Course Portfolio

STRATEGIC MANAGEMENT
ADMN 315

Level 6
(Updated 2022-1)

Bachelor of Business Administration

Jazan University, Jazan

Kingdom of Saudi Arabia
 Strategic Management
Code: ADMN 315

Course Name: Strategic Management Course

Type: Core

Pre-Requisite:
Concentration
Course Level:

Year 1: Semester 1 Semester 2 Summer

Semester

Year 2: Semester 1 Semester 2 Summer

Semester

Year 3: Semester 1 Semester 2 Summer

Semester

Year 4: Semester 1 Semester 2 Summer

Semester

Course Description:
This course is designed to give the students experience in strategic analysis and decision
making using the case study method. Students will learn to identify analyze, propose
alternative solutions and make effective decisions for the business.
The syllabus is devoted to create an understanding of the basic issues involve Business
Policy and Strategic Management. Unit 1 is designed to introduce the concept of Strategic
Management and it explains nature, importance, purpose and objective of the course. Unit2
gives the basic planning process and factors associated with planning. Unit 3 explains
formulation of strategies it also focus different alternatives of strategies and environmental
analysis. Unit 4 rests on implementing strategy and various portfolio analyses, this unit
also focus on evaluation and control process.

Objectives:
• The objective is to develop an understanding of the concept of corporate strategy
formulation, implementation and its evaluation.
• To make them understand the significance of Strategic management in the modern
business scenario.
• To inculcate the habit of effective decision making among the future business
managers.

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 Learning Outcomes:
This course will helps to identify various opportunities available for a expanding business
and at the same time it helps to understand the threats and weakness of an organization.
The course is designed in such a manner that after passing this course students will me
position to critically analyze business and based on that they to opt such strategy which
can return profit to the business. The inculcated knowledge helps an entrepreneurs and
managers for strategic analysis and effective decision making for making there business
profitable.

Skills to be developed throughout the Course:

Students will develop their analytical and oral communication skills via case study work
carried out in seminar sessions. Information technology and written communication skills
will be developed when completing the written assignment which will also test student’s
creative skills and their abilities to present theoretical information in practical situations.
Students are encouraged to make use of IT facilities particularly web sites to support
research and reading.

Learning Resources:
1. Text Books
Author Title Publisher Year ISBN No

Richard Lynch Corporate Strategy Prentice hall. 4th Edition 2006 0-27-
370178-9
Anthony Henry Strategic management Oxford University Press 1st Edition 13-978-0-0-
2008 19-928830-
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2. e- Library Reserves
• http://www.emeraldinsight.com/insight
• http://www.en.wikipedia/wiki/listof_management_topics

3. Internet
• Ebsco Business Source Premier: A database containing several hundred
key business and management journals with full text articles updated daily.
• Courseware: Specific research support resources and documents,
selectively posted to complement and build upon materials available in
proctor’s methodological text. Such documentation will typically be
posted regularly.
• www.decalibrary.org
• www.ipl.org
• www.lisa.lsbu.ac.uk

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 4. Journals
• Strategic Management

• Harvard Business Review

• The Journal of Strategic Information System

• Journals of Operations Management

Delivery and Teaching Strategy: (Lecture, Online, Physical, blended, self directed
through CD, web based courses and DVD)

Methods of Instruction: It would be based on Lecture, demonstration and assignment

review. Questions are encouraged and participation is expected.

Assessment Strategy:
a. First Mid Term Exam: 20 Marks to be held on..…….Day,…….Month,
20..
b. Second Mid Term Exam: 20 Marks to be held on……Day,……Month,
20..
c. Attendance, Participation & Assignment: 10 Marks
d. Final Exam: 50 Marks
e. Total: 100 Marks

Syllabus Change Policy: This syllabus is a guide for the course and is subject to change
with advanced notice. Contents are available in the books mentioned in the column.

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 COURSE CONTENTS

UNIT SUBJECTS PAGES

Introduction to Strategic Management: Meaning and
Important Concepts – Strategy: Definition and Features -
1 What is Strategic Planning & strategic plan - 6 - 15
Components of a Strategic management: Strategic Intent,
Vision, Mission, goals & objectives and their importance
Strategic management's benefit, process &
components: Financial & Non-financial benefits -
Strategic Management Process and Steps -
2 16 - 27
Environmental scanning, formulation, implementation,
evaluation, Components of Strategic Management
Process
Level & types of strategies: - Stability, Expansion,
3 28 - 49
Retrenchment
Tools for strategy analysis- different portfolio models:
4 SWOT -BCG Matrix, Business Model Canvas, PESTEL, 40 - 65
Porter 5 Forces & Ansoff Portfolio Models

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 UNIT – 1

INTRODUCTION TO STRATEGIC MANAGEMENT

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Strategic Management - Meaning and Important Concepts:
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 can also be defined as a bundle of decisions and acts

which a manager undertakes and which decides the result of the firm’s
performance. The manager must have a thorough knowledge and analysis of
the general and competitive organizational environment so as to take right
decisions. They should conduct a SWOT Analysis (Strengths, Weaknesses,
Opportunities, and Threats), i.e., they should make best possible utilization of
strengths, minimize the organizational weaknesses, make use of arising
opportunities from the business environment and shouldn’t ignore the threats.

Strategic management is a continuous process that evaluates and controls the

business and the industries in which an organization is involved; evaluates its
competitors and sets goals and strategies to meet all existing and potential
competitors; and then re-evaluates strategies on a regular basis to determine

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how it has been implemented and whether it was successful or does it needs
replacement.

Strategic Management gives a broader perspective to the employees of an

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

One of the major role of strategic management is to incorporate various

functional areas of the organization completely, as well as, to ensure these
functional areas harmonize and get together well. Another role of strategic
management is to keep a continuous eye on the goals and objectives of the
organization.

Definition of Strategy:
The word “strategy” is derived from the Greek word “stratçgos”; stratus
(meaning army) and “ago” (meaning leading/moving).

Strategy is an action that managers take to attain one or more of the

organization’s goals. Strategy can also be defined as “A general direction set
for the company and its various components to achieve a desired state in the
future. Strategy results from the detailed strategic planning process”.

A strategy is all about integrating organizational activities and utilizing and

allocating the scarce resources within the organizational environment so as to
meet the present objectives.
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Strategy is the blueprint of decisions in an organization that shows its
objectives and goals, reduces the key policies, and plans for achieving these
goals, and defines the business the company is to carry on, the type of
economic and human organization it wants to be, and the contribution it plans
to make to its shareholders, customers and society at large.

Strategy is a well-defined roadmap of an organization. It defines the

overall mission, vision and direction of an organization. The objective of a
strategy is to maximize an organization’s strengths and to minimize the
strengths of the competitors.

The definition of Strategy, in short, bridges the gap between “where we are”
and “where we want to be”.

▪ Features of Strategy

1. Strategy is significant because it is not possible to foresee the future.

Without a perfect foresight, the firms must be ready to deal with the
uncertain events which constitute the business environment.
2. Strategy deals with long term developments rather than routine
operations, i.e. it deals with probability of innovations or new products,
new methods of productions, or new markets to be developed in future.
3. Strategy is created to take into account the probable behavior of
customers and competitors. Strategies dealing with employees will
predict the employee behavior.

▪ What is Strategic Planning?

Strategic planning is an organizational management activity that is used to set

priorities, focus energy and resources, strengthen operations, ensure
that employees and other stakeholders are working toward common goals,
establish agreement around intended outcomes/results, and assess and adjust

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the organization's direction in response to a changing environment. It is a
disciplined effort that produces fundamental decisions and actions that shape
and guide what an organization is, who it serves, what it does, and why it does
it, with a focus on the future. Effective strategic planning articulates not only
where an organization is going and the actions needed to make progress, but
also how it will know if it is successful.

▪ What is a Strategic Plan?

A strategic plan is a document used to communicate with the organization the

organizations goals, the actions needed to achieve those goals and all of the
other critical elements developed during the planning exercise.

▪ Components of a Strategic management:

The strategy statement of a firm sets the firm’s long-term strategic direction
and broad policy directions. It gives the firm a clear sense of direction and a
blueprint for the firm’s activities for the upcoming years. The main
constituents of a strategic statement are as follows:

1. Strategic Intent

An organization’s strategic intent is the purpose that it exists and why

it will continue to exist, providing it maintains a competitive advantage.
Strategic intent gives a picture about what an organization must get into
immediately in order to achieve the company’s vision. It motivates the
people. It clarifies the vision of the vision of the company.

