uses.
 Key features of major functional area support strategies: Personnel/labour relations;
marketing, sales and distribution; R&D/technology; Manufacturing and production; finance
(including criteria for allocating resources and investment capital).
 Nature of recent actions to strengthen competitive position and improve performance.
 Breadth of product line in comparison to rival firms.
 Image and reputation (how the business is viewed by customers and by rivals).
 Competitive approaches to pricing, product differentiation, product quality, customer
service, and other important competitive variables (in comparison to approaches of rival
firms).
 Distinctive competences (if any) and other sources of competitive strength.
 Nature and source of competitive advantage (if any).
 Degree of vertical integration (full, partial, none) and other traits which define the
competitive scope within the industry.

The purpose of a business-level strategy is to create differences between the firm’s position and
those of its competitors. To position itself differently from competitors, a firm must decide
whether it intends to perform activities differently or to perform different activities. In fact,
“choosing to perform activities differently or to perform different activities than rivals” is the
essence of business-level strategy.

The Five Levels of Business Strategy

I. Cost Leadership Strategy

The cost leadership strategy is an integrated set of actions taken to produce goods or
services with features that are acceptable to customers at the lowest cost, relative to
that of competitors. Firms using the cost leadership strategy commonly sell standardized
goods or services (but with competitive levels of differentiation) to the industry’s most
typical customers.
II. Differentiation Strategy
The differentiation strategy is an integrated set of actions taken to produce goods or
services (at an acceptable cost) that customers perceive as being different in ways that
are important to them.

The focus strategy concentrates on a narrow segment and within that segment attempts to achieve
either a cost advantage or differentiation. The premise is that the needs of the group can be better
serviced by focusing entirely on it. A firm using a focus strategy often enjoys a high degree of
customer loyalty, and this entrenched loyalty discourages other firms from competing directly.

III. Focused Cost Leadership Strategy

Focused cost leadership is the first of two focus strategies. A focused cost leadership
strategy requires competing based on price to target a narrow market. A firm that
follows this strategy does not necessarily charge the lowest prices in the industry.
 Instead, it charges low prices relative to other firms that compete within the target
market.
IV. Focused Differentiation Strategy
A focused differentiation strategy requires offering unique features that fulfil the
demands of a narrow market. As with a focused low-cost strategy, narrow markets are
defined in different ways in different settings. Some firms using a focused differentiation
strategy concentrate their efforts on a particular sales channel, such as selling over the
Internet only. Others target particular demographic groups.
While a differentiation strategy involves offering unique features that appeal to a variety
of customers, the need to satisfy the desires of a narrow market means that the pursuit
of uniqueness is often taken to the proverbial “next level” by firms using a focused
differentiation strategy. Thus the unique features provided by firms following a focused
differentiation strategy are often specialized.
V. Integrated Cost Leadership/Differentiation Strategy
This strategy involves producing low-cost products with differentiated features. This
strategy is about simultaneously focusing on two drivers of competitive advantage: cost
and differentiation. This type of strategy is often called a hybrid strategy.

The primary element of line-of-business strategy is always how to make the company
entrepreneurially and competitively effective in the marketplace. Questions to consider
include:
i. What sort of competitive edge to strive for;
ii. which customer groups to go after;
iii. how to “position” the business in the marketplace vis-à-vis rivals;
iv. what product/service attributes to emphasize in appealing to customers for their
patronage;
 v. how to defend against the competitive moves of rivals;
vi. And what actions to take in light of industry trends, societal and political changes,
and economic conditions.

5. Functional Area Strategy

 Functional area support strategies are the action plans for managing the principal
subordinate activities within a business.
 There is a functional area support strategy for each part of the business: production,
marketing, finance, human resources, R&D, and so on.
 Functional area support strategies are major corollaries of line-of-business strategy.
 Their role' is to flesh out the business game plan, giving it more substance, completeness,
and concrete meaning as applied to a specific part of the business.
 They are important because they explicitly indicate the contribution of each major sub
activity in the business to the overall business strategy.
 When all of the principal activities within a single business, particularly the activities crucial
to successful strategy execution, are integrated and exhibit a consistent fit, the whole
strategy obtains added power.

Whereas developing line-of-business strategy is the responsibility of the general manager of the
business unit, the task of working out the details of functional area support strategy is typically
delegated by the business-level manager to the functional area heads.

And just as the business-level manager is obliged to establish a set of business-unit objectives and a
business strategy that is deemed by corporate management to contribute adequately toward
corporate-level performance objectives.

Functional area managers are typically delegated a lead role in establishing functional area
performance objectives and strategies that will help accomplish business-level objectives and
strategy.

However, just as business-level strategies and objectives are subject to the approval of the corporate
manager, functional area strategies and objectives are subject to the approval of the business
manager

6. Corporate-Level Strategy
Corporate-level strategy is senior management's game plan for directing and running the
organization as a whole. Corporate-level strategy specifies actions a firm takes to gain a
competitive advantage by selecting and managing a group of different businesses competing
in different product markets. Corporate-level strategies help companies’ select new strategic
positions—positions that are expected to increase the firm’s value. It cuts across all of an'
organization's activities-its different businesses, divisions, product lines, and technologies.

The task of developing a corporate strategy has three elements:

 Developing plans for managing the scope and mix of the firms' various activities in order to
improve corporate performance.
 Managing the business portfolio requires decisions' and actions regarding when and
how the enterprise should get into new businesses, which existing businesses the
company should get out of (and whether it should do so quickly or gradually), which
opportunities of which existing businesses to go forward with, and what corporate
management itself should do to improve the performance of the overall corporate
portfolio.
The portfolio management plan may, in addition, involve designating a common
strategic theme to be pursued by all of the company's lines of business, and it may
involve selecting a general strategic posture (aggressive expansion, maintain
position, retrench and overhaul, or fix up in preparation to sell out) for each
business in the portfolio.
 Providing for coordination among different businesses in the portfolio.
Coordination of interrelated activities allows a diversified firm to .enhance the
competitive strength of its business units and makes overall corporate strategy more
than just a collection of the action plans of independent subunits. Several issues
have to be addressed:
 Is there cost-reduction potential in sharing technological know-how, R&D
efforts, sales forces, distribution facilities, and so on across any business
units?
 Do other cross-fertilization opportunities exist?
 Are the benefits worth capturing?
 What coordination is needed?
 Will such actions bolster the competitive positions and competitive
strengths of the company's various business divisions?
 Establishing investment priorities and allocating corporate resources across the company's
different activities.
Decisions about how much of the corporate investment budget each organizational
unit will get and actions to control the pattern of corporate resource allocation
commit the firm to pursue some opportunities aggressively and to hold back on
others; in addition, these decisions and actions serve to channel resources out of
areas where earnings potentials are lower into areas where they are higher.
The portfolio management actions of corporate officers in entering or exiting certain
businesses arid in pursuing some opportunities more boldly than others are
strategically important because they determine the organization's business
positions.
The second element of corporate strategy, coordinating strategic plans across
business units, is an important corporate headquarters task because it is through
coordination of the interrelated activities of the corporation’s different business
units that a corporate-level competitive advantage can be created.
Horizontal coordination of divisional strategies enhances cross-fertilization of skills,
proprietary know-how, and technology; it pushes business units with closely related
activities to either engage in interdivisional cost-sharing or combine operations into
a single unit that is more cost-effective, and it can strengthen differentiation of the
firm's products and overall reputation. All of these actions can add up to a bigger net
competitive advantage for divisional business units and increased corporate
profitability.
The third element of corporate-level strategy- controlling the pattern of corporate
resource allocation- is crucial because the number of "worthy projects" and "can't
 miss" opportunities put forward for funding may entail capital requirements that
exceed the available kwacha. Ultimately, the pot of corporate moneys and resources
limits what strategies can be supported. With limited resources, it makes sense to:
 Channel investment capital to support those strategic moves with the
highest expected profitability and
 Deploy the available internal resources in close alignment with the success
requirements of each line of business the corporation is in. In diversified
firms, developing a corporate strategy is chiefly an exercise in deciding how
to build and manage the corporate portfolio of businesses.

