Module 3: Strategy Formulation:

CONTENT:
A. Competitor Analysis;
B. BCG Matrix;
C. International Dimensions of Strategy: Growth, Stability, Profitability, Efficiency,
Market Leadership, Survival, Merger, and Acquisition;
D. Core Competence. Bench marking,
E. McKinsey’s 7S Framework.
F. Formulation of strategy at corporate, business and functional levels.
G. Turnaround strategy and Diversification strategy.
H. Factors affecting strategic choice,
I. Generic competitive strategies: Cost leadership- Differentiation- Focus;

A] Competitor Analysis
Organizations must operate within a competitive industry environment. They do not exist in
vacuum. Analysing organization’s competitors helps an organization to discover its
weaknesses, to identify opportunities for and threats to the organization from the industrial
environment. While formulating an organization’s strategy, managers must consider the
strategies of organization’s competitors. Competitor analysis is a driver of an organization’s
strategy and effects on how firms act or react in their sectors. The organization does a
competitor analysis to measure / assess its standing amongst the competitors.

Competitor analysis begins with identifying present as well as potential competitors. It

portrays an essential appendage to conduct an industry analysis. An industry analysis gives
information regarding probable sources of competition (including all the possible strategic
actions and reactions and effects on profitability for all the organizations competing in the
industry). However, a well-thought competitor analysis permits an organization to concentrate
on those organizations with which it will be in direct competition, and it is especially important
when an organization faces a few potential competitors.

Michael Porter in Porter’s Five Forces Model has assumed that the competitive environment
within an industry depends on five forces- Threat of new potential entrants, Threat of substitute
product/services, bargaining power of suppliers, bargaining power of buyers, Rivalry among
current competitors. These five forces should be used as a conceptual background for
identifying an organization’s competitive strengths and weaknesses and threats to and
opportunities for the organization from it’s competitive environment.

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The main objectives of doing competitor analysis can be summarized as follows:
To study the market;
To predict and forecast organization’s demand and supply;
To formulate strategy;
To increase the market share;
To study the market trend and pattern;
To develop strategy for organizational growth;
When the organization is planning for the diversification and expansion plan;
To study forthcoming trends in the industry;
Understanding the current strategy strengths and weaknesses of a competitor can suggest
opportunities and threats that will merit a response;
Insight into future competitor strategies may help in predicting upcoming threats and
opportunities.
Competitors should be analyzed along various dimensions such as their size, growth and
profitability, reputation, objectives, culture, cost structure, strengths and weaknesses, business
strategies, exit barriers, etc.

What is Competitive Advantage in the Field of Strategic Management?

It is a truism that strategic management is all about gaining and maintaining competitive
advantage. The term can be defined to mean “anything that a firm does especially well when
compared with rival firms”. Note the emphasis on comparison with rival firms as competitive
advantage is all about how best to best the rivals and stay competitive in the market.
Competitive advantage accrues to a firm when it does something that the rivals cannot
do or owns something that the rival firms desire. For instance, for some firms, competitive
advantage in these recessionary times can mean a hoard of cash where it can buy out struggling
firms and increase its strategic position. In other cases, competitive advantage can mean that a
firm has lesser-fixed assets when compared to rival firms, which is again a plus in an economic
downturn.

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What is Sustained Competitive Advantage?
A firm can have a source of competitive advantage for only a certain period because the rival
firms imitate and copy the successful firms’ strategies leading to the original firm losing its
source of competitive advantage over the longer term. Hence, it is imperative for firms to
develop and nurture sustained competitive advantage. This can be done by:
▪ Continually adapting to the changing external business landscape and matching internal
strengths and capabilities by channelling resources and competencies in a fluid manner.
▪ By formulating, implementing, and evaluating strategies in an effective manner which
make use of the factors described above.