Strategic intent helps management to emphasize and concentrate on the

priorities. Strategic intent is, nothing but, the influencing of an
organization’s resource potential and core competencies to achieve
what at first may seem to be unachievable goals in the competitive

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 environment. A well expressed strategic intent should guide/steer the
development of strategic intent or the setting of goals and objectives
that require that all of organization’s competencies be controlled to
maximum value.

Strategic intent includes directing organization’s attention on the need

of winning; inspiring people by telling them that the targets are
valuable; encouraging individual and team participation as well as
contribution; and utilizing intent to direct allocation of resources.

Strategic intent differs from strategic fit in a way that while strategic fit
deals with harmonizing available resources and potentials to the
external environment, strategic intent emphasizes on building new
resources and potentials so as to create and exploit future opportunities.

2. Mission Statement

Mission statement is the statement of the role by which an organization

intends to serve it’s stakeholders. It describes why an organization is
operating and thus provides a framework within which strategies are
formulated. It describes what the organization does (i.e., present
capabilities), who all it serves (i.e., stakeholders) and what makes an
organization unique (i.e., reason for existence).

A mission statement differentiates an organization from others by

explaining its broad scope of activities, its products, and technologies
it uses to achieve its goals and objectives. It talks about an
organization’s present (i.e., “about where we are”). For
instance, Microsoft’s mission is to help people and businesses
throughout the world to realize their full potential. Wal-Mart’s
mission is “To give ordinary folk the chance to buy the same thing as
rich people.” Mission statements always exist at top level of an
organization, but may also be made for various organizational levels.
Chief executive plays a significant role in formulation of mission
statement. Once the mission statement is formulated, it serves the
organization in long run, but it may become ambiguous with
organizational growth and innovations.
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 In today’s dynamic and competitive environment, mission may need to
be redefined. However, care must be taken that the redefined mission
statement should have original fundamentals/components. Mission
statement has three main components-a statement of mission or vision
of the company, a statement of the core values that shape the acts and
behaviour of the employees, and a statement of the goals and objectives.

Features of a Mission

a. Mission must be feasible and attainable. It should be possible to

achieve it.
b. Mission should be clear enough so that any action can be taken.
c. It should be inspiring for the management, staff and society at
large.
d. It should be precise enough, i.e., it should be neither too broad
nor too narrow.
e. It should be unique and distinctive to leave an impact in
everyone’s mind.
f. It should be analytical, i.e., it should analyze the key
components of the strategy.
g. It should be credible, i.e., all stakeholders should be able to
believe it.

3. Vision

A vision statement identifies where the organization wants or intends

to be in future or where it should be to best meet the needs of the
stakeholders. It describes dreams and aspirations for future. For
instance, Microsoft’s vision is “to empower people through great
software, any time, any place, or any device.” Wal-Mart’s vision is to
become worldwide leader in retailing.

A vision is the potential to view things ahead of themselves. It answers

the question “where we want to be”. It gives us a reminder about what

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 we attempt to develop. A vision statement is for the organization and
it’s members, unlike the mission statement which is for the
customers/clients. It contributes in effective decision making as well as
effective business planning. It incorporates a shared understanding
about the nature and aim of the organization and utilizes this
understanding to direct and guide the organization towards a better
purpose. It describes that on achieving the mission, how the
organizational future would appear to be.

An effective vision statement must have following features:

a. It must be unambiguous.
b. It must be clear.
c. It must harmonize with organization’s culture and values.
d. The dreams and aspirations must be rational/realistic.
e. Vision statements should be shorter so that they are easier to
memorize.

In order to realize the vision, it must be deeply instilled in the

organization, being owned and shared by everyone involved in the
organization.

Importance of Vision and Mission Statements:

One of the first things that any observer of management thought and practice
asks is whether a particular organization has a vision and mission statement.
In addition, one of the first things that one learns in a business school is the
importance of vision and mission statements.

It has been found in studies that organizations that have lucid, coherent, and
meaningful vision and mission statements return more than double the
numbers in shareholder benefits when compared to the organizations that do
not have vision and mission statements. Indeed, the importance of vision and
mission statements is such that it is the first thing that is discussed in
management textbooks on strategy.

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Some of the benefits of having a vision and mission statement are
discussed below:

• Above everything else, vision and mission statements provide

unanimity of purpose to organizations and imbue the employees with a
sense of belonging and identity. Indeed, vision and mission statements
are embodiments of organizational identity and carry the organizations
creed and motto. For this purpose, they are also called as statements of
creed.
• Vision and mission statements spell out the context in which the
organization operates and provides the employees with a tone that is to
be followed in the organizational climate. Since they define the reason
for existence of the organization, they are indicators of the direction in
which the organization must move to actualize the goals in the vision
and mission statements.
• The vision and mission statements serve as focal points for individuals
to identify themselves with the organizational processes and to give
them a sense of direction while at the same time deterring those who do
not wish to follow them from participating in the organization’s
activities.
• The vision and mission statements help to translate the objectives of the
organization into work structures and to assign tasks to the elements in
the organization that are responsible for actualizing them in practice.
• To specify the core structure on which the organizational edifice stands
and to help in the translation of objectives into actionable cost,
performance, and time related measures.
• Finally, vision and mission statements provide a philosophy of
existence to the employees, which is very crucial because as humans,
we need meaning from the work to do and the vision and mission
statements provide the necessary meaning for working in a particular
organization.

As can be seen from the above, articulate, coherent, and meaningful vision
and mission statements go a long way in setting the base performance and
actionable parameters and embody the spirit of the organization. In other

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words, vision and mission statements are as important as the various identities
that individuals have in their everyday lives.

It is for this reason that organizations spend a lot of time in defining their
vision and mission statements and ensure that they come up with the
statements that provide meaning instead of being mere sentences that are
devoid of any meaning.

4. Goals and Objectives

A goal: is a desired future state or objective that an organization tries

to achieve. Goals specify in particular what must be done if an
organization is to attain mission or vision. Goals make mission more
prominent and concrete. They co-ordinate and integrate various
functional and departmental areas in an organization.

Well-made goals have following features:

a. These are precise and measurable.

b. These look after critical and significant issues.
c. These are realistic and challenging.
d. These must be achieved within a specific time frame.
e. These include both financial as well as non-financial
components.

Objectives: are defined as goals that organization wants to achieve

over a period of time. These are the foundation of planning. Policies are
developed in an organization so as to achieve these objectives.
Formulation of objectives is the task of top level management. Effective
objectives have following features:

a. These are not single for an organization, but multiple.

b. Objectives should be both short-term as well as long-term.
c. Objectives must respond and react to changes in environment,
i.e., they must be flexible.
d. These must be feasible, realistic and operational.

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 UNIT – 2

STRATEGIC MANAGEMENT'S BENEFIT,

PROCESS & COMPONENTS

▪ Benefits of Strategic Management

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The benefits of strategic management can be financial or non-financial. The
main goal of strategic management is to set the direction for the company and
its employees and to plan for its future existence. So, the benefits of strategic
management:

• Reach goals – strategic management helps you to achieve your goals

with the help of developing proper steps and implementation.
• The advantage over competitors – Your company will adapt the
changing market easily with the help of effective strategic management
and as a result, it will always be ahead of others.
• Sustainable growth – Strategic management ensures high-quality
performance which is a major indicator of sustainable growth.
• Connected organization – In order to develop successful strategic
management, the company needs to form strong communication. It’s
necessary to achieve the desired results.
• Growth in managerial knowledge – If the managers properly utilize
strategic management, it means he will be aware of industry challenges
and the changes in the environment. This means they are better
prepared for the future.

▪ Financial Benefits
As we have mentioned, strategic management can have financial and non-
financial benefits. In this segment, I would like to cover the financial benefits
and explain why it’s important.

• Relevance – Strategic management ensures creating an occupational

environment in which managers have the possibility to observe the
processes and to make changes if it’s necessary.
• Profitability Management – Profitability is an extremely significant
benefit of strategic management. The business-unit chiefs give honest
perspectives on which company managers learn and adapt. As a result,
they have a better comprehension of their client’s wishes. The statement
of profit and loss is used to gauge profitability.

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 • Liquidity Monitoring – Liquidity shortfall is a serious failure that can
cause troubles in the short term. Strategic management guarantees
companies to control the cash balance and to ensure that the cash is
always available if needed in the future.
• Solvency Administration – Maintaining solvency is very important for
the organization. The managers should review the company assets, net
worth, liability in order to properly implement it.

