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SM Chalisa
SM Chalisa
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ICAI
SM
CHALISA
Handwritten Notes
CA KISHAN KUMAR
(CA Rank Holder, ex PwC , Chief Minister Awarded)
DEDICATED TO
Finally, I would request student community to bring to my notice any error, omission and
suggestions for further improvement of this book which will be thankfully acknowledged and
incorporated in next edition.
Happy Learning!!
CA Kishan Kumar
Note: This is a Summary Book & Must be Read along with our Fast-Track Lectures or Marathon
Lectures. To ensure completeness, it must be used along with our Question Bank – SM Divyastra.
Start !!
SM चालीसा - Handwritten Notes
INDEX
S No. Topics Page No.
1. Introduction to Strategic Management 1–6
2. Dynamic of Competitive Strategy 7 – 22
3. Strategic Management Process 23 – 28
Start!!
Introduction to Strategic Management
C HAPTER 1
1. BUSINESS POLICY
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Introduction to Strategic Management
2. S T R A T E G I C M A N A G EM EN T
Strategy Management
3. S T R A T E G Y
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Introduction to Strategic Management
3.2. P O L I C Y & S T R A T E G Y
▪ Policy and Strategy are quite interrelated, but the interesting thing to study is how they differ.
▪ Policy is a thought process, it talks about what should be done in a particular situation, or what should
be the reaction to a given circumstance.
▪ Strategy part of it explains the real actions. Strategy talks about how the policy would be followed.
▪ For example, the policy of an organisation could be to not drop their prices to fight competition. The
strategy could be to give more quantity for the same price, or give some other product as a freebie to
attract customers without dropping their price.
4. M A N A G E M E N T
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Introduction to Strategic Management
5.1. I M P O R T A N C E / B E N E F I T S / A D V A N T A G E S O F S TR A T EG I C M A N A G EM EN T
Darwin propagated “Survival of the fittest”. It is the only principle of survival of organization.
Fittest is not the largest or strongest but one which can change and adapt to changing business conditions.
Business follows the war principle of “Win or lose’. Only in rare cases, win–win situation arises. Hence, each
organization needs to build competitive edge over rivals. ACDEFP
a) Direction to company It gives direction to Company to move ahead. It defines objectives & goals
which are in line with Company’s vision.
b) Proactive instead of It helps company to adopt proactive strategies instead of reactive strategies.
reactive Organizations are able to analyse and take decisions in advance.
c) Future ready It prepares organization to face the future, seize business opportunities and
deal with threats.
d) Develop core It helps Organization to develop core competencies and competitive
competencies & advantages.
competitive advantage This facilitates its fight for growth and survival.
e) Corporate Defence It acts as corporate defence mechanism against mistakes and pitfalls.
mechanism Helps organization to avoid costly mistakes.
f) Framework for decision It provides framework to management for major decision making.
making
g) Enhance Longevity of It helps Organisation to face competition and dynamic market. It makes sure
Business that it is not just surviving on luck.
5.2. L I M I T A T I O N S O F S T R A T E G I C M A N A G E M EN T R ETC
SM cannot counter all hindrances/ obstacles/ roadblocks/ bottlenecks/ problems and ensure success.
a) Environment is highly Organization’s estimate about future may drastically go wrong & jeopardize/
complex and turbulent endanger all strategic plans.
b) Time consuming Organizations spend a lot of time in preparing and communicating strategies
that may affect daily routine operations.
c) Costly It adds lot of expenses to Org as expert strategic planners needs to be engaged.
d) Response to Since all Organizations are trying to move strategically, it is difficult to
competitors estimate competitive response to Firm’s strategy.
6. S T R A T E G I C L E V E L S I N A N O R G A N I Z A T I O N
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Introduction to Strategic Management
self contained
1) Corporate They participate in strategic decision making like Merger/acquisition, new product
Level launch etc.
They oversee development of strategies for whole organization. For this his task includes:
a) Defining vision, mission and objectives of Organization
b) Determining what businesses it should be in
c) Allocating resources among different divisions
d) Providing leadership for Organization
e) Acts as a linkage between Management and Shareholders i.e., owner of business.
[CEO is viewed as guardian of shareholder welfare and must make strategies to
maximize the wealth of shareholders]
2) Strategic It is self-contained Division with its own business functions like HR, CRM, Sale and
Business level Marketing, R&D etc.
(SBU) Principle General Manager or Business level manager is head of a division.
They are responsible for working of Division and overseeing all functions of the Division.
They are responsible to translate general statements of direction of Corporate Level into
concrete business plans.
3) Functional Responsible for specific business functions in a division or company like marketing,
level R&D, HR etc.
Functional managers are also responsible for
a) developing functional strategies in their area to fulfill strategic objectives set by
corporate level managers; and
b) implementing/ executing strategies of corporate level and business level managers.
They are closer to customers and provide most of information that enable corporate
level and business level managers to formulate realistic and attainable strategies.
General Managers are found at first two levels but their strategic roles differ.
7. S T R A T E G I C M A N A G E M E N T I N G O V E R N M E N T D E P A R TM EN TS A N D N O T - F O R -P R O F I T O R G A N I Z A T I O N S
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Introduction to Strategic Management
7.1. E D U C A T I O N A L I N S T I T U T I O N S
7.2 . M E D I C A L O R G A N I Z A T I O N S
7.3. G O V E R N M E N T A G E N C I E S A N D D E P A R T M E N T
▪ They use tax payer’s money to provide services to general public. Hence, they need to formulate,
implement and evaluate strategies that enable them to be more effective and efficient.
▪ They are also using SM to develop and substantiate formal request for additional funding.
▪ However, strategists in Government Organizations operate with less autonomy. They cannot diversify or
merge with other company.
▪ Politician have direct or indirect control over major decisions.
▪ Strategy gets debated in parliament and Media resulting in fewer strategic alternatives.
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Dynamics of Competitive Strategy
C HAPTER 2
1. CO MPETITIVE STRATEG Y
2. C O M P E T I T I V E L A N D S C A P E
▪ Competitive landscape is a business analysis which identifies competitors, either direct or indirect.
▪ Competitive landscape is about
➢ identifying and understanding competitors and
➢ comprehension of their vision, mission, values, niche market, strengths & weaknesses.
▪ This enables a Firm to develop competitive strategy to give competitive advantage.
▪ Understanding of competitive landscape requires an application of “competitive intelligence”
Steps to understand competitive landscape:
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Dynamics of Competitive Strategy
a) Identifying the Need to find out who are the competitors, their actual market shares etc.
competitors This answers the question “Who are competitors and how big they are?”
b) Understanding the through market research, reports, newspapers, social media.
competition This answers the question “What are their products and services”?
c) Determine strength This answers the questions
of competition
➢ What are their financial positions?
➢ What gives them cost & price advantage?
➢ How strong is their distribution network?
➢ What are their human resource strengths?
d) Determine the through consumer reports and reviews appearing in various media.
weakness of This answers the question ‘Where are they lacking’?
competition
e) Put all information Strategist puts all information together to draw conclusion/inference about what
together competitor is not offering and how they can fill the gap.
This answers the questions
➢ What improvements does Firm needs to make.
➢ How can Firm exploit weaknesses of the competitors?
3. S T R A T E G I C A N A L Y S I S
▪ Refers to analysis of both internal as well as external environment of business based on which strategic
plans can be developed.
▪ Strategic analysis gives detailed view of industry, competition, organization’s strength and weakness.
▪ Strategic analysis helps in evaluation of alternatives to choose sound winning strategy.
Issues considered for strategic analysis
a) Strategy evolves over Strategy of a Firm is a result of series of small decisions taken over a period of
a period of time time.
b) Balancing of internal Strategy formulation involves matching internal strengths and weaknesses
and external factors with external opportunities and threats.
In reality, perfect match between them is not possible. Hence, strategic
analysis uses workable balance.
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Dynamics of Competitive Strategy
c) Risks Competitive market, globalization, Booms and recessions, technology
advancement, etc. affect businesses and pose risk.
Various strategic risks are as given below:
Short Term Long Term
External Error in interpreting the Changes in environment leads to
environment that causes obsolescence of strategy
strategic failure
Internal Organizational capacity is Inconsistent strategy is
unable to cope up with developed on account of change
demand in internal capacities
▪ Industry: Group of Firms who provide similar type of products and services to customers and strive to
acquire the customers.
▪ Industry and competitive analysis helps in getting clear picture of
➢ key industry features,
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Dynamics of Competitive Strategy
➢ intensity of competition,
➢ drivers of change, and
➢ market position and strategies of rival companies.
Issues covered in Industry and Competitive Analysis
i) Dominant economic Industries differ significantly in their character. Factors to be considered are:
features of Industry a) Size and nature of market
b) Market growth rate and potential
c) Market profitability
d) No. of rivals and their market share
e) Capital requirement
f) Types of distribution channel
g) Impact of technology on Industry
iv) Identifying Strategic group consists of those rivals who have similar competitive approach
Strongest and and position in market (comparable product, price, quality etc.)
Weakest Companies There may be one or more strategic groups in an Industry.