B] BCG Matrix or Growth Share Matrix:

The Boston Consulting Group (BCG) growth-share matrix is a planning tool that uses
graphical representations of a company’s products and services in an effort to help the
company decide what it should keep, sell, or invest more in.
The matrix plots a company’s offerings in a four-square matrix, with the y-axis representing
the rate of market growth and the x-axis representing market share. It was introduced by the
Boston Consulting Group in 1970

Understanding a BCG Growth-Share Matrix

The BCG growth-share matrix breaks down products into four categories, known heuristically
as "dogs," "cash cows," "stars," and “question marks.” Each category quadrant has its own set
of unique characteristics.2
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 organization. These businesses usually follow stability strategies. When cash

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 cows loose their appeal and move towards deterioration, then a retrenchment policy
may be pursued.
3. Question Marks- Question marks represent business units having low relative market
share and located in a high growth industry. They require huge amount of cash to
maintain or gain market share. They require attention to determine if the 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.

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Limitations of BCG Matrix
The BCG Matrix produces a framework for allocating resources among different business units
and makes it possible to compare many business units at a glance. But BCG Matrix is not free
from limitations, such as-
1. BCG matrix classifies businesses as low and high, but generally businesses can be
medium also. Thus, the true nature of business may not be reflected.

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 2. Market is not clearly defined in this model.
3. High market share does not always leads to high profits. There are high costs also
involved with high market share.
4. Growth rate and relative market share are not the only indicators of profitability. This
model ignores and overlooks other indicators of profitability.
5. At times, dogs may help other businesses in gaining competitive advantage. They can
earn even more than cash cows sometimes.
6. This four-celled approach is considered as to be too simplistic.

C] International Dimensions of Strategy:

Growth, Stability, Profitability, Efficiency, Market Leadership, Survival, Merger, and
Acquisition

Growth Strategies:
Your business will never increase in value without growth. But business growth does not
happen accidentally; it's the result of strategic initiatives. There are four basic growth
strategies you can employ to expand your business: market penetration, product
development, market expansion and diversification.

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What is the Ansoff Matrix?
The Ansoff Matrix, also called the Product/Market Expansion Grid, is a tool used by firms to
analyze and plan their strategies for growth. The matrix shows four strategies that can be used
to help a firm grow and also analyzes the risk associated with each strategy.

Understanding the Ansoff Matrix

The matrix was developed by applied mathematician and business manager, H. Igor
Ansoff, and was published in the Harvard Business Review in 1957. The Ansoff Matrix has
helped many marketers and executives better understand the risks inherent in growing their
business.

The four strategies of the Ansoff Matrix are:

1. Market Penetration: This focuses on increasing sales of existing products to an
existing market.
2. Product Development: Focuses on introducing new products to an existing market.
3. Market Development: This strategy focuses on entering a new market using existing
products.
4. Diversification: Focuses on entering a new market with the introduction of new
products.

Of the four strategies, market penetration is the least risky, while diversification is the riskiest.

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The Ansoff Matrix: Market Penetration
In a market penetration strategy, the firm uses its products in the existing market. In other
words, a firm is aiming to increase its market share with a market penetration strategy.
The market penetration strategy can be executed in a number of ways:
1. Decreasing prices to attract new customers
2. Increasing promotion and distribution efforts
3. Acquiring a competitor in the same marketplace

For example, telecommunication companies all cater to the same market and employ a market
penetration strategy by offering introductory prices and increasing their promotion and
distribution efforts.

The Ansoff Matrix: Product Development

In a product development strategy, the firm develops a new product to cater to the existing
market. The move typically involves extensive research and development and expansion of the
company’s product range. The product development strategy is employed when firms have a
strong understanding of their current market and are able to provide innovative solutions to
meet the needs of the existing market.
This strategy, too, may be implemented in a number of ways:
1. Investing in R&D to develop new products to cater to the existing market
2. Acquiring a competitor’s product and merging resources to create a new product that
better meets the need of the existing market
3. Forming strategic partnerships with other firms to gain access to each partner’s
distribution channels or brand

For example, automotive companies are creating electric cars to meet the changing needs of
their existing market. Current market consumers in the automobile market are becoming more
environmentally conscious.

The Ansoff Matrix: Market Development

In a market development strategy, the firm enters a new market with its existing product(s). In
this context, expanding into new markets may mean expanding into new geographic regions,
customer segments, etc. The market development strategy is most successful if (1) the firm
owns proprietary technology that it can leverage into new markets, (2) potential consumers in

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the new market are profitable (i.e., they possess disposable income), and (3) consumer behavior
in the new markets does not deviate too far from that of consumers in the existing markets.
The market development strategy may involve one of the following approaches:
1. Catering to a different customer segment
2. Entering into a new domestic market (expanding regionally)
3. Entering into a foreign market (expanding internationally)
For example, sporting goods companies such as Nike and Adidas recently entered the Chinese
market for expansion. The two firms are offering roughly the same products to a new
demographic.

