BUSS 420 Strategic Management Notes

BUSS 420: STRATEGIC MANAGEMENT
Credit Hours: 3 Credits

Course Instructor: Dr. Paul Mwenda
Contact: 0721 819 319
Rationale
This course in Strategic Management has two aims: to draw together the various strands
of a business course to provide a holistic view of the business organization, and to
develop a strategic perspective of business management. This course is designed to
capture the fundamentals of the strategy process, incorporating analytically driven
analyses, strategy formulation and implementation. This course is structured to equip
students with the necessary theoretical and practical skills to enable them to think
strategically and apply strategically-driven analytical tools within the context of real-
world settings.
Learning Outcomes
This unit aims to demonstrate the application of strategic analysis in an effort to improve
firm performance. On completion of this unit, students should be able to:
i. Understand the fundamental concepts underlying the study of business strategy
and the elements of the strategic management process;
ii. Understand the role of strategy in matching an organisation’s resources,
capabilities and competencies with its environment in both static and dynamic
contexts;
iii. Understand the processes of strategy analysis, development and implementation,
especially those processes of strategic management that may lead to success;
iv. Knowledge on the implementation of strategy within the organisation, and the
relevance of firm culture within the context of organisational operation;
v. Practical application of the analytical concepts taught within class in the analysis
and development of strategy for a business organization.
1 BUSS 420 - Strategic Management Notes By Dr. Paul Mwenda

Course content
1. Overview and nature of strategic management
1.1 Meaning of strategic management
1.2 Levels of strategic management
1.3 Dimensions of strategic decisions
1.4 Importance and risks of strategic management
1.5 Formality in strategic management
2. The strategic management process
2.1 strategic management as a process
2.2 strategic management model
2.3 critical tasks in strategic management process
2.4 phases in strategic management process
3. Development of concept of strategy
3.1 The evolution of strategic management
3.2 The early users of the concept of Strategy
3.3 Contemporary contribution to strategic management thought
3.4 Mintzberg critic of formal strategic planning
3.5 From strategies of intent to emergent strategies
4. The company mission and vision
4.1 The key strategic questions
4.2 Formulating the firms mission statement
4.3 The vision statement
4.4 Content of mission statement
5. Internal Environmental analysis
5.1 Models of internal analysis
5.2The resource based view of the firm
5.3 The value chain analysis
5.4 Internal factor analysis summary
6. External Environmental analysis

6.1 The remote environment(PESTELE)
6.2 The industry environment(Five competitive forces)
6.3 Customer analysis
6.3 Competitor analysis
7. Setting long term objectives
7.1 Developing long term objectives
7.2 Key areas of setting long term objectives
7.3 Attributes of good objectives
8. Strategy formulation(corporate strategic options)
8.1 Concept of competitive advantage
8.2 Directional strategies
8.3 Portfolio analysis
8.4 Parenting
9. Strategy formulation (generic strategies)
9.1 Stakeholder analysis
9.2 Cost leadership
9.3 Differentiation
9.4 Focus
10. Strategy implementation
10.1 Strategy implementation tasks
10.2 Approaches to strategy implementation
10.3 Structure, leadership and culture
11 Strategic control and continuous improvement
11.1 Performance measurement
11.2 Strategic control
11.3 Continuous improvement
11.4 Balanced score card

Course Evaluation
Coursework 40%
Examination 60%
Total 100%
Course Texts
1. Johnson, G., Scholes, K. & Whittington, R. (2008). Exploring Corporate Strategy:
Texts & Cases; 8th Ed. Prentice Hall International; United Kingdom.
2. Pearce and Robinson (2007): Strategic Management, 5th edition Mc Graw-Hill,
New York.
3. Thompson, A.A., & Strickland, A.J. (2001). Strategic Management (12th ed.). Boston:
McGraw-Hill Irwin.
4. Wheelen, T.L., & Hunger, J.D. (2000). Strategic Management and Business Policy
(7th ed.). MA: Addison Wesley.
5. Hubbard, U., Morkel, A., Devenport, S., & Beamish, P. (2006). Cases in Strategic
Management. Frenchs Forrest, NSW: Pearson Education.
6. David, F. (1999) Strategic Management, Prentice Hall, Upper Saddle River, NJ
7. De Wit, R. & Meyer, R. (2004). Strategy Process, Content, Context; 3rd Ed.
Thompson: Australia.
8. Mintzberg, H., Lampel, J., Quinn, J. & Ghoshal, S. (2003). The Strategy Process:
Concepts, Contexts and Cases. Prentice Hall: United States.
9. Mintzberg, H., Ahlstrand, B. & Lampel, J. (1998). Strategy Safari. Prentice Hall:
Australia.
10. Davis, J. & Devinney, T. (1997). The Essence of Corporate Strategy: Theory for
Modern Decision Making. Allen & Unwin: Australia.
11. Grant, R. (1998). Contemporary Strategy Analysis: Concepts, Techniques,
Applications. Blackwell Publications: United States.
12. Norman, R. & Ramirez, R. (1998). Designing Interactive Strategy: From Value
Chain to Value Constellation. John Wiley Publications: United Kingdom.
13. Ansoff, H. Igor, (1969) Business Strategy. Middlesex: Penguin Books Ltd.

Overview and Nature of Strategic Management
Meaning of Strategic management
 Strategic management is a continuous process of strategic analysis, strategy

creation, implementation and monitoring, used by organizations with the purpose
to achieve and maintain a competitive advantage.
 Strategic Management is all about identification and description of the strategies
that managers can carry so as to achieve better performance and a competitive
advantage for their organization. An organization is said to have competitive
advantage if its profitability is higher than the average profitability for all
companies in its industry.
 The systematic analysis ofthe factors associated with customers and competitors (t
he external environment) and the organization itself (the internal environment)
to provide the basis for maintaining optimum management practices.
the objective of strategic management is to achieve better alignment of corporate
policies and strategic priorities.
 The set of decisions and actions that result in the formulation and implementation
of plans designed to achieve a company’s objectives
Critical tasks in strategic management
 Formulate the company’s mission

 Conduct an internal analysis
 Assess the external environment – competitive and general contexts
 Analyze the company’s options by matching its resources with the external
environment
 Identify the most desirable options in light of the mission

 Select a set of long-term objectives and grand strategies that will achieve
the most desirable options
 Develop annual objectives and short-term strategies that are compatible
with long-term objectives and grand strategies
 Implement the strategic choices
 Evaluate the success of the strategic process for future decision making
Dimensions of strategic decisions
i. Strategic decisions require Top-Management Decisions. Since strategic decisions over -

arch several areas of a firm's operation, they require top management involvement,
who has the perspective needed to understand the broad implications of such
decisions and the power to authorize the necessary resource allocations.
ii. Strategic decisions require Large Amounts of the Firm's Resources. Strategic decisions
involve substantial allocations of people, physical assets, or moneys that either must
be redirected from internal sources or secured from outside the firm. They also
commit the firm to actions over an extended period.
iii. Strategic decisions often affect the Firm's Long-Term Prosperity. Strategic decisions
ostensibly commit the firm for a long time, typically five years; with the impact
lasting much longer. Once a firm has committed itself to a particular strategy, its
image and competitive advantages usually are tied to that strategy. Firms become
known in certain markets, for certain products, with certain technologies. They would
jeopardize their previous gains if they shifted from these markets, products, and
technologies by adopting a radically different strategy.
iv. Strategic decisions are Future Oriented. Strategic decisions are based on what
manager’s forecast, rather than on what they know. Emphasis is placed on the
development of projections that will enable the firm to select the most promising
strategic options. In the turbulent and competitive free enterprise environment, a firm
will succeed only if it takes a proactive (anticipatory) stance toward change.
v. Strategic decisions usually have Multifunctional or Multi-business Consequences.
Strategic decisions have complex implications for most areas of the firm. Decisions

about such matters as customer mix, competitive emphasis, or organizational structure
necessarily involve a number of the firm's strategic business units (SBUs), divisions, or
program units. All of these areas will be affected by allocations or reallocations of
responsibilities and resources that result from these decisions.
vi. Strategic decisions require Considering the Firm's External Environment. All business
firms exist in an open system. They affect and are affected by external conditions that
are largely beyond their control. Therefore, to successfully position a firm in
competitive situations, its strategic managers must look beyond its operations. They
must consider what relevant others (e.g., competitors, customers, suppliers, creditors,
government, and labor are likely to do.
Hierarchy/Levels of strategies
There are three levels of strategies in an organization
i. Corporate strategy. It describes a company's overall direction in terms of its general

attitude towards growth and management of its various business and product lines.
Corporate strategy deals with three key issues facing the corporation as a whole.
 Directional strategy. The firm’s overall orientation towards growth,

stability and retrenchment. The two basic growth strategies are
concentration and diversification. The growth of a company could be
achieved through merger, acquisition, takeover, joint ventures and
strategic alliances. Turnaround, divestment and liquidation are the various
types of retrenchment strategy.
 Portfolio analysis. The industries or markets in which the firm competes
through its products and business units. In portfolio analysis, top
management views its product lines and business units as a series of
portfolio investment and constantly keep analyzing for a profitable return.
Two of the most popular strategies are the BCG Growth Share matrix and

 Parenting strategy. The manner in which the management coordinates
activities and transfers resources and cultivates capabilities among product
lines and business units.
ii. Business strategy. It usually occurs at the business unit or product level and it
emphasizes improvement of the competitive position of a corporation's products or
services in the specific industry or marketing segment served by that business unit. It
may fit within two overall categories of competitive or corporate strategies.
Competitive strategy is the strategy battle against all competitors for advantage.
Michael Porter developed three competitive strategies called Generic strategies. They
are cost leadership, differentiation and focus. Cooperative strategy is to work with
one or more competitors to gain advantage against other competitors.
iii. Functional strategy. It is the approach taken by a functional area to achieve
corporate and business unit objectives and strategies by maximizing resource
productivity. It is concerned with developing nurturing a distinctive competence to
provide a company or business unit with a competitive advantage.
Features/Components of a strategy
i. Focus. A company chooses to invest only on a few selected factors while making
its value offering, rather than diffusing its efforts across all key factors of
competition. It can, thereby, control the costs. When a company’s value curve
lacks focus, its cost structure will tend to be high and its business model complex in
implementation and execution.
ii. Divergent. This depicts a company’s profile that is differentiated from the
industry’s average profile and thus confirms uniqueness. When it lacks divergence,
a company’s strategy is a me-too, with no reason to stand apart in the market
place.
iii. Compelling tagline. This delivers a clear message about the exceptional cost-value
offering and generates interest among the buyers. When the strategy lacks a

compelling tagline that speaks to buyers, it is likely to be internally driven with no
great commercial potential and no natural take-off capability.
Importance of strategic management

A well-formulated strategy can bring various benefits to the organization in present as
well as in future.
i. Strategic management takes into account the future and anticipates for it.
ii. A strategy is made on rational and logical manner, thus its efficiency and its success
are ensured.
iii. Strategic management reduces frustration because it has been planned in such a
way that it follows a procedure.
iv. It brings growth in the organization because it seeks opportunities.
v. Strategic management also adds to the reputation of the organization because of
consistency that results from organizations success.
vi. Often companies draw to a close because of lack of proper strategy to run it. With
strategic management companies can foresee the events in future and that’s why
they can remain stable in the market.
vii. Strategic management looks at the threats present in the external environment and
thus companies can either work to get rid of them or else neutralizes the threats in
such a way that they become an opportunity for their success.
viii. Strategic management focuses on proactive approach which enables organization
to grasp every opportunity that is available in the market in today’s businesses,
the right approach and management of the company’s employees can
greatly affect the company’s overall performance.
Risks of strategic management

i. Time. Strategic planning requires time, and in today’s complex business
environment, managers are often too busy solving short term problems to focus
on Strategic Management.

ii. Unrealistic expectations from managers & employees. engaging in strategic
planning activities sometimes creates unrealistic expectations in managers and
employees
iii. The uncertain chain of implementation. Strategic Management Planning takes
place at Top Management whereas Strategic Management Implementation takes
places at all levels of the organisation
iv. Negative Perception of Strategic Management. Strategic Management approach
might sometimes suffer from a lack of buy in by potential participants.
v. No specific Objectives & Measurable Outcomes. without measurable outcomes, it
will be difficult to determine if strategy implementation is going according to plan
vi. Culture of Change. Generally people in the organisation may be resistant to
change.
vii. Success Groove. Today’s success is no guarantee of tomorrow's competitive
advantage.
Formality in strategic management
 Formality is the degree to which participation, responsibility, authority, and
discretion in decision-making are specified in strategic management. Formality
is determined by the following forces.
 Organizational Size
 Predominant Management Styles
 Complexity of Environment
 Production Process
 Problems in the Firm
 Purpose of the Planning System
 Stage of Firm’s Development
Types of Formality
There are three types of formality as used in strategic management.

i. Entrepreneurial Mode – The informal, intuitive, and limited approach to
strategic management associated with owner-managers of smaller firms.
ii. Adaptive Mode – The strategic formality associated with medium-sized firms
that emphasize the incremental modification of existing competitive
approaches.
iii. Planning Mode – The strategic formality associated with large firms that
operate under a comprehensive, formal planning system.