/ Strategic Group
Mapping Procedure for constructing strategic group:
a) Identify competitive characteristics that differentiate Firms in the industry.
➢ Price/ Quality (High, Medium, low)
➢ Geographic coverage (Local, National, Global)
➢ Degree of services offered (No-frills, Limited, full)
b) Plot Firms on two variable map.
c) Draw circle around each group where each group represents their market
share.
v) Likely Strategic In order to out-do competitors and survive in long run, it is essential to gain
Moves of Rivals competitive intelligence.
Competitive intelligence about strategies that rivals are deploying and their
strength and weakness is essential to anticipate next moves and its impact on
Co’s own strategy.
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Competitive intelligence helps company to determine whether
a) it needs to defend itself against specific move taken by rival; or
b) adopt offensive approach.
vi) Key Factors for Key Success factors in an industry are things like product attributes,
Competitive competencies, resources etc. that affect industry member’s ability to succeed.
Success Key factors vary from industry to industry. Key success factors in
➢ Retail Industry → Location , product range, price
➢ Apparel Industry → Appealing design, colour, price
➢ IT Industry → Technology, Efficiency, price
Generally, there are 3 to 4 key success factors in an Industry.
Identifying KSFs - Answer to 3 question helps identify an Org’s KSF:
a) On what basis customers choose between competitive sellers?
b) What a seller needs to do to be competitive successful?
c) What does it take to achieve sustainable competitive advantage?
vii) Prospects and Final step of Industry and competitive analysis is to use result of analysis of
financial previous six issues to draw conclusion about attractiveness or unattractiveness of
attractiveness of Industry.
Industry Important factors on which conclusion is based includes:
a) Industry’s growth potential.
b) Impact of competition on Industry’s profitability.
c) Impact of driving forces i.e, triggers of change on Industry’s profitability.
d) Competitive position of Firm in the Industry and whether it is likely to
become stronger or weaker.
e) Severity of problems faced by Industry as a whole.
5. C O R E C O M P E T E N C Y
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Dynamics of Competitive Strategy
5.1. A R E A S W H E R E M A J O R C O R E C O M P E T E N C I E S A R E I D E N T I F I E D – A S PE R CK P R A H LA D & G A R Y H A M E L
5.2. W H Y T O I D E N T I F Y A N D D E V E L O P C O R E C O M P E T E N C Y
Examples
Small retail shops have CC in Personal service to customers, Extended working hours, Easy credit, Free
the areas of home deliveries, Amicable style of the owner and Proximity.
Big retail stores & super Merchandising, Securing supplies at lower cost, In-house activity
markets have CC in areas of management, Computerized stock ordering, Billing systems and own
brand labels.
Supermarkets compete with Locational advantage, Quality assurance, Customer convenience in
one another with CC as to shopping, etc.
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5.3. H O W T O B U I L D C O R E C O M P E T E N C I E S / F O U R C R I T E R I A T O D E T E R M I N E S U S T A I N A B L E C O R E C O M P E T E N C Y
5. 4. V A L U E C H A I N A N A L Y S I S F O R D E V E L O P I N G C O R E C O M P E T E N C Y
Support Activities – Each of Primary activities are linked to following support activities:
Procurement Technology Development HR Management Infrastructure
Refers to process of It may be in relation to Involves recruitment, It supports Org. in
acquiring various training, developing executing primary
➢ Product (R&D product design)
inputs to primary and rewarding people. functions.
activities. ➢ Process i.e., process
development or
➢ Particular resource ( Raw
material improvement)
5. 4.1. U S I N G V A L U E C H A I N A N A L Y S I S F O R I D E N T I F Y I N G C O R E C O M P E T E N C Y
▪ V.C. helps in analyzing separate activities performed by an Org. to achieve its goals by framing strategies.
▪ Although a threshold competence is required in all activities to succeed, it is also important to identify
those competencies which are critically important to Organization’s competitive advantage.
▪ V.C. differs from organization to organization depending on how it is positioned and what strategy it is
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Dynamics of Competitive Strategy
following.
▪ Example: In US, GM & Ford focused on dealer network and overseas production plants while in Japan, Toyota
focused on defect free manufacturing.
5. 4.2. S U S T A I N A B L E C C/ D I F F E R E N T B A S E S A S T O H O W C C C A N B E A N A L Y S E D A N D U N D E R S T O O D
a) Managing Linkages
Core competencies in various activities may provide competitive advantage but it can be easily copied by
competitors.
Core competencies are more robust and difficult to imitate if there is linkage between various processes.
Management between these linkages and ability to co-ordinate activities of different processes provide level
of performance which is difficult to imitate. This leads to sustainable core competencies.
Management of internal linkage may create competitive advantage in number of ways:
Linkage b/w Primary Activities Linkage b/w Primary & Secondary Acti. Linkage b/w Supporting Acti.
E.g. Decision to hold high level of E.g. Organisation using technology to E.g. Extent to which HR is
F.G. eases burden of production. sell Goods and services (Ola & Uber). comfortable with new tech.
b) Ability to complement/co-ordinate own activities with those of suppliers and customers etc. also gives
rise to competitive advantage.
Example: Total quality management which seeks to improve performance through closer relationship
between specialists in value chain.
E.g. Many manufacturers involve suppliers and distributors at design stage of product.
c) Vertical integration through ownership of more parts of value chain.
Example: Apple making its own hardware and software.
6. COMPETITIVE ADVANTAGE
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6.2. V A L U E C R E A T I O N
▪ Value is measured by product’s feature, quality, availability, durability and performance for which customer
is willing to pay.
▪ Value creation is an activity by Firm to create value that increases worth of goods, service and business.
▪ Value creation may be in terms of creating better value for
➢ customers as well as
➢ stakeholders who want to see their investment in business appreciate in value.
▪ Value creation gives rise to competitive advantage and helps Firm to earn higher profitability than other
Organization in the industry.
▪ Profitability of a company depends on
➢ cost of creating product
➢ price charged by company
➢ value customer places on company’s product i.e., utility a customer gets from the goods/ services.
▪ The excess amount customer wants to pay, over and above the price that business wants to charge is called
value creation.
▪ According to Michael porter, company can generate competitive advantage in two ways: (Covered in Ch 5)
Cost Advantage Differentiation
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Dynamics of Competitive Strategy
7. SWOT ANALYSIS
Identification and Analysis of strength, weakness, opportunity & threat of an Org. is called SWOT analysis.
Strength (+) Weakness (-) Opportunity (+) Threat (-)
Inherent capabilities Inherent limitations/ Favourable condition in Unfavourable condition in
of an Organization constraints which organization’s organization’s environment
used to gain strategic creates strategic environment to which causes risk or damage
advantage. disadvantage. strengthen its position. to organization’s position.
7.1. P U R P O S E / O B J E C T I V E O F SW O T A N A L Y S I S
It enables management to
➢ create a firm’s specific business model which
➢ best aligns/ fits/ matches an organization’s capabilities
➢ with demand of market/ environment.
SWOT Analysis provides competitive advantage to an organization.
7.2. S I G N I F I C A N C E O F SW O T A N A L Y S I S
8. TO W S M A T R I X
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ST (Maxi- Mini strategy) Conservative strategy - How we can use our strengths to minimize threats.
WO (Mini-Maxi strategy) Competitive strategy - How can we minimize weakness and exploit opportunity.
WT (Mini-Mini strategy) Defensive strategy - How can we minimize weakness as well as threat
9. PORTFOLIO ANALYSIS
9.1. 1. S T R A T E G I C B U S I N E S S U N I T ( S BU )
9.1. 2. E X P E R I E N C E C U R V E
It is similar to learning curve which means efficiency of workers increases due to repetitive work.
It means cost per unit declines as cumulative production increases.
Reduction in cost per unit may be due to learning effect, economies of scale, technology improvement, process
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Dynamics of Competitive Strategy
improvement etc.
Characteristics of Experience curve
a) As business grows, it gains experience.
b) It provides an advantage over competition. Experience curve is key entry barrier.
c) Large businesses possess strategic experience curve.
9.1.3. P R O D U C T L I F E – C Y C L E
It is a S-shaped curve which reflects relationship of sales w.r.t time/ life of a product.
A product typically passes through 4 stages:
a) Introduction (slow sales growth)
b) Growth (rapid sales growth)
c) Maturity (slowdown in sales growth rate)
d) Decline (sharp decline in sales)
9. 2. P O R T F O L I O A N A L Y S I S M O D E L S
Companies which are large enough to be categorized into SBUs face challenge of allocating resources among
them.
There are 4 portfolio analysis models for determining this:
a) BCG G-S Matrix
b) Ansoff PMG Matrix
c) ADL Matrix
d) GE Matrix
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9. 2.1. B CG G R O W T H S H A R E M A T R I X [ B O S T O N C O N S U L T A N C Y G R O U P ]
BCG Matrix is simplest way to classify businesses on a 2-dimensional growth-share matrix where
➢ Vertical axis represents market growth rate
➢ Horizontal axis represents relative market share.