The Ansoff Matrix: Diversification

In a diversification strategy, the firm enters a new market with a new product. Although such
a strategy is the riskiest, as both market and product development are required, the risk can be
mitigated somewhat through related diversification. Also, the diversification strategy may offer
the greatest potential for increased revenues, as it opens up an entirely new revenue stream for
the company – accesses consumer spending dollars in a market that the company did not
previously have any access to.
There are two types of diversification a firm can employ:
1. Related diversification: There are potential synergies to be realized between the existing
business and the new product/market.
For example, a leather shoe producer that starts a line of leather wallets or accessories is
pursuing a related diversification strategy.
2. Unrelated diversification: There are no potential synergies to be realized between the
existing business and the new product/market.
For example, a leather shoe producer that starts manufacturing phones is pursuing an unrelated
diversification strategy.

CORPORATE LEVEL STRATEGY:

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Meaning of Corporate Strategy. A business organization operates under the influence of
various environmental forces / factors. In order to survive and grow, an organization has to
constantly interact with various environmental forces and adapt and adjust it’s strategies
accordingly. So environmental and organizational analysis acts as the foundation for generating
strategic alternatives that an organization can consider for adoption
The corporate level strategies refer to identifying the businesses the company shall be engaged
in. They determine the direction that the firm takes in order to achieve its objectives. For a
small business firm, the corporate strategy can identify the courses of action for improving
profitability of the firm. In case of the large firm, the corporate strategy means managing the
various businesses to maximize their contribution to the achievement of overall corporate
objectives
Corporate level strategy is concerned with two main questions :
1) What business areas should a company deal in so as to maximize its long term profitability?
2) What strategies should it use to enter into and exit from business areas? I
In other words, corporate level strategies are basically about decisions related to allocating
resources among the different businesses of a firm, transferring resources from one set of
businesses to others and managing a portfolio of businesses in such a way that the overall
corporate objectives are achieved
International Dimensions- Corporate Level Strategies :
There are four generic ways in which corporate level strategy alternatives can be considered a)
stability b) growth c) retrenchment and d) combination. Firms take into consideration these
strategy alternatives while formulating their corporate strategies because only through generic
strategies, they can locate the particular route best suited for achieving the chosen objective.

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a) Stability Strategy - When a company finds that it should continue in the existing business
and is doing reasonably well in that business and there is no scope for significant growth, the
stability strategy is used.
b) Growth Strategy - When growth strategy is adopted, it can lead to addition of new products
/ or new markets or functions. Even without a change in business definition, many firms
undertake major increases in the scope of activities. Growth is usually considered as the way
to improve performance in terms of market share, sales turnover and profitability of the firm
It is possible for the firm to grow through the use of a) Internal and b) External growth
strategies.
A) Internal Growth Strategies – Internal growth is within the organization or with the help
of it’s internal resources. i.e. the capital, employees, the technique used for production etc.
There are no major changes in the management and operations of the organization, if it focuses
on internal growth. Internal growth can take place either by a) Intensification or b)
Diversification of business.
a) Intensification Strategy - In this strategy, a firm intends to grow by concentrating on its
existing businesses. This strategy involves three alternatives.
1) Market Penetration Strategy - This strategy involves using aggressive sales promotion
techniques for promoting the sale of existing products in existing markets. In order to capture
higher share of the market, a firm may cut prices, improve distribution network and adopt sales
promotion techniques to increase the sale to existing customers, convincing the non users to
purchase the products and also attracting the users of competing brands.
2) Market Development Strategy - This strategy involves finding out new markets for the
existing products. It aims at reaching new customer segments within an existing geographic
market, or it may aim at expanding into new geographic areas, including overseas markets.
3) Product Development Strategy - This strategy involves developing new products for existing
markets or for new markets. In product development, the firm may improve it’s product’s
features or performance or it may extend its product line.
b) Diversification Strategy - In this strategy, the firm enters into the new line of business. It
involves expansion or growth of business by introducing new products either in the same
market or in different markets. The firm may diversity for various reasons such as to spread
the risks by operating in various businesses, the make optimum use of resources, to face
competition effectively etc.
Diversification strategy involves the following forms :

