MBAD 2124 Coprorate Strategy

DIRECTORATE OF DISTANCE EDUCATION
M.B.A
MASTER OF BUSINESS
ADMINISTRATION
MBAD
MBAD2124
1924
CORPORATE STRATEGY
Second Semester
Semester – II
SRM INSTITUTE OF SCIENCE AND TECHNOLOGY,

Potheri, Chengalpattu District 603203,
Tamil Nadu,INDIA
Phone: 044 – 27417040 / 41
Website: www.srmist.edu.in / Email:office.dde@srmist.edu.in
EXPERT COMMITTEE
S.N NAME DESIGNATION ORGANISATION

o.
1 Dr.R.Rajagopal Director DDE - SRMIST
2 Dr.V.M.Ponniah Dean - Management FOM - SRMIST
FOM – SRMIST, KTR
3 Dr.G.Venugopalan Academic Coordinator
FOM – SRMIST, KTR
4 Dr.T.Ramachandran Head of II year MBA
FOM – SRMIST, KTR
5 Dr.V,M.Shenbagaraman Head of I year MBA
Course Writer(s) Dr. E. NIXON AMIRTHARAJ
Information contained in this book has been obtained by its Author(s) from sources believed to be
reliable and are correct to the best of their knowledge. However Publishers and the Author(s) shall in
no event be liable for any errors, omissions or damages arising out of this information and specifically
disclaim any implied warranties or merchantability or fitness for any particular.

SRM Institute of Science and Technology,
Potheri, Chengalpattu District 603203, Tamil Nadu,INDIA
Phone: 044 – 27417040 / 41
Website: www.srmist.edu.in / Email:office.dde@srmist.edu.in
CONTENTS
CHAPTER I
OVERVIEW OF STRATEGIC MANAGEMENT
1.1 Introduction to strategic management
1.2 Phases of Strategic Management
1.3 Impact of globalization and its challenges to Strategic Management
1.4 Environmental Scanning
1.5 Process of Strategic Formulation
1.6 Mintzberg’s Models of strategic decision making
1.7 Responsibilities of the Board
1.8 Carroll’s Four Social Responsibilities of Business
CHAPTER II
ENVIRONMENTAL SCANNING AND INDUSTRY ANALYSIS
2.1 External Environmental analysis
2.3 Identifying external strategic factors
2.4 Industry analysis: Porter’s approach to Industry analysis
2.5 Stake holder analysis & Non market strategy
2.6 Categorizing international industries
2.7 Strategic types
2.8 Competitive intelligence
2.9 Strategic audit
2.10 EFAS
CHAPTER III
ORGANIZATIONAL ANALYSIS AND STRATEGY FORMULATION
3.1 Core and distinctive competencies
3.2 Competitive advantage and firm resources
3.3 Generic strategies and competitive advantage
3.4 Determining the substainability of an advantage
3.5 Dynamics of competitive advantage and value chain
3.6 Competing through business models
3.7 Value Chain Analysis
3.8 Industry value chain analysis
3.9 Scanning functional resources and capabilities
3.10 Corporate culture
3.11 Strategic Audit
3.12 SWOT
3.13 TOWS Matrix
3.14 Business level strategies
3.15 Corporate strategies
3.16 Portfolio analysis
3.17 Corporate parenting
3.18 Functional strategies
3.19 Strategic choice
3.20 Grand strategy
CHAPTER IV
STRATEGY IMPLEMENTATION, EVALUATION AND CONTROL
4.1 Strategy Implementation
4.2 Process of implementation

43 Types of organizational structures
4.4 Process of evaluation and control
4.5 Types of controls
4.6 Techniques of controls
4.7 Strategic Information systems
4.8 Corporate Governance and Corporate Ethics
CHAPTER V
STRATEGIC CHANGE AND INNOVATION
5.1 Strategic Change
5.2 Disruptive Innovation
5.3 Corporate Social Responsibility
5.4 Competitive advantage to Corporate advantage
5.5 Integrative analysis
5.6 Strategic issues in public sectors
5.7 Strategic issues in small business organizations
5.8 Strategic issues in non profit organizaitons

NOTES
MBAD 1924 CORPORATE STRATEGY
Structure
1.1 Introduction to strategic management
1.2 Phases of Strategic Management
1.3 Impact of globalization and its challenges to Strategic Management
1.5 Process of Strategic Formulation
1.6 Mintzberg’s Models of strategic decision making
1.7 Responsibilities of the Board
1.8 Carroll’s Four Social Responsibilities of Business
1 SRMIST DDE Self Instructional Material

CHAPTER - I
OVERVIEW OF STRATEGIC MANAGEMENT
 Introduction to strategic management

 Phases of Strategic Management
 Impact of globalization and its challenges to
Strategic Management
 Environmental Scanning
 Process of Strategic Formulation
 Mintzberg’s Models of strategic decision making
 Responsibilities of the Board
 Carroll’s Four Social Responsibilities of Business
1.1 INTRODUCTION TO STRATEGIC MANAGEMENT
Strategy is an act that managers take to achieve the

organization’s goals. Strategy is a general direction set for the company
and its various components to achieve a desired state in all the times.
Strategy results from the comprehensive strategic planning process.
A strategy is all about integrating activities, utilizing and

allocating the resources of the organization. The management of the
organization should consider opinion and the reaction from those
affected, competitors, customers, employees or suppliers while
planning strategy.
Strategy is the knowledge of the goals, the uncertainty of events

and the need to take into consideration the likely or actual behavior of
others. Strategy is the blueprint of decisions in an organization that
shows its objectives and goals, reduces the key policies, and plans for
achieving these goals, and defines the business the company is to carry

on, the type of economic and human organization it wants to be, and
NOTES
the contribution it plans to make to its shareholders, customers and
society at large. Features of the strategy are as follows:
1. Strategy is significant one to all types of organization; the firms must

be ready to deal with the uncertain events which constitute the
business environment in the future.
2. Strategy deals with both short and long term developments rather
than routine operations of any organization.
3. Strategy is created to take into account the probable behavior of
customer, competitors, suppliers and employees of the company.
Strategy is a well defined route map of an organization. It defines

the overall mission, vision of an organization. The objective of a
strategy is to maximize an organization’s wealth organization’s wealth
and to reduce the level of the competition from the outside.
Chandler(1962) Strategy is the determination of the basic long-term

goals of an enterprise, and the adoption of courses of action and the
allocation of resources necessary for carrying out these goals;
Mintzberg (1979) Strategy is a mediating force between the
organization and its environment: consistent patterns in streams of
organizational decisions to deal with the environment. Prahlad (1993)
Strategy is more than just fit and allocation of resources. It is stretch
and leveraging of resources Porter (1996) Strategy is about being
different. It means deliberately choosing a different set of activities to
deliver a unique mix of value
Strategic Management is that set of managerial decisions and

measures that determines the long run performance of an organization. It is
about the study of environmental scanning, strategy formulation, strategy
implementation and evaluation and control. It emphasizes the monitoring
and evaluating of external opportunities and threats of an organization. It

helps the organization to identify its own strengths and weakness in order to
generate and implement a new strategic direction for an organization.
Strategic Management is all about identification and description

of the strategies that organization can carry to achieve better
performance and a competitive advantage. An organization could be a
competitive advantage due to its profitability is higher than the
average profitability for all companies in its industry.
The manager must have a complete knowledge and analysis of

the general and competitive organizational environment so as to take
accurate decisions. A manager should conduct a SWOT
Analysis (Strengths, Weaknesses, Opportunities, and Threats) of the
company. It will be helpful to make best possible utilization of
strengths, minimize the organizational weaknesses, make use of
arising opportunities from the business environment and shouldn’t
ignore the threats.
Strategic management is planning for both predictable as well as

impracticable contingencies. It is applicable for all the types of
organizations to face the competition and, by formulating and
implementing appropriate strategies, any type of organizaiton can
attain sustainable competitive advantage.
1.1.1 Importance of Strategic Management
 It guides the company to move in right direction. It defines organization’s

goals and fixes realistic objectives.
 It assists the firm in becoming practical, to make it analyse the actions of

the competitors and take necessary steps to compete in the market, instead
of becoming spectators.
 It acts as a base for all key decisions of the firm.

 It attempts to prepare the organization to face the challenges and play the
NOTES
role of initiator in exploring opportunities and also helps in identifying
ways to reach those opportunities.
 It ensures the long-term survival of the firm.
 It assists in the development of core competencies and competitive

advantage for the business survival and growth.
The main purpose of strategic management is to achieve sustained-

strategic competitiveness of the firm by developing and implementing such
strategies that create value for the company. It focuses on assessing the
opportunities and threats, keeping in mind firm’s strengths and weaknesses
and developing strategies for its survival, growth and expansion.
1.2 PHASES OF STRATEGIC MANAGEMENT
The strategic management aims at delineating the organization’s

strategy. It is the defined process by which managers make a choice of
a set of strategies for the organization to attain the efficient functioning.
It is a continuous process that appraises the business and industries
where organization is involved, evaluates its competitors, defines
targets to meet all the present and future challenges and
finally assesses each strategy periodically. Strategic management is a
particular course of action that is meant to achieve a corporate goal. By
and large, the owners, founders of the company take the first step of
the process. They lay down the structure responsible for carrying out
several functions such as providing direction and guidance to the
employees, setting up measurable goals with defined time spans and
designated duties.
Planning, budgeting, acquiring resources, maintaining resources

and using follow-up techniques are essentials in the strategic
management process. Strategic planning came into being years ago as
an alternative to then popular tradition of long-range planning. Long-

range planning was based on pooling historical data and several
market assumptions to chart the direction that an organization should
take. Strategic planning on the other hand is more leadership driven
and vision-based; leaders decide on principles that guide the
organization toward established goals.
1.2.1 Strategic management process has following 4 steps:
a. Environmental Scanning- Environmental scanning refers to

a process of collecting, scrutinizing and providing information for
strategic purposes. It helps in analyzing the internal and external
factors influencing an organization. After executing the environmental
analysis process, management should evaluate it on a continuous
basis and strive to improve it.
b. Strategy Formulation- Strategy formulation is the process of

deciding best course of action for accomplishing organizational
objectives and hence achieving organizational purpose. After
conducting environment scanning, managers formulate corporate,
business and functional strategies.
c. Strategy Implementation- Strategy implementation implies

making the strategy work as intended or putting the organization’s
chosen strategy into action. Strategy implementation includes
designing the organization’s structure, distributing resources,
developing decision making process, and managing human resources.
d. Strategy Evaluation- Strategy evaluation is the final step of

strategy management process. The key strategy evaluation activities
are: appraising internal and external factors that are the root of
present strategies, measuring performance, and taking remedial /
corrective actions. Evaluation makes sure that the organizational
strategy as well as its implementation meets the organizational
objectives.

These components are chronologically carried steps while creating a new
NOTES
strategic management plan. Firms with existing plan in use revert to these
steps as per the situation’s requirement, so as to make essential changes.
a. Environmental Scanning: Internal & External Environment
The environment consists of both external and internal factors which

need to be continually monitored to conclude development and forecasts
of factors that will influence organizational success. It refers to the ownership
and utilization of resources of an organization’s internal and external
environment. It helps the managers to decide the future ways of the
organization. Scanning must broadly identify the threats and opportunities
existing in the environment.
Internal analysis of the environment is the first step of environment

scanning. This primarily includes interaction of employees with other
employees, management, manager interaction with other managers and
shareholders, access to natural resources, brand awareness, organizational
structure, main staff, operational potential, etc. Internal environment analysis
helps identify strengths and weaknesses within the organization. Most
commonly used instruments used for assessment include interviews, surveys,
discussions etc.
In external analysis three environment has to be studied, Industry

Environment, National Environment and Socio economic environment of the
society. Industry Environment is about the survey of the competitive
structure of the Industry and competitive position of the organization. This
includes assessment of the nature, stage, dynamics, and history of the
industry and the effect of globalization on competition within the industry.
Analyzing the national environment involves appraisal of efficacy of national
framework in achieving competitive advantage in the global
environment. Macro-environment analysis includes exploring macro-
economic, social, government, legal, technological and international factors
that may influence the environment. The analysis of organization’s external
environment reveals opportunities and threats for the organization.

b. Strategy Formulation
Strategy formulation refers to the process of selecting the most

appropriate course of action for the realization of organizational
goals and objectives to fulfill organizational vision.
i. Setting Organizations objectives – The Objectives of an organization

specify the desired end state while strategy stresses upon the means of
achieving it. Setting, fixing and realizing those objective is challenging
task of an organization. While fixing the organizational objectives, it is
essential that the factors which influence the selection of objectives
must be analysed before the selection of objectives.
ii. Evaluating the Organizational Environment – Evaluate the general

economic and industrial environment highlighting the competitive
position of the organization. It involves both qualitative and
quantitative review of organizations.
iii. Setting Quantitative Targets – In this step, an organization must set

the desired quantitative target values for certain objectives. The idea
behind this is to compare with long term customers, so as to evaluate
the contribution that might be made by various product zones or
operating departments.
iv. Aiming in context with the divisional plans – In this step, the
contributions made by each department, division, product category
within the organization is identified and accordingly strategic
planning is done for each sub-unit. This requires a careful analysis of
macroeconomic trends.
v. Performance Analysis – Performance analysis includes identifying

and analyzing the gap between the planned and desired performance.
This critical evaluation identifies the degree of gap that persists

between the actual reality and the long-term aspirations of the
NOTES
organization. An attempt is made by the organization to estimate its
probable future condition if the current trends persist.
vi. Choice of Strategy – This is the ultimate step in Strategy Formulation

where the best course of action is selected after
considering organizational goals, organizational strengths, potential
and limitations as well as the external opportunities.
c. Strategy Implementation
Strategy implementation is the conversion of chosen strategy

into organizational action. It is also defined as the manner in which an
organization should develop, utilize, and amalgamate organizational
structure, control systems, and culture to follow strategies that lead
to competitive advantage and a better performance.
Organizational control is also required to motivate the

employees of the organization. It equips managers with motivational
incentives for employees as well as feedback on employees
and organizational performance. Organizational culture refers to the
specialized collection of values, attitudes, norms and beliefs shared by
organizational members and groups. Following are the main steps
in implementing a strategy:
1. Developing an organization having potential of carrying out

strategy successfully.
2. Disbursement of abundant resources to strategy-essential
activities.
3. Creating strategy-encouraging policies.
4. Employing best policies and programs for constant
improvement.
5. Linking reward structure to accomplishment of results.
6. Making use of strategic leadership.

Excellently formulated strategies fail if not properly
implemented. Also, it is essential to possess stability between strategy
and each organizational dimension such as organizational
structure, reward structure, resource-allocation process, etc to ensure
efficient strategy implementation. Strategy implementation poses a
threat to many managers and employees in an organization as new
power relationships are predicted and achieved. New groups (formal
as well as informal) are formed whose values, attitudes, beliefs and
concerns may not be known. With the change in power and status
roles, the managers and employees may employ confrontation
behavior. Following are the main differences between Strategy
Formulation and Strategy Implementation.
Strategy Formulation Strategy Implementation
Strategy Formulation includes Strategy Implementation involves

planning and decision-making all those means related to
involved in developing executing the strategic plans.
organization’s strategic goals and
plans
Strategy Formulation is placing Strategy Implementation

the Forces before the action is managing forces during the
action
It is an Entrepreneurial It is mainly an Administrative

Activity based on strategic Task based on strategic and
decision-making operational decisions
Strategy Formulation emphasizes Strategy Implementation

on effectiveness emphasizes on efficiency
Strategy Formulation is a rational Strategy Implementation is

process basically an operational process.
NOTES
Strategy Formulation requires co- Strategy Implementation requires

ordination among few co-ordination among many
individuals individuals.
Strategy Formulation requires a Strategy Implementation requires

great deal of initiative and logical specific motivational and
skills leadership traits.
Strategic Formulation precedes Strategy Implementation
Strategy Implementation. follows Strategy Formulation.
d. Strategy Evaluation
Strategic Evaluation is the final phase of strategic management

process and its about the efficiency and effectiveness of the
comprehensive plans in achieving the desired results as stated during
strategy formulation. The management assesses the validity of current
strategy in existing environment with respect to dynamic socio-
economic, political and technological innovations. Strategic Evaluation
is significant because of various factors such as – developing inputs for
new strategic planning, the urge for feedback, appraisal and reward,
development of the strategic management process, judging the validity
of strategic choice etc.
The process of Strategy Evaluation consists of following steps:
 Fixing target – While fixing the target, manager has to consider

answer questions such as – what target to set, how to set and how to
achieve the target. The organization can use both quantitative and
qualitative criteria for achieving the target. The Quantitative criteria

include net profit, ROI, earning per share, cost of production, rate of
employee turnover etc and the Qualitative factors are subjective
evaluating factors such as – skills and competencies, risk taking
potential, flexibility etc.
 Measurement of performance – The standard performance is a target

with which the actual performance is compared. The measurement
must be done at right time for evaluation to meet its purpose. For
measuring the performance, financial statements like – balance
sheet, profit and loss account must be prepared on an annual basis.
 Analyzing the performance – While measuring the actual

performance and comparing it with standard performance there may
be differences which are further analysed. The strategists must
discover the causes of difference and must take corrective action to
overcome it.
 Taking Corrective Action – Once the deviation in performance is

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

1.3 IMPACT OF GLOBALIZATION AND ITS NOTES
CHALLENGES TO STRATEGIC MANAGEMENT
"Global Strategic Management" has now emerged as important

concept in globalization of business. This new field is a blend of strategic
management and international business that develops worldwide strategies
for global corporations. Global strategic management process among
business, government, education, and other sectors of society to define the
emerging global system and help institutions adapt to changes. By gaining
new insights into the emerging world system, social institutions may better
understand how they can adapt to these changes.
Following is a global strategic plan, developed by synthesizing the

literature and then reviewing the plan with groups of executives. It follows
the logic of a typical strategic plan but carried to a global level. First,
summarize nine super trends that describe a long-term trajectory toward an
advanced stage of "global maturity." Second, note five principal obstacles that
must be overcome to clear the way ahead. Third, argue that these issues can
be resolved by a newly emerging perspective that recognizes the essential
unity of a global community.
1.3.1 The Trajectory to Global Maturity
The following trends represent the principal driving forces that are
now moving the world in new directions. They could be called "super
trends." The challenge is made to offer justifications, and many other trends
that capture finer details are not covered. This summarizes the major features
that characterize the emerging shape of the globe as it moves along a long-
term trajectory toward a new stage of global maturity.
Trend 1: A Stable Population
The earth is already teeming with the growth of population.
Trend 2: Increasing Industrial Output

The aggregate level of material consumption, or industrial output,
should increase over the next few decades as most remaining parts of
the world industrialize to reach the equivalent standard of living
enjoyed by Americans, Europeans, and Japanese. Industrial
throughout, however, is likely to grow less as more efficient means
are found to insure a sustainable form of development.
Trend 3: The Wiring of the Globe
Information technology (IT) is a revolutionary force that will continue

to overthrow governments, restructure corporations, and unify the
world. This revolution will wire the earth into a single communication
network, a central nervous system for a planetary society. However,
the gap between information haves and have-nots is apt to persist.
Trend 4: The High-Tech Revolution
The IT revolution is accelerating technical advances to create

breakthroughs in all fields.
Trend 5: Global Integration
The globe is becoming integrated into a single community connected

by a common communication system, a global economy, and a shared
international culture. In time, this process may unify today's growing
economic blocs and political federations into a universal system of
open trade, a global banking system and common currency, and some
form of world governance.
Trend 6: Diversity and Complexity
It is a great paradox that global integration will be accompanied by

disintegration into a highly diverse system.
Trend 7: A Universal Standard of Freedom

Freedom and the recognition of human rights should continue
NOTES
spreading around the globe, though this movement may ebb and flow
at times. A majority of nations now have political democracy and free
market systems, and the number should grow to the extent that
freedom becomes the accepted norm, with authoritarian systems
being the exception.
Trend 8: Continued Crime, Terrorism, and War
Traumatic upheaval is likely to produce disgruntled individuals,

groups, and nations resorting to a variety of crimes, terrorism, and
limited wars. However, global wars and the old fear of nuclear
holocaust now seem unlikely.
Trend 9: Transcendent Values
As this transformation unfolds, most people in advanced nations

should strive for quality of life, community, self-fulfillment, art,
spirituality, and other higher-order values that transcend material
needs. Many are cynical about such claims, but as the philosopher
Andre Malraux predicted, the twenty-first century will be the century
of religion.
Although this evolutionary trajectory is likely to stabilize into a

mature, coherent global order in the mid-twenty-first century, business and
government must resolve the following five issues, which pose barriers to
this forward movement.
Issue 1: Making the Leap to a Global Order
Most of the problems the world struggles with result from the
fragmented economic and political systems that continue unchanged from the
industrial past.
Trade barriers, fluctuating currency exchange rates, and difficulties in

communicating are "old" problems that should not exist in a "new"

Issue 2: Reconciling Economic Interests
Communism may have yielded to markets, but markets do not exist

only in capitalism. The strength of Japan, for instance, hinges on a market
system that is based on collaborative working relations
In contrast, the capitalism practiced in Western nations, such as the

United States, is in trouble because it exacerbates conflicts between labor and
management, rich and poor, business and government, domestic and foreign
trade, private and public sectors, and other basic incompatibilities.
A sound global economy for the future, therefore, awaits the creation
of a new economic paradigm based on some form of free enterprise
Issue 3: Achieving Sustainable Development
The present conflict between economic growth and environmental

protection will be resolved either rationally or through some form of decline.
The anticipated five- or ten-fold increase in industrial output is

incompatible with any reasonable forecast under existing conditions.
Many solutions are being proposed to achieve sustainable

development, but the task of implementation remains formidable.
Issue 4: Managing Complexity
One of the most striking trends of the emerging future is the explosion
of complexity that is almost impossible to contain within today's cumbersome
institutions.
Dramatically different institutions are needed to manage this complex

new world, which may require an upheaval similar to the one now plaguing
the former communist bloc.
Issue 5: Alleviating the North-South Gap

The enormous disparity between the wealth of the developed and
NOTES
developing counties shows little sign of improvement, fanning an explosive
antagonism between these two halves of the globe.
From all this apparent chaos, a new paradigm, model, or belief system
must somehow be formed that allows people to make sense of today's
different global realities.
1.3.2 A Strategy Based On a New Global Perspective
A massive variety of policies and remedial programs are being

proposed to resolve all these problems. This section synthesizes these
proposals into a "master strategy" based on a different perspective now
gaining increasing attention, one that recognizes the essential unity of the
emerging global system. This perspective then leads to the following
elements of a master strategy required to overcome the issues defined before:
Strategy 1: Disseminate Advanced Technology to Unify the Globe
Although many people fear its effects, the relentless advance of

modern technology--especially information technology--is the primary force
driving the globe through its present transition. It was the ubiquitous
presence of television, radio, facsimile, and video, for instance, that armed
citizens of the former USSR and the Eastern Bloc with the knowledge
required to overthrow their governments.
Information technologies should be diffused, therefore, by

corporations selling sophisticated products abroad, governments fostering
joint research and development projects, individuals sharing technical
knowledge, and any other reasonable methods. There is a particular need to
find ways of introducing these technologies into LDCs to advance their
modernization and unite them with the world. All technology can be
misused, so care is needed to ensure that it is applied appropriately. The
emerging global order is being constructed on a technological foundation; the

sooner that foundation is in place, the sooner this system can behave as a
coherent global community.
Strategy 2: Integrate Economics and Society
The conflict between economic life and social life is being reconciled,
as evidenced by breakthroughs that would have been unthinkable a few
years ago. Japan has shown the world that a union of economic and social
interests is more productive, spurring others to emulate this "human-
centered" form of enterprise. Even General Motors, long regarded as the
antithesis of this idea, has formed GM-Saturn as a prototype of socially
responsive business, managed by a coalition of workers, customers,
suppliers, distributors, and local citizens. Saturn production lines cannot keep
up with demand because Saturn cars are now the best in their class, proving
that social goals are compatible with economic goals.
Intense global competition should, in time, drive most economies in

this direction because it is efficient. Decisions ranging from the shop floor to
national macroeconomic policy may then be made collectively by all affected
parties, including workers, labor, consumer advocates, governments, and
citizens. If this can be done, the leaders of business and other social
institutions may then act as stewards rather than managers, creating the
badly needed trust, quality, mutual service, and collaborative economic
relationships that can instill the essential sense of community that vitalizes
society.
Strategy 3: Create a Symbiotic Society-Environment Interface
A harmonious economic-societal relationship will mean little if it is

not supported by a viable ecosystem. Civilization must be carefully
redesigned to form a symbiotic society-environment interface. Business firms
are now competing to prove their environmental consciousness because of
public pressure.
Stephen Schmidheiny, Chairman of the Business Council for

Sustainable Development, described the advantages (1992): "Progress toward

sustainable development makes good business sense because it can create
NOTES
competitive advantage and new opportunities."
A wide range of difficult adjustments are under way to integrate

ecological realities into economic and social life. Sustainable technologies and
practices are being developed to increase economic efficiency, advance more
modest but wholesome lifestyles, develop renewable energy, reforest
denuded lands, convert to organic agriculture, recycle waste, and improve
pollution controls. To evaluate this complex situation realistically, social
indicators must be incorporated into such financial measures as GNP; social
costs, such as pollution, should be internalized in the form of taxes and
credits to guide balanced economic choices.
Strategy 4: Decentralize Institutions to Empower Individuals
Almost all analysts agree that social institutions need to be

restructured for a knowledge-based global order, but confusion reigns over
what is needed. The most useful guide can be found in a dominant
imperative now sweeping through modern nations: institutions are being
decentralized into networks of small, autonomous units to master
complexity. This imperative is the entrepreneurial half of the new role
emerging for institutions; the move toward collaborative, democratic
policymaking described in Strategy constitutes the other half that unifies this
diversity into a harmonious whole.
For instance, large corporations are being disaggregated into small

"internal enterprises" that form the equivalent of market economies inside
organizations--"internal markets" (Halal et al. 1993). Under the pressure of
limited budgets and public demands, governments are also allowing the
public to choose among competing agencies. A good example is the way U.S.
education is introducing market competition among schools, which are also
governed democratically by teachers, parents, local citizens, and
administrators.

The result of all these changes is to restructure authority relationships.
Markets and democracies share the common feature of placing control in the
hands of ordinary people to harness the growing diversity of thought and
values into creative forces of change, with institutions providing the
overarching systems that support and guide change. The decentralization of
authority, then, empowers people to care for themselves more effectively,
which provide a self-organizing system for managing a complex world.
Strategy 5: Foster Collaborative International Alliances
A knowledge-based society fosters pockets of collaborative problem

solving in which all partners benefit, while competition drives collaborating
parties together. This is why business managers and politicians are creating a
flurry of strategic alliances with their competitors. Cooperation has now
become the most powerful force in world affairs.
This new ethic of strategic collaboration is also being extended to

forge productive alliances between business and government, economists and
ecologists, and competing nations, knitting together a global community of
diverse groups. Note that an ethic of cooperation implies not altruism but a
reciprocity of interests that benefits all partners. It is enlightened self-interest.
The conflict between North and South, for example, could yield
cooperative ventures, such as the North American Free Trade Agreement,
between DCs and LDCs based on mutual advantages for both parties. LDCs
gaining capital, jobs, and know-how, while DCs gain access to markets and
less costly labor.
Obviously there is no assurance that the world will pursue a path of

this type. And it is certainly true that difficult choices at dangerous junctures
could deflect the trajectory toward maturity into other directions. However,
historic breakthroughs have occurred in the past few years--the collapse of
communism, a greatly reduced threat of nuclear holocaust, and worldwide
concern over the environmental crisis--largely through the natural evolution
of the global order. Barring unforeseen disasters, it seems reasonable to

expect that the other remaining obstacles noted above could also be resolved
NOTES
from this same natural process, though we cannot now anticipate how or
when.
This does not mean that individuals and institutions are passive
observers of an immutable process of natural development: change is the sum
of countless small human actions that collectively produce social
transformation. A coherent new world order will emerge only if global
corporations, national governments, and educational institutions are able to
adopt major strategies such as those outlined above. Developing and
disseminating advanced technologies, especially information technology, will
be essential in forming the foundation for a mature global society. A
collective model of enterprise must be defined that reconciles the interests of
capital with mounting social concerns, particularly environmental
sustainability. Large firms must be decentralized to empower individuals if
we hope to manage a complex and diverse world. Strategic alliances must be
encouraged on a global scale to avoid the conflicts that now divide the world.
The primary skill required to survive this critical transformation,

therefore, is an attentive ability to reconcile the conflicting, endlessly
changing, overwhelming complexity posed by today's diverse world. A
crucial paradox lies at the heart of this challenge. What is involved,
fundamentally, is cultivating a more transcendent mode of thought that can
permit all of us to regain command over our affairs by relinquishing the
illusion of self-control in favor of shared control.
1.4 ENVIRONMENTAL SCANNING
Environmental scanning is the monitoring, evaluating and

disseminating of information from the external and internal environments of
an organization. The external environment consists of variables that are
outside the organization and not typically within the short-run control of top
management. These variables form the context within which the corporation
exists. They may be general forces and trends within the overall societal

environment or specific factors that operate within an organization’s specific
task environment.
From the above discussion, it may be concluded that environmental

scanning is a continuous process of study and analysis of environment to
detect the emerging trend in the environment.
1.4.1 Types of Environmental Scanning
Environmental scanning is a process of obtaining information from

the environment and it helps prepare an organization to exploit the business
opportunity by developing a sound resource base. It also assists in preparing
scenarios and to adjust with changes. Environmental scanning may be done
in the following two ways
a. Centralized scanning:
If some specific environmental components are only analyzed, it is

called centralized scanning. Under this, the important components which are
likely to exert considerable impact to the business are only analyzed.
Likewise, it helps to save time as well. However, it is not a comprehensive
method due to the study of specific components only.
b. Comprehensive scanning:
The components of environment are analyzing all the components of

the business in a detailed way.
1.4.2 Determine the Approach of Environmental Scanning
After determining the sources of information the approach of

environmental analysis should be determined. There are mainly three
approaches to environmental scanning. They are:
a. Systematic approach:
Under this approach, a systematic method is adopted for

environmental scanning. The information regarding market and customer,
government policy, economic and social aspects are continuously collected. In

other words, the environment is monitored in a regular way. The timeliness
NOTES
and relevance of such information enhances the decision making capacity of
the management.
b. Ad-hoc Approach:
Under this, specific environmental components are only analyzed

through survey and study. Ad-hoc approach is useful for collecting
information for specific project, evaluating the strategic alternative or
formulating new strategies. It is not a continuous process.
c. Processed form approach:
Under this, the information collected from internal and external

sources are used after processing them. Normally, the information obtained
from secondary sources are processed and used as per the requirements of
the business.
d. Scan and Assess the Trend:
It involves a detailed and micro study of the environment to identify

the early signals of potential changes in the environment. It also detects
changes that are already under way and shows the trend of the environment.
The trend should be assessed in terms of opportunities and threats.
1.4.3 Techniques and Methods of Environmental Scanning
Environmental scanning is a technique of detail study of the

environment. It is done to assess the trend of the environment and prepare
the organization accordingly. There are different techniques/methods of
environmental scanning. They are discussed below:
a. Executive opinion method: It is also called executive judgment

method. Under this environment is forecasted on the basis of opinion
and views of top executives.
b. Expert opinion method: This environment forecasting is based an
opinion of outside experts or specialist. The experts have better
knowledge about market conditions and customer taste and

preferences. This method is similar to executive opinion method.
However, it uses external experts.
c. Dephi method: This method is extension of expert opinion method.
It involves forming a panel of experts and questioning each member
of the panel about the future environmental trend. Later, the
responses and summarized and returned to the members for
assessment. This process continues till the acceptable consensus is
achieved.
d. Extrapolating method: This method, the past information is used to
predict the future. Different methods used to extrapolate the future
are time series, trend analysis and regression analysis.
e. Historical analogy: The environmental trends are analyzed with the
help of other trends which are parallel to historical trend.
f. Intuitive reasoning: Under this method, rational and unbiased
intuition is used for environmental scanning. Environmental
dynamics are guessed individual judgement. Reliability of this
method is questionable.
g. Scenario building: Scenarios are the pictures of possible future.
They are built on the basis of time ordered sequence of events that
have logical cause and effect relationship with each other. Scenarios
are built to address future contingencies.
h. Cross-impact matrix: Under this, environmental forecasts through

various methods are combined to form and integrated and consistent
description of future. Cross impact matrix is used to assess the
internal consistency of the forecasts.
1.4.4 Importance of Environmental Scanning
i. Signals threats: It provides an early signal of threats, which can be

defused or minimized if recognized well in advance.
ii. Customer needs: It signals an organization to the changing needs and
requirements of the customers.
iii. Capitalize opportunities: It helps an organization capitalize
opportunities earlier than the competitors.

iv. Qualitative information: It provides a base of objective qualitative
NOTES
information about the environment that can be utilized for strategic
management.
v. Intellectual simulation: It provides intellectual stimulation to

managers in their decision making.
vi. Image: It improves the image of the organization as being sensitive

and responsive to its environment.
1.5 PROCESS OF STRATEGIC FORMULATION
Strategy formulation refers to the process of choosing the most

appropriate course of action for the realization of organizational goals and
objectives and thereby achieving the organizational vision. The process of
strategy formulation basically involves six main steps. Though these steps do
not follow a rigid chronological order, however they are very rational and can
be easily followed in this order.
A. Setting Organizations’ objectives - The key component of any

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

factors which influence the selection of objectives must be analyzed
before the selection of objectives. Once the objectives and the factors
influencing strategic decisions have been determined, it is easy to take
strategic decisions.

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

keep a track of competitors’ moves and actions so as to discover
probable opportunities of threats to its market or supply sources.
C. Setting Quantitative Targets - In this step, an organization must

practically fix the quantitative target values for some of the
organizational objectives. The idea behind this is to compare with
long term customers, so as to evaluate the contribution that might be
made by various product zones or operating departments.
D. Aiming in context with the divisional plans - In this step, the
contributions made by each department or division or product
category within the organization is identified and accordingly
strategic planning is done for each sub-unit. This requires a careful
analysis of macroeconomic trends.
E. Performance Analysis - Performance analysis includes discovering
and analyzing the gap between the planned or desired performance.
A critical evaluation of the organizations past performance, present
condition and the desired future conditions must be done by the
organization. This critical evaluation identifies the degree of gap that
persists between the actual reality and the long-term aspirations of the
organization. An attempt is made by the organization to estimate its
probable future condition if the current trends persist.
F. Choice of Strategy - This is the ultimate step in Strategy Formulation.
The best course of action is actually chosen after considering

organizational goals, organizational strengths, potential and
NOTES
limitations as well as the external opportunities.
1.6 MINTZBERG’S MODELS OF STRATEGIC DECISION

MAKING
Strategic management is characterized by its emphasis on strategic

decision-making. As an organization grows bigger and becomes complex
with higher degree of uncertainty, decision- making also becomes
increasingly complicated and difficult.
Strategic decisions have to deal essentially with the long-term future

of the organization and have three important characteristics.
1. Rare Strategic decisions are not common and have no precedents.
2. Consequential Strategic decisions involve committing substantial

resources of the company and hence a high degree of commitment from
persons at all levels.
3. Directive Strategic decisions can serve as precedents from less

important decisions and future actions of the organisations
Mintzberg Model According to Mintzberg, the modes of strategic

decisions making are:
1. Entrepreneurial Mode Formulation of strategy is done by a single

person in this mode. The focus is on opportunities. Strategy is guided by the
founder’s vision and is characterized by bold decisions.
2. Adaptive Mode This mode of decisions making is referred to as

“muddling through”. It is characterized by reactive solutions rather than a
proactive search for new opportunities.
3. Planning Mode This mode of decision-making involves systematic

information gathering for situational analysis, generating alternate strategies
and selection of the appropriate strategy. As could be inferred, this mode

includes both the proactive mode and the reactive solutions to current
problems. This is a synthesis of all the three modes of strategic decision-
making listed above.
The effects of strategic decisions permeate throughout the

organization at all levels for a considerable length of time since it involves
committing substantial amount of resources of the organization. Sometimes
this is referred to as a non-self- generating decision, implying that though
strategic decisions may be few in number, the organization should always be
aware of the need to make such decisions. Hence, it is essential to put a
mechanism in place to take strategic decisions. This is more so in the case of
Indian organizations with the onset of liberalization.
1.6.1 Mintzberg’s 5 P’s of Strategy
Strategy is an extremely complicated and dynamic thing. A

great strategy one day could be useless the next, depending on market
forces and changes that are outside of your control. Great businesses
are always adapting, and that means changing strategy frequently to
meet with your needs. While it is great to develop an initial, overall
strategy for your business when first getting started, it is unlikely that
your chosen strategy is going to last very long. In reality, you will
likely need to make many changes along the way if you are going to
find your way toward success.

NOTES
With the understanding that strategy needs to change regularly

in business, it is a good idea to turn to a model such as Mintzberg’s 5
P’s of Strategy for assistance. This model, as the name would indicate,
includes five different approaches to strategy (each beginning with the
letter ‘p’, which makes them easier to remember).
a. Plan
This is probably where the business will naturally start out

when thinking about strategy. The business will think about producing
a plan for their company, which is going to take the business from
where they are now to where they would like to be in the future. Basic
business planning can be thought of as the foundation of a good
strategy – it is a great platform to start from, but it is not going to get
you all the way to the ‘promised land’.
b. Ploy
In this part of strategy, thinking of an organization is going to

turn into competition. There is no way to ignore competition in
business – it is always going to be there, and it is always going to have
a profound effect in what you can do. Business can use a specific ploy
to disrupt whatever it is that the competition might be doing to seek
out a competitive advantage over in the market (only in a legal
manner, of course). By trying to think one step ahead of the
competition, may be able to take control of the market segment for
years to come.

The company has to be careful with strategic ploys, however, as
the company has the potential to distract from mastering their own
business. It would be a mistake to focus so much on the competition
that fails to product quality products or services that can take to
market. Use a strategy ploy or two is part of good business, but make
sure the focus remains on own operation at the same time.
c. Pattern
The pattern part of this strategic model is all about noticing

what is going on in the business currently so that any business can
leverage those patterns into future success.
In other words, the company is going to figure out exactly what

has been working for the business by looking to the past, and ways to
continue (or even enhance) those patterns. Often, this kind of strategy

isn’t so much intentional as it is accidental. The company might be
NOTES
surprised by a pattern that develops in the market, but company can
do your best to take advantage of that pattern once it has revealed
itself.
It would be a serious mistake to interrupt a current pattern that

is benefitting of the business simply because it was not part of an
original strategy or plan. This is a great example of why it is important
to remain flexible and to always be willing to alter the business
strategy going forward. If a profitable pattern comes to the forefront
through the course of regular business, the company would be crazy to
fight it – rather, the company should identify it and then leverage it as
much as possible going forward.
d. Position
All businesses have to fight for position in the marketplace.

How the company is going to carve out a piece of the market for
theirself? Are you going to play in a big market against the big names,
or are you going to fight for the top spot in a niche market? There are
pros and cons to each approach, and this is just one potential debate as
far as positioning is concerned. An organization can also think about
positioning in terms of the method of sales, the quality of product are
going to offer, the price points are going to compete at, and more.
Rather than falling into the market accidentally, positioning should be
very much intentional and strategic in nature, and it should be based
on careful market research and projections.
e. Perspective
Every business comes at the market from their own unique

perspective. For example, one might run a business that is focused on
making a classic product that has been for sale for many years –

meaning rather than innovation, perspective on business is one of
quality, execution, and cost control. On the other hand, if anyone is
trying to bring new ideas to the market, that one will have a
perspective and culture that is geared in that direction instead.
A big part of successful strategy is identifying exactly what your

perspective on the market is going to be so you can gear all of your
decisions to match that concept.
There are many benefits to using Mintzberg’s 5 P’s of Strategy.

