Strategic Management PDF

STRATEGIC MANAGEMENT
MMS-III-Core (U/A)
AIMS
Mumbai
Prof. K. Gaanyesh
© Prof. Gaanyesh K.
1/14/2023 1
Broad Course Syllabus of Strategic Management
Week 1 & 2: Introduction to Strategic Management
Week 3 & 4: Analyzing the External Environment
Week 5 & 6: Analyzing the Internal Environment
Week 7 & 8: Competitive Positioning; Managing the Multi-business Firm
Week 9 & 10: How to use the Models & Tools; Group presentation
1/14/2023 © Prof. Gaanyesh K. 2

Air India close to signing order for 150
Boeing 737 Max jets
WHY???
India’s narrow body fleet is dominated

by the Airbus A320

Marico to acquire Vietnam-based
Beauty X Corporation for ₹172 crore
WHY???
Beauty X owns female personal care brands Purité de The addition of Purité de Prôvence and Ôliv
Prôvence and Ôliv, which offer a range of products such as presents an opportunity to significantly
shower gels, shampoos, conditioners, face wash, and
expand our play in the female beauty and
lotions. The transaction is expected to be completed by
March 31, 2023
personal care category and therefore increase
our total addressable market in a high growth
country like Vietnam. Both brands have
established a distinct natural proposition and
scaled up profitably in a rather short span of
time," said Saugata Gupta, MD and CEO,
Marico
V-Guard Industries to acquire Sunflame WHY???
Enterprises for Rs 660 crore
The deal will be funded through a mix of internal

accruals and debt. The acquisition is in line with V-
Guard’s strategy to become a significant player in the
domestic kitchen appliances segment

Learning Objectives
• What is strategy and how it has a specific and precise
meaning in an organizational context
• The distinction between strategy and tactics
• How the role of existing organizational resources and

structures help in formulating and implementing strategies

Strategic Management
MODULE-I
Part – i, ii, iii & iv

"Strategic management is not a box of tricks or a bundle of
techniques. It is an analytical thinking and commitment of
resources to enable action. But quantification alone is not
planning. Some of the most important issues in strategic
management cannot be quantified at all."
—Peter F. Drucker

What is STRATEGY?
• Depicts the direction the business will pursue
within its chosen environment
• Guides the allocation of resources and effort
• Provides the logic that integrates the perspectives

of functional departments and operating units, and
points them all in the same direction

• The term “strategy” is derived indirectly from the Classic and Byzantine (330 A.D.)
Greek “strategos,” which means “general”
• The Greek equivalent for the modern word “strategy” would have been “strategike
episteme” or (general’s knowledge) “strategon sophia” (general’s wisdom)
• One of the most famous Latin works in the area of military strategy is written by
Frontius and has the Greek title of Strategemata that describes a compilation of
strategema, as “tricks of war”

• The Roman historians also introduced the term “strategia” to refer to territories
under control of a strategus - a military commander - in ancient Athens and a
member of the Council of War
• Count Guibert, a French military thinker, introduced the term “La Strategique” in
1799, in the sense that is understood as “the strategy” today

Strategy Vs. Tactics
Strategy Tactics
• strategy teaches the use of • In the military realm, tactics teach the use
engagements to achieve the objectives of armed forces in engagements
of the war • With tactics, the soldier is forced to
• In war, actions become strategic or quickly apply the tools they have in the
tactical depending upon the form or the heat of battle
significance of the engagement
• Planning the formations for the • Ordering of formations on the battlefield

battlefield
Strategy Vs. Tactics
Strategy Tactics
• “Strategic” is associated with long-range • “Tactical” has been referred to shorter-
aircraft and missiles range aircraft and missiles
• Strategy originated from the necessity • Tactics involve physically carrying out the
of peoples to defeat their enemies plan – IMPLEMENTATION / EXECUTION
• Without enemies, the need for strategy

is non-existent
• strategy involves PLANNING a

company's next move

As per Keniche Ohmae, acclaimed Japanese business strategist and
author of “The Mind of the Strategist”:-
“The sole purpose of strategy is to enable a company to gain, as

efficiently as possible, a sustainable edge over its competitors (SCA
= Sustainable Competitive Advantage). When no competition
exists, there is no need to strategize.”

As the definition and military history’s greatest
leaders and their teachings have shown,
there is no single strategy that will lead to
victory over an opponent

Clausewitz’s six principles of Strategic Effectiveness:
1. Advantage of terrain
2. Surprise
3. Attack from several sides
4. Aid to theatre of war by means of fortifications
5. Assistance of the people
6. Use of great moral forces

• One form of the military use of surprise is in
the conduct of guerrilla warfare
• The term “guerrilla” comes from the Spanish

and means “little war”
• The term generally refers to combat of small

units that do not seek to hold territory and
describes a tactic that can be employed by
anyone, including large, powerful armies

• The first complete theory of guerrilla warfare was
written by Lawrence of Arabia in his 1926 work,
The Seven Pillars of Wisdom
• Guerrillas should operate like a cloud of gas,

being inactive and invisible the majority of the
time and relying on dispersion and mobility

Key Takeaways…
• The term "Strategy" in an
organizational context has a specific
and precise meaning
• In reality, a firm's strategy may be

both deliberate as well as emergent
• An organization's goals
significantly guides its strategy
Who are the Strategists?
• Strategists are the individuals who are most responsible for the success
or failure of an organization
• Strategists have various job titles, such as CEO, President, Owner, Chair
of the board, Executive director, Chancellor, Director/Dean, or
Entrepreneur

• Strategists help an organization gather, analyze, and organize information
• They track industry and competitive trends, develop forecasting models and scenario
analyses
• Evaluate corporate and divisional performance, spot emerging market opportunities, identify
business threats, and develop creative action plans
• Strategic planners usually serve in a support or staff role
• Usually found in higher levels of management, they typically have considerable authority for
decision making in the firm
Business Policy and Strategic Management
“Without Business Policy and Strategy, an organization is like a ship

without rudder, going around in circles…
It’s like a tramp who has no place to go!”
1/14/2023 © Prof. Gaanyesh K.

– Joel Ross and Michael Kami
25
Business Policy defined by Christensen:
“Business Policy is the study of the

function and responsibilities of Senior
Management, the crucial problems
that affect success in the total
enterprise, and the decisions that
determine the directions of the
organization and shape of its future”

The Strategic Statement
• The strategy statement of a firm sets the firm’s
long-term strategic direction and broad policy
directions
• It gives the firm a clear sense of direction and a
blueprint for the firm’s activities for the upcoming
years
Components of Strategy Statement
1. Strategic Intent
• Is the purpose that it exists and why it will continue

to exist
• Gives a picture about what an organization must
get into instantly in order to achieve the company’s
vision
• It motivates the people
• It helps management to emphasize and
concentrate on the priorities
The SBU is composed of THREE elements
1. A BUSINESS DEFINITION
– depicts the expanse in which the business

will compete
2. A STRATEGIC THRUST –
how to gain a competitive advantage?

i) by focusing on the scope
ii) by exploiting an asymmetry in the
position of the business
3. SUPPORTING FUNCTIONAL STRATEGIES –
the activities designed for consistency and

comparability with other activities and the strategic
thrust
Components of Strategy
Statement
2. MISSION Statement:
• Is the statement of the role
• It describes why an organization is operating
• It describes what the organization does (i.e. present

capabilities), who all it serves (i.e. stakeholders) and
what makes an organization unique (i.e. reason for
existence)
• It differentiates an organization from others

Illustrations of Mission Statement:-
• To impart management education of global standards to students and

professionals thus, making them responsible global citizens
• To undertake research and consultancy for the betterment of the

industry and society
• To continuously involve ourselves in innovative processes and use best

practices of governance
• Build an intellectual pool of students, faculty and alumni through

innovative processes, student and faculty development programs and
networking
Illustrations of Mission Statement:-
“To help people and businesses throughout the world to realize their full
potential”
“To give ordinary folk the chance to buy the same thing as rich people”
“Utilize the power of Moore's Law* to bring smart, connected devices to

every person on earth”
*Moore's law is the observation that the number of transistors in a dense integrated circuit doubles approximately every
1/14/2023 twoGaanyesh
© Prof. years K. 34
MISSION
“is the unique purpose that sets a company apart
from others of its types, and identifies the scope
of its operations in Product, Market, and
Technology terms”

Features of a Mission
 Must be FEASIBLE, ATTAINABLE, POSSIBLE TO ACHIEVE
 Should be CLEAR enough
 Should be INSPIRING
 Should be PRECISE enough
• Should be UNIQUE and DISTINCTIVE
• Should be ANALYTICAL
• Should be CREDIBLE
Fundamental views for formulating a Mission
1. Cost to Benefit of company’s Product or Service
2. Serving the unmet needs of uncovered market segments
3. Technology that boosts Cost-Quality-Competitive Product or Service
4. Teamwork-Hardwork leads to profitable business
5. Favorable management philosophy
6. Sense of Ownership among the employees

3. VISION:
• A vision statement IDENTIFIES WHERE THE ORGANIZATION WANTS or INTENDS TO BE IN

FUTURE
• It describes DREAMS & ASPIRATIONS for future
• It is the POTENTIAL TO VIEW THINGS ahead of themselves
• It answers the question “WHERE WE WANT TO BE”

Features of a Vision Statement
a. UNAMBIGUOUS
b. CLEAR
c. HARMONIZE with organization’s culture and values
d. RATIONAL / REALISTIC
e. SHORTER - easier to memorize

3. GOALS & OBJECTIVES:
• A goal is a DESIRED FUTURE STATE
• Specifies WHAT MUST BE DONE to attain mission or vision
• Makes mission MORE PROMINENT and CONCRETE
• CO-ORDINATE & INTEGRATE various functional and departmental areas
• OBJECTIVES are defined as goals

Features of Goals
a. PRECISE and MEASURABLE
b. These look after CRITICAL & SIGNIFICANT issues
c. REALISTIC and CHALLENGING
d. ACHIEVED WITHIN A SPECIFIC TIME FRAME
e. Include both FINANCIAL & NON-FINANCIAL components

Features of Objectives
a. Objectives MULTIPLE, not single
b. Should be both SHORT-TERM as well as LONG-TERM
c. Must be FLEXIBLE
d. Must be FEASIBLE, REALISTIC & OPERATIONAL

Dimensions of Strategic Decisions
1. Strategic issues require Top Management Decisions
[Example:- Kaya Skin Care initiative resulted from the need to guard Marico Industries against its
overdependence on Parachute and Saffola. While searching for alternative, Mr. Rakesh Pandey
(CEO, Kaya Skin Care had an offer to market hair removal laser machines, which he denied, as it
wasn’t at par with their area of competence; Hence he decided to enter in the broader area of
skincare]

1. Strategic issues require Large Amount of Firm’s Resources – substantial allocation of
Man, Machine, Material, & Money
[Example:- RIL’s diversification in Telecom Sector, Jio, Reliance Retail, etc]
Examples by students???

1. Strategic issues often affect the Firm’s Long-term Prosperity:
[Example:- Tata-Fiat failed alliance; etc]
Example:
The Fall of Good Times King
• 2nd largest airline, in terms of carrying the number of passengers

• The quality and comfortable service attracted many passengers
• Kingfisher acquired Air Deccan in 2007
• In just 2 years, the airlines achieved the aviation market share of 10%
• In June 2007, acquired 26% shareholding in Air Deccan Airlines
• The first international Bengaluru-London flight in 2008 was launched
• During February 2009, more than 900,000 passengers flew Kingfisher

Example:
The Fall of Good Times King
• By March 2008, company debt increased to INR 934 cr.
• Acquisition of Air Deccan marred Kingfisher Airlines
• By the year 2009-10, airlines accumulated the debt of over INR 7,000 cr.
• In 2010 Kingfisher turned into a non-performing asset (NPAs) for banks
• Finally, In 2012, the airlines operations were shut down as the DGCA suspended its flying
license
What Went Wrong?

What Went Wrong?
1. Lack of Delegation
2. Low-cost aviation airline, Air Deccan was treated as a step-child
3. Unnecessary Burning of Fuel
4. It wasn’t just into one business and trying hands on more than one business
5. The founder was taking care of different businesses personally without appointing proper
CEOs and couldn’t succeed in doing so
6. If two brands serve almost the same service, then people would rather prefer the cheaper
one

1. Strategic issues are Future Oriented – based on forecast than
merely knowing:
 Emphasis is placed on projections that determines a firm to opt for
the most promising strategic option
[Example:- Coca Cola]
Example: Coca Cola
1. Focus on driving revenue and profit growth

2. Invested in own brands and business
3. Became more efficient
4. Simplified the company
5. Refocused on core business model

1. Strategic issues usually have multi-functional or multi-business
consequences:
 Emphasis is placed on projections that determines a firm to opt for
the most promising strategic option
[Example:- ITC, P&G, HUL, Wipro, Godrej]
Strategic issues require consideration of firm’s
External Environment
External Macro External Micro

Environment Environment

Strategic Decisions

Characteristics of Strategic Decisions
1. LONG-TERM DIRECTION of the business IS A CRUCIAL PART of strategic decisions
2. USUALLY EMERGE FROM THE PERSPECTIVE VIEWS about the organization and society,
including regulatory environment, prospects of different business, industry structure,
competitive environment, etc.
3. Have MAJOR RESOURCE PROPOSITIONS
4. FOCUSED ON POSSESSING NEW RESOURCES, ORGANIZING OR REALLOCATING OTHER

5. INFLUENCED BY THE VALUE SYSTEM, INCLUDING BUSINESS ETHICS & PHILOSOPHY
6. THE LONG RUN DIRECTION AND VALUE ORIENTATION influence the definition of the scope of the activities of
the business
7. STRATEGY IS THE MEANS TO ACHIEVE THE END, i.e. the mission and goals
8. LONG TERM in general and RELATED TO THE SCOPE OF THE BUSINESS of the organization
9. Involves a change of major type, for, CHANGE IS THE ONLY PERMANENT THING in this universe

10. Attempts to DEVELOP A SUSTAINABLE ORGANIZATION ENVIRONMENT FIT
11. Strategic decisions focus on ACHIEVING A SUSTAINABLE COMPETITIVE