Strategic Management Process
 Strategic management process is a continuous culture of appraisal that a

business adopts to outdo the competitors. Simple as it may sound, this is a
complex process that also covers formulating the organization’s overall vision
for present and future objectives.
 The way different organizations create and realize their management strategies
differ. As a result, there are different models of SMP that the organization can
adopt. The right model depends on various factors including:
 The existing culture of the organization.
 Market dominance of the organization.
 Leadership style.
 The organization’s experience in creating and implementing
SMPs.
 Industry and competition.
Importance of Strategic Management Process
The primary purpose of strategic management process is to help the organization achieve
a sustainable strategic competition in the market. When properly conceived and
implemented, SMP creates value for the organization by focusing on and assessing
opportunities and threats, then leveraging its strengths and weaknesses to help it survive,
grow, and expand as well as . Strategic management process can help a business achieve
this by:
i. Acting as the reference for any major decisions of the organization.

ii. Guiding the business to chart its future and move in that direction. SMP involves
formulating the organization’s goals, fixing realistic and achievable objectives, and
ensuring that they are all aligned with the company’s vision.

iii. Assisting the business to become proactive, not reactive. With the SMP, the
business can analyze the competitor’s actions vis-à-vis market trends and come up
with the steps that must be taken to compete and succeed in the market.
iv. Preparing the organization for any potential challenges and explore possible
opportunities that the business must pioneer in. The strategic management process
steps also involve identifying the best ways to overcome the challenges and
exploiting new opportunities.
v. Ensuring that the organizations copes with the competition in a dynamic
environment and survives in an uncertain market.
vi. Helping in the identification and maximization of the organization’s competitive
advantages and core competencies. These are responsible for the business’ survival
and future growth.
Steps of Strategic Management Process
There are five strategic management process steps that must be followed in their
chronological order.
i. Goal setting. This is essentially clarifying the organization’s vision. The vision will
include short-term and long-term objectives, the processes by which they can be
accomplished, and the persons responsible for implementing each task that
culminates in the set goals.
ii. Analysis. Analysis involves gathering the data and information that is relevant to
accomplishing the set goals. It also covers understanding the needs of the business
in the market and examining any internal and external data that may affect the
organization’s goals.
iii. Strategy Formulation. A business will only succeed if it has the resources required
to reach the goals set in the first step. The process of formulating a strategy to

achieve this may involve identifying which external resources the business needs to
succeed, and which goals must be prioritized.
iv. Strategy Implementation. Since the purpose of strategic management process is to
propel an organization to its objectives, an implementation plan must be put in
place before the process is considered viable. Everyone in the organization must
understand the process and know what their duties and responsibilities are in
order to fit in with the organization’s overall goal.
v. Evaluation and Control. The evaluation and control actions for the strategic
management process include performance appraisal as well constant review of
both internal and external issues. Where necessary, the management of the
organization can implement corrective actions to ensure success of the SMP.
Strategic Management Process/Model/Steps
These components are steps that are carried, in chronological order, when creating a new
strategic management plan. Present businesses that have already created a strategic
management plan will revert to these steps as per the situation’s requirement, so as to
make essential changes.

i. Environmental Scanning- It is the monitoring, evaluating, and disseminating of
information from the external and internal environments to key people within the
organization. Its main purpose is to identify external and internal elements that
will determine the future of the corporation. The simplest way to conduct
environmental scanning is through SWOT Analysis. (Strengths, Weaknesses,
Opportunities and Threats). External analysis consists of variables that are outside
the organization. These refer to the opportunities and threats. Internal analysis
consists of variables that are within the organization itself. They are the strengths
and weaknesses of the corporation. They include corporation’s structure, culture
and resources.
ii. Strategy Formulation- It is the development of long range plans. It includes
defining corporate mission, specifying achievable objectives, developing strategies
and setting policy guidelines. Mission is the purpose or reason for the

organization’s existence. It tells what the company is providing for the society.
Objectives are end results of planned activity. It tells what is to be accomplished.
Strategies state how the corporation will achieve its mission and objectives.
Policies are broad guideline for decision making that links the formulation of a
strategy with its implementation.
iii. Strategy Implementation- Is a process by which strategies and policies are put into
action through the development of programs, budgets and procedures. Sometimes
referred to as operational planning. Programs are statement of the activities or
steps needed to accomplish a single use plan. It makes a strategy action oriented.
Procedures are sometimes termed as Standard Operating Procedures (SOP). It is a
sequential steps or techniques that describe in detail how a particular task or job is
to be done.
iv. Strategy Evaluation and control - Strategy evaluation is the final step of strategy
management process. The key strategy evaluation activities are: appraising internal
and external factors that are the root of present strategies, measuring
performance, and taking remedial / corrective actions. Evaluation makes sure that
the organizational strategy as well as its implementation meets the organizational
objectives.

Phases in strategic management process
i. The Plan Phase of the Strategic Management Process. The first part of the strategic
management process involves figuring out what you want to accomplish, and
how you're going to get there. This entails high level goal setting that will result in
vision statement, focus areas and corporate level strategic objectives. Plan phase
also requires adequate strategic analysis & understanding of the firm environment
that facilitates in-depth strategy formulation.
ii. The Manage Phase of the Strategic Management Process. In the management
phase, there is need for Strategic Governance where there are clear Meeting
Structures as well as Strategy Reporting. This phase requires adequate Strategic
Communication that addresses organizational Strategy Culture, Performance
Management and Common Pitfalls of Strategic Implementation.
iii. The Track Phase of Strategic Management. This is a phase where check and
balances are put in place to track progress against strategic outcomes, implement

Key Performance Indicators, automating Reporting, Implementing a Strategy
Tracking Tool and Applying Strategic Frameworks.
Strategic Management Schools of Thought
Many companies and marketing managers have dedicated staff for strategy formulation.
It is a very important process for the company, as it tells the future direction which the
company has to take and the way that the company can succeed. The 10 school of
thoughts tell us how Strategy formulation can be done, and what are the various ways
that you can formulate a strategy.
1. The design school. In this thought process of strategy formulation, the focus is on
conception of ideas and to design new ideas.
 The company does an internal analysis with the help of SWOT analysis
 The company then tries to match its internal strength with the market strength
which is required.

 This works well in a stable environment, where competitors might not disrupt the
market suddenly & it gives time to the firm to adapt.
However, we have to understand that conducting an internal analysis of the firm

depends on the firm’s own knowledge about itself. Similarly, matching the firm’s
internal abilities to the external market requires external market knowledge.
Ultimately, knowledge is a limitation to the Design school of thought of strategy
formulation. If proper knowledge is not used, this school of thought will fail.
2. The planning school. In this case, the thought process runs towards planning the
entire strategy in a rigorous manner, so that the firm advances forward.
 The complete process and the plan which the company will implement is
documented from the start to finish.
 At all times the plan is referred to whenever the management wants to take new
decisions.
 With the plan in hand, the management gets a clear direction to move in,
helping the company to move forward unanimously.
The issue arises in the planning school of thoughts when anything happens out of
plan. If you have planned for years in advance, and any new competitor pops up,
or any external business variable is changed, then the complete plan gets affected.
Hence, proper prediction is most essential when using the planning school of
thought.
3. The positioning school. In this process of strategy formulation, the management

decides that they want to position the product at the top of the mind and makes
decisions accordingly.
 The management has to determine the competition already present in the
market, and where is their own company positioned

 It can use tools like Five forces, Value chain, BCG matrix and others to position
its products
 Once the market has been analyzed, the right strategy is needed to improve
the positioning of the product.
Again, in the positioning school of thought, the strategy assumes the market as it is,
and does not take into consideration future entrants or change in business
environment. Like the planning strategy, the positioning of school of thought can
also fail if there are major changes in the business environment.
4. The entrepreneurial school. This school of thought puts all the focus on the CEO of
the company. Most observed in small businesses which want to make it large, or
even large corporations which trust their leaders (Steve jobs, Mark zuckerberg), in
this strategic process, the company follows whatever the CEO says.
 In this case, the CEO needs to be visionary, needs strong leadership skill, and has
to have the right judgement and direction.
 This strategy has been proven right in very few cases over the years where the
leaders were legendary by themselves. Steve jobs, Bill gates, Mark Zuckerberg
are all examples of people who have grown companies to astounding
proportions due to their leadership skills.
The problem with this management school of thought is a single one. How do you
find such a leader? If you want to design your marketing strategy based on the
recommendations by the leader of the company, then this leader can be wrong as
well. And you need someone who is very strong on the business front and is
dynamic to make the necessary changes.
5. The cognitive school. In this thought process, people’s perception and information
is studied. Wherein, you can better your business by understanding your customers.

 It is a mental and psychological process to find out what is in the minds of the
consumer and how do we improve on that or use that information.
 Once you know customers perception and thought process about you, you can
change the same with strategy. You can either improve or you can communicate
better so that your customers have more information about you.
The problem with the cognitive model is that it is not practical beyond a certain
point. A top company cannot rely on surveys alone to find new ideas or to make
connections with their customers, because it has become a mass company by that
time. Cognitive reasoning cannot be done at a mass stage. Moreover, innovations
are brought when you think of products which the customers have not thought of
which is not possible in the cognitive school of thought. Because you are only
improving on the things which your customers perceive.
6. The learning school. In this thought process, the management keeps a watch over
what has already happened and then forms the future strategy looking at the past.
It might not necessarily look at its own past. It might look at the way things worked
for some other company, or how some other company failed. And then decide on
which strategy to implement and which one to ignore.
 The company looks at things that worked and tries to implement the same
thing over time with the assumption that it will work again.
 The company also looks at things that did not work in its favor (or in favor of
a competitor who tried the same thing), and discards such things / processes.
More than a strategy, the learning school of thought looks like maneuvering or
guiding the company on the basis of the previous road that has gone by. We all
know its not a good decision because the road can change at any time. Hence this
thought process is not at all useful at time of crisis, nor does it help in creating
something outstanding. This strategy can be used when the firm is stable, and wants
to work on auto mode while it develops something else in the meantime.

7. The power school. In this school of thought, the people who are in power take the
decisions. These people can be your customers, they can be your stakeholders, and
they can also be certain people from within the management.
 Anyone who is known to have power over the company can drive the
company forward.
 This ensures that there is lesser resistance for the strategy to be implemented
 It is a very realistic thought process, because incorporates, there are so many
people that power should reside in few hands.
The problem with the power school happens when the powerful people stop
listening to feedback or stop implementing measures of improvement, and only
focus on minor improvements. At such times, the power needs to change hands so
that the company keeps moving forward.
8. The cultural school. The cultural school of thought says that the company has a
fantastic capital in terms of its human capital as well as its social capital. A positive
culture in the firm can give a proper direction to the firm.
 The cultural school tries to involve many different departments within a
company.
 It is most useful during mergers and acquisitions.
 It emphasizes the role of social values, beliefs and culture in decision making
There can be resistance to the cultural school as the same people whom we are
trying to unite, might not like the idea of change, due to which they become
united and the company moves in the opposite direction. Moreover, even if you
have got the people united, and have built a strong culture, your direction still
remains unclear.
9. The environmental school. More of a situational school of thought, the

environmental school gives most of the importance to the environment. For

example in a paper industry, wood plays a major role. And if the wood is scarce,
the strategy formulation will have to be done on the basis of wherever the wood is
available.
 Major emphasis is on the environment which can be a raw material or a major
factor in the strategy of the company.
 Situational analysis is the most used tool in the environmental school.
Obviously, this thought process depends on the situation, and is used when there
is total dependence on environmental factors.
10. The Configuration school. One of the most preferred amongst the 10 School of
thoughts is the configuration school. It basically says, that the strategy needs to be
configured. The strategy allows the firm to move from one position to another,
hence a simple set of values will not help this movement.
 As per the configuration school, strategy needs to consider a lot of thing which
can go wrong, and cannot be derived from simple set of values.
 Over a period of time, an organization forms various sets of values which have
to be transformed so that the organization reaches the point that it desires.
 To do this, the organizations stable business might need to be disrupted, and
the organization has to be configured so that it reaches the success it was
looking for.
 Hence, the name configuration school, so that the organization is configured
over and over again unless it reaches the desired result.

Defining the Company Mission and Vision
Meaning of a mission statement
 A mission statement is a written declaration of an organization's core purpose and

focus that normally remains unchanged over time. Properly
crafted mission statements should;
 Serve as filters to separate what is important from what is not,
 Clearly state which markets will be served and how, and
 Communicate a sense of intended direction to the entire
organization.
 A mission statement is a brief description of a company's fundamental purpose. It
answers the question, "Why do we exist?".
 A short sentence or paragraph used by a company to explain, in simple and
concise terms, its purposes for being. These statements serve a dual purpose by
helping employees to remain focused on the tasks at hand, as well as encouraging
them to find innovative ways of moving towards an increasingly productive
achievement of company goals. It is not uncommon for the largest companies to
spend many years and millions of dollars developing and refining their mission
statement, with many of these mission statements eventually becoming household
phrases.
Formulating a mission statement
Formulating a company mission statement may take the following two steps.
i. Develop answers to the three key questions.

 What do we do? What are our products and services?
 Who do we serve? Who finds these products and services of
value?

 What value do we provide? What business problem, human
need, or desire do our products and services fulfill/satisfy?
ii. Draft a mission statement (one or two sentences) that captures the answers
for the above three questions in a compelling manner for the company. Let
it not be a “me too mission” statement. Note: It may take several drafts.
Components of an Effective Mission Statement
Mission statements can and do vary in length, content, format and specificity. Most
practitioners and academicians of strategic management consider an effectively written
mission statement to exhibit nine characteristics or mission statement components. Since
a mission statement is often the most visible and public part of the strategic management
process, it is important that it include most, if not all, of these essential
components. Components and corresponding questions that a mission statement should
answer are given here.
i. Customers: Who are the enterprise's customers?

ii. Products or services: What are the firm's major products or services?
iii. Markets: Where does the firm compete?
iv. Technology: What is the firm's basic technology?
v. Concern for survival, growth, and profitability: What is the firm's commitment
towards economic objectives?
vi. Philosophy: What are the basic beliefs, core values, aspirations and philosophical
priorities of the firm?
vii. Self-concept: What are the firm's major strengths and competitive advantages?
viii. Concern for public image: What is the firm's public image?
ix. Concern for employees: What is the firm's attitude/orientation towards
employees?