▪ Non-Financial Benefits
Strategic management does not necessarily mean that the company will grow
its net worth immediately. Sometimes, the strategy focuses on the long-term
goals of the organization, and when you include non-financial strategies in
your management planning it will ensure to enhance your company and its
operations. Some of the non-financial benefits include

• Improved Stability – Strategic management often helps your company

to expand its opportunities. This means, when you get new customers
you have to be able not to lose previous ones. This way, the company
is not dependent on a few clients and the risk of falling is decreased.
• Decreased Risks – It’s extremely important for any organization to
avoid legal problems. Therefore, the companies hire attorneys,
insurance providers and they implement internal controls and policies
in order to reduce the legal exposure.
• Enhanced Brand Management – A strategic management plan
sometimes means to create a specific brand in order to analyze which
opportunities will enhance your business. You should also be aware of
those that should be avoided.
• Identifying SWOT – Strategic management also helps you to examine
strengths, weaknesses, opportunities, and threats. By doing so, your
company is guaranteed to avoid some serious problems in the future.

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▪ Strategic Management Process and Steps
The strategic management process means defining the organization’s strategy.
It is also defined as the process by which managers make a choice of a set of
strategies for the organization that will enable it to achieve better performance.

Strategic management is a continuous process that appraises the business and

industries in which the organization is involved; appraises its competitors; and
fixes goals to meet all the present and future competitor’s and then reassesses
each strategy.

▪ Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process

of collecting, scrutinizing and providing information for strategic
purposes. It helps in analyzing the internal and external factors
influencing an organization. After executing the environmental analysis
process, management should evaluate it on a continuous basis and strive
to improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding
best course of action for accomplishing organizational objectives and
hence achieving organizational purpose. After conducting environment
scanning, managers formulate corporate, business and functional
strategies.
3. Strategy Implementation- Strategy implementation implies making
the strategy work as intended or putting the organization’s chosen
strategy into action. Strategy implementation includes designing the
organization’s structure, distributing resources, developing decision
making process, and managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy
management process. The key strategy evaluation activities are:
appraising internal and external factors that are the root of present
strategies, measuring performance, and taking remedial / corrective

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 actions. Evaluation makes sure that the organizational strategy as well
as it’s implementation meets the organizational objectives.

These components are steps that are carried, in chronological order, when
creating a new strategic management plan. Present businesses that have
already created a strategic management plan will revert to these steps as per
the situation’s requirement, so as to make essential changes.

▪ Components of Strategic Management Process

Strategic management is an ongoing process. Therefore, it must be realized

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

A. Environmental Scanning - Internal & External Analysis of

Environment
Organizational environment consists of both external and internal factors.
Environment must be scanned so as to determine development and forecasts
of factors that will influence organizational success. Environmental
scanning refers to possession and utilization of information about
occasions, patterns, trends, and relationships within an organization’s
internal and external environment. It helps the managers to decide the
future path of the organization. Scanning must identify the threats and
opportunities existing in the environment. While strategy formulation, an

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organization must take advantage of the opportunities and minimize the
threats. A threat for one organization may be an opportunity for another.

- Internal analysis of the environment is the first step of environment

scanning. Organizations should observe the internal organizational
environment. This includes employee interaction with other employees,
employee interaction with management, manager interaction with other
managers, and management interaction with shareholders, access to natural
resources, brand awareness, organizational structure, main staff,
operational potential, etc. Also, discussions, interviews, and surveys can be
used to assess the internal environment. Analysis of internal environment
helps in identifying strengths and weaknesses of an organization.

As business becomes more competitive, and there are rapid changes in the
external environment, information from external environment adds crucial
elements to the effectiveness of long-term plans. As environment is
dynamic, it becomes essential to identify competitors’ moves and actions.
Organizations have also to update the core competencies and internal
environment as per external environment. Environmental factors are
infinite, hence, organization should be agile and vigile to accept and adjust
to the environmental changes. For instance - Monitoring might indicate that
an original forecast of the prices of the raw materials that are involved in
the product are no more credible, which could imply the requirement for
more focused scanning, forecasting and analysis to create a more
trustworthy prediction about the input costs. In a similar manner, there can
be changes in factors such as competitor’s activities, technology, market
tastes and preferences.

- External analysis, three correlated environment should be studied and

analysed:

• immediate / industry environment

• national environment
• broader socio-economic environment / macro-environment

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Examining the industry environment needs an appraisal of the competitive
structure of the organization’s industry, including the competitive position of
a particular organization and it’s main rivals. Also, an assessment of the
nature, stage, dynamics and history of the industry is essential. It also implies
evaluating the effect of globalization on competition within the industry.
Analyzing the national environment needs an appraisal of whether the
national framework helps in achieving competitive advantage in the
globalized environment. Analysis of macro-environment includes exploring
macro-economic, social, government, legal, technological and international
factors that may influence the environment. The analysis of organization’s
external environment reveals opportunities and threats for an organization.

Strategic managers must not only recognize the present state of the
environment and their industry but also be able to predict its future positions.

B. Strategy Formulation Process

Strategy formulation refers to the process of choosing the most appropriate
course of action for the realization of organizational goals and objectives and
thereby achieving the organizational vision. The process of strategy
formulation basically involves six main steps. Though these steps do not
follow a rigid chronological order, however they are very rational and can be
easily followed in this order.

1. Setting Organizations’ objectives - The key component of any

strategy statement is to set the long-term objectives of the organization.
It is known that strategy is generally a medium for realization of
organizational objectives. Objectives stress the state of being
there whereas Strategy stresses upon the process of reaching there.
Strategy includes both the fixation of objectives as well the medium to
be used to realize those objectives. Thus, strategy is a wider term which
believes in the manner of deployment of resources so as to achieve the
objectives.

While fixing the organizational objectives, it is essential that the factors

which influence the selection of objectives must be analyzed before the

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 selection of objectives. Once the objectives and the factors influencing
strategic decisions have been determined, it is easy to take strategic
decisions.

2. Evaluating the Organizational Environment - The next step is to

evaluate the general economic and industrial environment in which the
organization operates. This includes a review of the organizations
competitive position. It is essential to conduct a qualitative and
quantitative review of an organizations existing product line. The
purpose of such a review is to make sure that the factors important for
competitive success in the market can be discovered so that the
management can identify their own strengths and weaknesses as well
as their competitors’ strengths and weaknesses.

After identifying its strengths and weaknesses, an organization must

keep a track of competitors’ moves and actions so as to discover
probable opportunities of threats to its market or supply sources.

3. Setting Quantitative Targets - In this step, an organization must

practically fix the quantitative target values for some of the
organizational objectives. The idea behind this is to compare with long
term customers, so as to evaluate the contribution that might be made
by various product zones or operating departments.
4. Aiming in context with the divisional plans - In this step, the
contributions made by each department or division or product category
within the organization is identified and accordingly strategic planning
is done for each sub-unit. This requires a careful analysis of
macroeconomic trends.
5. Performance Analysis - Performance analysis includes discovering
and analyzing the gap between the planned or desired performance. A
critical evaluation of the organizations past performance, present
condition and the desired future conditions must be done by the
organization. This critical evaluation identifies the degree of gap that
persists between the actual reality and the long-term aspirations of the

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 organization. An attempt is made by the organization to estimate its
probable future condition if the current trends persist.
6. Choice of Strategy - This is the ultimate step in Strategy Formulation.
The best course of action is actually chosen after considering
organizational goals, organizational strengths, potential and limitations
as well as the external opportunities.

C. Strategy Implementation
Strategy implementation is the translation of chosen strategy into
organizational action so as to achieve strategic goals and objectives.
Strategy implementation is also defined as the manner in which an
organization should develop, utilize, and amalgamate organizational
structure, control systems, and culture to follow strategies that lead to
competitive advantage and a better performance.

Organizational structure allocates special value developing tasks and roles to

the employees and states how these tasks and roles can be correlated so as
maximize efficiency, quality, and customer satisfaction-the pillars of
competitive advantage. But, organizational structure is not sufficient in itself
to motivate the employees.

An organizational control system is also required. This control system equips

managers with motivational incentives for employees as well as feedback on
employees and organizational performance. Organizational culture refers to
the specialized collection of values, attitudes, norms and beliefs shared by
organizational members and groups.

Main steps in implementing a strategy:

- Developing an organization having potential of carrying out strategy

successfully.

- Disbursement of abundant resources to strategy-essential activities.

- Disbursement of abundant resources to strategy-essential activities.

- Creating strategy-encouraging policies.

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 - Employing best policies and programs for constant improvement.

- Linking reward structure to accomplishment of results.

- Making use of strategic leadership.

Excellently formulated strategies will fail if they are not properly

implemented. Also, it is essential to note that strategy implementation is not
possible unless there is stability between strategy and each organizational
dimension such as organizational structure, reward structure, resource-
allocation process, etc.