Not only can this model help you get a good handle on your strategy
right up front, but it can also force to think through a variety of
different angles that may not have considered otherwise. Once
understand how each of the 5 P’s influences the strategic business
decisions, can use them to help steer the organization toward a
prosperous future.
1.6.2 Mintzberg’s Model Of Organizational Structure
In practice organizational structure may differ from proposed model.

Factors influencing organizational structure are industry norms, size,
experience, culture, external forces. Components identified by Mintzberg are
useful for understanding the workflow of organizations.
1. Strategic Apex

Strategic apex is the most senior level in the organization.
NOTES
Management working at this level is referred as board of Directors.
They set the objectives and strategic direction of the organization. They
take major investing and financing decisions. They are not involved in
day to day operations of the business. They do not deal with customers
and suppliers except in exceptional cases. They represent the
organizational face to external stakeholders (person have interest in the
organization like government). Integrity of organization can be judged
by integrity of its board of directors.
2. Middle Line
Middle line managers interpret the objectives and strategies of

the strategic level management into feasible plans and standards to get
the work done through operational managers. They set budget,
receives reports from management accountants, monitors
performances and take corrective actions where necessary. They often
take investing and financing decision to the extent of authority given
by strategic level management.
3. Operational Core
Operational core manager often referred to as operational

managers are involved in day to day running of the organizations.
They are the personnel who actually achieve organizational objectives
under the guidance of senior managers. They deal with external
stakeholder. They are responsible for quality and efficiency of the
organizational results. They provide important information in deciding
strategic directions and budgeting by senior managers, as they now
better what is practicable due their operational experience.

4. Techno structure
Personnel work in techno structure are employees and

managers just in the same way as chain command runs from strategic
apex to operational core. Difference is they do not involve in any
revenue generating or core activity. They only assist managers at all
levels performing core activities to perform it effectively and efficiently
and report whenever corrective actions needs to be taken to achieve the
performance targets and objectives. What activity or functional
department is considered under techno structure depends on industry
like in banking sector accounting is considered a core activity, while in
supermarket accounting is optional activity because supermarket will
not closedown if accountants get absent, they just provides information
on inventory, debtors and creditors information.
5. Support Staff
Support staff is of least importance to the organization as their

absence does not directly affect the performance of organization.
Organization still spends on supporting activities because it provides good
working environment and facilities to core employees to prevent down time.
Departments like canteen, cleaning and maintenance comes under this
heading. As like techno structure, what is considered supporting activities
depends on the industry.
Based on the importance of the components, coordinating

mechanisms and design decisions (design of decision making, lateral
linkages, superstructure and positions), five structural configurations were
established:
a. Simple Structure: The major coordinating mechanism used here is

direct supervision. The key component of the organization in this case
would be the strategic apex, and vertical and horizontal centralization
is incorporated in this configuration.

b. Machine bureaucracy: The coordinating mechanism here is
NOTES
standardization of work processes. The key component of the
organization here would be the techno structure and limited
horizontal decentralization is used.
c. Professional bureaucracy: Standardization of skills is the

coordinating mechanism in this configuration. The operating core
forms the key component and both vertical and horizontal
decentralization is used.
d. Divisionalized form: Standardization of outputs is the coordinating

mechanism and the key component is the middle line. It is
characterized by limited vertical decentralization.
e. Adhocracy: Mutual adjustment is the coordinating mechanism in this

configuration. The support staff or the operating core forms the key
component. Selective decentralization is used in this case.
1.7 RESPONSIBILITIES OF THE BOARD
Board of directors is shareholders of the company. Mostly, the

directors are elected by the shareholders and they in turn elect the Managing
Director. The ultimate authority of the Joint Stock Company lies with the
board of directors. However, the authority of the board is subject to the
limitations imposed by the Memorandum of Association, Articles of
Association of the company and there relevant provisions of the Companies
Act, 1956
There are a variety of views about the roles and responsibilities of a

board of directors and most of these views share common themes. This
document attempts to portray those themes by depicting various views.
Simply put, a board of directors is a group of people legally charged with the
responsibility to govern a corporation. In a for-profit corporation, the board
of directors is responsible to the stockholders -- a more progressive
perspective is that the board is responsible to the stakeholders, that is, to

everyone who is interested and/or can be effected by the corporation. In a
nonprofit corporation, the board reports to stakeholders, particularly the local
communities which the nonprofit serves.
The following are the responsibilities of the board of directors.
1. Determine the Organization's Mission and Purpose
2. Select the Executive
3. Support the Executive and Review His or Her Performance
4. Ensure Effective Organizational Planning
5. Ensure Adequate Resources
6. Manage Resources Effectively
7. Determine and Monitor the Organization's Products, Services

and Programs
8. Enhance the Organization's Public Image
9. Serve as a Court of Appeal
10. Assess Its Own Performance
1.8 CARROL’S FOUR RESPONSIBILITIES OF BUSINESS
Carroll (1991) organized different corporate social responsibilities as a

four-layered pyramid model and called it the pyramid of responsibilities. The
four different responsibilities - economical, legal, ethical and philanthropic
are the layers of the pyramid.
Social responsibility is an ethical framework that obliges every

member of the society to act and behave in a manner that benefits the
entirety. Even business organisations have a social responsibility.

According to the socioeconomic model of corporate social
NOTES
responsibility, a business has a responsibility to promote and uphold
the interest not only of its shareholders but also of its entire
stakeholders—including customers, employees, suppliers, and the
public.
The social responsibility to these stakeholders is actually an

assortment of specific responsibilities that follow a successive fashion,
thus highlighting their interdependence. Below are the four social
responsibilities of a business
1.8.1. Economic responsibility of a business

The most basic responsibility of a business organisation is to
maximise its profitability not only to attend to the interests of its
shareholders but also to contribute to the progress of the economy.

A business is thereby an integral actor in economic development
and nation building. The more traditional economic model of corporate
social responsibility echoes this role. American economist Milton
Friedman once mentioned that prime responsibility of a business is to
maximise profits and to ensure that it is able to pay all taxes levied by
the government.
It is important to note that if a business is unable to produce

profitable products and maintain sustainability, it is impossible to
attend to all other succeeding social responsibilities.
1.8.2. Legal responsibility of a business

The concept of laissez-faire business is virtually inexistent in
modern free-market economies. In the United States, particularly
before 1930, businesses were free to act as they pleased without
restrains or restrictions. This resulted in deplorable practices that made
labourers and consumers vulnerable to exploitation.
Governments have now become regulators of businesses in

order to maintain the integrity of business practices and protect the
interest of the public. Like individual members of the citizenry, a
business also has an obligation to follow all written and codified laws
that concern its existence.
Some of the laws affecting a business include basic business

permits and requirements, tax laws, labour rights, intellectual property
rights, consumer protection, contracts and obligations, and anti-trust
and competition laws, among others.
1.8.3. Ethical responsibility of a business

The decisions and actions of a business organisation affect the
stakeholders in several and varied ways. This fact makes it a moral

actor. It also gives a business an obligation to follow ethical standards,
NOTES
norms, and values of the communities wherein it operates.
An ethically responsible business is able to recognise, interpret,

and act upon multiple principles and values according to standards
prescribed by a particular context or within a given field. It is able to
distinguish right from wrong and make decisions and actions that
serve the interests of concerned parties.
Several business organisations have adopted a written Code of

Conduct to standardise the way managers and employees act or
behave within an identified ethical boundary. However, there are
businesses that do not have any written code. In this case, managers
become the prime moral actors and they base their decisions on their
own standards of morality.
1.8.4. Philanthropic responsibility of a business

The fourth social responsibility of a business is dependent on
whether it sees itself as an active member and contributing entity in the
society. This philanthropic responsibility implies that a business has a
duty to give back in some ways and contribute to the betterment of the
society.
Take note that the first three responsibilities are straightforward.

Businesses organisations are obligated to fulfil their economic, legal, and
ethical obligations in order to ensure their survival. However, the fourth
responsibility is not a mandatory. There are businesses that do not have any
philanthropic programs. This is especially true for smaller or struggling
businesses with limited resources. But over the years, some businesses take
pride of their philanthropic works. This responsibility gives them a sense of
purpose while also promoting their public image. Philanthropy does not
necessarily mean giving cash donations. There are several ways an
organisation can become philanthropic without spending too much. Some

large businesses hold capacity-building seminars for budding and emerging
entrepreneurs. Others participate in fundraising activities.
Summary
In this chapter presented the introduction to the strategic

management, phases of strategic management, impact of strategic
management and its challenges, Environmental Scanning, Process of Strategic
Formulation, Mintzberg’s Models of strategic decision making,
Responsibilities of the Board, Carroll’s Four Social Responsibilities of
Business and with related terms. Strategic Management is that set of
managerial decisions and measures that determines the long run performance
of an organization. The environment consists of both external and internal
factors which need to be continually monitored to conclude development and
forecasts of factors that will influence organizational success. Strategy
implementation is the conversion of chosen strategy into organizational
action. It is also defined as the manner in which an organization should
develop, utilize, and amalgamate organizational structure, control systems,
and culture to follow strategies that lead to competitive advantage and a
better performance. Global strategic management process among business,
government, education, and other sectors of society to define the emerging
global system and help institutions adapt to changes. By gaining new insights
into the emerging world system, social institutions may better understand
how they can adapt to these changes. Environmental scanning is the
monitoring, evaluating and disseminating of information from the external
and internal environments of an organization. Board of directors is
shareholders of the company. Mostly, the directors are elected by the
shareholders and they in turn elect the Managing Director. Carroll (1991)
organized different corporate social responsibilities as a four-layered
pyramid model and called it the pyramid of responsibilities.

Case Study
NOTES
Case Study 1. Strategic Management: The case of Coca-Cola
Introduction
The Coca Cola Company is a leading multinational company in manufacture,

distribution, and marketing of non-alcoholic beverages. The compay owns
over 400 brands, including waters, juice drinks, diet, teas, energy and coffees.
The Cmpany has recorded tremendous progress in respect of sales units,
buyer loyalty, growth in product portfolio, and profitability. This paper seeks
to examine its strategic process and growth stategy that could account for this
trendy growth.
Strategic Management Process
This is a process of defining an organization’s strategy. It also refers to a

process by which the management selects a set of viable strategies that will
facilitate its performance (De Wit & Meyer, 2010).
This is a continuous process that analyzes and appraises both the business
and the industry in which an organization operates, and puts up goals to
meet current and future competition (Singh, 2008). To enable its future
business success, Coca Cola has adopted a strategic management process that
follows a four-step process; environmental scanning, strategy formulation,
strategy implementation, and strategy evaluation.
Diagrammatic logical flow of strategic process
 Environmental scanning-Coca-Cola Company undertakes a focused

diagnosis of its current and potential business environment before

launching its business. All external and internal influences relevant to
its operations are analyzed on a continuous basis. Since the company
operates globally, global environmental factors likely to impact on its
business gain great emphasis to enable it succeed in its expansion
process (Singh, 2008). Environmental scrutiny involves facets such as
tax policies, employment laws, environmental regulations, and
political stability.
 Strategy formulation- it is a process of selecting the best course of
action to accomplish organizational objectives and purpose (Hill &
Jones, 2009). In Coca Cola, the process of strategic formulation begins
with creation of a mission and vision statements. This mission
statement clarifies the purpose of the organization, its values, and
often serves to communicate with internal and external parties and
stakeholders about its strategic direction (De Wit & Meyer, 2010). The
vision of the company has been beneficial in supporting strategy
formulation in which it says it focuses to remain a low-cost leader
with an aim to gain customer loyalty and increase sales.
 Strategy implementation– it is the process of making the chosen
strategy functional or operational as originally planned. It entails
modeling the structure of organization, resource distribution,
designing decision making process, and management of human
resources. To achieve its strategy implementation process, Coca Cola
Company has ensured quality management system that helps in
guiding and coordinating its activities to guarantee quality. It also
develops a control framework for guiding organizational and
managerial systems and processes. The company believes that
succeeding in a new market relies on a proper formulation of excellent
strategies and keeping them (De Wit & Meyer, 2010). Therefore,
quality controls have been the guiding principles that have enabled its
multilateral strategy.
 Strategy evaluation-it is usually the last phase of strategic process. In
this process, the fundamental activities that Coca has considered are:
appraisal of external and internal environment necessary for strategy
formulation, performance measurement, and conducting remedial

action. This evaluation process is imperative in ensuring that an
NOTES
organization succeeds in meeting its objectives.
Growth Strategies
Coca-Cola Company utilizes the Multi-domestic strategies in

nurturing its businesses. In this strategy, subsidiaries independently produce
products in different countries based on the prevailing different
environmental factors. The strategy considers numerous factors such as
culture, status, economic status among other factors. The choice of this
approach has been recognition of the fact that domestic corporations are
supposed to be responsive to the demands of the local market (Singh, 2008).
Strategic growth through diversification
The company has sustained its growth through diversification in

several but related products. This process has been adopted in order to
expand its product portfolio with an aim of remaining relevant to the
expanding needs of the global market. To achieve this, the company ensures
that each of its portfolios is strategically linked to other products, logo, and
thematic image of quality reputation and wholesomeness (Singh, 2008).
The choice of this strategy has been advantageous in several ways.

Firstly, it is meant to leverage itself against the vulnerabilities and threats of
competition. Secondly, the company has been able to benefit from the
economies of scale. Lastly it has the potential of utilizing its expertise and
technology gained in one market in order to enter a different market and
product.
Growth through Differentiation strategy
It is simply a process in which an organization distinguishes its

products, services or offering from its competitors. This strategy has enabled
the Company to gain pricing power. To achieve in this strategy, the company
has carefully ridden on the advantages of product quality improvement,
brand strength and buyer loyalty (Hill & Jones, 2009). Coca has also

successfully used effective and deficient distribution of its products as a
means of differentiating its self from rival parties such as Pepsi.
Decentralization- the Company believes in a decentralized strategic

management process in which domestic corporation are given the mandates
by the parent company. It uses this strategic management process on the
basis that coordination between the parent company and its numerous
foreign subsidiaries is generally costly and complex process.
Case Study 2
IKEA Company’s Marketing Strategy Case Study
Success factors
The success of IKEA is attributed to the strict self-service policy. In this

context, the concept of flat packages is effective and reduces labor, storage
and transportation costs. IKEA allows customers to customize products in a
bid to optimize client satisfaction.
The introduction of low-priced furniture and discount prices is hailed as the

leading factor in making the company a success story. Apparently, IKEA’s
idea of targeting a market segment that is price-conscious is vital in attracting
customers. Sufficient production capacity allows IKEA to meet the current
market demand, as well as, reduce the unnecessary costs.
IKEA’s product strategy is to establish priorities that consider the current

market and consumer trends. In this context, IKEA utilizes a product or price
matrix to determine a commodity’s retail price.
IKEA’s value proposition
IKEA is overly optimistic in its growth plans for the United States market.
Apparently, the majority of IKEA’s competitors in the United States are the
world’s largest furniture retailers. In this regard, competitors such as Wal-
Mart, Office Depot and Costco are known for aggressive market approach.

The huge retail footprint from the American competitors is a barrier for IKEA.
NOTES
Since the American competitors deal with price-sensitive customers, product
margins are relatively low. In addition, the industrial environment for
furniture products in America is subject to harsh economic conditions.
In order to attract customers and improve on the value proposition, IKEA

should intensify market research. In this context, IKEA’s ability to identify
market elements of the target audience is vital in aligning products and
services. In addition, the importance of launching high-profile advertising
strategy in improving value proposition is critical.
However, precision and clarity are vital in ensuring that advertisements

capture the attention of the target audience. It is advisable for IKEA to test a
value proposition as a way of promoting continuous improvement.
Moreover, it is important to use facts and figures when determining the value
proposition for both customers and the enterprise.
Product strategy
Compared to other leading retailers such as Wal-Mart and Office Depot,

IKEA’s product range does not meet the expectations of the target market. In
this regard, it is important for IKEA to change its product strategy. IKEA can
change product strategy by responding to customer preferences.
In addition, IKEA can improve products through reengineering or

technological advancement to maintain the relevance of the brand. IKEA can
keep track of the product’s life-cycle to determine when to discontinue or
replace the same items. However, it is critical for IKEA to expand the product
line-up by developing new item models and prices.
IKEA’s mini-outlets
IKEA should introduce mini-outlets across the United States. The strategy is
important for business expansion and customer service. The strategy will
improve IKEA’s strategy to serve customers located in various parts of the

country. Moreover, customers will experience the brand and compare the
same with other competitors.
IKEA can evaluate competitiveness by establishing smaller and satellite stores

across the country. In addition, IKEA can improve customer service by
reducing storage costs. Consequently, the strategy ensures that customers do
not incur transportation costs.
IKEA in ten years
IKEA’s value proposition will improve in the future as the company

expands the market territories. The company’s adaptability in large markets
especially in the United States and developing countries will be vital for the
improved value proposition. In this regard, IKEA’s product line-up will
enlarge to address diverse customer preferences.
Questions and Exercises

1. Define Strategy.
2. What is Strategic Management?
3. Expand the term SWOT.
4. What is meant by environmental scanning?
5. What is meant by strategy evaluation?
6. What are Mintzberg’s 5 P’s of Strategy?
7. What is corporate board?
8. Explain the importance of Strategic Management.

9. Explain about the Strategic Management Process.
10. Explain in detail about the strategy formulation.
11. Distinguish between strategy formulation and strategy
implementation.
12. Explain about the strategy evaluation.
13. Explain in detail about the impact of globalization and its challenges
to strategic management.
14. What is strategy based on global perspectives? Explain.
15. Explain the importance of Environmental scanning.
16. Explain the various types of environmental scanning.
17. Explain the process of strategy formulation.
18. Mintzberg’s 5 P’s of Strategy in decision making – Explain.
19. Mintzberg’s Model Of Organizational Structure – Explain.

20. Enumerate the duties and responsbiliites of the board.
NOTES
21. Explain the carrol’s responsibilities in detail.
Further reading
1. Hitt , M.A, R.D Ireland and R E Hoskission, (1996) Strategic Management :

Competitiveness and globalization, West publishing New York
2. John A. Pearce II and Richard B. Robinson Jr.,(1988) Strategic Management ,

All India Traveller Bookseller, New Delhi
3. Lomash Sukul & Mishra P.K.(2003) Business policy and Strategic

Management, Vikas Publishing House, New Delhi
4. Thomas L. Wheelen and Hunger J. David (2002) Concepts in Strategic

Management and Business Policy, Pearson Education Asia, New Delhi.

UNIT II
ENVIRONMENTAL SCANNING AND INDUSTRY
ANALYSIS
Structure
2.1 External Environmental analysis
2.3 Identifying external strategic factors
2.4 Industry analysis: Porter’s approach to Industry analysis
2.5 Stake holder analysis & Non market strategy
2.6 Categorizing international industries
2.7 Strategic types
2.8 Competitive intelligence
2.9 Strategic audit
2.10 EFAS

NOTES
 External Environmental analysis

 Environmental Scanning
 Identifying external strategic factors
 Industry analysis: Porter’s approach to Industry analysis
 Stake holder analysis & Non market strategy
 Categorizing international industries
 Strategic types
 Competitive intelligence
 Strategic audit
 EFAS
Strategic analysis is about the structuring of the relationship between

a business and its environment. The environment in which operates has a
greater influence on their successes or failures of any business. The external
environment which is dynamic and changing holds both opportunities and
threats for the organizations. The organisations while attempting at strategic
realignments, try to capture these opportunities and avoid the emerging
threats. At the same time the changes in the environment affect the
attractiveness or risk levels of various investments of the organizations or the
investors.
2.1 EXTERNAL ENVIRONMENT ANALYSIS
Environmental analysis is a process to identify all the external and

internal elements, which can affect the organization’s performance. The
analysis entails assessing the level of threat or opportunity the factors might
present. These evaluations are later translated into the decision-making
process. The analysis helps align strategies with the firm’s environment.

Businesses are greatly influenced by their environment. All the
situational factors which determine day to day circumstances impact firms.
So, businesses must constantly analyze the trade environment and the
market.
There are many strategic analysis tools that a firm can use, but some
are more common. The most used detailed analysis of the environment is
the PESTLE analysis. This is a bird’s eye view of the business conduct.
Managers and strategy builders use this analysis to find where their market
currently. It also helps foresee where the organization will be in the future.
External environment analysis is an important part of strategic
management.
2.1.1 PESTEL Analysis
PESTEL analysis includes Political, Economic, Social, Technological,

Environmental and Legal analysis. It is an external environment analysis for
conducting a strategic analysis or carrying out market research. It offers a
certain overview of the varied macro-environmental factors that the
company has to consider.
 Political factors analysis is related with how and to what extent a

government interferes in the economy. Specifically, political factors
include tax policy, labor law, environmental law, trade restrictions,
tariffs, and political stability. Political factors may also be related
with goods and services which the government allows (merit goods)
and those that the government does not want to allow (demerit
goods). The government can have a great influence on the overall
health, education, and infrastructure of a country.
 Economic factors contain factors such as economic growth, interest

rates, exchange rates and the inflation rate. These factors may have
an influential effect on how the businesses operate and make
decisions. For example, interest rates can affect the firm's cost of
capital and thereby influence business growth and expansion.

Exchange rates can affect the costs of export and the supply and price
NOTES
of imports.
 Social factors contain issues such as health consciousness, population

growth rate, age distribution, career attitudes and emphasis on
safety. Trends in the social factors may affect the demand for a
company's goods and how the company operates. For example,
ageing population leads to smaller and less-willing workforce (and
increases the cost of labor). Moreover, companies may change
various management strategies in sync with the social trends (such as
recruiting more females).
 Technological factors include ecological and environmental aspects,

such as R&D activity, automation, technology incentives and the rate
of technological change. They can determine barriers to entry,
minimum efficient production level and influence outsourcing
decisions. Furthermore, technological shifts can affect costs, quality,
and lead to innovation.
 Environmental factors are the conditions such as weather, climate,

and climate change, which may especially influence tourism,
farming, and insurance sectors. Growing awareness to climate
change are increasing the interest in how companies operate and
what products they offer; it is both creating new markets and
damaging the existing ones.
 Legal factors include laws pertaining to discrimination, consumer

affairs, antitrust, employment, and health and safety. These factors
can affect the operations, costs, and the demand for the products.
Legal factors can also influence the brand value and reputation of a
company. They are increasingly paid more attention to in the current
decade.
2.2 ENVIRONMENTAL SCANNING
Environmental Scanning is a process of analyzing internal and

external factor of the environment. Environment scanning is a process in

which the organization undertakes a study to identify the opportunities and
threats in an industry. Environmental scanning is a part of SWOT Analysis.
The information obtained through environmental scanning can be used by
leaders to design new objectives and strategies or modify existing objectives
and strategies. An organization must be agile in responding to environmental
challenges while making most of the available opportunities.
Before an organization can begin strategy formulation, it must scan

the external environment to identify possible opportunities and threats and
its internal environment for strengths and weakness. Environmental
scanning is the monitoring, evaluating and disseminating of information
from the external and internal environments to key people within the
corporation. It is the tool that a corporation uses to avoid strategic surprise
and to ensure long term health.
2.2.1 External Strategic Factors
Any planning activity involves thinking about the future. However,

the focus of strategic planning is not on predicting the future, but instead on
making better decisions here and now in order to reach a desired future.
Because the future cannot be known with certainty, farm business managers
must make certain assumptions about what the future will hold. An
important part of the strategic planning process is to recognize and explicitly
state any key assumptions about what the future may hold.
In conducting an environmental scan, the business manager is asked

to review, evaluate, and disseminate information from the external and
internal environments. The external environmental scan will focus on things
outside the farm gate. There are two facets of this outside review to address:
1) the societal environment and 2) the industry environment.

NOTES
Source: http://mdcegypt.com
a) The societal environment
The societal environment includes those general forces that do not

directly touch on the short-term activities of the organization but that can,
and often does, influence long-term decisions. These forces include economic
forces, technology drivers, changes in government policy or regulations or
political-legal forces, and socio cultural forces. Trends in the economic area
can have obvious implications for the business. This in turn can lead to lower
commodity prices and farm incomes for everyone in the industry. Rising
incomes of consumers in other countries is another example. With increased
income, these consumers will improve their diets.

b) The industry environment
In conducting an external environmental scan, business manager also

must assess various industry forces. Michael Porter, an authority on
competitive strategy, contends that there are five forces that should be
accounted for in conducting an industry analysis. The collective strength of
these forces, he contends, determines the ultimate profit potential in the
industry, where profit potential is measured in terms of long-run return on
invested capital.
New entrants usually bring new capacity and competition for

customers and resources. This is a threat to existing businesses in the
industry. The threat of entry depends on presence of entry barriers. Entry
barriers make it difficult for another business to enter the industry.
Since the introduction of this five forces model for industry analysis,
others have suggested that a sixth force should be included. This is force of
other stakeholders. These stakeholders include federal, state, and local

governmental units. These units of government can impose various limits on
NOTES
the actions that businesses can take. In Indiana, the desire for green space in
and around communities has resulted in various types of land-use
regulations. Other stakeholders also influence cost of inputs. These
stakeholders can include creditors, special-interest groups, the government,
and local community organizations. Changing our earlier figure to recognize
this additional force makes the model more complete.
2.3 IDENTIFYING EXTERNAL STRATEGIC FACTORS
Companies often respond differently to the same environmental

changes because of differences in the ability of managers to recognize and
understand external strategic issues and factors. Few firms can successfully
monitor all important external factors. Even though managers agree that
strategic importance determines what variables are consistently tracked, they
sometimes miss or choose to ignore crucial new developments. Personal
values of a corporation’s mangers and the success of current strategies are
likely to bias mangers’ perception of what is important to monitor in the
external environment as well as their interpretations of what they
perspective. This tendency is known as strategy myopia: the willingness to
reject unfamiliar as well as negative information. If a firm needs to change its
strategy, it might not be gathering the appropriate external information to
change strategies successfully.

The Issues Priority Matrix is a way to identify and analyze
developments in the external environment. Managers can use it to decide
which environmental trends should be merely scanned (low priority) and
which should be monitored as strategic factors (high priority).
Steps to Building the Issues Priority Matrix:
* Identify likely trends emerging in societal and task environments

* Strategic environmental issues - important trends that determine
what the industry will look like in the future
* Assess probability (low-medium-high scale) of these trends
occurring
* Ascertain impact (low-medium-high scale) of these trends on the
corporation External strategic factors is the key environmental trends judged
to have both a medium to high probability of occurrence and impact.
2.4 INDUSTRY ANALYSIS
Industry analysis is a market assessment tool used by businesses and

analysts to understand the competitive dynamics of an industry. It helps
them get a sense of what is happening in an industry. Industry analysis, for
an entrepreneur or a company, is a method that helps it to understand its
position relative to other participants in the industry. It helps them to identify

both the opportunities and threats coming their way and gives them a strong
NOTES
idea of the present and future scenario of the industry.
2.4.1 Industry analysis and competition
Competition within an industry is grounded in its underlying

economic structure. It goes beyond the behaviour of current competitors.
The state of competition in an industry depends upon five basic competitive
forces. The collective strength of these forces determines profit potential in
the industry. Profit potential is measured in terms of long-term return on
invested capital. Different industries have different profit potential just as the
collective strength of the five forces differs between industries.
2.4.2 Industry analysis as a tool to develop a competitive strategy
Industry analysis enables a company to develop a competitive strategy

that best defends against the competitive forces or influences them in its
favour. The key to developing a competitive strategy is to understand the
sources of the competitive forces. By developing an understanding of these
competitive forces, the company can:
 Highlight the company’s critical strengths and weaknesses (SWOT

analysis)
 Animate its position in the industry
 Clarify areas where strategic changes will result in the greatest
payoffs
 Emphasize areas where industry trends indicate the greatest
significance as either opportunities or threats
2.4.3 The Need for Industry Analysis
Industry analysis is an essential responsibility for an equity research

analyst. As an equity research analyst, you need to analyze a particular
industry, see its past trends, demand-supply mechanics, and future outlook.
The industry analysis report sheds light on the economic health of the

company, underlining the understanding whether it will be beneficial for the
stakeholders to invest in such a company and offering recommendations
and/or corrective actions to take in case of any untoward developments in
the company.
2.4.4 Types of industry analysis
There are three commonly used and important methods of performing

industry analysis. The three methods are:
A. Competitive Forces Model (Porter’s 5 Forces)

B. Broad Factors Analysis (PEST Analysis)
C. SWOT Analysis
A. Competitive Forces Model (Porter’s 5 Forces)
One of the most famous models ever developed for industry analysis,
famously known as Porter’s 5 Forces, was introduced by Michael Porter in his
1980 book “Competitive Strategy: Techniques for Analyzing Industries and
Competitors.”
An entrepreneur prior to setting up his business must do a lot of research

and planning. One such important aspect is conducting industry analysis. This
helps him analyse the scope for his product or service, the level of competition
and other such crucial factors. Let us study Porter’s Five Forces which is a useful
tool to evaluate the industry and its five important factors. Prof. Michael Porter
identified 5 Forces that impact the profitability of an Industry in his classic
book (1980) on Competitive Strategy. This model helps in identifies and then
helps in analyzing the main five competitive forces prevailing in every industry.
It also helps in discovering the strengths and weaknesses of an industry.
According to Porter, analysis of the five forces gives an accurate

impression of the industry and makes analysis easier. In our Corporate &
Business Strategy course, we cover these five forces and an additional force
— power of complementary good/service providers.

NOTES
Source:corporatefinanceinstitute
1. Intensity of industry rivalry
The number of participants in the industry and their respective

market shares are a direct representation of the competitiveness of the
industry. These are directly affected by all the factors mentioned
above. Lack of differentiation in products tends to add to the intensity
of competition. High exit costs like high fixed assets, government
restrictions, labor unions, etc. also make the competitors fight the
battle a little harder.

2. Threat of potential entrants
This indicates the ease with which new firms can enter the
market of a particular industry. If it is easy to enter an industry,
companies face the constant risk of new competitors. If the entry is
difficult, whichever company enjoys little competitive
advantage reaps the benefits for a longer period. Also, under difficult
entry circumstances, companies face a constant set of competitors.
3. Bargaining power of suppliers
This refers to the bargaining power of suppliers. If the industry

relies on a small number of suppliers, they enjoy a considerable
amount of bargaining power. This can affect small businesses because
it directly influences the quality and the price of the final product.
4. Bargaining power of buyers
The complete opposite happens when the bargaining power

lies with the customers. If consumers/buyers enjoy market power,
they are in a position to negotiate lower prices, better quality, or
additional services and discounts. This is the case in an industry with
more competitors but with a single buyer constituting a large share of
the industry’s sales.
5. Threat of substitute goods/services
The industry is always competing with another industry in

producing a similar substitute product. Hence, all firms in an industry
have potential competitors from other industries. This takes a toll on
their profitability because they are unable to charge exorbitant prices.
Substitutes can take two forms – products with the same
function/quality but lesser price, or products of the same price but of
better quality or providing more utility.
B. Broad Factors Analysis (PEST Analysis)

Broad Factors Analysis, also commonly called the PEST Analysis
NOTES
stands for Political, Economic, Social and Technological. PEST analysis is a
useful framework for analyzing the external environment. To use PEST as a
form of industry analysis, an analyst will analyze each of the 4 components of
the model. These components include:
1. Political
Political factors that impact an industry include specific

policies and regulations related to things like taxes, environmental
regulation, tariffs, trade policies, labor laws, ease of doing business,
and the overall political stability.

2. Economic
The economic forces that have an impact include inflation,

exchange rates (FX), interest rates, GDP growth rates, conditions in
the capital markets (ability to access capital), etc.
3. Social
The social impact on an industry refers to trends among

people and includes things such as population growth, demographics
(age, gender, etc), and trends in behavior such as health, fashion, and
social movements.
4. Technological
The technological aspect of PEST analysis incorporates factors

such as advancements and developments that change the way a
business operates and the ways in which people live their lives (i.e.
advent of the internet).
C. SWOT Analysis
SWOT Analysis stands for Strengths, Weaknesses, Opportunities, and

Threats. It can be a great way of summarizing various industry analysis
methods and determining their implications for the business in question. The
above image comes from a section of CFI’s Corporate & Business Strategy
Course.

NOTES
2.4.5 Importance of Industry Analysis
 Industry analysis, as a form of market assessment, is crucial

because it helps a business understand market conditions.
 It helps them forecast demand and supply and consequently,
financial returns from the business.
 It indicates the competitiveness of the industry and costs
associated with entering and exiting the industry.
 It is very important when planning a small business.
 Analysis helps to identify which stage an industry is currently
in; whether it is still growing and there is scope to reap
benefits, or has it reached its saturation point.

With a very detailed study of the industry, entrepreneurs can get a
stronghold on the operations of the industry and may discover untapped
opportunities. It is also important to understand that industry analysis is a
very subjective method and does not always guarantee success. It may
happen that incorrect interpretation of data leads entrepreneurs to a wrong
path or into making wrong decisions. Hence, it becomes important to
understand one’s motive and collect data accordingly.
2.4.6 Competitive Advantage
A competitive advantage is an attribute that allows a company to

outperform its competitors. Competitive advantage allows a company to
achieve superior margins compared to its competition and
generates value for the company and its shareholders. A competitive
advantage must be difficult, if not impossible, to duplicate. If it is easily
copied or imitated, it is not considered a competitive advantage.
2.4.7 Constructing a Competitive Advantage
Before a competitive advantage can be established, it is important to

know the:
1. Benefit: A company must be clear what benefit(s) their product or

service provides. It must offer real value and generate interest.
2. Target Market: A company must establish who is purchasing from
the company and how it can cater to their target market.
3. Competitors: It is important for a company to understand other
competitors in the competitive landscape.
To construct a competitive advantage, a company must be able to detail

the benefit that they provide to their target market.

NOTES
#1 Cost Leadership
In a cost leadership strategy, the objective is to become the lowest-cost
producer. This is achieved through large-scale production where companies
can exploit economies of scale.
If a company is able to utilize economies of scale and produce products at a

cost lower than competitors, the company is then able to establish a selling
price that is unable to be replicated by companies. Therefore, a company
adopting a cost leadership strategy would be able to reap profits due to its
significant cost advantage over its competitors.
#2 Differentiation
In a differentiation strategy, a company’s products or services are
differentiated from that of its competitors. This can be done by delivering
high-quality products or services to customers or innovating products or
services.
If a company is able to differentiate successfully, the company would be able

to set a premium price on its products or services.
#3 Focus
In a focus strategy, a company focuses its product or services towards a
narrow target market segment. This strategy is successful if customers have
different needs and want and the company is able to successfully create
products/services that can cater to these customers. The focus strategy also
has two variants;
1. Cost-focus: Lowest-cost producer in a narrow market segment

2. Differentiation-focus: Differentiated products/services in a narrow
market segment
2.4.8 Competitive Advantage in the Marketplace

Three great examples include:

1. McDonald’s: McDonald’s main competitive advantage relies on a cost
leadership strategy. The company is able to utilize economies of scale
and produce products at a low cost and as a result, offer products at a
lower selling price than that of its competitors.
2. Louis Vuitton: Louis Vuitton’s advantage relies on both
differentiation and a differentiation-focus strategy. The company is
able to be a leader in the luxury market and command premium
prices through product uniqueness.
3. Walmart: Walmart’s advantage relies on a cost leadership strategy.
Walmart is able to offer ‘every day low prices’ through economies of
scale.
2.4.9 Importance of Competitive Advantage

A competitive advantage distinguishes a company from its competitors. It
contributes to higher prices, more customers, and brand loyalty. Establishing
such an advantage is one of the most important goals of any company. In
today’s world, competitive advantage is essential to business success.
Without it, companies will find it difficult to survive.
2.4.10 Rivalry among Existing Firms
Rivalry refers to the degree to which firms respond to competitive

moves of the other firms in the industry. Rivalry among existing firms may
manifest itself in a number of ways- price competition, new products,
increased levels of customer service, warranties and guarantees, advertising,
better networks of wholesale distributors, and so on.
The degree of rivalry in and industry is a function of a number of

interacting structural features:
 Rivalry tends to intensify as the number of competitors increases and

as they firms become more equal in size and capability.
 Market rivalry is usually stronger when demand for the product is
growing slowly.

 Competition is more intense when rival firms are tempted to use price
NOTES
cuts or other marketing tactics to boost unit volume.
 Rivalry is stronger when the costs incurred by customers to switch
their purchases from one brand to another are low.
 Market rivalry increases in proportion to the size of the payoff from a
successful strategic move.
 Market rivalry tends to be more vigorous when it costs more to get
out of a business than to stay in and compete.
 Rivalry becomes more volatile and unpredictable the more diverse
competitors are in terms of their strategies, their personalities, their
corporate priorities, their resources, and their countries of origin.
 Rivalry increases when strong companies outside the industry acquire
weak firms in the industry and lunch aggressive, well-funded moves
to transform their newly-acquired firms into major market contenders.
Two principles of competitive rivalry are particularly important: (1) a

powerful competitive strategy used by one company intensifies competitive
pressures on the other companies, and (2) the manner in which rivals employ
various competitive weapons to try to outmanoeuvre one another shapes "the
rules of competition" in the industry and determines the requirements for
competitive success.
2.4.11 Bargaining Power of Suppliers
The Bargaining Power of Suppliers, one of the forces in Porter’s Five

Forces Industry Analysis Framework, is the mirror image of the bargaining
power of buyers and refers to the pressure that suppliers can put on
companies by raising their prices, lowering their quality, or reducing the
availability of their products. This framework is a standard part of business
strategy.
The bargaining power of the supplier in an industry affects

the competitive environment and profit potential of the buyers. The buyers
are the companies and the suppliers are those who supply the companies.

The bargaining power of suppliers is one of the forces that shape the
competitive landscape of an industry and helps determine the attractiveness
of an industry. The other forces include competitive rivalry, bargaining
power of buyers, the threat of substitutes, and the threat of new entrants.
2.4.12 Types of Suppliers

Depending on the industry, there are various types of suppliers. A list of
suppliers include:
 Manufacturers and Vendors: Sells products to distributors,

wholesalers, and retailers.
 Distributors and Wholesalers: Purchases goods in medium/high
quantity for sale to retailers or local distributors.
 Independent Suppliers / Independent Craftspeople: Sells unique
products directly to retailers or agents.
 Importers and Exporters: Purchase products from manufacturers in
one country and export to a distributor in a different country.
 Drop shippers: Suppliers of products for different kinds of
companies.
2.4.13 Determining Factors of Bargaining Power of Suppliers

There are five major factors when determining the bargaining power of
suppliers:
1. Number of suppliers relative to buyers

2. Dependence of a supplier’s sale on a particular buyer
3. Switching cost (switching costs of supplier)
4. Availability of suppliers for immediate purchase
5. Possibility of forward integration by suppliers
2.4.14 When is Bargaining Power of Suppliers High/Strong?
 Switching costs of buyers are high

 Threat of forward integration is high
 Small number of suppliers relative to buyers
 Low dependence of a supplier’s sale on a particular buyer

 Switching costs of suppliers are low
NOTES
 Substitutes are unavailable
 Buyer relies heavily on sales from suppliers
2.4.15 When is Bargaining Power of Suppliers is Low/Weak?
 Switching costs of buyers are low

 Threat of forward integration is low
 Large number of suppliers relative to buyers
 High dependence of a supplier’s sale on a particular buyer
 Switching costs of suppliers are high
 Substitutes are available
 Buyer does not rely heavily on sales from suppliers
2.4.16 Purpose of Bargaining Power of Suppliers Analysis

When doing an analysis of supplier power in an industry, low
supplier power creates a more attractive industry and increases profit
potential as buyers are not constrained by suppliers. High supplier power
creates a less attractive industry and decreases profit potential as buyers rely
more heavily on suppliers.
2.4.17 Threat of New Entrants
The Threat of New Entrants, one of the forces in Porter’s Five

Forces industry analysis framework, refers to the threat that new competitors
pose to current players within an industry. It is one of the forces that shape
the competitive landscape of an industry and helps determine the
attractiveness of an industry. The framework was developed by Michael
Porter at Harvard University.
The other forces are a competitive rivalry, bargaining power of

buyers, the threat of substitutes, and bargaining power of suppliers.