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1) Vertical Diversification - In this case, the company expands its activities or product lines
vertically i.e. by forward or backword integration. i) Forward Integration - In forward
integration, the firm may start marketing its products by its elf i.e. by establishing it’s own
retail outlets. The purpose is to reduce the dependence on distributors and to enjoy control over
marketing of it’s products. ii) Backward Integration - In backward integration, the firm may
start manufacturing its own raw materials, spare parts and components. The purpose is to
reduce the dependence on suppliers and to enjoy control over it’s supplies.
2) Horizontal Diversification - In this case, a company expands its activities by introducing
new products or product lines which are related to a certain extent to the current line of
business. The products are related because they perform a closely related function, or are sold
to the same customer groups, or are marketed through the same distribution channel. For
example, a company manufacturing refrigerators may enter into manufacturing of air
conditioners or a truck manufacturing company may set up a car making unit.
3) Concentric Diversification - In involves diversification into such areas or products, which
are indirectly related to its existing line of business. In concentric diversification, the new
business is linked to the existing business through process, technology or marketing. For
example, a car dealer may start a finance company to finance hire purchase of cars.
4) Conglomerate Diversification - It involves entry in a totally new area or business. It is an
attempt to diversity outside the present market or product. In conglomerate diversification,
there are no linkages between the new business and the existing business. New line of business
is quite different as far as process, technology or functions are concerned. For example, a
computer software company may enter into insurance business.
B) External Growth Strategies : Growth with the help of external resources or organisations
is called external growth.
The external growth strategies can be broadly divided into three groups.
1) Mergers and Acquisitions
2) Amalgamations
3) Joint Ventures
1) Mergers and Acquisitions / Takeovers : In merger and acquisition, two companies come
together but only one company retains its existence and the other loses its identity i.e. the
company which acquires other company continues to operate in the business but the merging
company loses its existence. In merger, the acquiring company takes over the assets &
liabilities of another company. Shareholders of merging company are given the shares of the
acquiring company.

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Mergers represent a process of allocation and reallocation of resources of firms in response to
changes in economic conditions and technological innovations. The main rationale for a merger
is that the value of the merged firm is expected to be greater than the total of the independent
values of merging firms due to operating economies, tax benefits, opportunities of
diversification, ability to face competition and so on.
Merger may be horizontal, vertical or conglomerate. In horizontal merger, both the companies
(merging and merged) are engaged in the same line of business. In vertical merger, the
combining companies are engaged in the successive stages of production / marketing. In the
case of conglomerate merger, the combining companies are engaged in different business
activities which are unrelated.
There is minor difference between acquisition and takeover. In acquisition, both the companies
are willing to merge. In a takeover, the willingness is absent in the seller’s management.
Takeover is with force i.e. without the consent while acquisition is with mutual consent and
persuasion.
2) Amalgamation - An amalgamation is an arrangement in which the assets and liabilities of
two or more companies become vested in another company. In other words, it is a process of
combining two or more companies and a new company is formed. The shareholders of the
amalgamating companies become shareholders of new entity (amalgamated company)
Amalgamations are governed by the companies Act and require consent of the shareholders
and creditors.
3) Joint Ventures - Joint venture is a form of business combination. Two or more companies
form a temporary partnership and arrive at an agreement on certain issues of mutual interest.
New company is not created but suitable working arrangements are agreed upon. Such
agreements are beneficial to combining units. It is an economic route for gaining increased
competitiveness to combining units. Joint venture covers more areas of co-operation between
the two companies. Joint ventures are useful for the inflow of foreign capital, machinery and
technology for rapid industrial growth in developing countries. They are popular among the
developing counties and are not harmful provided the joint venture agreements are made with
due care and caution. In a joint venture, the business units from two different countries come
together for starting a new industrial activity. Joint venture is also possible among two or more
domestic companies. However, leading foreign companies are normally preferred. It is
generally for sharing of ownership and control of an economic enter pries between foreign firm
and local firm.