The strategic challenge is to get sustained high performance out of a multi-industry mix of
business activities, some or many of which have nothing in common. When single-business
enterprises start to contemplate diversification, they face similar strategic issues.

In either single business or multi business enterprises, corporate managers have to think
strategically about:

• what new businesses (if any) to enter;

• how much and what kind of diversification to pursue;
• which current activities to emphasize or downplay;
• whether to sell off or close down any existing activities;
• what strategic approach to follow in each of the company's businesses; and
• How to allocate financial capital and other organizational resources across the
enterprise.

The specific strategy-related responsibilities of corporate-level managers include:

 Managing the scope and mix of businesses the corporation is in (and restructuring
the makeup of the business portfolio whenever circumstances warrant).

 Establishing corporate-level strategic objectives and financial performance targets.

 Deciding what, if any, general strategic theme or unifying concept will be used to
give the enterprise a distinctive character and/or keynote its business mission.
 Deciding what role each business unit will play in the overall corporate portfolio
and approving a general strategic direction for each line of business.
 Striving to produce a corporate-based competitive advantage through coordination
of the strategies and related activities of divisional business units.
 Maintaining a capacity to intervene should a business unit's strategic performance
go off-centre.
 Reviewing and approving the major strategic recommendations/actions of
subordinate managers.
  Controlling the pattern of corporate resource allocation
7. Operating-Level Strategy
Operating-level strategies refer to how departmental and supervisory-level managers intend to
carry out the fine details of functional area support strategies.

Consider the following examples of operating-level strategy:

A cosmetics firm relies on ads placed in women's magazines as an integral part of its marketing effort
to promote the attributes of its product line with women. The strategy of the advertising director is
to spend 75 percent of the advertising budget on three big campaigns during the month prior to
each of the company's three peak sales periods of Christmas, Easter, and Mother's Day, with full-
page ads placed in Cosmopolitan and Ladies Home Journal and quarter-page ads placed in
Seventeen and Family Circle.

A company with a low-price, high-volume business strategy and a need to achieve very low
manufacturing costs develops a three-pronged operating strategy aimed at boosting labour
productivity:

(1) The hiring director develops procedures that ensure careful selection and
training of all employees,
(2) The purchasing director makes unhesitating purchases of time-saving tools and
equipment, and
(3) The employee benefits director develops a superior wage-fringe benefit
package designed to attract the best-qualified employees.

A distributor of heating and air-conditioning equipment emphasizes quick, reliable delivery of

replacement parts as the feature component of its dealer service package.

Accordingly, the inventory strategy of the warehouse manager is to maintain such an ample supply
of each part that the chance of a stock out on a given item is virtually nil. His warehouse staffing
strategy is to maintain a large enough work force to ship each order within 24 hours.

Note that in each example cited the logic of the operating-level strategy flowed directly from a
higher-order strategic requirement, and that the operating strategy was handled by the managers in
charge of carrying out the day-to-day details of specific functional activities.

Ideally, corporate strategy, business strategy, functional area support strategy, and operating-level
strategy are developed in sufficient detail that each manager in the organization has a confident
understanding of how to manage his or her area of responsibility in accordance with the total
organization wide game plan.

This is why many layers of strategy are typically needed (especially in large, diversified
organizations), with each layer being progressively narrower in focus and more explicit about the
actions to be taken and the programs to be initiated. Table1 illustrates the various levels of strategy-
making responsibilities within the organizational structure.

Table 1: The Strategy-Making Hierarchy: Who Has Primary Responsibility for What Kinds of
Strategic Actions?
Strategy Level Primary Strategy
Development Responsibility
Corporate Strategy CEO and other key executives
(Decisions are typically
reviewed/approved by board of
directors)
Line-of-Business Strategy General Manager/ head of
business unit
(Decisions are typically
reviewed/approved by senior
corporate executive, usually
CEO)
Functional-area Support Functional area heads (Decisions
Strategy are typically reviewed/approved
by business unit head)
Operating-level Strategy Department heads/field unit
heads/lower-level managers
within functional areas.
(Decisions are often made after
consultations with lateral peers in support strategies.
closely related areas and are
reviewed/ approved by functional
area head).
Strategy-Making Functions and
Areas of Focus
Portfolio of business units
(making acquisitions, initiating
divestitures, strengthening
existing business positions).
-
level
Strategies; building corporate
level competitive advantage.
Resource allocation across
business units.
What kind of competitive
advantage to build.
Changing industry and
competitive conditions.
Functional area strategies.
Resource allocation within the
business unit.
Strategy as it applies to specific
functional area and developing
specific functional area action
plans to support successful
execution of business strategy.
Carry out the day-to-day
requirements of functional area
MANAGING THE STRATEGY FORMATION PROCESS
Companies and managers go about the strategy-making task differently.

In small, owner-managed companies strategic plans tend to be developed informally; the plan itself
is not likely to be written but instead may exist mainly in the entrepreneur’s own mind and in oral
agreements with key subordinates.

The largest firms, however, develop their plans via an annual strategic planning cycle (complete with
prescribed procedures, forms, and timetables) that includes broad management participation,
numerous studies, and multiple meetings to probe and question.

The larger and more diverse the enterprise, the more that managers feel it is better to have a
structured process that is done annually, involves written plans, and requires management scrutiny
and official approval at each level.

Along with variations in the organisational process of formulating strategy come variations in the
way the manager, as chief entrepreneur and organisational leader, personally participates in the
actual work of strategic analysis and strategic choice.

Most managers use one of four approaches to strategy-making:

1. The master strategic approach.

• Here the manager personally functions as chief strategist, and chief entrepreneur,
exercising strong influence over the kinds and amount of analysis conducted, over the
strategy alternatives to be explored, and over details of strategy.
• This does not mean that the manager personally does all of the work but that the manager
is the chief architect of strategy and wields a proactive hand in shaping some or all of the
major pieces of strategy.
• The manager acts as strategy commander, with a big ownership stake in the chosen
strategy.

2. The delegate-to-others approach.

• Here manager in charge delegates virtually all of the strategic planning to others, perhaps a
planning staff or a task force.
• The manager does little more than suggest minor changes and place a stamp of approval on
the plan that emerges, ending up with little personal stake in the formal strategy
statement.
• The great hazard facing the planners and the company whose chief executive turns too
much of the strategy formulation task over to others is that the resulting plan will gather
dust on the shelf rather than become a blueprint for action.
 • When the ownership of the proposed strategy rests with those who wrote the plan instead
of those who must responsibility for carrying out the recommended strategy, the stage is
set for the plan to be largely ignored as nothing more than a ceremonial exercise.

3. The collaborative approach.

• This is a middle approach whereby the manager enlists the help of key subordinates in
hammering out a consensus strategy which all “the key players” will support and do their
best to implement successfully.
• The greatest strength of this style of managing the formulation process is that those who
are charged with strategy formulation are also those who are charged with implementing
the chosen strategy.
• Giving subordinate managers a clear-cut ownership stake in the strategy they subsequently
must implement not only enhances commitment to successful execution but also when
subordinates have had a hand in proposing their part of the overall strategy they can be
held accountable for making it work-the “I told you it was a bad idea” alibi won’t work.