24.18 Barriers to New Entry
The threat of new entrants depends on the barriers to entry. The
barriers refer to the existence of high costs or obstacles that can deter new
competitors from entering into the industry.
2.4.19 Barriers to entry include:
 Brand loyalty: Customers in the industry show a strong preference for

the products and/or services of existing companies.
 Cost advantages: Existing companies can easily produce and offer its
products and/or services at a lower cost/price than that of new
entrants.
 Government regulations
 Capital requirement: A high fixed cost to enter into an industry, i.e.
telecommunications.
 Access to suppliers and distribution channels: Existing companies
own exclusive rights to suppliers and distribution channels.
 Retaliation: Existing companies may collude and deter new entrants.
2.4.20 High Threat of New Entrants When:
 Low brand loyalty in the current industry

 Current brand names are not well-known
 Low initial capital investment
 Access to suppliers and distribution channels are easy
 Weak government regulations
 No threat of retaliation
 Proprietary technology is not required
2.4.21 Low Threat of New Entrants When:
 High brand loyalty in the current industry

 Brand names are well-known
 High initial capital investment
 Little to no access to suppliers and distribution channels
 Strong government regulations

 No threat of retaliation
NOTES
 Proprietary technology is required to be successful
 The threat of retaliation from existing competitors
2.5 STAKEHOLDER ANALYSIS & NON- MARKET

STRATEGY
Stakeholders are people who have an interest in the success and

potential failure of a company. The interest may be internal by owners,
management and investors. It can also be external with political and
community interests. Stakeholders operate in either the market or non-market
environment, meaning an internal stakeholder operates as an internal
component of the company and non-market stakeholders operate in an
external capacity.
2.5.1 Stakeholder
Stakeholders are individuals, groups, communities or other

businesses that have an interest in a company. The interest may be
cooperative or adversarial. Usually, those with financial interests are
cooperative, working with company leaders to ensure the profitability,
growth and overall success of the company.
When a company doesn't do well, internal stakeholders experience

financial loss, either on paper or in actuality. Adversarial stakeholders often
oppose some initiative the company has and makes its voice heard. While
external, non-market stakeholders are not always adversarial, they are
usually the group that internal stakeholders need to romance to help facilitate
growth in the external marketplace.
2.5.2 Market and Non-Market Activities Difference
The difference between market activities and non-market

activities revolves around a financial stake in the company. The internal,
market stakeholders are owners, partners, investors and shareholders. They
also include employees. This group of internal shareholders has a vested

financial interest in the successful implementation of business goals. Lenders
and creditors are also considered market stakeholders. All activities are
designed to create an economic exchange between the company and
consumers.
The non-market stakeholders are based outside of the organization

and have no vested financial interest in the company. These stakeholders may
be affected by the economic impact of the company's success or failure. These
stakeholders include political groups, media outlets, the general public and
other businesses. All activities are designed to provide input, facilitate or
block the economic exchange between companies and consumers.
2.5.3 Market Activities Example
An example of market activities is when a company opens a new store

in a new community. The goal of every internal stakeholder is to build the
economic exchange - the sale of goods in the new location. This includes the
media campaign and marketing, hiring the right people to manage and work
in the location and operations to fulfill merchandise needs. Everyone's role
internally is to drive business in, make more sales and increase revenues to
make the new location profitable.
When looking at market activities for stakeholders, the driving force is

revenue generation. Everything internal stakeholders should focus on is
building stronger avenues for more sales or higher dollars per sale. This
could be raising pricing, cross and upsells or even cost cutting measures to
improve profit margins.
2.5.4 Non-Market Activities
Using the non-market example of the company opening a new

location in a new community, we can look at the potential activities of
external stakeholders. If the store is a tattoo parlor that is located near an
elementary school, the non-market stakeholders may be divided in interests.
There may be community leaders in business development seeking to
diversify the community business model with new types of businesses.

A backlash may happen by the school parents and leaders who are
NOTES
concerned with the proximity and exposure to potentially bad characters. If
the community's voice is loud enough in protest and petition, building and
business permits may not be issued, preventing the opening of the location.
No business wants to face these problems.
Every business leader must balance the needs and desires of market
stakeholders with those of non-market stakeholders. Without community
support, the ability of internal stakeholders to garner community support
becomes difficult. This has a negative effect on economic exchange and
company growth.
2.6 CATEGORIZNG INTERNATIONAL INDUSTRIES
World industries vary on continuum from multi domestic to global.

A multi domestic industry is a collection of essentially domestic industries,
like retailing and insurance, in which products or services are tailored
specifically for a particular country. The activities in a subsidiary of an MNC
in this type of industry are essentially independent of the activities of the
MNC’s subsidiaries in other countries. In each country, the MNC tailors its
products or services to the specific needs of consumer in that particular
country. A global industry, in contrast, operates worldwide, with MNC’s
making only small adjustments for country-specific circumstances. A global
industry is one in which the activities of an MNC in one country are
significantly affected by its activities in other countries. MNCs produce
products or services in various locations throughout the world and sell them
all over the world, making only minor adjustments for specific country
requirements. Examples of global industries are commercial aircraft,
television sets, semiconductors, copiers, automobiles, watches and tires. The
largest industrial corporations in the world in terms of dollar sales are, for the
most part, multinational corporations operating in global industries.
The factors that tend to determine whether an industry will be

primarily multi domestic or primarily global are (1) the pressure for co

ordination within the multinational corporations operating in that industry
and
(2) the pressure for local representatives on the part of individual

country markets. To the extent that the pressure for co ordination is strong
and the pressure for local responsiveness is strong and the pressure for co
ordination is weak for multinational corporations in an industry, that
industry will tend to become multi domestic. Between these two extremes lie
industries with varying characteristics of both multi domestic and global
industries.
2.6.1 Strategic group
Strategic group is a group of firms within an industry which face the

same environmental forces, have same resources and follow similar strategy
in response to the environmental forces. These strategies include pricing
practices, level of technology investment and leadership, product scope and
scale capabilities, and product quality. By identifying strategic groups,
analysts and managers are better able to understand the different types of
strategies that multiple firms are adopting within the same industry. For
example, the restaurant industry can be divided into several strategic groups
including fast-food and fine-dining based on variables such as preparation
time, pricing and presentation. The number of groups within an industry and
their composition depends on the dimensions used to define the groups.
To carry on the value chain analysis it is very important that the firm
identifies the strategic group to which it belongs.
Porter suggests the following dimensions to identify differences in

firm strategies within an industry:
i) specialization
ii) brand identification
iii) a push versus pull marketing strategy
iv) vertical integration

v) channel selection
NOTES
vi) product quality
vii) technological leadership
viii) cost position
ix) service,
x) price policy,
xi) financial and operating leverage,
xii) relationship with parent company,
xiii) Relationships with home and host government.
We should try to locate in the same group all firms with comparable
characteristics and following a similar competitive strategy.
Essentially the concept of strategic grouping is a very pragmatic

approach aimed at cataloguing firms within an industry in accordance with
the way they have chosen to seek competitive advantage. This segmentation
is useful when one faces a high diversity of competitive positions in a fairly
complex and heterogeneous industry.
2.7 STRATEGIC TYPES
A strategic type is a category of firms based on a common strategic

orientation and a combination of structure, culture and processes consistent
with that strategy.
According to Miles and Snow, competing firms within a single

industry can be categorized on the basis of their general strategic orientation
into one of four basic types: 1. Defenders, 2. Propectors, 3. Analyzers and 4.
reactors. The distinction helps explain why companies facing similar
situations behave differently and why they continue to do so over a long
period of time. These general type have the following characteristics.

Defenders are companies with a limited product line that focus on
improving the efficiency of their existing operations. This cost orientation
makes them unlikely to innovate in new areas.
2.8 COMPETITIVE INTELLIGENCE
Competitive intelligence is an important aspect of strategic

management. It helps decision-makers measure their performance against
rivals and make effective future strategies. However, in an age of surplus
information, shifting through the right sources for meeting specific goals and
objectives can be difficult.
1. Competitor websites
The website of the company is the window of their business to the
world. So it goes without saying that studying a competitor’s website can
provide tremendous insight into the way they operate. Apart from corporate
information such as their products, leadership team, and geographic
presence, websites can tell you a lot about their marketing strategies. For
example, press releases will reveal the latest company news, such as market
expansion, partnerships, and product changes. Analyzing their website
content and user experience using tools such as Google Analytics provides
insight into their positioning, traffic, keywords, and search ranking. Job
descriptions posted on their careers page can provide an inside-view on
current projects, investment areas, as well as their organizational structure.
2. Annual reports
Annual reports are a reliable source of company data such as
revenues, employee numbers, history, business growth strategies,
stakeholders, subsidiaries, and so on. They offer a comprehensive view of
competitor’s activities and their financial health.
3. Premium databases
In situations where freely-available information is limited, paid
databases like Capital and Factiva can be useful sources of competitive
intelligence. These databases provide in-depth information on companies,

products, pricing, investments, innovation, among other business
NOTES
information.
4. Syndicated reports/ analyst reports

When it comes to uncovering industry benchmarks and best
practices, syndicated research reports are incredibly valuable. They provide
viable information on everything from market-related numbers to trends,
growth forecasts to industry-specific company profiles. This offers an
overview of your focus market, including the key players in your industry,
how they differentiate themselves, and how their services map with market
needs, providing greater clarity of your competitive landscape.
5. Primary research
Companies looking for granular insight on their competition
can conduct primary research, such as surveys, interviews or mystery
shopping. Primary information gathered from suppliers, distributors,
customers, and even industry thought leaders offer insight on competitor
products/services that might not be available elsewhere. Data collected via
primary sources help in understanding buyer behavior towards your
products versus your competition, helping you refine your marketing
strategy according to evolving customer needs.
6. Social media
Social media platforms and online forums are a gold mine of customer
and competitive intelligence. Analyzing social media conversations can
reveal how brand compares to the competition in terms of customer
sentiment and share-of-voice helping business inform about brand strategy.
Honest, unfiltered feedback about the competitors’ can offer insight into own
products and services. These insights can then be used to inform about the
product and marketing strategies. Additionally, tracking the rival’s social
profiles can helps to stay informed on their latest developments, events they
are sponsoring or participating in, collaborations, messaging, among others.
7. Patent databases

Analyzing the competitors’ patent portfolio can reveal the products
they are building, the direction of the R&D and help the company to devise
effective innovation strategies accordingly. Addressing the gaps in the IP can
help the company stay better prepared for potential disruptions in your
industry due to technological innovation. Continuous, timely and
accurate competitive intelligence is the key to identifying strategic
opportunities for business growth. But translating competitive intelligence
into actionable insight requires extensive domain and analytical expertise.
2.9 STRATEGIC AUDIT
A strategy audit is a review of a company’s business plan and

strategies to identify weaknesses and shortcomings and enable a successful
development of the company. The strategy audit secures that all necessary
information for the development of the company are included in the business
plan and that the management supports it.
A strategy audit provides an excellent platform for discussion with

the CEO regarding necessary corporate actions or changes in the existing
business plan. The strategy audit clarifies three crucial areas:
1. It secures that the present business plan is complete and includes all
relevant information for the development of the company.
2. It reveals if the management team shares a commitment and

believes in the Company vision, and has the same priorities for the
strategies and activities as stated in the business plan.
3. It secures the business logic of the business plan, e.g. if the vision is
financially sound, if prioritised actions will develop the company
toward the vision, if enough activities are planned to reach the goals
in time.
The Strategy Audit identifies a company’s need to adjust the

existing business plan as well as its business.

Strategy Audit process in four steps.
NOTES
1. Review of existing material: The existing business plan and

other available strategy documents are reviewed to clarify which parts of the
company’s future development are thoroughly documented. Shortcomings
and weaknesses in the existing material are identified.
2. Interviews with the management team: Through individual

interviews with the management team, differences in opinions and priorities
of the future development of the company are identified. The written
business plan is compared with the management teams’ individual opinions.
New ideas and concepts not documented in the business plan are noted for
possible additions to the business plan. The individual interviews are made
in confidence and the results are presented anonymously.
3. Analyse the business logic: Next, the written documentation

and the existing opinions are analysed to identify shortcomings, e.g.
prioritised actions do not lead to the determined vision (direction), too few
activities to reach the goals in time (speed), or little match between future
customers’ needs and the company’s offers (business logic).
4. Management Seminar: Finally, the conclusions from the Strategy

Audit should be presented and discussed with the management. Suggestions
on adjustments in the business plan should be discussed. The objective of the
seminar is to reach a shared commitment from the management team to the
vision and the prioritised strategies for the company’s future development.
2.10 EFAS
EFAS (External Factors Analysis Summary) and IFAS (Internal Factors

Analysis Summary) are two techniques aimed at evaluating the external and
internal environment of the company, and the performance of the company
in these environments. Both of these instruments represent a table with
appropriate factors (external or internal) listed in the first column. Other
columns contain weights assigned to the factors (ranging from 0 to 1), with
the sum of all weights equal to 1, and the rating of each factor, basing on the

efficiency of the company’s response to the chosen factor. EFAS model
includes a set of opportunities and threats for the company, and IFAS model
contains the list of the company’s strengths and weaknesses.
For each factor it is thus possible to calculate a weighted score (rating

multiplied by weight) showing the contribution of this factor into the overall
score of the company. Sum of all weighted scores represents the value
showing how well the company is operating in its internal or external
environment. This value will range from 1 to 5, with 3 being the average
quality of response to the environment, and 5 meaning excellent efficiency.
EFAS and IFAS frameworks allow estimating the company’s performance
with regard to external or internal factors correspondingly compared to the
other companies in the industry. These models also allow prioritizing
between factors, and the weighted scores for each factor can be used to
evaluate optimal strategic decisions for the company.
Although EFAS and IFAS models are effective quantitative

instruments for decision-making, one should be aware of their limitations
and weaknesses. The classification system used for this framework requires a
significant simplification of business model, and requires classifying all
environmental factors to four key categories. However, in real life it is not
always possible to determine unambiguously whether the factor has positive
or negative effect. For example, strong corporate culture with local problems
can be both the source of strengths and weaknesses for the company. In
addition to this, the manager has to assign weights basing on own empirical
experience since EFAS/IFAS framework does not have any recommendations
for this. As a result, the weighted score strongly depends on the attitude and
vision of the person doing the evaluation. For the purpose of precision, it is
possible to recommend gathering a diverse team of experts to obtain more
realistic internal and external scores of the company.
Operating a successful business isn’t just about working hard, but

rather about working smart. This can mean improving on planning,
management, and targeting, along with many other things. The first step in

actually doing so, though, is periodically reviewing and analyzing where you
NOTES
are in the market, and what you are doing. Looking at the factors that affect
the performance and operation of your business can provide this information,
which will tell you what exactly might need improving. These factors can be
positive or negative, and either internal or external. What we mean by this is
that these factors can either be as a direct consequence of the actions of the
company (internal), or completely unrelated and avoidable (external). If your
business was the only thing in existence, then external factors wouldn’t
matter. However, this is never the case. There will always be variables out of
your control that directly affect how your business functions and perform,
and as such there is no excuse to ignore them.
External factors in pestle analysis
PESTLE analysis, a more developed form of ‘PEST’ analysis, is one of

the most important tools in business analysis (hence the name of this
website!), and relies almost entirely on external factors. PESTLE analysis
focuses on six important factors which can influence business — political
ones, economic ones, socio cultural ones, technological ones, legal ones, and
environmental ones. In case it hasn’t just yet clicked, all of these six factors
are external. Companies generally can’t change local and global politics, the
world’s economy, society’s behaviour, the development of technology, local
law, or the environment — but yet, all of these factors directly affect how
companies operate and whether or not they succeed.
External factors in SWOT Analysis
SWOT analysis is another popular business analysis technique. Unlike

with PESTLE analysis, not all of the factors taken into account in SWOT
analysis are external. SWOT analysis looks at the Strengths, Weaknesses,
Opportunities, and Threats of (or facing) a given company, so in fact, it looks
at two internal factors and two external factors.

Strengths and Weaknesses are the two internal variables. A company
can directly influence what it works on (and hence what it turns into
strengths), and what it neglects or forgets about (which become weaknesses).
Opportunities and Threats, on the other hand, are the external factors
taken into consideration in SWOT analysis. Opportunities come and go
randomly, without you being able to change their timing or frequency (but
only how you approach them). The same goes for Threats.
Summary
In this chapter concluded about the External Environmental analysis,

Environmental Scanning, Identifying external strategic factors, Industry
analysis: Porter’s approach to Industry analysis, Stake holder analysis & Non
market strategy, Categorizing international industries, Strategic types,
Competitive intelligence, Strategic audit and EFAS. Strategic analysis is about
the structuring of the relationship between a business and its environment.
Environmental analysis is a process to identify all the external and internal
elements, which can affect the organization’s performance. Environmental
Scanning is a process of analyzing internal and external factor of the
environment. The Issues Priority Matrix is a way to identify and analyze
developments in the external environment. Managers can use it to decide
which environmental trends should be merely scanned (low priority) and
which should be monitored as strategic factors (high priority). Industry
analysis is a market assessment tool used by businesses and analysts to
understand the competitive dynamics of an industry. It helps them get a
sense of what is happening in an industry. Stakeholders are people who have
an interest in the success and potential failure of a company. EFAS (External
Factors Analysis Summary) and IFAS (Internal Factors Analysis Summary)
are two techniques aimed at evaluating the external and internal environment
of the company, and the performance of the company in these environments.
Both of these instruments represent a table with appropriate factors (external
or internal) listed in the first column.

NOTES
Case study
Case Study: The Egyptian Wheat Crop Production
Egypt represents the world’s largest wheat importer, and high global
prices are feeding into domestic prices. In addition, the products of the Wheat
crop are crucial food for most Egyptian people
In this case-study, we help policy/decision makers in MOT to

generate more justifiable estimates for the major drivers in the national wheat
production during the next 13 years. In addition, we may support to reduce
the future uncertainty and complexity and stimulates the Wheat production
experts and futurists in Egypt to anticipate the futures threats and
opportunity for this crucial domain in Egypt. Based on PESTEEL, SWOT,
Structural Analysis and ontology-based RT-Delphi, more than 18 domain
experts/futurists participate to help policy/decision makers by providing
new levels about the major domain drivers and their relations. In the
following we illustrate the consensus results:
The summary of the Identification phase can be described as the follows:
PESTEEL Analysis: The consensus results show that the numbers of

the political drivers are five, the numbers of the economical drivers are eight,
the numbers of the soci-cultural drivers are two, the numbers of the
technological drivers are two, the numbers of the ethical driver is one, the
numbers of the environmental drivers are three, the numbers of legal drivers
are two. All of the selected drivers are evaluated by weights with median
values between 70% and 93%. Also, more than 12 domain experts have to
agree about the evaluated major driver.
SWOT Analysis: The consensus results show that the number of

strengths items is five, the number of weaknesses items is twenty two, the
number of opportunities items is five, and the number of threats is twelve. All
of the selected items are evaluated by weights with median values between
72% and 87%. Also, more than 12 domain experts have to agree about the
evaluated items.

The summary of the structural analysis consensus results: In
structural analysis phase, there are three major steps that are listing the
wildcards, describing the relationship between them and identifying the keys.
Step A. Listing the Wildcards: In this step, all wildcards that is coming
from the PESTEEL and SWOT analysis is listed. There are important twelve
wildcards, which are: Global temperature, Global economic goes up, World
financial crises, Economical instability in Egypt, Dissemination of the
Epidemic diseases, Major overseas transportation accidents, Major natural
catastrophic events, Significant pollution increasing, Bad weather conditions,
Climatic change in the Egyptian Delta, the Governmental view for the self-
sufficiency of the Wheat production, and Water scarcity. These
drivers/wildcards take consensus weights from 75% to 95% in the PESTEEL
analysis.
Step B. Relationships Description The MICMAC E-RT-Delphi

attempts to discover the relationships among wildcards. The following table
shows the input matrix of this step. Note: (high relation = 2, low relation =1
and no relation= 0).
Step C. Key Drivers Identification This step consists of identifying the

key wildcards, which are essential to the Wheat production development,
first by using direct classification (easy to set up), then through indirect
classification by RT- Delphi MICMAC model. This indirect classification is
obtained after increasing the matrix power in to the power7 (based on the
literature). The consensus results of the structural analysis that shows that:
Water scarcely, Governmental view for the self-sufficiency of the Wheat
production, the Climatic change in the Egyptian Delta; the World financial
crises are the key wildcard events for future of the Egyptian wheat
production. Displaying the futures scenarios numerical report and figures
may help policy/ decision makers in MOT in anticipating the most important
future drivers and enhance the quality of future strategic plan.

Case study 2
NOTES
Wal-Mart Environmental Scan
Threats: Threats of Wal-Mart are as follow: Local Competitive

Vendor: Local competitive vendor may pose threat to the business of Wal-
Mart. To handle the challenges of local vendors, Wal-Mart should make its
stores more accessible, convenient and comfortable for customers (Sadler,
2003). This will assist the company to minimize the threat posed by local
vendors. It is so, as local vendors take advantage due to their convenient
location that is preferred by people due to distance related issues. Low Pay:
Low pay and poor working conditions may also pose threat to the business of
Wal-Mart. It is so, due to these conditions, the workers may threaten the
company by filing lawsuit. Wal-Mart should offer competitive wages and
compensation to the workers to address the threat related to low pay (Wal-
Mart, 2013). Large Competitors: There are also large rival firms that may
create issues for the business of Wal-Mart. It is so, as these firms are also
using similar strategy of selling low cost products to the customers. Company
should stregthen its product categories to develop its niche in order to
address the threat posed by large companies. For this, it should focus towards
internal resources.
Strengths: Following are the strengths of Wal-Mart: Huge product

category: Wal-Mart owns huge category of products and services. The
Company can use this strength by offering more innovative products in the
existing product category. It will assist it to reap out the benefits of its brand
image of low cost retailer. Largest Employer: Wal-Mart employs large
number of employees. So, it owns the title of largest employer in the retail
business. The company can leverage this strength by offering equal pay and
promotional opportunities to its employees whether it is male or female. It
will help the company to avoid any lawsuit and save cost. Along with this, it
will also develop competitive advantage by minimizing employee turnover
rate and maximizing satisfaction rate of workers. Low Cost Leadership: Low
cost leadership is strength of Wal-Mart due to which, it enjoys leading
position in the retail business sector. By using low cost leadership strategy,

Wal-Mart can enter into new business areas that are attractive for its further
growth. It will help the company to attain competitive advantage in the
marketplace.
Significant Competitor There are various competitors of Wal-Mart that are

in the search of replacing Wal-Mart from its leading position in the retail
business sector. Out of these competitors, Target Corporation is the
significant competitor of Wal-Mart in North America (Wal-Mart Stores Inc
Competitors, January 23, 2013). It offers products like electronic, beauty, baby
care, healthcare, furniture, apparel, entertainment, toys etc.
Competitive Strategy Target Corporation also operates in similar industry, so

it also offers similar kinds of products and services to the customers (Target
Brands Inc, 2012). To deal with the competitive challenges posed by Target
Corporation, company should focus over offering more innovative deals and
offers to the customers. Target Corporation is also focusing on giving more
on pay less tactic. So, to address this strategic tactic of Target Corporation,
Wal-Mart should adopt counter strategies. The company should create
striking ambiance in the store to the make the environment more attractive
(Sadler, 2003). Furthermore our case study assignment help experts says that,
company should adopt innovative strategies like ensuring separate parking
space for disabled customers. Developing separate alerting systems for
customers with toddlers, so when they arrive at the shop, the salesmen get
ready to provide them assistance during shopping. These two tactics will
help Wal-Mart to make a difference in service experience that is considered
vital to differentiate the services offered by other firms in similar industry.
Along with this, it will also help Wal-Mart to sustain its market share by
attracting more customers towards its stores due to their convenient format
and context for the shoppers.
Strategy Modification Wal-Mart is a US based retail firm, so any change in

the economic conditions of US will directly affect the business status of Wal-

Mart directly or indirectly. In order to adjust to the decline of economic
NOTES
situations of US, company should modify its strategy. As a part of this
assignment help, Wal-Mart should offer value added services to the
customers that are aimed to regain the confidence of shoppers in US.
Company should also introduce several innovative products into its existing
category to address the declining economic conditions (Sadler, 2003).
Justification Value added service based strategy is effective, as it will help

the shoppers of US to regain their confidence in shopping during adverse
conditions and enjoy the offers that are attractive in terms of value and price.
It is true that Wal-Mart is already known for its low cost strategy. At the same
time, if the company deploys tactics that are aimed to delight customers to
shop even during adverse conditions like declining economy, it will help the
company to strengthen its position in the mind of customers. Along with this,
this strategy will also position Wal-Mart as the favorite company among
people of US. It will also help Wal-Mart to differentiate its offerings from
rival firms. It is so, as customers will feel that the company understands their
concerns during adverse conditions and ready to make adjustments in its
pricing strategies (Sadler, 2003).
Impact of Global Competition Global competition is changing dramatically

and becoming intense day by day due to changing business environment.
Following are factors of global competition that may impact the business of
the company in different ways: Economy: Economic conditions keep on
fluctuating. So, decline in economic conditions may impact the business of
Wal-Mart by affecting the purchasing power of customers. For example,
during economic downturn, people stop shopping at frequent basis to save
money. Technology: Technological shift is also common in global
marketplace. Firms are adopting new technology to replace the leading
position of Wal-Mart in the retail industry. So, technical competency of other
firms operating globally may also challenge the existing market share of Wal-
Mart at global level (Hitt, Ireland & Hoskisson, 2010). By making the current
technology obsolete, the firms may impact the business attractiveness of Wal-
Mart. Socio-Culture: Social and cultural factors play a vital role in the

purchasing behavior of customers. Firms operating in host countries other
than USA may take advantage of values, assumptions and beliefs of people to
challenge the business patterns of Wal-Mart dramatically. For example, firms
operating in Japan may adopt quality strategy to counter attack the low cost
strategy of Wal-Mart. It is so, as people in Japan are quality oriented rather
than price. Political: Political factors like ruling party, rules and regulations
etc if not favorable may also impact the business. For example, if the laws
related to taxes in host counties are changed, it may affect the cost structure
of Wal-Mart.
Strategy To handle the global competition, Wal-Mart should adopt following

strategies: Innovation: To deal with the global competition, Wal-Mart should
focus towards innovation. To ensure innovation, company should change its
technology. For example, follow home delivery of orders to offer the products
and services to the customers (Sadler, 2003). Expansion into other markets:
Company is heavily dependent over the US market for its business growth
and market share. So, it is recommended to Wal-Mart to focus towards other
markets like Asian markets that are growing at pace in terms of their
economic conditions. It will help Wal-Mart to expand its business and
leverage the advantage of increasing income of people. Effective
compensation: Company should also make sure that talented employees
remain with it for longer time period. To ensure, it is recommended to Wal-
Mart to offer effective and equal compensation to its employees. Social
Responsibility: Wal-Mart should also take stand for socially responsible
activities. It is so, as nowadays due to increasing impact of resources over the
environment, concern of people has also increased about the environmental
protection. So, if Wal-Mart adopts favorable steps like green building of its
store layout and settings to minimize its environmental footprints, water and
energy conservation strategies. Along with this, company should also
provide aid to the organizations working for welfare of disabled and poor
children to educate them and provide them proper facilities like shelter, food,
cloth etc. It will help the company to become the retailer of choice among the
customers

NOTES
1. What is Strategic analysis?
2. What is external anlaysis?
3. What PESTEL means to you?
4. What is environmental scanning?
5. Define priority matrix.
6. What is need for industry analysis?
7. What is Porter’s 5 Forces?
8. What is PEST Analysis?
9. What is competitive advantage?
10. Explain Competitive Advantage in the Marketplace with examples.
11. List out the factors of Bargaining Power of Suppliers
12. What is threat of new entrants?
13. Define stakeholder.
14. What is strategic group?
15. What is strategic type?
16. What is competitive intelligence?
17. What is strategic audit?
18. Expand the term EFAS.
19. What PESTEL means to you? Which of the external factors are
controllable ?
20. Explain about the important factors in societal environment.
21. Explain in detail about Industry analysis.
22. Explain the various types of industry analysis.
23. Explain the importance of industry analysis.
24. Rivalry among Existing Firms – explain.
25. Explain the various Types of Suppliers
26. Explain in detail about the competitive intelligence.
27. Explain in detail about strategic audit and its process.
28. Explain in detail about EFAS.
Further reading
1. Acharya B.K.and GovekarP.B. (1999), Business policy and Strategic

Management, Himalaya Publishing House, New Delhi.
2. Fred R. David (2003), Strategic Management : Concepts and Cases,
Pearson Education, New Delhi.
3. Kachru Upendra(2005), Strategic Management Concepts and cases,
Excel Books, New Delhi
4. Kazmi Azhar(2002) , Business policy and Strategic Management, Tata
Mc Graw Hill, New Delhi.

5. Wheelen L Thomas and Hunger J. David( 2002), Concepts in Strategic
Management and Business Policy, Pearson Education Asia, New
Delhi.

NOTES
UNIT III
ORGANIZATIONAL ANALYSIS AND STRATEGY
Structure
3.1 Core and distinctive competencies
3.2 Competitive advantage and firm resources
3.3 Generic strategies and competitive advantage
3.4 Determining the substainability of an advantage
3.5 Dynamics of competitive advantage and value chain
3.6 Competing through business models
3.7 Value Chain Analysis
3.8 Industry value chain analysis
3.9 Scanning functional resources and capabilities
3.10 Corporate culture
3.11 Strategic Audit
3.12 SWOT
3.13 TOWS Matrix
3.14 Business level strategies
3.15 Corporate strategies
3.16 Portfolio analysis
3.17 Corporate parenting
3.18 Functional strategies

3.19 Strategic choice
3.20 Grand strategy

NOTES
 Core and distinctive competencies

 Competitive advantage and firm resources
 Generic strategies and competitive advantage
 Determining the sustainability of an advantage
 Dynamics of competitive advantage and value chain
 Competing through business models
 Value Chain Analysis
 Industry value chain analysis
 Scanning functional resources and capabilities
 Corporate culture
 Strategic Audit
 SWOT
 TOWS Matrix
 Business level strategies
 Corporate strategies
 Portfolio analysis
 Corporate parenting
 Functional strategies
 Strategic choiceFORMULATION
 Grand strategy
Organizational analysis is the process of appraising the growth,
personnel, operations, and work environment of an entity. Undertaking an
organizational analysis is beneficial as it enables management to identify
areas of weakness, and then find approaches for eliminating the problems.
Important aspects of organizational analysis include the assessment of
external elements that can influence the performance of an organization. An
organizational analysis also includes strategically evaluating an
organization’s potential and resource base. Internal weaknesses and
strengths, together with external threats and opportunities, determine the
success of an entity. For this reason, SWOT analysis is an important part of
organizational analysis. It is used by businesses to assess their performance
and establish goals or objective.
Organizational analysis helps businesses succeed in a dynamic

business environment. For that reason, an entity needs to understand its
model. Business modelling is a key parameter in the process of organizational

analysis. Models explain how business function and the change they
experience so that they can experience their desired level of performance.
There are four different models that organizations can work with.
Model I – Rational Model - The philosophy is that there is only one

logical way to perform tasks.
Model II - Natural model - It believes that business not only want to

achieve their own goals, but also those that influence their external
environment.
Model III - Socio-technical – In this model, businesses are evolving

on a continuous basis. Change is made each time employee expectations are
altered because of collaborating with fellow employees.
Model IV - cognitive model - This model places great emphasis on

tasks done by the business team. A lot of attention goes to the division and
coordination of tasks among employees.
Organizational analysis provides many benefits to the business. They

are,
 Helps businesses improve on their weaknesses.

 Understanding how a business functions helps to shed light on
areas of weakness or
 Helps businesses find innovative ideas, as well as new ways to
structure objectives so that employees are productive.
3.1 CORE AND DISTINCTIVE COMPETENCIES
Core competency is a competency that is central to the core of the

business. Mostly, companies at present develop core competency as means of
developing a stable business. This stableness is achieved as a result of core

competencies because it depicts the central theme and the core strength of the
NOTES
business.
For example, for a consultancy company, intellectuals are determined

as the business depends on their capacity. For a manufacturing company,
development of core competency in the manufacturing process is important
as the company depends on the effectiveness of the manufacturing process.
Core competency comprises of three attributes. They

are competencies, capabilities, and resources. These criteria says that a core
competency must be able to provide some value to the customers in terms of
a product or a service; core competency should hold the characteristic of
uniqueness and core competencies should provide access to different market
segments.
Attaining competitive advantages are very important for companies at

present provided the intense competitive business environment. Regardless
of the industry, this competitiveness exists. Therefore, a company that rises
above the other relative competitors is presumed to hold advantages.
Theoretically, this premise is known as competitive advantages. Achieving
competitive advantages is primarily achieved by means of possessing
distinctive competencies. As the term implies, ‘distinctive’ competencies
highlights the characteristic of ‘uniqueness.’ The notion of distinctive
competencies is relatively easy to identify. This means that a core competency
that facilitates to attain competitive advantages for a firm is considered as
possessing distinctive competencies. Therefore, a core competency can only
be considered as a distinctive competency only if a competitive advantage is
achieved. Therefore, a core competency is not a distinctive competency
always.
In the real world, companies have gained competitive advantages by

possessing distinctive competencies. A company like Rolls-Royce holds a
unique manufacturing process of automobiles which no other automobile
manufacturer possesses. Some supermarket chains and logistics companies

employ unique types of supply chain management strategies and thereby
attain competitive advantages over their competitors. These types of
examples say that uniqueness is one of the prime concerns of distinctive
competencies.
3.1.2 Difference between Core Competencies And Distinctive

Competencies
The discussion about the difference between core competencies and

distinctive competencies needs a clarification of what a firm’s competencies
are. Competency relates to anything that a firm does well. For example, take a
firm that is really keen on reducing defects of the production process. Then,
maintaining a relatively low rate of defects per hundred units of production
can be a competence. Therefore, this is known as competency. A core
competency relates to anything that is central to the core of the business.
Continuing the above example, this reduction of defects per hundred units of
production may be concerned as the primary source of business success. In
this scenario, low defects of hundred unit of production become a core
competence because this is one of the central themes of business success.
Whereas, a distinctive competency relates to a competency that is really
differentiating a business from other competitive business. It is noted that, a
core competency can also be a distinctive competency only if a core
competency facilitates competitive advantage. A core competency that is not
facilitating a company’s competitive advantage will not be considered as a
distinctive competency.
3.2 COMPETITIVE ADVANTAGE AND FIRM

RESOURCES
The ultimate aim of firms is to attain superior performance. In order

for this to happen, a firm in an industry must have a source of competitive
advantage that is difficult for other firms in the industry to imitate. Firms that
hope to have a sustainable source of competitive advantage must develop
strategies that will help it combine its resources in a way that competitors
cannot imitate. This can be achieved through heterogeneous resources in an

organization. Firms can develop various strategies that will help them
NOTES
develop sustainable competitive advantage and this can be first movers,
barriers to entry, low cost or differentiation.
According to Porter (1980), there are factors that allow a firm to assess
both the attractiveness of its industry and its competitive position within that
industry through an evaluation of five forces. These are the threat of new
entrants, threat of substitute products, power of buyers, power of suppliers
and rivalry between members of the industry. An analysis of these factors
allows the firm to choose the strategy to adopt. Porter proposed the concepts
of cost leadership and differentiation relative to competitors as two important
sources of competitive advantage. The argument is that a low cost position
enables a firm to use aggressive pricing and high sales volume which can be
achieved through economies of scale. Differentiation on the other hand
allows for differentiated products to create brand loyalty and positive
reputation and therefore enables premium pricing.
3.2.1 Comparative Vs Competitive Advantage
Both concepts of comparative and competitive advantage play a major

part in decisions made by countries as to which of their produce will be
exported. Whether the country has a competitive or comparative advantage
will influence its decision making, ensuring that goods exported will result in
higher levels of profit and lower opportunity cost. These concepts are
different to each other even though comparative advantage is also a form of
competitive advantage. As these terms are easily confused by many, the
following article aims to resolve this confusion with a clear explanation of the
two concepts.
3.2.2. Comparative Advantage
Comparative advantage is when a company can produce goods at a

lower opportunity cost than its competitors. Opportunity cost is the cost that
must be endured when selecting one option over the other. For example, the
opportunity cost of spending money to go to university would be the time
that you could have used to do something else and money that you would

have lost by not being able to work. By understanding the opportunity cost,
comparative advantage explains the concept of when a company has a low
opportunity cost and less to lose by choosing one option. For example, Saudi
Arabia and China produces diesel oil. Saudi Arabia has an advantage of
having easy access to oil, whereas China needs to import its oil from the
Middle East for diesel production. Of these two countries clearly Saudi
Arabia has a comparative advantage over China.
3.2.3 Competitive Advantage
Competitive advantage represents any benefits and advantages that a

company may have over its competitors. This could include things like
having a low cost structure, low cost of labor, better access to raw materials,
etc. However, it must be noted that comparative advantage is a form of
competitive advantage as having a comparative advantage would no doubt
bring the company many competitive benefits. The importance of competitive
advantage is that it brings about a number of benefits for the firm over its
rivals so that they may improve profitability and with lower cost.
3.2.4 Comparative Vs Competitive Advantage
Comparative and competitive advantage are similar to each other in

that comparative advantage is a component of competitive advantage, and
both these comparative and competitive advantage play an important role in
decision making. Comparative advantage explains how a firm may benefit
because of the lower opportunity cost it has from selecting one alternative
over the other. On the other hand, competitive advantage explains how a
company may benefit by having a distinctive advantage over its rivals
allowing them to produce at a lower cost and improve profitability.
Proposing that a company’s sustained competitive advantage is

primarily determined by its resources endowments, Grant lists a five step,
and resource based approach to strategy analysis.