Characteristics of a Mission Statement
A mission statement defines the basic reason for the existence of that organisation. Such a
statement reflects the corporate philosophy, identity, character,
and image of an organisation. It may be defined explicitly or could be deduced from the
management's actions, decisions, or the chief executive's press statements. When explicitly
defined it provides enlightenment to the insiders and outsiders on what the organisation
stands for. In order to be effective, a mission statement should possess the following
seven characteristics.
i. It should be feasible. A mission should always aim high but it should not be an
impossible statement. It should be realistic and achievable. its followers must find
it to be credible. But feasibility depends on the resources available to work
towards a mission.
ii. It should be precise. A mission statement should not be so narrow as to restrict the
organization’s activities nor should it be too broad to make itself meaningless. For
instance, 'Manufacturing bicycles' is a narrow mission statement since it severely
limits the organization’s activities, while mobility business' is too broad a term as it
does not define the reasonable contour within which the organisation could
operate.
iii. It should be clear. A mission should be clear enough to lead to action. It should
not be a high sounding set of platitudes meant for publicity purposes. Many
organizations do adopt such statements but probably they do so for emphasizing
their identity and character. To be useful, a mission statement should be clear
enough to lead to action.
iv. It should be motivating. A mission statement should be motivating for members of
the organisation and of society, and they should feel it worthwhile working for
such an organisation or being its customers. A bank, which lays great emphasis on
customer service, is likely to motivate its employees to serve its customers well

and to attract clients. Customer service therefore is an important purpose for a
banking institution.
v. It should be distinctive. A mission statement, which is indiscriminate, is likely to
have little impact. If all scooter manufacturers defined their mission in a similar
fashion, there would not be much of a difference among them. But if one defines
it as providing scooters that would provide 'value for money, for years',like Bajaj,
it will create an important distinction in the public mind.
vi. It should indicate major components of strategy. A mission statement along with
the organizational purpose should indicate the major components of the strategy
to be adopted. The chief executive of Indal expressed his intentions by saying that
his company "begins its fifth decade of committed entrepreneurship with the
promise of a highly diversified company retaining aluminum as its mainline
business, but with an active presence in the chemical, electronics and industrial
equipment business". This statement indicates that the company is likely to follow
a combination of stability, growth and diversification strategies in the future.
vii. It should indicate how objectives are to be accomplished. Besides indicating the
broad strategies to be adopted a mission statement should also provide clues
regarding the manner in which the objectives are to be accomplished.
Reasons Why Mission Statements Change
i. To Broaden the Mission. Sometimes an organization realizes that its mission

statement is too narrow, that in fact the organization wants to provide services or
products that are related to the original statement, but not included in it. For
example, if a homeless shelter originally wrote that it will provide beds and food,
it might expand its statement to include "and a variety of social services," which
would cover goals to provide employment counseling, child care, mentoring and
the like.

ii. To Be More Specific. An organization might find that its mission statement is too
broad, and that it would rather focus on a more specific, manageable goal. For
example, an organization that originally wrote, "We aim to provide social services
to women with chronic illnesses" might find that it does not have the resources to
address such a broad variety of needs, and might change its statement to, "We aim
to provide social services to young mothers with cancer."
iii. To Address Changing Times. Sometimes an organization's mission becomes
obsolete, and so its members change their focus. For example, an organization
that previously provided free instruction to disadvantaged teenage girls in typing
and home economics might change its mission to one that provides instruction in
computers, personal finance and math.
iv. To Update Language. An organization that is old and established might find that
its mission no longer "speaks" to modern society. It might contain vocabulary that
is no longer in use or that is not "politically correct," or it might find that modern
donors are attracted by certain catch phrases that would be useful to include.
v. To Address a Merger or Split. If an organization merges with another, or splits
into two separate organizations, mission statements may be altered to reflect the
change.
The vision statement
 An aspirational description of what an organization would like
to achieve or accomplish in the mid-term or long-term future. It is intended
to serves as a clear guide for choosing current and future courses of action.
 A Vision Statement defines what your business will do and why it will exist
tomorrow and it has defined goals to be accomplished by a set date. A Vision
Statement takes into account the current status of the organization, and serves to
point the direction of where the organization wishes to go. Your Vision Statement
is a marketing tool and a business development tool because it announces your
company’s goals and purpose to your employees, suppliers, customers, vendors,
and the media.

 A mission is different from a vision in that the former is the cause and the latter is
the effect; a mission is something to be accomplished whereas a vision is
something to be pursued for that accomplishment. Also called company mission,
corporate mission, or corporate purpose.
Qualities of a good vision statement
i. Be inspirational. The vision statement is supposed to challenge, enthuse and

inspire. Use powerful words and vivid phrases to articulate the kind of institution
you are trying to become. It should inspire both the employees and the stake
holders.
ii. Be ambitious. What targets you set and how high you aim will, in themselves, also
say something about you as an organisation. Ambitious, perhaps even audacious
targets will help create the impression of an organisation that is going places, that
aims high and demands high standards from its staff and students in a way that
comfortable, ‘middle-of-the-road’ benchmarks will not
iii. Be realistic. This may sound odd following on immediately from a call to ‘Be
ambitious’, perhaps even contradictory, but it is an important part of the
balancing act that is required. For just as the purpose of the vision is to inspire and
enthuse, it is equally important that this ambition is tempered by an underlying
sense of realism. People need to believe that what is envisaged is actually
achievable; otherwise there is no reason for them to believe or buy in to it. It is
perfectly possible to be both ambitious and realistic and it is through successfully
marrying these two forces that the best vision statements will be formed.
iv. Be creative. Albert Einstein once said that ‘imagination is more important than
knowledge.’ Of course, there is nothing wrong with saying that you will ‘deliver
world-class learning and teaching standards but it is probably a safe bet that at
least a dozen other institutions will be saying the same thing. Just as a commercial
company may need to think creatively in order to identify gaps in the market, so

too you may need to think imaginatively about what your vision is and how you
describe it to help stand out from the crowd
v. Be clear. As with your mission statement it pays to avoid jargon, keep sentences
short and to the point and use precise, uncluttered language. Otherwise you risk
diluting or losing your message amongst the background ‘noise’
vi. Be consistent. Though bearing in mind their different purposes, there should still
be an element of continuity between your mission and vision statements, or at
least some careful thought and discussion given as to why this is not the case. At
the same time, the vision need not be constrained by the current remit of the
mission. Perhaps the institution is keen to explore new areas in the future: to
become the region’s conference venue of choice, for example, in which case this
would need to be reflected in the mission statement in due course

Objectives and goals
 Goals establish where you intend to go and tell you when you get there. They
help improve your overall effectiveness as a company, whether you want to
increase your share of the market, for example, or improve your customer service.
The more carefully you define your goals, the more likely you are to do the right
things and achieve what you wanted to accomplish in the first place.
 Objectives are the specific steps you and your company need to take in order to
reach each of your goals. They specify what you must do and when.
Comparison chart of goals and objectives
Goal Objective
Meaning: The purpose toward which an Something that one's efforts or

endeavor is directed. actions are intended to attain
or accomplish; purpose; target.
Example: I want to achieve success in the I want to complete this unit of

field of strategic management strategic management by the
and do what no one has ever end of this trimester.
done.
Action: Generic action, or better still, Specific action - the objective

an outcome toward which we supports attainment of the
strive associated goal.
Measure: Goals may not be strictly Must be measurable and

measurable or tangible. tangible.
Time frame: Longer term Mid to short term

Key Areas of Setting Long Term Objectives
Corporate objectives are those that relate to the business as a whole. They are usually
set by the top management of the business and they provide the focus for setting more
detailed objectives for the main functional activities of the business.
Corporate objectives tend to focus on the desired performance and results of the
business. It is important that corporate objectives cover a range of key areas where the
business wants to achieve results rather than focusing on a single objective. As suggested
by Peter Drucker, corporate objectives should cover eight key areas.
Area example
Market standing Market share, customer satisfaction, product

range
Innovation New products, better processes, using
technology
Productivity Optimum use of resources, focus on core
activities
Physical & financial resources Factories, business locations, finance, supplies
Profitability Level of profit, rates of return on investment
Management Management structure; promotion &
development
Employees Organizational structure; employee relations
Public responsibility Compliance with laws; social and ethical
behavior

Features of ideal objectives
Many business textbooks suggest that both corporate and functional objectives need to
conform to a set of criteria referred to as an acronym SMART.
Specific The objective should state exactly what is to be achieve

Measurable An objective should be capable of measurement – so that it is
possible to determine whether (or how far) it has been achieved
Achievable The objective should be realistic given the circumstances in which it
is set and the resources available to the business
Relevant Objectives should be relevant to the people responsible for
achieving them
Time bound Objectives should be set with a time-frame in mind. These deadlines
also need to be realistic

Internal Environmental Analysis
Meaning of internal analysis
It is the continuous process of reviewing of an organization's strengths and

weaknesses that focuses on those factors within its domain. A detailed internal analysis
will typically give a business a good sense of its basic competencies and the
desirable improvements that it can make to help meet the requirements of
potential customers within its intended market.
Effective internal analysis will;
 Enables a firm to identify its strengths and weaknesses.
 Enables a firm to make good strategic decisions.
 Provide information for developing strategic alternatives.
Internal analysis looks at among others three major components of the organization as
the sources of the firms’ strengths or weaknesses:
 The firms resources,
 The organizational structure and
 The organizational Culture.
Others may include the organizational systems and leadership.
Models of Internal Analysis
To conduct an effective internal environmental analysis, managers can use one or a

combination of the following models of analysis:
i. The Resource Based View of The Firm. This model defines resources broadly to
include all assets that a firm can draw upon when formulating and
implementing strategy. The model has two major assumptions;
 Resource heterogeneity. This means that bundles of resources and
capabilities differ across firms. The insight that the resource-based view

brings to strategy is that the resource bundles of firms competing in
the same industry (or even the same strategic group) are unique to some
extent and thus differ from one another.
 Resource immobility. This means that resources tend to be “sticky” and
don’t move easily from firm to firm. Because of that stickiness, the resource
differences that exist between firms are difficult to replicate and, therefore,
can last for a long time.
Resources in an organization can be classified in the following categories:
 Tangible resources. These refer to all the resources that have a physical form.
They are the easiest to value and often are the only resources that appear on
a firm’s balance sheet. They include real estate, production facilities, and raw
materials, among others. Although tangible resources may be essential to a
firm’s strategy, because of their standard nature, they are only occasionally a
source of competitive advantage.
 Intangible resources. These refer to all the assets that are not physical in
nature. They include; company reputations, brand names, cultures, technical
knowledge, patents and trademarks, and accumulated learning and
experience. These assets often play important roles in competitive advantage
or otherwise and the firm’s value.
 Organizational capabilities. They are the complex combinations of both
tangible and intangible resources. Finely sharpened capabilities can be a
source of competitive advantage. The list of organizational capabilities
includes a set of abilities describing efficiency and effectiveness, more
responsive, higher quality, and so forth that can be found in any one of the
firm’s activities, from product to development, to marketing, to
manufacturing.

Tangible
Resources
Capabilities Competencies Competitive
Intangible Advantage
Resources
Figure: Resource-based view of competitive advantage
What Makes a Resource Valuable?

Managers face the challenge of determining which of its resources represent strengths or
weaknesses, which resources generate core competencies that are sources of sustained
competitive advantage. The RBV has addressed this by setting forth some key guidelines
that help determine what constitute a valuable asset, capability, or competence, that is,
what makes a resource valuable.
 Valuable - When resources are able to bring value to the firm they can be a source
of competitive advantage.
 Rare - Resources have to deliver a unique strategy to provide a competitive
advantage to the firm as compared to the competing firms. Consider the case
where a resource is valuable but it exists in the competitor firms as well. Such a
resource is not rare to provide competitive advantage
 Inimitability. Resources can be sources of sustained competitive advantage if
competing firms cannot obtain them. Consider the case where a resource is
valuable and rare but the competing organizations can copy them easily. Such
resources also cannot be sources of competitive advantage. Firms can use the
following four characteristics, (also called isolating mechanisms) to make their
valuable resources difficult to imitate:
 Physically unique resources: Making resources impossible to imitate.
 Path-dependent resources: - Difficult to imitate because of the difficult

"path" another firm must follow to create that resource.
 Causal ambiguity: difficult for competitors to understand exactly how a
firm has created the advantage it enjoys.
 Economic deterrence involves large capital investments in capacity to
provide products or services in a given market that are scale sensitive.
 Non-substitutable - Resources should not be able to be replaced by any other
strategically equivalent valuable resources. If two resources can be utilized
separately to implement the same strategy then they are strategically equivalent.
Such resources are substitutable and so are not sources of sustained competitive
advantage.
ii. The Value Chain Analysis A value chain is a chain of activities that a firm
operating in a specific industry performs in order to deliver a
valuable product or service for the market. The concept comes from business
management and was first described and popularized by Michael Porter in
1985. The idea of the value chain is based on the process view of
organizations, the idea of seeing a manufacturing (or service) organisation as a
system, made up of subsystems each with inputs, transformation processes and
outputs. Inputs, transformation processes, and outputs involve the acquisition
and consumption of resources - money, labor, materials, equipment, buildings,
land, administration and management. How value chain activities are carried
out determines costs and affects profits. These activities can be classified
generally as either primary or support activities that all businesses must
undertake in some form.

.
Primary Activities
Primary activities relate directly to the physical creation, sale, maintenance and support
of a product or service. They consist of the following:
 Inbound logistics – These are all the processes related to receiving, storing,
and distributing inputs internally. Your supplier relationships are a key factor
in creating value here.
 Operations – These are the transformation activities that change inputs into
outputs that are sold to customers. Here, your operational systems create
value.
 Outbound logistics – These activities deliver your product or service to your
customer. These are things like collection, storage, and distribution systems,
and they may be internal or external to your organization.
 Marketing and sales – These are the processes you use to persuade clients to
purchase from you instead of your competitors. The benefits you offer, and
how well you communicate them, are sources of value here.
 Service – These are the activities related to maintaining the value of your
product or service to your customers, once it's been purchased.