4. The champion approach.

• In this style of presiding over strategy formulating, the manager is interested neither in a
big personal stake in the details of strategy nor in the time-consuming tedium of leading
others through participative brainstorming or a collaborative “group wisdom” exercise.

• Rather, the idea is to encourage subordinate managers to develop, champion, and

implement sound strategies. Here strategy moves upward from the “doers” and the fast-
trackers”.
• The executive serves as a judge, evaluating the strategy proposals that reach his desk.
• This approach is especially well suited for large diversified corporations where it is
impossible for the CEO to be on top of all the strategic and operating problems facing each
of many business divisions. Therefore, if the CEO is to exploit the fact that there are many
people in the enterprise who can see strategic opportunities that he cannot, then he must
give up some control over strategic opportunities order to foster strategic opportunities
and new strategic initiatives.
• The CEO may well articulate general strategic themes as organization wide guidelines for
strategic thinking, but the real skill is stimulating and rewarding new strategy proposals put
forth by a champion who believes in an opportunity and badly wants the latitude to go
after it.
 • With this approach, the total “strategy” is strongly influenced by the sum of the
championed initiatives that get approved.

Methods of Pursuing Strategies

Any strategy directions may be undertaken in a different way or by a different strategic method: the
means by which a strategy can be pursued. These methods can be divided into three types: organic
development, acquisition (or disposal) and strategic alliances.

Organic development
Organic development (or internal development) is where strategies are developed by building on and
developing an organisation’s own capabilities. For many organisations organic development has
been the primary method of strategy development, and there are some compelling reasons why this
should be so:

• Highly technical products in terms of design or method of manufacture lend themselves

to organic development since the process of development may be the best way of
acquiring the necessary capabilities to compete successfully. These competences may
of course in turn spawn new products and create new market opportunities.
• Knowledge and capability development may be enhanced by organic development. For
example, a business may feel that the direct involvement gained from having its own
salesforce rather than using sales agents’ gains greater market knowledge and
therefore competitive advantage over other rivals more distant from their customers.
• Spreading investment over time. The final cost of developing new activities internally
may be greater than that of acquiring other companies. However, spreading these costs
over time may be a more favourable option than major expenditure at a point in time
required for an acquisition. This is a strong motive for organic development in small
companies or many public services that may not have the resources for major one-off
investments.

• Minimising disruption. The slower rate of change of organic development may also
minimise the disruption to other activities and avoid the political and cultural problems
of acquisition integration that can occur.
• The nature of markets may dictate organic development. In many instances
organisations breaking new ground may not be in a position to develop by acquisition
or joint development, since they are the only ones in the field. Or there may be few
opportunities for acquisitions, as, for example, for foreign companies attempting to
enter Japan.
 8. Merger and Acquisition Strategies
An acquisition is where an organisation takes ownership of another organisation, whereas a merger
implies a mutually agreed decision for joint ownership between organisations. In practice, few
acquisitions are hostile and few mergers are the joining of equals. So both acquisitions and mergers
typically involve the managers of one organisation exerting strategic influence over the other.

Worldwide merger and acquisition activity takes place on a major scale but tends to go in waves.
Globally, the number of completed acquisitions tripled between 1991 and 2001. There was then a
decline after 2000 but they still stood at $1.2 trillion (≈ a1 trillion; £690bn) in 2002. Since then it has
risen again and stood at almost $3.8 trillion in 2006. (Source: ‘All aboard the M&A express’, Sunday
Times Business Focus, 31 December (2006),

Global activity in mergers is dominated by North America and Western Europe whereas it is much
less common in other economies, for example Japan. This reflects the influence of the differences in
governance systems that exist.

A merger is a strategy through which two firms agree to integrate their operations on a relatively
coequal basis.

An acquisition is a strategy through which one firm buys a controlling, or 100 percent, interest in
another firm with the intent of making the acquired firm a subsidiary business within its portfolio.
After completing the transaction, the management of the acquired firm reports to the management
of the acquiring firm.

A takeover is a special type of acquisition wherein the target firm does not solicit the acquiring firm’s
bid; thus, takeovers are unfriendly acquisitions.

Motives for acquisitions and mergers

There are different motives for developing through acquisition or merger. A major reason can be the
need to keep up with a changing environment:

• Speed of entry. Products or markets may be changing so rapidly that acquisition becomes the
only way of successfully entering the market, since the process of internal development is too
slow.
• The competitive situation may influence a company to prefer acquisition. In static markets and
where market shares of companies are steady it can be difficult for a new company to enter the
market, since its presence may create excess capacity. If entry is by acquisition the risk of
competitive reaction may be reduced.
• Consolidation opportunities. Where there are low levels of industry concentration, there may
be an opportunity for improving the balance between supply and demand by acquiring
companies and shutting down excess capacity. In many countries, deregulation of public utilities
has also created a level of fragmentation that was regarded as suboptimal. This was then an
opportunity for acquisitive organisations to rationalise provision and/or seek to gain other
benefits, for example through the creation of ‘multi-utility’ companies offering electricity, gas,
telecommunications and other services to customers.
• Financial markets may provide conditions that motivate acquisitions. If the share value or
price/earnings (P/E) ratio of a company is high, it may see the opportunity to acquire a firm with
a low share value or P/E ratio. Indeed, this is a major stimulus for the more opportunistic
acquisitive companies. An extreme example is asset stripping, where the main motive is short-
term gain by buying up undervalued assets and disposing of them piecemeal.
• Exploitation of strategic capabilities can motivate acquisitions, for example through buying
companies overseas in order to leverage marketing or R&D skills internationally.
• Cost efficiency is a commonly stated reason for acquisitions typically by merging units so as to
rationalise resources (for example, head office services or production facilities) or gain scale
advantages.
• Obtaining new capabilities may also be achieved through acquisitions, or at least be a motive
for acquisition. For example, a company may be acquired for its R&D expertise, or its knowledge
of particular business processes or markets.

Acquisition can also be driven by the stakeholder expectations:

• Institutional shareholder expectations may be for continuing growth and acquisitions may be a
quick way to deliver this growth. There are considerable dangers, however, that acquisitive
growth may result in value destruction rather than creation. For example, the ‘parent’ may not
have sufficient feel for the acquired businesses and thus destroy value.

• Managerial ambition may motivate acquisitions because they speed the growth of the
company. In turn, this might enhance managers’ self-importance, provide better career paths
and greater monetary rewards.
• Speculative motives of some stakeholders may stimulate acquisitions that bring a short-term
boost to share value. Other stakeholders are usually wary of such speculation since their short-
term gain can destroy longer-term prospects.

Reasons for Acquisitions

 Increased Market Power

 Overcoming Entry Barriers

 Cost of New Product Development and

 Increased Speed to Market

 Lower Risk Compared to Developing New Products

 Increased Diversification
  Acquisitions are also used to diversify

 Reshaping the Firm’s Competitive Scope

 Learning and Developing New Capabilities

Acquisitions and financial performance

Acquisitions are not an easy or guaranteed route to improving financial performance. As many as 70
per cent of acquisitions end up with lower returns to shareholders of both organisations. The most
common mistake is in paying too much for a company – possibly through lack of experience in
acquisitions, or poor financial advice (for example, from the investment bank involved).