 Identify and classify the firm’s resources in terms of strengths and
NOTES
weakness
 Combine the firm’s strengths into specific capabilities known as core
competencies.
 Appraise the profit potential of these capabilities and competencies in
terms of their potential for sustainable competitive advantage and the
ability to harvest the profits resulting from their use.
 Select the strategy that best exploits the firm’s capabilities and
competencies relative to external opportunities
 Identify the resource gaps and invest in upgrading weaknesses.
a) Competitive advantage and firm resources Benefit: What is the real

benefit your product provides? It must be something that your
customers truly need. It must also offer real value. You must know
your product's features, its advantages, and how they benefit your
customers. You must stay up to date on the new trends that affect
your product. This includes new technology. For example,
newspapers were slow to respond to the availability of free news on
the internet. They thought people were willing to pay for news
delivered on a piece of paper once a day.
b) Target market: Who are your customers? What are their needs?
You've got to know exactly who buys from you and how you can
make their life better. That’s how you create demand, the driver of
all economic growth. Newspapers' target market shrank to those older
people who weren't comfortable getting their news online.
c) Competition: Have you identified your real competitors? They aren't

just similar companies or products. They also include anything else
your customer could do to meet the need you can fulfill. Newspapers
thought their competition was other newspapers until they realized it

was the internet. They didn't know how to compete with a news
provider that was instant and free
3.2.5 Firm Resources
A firm needs resources in order for it to develop sources of

competitive advantage. These resources are used in combination to develop
products and services that are valuable to the customer. Porter (1981)
describes firm resources as strengths that firms can use to conceive of and
implement their strategy. While some firm resources may lead an
organisation to conceive of and implement strategies that reduce its
effectiveness and efficiency, other resources may have no impact on how a
firm lays out strategies.
Firm resources are all the assets, capabilities, organizational processes,

firm attributes, information and knowledge which are controlled by the firms
that enable them to conceive and implement strategies that improve
efficiency and effectiveness. A strategic resource meets certain criteria – it is
valuable, such that it reduces costs or increases value to customers. It is also
rare enough such that competitors do not use the same resource to compete
away the value. A strategic resource is also difficult to imitate or substitute.
This quality of inimitability keeps competitors from gaining parity. The
resources must also be heterogeneous and immobile across the industry.
Where resources do not have these required characteristics then managers
have to apply their knowledge and skills to develop a set of competencies
that will set them apart from their competitors.
The quality of heterogeneity in resources makes it difficult for

competitors to imitate. Heterogeneity of firm resources makes it difficult to
measure competitive advantage of individual resources that should meet the
following criteria; add positive value to the firm, be unique, be imperfectly
imitable and non-substituted by other resources. Resources possessed by a
firm are the primary determinants of its performance and they may
contribute to a sustainable competitive advantage of the firm. Some empirical
attempts made towards this direction highlight some concerns for theory and
empirical work.

3.3 GENERIC STRATEGY AND COMPETITIVE NOTES
ADVANTAGE
The Generic Strategies can be used to determine the direction

(strategy) of organisation. Michael Porter uses 4 strategies that an
organisation can choose from. He believes that a company must choose a
clear course in order to be able to beat the competition.
The four strategies to choose from are:
a) Cost Leadership
b) Differentiation
c) Cost Focus
d) Differentiation Focus
Michael Porter described the theory in his 1985 book ‘Competitive

Advantage: Creating and Sustaining Superior Performance’. The basis was
formed by three strategies, namely cost leadership, differentiation and focus.
He divided the latter into cost focus and differentiation focus.
According to Michael Porter there are four Generic strategies:
a. Cost Leadership
If company targets a broad market (large demand) and offer the lowest
possible price. There are 2 options within this course. The company can opt to
keep costs as low as possible; or ensure that the company has a larger market
share with average prices. In both cases, the point is to keep the company
costs as low as possible. The consumer price is a different story.
Organizations that apply this strategy successfully usually have substantial
investment capital at their disposal, efficient logistics and low costs when it
comes to materials and labour. The organization is generally focused on
internal processes.

b. Differentiation
If company targets a broad market (high demand), but their product or

service has unique features. With this strategy, the company makes the
product as exclusive as possible, making it more attractive than comparable
products offered by the competition. Succeeding using this strategy requires
good research & development, innovation and the ability to deliver high
quality. Effective marketing is important, so that the market understands the
benefits of the unique product. It’s important to be flexible and to be able to
adapt quickly in a changing market, or risk the competition beating you at it.
Such an organization is focused on the outside world and has a creative
approach.
c. Cost Focus
If company target a niche market (little competition, ‘focused market’)

and offer the lowest possible price. In this strategy, the company has to
choose to target a clear niche market and through understanding the
dynamics of the market and the wishes of the consumers, the company can
ensure that the costs remain low.
d. Differentiation Focus
If company targets a niche market (little competition, ‘focused market’)

and their product or service has unique features. This strategy often involves
strong brand loyalty among consumers. It’s very important to ensure that
their product remains unique, in order to stay ahead of possible competition.
Porter’s Generic Strategies model in which the company opt for one
single strategy certainly also raises criticism. For example, the model isn’t
particularly flexible. There are plenty of companies that opt for a more
‘hybrid’ strategy, i.e. making use of different (components) of Porter’s 4
general strategies. In a rapidly changing market, this flexibility, the ability to
switch quickly and respond to the market and the demand, seems to be an
important element to running a successful business.

3.4 DETERMINING THE SUSTAINABILITY OF AN NOTES
ADVANTAGE
Sustainable competitive advantages are required for a company to

thrive in today’s global environment. Value investors search for companies
that are bargains. In order to avoid purchasing a value trap one of the factors
we search for is sustainable competitive advantages.
Without one or more sustainable competitive advantages a company may not
be able to recover from whatever caused the stock to become a bargain.
3.4.1 Types of Sustainable Competitive Advantages
a. Low Cost Provider/ Low pricing
Economies of scale and efficient operations can help a company keep

competition out by being the low cost provider. Being the low cost provider
can be a significant barrier to entry. In addition, low pricing done consistently
can build brand loyalty be a huge competitive advantage (i.e. Wal-Mart).
b. Market or Pricing Power

A company that has the ability to increase prices without losing
market share is said to have pricing power. Companies that have pricing
power are usually taking advantage of high barriers to entry or have earned
the dominant position in their market.
c. Powerful Brands
It takes a large investment in time and money to build a brand. It
takes very little to destroy it. A good brand is invaluable because it causes
customers to prefer the brand over competitors. Being the market leader and
having a great corporate reputation can be part of a powerful brand and a
competitive advantage (i.e. Coca-Cola (KO).
d. Strategic assets

Patents, trademarks, copy rights, domain names, and long term
contracts would be examples of strategic assets that provide sustainable
competitive advantages. Companies with excellent research and development
might have valuable strategic assets (i.e. International Business Machines
(IBM).
e. Barriers to Entry
Cost advantages of an existing company over a new company are the

most common barrier to entry. High investment costs (i.e. AT&T (T)) and
government regulations are common impediments to companies trying to
enter new markets. High barriers to entry sometimes create monopolies or
near monopolies (i.e. utility companies).
f. Adapting Product Line
A product that never changes is ripe for competition. A product line

that can evolve allows for improved or complementary follow up products
that keeps customers coming back for the “new” and improved version
(i.e. Apple iPhone) and possibly some accessories to go with it.
g. Product Differentiation
A unique product or service builds customer loyalty and is less likely

to lose market share to a competitor than an advantage based on cost. The
quality, number of models, flexibility in ordering (i.e. custom orders), and
customer service are all aspects that can positively differentiate a product or
service.
h. Strong Balance Sheet / Cash
Companies with low debt and/or lots of cash have the flexibility to
make opportune investments and never have a problem with access to

working capital, liquidity, or solvency (i.e Nike (NKE). The balance sheet is
NOTES
the foundation of the company.
i. Outstanding Management / People
There is always the intangible of outstanding management. This is

hard to quantify, but there are winners and losers. Winners seem to make the
right decisions at the right time. Winners somehow motivate and get the most
out of their employees, particularly when facing challenges. Management
that has been successful for a number of years is a competitive advantage.
3.5 DYNAMICS OF COMPETITIVE ADVANTAGE AND

VALUE CHAIN
 Competitive Landscape: It tends to identify and understand the

competition deeply while cognizing the vision, mission, objectives,
strengths, weakness, opportunities and threats of the enterprise.
While analysing the competition, the firm also keeps an eye on the
competitor’s overall position in the market, to choose the right
strategy for the enterprise.
 Strategic Analysis: It implies the detailed examination of various

components of the firm’s business environment. It is important for
strategy formulation, strategy implementation and strategic decision
making.
 Industry and Competitive Analysis: The analysis in which a number

of methods are used to have a clear view of the basic industry
practices, the intensity of competition, strategies of competitors and
their share in the market, change drivers, profit prospects and so
forth, is called as Industry and Competitive Analysis. It assists the
company in strategically observing the condition of the industry.

 Core Competence: Core competencies of the company are those
capabilities which help the company in defeating its competitors by
gaining a competitive advantage. It is a blend of company’s technical
and managerial know-how, skills, knowledge, experience, strategy,
resources, manpower, etc.
 Competitive Advantage: Competitive Advantage assist the firm in

defeating its rival organization, through its core competencies which
include a combination of distinguishing characteristics of the firm and
the product offered by it, which is considered as outstanding, that has
the edge over its competitors. Simply put, competitive advantage is
when the profitability of an organization is comparatively higher than
the average profitability of the other companies operating in the same
industry.
3.6 COMPTETITIVE THROUGH BUSINESS MODEL
When analyzing a company, it is helpful to learn what sort of business

model it is the following. Understanding the business model is especially
important when analyzing Internet based companies. A Business model is a
company’s method for making money in the current business environment.
It includes the key structural and operational characteristics of a firm - How it
earns revenue and makes a profit. A business model usually composed of five
elements.
 Whom do we serve?
 What do we provide?
 How do we make money?
 How do we differentiate and sustain competitive advantage?
 How do we provide product/service?
The simplest business model is to provide good or service that can be sold
so that revenues exceed costs and expenses. Other model scan is much more
complicated. Some of the many possible business models are the Customer
Solution Model in which a company such as IBM makes money not by selling

products, buy by selling its expertise as consultants and the Multi-
NOTES
Component System in which a company such as Gillette sells razors at break
even in order to sell higher margin razor blades. In the Advertising Mode, a
company such as Google offers free Web services to the users in order to
expose them to the advertising that pays the bills. Financial planners, mutual
funds and realtors use the Switchboard model, in which a firm acts as an
inter-mediatory to connect multiple sellers to multiple buyers for a fee. In the
Efficiency model, a company such Dell or Wal-Mart waits until a product or
service becomes standardized and then enters the market with low priced,
low margin product appealing to the mass market. This approach is
contrasted with the Time Model, in which a fir such as a Sony uses Product
R&D to be first to enter a market with new innovation. Once others enter the
market with the process of R&D and lower prices, it’s time to move on.
At its most basic, a business model is the story of how a company operates.
In slightly more detail, it describes how a company competes, uses it
resources, structures its relationships, interfaces with customers, and creates
and captures value to sustain itself. The key elements in a business model
include the following:
 The customer value proposition – how will the company create value, and
for whom?
 The profit model – how will the company make money?
 The key resources needed to deliver the customer value proposition.
 The company’s core competences – internal capabilities or skill sets that
enable the company to manage the business in a way that delivers value.
There are various generic forms of business model. But ultimately every
company’s business model is unique because it is dependent on the collection
of resources it controls and the capabilities that is possesses. Copying another
company’s business model is unlikely to be successful. However, over time
competitors will be able to emulate the distinctive features of an innovative
business model. Changes in the external environment may also reduce a
business model’s effectiveness. Companies therefore need to continually
review and refine their own business model.

3.7 VALUE CHAIN ANALYSIS
Value chain analysis can be a useful tool as a firm seeks to achieve

competitive advantage. A value chain is a way of conceptualizing the
activities that are needed in order to provide a product or service to a
customer. It depicts the way a product gains value (and costs) as it moves
along the path of design, production, marketing, delivery, and service to the
customer. The value chain model shows the particular configuration of
activities that are needed to create value in a product or service. The
configuration of these activities—and the resulting product or service—will
be a unique to a specific unit or firm. Competitive advantage can result from
the way discrete activities are performed along the value chain. Porter
introduces a generic value chain model that is set in the context of a
traditional manufacturing firm. It includes the primary activities of: inbound
logistics, operations, outbound logistics, marketing and sales and service. It
also includes the support activities of: infrastructure of the firm, human
resource management, technology development and procurement.
This mapping of activities need not stop with the simple sliced
polygon as originally proposed. A more developed interpretation may
incorporate greater detail by describing them through time and space. That is,
such processes may not be strictly lineal but may be iterative (with feedback,
flexibility, and learning) and may occur over some physical distance. While
this paper will stick with the proven term ‘value chain’, hesitation must be
noted as the second word—chain—conjures up notions of strict lineal
sequence. Value may in fact be accumulated as layers overlapping one
another without distinct separation or clear demarcation among activities.
Value-generating actions may resemble a spider web or a three-dimensional
network (a cloud of relationships rather than a chain. The pharmaceutical
industry has been characterized as a web created by new links in the
traditional chain. Infomediaries (‘go betweens’ and purveyors of information)
in this industry allow traditional links to be skipped over as they provide
direct conduits between pharmaceutical firms and patients. Internet
infomediaries empower patients to be better informed and more active in
managing their health

Value chain analysis is a strategy tool used to analyze internal firm
NOTES
activities.Its goal is to recognize, which activities are the most valuable (i.e.
are the source of cost or differentiation advantage) to the firm and which ones
could be improved to provide competitive advantage. In other words, by
looking into internal activities, the analysis reveals where a firm’s competitive
advantages or disadvantages are. The firm that competes through
differentiation advantage will try to perform its activities better than
competitors would do. If it competes through cost advantage, it will try to
perform internal activities at lower costs than competitors would do. When a
company is capable of producing goods at lower costs than the market price
or to provide superior products, it earns profits.
M. Porter introduced the generic value chain model in 1985. Value

chain represents all the internal activities a firm engages in to produce goods
and services. VC is formed of primary activities that add value to the final
product directly and support activities that add value indirectly.
Although, primary activities add value directly to the production

process, they are not necessarily more important than support activities.
Nowadays, competitive advantage mainly derives from technological
improvements or innovations in business models or processes. Therefore,
such support activities as ‘information systems’, ‘R&D’ or ‘general
management’ are usually the most important source of differentiation
advantage. On the other hand, primary activities are usually the source of
cost advantage, where costs can be easily identified for each activity and
properly managed
VC is a part of a larger industry's VC. The more activities a company

undertakes compared to industry's VC, the more vertically integrated it is.
Below you can find an industry's value chain and its relation to a firm level
VC.

3.7.1 Classification of Value Chain Analysis
Value Chain Analysis is grouped into primary or line activities, and support
activities discussed as under
A. Primary Activities: The functions which are directly concerned with the
conversion of input into output and distribution activities are called primary
activities. It includes:
 Inbound Logistics: It includes a range of activities like receiving, storing,

distributing, etc. which make available goods and services for operational
processes. Some of those activities are material handling, transportation,
stock control, etc.
 Operations: The activity of transforming input raw material to final

product ready for sale, is termed as operation. Machining, assembling,
packaging are the activities covered under operations.
 Outbound Logistics: As the name suggests, the activities that help in

collecting, storage and delivering the product to the customer is outbound
logistics.
 Marketing and Sales: All the activities like advertising, promotion, sales,
marketing research, public relations, etc. performed to make the customer
aware of the product or service and create demand for it, comes under
marketing.
 Service: Service means service provided to the customer so as to improve

or maintain the value of the product. It includes financing service, after-
sales service and so on.
B. Support Activities: Those activities which assist primary activities in

accomplishment, are support activities. These are:
 Procurement: This activity serves the organization, by supplying all the

necessary inputs like material, machinery or other consumable items, that
required by the organization for performing primary activities.

 Technology Development: At present, technology development requires
NOTES
heavy investment, which takes years for research and development.
However, its benefits can be enjoyed for several years and by a multitude
of users in the organization.
 Human Resource Management: It is the most common plus important

activity which excel all primary activities of the organization. It
encompasses overseeing the selection, retention, promotion, transfer,
appraisal and dismissal of staff.
 Infrastructure: This is the management system, which provides, its

services to the whole organization and includes planning, finance,
information management, quality control, legal, government affairs, etc.
In the fast paced world, the main focus of the organization is customer
satisfaction, and value chain analysis is the technique that helps to attain that
level. Under this, each business activity is considered as essential, which
contributes value and is constantly analyzed, to increase value as regards the
cost incurred.
3.8 INDUSTRY VALUE CHAIN ANALYSIS
3.8.1 Value Chain
A value chain is a set of activities that a firm operating in a

specific industry performs in order to deliver a valuable product (i.e., good
and/or service) for the market. The concept of value chains as decision
support tools was added onto the competitive strategies paradigm developed
by Porter as early as 1979. Value chain analysis is used as a tool for
identifying activities, within and around the firm and relating these activities
to an assessment of competitive strength.
3.8.2 Industry value-chain
Value chain analysis is a strategy tool used to analyze internal firm

activities. Its goal is to recognize, which activities are the most valuable (i.e.
are the source of cost or differentiation advantage) to the firm and which ones

could be improved to provide competitive advantage. In other words, by
looking into internal activities, the analysis reveals where a firm’s competitive
advantages or disadvantages are. The firm that competes through
differentiation advantage will try to perform its activities better than
competitors would do. If it competes through cost advantage, it will try to
perform internal activities at lower costs than competitors would do. When a
company is capable of producing goods at lower costs than the market price
or to provide superior products, it earns profits.
M. Porter introduced the generic value chain model in 1985. Value

chain represents all the internal activities a firm engages in to produce goods
and services. VC is formed of primary activities that add value to the final
product directly and support activities that add value indirectly.
Firm’s VC is a part of a larger industry's VC. The more activities a

company undertakes compared to industry's VC, the more vertically
integrated it is. Below you can find an industry's value chain and its relation
to a firm level VC.

NOTES
There are two different approaches on how to perform the analysis,

which depend on what type of competitive advantage a company wants to
create (cost or differentiation advantage). The table below lists all the steps
needed to achieve cost or differentiation advantage using VCA.

Cost Advantage Differentiation Advantage
This approach is used when The firms that strive to create

organizations try to compete on superior products or services use
costs and want to understand differentiation advantage
the sources of their cost approach. (good
advantage or disadvantage and examples: Apple, Google, Samsung
what factors drive those Electronics, Starbucks)
costs.(good
examples: Amazon.com, Wal-
Mart, McDonald's, Ford, Toyota)
 Step 1. Identify the firm’s

 Step 1. Identify the customers’
primary and support activities. value-creating activities.

 Step 2. Establish the relative
 Step 2. Evaluate the differentiation
importance of each activity in strategies for improving customer
the total cost of the product. value.
 Step 3. Identify cost drivers for
Step 3. Identify the best sustainable
each activity.
 Step 4. Identify links between differentiation.
activities.
Step 5. Identify opportunities for

reducing costs.
3.8.3 Cost advantage
To gain cost advantage a firm has to go through 5 analysis steps:
Step 1. Identify the firm’s primary and support activities. All the
activities (from receiving and storing materials to marketing, selling and after
sales support) that are undertaken to produce goods or services have to be

clearly identified and separated from each other. This requires an adequate
NOTES
knowledge of company’s operations because value chain activities are not
organized in the same way as the company itself. The managers who identify
value chain activities have to look into how work is done to deliver customer
value.
Step 2. Establish the relative importance of each activity in the total

cost of the product. The total costs of producing a product or service must be
broken down and assigned to each activity. Activity based costing is used to
calculate costs for each process. Activities that are the major sources of cost or
done inefficiently (when benchmarked against competitors) must be
addressed first.
Step 3. Identify cost drivers for each activity. Only by understanding

what factors drive the costs, managers can focus on improving them. Costs
for labor-intensive activities will be driven by work hours, work speed, wage
rate, etc. Different activities will have different cost drivers.
Step 4. Identify links between activities. Reduction of costs in one

activity may lead to further cost reductions in subsequent activities. For
example, fewer components in the product design may lead to less faulty
parts and lower service costs. Therefore identifying the links between
activities will lead to better understanding how cost improvements would
affect he whole value chain. Sometimes, cost reductions in one activity lead to
higher costs for other activities.
Step 5. Identify opportunities for reducing costs. When the company

knows its inefficient activities and cost drivers, it can plan on how to improve
them. Too high wage rates can be dealt with by increasing production speed,
outsourcing jobs to low wage countries or installing more automated
processes.

3.8.4 Differentiation advantage
VCA is done differently when a firm competes on differentiation

rather than costs. This is because the source of differentiation advantage
comes from creating superior products, adding more features and satisfying
varying customer needs, which results in higher cost structure.
Step 1. Identify the customers’ value-creating activities. After

identifying all value chain activities, managers have to focus on those
activities that contribute the most to creating customer value. For example,
Apple products’ success mainly comes not from great product features (other
companies have high-quality offerings too) but from successful marketing
activities.
Step 2. Evaluate the differentiation strategies for improving customer

value.Managers can use the following strategies to increase product
differentiation and customer value:
 Add more product features;

 Focus on customer service and responsiveness;
 Increase customization;
 Offer complementary products.
Step 3. Identify the best sustainable differentiation. Usually, superior

differentiation and customer value will be the result of many interrelated
activities and strategies used. The best combination of them should be used to
pursue sustainable differentiation advantage.
3.9 SCANNING FUNCTIONAL RESOURCES AND

CAPABILITIES
The simplest way to begin an analysis of corporation’s value chain is

by carefully examining its traditional functional area for strengths and
weaknesses. Functional resources include not only the financial, physical, and
human assets in each area, but also the ability of the people in each area to

formulate and implement the necessary functional objectives, strategies, and
NOTES
policies. The resources include the knowledge of analytical concepts and
procedural techniques common to each area and the ability of the people in
each area to use them effectively. If used properly, these resources serve as
strengths to carry out value added activities and support strategic decisions.
An organizational structure is defined as “a system used to define a

hierarchy within an organization. It identifies each job, its function and where
it reports to within the organization.” A structure is then developed to
establish how the organization operates to execute its goals.
There are many types of organizational structures. There’s the more

traditional functional structure, the divisional structure, the matrix structure
and the flatarchy structure. Each organizational structure comes with
different advantages and disadvantages and may only work for companies or
organizations in certain situations or at certain points in their life cycles.
“Poor organizational design and structure results in a bewildering

morass of contradictions: confusion within roles, a lack of coordination
among functions, failure to share ideas, and slow decision making bring
managers unnecessary complexity, stress and conflict,” wrote Gill
Corkindale in the Harvard Business Review. “Often those at the top of an
organization are oblivious to these problems or, worse; pass them off as
challenges to overcome or opportunities to develop.”
Ultimately, it’s important to get a group’s organizational structure

correct in order for its aims to be successful.
3.9.1 Types of Organizational Structures
a. Functional
The functional structure is based on an organization being divided up

into smaller groups with specific tasks or roles. For example, a company
could have a group working in information technology, another in marketing
and another in finance.

Each department has a manager or director who answers to an
executive a level up in the hierarchy who may oversee multiple departments.
One such example is a director of marketing who supervises the marketing
department and answers to a vice president who is in charge of the
marketing, finance and IT divisions.
An advantage of this structure is employees are grouped by skill set

and function, allowing them to focus their collective energies on executing
their roles as a department.
One of the challenges this structure presents is a lack of inter-

departmental communication, with most issues and discussions taking place
at the managerial level among individual departments. For example, one
department working with another on a project may have different
expectations or details for its specific job, which could lead to issues down the
road.
In addition, with groups paired by job function, there’s the possibility

employees can develop “tunnel vision” — seeing the company solely through
the lens of the employee’s job function.

b. Divisional
NOTES
Larger companies that operate across several horizontal objectives

sometimes use a divisional organizational structure.
This structure allows for much more autonomy among groups within
the organization. One example of this is a company like General Electric. GE
has many different divisions including aviation, transportation, currents,
digital and renewable energy, among others.
Under this structure, each division essentially operates as its own

company, controlling its own resources and how much money it spends on
certain projects or aspects of the division.
Additionally, within this structure, divisions could also be created

geographically, with a company having divisions in North America, Europe,
East Asia, etc.

This type of structure offers greater flexibility to a large company with
many divisions, allowing each one to operate as its own company with one or
two people reporting to the parent company’s chief executive officer or upper
management staff. Instead of having all programs approved at the very top
levels, those questions can be answered at the divisional level.
A downside to this type of organizational structure is that by focusing

on divisions, employees working in the same function in different divisions
may be unable to communicate well between divisions. This structure also
raises issues with accounting practices and may have tax implications.
c. Matrix
A hybrid organizational structure, the matrix structure is a blend of

the functional organizational structure and the projectized organizational
structure.

In the matrix structure, employees may report to two or more bosses
NOTES
depending on the situation or project. For example, under normal functional
circumstances, an engineer at a large engineering firm could work for one
boss, but a new project may arise where that engineer’s expertise is needed.
For the duration of that project, the employee would also report to that
project’s manager, as well as his or her boss for all other daily tasks.
The matrix structure is challenging because it can be tough reporting

to multiple bosses and knowing what to communicate to them. That’s why
it’s very important for the employees to know their roles, responsibilities and
work priorities.
Advantages of this structure is that employees can share their

knowledge across the different functional divisions, allowing for better
communication and understanding of each function’s role. And by working
across functions, employees can broaden their skills and knowledge, leading
to professional growth within the company.
On the other hand, reporting to multiple managers may add

confusion and conflict between managers over what should be reported. And
if priorities are not clearly defined, employees, too, may get confused about
their roles.

d. Flatarchy
While the previous three types of organizational structures may work

for some organizations, another hybrid organizational structure may be better
for startups or small companies.
Blending a functional structure and a flat structure results in a

flatarchy organizational structure, which allows for more decision making
among the levels of an organization and, overall, flattens out the vertical
appearance of a hierarchy?
The best example of this structure within a company is if the

organization has an internal incubator or innovation program. Within this
system, the company can operate in an existing structure, but employees at
any level are encouraged to suggest ideas and run with them, potentially
creating new flat teams. Lockheed Martin, according to Forbes, was famous
for its skunk works project, which helped develop the design of a spy plane.
Google, Adobe, LinkedIn and many other companies have internal

incubators where employees are encouraged to be creative and innovative in
order to promote the company’s overall growth.

A benefit of this system is it allows for more innovation company-
NOTES
wide, as well as eliminating red tape that could stall innovation in a
functional structure. As for the negatives, the structure could be confusing
and inconvenient if everyone involved doesn’t agree on how the structure
should be organized.
3.10 CORPORATE CULTURE
Corporate culture refers to the beliefs and behaviors that determine

how a company's employees and management interact and handle outside
business transactions. Often, corporate culture is implied, not expressly
defined, and develops organically over time from the cumulative traits of the
people the company hires. A company's culture will be reflected in its dress
code, business hours, office setup, employee benefits, turnover, hiring
decisions, and treatment of clients, client satisfaction and every other aspect
of operations.
Organization Culture (Corporate Culture): Organization culture refers

to the unique configuration of norms, beliefs, ways of behaving and so on
that characterize the manner in which groups and individuals combine to get
things done. It also can define that the set of important assumptions that
members of an organization share in common. There is other definition of the
organizational culture involves assumptions, adaptations, perceptions and
learning. Exhibit II : Organization culture of Walt Disney Walt’s Disney has
three layers of organization culture. First layer includes artifacts and
creations, such as annual report, a newsletter, wall dividers between workers
and furnishings. Second layer includes values, or the things that are
important to people. The third layer is the basic assumptions that tell
individuals how to perceive, think about and feel about work, performance
goals, human relationships and the performance of colleagues. This becomes
the three layer model of organizational culture
3.11 STRATEGIC AUDIT
A strategic audit is an in-depth review to determine whether a

company is meeting its organizational objectives in the most efficient way.

Additionally, it examines whether the company is utilizing its resources fully.
A successful strategic audit is beneficial to any company. It assesses various
aspects of a business and evaluates and determines the most appropriate
direction for the company to move toward in achieving its goals. Complete a
strategic audit utilizing six phases.
3.11.1 Resource Audit
Conduct a full assessment of all resources owned or allocated by the

business that are utilized to carry out organizational objectives. Cash balances
and capital are included in this tally. Determining resources requires
accounting for physical property such as buildings and lots. Additionally,
categorize human resources by assessing staffers' skill set. Also account for
intangible resources such as reputations and brand name power.
3.11.2 Value Chain Analysis
Inspect all business activities to determine how each one contributes or

hinders organizational objectives. M.E. Porter separated activities into two
categories: primary and support activities. Primary activities consist of in-
bound and out-bound logistics, or materials and products coming in and
moving out of the company. Primary activities also include operations,
marketing and sales. Support activities are made up of human resources,
procurement and infrastructure.
3.11.3 Core Competence Analysis
Determine the core competence that distinguishes your company from

its competitors. Traditionally, there are four core competencies: quality,
service, cost and flexibility. Quality-driven organizations focus on carving a
niche by supplying the best quality products and developing a reliable and
trustworthy reputation. Alternatively, a cost-driven strategy involves offering
products or services more cost-effective than the competition.
3.11.4 Performance Analysis

Evaluate the performance of the company against established
NOTES
information obtained in the earlier phases. For example, with full knowledge
of all company resources, gauge whether the business is utilizing those
completely or whether there are areas that need improvement. Performance
evaluations can consist of comparing past performance with current
performance or assessing and measuring against competitors.
3.11.5 Portfolio Analysis
Inventory the overall securities, investments and business units of the

company and analyze them in relation to risk vs. return. A portfolio analysis
allows companies to understand better which areas to highlight and which
areas to phase out. This criterion can provide information through multiple
resources to identify products that are not selling well. This enables you to
allocate funds and resources more efficiently to the products or services that
offer a larger return.
3.12 SWOT ANALYSIS
A SWOT analysis stands for strengths, weaknesses, opportunities and

threats. Utilize a SWOT analysis to assess the company, its resources and its
environment by examining internal and external influences. Internal
influences are the company’s strengths and weaknesses. External influences
contain opportunities and threats. A SWOT analysis yields information and
direction to transform weaknesses into strengths, emphasize opportunities
for improvement and minimize threats.
SWOT analysis is a planning methodology that helps organizations

build a strategic plan to meet goals, improve operations and keep the
business relevant. During SWOT analysis, organizations identify strengths,
weaknesses, opportunities and threats (the four factors SWOT stands for)
pertaining to organizational growth, products and services, business
objectives and market competition.
A two-by-two matrix is used to build a SWOT analysis, with

horizontal pairings of internal (strengths and weakness) and external

(opportunities and threats) factors and vertical pairings of helpful (strengths
and opportunities) and harmful (weaknesses and threats) factors in achieving
an objective. Final results of the analysis will help the organization determine
whether objectives, products, services, projects or goals are a strategic fit. The
best strategic fits are when the internal environment (strengths and
weaknesses) aligns with the external environment (opportunities and
threats).
3.12.1 Strengths and weaknesses
Strengths and weaknesses are internal factors that are dependent on

the objective, project or initiative being analyzed. Since it’s subjective to the
chosen objective, what’s considered a strength for one objective or project
might be a weakness for another.
Strengths are within the organization’s control and this category

includes everything the business does right when trying to achieve a specific
goal, initiative, project or objective. Anything that gives the organization an
advantage or that helps processes and projects run smoothly or helps the
organization achieve business goals will fall into this category.
Weaknesses are also within the organization’s control, but the

category includes everything that keeps the business from staying on track to
achieving business or project goals and objectives. These are the things that
need to be fixed or changed in order to achieve success.
3.12.2 When to conduct a SWOT analysis
A SWOT analysis can be used in a variety of situations — it’s not

restricted by a specific industry or department, according to the SWOT
Analysis Guide. SWOT can be used to explore new ventures, products,
acquisitions or mergers. It can help businesses change course mid-project,
plan out how to invest money, understand competitors and to identify the
brand’s mission. SWOT can also help non-profit companies and government
agencies manage or allocate grants, donations and funding. It’s a flexible

analysis tool that can be applied to a range of business situations relating to
NOTES
everything from IT to marketing to operations.
3.12.3 How to conduct a SWOT analysis
You don’t need much to perform a SWOT analysis — the process can
be as simple or complex as you make it. It’s something that can be done
during workshops, meetings, brainstorming sessions or when evaluating
products or competition.
A SWOT analysis begins with listing out the objectives, business

venture or project and identifies any internal or external factors that will help
or hurt the path to achieving those objectives. Objectives can include
anything from small or major business decisions to new or improved
products and services. If an objective is deemed attainable, the process starts
over with a different objective.
According to the SWOT Analysis Guide, the three main steps for
performing a SWOT analysis are:
1. Collect relevant information and list all current known strengths and
weaknesses. This can be achieved through talking to others in the
organization or through larger brainstorming sessions. You should come
prepared with questions pertaining to the SWOT objective and aim to get
thoughtful and insightful responses from your team.
2. Consider all the potential opportunities that exist for the organization,
including future trends and technologies.
3. Review the SWOT matrix to build a plan that addresses each area including
everything that’s working and everything that needs to change.
3.12.4 What will SWOT analysis achieve?
A SWOT analysis is essentially a way to get the organization focused

on specific goals, projects and objectives. It’s an organized approach that
helps businesses identify ways to improve efficiency and productivity.

3.12.5 Swot tool has 5 key benefits:
 Simple to do and practical to use;

 Clear to understand;
 Focuses on the key internal and external factors affecting the
company;
 Helps to identify future goals;
 Initiates further analysis.
Although there are clear benefits of doing the analysis, many managers
and academics heavily criticize or don’t even recognize it as a serious
tool.[2]According to many, it is a ‘low-grade’ analysis. Here are the main flaws
identified by a research:
 Excessive lists of strengths, weaknesses, opportunities and threats;

 No prioritization of factors;
 Factors are described too broadly;
 Factors are often opinions not facts;
 No recognized method to distinguish between strengths and
weaknesses, opportunities and threats.
The following guidelines are very important in writing a successful swot

analysis. They eliminate most of swot limitations and improve it's results
significantly:
 Factors have to be identified relative to the competitors. It allows

specifying whether the factor is a strength or a weakness.
 List between 3 – 5 items for each category. Prevents creating too short
or endless lists.
 Items must be clearly defined and as specific as possible. For example,
firm’s strength is: brand image (vague); strong brand image (more
precise); brand image valued at $10 billion, which is the most valued
brand in the market (very good).
 Rely on facts not opinions. Find some external information or involve
someone who could provide an unbiased opinion.

 Factors should be action orientated. For example, “slow introduction
NOTES
of new products” is action orientated weakness.
3.13 TOWS MATRIX
The TOWS Matrix is derived from the SWOT Analysis model, which
stands for the internal Strengths and Weaknesses of an organisation and the
external Opportunities and Threats that the business is confronted with.
The acronym TOWS is a variant of this and was developed by the

American international business professor Heinz Weirich.
The TOWS Matrix is aimed at developing strategic options from an

external-internal analysis and is a practical tool, particularly in the fields of
business administration and marketing.
Anatomy of TOWS Matrix
TOWS Matrix follows the roots of SWOT Analysis but is quite

indifferent from the same as SWOT Analysis mainly focuses on the aspects of
opportunities and threats whereas TOWS Matrix is the tool
for strategy generation and selection.

SWOT Analysis is the tool for audit and analysis of the business and is
used at the beginning of the planning process and TOWS Matrix is opted at
the later part of the planning process to decide the way forward for the
business.
It is the work of the trade-off between the internal and external factors
of the company and the outside environment that affects the operations and
overall objectives of the business.
The strengths and weaknesses are a part of the internal environment

of the business that comprises of employees and staff, HR policies, work
culture, nature, features, and attributes of the products and services offered to
the target market, manufacturing processes and techniques, goals and
objectives, core values, and fundamentals of the company. Most of the times,
the internal factors are controllable in nature.
The opportunities and threats are a part of the external environment

that comprises of government policies, direct and indirect competition in the
market, evolving and changing tastes and preferences of the customers,
dynamic nature of the market, and fluctuation rates of the raw materials
required for the production along with other such extrinsic factors that are
many a times not in control of the business and management of the company.
3.13.1 Rules of TOWS Matrix :
1. The analytical methodology and approach of TOWS Matrix are quite

subjective in nature like many other tools, frameworks, models, and
concepts to come up with the business strategies that are edgy and
outlandish in nature to accomplish the aims and objectives of the
company. Depending on the merit of the situation and all the internal
and external factors affecting the business, it is as robust as the data
that is being included in the model.

2. It is quite mandatory to be very specific in the overall approach and
NOTES
process eliminating all the grey areas so that the strategies arrived is
feasible, realistic, and functional in nature.
3. It is always advisable to second the final analysis of the TOWS Matrix
with the other strategic models such as Porter’s Generic Strategies and
others that provide competent results.
4. It is necessary that the strategy should include the internal growth
and development of the company by the way of mergers, acquisitions,
new product development, capturing
new markets and target audience, and joint ventures.
3.13.2 The 4 TOWS Matrix Strategies
1) Strengths and Opportunities in TOWS Matrix / SO
The first and foremost strategy of the TOWS Matrix involves the using
of internal strengths of the company to make optimum use of the external
opportunities available to the company. Example: If the company has
developed a niche and distinct brand image in the market and minds of the
consumers and there is an opportunity to tap the new market locations or
coming up with the new line of products and services for the same target
market, it is one of the best options for the growth of the firm.
2) Weakness and Opportunities in TOWS Matrix / WO
The second strategy in the line of TOWS Matrix indicates that the
management of the company will find various options and alternatives to
overcome the weaknesses and take advantage of the opportunities that are
coming in the way. It is the best way to diminish the weakness and exploit
the opportunities. Example: If the company is not an expert in any of the
business facet that is required for the growth and success and is presented
with the opportunity for an alliance with the other company that has the
required expertise, it works as a win-win situation for both the parties
involved.

3) Strengths and Threats in TOWS Matrix / ST
This strategy of the TOWS Matrix implies that the management of the
company would exploit all the internal strengths to overcome any of the
potential threats that in the way of the business to accomplish the desired
goals and objectives. Example: If the company is facing the astute competition
for the existing players in the market or from the new entrants that are
offering the new and innovative range of the products that are similar to the
ones offered by the company, the company needs to harp on the internal
strengths such as quality of the offerings, authentic manufacturing
techniques, customer service, and rich legacy of the brand amongst others.
4) Weaknesses and Threats in TOWS Matrix / WT
This one is the least appealing strategy of the TOWS Matrix as which
company would harp on its weaknesses to overcome the external threats on
the business. It is always advisable to minimize the weaknesses to avoid the
possible threats.
3.13.5 Limitations of TOWS Matrix:
1. It doesn’t follow the real steps that are mandatory to follow and
achieve the competitive advantage in the market.
2. Many a time, the analytical approach of TOWS Matrix does not
consider the changing competitive environment that is one of the
biggest threats to the business in attaining its objectives of higher sales,
elevated profits, and enhanced brand value.
3. It doesn’t show and highlight the interrelationship amongst the internal
and external factors that affect the business operations and strategies.
3.14 BUSINESS LEVEL STRATEGIES
An organization's core competencies should be focused on satisfying

customer needs or preferences in order to achieve above average returns. This
is done through Business-level strategies. Business level strategies detail
actions taken to provide value to customers and gain a competitive advantage

by exploiting core competencies in specific, individual product or service
NOTES
markets. Business-level strategy is concerned with a firm's position in an
industry, relative to competitors and to the five forces of competition.
Customers are the foundation or essence of a organization's business-level
strategies. Who will be served, what needs have to be met, and how those
needs will be satisfied are determined by the senior management.
3.14.1 Business-Level Strategies
There are four generic strategies that are used to help organizations
establish a competitive advantage over industry rivals. Firms may also choose
to compete across a broad market or a focused market. We also briefly
discuss a fifth business level strategy called an integrated strategy.
1. Cost Leadership – Organizations compete for a wide customer based on

price. Price is based on internal efficiency in order to have a margin that will
sustain above average returns and cost to the customer so that customers will
purchase your product/service. Works well when product/service is
standardized, can have generic goods that are acceptable to many customers,
and can offer the lowest price. Continuous efforts to lower costs relative to
competitors are necessary in order to successfully be a cost leader. This can
include:
 Building state of art efficient facilities (may make it costly for

competition to imitate)
 Maintain tight control over production and overhead costs
 Minimize cost of sales, R&D, and service.
Earlier we discussed Porter's Model. A cost leadership strategy may help

to remain profitable even with: rivalry, new entrants, suppliers' power,
substitute products, and buyers' power.