Support Activities
These activities support the primary functions above. In our diagram, the dotted lines
show that each support, or secondary, activity can play a role in each primary activity.
For example, procurement supports operations with certain activities, but it also supports
marketing and sales with other activities.
 Procurement (purchasing) – This is what the organization does to get the
resources it needs to operate. This includes finding vendors and negotiating
best prices.
 Human resource management – This is how well a company recruits, hires,
trains, motivates, rewards, and retains its workers. People are a significant
source of value, so businesses can create a clear advantage with good HR
practices.
 Technological development – These activities relate to managing and
processing information, as well as protecting a company's knowledge base.
Minimizing information technology costs, staying current with technological
advances, and maintaining technical excellence are sources of value creation.
 Infrastructure – These are a company's support systems, and the functions
that allow it to maintain daily operations. Accounting, legal, administrative,
and general management are examples of necessary infrastructure that
businesses can use to their advantage.

The Advantages of Value Chain Analysis
 The value chain is a very flexible strategy tool for looking at your business, your
competitors and the respective places in the industry’s value system.
 The value chain can be used to diagnose and create competitive advantages on
both cost and differentiation.
 It helps you to understand the organisation issues involved with the promise of
making customer value commitments and promises because it focuses attention
on the activities needed to deliver the value proposition.
 Comparing your business model with your competitors using the value chain can
give you a much deeper understanding of your strengths and weaknesses to be
included in your SWOT analysis.
 The value chain is well known and has been a mainstay of strategy teaching in
business schools for the last 35 years.
 It can be adapted for any type of business such as manufacturing, retailing or
services, big or small ventures etc.
 The value chain has developed into an extra model, the industry value chain or
value system which lets you get a better understanding of the much broader
competitive arena.
The Disadvantages of Value Chain Analysis
 It’s a very strength of flexibility mean that it has to be adapted to a particular

business situation and that can be a disadvantage since, to get the best from
the value chain, it’s not “plug and play”..
 The format of the value chain laid out in Porter’s book Competitive
Advantage is heavily oriented to a manufacturing business and the language
can be off-putting for other types of business.

 The scale and scope of a value chain analysis can be intimidating. It can take a
lot of work to finish a full value chain analysis for your company and for your
main competitors so that you can identify and understand the key differences
and strategy drivers.
 Many people are familiar with the value chain but few are experts in its use.
 Michael Porter’s book is excellent but it is a tough read. It’s also dated in its
examples which can make some of the ideas more difficult to relate to and
understand how things fit together in the Internet age.
 The value chain idea has been adopted by supply chain and operations experts
and therefore its strategic impact for understanding, analyzing and creating
competitive advantage has been reduced.
 Business information systems are often not structured in a way to make it easy
to get information for value chain analysis.
iii. SWOT Analysis. SWOT analysis (strengths, weaknesses, opportunities, and

threats analysis) is a framework for identifying and analyzing the internal and
external factors that can have an impact on the viability of a project, product,
place or person.

 Strengths- are internal characteristics or attributes of the business or project that
give it an advantage over others. Organizations should work hard towards
maintaining their strengths. Examples of such strengths include:
 Patents protection
 Strong brand names
 A new and innovative product/service
 Availability of quality processes & procedures
 Good reputation among customers
 Your specialist marketing expertise/ proprietary know-how
 Exclusive access to high grade natural resources
 Favorable access to distribution networks
 Good location of the business
 Weaknesses- are internal characteristics/attributes that place the business or
project at a disadvantage relative to others. Organizations should work hard
to improve their weaknesses. For example, each of the following may be
considered weaknesses:
 Lack of patent protection
 A weak brand name
 Poor reputation among customers
 Lac k of marketing expertise
 Poor quality goods/services
 High cost structure
 lack of access to the best natural resources
 lack of access to key distribution channels
 Damaged reputation
 Opportunities- are external factors available to the organization that it can
capitalize on or use to its advantage. Organizations should work hard to take

advantage of the available opportunities since opportunities don’t last forever.
Some examples of such opportunities include:
 An unfulfilled customer need
 Arrival of new technologies
 Loosening of regulations
 Removal of international trade barriers
 A new international market
 A market vacated by an ineffective competitor
 A developing market such as the internet
 Mergers, joint ventures or strategic alliances
 Threats- are all the external elements in the environment that could cause
trouble for the business. Organizations should work hard to neutralize such
threats. Some examples of such threats include:
 shifts in consumer tastes away from the firm's products
 emergence of substitute products
 new regulations
 increased trade barriers
 A new competitor in your home market
 Price wars with competitors
 A competitor with a new and innovative product/service
 Competitors with superior access to channels of distribution
 Taxation introduced on your product/service

External Environmental analysis
 Environmental analysis is the evaluation of the possible or probable effects
of external forces and conditions on an organization's survival and growth
strategies.
 A process for identifying all external and internal elements that
can affect the performance of the organization and evaluating the level of threat
or opportunity they present. Opportunity and threat assessments are
then incorporated into decision making process in order to better
align strategies with the organization's environment.
External Environment Factors
 Macro environment factors are uncontrollable external forces that affect how a
business operates. They are largely out of the control of the business, and often
require changes in operating, management, production, and marketing. Analysts
often categorize them using the acronyms PEST or PESTEL. Broken down, PEST
stands for political, economic, social, and technological concerns. PESTEL also
includes environmental and legal factors.

i. Political factors refer to the stability of the political environment and the attitudes
of political parties or movements. This may manifest in government influence on
tax policies, or government involvement in trading agreements.
ii. Economic factors represent the wider economy so may include economic growth
rates, levels of employment and unemployment, costs of raw materials such as
energy, petrol and steel, interest rates and monetary policies, exchange rates and
inflation rates. These may also vary from one country to another.
iii. Social factors represent the culture of the society that an organization operates
within. They may include demographics, age distribution, population growth
rates, level of education, distribution of wealth and social classes, living conditions
and lifestyle.
iv. Technological factors refer to the rate of new inventions and development,
changes in information and mobile technology, changes in internet and e-
commerce or even mobile commerce, and government spending on research.
There is often a tendency to focus Technological developments on digital and

internet-related areas, but it should also include materials development and new
methods of manufacture, distribution and logistics.
v. Environmental factors include weather, climate, and climate change, which may
especially affect industries such as tourism, farming, and insurance. Furthermore,
growing awareness to climate change is affecting how companies operate and the
products they offer. It is both creating new markets and diminishing or destroying
existing ones.
vi. Legal factors include discrimination law, consumer law, antitrust law, employment
law, and health and safety law. These factors can affect how a company operates,
its costs, and the demand for its products.
The Industry Environment (The Five Competitive Forces)
 The industry environment refers to the exterior forces which cannot be controlled
by management but may have a significant impact on the success of
the product offering including existing competition, the threat of new
competition, price competitiveness, changes in consumer tastes and economic fact
ors.
Porter's five forces of competitive position analysis were developed in 1979 by Michael
E. Porter of Harvard Business School as a simple framework for assessing and evaluating
the competitive strength and position of a business organisation. This theory is based on
the concept that there are five forces which determine the competitive intensity and
attractiveness of a market. Porter’s five forces help to identify where power lies in a
business situation. This is useful both in understanding the strength of an organization’s
current competitive position, and the strength of a position that an organisation may
look to move into. Strategic analysts often use Porter’s five forces to understand whether
new products or services are potentially profitable. By understanding where power lies,
the theory can also be used to identify areas of strength, to improve weaknesses and to
avoid mistakes

The five forces are:
i. Bargaining power of Suppliers. Suppliers are individuals or business organizations

that provide raw materials to other business organizations for their operations.
Suppliers have the ability to drive up prices if the following circumstances prevail.
 The market is dominated by a few large suppliers rather than a fragmented
source of supply,
 There are no substitutes for the particular input,
 The suppliers customers are fragmented, so their bargaining power is low,
 The switching costs from one supplier to another are high,

 There is the possibility of the supplier integrating forwards in order to obtain
higher prices and margins. This threat is especially high when the buying
industry has a higher profitability than the supplying industry,
 Forward integration provides economies of scale for the supplier,
 The buying industry hinders the supplying industry in their development (e.g.
reluctance to accept new releases of products),
 The buying industry has low barriers to entry.
ii. Bargaining power of Buyers. Buyers are the individuals or business organizations
that buy the company’s products for personal or commercial use. Buyers have the
ability to drive down the prices if the following circumstances prevail.
 They buy large volumes, there is a concentration of buyers,
 The supplying industry comprises a large number of small operators
 The supplying industry operates with high fixed costs,
 The product is undifferentiated and can be replaces by substitutes,
 Switching to an alternative product is relatively simple and is not related
to high costs,
 Customers have low margins and are price-sensitive,
 Customers could produce the product themselves,
 The product is not of strategically importance for the customer,
 The customer knows about the production costs of the product
 There is the possibility for the customer integrating backwards.
iii. Competitive rivalry. Competitive rivalry refers to the level of competition in the
industry. The more the firms in the industry, the more competitive rivalry and vise
versa. Many competitors, offering undifferentiated products and services, will
reduce market attractiveness. Competition between existing players is likely to be
high when;
 There are many players of about the same size,
 Players have similar strategies

 There is not much differentiation between players and their products,
hence, there is much price competition
 Low market growth rates (growth of a particular company is possible only
at the expense of a competitor),
 Barriers for exit are high (e.g. expensive and highly specialized equipment).
iv. Threat of substitution. Where close substitute products exist in a market, it
increases the likelihood of customers switching to alternatives in response to price
increases. This reduces both the power of suppliers and the attractiveness of the
market. Similarly to the threat of new entrants, the treat of substitutes is
determined by factors like
 Brand loyalty of customers,
 Close customer relationships,
 Switching costs for customers,
 The relative price for performance of substitutes,
 Current trends.
v. Threat of new entry. Profitable markets attract new entrants, which erodes
profitability. Unless incumbents have strong and durable barriers to entry, for
example, patents, economies of scale, capital requirements or government
policies, then profitability will decline to a competitive rate. The threat of new
entries will depend on the extent to which there are barriers to entry. These are
typically
 Economies of scale (minimum size requirements for profitable operations),
 High initial investments and fixed costs,
 Cost advantages of existing players due to experience curve effects of
operation with fully depreciated assets,
 Brand loyalty of customers
 Protected intellectual property like patents, licenses etc,
 Scarcity of important resources, e.g. qualified expert staff
 Access to raw materials is controlled by existing players,

 Distribution channels are controlled by existing players,
 Existing players have close customer relations, e.g. from long-term service
contracts,
 High switching costs for customers
 Legislation and government action
Customer Analysis
 A customer analysis (sometimes called a customer profile or target market analysis)

is a critical section of a company's business plan or marketing plan that identifies
target customers, ascertains the needs of these customers, and then specifies how
the product satisfies these needs.
Organizations that are truly customer orientated should know their customers well
enough to have easy access to the information that answers the questions. If not,
marketing research has to be conducted to enable organizations to understand current
and potential customers better.
One way of understanding the behavior of customers is the 6W model which guides the
marketer to answer the following questions:
 Who are the current and potential customers?
 What do the customers do with the product?
 Where do customers purchase the product?
 When do they purchase the product?
 Why and how do customers select the organization’s products?
 Why do potential customers not purchase the organization’s products?
Uses of Customer Analysis
i. Identifying WHO your best customer is. Customer analysis can help you identify
who your customer is and thereby improve the segmentation targeting
and positioning process. Remember 80% of your business will come from 20% of
your customers. It is important you know who those customers can be.

ii. Planning out retention plans for your new customers. New customers are
important but so are returning customers. Thus customer analysis can help convert
your first time customers to returning customers ie build customer loyalty.
iii. Inducing further buying from your existing customers. Cross selling, impulse
purchases are some of the methods which increase purchasing by your existing
customers. Example if you know customers who have bought jogging equipment,
you can cross promote other jogging related fashion to them.
iv. Improving customer service. Once you know who your customer is, you can
know what kind of services they will demand. Thus customer analysis will also
help in service deliverability.
v. Effective campaign planning. The demography and purchasing habits of your
customers will help you with planning a highly effective campaign thereby
improving your target.
vi. Increasing market share. What if while doing customer analysis you recognize a set
of customers that haven’t been targeted by you? At the same time, you also
establish procedures better than the competitors. The effect is increase in market
share.
vii. Increasing overall profitability. Businesses are established for profits. And overall
profitability as well as well-being of the organization increases once its customers
are satisfied. And customer satisfaction will happen only through customer
analysis.
Thus customer analysis is a process to be carried out by small, medium as well as large
businesses from time to time. The better customer analysis you do, the more you are in
touch with your customers.

Competitor Analysis
 Competitor analysis is a strategic technique used to evaluate outside competitors.
The analysis seeks to identify weaknesses and strengths that
a company's competitors may have, and then use
that information to improve efforts within the company.
Competitor analysis has two primary activities:
i. Obtaining information about important competitors and

ii. Using that information to predict competitor behavior
The goal of competitor analysis is to understand:
 which competitors to compete with

 competitors’ strategies and planned actions
 how competitors might react to a firms’ actions
 How to influence competitors’ behavior to the firms’ advantage.