In addition the managers of the acquiring company may be over-optimistic about the benefits of the
acquisition. An acquisition will probably include poor resources and competences as well as those
which were the reason for the purchase. Or it may be that the capabilities of the merging
organisations are not compatible. So much was the case, for example, in the 2004 acquisition in the
UK of the Safeway supermarket chain by its competitor Morrisons. Amongst the problems was that
Morrisons spent a year trying to integrate the IT systems of the two companies before abandoning
the attempt. Indeed for this reason acquirers may attempt to buy products or processes rather than
whole companies if possible. At the very best it may take the acquiring company considerable time
to gain financial benefit from acquisitions.

Making acquisitions work

The implementation agenda following an acquisition or merger will vary depending on its purpose.
None the less there are four frequently occurring issues that account for success or failure of an
acquisition/merger:

• Adding value. The acquirer may find it difficulty in adding value to the acquired business (the
parenting issue).
• Gaining the commitment of middle managers responsible for the operations and customer
relations in the acquired business is important in order to avoid internal uncertainties and
maintain customer confidence. Linked to this, deciding which executives to retain in the
acquired business needs to be done quickly.
• Expected synergies may not be realised, either because they do not exist to the extent expected
or because it proves difficult to integrate the activities of the acquired business. For example,
where the motive was the transfer of competences or knowledge it may be difficult to identify
what these are.
• Problems of cultural fit. This can arise because the acquiring business finds that ‘everyday’ but
embedded aspects of culture (for example, organisation routines) differ in ways that prove
difficult to overcome but are not readily identifiable before the acquisition. This can be
particularly problematic with cross-country acquisitions.
Problems in Achieving Acquisition Success

 Integration Difficulties

 “Managerial practice and academic writings show that by a researcher studying the process,
the post-acquisition integration phase is probably the single most important determinant of
shareholder value creation (and equally of value destruction) in mergers and acquisitions.

 Integration is complex and involves a large number of activities, which if overlooked can lead
to significant difficulties.

 Inadequate Evaluation of Target

 The failure to complete an effective due-diligence process may easily result in the acquiring
firm paying an excessive premium for the target company.

 Research shows that in times of high or increasing stock prices due diligence is relaxed; firms
often overpay during these periods and long-run performance of the newly formed firm
suffers.

 Research also shows that without due diligence, “the purchase price is driven by the pricing
of other ‘comparable’ acquisitions rather than by a rigorous assessment.

 Large or Extraordinary Debt

 Acquisitions may arise in high debt, which can have several negative effects on the firm. For
example, because high debt increases the likelihood of bankruptcy, it can lead to a
downgrade in the firm’s credit rating by agencies such as Moody’s and Standard & Poor’s

 Managers Overly Focused on Acquisitions

 Activities required for making acquisitions can divert managerial attention from other
matters that are necessary for long-term competitive success, such as identifying and taking
advantage of other opportunities and interacting with important external stakeholders.

 Both theory and research suggest that managers can become overly involved in the process
of making acquisitions.

 Too Large

 Most acquisitions create a larger firm, which should help increase its economies of scale.

 These economies can then lead to more efficient operations—for example, two sales
organizations can be integrated using fewer sales representatives because such sales
personnel can sell the products of both firms (particularly if the products of the acquiring
and target firms are highly related).

 Many firms seek increases in size because of the potential economies of scale and enhanced
market power

 Inability to Achieve Synergy

 A firm develops a competitive advantage through an acquisition strategy only when a

transaction generates private synergy.
  Private synergy is created when combining and integrating the acquiring and acquired firms’
assets yield capabilities and core Competencies.

 Private synergy is possible when firms’ assets are complementary in unique ways; that is, the
unique type of asset complementarity is not possible by combining either company’s assets
with another firms. Private synergy is difficult to create.

 Too Much Diversification

 The level at which over diversification occurs varies across companies because each firm has
different capabilities to manage diversification.

 Over diversification leads to a decline in performance, after which business units are often
divested.

Effective Acquisitions

 Acquisition strategies do not always lead to above average returns for the acquiring firm’s
shareholders.

 Some companies are able to create value when using an acquisition strategy.

 The probability of success increases when the firm’s actions are consistent with the
“attributes of successful acquisitions

Successful Acquisitions

 Restructuring
  Restructuring is a strategy through which a firm changes its set of businesses or its financial
structure.

 Restructuring is a global, divesting businesses from company portfolios and downsizing

accounted for a large percentage of firms’ restructuring strategies.

 Firms focus on a fewer number of products and markets following restructuring.

 Downsizing

 Downsizing is a reduction in the number of a firm’s employees and, sometimes, in the

number of its operating units.

 Downsizing is often a part of acquisitions that fail to create the value anticipated when the
transaction was completed.

 Downsizing is often used when the acquiring firm paid too high of a premium to acquire the
target firm.

 Reducing the number of employees and/or the firm’s scope in terms of products produced
and markets served occurs in firms to enhance the value being created.

 Down scoping

 Down scoping refers to divestiture, spin-off, or some other means of eliminating businesses
that are unrelated to a firm’s core businesses.

 Down scoping causes firms to refocus on their core business.

 Managerial effectiveness increases because the firm has become less diversified, allowing
the top management team to better understand and manage the remaining businesses

 Leveraged Buyouts

 A leveraged buyout (LBO) is a restructuring strategy whereby a party (typically a private

equity firm) buys all of a firm’s assets in order to take the firm private.

 Leveraged buyouts were used as a restructuring strategy to correct for managerial mistakes
or because the firm’s managers were making decisions that primarily served their own
interests rather than those of shareholders.

 Some firms use buyouts to build firm resources and expand rather than simply restructure
distressed assets.

Restructuring outcomes
 9. Strategic Alliances
A strategic alliance is where two or more organisations share resources and activities to pursue a
strategy. They vary from simple two-partner alliances coproducing a product to one with multiple
partners providing complex products and solutions. By the turn of the century the top 500 global
companies had an average of 60 alliances each. This kind of joint development of new strategies has
become increasingly popular. This is because organisations cannot always cope with increasingly
complex environments or strategies (such as globalisation) from internal resources and competences
alone. They may need to obtain materials, skills, innovation, finance or access to markets but
recognise that these may be as readily available through cooperation as through ownership.

Motives for alliances

A frequent reason for alliances is to obtain resources that an organisation needs but does not itself
possess. For example, banks need to gain access to the payment systems that allow credit cards to
be used in retail outlets (for example, Visa or MasterCard) and to the automated teller machines
(ATMs) to allow cash withdrawals.

These resources do not, however, confer competitive advantage on members of the alliance; nor are
they intended to so: they are threshold requirements for modern banking. Such arrangements are
infrastructure alliances that involve the sharing or pooling of resources and mechanism of
cooperation, but which are not seeking to gain competitive advantage. Here, however, we are
concerned with strategic alliances that do seek to gain such advantage.

Motives for such alliances are of three main types:

• The need for critical mass, which alliances can achieve by forming partnerships with
either competitors or providers of complementary products.
This can lead to cost reduction and improved customer offering.
 • Co-specialisation – allowing each partner to concentrate on activities that best match
its capabilities: for example, to enter new geographical markets where an organisation
needs local knowledge and expertise in distribution, marketing and customer support.
Similarly alliances with organisations in other parts of the value chain (for example,
suppliers or distributors) are common.
• Learning from partners and developing competences that may be more widely
exploited elsewhere. For example, first steps into e-business may be achieved with a
partner that has expertise in website development. However, the longer-term intention
might be to bring those activities in-house. Organisations may also enter alliances as a
means of experimentation since it allows them to break out of a sole reliance on the
exploitation of their own resources and capabilities.