 Rivalry – Competitors are likely to avoid a price war, since the low
cost firm will continue to earn profits after competitors compete away
their profits (Airlines).
 Customers – Powerful customers that force firms to produce
goods/service at lower profits may exit the market rather than earn
below average profits leaving the low cost organization in a monopoly
positions. Buyers then loose much of their buying power.
 Suppliers – Cost leaders are able to absorb greater price increases
before it must raise price to customers.
 Entrants – Low cost leaders create barriers to market entry through its
continuous focus on efficiency and reducing costs.
 Substitutes – Low cost leaders are more likely to lower costs to entice
customers to stay with their product, invest to develop substitutes,
purchase patents.
Value Chain – A framework that firms can use to identify and evaluate
the ways in which their resources and capabilities can add value. The value of
the analysis lays in being able to break the organization's operations or
activities into primary (such as operations, marketing & sales, and service)
and support ( staff activities including human resources management &
procurement) activities. Analyzing the firm's value-chain helps to assess your
organizations to what you perceive your competitors value-chain, uncover
ways to cut costs, and find ways add value to customer transactions that will
provide a competitive advantage.
2. Differentiation - Value is provided to customers through unique features

and characteristics of an organization's products rather than by the lowest
price. This is done through high quality, features, high customer service,
rapid product innovation, advanced technological features, image
management, etc. (Some companies that follow this strategy: Rolex, Intel,
Ralph Lauren) Create Value by:
 Lowering Buyers' Costs – Higher quality means less breakdowns,

quicker response to problems.

 Raising Buyers' Performance – Buyer may improve performance, have
NOTES
higher level of enjoyment.
 Sustainability – Creating barriers by perceptions of uniqueness and
reputation, creating high switching costs through differentiation and
uniqueness.
Porter's Five Forces Model – Effective differentiators can remain

profitable even when the five forces appear unattractive.
 Rivalry – Brand loyalty means that customers will be less sensitive to

price increases, as long as the firm can satisfy the needs of its
customers (audiofiles).
 Suppliers – Because differentiators charge a premium price they can
more afford to absorb higher costs and customers are willing to pay
extra too.
 Entrants – Loyalty provides a difficult barrier to overcome. Substitutes
(trans. 4-26) – Once again brand loyalty helps combat substitute
products.
3. Focused Low Cost- Organizations not only compete on price, but also
select a small segment of the market to provide goods and services to. For
example a company that sells only to the U.S. government.
4. Focused Differentiation - Organizations not only compete based on

differientation, but also select a small segment of the market to provide goods
and services.
Focused Strategies - Strategies that seek to serve the needs of a particular
customer segment (e.g., federal gov't).
Companies that use focused strategies may be able serve the smaller segment
(e.g. business travelers) better than competitors who have a wider base of
customers. This is especially true when special needs make it difficult for
industry-wide competitors to serve the needs of this group of customers. By

serving a segment that was previously poorly segmented an organization has
unique capability to serve niche.
5. Using an Integrated Low-Cost/Differentiation Strategy
This new strategy may become more popular as global competition increases.
Firms that use this strategy may see improvement in their ability to:
 Adaptability to environmental changes.

 Learn new skills and technologies
 More effectively leverage core competencies across business units and
products lines which should enable the firm to produce produces with
differentiated features at lower costs.
Thus the customer realizes value based both on product features and a low
price. Southwest airlines are one example of a company that does uses this
strategy. However, organizations that choose this strategy must be careful not
to: becoming stuck in the middle i.e., not being able to manage successfully
the five competitive forces and not achieve strategic competitiveness. Must be
capable of consistently reducing costs while adding differentiated features.
3.15 CORPORATE STRATEGY
Corporate Strategy takes a portfolio approach to strategic decision

making by looking across all of a firm’s businesses to determine how to create
the most value. In order to develop a corporate strategy, firms must look at
how the various business they own fit together, how they impact each other,
and how the parent company is structured in order to optimize human
capital, processes, and governance. Corporate Strategy builds on top of
business strategy, which is concerned with the strategic decision making for
an individual business.

NOTES
3.15.1 What are the Components of Corporate Strategy?
There are several important components of corporate strategy that leaders

of organizations focus on. The main tasks of corporate strategy are:
1. Allocation of resources
2. Organizational design
3. Portfolio management
4. Strategic tradeoffs

In the following sections, this guide will break down the four main
components outlined above.
#1 Allocation of Resources
The allocation of resources at a firm focuses mostly on two resources: people

and capital. In an effort to maximize the value of the entire firm, leaders
must determine how to allocate these resources to the various businesses or
business units to make the whole greater than the sum of the parts.
Key factors related to the allocation of resources are:
 People
o Identifying core competencies and ensuring they are well
distributed across the firm
o Moving leaders to the places they are needed most and add
the most value (changes over time based on priorities)
o Ensuring an appropriate supply of talent is available to all
businesses

 Capital
NOTES
o Allocating capital across businesses so it earns the highest risk-
adjusted return
o Analyzing external opportunities (mergers and acquisitions)
and allocating capital between internal (projects) and external
opportunities
#2 Organizational Design
Organizational design involves ensuring the firm has the necessary corporate
structure and related systems in place to create the maximum amount of
value. Factors that leaders must consider are, the role of the corporate head
office (centralized vs decentralized approach and the reporting structure of
individuals and business units (vertical hierarchy, matrix reporting, etc.).
Key factors related to the allocation of resources are:
 Head office (centralized vs decentralized)

o Determining how much autonomy to give business units
o Deciding whether decisions are made top-down or bottom-up
o Influence on the strategy of business units
 Organizational structure (reporting)
o Determine how large initiatives and commitments will be
divided into smaller projects
o Integrating business units and business functions such that
there are no redundancies
o Allowing for the balance between risk and return to exist by
separating responsibilities
o Developing centers of excellence
o Determining the appropriate delegation of authority
o Setting governance structures
o Setting reporting structures (military / top-down, matrix
reporting

#3 Portfolio Management
Portfolio management looks at the way business units complement each

other, their correlations, and decides where the firm will “play” (i.e. what
businesses it will or won’t enter).
Corporate Strategy related to portfolio management includes:
 Deciding what business to be in or to be out of

 Determining the extent of vertical integration the firm should have
 Managing risk through diversification and reducing the correlation of
results across businesses
 Creating strategic options by seeding new opportunities that could be
heavily invested in if appropriate
 Monitor the competitive landscape and ensure the portfolio is well
balanced relative to trends in the market
#4 Strategic Tradeoffs
One of the most challenging aspects of corporate strategy is balancing the

tradeoffs between risk and return across the firm. It’s important to have a
holistic view of all the businesses combined and ensure that the desired levels
are risk management and return generation are being pursued.
Below are the main factors to consider for strategic tradeoffs:
 Managing risk
o Firm-wide risk is largely depending on the strategies it
chooses to pursue
o True product differentiation, for example, is a very high-risk
strategy that could result in a market leadership position, or
total ruin
o Many companies adopt a copycat strategy by looking at what
other risk-takers have done and modify it slightly

o It’s important to be fully aware of strategies and associated
NOTES
risks across the firm
o Some areas might require true differentiation (or cost
leadership) but other areas might be better suited to copycat
strategies that rely on incremental improvements
o The degree of autonomy business units have is important in
managing this risk
 Generating returns
o Higher risk strategies create the possibility of higher rates of
return. The examples above of true product differentiation or
cost leadership could provide the most return in the long run if
they are well executed
o Swinging for the fences will lead to more home runs and more
strikeouts so it’s important to have the appropriate number of
options in the portfolio. These options can later turn into big
bets as the strategy develops
 Incentives
o Incentive structures will play a big role in how much risk and
how much return managers seek
o It may be necessary to separate the responsibilities of risk
management and return generation so that each can be
pursued to the desired level
o It may further help to manage multiple overlapping timelines,
ranging from short-term risk/return to long-term risk/return
and ensuring there is appropriate dispersion
3.16 PORTFOLIO ANLAYSIS
Portfolio Analysis in Strategic Management
Portfolio analysis is a systematic way to analyze the products and

services that make up an association's business portfolio. All associations
(except the simplest and the smallest) are involved in more than one business.
Some of these include publishing, meetings and conventions, education and

training, government representation, research, standards setting, public
relations, etc. Each of these is one of the association's strategic business units
(SBUs).Each business consists of a portfolio of products and services.
For example, an association's publishing business might include a

professional journal, a lay magazine, specialized newsletters geared to
different member segments, CDs, a website, social networking sites, etc.
Portfolio analysis helps you decide which of these products and services
should be emphasized and which should be phased out, based on objective
criteria. Portfolio analysis consists of subjecting each of the association's
products and services through a progression of finer screens. During a time of
cutbacks and scarce resources, it is essential to screen out programs and
services that are not essential to most members. Those that appeal to a more
limited segment can be funded by those desiring the product or service rather
than by dues.
3.16.1 Portfolio analysis offers the following advantages:
1. It encourages management to evaluate each of the organization's

businesses individually and to set objectives and allocate resources for
each.
2. It stimulates the use of externally oriented data to supplement
management's intuitive judgment.
3. It raises the issue of cash flow availability for use in expansion and
growth.
Portfolio analysis does, however, have some limitations.
1. It is not easy to define product/market segments.

2. It provides an illusion of scientific rigor when some subjective judgments
are involved.
Considering both its advantages and disadvantages, portfolio analysis should
be regarded as a disciplined and organized way of thinking about asset
allocation. It is only a subjective tool, however, and is not a substitute for the
ultimate professional judgment of the responsible decision-makers.

Step 1:Identify Lines of Business The first step in portfolio analysis is
NOTES
to identify the lines of businesses (SBUs) that make up the
association's portfolio. The guideline to keep in mind is this: if we
were a corporation instead of a professional society, which groups of
programs would be logical candidates to be grouped together as
independent businesses?
Step 2: Group Lines of Business There are three lines of businesses an

association typically engages in. The first is core businesses that are of
vital importance to your broad membership. These are the businesses
that directly support the objectives in the strategic plan and have a
priority claim on resources. The second line of business is support
functions that make it possible to deliver the core business benefits to
members. Examples of support functions are administrative,
accounting, legal, governance support, etc. These do not have a
priority claim on resources. Rather, the objective is to minimize the
cost of these functions and transfer resources to support the core
business. The third line of business is money-makers that provide
low-priority member benefits but are the source of revenues that
support the association’s core businesses. Ideally, the association’s
core businesses should be self-supporting and perhaps even
contribute to reserves. Often, this is not the case and activities must be
subsidized with other income. Money-makers provide this income.
Examples of money-makers are rental car discounts, affinity cards,
insurance programs.
Step 3: Compare Core Businesses with Mission Statement Once you

have separated out your core businesses, compare them with the
association's mission statement. To pass this screen, a business must
directly support the goals that are defined in the mission statement.
Support should be direct and not peripheral. If a line of business does
not support the strategic plan, it should be discontinued or phased out

and its resources transferred to support the association's other core
businesses.
Step 4: Define Products and Services in Each Line of Business Once

lines of business have been tested for relevance to the mission
statement, the next step is to subdivide those that are relevant into
their component products and services. For example, the publishing
business would be subdivided into each of its products. Each product
or service would then be compared to the Program Evaluation Matrix.
Step 5: Apply the Program Evaluation Matrix The Program

Evaluation Matrix is a graphic device that simplifies the process of
analyzing all the products and services in the association's portfolio of
products and services. In running its programs through the Program
Evaluation Matrix, the association makes several assumptions.
3.16.2 Assumptions
1. Since the need for resources is competitive, the association must view the
problem of securing resources in a competitive context.
2. It is preferable to provide good service to a focused market than to
provide mediocre or poor service to too large a market.
3. It is pragmatic to surrender mediocre programs to better competitors and
wrest away promising programs from weaker competitors.
3.17 CORPORATE PARENTING
The complexity of transitional business conditions creates a need for

creating value through aggregation of different businesses in complex
corporate enterprise, which gives it the character of a multi-business firm.
Businesses could be defined as being whatever the enterprise chooses to
operate as organizationally separate profit-responsible units. Such business
entities are often referred to as Strategic Business Units (SBUs) and they are
organized as largely separable businesses with control over the main strategic

levers that affect their performance. Besides this organizational definition, the
NOTES
businesses could be defined in economic sense relating to Strategic Business
Opportunities (SBOs), which are clusters of product-market transactions
able to sustain a successful focused business, with financial independence.
Processes of merger, acquisition, divestment, and the other processes of
transformation continually create new challenges to corporate management
towards providing better performance of aggregated businesses than they
would achieve if they were independent, stand-alone entities. It is corporate
strategy that should guide key decisions in the businesses and coordinate
their business strategies. But, for most corporate enterprises, the corporate
strategy is simply the sum of business strategies, with some broad objectives
and statement of business mission. Therefore, senior managers who are
responsible for defining the overall corporate strategy, often recognize that
something in their strategies is wrong. They may conceptually change
strategy through offering some financial guidelines, and determine which
businesses are “core”.
This affirms creating advantage through parenting (Parenting

Advantage), which, as a principle, should guide decisions about the nature of
the businesses in the portfolio and about its structure. Namely, multi-
business corporate enterprises consist of businesses and a corporate hierarchy
of line managers, functions, and staffs outside these businesses, which refers
to as the corporate parent that is responsible for making corporate decisions.
Parent could be defined as all those levels of management that are not part of
customer-facing, profit-responsible business units, or, simply, whatever is left
outside the business units but within the enterprise. The role of parent is
multiple and, among other things, includes making decisions about new
businesses to support or acquisitions to make, determining the structure of
enterprise, defining budgeting and capital expenditure processes, setting the
corporate values and attitudes. The businesses better perform in aggregate
under the parent’s ownership than they would if they were independent
entities. Also, the parent must add more value than cost to the businesses in
the portfolio.

3.17.1 There are basically three styles of corporate parenting as
follows;
1. 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 markets
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.
2. 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 to build a common purpose, facilitating cooperation
across businesses and providing central services and resources.
3. 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.
But, more ambitious aspiration for the parent is its ability to gain parenting
advantage – it should aim to be the best possible parent for its businesses. In
aggregate, the businesses under its “patronage” should perform not only
better than they would as standalone entities but also better than they would
under “patronage” of any other parent. Corporate strategy should clarify
how and where the enterprise can achieve parenting advantage. The link
between parenting advantage and corporate strategy therefore parallels the
link between competitive advantage and business strategy. Competitive
advantage is in the heart of successful business strategies. It guides strategic
analysis and provides a basis for assessing alternative action plans.
The concept of parenting advantage plays a similar role at the corporate
level. It should be the fundamental test for judging corporate strategies and
the guiding principle in corporate-level decisions, guiding the decisions
towards better market opportunities and higher corporate performance.

There are nine propositions for achieving parenting advantage and,
NOTES
consequently, for successful implementation of corporate parenting strategy.
1. Justifying the Parent: Many of the businesses in multi-business corporate

enterprise could be viable as stand-alone entities. Since the corporate parent
has no external customers for its product/services, it can justify itself if it
influences businesses collectively to perform better than they would as
independent entities. The challenge for the corporate parent to justify itself is
important because it focuses attention on whether and how its activities do
add value, which leads to the elimination of worthless
and bureaucratic routines in the activities of enterprise.
2. Parenting Advantage: Corporate parents compete with each other for the
ownership of businesses. Therefore, for keeping their stakeholders (especially
businesses), the parents must add more value to the businesses in the
portfolio than other rival parents would. This objective, which is referred to
as achieving parenting advantage, should be one of the most important
objectives of corporate strategy. Namely, parenting advantage should be the
guiding criterion for corporate-level strategy, rather as competitive advantage
is for business-level strategy.
3. Value Destruction: All multi-business enterprises have tendencies to destroy

value. It is corporate hierarchy, especially senior management, which
inevitably destroys some value. Value destruction drivers (so-called
information filters) are related to the tendency of business managers to filter
the information they provide to corporate management in order to present
their businesses in the most favorable light. For avoiding value destruction,
corporate parents must be more disciplined, which implies avoiding
intervention in businesses unless they have specific reasons for believing that
their influence will be positive, or avoiding extension of their portfolio into

new businesses unless they are sure that they will be able to add value. So,
good corporate strategy should recognize the tendencies of value destruction
and be designed to minimize their influence as much as to maximize value
creation.
4. Lateral Synergies: Since there is existence or potential for lateral linkages

between the businesses in corporate enterprise, the main role of parent
managers should be to create synergy. It primarily includes their pursuing of
real synergy opportunities and their positive interventions in the lateral
relationships between businesses. The parent managers should also focus
their efforts only on those synergies that need central intervention as well as
encourage so-called market place relationships between business units. So,
the importance of lateral synergies in creating value in corporate enterprise
requires from corporate parents to pay relatively more attention to other
sources of value creation, in particular their ability to improve performance in
each individual business as an independent entity.
5. Value Creation: Value creation primarily occurs when the parent sees an
opportunity for a business to improve performance and has the skills,
resources and other characteristics for helping the business to seize the
opportunity. This means that the parent enhances both the individual
performance of the business and the value of linkages between the
businesses, and creates value by altering the composition of the business
portfolio performing its corporate development activities. The conditions for
value creation are important because they force corporate parent to think
about major opportunities for added value through the corporate strategy
and also help corporate parent to focus its efforts on building special
competences or skills that fit the particular opportunities targeted by the
businesses.
6. Corporate Office and Management Processes: The importance of the size,
staffing and design of the corporate office as well as managing corporate

processes (such as planning, performance targeting and monitoring, etc.) are
NOTES
not in question, and managers devote considerable attention to them. But if
corporate functions and processes are not developed as an integral part of the
overall value adding corporate strategy, they may lead to little or no
improvement in performance. For parent managers it is far more important to
possess the skills that are suitable for the parenting opportunities targeted by
the corporate-level strategy
7. Diversity: It is a fact that highly diverse corporate enterprises are more

difficult to manage than less diverse ones. So a vital managerial guidance for
corporate parent is provided by creating valid measures of diversity. In that
sense, diversity is best measured in terms of the differences in parenting
needs and opportunities between businesses in portfolio. To avoid excessive
diversity, corporate parent should build its portfolio around businesses with
similarities in terms of parenting needs and opportunities.
8. Stretch and Fit: Corporate parent must realistically consider the speed with
which it can build new skills and understand new types of businesses. It is
supposed to search for new opportunities continuously and refine and extend
parenting skills, which encourage innovative ideas and help eliminate many
disasters of excessive corporate ambition. Therefore, enterprises that do push
forward into new businesses will prosper more if they choose those
businesses that are compatible with parenting skills that they can develop. It
is better to choose a narrower range of businesses where greater fit can be
created. Good corporate strategy should maintain a balance between the
stretch for new opportunities and fit with the parent’s existing skills.

9. Business Unit Definition and Corporate Structure: Business units
(businesses) represent the basic “building blocks” in any multi-business
corporate enterprise. Business unit definition and, consequently, corporate
structure have a profound impact on both the value creation opportunities
and the value destruction risks for the corporate parent. They impact the
behavior and aims of business managers and the size and nature of parenting
opportunities. Inappropriate business definitions lead to compromised
business strategies and missed opportunities for parenting value creation.
Therefore, decisions on unit definitions and corporate structure should be
determined by careful analysis of their likely impact on value creation.
Getting the unit definitions and corporate structure right is an important
precondition for a successful corporate strategy.
Naturally, these propositions are not obligatory for corporate

managers in their managerial activities. They are recommended as elements
of successful corporate strategy and ways for achieving parenting advantage
in multi-business corporate enterprises as the factor of their higher
competitive advantage.
The process of transition results in a discontinuity of business

activities, growth and development of enterprises, which requires flexible
and adaptive forms of organizational structure and management system. This
implies making complex corporate business arrangements. At the same time,
there is the process of creating dynamic and unpredictable markets,
immanent to developed market economy. These markets always change
opportunities and capabilities for creating competitive and corporate
advantage and business success of enterprise. Adjustment to market
possibilities for performing efficient business activities changes the corporate
“repertoire” of corporate strategy. The new corporate strategy focuses on
corporate strategic processes of restructuring or “remapping” business
portfolio as well as on co-evolving its elements, on the basis of simple rules
for its application. These are a guarantee for performing business activities in
a more efficient way.

Complexity of transitional business conditions creates a need for
NOTES
creating value through aggregation of different businesses into a corporate
enterprise. Processes of transformation create some challenges towards
affirming advantage through parenting, or providing better performance of
aggregated businesses than they would achieve as independent entities. The
concept of parenting advantage makes a test for proposed corporate
strategies, guiding them towards better market opportunities and higher
corporate performance.
3.18 FUNCTIONAL STRATEGIES
Functional Level Strategy can be defined as the day to day strategy

which is formulated to assist in the execution of corporate and business level
strategies. These strategies are framed as per the guidelines given by the top
level management.
Functional Level Strategy is concerned with operational level decision

making, called tactical decisions, for various functional areas such as
production, marketing, research and development, finance, personnel and so
forth.
As these decisions are taken within the framework of business

strategy, strategists provide proper direction and suggestions to the
functional level managers relating to the plans and policies to be opted by the
business, for successful implementation.
3.18.1 Role of Functional Strategy
 It assists in the overall business strategy, by providing information

concerning the management of business activities.
 It explains the way in which functional managers should work, so as to

achieve better results.
Functional Strategy states what is to be done, how is to be done and when

is to be done are the functional level, which ultimately acts as a guide to the

functional staff. And to do so, strategies are to be divided into achievable
plans and policies which work in tandem with each other. Hence, the
functional managers can implement the strategy.
Functional Areas of Business
There are several functional areas of business which require strategic

decision making, discussed as under
1. Marketing Strategy: Marketing involves all the activities concerned with the
identification of customer needs and making efforts to satisfy those needs
with the product and services they require, in return for consideration. The
most important part of a marketing strategy is the marketing mix, which
covers all the steps a firm can take to increase the demand for its product. It
includes product, price, place, promotion, people, process and physical
evidence.
For implementing a marketing strategy, first of all, the company’s

situation is analysed thoroughly by SWOT analysis. It has three main
elements, i.e. planning, implementation and control.
There are a number of strategic marketing techniques, such as social

marketing, augmented marketing, direct marketing, person marketing, place
marketing, relationship marketing, Synchro marketing, concentrated
marketing, service marketing, differential marketing and demarketing.
2. Financial Strategy: All the areas of financial management, i.e. planning,

acquiring, utilizing and controlling the financial resources of the company are
covered under a financial strategy. This includes raising capital, creating
budgets, sources and application of funds, investments to be made, assets to
be acquired, working capital management, dividend payment, calculating the
net worth of the business and so forth.
1. Human Resource Strategy: Human resource strategy covers how an

organization works for the development of employees and provides them

with the opportunities and working conditions so that they will contribute to
NOTES
the organization as well. This also means to select the best employee for
performing a particular task or job. It strategizes all the HR activities like
recruitment, development, motivation, retention of employees, and industrial
relations.
2. Production Strategy: A firm’s production strategy focuses on the overall
manufacturing system, operational planning and control, logistics and supply
chain management. The primary objective of the production strategy is to
enhance the quality, increase the quantity and reduce the overall cost of
production.
3. Research and Development Strategy: The research and development
strategy focuses on innovating and developing new products and improving
the old one, so as to implement an effective strategy and lead the market.
Product development, concentric diversification and market penetration are
such business strategies which require the introduction of new products and
significant changes in the old one.
For implementing strategies, there are three Research and Development
approaches:
1. To be the first company to market a new technological product.
2. To be an innovative follower of a successful product.
3. To be a low-cost producer of products.
Functional level strategies focus on appointing specialists and combining

activities within the functional area.
3.19 STRATEGIC CHOICE
The Strategic Choice Approach is used in face to face workshops of a

decision making group.
Strategic choice is viewed as an ongoing process in which the planned
management of uncertainty plays a crucial role.
The Strategic Choice Approach:

1. Focuses on decisions to be made in a particular planning situation,
whatever their timescale and whatever their substance.
2. Highlights the subtle judgements involved in agreeing how to handle
the uncertainties which surround the decision to be addressed -
whether these be technical, political or procedural.
3. The approach is an incremental one, rather than one which looks
towards an end product of a comprehensive strategy at some future
point in time. This principle is expressed through a framework known
as a `commitment package'. In this, an explicit balance is agreed
between decisions to be made now and those to be left open until
specified time horizons in the future.
4. The approach is interactive, in the sense that it is designed not for use
by experts in a backroom setting, but as a framework for
communication and collaboration between people with different
backgrounds and skills.
3.20 GRAND STRATEGY
The Grand Strategies are the corporate level strategies designed to

identify the firm’s choice with respect to the direction it follows to accomplish
its set objectives. Simply, it involves the decision of choosing the long term
plans from the set of available alternatives. The Grand Strategies are also
called as Master Strategies or Corporate Strategies.
there are four grand strategic alternatives that can be followed by the
organization to realize its long-term objectives:
1. Stability Strategy
2. Expansion Strategy
3. Retrenchment Strategy
4. Combination Strategy
The grand strategies are concerned with the decisions about the
allocation and transfer of resources from one business to the other and
managing the business portfolio efficiently, such that the overall objective of

the organization is achieved. In doing so, a set of alternatives are available to
NOTES
the firm and to decide which one to choose, the grand strategies help to find
an answer to it.
Business can be defined along three dimensions: customer groups,

customer functions and technology alternatives. Customer group comprises
of a particular category of people to whom goods and services are offered,
and the customer functions mean the particular service that is being offered.
And the technology alternatives cover any technological changes made in the
operations of the business to improve its efficiency.
Summary
Organizational analysis is the process of appraising the growth,

personnel, operations, and work environment of an entity. Core competency
is a competency that is central to the core of the business. The ultimate aim of
firms is to attain superior performance. In order for this to happen, a firm in
an industry must have a source of competitive advantage that is difficult for
other firms in the industry to imitate. The Generic Strategies can be used to
determine the direction (strategy) of organisation. Michael Porter uses 4
strategies that an organisation can choose from. Value chain analysis can be a
useful tool as a firm seeks to achieve competitive advantage. A strategic audit
is an in-depth review to determine whether a company is meeting its
organizational objectives in the most efficient way. Additionally, it examines
whether the company is utilizing its resources fully. Corporate culture refers
to the beliefs and behaviors that determine how a company's employees and
management interact and handle outside business transactions
Case Study
To design a means for workers to bond, the organization would put up

celebrations for the employees. Events of this nature allow employees to
build associations with each other outside the work setting. The company

holds on to the belief that people can do amazingly great things if given an
opportunity. In all the companies under Procter & Gamble, employees are
seen as the source of success that each organization can achieve.
Innovativeness
Procter & Gamble is both an innovative and peril captivating organization.
Managers in this company inspire employees to be innovative and creative
rather than just wait to follow orders from their leaders. This motivates
employees to contribute towards production in the company as well as
increase the overall efficiency of the company. As a result, employees in this
organization become more competitive due to the freshness and creativity of
the operations they undertake (Martin & Frost, 2011).
Risk Taking
Procter & Gamble is an entrepreneurial organization. The business
management consists of eleven members, who are entrepreneurs in their way.
This enables the organization to venture into opportunities that very few
businesses would risk operating. Among the characteristics of
entrepreneurial business is the capacity to take risks.
Employees across organizations operating under and with Procter & Gamble
are expected to be risk takers. This is because of the organization ventures in
new business every day. Additionally, novelty and risk-taking are aspects
that go together (Martin & Frost, 2011).
Suitable Leader and Response to Decline in Demand
The best leader for Procter & Gamble is a person who possesses a democratic
leadership style. This is because the company is an organization that has a
strong belief in people’s ability.
Therefore, it requires a leader who can justly receive other people’s

contributions concerning any development in the organization as well as put
significance in what other members of the organization have to say.
According to Dereli (2010), democratic leaders persuade economic
development through the creation of new firms, which profit economic

development by generating unrelenting productivity augments through
NOTES
innovation-driven growth in advanced economies.
In case of a decrease in the demand of product(s) or services supplied by

Procter & Gamble, innovativeness is the change in its culture that would
require being carried out in reaction to this condition. Also, the innovative
nature of Procter & Gamble Company demands that managers have some
sense of democracy when it comes to leadership.
A new construction company is opening in Cape Breton Island. They plan to

build a new factory for three years, and it will cost a lot of money to complete
the project. The owner of the company must hire different specialists in the
field, and he uses advertisements to seek for construction workers in Canada.
The work begins, and the workers must work seven days a week and ten to
twelve hours every day.
Some workers complain about the conditions because they need time to see
family, and they need days off while being sick. They talk about overtime
payments because they are working about double forty hours a week.
However, the workers who complain are fired, and the rest of the workers
keep quiet because they extremely need work. If these workers do not like
conditions, the company can hire other workers.
It is important to focus on the problem’s details. A new owner takes over a

company, and he meets his HR manager, who is also new because of the old
HR manager’s quit. The work is about to begin, and the owner wants to hire
some more electricians from Community College because they have a good
reputation. The union representative tells the owner that he cannot do that
because those guys are not in the union.
Some extra work needs to be finished quickly on Saturday, and the owner
tries to schedule it, but the union representative notes that they do not work
on Saturday. The owner also wants to fire lazy workers who work unsafely,
but only the union can hire and fire. Is there a problem with these two
situations?

The first situation is why workers need unions, and the other one is why
some unions can harm the overall work situation. The purpose of the project
is to find a balance to keep union workers satisfied and productive and to
make sure the company can operate profitably without hurting the workers.
Problem Statement
How can a company operate for a long time without having a union to
organize and control the workforce? While having a union in the company,
how it can operate profitably and maintain a happy and productive
workforce? What kind of a scenario can be used to make the workforce and
management develop efficiently and productively?
Analysis of Alternatives
To operate productively and efficiently, companies need a good workforce,

and they need effective management that will be able to manage human
resources. The workforce must have respect for the company, and the
workers must have respect for the management to keep a good working
relationship going.
In their turn, managers should always realize they must have the workers’
concerns, points of view, and interests in their minds and take them into
account while making decisions. This project will discuss the pros and cons of
four alternatives which can be observed in a company, and this discussion
relates to the issues of human resource management and union
representation of the workforce.
It is important to note that all the employment places are different. Each
province and area is different, and external factors are different for each type
of business and that area. There are many different considerations to think
about, so it is difficult to come up with an overall set of recommendations
and choose the most appropriate ones.
Alternative 1: A union tries to organize, and the company tries to fight and
break it before it happens

There are definite rules that must be followed before the union can begin to
NOTES
organize, and each side must focus on these rules. Managers have their own
set of rules as well as the workforce. However, there is a very important fact
that must be understood before they reach this step of a union coming in. The
organization of unions is associated with the initiative of unsatisfied
employees.
In some cases, there are also people who are union organizers, and they try to
develop the union in a company to make the national union bigger and
stronger. The typical reason why people start defending the organization a
union in a company is the company’s inability to make employees satisfied.
Thus, there is the ‘push and pull’ philosophy associated with the union
coming in. The ‘push’ factor: people are unsatisfied with their job conditions,
pushed by co-workers or given no choice because if they want their job
position, they have to join the union.
The ‘pull’ factor: people see the benefits that a union can give them. As a
result, when a manager sees such clues as groups of workers talking quietly
together in groups, he should think about the organization of a union because
small problems can become big problems suddenly, and more questions
about company’s policies and benefits can appear.
In this situation, the rules for the company are the following ones: there can
be no discipline norms to be followed about an employee who is organizing a
union. If an employee needs to be disciplined for another reason, the
company should be sure it has the legal right to punish the employee for his
or her actions if they are not connected with the union organization.
Thus, all the managers’ actions must be looked at very carefully by the HR
team to make sure it does not look like as the managers do anything unfair
according to the principles of the labor relations board of Canada.
The inappropriate managers’ actions can provide some fuel for the organizers
to help them to get the union certified. If the Labour Relations Board thinks

that the company is breaking any of the rules, the union can be automatically
certified without a vote, or the company can be sued for breaking labor laws.
This fact means that once a union starts to organize, the management must be
very careful about how they operate the business because anything could
make the situation worse.
Referring to employees’ rights and duties, they are not allowed to:
 Organize during work hours, for instance, talking to groups of

workers while being at work.
 Trying to make an employer negotiate with workers before the union
is certified, like using the perspective of the union as a threat.
 Intimidate any employees about joining the union.
If there is a union beginning to organize in a company, it must almost stand

back and let the process happen and make sure that the management staff
knows the consequences of their actions well, and the HR team handles the
process professionally.
If the managers do not handle the process appropriately, it can almost

guarantee the organization of a union, which will be hard to negotiate with
and make a collective bargaining agreement. By pushing the union down, the
company will have a group of very angry workers who will not stop their
activities.
Alternative 2: A union tries to organize, and the company supports the

initiative
It usually takes unsatisfied employees to form a union or those employees

who see the perspectives for improving their conditions. These employees
think they can deserve more than they have now, and they are sure that the
union will help them to get it. By following the rules mentioned above, the
company’s management should let the process happen.

If the managers’ team is professional and allows the situation to happen,
NOTES
there will be no complaints or problems from the Labour Board, and the
organizers will not have more chances to make the company perform
ineffectively.
There might be a chance that the employees can vote ‘No’ to a union, but if
they vote ‘yes’ to the union being certified, and it is time to negotiate a
collective bargaining agreement, both sides will not have many problems and
will be negotiating with the goal of agreeing.
Moreover, if a union becomes certified, people still have to come back to

work, and they even work together in harmony. Furthermore, if the process
was rather difficult, and the managers tried to manage the staff efficiently, the
beginning part of organizing the union should be as peaceful as possible. To
receive positive results: 1.
There should be a chance that the workforce does not vote for a union and
things can be fixed over the long term with a good relationship because now
the company is aware that there are problems, and it does not want them to
happen again. 2. If the union is organized, the negotiations can become
smoother, and the HR department will have more opportunities to manage
the staff easier.
Alternative 3: A union never has a chance to come in because the

employees are generally satisfied with the working situation. It is
important to remember that unions are created by employees
There are two very different theories that unions are good for a company and
that unions are bad for a company. The key is in positions of employees and
managers. The problem is in the fact that many policies cannot change the
company’s corporate strategy. There are many rules to deal with employees,
and more stress is put on lower level managers because they have less power
to deal with workers.

Thus, the Collective Bargaining Agreement provides the rules on financial
issues and hours worked or conditions, and it also provides the information
on how much control the company gives to the union about hiring and
discipline issues. Moreover, there is always the stated possibility of the
employees’ strike, if problematic things cannot be negotiated.
Most people in the HR industry agree that a union substitution method is the
best way to operate, and modern employees and managers agree because the
global working economy is very different now. It is easier for companies to
buy globally than to build locally.
To reach a substitution situation, the company must watch very closely what
the workers talk about and their changing attitudes. Also, the company must
pay attention to what their competitors are doing, both unionized and non-
unionized companies, about collective bargaining agreements.
The company should hire a specialist as part of the HR team to manage this
situation. The managers need very strict guidelines on how to handle
workers’ complaints, reward when appropriate, and use strong promotion
policies. There are situations when it can be hard to maintain this approach
because there are so many factors that control employee satisfaction.
If the employees are not satisfied with their conditions, they are starting to
organize. If these employees agree to the company, they may not play
leadership roles during a long period. Thus, some lawyers argue that it is
illegal to focus on union avoidance because it is the right of the workers to
negotiate as a group.
The goal of this alternative is to have strong leadership that keeps the
concerns of the workers in mind at all times and set strong rules on how to
handle all the aspects of employee relations.
From this point, unions can be good for a company because they guarantee
the quality of work. The unions have to be certified and maintain definite
standards. Thus, there is less absenteeism due to the employee job

satisfaction, and the focus on longer careers with that company can be
NOTES
observed.
On the other side, it is argued that it is difficult to run a company because of

the restrictive policies that a union brings, because of strikes or the threat of
strikes, and because of increasing labor costs. That is why, while dealing with
the possibility of a union, the company should choose between three
alternatives to handle things without a union being organized.
Recommendations
A union is an organization with the legal authority to represent workers,

negotiate the terms and conditions of employment with the employer, and
administer the collective agreement. Thus, the union is an important type of
management framework, and workers join unions because of such reasons as
job dissatisfaction, their attitudes towards unions, and because of the
perceived union instrumentality.
Workers and their trade unions have well-defined structures that they
respect. The unions are also well organized about forming the employees’
approach to work. Any further work with the workers and their trade unions
should not ignore the structures of authority and command respect in the
union and company. Employees are organized in unions to make collective
decisions according to the principle of democracy in opinions and views.
Unions are effective to avoid the exploitation at the workplace and to

stimulate the employees’ productivity. Furthermore, the local unions respond
to the needs of the employees who differ about their cultures and ethnicities.
Thus, the employees’ rights are protected, and their interests are followed.
The recommendations for the union should be based on adopting the second
alternative discussed in the paper and on addressing the local conditions and
factors. In this case, the support for organizing the union should be associated
with implementing different policies.

It is important to note that the organized union can address and adapt to
important local conditions and employees and the company’s expectations.
Furthermore, the organization of the union should be associated with
changes in management.
Implementation
To implement the proposed actions, the company could develop specific

guidelines to improve interactions and the exchange of information between
the union and management department. The management department
should be able to provide regular reports to the union and on the
implementation of the company’s strategy and the complementarity of the
issues which are relative to the company’s production efficiency and security.
The company could also oversee and promote the participation and ensure
the exchange of information and coordination of activities between the
union’s members and the management department of the company.
The company could provide guidance and training programs to build and
strengthen the capacities of institutions that are responsible for ensuring
employee productivity, and also improve employee’s royalty and their
motivation.
The company could provide a forum for discussions on issues relevant to the
workforce with the union by scheduled, and solve the problem before it
trends to uncorrectable and too deep, negotiate and discuss the problem to
get a win-win situation. These strategies are beneficial for the company’s
reputation, productivity, and revenue, and they are also good for improving
the employee’s working environment and its performance.
Case study 2
Procter and Gamble: Culture and Diversity in Decision Making Report

Procter and Gamble is a consumer goods corporation in America. It
produces pet food, personal care products, as well as cleaning agents. Procter
and Gamble are known for producing foods and beverages, but the latter sold

that production line to Kellogg Company. It has received many ratings
NOTES
including being the fifth most admired company in the world. It is known for
the best leadership development in the United States of America.
The Culture of Procter and Gamble
The culture of a company establishes its success or failure. Scholars

have defined organizational culture as the behavior of persons that are
associated with a given organization. It also includes the meaning that
individuals in an organization attach to their dealings. Flamholtz and Randle
(2011) avow that, organizational culture incorporates norms, values, vision,
beliefs, working language and habits. Organizational culture impinges on the
way people and groups interrelate internally with customers and
stakeholders.
Procter and Gamble is an organization that believes in upholding

culture for success in business. The company has diversified across the world
at an alarming rate. Ever day, Procter and Gamble continue to expand in
diversified fields. This makes it vital for the organization to have a unifying
way of doing things. Organizational culture is key to providing uniformity in
any organization (Flamholtz & Randle, 2011). The organization believes in
innovativeness, aggressiveness, teamwork, risk-taking, and people
orientation
Ways in Which Procter and Gamble Shows This Culture

Aggressiveness
Aggressiveness is a key dimension in Procter and Gamble. Aggressiveness is

the degree to which employees are insistent and competitive in an
organization rather than cooperative (Martin & Frost, 2011). Procter uses
aggressiveness in taking over companies that are fleeing out of business and
then advertising them under their name brand.
All the eleven managers of Procter insist on aggressiveness on

employees’ part to ensure success in business. Aggressiveness ensures the

smooth running of operations in an organization where workers are self-
motivated other than being dragged along by the leaders.
Consequently, aggressiveness guarantees high levels of production. This is

because time is well managed since nobody needs to be told what to do and
when. Every person in an organization that upholds aggressiveness sees the
success of the company as their success, hence motivation.
People Orientation
People orientation is a scale to which executive decisions take into
consideration the organizations impacts on people (Flamholtz & Randle,
2011). Procter’s apprehension on people orientation culture is illustrated in
that; managers emphasize that people are the firm’s biggest assets.
To design a means for workers to bond, the organization would put

up celebrations for the employees. Events of this nature allow employees to
build associations with each other outside the work setting. The company
holds on to the belief that people can do amazingly great things if given an
opportunity. In all the companies under Procter & Gamble, employees are
seen as the source of success that each organization can achieve.
Innovativeness
Procter & Gamble is both an innovative and peril captivating
organization. Managers in this company inspire employees to be innovative
and creative rather than just wait to follow orders from their leaders. This
motivates employees to contribute towards production in the company as
well as increase the overall efficiency of the company. As a result, employees
in this organization become more competitive due to the freshness and
creativity of the operations they undertake (Martin & Frost, 2011).
Risk Taking
Procter & Gamble is an entrepreneurial organization. The business
management consists of eleven members, who are entrepreneurs in their way.
This enables the organization to venture into opportunities that very few
businesses would risk operating. Among the characteristics of
entrepreneurial business is the capacity to take risks.