ADVANTAGE (SCA) of the firm
12. LIKELY TO AFFECT OPERATIONAL & ADMINISTRATIVE DECISIONS
13. STRATEGIC DECISIONS ARE COMPLEX IN NATURE as they encompasses mission,

long-term direction, scope of the organization, and establishment of organization
environment fit
14. Due to the long-term future perspective of the strategic decisions, THEY MIGHT
INVOLVE SIGNIFICANT UNCERTAINTY AS FUTURE CAN HARDLY BE FORECASTED EXACTLY
15. STRATEGY IS USUALLY COMPREHENSIVE AND HIGHLY INTEGRATED
16. TO CUT BACK COST IS A STRATEGIC DECISION which can be attained through
operational decision of decreasing the number of employees and how we carry out these
reductions is going to be administrative decision

Formality in Strategic Management
Formality is the degree to which
participation, responsibility, authority, and discretion in
decision making are specified in
Greater formality is usually positively correlated with

cost, comprehensiveness, accuracy & success of planning

Formality Modes
Formality
Entrepreneurial Adaptive Mode

Mode
• Associated with Medium-
• Informal, Intuitive Planning sized firms
& Limited Mode
approach • Emphasizes on incremental
• Associated with Large firms modification of competitive
• Owner managed approaches
• Operate under comprehensive,
formal planning approach
Who’s Responsible for Strategic Planning?
• For Entrepreneurial Mode: Owner
• For Planning Mode: CEO (CXOs)
• For Adaptive Mode: Managing Director, CEO
REMEMBER: When the dominance of the CEO approaches Autocracy / Fascist attitude,
the effectiveness of the firm’s strategic planning and management process starts
1/14/2023
diminishing and becomes detrimental to firm’s growth!
© Prof. Gaanyesh K. 61
Benefits of Strategic Management
1. Enhances Firm’s ability to PREVENT PROBLEMS
2. BETTER DECISIONS, INNOVATIVE IDEAS SOUGHT because of synergy
3. IMPORVES EMPLOYEES’ UNDERSTANDING OF PRODUCTIVITY-REWARD RELATIONSHIP

in every strategic plan, thus, boosting their morale and motivation
4. GAPS & OVERLAPS in activities among individuals & groups ARE REDUCED, thus enhancing
productivity
5. RESISTANCE TO CHANGE IS REDUCED

Risks of Strategic Management
Managers must be trained to guard against THREE types of unintended NEGATIVE
consequences:
Time disparity between Disappointment of

Strategic Planning Vs. participating subordinates
Operational responsibilities over unattained
expectations
False or Over Assurances

(Promises) by strategic
managers to subordinates
Strategic
Management
Model

Policies of an Organization
• Policy refers to, “specific guidelines, methods, procedures, rules, forms, and administrative
practices established to support and encourage work towards stated goals."
• Policies are designed to guide the behaviour of managers in relation to the pursuit and
achievement of strategies and objectives
• Policies are instrument for strategy implementation

AGENCY
THEORY

• The agency theory, as developed primarily by Jensen and Meckling (1976), is a popular dogma in
corporate governance today
• Jensen and Meckling (1976) define an agency relationship as “a contract under which one or more
persons (the principals) engage another person (the agent) to perform some service on their behalf,
which involves delegating some decision making authority to the agent”
• The relationship between the stockholders and managers of a corporation with diffused ownership is
a classic example of such an agency relationship (He & Sommer, 2006)
• It concerns the relationship in which the board of directors delegates work to the managers who
perform that work (Eisenhardt, 1989)

AGENCY
PROBLEM

Brennan (1994) states, that the agency problem argues from the device
where the interests of the agent is of large difference from those of the
principal because of the difficulty, or maybe even the impossibility of
perfectly contracting for every action possible of an agent whose decisions
affect both, his own welfare and the welfare of the principal

• The agency problem in a firm setting is referred to THE CONFLICT IN
INCENTIVES BETWEEN AN AGENT AND A PRINCIPAL
• Because IT IS DIFFICULT FOR A PRINCIPAL TO MONITOR THE AGENT

COMPLETELY, INFORMATION ASYMMETRY MIGHT ARISE
• This problem arises DUE TO SEPARATION BETWEEN OWNERSHIP AND

CONTROL

• This could lead to a RISE OF WORRIES IN THE HAND OF THE PRINCIPAL
THAT THE AGENT IS ACTING IN ITS OWN BENEFIT INSTEAD OF IN THE
PRINCIPAL’S BENEFIT
• The agency problem is INDISPENSABLE IN BUSINESSES AND EMERGES IN

DIFFERENT CAPACITIES

Five Problems resulting from Agency
1. Executives pursue growth in COMPANY SIZE than in EARNINGS
2. Executives attempt to diversify their corporates’ operations, businesses

and product lines to moderate the risk incurred in single venture,
which dilutes the returns associated with the single venture
3. Executives avoid risk, restricting the diversification, innovation, and

rapid growth for on safety & security

Five Problems resulting from Agency
5. Executives act to optimize their personal payoffs from annual

performance bonus, than from stock appreciation
6. Executives act to protect their status even when companies expand,

by doing more of their expertise than revolutionary advancement
desired by the investors

What’s the Solution??
1. Employers should pay premium to executives for their service, which would help
executives to see their loyalty the stockholders
2. Employers should offer ‘back-loaded’ compensation to their executives (e.g. –

strategic actions taken by an executive in year-1, reaps rewards in year-3, should
become the basis for executive bonus in year-3
3. Creating strong teams of executives across different SBUs can help focusing
performance measures on organizational than personal goals

Process

“Effective strategists are not people who distance themselves from the detail
of a business but quite the opposite:
They are the ones who immerse themselves in it, while being able to abstract
the strategic messages from it”
- Henry Mintzberg

Analyzing Goals
and Objectives
The Strategic
Management
Analyzing the
External
Environment
Analyzing the
Internal
Environment
Process
Assessing
Intellectual Capital
Strategy Analysis
Formulating Business-Level Implementation:

Strategies Strategic Controls
Formulating Formulating Implementation: Strategic Leadership:

Corporate-Level International Organization Excellence, Ethics, and
Strategies Strategies Design Change
Strategic Leadership:
Formulating Internet
Fostering
Strategies
Entrepreneurship
1/14/2023 Strategy Formulation © Prof. Gaanyesh K. Strategy Implementation 77

The Strategic Management Process
External
Analysis
Strategic Strategy Competitive

Mission Objectives
Choice Implementation Advantage
Internal
Analysis

External
Analysis

Objectives
Internal
Analysis
Mission

Objectives:
• specific, measurable targets
• the things a firm needs to ‘do’ to achieve

its mission
• should influence other elements in the strategic
management process
Example: TATA Group’s mission & objectives

External and Internal (SITUATION) Analysis
Systematic Examination of the Environment (SEE)
External Analysis Internal Analysis

• Interest rates • Human resources
(knowledge)
• Demographics
• Manufacturing
• Social trends abilities
• Technology • Technology

The Strategic Management
Process
Strategic Choice
External Internal
Analysis Analysis
Strategic
Choice
Business Corporate
Level Level
• positioning • which
a business businesses?
Example: ITC
Initial Assessment
Components:
Vision statement & Mission statement
Tools used:
Creating a Vision and Mission statement

Situation Analysis
COMPONENTS: TOOLS USED:

PEST, SWOT, Core Competencies, USP, Porter's 5
• Internal environment analysis
Forces, Competitor Profile Matrix, External Factor
• External environment analysis
Evaluation Matrix - Internal Factor Evaluation
• Competitor analysis
(TOWS), Benchmarking, Financial Ratios,
Scenarios Forecasting,
Market Segmentation, VCA, VRIO

Strategy Implementation
• HOW strategies are carried out
• WHY need strategy
• WHO will do what
• WHAT’s the organizational structure and control
• WHO reports to whom
• HOW does the firm hire, promote, pay, etc.
• WHERE to carry out strategy
• WHEN to carry out strategy

• every strategic choice has strategy implementation
implications
• strategy implementation is just as important as
strategy formulation
A Strategy Is Only As Good As Its Implementation

Competitive Advantage
Definition: the ability to create more economic value than

competitors
External
Analysis
Mission Objectives
Internal
Analysis
All other elements of the strategic management process are aimed at

achieving sustainable competitive advantage (SCA)
Competitive
Advantage

The Ability to Create More Economic
Value Than Competitors
• There must be SOMETHING DIFFERENT about a firm’s offering vis-à-vis

competitors’ offerings
• If all firms’ strategies were the same, no firm would have a competitive
advantage
• Competitive advantage is the result of DOING SOMETHING DIFFERENT

and/or better than competitors

Two Types:
1) Preference for the firm’s output

• people choose the firm’s output over others’
• people are willing to pay a premium
Example: Lifestyle Stores
2) Cost advantage vis-à-vis competitors
• lower costs of production/distribution
Example: BIG BAZAAR

External
Analysis
Internal
Analysis
Identify and exploit differences that may lead

to competitive advantage
Examples: Apple’s iPod, iPad, iPhones

Temporary & Sustainable
• competitive advantage typically results in high profits
• profits attract competition
• competition limits the duration of competitive

advantage in most cases
Thus,
• most competitive advantage is temporary
• competitors imitate the advantage or offer
something better

Temporary & Sustainable
Some competitive advantages are sustainable if:
• competitors are unable to imitate the source of advantage
• no one conceives of a better offering
But,
over the time, even sustainable competitive advantage

may be lost

Competitive Parity
• the firm’s offerings are ‘average’
• people do not have a preference for the firm’s offering
• the firm does not have a cost advantage over others
• some things that may lead to competitive parity may

still be critical to success

Disadvantages
• people may have an aversion to the firm’s offering

• the firm may have a cost disadvantage
• a firm may have outdated technology/equipment
• a firm may have a negative reputation
Example: Pantaloons’ Labor & Location Policies

Measuring Competitive Advantage
Superior Economic Performance Is Viewed as an

Evidence of Competitive Advantage
• it is rather easy to see the evidence of

competitive advantage
• measuring the source of the advantage, per se,

is typically impossible
• it’s difficult to ‘measure’ technology

Measuring Competitive Advantage
Two Classes of Measures:
1) Accounting Measures
• ROA, ROS, ROE, etc. that exceed industry averages
2) Economic Measures
• earning a return in excess of the cost of capital

Competitive Advantage Economic Returns
Advantage Above Normal

• exceeding expectations
Parity Normal
• meeting expectations
Disadvantage Below Normal

• failing expectations

Competitive Advantage &
Emergent vs. Intended Strategies
• the strategic management process leads managers
to intended strategies
However,
• conditions often change or new information
becomes available
• managers respond and adopt emergent strategies
Example: Honda Motorcycles

In Summary…
Firms could achieve competitive parity and survive
• they would face a flat demand curve
• their cost structure would be the industry average
• they would need to adapt their strategy over time just to survive
• they would fail if they didn’t adapt their strategy
1/14/2023 © Prof. Gaanyesh K. 100

In Summary…
• This course is not about mere survival, it is about thriving - achieving a

competitive advantage
• The strategic management process helps managers achieve competitive

advantage
• Competitive advantage depends on differences
• Strategy is about discovering and exploiting these differences
1/14/2023 © Prof. Gaanyesh K. 101

Create a
Applying Strategy to Your Career
POD
• A solid understanding of strategy concepts for
will help set you apart from other job Yourself!
candidates
• You can use the process to identify and

exploit difference between you and others
• You can use the process to determine if you

want to stay with a company
1/14/2023 © Prof. Gaanyesh K. 102

The Strategic Management Process & Competitive Advantage
Strategy Matters!...
Strategy is often the difference between:
• Success and failure, between mediocrity and

excellence
• A great manager and average managers
• Stumbling through life and moving ahead with

purpose
1/14/2023 © Prof. Gaanyesh K. 103

Strategic Planning - A Four-Phase Process
Establish a Foundation for the Strategy

Develop the Strategic Plan
- Vision
Implement the Strategic Plan
- SWOT Analysis
- “Rubber meets the Evaluate the Plan,
- Mission road”
Process, and
- Generate - Strategies become Performance
Strategic tactics and tactics
- Values become
Objectives
operationalized
- Three factors that are
critical:
1. Commitment
2. Credibility
1/14/2023 © Prof. Gaanyesh K. 104
3. communication
Thus, Strategy is ______
A deliberate plan of action that will develop a business's competitive advantage
Not operational effectiveness
A pattern in a stream of decisions or actions
About a firm's long-term financial performance alone.
1/14/2023 © Prof. Gaanyesh K. 105

Strategic v/s Operational Planning
• Strategic Planning is concentrated towards attaining the long-term

objectives of business
• Operational planning is done to achieve short-term objectives of

the company. These are used to set priorities and align the
resources, in such a way that leads to the accomplishment of
business goals
1/14/2023 © Prof. Gaanyesh K. 106

BASIS FOR STRATEGIC PLANNING OPERATIONAL PLANNING
COMPARISON
Meaning The planning for achieving the vision of Operational Planning is a process of deciding
the organization is Strategic Planning in advance of what is to be done to achieve
the tactical objectives of business?
Time Horizon Long term planning Short term planning
Approach Extroverted Introverted
Modifications Generally, the plan lasts longer The plan changes every year
Performed by Top level management Middle level management
Scope Wide Narrow
Emphasis on Planning of vision, mission and objectives Planning the routine activities of the company
1/14/2023 © Prof. Gaanyesh K. 107
One more tool… VRIO analysis
• Originally developed by Barney, J. B. (1991) in his work ‘FIRM RESOURCES and

SUSTAINED COMPETITIVE ADVANTAGE’ (SCA)
• The author identified four attributes that firm’s resources must possess in order
to become a source of SUSTAINED COMPETITIVE ADVANTAGE
1/14/2023 © Prof. Gaanyesh K. 108

• The resources must be VALUABLE, RARE, IMPERFECTLY IMITABLE AND NON-
SUBSTITUTABLE
• His original framework was VRIN…In 1995, Barney changed to VRIO
• VRIO = Four questions about resources:

 Valuable?
 Rare?
 Impossible (Costly) to Imitate?
 Is a firm Organized to capture the value of the resources?
1/14/2023 © Prof. Gaanyesh K. 109

VRIO
Framework
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How to use the VRIO tool?
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Identify
Find if Constantly
valuable,
company is Protect the review VRIO
rare and
organized to resources resources
‘costly to
exploit the and
imitate’
resources capabilities
resources
- Tangible -Protect the

-Check for the strategic resources using all - The value of the
management process in possible means resources change
- Intangible organization
-make the top over time and
-Check for effective motivation management aware
and reward systems of such resource
-Check the company’s culture and suggest how it - They must be
of rewarding innovative ideas can be used to reviewed
-Check an organizational lower the costs or to constantly to find
structure if designed to use differentiate the out if they are as
resources products and valuable as they
services once were
-Check if there exists excellent
management and control -think of ideas how
systems to make it more
costly to imitate
1/14/2023 © Prof. Gaanyesh K. 112
Some questions a firm must ask itself:
• Which activities lower the cost of production without compromising perceived customer
value?
• Which activities increase product or service differentiation and perceived customer value?
• Have your company won an award or been recognized as the best in something?
• Do you have an access to scarce raw materials or hard to get in distribution channels?
• Do you have special relationship with your suppliers? Such as tightly integrated order and
distribution system powered by unique software?
• Do you have employees with unique skills and capabilities?
• Do you have brand reputation for quality, innovation, customer service?
• Do you do perform any tasks better than your competitors do? (Benchmarking is useful
here)
• Does your company hold any other strengths compared to rivals?
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Finding RARE resources:
• How many other companies own a resource or can perform capability in

the same way in your industry?
• Can a resource be easily bought in the market by rivals?
• Can competitors obtain the resource or capability in the near future?
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Finding COSTLY TO IMITATE resources:
• Do other companies can easily duplicate a resource?