Part 3: Strategic Actions: Strategy Implementation

Strategy implementation could be said to be the sum total of activities and choices required for the
execution of a strategic plan (Wheelen and Hunger: 183). It is a process by which strategies and
policies are put into action through the development of programmes, budgets, and procedures.
Implementation is a key part of strategic management

10. Corporate Governance

Corporate Governance refers to the way a corporation is governed. It is the technique by which
companies are directed and managed. It means carrying the business as per the stakeholders’
desires. It is actually conducted by the board of Directors and the concerned committees for the
company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as,
economic and social goals.

Corporate Governance is the interaction between various participants (shareholders, board of

directors, and company’s management) in shaping corporation’s performance and the way it is
proceeding towards. The relationship between the owners and the managers in an organization
must be healthy and there should be no conflict between the two. The owners must see that
individual’s actual performance is according to the standard performance. These dimensions of
corporate governance should not be overlooked.

Corporate Governance deals with the manner the providers of finance guarantee themselves of
getting a fair return on their investment. Corporate Governance clearly distinguishes between the
owners and the managers. The managers are the deciding authority. In modern corporations, the
functions/ tasks of owners and managers should be clearly defined, rather, harmonizing.

Corporate Governance deals with determining ways to take effective strategic decisions. It gives
ultimate authority and complete responsibility to the Board of Directors. In today’s market- oriented
economy, the need for corporate governance arises. Also, efficiency as well as globalization are
significant factors urging corporate governance. Corporate Governance is essential to develop added
value to the stakeholders.
Corporate Governance ensures transparency which ensures strong and balanced economic
development. This also ensures that the interests of all shareholders (majority as well as minority
shareholders) are safeguarded. It ensures that all shareholders fully exercise their rights and that the
organization fully recognizes their rights.

Corporate Governance has a broad scope. It includes both social and institutional aspects. Corporate
Governance encourages a trustworthy, moral, as well as ethical environment.

Benefits of Corporate Governance

 Good corporate governance ensures corporate success and economic growth.
 Strong corporate governance maintains investors’ confidence, as a result of which, company
can raise capital efficiently and effectively.
 It lowers the capital cost.
 There is a positive impact on the share price.
 It provides proper inducement to the owners as well as managers to achieve objectives that
are in interests of the shareholders and the organization.
 Good corporate governance also minimizes wastages, corruption, risks and mismanagement.
 It helps in brand formation and development.
 It ensures organization in managed in a manner that fits the best interests of all.

Elements of good Corporate Governance:

It has been established in various management reports that aspects of good corporate governance
comprise of transparency of corporate structures and operations, the accountability of managers
and the boards to shareholders, and corporate responsibility towards stakeholders. While corporate
governance basically lays down the framework for creating long-term confidence between
companies and the external providers of capital.

There are numerous elements of corporate governance which are mentioned below:

 Transparency in Board's processes and independence in the functioning of Boards. The

Board should provide effective leadership to the company and management to realize
sustained prosperity for all stakeholders. It should provide independent judgment for
achieving company's objectives.
 Accountability to stakeholders with a view to serve the stakeholders and account to them at
regular intervals for actions taken, through strong and sustained communication processes.
 Impartiality to all stakeholders.
 Social, regulatory and environmental concerns.
 Clear and explicit legislation and regulations are fundamentals to effective corporate
governance.
 Good management environment that includes setting up of clear objectives and suitable
ethical framework, establishing due processes, clear enunciation of responsibility and
accountability, sound business planning, establishing clear boundaries for acceptable
behaviour, establishing performance evaluation measures.
 Explicitly approved norms of ethical practices and code of conduct are communicated to all
the stakeholders, which should be clearly understood and followed by each member of the
organization.
 11. Organizational Structure and Controls
There is no doubt that a key element in the effective implementation of corporate strategies is the
design of the organisational structure itself. Without a suitable organisational structure, decision-
making is likely to be slow, expensive, ineffective, or all of these. However, there is no one right form
of organisation structure. Needless to say, the type of structure which will be most appropriate
varies according to, for example, the size of the company, its geographical spread of markets, the
rate of change in the environment, and so on.

Regardless, however, of which type of structure is eventually determined as being most

appropriate, the corporate planner must obviously first appreciate and understand the different
types of structure which can be used. Outlined below are four of the alternative ways of structuring
an organisation, together with some of the main characteristics of each and their relative advantages
and disadvantages.

 The Functional Structure

A functional organisational structure is organised around the primary activities that have to be
carried out in an organisation including, for example, marketing, finance, and production and so
on.
This type of structure is often found in smaller companies, or those with relatively narrow
product and/or market ranges. Sometimes, however, the functional structure is found within
other types of structure such as the multi-divisional one with the divisions themselves being
organized on a functional basis. The main advantages of a functional structure are first that it is
relatively simple to understand, establish and operate. In addition, it enables functional
specialists, with similar areas of interest and expertise, to be grouped together. However, the
functional structure can lead to problems of co-ordination between the different functional
areas of a business. In addition, such structures are often poor in coping with diversity and with
rapid environmental and market change.
 The Multi-Divisional Structure
This type of structure is where the organisation is divided into Chapters on the basis of, for
example, products, geographical areas, markets or services. So, for example, one division in the
company may deal with, say, the institutional markets, whereas another division in this company
may deal with, say, the retail sector.
The multi-divisional structure is particularly useful where there is considerable diversity facing
the organisation. Each division can concentrate on the specific issues and skills required for its
 particular business environment. This, in turn, enables strategies to be developed to meet the
requirements of each division, thereby improving competitive strategy.
In addition, multi-divisional structures enable measurement of each division’s performance and
can be very useful for developing managerial and staff expertise. The disadvantages of the
multidivisional structure include: possible conflict between divisions, potentially high costs of
administration and staffing, and potential complexity in achieving co-ordination between the
different divisions in the company.
 The Holding Company Structure
This type of company structure usually comprises an investment parent company which holds
shareholdings in a number of separate business operations with the parent company exercising
simple control. Essentially, the different parts of the business in which the parent company
invests operate independently.
This type of structure has been particularly popular with companies that have grown through
merger and acquisition. The main advantage of this type of company structure is that each of the
business Units in which the holding company invests can operate within their own product
markets and develop their own strategies. This, in turn, means that each part of the business is
likely to have a high degree of autonomy in decision-making and can operate and develop
strategies in ways best suited to the circumstances of each particular part of the business. The
disadvantages of this type of structure centre on the dangers of poor coordination and cohesion
between the different business Units. Often, holding company structures can give rise to
duplication of effort, say, in research and development and innovation between the different
parts of the business. In addition, individual companies within the holding company structure
can often feel isolated and sometimes threatened by the parent company head office.
 The Matrix Structure
Originally developed for managing one-off projects such as the development of new products,
this type of structure consists of a combination of structures, so, for example, it may take the
form of a product divisional structure operated in combination with a geographical divisional
structure.
The matrix structure is usually used where a single divisional or functional structure would be
inappropriate. So, for example, if a company was extending its international markets whilst at
the same time developing new product lines, it may operate a structure based on divisions
combining geographical and product areas. The advantages of a matrix structure principally lie in
the flexibility which such a structure has to meet the needs of specific situations. So, for
example, combinations of product and market expertise may be achieved.
However, matrix structures can be problematic in that they are more complex to understand
and operate. They can also lead to conflicts between the different personnel and divisions
brought together in the matrix structure. Finally, matrix structures can lead to slower decision-
making and problems in determining and identifying responsibilities for decisions and control
etc.

Organisational Structure in Strategy Implementation

Structure follows strategy.