Competitor Analysis Framework
Michael Porter presented a framework for analyzing competitors. This framework is

based on the following key aspects of a competitor:
i. Competitor’s objectives- Knowledge of a competitor’s objectives facilitates a

better prediction of the competitor’s reaction to different competitive moves.
Example, a competitor that is focused on reaching short term financial goals might
be willing to spend much money responding to a competitive attack. Rather, such
a competitor might favor focusing on the products that hold positions that better
can be defended. On the other hand, a company that has no short profitability
objectives might be willing to participate in destructive price competition in which
neither firm earns profit. Competitor objectives may be financial or other types.
Some examples include growth rate, market share, and technology leadership.
Goals maybe associated with each hierarchical level of strategy- corporate,
business unit, and functional level. The competitor organizational structure

provides clues as to which functions of the company are deemed to be more
important. For example, those functions that report directly the chief executive
officer are likely to be given priority over those that report to the senior vice
president. Other aspects of the competitor that serve as indicators of its objectives
include risk tolerance , management incentives, background of the executives,
composition of the board of directors, legal or contractual reactions, and any
additional corporate level goals that may influence the competing business unit.
Whether the competitor is meeting its objectives provides an indication of how
likely it is to change strategy.
ii. Competitor’s assumptions. The assumptions that a competitor’s managers hold
about their firm and their industry help to define the moves that they will
consider. For example, if in the past the industry introduced a new type of
product that failed, the industry executives may assume that there is no market for
the product .such assumptions are not always true and if incorrect may present
opportunities. For example new entrants may have the opportunity to introduce
a product similar to a previously unsuccessful one without retaliation because
incumbent firms may not take their threat seriously. A competitor’s assumptions
may be based on a number of factors, including any of the following:
 beliefs about its competitive position
 past experience
 regional factors
 industry trends
 rules of thumb
iii. Competitor’s strategy. The 2 main sources of information about a competitor’s
strategy are what the competitor says and what it does. What a competitor is
saying about the strategy is revealed in:
 annual shareholder reports
 interviews with analysts
 statements by managers

 press releases
What the competitor is actually doing is evident in where its cash flow is directed,
as such as in the following tangible actions:
 hiring activity
 R & D projects
 capital investments
 promotional campaigns
 strategic partnerships
 mergers and acquisitions
iv. Competitor’s capabilities. Knowledge of the competitor’s assumptions, objectives,
and current strategy is useful in understanding how the competitor might want to
respond to a competitive attack. However, its resources and capabilities determine
the ability to respond effectively. A competitor’s capabilities can be analyzed
according to its strength and weakness in various functional areas, as is done in a
SWOT analysis. The competitor’s strengths define its capabilities. The analysis can
be taken further to evaluate the competitor’s ability to increase its capabilities in
certain areas. A financial analysis can be performed to reveal its sustainable growth
rate. Since the competitive environment is dynamic, the competitor’s ability to
react swiftly to change should be evaluated. Some firms have heavy momentum
and continue for many years in the same direction before adapting. Others are
able to mobilize and adapt very quickly. Factors that slow a company down
include low cash reserves, large investments in fixed assets, and an organizational
structure that hinders quick action.
v. Competitor response profile. Information from an analysis of the competitor’s
objectives, assumptions, strategy, and capabilities can be compiled into a response
profile of possible moves that might be made by the competitor. This profile
includes both potential offensive and defensive moves. The specific moves and
their expected strength can be estimated using information gleaned from the
analysis. The result of the competitor analysis should be an improved ability to

predict the competitor’s behavior and even influence that behavior and even to
influence that behavior to the firm’s advantage.

Strategy Formulation (Corporate Strategic Options)
Concept of competitive advantage
Competitive advantage occurs when an organization acquires or develops an attribute or

combination of attributes that allows it to outperform its competitors in the same
industry. It is what distinguishes an organization from the competition in the minds of its
customers.
An organization can achieve an edge over its competitors in the following two ways:
i. Through external changes. When PESTEL factors change, many opportunities can
appear that, if seized upon, could provide many benefits for an organization. A
company can also gain an upper hand over its competitors when it’s capable to
respond to external changes faster than other organizations.
ii. Through developing them inside the company. A firm can achieve competitive
advantage when it develops resources that are valuable (valuable, rare,
inimitability and non-substitutable), unique competences or through innovative
processes and products.
Types of Competitive Advantage
Michael Porter identified two basic types of competitive advantage that organizations
can accrue.

i. Cost advantage. Porter argued that a company could achieve superior
performance by producing similar quality products or services but at lower costs.
In this case, company sells products at the same price as competitors but reaps
higher profit margins because of lower production costs. The company that tries
to achieve cost advantage is pursuing cost leadership strategy. Higher profit
margins lead to further price reductions, more investments in process innovation
and ultimately greater value for customers.
ii. Differentiation advantage. Differentiation advantage is achieved by offering
unique products and services and charging premium price for that. Differentiation
strategy is used in this situation and company positions itself more on branding,
advertising, design, quality and new product development rather than efficiency,
outsourcing or process innovation. Customers are willing to pay higher price only
for unique features and the best quality.
The cost leadership and differentiation strategies are not the only strategies used to gain
competitive advantage. Innovation strategy is used to develop new or better products,
processes or business models that grant competitive edge over competitors.
Corporate Level Strategies

These are the strategies made by the top management and they relate to the entire firm
and also are long term and mostly deal with the key issues facing the firm such as
direction, portfolio and parenting. Directional strategies are of three types namely;
stability, growth and retrenchment.
Types of Directional Strategies
1. Stability strategies. A stability strategy is a corporate strategy in which an

organization continues to do what it is currently doing. Examples of this strategy
include continuing to serve the same clients by offering the same product or
service, maintaining market share, and sustaining the organization's current

business operations. The organization does not grow, but does not fall behind,
either
Reasons for pursuing stability strategy
 the firm is doing well or perceives itself as successful
 it is less risky
 it is easier and more comfortable
 the environment is relatively unstable
 too much expansion can lead to inefficiencies
Situations where a stability strategy is more advisable than the growth strategy
 if the external environment is highly dynamic and unpredictable
 strategic managers may feel that the cost of growth may be higher
than the potential benefits
 excessive expansion may result in violation of antitrust laws
Types of stability strategies

i. Pause/Process with caution strategy- Some organizations pursues stability strategy
for a temporary period of time until the particular environmental situation
changes, especially if they have been growing too fast in the previous period.
Stability strategies enable a company to consolidate its resources after prolonged
rapid growth. Sometimes, firms that wish to test the ground before moving ahead
with a full-fledged grand strategy employ stability strategy first.
ii. No change strategy- A no change strategy is a decision to do nothing new i.e
continues current operations and policies for the foreseeable future. If there are no
significant opportunities or threats operating in the environment, or if there are
no major new strengths and weaknesses within the organization or if there are no
new competitors or threat of substitutes, the firm may decide not to do anything
new.
iii. Profit strategy- The profit strategy is an attempt to artificially maintain profits by
reducing investments and short-term expenditures. Rather than announcing the

company’s poor position to shareholders and other investors at large, top
management may be tempted to follow this strategy. Obviously, the profit
strategy is useful to get over a temporary difficulty, but if continued for long, it
will lead to a serious deterioration in the company’s position. The profit strategy
is thus usually the top management’s short term and often self-serving response to
the situation. In general, stability strategies can be very useful in the short run, but
they can be dangerous if followed for too long.
2. Growth/expansion strategies. A growth strategy is when an organization expands
the number of markets served or products offered, either through its current
business or through new business. Because of its growth strategy, an organization
may increase revenues, number of employees, or market share.
Types of Growth Strategies
i. Concentration- Concentration involves converging resources in one or more of

the company’s businesses in terms of their respective customer needs, customer
functions or alternative technologies either singly or jointly. For the purpose of
expansion, the method of concentration is the organization’s first preference. The
simple reason for that could be all the companies would like to do more of what
they are doing now. A company that is familiar with the industry would naturally
like to invest more on the known businesses rather than the unknown ones. The
method of concentration can be carried out by various ways
 Market penetration
 Market development.
 Product development.
ii. Integration- Integration basically means combining of activities on the basis of the
value chain related to the present activity of the company. Sets of interlink
activities performed by an organization right from the procurement of the basic
raw materials to right down to the marketing of the finished products is a Value
Chain. So a company may need to move up or move down the value chain to
expand its business. There are two types of integration

 Horizontal Integration. This is when an organization takes up the same
types of products at the same level of production or marketing process,
it is said to follow a strategy of Horizontal Integration (Also known as
Merger/Acquisition).
 Vertical Integration. Expansion to serve its own needs. Vertical
Integration is of two types, namely Backward and Forward Integration -
Backward Integration means going back to the source of raw
materials(Example: A Thermal power company may do coal-mining) -
Forward Integration implies moving closer to the finished product
(example: A car spare parts manufacturer would start manufacturing
passenger cars)
iii. Diversification- Diversification is one of the most popular strategies widespread in
the industry as it involves all the dimensions of strategy. Diversification involves a
drastic change in the business in term of customer functions, customer groups, or
alternative technologies of one or more of a company‘s businesses in isolation or
in combination. There are three basic and important reasons why diversification
strategies are adopted
 They minimize the risk by spreading it over several businesses.
 It can be used to capitalize on organizational strengths or minimize
weakness.
 This can become the only way out for expansion, if the environmental
and regulatory factors have blocked the other alternative for growth.
Diversification Strategies are of two types
 Concentric Diversification is termed for that diversification, when a

company takes up an activity in such a manner that it is related to the
existing business.
 Conglomerate Diversification is there when a company takes up an
activity for expansion that is not at all related to the existing business.

iv. Cooperation. This is a growth strategy that is used to bring business organizations
together to combine their efforts in order for them to be in a better position to
compete in the industry. There are various processes by which the expansion
through cooperation can take place. Some of them are listed below.
 Mergers can be termed as merging of two firms in such a manner that

both of them will be getting the benefit of that. The two merging firms
retain their identity.
 Joint Ventures. This is where an independent firm is created by two or

more firms. They are common within industries and in various
countries, but they are especially useful for entering the international
markets.
 Strategic Alliance. This is a cooperative arrangement between two or
more companies where Win-Win attitude is adopted by all parties,
Reciprocal relationship, Pooling of resources, investments, and risks
occurs for mutual gain
3. Retrenchment strategies. A strategy used by corporations to reduce
the diversity or the overall size of the operations of the company. This strategy is
often used in order to cut expenses with the goal of becoming a
more financial stable business. Typically the strategy involves withdrawing from
certain markets or the discontinuation of selling certain products or service in
order to make a beneficial turnaround.
Types of Retrenchment Strategies
i. Turn around Strategies- Turnaround strategy means backing out, withdrawing or

retreating from a decision wrongly taken earlier in order to reverse the process of
decline. There are certain conditions or indicators which point out that a
turnaround is needed if the organization has to survive. These danger signs are as
follows:

 Persistent negative cash flow
 Continuous losses
 Declining market share
 Deterioration in physical facilities
 Over-manpower, high turnover of employees, and low morale
 Uncompetitive products or services
 Mismanagement
ii. Divestment Strategies- Divestment strategy involves the sale or liquidation of a

portion of business, or a major division, profit center or SBU. Divestment is
usually a restructuring plan and is adopted when a turnaround has been
attempted but has proved to be unsuccessful or it was ignored. A divestment
strategy may be adopted due to the following reasons:
 A business cannot be integrated within the company.

 Persistent negative cash flows from a particular business create
financial problems for the whole company.
 Firm is unable to face competition
 Technological up gradation is required if the business is to survive
which company cannot afford.
 A better alternative may be available for investment
iii. Liquidation Strategies- Liquidation strategy means closing down the entire firm
and selling its assets. It is considered the most extreme and the last resort because
it leads to serious consequences such as loss of employment for employees,
termination of opportunities where a firm could pursue any future activities, and
the stigma of failure. Liquidation strategy may be unpleasant as a strategic
alternative but when a "dead business is worth more than alive", it is a good
proposition. For instance, the real estate owned by a firm may fetch it more
money than the actual returns of doing business. Liquidation strategy may be
difficult as buyers for the business may be difficult to find. Moreover, the firm

cannot expect adequate compensation as most assets, being unusable, are
considered as scrap. Reasons for Liquidation include:
 Business becoming unprofitable

 Obsolescence of product/process
 High competition
 Industry overcapacity
Portfolio Management Strategies
Portfolio Management Strategies refer to the approaches that are applied for the efficient
portfolio management in order to generate the highest possible returns at lowest possible
risks. The following are basic approaches/models for portfolio evaluation;
i. BCG model. BCG matrix BCG matrix is a framework created by Boston Consulting
Group to evaluate the strategic position of the business brand portfolio and its
potential. It classifies business portfolio into four categories based on industry
attractiveness (growth rate of that industry) and competitive position (relative
market share).
 Relative market share. One of the dimensions used to evaluate business
portfolio is relative market share. Higher corporate’s market share
results in higher cash returns. This is because a firm that produces more,
benefits from higher economies of scale and experience curve, which
results in higher profits. Nonetheless, it is worth to note that some firms
may experience the same benefits with lower production outputs and
lower market share.
 Market growth rate. High market growth rate means higher earnings
and sometimes profits but it also consumes lots of cash, which is used as
investment to stimulate further growth. Therefore, business units that
operate in rapid growth industries are cash users and are worth

investing in only when they are expected to grow or maintain market
share in the future.
There are four quadrants into which firms brands are classified. These four
segments are discussed below and their strategic choices are indicated
 Dogs. Dogs hold low market share compared to competitors and operate
in a slowly growing market. In general, they are not worth investing in
because they generate low or negative cash returns. But this is not always
the truth. Some dogs may be profitable for long period of time, they may
provide synergies for other brands or SBUs or simple act as a defense to
counter competitors moves. Therefore, it is always important to perform
deeper analysis of each brand or SBU to make sure they are not worth
investing in or have to be divested. Strategic choices: Retrenchment,
divestiture, liquidation
 Cash cows. Cash cows are the most profitable brands and should be
“milked” to provide as much cash as possible. The cash gained from “cows”

should be invested into stars to support their further growth. According to
growth-share matrix, corporates should not invest into cash cows to induce
growth but only to support them so they can maintain their current market
share. Again, this is not always the truth. Cash cows are usually large
corporations or SBUs that are capable of innovating new products or
processes, which may become new stars. If there would be no support for
cash cows, they would not be capable of such innovations. Strategic
choices: Product development, diversification, divestiture, retrenchment
 Stars. Stars operate in high growth industries and maintain high market
share. Stars are both cash generators and cash users. They are the primary
units in which the company should invest its money, because stars are
expected to become cash cows and generate positive cash flows. Yet, not
all stars become cash flows. This is especially true in rapidly changing
industries, where new innovative products can soon be outcompeted by
new technological advancements, so a star instead of becoming a cash cow,
becomes a dog. Strategic choices: Vertical integration, horizontal
integration, market penetration, market development, product
development
 Question marks. Question marks are the brands that require much closer
consideration. They hold low market share in fast growing markets
consuming large amount of cash and incurring losses. It has potential to
gain market share and become a star, which would later become cash cow.
Question marks do not always succeed and even after large amount of
investments they struggle to gain market share and eventually become
dogs. Therefore, they require very close consideration to decide if they are
worth investing in or not. Strategic choices: Market penetration, market
development, product development, divestiture
ii. Portfolio models-Multifactor matrix (GE) (McKinsey matrix). The GE McKinsey
matrix is a nine-box matrix which is used as a strategy tool. It helps multi-business

corporations evaluate business portfolios and prioritize investments among
different business units in a systematic manner. This technique is used in brand
marketing and product management. The analysis helps companies decide what
products need to be added to a product portfolio as well as what other
opportunities should continue to receive investments. Though similar to the BCG
matrix, the GE version is a lot more complex. The analysis is based on two factors
ie industry attractiveness and business strength.
Factors that Affect Industry Attractiveness