Employees across organizations operating under and with Procter & Gamble
NOTES
are expected to be risk takers. This is because of the organization ventures in
new business every day. Additionally, novelty and risk-taking are aspects
that go together (Martin & Frost, 2011).
Suitable Leader and Response to Decline in Demand
The best leader for Procter & Gamble is a person who possesses a
democratic leadership style. This is because the company is an organization
that has a strong belief in people’s ability.
Therefore, it requires a leader who can justly receive other people’s

contributions concerning any development in the organization as well as put
significance in what other members of the organization have to say.
According to Dereli (2010), democratic leaders persuade economic
development through the creation of new firms, which profit economic
development by generating unrelenting productivity augments through
innovation-driven growth in advanced economies.
In case of a decrease in the demand of product(s) or services supplied

by Procter & Gamble, innovativeness is the change in its culture that would
require being carried out in reaction to this condition. Also, the innovative
nature of Procter & Gamble Company demands that managers have some
sense of democracy when it comes to leadership.
1. What is cognitive model?

2. What is socio technical model?
3. What is value chain?
4. What is industry value chain analysis?
5. List out the steps in cost advantage.
6. What is matrix structure?
7. What is corporate culture?

8. What is strategic audit?
9. What is resource audit?
10. What is portfolio analysis?
11. What will SWOT analysis achieve?
12. What are the key benefits of SWOT tools?
13. What is TOWS Matrix?
14. What are the Components of Corporate Strategy?
15. What is differentiation?
16. What is corporate parenting?
17. What is strategic choice?
18. What is grand strategy?
19. Distinctive Competencies and explain in detail.

20. Distinguish between Core Competencies And Distinctive
Competencies.
21. Explain about Comparative Vs Competitive Advantage
22. Explain in detail about firm resources.
23. Explain the various Types of Sustainable Competitive Advantages
24. Enumerate the dynamics of competitive advantage and value chain
25. elucidate about the Classification of Value Chain Analysis
26. Explain about the SWOT analysis.
27. Explain TOWS matrix in detail.
28. Explain about corporate strategy in strategic management.
29. Explain about portfolio analysis in strategic management.
30. Explain the various styles of corporate parenting.
31. What is functional strategy and its role.
Further Reading
1. Kachru Upendra (2005), Strategic Management- Concepts and Cases, Excel

Books, New Delhi.
2. John Pearce II and Richard B. Robinson Jr(1996), Strategic Management,

A.I.T.B.S, New Delhi

3. N.S. Gupta, Business Policy and Strategic Management, Himalaya
NOTES
Publishing House, Mumbai
4. Fred R. David (2003), Strategic Management : Concepts and Cases, Pearson

Education, New Delhi.
5. Francis Cherunilam(2000),Strategic Management, Himalaya Publishing

House, Mumbai

UNIT IV
STRATEGIC IMPLEMENTATION, EVALUATION AND

CONTROL
Structure
4.1 Strategy Implementation
4.2 Process of implementation
4.3 Types of organizational structures
4.4 Process of evaluation and control
4.5 Types of controls
4.6 Techniques of controls
4.7 Strategic Information systems
4.8 Corporate Governance and Corporate Ethics

NOTES
 Strategy Implementation
 Process of implementation
 Types of organizational structures
 Process of evaluation and control
 Types of controls
 Techniques of controls
 Strategic Information systems
 Corporate Governance and Corporate
Ethics
4.1 STRATEGY IMPLEMENTATION

Strategic implementation is a process that puts plans and strategies
into action to reach desired goals. The strategic plan itself is a written
document that details the steps and processes needed to reach plan goals, and
includes feedback and progress reports to ensure that the plan is on track
Strategy implementation is the translation of chosen strategy into

organizational action so as to achieve strategic goals and objectives. Strategy
implementation is also defined as the manner in which an organization
should develop, utilize, and amalgamate organizational structure, control
systems, and culture to follow strategies that lead to competitive advantage
and a better performance. Organizational structure allocates special value
developing tasks and roles to the employees and states how these tasks and
roles can be correlated so as maximize efficiency, quality, and customer
satisfaction-the pillars of competitive advantage. But, organizational structure
is not sufficient in itself to motivate the employees.
4.2 PROCESS OF IMPLEMENTATION

Strategic implementation is critical to a company’s success, addressing
who, where, when, and how of reaching the desired goals and objectives. It
focuses on the entire organization. Implementation occurs after
environmental scans, SWOT analyses, and identifying strategic issues and
goals. Implementation involves assigning individuals to tasks and timelines
that will help an organization reach its goals.
A successful implementation plan will have a very visible leader, such

as the CEO, as he communicates the vision, excitement and behaviors
necessary for achievement. Everyone in the organization should be engaged
in the plan. Performance measurement tools are helpful to provide
motivation and allow for follow-up. Implementation often includes a
strategic map, which identifies and maps the key ingredients that will direct
performance. Such ingredients include finances, market, work environment,
operations, people and partners.
4.2.1 Common Mistakes
A very common mistake in strategic implementation is not

developing ownership in the process. Also, a lack of communication and a
plan that involves too much are common pitfalls. Often a strategic
implementation is too fluffy, with little concrete meaning and potential, or it
is offered with no way of tracking its progress. Companies will often only
address the implementation annually, allowing management and employees
to become caught up in the day-to-day operations and neglecting the long-
term goals. Another pitfall is not making employees accountable for various
aspects of the plan or powerful enough to authoritatively make changes.
4.2.2 Necessary Elements
To successfully implement your strategy, several items must be in

place. The right people must be ready to assist you with their unique skills
and abilities. You need to have the resources, which include time and money,
to successfully implement the strategy. The structure of management must be
communicative and open, with scheduled meetings for updates. Management
and technology systems must be in place to track the implementation, and the

environment in the workplace must be such that everyone feels comfortable
NOTES
and motivated.
4.2.3 Sample Strategic Assessment Plans
Numerous sites and reference works offer sample strategic plan

documents. The My Strategic Plan website, for example, offers a step-by-step
plan for implementation that includes assessing necessary personnel, aligning
the budget and producing various versions of the plan for individual groups.
Several of these sample strategic plan documents allow you to set up a
system for tracking the plan and managing the system with rewards.
Typically, the plan is presented to the entire organization and includes a
schedule of meetings, annual review dates for reporting progress and a
means of modifying current assignments or adding new assessments.
4.2.4 Process of Strategy Implementation
 Building an organization, that possesses the capability to put the

strategies into action successfully.
 Supplying resources, in sufficient quantity, to strategy-essential
activities.
 Developing policies which encourage strategy.
 Such policies and programs are employed which helps in continuous
improvement.
 Combining the reward structure, for achieving the results.
 Using strategic leadership.
The process of strategy implementation has an important role to play

in the company’s success. The process takes places after environmental
scanning, SWOT analyses and ascertaining the strategic issues.

4.2.5 Prerequisites of Strategy Implementation
 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.
 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.
 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.
 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.
 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
NOTES
in a dynamic environment, which may change anytime, so it is essential to
take a review, to know if it can fulfill the needs of the organization.
Even the best-formulated strategies fail if they are not implemented in an

appropriate manner. Further, it should be kept in mind that, if there is an
alignment between strategy and other elements like resource allocation,
organizational structure, work climate, culture, process and reward structure,
then only the effective implementation is possible.
4.2.6 Aspects of Strategy Implementation
 Creating budgets which provide sufficient resources to those activities

which are relevant to the strategic success of the business.
 Supplying the organization with skilled and experienced staff.
 Conforming that the policies and procedures of the organisation assist in

the successful execution of the strategies.
 Leading practices are to be employed for carrying out key business

functions.
 Setting up an information and communication system, that facilitates the

workforce of the organisation, to perform their roles effectively.
 Developing a favourable work climate and culture, for proper

implementation of the strategy.
Strategy implementation is the time-taking part of the overall process, as it

puts the formulated plans into actions and desired results.

4.3 TYPES OF ORGANIZATIONAL STRUCTURES
4.3.1) Hierarchical Structure
The hierarchical model is the most popular organizational chart type. There
are a few models that are derived from this model.
In a hierarchical organization structure, employees are grouped with

every employee having one clear supervisor. The grouping is done based on
a few factors, hence many models derived from this. Below are few of those
factors
 Function – employees are grouped according to the function they

provide. The below image shows a functional org chart with finance,
technical, HR and admin groups.
 Geography – employees are grouped based on their region. For
example in USA employees might be grouped according to the state.
If it’s a global company the grouping could be done according to
countries.
 Product – If a company is producing multiple products or offering
different services it can be grouped according to the product or
service.
These are some of the most common factors, but there are many more
factors. You can find org chart examples for most of these types in our
diagramming community.

NOTES
This is the dominant mode of organization among large organizations. For

example Corporations, Governments, and organized religions are hierarchical
organizations with different levels of management, power or authority.
4.3.2) Matrix Structure
In a Matrix organizational structure, the reporting relationships are set

up as a grid, or matrix, rather than in the traditional hierarchy. It is a type of
organizational management in which people with similar skills are pooled for
work assignments, resulting in more than one manager to report to
(sometimes referred to as solid line and dotted line reports, in reference to
traditional business organization charts). For example, all engineers may be
in one engineering department and report to an engineering manager. But
these same engineers may be assigned to different projects and might be
reporting to those project managers as well. Therefore some engineers might
have to work with multiple managers in their job role.

4.3.3) Horizontal/Flat Structure
This is an organizational chart type mostly adopted by small

companies and start-ups in their early stage. It’s almost impossible to use this
model for larger companies with many projects and employees.
The most important thing about this structure is that many levels of
middle management are eliminated. This enables employees to make
decisions quickly and independently. Thus a well-trained workforce can be
more productive by directly getting involved in the decision-making process.
This works well for small companies because work and effort in a
small company are relatively transparent. This does not mean that employees
don’t have superiors and people to report. Just that decision making power is
shared and employees are held accountable for their decisions.

NOTES
So in summary, when deciding on a suitable organizational chart, it is

important to have an understanding of the current organizational structure of
your company.
4.3.4) Network Structure
Network organizational structure helps visualize both internal and

external relationships between managers and top-level management. They
are not only less hierarchical but are also more decentralized and more
flexible than other structures.
The idea behind the network structure is based on social networks. Its
structure relies on open communication and reliable partners; both internal
and external. The network structure is viewed as agiler than other structures
because it has few tires, more control and bottom flow of decision making.
Using a Network organizational structure is sometimes a

disadvantage because of its complexity. The below example of network org
chart shows the rapid communication between entities.

4.3.5) Divisional Structure
Within a divisional structure, each organizational function has its own

division which corresponds to either products or geographies. Each division
contains the necessary resources and functions needed to support the product
line and geography.
Another form of divisional org chart structure is the multi-divisional

structure. It’s also known as M-form. It’s a legit structure in which one parent
company owns several subsidiary companies, each of which uses the parent
company’s brand and name.
The main advantage of the divisional structure is the independent

operational flow, that failure of one company does not threaten the existence
of the others.
It’s not perfect either. There can be operational inefficiencies from

separating specialized functions. Increase in accounting taxes can be seen as
another disadvantage.

NOTES
4.3.6) Line Organizational Structure
Line organizational structure is one of the simplest types of

organizational structures. Its authority flows from top to bottom. Unlike
other structures, specialized and supportive services do not take place in
these organizations.
The chain of command and each department head has control over
their departments. The self-contained department structure can be seen as its
main characteristic. Independent decisions can be taken by line officers
because of its unified structure.
The main advantage of a line organizational structure can be

identified as the effective communication that brings stability to the
organization.

4.3.7) Team-based Organizational Structure
Team-based organizational structures are made of teams working

towards a common goal while working on their individual tasks. They are
less hierarchical and they have flexible structures that reinforce problem-
solving, decision-making and teamwork.
Team organization structures have changed the way many industries

work. Globalization has allowed people in all industries around the world to
produce goods and services cooperatively. Especially, manufacturing
companies must work together with the suppliers around the globe while
keeping the cost to a minimum while producing high-quality products

NOTES
4.4 PROCESS OF EVALUATION AND CONTROL

Strategic control is a way to manage the execution of your strategic
plan. As a management process, it’s unique in that it’s built to handle
unknowns and ambiguity as it tracks a strategy’s implementation and
subsequent results. It is primarily concerned with finding and helping you
adapt to internal or external factors that affect your strategy, whether they
were initially included in your strategic planning or not.
The various components of the strategic control process generate answers

to these two questions:
1. Has the strategy been implemented as planned?
2. Based on the observed results, does the strategy need to be changed or

adjusted?
In many senses, strategic control is an evaluation exercise focused on

ensuring the achievement of your goals. The process bridges gaps and allows
you to adapt your strategy as needed during implementation.
The difference between operational and strategic control processes.

In contrast to the large amount of data and extended time frame
required for strategic controls to take effect, operational controls monitor and
evaluate day-to-day functions to correct any problems as soon as possible.
Operational controls may be either manual or automated, and can involve
people, processes, and technology. When successful, they flag potential risks,
identify misalignments between plans and actions, and effectively implement
changes to stay on course with your strategy.
For example, if there are technical malfunctions or performance is

below expectations, operational control processes can initiate a course
correction quickly. This could include updating an IT system or retraining
particular employees, respectively. Or, imagine a factory that produces
widgets. If the number of widgets drops below expectations or the error rate
rises above expectations, a process control alert should be triggered to make
the proper operational change.
4.5 TYPES OF CONTROLS

Strategic control focuses on monitoring and evaluating the strategic
management process to ensure that it functions in the right direction. The
strategic control aims at achieving the results planned at the time of strategy
formulation. Strategic control is a special type of organisational control.
The basic purpose of strategic control is to help top management to

achieve strategic goals as planned. To be specific, the purposes of strategic
control are to answer the questions such as:
 Are our internal strengths still holding good?

 Have we added other internal strengths?
 Are our internal weaknesses still holding good?
 Do we have other weaknesses?
 Are our opportunities still opportunities?
 Are there new opportunities?
 Are our threats still existing?
 Are there new threats?
 Are the decisions being made consistent with policy?

 Are there sufficient resources to achieve the objectives?
NOTES
 Are events in the environment occurring as anticipated?
 Are goals and targets being met?
 Should we proceed with plans as we have formulated?
 Are the organisational vision, mission and objectives appropriate to
the changing environment factors?
Thus, strategic control provides feedback about various steps of
strategic management to know, whether the strategic management processes
are appropriate, compatible and functioning in the desirable direction.
The strategic control process consists of six steps. Top management,

initially must decide what elements of the environment and the organisation
need to be monitored, evaluated and controlled. The three key areas to be
monitored and controlled are: the macro- environment, the industry
environment and internal operations.
Step 1: Key Areas to be Monitored Macro-environment: This area

should be focussed first. Normally, individual companies cannot influence
the environment significantly. But, the external environmental forces must be
continuously monitored as the changes in the environment influence the
strategic implementation process of the company.
Step 2: Establishing Standards Evaluating an organisational

performance is normally based on certain standards. These standards may be
the previous year’s achievements or the competitor’s records or the fresh
standards established by the management. Qualitative judgements like the
qualitative features of the product or service in the last year may be used.
Quantitative measures like return or investment, return on sales may also be
used for judging the performance. Companies should establish the standards
for evaluating the performance of the strategies taking several factors into
consideration. The standards may include: Quality of Products/Services.
Step 3: Measuring Performance The strategist has to measure the

performance of various areas of the organisation before taking an action.
Strategic audits and strategic audit measurement methods are useful to
measure the organisational performance.

Step 4: Compare Performance with Standards Once the performance
of the different aspects of the organisation is measured, it should be
compared with the predetermined standards. Standards are set to achieve the
already formulated organisational goals and strategies. Organisational
standards are yardsticks and benchmarks that place organisational
performance in perspective
Step 5: Take No Action if Performance is in Harmony with Standards

If the performance of various organisational areas match with the standards,
the strategist need not take any action. He should just allow the process to
continue. However, he can try to improve the performance above the
standards, if it would be possible, without having any negative impact on the
existing process.
Step 6: Take Corrective Action, if necessary Strategist should take

necessary corrective action, if performance is not in harmony with standards.
The strategists compare the performance with standards. If they find any
deviation between the standards and performance, they should take
corrective action to bridge the gap between the standards and performance.
4.6 TECHNIQUES OF CONTROL
There are four primary types of strategic control:
1. Premise Control
Every organization creates a strategy based on certain assumptions, or

premises. As such, premise control is designed to continually and
systematically verify whether those assumptions, which are foundational to
your strategy, are still true. These are typically environmental (e.g. economic
or political shifts) or industry-specific (e.g. new competitors) variables. The
sooner you discover a false premise, the sooner you can adjust the aspects of
your strategy that it affects. In reality, you can’t review every single strategic
premise, so focus on those most likely to change or have a major impact on
your strategy.

2. Implementation Control
NOTES
This type of control is a step-by-step assessment of implementation

activities. It focuses on the incremental actions and phases of strategic
implementation, and monitors events and results as they unfold. Is each
action or project happening as planned? Are the proper resources and funds
being allocated for each step? This process continually questions the basic
direction of your strategy to ensure it’s the right one. There are two
subcategories of implementation control:
3. Monitoring Strategic Thrusts or Projects
This is the assessment of specific projects or thrusts that have been created
to drive the larger strategy. This early feedback will help you decide whether
to continue onward with the strategy as is or pause to make adjustments. One
can pre-determine which thrusts are critical to the achievement of the goals
and continually assess them. Or, one can decide which measurements are
most meaningful for their thrusts or projects (such as timeframes, costs, etc.)
and use that data as an indicator of whether a thrust is on track or not, and
how that may subsequently affect the strategy.
3. Reviewing Milestones
During strategic planning, one should likely identified important

points in the implementation process. When these milestones are reached,
your organization will reassess the strategy and its relevance. Milestones
could be based on timeframes, such as the end of a quarter, or on significant
actions, such as large budget or resource allocations. Implementation control
can also take place via operational control systems, like budgets, schedules,
and key performance indicators.
4. Special Alert Control
When something unexpected happens, a special alert control is

mobilized. This is a reactive process, designed to execute a fast and thorough
strategy assessment in the wake of an extreme event that impacts an

organization. The event could be anything from a natural disaster or product
recall to a competitor acquisition. In some cases, a special alert control calls
for the formation of a crisis team—usually comprising members of the
strategic planning and leadership teams—and in others, it merely means
activating a predetermined contingency plan.
4.6.1 Six Steps of The Strategic Control Process
Whether your organization is using one or all four of the previous

techniques of strategic evaluation and control, each involves six steps:
a) Determine what to control.
What are the organization’s goals? What elements directly relate to

the mission and vision? It’s difficult, but one must prioritize what to
control because one cannot monitor and assess every minute factor
that might impact your strategy.
b) Set standards
What will you compare performance against? How can managers

evaluate past, present, and future actions? Setting control standards—
which can be quantitative or qualitative—helps determine how you
will measure your goals and evaluate progress.
c) Measure performance
Once standards are set, the next step is to measure your performance.
Measurement can then be addressed in monthly or quarterly review
meetings. What is actually happening? Are the standards being met?
d) Compare performance
When compared to the standards or targets, how do the actual

measure up? Competitive benchmarking can help you determine if
any gaps between targets and actual are normal for the industry, or
are signs of an internal problem.

e) Analyze deviations.
NOTES
Why was performance below standards? In this step, you’ll focus on
uncovering what caused the deviations. Did you set the right
standards? Was there an internal issue, such as a resource shortage,
that could be controlled in the future?
f) Decide if corrective action is needed.
4.7 STRATEGIC INFORMATION SHARING

Information sharing is regarded as a prevalent business strategy to
improve operations performance of the supply chain, which has been
successfully used in many industries. It is widely acknowledged that
information sharing can simultaneously benefit the whole supply chain and
each member. A classic case is Nestle and Tesco. By means of sharing sales
data between partners, Tesco sharply simplifies the organization procedures
and Nestle also reduces the inventory cost. Traditional information sharing
focuses on the relationship between sellers and buyers. But with the
deepening of labor division, more and more intermediate carriers emerge and
are authorized to delivery materials instead of upstream shipper firms. The
carrier, a transport service provider, plays a significant role across the supply
chain.
Consequently, strategic information sharing should be used in the

actual situation. Strategic information sharing, a flexible strategy, is defined
as two choices: information sharing or not. Namely, it is not always necessary
to utilize information sharing strategy; sometimes sharing information should
be adopted in the supply chain, but it should not be selected at other times.
Thus, motivated by these practical observations, it is one of our goals to
understand whether information in a multilevel supply chain with a carrier
should be shared.

4.7.1Key elements of a secure, sensitive information sharing strategy
Here are a few key steps that will not only enable organizations to
reduce the risk of a breach of private information, but also demonstrate to
regulators or auditors that they have the appropriate governance controls in
place to protect that information.
4.7.2 Know where data is stored
As organizations grow, they accumulate more data and require more

places to store that data, both on-premises and in the cloud. Microsoft
SharePoint and OneDrive for Business, OpenText, Box, Dropbox, Google
Drive, home drives, and Windows File Shares are just some of the many
content repositories where users might store their data. It’s imperative for
organizations to know – and be able to demonstrate – where sensitive
information is stored across this increasingly expansive landscape.
Certain regulations, for example GDPR, require that data stays in a

specific country or region. Customer data, contracts, personnel files, sales
forecasts, patent applications, financials – if organizations know where these
files are stored, they can control who has access to them and monitor what’s
happening with them. If they don’t know, then it’s anyone’s guess. This
explains why some data breaches go undetected for months or even years.
Ultimately, you can’t protect something if you can’t find it.
4.7.3 Know who has access to your data
Not every employee should have access to every file in the organization,
and as files are shared beyond enterprise borders it becomes even more
crucial to control access. If access to the systems holding your sensitive
information can’t be managed, you have a significant governance issue. It
should be noted that permissions to sensitive information can (and should)
vary. Some employees or business partners may require full access to content
(edit, download, share, etc.) whereas others should have view only access and
be prevented from downloading or sharing.

It should also be noted that permissions are only the first step to
NOTES
protecting sensitive information. Security features like multi-factor
authentication ensure the individual requesting access is not misrepresenting
their identity, and Data Loss Prevention (DLP) technology can be integrated
with file sharing to define policies to control when and how sensitive data is
sent outside the organization, further mitigating the risk of unauthorized
access.
4.7.4 Know exactly what’s happening with your data
A critical extension of knowing where your data is stored and who

has access to it is knowing what is being done with it. The ability for
organizations to have full visibility into all file activity, as well as the ability
to share this activity with auditors, regulators, law enforcement agencies and
legal teams is critical for identifying data leaks and demonstrating
compliance with industry regulations.
Suppose prior to resigning, an employee started opening,

downloading, forwarding and printing lots of files he hadn’t accessed
previously. While he may have been authorized to access that content at the
time, should some of this data later be found to have been leaked, the logs of
this former employee’s activity will be valuable in identifying the source.
In cases of a compliance audit, whether to confirm internal policies are

being followed, or to satisfy specific regulatory requirements, knowing the
details of who signed in, from what device, and precisely what he or she
viewed, edited or downloaded is crucial to proving controls are in place.
Having the knowledge of where your organization’s sensitive

information resides, which employees and business partners have access to it
and what they are doing with it enables organizations to mitigate the risk of a
data leak and demonstrate compliance with regulators. It also gives
organizations a sense of control over their data, which is increasingly harder
to do when the amount of data is increasing exponentially.

4.7.5 Competitive advantage
Competitive advantage means superior performance relative to other

competitors in the same industry or superior performance relative to the
industry average.
There is no one answer about what is competitive advantage or one way

to measure it, and for the right reason. Nearly everything can be considered
as competitive edge, e.g. higher profit margin, greater return on assets,
valuable resource such as brand reputation or unique competence in
producing jet engines. Every company must have at least one advantage to
successfully compete in the market. If a company can’t identify one or just
doesn’t possess it, competitors soon outperform it and force the business to
leave the market.
There are many ways to achieve the advantage but only two basic types
of it: cost or differentiation advantage. A company that is able to achieve
superiority in cost or differentiation is able to offer consumers the products at
lower costs or with higher degree of differentiation and most importantly, is
able to compete with its rivals.
4.7.6 VRIO resources

A company that possesses VRIO (valuable, rare, hard to imitate and
organized) resources has an edge over its competitors due to
superiority of such resources. If one company has gained VRIO
resource, no other company can acquire it (at least temporarily). The
following resources have VRIO attributes:
 Intellectual property (patents, copyrights, trademarks)

 Brand equity
 Culture
 Know-how
 Reputation

NOTES
4.8 CORPORATE GOVERNANCE & CORPORATE
ETHICS
Corporate governance is the system of rules, practices, and
processes by which a firm is directed and controlled. Corporate governance
essentially involves balancing the interests of a company's
many stakeholders, such as shareholders, senior management executives,
customers, suppliers, financiers, the government, and the community. Since
corporate governance also provides the framework for attaining a company's
objectives, it encompasses practically every sphere of management, from
action plans and internal controls to performance measurement and
corporate disclosure.
The Basics of Corporate Governance

Governance refers specifically to the set of rules, controls, policies, and
resolutions put in place to dictate corporate behavior. Proxy advisors and
shareholders are important stakeholders who indirectly affect governance,
but these are not examples of governance itself. The board of directors is
pivotal in governance, and it can have major ramifications for equity
valuation.
Communicating a firm's corporate governance is a key component of

community and investor relations. On Apple Inc.'s investor relations site, for
example, the firm outlines its corporate leadership—its executive team, its
board of directors—and its corporate governance, including its committee
charters and governance documents, such as bylaws, stock ownership
guidelines and articles of incorporation.
Most companies strive to have a high level of corporate governance.

For many shareholders, it is not enough for a company to merely be
profitable; it also needs to demonstrate good corporate citizenship through
environmental awareness, ethical behavior, and sound corporate governance
practices. Good corporate governance creates a transparent set of rules and
controls in which shareholders, directors, and officers have aligned
incentives.

The three pillars of corporate governance are: transparency,
accountability, and security. All three are critical in successfully running a
company and forming solid professional relationships among its stakeholders
which include board directors, managers, employees, and most importantly,
shareholders.
First Pillar of Corporate Governance: Transparency
In simplest terms, transparency means having nothing to hide. For a

company, this means it allows its processes and transactions observable to
outsiders. It also makes necessary disclosures, informs everyone affected
about its decisions, and complies with legal requirements. After the financial
scandals in the early 2000s, transparency has played a bigger role in
preventing fraud from happening again, especially at such a large scale. But
aside from stopping the next illegal moneymaking scheme, transparency also
builds a good reputation of the company in question. When shareholders feel
they can trust a company, they are willing to invest more, and this greatly
helps in lowering cost of capital. Therefore, a company gets its ROI on the
money it spent on improving transparency.
Transparency is a critical component of corporate governance because

it ensures that all of a company’s actions can be checked at any given time by
an outside observer. This makes its processes and transactions verifiable, so if
a question does come up about a step, the company can provide a clear
answer. And after the Enron scandal in 2001, transparency is no longer just an
option, but a legal requirement that a company has to comply with.
But although transparency is a necessity for the whole company, its presence
is even more important at the top where strategies are planned and decisions
are made. Shareholders expect that the corporate board is open about their
actions; otherwise, distrust will form. And when trust breaks, shareholders
tend to stay away and invest somewhere else.
How transparent is your corporate board? Are directors’ actions

readily verifiable by internal and external audit? Is their leadership visible
from the top to all the way down? Is transparency applicable to everyone?
Transparency should have no exceptions, especially when your company’s

goals are involved. All stakeholders — from employees to investors — have
NOTES
the right to know about the direction your company is headed for.
For easy implementation of a transparency policy, consider

using board portal software that doubles as corporate governance software.
Second Pillar of Corporate Governance: Accountability
It takes more than transparency to build integrity as a company. It

also takes accountability, which can also mean answerability or liability.
Shareholders are deeply interested in who will take the blame when
something goes wrong in one of a company’s many processes. And even
when everything goes smoothly as expected, knowing that someone will be
held accountable for future mishaps increases shareholders’ confidence,
which in turn increases their desire to invest more. Again, this concern over
accountability goes back to the financial scandals in the early 2000s, in which
there had been a lot of money stolen, but not enough people to answer for the
crime.
Accountability can have a negative connotation because many people

associate it with blame. “Who’s responsible for when something goes
wrong?” is just one of the many questions that accountability seeks to answer.
But accountability is more than that. It’s about having ownership over one’s
actions whether the consequences of those actions are good or bad. Thus,
accountability covers not only failings, but also accomplishments. When the
idea of accountability is approached with this positive outlook, people will be
more open to it as a means to improve their performance. This applies from
the staff all the way up to the corporate board.
How can accountability improve performance? People who have no

sense of ownership over their tasks don’t feel the motivation to do more than
what’s expected of them. There’s no incentive to work hard and achieve
something. But when they understand the weight of their responsibilities,
they’re more inclined to make sure that they carry out their tasks properly.
And when they’re successful in this regard, they’re likely to feel a sense of
accomplishment, and this further fuels their desire to do better.

So how’s the level of accountability in your corporate board? Are you
directors there to simply fill in a seat while leafing through their board
packs and board books, or are they actively engaged in decisions and
strategies for your company?
Third Pillar of Corporate Governance: Security
A company is expected to make their processes transparent and their

people accountable while keeping their enterprise data secure from
unauthorized access. There is simply no compromise for this. Companies that
experience security breaches involving the exposure of their clients’ personal
information quickly lose their credibility. To get back the public’s trust,
extensive damage control is called for — just look at what had to be done
after Neiman Marcus and Target suffered from data leakage. Thus, even with
accountability and transparency, a company without inadequate security
measures will have a hard time attracting shareholders. After all, any scandal
— even a breach caused by third-party hackers — can have a negative effect
on a company’s stock market performance.
The increasing threat of cyber crime in recent years puts security at a

high priority for many companies. Complying with security standards isn’t
enough — a company needs to imbibe a culture of security to ensure that
trade secrets, corporate data, and client information are all kept safe from
unauthorized access from inside and out. Security is not just an IT concern
anymore, unlike in the past.
Nowadays, everyone in a company has a responsibility to adhere to

strict security standards. Even entry-level staff members usually have their
own company email addresses. But are they trained enough to
conscientiously keep their accounts safe? And that’s just scratching the
surface. Think of how much confidential data there is at the hands of
directors in the corporate board, and suddenly, the stakes are much higher.
Thus, directors should be made aware of the seriousness of cyber

crime and the gravity of its consequences. A security breach — especially
involving client information — can make the public easily lose their trust.

Trust is a big factor would-be shareholders consider before making an
NOTES
investment in a company.
How high is the awareness level of your company’s directors when it

comes to security? Don’t let them take their chances — make sure that they’re
using board portal software and board governance software to keep meeting
documents secure all the time, even when they’re using their iPads or
Android tablets for virtual collaborative sessions and electronic board
meetings. The system does away with paper-based board packs and board
books and digitizes everything, making encryption (both in transmission and
storage) as a means of protection possible.
Combining All Three Pillars of Corporate Governance
Taken together, transparency, accountability, and security define a

company’s integrity. Achieving all three isn’t an easy thing to do, but
fortunately, companies now have an partner in board portal software that
also doubles as corporate governance software. A board portal doesn’t just
digitize the whole board meeting process; it also makes the process more
transparent by keeping clear and complete documentation at all times. For
example, a director who wants to review the details surrounding the decision
for a recent merger can pull out the meeting minutes from the archive. An
outside auditor authorized to request the same kind of documentation will
have access to it, too. In short, information needed by anyone with
authorization — whether they’re part of the company or an outsider — can
get what they need quickly and easily.
Aside from being readily available, documents and other meeting files
are version-controlled and come with audit trails. This means that when
different versions of a file exist, each version carries a record of what changes
were made and who made those changes. This feature of board portals
addresses the need for accountability.
As for security, a board portal has to adhere to industry standards to

keep files safe whether in transmission or in storage. With features such as
access right control, authentication procedures, password requirements,

encryption, and auto-purge for lost devices, a board portal turns iPads and
Androud tablets the most secure briefcase a director can ever have.
4.8.1 Eight Elements of Good Governance
Good governance has 8 major characteristics. It is participatory,

consensus oriented, accountable, transparent, responsive, effective
and efficient, equitable and inclusive, and follows the rule of law.
Good governance is responsive to the present and future needs of the
organization, exercises prudence in policy-setting and decision-
making, and that the best interests of all stakeholders are taken into
account.
1. Rule of Law: Good governance requires fair legal frameworks that

are enforced by an impartial regulatory body, for the full protection of
stakeholders.
2. Transparency: Transparency means that information should be

provided in easily understandable forms and media; that it should be
freely available and directly accessible to those who will be affected
by governance policies and practices, as well as the outcomes
resulting there from; and that any decisions taken and their
enforcement are in compliance with established rules and regulations.
3. Responsiveness: Good governance requires that organizations and

their processes are designed to serve the best interests of stakeholders
within a reasonable timeframe.
4. Consensus Oriented: Good governance requires consultation to

understand the different interests of stakeholders in order to reach a
broad consensus of what is in the best interest of the entire
stakeholder group and how this can be achieved in a sustainable and
prudent manner.
5. Equity and Inclusiveness: The organization that provides the

opportunity for its stakeholders to maintain, enhance, or generally
NOTES
improve their well-being provides the most compelling message
regarding its reason for existence and value to society.
6. Effectiveness and Efficiency: Good governance means that the

processes implemented by the organization to produce favorable
results meet the needs of its stakeholders, while making the best use
of resources – human, technological, financial, natural and
environmental – at its disposal.
7. Accountability: Accountability is a key tenet of good governance.

Who is accountable for what should be documented in policy
statements.
8. Participation: Participation by both men and women, either directly

or through legitimate representatives, is a key cornerstone of good
governance. Participation needs to be informed and organized,
including freedom of expression and assiduous concern for the best
interests of the organization and society in general.
4.8.2 Corporate ethics
Ethics has become a buzzword in the corporate world. The reason for
this is the globalization and the explosion in the communication in the
organization. As a result, businesses are focusing more on the ethics part. The
rules or the principles of the organization should be maintained. Business ethics
are given much importance nowadays. Business ethics (also corporate ethics) is
a form of applied ethics or professional ethics that examines ethical principles
and moral or ethical problems that arise in a business environment. It applies
to all aspects of business conduct and is relevant to the conduct of individuals
and entire organizations. Essentially, any businesses that run in India
comprises of these ethical principles.

A. Integrity
Whenever there is great pressure to do right instead of maximizing

profits, this principle is tested. The executives need to demonstrate courage
and personal integrity, by doing what-what think is right.
These are the principles, which are upright, honorable. They need to
fight for their beliefs. For these principles, they will not back down and be
hypocritical or experience.
B. Loyalty
No ethical behavior can be promoted without trust. And for trust,

loyalty needs to be demonstrated. The executives need to be worthy of this
trust while remaining loyal to the institutions and the person. There should
be friendship in the time of adversity and support and devotion for the
duty.
They should not use or disclose personal information. This leads to

confidence in the organization. They should safeguard the ability of a
professional to make an independent decision by avoiding any kind of
influence or the conflicts of interest.
So, they should remain loyal to their company and their colleagues.
When they accept the other employees, they need to provide a reasonable
time to the firm and respect the proprietary information attach to the
previous firm. Thus, they should refuse to take part in any activity that
might take the undue advantage of the firm.
C. Honesty
The ethical executives are honest while dealing with their regular
work. They also need to be truthful and do not deliberately deceive or
mislead the information to others. There should be an avoidance of the

partial truths, overstatements, misrepresentations, etc. Thus, they should not
NOTES
have selective omission by any means possible.
D. Respect and Concern
These are two necessarily different forms of behavior in the

organization. But they go in tandem that is why they have been put under
one principle. When the executive is ethical he is compassionate, kind, and
caring.
There is one golden rule which states that help those who are in
need. Further, seek their accomplishments in such a manner that the
business objectives of the firm are achieved.
The executives also need to show respect towards the employee’s

dignity, privacy, autonomy, and rights. He needs to maintain the interests of
all those whose decisions are at stake. They need to be courteous and treat
the person equally and rightly.
E. Fairness
The executives need not be just fair in all the dealings, but they also
should not exercise the wrong use of their power. They should not try to use
over each or other indecent manners to gain any sort of advantage. Also,
they should not take undue advantage of anything or other people’s
mistakes.
Fair people are inclined more towards justice and ensure that the
people are equally treated. They should be tolerant, open-minded, willing to
admit their own mistakes. The executives should also be able to change their
beliefs and positions based on the situation.