Strategy implementation poses a threat to many managers and employees in

an organization. New power relationships are predicted and achieved. New
groups (formal as well as informal) are formed whose values, attitudes, beliefs
and concerns may not be known. With the change in power and status roles,
the managers and employees may employ confrontation behaviour.

D. Strategy Evaluation
Strategy Evaluation is as significant as strategy formulation because it throws
light on the efficiency and effectiveness of the comprehensive plans in
achieving the desired results. The managers can also assess the
appropriateness of the current strategy in today's dynamic world with socio-
economic, political and technological innovations. Strategic Evaluation is the
final phase of strategic management.

The significance of strategy evaluation lies in its capacity to co-ordinate

the task performed by managers, groups, departments etc, through
control of performance. Strategic Evaluation is significant because of
various factors such as - developing inputs for new strategic planning, the urge
for feedback, appraisal and reward, development of the strategic management
process, judging the validity of strategic choice etc.

The process of Strategy Evaluation consists of following steps:

25
1. Fixing benchmark of performance - While fixing the benchmark,
strategists encounter questions such as - what benchmarks to set, how
to set them and how to express them. In order to determine the
benchmark performance to be set, it is essential to discover the special
requirements for performing the main task. The performance indicator
that best identify and express the special requirements might then be
determined to be used for evaluation. The organization can use both
quantitative and qualitative criteria for comprehensive assessment of
performance. Quantitative criteria includes determination of net profit,
ROI, earning per share, cost of production, rate of employee turnover
etc. Among the Qualitative factors are subjective evaluation of factors
such as - skills and competencies, risk taking potential, flexibility etc.
2. Measurement of performance - The standard performance is a bench
mark with which the actual performance is to be compared. The
reporting and communication system help in measuring the
performance. If appropriate means are available for measuring the
performance and if the standards are set in the right manner, strategy
evaluation becomes easier. But various factors such as managers
contribution are difficult to measure. Similarly divisional performance
is sometimes difficult to measure as compared to individual
performance. Thus, variable objectives must be created against which
measurement of performance can be done. The measurement must be
done at right time else evaluation will not meet its purpose. For
measuring the performance, financial statements like - balance sheet,
profit and loss account must be prepared on an annual basis.
3. Analyzing Variance - While measuring the actual performance and
comparing it with standard performance there may be variances which
must be analyzed. The strategists must mention the degree of tolerance
limits between which the variance between actual and standard
performance may be accepted. The positive deviation indicates a better
performance but it is quite unusual exceeding the target always. The
negative deviation is an issue of concern because it indicates a shortfall
in performance. Thus in this case the strategists must discover the
causes of deviation and must take corrective action to overcome it.

26
 4. Taking Corrective Action - Once the deviation in performance is
identified, it is essential to plan for a corrective action. If the
performance is consistently less than the desired performance, the
strategists must carry a detailed analysis of the factors responsible for
such performance. If the strategists discover that the organizational
potential does not match with the performance requirements, then the
standards must be lowered. Another rare and drastic corrective action
is reformulating the strategy which requires going back to the process
of strategic management, reframing of plans according to new resource
allocation trend and consequent means going to the beginning point of
strategic management process.

So, we can say that, in general there are five core stages of Strategic
Management
The managers and academics have performed a lot of research and developed
some frameworks regarding successful strategic management. Generally,
there are five stages of strategic management

• Evaluating the direction of the company’s current strategy

• Analyzing the strength and weaknesses whether it will be internal or
external
• Developing some action plans
• Implementing these action plans
• The final phase is to assess if these plans have been successful and make
changes if you don’t get desired results

27
 UNIT – 3

LEVEL & TYPES OF STRATEGIES

28
Introduction:

Strategy is at the foundation of every decision that has to be made within an

organization. If the strategy is poorly chosen and formulated by top
management, it has a major impact on the effectiveness of employees in pretty
much every department within the organization.

There are three different components or ‘Levels of Strategy‘. These three

levels are: Corporate-level strategy, Business-level strategy and Functional-
level strategy. Together, these three levels of strategy can be illustrated in a
so called ‘Strategy Pyramid’ (Figure). Corporate strategy is different from
Business strategy and Functional strategy. Even though Corporate-level
strategy is at the top of the pyramid,

Figure: Three Levels of Strategy Pyramid

Levels of Strategy:

o Corporate-level strategy

The first level of strategy in the business world is corporate strategy, which
sits at the ‘top of the heap’. At a most basic level, corporate strategy will

29
outline exactly what businesses you are going to engage in, and how you plan
to enter and win in those markets.

At the corporate level strategy however, management must not only consider
how to gain a competitive advantage in each of the line of businesses the firm
is operating in, but also which businesses they should be in in the first place.
It is about selecting an optimal set of businesses and determining how they
should be integrated into a corporate whole: a portfolio. Typically, major
investment and divestment decisions are made at this level by top
management. Mergers and Acquisitions (M&A) is also an important part of
corporate strategy. This level of strategy is only necessary when the company
operates in two or more business areas through different business units with
different business-level strategies that need to be aligned to form an internally
consistent corporate-level strategy. That is why corporate strategy is often not
seen in small-medium enterprises (SME’s), but in multinational enterprises
(MNE’s) or conglomerates.

o Business-level strategy

Business level strategy deals with how a particular business competes. The
principal focus is on meeting competition protecting market share and earning
profit at the business unit level. In other word, the Business-level strategy is
what most people are familiar with and is about the question “How do we
compete?”, “How do we gain (a sustainable) competitive advantage over
30
rivals?”. In order to answer these questions it is important to first have a good
understanding of a business and its external environment. At this level, we
can use internal analysis frameworks like the Value Chain Analysis and
external analysis frameworks like Porter’s Five Forces and PESTEL
Analysis. When good strategic analysis has been done, top management can
move on to strategy formulation by using frameworks as the Value
Disciplines, Blue Ocean Strategy and Porter’s Generic Strategies. In the end,
the business-level strategy is aimed at gaining a competitive advantage by
offering true value for customers while being a unique and hard-to-imitate
player within the competitive landscape.

o Functional-level strategy

This is the day-to-day strategy that is going to keep your organization moving
in the right direction. Just as some businesses fail to plan from a top-level
perspective, other businesses fail to plan at this bottom-level. This level of
strategy is perhaps the most important of all, as without a daily plan you are
going to be stuck in neutral while your competition continues to drive forward.

Functional-level strategy is concerned with the question “How do we support

the business-level strategy within functional departments, such as Marketing,
HR, Production and R&D?”. These strategies are often aimed at improving
the effectiveness of a company’s operations within departments. Within these
department, workers often refer to their ‘Marketing Strategy’, ‘Human
Resource Strategy’ or ‘R&D Strategy’. The goal is to align these strategies as
31
much as possible with the greater business strategy. If the business strategy is
for example aimed at offering products to students and young adults, the
marketing department should target these people as accurately as possible
through their marketing campaigns by choosing the right (social) media
channels.

Functional strategies outline the action plans that must be put into practice to
execute business level strategy. Business level and functional specialists must
coordinate their activities to ensure that the strategies pursued by them are
consistent and lead to achievement of overall goals.

Example of Samsung

Samsung is a conglomerate consisting of multiple strategic business units

(SBU’s) with a diverse set of products. Samsung sells smartphones, cameras,
TVs, microwaves, refrigerators, laundry machines, and even chemicals and
insurances. Each product or strategic business unit needs a business strategy
in order to compete successfully within its own industry. However, at the
corporate level Samsung has to decide on more fundamental questions like:
“Are we going to pursue the camera business in the first place?” or “Is it
perhaps better to invest more into the smartphone business or should we focus

32
on the television screen business instead?”. The BCG Matrix or the GE
McKinsey Matrix are both portfolio analysis frameworks and can be used as
a tool to figure this out.

Figure: Hierarchy of Strategy

What are Stability, Expansion, and Retrenchment Strategies?

Strategies used to make decisions regarding the allocation of resources or
pursuing an operational strategy are often categorized as stability strategies,
expansion (growth) strategies, retrenchment strategies, or combination
strategies.

Each is dealt below.

o Stability Strategy:
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A stability strategy involves maintaining the status quo or growing in a
methodical but slow, manner. The firm follows a safety oriented status quo
type strategy without effecting any major changes in its present operations.
The resources are put on existing operations to achieve moderate incremental
growth. As such the primary focus is on current products, markets and
functions maintaining the same level of effort as at present.

As the name implies, a stability business strategy seeks to maintain operations

and market size and position. This strategy is characteristic of small risk-
averse firms or firms operating in a very precarious market that is comfortable
with its current position.