Whilst any assessment of Industry attractiveness is necessarily subjective, there
are several factors which can help determine attractiveness. These are listed
below:
 Industry size
 Industry growth
 Market profitability
 Pricing trend
 Competition intensity
 Overall risk and returns in
the industry
 Opportunity to
differentiate products and
services
 Distribution structure

Factors that Affect Business Strength
 Strength of assets and competencies

 Relative brand strength
 Market share
 Customer loyalty
 Relative cost position
 Distribution strength
 Record of technological or other innovation
 Access to finance and other investment resources
Business strength
High Medium Low
Industry Attractiveness
68 BUSS 420- Strategic Management Notes By Dr. Paul Mwenda

 The three cells at the top left hand side of the matrix are the most attractive in
which to operate and require a policy of investment for growth – these are
usually colored green.
 The three cells running diagonally from left to right have a medium
attractiveness, are colored yellow and the management of businesses within
this category should be more cautious and with a greater emphasis being
placed on selective investment and earning retention.
 The three cells at the bottom right hand side are the least attractive, therefore
colored red and management should follow a policy of harvesting and / or
divesting unless the relative strengths can be improved.
Model Use and Applicability
 Grow – If the business unit is strong against a strong attractiveness, you grow the
business. This means, that you are ready to invest a higher percentage of your
resources in these businesses. These business units have high market attractiveness
and high business unit strength. They are most likely to be successful if backed up
with more resources. The quadrants marked in green are the places where you can
grow your business.
 Hold – If the business unit strength or attractiveness is average, then you hold the
business as it is. It might be that the market is dropping in value, or that there is
much high competition which the business unit will be hard put to catch up. In
both the cases, the business unit might not give optimum returns even if resources
are invested. Thus, in this case, you wait and hold the business unit to see if the
market environment changes or if the business unit gains importance in the market
as compared to other players.
 Harvest – If the business unit or market has become unattractive, than you either
sell or liquidate the business or you can hold it for any residual value that it has.
This strategy is used in the GE McKinsey matrix when the business unit strength is
weak and the market has lost its attractiveness. The best measure in this case is to

harvest the weak businesses and reinvest the money earned into business units
which are in growth.
Challenges for the GE McKinsey matrix
Like any other strategy, the GE McKinsey matrix has its own challenges. Some of them
are mentioned below.
 Determining market attractiveness is a tough task especially looking at the fast

paced market environment. During the dotcom bust, the online market was least
attractive. But look where the online market is now.
 Similarly, determining the strength of the business unit and weighing it against the
attractiveness is difficult. Thus, if the variables are not matched properly, you
might grow a business which is supposed to be held back and waste unnecessary
resources on this business. This might happen if the top management does not
know the core competency of the business units.
 Companies will be limited by resources even if the business unit falls in the growth
criteria. Thus, out of 50 products, if 25 fall in growth criteria, what does the
management do when it has limited resources? Taking decisions again becomes
difficult.
iii. Product-market evaluation matrix. Product-Market evaluation Matrix is a
standard Business Plan tool for evaluating Growth Strategy opportunities and
formulating a Business Development / Partnership Strategy. It is also called Ansoff
product matrix/Market expansion grid. It was develop by Igor Ansoff in 1957 and
it emphasis on four strategies.

 Market Penetration. This strategy focuses on continuing to sell existing products /
services into existing markets. The goal is to increase market share in the current
marketplace by winning a higher percentage of new business opportunities, and /
or taking customers from competitors. Typically, this strategy is most effective
when the overall market is growing, and it is done by implementing one or more
of the following competitive tactics:
 New targeted marketing campaigns
 Increase sales force / refine sales process
 Aggressive pricing changes (undercut competition)
 Value-added services aimed at dominating high growth market
segments

 Product Development. This is the strategy of introducing new products / services
into existing markets. The goal is to increase market share in the current
marketplace by increasing revenue per customer, and attracting new customers in
the current marketplace with new product options. This strategy is often part of
the natural growth of organizations, however it requires the development of new
competencies (often done through acquisition or strategic partnerships), which
inevitably brings new risks and expenses.
 Market Development. This is the strategy of selling existing products into new
markets. The goal is to increase revenue by moving beyond the immediate
customer base, attracting new kinds of customers for existing products. Typically,
this involves identifying new vertical market segments that have not yet been
served, or international expansion.
 Diversification. This is the strategy of diversifying into new businesses by
introducing new products into new markets. This is the most risky of the four
strategies and the least attractive option unless there is a unique circumstance that
would warrant such a move. Also, Diversification can be a move into either
a related business or completely unrelated business, but the former is almost
always preferable. It can take four forms;
 horizontal diversification (new product, current market)
 vertical diversification (move into firms supplier's or customer's business)
 concentric diversification (new product closely related to current product in
new market)
 Conglomerate diversification (new product in new market).
Parenting Strategies
Parenting strategies refer to the manner in which the management coordinates activities
and transfers resources and cultivate capabilities among product lines and business units.
There are basically three styles of corporate parenting as follows;

i. Financial control. Under this style the role of the corporate parent is to monitor
and evaluate the financial performance of investment portfolio of the respective
business units. The corporate managers act as agents on behalf of shareholders and
financial market
to identify and acquire viable assets and businesses. The business unit managers are
given the autonomy to carry out business activities and make decisions at their
level. However the corporate parent sets performance standards for
control purposes.
ii. Strategic planning. Under this style the role of the corporate parent is to enhance
synergies across the business units. This may be achieved through: envisioning
building a common purpose, facilitating cooperation across businesses and
providing central services and resources.
iii. Strategic control. Under this style the corporate parent leverages its resources and
competences to build value for its businesses. For example a corporate could have
a valuable brand or a specialist skill. The corporate parent uses its parenting
capabilities to seize opportunities for growth.

Strategy Formulation (Generic Strategies)
 generic strategies are the basic approaches to strategic planning that can be
adopted by any firm in
any market or industry to improve its competitive performance.
The following are the generic strategies. (Porter’s Generic Strategies)
i. Cost Leadership Strategy- Strategy used by businesses to create a low

cost of operation within their niche. The use of this strategy is primarily
to gain an advantage over competitors by reducing operation costs below that of
others in the same industry. The Cost Leadership strategy is frequently the domain
of big business. Small firms are not in general resourced to achieve cost leadership
(which requires scale). Low costs allow firms to sell relatively standardized
products that offer features acceptable to many customers at the lowest
competitive price and such low prices will gain competitive advantage thus
increasing market share. Whether a cost leadership strategy is sustainable depends

on the ability of another competitor to match or develop a cost base than is lower
than the cost leader. The lowest cost base must be able to be sustained if
leadership is to continue. Cost leadership is a defendable strategy because of the
following reasons:
 It defends the firm against powerful buyers. Buyers can drive price
down only to the level of the next most efficient producer.
 It defends against powerful suppliers. Cost leadership provides
flexibility to absorb an increase in input costs, whereas competitors
may not have this flexibility.
 The factors that lead to cost leadership also provide entry barriers in
many instances. Economies of scale require potential rivals to enter
the industry with substantial capacity to produce, and this means the
cost of entry may be prohibitive to many potential competitors.
To successfully achieve Cost Leadership a company needs to optimize its value
chain. This can be done using the following approaches:
 Perform value chain activities in a more cost-effective manner than your
competitors. Performing value-chain activities in more a cost-effective
manner can be achieved by:
 Outsourcing;
 Using the companies bargaining power to drive down
suppliers costs;
 Make use of economies of scale (buy materials in bulk);
 Invest in technology to increase production efficiency;
 Adopt labor saving operating methods
 Review your value chain to eliminate unnecessary (wasteful) activities.
ii. Differentiation Strategy is an approach under which a
firm aims to develop and market unique products for different customer segments.
Usually employed where a firm has clear competitive advantages, and can sustain
an expensive advertising campaign. The key success factor in a differentiation
strategy is to make it either very difficult or very expensive for rivals to replicate

your product or service. This strategy is appropriate when dealing with customers
who are not price sensitive (high end market). To achieve this strategy, companies
need to invest in:
 Research & Development;
 Production and delivery of high-quality and unique products or
services;
 Marketing and sales to create awareness and desire for its unique
products.
Firms can differentiate themselves in the following ways
 Product brand image and design firms that recognize changing trends and offer
advancements for current products are likely to differentiate the company from
their competition. An exclusive or exceptional design can draw customers and
help a company dominant their environment. For example Mercedes Benz has
created a perception that their automobile is unique and in a quality class of its
own.
 Marketing- Having the right sales professionals on the team that are well trained,
knowledgeable, and enthusiastic and have a good work ethic can help give the
company an edge on its rivalry. Companies keep good sales people when they
show them appreciation and give recognition for superior performance.
 Technology- A Company must develop an excellent reputation for cutting edge
research and development to lead in its industry. Though expensive, technology
will enable the organization to differentiate its self from its competitors and the
level of technology adopted can enable the firm improve its standards.
 Customer service - Companies that hold their customers in high esteem and offer
quality service understands that without the customers’ business they will fold. It's
important to give great service consistently. The best gauge of excellent service is
repeat business and customers will spread the word. Bend over backwards to
make sure customers are satisfied.

iii. Focus. Focus is a marketing strategy in which a company concentrates
its resources on entering or expanding in a narrow market or industry segment. A
focus strategy is usually employed where the company knows its segment and
has products to competitively satisfy its needs. It is also called a segmentation
strategy or niche strategy. There are two types of focus strategy;
 Low-Cost Focus. The low-cost focus strategy is similar to the cost leadership
strategy except that it focuses on a niche market. Instead of marketing a
product to the entire population it is marketed to a particular segment of
the population. The aim of the strategy is to then be the cheapest provider
in that segment. For example, an electronics store might focus its market on
a single town; its goal would then be the cheapest in the town but not
necessarily the cheapest overall.
 Differentiation Focus. This strategy focuses on a specific subset of the
market. But instead of marketing a product or service as the cheapest, it's
marketed as being unique in some way. For instance, a company might
develop a product that is specifically made for left-handed people. By
focusing on a narrow market segment, a company can focus its efforts
which may require fewer resources than developing a product for the
broad market.

Strategy Implementation
 Implementation is the process of moving an idea from concept to reality.

 Detailed listing of activities, costs, expected difficulties, and schedules that
are required to achieve the objectives of the strategic plans.
 Implementation is the carrying out, execution, or practice of a plan, a method, or
any design for doing something. As such, implementation is the action that must
follow any preliminary thinking in order for something to actually happen.
Strategy implementation tasks
The strategy-making, strategy-implementing process consists of five interrelated

managerial tasks:
i. Deciding what business the company will be in and forming a strategic vision of
where the organization needs to be headed to (in effect, setting the organization
with a sense of purpose, providing long-term direction, and establishing a clear
mission to be achieved).
ii. Converting the strategic vision and mission into measurable objectives
and performance targets.
iii. Crafting a strategy to achieve the desired results.
iv. Implementing and executing the chosen strategy efficiently and effectively.
v. Evaluating performance, reviewing new developments, and initiating
corrective adjustments in long-term direction, objectives, strategy, or
implementation in the light of actual experience, changing conditions, new ideas,
and new opportunities.