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Joint Venture is not an integration of two units. It is not a business combination in the ordinary
sense of the term as two companies maintain their independent identity even after the joint
venture agreement. It only suggests co-operation and participation for setting up a new
manufacturing unit in the country.
c) Retrenchment Strategies - Various external and internal developments create the problems
to the prospects of business firms. In declining industries, companies face such risks as falling
demand, emergence of more attractive substitutes, adverse government policies, and changing
customer needs and preferences. In addition to external developments, there are company
specific problems such as inefficient management and wrong strategies that lead to company
failures. In such circumstances, the industries, markets and companies face the danger of
decline in sales and profit and thereby intend to sub statically reduce the scope of its activity.
For this purpose, the problem areas are identified and the causes of the problems are diagnosed.
Then, steps are taken to solve the problems that result in different types of retrenchment
strategies.
The retrenchment strategies can be of the following forms :
1) Turn around strategy
2) Divestment strategy
3) Liquidation strategy
1) Turnaround Strategy : Turnaround strategy can be referred as converting a loss making unit
into a profitable one. According to Dictionary of Marketing ‘Turnaround means making the
company profitable again.’ Normally the turnaround strategy aims at improvement in declining
sales or market share and profits. The declining sales or market share may be due to several
factors both internal and external to the firm. Some of these factors may include high cost of
materials, reduction in prices of the goods and services, increased competition, recession,
managerial inefficiency etc.
Turnaround is possible only when the company can restructure its business operations. Certain
strategies which can be used for turning around include changing the management, redefining
the Co’s strategic focus, divesting for closing unwanted assets, improving profitability of
remaining operations, making acquisitions to rebuild core operations and so on.

2) Divestment Strategy - Divestment involves the sale of a division or a plant or a unit of one
firm to another. From seller’s point of view, it represents contraction of port folio, and from
the buyer’s point of view, it represents expansion

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Divestment is not an end in itself. Rather, it is a means to a larger end, building a company that
can grow and prosper over the long run. Wise executives divest businesses so that they can
create new ones and expand existing ones. Ultimate aim should be optimum utilization of
resources for creating shareholder value.

3) Liquidation Strategy : Winding up or liquidation of a company is the complete closing down

of the business of a company Basically it refers to a proceeding by which a company is
permanently dissolved and its assets are then disposed off to pay its debts. Surplus, if any is
distributed among the members according to their rights in the company. The decision to close
down or liquidate a company is taken after careful consideration, only when it is not possible
to carry on the company in the present state of affairs. It should also not be possible, for a
turnaround of the company in the future. Liquidation strategy should be considered as the last
resort because it leads to serious consequences such as loss of employment for workers and
other employee’s loss of job opportunities and the stigma of failure.

D) Combination Strategies : When an organization adopts a mix of stability, expansion and

retrenchment either simultaneously or sequentially for the purpose of improving its
performance, it is said to follow the combination strategies. Combination strategies are applied
at the same time in different businesses or at different times in the same business. No
organization has grown or survived by following a single strategy. The complex nature of
businesses requires that different strategies be adopted to suit the situation i.e. as companies
divest businesses, they also need to formulate expansion plans focused on strengthening
remaining businesses, starting new ones or making acquisitions. An organization following a
stability strategy for quite some time has to consider expansion and one that has been on
expansion path for long has to pause to consolidate its businesses. Multi business firms have
to adopt multiple strategies either simultaneously or sequentially.

D] What Are Core Competencies?

Core competencies are the resources and capabilities that comprise the strategic advantages
of a business. A modern management theory argues that a business must define, cultivate, and
exploit its core competencies in order to succeed against the competition.
A variation of the principle that has emerged in recent years recommends that job seekers
focus on their personal core competencies in order to stand out from the crowd. These positive