These strategies are generally broken into:

• No Change Strategies - A firm makes no considerable changes to its

objectives or operations. The firm examines the internal and external
factors affecting the firm in its current operating and market
environment. The firm makes a conscious decision to maintain its
current strategic objectives. This is most common in low competition
environments, with no major or market-shifting occurrences, and the
firms competitive position is stable. For example, firms operating in
niche markets commonly choose a niche (cost or differentiation)
strategy and maintain that strategy until internal or external factors
necessitate a change.
• Profit Strategies - A profit strategy endorses any action necessary to
maintain or improve profitability. This may include cutting costs
(operational efficiency, outsourcing), selling assets, raising prices,
increasing output (sales), or offsetting losses with profits from another
business unit. This strategy is common with firms that are profitable
but are facing temporary pressures that are threatening their
profitability, such as competition, market conditions, recession,
inflation, cost escalations, etc. If these pressures become long-term, a
profit strategy risks harming the firm by reducing competitiveness
(particularly if the firm competes on cost or price). If a firms value
offering or resources are becoming obsolete, the profit strategy may

34
 provide temporary profits before the business unit is dissolved or
otherwise disposed of. In any event, the strategy generally does not
involve the investment of new resources. Profitability is maintained
with present levels or less resources.
• Caution Strategies - This strategy requires a firm to wait and continue
to assess the market before employing any particular strategy. It is
basically reconnaissance before strategic action is taken. This is a
temporary strategy employed for a limited time while deciding on a
formal strategy to pursue. It avoids making any significant investment
of resources and discontinues any strategy formula pursued until the
firm has a full understanding of the market and the effect of former
strategies. This strategy is common among manufacturing companies
evaluating the launch of new products.

o Growth /Expansion Strategy

An expansion strategy is synonymous with a growth strategy. A firm seeks to

achieve faster growth, compete, achieve higher profits, grow a brand,
capitalize on economies of scale, have greater impact, or occupy a larger
market share. This may entail acquiring more market share through traditional
competitive strategies, entering new markets, targeting new market segments,
offering new produce or services, expanding or improving current operations.

Organizations generally seek growth in sales, market share or some other

measure as a primary objective. When growth becomes a passion and
organizations try to seek sizeable growth (as against slow and steady growth)
it takes the shape of an expansion strategy. The firm tries to redefine the
business enter new businesses that are related or unrelated or look at its
product portfolio more intensely. The firm can have as many alternatives as it
wants by changing the mix of products, markets and functions. Thus, the
growth opportunities may come internally or externally. Internal growth
possibilities may be exploited through intensification or diversification.
External growth options include mergers, takeovers, and joint ventures.

Below are common expansion strategies:

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• Expansion through Concentration - This involves focusing resource
allocation and operational efficiency on one or a select group of business
units or core business functions. Concentration might include: penetrating
an existing market with an existing value proposition; developing a new
market by attracting new customers to an existing value proposition;
developing a new value proposition to introduce in the existing market.
The benefits of expansion through concentration is that it allows the firm
to focus on areas where it already has operations and a level of
competency. It is comfortable to avoid major changes in operations while
employing existing knowledge. This type of strategy can be risky from the
stand point of putting too many eggs in one basket. Changes in the market
(price fluctuations, customer sentiment, new value propositions, etc.) may
cause the strategy to be unsuccessful.
• Expansion through Diversification - This strategy involves diversifying
the value offering of the company in one of two methods: 1) Concentric
Diversification entails developing a new value proposition that are related
to existing value propositions; or 2) Conglomerate Diversification entail
entering into new markets (either with an existing value proposition or by
combining with another industry competitor). This strategy generally
reduces specific industry risks, such as an economic downturn. The profits
of one value offering might offset losses in another business unit during
difficult times.
• Expansion through Integration - Integration involves the consolidation
of operational units anywhere along the value chain to create greater
efficiency and produce economies of scale. Unlike other strategies, it does
not involve making changes to existing markets or targeting new customer
groups. There are two primary types of integration: 1) Vertical integration
involves consolidation up or down the value chain. Forward vertical
integration involves consolidating closer to the point at which value is
delivered to the consumer. Backward vertical integration involves
consolidating closer to the genesis of value (such as the point of
manufacturing). Horizontal integration involves consolidating operations
at the same point in the value chain. This consolidation may be between
business units or by acquiring or combining with a competitors. See our

36
 separate discussion of Horizontal and Vertical integration for greater
detail.
• Expansion through Cooperation - This strategy entails working closely
with a competitor (while potentially still competing against them in the
market). Working with the competitor provides both companies an
advantage that trumps any advantage (or disadvantage caused to the
competitor) from not working together. Working together will generally
provide operational efficiency to one or both competitors or expand the
market potential for one or both competitors. Working together may take
the form of consolidation of business units (mergers or acquisitions),
strategic alliance (affinity group or association), or joint venture (loose
partnership-like alliance generally used to undertake a project or enter into
foreign markets).
• Expansion through Internationalization - This method involves
creating new markets for a value offering by looking outside of the
immediate nation. Generally, this option is preferable when there is little
room for expansion in domestic markets. Internationalization can be
carried out through the following strategic approaches: 1) International
Strategy - focusing on offering a value proposition in a foreign country
without modification of differentiation; 2) Multi-domestic Strategy -
involves modifying or differentiating a product to make it attractive or
suitable to foreign markets; 3) Global Strategy - focuses on delivering the
standardized value proposition in countries where there is a low cost
structure for delivery; 4) Transnational Strategy - employs both a global
and multi-domestic strategy by modifying or differentiating a product in
foreign markets where there is a low cost structure that results in profits
from delivering the value proposition.

o Retrenchment Strategy:

It is a corporate level, defensive strategy followed by a firm when its

performance is disappointing or when its survival is at stake. When the firm
is confronted with a precipitous drop in demand for its products and services
it is forced to effect across the board cuts in personnel and expenditures.

37
Retrenchment strategy, as such is adopted out of necessity not by deliberate
choice.

A redemption strategy seeks to restructure, sell or otherwise divest a business

unit. The purpose is to reduce costs, streamline operations, or stabilize cash
flow. The three primary types of retrenchment strategy are:

• Turnaround Strategy - This is a restructuring strategy. It calls for

realigning operations to be more cost efficient or profitable. It often
comes in response to an ineffective strategy causing harm to the
company.
• Divestment Strategy - This means reducing operations or completing
divesting (getting rid of) a business unity. Generally, the operational
unit will be losing money or not fit with the companys core operational
objectives. Some the drivers of this strategy are negative cash flows,
sustained losses, poor business integration, better alternative use of
assets, the value proposition is becoming obsolete, rising costs, or small
(non-growing) market share. The firm may now allocate resources to a
more profitable or appropriately aligned business unit. Generally, a
divestment comes after a turnaround strategy has proved ineffective.
• Liquidation Strategy - A liquidation strategy is similar to a
divestment. It focuses on selling specific assets or shutting down
business units. Unlike divestment, which seeks to streamline operations
and focus resource allocation, liquidation sees a business unit as a loss
or failure. Scenarios leading to a liquidation strategy include: extensive
losses, lack of profitability, failure of a current strategy, obsolete assets,
or technology, ineffective processes, obsolete value proposition, poor
management, or lack of integration of the business unit.

o Combination Strategy:
Large diversified organizations generally use mixture of stability expansion
or retrenchment strategies either simultaneously (at the same time in various

38
businesses) or sequentially (at different times in the same business). For
example growth could be achieved by organizations through acquisition of
new businesses or divesting itself of unprofitable ventures. Depending on
situational demands therefore an organization can employ various strategies
to survive grow, and remain profitable.

A combination strategy employ any simultaneous combination of other master

strategies. It includes use by a firm of a different strategy in individual
business units or by use of multiple strategies in a single business unit at the
same or different times. This is most popular in large, complex organizations
(various industries and business units).

39
 UNIT- 4

TOOLS FOR STRATEGY ANALYSIS-

DIFFERENT PORTFOLIO MODELS

40
o SWOT Analysis - Definition, Advantages and Limitations

SWOT is an acronym for Strengths, Weaknesses, Opportunities and

Threats. By definition, Strengths (S) and Weaknesses (W) are considered to
be internal factors over which you have some measure of control. Also, by
definition, Opportunities (O) and Threats (T) are considered to be external
factors over which you have essentially no control.

SWOT Analysis is the most renowned tool for audit and analysis of the
overall strategic position of the business and its environment. Its key purpose
is to identify the strategies that will create a firm specific business model that
will best align an organization’s resources and capabilities to the requirements
of the environment in which the firm operates.