Prerequisites of Strategy Implementation
i. Institutionalization of Strategy: First of all the strategy is to be institutionalized, in

the sense that the one who framed it should promote or defend it in front of the
members, because it may be undermined.
ii. Developing proper organizational climate: Organizational climate implies the

components of the internal environment that includes the cooperation,
development of personnel, the degree of commitment and determination,
efficiency, etc., which converts the purpose into results.
iii. Formulation of operating plans: Operating plans refers to the action plans,
decisions and the programs, that take place regularly, in different parts of the
company. If they are framed to indicate the proposed strategic results, they assist
in attaining the objectives of the organization by concentrating on the factors
which are significant.
iv. Developing proper organisational structure: Organization structure implies the

way in which different parts of the organisation are linked together. It highlights
the relationships between various designations, positions and roles. To implement
a strategy, the structure is to be designed as per the requirements of the strategy.
v. Periodic Review of Strategy: Review of the strategy is to be taken at regular

intervals so as to identify whether the strategy so implemented is relevant to the
purpose of the organisation. As the organization operates in a dynamic
environment, which may change anytime, so it is essential to take a review, to
know if it can fulfil the needs of the organization.
Aspects of Strategy Implementation
i. Creating budgets which provide sufficient resources to those activities which are
relevant to the strategic success of the business.
ii. Supplying the organization with skilled and experienced staff.

iii. Conforming that the policies and procedures of the organisation assist in the
successful execution of the strategies.
iv. Leading practices are to be employed for carrying out key business functions.
v. Setting up an information and communication system that facilitates the

workforce of the organisation, to perform their roles effectively.
vi. Developing a favorable work climate and culture, for proper implementation of
the strategy.
Models of strategy implementation
While there are many change management models, most companies will choose at least
one of the following three models to operate under:
Lewin’s Change Management Model

This change management model was created in the 1950s by psychologist Kurt Lewin.
Lewin noted that the majority of people tend to prefer and operate within certain zones
of safety. He recognized three stages of change:

i. Unfreeze – Most people make an active effort to resist change. In order to
overcome this tendency, a period of thawing or unfreezing must be initiated
through motivation.
ii. Transition – Once change is initiated, the company moves into a transition period,
which may last for some time. Adequate leadership and reassurance is necessary
for the process to be successful.
iii. Refreeze – After change has been accepted and successfully implemented, the
company becomes stable again, and staff refreezes as they operate under the new
guidelines.
While this change management model remains widely used today, it is takes time to
implement. Of course, since it is easy to use, most companies tend to prefer this model to
enact major changes.
McKinsey 7-S Model

McKinsey 7s model was developed in 1980s by McKinsey consultants Tom Peters, Robert
Waterman and Julien Philips with a help from Richard Pascale and Anthony G. Athos.
Since the introduction, the model has been widely used by academics and practitioners
and remains one of the most popular strategic planning tools. It sought to present an
emphasis on human resources (Soft S), rather than the traditional mass production
tangibles of capital, infrastructure and equipment, as a key to higher organizational
performance. The goal of the model was to show how 7 elements of the company:
Structure, Strategy, Skills, Staff, Style, Systems, and Shared values, can be aligned together
to achieve effectiveness in a company. The key point of the model is that all the seven
areas are interconnected and a change in one area requires change in the rest of a firm
for it to function effectively.
Below you can find the McKinsey model, which represents the connections between
seven areas and divides them into ‘Soft Ss’ and ‘Hard Ss’. The shape of the model
emphasizes interconnectedness of the elements.

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

 To help implement new strategy.
 To identify how each area may change in a future.
 To facilitate the merger of organizations.
i. Strategy is a plan developed by a firm to achieve sustained competitive advantage

and successfully compete in the market. What does a well-aligned strategy mean
in 7s McKinsey model? In general, a sound strategy is the one that’s clearly
articulated, is long-term, helps to achieve competitive advantage and is reinforced
by strong vision, mission and values. But it’s hard to tell if such strategy is well-
aligned with other elements when analyzed alone. So the key in 7s model is not

to look at your company to find the great strategy, structure, systems and etc. but
to look if its aligned with other elements. For example, short-term strategy is
usually a poor choice for a company but if its aligned with other 6 elements, then
it may provide strong results.
ii. Structure represents the way business divisions and units are organized and include
the information of who is accountable to whom. In other words, structure is the
organizational chart of the firm. It is also one of the most visible and easy to
change elements of the framework.
iii. Systems are the processes and procedures of the company, which reveal business’
daily activities and how decisions are made. Systems are the area of the firm that
determines how business is done and it should be the main focus for managers
during organizational change.
iv. Skills are the abilities that firm’s employees perform very well. They also include
capabilities and competences. During organizational change, the question often
arises of what skills the company will really need to reinforce its new strategy or
new structure.
v. Staff element is concerned with what type and how many employees an
organization will need and how they will be recruited, trained, motivated and
rewarded.
vi. Style represents the way the company is managed by top-level managers, how
they interact, what actions do they take and their symbolic value. In other words,
it is the management style of company’s leaders.
vii. Shared Values are at the core of McKinsey 7s model. They are the norms and
standards that guide employee behavior and company actions and thus, are the
foundation of every organization.
The McKinsey 7-S Model offers four primary benefits:

 It offers an effective method to diagnose and understand an organization.
 It provides guidance in organizational change.
 It combines rational and emotional components.

 All parts are integral and must be addressed in a unified manner.
The disadvantages of the McKinsey 7-S Model are:

 When one part changes, all parts change, because all factors are interrelated.
 Differences are ignored.
 The model is complex.
 Companies using this model have been known to have a higher incidence of
failure.
Kotter’s 8 Step Change Model
This model was created by Harvard University Professor John Kotter, causes change to
become a campaign. Employees buy into the change after leaders convince them of the
urgent need for change to occur. There are 8 steps involved in this model:
i. Increase the urgency for change.
ii. Build a team dedicated to change.
iii. Create the vision for change.
iv. Communicate the need for change.
v. Empower staff with the ability to change.
vi. Create short term goals.
vii. Stay persistent.
viii. Make the change permanent.
Significant advantages to the model are

 The process is an easy step-by-step model.
 The focus is on preparing and accepting change, not the actual change.
 Transition is easier with this model.
Disadvantages offered by this model
 Steps can’t be skipped.

 The process takes a great deal of time.

Methods of Strategy Implementation
The method chosen for implementation depends with the organization, nature of the
problem and urgency. The following ways can be used for implementing strategy;
i. Direct cutover. Also known as the plunge, abrupt cut-over, or the "big bang"
approach. In this method the old strategy is discarded and the new strategy is
adopted. This approach can be the least expensive of the different methods and
can occur in the quickest time. Users and management have a high interest in
making the new strategy work because, by design, there is no turning back. A
direct cutover conversion may be the only option if the old and new strategy
cannot co-exist in any form. The greatest risk is the impact that errors and failures
would have on the organization. The timing of this type of conversion is a key
element of its success.
ii. Pilot Operation. The pilot operation changeover method involves implementing
the complete new strategy at a selected department/section of the organization.
The group that uses the new strategy first is called the pilot site. The old strategy
continues to operate for the entire organization including the pilot site. After the
strategy proves successful at the pilot site, it is implemented in the rest of the
organization, usually using direct cutover method. Pilot operation is combination
of parallel operation and direct cutover methods. Pilot site assure the working of
new strategy and reduces the risk of strategy failure.
iii. Parallel Operation. In this method, the two strategies run simultaneously. The
parallel operation changeover method requires that both the old and the new
strategies operate fully for a specified period. When users and management are
satisfied that the new strategy operates correctly, the old strategy is terminate.
Parallel operation is having very low amount of risk as if the new strategy does
not work correctly, the company can use the old strategy as a backup. But it is the
most costly changeover method.

iv. Phased Operation. In this method, implementation (or converting) of the old
strategy to a new strategy involves a gradual introduction of the new strategy
until the old strategy is progressively discarded. This can be achieved by
introducing the new strategy in sections one at a time while replacing the older
strategy.
Structure, Leadership and Culture
 Structure is the sum total of the ways in which the organization divides its labor
into distinct tasks and then achieves coordination between them.
 The structure breaks up the company’s work into well-defined jobs, assigns these
jobs to departments and people and coordinates these jobs by defining formal
lines of authority and communication.
Types of organizational structures
i. Functional organizational structure. It is where the organization units are defined

by the nature of the work. Most organizations have four basic functions;
production, sales, finance and human resources. Each of the functions may be
broken down where necessary e.g. the production department may be split into
maintenance, quality control, engineering, manufacturing etc. Employees are
grouped by function and report to managers in the same area of functional
expertise, who report to the CEO. Such structure is often used in organizations
with a similar or narrow product line.
ii. Geographic organizational structure. It is found in organizations that maintain
physically dispersed and autonomous operations or offices. It is commonly used
by international organizations and those in the service industry e.g. banks,
insurance companies, retailers, restaurant and hotel chains.
iii. Divisional organizational structures (customer or product-based structures). They
are the structures adopted by organizations characterized by diversified products
and unrelated customer groups. The different businesses (divisions) are broken
down first, and then followed by a traditional functional or geographic
breakdown. Each division operates as an autonomous profit center headed by a

division manager. Organizations that have largely diversified products and
customers use such a structure.
iv. Strategic business units. As the number, size and diversity of divisions or businesses
grow, some organizations find it advantageous to group the related businesses
under senior managers, who then report directly to the CEO. The groups created
are called strategic business units (SBUs).
v. Matrix structure. Also called “project” structure is a way of forming project teams
within the traditional organization. A project is a combination of human, finance,
raw material and machinery resources pooled together in a temporary
organization to achieve a specified purpose. The development of a new product
would be an example of a project. Employees working on a project are officially
assigned to the project and to their original department. A project manager is
given the authority for meeting the project objectives in terms of cost, quality,
quantity and completion time. When the project work is done, the project team is
dissolved and the functional personnel return to their departments. It may also be
in the form of a combination of a functional and a product or market structure
where employees are responsible both to functional managers and to product or
market managers
Organizational leadership
 Leadership is the ability to influence the attitudes and opinions of others in
order to achieve a coordinated effort from a diverse group of employees.
 Leadership answers the question of “How” of influence
 Without a linkage between manager selection and strategy, an organization
risks either sacrificing a well-planned strategy to a manager who is ill suited
to implement it or hiring a key manager without a clear rationale for that
particular choice. The assumption is that the style of managers influences
their effectiveness in carrying out particular strategies. Certain
organizational cultures and strategies are better suited for certain styles of
leadership. Therefore the organization should be provided with

management skills required to cope with the consequences of constant
change i.e. operating managers to provide the operational leadership and
vision.
Type of Leaders
In management perspective, leaders can be broadly categorized into two;
i. Transactional Leaders, also known as managerial leaders, focuses on the role of

supervision, organization, and group performance; the leader promotes
compliance of his/her followers through both rewards and punishments.
Transactional Leadership has the following assumptions.
 People perform their best when the chain of command is definite and
clear.
 Rewards and punishments motivate workers.
 Obeying the instructions and commands of the leader is the primary
goal of the followers.
 Subordinates need to be carefully monitored to ensure that expectations
are met.
ii. Transformational leaders. These are type of leaders who inspire positive
changes in their followers. Transformational leaders are generally energetic,
enthusiastic, and passionate. Not only are these leaders concerned and
involved in the process; they are also focused on helping every member of the
group succeed as well. Transformational leaders have the following
components/features/characteristics.
 Intellectual Stimulation – Transformational leaders not only challenge
the status quo; they also encourage creativity among followers. The
leader encourages followers to explore new ways of doing things and
new opportunities to learn.
 Individualized Consideration – Transformational leadership also
involves offering support and encouragement to individual followers. In
order to foster supportive relationships, transformational leaders keep

lines of communication open so that followers feel free to share ideas
and so that leaders can offer direct recognition of the unique
contributions of each follower.
 Inspirational Motivation – Transformational leaders have a clear vision
that they are able to articulate to followers. These leaders are also able
to help followers experience the same passion and motivation to fulfill
these goals.
 Idealized Influence – The transformational leader serve as a role model
for followers. Because followers trust and respect the leader, they
emulate this individual and internalize his or her ideals.
Sources of Power for Leaders
 Power is the ability of a person or a group to influence the beliefs and

actions of other people. It is the ability to influence events.
i. Referent Power- Referent power is also called as personal power, charismatic

power, and the power of personality. This power comes from each leader
individually. It is the personality of a person that attracts followers. People follow
because they are influenced or attracted by the magnetic personality of the leader.
The followers admire their leaders and may even try to copy their behavior, dress,
etc.
ii. Legitimate Power- Legitimate power is also known as position power and official
power. It comes from the higher authority. In an organisation, a manager gets
power because of his position or post. It gives him the power to control resources
and to reward and punish others. For e.g. a chief executive officer (C.E.O) of a
company gets legitimate powers because of the position which he holds.
iii. Expert Power - Expert power is also known as the power of knowledge. It comes
from expert knowledge and skills. Expert power means the expert influences
another person's behavior. This is because the expert has knowledge and skill
which the other person needs but does not possess. Persons like doctors, lawyers,

accountants, etc., have expert power because they have expert knowledge and
skills, which others require.
iv. Coercive Power - Coercive power is the ability to punish others or to pose a
threat to others. Coercive power uses fear as a motivator. The leaders or
managers with coercive powers can threaten an employee's job security, cut his
pay, withdraw certain facilities, suspend him, etc. The coercive power may have
an impact in the short-run. It will create a negative impact on the receiver.
v. Reward Power - Reward power is opposite to coercive power. With the help of
reward power, the leader tries to motivate the followers to improve their
performance. This power enables the leader to provide additional facilities,
increase in pay, promotion of the subordinates, etc. The reward power also
enables the leader to recognize the services of the subordinate through
appreciation.
Matching Culture to Strategy

 Organizational culture refers to the collective assumption and beliefs that
pervade the organization about how business should be conducted and how
employees should behave and should be treated.
 A strong culture makes activities predictable i.e. management knows how
employees will react in certain situations.
 Strategic change that requires activities different from those suggested by the
culture may fail unless attention is given to matching the strategy and culture.
 Three basic considerations should be emphasized by firms seeking to manage a
strategy-culture relationship;
 Key changes should be linked to the basic company mission.
 Emphasis should be placed on the use of existing personnel where
possible to fill positions created to implement the new strategy
because existing personnel possess the shared values and norms that
help ensure cultural compatibility as major changes are made.

 Attention should be made to the changes that are least compatible
with the current culture so that current norms are not disrupted.
Constraints to strategy implementation
 The Vision Barrier. Only 5% of the work force understands the strategy. The
“command and control” mechanisms of the industrial age, when employees were
merely “spokes in the wheel,” who required little knowledge of the company
vision are no longer effective in the age of the knowledge-based economy.
 The People Barrier. Only 25% of managers have personal objectives and
incentives linked to strategy. Most incentive compensation systems are tied to
short-term financial results, rather than the long-term initiatives that support
strategy execution.
 The Resource Barrier. 60% of organizations don't link budgets to strategy. This
occurrence is not uncommon, as in many companies the budgeting and strategic
planning functions don't interact! Amazing! And since budgets are the traditional
tools for planning the allocation of human and financial resources, strategic plans
and strategic initiatives may fall short in terms of necessary resources.
 The Management Barrier. 85% of executive teams spend less than one hour per
moth discussing strategy. Have you ever conducted a monthly operations review
meeting with your staff? When you hold operations reviews, is the majority of
time dedicated to a discussion of financial results, focusing on "budget versus
actual" variances. Not uncommon. But, since budgets are often not linked to the
strategic plan, the discussions may completely avoid any focus on the true value
drivers in the business.