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characteristics may be developed and listed on a resume. Some personal core competencies
include analytical abilities, creative thinking, and problem resolution skills.
A successful business has identified what it can do better than anyone else, and why. Its core
competencies are the "why." Core competencies are also known as core capabilities or
distinctive competencies. Core competencies lead to competitive advantages.
Real-World Examples
A business is not limited to just one core competency, and competencies vary based on the
industry in which the institution operates.
Some of the core competencies of established and successful brands tend to be there for all to
see:
• McDonald's has standardization. It serves nine million pounds of French fries every
day, and every one of them has precisely the same taste and texture.2
• Apple has style. The beauty of its devices and their interfaces gives them an edge over
its many competitors.
• Walmart has buying power. The sheer size of its buying operation gives it the ability
to buy cheap and undersell retail competitors.
Benchmarking:
Benchmarking, is a tool of strategic management, that allows the organization to set goals and
measure productivity, on the basis of the best industry practices. It is a practice in which quality
level is used as a point of reference to evaluate things by making a comparison.
The process helps in comparing and gauging the processes, programs, strategies and
performance metrics with the standard measurements or to other similar companies. It is
concerned with the analysis of three major dimensions:
• Quality
• Time
• Cost
It is a useful technique for enhancing the organisation’s performance by identifying and
implementing the finest process and practices, for achieving them.
The process involves repeatedly evaluating the aspects of performance with the similar
measurements of its peers, identifying the gaps, discovering new methods for filling gaps and
also for excelling the condition, so that the gaps might prove positive for the organisation.

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E] McKinsey’s 7S Framework
McKinsey 7S model is a tool that analyzes firm’s organizational design by looking at 7 key
internal elements: strategy, structure, systems, shared values, style, staff and skills, in order to
identify if they are effectively aligned and allow organization to achieve its objectives.
Understanding the tool
McKinsey 7s model was developed in 1980s by McKinsey consultants Tom Peters, Robert
Waterman and Julien Philips with a help from Richard Pascale and Anthony G. Athos. Since
the introduction, the model has been widely used by academics and practitioners and remains
one of the most popular strategic planning tools. It sought to present an emphasis on human
resources (Soft S), rather than the traditional mass production tangibles of capital,
infrastructure and equipment, as a key to higher organizational performance. The goal of the
model was to show how 7 elements of the company: Structure, Strategy, Skills, Staff, Style,
Systems, and Shared values, can be aligned together to achieve effectiveness in a company.
The key point of the model is that all the seven areas are interconnected and a change in one
area requires change in the rest of a firm for it to function effectively.

The model
can be applied to many situations and is a valuable tool when organizational design is at
question. The most common uses of the framework are:
• To facilitate organizational change.
• To help implement new strategy.

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 • To identify how each area may change in a future.
• To facilitate the merger of organizations.
7s factors
In McKinsey model, the seven areas of organization are divided into the ‘soft’ and ‘hard’ areas.
Strategy, structure and systems are hard elements that are much easier to identify and manage
when compared to soft elements. On the other hand, soft areas, although harder to manage, are
the foundation of the organization and are more likely to create the sustained competitive
advantage.

Hard S Soft S

Strategy Style

Structure Staff

Systems Skills

Shared Values

Strategy is a plan developed by a firm to achieve sustained competitive advantage and

successfully compete in the market. What does a well-aligned strategy mean in 7s McKinsey
model? In general, a sound strategy is the one that’s clearly articulated, is long-term, helps to
achieve competitive advantage and is reinforced by strong vision, mission and values. But it’s
hard to tell if such strategy is well-aligned with other elements when analyzed alone. So the
key in 7s model is not to look at your company to find the great strategy, structure, systems
and etc. but to look if its aligned with other elements. For example, short-term strategy is
usually a poor choice for a company but if its aligned with other 6 elements, then it may provide
strong results.
Structure represents the way business divisions and units are organized and includes the
information of who is accountable to whom. In other words, structure is the organizational
chart of the firm. It is also one of the most visible and easy to change elements of the
framework.
Systems are the processes and procedures of the company, which reveal business’ daily
activities and how decisions are made. Systems are the area of the firm that determines how
business is done and it should be the main focus for managers during organizational change.

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Skills are the abilities that firm’s employees perform very well. They also include capabilities
and competences. During organizational change, the question often arises of what skills the
company will really need to reinforce its new strategy or new structure.
Staff element is concerned with what type and how many employees an organization will need
and how they will be recruited, trained, motivated and rewarded.
Style represents the way the company is managed by top-level managers, how they interact,
what actions do they take and their symbolic value. In other words, it is the management style
of company’s leaders.
Shared Values are at the core of McKinsey 7s model. They are the norms and standards that
guide employee behavior and company actions and thus, are the foundation of every
organization.