Relative Market Share
High Low
Star Question Mark
▪ SBU that is growing rapidly ▪ Known as problem child or wild cats
High ▪ Need heavy investment to maintain ▪ Require a lot of cash and investment to
their position & finance rapid growth hold their share
Market
▪ It represents opportunity for expansion. ▪ If left unattended, they become cash trap.
Growth
Cash cow Dogs
Rate ▪ It generates cash and have low cost ▪ Have no future
Low ▪ Needs less investment to maintain ▪ May need cash to survive
market share ▪ Dogs should be minimized by means of
▪ In long run, when growth slows, Star divestment or liquidation.
becomes cash cow.
Standard First line of Explanation: Star is a high growth, high market share product.
9. 2.2. A N S O F F ’ S P R O D U C T M A R K E T G R O W T H M A T R I X ( P MG )
It is a P.A. tool proposed by Igor Ansoff. Using this matrix, business can get a fair idea about
➢ how its’s growth depends on
➢ its existing or new products in both existing and new markets.
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Dynamics of Competitive Strategy
4 components / strategies
Market penetration Market Development Product development Diversification
It is a growth strategy It is a growth strategy It is a growth strategy It is a growth strategy
where business focus on where business focus on where business focus on where business focus
selling existing products to selling existing products selling new product to on selling new product
existing market. to new markets. existing market. to new market.
It can also be done by It is achieved through It is achieved through It is risky strategy as
increasing usage by existing development of new company does not have
➢ new geographical
customers. goods/ service which much experience.
markets
It involves aggressive appeals to existing It is achieved by
marketing, greater spending ➢ new distribution customers.
channels ➢ Starting up or
on advertising and a pricing
strategy to make market ➢ different pricing ➢ Acquiring other’s
unattractive for business.
competitors.
E.g. Gucci, a luxury clothing E.g. Gucci, a luxury E.g. Gucci, a luxury E.g. Gucci, a luxury
brand, selling its luxury clothing brand, clothing brand, selling clothing brand, selling
clothing in European selling its luxury casual clothing in casual clothing in
markets with new designs, clothing in Chinese European markets, is Chinese markets, is
is market penetration. markets, is market product development. diversification.
development.
9. 2.3. AD L M A T R I X
It is P.A. tool proposed by Arthur D Little and is based on product life cycle.
It is a 2-dimensional four by five matrix based on:
➢ Stage of industry maturity i.e Embryonic, Growth, Maturity, Ageing/ Decline
➢ Competitive position of Firm i.e. Dominant, Favourable, Tenable, Weak
9. 2.4. G E N E R A L E L E C T R I C M A T R I X [ S T O P - L I G H T S T R A T E G Y M O D E L ]
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This model was developed by General Electric company with assistance of consulting Firm Mckinsey & Co.
Also known as Business planning matrix; GE Nine cell Matrix; GE Model and Stop light strategy model.
Strategic planning tool in this model is inspired by traffic control lights where
➢ Green is used for Go; Yellow is used for caution and Red is used for stop.
This P.A. tool is based on two dimensions
➢ Market attractiveness [measured in terms of market growth rate, size, competition, profitability etc]
➢ Business unit strength [measured in terms of relative market share, brand image, innovation
capability, customer relationship, management capability etc.]
Business strength
Strong Average Weak
Market High Green Green Yellow
Attract Medium Green Yellow Red
iveness
Low Yellow Red Red
Analysis
Green If a product falls in this section, it is at advantageous position.
Strategy should be to invest, expand and grow.
Yellow If a product falls in this section, it needs to be cautious.
Appropriate strategy should be to hold position.
Red If a product falls in this section, it will eventually lead to loss.
Appropriate strategy should be harvest, retrenchment, divestment, liquidation.
1 0. G L O B A L I Z A T I O N
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Dynamics of Competitive Strategy
Super National Enterprise - Worldwide enterprises approved by Non-political International bodies like WTO,
IMF, UN, etc. It serves all nations without specially being attached to any one country.
1 0.1. C H A R A C T E R I S T I C S O F G L O B A L C O M P A N Y
Common ownership It is conglomerate of multiple units located in various part of the world but linked by
common ownership.
Common pool of Multiple units use common pool of resource such as
resources
➢ Money; Technology/ patents; Brand name etc
Common strategy Units of global company follow common strategy.
1 0.2. W H Y D O C O M P A N I E S G O G L O B A L ?
MNC TNC
1. MNC is based in a home country and have Do not have subsidiary Co. but are linked to other Co.
subsidiary companies in other countries. through other modes like agreement, association.
2. It has centralized management system It does not have centralized management system.
3. It faces banners in decision making due to Units of TNC do not face barriers in decision making. Hence,
centralized management they are able to gain more interest in local markets.
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Strategic Management Process
C HAPTER 3
1. STRATEGIC PLANNING
▪ Planning is future oriented and it bridges gap between where we are and where we want to go.
▪ It means deciding what is needed to be done in future [today, next day, next week, next month, next year,
next couple of years] and generating blueprint of action.
▪ It involves determination of course of action to attain a pre-determined objective.
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Strategic Management Process
2. S T R A T E G I C D E C I S I O N M A K I N G
Decision making is a managerial process of selecting best course of action out of several alternative courses
of actions for the purpose of achieving the objectives.
Two types of decisions are
a) Strategic decision making
b) Operational decision making.
Strategic decision making is the process of implementing & executing Organization’s strategic plans by
matching company’s capabilities with market demand.
E.g. Product to be launched (Oreo dairy milk); Markets to serve (Kia); Functions to perform (in house or
outsourcing); and major policies needed to execute these decisions.
3. S T R A T E G I C I N T E N T
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Strategic Management Process
Vision Mission Business definition Business model Goals and objective
3.1. VISION
3.2. M I S S I O N
▪ Mission statement defines ‘Who we are’, ‘What business are we in’, ‘What we do’ and ‘Where we are now’.
▪ It justifies the presence and existence of the Firm and legitimizes Firm’s presence.
▪ It is not a PR document and outlines Firm’s business, it’s goal and how to reach goals.
▪ It defines present capabilities, activities and role in society.
Why a company a) To ensure unanimity of purpose within Organization.
should have mission? b) To develop basis for allocation of Organization’s resources.
c) To develop basis for utilization of Organization’s resources.
d) To translate objectives and goals into work structure.
e) To establish general tone of Organization.
Things to consider a) Good mission statements are unique to Organization for which it is developed.
while writing Mission b) Mission should give organization its own special identity and business emphasis.
of company
c) It should be based on current capabilities of business.
d) It should give internal direction to employees for future of Organization.
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Strategic Management Process
Vision Mission
a) Definition Definition
b) It states future direction of Organization It states ongoing activities of Organization
c) It is wider in scope & emphasises on long term concept It is more specific
d) It remains unchanged for decades if crafted carefully It changes more frequently
3.3. B U S I N E S S D E F I N I T I O N & B U S I N E S S M O D E L
3. 4. G O A L S A N D O B J E C T I V E S
▪ Business organisation translates their vision and mission into goals and objectives.
▪ It provides base of measurement of Company’s performance.
▪ Goals are open-ended attributes that denote the future states or outcomes. It is end result an Organization
wants to achieve.
▪ Objectives are close-ended attributes which are precise and expressed in specific terms.
▪ Objectives are needed at all levels of organization and should not stop with Top management. Rather, it
should be broken down into performance target for each separate business, product line function, etc.
▪ In practical word, they are used interchangeably.
▪ Characteristics
a) It should facilitate achievement of vision and mission.
b) It should be concrete and specific.
c) It should be measurable and challenging.
d) It should provide basis for performance appraisal.
e) It should provide basis for strategic decision.
▪ Benefits of objectives
a) Helps in allocation of resources and establishing priorities.
b) It provides direction to the Company and reduce uncertainty.
c) It translates Company’s vision and mission into goals and objectives.
Types (Both are important)
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Short term objectives Long term objectives
Quarterly or annual objectives Represents results expected from following any strategy.
It focuses on achieving short term targets and Time frame for objective is set generally 2 to 5 years.
provide immediate performance improvement Long term objectives may be set for
It indicates the speed at which long term targets
➢ Profitability/ Revenue
are to be achieved
➢ Productivity
E.g. If a company has objective of doubling its
sales over next 5 years, it should also set specific ➢ Competitive position
annual targets. ➢ Employee development &
➢ Tech leadership
Goals Objectives
1. Open ended attributes Close ended attributes
2. Wider in scope More specific
3. Long term Short term
4. Eg: Maximize profit, sales growth Eg: Earn 15% return on investment, 20% increase in sales
▪ Identifying Vision, Mission, Goals and objectives is the starting point of strategic Management process.
▪ Every organization, large or small, has Vision, Mission, Goals and objective; even if these elements are not
clearly written or communicated.
▪ Strategic management process is a dynamic and continuous process as any change in any component of
model can result in change in other components.
E.g.: Change in economy may present opportunity for Org. leading to change in long term objective &
strategy.
▪ Strategic management process can be best understood using a strategic management model.