F. Leadership
Any executive, if ethical, should be a leader to others. They should

be able to handle the responsibilities. They should be aware of the
opportunities due to their position. The executives need to be a proper role
model for others.
4.8.3 Three levels of business ethics

In our mission to define business ethics, Johnson and Scholes provide
a useful way of classifying the diverse elements therein:
 the macro level: the role of business in the national and international
orgnisation of society the relative virtues of different political/social
systems, such as free enterprise, centrally planned economies, etc.,
international relationships and the role of business on an international
scale
 the corporate level: corporate social responsibility ethical issues facing

individual corporate entities (private and public sector) when
formulating and implementing strategies
 the individual level: the behavior and actions of individuals within

organisations
4.8.4 Need or Importance of Business Ethics
a) Stop business malpractices: Some unscrupulous businessmen

do business malpractices by indulging in unfair trade practices like black-
marketing, artificial high pricing, adulteration, cheating in weights and
measures, selling of counterfeit (duplicate) and harmful products, illegal
hoarding, etc. These business malpractices are harmful to consumers and
the safety of society. Business ethics help to stop these malpractices and
safeguard society. It creates a healthy business environment for everyone.

b) Improve customers' confidence: Business ethics are needed to improve the
NOTES
customers' confidence about the quality, utility, reliability, quantity, price,
etc. of the products. The customers have more trust and confidence in the
businessmen who follow ethical business rules or principles. They feel safe
that such businessmen will not cheat them. Ethics binds businessmen to
maintain trust by offering quality products and services to customers.
c) Survival of business: Business ethics are mandatory or compulsory for the

survival of any business. The businessmen who do not follow it will only
have short-term success, but they will fail in the long run. This is because
they can cheat a consumer only once. After realizing being cheated, the
consumer will not buy goods or services from that businessman. He will
also tell others not to buy from that businessman. So, this will defame his
goodwill or image and provoke negative publicity in the market. This will
result in the failure and even closure of the business. Therefore, if the
businessmen do not follow ethical rules, he will fail in the market. So, it is
always better to follow appropriate code of conduct to survive in the
competitive market. Hence, ethics is essential for the survival of business.
d) Safeguarding consumers' rights: The consumer has many rights such

as the right to health and safety, right to be informed, right to choose, right to
be heard, right to redress, right to be satisfied, etc. But many businessmen do
not respect and protect these rights of their consumers. Business ethics are
must to safeguard these basic rights of the consumers. A business who
safeguards its consumers' rights, in fact, safeguards its own existence.
e) Protecting employees and shareholders: Business ethics are required

to protect the interest of employees, shareholders, competitors, dealers,
suppliers, customers, government, etc. It protects them from exploiting each
other through unfair trade practices like cheatings or frauds. Ethics compels
each entity participating in the business activity to properly execute its role

by adhering the established code of conduct. Since everyone is disciplined
and function appropriately, business grows well in the long run.
f) Develops good relations: Business ethics are important to develop

good and friendly relations between business and society. This will result in a
regular supply of good quality goods and services at low prices to the society.
It will also result in good profits for the businesses thereby resulting in the
growth of the economy. If the economy keeps growing, it ultimately
improves the standard of living of the society.
g) Creates good image: Business ethics create a good image for the
business and businessmen. If the businessmen follow all ethical rules, then
they will be fully accepted and not criticized by society. The society will
always support those businessmen who follow the necessary code of conduct
and avoid engaging in unscrupulous activities. If the business succeeds in
creating and maintaining its goodwill in the society, it flourishes well even in
the most competitive markets.
h) Smooth functioning: If the business follows all the business ethics,

then the employees, shareholders, consumers, dealers, and suppliers will all
be happy. So, they will give full cooperation to the business. This will result
in the smooth functioning of business activities. So, the business will grow,
expand and diversify easily and quickly. It will have more sales and
eventually more profits. If even one entity participating in the business
activities is unhappy and not fully satisfied then also the business will not
function smoothly. The satisfaction of all involved parties is necessary for the
smooth functioning of a business. Business ethics maintain this safe level of
satisfaction and protect the business from being dysfunctional.

i) Consumer movement: Business ethics are gaining importance because
NOTES
of the growth of consumer movements all over the world. Today, consumers
are well aware of their rights. Now, they are more united and organized, and
hence cannot be easily cheated. They take actions against those businessmen
who indulge in bad business practices. They boycott poor quality, unreliable,
harmful, high-priced, and counterfeit (duplicate) goods. They even file
lawsuits against bad businesses and demand huge compensation and
stringent legal action. If a business is found guilty of indulging in illegal
activities, it invites huge penalties, revoking of a license, lowers consumers'
trust, downgrades market reputation, and even hurts profits. Therefore, the
only way to survive in business is, to be honest, fair, and loyal to the
consumers.
j) Consumer satisfaction: Today, the consumer is the king of the

market. He can make a business or break a business. His every wish
(expectations) should be taken as a command and must be fulfilled as early as
possible. Any business simply cannot survive without its consumers.
Therefore, the main aim or objective of a business must be to achieve the
highest level of consumer satisfaction. If the consumer is not satisfied, then
there will be no sales and eventually no profits too. Consumer satisfaction
must be taken seriously. Business must be always ready to adapt itself as per
the changing demands of its consumers. The consumer will be satisfied only
if the business follows all the business ethics. Ethics helps to achieve
consumer satisfaction to a great extent and hence are highly needed.
Summary
Strategic implementation is a process that puts plans and strategies into

action to reach desired goals. Strategic implementation is critical to a
company’s success, addressing who, where, when, and how of reaching the
desired goals and objectives. It focuses on the entire organization. Corporate
governance is the system of rules, practices, and processes by which a firm is
directed and controlled. Corporate governance essentially involves balancing
the interests of a company's many stakeholders, such as shareholders, senior

management executives, customers, suppliers, financiers, the government,
and the community.
Case study
Honda
Ever since the days of Henry Ford, the global car manufacturing industry,
one of the world’s biggest employers, has blazed the trail in both the product
innovation, and perhaps most notably for the Japanese motor industry, the
development of leading manufacturing methods. The industry is not unlike
many others, with blistering competition on all fronts, which makes strategic
planning utterly important for both the sort as well as long term survival of
any industry player. The ratification of the Kyoto Protocol for instance,
spurred car manufacturing companies into the adoption of strategies such as
the “closed-loop-strategies”, in the not only the development of more efficient
engines, but also the production, distribution, operation and ultimately
recycling of decrepit cars etc.
Reconciliation of dichotomies
Honda ltd’s strategic innovation is founded on a process of dichotomies

reconciliation which include both learning and planning, positioning on the
market vs. internal resources development and lastly, core competencies
related to the product against the core capabilities related to the processes.
These three dichotomies do representing divergent strategies etc that drive
Honda as a company since its establishment and through years of exemplary
growth and expansion. De Wit & Meyer (2010), assert that a critical look at
Honda’s strategies points especially its successful entry and dominance of
new markets raises questions as to whether, Honda’s strategy and
subsequent decision making is solidly based on a meticulous, analytical and
rational planning or whether its strategies are a direct result of the some
decisions/ strategies reached at by the company, which evolved or became
modified due to the environmental influences of the industry in which the
company operates.
Planning v. Learning

While designing its strategies, the company has consistently followed a
NOTES
rational approach based on a critical analysis of the market and the industry
environment. This strategy hinges on and it suited for a seasoned industry
player such as Honda, since it seeks to built on, and exploit the company’s
immense experience in the automotive industry (Johnson et al., 2005). As a
strategy, this is an important bottom up strategy that uses the already gained
knowledge to optimize the company’s needs. Planning takes into
consideration both the company’s resources as well as the environmental
factors, as such will most likely utilize the company’s set objectives within the
constraints. Honda’s largely seen as having successfully employed the
planning strategy while entering into new markets notably while launching
into the US motor cycle industry. Its recent strategic alliances with GE as well
as its design and launch of innovative new products and expansion of
manufacturing plants, in the ultimate attainment of huge scale economies and
extremely law costs represent examples of internal planning.
Planning is largely apparent from an outsider’s point of view. However,

interviews with the company’s top management reveal a far different picture
that suggests at best a company that is far from an overly rational, academic
planning seeking to impose its corporate values and policies on the market
and the industry, but rather a company, with a management structure that is
at all times willing to learn. It is evident and widely accepted by many
observers that Honda’s strategies have evolved, without a clear plan or
analysis of the industry. Case in point, the huge success attained by the
company’s 50 cc Supercab surprised everyone including the company’s
management. Mintzberg et al. (1998) observe that though the company’s
strategy may have looked analytical and well thought out, the management
did blunder severally up until the market gave them the correct formula.
Rational planning on its own is hardly, suited to many organizations and is in

fact removed from the day to day running of a business as compared to
learning, which permits management to continually develop and adjust their
policies and strategies as they are implemented, in the light of new experience
(De Wit & Meyer, 2010). Honda’s development of hybrid vehicles and energy
efficient models e.g. the Honda Civic Sedan, in the wake of Toyota’s success

in the same field represent examples of learning from the environment.
Honda has as well launched joint ventures in R&D with other companies.
Using both strategies gives the company an advantage, not least because it
only allows the formulation of strategies that best meet both the internal
resources as well as the environmental factors prevailing in the industry.
“Positioning” Versus “Development Of Internal Resources”
Honda’s positioning helps its brand to be associated with a given market

segment. It is an equally helpful guide to the company’s other strategies,
particularly the marketing strategy, not least because it does clarify the
essence of the brand and the helps the consumers to better identify the goals
that the product seeks to meet in a unique way. In positioning a product or
brand, managers must make decisions, seeking to appeal a given segment of
the population, while at once risking losing the other(s). Honda has placed its
various products on the basis of benefit, target, distribution as well as prices.
The company offers competitive prices owing to its scale and technology
advantages, which in turn permits it to achieve better client franchises. This
strategy does however; affect the prestige of the brand, besides reducing the
profit margins. Target, distribution and benefit positioning, that has seen the
introduction of green models to serve the needs of green conscious clients,
coupled by Honda’s expansion into India, China and Vietnam, which was
entirely meant at catering for emerging middle class in those countries.
As against, development of internal resources, Honda’s product positioning

allows it to use fewer resources but still reach the target markets. It however,
has enormous resources in capital, management, cutting production
technology as well as manpower, which have driven the company’s
expansion across the globe. More investment in R&D is, and has been
possible, leading to greater innovation. While other smaller industry players
struggle with limited resources constraining their R&D as well as expansion,
bigger companies like Honda, Toyota and GM can attain a better edge in the
industry. Honda’s has been able to pursue both strategies owing to the
availability of niche products that it has successfully positioned e.g. motor
bikes in Vietnam (over 400,000 units in annual sales), coupled by its huge

availability of resources which allows it rope for R&D, diversification and
NOTES
expansion. This does not entirely hold though, Honda spends just a fifth of
GM expenditure on R&D and launches fewer models than the latter, yet it
products/models are more successful than GM’s.
CORE COMPETENCIES’ VERSUS ‘CORE CAPABILITIES’
Competencies are as a result of coordination of multiple production skills as

well as a complex coordination of numerous technologies. They give a
company access to newer markets; provide high barriers for competitors to
enter the market, besides contributing considerably to the benefits of the end
product(s). Honda’s core competencies as regards products are the driving
force behind the development of the numerous, innovative end user
products. Hamel & Prahalad regard Honda’s product competencies as a
brilliant example of how a small company can break into, and establish itself
in a mature, stable market. In 2010 alone, Honda has set up a solar H2 station
(Los Angeles), introduced the versatile iGX and GX engine series for general
purposes. The company has as well produced lithium-ion based batteries
intended for the new range of hybrid motor vehicles, alongside an ELC to
spear head its green agenda.
Honda is famed for its ability to recycle technologies in all its range of
products, affording it R&D efficiency. There are elements of core capabilities
associated with its processes, but perhaps far lacking behind Toyota and
many other industry players. These include efficient distribution channels,
cost effective production processes. It trains dealers, determines shop floor
plans and has strict operating procedures among others. Core product
competencies in the automobile industry are far superior to the process
capabilities and Honda’s success is an outstanding testimony to this fact.
MANAGEMENT STYLES
Japanese and Honda’s management styles do differ from the American style
in at least six distinct aspects. These include differences in the
interdepartmental relationships, communication patterns, and supervisory

styles, mechanisms for control as well as existence of, or lack of a paternalistic
orientation. According to Hofstede (2004), these differences largely stem from
the inherent cultural differences between the two countries, which in turn
influence the respective corporate cultures.
Lifelong Tenure
Most of the companies in Japan do provide lifelong jobs to their employees,

with greater emphasis being laid on not age, but also seniority. Promotions
are thus much more difficult, just as there is greater job security for the
workers. Many organizations effectively hire employees for the, and are
interested in the long term objectives as against America’s corporate world’s
obsession with short term goals. Case in point, Honda’s top management i.e.
Satoshi Aoki (Chairman), Takanobu Ito, Koichi Kondo and Atsuyoshi Hyogo
joined the company in 1968, 1978, 2000 and 1972 respectively, during which
time they have risen through the ranks to reach the top management. On the
contrary, the western corporate world is characterized by short term contracts
for both managers and workers, charged with meeting short term objectives.
Teams v. Individuals
In contrast with the Western model where managers are responsible for
decision making and subsequently accountable for the decisions reached, the
Japanese system recognizes the importance of individual expertise, but the
performance of the entire team is more emphasized than an individual’s. In
the western corporate world (Germany and American), certain employees
have the ‘star’ statuses e.g. in Germany, the engineers play central roles to the
success of motor companies. Some elements of convergence exist though.
Long apprenticeships and cadres (seniorities in Japan) do exist both in
Germany, France as well as the Netherlands. Employees attain positions,
promotions etc. through years of internships, apprenticeships or
memberships to given classes-attained through education and or experience.
Decision Making

While most western corporations are characterized by top down decision
NOTES
making, the Japanese style of management is largely characterized by
collective decision making by individual teams. Honda’s decision making is
characterized by the “Ringi” system, where decisions are passed based on a
consensus of all the employees in a department or even the entire
organization. This management style is identical to that practiced in Holland,
except that the latter is anchored on existing contracts or class differences of
among the employees.
Communication
As against the largely bureaucratic communication, hierarchical channels

characterizing western corporations, which is largely effective and efficient,
the Japanese channels of communication compromise in large part of face-to-
face communication. These comprise everything from provision of
information regarding assignment of tasks, responsibilities, organizational
goals and the development and rechanneling of feedbacks.
Implicit Mechanism of Control
Honda ltd is concerned with building of its relationships with it ‘biggest

assets’, the employees. Inspired by its philosophy “Respect for the
Individual”, the company always seeks to develop collaborative relationships
with each and every employee, where all mechanisms of control and
supervision are largely informal. Supervisors work alongside other
employees, who are involved, the decision making, which in turn renders
decision making, execution of decisions and reception of feedback a lot more
expedient. On the contrary, Honda’s competitors run on a rigid, formal
control mechanism. This sets goals, measurable, complete with targets that
must be met by departments, franchises and individual employees, while the
Japanese system is anchored on the management philosophies that all
employees as well as managers identify with.
Departmental Relationships

Pascale & Athos (1981), states that attainment of the goals set for a
department etc requires inputs not just from the concerned departments, but
perhaps most importantly, close collaboration with other departments in the
company or even other organizations. Formal (necessary) relationships
largely accomplish these goals (characteristic of the western model), while the
Japanese style has an extra dimension; voluntary collaboration which is far
more productive and results in greater knowledge sharing.
Paternalistic Orientation
Honda and many other Japanese companies are concerned by the holistic
needs of every employee, including the concern for the well being of their
families (Culpan, 2009). This imposes a social support role on the managers, a
feature which is largely absent in the western world, safe for a limited
number of family organizations.
CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITY
With car markets in the developed world already saturated, most car
company’s are looking abroad in the emerging markets notably China, India
and Brazil. A recent study by TNS shows that car buyers rate car makers
more according to their CSR than those consumer in the first world, thus
companies that perform better in this sphere stand a far greater chance of
winning the hearts and minds of the new middle class is guaranteed success.
In 2005, Honda was ranked the UK’s best car company based on its social
responsibility initiatives, by the foremost research company on automotives,
TNS Automotive. It performs equally well in the US, Indonesia, Italy and
Spain among other countries alongside BMW, Shell, Malaysia’s Petronas,
Michelin and Germany’s Porsche (Nissan Corp., 2010). Honda spent over
2.3% of its annual revenues in 2009, on its CSR commitments, with the
environment taking the lion’s share of the budget. The company has
undertaken numerous actions in an attempt to meet the challenges posed by
global warming and climate change. With the reputation of the automobile
industry and fossil fuels already damaged, due to its huge carbon footprints,

and the growing fears among the public of air pollution, it is only reasonable
NOTES
that companies act in accordance to the wishes of the consumers. Honda has
initiated the LCA system, which identifies and sets targets for the required
actions. The company develops energy efficient models, adheres by the 3Rs
(in design) and noise reduction etc.
Honda’s corporate governance is a typical Japanese style bottom down

structure, characterized by collective decision making and a collective sense
of belonging among to the company that in turn reflects on the company’s
performance (Honda Ltd, 2010). Any company’s corporate governance does
determine the direction that it assumes, which ultimately reflects on its
financial performance.
Nissan’s corporate philosophy, governance as well CSR activities are not

different from Honda’s. It seeks to bring enrichment of the people’s lives and
the environment in which they operate. It has made CSR an important part of
its corporate management policies. It has devised its green purchasing
guidelines, coupled with Nissan-Renault Suppliers Guidelines, which ensure
that the company’s entire supply chain is green and serves the purposes of
the policies set by its top management.
Through its charitable arm, Chrysler’s management makes annual donations

to needy communities, projects and causes (Chrysler, 2010). In 2009, the
company advanced upwards of $100000 to Good Harvest geared at
combating hunger. The company’s CSR initiatives are not as extensive as both
Nissan and Honda’s partly because the company caters for the luxury market
segments that are in the main concerned about the quality and luxury as
against a company’s CSR etc.
CONCLUSIONS
Honda is largely touted by observers and varied literatures in strategic

management. Its strategies have largely been used either rightly or wrongly
to back up a number of conceptual dichotomies, with contracting positions
i.e. learning v. analytical planning, core capabilities v competencies etc. Most

of these assumptions, and evidences have however, proven erroneous owing
to empirical mistakes that result into the over emphasis of the companies
strengths, while its mistakes go largely unnoticed. Further, strategies and
explanations are expressed in form of reductionist, single-sided theories that
largely fail to portray the actual strategic orientation of Honda. Honda’s
thrives on reconciling dichotomies. Thus many observers in the west have
largely missed out in studying, learning from and understanding Honda.
Rohlen (1974), it is evident that capabilities as well as competencies can

possibly complement one another, forming into one theory. The latter does
focus on the production expertise and technologies while the capabilities
serving to improve the whole chain of value. Capabilities are far more visible
and easily appreciated by the clients than are product competencies.
Honda’s ability to meet high targets and post tremendous growth rates is
largely due to its tendency to set stretched targets, which brings into direct
competition with the biggest players in the automotive industry. In order to
compete, it uses its resource base to compete by either providing niche
products or undercutting competitors on basis of cost advantages, attained
through scale economies. This ability to leverage her resources offers the key
to its success, as against the widely fabled Japanese management styles. This
style is widely different from and more appealing that the western style
corporate management is only suitable for the Japanese and Asian
environments.
There are aspects in both management styles that could beneficially be, and
have largely been adopted by either side to the great advantage of the
corporations, but not the complete management packages as they will be
utter failures in the other ones environment (Schein, 1981). Finally, this report
has demonstrated the importance of corporate governance, policy and CSR is
important in the ever changing consumer tastes as well as preferences, and
most importantly, increasing consumer awareness.

Case 2
NOTES
Strategic Management Case plus Case Answer – Apple’s Profitable

but Risky Strategy
Apple’s profitable but risky strategy
When Apple’s Chief Executive – Steven Jobs – launched the Apple iPod in
2001 and the iPhone in 2007, he made a significant shift in the company’s
strategy from the relatively safe market of innovative, premium-priced
computers into the highly competitive markets of consumer electronics. This
case explores this profitable but risky strategy.
Note that this case explores in 2008 before Nokia had major problems with
smartphones – see Case 9.2 and Case 15.1 for this later situation.
Early beginnings
To understand any company’s strategy, it is helpful to begin by looking back

at its roots. Founded in 1976, Apple built its early reputation on innovative
personal computers that were par-ticularly easy for customers to use and as a
result were priced higher than those of competitors. The inspiration for this
strategy came from a visit by the founders of the company – Steven Jobs and
Steven Wozniack – to the Palo Alto research laboratories of the Xerox
company in 1979. They observed that Xerox had developed an early version
of a computer interface screen with the drop-down menus that are widely
used today on all personal computers. Most computers in the late 1970s still
used complicated technical interfaces for even simple tasks like typing – still
called ‘word-processing’ at the time.
Jobs and Wozniack took the concept back to Apple and developed their own
computer – the Apple Macintosh (Mac) – that used this consumer-friendly
interface. The Macintosh was launched in 1984. However, Apple did not sell
to, or share the software with, rival companies. Over the next few years, this
non-co-operation strategy turned out to be a major weakness for Apple.

Battle with Microsoft
Although the Mac had some initial success, its software was threatened by
the introduction of Windows 1.0 from the rival company Microsoft, whose
chief executive was the well-known Bill Gates. Microsoft’s strategy was to
make this software widely available to other computer manufacturers for a
licence fee – quite unlike Apple. A legal dispute arose between Apple and
Microsoft because Windows had many on-screen similarities to the Apple
product. Eventually, Microsoft signed an agreement with Apple saying that it
would not use Mac technology in Windows 1.0. Microsoft retained the right
to develop its own interface software similar to the original Xerox concept.
Coupled with Microsoft’s willingness to distribute Windows freely to

computer manufacturers, the legal agreement allowed Microsoft to develop
alternative technology that had the same on-screen result. The result is
history. By 1990, Microsoft had developed and distributed a version of
Windows that would run on virtually all IBM-compatible personal computers
– see Case 1.2. Apple’s strategy of keeping its software exclusive was a major
strategic mistake. The company was determined to avoid the same error
when it came to the launch of the iPod and, in a more subtle way, with the
later introduction of the iPhone.
Apple’s innovative products
Unlike Microsoft with its focus on a software-only strategy, Apple remained a

full-line computer manufacturer from that time, supplying both the hardware
and the software. Apple continued to develop various innovative computers
and related products. Early successes included the Mac2 and PowerBooks
along with the world’s first desktop publishing programme – PageMaker.
This latter remains today the leading programme of its kind. It is widely used
around the world in publishing and fashion houses. It remains exclusive to
Apple and means that the company has a specialist market where it has real
competitive advantage and can charge higher prices.

Not all Apple’s new products were successful – the Newton personal digital
NOTES
assistant did not sell well. Apple’s high price policy for its products and
difficulties in manufacturing also meant that innovative products like the
iBook had trouble competing in the personal computer market place.
Apple’s move into consumer electronics
Around the year 2000, Apple identified a new strategic management

opportunity to exploit the growing worldwide market in personal electronic
devices – CD players, MP3 music players, digital cameras, etc. It would
launch its own Apple versions of these products to add high-value, user-
friendly software. Resulting products included iMovie for digital cameras
and iDVD for DVD-players. But the product that really took off was the iPod
– the personal music player that stored hundreds of CDs. And unlike the
launch of its first personal computer, Apple sought industry co-operation
rather than keeping the product to itself.
Launched in late 2001, the iPod was followed by the iTunes Music Store in
2003 in the USA and 2004 in Europe – the Music Store being a most important
and innovatory development. iTunes was essentially an agreement with the
world’s five leading record companies to allow legal downloading of music
tracks using the internet for 99 cents each. This was a major coup for Apple –
it had persuaded the record companies to adopt a different approach to the
problem of music piracy. At the time, this revolutionary agreement was
unique to Apple and was due to the negotiating skills of Steve Jobs, the Apple
chief executive, and his network of contacts in the industry. Figure 1.9 shows
that Apple’s new strategy was beginning to pay off. The iPod was the biggest
single sales contributor in the Apple portfolio of products.
In 2007, Apple followed up the launch of the iPod with the iPhone, a mobile
telephone that had the same user-friendly design characteristics as its music
machine. To make the iPhone widely available and, at the same time, to keep
control, Apple entered into an exclusive contract with only one national
mobile telephone carrier in each major country – for example, AT&T in the
USA and O2 in the UK. Its mobile phone was premium priced – for example,

US$599 in North America. However, in order to hit its volume targets, Apple
later reduced its phone prices, though they still remained at the high end of
the market. This was consistent with Apple’s long-term, high-price, high-
quality strategy. But the company was moving into the massive and still-
expanding global mobile telephone market where competition had been
fierce for many years. (Note that with regard to Figure 1.9, the new iPhone
was too new to have made any impact on sales or profitability in 2007.)
And the leader in mobile telephones – Finland’s Nokia – was about to hit
back at Apple, though with mixed results. But other companies, notably the
Korean company Samsung and the Taiwanese company, HTC, were to have
more success later.
So, why was the Apple strategy risky?
By 2007, Apple’s music player – the iPod – was the premium-priced, stylish
market leader with around 60 per cent of world sales and the largest single
contributor to Apple’s turnover – see Figure 1.9. Its iTunes download
software had been re-developed to allow it to work with all Windows-
compatible computers (about 90 per cent of all PCs) and it had around 75 per
cent of the world music download market, the market being worth around
US$1000 million per annum. Although this was only some 6 per cent of the
total recorded music market, it was growing fast. The rest of the market
consisted of sales of CDs and DVDs direct from the leading recording
companies.
[Insert Figure old 1.9 near here]
In 2007, Apple’s mobile telephone – the iPhone – had only just been launched.
The sales objective was to sell 10 million phones in the first year: this needed
to be compared with the annual mobile sales of the global market leader,
Nokia, of around 350 million handsets. However, Apple had achieved what
some commentators regarded as a significant technical breakthrough: the
touch screen. This made the iPhone different in that its screen was no longer
limited by the fixed buttons and small screens that applied to competitive

handsets. As readers will be aware, the iPhone went on to beat these earlier
NOTES
sales estimates and was followed by a new design, the iPhone 4, in 2010.
The world market leader responded by launching its own phones with touch
screens. In addition, Nokia also launched a complete download music
service. Referring to the new download service, Rob Wells, senior Vice
President for digital music at Universal commented: ‘This is a giant leap
towards where we believe the industry will end up in three or four years’
time, where the consumer will have access to the celestial jukebox through
any number of devices.’ Equally, an industry commentator explained: ‘[For
Nokia] it could be short-term pain for long-term gain. It will steal some of the
thunder from the iPhone and tie users into the Nokia service.’ Readers will
read this comment with some amazement given the subsequent history of
Nokia’s smartphones that is described in Case 9.2.
‘Nokia is going to be an internet company. It is definitely a mobile company

and it is making good progress to becoming an internet company as well,’
explained Olli Pekka Kollasvuo, Chief Executive of Nokia. There also were
hints from commentators that Nokia was likely to make a loss on its new
download music service. But the company was determined to ensure that
Apple was given real competition in this new and unpredictable market.
Here lay the strategic risk for Apple. Apart from the classy, iconic styles of
the iPod and the iPhone, there is nothing that rivals cannot match over time.
By 2007, all the major consumer electronics companies – like Sony, Philips
and Panasonic – and the mobile phone manufacturers – like Nokia, Samsung
and Motorola – were catching up fast with new launches that were just as
stylish, cheaper and with more capacity. In addition, Apple’s competitors
were reaching agreements with the record companies to provide legal
downloads of music from websites –described in more depth in Case 12 at the
end of this book.

Apple’s competitive reaction
As a short term measure, Apple hit back by negotiating supply contracts for
flash memory for its iPod that were cheaper than its rivals. Moreover, it
launched a new model, the iPhone 4 that made further technology advances.
Apple was still the market leader and was able to demonstrate major
increases in sales and profits from the development of the iPod and iTunes.
To follow up this development, Apple launched the Apple Tablet in 2010 –
again an element of risk because no one really new how well such a product
would be received or what its function really was. The second generation
Apple tablet was then launched in 2011 after the success of the initial model.
But there was no denying that the first Apple tablet carried some initial risks
for the company.
All during this period, Apple’s strategic difficulty was that other powerful
com-panies had also recognised the importance of innovation and flexibility
in the response to the new markets that Apple itself had developed. For
example, Nokia itself was arguing that the markets for mobile telephones and
recorded music would converge over the next five years. Nokia’s Chief
Executive explained that much greater strategic flexibility was needed as a
result: ‘Five or ten years ago, you would set your strategy and then start
following it. That does not work any more. Now you have to be alert every
day, week and month to renew your strategy.’
If the Nokia view was correct, then the problem for Apple was that it could
find its market-leading position in recorded music being overtaken by a more
flexible rival – perhaps leading to a repeat of the Apple failure 20 years earlier
to win against Microsoft. But at the time of updating this case, that looked
unlikely. Apple had at last found the best, if risky, strategy.

NOTES
1. What is strategy implementation?

2. What are the Aspects of Strategy Implementation?
3. What is control in strategic management?
4. What is strategic information sharing?
5. What are VRIO resources?
6. What is corporate governance?
7. What is corporate ethics?
8. Explain in detail about the strategy implementation process.
9. What are Prerequisites of Strategy Implementation?
10. Process of evaluation and control – explain in detail.
11. Explain the various types of strategic control
12. The Strategic Control Process – explain in detail.
13. Explain about the corporate governance in detail.
14. Explain about the Elements of Good Governance
15. Explain about the Need or Importance of Business Ethics
Further Reading
1. Azar Kazmi (2003), Business Policy and strategic management, Tata
Mc Graw Hill, New Delhi .
2. Davar R. S., The Management Process (1984), 8 th edition progressive
corporation (private) Ltd., Bombay.
3. P.K. Ghosh (2001), Strategic Planning and Management, Sultan Chand
& Sons, New Delhi
4. Kachru Upendra (2005), Strategic Management- Concepts and Cases,
Excel Books, New Delhi.
5. Lomash Sukul & Mishra P.K.(2003) Business policy and Strategic
Management, Vikas Publishing House, New Delhi
6. Robert Kreitner (1999), Management, 7 th edition AITBS Publishers,
New Delhi.

7. Terry R. George and Franklin G. Stephen (1999), Principles of
Management 8 th edition ATTBS publishers, New Delhi.
8. Weirich Hernz and Koontz Herald (1993), Management – A global
perspective, 10th edition, Mc Graw Hill International Services, Singap

NOTES
UNIT V
STRATEGIC CHANGE AND INNOVATION
Structure
3.19 Strategic Change
3.20 Disruptive Innovation
3.21 Corporate Social Responsibility
3.22 Competitive advantage to Corporate advantage
3.23 Integrative analysis
3.24 Strategic issues in public sectors
5.7 Strategic issues in small business organizations
5.8 Strategic issues in non profit organizations

Strategic Change
Disruptive Innovation
Corporate Social Responsibility
Competitive advantage to Corporate

advantage
Integrative analysis
Strategic issues in public sectors
Strategic issues in small business organizations
Strategic issues in non profit organizaitons
Introduction
Change and change management are important aspects of the

manager’s job. Chapter Thirteen focuses on ways to manage change
effectively and to promote innovation in an organization.
Organizational change is defined as any alteration of people,

structure, or technology in an organization. Instead of trying to eliminate
change, managers must realize that change is always present and that they
should seek ways to manage change successfully.
Both external and internal forces create the need for change.
A. External forces creating the need for change come from various
sources:
1.The marketplace
2.Government laws and regulations
3. Technology

4.Labor markets
NOTES
5.The economy
B. Internal forces creating change usually originate from the

internal operations of the organization or from the impact of
external changes. These internal forces include:
1. Changes in strategy
2. Changes in the workforce
3. New equipment
4. Changes in employee attitudes
C. The Manager as Change Agent
Change requires a catalyst. The manager may act as a

change agent someone who acts as a catalyst and assumes the
responsibility for managing the change process.
5.1 STRATEGIC CHANGE
A restructuring of an organization's business or marketing plan is

typically performed in order to achieve an important objective. For example,
a strategic change might include shifts in a corporation's policies, target
market, mission or organizational structure.
5.1.1 Strategic Change Management
Strategic change management allows companies to carefully and

responsibly make needed changes. Strategic change management is the
process of managing change in a structured, thoughtful way in order to meet
organizational goals, objectives, and missions.

5.1.2 Change Management Strategies
Here are five effective change management strategies that

deal with the human element of organizational change
1. Propose Incentives
Assuming employees will follow their own self -interests, the

first change management strategy is to offer incentives that will
encourage people to accept and ultimately engage with the new
direction of the company.
Employee recognition programs and rewards tailored to specific

actions and company values provide the “carrot” some workers
need to buy into change. Incentives also help re inforce the
behaviors and actions upper management is looking for in this time
of upheaval. Lastly, this positive model of change management
shows that the leadership appreciates their employees during a
difficult time of transition.
2. Redefine Cultural Values
Another way to drive employee buy -in is to redefine

organizational culture values. This change management strategy is
based on the underlying assumption that people, as social beings,
want to “fit in” and “go along” with cultural norms and values.
Establishing a culture of continuous improvement is one way to
change the hearts and minds of employees asked to change the way
they work. In this example, employees may be more receptive to
new ways of working if they have already bought into the idea of
continuous improvement and the upheaval that comes with change.

3. Exercise Authority
NOTES
Depending on how serious the need for change is, an

organization may choose to exercise its authority to decrease
employee opposition and get workers to adhere to new standards,
processes, and cultural norms as quickly as possible.
If the threat is grave enough that imminent change is necessary for

survival, organizations might simply not have the time to invest in
incentive programs or culture change initiatives. The c oercive
strategy can be the fastest way to implement change — “my way or
the highway” — but it can also breed resentment and opposition
among some employees that may become problematic in the future.
4. Shift the Burden of Change
Although people are often quick to oppose change,

especially change they view as undesirable or disruptive, they are
often even quicker to adapt to new environments. Organizations
can take advantage of this adaptability by creating a new structure
— complete with new processes, w orkflows, and values — and
gradually transfer employees from the old one.
This strategy is best suited for situations involving radical,

transformative organizational change. Instead of burdening upper
management with enticing or coercing employees to acce pt specific
change initiatives, the burden of change is shifted to the workers
who gradually (or all at once) find themselves in the confines of a
new organization. Once there, employees are faced with the
prospect of adapting to new circumstances or being left behind to
“die on the vine” with the old organization.
5. Recruit Champions of Change

Radical change is often met with a high degree of resistance,
but the odds of success can be improved if the voices championing
change belong to workers and not solely upper management.
Recruiting frontline employees to share the need for change (and
the benefits) with their peers can speed up worker buy -in, lower
the degree of resistance, and serve as a mechanism for collecting
feedback and disseminating informa tion regarding the planned
change initiatives.
5.2 DISRUPTIVE INNOVATION
Disruptive Innovation refers to a technology whose application

significantly affects the way a market or industry functions. An example of
modern disruptive innovation is the Internet, which significantly altered the
way companies did business and which negatively impacted companies that
were unwilling to adapt to it.
According to Christensen, disruptive innovation is the process in

which a smaller company, usually with fewer resources, is able to challenge
an established business (often called an “incumbent”) by entering at the
bottom of the market and continuing to move up-market.
The term was first coined in 1997 by Clayton M. Christensen from Harvard
Business School, and since then the idea of a “disruptive innovation” has
skyrocketed the business world.

5.2.1 The factors that constitute Disruptive Innovation:
NOTES
The main bone of contention is that what makes the technology

disruptive in nature. The term disruptive may be used to describe the
variants of technology that are really not disruptive. For example, the internet
was disruptive as it was not a repetition of any previous technology and it
was totally new and novel in nature that created various unique and
innovative models for making money and profits that never existed before.
5.2.2 The implication of the Disruptive Innovation in the market for

the investors:
It can be very complicated for an investor to invest is company

following Disruptive Innovation as his focus will always be on whom the
company will adopt the disruptive technology rather than having a strong
focus on developing the technology itself. Technology giants such
as Google and Facebook are the leading examples of the companies that have
been hugely focused on the internet as a disruptive technology as the internet
has become an integral part of the modern lifestyle that the companies who
have failed to embrace this technology have been pushed aside by the
competitors.
The concept of Artificial Intelligence is also one of the Disruptive

Innovation and can be the threat to the job market as the companies will not
depend on their employees for the work-related tasks failing to recognize
their potential.
5.2.3 The process of Disruptive Innovation:
The model of Disruptive Innovation highlights that with the changing

time and the evolving tastes of the customers, their needs and demands also
increase over the time that pushes the company to come up with something
that is path-breaking and novel in terms of the ideation. And this demands a
shift in the trajectory of the technological developments.

With the new set of products and services planned, designed, and
executed for the changing needs and demands of the customers have a new
set of features and value attributes that is far much better than the existing
technology of the products and services.
Disruption and commoditization always go hand in hand and the

company that overshoots cannot win and go further in the longer run. Either
the commoditization will steal its profits or it will lose its market share with
the high levels of disruption.
5.2.4 Limitations of the Disruptive Innovation:
1. The theory of Disruptive Innovation requires a separate strategy for the

company to be highly successful in the market. The strategy and the
process have to be focused on the unexpected problems, opportunities,
and the success ratio rather than being intended and focused on the
understanding that what works and what doesn’t.
2. To figure out the futuristic market and what people really need is very
difficult to judge and figure out. And hence, many a time, the
innovations fail in the market.
3. Due to the nature of the Disruptive Innovation such as addressing new
markets that are either high end or low end, huge profits and revenues
cannot be attained very fast. And the venture capitalists tend to get
very impatient for the businesses to deliver the profits very fast.
Example of Disruptive Innovation:
Netf lix
Netflix is one of the best and leading examples of the Disruptive

Innovation. It is a DVD by mail model that turned the video rental business
market upside down and pushed the industry veteran Blockbuster into
bankruptcy. As a third party and an innovative startup, Netflix was able to
witness that Blockbuster underserved many clients and hence it came up with

the business model that offered extended affordability, accessibility, and
NOTES
availability of the huge movie and series content to these underserved clients.
5.3 CORPORATE SOCIAL RESPONSIBILITY
Organisations do not work in individually and need to consider that

making money is not the only objective of the existence of the organisation.
They need to consider the impact of producing goods and services in the
market and protect the environment, understand the need of our surrounding
society, customers, supplier, government firms, tax authorities and anyone
who is affected by their decision in the business world.
Therefore business doesn’t exist in isolation and not they should

concentrate on making money only, but they need to think of their business
decisions and their production method on the stakeholders. Stakeholders can
be anyone in the market who is related to organisation and will be affected by
the organisations strategies or the decisions. Therefore strategies need to be
acceptable to all stakeholders and the investors. This is because employees
depend on your business of the organisation. Employees need fairly paid
jobs, and customers, suppliers and the local community are all affected by the
organisations decisions and activities and impact of productions of good and
providing of services on the environment. .
Corporate social responsibility (CSR) is to understand that

organisations have more duties, and how their businesses are
influencing the world by their strategic decision about how to make
profit in the market and how to help their employees to give the good
money. Thus they need to think how they should plan their strategies
which will have less or nil effect on their stakeholder and their
environment and positive impact of their activities on the economy.
Proponents of CSR have used four arguments to make their case: moral
obligation, sustainability, license to operate, and reputation.

 Moral obligation means that stakeholders of a growing number of
companies are satisfied only when the company balances the impact of its
business with socially responsible practices.
 Sustainability involves meeting the needs of the present without

compromising the capability for future generations. Substantial progress
can be made by investing in solutions that are socially, environmentally,
and financially sustainable.
 Moreover, the very license to operate and crucial contracts themselves,

with governments and other entities, might be conditional upon such
obligation.
 Finally, CSR initiatives may be supported due to reputation impact, on

the grounds that they will improve a company's image and even raise the
value of its stock. Examples of such reputation benefits include a greater
clientele, the ability to charge premium prices, and the retention of more
productive workers. Companies tend to manage risks to their reputation
and brand in a reactive mode, only dealing with crisis events after they
happen. Companies confronted with boycott threats, as Nike was in the
1990s, or with the threat of high-profile lawsuits, as in the case of
McDonald's over obesity concerns, may also see CSR as a strategy for
presenting a friendlier face to the public
5.3.1 Integration of CSR into Corporate Goals
Corporations create social and societal impacts, both positive and

negative through the daily operations of their value chain. Corporations and
the societies they operate in are already intertwined. Societies need
corporations to give their people employment and infrastructure, and
corporations need healthy societies to provide a capable workforce. Although
society looks in many cases to the corporate world rather than to government
for the provision of employment and infrastructure (not to mention goods
and services), it is only a healthy society that can create the kind of
productive workers that every corporation seeks to hire.