Strategic Evaluation and Control
Strategic evaluation is a continuous process of determining the effectiveness of a

given strategy in achieving the organizational objectives and taking corrective action
wherever required.
Types of strategic evaluation
There are several types of evaluations that can be conducted. Some of them include the
following:
i. Formative evaluation. This type of evaluation ensures that a strategy is feasible,

appropriate, and acceptable before it is fully implemented. It is usually conducted
when a new strategy is being developed or when an existing one is being adapted
or modified.
ii. Process Evaluation. This type of evaluation determines whether strategies have
been implemented as intended and resulted in certain outputs. It can be
conducted periodically throughout the life of the strategy.
iii. Impact evaluation. Impact evaluation assesses strategy effectiveness in achieving its
ultimate goals.
iv. Outcome/effectiveness evaluation measures strategy effects in the target
population by assessing the progress in the outcomes or outcome objectives that
the program is to achieve.
Criteria for Evaluating Strategy
Rummelt (1996) has outlined four criteria that can be used to evaluating any
strategy. These are:
i. Consistency. Strategy must not present mutually inconsistent goals or goals are
consistent with the organization’s overall strategic direction.

ii. Consonance. This refers to the need to consider strategy within the context of sets of
trends rather than individually against single trends. A change in consumer behavior
is rarely the result of a single trend; rather, it usually represents the outcome of a
combination of trends.
iii. Feasibility. This refers to the extent to which the strategy can be implemented
without putting the organization’s resources under undue strain.
iv. Advantage. Strategies should provide for or maintain the organization’s competitive
advantage relative to the competition. Such a strategy should be evaluated on the
basis of its contribution to the unique position of the company in the market place.
Characteristics of effective strategy-evaluation systems
The success of the evaluation process depends of the systems used and how they are
used. Effective strategy evaluation systems should have the following characteristics;
i. Economical; too much information is a bad as too little.
ii. Meaningful; Strategy-evaluation activities must be meaningful and relate directly
to the organization’s objectives
iii. Timely: Strategy-evaluation activities should provide timely information.
iv. Contextual: Strategy-evaluation activities should provide information that is
contextual and designed to show a true picture of what is happening.
v. Action-oriented: Information from strategy evaluation activities should be action-
oriented rather than information oriented and should be directed at those
individuals in the organization who are responsible for taking the relevant action
vi. Cooperation: The strategy evaluation process should facilitate cooperation
between departments during decision making to foster mutual understanding
rather than dominated activities.

Strategic Control
 Strategic control is the continuous process of monitoring whether the various

strategies adopted by the organization are helping its internal environment to be
matched with the external environment. Strategic control processes allow
managers to evaluate a company's program from a critical long-term perspective.
Types of strategic controls
There are four types of strategic control in an organization as follows:

i. Premise control: is designed to check systematically and continuously whether or
not the premises set during the planning and implementation process are still valid
ii. Implementation control: is designed to assess whether the overall strategy result
associated with incremental steps and actions that implement overall strategy.
iii. Strategic surveillance: It is designed to monitor a broad range of events inside and
outside the company that can threaten the course of firm's strategy.
iv. Special alert control: is the need to thoroughly and often rapidly reconsider the
firm's basic strategy based on a sudden unexpected event.
Areas of control in an organization
The five basic organizational resources usually define the areas of control.
i. Physical resources: Control includes inventory management, quality control and
equipment control.
ii. Human resources: Control includes selection and placement, training and
development, performance appraisal and compensation.
iii. Information resources: Control includes sales/marketing forecasting,
environmental analysis, public relations, production scheduling and economic
forecasting.
iv. Technological resources. Control includes cost of technology usage, and effects of
technology usage.

v. Financial resources: Control involves managing the organizations debt, cash flow
and receivables/payables. Control of financial resources may be the most
important control of all.
Control process
The success of any organization is determined by its ability to achieve its fundamental
purpose and live its stated values effectively. Both of these are stipulated in the mission
statement. After the strategy is implemented, it is important to carry out an evaluation to
ascertain how well the strategy has been achieved. For successful strategy evaluation, the
following specific control procedures must apply.
i. Establishing standards. Standards are criteria against which results are measured.
They are norms to achieve the goals. Standards are usually measured in terms of
output. They can also be measured in non-monetary terms like loyalty, customer
attraction, goodwill etc. Some of the standards are as.
 Time standards: The goal will be set on the basis of time lapse in
performing a task.
 Cost standards: These indicate the financial expenditures involved per
unit, e.g. material cost per unit, cost per person, etc.
 Income standards: These relate to financial rewards received due to a
particular activity like sales volume per month, year etc.
 Market share: This relates to the share of the company's product in the
market.
 Productivity: Productivity can be measured on the basis of units
produced per man hour etc.
 Profitability: These goals will be set with the consideration of cost per
unit, market share, etc.
ii. Measuring actual performance. Most organizations prepare formal reports of
performance measurements that managers review regularly. These measurements
should be related to the standards set in the first step of the control process. For
example, if sales growth is a target, the organization should have a means of

gathering and reporting sales data. The actual performance can be measured
through the following;
 Strategic control points: It is not possible to check everything that is being
done. So it is necessary to pick strategic control points for measurement.
Some of these points are:
 Income: It is a significant control point and must be as much per unit
of time as was expected. If the income is significantly off form the
expectation then the reasons should be investigated and a corrective
action taken.
 Expenses: Total and operational cost per unit must be computed
and must be adhered to. Key expense data must be reviewed
periodically.
 Inventory: Some minimum inventory of both the finished product as
well as raw materials must be kept in stock as a buffer. Any change
in inventory level would determine whether the production is to be
increased or decreased.
 Quality of the product: Standards of established quality must be
maintained especially in food processing, drug manufacturing,
automobiles, etc. The process should be continuously observed for
any deviations.
 Absenteeism: Excessive absenteeism of personnel is a serious
reflection on the environment and working conditions. Absenteeism
in excess of chance expectations must be seriously investigated.
 Ratio analysis: Ratio analysis is one of the most important management tools.
It describes the relationship of one business variable to another. The following
are some of the important ratios:
 Net sales to working capital: The working capital must be utilized
adequately. If the inventory turnover is rapid then the same working
capital can be used again and again. Hence for perishable goods, this

ratio is high. Any change in ratio will signal a deviation from the
norm.
 Net sales to inventory: The greater the turnover of inventory,
generally, the higher the profit on investment.
 Current ratio: This is the ratio of current asset (cash, receivables etc.)
to current liabilities, and is used to determine a firm's ability to pay
the short term debts.
 Net profits to net sale: This ratio measures the short-run profitability
of a business.
 Net profits to tangible net worth: Net worth is the difference
between tangible assets (not good will, etc) and total liabilities. This
ratio of net worth is used to measure profitability over a long
period.
 Net profits to net working capital: The net-working capital is the
operating capital at hand. This would determine the ability of the
business to finance day-to-day operations.
 Collection period on credit sales: The collection period should be as
short as possible. Any deviation from established collection period
should be promptly investigated.
 Inventory to net working capital: This ratio is to determine the
extent of working capital tied up in inventory. Generally, this ratio
should be less than 80 per cent, ix) Total debt to tangible net worth:
This ratio would determine the financial soundness of the business.
This ratio should remain as low as possible.
 Comparative statistical analysis: The operations of one company can be
usefully compared with similar operations of another company or with
industry averages. It is a very useful performance measuring device.
 Personal observation: Personal observation both formal and informal can be

used in certain situation as a measuring device for performances, specially, the

performance of the personnel. The informal observation is generally a day-to-
day routine type. A manager may walk through a store to have a general idea
about how people are working.
iii. Comparing actual performance with the standards. This step compares actual
activities to performance standards. When managers read computer reports or
walk through their plants, they identify whether actual performance meets,
exceeds, or falls short of standards. Typically, performance reports simplify such
comparison by placing the performance standards for the reporting period
alongside the actual performance for the same period and by computing the
variance i.e the difference between each actual amount and the associated
standard.
iv. Taking corrective actions. When performance deviates from standards, managers
must determine what changes, if any, are necessary and how to apply them. In the
productivity and quality‐centered environment, workers and managers are often
empowered to evaluate their own work. After the evaluator determines the cause
or causes of deviation, he or she can take the fourth step-corrective action. The
most effective course may be prescribed by policies or may be best left up to
employees' judgment and initiative.
Comprehensive organizational Control techniques
i. Observational techniques. Observational technique is traditional technique of

controlling. Under this technique, manager appoints authorities who observe
other employees. They also note the actual performance of employee and they
report it to manager after manager decides whose performance is weak and how
to improve it.
ii. Statistical report. This is also technique of controlling. Under this technique
company analysis the statistical data in the form of mean, median and mode also
analysis the standard variation and correlation and find what are shortcoming in
planning and try to control it.

iii. Break-even point analysis. This is the technique of controlling. Company sells
their product up to the break-even point because it is point where cost equals to
total sale value and company total can get any loss. But sale below from this
point means that total cost is more than total sale value and company will suffer
losses. So, break-even point is so important from controlling point of view. It is
the reason that wise men have made it controlling technique and used in
management.
iv. Budgetary control Budgetary control is that technique of controlling in which
company managers make budget like production budget , sale budget , finance
budget and research and development budget after this actual performance is
measure with budget amount .
v. Management Information System. In this system, raw data is collected from direct
or indirect sources and then after classification of data, different analysis is
rendered by company managers and after this company managers provide
information about favorable and unfavorable position of company's different
planning. MIS is very important technique and it is used very high level after
invention of computer and internet.
vi. Management audit system. This is very simple type of auditing which is done by
chartered accountant and company manager can used it as technique of
controlling management. Managers establish their relations with CA of company
and after discuss they make system of internal management audit in which
company CA and his staff audit at spot and check the efficiency and correctness of
plan and its implementation on staff of company .
vii. Return on investment. Return on investment means capacity of earning profit on
total investment which is invested by company. It is very scientific technique of
controlling. Even Google is using also this technique for his google Ad Words
project control.
viii. Responsibility accounting. Responsibility accounting is that controlling technique
in which different responsibility centers are created by company managers and its
name are cost center, profit center and investment center. After this every center

is responsible for their cost. Main aim of making these centers is to increase profit,
increase return on investment and decrease cost of production. Different
budgetary cost are set in first and the each center’s actual cost is counted and
recorded , if the actual cost of each center is less than budgeted cost , then it
means that center has perform his duty better .
Importance of control
i. Control improves Goodwill. Quality control improves the quality of the
products. Cost control decreases the cost of the products. Therefore, the
organisation can supply good quality products at lower prices. This increases the
goodwill of the organisation.
ii. Control minimizes Wastage. Control helps to reduce the wastage of human,
material and financial resources. This increases the profits of the organisation.
iii. Control ensures optimum utilization of resources. Control helps the organisation
to make optimum utilization of the available resources. This also increases the
profit of the organisation.
iv. Control helps to fix responsibility. Control helps to fix responsibility of a
particular job on a particular person or a particular department. So, if there are
any mistakes then a particular person or a particular department will be held
responsible for it.
v. Control guides operations. Control fixes certain standards. All the work has to be
done according to these standards. So control, acts like a traffic signal. It guides all
the operations of the organisation in the right direction.
vi. Control motivates employees. In control, the employees' performances are
evaluated regularly. Those who show good performances are rewarded by giving
them promotions, cash prizes, etc. This motivates the employees to work hard,
and it also improves their morale.
vii. Control minimizes deviations. Control minimizes the deviations between a
planned performance and actual performance.

viii. Control facilitates Delegation. Control helps the superiors to evaluate the work of
their subordinates. So, the superior can concentrate on the very important work,
and they can delegate the less important work to their subordinates. Thus, it
facilitates delegation.
ix. Control facilitates Co-ordination. Control facilitates co-ordination between the
different departments of the organisation. Whenever, there are any deviations,
different departments come together to take collective and corrective steps.
x. Control increases efficiency. Efficiency is the relation between returns and cost. If
there is a high return at low cost then there is efficiency and vice-versa. Control
leads to high returns and low cost. Therefore, it increases efficiency.

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BUSS 420: STRATEGIC MANAGEMENT

Credit Hours: 3 Credits

1 BUSS 420 - Strategic Management Notes By Dr. Paul Mwenda

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Meaning of Strategic management

 Strategic management is a continuous process of strategic analysis, strategy

Critical tasks in strategic management

 Formulate the company’s mission

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i. Strategic decisions require Top-Management Decisions. Since strategic decisions over -

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There are three levels of strategies in an organization

i. Corporate strategy. It describes a company's overall direction in terms of its general

 Directional strategy. The firm’s overall orientation towards growth,

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Importance of strategic management

Risks of strategic management

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There are three types of formality as used in strategic management.

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 Strategic management process is a continuous culture of appraisal that a

Importance of Strategic Management Process

i. Acting as the reference for any major decisions of the organization.

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Steps of Strategic Management Process

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Strategic Management Process/Model/Steps

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Strategic Management Schools of Thought

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However, we have to understand that conducting an internal analysis of the firm

3. The positioning school. In this process of strategy formulation, the management

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9. The environmental school. More of a situational school of thought, the

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Meaning of a mission statement

 A mission statement is a written declaration of an organization's core purpose and

i. Develop answers to the three key questions.

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Components of an Effective Mission Statement

i. Customers: Who are the enterprise's customers?

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Reasons Why Mission Statements Change

i. To Broaden the Mission. Sometimes an organization realizes that its mission

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