▪ Although, this model is widely accepted and comprehensive, it does not guarantee sure shot success.
However, it represents practical approach for formulation, implementation and evaluation of strategy.
▪ It is not necessary that strategist follow these steps strictly / lockstep fashion.
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Strategic Management Process
Stage 1:
Stage 2: Stage 5:
Developing a Stage 3: Stage 4:
Environmental and
strategic Vision, Formulating Strategic evaluation
Organizational Implementing strategy
Mission, Goals and strategy and control
Analysis
Objectives
First, Co. should It is a diagnostic First stage in It is operation- Final stage of SM
develop a Vision phase of SM. strategy oriented activity. process involves
i.e. future It involves: formulation is Most demanding & ➢ evaluating Co.’s
blueprint. developing time-consuming.
a) Environmental strategy
It answers the strategic
Analysis - It implementation &
question ‘where it alternatives in line Strategy execution
consists of with SWOT of process includes: ➢ assessing impact
wants to land’. economic, organization. a) Developing budget of new external
Top management’s social, technical to allocate ample developments and
views and & market Second stage
resource for make corrective
conclusions about analysis. involves choosing
strategy adjustments to V,
company’s appropriate
It is dynamic implementation M, Objectives &
direction and alternative which
and uncertain strategy.
product, customer, will serve as b) Staffing Org. with
& helps in strategy of Firm. needed skills & Successful strategy
market, technology determining expertise execution requires
focus constitute opportunities Examples of
searching for:
strategic vision of and threats. strategic c) Motivating people to
company. alternatives: pursue target a) Ways to
b) Organizational energetically continuously
Mission Analysis - It a) Should
improve and
statements define consists of company d) Creating a Co.
what we are and continue in culture & work b) Corrective
analysis of Co.
what we do. same business climate that adjustments
resources, tech
Hence, the focus is on same level support successful whenever external
resources,
on the role played of operation? strategy execution & and internal
Productive
by organizational environment
capacity, b) If it should e) Ensuring policies,
in society and demands.
distribution continue in procedures and
overall direction channel, R&D, same business, It may be in form
and not any SBU internal operations
HR, etc. should it grow facilitate effective of –
specific direction. by expanding
It reveals execution ➢ Simple fine-
Objectives & goals strength and same unit; tuning strategy
f) Leadership is
of an Org flows weakness of establishing if it is working
from V & M. new units; or needed for strategic
Org. execution and well; or
They provide a acquiring other
This stage helps units in same continuous ➢ Modifying
means of in SWOT analysis. improvement. strategy when
performance Industry?
Good strategy there is change
measurement at c) If it should
in environment.
each level of diversify, execution creates
management. should it strong fits between
diversify into a) Strategy & Org’s
related or capability
unrelated b) Strategy & reward
areas? structure
d) Should it get c) Strategy & Org
out of existing work culture
business fully
or partially? d) Strategy &
internal system
28 | P a g e
Corporate Level strategies
C HAPTER 4
1. INTRODUCTION
▪ It refers to organization wide decisions taken by Corporate/ Top Level Management w.r.t
➢ defining objectives of organization,
➢ determining what business, it should be in,
➢ allocating resources among different businesses, and
➢ providing leadership for organization.
▪ It is value oriented and less concrete than business or functional level strategies.
▪ CL strategies are also known as Grand strategies or Directional strategies which provides direction to
company.
▪ William F. Gluek and Lawrence R Jaunch discussed 4 generic Strategies which are as follows:
2. S T A B I L I T Y S T R A T E G Y
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Corporate Level strategies
3. G R O W T H / E X P A N S I O N S T R A T E G Y
Growth Strategy
Internal External
3.2. E X P A N S I O N T H R O U G H I N T E N S I F I C A T I O N
30 | P a g e
Corporate Level strategies
Market Penetration Market Development Product Development
Highly common expansion It consists of marketing present Product development involves
strategy is market penetration products to customers in related substantial modification of existing
/concentration on the current market areas by products or creation of new but
business. related items that can be marketed to
➢ adding different channels of
The firm directs its resources to current customers through establish
distribution or
the profitable growth of its channels.
existing product in the existing ➢ changing the content of
market. advertising or promotional
media.
Igor Ansoff gave a framework as shown in figure which describes the intensification options available to a firm.
3.3. E X P A N S I O N T H R O U G H D I V E R S I F I C A T I O N
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Corporate Level strategies
3.3.1. R E L A T E D V S . U N R E L A T E D D I V E R S I F I C A T I O N
3. 4. E X P A N S I O N T H R O U G H M E R G E R A N D A C Q U I S I T I O N
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Corporate Level strategies
a) It helps Organization to bypass/ avoid/ circumvent time & risk involved in initial stage of expansion.
b) To achieve synergy between parent and acquired entity.
While Merger and Acquisition are used interchangeably, there is a thin line of difference:
Merger Acquisition
Two or more companies come together for mutual When one financially strong organization takes over
benefit i.e, to increase their strength & resources to other organization and control its business.
expand. Combined operation runs in name of powerful entity.
Deal is finalized on friendly terms. Deal is often finalized on unfriendly terms.
3. 4.1. T Y P E S O F M E R G E R S
3.5. E X P A N S I O N T H R O U G H S T R A T E G I C A L L I A N C E
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Corporate Level strategies
Disadvantages
a) Sharing S.A. requires sharing of resources, skills and profits. However, sharing knowledge
and skill may be problematic if they involve trade secrets.
b) Potential competitor It may create a potential competitor if S.A. partner decides to part ways in future.
4. RETRENCHMENT STRATEGY
It is known as internal retrenchment where emphasis is laid on improving internal efficiency of Organization.
It means taking steps to reverse decline and convert loss making company into profit making company.
Danger signals which point out that turnaround strategy is needed for survival of Organization are:
i) Uncompetitive product or service
ii) Declining market share
iii) Mismanagement
iv) Over staffing, high employee turnover, low morale
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Corporate Level strategies
v) Deterioration in physical facility
vi) Persistent negative cashflow from business
4 .1.1. A C T I O N P L A N F O R T U R N A R O U N D
Focus is on short term financial needs + Long term financial needs + Strategic issues.
Assessment of Analyse the Implementing an
current situation & develop Emergency Reconstructing the Business Return to Normal
problems Strategic Plan Action Plan
This involves It involves This includes This includes Organization
should show signs
➢ assessing ➢ determining ➢ HR, financials, ➢ Change in product mix
of profitability and
the current chances of marketing
➢ Products neglected over ROI.
problem survival and operating
years may be give more Emphasis is
action.
➢ It’s root ➢ Doing SWOT importance placed on no. of
cause Analysis ➢ Reconstructing strategic efforts
➢ Some facilities may be
debt, reducing like
➢ Extent of ➢ Developing a closed and Org. may
cost, reducing
damage it strategic plan withdraw from some ➢ Adding new
loss making
has with specific markets products,
product line
caused. goals and
and focusing ➢ Change in people mix i.e, ➢ increasing
action plan.
on potential staff with required skills Market share,
growth are hired; reward and
product compensation should be ➢ increasing
such that it encourages customer base.
Objective is to
become Org with & motivates employees.
positive cashflow.
Important elements of Turnaround strategy
a) Change in Top Management
b) Quick cost reduction
c) Revenue generation
d) Asset liquidation for generating cash
e) Better internal co-ordination
f) Neutralizing external pressure (from bank etc.)
4 .2. D I V E S T M E N T S T R A T E G Y
4 .3. L I Q U I D A T I O N S T R A T E G Y
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Corporate Level strategies
a) Loss of employment
b) Loss of future opportunities
c) Stigma of failure.
Company management, Government, Bank etc. are reluctant for this decision.
It may be taken when ‘Dead business is worth more than alive’
Reasons iv) Turnaround & Divestment strategy has been attempted but failed.
v) Management no longer wishes to be in the business due to persistent losses.
vi) Other common Reasons.
5. COMBINATION STRATEGY
Meaning Reasons
Above strategies are not mutually exclusive. a) Organization is large and faces complex
A company may adopt a mix of above strategies to environment.
suit their specific requirements. b) Organization is composed of different businesses,
A Firm may seek each of which lies in different Industry requiring
different strategic response.
➢ Stability in some business
➢ Expansion in some and
➢ Retrenchment in some.
36 | P a g e
Business Level Strategies
C HAPTER 5
1. INTRODUCTION
2. P O R T E R ’ S F I V E F O R C E S M O D E L O F C O M P E T I T I V E A N A L Y S I S
▪ Every business operates in a competitive environment. Various competitive forces in an industry determine
➢ attractiveness and profitability of Industry; and
➢ how an Organization develops its business level strategies.
▪ A powerful and widely used tool for systematic analysis of significant competitive pressures and assessing
its importance is Porter’s 5 forces model.
▪ This model reflects that state of competition in an Industry is influenced by 5 competitive pressures:
a) Competitive pressure associated with Threat of New Entrants
b) Competitive pressure associated with bargaining power of Buyers
c) Competitive pressure associated with bargaining power of Suppliers
d) Competitive pressure associated with Nature of Rivalry
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Business Level Strategies
New entrants are powerful source of competition. They reduce industry profitability as they
➢ add new production capacity leading to increase in supply at lower price.