In a classic study of large US corporations, Alfred Chandler concluded that structure follows strategy
– that is changes in corporate strategy lead to changes in organizational structure (Wheelen &
Hunger 1998:187). Chandler also concluded that organizations follow a pattern of development from
one trend of structural arrangement to another as they expand.
According to Chandler, these structural changes occur because the old structure, having been
pushed too far has caused inefficiencies that have become too obviously detrimental to bear.
Chandler, therefore found that in their early years, corporations tend to have a centralized
organizational structure that is well suited to producing and selling a limited range of products.

As they add new product lines, purchase their own distribution networks, they become too complex
for highly centralized structures. To remain successful, this type of organization needs to shift to a
decentralized structure with several semiautonomous divisions.

Changes in the environment tend to be reflected in changes in a corporation’s strategy, thus leading
to changes in a corporation’s structure. Strategy, structure, and the environment need to be closely
aligned; otherwise, organizational performance will likely suffer (Jennings and Seawan, July 1994:
459-475). Although there is a general agreement that organizational structure must vary with
different environmental conditions, which, in turn, affect an organizational strategy, there is no
agreement about an optional organizational design. Organisations in the same industry, however,
tend to organise themselves similarly. The general conclusion seems to be that organisations
following similar strategies in similar industries tend to adopt similar structures.

Organizational Processes and Behaviour

In the implementation of strategy we have thus far looked at organizational structure and
relationships, specifically at identification of tasks to be performed, assignment of responsibility for
accomplishing these tasks; provision for the coordination of divided responsibility; and design of an
appropriate information system. We now turn to the second element of implementation –
organizational processes and behaviour. Organizational performance does not depend only on the
structure put in place. It depends also on the extent to which individual energy is successfully
directed toward organizational goals. Man-made and natural systems and processes are available for
individual development and performance. In any organization, the system which influences
behaviour consists of six elements:

 Standards for measuring performance

Strategy by nature of its definition implies some progress toward some long-term goal. Progress
toward some goal implies that one is able to observe and measure that progress. Measurement
in this case implies that there is some idea of where an organization is compared to where it
ought to be. To state where an organization ought to be is to set a standard i.e. profitability,
competitive position, budgets, non-economic expectations etc.
 The measurement of performance
The following are some of the criteria used to measure performance:
 Profitability
Profitability represents a return on investment and is a reflection of how economically
efficient operations have been conducted.
 Competitive Position
This attempts to assess a firm’s position in the market place given a competitive
situation. A firm’s market share is used to determine the standing of a firm relative to its
competitors:
• Is the firm the dominant or acknowledge leader? • Is the firm a follower, or in the
middle of the pack? • Is the firm on the fringe of the market? • Is the firm among the top
5% of 10% in the industry?
 Non-economic Expectations
 Performance can also be measured by the extent to which an organization meets non-
economic expectations. For instance, to what extent are the company’s operations
conducted in accordance with legal and ethical requirements? Is the behaviour of
individuals socially unacceptable, in bad taste or against good judgement?
 Budget
A budget is a projection of hoped-for performance. Positive or negative variances reflect
differences between budgeted and actual performance. An analysis of management
accounts for example is a way of measuring expected performance against actual
performance across activity lines.
In setting standards and measurement of performance, the following precautions should
be exercised: • The evaluation program should not encourage performance which
detracts from overall strategy; rather it should support the overall strategy • In some
instances it may be better to base measurement of performance on multiple criteria as
opposed to a single criterion, such as profitability. • All levels of management,
subordinate and superior, must agree on achievements which must be accomplished
during a specified period.
 Incentives for inducing design performance
The influences upon behaviour in any organization are visible and invisible; planned and
unplanned; or formal and informal. If the executive does not wish to leave the implementation
of strategy to chance, he has a number of options of encouraging behaviour which advances
strategy and deterring behaviour which does not. Motivation and incentive systems are positive
elements of encouraging desired performance, while systems of restraint and control are
considered as negative elements. Whatever systems are in place, they must be visible, planned
and known.
 Rewards for satisfactory performance
Financial rewards, including executive basic salary and allowances such as housing, transport,
entertainment. Monetary Incentives for individual performance include: • profit sharing • stock
options • executive bonuses • pension/savings plans
Non-monetary incentive systems including: • pride in or sense of accomplishment • climate for
free expression and innovation • good/pleasant environment • able and honest associates •
pleasant surroundings–clean and quiet • office location, size and furnishings • satisfaction
deriving from doing work
 Systems of restraint and controls
A system of incentive and rewards is not necessarily sufficient to achieve organizational goals. A
system of controls and restraint is further needed to supplement the positive aspects of
incentives and rewards. Systems of restraint are aimed at deterring behaviour which does not
advance strategy.
Controls may be formal or informal. Formal controls derive from accounting, where we attempt
to quantify performance, e.g. the principle of budgetary variances, or accounting controls; codes
of conduct; or systems of discipline. Informal controls derive from the behavioural sciences and
thus tend to be subjective. They can be regarded as social controls. They are basically norms to
which individuals are responsive if not obedient: • they constitute the accepted way of doing
things • they define the limits of proper behaviour and the type of action that will meet with
approval from the group

Organizational Culture
Our interest in organizational culture rests on the premise that group effort or influence can
positively affect performance. It draws heavily on general systems theory where, through synergy,
parts of a system produce more in working together than they can if they worked apart. Stated
simply, it is the proposition that while 2 + 2 = 4 the systems theory, on which organizational culture
is based, holds that 2 + 2 = 5 That is, an organization working as a system, can entice from its
members more than the individuals would produce if they worked apart. This is attributable to a
motivational element which obtains when people work in groups. Groups, as working system, are
said to have a mood, atmosphere or chemistry, intangible yet real, which induces effort over and
above the ordinary. This mood, atmosphere or chemistry is the driving or influencing force of
collective behaviour and is rooted in an ideology.

Ideology or organizational culture is taken here to mean a rich system of values and beliefs about an
organization, shared by its members, that distinguishes it from other organizations. The key feature
of such an ideology is its unifying power. It ties the individual to the organization, generating a
“sense of mission”. The development of an ideology proceeds in three stages:

 Stage 1: The rooting of ideology in a sense of mission

An organization is usually founded when a single prime mover identifies a mission. This mission
is identified as either a product or service. The individual then collects a group around him or her
to accomplish that mission. The individuals who come together do not do so at random, but
merge because they share the values associated with prime mover and the fledgling
organization. An example of this might professionals coming together to start a firm in order to
create something unusual or exciting. When people come in this fashion, they can be said to
share a common sense of purpose. Another example of shared sense of mission might be a
situation where a new CEO recruits and brings together old associates to come and work with
him.
Factors which facilitate this sense of mission:
 The new organization is perceived to offer wide latitude for manoeuvre and not
constrained by procedure and tradition.
 New organizations tend to be mall, enabling members to establish personal relationships
where it is easy to seek advice and guidance and to assess the impact of one’s actions on
others.
 The founders of new organizations are often “charismatic” individuals, and so energize
the followers and knit them together
 Stage 2: Development of ideology through traditions and narratives
As the new organization establishes itself, or an existing one establishes a new set of beliefs, it
makes decisions and takes actions that serve as commitments and establish precedence: • these
decisions and actions are repeated over time and lead to reinforced behaviour • reinforced
behaviour in turn translates itself into tradition - a way of doing things which members share •
the organization transcends the individual and becomes a self, distinctive personality or identity
• this distinctive personality captures the allegiance and commitment of members of the
organization.
 Stage 3: Reinforcement of ideology through identifications
• At this stage, the organization is a living system with its own culture. • Membership of the
organization becomes cardinal through identification. This process of identification with and
loyalty to the organization is manifested through the following:
• New members find the culture attractive and rich and want to be identified with the
organization. • New members may be subjected to a selection process, to see whether they “fit
in” with the existing beliefs • for existing members, promotion to higher positions is made on
the basis of strength of loyalty to those beliefs and values of the organization. • Identification
 may also be evoked through the use of socialization and indoctrination to reinforce natural or
selected commitment to the system of beliefs.