• Can competitors easily develop a substitute resource?
• Do patents protect it?
• Is a resource or capability socially complex?
• Is it hard to identify the particular processes, tasks, or other factors that form
the resource?
1/14/2023 © Prof. Gaanyesh K. 115

Google’s capability evaluated using VRIO framework
Apple’s VRIO capability

Excellent Employee Management
Valuable? Rare? Costly to Is a company

Imitate? organized to
exploit it?
Yes Yes Yes Yes
Result: Sustained Competitive Advantage
1/14/2023 © Prof. Gaanyesh K. 116

Group Assignment
Select an Organization of your choice and carryout VRIO analysis for all
the FOUR functional areas, viz.- Marketing, Finance, Operations, and
HR
Submission Time: Seven days from TODAY. Each group will present their
VRIO in THREE minutes. Carries 10 marks (GROUP/INDIVIDUAL)
Submission Rules:
i) Handwritten, no CPW (copy-paste-work), not exceeding maximum one
page per Functional area
ii) Contribution of every group member is a MUST
1/14/2023 © Prof. Gaanyesh K. 117
Strategy Formulation
Components: Tools used:

• Objectives • Scenario Planning
• Business level • SPACE Matrix, BCG Matrix, GE-McKinsey
• Corporate level Matrix, Porter’s Generic Strategies
• Global Strategy Selection • Bowman’s Strategy Clock
• Porter’s Diamond
• Grand Strategy selection Matrix
• QSP Matrix
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Grand Strategy selection Matrix
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Why Some Firms Do No Strategic Planning
• Lack of knowledge or experience in strategic
planning
• Poor reward structures
• Firefighting
• Waste of time
• Too expensive
• Laziness
• Content with success
• Fear of failure
• Overconfidence
• Prior bad experience
• Self-interest
• Honest difference of opinion
• Suspicion
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Pitfalls in Strategic Planning
• Using strategic planning to gain control over decisions and resources
• Doing strategic planning only to satisfy accreditation or regulatory requirements
• Too hastily moving from mission development to strategy formulation
• Failing to communicate the plan to employees, who continue working in the dark
• Top managers making many intuitive decisions that conflict with the formal plan
• Top managers not actively supporting the strategic-planning process
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Pitfalls in Strategic Planning
• Failing to use plans as a standard for measuring performance
• Delegating planning to a “planner” rather than involving all managers
• Failing to involve key employees in all phases of planning
• Failing to create a collaborative climate supportive of change
• Viewing planning as unnecessary or unimportant
• Becoming so engrossed in current problems that insufficient or no planning is done
• Being so formal in planning that flexibility and creativity are stifled20
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MODULE-II
1/14/2023 © Prof. Gaanyesh K. 123

“Whether it’s broke or not, fix it—make it
better. Not just products, but the whole
company if necessary.”
—Bill Saporito
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i. Strategy Choices:
a. Hierarchy of Strategies
b. Types of Strategies - Porter’s Generic Strategies; Competitive Strategies; Grand
Strategies (15 grand strategies viz.- Concentrated growth, Market
development, Product development, Innovation, Horizontal integration,
Vertical integration, Concentric diversification, Conglomerate diversification,
Turnaround, Divestiture, Liquidation, Bankruptcy, Joint ventures, Strategic
alliances, Consortia-Keiretsus-Chaebols; and selection of long term objectives
and grand strategy sets
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ii. Strategy Development for Non-profit, Non-business oriented organizations
iii. McKinney’s 7 S Model: Strategy, Systems, Structure, Style, Staff, Skills

and Shared values
iv. CSR and Business Ethics - Codes of business ethics
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HIERARCHY OF STRATEGIES
• Hierarchy of strategies describes a layout and relations of global
strategy and sub-strategies of the organization
• Individual strategies are arranged hierarchically and logically consistent

at the level of vision, mission, goals and metrics
• Methods used in strategic planning: top-down, bottom-

up and bidirectional planning
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Hierarchy of
Strategies of an
organization
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Bottom-Up Planning
• Method of planning, defining objectives and ways to achieve them
through the bottom-up approach
• First, relatively close targets at lower levels of the organizational hierarchy

are set
• Then gradually integrated into the framework of global goals
• Followed by global strategy at higher and higher levels. It is therefore a

convergent approach
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Bottom-Up Planning
Major disadvantage:
• Unidirectional process
• Hence planning system lacks feedback
1/14/2023 © Prof. Gaanyesh K. 130

Top-Down and Bottom-Up Planning
• Method of planning, defining objectives and ways to achieve them through the top
down
• First, global (framework) goals are set, and ways how to achieve them
• They are gradually moved to lower and lower levels of the organizational hierarchy
to be developed and specified
• It is a divergent approach
1/14/2023 © Prof. Gaanyesh K. 131

Strategy Choices
- Types of Strategies - Porter’s Generic Strategies; Competitive Strategies

- GRAND STRATEGIES (15 grand strategies viz.- Concentrated growth, Market
development, Product development, Innovation, Horizontal integration, Vertical
integration, Concentric diversification, Conglomerate diversification, Turnaround,
Divestiture, Liquidation, Bankruptcy, Joint ventures, Strategic alliances, Consortia-
Keiretsus-Chaebols)
- Selection of long term objectives and grand strategy sets
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Types of Strategies
- PORTER’S GENERIC COMPETITIVE STRATEGIES
- DIFFERENTIATION
- COST LEADERSHIP
- FOCUS
- GRAND STRATEGIES
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PORTER’S GENERIC COMPETITIVE
STRATEGIES
1/14/2023 © Prof. Gaanyesh K. 134
Cost Leadership
Examples by
Students ???
1/14/2023 © Prof. Gaanyesh K. 135

GRAND STRATEGY
1/14/2023 © Prof. Gaanyesh K. 136

Types of Grand Strategies
Concentrated Growth Conglomerate Diversification
Market Development Turnaround
Product Development Divestiture
Innovation Liquidation
Horizontal Integration Bankruptcy
Vertical Integration Joint Ventures
Concentric Diversification Strategic Alliances
Consortia 137
Igor Ansoff’s Product-Market Matrix
1/14/2023 © Prof. Gaanyesh K. 138

Concentric Growth Strategy
• Concentrated growth strategies center on IMPROVING CURRENT PRODUCTS AND/OR

MARKETS WITHOUT CHANGING ANY OTHER FACTORS
• The firm directs its resources to the profitable growth of a SINGLE PRODUCT, IN A
SINGLE MARKET, and WITH A SINGLE TECHNOLOGY
• Concentration MAY INVOLVE INCREASING THE RATE OF USE OF A PRODUCT BY

CURRENT CUSTOMERS; ATTRACTING COMPETITOR'S CUSTOMERS; and/or
ATTRACTING NONUSERS/ NEW CUSTOMERS
1/14/2023 © Prof. Gaanyesh K. 139
• Involves the substantial modification of existing products
• Or the creation of new but related products
• Marketed to current customers through established channels
Product
Development
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Paradigm shift from innovation to production or marketing competence, due to rising
competition
Search for other novel Innovation Initial Strategy:

ideas Milking / Skimming
Rationale of Innovation strategy is to CREATE A NEW PRODUCT LIFE CYCLE and thereby MAKE
SIMILAR EXISTING PRODUCTS OBSOLETE
1/14/2023 © Prof. Gaanyesh K. 141
• Acquisition of one or more similar firms operating at the same stage of the
production-marketing chain, its grand strategy is called horizontal integration
• Eliminates competitors and provides the acquiring firm with an access to

new markets
• Examples: Air India-Tata; Idea-Vodafone; Tata-Big Basket; Tata-1Mg;

JalanKalrock-Jet Airways; PM Bank-Centrum & Bhatat Pe
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Vertical and Horizontal Integration
143
CONCENTRIC
DIVERSIFICATION
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• Acquisition of businesses related to the acquiring firm in terms of
technology, markets, or products
• The selected new businesses possess a high degree of

compatibility with the firm’s current businesses
• The ideal concentric diversification occurs when the combined

company profits increase the strengths and opportunities and
decrease the weaknesses and exposure to risk
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CONGLOMERATE DIVERSIFICATION
1/14/2023 © Prof. Gaanyesh K. 146

• Business seeks opportunities for diversifications, that HAS NO RELATION
WITH ITS CURRENT TECHNOLOGY-PRODUCTS-SERVICES
• THE PRINCIPAL CONCERN IS THE PROFIT PATTERN of the venture being

acquired OR new venture planned for entering
• Gives LITTLE CONCERN TO CREATING PRODUCT-MARKET SYNERGY WITH

EXISTING BUSINESSES
1/14/2023 © Prof. Gaanyesh K. 147

TURNAROUND STRATEGY
1/14/2023 © Prof. Gaanyesh K. 148

• The firm finds itself with declining profits
• Major Reasons? Two forms of retrenchment:
1. Cost reduction
 Economic recessions 2. Asset reduction
 Production inefficiencies, and
 Innovative breakthroughs by competitors
• Strategic managers often believe the firm can survive and eventually recover if a
concentrated effort is made over a period of a few years to fortify its distinctive
competencies, FOR IT’S OWN REVIVAL
• 1/14/2023
Thus it is called, “Turnaround strategy” (E.G.-K. Ms. Kalpana Saroj of Kamani Tubes)149
© Prof. Gaanyesh
Elements of Turnaround
• Absolute and relative-to-industry declining performance of
sufficient magnitude to warrant explicit turnaround actions
• The primary causes of the turnaround situation have been

associated with the second phase of the turnaround process,
the recovery response
150
Govt. to divest 76% stake in Air India, Air India
Express
• Divestiture strategy involves the sale of a firm or a major
component of a firm
• When retrenchment fails to accomplish the desired turnaround,

strategic managers often decide to sell the firm
• Reasons for divestiture vary from firm to firm, industry to industry
DIVESTITURE
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LIQUIDATION
• When liquidation is the grand strategy, the firm is typically
sold in parts, only occasionally as a whole—but for its
tangible asset value and not as a going concern
• Planned liquidation can be worthwhile
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• Liquidation bankruptcy — agreeing to a complete distribution of firm assets
to creditors, most of whom receive a small fraction of the amount they are
owed
• Reorganization bankruptcy — the managers believe the firm can remain

viable through reorganization
1/14/2023 © Prof. Gaanyesh K. 153

Joint
Ventures
1/14/2023 © Prof. Gaanyesh K. 154

Strategic Alliances
• In Strategic Alliances, the companies involved do not take an

equity position in one another
• In some instances, strategic alliances are synonymous with

licensing agreements
• Outsourcing arrangements differ
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Consortia, Keiretsus, and Chaebols
• CONSORTIA are defined as large interlocking relationships between

businesses of an industry
• In Japan such consortia are known as KEIRETSUS, in South Korea as

CHAEBOLS
• Their cooperative nature is growing in evidence as is their market

success
1/14/2023 © Prof. Gaanyesh K. 156

SELECTION OF LONG TERM
OBJECTIVES &
GRAND STRATEGY SETS
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"When a crisis forces choosing among alternatives, most
people will choose the worst possible one."
—Rudins Law
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• Strategic Managers study the most viable strategies which can result in
achieving Long Term Objectives (LTOs)
• Also, availability of any Grand Strategy is assessed to meet the objectives
• Finally, THREE DISTINCT but HIGHLY INTERDEPENDENT choices are made at a

time – as triads, sets or possible decisions
1/14/2023 © Prof. Gaanyesh K. 159

SIX STRATEGIC CHOICE OPTIONS
1 2 3 4 5 6
Interactive West Bengal Markets Current Markets Sensitive to Price Current Industry Product
Opportunities present Little Competition lines Offer too Narrow
Competition Range of Markets
appropriate long range

objectives (Limited
sample):
1) Avg. 5 yr. ROI 15% 19% 13% 17% 23% 15%
2) Co. sales by yr. 5 + 50% + 40% + 20% + 0% + 35% + 25%
3) Risk of Negative 0.30 0.25 0.10 0.15 0.20 0.05

Profits
Grand Strategies = Horizontal Market Concentration Selective Product Concentration

Integration Dev. Retrenchment Dev.
1/14/2023 © Prof. Gaanyesh K. 160

SIX STRATEGIC CHOICE OPTIONS
1 2 3 4 5 6
Interactive West Bengal Markets Current Markets Sensitive to Price Current Industry Product
Opportunities
However, in an actual decisionCompetition
present Little
situation, the strategiclines Offer too Narrow
Competition
choice would become complicated, Range of Markets
appropriate long range due to:

objectives (Limited
sample): i) Wider variety of interactive opportunities
1) Avg. 5 yr. ROI 15% 19%
ii) Feasible 13%
company 17%
objectives 23% 15%
2) Co. sales by yr. 5 +iii)

50% + 40% grand+strategy
Promising 20% + 0% and
options, + 35% + 25%
3) Risk of Negative 0.30 0.25

iv) 0.10 criteria
Evaluative 0.15 0.20 0.05
Profits
Grand Strategies = Horizontal Market Concentration Selective Product Concentration

Integration Dev. Retrenchment Dev.
1/14/2023 © Prof. Gaanyesh K. 161

• Dell and Coca-Cola had examined the possibility of Diversification
and concluded that continued Concentration in their core
product/services vis-à-vis development of new core
products/services are best!....WHY??
• Pepsi and IBM too, examined the same question and decided that
Concentric diversification and Vertical integration were the
best!....WHY??
1/14/2023 © Prof. Gaanyesh K. 162