This erodes market share of existing players/ incumbents.
Bigger the new entrant, greater is the threat.
To discourage new entrants, existing players try to raise entry barriers.
a) Capital Requirement If entry in an Industry requires huge capital, Organizations having less funds
are effectively barred from entry.
b) Economies of scale It refers to reduction of cost per unit. As volume increases, large Firms enjoy
economies of scale which discourages new entrants.
c) Product It refers to uniqueness of a product in eyes of customer. Since cost of creating
differentiation unique product is high, it also acts as an entry barrier.
d) Brand identity Brand building is long process involving substantial resources. It is important in
case of products which have high prices and are infrequently purchased.
e) Access to Unavailability of distribution channel is another barrier for new entrants.
distribution channel
f) Possibility of This may also act as an entry barrier for new entrants.
aggressive retaliation
by incumbent
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Business Level Strategies
g) Switching cost New entrant needs to convince existing customers of other company to switch
to its product.
Buyer often incurs financial & psychological cost in switching existing player.
When switching cost is high, buyer is reluctant to switch.
2. 2. B A R G A I N I N G P O W E R O F B U Y E R
2.3. B A R G A I N I N G P O W E R O F S U P P L I E R
It means suppliers exert pressure on Organization by increasing price of its supplies (Raw material).
Bargaining power of supplier determines cost of raw material & inputs, thus affecting profitability of
industry.
Supplier can have bargaining power when
a) Their product is critical to buyer and substitutes are not available.
b) No. of supplier is less and they are more concentrated.
c) There is higher switching cost.
2. 4. N A T U R E O F R I V A L R Y
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Business Level Strategies
f) Industry faces slow If industry’s growth is slow, rivals try hard to hold or grow by reducing price
down further, thus reducing profitability.
2.5. T H R E A T O F S U B S T I T U T E S
2.6. P R O C E S S O F A N A L Y S I N G C O M P E T I T I O N I N A N I N D U S T R Y ( 3 S T E P S )
It involves producing
➢ standard products
➢ at very low cost per unit
➢ for price sensitive market (Broad mass market)
It involves efforts to reduce cost in area of Procurement; Production; Storage and Distribution of goods.
40 | P a g e
Business Level Strategies
Also, economies of scale and reduction in overhead is done.
Because of lower cost, cost leader is able to change lower price than its competitors and still make
satisfactory profit
But cost leadership strategy must be pursued along with differentiation.
Vertical integration strategy is pursued for cost leadership.
3.1.1. A D V A N T A G E S O F C O S T L E A D E R S H I P S T R A T E G Y
Cost leadership strategy enables a Firm to be profitable even with 5 forces of Porter’s Five Forces Model:
Rivalry Buyer Supplier New Entrants Substitute
Competitors try to Powerful buyers Since cost leader Cost leader creates Cost leader is able
avoid price wars, will not be able has lowest cost in entry barriers for to lower cost to
since low-cost to exploit cost Industry, it is able new entrants due ensure that buyer
Firm will continue leader as its cost to absorb greater to low cost. continues with their
to earn profit even is already lowest. price increase by its product.
if they reduce Hence, buyer will suppliers before it is They can also
their profit. continue to buy compelled to invest to develop
from it. increase the price. substitutes.
3.1. 2. D I S A D V A N T A G E S O F C O S T L E A D E R S H I P S T R A T E G Y
a) Cost advantage may not be for long period as competitors may follow cost reduction techniques as well.
b) This strategy can be successful only if Firm can achieve higher sales volume.
c) In this strategy, expenses on advertisement, marketing, research & development etc. is minimal which
may be counter-productive in long run.
d) Technological changes are great threat to cost leader.
3.2. D I F F E R E N T I A T I O N S T R A T E G Y
It aims at producing
➢ unique products and service
➢ directed at customers who are relatively price insensitive.
Because of differentiation, businesses can charge premium for its products and also gain customer loyalty
as customer gets strongly attached to differentiating features.
Differentiation/ uniqueness can be in
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Business Level Strategies
3.2. 2. A D V A N T A G E S O F D I F F E R E N T I A T I O N S T R A T E G Y
3.2.3. D I S A D V A N T A G E S O F D I F F E R E N T I A T I O N S T R A T E G Y
a) It does not guarantee competitive advantage if standard product sufficiently meets customer needs.
b) If differentiation is not valued by customer, this strategy fails. In such cases, C.L. strategy is preferred.
c) In long run, uniqueness is difficult to sustain as competitors may copy differentiating uniqueness.
d) Charging too high price for differentiated product may cause customers to switch to different product.
3.3. F O C U S S T R A T E G Y
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Business Level Strategies
a) Industry segment is of sufficient size,
b) Has good growth potential, and
c) Not crucial to success of other major competitors.
Focus strategy can be pursued along with cost leadership strategy or differentiation strategy.
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Business Level Strategies
Sustaining Offer economical Communicate the Develop unique Remain totally dedicated to
the strategy prices/good value. points of expertise in serving the niche better than
Key is to manage difference in simultaneously other competitors; don’t
costs down, year credible ways. managing costs blunt the firm’s image and
after year, in Stress constant down and efforts by entering other
every area of the improvement & upscaling segments or adding other
business use innovation to features product categories to widen
stay ahead of attributes market appeal.
initiative
competitors
Product line A good basic Many product Good-to- Features and attributes that
product with few variations, wide excellent appeal to the tastes and/or
frills (acceptable selection, strong attributes, special needs of the target
quality & limited emphasis on several-to-many segment
selection) Differentiating upscale features
features
Product A continuous Creation of value Incorporation of Tailor-made for the tastes
emphasis search for cost for buyer; strive upscale features and requirements of niche
reduction without for product and attributes at members
sacrificing superiority low cost
acceptable quality
and essential
features
44 | P a g e
Functional Level Strategies
C HAPTER 6
1. INTRODUCTION
▪ Functional strategies help in implementation of corporate level and business level strategies.
▪ It is made within the framework of CL and BL strategies.
▪ It performs two important roles:
➢ Provide support to overall business strategies; and
➢ Provides direction as how functional managers will work to ensure better performance.
▪ It involves formulating and implementing strategies for each of inter-related and inter dependent
functional areas/ departments like:
2. R E A S O N S W H Y F U N C T I O N A L L E V E L S T R A T E G Y I S I M P O R T A N T
a) It lays down clearly what is to be done at functional level. Thus, it provides direction to functional staff.
b) It facilitates implementation of BL and CL strategy.
c) It acts as basis for control activities (measure performance & take corrective actions).
d) It helps in maintaining harmony & coordination among various functional areas.
e) It ensures that consistent policies are followed across all functional areas.
3. M A R K E T I N G S T R A T E G Y
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Functional Level Strategies
▪ It encompasses all activities related to identifying needs of customers and takings steps to satisfy it.
▪ Thus, target market is at center of marketing process.
▪ In marketing, it’s more important to do what is strategically correct rather than what is immediately
profitable.
Examples of Marketing Decisions
a) Amount and extent of advertisement – whether to use heavy or light advertisement; media to be used
[print, electronic or internet]
b) Kind of distribution channel to be used – whether use exclusive dealership or multiple channels of
distribution
c) Whether to be price leader or follower
d) Whether to reward the sales person based on fixed salary or commission or combination of both.
e) Whether to offer full or limited warranty.
3.2. M A R K E T I N G M I X
Promotion /
Product / Customer Solution Price / Customer Cost Price / Convenience
Communication
Refers to combination of Goods It refers to the Money Refers to Place where Refers to activities that
& Services that Company customer has to pay to product is made communicates merits
offers to target market. obtain product. available to target of product to convince
Strategies are needed for It reflects a customers. potential customers.
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Functional Level Strategies
➢ dropping failed products Price may be decided customers to buy. conditioning process.
based on market forces It involves selecting Various promotional
Strategies are also needed for
or cost-plus price. marketing channels methods like
branding, packaging and other
features. However, generally for transfer of advertisement, personal
Organization opts for ownership of product. selling, sales promotion
Organization should
market determined need to be organized
differentiate products on the
price in competitive and co-ordinated.
basis of features, colour, brand
environment. Promotional strategies
name, etc.
must be adjusted as a
It helps them to develop
product more from
customer loyalty.
earlier stage to later
stage of its life.
3.2. 1. F O U R M A J O R P R O M O T I O N A L T O O L S / M E T H O D S
3.2. 2. E X P A N D E D M A R K E T I N G M I X
With changing market conditions & growth of service sector, 3 new elements also form part of marketing mix.
People Physical Evidence Process
Refers to all human actors who Refers to Environment where Firm Actual procedure or mechanism
make contact with customer and customers interact and that delivers product to customers.
while delivering the product. product is offered to customers. E.g: Advance payment, COD
It includes waiter, sales person, E.g: Design of premises/ shop
CRM.