In other words, it is the foundation for evaluating the internal potential and
limitations and the probable/likely opportunities and threats from the external
environment. It views all positive and negative factors inside and outside the
firm that affect the success. A consistent study of the environment in which
the firm operates helps in forecasting/predicting the changing trends and also
helps in including them in the decision-making process of the organization.

An overview of the four factors (Strengths, Weaknesses, Opportunities and

Threats) is given below-

1. Strengths - Strengths are the qualities that enable us to accomplish the

organization’s mission. These are the basis on which continued success
can be made and continued/sustained.

Strengths can be either tangible or intangible. These are what you are
well-versed in or what you have expertise in, the traits and qualities
your employees possess (individually and as a team) and the distinct
features that give your organization its consistency.

Strengths are the beneficial aspects of the organization or the

capabilities of an organization, which includes human competencies,
41
 process capabilities, financial resources, products and services,
customer goodwill and brand loyalty. Examples of organizational
strengths are huge financial resources, broad product line, no debt,
committed employees, etc.

2. Weaknesses - Weaknesses are the qualities that prevent us from

accomplishing our mission and achieving our full potential. These
weaknesses deteriorate influences on the organizational success and
growth. Weaknesses are the factors which do not meet the standards we
feel they should meet.

Weaknesses in an organization may be depreciating machinery,

insufficient research and development facilities, narrow product range,
poor decision-making, etc. Weaknesses are controllable. They must be
minimized and eliminated. For instance - to overcome obsolete
machinery, new machinery can be purchased. Other examples of
organizational weaknesses are huge debts, high employee turnover,
complex decision making process, narrow product range, large wastage
of raw materials, etc.

3. Opportunities - Opportunities are presented by the environment within

which our organization operates. These arise when an organization can
take benefit of conditions in its environment to plan and execute
strategies that enable it to become more profitable. Organizations can
gain competitive advantage by making use of opportunities.

Organization should be careful and recognize the opportunities and

grasp them whenever they arise. Selecting the targets that will best
serve the clients while getting desired results is a difficult task.
Opportunities may arise from market, competition,
industry/government and technology. Increasing demand for
telecommunications accompanied by deregulation is a great
opportunity for new firms to enter telecom sector and compete with
existing firms for revenue.

42
 4. Threats - Threats arise when conditions in external environment
jeopardize the reliability and profitability of the organization’s
business. They compound the vulnerability when they relate to the
weaknesses. Threats are uncontrollable. When a threat comes, the
stability and survival can be at stake. Examples of threats are - unrest
among employees; ever changing technology; increasing competition
leading to excess capacity, price wars and reducing industry profits; etc.

Advantages of SWOT Analysis

SWOT Analysis is instrumental in strategy formulation and selection. It is a

strong tool, but it involves a great subjective element. It is best when used as
a guide, and not as a prescription. Successful businesses build on their
strengths, correct their weakness and protect against internal weaknesses and
external threats. They also keep a watch on their overall business environment
and recognize and exploit new opportunities faster than its competitors.

SWOT Analysis helps in strategic planning in the following manner:

a. It is a source of information for strategic planning.

b. Builds organization’s strengths.
c. Reverse its weaknesses.
d. Maximize its response to opportunities.
e. Overcome organization’s threats.
f. It helps in identifying core competencies of the firm.
g. It helps in setting of objectives for strategic planning.
h. It helps in knowing past, present and future so that by using past and
current data, future plans can be chalked out.

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 SWOT ANALYSIS FRAMEWOR

Limitations of SWOT Analysis

SWOT Analysis is not free from its limitations. It may cause organizations to
view circumstances as very simple because of which the organizations might
overlook certain key strategic contact which may occur. Moreover,
categorizing aspects as strengths, weaknesses, opportunities and threats might
be very subjective as there is great degree of uncertainty in market. SWOT
Analysis does stress upon the significance of these four aspects, but it does
not tell how an organization can identify these aspects for itself.

There are certain limitations of SWOT Analysis which are not in control of
management. These include-

a. Price increase;
b. Inputs/raw materials;
c. Government legislation;
d. Economic environment;
e. Searching a new market for the product which is not having overseas
market due to import restrictions; etc.

Internal limitations may include-

a. Insufficient research and development facilities;

b. Faulty products due to poor quality control;
c. Poor industrial relations;

44
 d. Lack of skilled and efficient labour; etc

Case Studies:

SWOT Analysis of Starbucks

Starbucks is a globally recognized coffee and beverages brand that has rapidly
made strides into all major markets of the world. The company has a lead over
its nearest competitors including Barista and other emerging competitors.
Indeed, Starbucks is so well known throughout the western hemisphere that it
has become a household name for coffee.

Strengths

▪ The main strength of Starbucks is its strong financial performance

which has resulted in the company occupying the number one spot
among coffee and beverage retailers in the world
▪ The company is valued at more than $4 Billion which is a key strength
when compared to its competitors
▪ The intangible strengths of Starbucks include its top of the mind recall
among consumers and by virtue of its brand, which symbolizes
excellence, and quality at an affordable rate, the company enjoys a
dominant position in the worldwide market for coffee and beverages.
▪ The company is the largest coffeehouse in the world and because of its
size and high volumes; it can afford to price its products in the premium
as well as the middle tier range to attract more consumers.
▪ The company is known for its pioneering people management in an
industry where people skills and soft skills make the difference between
success and failure. In other words, Starbucks has actualized a positive
and welcoming workplace for its employees, which translates into
happier associates serving customers in a superior way leading to all
round benefits for the company.

45
Weaknesses

▪ The company is heavily dependent on its main and key input, which is
the coffee beans and hence, is acutely dependent on the price of coffee
beans as a determinant of its profitability. This means that Starbucks is
overly price sensitive to the fluctuations in the price of coffee beans and
hence, must diversify its product range to reduce the risk associated
with such dependence.
▪ The company has come under fire in recent times for its procurement
practices with many social and environmental activists pointing to the
unethical procurement practices of coffee beans from impoverished
third world farmers. Further, the company has also been accused of
violating the “Fair Coffee Trade” principles that were put in place a few
years ago to tackle this precise problem.
▪ The company prices its products in the premium to the middle tiers of
the market segment which places its products outside the budgets of
many working consumers who prefer to frequent McDonald’s and other
outlets for their coffee instead of Starbucks.
▪ The company must immediately diversify its product range if it has to
compete with full spectrum competitors like McDonald’s and Burger
King in the breakfast segment which is rapidly growing as a
consequence of compressed schedules of consumers who would like to
grab a bite and drink something instead of making it at home.

Opportunities

▪ The company has an opportunity to expand its supplier network and

expand the range of suppliers from whom it sources in order to diversify
its sources of inputs and not be at the mercy of whimsical suppliers.
Further, this would also help the company in becoming less sensitive to
the prices of coffee beans and make it resilient against supply chain
risks.
▪ The company has a huge opportunity waiting for it as far as its
expansion into the emerging markets is concerned. With a billion
consumers likely to join the pool of those who want instant coffee and

46
 breakfast in China and India, the company can expand into these
countries and other emerging markets, which represents a lucrative
opportunity for the taking.
▪ Starbucks also has the opportunity to expand its product offerings to
take on the full spectrum food and beverage retailers like McDonald’s
and Burger King as the consumer segment which these retailers target
is expanding leading to more business opportunities for Starbucks to
take advantage of.
▪ The company can significantly expand its network of retail stores in the
United States as part of its push towards greater market share and more
consumer segments. This opportunity ties in with the other
opportunities described above related to the expansion into newer
markets, diversifying into newer consumer segments, and increasing its
footprint across the US and globally.

Threats

▪ The company faces threats from the rising prices of coffee beans and is
subject to supply chain risks related to fluctuations in the prices of this
key input. Further, the increase in the prices of dairy products impacts
the company adversely leading to another threat to its profitability.
▪ The company is beset with trademark and copyright infringements from
lesser-known rivals who wish to piggyback on its success. As with
other multinational retailers in the emerging markets, Starbucks has
fought litigation against those misusing its brand and famous logo.
▪ The company faces intense competition from local coffeehouses and
specialty stores that give the company a run for its money as far as niche
consumer segments are concerned. In other words, the company faces
a tough challenge from local stores that are patronized by a loyal
clientele, which is not enamored of big brands.
▪ Starbucks has to expand into emerging markets as a necessity as the
developed markets that it has traditionally relied on are saturated and
given the fact that the ongoing recession has made the going tough for
many retailers, it faces significant threats from this aspect.