THREE types of
Businesses
Rich Business Medium Rich Business Poor Business

- Creates SCA - Lack Cost or Differentiation - Lacks both Cost and
advantage Differentiation advantage
- High Cost and Diff.
Leadership - Avg. or below-average - Avg. or below-average
profitability profitability
- High profitability
1/14/2023 © Prof. Gaanyesh K. 163
Key Issues: Strategic Choice in Single Businesses
1. What strategies are most effective at building sustainable

competitive advantages for single business units?
2. Should dominant-product/service businesses diversify to

build value and competitive advantage? What grand
strategies are most appropriate?
1/14/2023 © Prof. Gaanyesh K. 164

Prominent Sources of Competitive Advantage
Cost leadership
Sources of Differentiation
competitive
advantage Speed
Market focus
1/14/2023 © Prof. Gaanyesh K. 165
Evaluating A Business’s Cost Leadership
Opportunities
A. Skills and Resources Fostering Cost Leadership
• Sustained capital investment and access to capital
• Process engineering skills
• Intense supervision of labor or core technical operations
• Products or services designed for ease of manufacture (Lean Mfg.) or delivery
• Low-cost distribution system
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Evaluating A Business’s Cost Leadership
Opportunities
B. Organizational Requirements Supporting Cost Leadership
• Tight cost control
• Frequent, detailed control reports
• Continuous improvement and benchmarking orientation
• Structured organization and responsibilities
• Incentives based on meeting strict, usually quantitative targets
1/14/2023 © Prof. Gaanyesh K. 167

• Low-cost advantage reduces likelihood of pricing pressure from buyers
• Truly sustained low-cost advantage may push rivals into other areas, thus lessening the
competition (e.g.-Saint Gobain in float glass industry)
• New entrants competing on price must face an entrenched cost leader without the
experience to replicate every cost advantage (e.g.- No –frills airlines vs. full-fare airlines)
• Higher margins allow low cost producers to withstand supplier cost & gain supplier
loyalty (e.g.- Reliance Mobile launched in 1998 @ INR 10,000/- was bought @ just 100/- rupees
from S. Korea)
1/14/2023 © Prof. Gaanyesh K. 168
Key Risks in Cost-leadership
1. High rate of duplication in cost-saving activities (e.g. – FMCG
products)
2. Excessive cost leadership can become a trap (e.g. – commodity

products)
3. Obsessive cost-cutting leads to losing key product attributes (e.g. –

Molded furniture)
4. Cost differences often decline over time as suppliers, channels &

buyers become matured (e.g. – Vemicol in 90s)
1/14/2023 © Prof. Gaanyesh K. 169

Evaluating A Business’s Differentiation Opportunities
A. Skills and Resources Fostering Differentiation

• Strong marketing abilities
• Product engineering
• Creative talent and flair
• Strong capabilities in basic research
• Corporate reputation for quality or technological leadership
• Long tradition in an industry or unique combination of skills
• Strong cooperation from channels and suppliers of major components
1/14/2023 © Prof. Gaanyesh K. 170

Evaluating A Business’s Differentiation Opportunities
B. Organizational Requirements Supporting Differentiation
• Strong coordination among functions in R&D, product development, and marketing
• Subjective measurement and incentives instead of quantitative measures
• Amenities to attract highly skilled labor, scientists, and creative people
• Tradition of closeness to key customers
• Some personnel skilled in sales and operations - technical and marketing
1/14/2023 © Prof. Gaanyesh K. 171

Advantages of a Differentiation
Strategy
Rivalry is reduced when a business successfully
differentiates itself
Buyers are less sensitive to prices for effectively

differentiated products
Brand loyalty is hard for new entrants to overcome
1/14/2023 © Prof. Gaanyesh K. 172

Key Risks of Differentiation
Imitation narrows perceived differentiation, rendering
differentiation meaningless
Technological changes that nullify past investments or

learning
Cost difference between low-cost competitors and the

differentiated business becomes too great for differentiation to hold
brand loyalty
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Creating a Competitive Advantage Based on Speed
SPEED Has become a major source of competitive advantage for many firms
Involves the availability of a RAPID RESPONSE to customers by
• Providing current products quicker
• Accelerating new product development or improvement
• Quickly adjusting production processes
• Making decisions quickly
1/14/2023
174 © Prof. Gaanyesh K.
Evaluating A Business’s Rapid Response Opportunities
A. Skills and Resources Fostering Speed

• Process engineering skills
• Excellent inbound and outbound logistics
• Technical people in sales and customer service
• High levels of automation
• Corporate reputation for quality or technical leadership
• Flexible manufacturing capabilities
• Strong downstream partners
• Strong cooperation from suppliers of major components
1/14/2023
Evaluating A Business’s Rapid Response Opportunities
B. Organizational Requirements Supporting Rapid Response

• Strong coordination among functions in R&D, product development, and
marketing
• Major emphasis on customer satisfaction in incentive programs
• Strong delegation to operating personnel
• Tradition of closeness to key customers
• Some personnel skilled in sales and operations - technical and marketing
• Empowered customer service personnel
1/14/2023
Evaluating A Business’s Rapid Response Opportunities --
C. Examples of Ways Businesses Achieve Competitive Advantage
Use of companywide technology sharing activities and autonomous Technology
product development teams to speed new product development development
Develop self-managed work teams and decision making at lowest levels Human resource
to increase responsiveness management
Highly automated and integrated information processing system; include major

General
buyers in the systems on a real-time basis administration
Preapproved, online suppliers integrated into production

Procurement
Working very Standardize dies, JIT delivery plus Use of laptops Locate service
closely with components, and partnering with linked directly to technicians
suppliers to production at customer
express mail operations to facilities that
include their equipment to
services to speed the order are
choice of allow quick
warehouse changeover to ensure very process and geograph-
rapid delivery shorten the sales ically
location to new or special close
minimize delivery orders cycle
time
1/14/2023
Inbound logistics Operations Outbound logistics Marketing & sales
Advantages of a Speed-Based Strategy
Creates a way to lessen rivalry because firm has the
availability of something a rival may not
Allows firm to charge buyers more, engender loyalty, or

enhance its’ position relative to its buyers
Generates cooperation and concessions from suppliers since

they benefit from increased revenues
Substitutes and new entrants are trying to keep up with the

rapid changes rather than introducing them
1/14/2023
Key Risks of a Speed-Based Strategy
Speeding up activities that have not been conducted in a fashion

prioritizing rapid response should only be done after attention to
training, reorganization, and/or reengineering
Some industries - stable, mature ones - may not offer much

advantage to a firm introducing some forms of rapid response
1/14/2023
Creating a Competitive Advantage Based on Market Focus
• Involves building COST, DIFFERENTIATION, and/or SPEED competitive advantages targeted

to a narrow, market niche
• Allows a firm to
• “Learn” its target customers
• Build up organizational knowledge of ways to satisfy its target market better than
larger rivals
• Risks of focus strategies
• Can attract major competitors to the segment
• Believing a focus strategy, by itself, creates success, rather than a form of low cost,
differentiation, or speed
1/14/2023
Industry Environments and Strategy Choices
Emerging Industries
Industries Transitioning to Maturity
Mature and Declining Industries
Fragmented Industries
Global Industries
1/14/2023
Characteristics of Markets in Emerging Industries
• Proprietary technology and technological uncertainty
• Competitor uncertainty regarding inadequate information
• High initial cost structure
• Few entry barriers
• First-time buyers require initial inducement
• Inability to easily obtain raw materials and components
• Need for high-risk capital
1/14/2023
Strategic Options for Emerging Industries
1. Shaping industry’s structure
2. Rapidly improving product quality
3. Establishing favorable relations with key suppliers
4. Establishing technology as dominant force
5. Acquiring core group of loyal customers
6. Forecasting future competitors
1/14/2023
Characteristics of Industries Transitioning to Maturity
• Intense competition for market share
• Increased sales to experienced, repeat buyers
• Greater emphasis on cost and service
• Declining profitability
1/14/2023
Strategic Options for Maturing Industries
1. Prune the product line
2. Emphasize process innovation
3. Emphasize cost reductions
4. Focus on selecting loyal buyers
5. Pursue horizontal integration
6. Expand internationally
1/14/2023
Pitfalls to Avoid in Competing in Maturing Industries
A middle-ground approach to selecting a generic competitive
strategy
Sacrificing market share for short-term profits
Waiting too long to respond to price reductions
Retaining un-needed excess capacity
Engaging in sporadic efforts to boost sales
Placing hopes on new products

1/14/2023
Characteristics of Mature/Declining Industries
• Demand grows more slowly than the prevailing economy,

or even declines
• Slowing growth is caused by:
• Technological substitution
• Demographic shifts
• Shifts in consumer needs
1/14/2023
Strategic Options for Mature/Declining Industries
1. Focus on key market segments offering growth

opportunities
2. Emphasize product innovation and quality improvement
3. Emphasize production and distribution efficiency
4. Gradually harvest the business
1/14/2023
Pitfalls to Avoid in Competing in Mature/Declining Industries
Being overly optimistic about prospects for an

industry revival
Getting trapped in a profitless war of attrition
Harvesting from a weak position
1/14/2023
Fragmented Industries
1/14/2023 © Prof. Gaanyesh K. 190

Characteristics of Fragmented Industries
• No firm has a significant market share
• No firm can significantly influence industry outcomes
• Absence of market leaders
• Low entry barriers
• Absence of scale economies
• Industry is you and crowded with aspiring contenders
1/14/2023
Examples of Fragmented Industries
• Examples
• Professional services (Spa, Lawyers, Doctors)  Funeral industry
• Book publishing & book stores  Women’s dresses
• Landscaping and Plant Nurseries  Auto repairs
• Wood and Metal fabrication  Poultry
• Agricultural products (Rural areas)  Hotels & Motels
• Restaurants  Beauty Parlors
 Pet shops
1/14/2023
Strategic Options for Fragmented Industries
1. Tightly managed decentralization - Intense local coordination,
high personal service, local autonomy
2. Formula facilities - Standardized, efficient, low-cost facilities

at multiple locations
3. Increased value added - Difficult to differentiate

products/services
4. Specialization - Product type, customer type, type of order,

geographic areas
5. Bare bones/no frills - Intense low margin competition (low

overhead, minimum wages, tight cost controls)
1/14/2023
Characteristics of Global Industries
• Differences in prices and costs among countries due to
 Currency exchange fluctuations
 Differences in wage and inflation rates
 Other economic factors
• Differences in buyer needs across countries
• Differences in competitors and ways of competing among countries
• Differences in trade rules and governmental regulations across

countries
1/14/2023
Strategic Options: Pursuing Global Market Coverage
1. License foreign firms to produce and distribute a firm’s

products
2. Maintain a domestic production base and export products
3. Establish foreign-based plants and distribution in foreign

countries
1/14/2023
Strategic Options: Choosing a Generic Competitive Strategy
1. Broad-line global competition
2. Global focus strategy
3. National focus strategy
4. Protected niche strategy
1/14/2023
Grand Strategy Selection Matrix
Overcome Weaknesses
• Turnaround or
retrenchment • Vertical integration
• Divestiture • Conglomerate diversification
INTERNAL • Liquidation EXTERNAL

II I (acquisition or
(redirected
Merger for
resources
within the firm) • III
Concentrated growth IV resource
capability)
• Market development
• Product development • Horizontal integration
• Innovation • Concentric diversification
• Joint venture
Maximize strengths
1/14/2023
Model of Grand Strategy Clusters
Rapid market growth
1. Concentrated growth 1. Reformulation of concentrated

2. Vertical integration growth
3. Concentric 2. Horizontal integration
diversification 3. Divestiture
4. Liquidation
Strong I II Weak
competitive competitive
position IV III position
1. Concentric 1. Turnaround or retrenchment
diversification 2. Concentric diversification
2. Conglomerate 3. Conglomerate diversification
diversification 4. Divestiture
3. Joint venture 5. Liquidation
1/14/2023
198
Slow market growth
Conclusion: Selecting a Business Strategy to
Achieve a Sustainable Competitive Advantage
Focusing on key sources of competitive

advantage requiring total and consistent
commitment
Selection of
appropriate Weighing skills, resources, organizational
business requirements, and risks of each source
strategie(s) of competitive advantage
involves
Considering unique effects of the generic

industry environment on a firm’s value chain
activities
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Sustained Competitive Advantage
to be achieved by
 Continually adapting to changes in external trends and events and

internal capabilities, competencies, and resources
 Effectively formulating, implementing, and evaluating strategies

that capitalize upon those factors
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External Opportunities and Threats
• Availability of capital can no longer be taken for granted
• Consumers expect green operations and products
• Marketing has moving rapidly to the Internet
• Consumers must see value in all that they consume
• Global markets offer the highest growth in revenues
• Too much debt can crush even the best firms
• Layoffs are rampant among many firms as revenues and profits
fall and credit sources dry up
• The housing market is depressed
• Mega Scams like, MallyaGate, ModiGate, et al.
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Internal Strengths and Weaknesses
• Internal strengths and internal weaknesses are an organization’s controllable
activities that are performed either well or poorly
• Internal factors can be determined in a number of ways, including computing ratios,

measuring performance, and comparing to past periods and industry averages
• Various types of surveys also can be developed and administered to examine internal
factors such as employee morale, production efficiency, advertising effectiveness, and
customer loyalty
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iii. McKinney’s 7 S Model
iv. CSR and Business Ethics-Codes of business ethics
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McKinney’s 7 S Model
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EXTERNAL ASSESSMENT
a.k.a.
ENVIRONMENTAL SCANNING
or
INDUSTRY / SITUATION ANALYSIS