3.3. P R E - R E Q U I S I T E S F O R F O R M U L A T I O N O F M A R K E T I N G S T R A T E G Y
Environmental analysis and diagnosis: Before making any strategy, it is imperative for a marketer to
understand the environment in which the organisation is operating.
Marketing has 3 components:
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Functional Level Strategies
3.3.1. S T R A T E G I C M A R K E T I N G P L A N
After completing Environmental analysis and diagnosis, marketing strategy is decided that will help
Company achieve its objectives.
Detailed plan is needed for each business, product or brand.
This plan contains various sections such as:
i) Executive summary Short summary of marketing goals and recommendations presented in plan.
ii) Current Market It describes the target market and company’s situation in it
situation
➢ Market description
➢ Distribution channel
➢ Competition Analysis
iii) Threat & opportunity Contains assessment of important developments that may have positive or
Analysis negative impact on Firm.
iv) Objectives & issues It contains goals that company likes to attain during plan’s term.
v) Market strategy Strategy adopted to achieve marketing objective.
vi) Action plan i.e, implement the market strategy.
vii) Strategy control Involves monitoring and measuring result/ performance and take corrective action
in 4Ps of marketing.
3. 4. T Y P E S O F M A R K E T I N G S T R A T E G I E S / T E C H N I Q U E S
1. Social marketing It refers to design, implementation and control of programs which aims to increase
acceptability of a social idea, cause or practice.
E.g. Campaign for No smoking, No dowry, No tax evasion.
2. Augmented It means providing additional benefits to a customer w.r.t a product.
marketing E.g: Extra warranty, 24x7 online tech support, etc.
3. Direct marketing It involves using advertisement medium that interacts directly with customers.
E.g. Email, SMS, catalogue marketing, electronic marketing, Tele calling etc.
4. Person marketing People are also marketed. It involves activities to create, maintain or change
attitude and behavior of target audience towards a particular person. Eg: politician
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Functional Level Strategies
5. Organization It involves activities to create, maintain or change attitude and behavior towards a
marketing particular Organization.
Both profit and non-profit organizations practice Organization marketing.
6. Place marketing It involves activities to create, maintain or change attitude or behavior towards a
particular place. E.g. Tourism marketing
7. Relationship It involves creating, maintaining and enhancing strong relationship with customers
marketing and other stakeholders. E.g: Airlines Loyalty programs
8. Service marketing It involves applying concepts of marketing to service sector.
9. Differential It involves activities to target several market segments and design separate offer
marketing for each segment.
E.g: HUL – Lux in popular segment and Pears in premium segment.
10. Concentrated In this, Firm goes after large chunk of a target market.
Marketing
11. Synchro When demand for a product is irregular due to season or during certain part of day,
marketing it causes overworked capacity or idle capacity.
Synchro marketing is used to find ways to alter the demand pattern through
flexible pricing and other incentives.
E.g: Movie tickets sold at lower rate during weekdays, Happy Hours in Restaurants.
12. Demarketing It involves activities to reduce demand temporarily or permanently.
It does not aim to destroy demand but only reduce it or shift it. It is pursued when
there is overflow of demand. E.g. zoological parks are overcrowded on weekends.
13. Enlightened It is a marketing philosophy that Company’s marketing should support long term
marketing performance of an Organization and marketing.
Five principles are :
a) Value marketing
b) Innovative marketing
c) Customer oriented marketing
d) Societal marketing
e) Sense of mission marketing
3.5. S E L E C T I N G A P P R O P R I A T E P R I C I N G S T R A T E G Y
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Functional Level Strategies
4. FINANCIAL STRATEGY
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Functional Level Strategies
▪ Limitations of Financial budget
a) It may become cumbersome and expensive. Under-budgeting and over-
budgeting can be problematic.
b) It is not a substitute for objective. It is a tool and not end in itself.
c) It may be used to hide inefficiency if based on past only rather than present
condition.
d) It may be used as instrument of Tyranny. This results in frustration,
resentment, absenteeism and resignation.
3. Utilization and ▪ It deals with decision w.r.t investment and asset-mix decision.
management of
funds ▪ Some decisions to be made are
➢ capital investment
➢ fixed asset acquisition
➢ current assets
➢ loan and advances
➢ dividend decision.
▪ Implementation of strategy involves utilization of funds.
▪ Management of fund plays an important role in strategy implementation as it
aims to ensure effective and efficient usage of funds.
▪ It involves decision w.r.t risk management, cost control, cost reduction and tax
planning.
4. Evaluating worth of ▪ While implementing strategies like merger & acquisition, divestment etc., it is
a business essential to evaluate the financial worth or cash value of a business.
▪ Three main approaches for determining worth of a business are as follows:
a) Net worth or shareholder’s equity approach
Determine net worth i.e, Total Assets – Outside Liabilities or Share Capital
& Reserve and Surplus.
Add or subtract appropriate amount for goodwill and overvaluation/
undervaluation of assets.
b) Future benefit to Owner through Net Profit
Worth of a business is equal to current year profit multiplied by 5.
c) Market based valuation i.e., letting market decide the value
i) Worth of a business is determined based on selling prices of similar
company. Problem is that comparable figures may not be available.
ii) Price earning ratio method = MPS/EPS x Avg. profit for past 5 FYs
iii) Outstanding share method = No. of outstanding shares x MPS +
premium amount acquirer is willing to pay to acquire Company.
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Functional Level Strategies
Organizations try their best to keep cost of transport at lowest. Improvement in logistics help in
➢ Cost saving
➢ Reduced inventory
➢ Improved delivery time
➢ Customer satisfaction
➢ Competitive advantage.
5.2. S U P P L Y C H A I N M A N A G E M E N T
5.2. 1. I M P L E M E N T A T I O N O F S U P P L Y C H A I N M A N A G E M E N T
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Functional Level Strategies
▪ Successful implementation of supply chain management involves:
i) Product development Customer and supplier work together to develop required product.
Product is developed in shorter time & helps organization remain competitive.
ii) Procurement It involves procuring inputs needed for manufacturing.
It requires careful planning w.r.t quantity, quality, negotiation, order placement,
inbound transportation and storage.
iii) Manufacturing Manufacturing process must be flexible to respond to market changes. It should
be done on the basis of JIT.
iv) Physical distribution It involves delivery of finished goods to customers. Supply chain management
includes customer as integral part.
v) Outsourcing It involves focusing on those activities where organization has competency and
outsourcing other activities.
vi) Customer service Organization provide service to customers to enhance their satisfaction and
develop brand loyalty and relationship.
vii) Improved Performance is measured in terms of cost, quality and customer service.
Performance
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Functional Level Strategies
6.1. WHETHER FIRM SHOULD DEVELOP RESEARCH AND DEVELOPMENT EXPERTISE INTERNALLY OR OUTSOURCE IT?
Rate of Market Growth
Fast Slow
Fast Organization should obtain R&D Organization should not do major R&D as it
expertise through acquisition of well- may lead to development of a product that
Rate of
established organization in industry. has no market and will get obsolete quickly.
Tech.
change/ Slow Obtain R&D expertise from outsourcing Organization should undertake in-house
Progress it. Generally, there is no time for in R&D because if successful, it will result in
house development, so company should temporary product monopoly which it can
focus on marketing and production. exploit.
Standard Line: If rate of market growth is _______, & rate of technology progress is _______, ______.
6.2. T H R E E R E S E A R C H A N D D E V E L O P M E N T A P P R O A C H
7.1. R O L E O F H U M A N R E S O U R C E S I N S T R A T E G I C M A N A G E M E N T
54 | P a g e
Functional Level Strategies
➢ linking company and personal benefits i.e., synchronizing personal and organizational goals;
➢ maintaining conductive work environment and work life balance.
The process of empowering managers and employees through their involvement in strategic management
activities yields the greatest benefits when all organizational members understand clearly how they will
benefit personally if the Firm does well.
7.2. M A J O R S T R A T E G I C D E C I S I O N S / C O N C E R N S R E L A T E D T O H U M A N R E S O U R C E M A N A G E M E N T ; O R
REASONS DUE TO WHICH HR MAY CREATE PROBLEM IN STRATEGY IMPLEMENTATION
7.3. R O L E O F HR M I N A C H I E V I N G C O M P E T I T I V E A D V A N T A G E
An organization’s recruitment, selection, training, performance appraisal, and compensation practices can
have a strong influence on employee competence.
The following points should be kept in mind while determining employee competence:
Recruitment & selection Training Performance Appraisal Compensation
Workforce will be more Workforce will be more It is done to measure Competence of workforce
competent if Firm can competent if employees performance & to identify can be increased by
are well trained to do any deficiency due to offering a compensation
➢ Identify
their job. incompetence. more attractive than
➢ Attract and Such deficiencies can be those of competitors.
➢ Select most solved through training
competent applicant. and counselling.