47
 ▪ Finally, as mentioned earlier, Starbucks faces significant challenges
because of its global supply chain and is subject to disruptions in the
supply chain because of any reason related to either global or local
conditions.

o BCG Matrix

Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2

matrix) developed by BCG, USA. It is the most renowned corporate portfolio
analysis tool. It provides a graphic representation for an organization to
examine different businesses in it’s portfolio on the basis of their related
market share and industry growth rates. It is a two dimensional analysis on
management of SBU’s (Strategic Business Units). In other words, it is a
comparative analysis of business potential and the evaluation of environment.

According to this matrix, business could be classified as high or low according

to their industry growth rate and relative market share.

Relative Market Share = SBU Sales this year leading competitors sales this
year.

Market Growth Rate = Industry sales this year - Industry Sales last year.

The analysis requires that both measures be calculated for each SBU. The
dimension of business strength, relative market share, will measure
comparative advantage indicated by market dominance. The key theory
underlying this is existence of an experience curve and that market share is
achieved due to overall cost leadership.

BCG matrix has four cells, with the horizontal axis representing relative
market share and the vertical axis denoting market growth rate. The mid-point
of relative market share is set at 1.0. if all the SBU’s are in same industry, the
average growth rate of the industry is used. While, if all the SBU’s are located

48
in different industries, then the mid-point is set at the growth rate for the
economy.

Resources are allocated to the business units according to their situation on

the grid. The four cells of this matrix have been called as stars, cash cows,
question marks and dogs. Each of these cells represents a particular type of
business.

Figure: BCG Matrix

1. Stars- Stars represent business units having large market share in a fast-
growing industry. They may generate cash but because of fast growing
market, stars require huge investments to maintain their lead. Net cash
flow is usually modest. SBU’s located in this cell are attractive as they
are located in a robust industry and these business units are highly
competitive in the industry. If successful, a star will become a cash cow
when the industry matures.
2. Cash Cows- Cash Cows represents business units having a large
market share in a mature, slow growing industry. Cash cows require
little investment and generate cash that can be utilized for investment
in other business units. These SBU’s are the corporation’s key source
of cash, and are specifically the core business. They are the base of an
49
 organization. These businesses usually follow stability strategies.
When cash cows lose their appeal and move towards deterioration, then
a retrenchment policy may be pursued.
3. Question Marks- Question marks represent business units having low
relative market share and located in a high growth industry. They
require huge amount of cash to maintain or gain market share. They
require attention to determine if the venture can be viable. Question
marks are generally new goods and services which have a good
commercial prospective. There is no specific strategy which can be
adopted. If the firm thinks it has dominant market share, then it can
adopt expansion strategy, else retrenchment strategy can be adopted.
Most businesses start as question marks as the company tries to enter a
high growth market in which there is already a market-share. If ignored,
then question marks may become dogs, while if huge investment is
made, then they have potential of becoming stars.
4. Dogs- Dogs represent businesses having weak market shares in low-
growth markets. They neither generate cash nor require huge amount
of cash. Due to low market share, these business units face cost
disadvantages. Generally retrenchment strategies are adopted because
these firms can gain market share only at the expense of
competitor’s/rival firms. These business firms have weak market share
because of high costs, poor quality, ineffective marketing, etc. Unless
a dog has some other strategic aim, it should be liquidated if there is
fewer prospects for it to gain market share. Number of dogs should be
avoided and minimized in an organization.

o PESTEL analysis

PESTEL analysis is a business strategy framework which is used to identify,

categorise and analyse the key external threats and opportunities a firm faces
now and into the future.

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The six letters in PESTEL represent the 6 most common categories used: P
for Political, E for Economic, S for Social (or Socio-Economic), T
for Technological, E for Environmental and L for Legal.

It is often termed a macro-scanning tool. This is because it involves looking a

the big-picture long-term changes in the external environment. (The external
environment is also sometimes called the macro-environment.)

A PESTEL analysis is a key input to most strategy development and execution

processes.

Why should you do a PESTEL analysis?

The PESTEL analysis is an essential strategy analysis tool for any strategist's
toolkit.

Together with other tools such as Porter's 5 Forces analysis it encourages

firms to consider the external environment in which they operate. This is
particularly important for more established, mature firms, which have a
tendency toward bureaucracy and become inward-looking.

PESTEL analysis can also provide a more forward-looking perspective by

flushing out trends. This can provide advance warning of potential threats and
opportunities, giving the firm more time to react. The different possible
outcomes from these trends can then also be combined and developed into
scenarios.

PESTEL analysis is particularly powerful when used:

- to identify the threats and opportunities a firm faces as part of a SWOT

analysis,

- in conjunction with a Porter's 5 Forces analysis, and

- as input to Scenario Planning.

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 FIGURE: PESTEL Analysis

Political

The Political sector includes any government, parastatal and special interest
group actions or lobbying in the form of policy, legislation, taxes and duties.
It also considers the stability or instability of governments. It is important to
understand the political agenda and how it might move for or against certain
industries or practices.

This might include:

- 'positive' moves such as the subsidies offered for alternative green

energy production, or
- 'negative' moves such as increasing taxes on alcohol or tobacco.

Depending on your firm, it may be important to consider both domestic

policy as well as international policy, trade policy and pressure groups.

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Economic

The Economic sector includes the general economic environment and the
effects that this might have on the business and its customers, distributors
and suppliers.

In conducting your analysis, it is important to distinguish between

- long-term trends and structural issues, and

- seasonal or cyclical issues.
Social

The Social sector considers changes in social preferences and norms. This is
sometimes also called the Socio-Economic or Socio-Cultural sector.

Such as:
• Demographics, including

o Population growth
o Population age distribution
o Birth and death rates
• Family size and dynamics
o Marriage, divorce and cohabitation
• Living standards
• Wealth distribution
• Ethnic and religious view and norms
• Health and health consciousness
• Education standards, etc

Technological

The Technological sector considers the impact of all forms of technological

development and innovation.

This could include

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 - new ways of producing goods and services
- new ways of distributing goods and services, and
- new ways of communicating with and engaging customers, suppliers
and distributors.

The development of information technologies, including the internet and

associated technologies such as mobile access is obviously a major factor
here. This includes both the consumer and business-to-business applications
of this. But it also includes improvements in manufacturing processes,
materials, energy and transportation.

Environmental

The Environmental sector has become increasingly important in recent

years as stakeholders have become more conscious of humankind's impact
on the natural environment.

Consider:

- changes and opportunities throughout the value chain which could

impact the environment, including,
- opportunities to communicate what the organization is doing about
them more effectively, and
- Corporate Social Responsibility (CSR) where businesses contribute to
societal goals either through how they operate and/or through
philanthropic activities such as volunteering or charitable
donations/activities.
Quick checklist
• The availability of raw materials
• Pollution and greenhouse gas emissions
• Positive business ethics and sustainability
• Carbon footprint
• Climate and weather

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 • Natural disasters
• Renewable energy, waste management and recycling
• Environmental legislation
• Geographic location and accessibility

Legal

Finally, the Legal sector looks at changes in laws, lawsuits and regulations
which affect the business. These can be general changes in the industry, or
specific lawsuits or regulatory interventions or sanctions which the business
is facing.

Such as:
• Health and safety regulations
• Equal opportunities laws
• Advertising standards rules
• Consumer rights and protections
• Privacy and data protection laws
• Product labelling requirements
• Product safety requirements
• Safety standards
• Employment/labour laws, etc,.

o The Business Model Canvas

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What is the Business Model Canvas (BMC)?

The Business Model Canvas is a strategic tool used for visually developing
or displaying a business model. A BMC illustrates what the business does,
for and with whom, the resources it needs to do that, and how money flows
in and out of the business. It can be used to design new models or to analyze
current models.

Elements of Business Model Canvas:

1. Key Partners:

The Key Partners section lists those people or organizations that are critical
to your business activities and customer outreach. These might be people
with whom you work in formal or informal alliances, collaborations,
partnerships, or joint ventures. They might be also suppliers.

2. Key Activities:

Describes the most important things a company must do to make its business
model work. These are the most important actions a company must take to
operate successfully. They are required to create and offer a Value
Proposition, reach markets, maintain Customer Relationships, and earn
revenues.

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3. Key Resources:

Describes the most important assets required to make a business. These can
include tangible resources such as financial reserves, buildings, equipment
and people, alongside intangible assets such as brand, trust, data and
intellectual property.

4. Value Propositions

Describes the bundle of products and services that create value for a specific
Customer Segment. The Value Proposition is the reason why customers turn
to one company over another as it solves a customer problem or satisfies a
customer need.

5. Customer relationships

Describes the types of relationships a company establishes with specific

Customer Segments. This aspect describes the kind of relationships
customers want or expect with you and the type of relationships you want to
make with them.

6. Channels

Describes how a company communicates with and reaches its Customer

Segments to deliver a Value Proposition. In this section company should
think about and the ways you will reach your Customer Segments. Word of
mouth, advertising and social media are all common Channels.