F] Three Levels of Strategy: Corporate Strategy, Business Strategy and Functional

Strategy
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. In our
previous article on ‘What is Strategy?!‘ we have already tried to define and explain what
business strategy refers to and what is NOT considered to be part of strategy. In this article, we
will dissect strategy in 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 1).
Corporate strategy is different from Business strategy and Functional strategy. Even though

Prof Bhavya Vinil, School of Management, CMR University

Corporate-level strategy is at the top of the pyramid, we start this article by explaining

Business-level strategy first.

Figure 1: Three Levels of Strategy Pyramid
Business-level strategy
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 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 the VRIO Model 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.
Functional-level strategy
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

Prof Bhavya Vinil, School of Management, CMR University

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 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. Technically, these decisions are very operational in nature and are
therefore NOT part of strategy. As a consequence, it is better to call them tactics instead of
strategies.
Corporate-level strategy
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.
Example 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 on the television screen business instead?”.

Prof Bhavya Vinil, School of Management, CMR University

G] Turnaround strategy and Diversification strategy.
The Turnaround Strategy is a retrenchment strategy followed by an organization when it
feels that the decision made earlier is wrong and needs to be undone before it damages the
profitability of the company. turnaround strategy is backing out or retreating from the decision
wrongly made earlier and transforming from a loss making company to a profit making
company.
Now the question arises, when the firm should adopt the turnaround strategy? Following are
certain indicators which make it mandatory for a firm to adopt this strategy for its survival.
These are:
• Continuous losses
• Poor management
• Wrong corporate strategies
• Persistent negative cash flows
• High employee attrition rate
• Poor quality of functional management
• Declining market share
• Uncompetitive products and services
Also, the need for a turnaround strategy arises because of the changes in the external
environment Viz, change in the government policies, saturated demand for the product, a threat
from the substitute products, changes in the tastes and preferences of the customers, etc.

Prof Bhavya Vinil, School of Management, CMR University

Example: Dell is the best example of a turnaround strategy. In 2006. Dell announced the cost-
cutting measures and to do so; it started selling its products directly, but unfortunately, it
suffered huge losses. Then in 2007, Dell withdrew its direct selling strategy and started selling
its computers through the retail outlets and today it is the second largest computer retailer in
the world.
Diversification is a strategy for growth through branching out into a new market segment,
allowing your business to expand its presence and occupy a totally new space. This is achieved
through expanding (or diversifying) your product or service offering to target new
customers and grow profits.
There isn’t just one type of diversification; there are several different ways to diversify and
grow your company. Below, I’ll walk you through different types of diversification
strategies and illustrate the advantages and disadvantages of each for your company.
Types of diversification strategies
There are six established types of diversification strategies:
1. Horizontal diversification
2. Vertical diversification
3. Concentric diversification
4. Conglomerate diversification
5. Defensive diversification
6. Offensive diversification
Why diversification is important
Diversification may not be for everyone and every business, but it’s a business strategy that is
definitely worth considering for any company looking to grow.
Diversification has been used by some of the most successful companies around the globe,
including Apple, Google, Starbucks, and more.
Here are the main reasons to consider diversification:
• Diversification allows businesses to significantly increase their revenue by leveraging
their existing resources, brand recognition, and customer base.
• Diversifying your business, rather than investing in a single product or market, lowers
your company’s risks.
• Diversification allows you to remain profitable during industry ups and downs, as a
society, the economy, and consumerism fluctuate.
• Diversification allows you to maximize your company’s current resources, which
may be underutilized.

Prof Bhavya Vinil, School of Management, CMR University

H] Strategic Choice – Factors Affecting & Process of Strategic Choice
Strategic choice refers to the decision which determines the future strategy of a firm. It
addresses the question “Where shall we go”.