Organizational Politics
Non-performance or poor implementation of strategy can at times be attributed to organizational
politics, especially when it results in conflict. An organization may be described as functioning on the
basis of a number of systems of influence:

Authority: this is based on legally sanctioned power, e.g. a directive from a superior/boss.

Ideology: this is based on widely accepted beliefs, e.g. adherence to a Church’s doctrine or a political
party’s manifesto.

Expertise: this is based on power that is officially certified these systems can be considered as
legitimate. The system of politics, in contrast, reflects power that is technically illegitimate because it
is not formally authorized, widely accepted or officially certified.

The result is that political activity is usually divisive and conflictive, pitting individuals or groups
against more legitimate systems of influence.

Forms of Political Activity (Games)

 Insurgency Game
Usually played to resist authority, ideology or expertise, or to effect change in the organization
outside established procedure
It can range from “protest” to open rebellion and usually played by “lower participants” who feel
the greatest weight of formal authority
 Counterinsurgency Game
Played by those with legitimate power who fight back with political as well as legitimate means,
e.g. suspension, dismissals or excommunication from a church. It is all too often manifested by
subordinates who make comments about their company but refuse to disclose their identity for
fear of reprisals from their superiors.
 Sponsorship Game
It is played to build a power base by invoking superiors, it originates in an individual attaching
self to someone with legitimate power, in authority, or of higher status, professing loyalty in
return. It is played by special assistants to CEO or family members in a family company.
 Alliance-building Game
It is played among peers, such as line managers or experts, it is aimed at negotiating implicit
contracts of support for each other in order to build a power base to advance selves in the
organization
 Empire-building Game
It is played by line managers or even CEO, It is played individually with select subordinates to
foster a unique sense of loyalty to the boss
 Expertise Game
It involves non-sanctioned use of expertise to build a power base either by flaunting it or
feigning it, It is manifested by exploiting one’s technical skills and knowledge, emphasizing the
uniqueness, criticality and irreplaceability of one’s expertise and It is reinforced by keeping skills
from being programmed or by keeping knowledge to self.
 Line versus Staff Game
 This is like a sibling-type rivalry, it is played not just to defeat a rival, but also to enhance
personal power. It pits line managers with formal decision-making authority against staff
advisers with specialized expertise e.g. Consultants in an organization.
 Rival Camps Game
This is played to defeat a rival, it occurs when two major power blocs emerge from other games
and it takes the form of conflict between functional units or between rival personalities.
 Whistle-blowing Game
It is typically brief and simple, It is played an insider, usually a lower participant, to “blow the
whistle” to an influential outsider on questionable or illegal behaviour by the organization by
revealing privileged information and the information is given to an outsider in order to effect
change in the organization
 Young Turks Game
It is played by a small group of “young Turks” who are close to but not at the centre of power. It
is aimed at questioning legitimate power, perhaps even to overthrow it, and thereby reorient
organization’s basic strategy, displace a major body of its expertise, replace its ideology or rid it
of its leadership.

Functional Role of Politics in Organizations

Politics can have both a positive and negative effect on organizational performance. The
dysfunctional influence of politics in organizations manifests itself when politics is divisive and costly,
burns up energies that could instead go into operations and leads into all sorts of aberrations whose
ultimate result is paralysis of the organization to a point where its effective functioning comes to a
halt and nobody benefits. On the other hand, politics can serve a functional role under the following
conditions:

 Where it is necessary to correct certain deficiencies in an organization’s legitimate systems of

influence. Above all where it is expedient to provide for certain forms of flexibility discouraged
by the legitimate systems.
 In ensuring that the strongest members of an organization are brought into positions of
leadership. It may be argued that effective leaders have an inclination toward power and being
assertive. Political games can serve as a testing ground or one to demonstrate potential for
leadership.
 Politics provides a forum for that all sides of an issue are to be fully debated, whereas other
systems of influence seek at best to solicit adherence to the status quo or at worst blind
subservience to legitimate systems of influence. For instance, the system of authority defers
open discussion to a central hierarchy, and this is often favoured one by those in authority; the
system of ideology imposes restraint through a system of common beliefs; and the system of
expertise gives deference to the expert or experience. In contrast, the system of politics
encourages a broader and researched articulation of issues which challenges the status quo.
 Politics can stimulate change that is blocked by legitimate systems of influence. Resistance to
change comes from who those who feel secure in maintaining the status quo and political games
are often played to overcome such resistance particularly when an organization is either too
slow or unwilling to embrace change. Many reforms undertaken by organizations can be
attributed resistance to legitimate systems of influence.
 The system of politics can ease the path for the execution of duties. That is, once people are
convinced about the merits of a strategic option, they are more likely to implement the decision
with renewed vigour and commitment.
 12. Strategic Leadership
Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to
create strategic change as necessary. Multifunctional in nature, strategic leadership involves
managing through others, managing an entire enterprise rather than a functional subunit, and
coping with change that continues to increase in the global economy. Because of the global
economy’s complexity, strategic leaders must learn how to effectively influence human behaviour,
often in uncertain environments. By word or by personal example, and through their ability to
envision the future, effective strategic leaders meaningfully influence the behaviours, thoughts, and
feelings of those with whom they work.

A firm’s ability to achieve a competitive advantage and earn above-average returns is compromised
when strategic leaders fail to respond appropriately and quickly to changes in the complex global
competitive environment. Strategic leaders must learn how to deal with diverse and complex
environmental situations. Individual judgment is an important part of learning about and analysing
the firm’s competitive environment. In particular, effective strategic leaders build strong ties with
external stakeholders to gain access to information and advice on the events in the external
environment.

The primary responsibility for effective strategic leadership rests at the top, in particular with the
CEO. Other commonly recognized strategic leaders include members of the board of directors, the
top management team, and divisional general managers. In truth, any individual with responsibility
for the performance of human capital and/or a part of the firm (e.g., a production unit) is a strategic
leader. Regardless of their title and organizational function, strategic leaders have substantial
decision-making responsibilities that cannot be delegated.13 Strategic leadership is a complex but
critical form of leadership. Strategies cannot be formulated and implemented for the purpose of
achieving above-average returns without effective strategic leaders.
Top Leadership and Achievement of Purpose

Our proposition here is that leadership affects performance. Consequently, we will examine those
factors in leadership that are determinants of effective leadership. The issues to be discussed are:

 The attitudes and values of a leader

All those who aspire to leadership, senior and key positions must have a distinctive and powerful set
of attitudes and values involving:

 A generalist orientation
This refers to frames of mind necessary to adapt and influence thinking in particular
directions. It involves having a breadth and depth of expertise and approach and it helps to
explain why those who have specific and tried expertise in one area often fall short of full
success when further development is required.
 A practitioner orientation
This refers to the delivery of expertise in particular sets of circumstances requiring
demonstrable achievement to the satisfaction of customers, suppliers, financial interests
and backers. It implies a willingness to act on the basis of incomplete information, related
past experiences and the present and envisaged state of the social, political and economic
 environment, It also means a willingness to be seen in action in different sets of
circumstances and, where necessary, to accept responsibility for failure.
 A professional orientation
This refers to a personal and occupational commitment to the development of leadership
expertise and applying this to a particular set of circumstances, and the extent to which
he/she acts in the best interests of the organisation.
 An innovation orientation
The capability and willingness to look at the present state of activities, products, services and
processes as being a vehicle for further development and to develop new products and
services, which may or may not succeed.
 A positive orientation
This requires a leader taking a positive approach to whatever presents itself. This includes
products and services, marketing campaigns and activities, staff, expertise and technology,
communities and clients, as well as crises and emergencies.
A positive attitude is a reflection of the legitimate pride, confidence and commitment in the
organisation and its products, services and staff.