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REMOTE ENVIRONMENT /
PESTEL ANALYSIS / EXTERNAL MICRO

ENV. / MICRO INTERNAL
EXTERNAL MACRO ENV. ANALYSIS / NEAR ENV.
VIEW ANALYSIS ANALYSIS
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The External Assessment
You will learn how to:
1. Describe how to conduct an external strategic-management audit
2. Discuss 10 major external forces that affect organizations: economic, social, cultural, demographic,
environmental, political, governmental, legal, technological & competitive
3. Describe key sources of external information, including the Internet
4. Discuss important forecasting tools used in strategic management
5. Discuss the importance of monitoring external trends and events
6. Explain how to develop an EFE Matrix
7. Explain how to develop a Competitive Profile Matrix
8. Discuss the importance of gathering competitive intelligence
9. Describe the trend toward cooperation among competitors
10. Discuss market commonality and resource similarity in relation to competitive analysis
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"It is not the strongest of the species that survive, nor the most
intelligent, but the one most responsive to change."
—Charles Darwin
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Understanding the tool
In order to understand the sources of competitive advantage firms are using
many tools to analyze their external (Porter’s 5 Forces, PEST analysis) and
internal (Value Chain analysis, BCG Matrix) environments
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Key External Forces
Economic
forces
Social-cultural,
Competitive Demographic
forces and Natural
environment
EXTERNAL forces
ENVIRONMENT
Political,
Technological
governmental
forces
and legal forces
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Relationships Between Key External Forces and an Organization
Competitors
Suppliers
Distributors
PESTEL Creditors
Economic forces Customers
Employees
Social, cultural, demographic Communities
& environment natural Managers
forces Stockholders An Organization’s
Labor unions Opportunities and
Political, legal, and Governments
governmental forces Trade associations Threats
Special interest
Technological forces groups
Products
Competitive forces Services
Markets
Natural environment
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Buyer – Seller Forces
Powerful BUYERS, if: Powerful SELLERS, if:
• Concentrated or Purchases in bulk • It’s dominated by few companies highly
concentrated
• Undifferentiated (POP) Products
• Unique or differentiated product (POD)
• Product forms as a component and represent significant
• Not obliged to contend with other
fraction of cost
products
• Earns low profits acts as an incentive for sourcing at lowest
• Poses credible threat of forward
price integration
• Quality is unimportant for the buyer • The buyer is not an important customer
for the supplier group
• Product doesn’t save buyer’s money
• Buyers posing credible threat of backward integration

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Factors determining Competitive Position
Age of Factory & its Caliber of Personnel

location
Proprietary & Key account
advantages
Patents &
Copyrights
RM Costs Relative Product Capacity &

Quality Productivity
R&D Advantages
Position Customer Profiles
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Factors determining Competitive Position
Union Relations
Community Reputation
COMPETITOR PROFILE
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CUSTOMER PROFILES SUPPLIER PROFILES
• DEMOGRAPHIC • SUPPLIERS
• GEOGRAPHIC • CREDITORS
• PSYHOGRAPHIC
• BEHAVIORISTIC
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EFE (external factor evaluation) MATRIX
• EFE Matrix is an analytical technique related to the SWOT analysis
• EFE is an acronym of the External Factor Evaluation
• EFE Matrix evaluates the external position of the organization or its
strategic intents
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EFE Matrix Example
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• EFE matrix can be defined as the strategic tool to evaluate external
environment or macro environment of the firm include economic,
social, technological, government, political, legal and competitive
information
• The EFE matrix is the strategic tool used to evaluate firm’s existing
strategies
• Good tool to visualize and prioritize the opportunities and

threats that a business is facing
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External Factor Evaluation Matrix of Godrej India
External Strategic Factors Weight Ratings Wt. Score
OPPORTUNITY
Market globalization 0.10 4 0.40
Manufacturing system more efficient 0.05 2 0.10
Use of standard parts of model 0.05 2 0.10
Competitive advantage 0.05 3 0.15
Innovation 0.10 2 0.20
Global economic growth 0.10 2 0.20
Brand Loyalty 0.10 3 0.30
THREATS
Restriction in markets
0.05 4 0.80
Environmental regulatory controls
0.05 1 0.05
Competitors
0.15 3 0.30
Distribution Channel
0.15 3 0.30
Restriction in markets
0.05 4 0.80
TOTAL
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• By adding the weighted score, we get the total weighted score of 2.90
• Here it should be noted that the highest possible total weighted score of a firm is 4
whereas the lowest possible total weighted score is 1
• The total weighted score remains in the limit of 1 to 4 regardless of the total number
of opportunities and threats
• The average total weighted score is 2.5
• If the total weighted score is 4, it means the company is effectively taking advantage
of existing opportunities and is also able to minimize the risk
• The total weighted score of 1 shows the firm is unable to take advantage of current
opportunities or avoid external threats
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CPM compares the CPM matrix is used as a tool in decision making
firm and its rivals and The lack of quantified data is another major disadvantage of this tool
reveals their relative

CPM should be used as an orientation tool only for getting a bird’s eye
view
strengths and
weaknesses
Weight and a rank is
(CPM)
assigned, where, the
weight can range from
0.0 (low importance)
to 1.0 (high
importance) and
indicates how
important the factor is
for succeeding in the
industry
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MODULE-III
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i. Internal Analysis – SWOT, VCA, Resource based view of the firm (Three types
viz.- Tangible, Intangible and Organizational capabilities)
ii. Assessment of Company Performance – Internal analysis of the firm –

Benchmarking
iii. Management & Business Functions Framework
iv. Other Frameworks for Organizational and Internal Analysis Analytical Tool:
IFE Matrix
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Module Objectives
1.Describe a three-stage framework for choosing among alternative
strategies
2.Explain how to develop a SWOT Matrix, SPACE Matrix, BCG Matrix, IE

Matrix, and QSPM
3.Identify important behavioral, political, ethical, and social responsibility

considerations in strategy analysis and choice
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Module Objectives
4. Discuss the role of intuition in strategic analysis and choice
5. Discuss the role of organizational culture in strategic analysis and choice
6. Discuss the role of a board of directors in choosing among alternative

strategies
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The Process of Generating and Selecting Strategies
• A manageable set of the MOST ATTRACTIVE ALTERNATIVE STRATEGIES must be
developed
• The ADVANTAGES, DISADVANTAGES, TRADE-OFFS, COSTS, AND BENEFITS of these

strategies should be determined
• IDENTIFYING AND EVALUATING ALTERNATIVE STRATEGIES should involve many of the

managers and employees
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The Process of Generating and Selecting
Strategies
• ALTERNATIVE STRATEGIES proposed by participants should be considered and
discussed in a series of meetings
• Proposed strategies should be listed in WRITING
• When all FEASIBLE STRATEGIES identified by participants are given and understood,
the strategies should be ranked in order of attractiveness
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The Strategy-Formulation Analytical Framework
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A Comprehensive Strategy-Formulation Framework
• Stage 1 - Input Stage

• Summarizes the basic input information needed to formulate strategies
• Consists of the EFE Matrix, the IFE Matrix, and the Competitive Profile
Matrix (CPM)
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• Stage 2 - Matching Stage
• Focuses on generating feasible alternative strategies by aligning key external

and internal factors
• Techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT)

Matrix, the Strategic Position and Action Evaluation (SPACE) Matrix, the
Boston Consulting Group (BCG) Matrix, the Internal-External (IE) Matrix, and
the Grand Strategy Matrix
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• Stage 3 - Decision Stage
• Involves the Quantitative Strategic Planning Matrix (QSPM)
• Reveals the relative attractiveness of alternative strategies and thus provides

objective basis for selecting specific strategies
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SWOT
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SWOT - The Matching Stage
• The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix helps
managers DEVELOP FOUR TYPES OF STRATEGIES:
• SO (strengths-opportunities) Strategies
• WO (weaknesses-opportunities) Strategies
• ST (strengths-threats) Strategies
• WT (weaknesses-threats) Strategies
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The Matching Stage
• SO Strategies • WO Strategies
• Use a firm’s internal • Aim at improving internal
strengths to take advantage weaknesses by taking
of external opportunities advantage of external
opportunities
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The Matching Stage
• ST Strategies • WT Strategies
• use a firm’s strengths to • defensive tactics directed at
avoid or reduce the impact reducing internal weakness and
of external threats avoiding external threats
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SWOT Matrix
1. List the firm’s key external opportunities
2. List the firm’s key external threats
3. List the firm’s key internal strengths
4. List the firm’s key internal weaknesses
5. Match internal strengths with external opportunities
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SWOT Matrix cont...
6. Match internal weaknesses with external opportunities, and record the
resultant WO Strategies
7. Match internal strengths with external threats, and record the resultant
ST Strategies
8. Match internal weaknesses with external threats, and record the

resultant WT Strategies
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A SWOT Matrix for a Retail Computer Store
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A SWOT Matrix for a Retail Computer Store
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IFE (Internal Factor Evaluation) Matrix
• Popular strategic management tool for auditing or evaluating
major internal strengths and internal weaknesses in functional
areas of an organization or a business
• Provides a basis for identifying or evaluating relationships among

those areas, the IFE matrix is used in strategy formulation
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• IFE Matrix together with the EFE matrix is a strategy-formulation tool
that can be used to evaluate how an organization or a company is
performing in regards to identified internal strengths and weaknesses of
an organization or a company
• The IFE matrix comprises factors (strengths and weaknesses), weight (0.0
to 1.0), rating (0.0 to 4.00) and finally the weighted score after
multiplying weight with rating
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Group Assignment
Select an Organization of your choice and carryout SWOT (SO, WO, ST, WT)
Matrix, IFE and IEF Matrix for all the FOUR functional areas, viz.- Marketing,
Finance, Operations, and HR
Submission Time: Seven days from TODAY. Each group will present their VRIO in
THREE minutes. Carries 2.5 marks (individual)
Submission Rules:
i) Handwritten, no CPW (copy-paste-work), not exceeding maximum one
page per Functional area
ii) Contribution of every group member is a MUST
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MODULE-IV
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i. Strategy Analysis and Formulation Tools
ii. SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix, GE–McKinsey Matrix, Grand
Strategy selection Matrix and Model of Grand strategy clusters
iii. Industry attractiveness-Business strength Matrix
iv. Strategy Mapping and the Balanced Scorecard
v. Growth Accelerators: Business Web, Market Power, Learning based
vi. Management Control, Elements, Components of MIS
vii. Strategy Evaluation and Control; Performance Measurement and Monitoring
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The SPACE Matrix
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The SPACE Matrix
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The Strategic Position and Action Evaluation
(SPACE) Matrix
• Strategic Position & Action Evaluation (SPACE) Matrix
• Four-quadrant framework indicates whether aggressive, conservative,

defensive, or competitive strategies are most appropriate for a given
organization
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The Strategic Position and Action Evaluation
(SPACE) Matrix
• Two internal dimensions (financial position [FP] and competitive position [CP])
• Two external dimensions (stability position [SP] and industry position [IP])
• Most important determinants of an organization’s overall strategic position
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Steps to Develop a SPACE Matrix
1. Select a set of variables to define FINANCIAL POSITION (FP), COMPETITIVE POSITION (CP),
STABILITY POSITION (SP), and INDUSTRY POSITION (IP)
2. Assign a numerical value ranging from +1 (worst) to +7 (best) to each of the variables that
make up the FP and IP dimensions
3. Assign a numerical value ranging from –1 (best) to –7 (worst) to each of the variables that
make up the SP and CP dimensions
4. Compute an average score for FP, CP, IP,

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© Prof. SP K.
Gaanyesh 250
4. Plot the average scores for FP, IP, SP, and CP on the appropriate axis in the SPACE
Matrix
5. Add the two scores on the x-axis and plot the resultant point on X. Add the two
scores on the y-axis and plot the resultant point on Y. Plot the intersection of the new xy
point
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6. Draw a directional vector from the origin of the SPACE Matrix through the
new intersection point
• This vector reveals the type of strategies recommended for the

organization: aggressive, competitive, defensive, or conservative
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The Boston Consulting Group (BCG) Matrix
• BCG Matrix
• Graphically portrays differences among divisions in terms of relative market
share position and industry growth rate
• Allows a multidivisional organization to manage its portfolio of businesses by

examining the relative market share position and the industry growth rate of
each division relative to all other divisions in the organization
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The BCG Matrix
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The BCG Matrix
• Question marks – Quadrant I
• Organization must decide whether to strengthen them by pursuing an

intensive strategy (market penetration, market development, or product
development) or to sell them
• Stars – Quadrant II
• Represent the organization’s best long-run opportunities for growth and

profitability
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The BCG Matrix
• Cash Cows – Quadrant III
• Generate cash in excess of their needs
• Should be managed to maintain their strong position for as long as possible
• Dogs – Quadrant IV
• Compete in a slow- or no-market-growth industry
• Businesses are often liquidated, divested, or trimmed down through

retrenchment
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The BCG Matrix
• The major benefit of the BCG Matrix is that IT DRAWS ATTENTION TO
THE CASH FLOW, INVESTMENT CHARACTERISTICS, AND NEEDS OF AN
ORGANIZATION’S VARIOUS DIVISIONS
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Benefits of BCG Matrix:
• Easy to perform
• Helps to understand the strategic positions of business portfolio
• It’s a good starting point for further more thorough analysis
Prof. Gaanyesh K. 259

Disadvantages of BCG Matrix:
• Classifying businesses in four quadrants, and becomes confusing to classify an

SBU falling right in the middle
• Doesn’t define the ‘market’...Businesses can be classified as cash cows, while

they are actually dogs, or vice versa
• Doesn’t include other External Factors that may change the situation completely
• Market share and industry growth are not the only factors of
profitability…Besides, high market share does not necessarily mean high profits
• Denies the synergies existing between different units…Dogs can be as important

as cash cows to businesses if it helps to achieve competitive advantage for the rest
of the company
Steps for using the tool:
Step 1. Choose the unit
Step 2. Define the market
Step 3. Calculate relative market share
Step 4. Find out market growth rate
Step 5. Draw the circles on a matrix

Step 1. Choose the unit
BCG matrix can be used to analyze SBUs, separate brands,
products or a firm as a unit itself; hence it is essential to define
the unit for which you’ll do the analysis

Step 2. Define the market:
• Incorrectly defined market may lead to poor classification
Example - if we would do the analysis for BMW car brand in the passenger
vehicle market, it would end up as a dog (as it holds less than 20% relative
market share), but it would be a cash cow in the luxury car market
It is important to clearly define the market to better understand firm’s

portfolio position

Step 3. Calculate relative market share:
• Relative market share can be calculated in terms of revenues or market share
• Calculated by dividing your own brand’s market share (revenues) by the
market share (or revenues) of your largest competitor in that industry
Example: if your competitor’s market share in refrigerator’s industry was 25% and
your firm’s brand market share was 10% in the same year, your relative market
share would be only be 0.4
• Relative market share is given on X-axis. Its top left corner is set at 1, midpoint
at 0.5 and top right corner at 0