7. 4. S T R A T E G I C H U M A N R E S O U R C E M A N A G E M E N T
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7.5. S T R A T E G I C R O L E O F H R M A N A G E R
i) Providing purposeful HR managers lead employees and Org. towards achieving Org. objective.
direction
ii) Building core HR managers play great role in building core competencies.
competencies
iii) Creating competitive HR managers helps in creating competitive advantage. There are 2 ways of
advantage achieving competitive advantage i.e. cost leadership and differentiation.
iv) Facilitation of change HR managers help Organization to deal with change and manage the change in
Organization environment.
v) Managing workforce Workforce diversity may be in terms of male and female workers, young and old
diversity workers, employees of different caste, religion etc.
HR manages this diversity in workforce which is a challenging task.
vi) Empowerment of HR manager empowers employees by giving them suitable role, responsibility
human resources and power to realize his full potential.
vii) Development of work HR managers help to develop a vibrant, safe and trustworthy atmosphere among
ethics and culture employees in the Organization.
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C HAPTER 7
1. ORGANIZATIONAL STRUCTURE
2. C H A N D L E R ’ S S T R A T E G Y – S T R U C T U R E R E L A T I O N S H I P
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3.1.1. H O W C A N S I M P L E O R G A N I Z A T I O N S T R U C T U R E H E L P T O G E T C O M P E T I T I V E A D V A N T A G E ?
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Since communication / information flow in simple organization structure is frequent and direct, new
products can be launched into market quickly which gives rise to competitive advantage.
Other potential competitive advantages
a) Openness to innovation
b) Greater structural flexibility
c) Ability to respond more rapidly to changes in environment.
3.2. F U N C T I O N A L O R G A N I Z A T I O N S T R U C T U R E
3.2. 1. A D V A N T A G E S & D I S A D V A N T A G E S O F F U N C T I O N A L O R G A N I Z A T I O N S T R U C T U R E
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3.3. D I V I S I O N A L S T R U C T U R E
3.3.1. A D V A N T A G E S & D I S A D V A N T A G E S O F D I V I S I O N A L O R G A N I Z A T I O N S T R U C T U R E
Advantages a) Promotes accountability since division managers can be held responsible for sales and
profitability of the division.
b) Higher career development for managers.
c) Employee morale is comparatively higher as there is extensive delegation of work.
d) Allows better control of local situation.
e) Allows new business and products to be added easily.
Disadvantages a) It is costly structure as it requires functional specialists for each division who are
highly paid.
b) There is duplication of functions across organization.
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3. 4. M U L T I - D I V I S I O N A L S T R U C T U R E ( M- F O R M )
Multi divisional structure was developed in 1920s in response to co-ordination control & related problems in
larger firms.
This structure is composed of
➢ operating divisions where each division represents separate business.
Top corporate manager delegate responsibility and authority
➢ for day-to-day operations and business unit strategies to divisional managers.
It calls for
a) Creating separate divisions where each division represents a business. [semi- autonomous]
b) Each division, has its own functional hierarchy/ department.
c) Divisional managers are given responsibility for day-to-day operations of divisional level strategies.
d) Corporate office determines long term strategies and exercise overall financial control.
3.5. S T R A T E G I C B U S I N E S S U N I T ( S BU )
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3.6. M A T R I X S T R U C T U R E
Matrix structure is an O.S. where functional and projects/ products are combined simultaneously.
It aims at combining advantages of vertical and horizontal flow of authority and communication.
In matrix structure, there are functional departments with permanent employees who are assigned to work in
different projects.
So, employees have two superiors i.e., a product/ project manager and functional manager.
Matrix structure is a complex structure since there is both vertical & horizontal flow of authority.
It is appropriate when management concludes that other forms of Organisation Structure is not right for
implementation of strategy.
It is often found in an organization or within an SBU when the following three conditions exist:
i) ideas need to be cross fertilized across projects or products,
ii) resources are scarce, and
iii) abilities to process information and to make decision needs to be improved.
3.6.1. C H A R A C T E R I S T I C S , A D V A N T A G E S & D I S A D V A N T A G E S O F M A T R I X S T R U C T U R E
Disadvantages a) Complexity due to horizontal and vertical flow of authority and command.
b) Dual chain of authority and command violates principle of unity of command.
c) Dual reporting channel leads to chaos and confusion.
d) Higher employee cost due to more management positions.
e) There may be conflict in allocation of resource to various projects.
3.6.2. P H A S E S O F M A T R I X S T R U C T U R E
Davis and Lawrence have proposed 3 distinct phases for construction of matrix structure:
1. Cross functional task ▪ It is temporary and is created when a new project is introduced.
force
▪ A project manager is in charge of the project as key horizontal link.
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Organizational Structure & Strategic Leadership
2. Product/ Brand ▪ If cross functional task force becomes more permanent, project manager
manager becomes product/ brand manager.
▪ Functional is still primary organizational structure but brand manager acts as
integrator.
3. Mature Matrix ▪ It is final phase of matrix development and involves dual authority.
▪ Both functional and product structure is permanent.
▪ All employees are connected to both vertical function superior and horizontal
product manager.
▪ Functional and product manager have equal authority and must work together
to resolve disagreements over resources.
3.7. N E T W O R K S T R U C T U R E
3.7.1. A D V A N T A G E S & D I S A D V A N T A G E S O F N E T W O R K S T R U C T U R E
Advantages a) Allows a company to concentrate on its own competencies & outsourcing of other
functions to experts in their field.
b) It provides more flexibility and adaptability to meet/face rapid change in technology,
taste and preferences.
c) Most useful when environment of a Firm is unstable.
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c) If a Firm overspecializes in only few functions, there is a risk that it becomes non-
competitive.
d) Low employee morale.
3. 8. H O U R G L A S S S T R U C T U R E
3. 8.1. A D V A N T A G E S & D I S A D V A N T A G E S O F H O U R G L A S S S T R U C T U R E
Disadvantages a) Since size of middle management is reduced, promotion opportunity for lower-level
managers is also reduced.
b) Lower employee morale at lower level due to monotony.
4. STRATEGIC LEADERSHIP
Leadership is ability of
➢ influencing others to voluntarily make decisions that
➢ enhance long term success while maintaining short term financial stability.
Role played by a strategic manager (General)
Visionary Chief strategist Chief administrator
Resource acquirer and allocator Culture builder Crisis manager
Motivator Policy maker and enforcer.
4 .1. FIVE LEADERSHIP ROLES PLAYED BY STRATEGIC MANAGER FOR GOOD STRATEGY EXECUTION
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a) Staying on top of what is happening, monitoring progress, solving issues and removing obstacles from the
path of strategy execution.
b) Keeping the Organization responsive to changing situation.
c) Promoting culture of espirit de corps in organization.
d) Exercising ethical leadership and ensuring that company acts as a model corporate citizen.
e) Pushing corrective actions to improve strategy execution and performance.
4 .2. R E S P O N S I B I L I T I E S O F S T R A T E G I C L E A D E R M A N A G E R
Strategic manager develops & communicates vision of future & inspires Org. members to achieve objectives.
Responsibilities of strategic leader manager are:
a) Making strategic decisions
b) Formulating policies and action plan for implementing strategic decisions.
c) Ensuring effective communication within organization.
d) Managing human capital.
e) Managing changes in organization.
f) Creating and sustaining strong corporate culture.
4 .3. T W O A P P R O A C H E S T O S T R A T E G I C L E A D E R S H I P
5. C O R P O R A T E C U L T U R E
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5.2. P E R I L S / D A N G E R S O F S T R A T E G Y - C U L T U R E C O N F L I C T
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5.3. C H A N G I N G A P R O B L E M A T I C C U L T U R E
Changing a problematic culture is very difficult due to deeply held values and habits.
It takes combined management efforts over a point of time to replace unhealthy culture with healthy
culture or remove unwanted aspects of problem culture and instill those which are more supportive.
First step Diagnose which aspects of present culture are strategy supportive and which are not.
Second step Managers have to talk openly and truthfully to all concerned employees about the
aspects of culture that needs to be changed.
Third step The talk has to be followed swiftly by visible aggressive action to identify and modify
the culture to create right strategy-culture fit.
The culture changing actions include
a) Revising policies and procedures.
b) Altering incentive compensation. (to reward employee who follow new culture)
c) Visibly praise and recognize such employees who display new culture habits.
d) Recruiting new managers and employees.
e) Replacing employees who are strongly associated with old culture.
f) Communicate the need and benefits to employees.
Entrepreneurship Intrapreneurship
Entrepreneurship is an attempt to Although people use entrepreneurship and
intrapreneurship interchangeably, there is a difference
➢ create value through recognition of business
between the two terms.
opportunities,
While entrepreneur starts with his own business,
➢ management of risk and intrapreneur is an employee who promotes innovation/
➢ creating an enterprise and mobilize resources new product/ service within the limits of an
organization.
Functions/ characteristics of entrepreneur
He is an employee who operates within boundaries of a
Entrepreneur is a person who large organization.
a) Conceives the idea of starting new venture.
Job of intrapreneur is also challenging and they are
b) Recognizes and utilizes opportunities. rewarded and recognized for success achieved by them.
c) Arranges resources such as man, material, Many large organizations appoint intrapreneur within
machine and capital. organization to bring
d) Faces risks and uncertainties. ➢ operational excellence and gain, and
e) Set up a start-up company. ➢ competitive advantage in market.
f) He is responsible for profit/ loss of company.