 The roles of a leader

A leader needs expertise to fill a range of different roles. The nature of these roles and the
frequency with which they are required varies between and within organisations. However,
these roles include:
 The visionary role: the ability to see the future of the organisation, and to translate this
vision into language that engages the support of all stakeholders and constituents.
 The champion role- this involves enthusiastically supporting, promoting, defending or
fighting for the strategy in question. Championing the organisation and its activities,
products and services is not always easy because other people in the organization may hold
the view that the CEO and his top managers are overcompensated given the results.
 The cheerleader role: is carried out by a combination of visibility, presentation, charisma
and accessibility possessed by those in leadership positions. The absence of cheerleading
always gives rise to perceptions of lack of faith, belief or commitment.
 The enthusiast role-reflects the fact that if leaders are not enthusiastic, they cannot, and
should not, expect enthusiasm from staff, shareholders, backers suppliers, customers and
clients.
Heroes and heroines are distinguished from others by virtue of their exceptional courage,
achievement and superior qualities.
 Role models-this is demonstrated by management’s ability to set the standard for others to
follow. Others in the organisation take their cue in terms of required, desired and demanded
standards of performance from those in overall charge.
 The wanderer role-refers to the need for visibility among staff and gaining the broadest
possible perspective on the effectiveness of organisation performance. The primary purpose
of wandering is so that the leader sees for himself or herself what is happening within his
domain rather than relying solely on what is reported back to him. Wandering may also
involve visiting other organizations with a view to learning new lessons and seeing different
ways of doing things. The best leaders also take time out to attend courses, conferences or
professional association meetings in order to meet with others with similar problems and
learn from them.
  The coach role-this refers to guidance and steerage provided. This reinforces the need for
visibility, capability and clarity in all those in leadership positions. If those in leadership
positions are going to translate their ideas into practice, then those in other executive
positions need to know how this should be done and the required outcomes; in many cases,
they need guiding through this by the person in charge. The other key feature of this role is
to take corrective action wherever it is required. Managers whose behaviour, attitudes,
standards and performance slip must be called into line immediately
 The surgeon role- this involves cutting functions, products, services or processes when it is
deemed they are no longer required.
 Traits and characteristics of a leader
Research studies have revealed a long and comprehensive list of desirable attributes of a
“leader” as contrasted to a “non-leader.

LEADER NON-LEADER
 Carries water for people  Presides over the mess
 Open door problem solver, advice  Invisible, gives orders to staff,
giver, cheer leader expects them to be carried out
 Comfortable with people in their  Uncomfortable with people
workplaces
 Manages by walking about  Invisible
 Arrives early, leaves late  In late, usually leaves on time
 Good listener  Good talker
 Available  Hard to reach
 Decisive  Uses committees
 Humble  Arrogant
 Tough, confronts nasty problems  Elusive, the artful dodger
 Often takes the blame  Looks for scapegoats
 Gives credit to others  Takes credit
 Gives honest, frequent feedback  Amasses information
 Knows when and how to discipline  Ducks unpleasant tasks
people
 Prefers discussion rather than  Prefers long reports
written reports
 Sees mistakes as learning  Sees mistakes as punishable
opportunities and the opportunity offences and the means of
to develop scapegoating

 Types of leader
A key characteristic of the leadership position relates to the type of leader that a particular individual
is. The following types of leader may be distinguished:

(i) The traditional leader is one whose position as a leader is assured by birth and heredity, e.g.
kings and family businesses whereby the child succeeds the parent as CEO

(ii) The known leader is one whose position as a leader is secure by the fact that everyone
understands their position, e.g. kings priest are known to be leaders by their subjects and
priests are known to be leaders by the congregation

(iii) The bureaucratic leader is one whose position is legitimised by the position held

(iv) The appointed leader is one whose position is legitimised by virtue of the fact that he or she
has gone through a selection, assessment and appointment process

(v) The functional or expert leader is one whose position is secured by virtue of expertise,
command of technology or resources.

(vi) The charismatic leader is one whose position is secured by the sheer force of known or
understood personality

(vii) The informal leader is one whose position is secured also by virtue of personality, charisma,
expertise, command of resources, and who is therefore the de facto leader in a particular
situation

 Leadership styles
It is usual to classify leadership styles on an autocratic-democratic continuum as illustrated
below: in a boss-centred leadership, the leader makes all decisions relating to the work of the
subordinate; in a subordinate-centred leadership, the subordinate has relative freedom in
decision that affect his work.
 Succession and Continuity

The final main element of strategic leadership is to ensure continuity of priorities, direction, policy
and culture. The keys to this are:

• Full communication between the CEO and the top management team and fully integrating
communications with the rest of the organisation.
• The ability to integrate the management of crises and emergencies into the overall
direction and purpose of the organisation.
• The development of leadership and strategic expertise in all those in senior positions and
all those who aspire to such positions.
 • The identification of a range of individuals from within the organisation who show promise,
capability and willingness to be developed into strategic positions.
• The identification of sources of expertise from outside the organisation so that as and when
fresh talent and thinking are required, these sources can be accessed quite quickly.
• The integration of strategic thinking, awareness and expertise into all management
development programmes. This includes action learning, project work, secondments and
MBA and other organisation leadership programmes.

Strategic leadership can therefore be considered at three levels:

1. General Manager as the Architect of Strategy

As architect of strategy, the GM is required to possess the following skills:

• analytical ability
• searching out and analysing strategic alternatives beyond advice received from
functional managers
• making or ratifying decisions among competing choices
• creativity (role of innovator)
• ability to find strategic choices which are not routine
• ability to determine strategy uniquely adapted to external opportunities and internal
strengths of his organization
• a sense of personal purpose
• a sense of social responsibility
2. General Manager as Organization Leader
2.1 GM must act as promoter and defender of strategy
 A leader must remain focused and keep the organization on course against the tendency
of organizations to veer off course in response to circumstances, special interest and
sudden opportunity
2.2 GM must act as mediator and integrator
• A leader must deal with conflict among special interest groups
• A leader must balance the need for present profitability against the need to invest in
future success
• A leader must balance the desirability for uniformity against the requirements for
flexibility.

2.3 GM is responsible for creating a conducive climate in his organization

• A leader must ensure an absence of political manoeuvring for position or attention
• A leader must reject preferment on grounds other than merit
 • A leader must create interpersonal amity and tolerance of individual differences
• A leader must instil high standards of moral integrity

3. General Manager as a Personal Leader

Business leaders generally are characterized by such personal qualities as:

• drive
• intellectual ability
• initiative
• creativeness
• social ability
• flexibility

In reality, there is considerable variation in leadership styles. On one extreme end is the petty tyrant
who uses power to abuse those whom he considers offenders, and uses reports to find some
discrepancy with which to needle a subordinate. He/she thus lacks the level-headedness to inquire
objectively into reasons for failure without raising his voice. On the other end, a leadership style may
be characterized by:

• inquiring objectively and calmly into reasons for failure

• without unnecessary fuss, establishing a new schedule to match new conditions, or
• Working through intermediaries in calling attention to lapses from standards.

Within these extremes and possibilities, he must shape out a distinctive style which will characterize
his performance and his expectations of others.