7. Customer segments

Defines the different groups of people or organizations an enterprise aims to

reach and serve. In order to better satisfy customers, a company may group
them into distinct segments with common needs, common behaviors, or
other attributes.

8. Cost structure

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Describe how your business generates revenue through the delivery of your
value proposition. This element describes the most important costs incurred
while operating under a particular business model.

9. Revenue streams

Represents the cash a company generates from each Customer Segment. A

company must ask itself, for what value is each Customer Segment truly
willing to pay? Successfully answering that question allows the firm to
generate one or more Revenue Streams from each Customer Segment.

o Porter’s Five Forces Model of Competition

Michael Porter (Harvard Business School Management Researcher) designed
various vital frameworks for developing an organization’s strategy. One of
the most renowned among managers making strategic decisions is the five
competitive forces model that determines industry structure. According to
Porter, the nature of competition in any industry is personified in the following
five forces:

1. Threat of new potential entrants

2. Threat of substitute product/services
3. Bargaining power of suppliers
4. Bargaining power of buyers
5. Rivalry among current competitors

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 FIGURE: Porter’s Five Forces model

The five forces mentioned above are very significant from point of view of
strategy formulation. The potential of these forces differs from industry to
industry. These forces jointly determine the profitability of industry because
they shape the prices which can be charged, the costs which can be borne,
and the investment required to compete in the industry. Before making
strategic decisions, the managers should use the five forces framework to
determine the competitive structure of industry.
Let’s discuss the five factors of Porter’s model in detail:

1. Risk of entry by potential competitors: Potential competitors refer to

the firms which are not currently competing in the industry but have the
potential to do so if given a choice. Entry of new players increases the
industry capacity, begins a competition for market share and lowers the
current costs. The threat of entry by potential competitors is partially a
function of extent of barriers to entry. The various barriers to entry are-
• Economies of scale
• Brand loyalty
• Government Regulation
• Customer Switching Costs

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 • Absolute Cost Advantage
• Ease in distribution
• Strong Capital base
2. Rivalry among current competitors: Rivalry refers to the competitive
struggle for market share between firms in an industry. Extreme rivalry
among established firms poses a strong threat to profitability. The
strength of rivalry among established firms within an industry is a
function of following factors:
• Extent of exit barriers
• Amount of fixed cost
• Competitive structure of industry
• Presence of global customers
• Absence of switching costs
• Growth Rate of industry
• Demand conditions
3. Bargaining Power of Buyers: Buyers refer to the customers who
finally consume the product or the firms who distribute the industry’s
product to the final consumers. Bargaining power of buyers refer to the
potential of buyers to bargain down the prices charged by the firms in
the industry or to increase the firms cost in the industry by demanding
better quality and service of product. Strong buyers can extract profits
out of an industry by lowering the prices and increasing the costs. They
purchase in large quantities. They have full information about the
product and the market. They emphasize upon quality products. They
pose credible threat of backward integration. In this way, they are
regarded as a threat.
4. Bargaining Power of Suppliers: Suppliers refer to the firms that
provide inputs to the industry. Bargaining power of the suppliers refer
to the potential of the suppliers to increase the prices of inputs( labour,
raw materials, services, etc) or the costs of industry in other ways.
Strong suppliers can extract profits out of an industry by increasing
costs of firms in the industry. Suppliers products have a few substitutes.
Strong suppliers’ products are unique. They have high switching cost.
Their product is an important input to buyer’s product. They pose

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 credible threat of forward integration. Buyers are not significant to
strong suppliers. In this way, they are regarded as a threat.
5. Threat of Substitute products: Substitute products refer to the
products having ability of satisfying customers needs effectively.
Substitutes pose a ceiling (upper limit) on the potential returns of an
industry by putting a setting a limit on the price that firms can charge
for their product in an industry. Lesser the number of close substitutes
a product has, greater is the opportunity for the firms in industry to raise
their product prices and earn greater profits (other things being equal).

The power of Porter’s five forces varies from industry to industry. Whatever
be the industry, these five forces influence the profitability as they affect the
prices, the costs, and the capital investment essential for survival and
competition in industry. This five forces model also help in making strategic
decisions as it is used by the managers to determine industry’s competitive
structure.

Porter ignored, however, a sixth significant factor- complementaries. This

term refers to the reliance that develops between the companies whose
products work is in combination with each other. Strong complementors
might have a strong positive effect on the industry. Also, the five forces model
overlooks the role of innovation as well as the significance of individual firm
differences. It presents a stagnant view of competition.

o Ansoff Matrix
The famous management expert, Igor Ansoff provided a roadmap for
firms to grow depending on whether they are launching new products or
entering new markets or a combination of these options. This roadmap has
been presented in the form of a Matrix that has four quadrants with the axes
of products and markets being the determinants of the strategies.

As can be seen from the figure accompanying this section, the combinations
of the two axes provide the firms with options that they can pursue in search
of market share.

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The four quadrants (which are described in detail subsequently) pertain to
increasing market share through market penetration, venturing into new
markets with the existing products or market development, and launching
new products in existing markets with product development, and
finally, diversification when firms seek to enter new markets with new
products.

Market Penetration

As can be seen from the figure above, market penetration happens when the
existing products are marketed in a way to increase the market share of the
firm. This is a minimal risk strategy as all that a firm has to do is to increase
its marketing efforts and improve on its market share. In other words, the firm
has to ensure that it leverages the current capabilities, resources, and gears
towards a growth-oriented strategy.

However, market penetration has its limitations and these manifest when the
market is saturated and hence, growth diminishes for the products. Examples
of market penetration would include the Television Channels and Media
Houses trying to maintain their existing features in the existing markets and
ensuring that they grow because of the growth in the size of the market or
because they have provided a value proposition that is better than their
competitors are.

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Market Development

When firms seek to expand into new markets with their existing products,
market development happens. This is suitable for firms that have the
capabilities and the resources to enter new markets in pursuit of growth.
Further, the firm’s core competencies must be aligned with the products rather
than the markets and wherein the firm senses an opportunity in the new
markets for its existing products.

Market development is more risky than market penetration as the firm is

entering uncharted waters and therefore, it is in the interests of the firms to do
their due diligence before entering new markets. Examples of market
development would be the mobile telephony companies like Vodafone and
Nokia entering African markets where these markets are yet to be tapped and
where these firms can leverage their existing expertise to enter these markets.

Product Development

When firms seek to launch new products in existing markets, product

development happens. This strategy can be successful when the firms have
already established themselves in the existing markets and all that they need
to do is to launch new products, which leverage the brand image and the brand
value and meet the expectations of the customers in the existing markets. For
instance, whenever consumer giants like Unilever and Proctor and Gamble
(P&G) launch new products in existing markets, they have the advantage of a
strong brand value and top of the mind recall among the customers about
them, which would help them to garner market share. When compared to the
previous two strategies, this strategy is more risky as it is not sure whether the
transfer of customers from the existing products to the new products would
happen as seamlessly as the firms strategists believe.

Diversification

When firms launch new products in new markets, diversification happens

which entails both new products to be developed and new markets to be
tapped. This is the most risky of the four quadrant strategies in the Ansoff
Matrix as essentially the firms are not only testing the waters in uncharted

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territory but they are also launching new products that may or may not be well
received by the customers.

Indeed, diversification is a high-risk strategy and is only justified when there

are chances of high returns for the firms. Examples of diversification would
include companies like Reliance venturing into mobile telephony and retail
segments where they not only have to move away from their core
competencies but also have to launch new products targeted at the new
customer segment.

Management experts recommend diversification only when the firms are

sitting on enough cash and other resources, as the firms need to have deep
pockets to stay the course until the time profits are realized. Further, they also
recommend firms with existing customer loyalty and customer base as the
cross migration from one segment to the other happens only when the
customers are assured of receiving value for their money. For instance, the
TATA group in India is perceived as delivering good value and this helped
them to garner market share when they diversified into new markets and new
products.

Conclusion

As can be seen from the preceding discussion, it is imperative for firms to

grow as otherwise their resources would not generate the returns needed for
the firms to make profits as well as deliver value to their shareholders.
Moreover, firms need to continually look for ways and means to increase their
market share, which would help them create value for their stakeholders. This
is the reason why the Ansoff Matrix has become so popular because it charts
the strategies that the firms must follow in each option, which again is a
combination of the firms’ current capabilities, and the possibility of new
market led growth.

In conclusion, the Ansoff Matrix is very relevant in these recessionary times

as it can be applied by any firm wishing to either expand into newer markets
or leverage its existing capabilities.

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