Step 4. Find out market growth rate:
• Industry growth rate can be found in industry reports, usually available online
for free
• It can also be calculated by looking at average revenue growth of the leading
industry firms
• Market growth rate is measured in percentage terms
• The midpoint of the y-axis is usually set at 10% growth rate, but this can vary.
Some industries grow for years but at average rate of 1 or 2% per year
• Therefore, when doing the analysis, find out what growth rate is seen as
significant (midpoint) to separate cash cows from stars and question marks
from dogs
Step 5. Draw the circles on a matrix:
• After calculating all the measures, plot the brands on the matrix
• Do this by drawing a circle for each brand
• The size of the circle should correspond to the proportion of business

revenue generated by that brand

EXAMPLE 1: Relative market share higher than 100% and with
Positive market growth
Corporate ‘A’ BCG matrix

Brand Revenues % of Largest Your Brand’s Relative Market
(in Bn. Rs.) Corporate Rival’s Market Market Growth Rate
Revenues Market Share Share
Share
Brand 1 500 54% 25% 25% 1.00 3%
Brand 2 350 38% 30% 5% 0.17 12%
Brand 3 500 6% 45% 30% 0.67 13%
Brand 4 200 2% 10% 1% 0.10 15%

EXAMPLE 2: Relative market share higher than 100% and with
Negative market growth
Corporate ‘B’ BCG matrix
Brand Revenues % of Corporate Largest Rival’s Your Brand’s Relative Market

(in Bn. Revenues Market Share Market Share Market Share Growth
Rs.) Rate
Brand 1 500 55% 15% 60% 1 3%
Brand 2 350 31% 30% 5% 0.17 -15%
Brand 3 500 10% 45% 30% 0.67 -4%
Brand 4 200 4% 10% 1% 0.1 8%

The Internal-External (IE) Matrix
• The IE Matrix is based on two key dimensions: the IFE total weighted scores on the x-
axis and the EFE total weighted scores on the y-axis
• Three major regions
• Grow and build
• Hold and maintain
• Harvest or divest
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Heterogeneous:
• The first assumption is that SKILLS, CAPABILITIES AND OTHER RESOURCES that
organizations possess DIFFER FROM ONE COMPANY TO ANOTHER
• Competition between Apple Inc. and Samsung Electronics is a good example

 how two companies that operate in the same industry
 are exposed to the same external forces
 can achieve different organizational performance due to the difference in
resources
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Immobile:
• Resources are not mobile and do not move from company to company
• Due to this immobility, companies cannot replicate rivals’ resources and

implement the same strategies
• Intangible resources, such as brand equity, processes, knowledge or intellectual

property are usually immobile
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• Apple competes with Samsung in tablets and smartphones markets
• Apple sells its products at much higher prices and reaps higher profit margins
• Samsung does not follow the same strategy because Samsung does not have the same brand
reputation
• Isn’t capable to design user-friendly products like Apple does (heterogeneous resources)
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VALUE CHAIN ANALYSIS
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Value Chain Analysis
• VALUE CHAIN: A perspective in which business is seen as a chain of activities
that transforms inputs into outputs, fetching values the customers
• VALUE CHAIN ANALYSIS: An analysis that attempts to understand how a

business creates a customer value by examining the customer value by
examining the contributions of different activities within the business, that
values it
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Value Chain Analysis
• PRIMARY ACTIVITIES: A perspective in which business is seen as a chain of
activities that transforms inputs into outputs, fetching values the customers
• SUPPORT ACTIVITIES : Assist the firm as a whole by providing infrastructure or

inputs allowing the primary activities taking place on an ongoing basis
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The Grand Strategies
• Core idea as to how the Firm can best compete in the
market place
• Based on THREE GENERIC (CORE) strategies:
Differentiation Focus
Low Cost
Leadership
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The Grand Strategy Matrix
• Grand Strategy Matrix
• Based on two evaluative dimensions:
 COMPETITIVE POSITION
 MARKET (INDUSTRY) GROWTH
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• Quadrant I
• Continued concentration on current markets (market penetration and market

development) and products (product development) is an appropriate strategy
• Quadrant II
• Unable to compete effectively
• Need to determine why the firm’s current approach is ineffective and how the
company can best change to improve its competitiveness
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• Quadrant III
• Must make some drastic changes quickly to avoid further decline and possible
liquidation
• Extensive cost and asset reduction (retrenchment) should be pursued first
• Quadrant IV
• Have characteristically high cash-flow levels and limited internal growth needs
and often can pursue related or unrelated diversification successfully
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The Quantitative Strategic Planning Matrix
(QSPM)
• Quantitative Strategic Planning Matrix (QSPM)
• Objectively indicates which alternative strategies are best
• Uses input from Stage 1 analyses and matching results from Stage 2
analyses to decide objectively among alternative strategies
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Steps in a QSPM
1. Make a list of the firm’s key external opportunities/threats and internal
strengths/weaknesses in the left column of the QSPM
2. Assign weights to each key external and internal factor
3. Examine the Stage 2 (matching) matrices, and identify alternative

strategies that the organization should consider implementing
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Steps in a QSPM cont.…
4. Determine the Attractiveness Scores (AS)
5. Compute the Total Attractiveness Scores
6. Compute the Sum Total Attractiveness Score
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Positive Features of the QSPM
• Sets of strategies can be examined sequentially or simultaneously
• Requires strategists to integrate pertinent external and internal factors into

the decision process
• Can be adapted for use by small and large for-profit and nonprofit
organizations
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Limitations of the QSPM
• Always requires intuitive judgments and educated assumptions
• Only as good as the prerequisite information and matching

analyses upon which it is based
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Strategy Review, Evaluation, and Control
• The best formulated and best implemented strategies become

obsolete as a firm’s external and internal environments change
• Therefore, it is essential for strategists to systematically review,

evaluate, and control the execution of strategies
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• Strategy Evaluation is vital to an organization’s well being
• Timely evaluations can alert management to potential or actual problems before

a situation becomes critical
• Strategy Evaluation includes three basic activities:
(1) Examining the underlying bases of a firm’s strategy
(2) Comparing expected results to actual results
(3) Taking corrective actions to ensure that performance conforms to plans
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• Adequate and timely feedback is the foundation of effective Strategy

Evaluation
• Strategy Evaluation is important because organizations face dynamic

environments in which key external and internal factors can change quickly
and dramatically
• Strategy Evaluation is essential to ensure that the stated objectives of an

organization are being achieved
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Consistency
Rumelt’s Consonance
4 Criteria
Feasibility
Advantage
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Consistency
Strategy should not present inconsistent goals and policies
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Consonance (Compatibility)
Need for strategists to examine sets of trends, as well as individual trends
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Feasibility
Neither overtax resources nor create unsolvable problems
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Advantage
Creation or maintenance of competitive advantage
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Strategy Evaluation Should –
• Initiate managerial questioning of expectations and assumptions
• Trigger a review of objectives & values
• Stimulate creativity in generating alternative strategies and formulating criteria
for evaluation
• Be performed on a continuing basis, rather than at the end of specified periods
of time or just after problems occur

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Review of Underlying Bases of Strategy –
• Develop revised IFE Matrix
• Develop revised EFE Matrix
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Monitor Strengths & Weaknesses; Opportunities & Threats
• Are our strengths still strengths?
• Has our organization added additional strengths?
• Are our weaknesses still weaknesses?
• Has our organization developed other weaknesses?
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Monitor Strengths & Weaknesses; Opportunities & Threats
• Are our opportunities still opportunities?
• Have other opportunities developed?
• Are our threats still threats?
• Have other threats emerged?
1/14/2023 © Prof. Gaanyesh K. 300

MODULE-V
Part – I & ii
1/14/2023 © Prof. Gaanyesh K. 301

i. Implementation of Strategies – Short-term objectives
ii. Functional tactics
iii. Outsourcing functional activities
iv. Types of Executive bonus compensation – Major Plan types
v. Financial Projections and Financial Impact of Strategies
1/14/2023 © Prof. Gaanyesh K. 302

Implementation of Strategies – Short-term objectives
• Implementation of business strategy is to translate that strategy into action

throughout the organization
• Short-term objectives are derived from long-term objectives, which are then
translated into current actions and targets
• They differ from long-term objectives in time frame, specificity, and

measurement
• They must be integrated and coordinated. They also must be consistent,

measurable, and prioritized
1/14/2023 © Prof. Gaanyesh K. 303

Functional Tactics
1/14/2023 © Prof. Gaanyesh K. 304

• Functional tactics are derived from the business strategy
• They identify the specific, immediate actions that must be taken in key
functional areas to implement the business strategy
• Policies empower operating personnel to make decisions and take action

quickly
1/14/2023 © Prof. Gaanyesh K. 305

“Planning their Work” “Working their Plan”
Strategy Formulation Strategy Implementation
306
Identify short-term objectives
Initiate specific Communicate

functional tactics policies to
empower people
Design effective rewards
307
What are the Short-Term Objectives?
Provide specific guidance for

what is to be done, translating
vision into action
308
Role of Short-Term Objectives in Implementing Strategy
1. “Operationalize” long-term objectives
2. Raise issues and potential conflicts requiring

coordination to avoid dysfunctional consequences
3. Identify measurable outcomes of functional

activities to be used to make feedback, correction,
and evaluation more relevant and acceptable
309
Relationship of Action Plans to Short-Term Objectives
Specificity – Identify functional activities to be undertaken

to build competitive advantage
Provide a clear Identify who is

time frame for responsible for each
completion action in the plan
310
Qualities of Effective Short-Term Objectives
Measurable
Linked to
Priorities long-term
objectives
311
Creating Measurable Objectives 312
(Selected)
Examples of Deficient Examples of Objectives with Measurable Criteria for Performance

Objectives
To improve morale in the To reduce turnover (absenteeism, number of rejects, etc.) among sales
division (plant, department, managers by 10 percent by January 1, 2020
etc) Assumption: Morale is related to measurable outcomes (i.e., high and
low morale are associated with different results)
To improve support of the To reduce the time lapse between order date and delivery by 8 percent
sales effort (2 days) by June 1, 2020
To improve the firm’s image To conduct a public opinion poll using random samples in the five
largest Indian metropolitan markets to determine average scores on 10
dimensions of corporate responsibility by May 15, 2020. To increase
our score on those dimensions by an average of 7.5 percent by May 1,
2020
Value-Added Benefits of Short-Term Objectives
Give operating personnel a

better understanding of their
role in a firm’s mission
Provide basis for Provide basis for

accomplishing strategic control
conflicting concerns
Motivation – clarify
personnel and group roles in
a firm’s strategies
313
What are Functional Tactics?
Key, routine activities that must be undertaken

in each functional area to provide the
business’s products and services
Translate grand strategies into action

designed to accomplish specific short-term
objectives
314
Business Strategies and Functional Tactics
… are different in three ways
Time horizon
Participants
Specificity who develop
them
315
316
Differences Between Business Strategies and Functional Tactics

Time Horizon Specificity Participants
•Shorter time horizon of •Greater specificity of functional •General managers establish
functional tactics contributes tactics contributes to successful
to successful implementation implementation by: long-term objectives and
by: overall business strategies
Ensuring functional managers focus
Focusing attention on what
•Operating managers
on accomplishments
needs to be done now
establish short-term
Allowing functional managers Clarifying for top managers how
objectives and functional
to adjust to changing current functional managers intend to
tactics leading to business
conditions accomplish business strategy
level success
Facilitating coordination among
operating units
What Are Policies?
Policies are directives designed to guide
the thinking, decisions, and actions of
managers and their subordinates in
implementing a firm’s strategy
317
Role of Policies in Implementing Strategy
• Referred to as standard operating procedures (SOPs), policies increase

managerial effectiveness by:
• Standardizing many routine decisions
• Clarifying discretion managers and employees can exercise in
implementing functional tactics
• Should be derived from functional tactics with key purpose of aiding

strategy execution
318
Why Policies Empower People
Establish indirect control over independent action by clearly

stating how things are to be done now
Promote uniform handling of similar activities
Ensure quicker decisions by standardizing answers to previously

answered questions
Institutionalize basic aspects of organizational behavior
319
Why Policies Empower People
(contd.)
Reduce uncertainty in repetitive and day-to-day decision making
Counter resistance to or rejection of chosen strategies by organization

members
Offer predetermined answers to routine problems
Afford managers a mechanism for avoiding hasty and ill-conceived

decisions in changing operations
320
Advantages of Formal Written Policies
• Managers to think through policy’s meaning, content, and intended use
• Reduce misunderstanding
• Make equitable and consistent treatment of problems more likely
• Ensure unalterable transmission of policies
• Communicate authorization or sanction of policies more clearly
• Supply a convenient and authoritative reference
• Systematically enhance indirect control and organization-wide coordination of the key

purpose of policies
321
Executive Bonus Compensation Plans
The goal of an executive bonus compensation plan is to
MOTIVATE EXECUTIVES to achieve maximization of
shareholder wealth – the underlying goal of most firms
322
Executive Bonus Compensation Plans
Major Plan Types
Stock Options
Restricted Stock Cash
Golden Golden
Handcuffs Parachutes
323
324
Types of Executive Bonus Compensation Plans
Bonus Type Description Rationale Shortcomings
Stock option Right to purchase stock in Provides incentive for Movement in share
grants the future at price set now. executive to create price does not
Compensation is wealth for shareholders explain all
determined by “spread” as measured by increase dimensions of
between option price and in firm’s share price managerial
exercise price performance
Restricted Shares given to executive Promotes longer No downside risk to

stock plan who is prohibited from executive tenure than executive, who
selling them for a specific other forms of always profits unlike
time period. May also compensation other shareholders
include performance
restrictions
325
Types of Executive Bonus Compensation Plans (Contd…)
Golden Bonus income deferred in a Offers an incentive May promote risk-
Handcuffs series of annual installments. for executive to averse decision
Deferred amounts not yet remain with the firm making due to
paid are forfeited with downside risk borne
executive resignation by executive
Golden Executives have right to Offers an incentive Compensation is

parachute collect the bonus if they lose for executive to achieved whether or
position due to takeover, remain with the firm not wealth is created
firing, retirement, or for shareholders.
resignation Rewards either
success or failure
326
Types of Executive Bonus Compensation Plans (Contd…)
Cash based on Bonus compensation based Offsets the Weak correlation

internal on accounting performance limitations of between earnings
business measures such as return on focusing on market- measures and
performance equity based measures of shareholder wealth
using financial performance creation. Annual
measures earnings do not
capture future
impact of current
decisions
The Politics of Strategy Choice
• Political maneuvering consumes valuable time, subverts organizational
objectives, diverts human energy, and results in the loss of some
valuable employees
• Political biases and personal preferences get unduly embedded in

strategy choice decisions
1/14/2023 © Prof. Gaanyesh K. 327

Tactics to Aid Strategists
Equifinality
Satisfying
Generalization
Focus on Higher-Order Issues
Provide Political Access on Important Issues