A SWOT analysis is conducted to examine the strengths and weaknesses of the firm and
opportunities that can be exploited are also determined.
Based on the analysis the firm selects a path among various other alternatives that will
successfully achieve the firm`s objectives. Strategic choice is, therefore, the decision to select
from among the grand strategies considered, the strategy which will best meet the enterprise
objectives. The decision involves the following four steps – focusing on a few alternatives,
considering the selection factors, evaluating the alternatives
against these criteria and making the actual choice.
Factors Affecting Strategic Choice
• Environmental constraints
• Internal organizations and management power relationships
• Values and preferences
• Management`s attitude towards risk
• Impact of past strategy
• Time constraints- time pressure, frame horizon, the timing of the decision
• Information constraints
• Competitors reaction

Process of Strategic choice

1. Focusing on alternatives – The aim of this step is to narrow down the choice to a
manageable number of feasible strategies. It can be done by
visualizing a future state and working backward from it. Managers generally use GAP analysis
for this purpose. By reverting to a business definition it helps the managers to think in a
structured manner along any one or more dimensions of the business.
• At the Corporate level, strategic alternatives are -Expansion, Stability, Retrenchment,
Combination
• At the Business level, strategic alternatives are – Cost leadership, Differentiation or
Focused business strategy.
•
2. Analyzing the strategic alternatives- The alternatives have to be subjected to a thorough
analysis that relies on certain factors known as selection factors. These selection factors
determine the criteria on the basis of which the evaluation will take place. They are:
Objective factors – These are based on analytical techniques and are hard facts used to
facilitate strategic choice.
Subjective factors – These are based on one`s personal judgment, collective or descriptive
factors.

3. Evaluation of strategies – Each factor is evaluated for its capability to help the organization
to achieve its objectives. This step involves bringing together analysis carried out on the basis

Prof Bhavya Vinil, School of Management, CMR University

of subjective and objective factors. Successive iterative steps of analyzing different alternatives
lie at the heart of such evaluation.

4. Making a strategic choice– A strategic choice must lead to a clear assessment of

alternatives which is the most suitable alternative under the
existing conditions. A blueprint has to be made that will describe the strategies and conditions
under which it operates. Contingency strategies
must be also devised

I] Porter's Generic Competitive Strategies (ways of competing)

A firm's relative position within its industry determines whether a firm's profitability is above
or below the industry average. The fundamental basis of above average profitability in the long
run is sustainable competitive advantage. There are two basic types of competitive advantage
a firm can possess: low cost or differentiation. The two basic types of competitive advantage
combined with the scope of activities for which a firm seeks to achieve them, lead to three
generic strategies for achieving above average performance in an industry: cost leadership,
differentiation, and focus. The focus strategy has two variants, cost focus and differentiation
focus.

1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources
of cost advantage are varied and depend on the structure of the industry. They may include the
pursuit of economies of scale, proprietary technology, preferential access to raw materials and
other factors. A low cost producer must find and exploit all sources of cost advantage. if a firm
can achieve and sustain overall cost leadership, then it will be an above average performer in
its industry, provided it can command prices at or near the industry average.

2. Differentiation
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions
that are widely valued by buyers. It selects one or more attributes that many buyers in an
industry perceive as important, and uniquely positions itself to meet those needs. It is rewarded
for its uniqueness with a premium price.

Prof Bhavya Vinil, School of Management, CMR University

3. Focus
The generic strategy of focus rests on the choice of a narrow competitive scope within an
industry. The focuser selects a segment or group of segments in the industry and tailors its
strategy to serving them to the exclusion of others.

The focus strategy has two variants.

(a) In cost focus a firm seeks a cost advantage in its target segment, while
in (b) differentiation focus a firm seeks differentiation in its target segment. Both
variants of the focus strategy rest on differences between a focuser's target segment and
other segments in the industry. The target segments must either have buyers with
unusual needs or else the production and delivery system that best serves the target
segment must differ from that of other industry segments. Cost focus exploits
differences in cost behaviour in some segments, while differentiation focus exploits the
special needs of buyers in certain segments.

[IMPORTANT NOTE: THESE ARE LECTURE NOTES AND ARE NOT

COMPLETE AND EXHAUSIVE. REFER CLASS NOTES AND REFERENCE
BOOKS AND GATHER COMPLETE INFORMATION.]

Prof Bhavya Vinil, School of Management, CMR University