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Strategy Implementation & Control
C HAPTER 8
1. INTRODUCTION
2. S T R A T E G Y I M P L E M E N T A T I O N
3. D I S T I N G U I S H B E T W E E N S T R A T E G Y F O R M U L A T I O N A N D S T R A T E G Y I M P L E M E N T A T I O N
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Strategy Implementation & Control
Strategy Implementation
Weak Excellent
A B
S
t ▪ Square A represents a situation where ▪ Square B represents a situation where
r strategy formulation is sound and strategy formulation is sound and
a
t strategy implementation is weak. strategy implementation is excellent.
e
Sound
▪ It may be due to lack of resources, ▪ Ideal situation which every Firm wants to
g
y experience, leadership etc. achieve.
5. R E L A T I O N S H I P B E T W E E N S T R A T E G Y F O R M U L A T I O N A N D O P E R A T I O N A L M A N A G E M E N T
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Strategy Formulation
Effective Ineffective
Efficient 1 - Thrive/ Grow 2 - Die slowly
▪ Cell 1 represents a situation where ▪ Cell 2 represents a situation where
strategy formulation is effective and strategy formulation is ineffective
operational management is efficient. and operational management is
efficient.
▪ Such company is well placed and
thrives as it is achieving what it wants ▪ Such company is doomed to fail
to achieve with efficient input-output unless there is change in strategic
Operational ratio. direction.
Management
Inefficient 3 - Survive 4 - Die quickly
▪ Cell 3 represents a situation where ▪ Cell 4 represents a situation where
strategy formulation is effective and strategy formulation is ineffective
operational management is inefficient. and operational management is
inefficient.
▪ Such company will survive as strategic
direction to ensure effectiveness is ▪ Such company is doomed to fail
there even if too much input is used to unless there is change in strategic
generate output. direction.
6. L I N K A G E B E T W E E N S T R A T E G Y F O R M U L A T I O N & S T R A T E G Y I M P L E M E N T A T I O N
Strategy being formulated at present is influenced by past strategic actions and it affects future.
Strategy formulation and Implementation are interlinked. There are two types of linkages:
Forward Linkage Backward Linkage
Formulation of strategy determines future of Strategy formulation process is also affected by factors
organization. related to implementation.
With formulation of new strategy, we may need to While deciding strategic choices, past strategic actions
make changes in organization to ensure its also affect our decision of selecting the strategic choice.
implementation. Organizations tend to adopt those strategies which can
Changes may be made in organizational be implemented with existing resources with some
structure, corporate cultures, policies etc. Thus, additional effort.
strategy formulation has forward linkage with
its implementation.
7. I S S U E S I N S T R A T E G Y I M P L E M E N T A T I O N
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8. STRATEGIC CHANGE
Changes in business environment requires business to make modification in their existing strategy and
develop new strategy.
Strategic change is a complex process that involves a corporate strategy which focuses on new product/
services, new market and new way of doing things.
Steps of initiating strategic change:
Create a shared vision to manage
Recognize the need for change Institutionalize the change
Change
First step is to diagnose which Objective of both organization & It is action stage that requires
aspects of current corporate individual should coincide and there implementation of change strategy.
culture & capabilities are should not be any conflict. Change process should be monitored
strategy supportive & which are This needs creation of shared vision & in case of any deviation,
not. b/w organization & management corrective action should be taken.
This involves SWOT analysis. which needs to be communicated.
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9. S T R A T E G I C C O N T R O L
Controlling is one of important functions of Management & often regarded as core management.
It involves
➢ monitoring the activity,
➢ measuring results against predefined standards,
➢ analysing & correcting deviation as necessary &
➢ adapting the system.
It is a function intended to regulate & check and ensure that performance of planned activities achieve pre-
determined goals.
Elements of process of control
a) Objective of organization which can be expressed in measurable & comparable standard.
b) A mechanism for monitoring & measuring performance.
c) A mechanism for
➢ comparing Actual Result w.r.t standard,
➢ detecting deviation from standard &
➢ learning new insights.
d) A mechanism for feeding back information for taking corrective actions in order to ensure the strategy
is relevant & goals are achieved.
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9. 2. T Y P E S O F S T R A T E G I C C O N T R O L
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1 0. S T R A T E G Y A U D I T
1 0.1. R I C H A R D R U M E L T ’ S C R I T E R I A F O R E V A L U A T I N G S T R A T E G Y
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1 0.2. R E A S O N S W H Y S T R A T E G Y E V A L U A T I O N / A U D I T I S M O R E D I F F I C U L T T O D A Y
1 1. B U S I N E S S P R O C E S S R E E N G I N E E R I N G - I N T R O D U C T I O N
Business process is a set of logically related tasks or activities for achieving an objective.
Generally, more than one department is involved in a business process.
E.g: Order fulfillment (order to cash); Procure to pay (procurement /accounts payable)
Performance of business is outcome of functioning of business processes.
Core process refers to those processes which are critical for success and survival of enterprise.
These are source of competitive advantage.
It needs to be identified and may not always be immediately visible.
Examples / Instances of Core Processes
Industry Core process
FMCG Marketing
Electronic & semi-conductors New product
Banking Activities to mobilize deposits & generate funds for advance to customers
Insurance Activities that create balance b/w premium for customers & profit after
claims for company
1 1.1. I S S U E S W . R . T N E E D F O R C H A N G E I N B U S I N E S S P R O C E S S
1 1.2. B U S I N E S S P R O C E S S R E E N G I N E E R I N G
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1 1.3. R A T I O N A L E O F BP R
1 1.4. E L E M E N T S O F BP R
1 1.5. G E N E R I C B U S I N E S S P R O C E S S
Since not all business processes are equally important, BPR focuses on identifying generic business process
which significantly adds values for customers.
Generic Business processes needing BPR can be grouped in 3 broad categories:
Process w.r.t Development & Process involving Interface with Process comprising of Management
Delivery of product/ service Customers Activities
This may include This may include This includes
➢ Research ➢ Marketing ➢ Strategy formulation
➢ Redesigning products ➢ Advertisement ➢ Planning
➢ Engineering ➢ Order fulfillment ➢ HRM
➢ Manufacturing ➢ After sales service ➢ Budgeting etc.
➢ Logistics etc.
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1 1.6. I M P L E M E N T I N G B PR
1 1.7. R O L E O F IT R I N B PR
All these can bring radical change in business process and goods/ services, thereby increasing competitive
advantage and customer satisfaction.
1 1.8. H O W I S BP R D I F F E R E N T F R O M O T H E R E F F O R T S O N I M P R O V I N G O R G A N I Z A T I O N A L E F F I C I E N C Y ?
Reengineering starts
BPR efforts involve massive
Discontinuous Thinking Use of IT with Process but does
organizational change
not end there
BPR focuses on radical BPR utilizes IT for It views process from Reengineering is not just
redesign of business evolving a new business cross dimensional changing the process.
process entirely. process instead of perspective. Thus it is Practically every aspect of
It does not have scope for automating existing multi-dimensional the organization changes
partial modification of process. approach. beyond recognition.
existing business process.
Due to massive changes involved, BPR must be supported by vision and commitment of top leaders of Org..
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1 1.9. P R O B L E M S I N BP R
a) BPR involves radical change in business process. Only limited no. of companies have enough courage for
having BPR due to challenges involved.
b) It disturbs established functional structure and hierarchy. This may create resistance form employees.
c) It involves significant time and expenses.
d) There can be loss of revenue during transition process.
e) Setting of targets is tricky and difficult. If target is not set properly, reengineering effort may turn out to
be failure.
1 1.10. C E N T R A L T H R U S T O F BP R
1 2. B E N C H M A R K I N G
Benchmark refers to
➢ standard or point of reference against which
➢ things may be compared, measured and judged.
It is broader concept than control and is widely used by commercial and non-commercial organizations to
improve processes.
Benchmarking is an approach of
➢ setting goals and
➢ measuring productivity
➢ based on industry best practice.
It provides standard against which performance can be measured.
It involves regularly comparing different aspects of performance with industry’s best practices, identifying
gap and finding out methods to not only reduce gap but improve the situation.
1 2.1. O B J E C T I V E S O F B E N C H M A R K I N G
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1 2.2. S T E P S I N B E N C H M A R K I N G
Benchmarking process is not standardized. However, common elements are as given below.
1. Identify the need for It involves defining the objective of benchmarking exercise and selecting
benchmarking benchmarking exercise.
2. Clearly understand It involves compiling information and data on performance by methods like
existing process interviews, visits and questionnaires.
3. Identify best process It may be within same organization or external to it.
4. Compare own process This helps in identification of gap in performance which is analysed to seek
with that of other’s explanation.
process
5. Prepare a report and Report of benchmarking containing recommendations and action plan is prepared
implement the steps and implemented.
necessary to reduce
performance gap
6. Evaluation Organization must evaluate result of benchmarking process in terms of
improvement vis-à-vis set objective.
Evaluation shall be periodic and benchmarking should be reset as per change in
conditions .
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