1/14/2023 © Prof. Gaanyesh K. 329
MODULE-V
Part –iii, iv, v, vi, vii & viii
1/14/2023 © Prof. Gaanyesh K. 330

iii. Miscellaneous Management Topics
iv. Social Responsibility - [SELF STUDY]
v. Environmental Sustainability - [SELF STUDY]
vi. Value Chain Analysis
vii. Economic Value Added (EVA), Market Value Added (MVA)
viii. Mintzberg’s 5 Ps for Strategy - deliberate vs. emergent strategies
ix. Blue Ocean strategy, Red Ocean strategy, Purple Ocean strategy
x. Triple Bottom line concept (People-Planet-Profits)
xi.1/14/2023Strategic Issues in a Global Environment - [SELF STUDY]

The Global Environment
• Managers need to consider:
– How globalization is impacting the environment in which their
company competes
– What strategies they should adopt to exploit opportunities
– How to counter competitive threats
1/14/2023 © Prof. Gaanyesh K. 332

The Global Environment
• Industry boundaries do not stop at national borders
• The shift to global markets has intensified competitive rivalry in industries
• Global markets created enormous opportunities
1/14/2023 © Prof. Gaanyesh K. 333

Increasing Profitability Through Globalization
• The success of many multinational companies is based not just on the goods
and services they sell, but UPON THE DISTINCTIVE COMPETENCIES THAT
UNDERLIE THEIR PRODUCTION AND MARKETING
• Globalization increases profits by:
– Expanding the market (Mkt. dev. & Mkt. penetration strategy)
– Realizing economies of scale
– Realizing location economics
– Leveraging the skills of global subsidiaries
1/14/2023 © Prof. Gaanyesh K. 334

Competitive Pressures
• Two main pressures:
• Pressure for COST REDUCTION
• Pressure to be LOCALLY RESPONSIVE
• These pressures place conflicting demands on a company
1/14/2023 © Prof. Gaanyesh K. 335

Cost Reductions
• Cost reductions are common in:
– Where price is the main competitive weapon
– Industries with universal products’ need
[Universal Need: When consumer preference is similar or identical in different

nations e.g.- SAARC countries]
• By basing production in a low-cost location or by offering a standardized

product (e.g. – Arcelor Mittal in Vietnam)
1/14/2023 © Prof. Gaanyesh K. 336

Local Responsiveness Pressures
• These arise from differences in:
– Consumer taste and preferences
– Infrastructure or traditional practices
– Distribution channels
– Host government demands
• The more that customer preferences vary, the more local responsiveness is
required
1/14/2023 © Prof. Gaanyesh K. 337

• Technological developments have increased the ease and speed of
international communication and travel
• Increased communication and travel have made the world smaller
• People are more aware of events outside of their home country, and are
more likely to travel to other countries
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•Increased awareness and travel result in a better understanding of foreign
opportunities
• Economies around the world are more closely integrated
• Increases in international trade and investment, and the number of
businesses operating across national borders
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• Managers must know that markets, supplies, investors, locations, partners, and
competitors can be anywhere in the world
• Some companies form partnerships with companies in other countries, others

acquire companies in other countries, others still develop products, services, and
marketing campaigns designed to appeal to customers in other countries
• International strategy is the continuous and comprehensive management technique

designed to help companies operate and compete effectively across national
boundaries
1/14/2023 © Prof. Gaanyesh K. 340

Factors Domestic Conditions Global Conditions
Culture Homogeneous Heterogeneous
Currency Uniform Different currencies and exchange rates
Economy Stable and uniform May be variable and unpredictable
Government Stable May be unstable
Labor Skilled workers available Skilled workers may be hard to find
Language Generally a single language Different languages and dialects
Marketing Many media, few restrictions May be fewer media and more restrictions
Transport
1/14/2023
Several competitive modes
May be inadequate 341
1. Modern Costing System
1 a. Kaizen Costing System 1 b. Activity based Costing (ABC)
2. Pareto’s Rule (20:80)
3. Value Chain Analysis 4. Bench Marking
5. Balance Score Card (BSC)
6. Non Financial Performance Indicators (NFPIs)
1/14/2023 © Prof. Gaanyesh K. 342

• Kaizen is known as “Genkakaizen” in
Japanese Companies
• It is used in manufacturing stage of the

existing products as cost reduction
process
• Kaizen is derived by Japanese automobile

companies
1/14/2023 © Prof. Gaanyesh K. 343

Yashihuro Moden defines KAIZEN COSTING as:
"the maintenance of present cost levels for products currently
being manufactured via systematic efforts to achieve the
desired cost level"
1/14/2023 © Prof. Gaanyesh K. 344

KC is applied to product that is already under Production For Cost Reduction Cost Can be
reduced through estimation of seven types of waste:-
 Over production
 Inventory
 Waiting
 Defective
 Motion
 Transportation
 Over Processing
1/14/2023 © Prof. Gaanyesh K. 345
NOTIONS OF KAIZEN COSTING:
 KAIZEN is Continuous
 KAIZEN is incremental in nature
 KAIZEN is participative
1/14/2023 © Prof. Gaanyesh K. 346

Implementing Kaizen – few rules:
 List your own Problems
 Grade problems as to minor, difficult and major
 Start with the smallest minor problem
 Move on to next graded problem and so on
1/14/2023 © Prof. Gaanyesh K. 347

Remember improvement is part of daily routine:
 Never accept status quo o Never reject any idea before trying
 Eliminate tried but failed experiments
 Highlight problems rather than hiding
1/14/2023 © Prof. Gaanyesh K. 348

Advantages of Kaizen Costing:
• Customer Satisfaction
• Process Centered
• Create Work Teams
• Cross-functional
• Increasing Employees Moral
• Reduced Errors
• Promote openness
• Acknowledge Problems openly
1/14/2023 © Prof. Gaanyesh K. 349

Disadvantages:
• Requires Permanent change of Management System
• Does not Produce Required Results
• Difficult to Convince People
1/14/2023 © Prof. Gaanyesh K. 350

Difference Between Target & Kaizen Costing
Kaizen Costing is typically based on the But Target Costing is:

following : Estimated selling price - Target cost =
- Employees are the source of solutions Desired level of profit
- Cost reduction is achieved by continuous
improvement - It is an integral part of a strategic profit
- Cost reduction targets are set every month management system
1/14/2023 © Prof. Gaanyesh K. 351

Strategic Based Cost Challenges
1. DETERMINANTS OF ENVIRONMENTAL UNCERTAINTY
2. VOLATILITY
3. COMPLEXITY
4. INCREASING GLOBAL PRESENCE
5. INFORMATION OVERLOAD
6. AMBIGUITY
1/14/2023 © Prof. Gaanyesh K. 352

Kaizen Costing Concept Standard Costing Concept
1. Cost reduction system concept 1. Cost control system concept
2. Assuming continuous improvement in 2. Assuming current manufacturing

manufacturing conditions
3. Achieve cost reduction targets 3. Meet cost performance standards
1/14/2023 © Prof. Gaanyesh K. 353

Kaizen costing Standard costing
Cost reduction targets are set and Standards are set annually or semi-
applied monthly annually
Variance analysis involves target

Variance analysis involves comparing
Kaizen costs versus actual cost
actual to standard costs
reduction amounts
Investigation occurs when target Investigation occurs when standards

reductions are not attained are not met
1/14/2023 © Prof. Gaanyesh K. 354

EVA vs. MVA
Economic Value Added Vs.

Market Value Added
1/14/2023 © Prof. Gaanyesh K. 355

EVA is based on something we have know for a long time: what
we call profit, the money left to service equity, is not profit at all.
Until a business returns a profit that is greater than its cost of
capital, it operates at a loss. Never mind that it pays taxes as if it
had a genuine profit. The enterprise still returns less to the
economy than it devours in resources….Until then it does not
create wealth; it destroys it.
- Peter Drucker, The Information Executives Truly Need (1995)
1/14/2023 © Prof. Gaanyesh K. 356

EVA Approach
Accounting profits v.s. Economic profits
Accounting Cost of Operating Interest

profits
= Sales - goods - expenses
- expense
- Taxes
sold
Charge for
Cost of Operating
Economic Taxes - all capital
profits
= Sales - goods - expenses - used
sold
or
Residual
income
NOPAT
Net operating profits after taxes
1/14/2023 © Prof. Gaanyesh K. 357
EVA Approach
Cash flow
After-tax Capital Accounting
EVA = from + Accruals + interest
- charges
+ adjustments
operations
Earnings
Operation profits
Economic profits
Economic Value Added (EVA)
1/14/2023 © Prof. Gaanyesh K. 358

EVA Drivers
• EVA = NOPAT- (k*Capital) = (r - k)*capital
• NOPAT = operating profits after taxes but before financing costs and noncash
bookkeeping entries except depreciation
• Return on capital (r) =

Capital
Turnover Cash tax rate
• Return on capital =
Profit Margin
• NOPBT = firm’s net operating profits before taxes
1/14/2023 © Prof. Gaanyesh K. 359

EVA V.S MVA
Market Value Added
= Market Value of Equity - Book Value of Equity
= Present value of all future EVA
Market Value of Equity

= Book Value of Equity + Present value of all future EVA
1/14/2023 © Prof. Gaanyesh K. 360

Advantages of EVA
• EVA is closely related to NPV
• It avoids the problems associates with approaches that focus on percentage

spreads( rate of return- rate of cost)
• It makes top managers responsible for a measure that they have more control
over
• It is influenced by all of the decisions that managers have to make within a firm
1/14/2023 © Prof. Gaanyesh K. 361

Side Effects of EVA with minimize risk
• Increases in current EVA come at the expense of future EVA
• Higher EVA is accompanied by an increase in the cost of capital
• Increase in EVA is less than what the market expected it to be, leading to a
drop in the market price
1/14/2023 © Prof. Gaanyesh K. 362

Mintzberg’s 5 Ps for Strategy –
deliberate vs. emergent
strategies
1/14/2023 © Prof. Gaanyesh K. 363

Mintzberg's 5 Ps for Strategy
Mintzberg provides five definitions of strategy:
1. Plan
2. Ploy
3. Pattern
4. Position
5. Perspective
1/14/2023 © Prof. Gaanyesh K. 364

1. Plan PLAN:
• Strategy is a plan - some sort of consciously intended
2. Ploy course of action, a guideline (or set of guidelines) to
deal with a situation
3. Pattern
• Strategies have two essential characteristics:
4. Position i) they are made in advance of the actions to which they

apply, and
5. Perspective
ii) they are developed consciously and purposefully
1/14/2023 © Prof. Gaanyesh K. 365
1. Plan
Ploy
2. Ploy As plan, a strategy can be a ploy too, really just a
specific maneuver intended to outwit an opponent or
3. Pattern
competitor
4. Position
5. Perspective
1/14/2023 © Prof. Gaanyesh K. 366

1. Plan Pattern:
• If strategies can be intended (whether as general plans or
2. Ploy specific ploys), they can also be realized
3. Pattern
• Strategy is a pattern - specifically, a pattern in a stream of
4. Position actions. Strategy is consistency in behaviour, whether or
not intended
5. Perspective
1/14/2023 © Prof. Gaanyesh K. 367

1. Plan Pattern:
Position:
• If Ploy
strategies
Strategy is acan be intended
position (whether
- specifically as general
a means plans an
of locating or
2. Ploy As plan,
specific a instrategy
ploys),
organization they cancan
alsobe
be arealized
an "environment“ ploy too, really just a
specific maneuver intended to outwit an opponent or
3. Pattern
competitor
• Strategy isbecomes
a pattern the
- specifically,
mediating a pattern
force, inora stream of
"match",
4. Position actions.
betweenStrategy is consistency
organization in behaviour,
and environment, whether
that is, or
between
not intendedand the external context
the internal
5. Perspective
1/14/2023 © Prof. Gaanyesh K. 368

1. Plan Perspective:
• Strategy is a perspective - its content consisting not
2. Ploy just of a chosen position, but of an ingrained way of
perceiving the world
3. Pattern
4. Position • strategy is a perspective shared by members of an

organization, through their intentions and / or by their
5. Perspective
actions
1/14/2023 © Prof. Gaanyesh K. 369
Deliberate VS Emergent Strategy
DELIBERATE STRATEGY is top-down, akin to strategic planning, and much needed for
coordinating action upon 3 conditions:
1. Management has to address all critical details in order for the strategy to succeed. Strategy
implementers should be aware of these details
2. Management has to stress collective action and paint the picture of the strategy to align
everyone so that actions will be consistent and appropriate
3. Management has to take in account that there are some external influences that cannot be
fully anticipated, arising from political, technological, and market forces
1/14/2023 © Prof. Gaanyesh K. 370

• EMERGENT STRATEGY is more of a cumulative effect from bottom-up
– the ground engineers, salespeople, and other executive staff
• These are daily tactical operations decisions made by those who are
not in the position of conceptualizers
1/14/2023 © Prof. Gaanyesh K. 371

STRATEGIES OF
THE OCEANS!
1/14/2023 © Prof. Gaanyesh K. 372

1/14/2023 © Prof. Gaanyesh K. 373
Blue Ocean Strategy
1/14/2023 © Prof. Gaanyesh K. 374

W. Chan Kim and Renee Mauborgne
BLUE OCEANS refers to:
- Undefined market space, demand creation, opportunity for highly profitable
growth
– Most are created from within red oceans by expanding existing industry
boundaries
– Rules of game waiting to be set
– Competition irrelevant
– Blue ocean strategy is a market-creating strategy

1/14/2023 © Prof. Gaanyesh K. 375
• W. Chan Kim & Renée Mauborgne coined the terms Red and Blue oceans to denote the
market universe
• Blue oceans denote the UNKNOWN MARKET SPACE, UNEXPLORED AND UNTAINTED BY
COMPETITION
• CUT-THROAT COMPETITION TURNS the ocean bloody red; hence, the term ‘RED OCEANS’
• IN BLUE OCEANS, DEMAND IS CREATED rather than fought over
• Like the ‘blue’ ocean, BLUE OCEAN STRATEGY vast, deep and powerful – in terms of
opportunity and profitable growth
1/14/2023 © Prof. Gaanyesh K. 376

• RED OCEANS ARE ALL THE INDUSTRIES IN EXISTENCE TODAY – THE KNOWN
MARKET SPACE, where industry boundaries are defined and companies try to
outperform their rivals to grab a greater share of the existing market
• In SATURATING MARKETS, space gets more crowded, Prospects for profits and
growth decline, Products turn into commodities, and Increasing competition
TURNS THE WATER BLOODY RED
1/14/2023 © Prof. Gaanyesh K. 377

RED OCEAN VS. BLUE OCEAN STRATEGY
Compete in existing market space Create uncontested market space
Beat the competition. Make the competition irrelevant
Exploit existing demand. Create and capture new demand
Make the value-cost trade-off. Break the value-cost trade-off.
Align the whole system of a firm’s Align the whole system of a firm’s
activities with its strategic choice of activities in pursuit of differentiation
differentiation or low cost and low cost
1/14/2023 © Prof. Gaanyesh K. 378
1/14/2023 © Prof. Gaanyesh K. 379
The Rising Imperative of Creating Blue Oceans:
• Supply is exceeding demand in most industries
• Global competition is intensifying
• Problems:
– Accelerated commodization of products and services
– Increasing price wars
– Shrinking profit margins
• Red oceans becoming bloodier, need to be concerned with
creating blue oceans
1/14/2023 © Prof. Gaanyesh K. 380

Purple Ocean strategy
1/14/2023 © Prof. Gaanyesh K. 381

Value Innovation: The Cornerstone of Blue Ocean Strategy
Value Innovation:
- Equal emphasis on value and innovation
- Defies value-cost trade-off of competition-based strategy
- Successful value innovation:
• Drives down costs while driving up buyers’ value

• Uses a whole-system Approach
• Follows reconstructionist view
1/14/2023 © Prof. Gaanyesh K. 382

Green Ocean Strategy
• A new set of organizational processes needed for a company to reach a continuous
innovative and sustainable strategy by utilizing primarily its own human intellectual
capital in an unbiased and democratic way. Such an approach can transmit an
organization into a new management typology and leadership that can be defined as
a Green Ocean strategy.
• Sustainability should neither be dystopian (an imaginary place where people are unhappy and
usually afraid because they are not treated fairly), nor utopian relating to or aiming for a perfect society in
which everyone works well with each other and is happy), but better protopian (a state that is better
than today than yesterday)
• To achieve this, thinking green for the common good and benefit for all from all, not
only requires thinking smart or green but also thinking together
1/14/2023 © Prof. Gaanyesh K. 383

Triple Bottom Line concept (People-Planet-Profits)
1/14/2023 © Prof. Gaanyesh K. 384

The triple bottom line is a business concept that posits firms should
commit to measuring their social and environmental impact—in addition
to their financial performance—rather than solely focusing on generating
profit, or the standard “bottom line.” It can be broken down into “three
Ps”: profit, people, and the planet
1/14/2023 © Prof. Gaanyesh K. 385

PROFIT
• In a capitalist economy, a firm’s success most heavily depends on its financial
performance, or the profit it generates for shareholders
• Strategic planning initiatives and key business decisions are generally carefully
designed to maximize profits while reducing costs and mitigating risk
• Purpose-driven leaders are discovering that they have the power to use their
businesses to effect positive change in the world without hampering financial
performance. In many cases, adopting sustainability initiatives has proven
to drive business success
1/14/2023 © Prof. Gaanyesh K. 386

PEOPLE
• The second component of the triple bottom line highlights a business’s societal
impact, or its commitment to people
• It’s important to make the distinction between a firm’s shareholders and

stakeholders. Traditionally, businesses have favored shareholder value as an
indicator of success, meaning they strive to generate value for those who own
shares of the company
• As firms have increasingly embraced sustainability, they’ve shifted their focus

toward creating value for all stakeholders impacted by business decisions,
including customers, employees, and community members
1/14/2023 © Prof. Gaanyesh K. 387

PLANET
• The final component of the triple bottom line is concerned with making a
positive impact on the planet
• Since the birth of the Industrial Revolution, large corporations have contributed
a staggering amount of pollution to the environment, which has been a key
driver of climate change
• A recent report by the Carbon Majors Database found that 100 companies in the
energy sector are responsible for roughly 71 percent of all industrial emissions
1/14/2023 © Prof. Gaanyesh K. 388

Governance Issues
• Board of directors
• A group of individuals who are elected by the ownership of a
corporation to have oversight and guidance over management and
who look out for shareholders’ interests
1/14/2023 © Prof. Gaanyesh K. 389

Board of Director Duties and Responsibilities
1. Recruit, supervise, retain, evaluate and compensate the manager
2. Provide direction for the organization
3. Establish a policy based governance system
4. Govern the organization and the relationship with the CEO
5. Fiduciary (trustee) duty to protect the organization’s assets and member’s

investment
6. Monitor and control function
1/14/2023 © Prof. Gaanyesh K. 390

Principles of Good Governance
1. No more than two directors are current or former company executives
2. The audit, compensation, and nominating committees are made up solely

of outside directors
3. Each director owns a large equity stake in the company, excluding stock
options
4. Each director attends at least 75 percent of all meetings
1/14/2023 © Prof. Gaanyesh K. 391

Principles of Good Governance
5. The board meets regularly without management present and evaluates
its own performance annually
6. The CEO is not also the chairperson of the board
7. Stock options are considered a corporate expense
8. There are no interlocking directorships (where a director or CEO sits on
another director’s board)

1/14/2023 © Prof. Gaanyesh K. 392
MODULE-VI
Part –iii, iv, v, vi, vii & viii
1/14/2023 © Prof. Gaanyesh K. 393

MODULE-VI:
i. Organizational Structures – Simple, Functional, Divisional, Matrix, Product-team

structure ---- SELF STUDY
ii. Creating Agile, Virtual Organizations
iii. Case Studies and Presentations
1/14/2023 © Prof. Gaanyesh K. 394

Creating Agile, Virtual Organizations
• Virtual means a structure which is based on the internet
• People are scattered worldwide
• They work in loosely connected structural format
• Through virtual structure, people are connected without physical proximity
1/14/2023 © Prof. Gaanyesh K. 395

Creating Agile, Virtual Organizations
• Often associated with terms, viz.- virtual office, virtual teams, virtual leadership
• Business ‘without walls’
• Temporary network of independent companies, suppliers, customers
• Linked by SaaS, IoT, and Information Technology
• Goal – deliver highest quality product at lowest possible cost in timely manner
1/14/2023 © Prof. Gaanyesh K. 396

Benefits of Virtual Organizations
TO THE ORGANIZATION
• Competitive advantage to conduct supply chain integration or bridge the
merger and acquisition processes between two companies
• Pool of abilities and knowledge
• Flexibility, dynamism and better responsiveness
• Also called “Boundary-less organization”

1/14/2023 © Prof. Gaanyesh K. 397
TO THE ORGANIZATION Contd…
• Do not imply time or geographical obstacles
• Less investments costs initially
• Productivity rises by 30 to 50%
• Less costs, more profits due to huge savings on real-estate investments,

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lesser labor cost, and less number of errors
TO THE EMPLOYEES
• More independence, freedom of work
• Reduced stress levels
• Less money spent: diminution of electricity consumption or money spent

on public transports
1/14/2023 © Prof. Gaanyesh K. 399

TO THE SOCIETY
• An environmental benefit: less pollution
• Expansion of the workplace area: possibility to work efficiently in the rural

areas
1/14/2023 © Prof. Gaanyesh K. 400

Challenges faced by Virtual Organizations
• Misunderstanding from poor communication
• Incompatible communication preferences
• Differences in work ethic
• Lack of clarity and direction
• Frequent second-guessing
• Deficient sense of ownership and commitment
• Inability to ask the right questions
• Difficulty with delegation
1/14/2023 © Prof. Gaanyesh K. 401

BUILDING A LEARNING
ORGANIZATION
1/14/2023 © Prof. Gaanyesh K. 402

LEARNING ORGANIZATION
• A learning organization is an organization skilled at creating, acquiring, and
transferring knowledge, and at modifying its behavior to reflect new
knowledge and insights
• New ideas are essential if learning is to take place without accompanying

changes in the way that work gets done, only the potential for improvements
exist
1/14/2023 © Prof. Gaanyesh K. 403

Learning Organization
• Facilitates the learning of its members for continuous transformation
• Learning organizations are a result of the pressures faced by
modern organizations
• Enables them to remain competitive in the business environment
1/14/2023 © Prof. Gaanyesh K. 404

ORGANIZATION AND QUALITIES
• Meaning
Reasonable, well grounded definition, actionable and easy to apply
• Management
Clear guidelines for practice, filled with operational advice rather than high
aspirations
• Measurement
Tools for assessing organizations rate and level of learning to ensure gains
have been made
1/14/2023 © Prof. Gaanyesh K. 405

ORGANIZATION AND QUALITIES
• Three distinct stages:
• COGNITIVE
• Exposed to new ideas, expand their knowledge and begin to think differently
• BEHAVIORAL
• Employees internalize new insights and alter behavior
• PERFORMANCE IMPROVEMENT
• Changes in behavior leading to measurable improvements in results
1/14/2023 © Prof. Gaanyesh K. 406

BUILDING BLOCKS
• Systematic Problem Solving
• Experimentation
• Learning from Past Experience
• Learning from others
• Transferring knowledge
• Measuring learning
Each is accompanied by a distinctive mindset, tool kit and pattern of
behavior
1/14/2023 © Prof. Gaanyesh K. 407
SYSTEMATIC PROBLEM SOLVING
• Rely on scientific method for diagnosing problems “plan, do, check, act”
• Data
• Statistical analysis
• Generating ideas and collecting information
• Reaching consensus
• Analyzing and displaying data
• Planning actions
1/14/2023 © Prof. Gaanyesh K. 408

EXPERIMENTATION
• On-going programs
• Series of small experiments
• Steady flow of new ideas
• Incentive system
• Need managers and employees trained in evaluating and
performing experiments
1/14/2023 © Prof. Gaanyesh K. 409

LEARNING FROM PAST EXPERIENCE
• Companies revive successes and failures
• Assessment done systematically and in an open and

accessible forum
“Those who cannot remember the past, are condemned to repeat it”
1/14/2023 © Prof. Gaanyesh K. 411
LEARNING FROM OTHERS
• Most powerful insights come from looking outside ones immediate
environment to gain a new perspective
• SIS (steal ideas shamelessly)
• Benchmarking
 Ongoing investigation and learning experience that ensures the best
industry practices are uncovered, analyzed, adapted and implemented
1/14/2023 © Prof. Gaanyesh K. 412

TRANSFERRING KNOWLEDGE
• Knowledge must be spread quickly and efficiently throughout the organization
• Maximum impact when shared broadly
• Written reports
• Oral reports
• Site visits and tours
• Personnel rotation programs
• Standardization programs
• Education and training programs
1/14/2023 © Prof. Gaanyesh K. 413

MEASURING LEARNING
• Actual data comparison
• Learning or experience curves

 Incomplete measures, ignore other competitive variables, like quality,
delivery or new product introductions
“If you can’t measure it, you can’t manage it”
1/14/2023 © Prof. Gaanyesh K. 414

CONCLUSION
• Learning organizations FOSTER AN ENVIRONMENT THAT IS

CONDUCIVE TO LEARNING
• Learning organizations OPEN UP BOUNDARIES AND

STIMULATE THE EXCHANGE OF IDEAS
1/14/2023 © Prof. Gaanyesh K. 415

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STRATEGIC MANAGEMENT

Week 1 & 2: Introduction to Strategic Management

Week 3 & 4: Analyzing the External Environment

Week 5 & 6: Analyzing the Internal Environment

Week 7 & 8: Competitive Positioning; Managing the Multi-business Firm

1/14/2023 © Prof. Gaanyesh K. 2

India’s narrow body fleet is dominated

1/14/2023 © Prof. Gaanyesh K. 3

The deal will be funded through a mix of internal

1/14/2023 © Prof. Gaanyesh K. 5

• The distinction between strategy and tactics

• How the role of existing organizational resources and

1/14/2023 © Prof. Gaanyesh K. 6

1/14/2023 © Prof. Gaanyesh K. 7

1/14/2023 © Prof. Gaanyesh K. 8

• Guides the allocation of resources and effort

• Provides the logic that integrates the perspectives

1/14/2023 © Prof. Gaanyesh K. 9

1/14/2023 © Prof. Gaanyesh K. 12

1/14/2023 © Prof. Gaanyesh K. 14

• Planning the formations for the • Ordering of formations on the battlefield

• Without enemies, the need for strategy

• strategy involves PLANNING a

1/14/2023 © Prof. Gaanyesh K. 16

“The sole purpose of strategy is to enable a company to gain, as

1/14/2023 © Prof. Gaanyesh K. 17

leaders and their teachings have shown,

there is no single strategy that will lead to

victory over an opponent

1/14/2023 © Prof. Gaanyesh K. 18

3. Attack from several sides

4. Aid to theatre of war by means of fortifications

5. Assistance of the people

6. Use of great moral forces

1/14/2023 © Prof. Gaanyesh K. 19

• The term “guerrilla” comes from the Spanish

• The term generally refers to combat of small

1/14/2023 © Prof. Gaanyesh K. 20

• Guerrillas should operate like a cloud of gas,

1/14/2023 © Prof. Gaanyesh K. 21

• In reality, a firm's strategy may be

1/14/2023 © Prof. Gaanyesh K. 23

• Strategic planners usually serve in a support or staff role

“Without Business Policy and Strategy, an organization is like a ship

1/14/2023 © Prof. Gaanyesh K.

“Business Policy is the study of the

1/14/2023 © Prof. Gaanyesh K. 26

long-term strategic direction and broad policy

• It gives the firm a clear sense of direction and a

blueprint for the firm’s activities for the upcoming

• Is the purpose that it exists and why it will continue

– depicts the expanse in which the business

how to gain a competitive advantage?

3. SUPPORTING FUNCTIONAL STRATEGIES –

the activities designed for consistency and

• Is the statement of the role

• It describes why an organization is operating

• It describes what the organization does (i.e. present

• It differentiates an organization from others

• To impart management education of global standards to students and

• To undertake research and consultancy for the betterment of the

• To continuously involve ourselves in innovative processes and use best

• Build an intellectual pool of students, faculty and alumni through