Companies exist to create prosperity. Society in turn decides what
NOTES
limits to impose on how companies behave, and thus we have laws to protect
the common good. Most of the world has reached the stage where good laws
are in place, but poor enforcement exists for those laws. Poor enforcement has
its roots in corruption and weak institutions, and poor governance
perpetuates poverty. Corporate social responsibility programs try to bridge
the gap between what laws are in place and enforced, and basic fundamentals
of good business practice, such as obedience to local laws, avoidance of
exploitative practices, and complete transparency.
For example, Nestle has stated that the true test of a business is
whether it creates value for society in the long term. Because much of Nestle's
business takes place in developing countries, they need to improve business
conditions, improve the capabilities of farmers, create a skilled workforce,
and develop improved standards in order to operate effectively (Nestle,
2006). This example demonstrates that the welfare of society and
environment is not the responsibility solely of governments and
nongovernmental organizations; indeed, corporations can be often more
effective in promoting lasting social change. Good CSR is not so much about
prioritizing the environment over shareholder interests as much as it is about
solving environmental problems in a way that serves shareholder interests.
Moreover, as Porter and Kramer (2006) point out, “the more closely
tied a social issue is to a company's business, the greater the opportunity to
leverage the firm's resources—and benefit society.”
Strategic planning and corporate social responsibility is a form of

management in which companies take the ethical aspects of their business
operations into consideration. They incorporate these social concerns into
their business strategies and are more conscious of their roles in society and
their communities outside of business.
More than just obeying the law, corporate social responsibility involves a
business taking proactive steps to improve the quality of life for its employees
and community.

Different companies will select a different social responsibility strategy from
each other, but they all focus on four ethical aspects of business: economic,
ethical, legal and philanthropic.
5.3.2 Economic Social Responsibility
An economic social responsibility strategy begins with making sure a

company is sustainable, which in turn means it is profitable. Not only does a
company need to make a profit to satisfy its shareholders, it also must make
enough money to pay its employees a respectable wage.
It should also be the company's responsibility to make sure it

addresses issues such as gender wage discrimination. Outside of its
employees, economic social responsibility involves paying appropriate
business taxes and meeting other financial commitments.
Likewise, corporate economic responsibility includes businesses

finding inefficiencies in their operations that waste capital, and implementing
processes that improve efficiencies and reduce this waste.
5.3.3 Ethical Social Responsibility
Values and ethics in strategic management are important. Being

ethical means companies must be aware of society's values and standards and
operate in a manner that is conducive to those. Inside the workplace, this
could include paying a living wage, ensuring safe working conditions,
abiding by all labor laws and being willing only to do business with
companies with similar ethical principles – not purchasing products from a
factory that uses child labor, for example.
Being an ethical business also means taking into consideration a

company's environmental impact and doing its job to limit forms of waste. As
environmental issues grow on a global scale, it is increasingly essential that
companies are aware of how they contribute to these issues.
Companies should analyze the processes they use and proactively do

what they can to reduce their environmental impact. This is especially
important for companies that dispose of waste, leaving a carbon footprint.

5.3.4 Legal Social Responsibility
NOTES
The legal segment of corporate social responsibility revolves around

making sure that companies are aware of and abide by all local, state and
federal laws. Companies must comply with safety and labor laws put in place
by regulators. It is the duty of the company to make sure they remain
knowledgeable of any changes to the laws.
Being mindful of legal obligations can protect a company's reputation

and limit the amount of time and money it has to spend in potential legal
fees. Part of these legal responsibilities is always making sure the company
meets its tax obligations.
5.3.5 Philanthropic Social Responsibility
Corporate philanthropic responsibility involves using a company's

time and resources to make investments in the communities where they
operate.
These investments could be in the form of scholarships and other

educational assistance, or other notable local causes.
Many businesses choose to solely donate money to particular causes

that are aiming to bring about social change, while others will attach their
name and brand to causes they strongly believe in as a company. It is
common for large corporations to have in-house departments that manage
and coordinate the company's philanthropic efforts.
5.4 COMPETITIVE ADVANATAGE TO CORPORATE

ADVANTAGE
Corporate strategy, the overall plan for a diversified company, is both

the darling and the stepchild of contemporary management practice—the
darling because CEOs have been obsessed with diversification since the early

1960s, the stepchild because almost no consensus exists about what corporate
strategy is, much less about how a company should formulate it.
A diversified company has two levels of strategy: business unit (or

competitive) strategy and corporate (or companywide) strategy.
 Competitive strategy concerns how to create competitive

advantage in each of the businesses in which a company
competes.
 Corporate strategy concerns two different questions: what
businesses the corporation should be in and how the corporate
office should manage the array of business units.
Corporate strategy is what makes the corporate whole add up to more

than the sum of its business unit parts. The track record of corporate strategies
has been dismal. I studied the diversification records of 33 large, prestigious
U.S. companies over the 1950–1986 periods and found that most of them had
divested many more acquisitions than they had kept. The corporate strategies
of most companies have dissipated instead of created shareholder value.
The need to rethink corporate strategy could hardly be more urgent. By

taking over companies and breaking them up, corporate raiders thrive on
failed corporate strategy. Fueled by junk bond financing and growing
acceptability, raiders can expose any company to takeover, no matter how
large or blue chip.
Recognizing past diversification mistakes, some companies have

initiated large-scale restructuring programs. Others have done nothing at all.
Whatever the response, the strategic questions persist. Those who have
restructured must decide what to do next to avoid repeating the past; those
who have done nothing must awake to their vulnerability. To survive,
companies must understand what good corporate strategy is.
Although there is no consensus on what strategy is, or how to

formulate a strategy, there are essentially two levels of strategy for a
diversified company:

1. Business unit (or competitive) strategy, i.e., creating a competitive
NOTES
advantage in business units, and
2. Corporate (or companywide) strategy - i.e., determining what

businesses the corporation should be in, and how to manage the
corporation's various business units to create shareholder value.
Unfortunately, the diversification records of 33 large prestigious U.S.

companies, shows that most of their corporate strategies have not created
shareholder value. The purpose of this paper is to discuss Porter's research
findings on corporate strategy, the premises of a successful corporate
strategy, the essential test of a good corporate strategy, the four concepts of
corporate strategy, and an action program for choosing a corporate strategy.
5.4.1 Premises of Corporate Strategy
There are three underlying premises of a successful corporate strategy.
Competition occurs at the business unit level - Since business units

compete (not diversified companies), a successful corporate strategy
must reinforce competitive strategy.
Diversification inevitably adds cost and constraints to business units -

Relationships with the parent company require time and compliance
with company rules and personnel policies.
Shareholders can readily diversify themselves - Shareholders can

frequently buy stock more cheaply than a corporation can acquire
companies through mergers and acquisitions.
5.4.2 Passing the Essential Test
Diversification will create shareholder value if it passes the following

test:
1. The attractiveness test - The industry must be structurally attractive

or have the potential to be made attractive.

2. The cost-of-entry test - The cost of entry must not consume all future
profits.
3. The better-off test - Either the new unit or the corporation must gain
competitive advantage from the connection.
5.4.3 How attractive is the industry?
An industry chosen for diversification must have a structure that will

support returns that exceed the cost of capital or that can be restructured into
a favorable structure. Many companies ignore this test because they believe
the new industry is a good fit with their current business, entry cost is low, or
the industry is growing rapidly.
5.4.4 What is the cost of entry?
Companies can enter new industries by acquisition or start-up. An

acquirer can beat the efficient merger market if it pays a price below the price
that fully reflects the value of the new unit. However, this is difficult when
multiple bidders are commonplace and information flows rapidly through
investment bankers and intermediaries. Startups, on the other hand must
overcome entry barriers that tend to be high for entry into attractive
industries
The better-off test means that the corporation must gain a one time, or
continuous competitive advantage in some way as a result of the
diversification, e.g., acquire a first-rate management team, or a well-
developed distribution system. However, diversifying simply to spread
corporate risk does not pass the better off test. Shareholders can diversify for
themselves, so this is not a basis for corporate strategy. Porter also points out
that increasing the size of the corporation does not increase shareholder
value, and by itself does not pass the better-off test.
5.4.5 Concepts of corporate strategy

There are four concepts of corporate strategy: Portfolio management,
NOTES
restructuring, transferring skills, and sharing activities. Each concept requires
that the corporation organize and manage itself in a different way.
A. Portfolio management
The portfolio management strategy involves diversifying through the

acquisition of autonomous units. This can create shareholder value if
attractive companies can be identified that individual shareholders
cannot find. The company adds capital, professional management, and
coaching. To pass the three tests, the corporation must be able to find
undervalued units to acquire, and the benefits the corporation provides
to the units must yield a significant competitive advantage to the
acquired units. Unfortunately, there are a number of reasons portfolio
management is no longer a valid model for corporate strategy in
advanced economies. For example, the strategies of autonomous units
can undermine overall corporate performance, and the complexity of
supervising multiple disparate units is more complex than most
portfolio managers can handle. For these reasons, the portfolio
management approach does not pass the three test required for
successful diversification.
B. Restructuring
Using a restructuring strategy, the corporation diversifies by seeking

undeveloped, sick, or threatened organizations, or industries on the
verge of significant change. The parent steps in to restructure the
acquired company, e.g., by changing the management team, shifting
the business unit's strategy, or by adding new technology. Success
depends on corporate management's ability to spot attractive
companies, to turn them into profitable businesses, and to integrate
them to create an entirely new strategic position. To do otherwise is just
portfolio management in disguise. This approach requires that the
corporation dispose of the business units once they are restructured, or

the restructuring company eventually becomes a conglomerate
portfolio manager with average returns.
C. Transferring skills
This strategy involves exploiting interrelationships between businesses.

Porter uses the value chain to explain the concept of relatedness and
synergy. Companies are a collection of discrete activities, these are
referred to as value activities and include nine categories: Primary
activities (inbound logistics, operations, outbound logistics, marketing
and sales, and service), and support activities (company infrastructure,
human resource management, technology development, and
procurement).
Two types of interrelationships may create value. One type is where

skills or expertise is transferred among similar value chains. The other
type is the ability to share activities. Opportunities arise when business
units have similar value activities, or similar buyers or distribution
channels. For this strategy to lead to competitive advantage it must
meet three conditions: The activities must be similar enough for sharing
to be meaningful, The skills must involve activities that are important
for competitive advantage, and the skills transferred must be a source
of competitive advantage for the receiving unit.
The industries chosen must past the attractiveness test, and the units
should be sold when the opportunities to transfer skills and expertise
have been exhausted. The transfer-of-skills strategy can be used in
acquisitions or entry through internal develop.
D. Sharing activities
The ability to share activities in the value chains of multiple business

units can enhance competitive advantage by lowering cost or
increasing differentiation. However, an analysis of the costs and
benefits is needed to determine if cost will be lowered through
economies of scale, an increase in efficiency, or a learning curve.

Sharing can lead to differentiation, e.g., shared order processing may
NOTES
add new features or services, but sharing activities must be
coordinated, and must involve activities that enhance the company's
competitive advantage. A corporate shared-activities strategy can be
initiated through acquisition or startup, but it requires a strong sense of
corporate identity and a team oriented incentive system to be
successful. Successful coordinated sharing meets the requirements of
the cost of entry and better-off tests. However, target industries for
sharing must also pass the attractiveness test if the diversification is to
succeed.
5.4.6 Choosing a corporate strategy
Although the portfolio management strategy is no longer a valid

strategy in advanced economies, the other approaches can be combined. For
example, a company can use the restructuring strategy as it transfers skills, or
shares activities. Porter's research supports a strategy based on either a
transfer of skills or shared activities since most of the successful
diversifications did not involve unrelated acquisitions, i.e., those that had no
clear opportunity to transfer skills or share activities. The best acquisition
records came from companies that emphasized start-ups and joint ventures,
but none of the strategies work when the industry structure is unattractive, or
the strategy is poorly implemented.
An action program
Successful diversification starts with an objective examination of the

corporation's existing businesses and how the corporation adds value. There
are seven steps in an action program for choosing a corporate strategy
. Identify the interrelationships among existing businesses units for

opportunities to share activities and transfer skills.
2. Select the core business to be the foundation for the corporate

strategy and dispose of units that are not core businesses.

3. Create horizontal organization mechanisms to facilitate
interrelationships among core businesses.
4. Pursue diversification opportunities that allow shared activities,

recognizing activities in existing businesses that provide a strong
foundation for sharing, e.g., strong distribution channels or technical
facilities.
5. Pursue diversification through the transfer of skills if opportunities

for sharing activities are no longer available, but the company should
avoid a diversification strategy based on skills transfer alone.
6. Pursue a strategy of restructuring if there are no opportunities to

pursue corporate interrelationships and management has the necessary
skills.
7. If the opportunities listed above do not exist, pay dividends to

shareholders. This is better than diversifying when the conditions are
not favorable
5.4.7 Creating a corporate theme
A strong corporate theme unites the efforts of business units,

reinforces their connections, places emphasis on how the corporation adds
shareholder value, and guides the company's choice of new businesses to
enter. A corporation's diversification record can be significantly improved by
focusing on the three essential tests and an explicit choice of a corporate
strategy
A growth strategy is which a company increases its sales and profits

through vertical, horizontal, conglomerate & concentric integration within its
industry. Integration can be through acquisition or merger. When one firm
takes over another firm, it is called acquisition.

5.6 STRATEGIC ISSUES OF PUBLIC SECTORS NOTES
5.6.1 Strategic planning
Strategic planning has become a fairly routine and common practice.

It can be part of the broader practice of strategic management that links
planning with implementation. Strategic planning can be applied to
organizations, collaborations, functions (e.g., transportation or health), and to
places ranging from local to national to transnational. Research results are
somewhat mixed, but they generally show a positive relationship between
strategic planning and improved organizational performance. Much has been
learned about public-sector strategic planning over the past several decades
but there is much that is not known.
5.6.2 Approaches to Strategic Planning
There are a variety of approaches to strategic planning. Some are

comprehensive process-oriented approaches (i.e., public-sector variants of the
Harvard Policy Model, logical instrumentalism, stakeholder management,
and strategic management systems).
Others are more narrowly focused process approaches that are in

effect strategies (i.e., strategic negotiations, strategic issues management, and
strategic planning as a framework for innovation). Finally, there are content-
oriented approaches (i.e., portfolio analyses and competitive forces analysis).
Strategic planning approaches developed in the private sector can

help public sector organizations deal with the recent dramatic changes in
their environments. For example, "strategic planning is a disciplined effort to
produce fundamental decisions shaping the nature and direction of
governmental activities within constitutional bounds". It can help
governments become more effective. The public sector strategic planning
process provides a useful framework for review of the private sector
approaches to strategic planning in the public sector.
5.6.3 Strategic Planning Process

The strategic planning process begins with an initial agreement
among decision makers whose support is necessary for successful plan
formulation and implementation. The support and commitment of
management and the chief executive are vital if strategic planning in an
organization is to succeed. The involvement of key decision makers outside
the organization usually is crucial to the success of public programs if
implementation will involve multiple parties and organizations
The second step is identification of the mandates, or "musts,"

confronting the Government Corporation or agency.
Third comes clarification of the organization's mission and values, or

"wants."
Fourth is identification of the external opportunities and
Fifth is identification of threats the organization faces.
The first five elements of the process lead to the sixth, identification of
strategic issues (i.e., fundamental policy questions affecting the organizations
mandates, mission, values, product or service level and mix, clients or users,
cost, financing, or management).
The seventh step is strategy development (i.e., the identification of

practical alternatives). Describing the organizations potential future is the
eighth step.
Those eight steps complete the strategy formulation process. Next

come actions and decisions to implement the strategies and, finally, the
evaluation of results.
This strategic planning framework is applicable to public

organizations, functions, and places or communities. The only general
requirement is a dominant coalition willing to follow the process. That does
not mean, however, that all strategic planning approaches are equally
applicable to the public sector.

5.6.4 Public-Sector Strategic Planning
NOTES
The roots of public-sector strategic planning are originally mostly

military and tied to statecraft). Starting in the 1960s, however, most of the
development of the concepts, procedures, tools and practices of strategic
planning has occurred in the for-profit sector.
• Close attention to context and to thinking strategically about how to

tailor the strategic planning approach to the context, even as a purpose of the
planning typically is to change the context in some important way.
• Careful thinking about purposes and goals, including attention to

situational requirements (e.g., political, legal, administrative, ethical, and
environmental requirements).
• An initial focus on a broad agenda and later moving to a more
selective action focus.
• An emphasis on systems thinking; that is, working to understand
the dynamics of the overall system being planned for as it functions—or
ideally should function—across space and time, including the
interrelationships among constituent subsystems.
• Careful attention to stakeholders, in effect making strategic
planning an approach to practical politics; typically multiple levels of
government and multiple sectors are explicitly or implicitly involved in the
process of strategy formulation and implementation.
• A focus on strengths, weaknesses, opportunities and threats; and a
focus on competitive and collaborative advantages.
• A focus on thinking about potential futures and then making
decisions in light of their future consequences; in other words, joining
temporal with spatial systemic thinking.
• Careful attention to implementation; strategy that cannot be
operationalized effectively is hardly strategic.
• A clear realization that strategies are both deliberately set in
advance and emergent in practice.
• In short, a desire to stabilize what should be stabilized, while
maintaining appropriate flexibility in terms of goals, policies, strategies, and

processes to manage complexity, take advantage of important opportunities,
and advance public purposes, resilience and sustainability in the face of an
uncertain future
Strategic management is widely seen as essential to the public

services, leading to better performance and better outcomes for the public. In
fact, the private sector idea of strategic management has become so powerful
in the public sector that politicians and policy-makers have begun to talk
about the importance of the modern state being strategic – and we may be
witnessing the emergence of the Strategic State. Strategic Management in the
Public Sector draws on experience and research from a range of countries and
provides a theoretical understanding of strategic management that is
grounded in the public sector. Drawing on the latest theory and research this
book also offers original and detailed case stud- ies based on up-to-date
evidence from different public sector settings, helping the reader to build up
their knowledge and understanding.
Many public sector organizations across the world will face societal,
organizational and operational demands for increased financial restraint,
efficiency, as well as more environmentally sustainable solutions that lead to
positive social outcomes. To meet these challenges, the public sector will have
to make an ongoing effort to optimize and transform public sector operations
and public services. Explore our infographic below and see how this will
impact the future of these public organizations.
5.6.5 Strategic Planning in Public Institutions
Strategic planning is defined “as a disciplined effort to produce

fundamental decisions and actions that shape and guide what an
organization (or other entity) is, what it does, and why it does”
It focuses on broader policy questions facing an organization, such as

its basic mission and purposes and alternative courses of action or strategies
to achieve those missions and purposes. As such, strategic planning

systemizes an organization’s direction into goals and acts as the backbone on
NOTES
which operational plans are built.
Public institutions are externally justified entities whose existence

depends on serving public purposes and satisfying stakeholders. However,
the number of stakeholders and their criteria for satisfaction can often lead an
organization in a multitude of directions. The key to success lies with
‘identifying and building strategic capacities to produce the greatest public
value for key stakeholders at a reasonable cost’. This requires the
identification of stakeholders, their criteria, and a plan to meet the criteria
and the externally allocated reason for existence of the institution. As the
institution and its environment are not static, such an endeavor becomes
complex and difficult to manage.
Smart planning and sustained execution are needed to anticipate and
navigate the increasing complexity and challenges facing government leaders
around the world. Governments must make the best use of limited resources
and mitigate the risks of economic and political turbulence. Despite these
imperatives, public-sector agencies commonly fail to value strategy, and they
rarely excel at strategic planning and execution. The result: government
leaders struggle to change their organization’s behavior and to drive progress
toward the most important policy outcomes.
The key to upping government’s game on this front is to understand

what prevents effective strategic planning and execution and then to attack
those challenges head on. On the basis of its more than 50 years of working as
a leader in strategy, BCG has developed deep insight into the barriers that
confront the private sector and an understanding of how they also challenge
the public sector. These hurdles include a planning system that is too focused
on bureaucratic processes at the expense of outcomes. In the public sector,
such challenges are compounded by the frequent changes in leadership that
are tied to election cycles, entrenched hierarchies and regulations, and a
culture of risk avoidance.

Remaking the strategic-planning process is not about creating the
optimal meeting schedule, metrics, or mission statements. It is about building
a system that allows agency and department heads to determine priorities,
put adequate resources behind those priorities, and then hold people
accountable for results. It is about solving real problems. When they achieve
this, government leaders find that they are fighting the right battles and
delivering lasting value for their citizens.
5.6.6 Government’s Strategic-Planning Imperative
It is through strategic planning and execution that both private- and

public-sector organizations develop and implement strategies, whether for
corporate growth or for achieving a federal mandate. Through this process,
organizations reconcile their responsibilities with their resources and set
strategic priorities. When done well, strategic planning and execution can
effectively account for and manage the numerous variables that affect their
plans and programs and make the important connections within and among
stakeholders, allowing them to work in concert toward critical goals.
Sustainable and flexible execution of the strategy promotes the likelihood that
government will deliver on its promises, improving citizens’ confidence and
promoting their trust.
5.6.7 Mounting Public-Sector Challenges
The need for this sort of effective strategic-planning and execution

process in government is intensifying in the face of four difficult realities.
First, owing to the scale and pace of change, including changes driven
by advancing technology, today’s operating environment is more complex
than ever before. Case in point: the democratization and proliferation of
advanced technologies is upending the way governments manage risks to
security and their economies.

Second, finding solutions to most public-sector challenges requires the
NOTES
involvement of more stakeholders—in and out of government—than in the
past.
5.6.8 Obstacles to Effective Strategic Planning
Amid such challenges, strategic planning becomes more important

than ever before. However, in many public and private organizations, such
planning is frequently undervalued and poorly done.
Many of the obstacles are common to both government and the

private sector. In numerous situations, the process is too bureaucratic,
requiring multiple iterations and consuming too much time. It can also be too
internally focused, failing to account for external factors or to learn from the
experience of other sectors or similar organizations.
Furthermore, in all too many cases, strategic planning excludes key

stakeholders who are needed both for diagnosing challenges and for
delivering outcomes. The failure to involve midlevel managers is particularly
problematic because it can mean that the right issues are not elevated to the
attention of senior leaders as they set strategy and that there is limited buy-in
among the rank and file, weakening execution. Finally, there is a disconnect
between the strategy and the incentive structure that is meant to promote
follow-through on the strategic plan.
Public-sector organizations are, of course, quite different from private-

sector companies. Some challenges seen in the private sector may be
magnified in the public sphere while other additional issues that exist in
government have no presence in the private sector.
Finally, many government organizations don’t perceive risk as

private-sector companies do. Public-sector organizations can often be focused

on short-term outcomes and compliance with rules and regulations rather
than on long-term strategic results. Consequently, creating a strategy that can
be adapted in the face of changing environments or new information is
difficult.
5.6.9 Building a strategic-planning process that delivers impact
To improve their strategic-planning and execution track record, government

leaders should focus on steps that leverage four critical areas: culture,
purpose, operating model, and execution.
5.6.10 Promote a Strategic Culture
Certainly, there are pockets of robust strategic planning in

government, particularly within the defense sector: it is ingrained in the
military profession. But either the culture of too many public-sector
organizations does not embrace the value of strategic planning or the
organizations’ leaders aren’t committed to that process.
To ensure a successful culture shift, the head of the agency or office

must take a leading role in strategic planning, middle management must be
involved from the start, and the risk-averse mindset inherent in government
organizations must be addressed.
5.6.11 Leverage the Organization’s Purpose
A critical element in effective strategic planning is a clear sense of

purpose, which consists of an organization’s timeless reason for being—its
mission—and the strategic goals for fulfilling this mission within a set period
of time. Strategic planning and execution allow organizations to deliver on
that purpose by setting priorities, aligning resources, and mobilizing and
measuring action.

The following three actions help overcome the barriers to effective
NOTES
strategic planning and execution that stem from the organization’s overall
sense of purpose:
 Reinforce the core mission of the organization. In addition to

reinforcing the core mission, which is generally rooted in law, the leaders
must articulate a compelling vision for advancing the mission over a three-
to five-year period. This will provide critical direction and energy for the
organization and ensure that all staff members understand where the
organization is moving.
 Set clear strategic priorities to achieve the vision. This step may
seem obvious, but it is rarely easy. “Deciding among top priorities is a
challenge,” a former senior advisor in the U.S. executive branch told us.
“Not everything can be a priority. You need ruthless prioritization.” Staff
will play a key role in this area, helping to frame the inherent tensions and
tradeoffs among these priorities.
 Communicate the strategy throughout the organization.

Organization leaders must make strategy come alive by providing their
staff a consistently vivid strategic narrative that is relevant to their day-to-
day activities. This story should be related energetically throughout the
organization: the top leaders communicate the strategy to their direct
reports, who then communicate it to the people they manage, and so on.
The cascading narrative should show workers how their actions, driven by
the new strategy, directly contribute to improving the organization’s
performance. Such clarity can go a long way toward improving the odds of
successful execution of the strategy.
5.6.12 Transform the Operating Model
Typically, the public-sector operating model—the governance,

structure, and processes of a government agency—is hierarchical, rigid, and

not adaptable to changing circumstances. Action in three areas can eliminate
those impediments and, in so doing, enable a more effective and efficient
operating model:
 Communication and Engagement with External Stakeholders. Government

leaders should create a clear process for working with, for example,
appropriators, authorizers, budgeting agencies, the office of the president or
prime minister, citizens, and industry in order to secure the necessary
resources and support for the strategic objectives.
 Integration of Risk Management in the Strategic-Planning

Process. Strategic planning and risk management must be integrated so that
the organization can anticipate and prepare for the full spectrum of potential
problems and opportunities that could arise during execution. In many cases,
the primary risks relate to insufficient statutory authority, resource
constraints, and weak or unwilling external partners. And effective risk
management requires looking at the organization’s entire interrelated
portfolio of programs, rather than addressing only risks that are within silos
or that are perceived as external to the organization.
 Adapting Processes to Support the Strategy. New programs, policies, and

the ways that their success is tracked and that resources are allocated should
be directly linked to the organization’s strategic objectives. The use of agile
teams—groups whose members are from functions throughout the
organization and that are designed for rapid experimentation and
adjustment—can provide powerful support in the design and development of
these programs and policies.

5.6.13 Develop a System for Execution and Learning
NOTES
 Agencies that lack critical tools and data that can be used to measure
progress cannot adjust course on the basis of new information. In
addition, when strategy is not integrated into the day-to-day actions
of frontline staff, employees can focus too much on programs that are
not relevant to the organization’s strategic priorities.
 Doing an effective job of executing and adjusting the strategy hinges
on three elements: the right data, a system that values accountability
and aligns incentives, and the ability to adapt where necessary. The
involvement and commitment of frontline managers is critical to
success in all three areas.
 The data required includes not only upfront information about what
works in terms of programs and initiatives—data that can drive the
initial strategic-planning process—but also timely and action-
promoting data during the execution phase. Such information can
come from both internal and external sources. Internal data may be
the result of monthly strategy “pulse checks” with staff, quarterly or
annual strategic reviews with senior managers, and evaluations of
specific programs. External data can and—in many cases—should
include information on the impact of certain programs in the real
world. For the data to make a difference, it must be available, reliable,
and timely. A senior executive in a large finance and tax agency told
us that it’s important to “measure what matters—and movement will
happen on things you measure.”
 The second element—accountability and incentives—is critical to
successful execution. Leaders should hold regular evidence-based
progress reviews with key managers, including officials who have
direct oversight of programs that support each strategic objective. The
sessions should focus on performance data for each program and
allow in-depth discussions that include suggestions related to
improving performance and mitigating risk. These sessions must be
held more frequently and cover more detail than the annual or

quarterly strategic reviews that many government departments and
agencies already conduct. At the same time, the organization should
create clear and valued incentives, including formal and informal
awards and recognition for those who adopt new behaviors and
contribute most to achieving objectives.
 The most effective government organizations understand that without
accountability and the right incentives, even the best strategic plan
will likely never become reality. One large agency responsible for
managing much of the government’s real estate holdings held
biweekly meetings at which staff reported progress on strategic
priorities. According to the agency administrator, that “repeatable
rhythm” of reporting kept the team focused on those priorities. A
public-housing-and-finance organization, meanwhile, tied
management’s performance evaluations to the accomplishments of the
agency’s strategic objectives. This required identifying the right
metrics for tracking progress against the objectives and instituting a
credible and timely review process that integrated that information.
 The third element—the ability to monitor performance in a way that
helps the organization adapt—can result in two types of adjustments.
First, data on the progress of key strategic objectives can help the
organization alter the way it is executing its existing strategy. The
strategic objectives may not change, but the way in which the
organization tries to achieve them may. The second involves revision
of the strategy itself. The need for such a shift can become evident
only if the organization steps back periodically to assess whether or
not things have changed in the overall operating environment. Such
analysis may reveal that the assumptions on which the original
strategy was based have changed, making it necessary to revisit the
strategy.

5.7 STRATEGIC ISSUES OF SMALL BUSINESS NOTES
ORGANIZATIONS
Among developing countries, SMEs has addressed substantial

growth. Their growth can be determined by
- 1) Their ability to integrate with the global economy through trade

and investment;
2) Their capacity to maintain sustainable government finances and

sound money; and
3) Their ability to put in place an institutional environment in which

contracts can be enforced and property rights can be established.
As globalization proceeds, transition and developing countries and

their enterprises face major challenges for strengthening their human and
institutional capacities to take advantage of trade and investment
opportunities. While governments make policies in trade and investment
areas, it is enterprises that trade and invest. Therefore, supply-side
bottlenecks in the trade and investment areas and how governments,
development partners and the private sector itself address these constraints
have direct implications on the economic growth potential of transition and
developing countries. SMEs play a key role in transition and developing
countries.
These firms typically account for more than 90% of all firms outside
the agricultural sector, constitute a major source of employment and generate
significant domestic and export earnings. As such, SME development
emerges as a key instrument in poverty reduction efforts. Globalization and
trade liberalization have ushered in new opportunities as well as challenges
for SMEs. Presently, only a small part of the SME sector is able to identify and
exploit these opportunities and deal with the challenges.

The majority of SMEs in developing and transition countries,
however, has been less able or unable to exploit the benefits of globalization
and, to add to the situation, are frequently under pressure on the local or
domestic markets from cheaper imports and foreign competition. A major
objective of work to promote the development of the SME sector is therefore
to change the balance between these two groups of SMEs and to equip SMEs
to better meet the challenges of globalization and to benefit from its
opportunities. SMEs, due to their size, are particularly constrained by non-
competitive real exchange rates, limited access to finance, cumbersome
bureaucratic procedures in setting up, operating and growing a business,
poor state of infrastructure and lack of effective institutional structures. The
removal of these constraints is a daunting task calling for holistic SME
support, i.e. an enabling environment for SME development consisting of
functioning macro, macro and micro level institutions.
Small Business needs Strategy Strategic management is largely

regarded as the rational process by which senior management identifies
courses of action and responses to complex and dynamic environmental
forces. It is traditionally concerned with hegemony, size, utilization of
resources, achieving dominant positions and internalizing issues of control
and fit. The scale, scope and complexity of the strategic management field are
problematic in that there is no overarching, generic core body of knowledge.
There are instead contextual understandings of what is ‘strategic’ and a range
of competing and exclusive schools of taught. This difficulty of definition
prevents any conclusive diagnosis of the effectiveness of the strategic
management as an aid to organizational effectiveness, yet the methodological
and theoretical difficulties with the field enable invention and reinvention of
contextual understanding of what is ‘strategic’

5.7.1Strategic Planning in Small Businesses
NOTES
Strategic Planning in Small Businesses Like in medium and large scale

companies, small firms also need to determine their strategies, its strategic
management should blend with:
(a) Core values of the firm and requisite support in terms of its
corporate structure;
(b) Survival strategies to reduce management inadequacies.
The major concern of small business firms includes: Growth of Sales-

Larger the sales, larger shall be the growth of the firm. Small firms need to
visualize the process and patterns so that their profit can be maximized using
existing set of business activities Cost-benefit analysis- For long term
investment and financial decisions, small firms has to undergo various cost-
benefit analyses across value chains. Healthy Balance sheet and cash inflows-
Gearing operations to the income statement, while ignoring the balance sheet,
are all too common. Lack of concern with cash flow and the productivity of
capital employed can be fatal. Managers tend to seek new funds instead of
making better use of those they already have. Figure 3 exhibit the strategic
planning for small firm that blend vision with the resource mobilization
considering Business processes, customer segmentation, products, supply
chain and credit management into account
Strategic planning in small business can be in to four thrust areas:
1. To empirically confirm the presence or absence of strategic planning

in small firms
2. To provide empirical evidence of the value of strategic planning
3. To examine directly or indirectly the appropriateness of specific

features of the planning process

5.7.2 Key Elements Of SMEs Strategies
Strategy and Planning
1. Take a broad view of sustainability.

Understand the key sustainability drivers, risks and
opportunities for your organization. As important as they are,
remember to look beyond environmental issues. Finding innovative
ways in which your company can be a good corporate citizen to the
benefit of employees, customers and suppliers will yield benefits to
your business.
2. Define in detail what sustainability means to your company
With a clear definition to which everyone in the company can

refer and clear success measures, any efforts to invest in sustainability
or change business practices will focus on the right goals.
3. Engage all stakeholders.

Talk to customers, suppliers, investors and employees about
sustainability, sothat their voices can be heard in the debate, and the
strategy you develop will be able to address all of their needs. Include
them and get as much of their weight behind the strategy as possible.
Execution and alignment
4. Remember that you are not alone

National, international and industry wide initiatives exist that
help businesses become more sustainable. Engage with these
organizations, tap into their knowledge and experience. This way,
implementing a sustainability strategy will be quicker and easier.

5. Establish responsibility and communicate widely.
NOTES
The delivery of any strategy is more successful if an
organization knows who is in charge of it. Have senior management
drive the policy, appoint sustainability champions and communicate
the importance of sustainability to every level of the company.
6. Take it step by step.

Becoming more sustainable is usually a process of evolution,
not revolution. By making small changes now a company can affect
significant change in the future.
Performance and reporting
7. Tie sustainability to profit.

Becoming more sustainable often means being more efficient.
Resource efficiency, for instance, benefits the environment and
reduces the cost of running a business. Make the link between
consuming less water and electricity, or producing less waste, and
improving profits clear within your business
8. Measure, monitor and review.

Tracking progress towards the goals of a sustainability
strategy is vital in justifying it to management, and in fully
understanding the commercial benefit it brings. Develop clear metrics,
review them regularly and whether progress is fast or slow, keep
setting realistic, attainable targets
9. Invest in the future.

Investing in sustainability does not always require huge
capital expenditure. Many SMEs say the biggest investment is
management time
5.8 STRATEGIC ISSUES IN NON PROFIT

ORGANIZATION
The foundation of an organization (Profit/ Non-Profit) strategic plan

is based on its vision and mission. A good strategic plan includes
involvement of all vital resources including staff resources, time and financial
resources (Budget etc.)
A Profit making organization aims to achieve profits whereas;

nonprofits’ objectives and effectiveness are different. In principle, nonprofits
provide a service and/or program to meet a defined community need.
Functionally, Non Profit Organizations are the most common type of societal
institutions that do not have commercial interests. However, they are not the
only category of non-commercial organizations that can gain official
recognition.
5.8.1 Importance of Strategic Planning in Non Profit Organization
Strategic planning is essentially an organization alignment process

and can be used by any organization (Profit/ Non Profit), to establish its long
term and short term goals as well as to review effectiveness of operations on
periodic basis. Therefore, Strategic planning is to provide a non-profit with an
integrating mechanism that focuses on a desired future, confirms the
organization’s mission, establishes long term goals and establishes a short
term action plan to achieve its goals.

Therefore, the goal of a for-profit company is to return dividends to
NOTES
shareholders or profit to owners over time.
5.8.2 Non-Profit Organization:
A Non Profit organization (NPO, also known as a non-business entity) is

an organization the purpose of which is making a profit. A non-profit
organization is often dedicated to furthering a particular social cause or
advocating for a particular point of view. In economic terms, a non-profit
organization uses its surplus revenues to further achieve its purpose or
mission, rather than distributing its surplus income to the organization's
shareholders (or equivalents) as profit or dividends. This is known as the
non-distribution constraint. The decision to adopt a non-profit legal structure
is one that will often have taxation implications, particularly where the non-
profit seeks income tax exemption, charitable status and so on.
5.8.3 Types of Non-Profit Organizations
Non-Profit Organizations can be classified into various sub categories:
a. Trusts: The public charitable trust is a possible form of not-for-profit

entity in India. Typically, public charitable trusts can be established for a
number of purposes, including the relief of poverty, education, medical relief,
provision of facilities for recreation, and any other object of general public
utility. Indian public trusts are generally irrevocable. No national law governs
public charitable trusts in India, although many states (particularly
Maharashtra, Gujarat, Rajasthan, and Madhya Pradesh) have Public Trusts
Acts.
b. Societies
Societies are membership organizations that may be registered for

charitable purposes. Societies are usually managed by a governing council or

a managing committee. Societies are governed by the Societies Registration
Act 1860, which has been adapted by various states. Unlike trusts, societies
may be dissolved.
c. Section 8 Companies
A section 8 company (old section 25 company) is a company with

limited liability that may be formed for "promoting commerce, art, science,
religion, charity or any other useful object”
d. Stakeholders of a Voluntary Non Profit Organization
Stakeholders of a voluntary nonprofit organization
• Beneficiaries/service-users/clients;
• Members
• Statutory funders;
• Individual or corporate donors;
• Staff;
• Volunteers;
• Board of management;
• Agencies who refer clients or to whom the organization refers clients;
• Regulatory bodies;
5.8.4 Strategic Management in NGOs

NOTES
The Number of factors is which have constrained in the

development of rational planning in voluntary nonprofit organizations.
These are:
 Service is intangible and hard to measure.
 Customer influence may be weak- Often the enterprise has a local

monopoly and payments by customers may be a secondary source of
funds.
 Strong employee commitment to professions or to a cause may

undermine their allegiance to the enterprise.
 Resource contributors may intrude into internal management –

notably fund contributors and government.
 Restraints on the use of rewards and punishments
 Charismatic leaders and/or the mystique of the enterprise may

be important means of resolving conflict in objectives and
overcoming restraints.
5.8.5 Few guidelines to nonprofit organization about strategy
1. Strategy is not planning: While planning can improve

the chances of successfully implementing a strategy, the
plans themselves are not strategies.

2. Strategy is knowing your organization’s business
model: This may seem obvious: it is important to know
yourself and what you do and don’t do. This is the
foundation for any good strategy. There are a number of
good resources out there for mapping your
organization’s business model, including The Business
Model Canvas.
3. Strategy is not setting goals: The words “strategy” and

“goal” are sometimes used interchangeably. This is
imprecise. Strategizing can lead to setting goals, but the
goals themselves do not constitute a strategy.
4. Strategy is assessing your nonprofit’s place in its

environment: Competition is ubiquitous. Nonprofits face
competition not only from other nonprofits or businesses
but from alternative ways individuals could meet their
needs. For example, a nonprofit music lesson provider
might face competition from school music programs, but
also from sports and other after-school activities, or from
video games.
5. Strategy is not simply improving operational

efficiency: Improving efficiency is certainly a worthwhile
goal, but does not constitute a strategy. You might
produce more of an impact per dollar of revenue, but a
competitor who is less efficient may still prevail because
of a unique asset or capability.

NOTES
6. Strategy understands your organization’s unique

strengths: What assets do you have that other
organizations don’t have access to? Is it a particular skill
or expertise, a great website, a network of connections, or
a tangible item such as a building? Identifying your
unique strengths means you can leverage them to
differentiate your nonprofit from its
competitors. Appreciative Inquiry is a useful model for
analyzing your nonprofit’s strengths and creating
strategic change.
7. Strategy is doing: Many nonprofits undergo strategic
planning only to have the plan gather dust on the shelf.
The next step is to transform the planning document into
an operational blueprint divided into concrete actions.
Ensure that the strategy is understood clearly by those
who will implement it. Figure out the “who,” “what,”
“when,” “where,” and “how” and follow through!
8. Strategy is a continual process: Your nonprofit’s

environment is continually transforming. The arrival of a
new technology, an abrupt decrease or increase in
available funding, or a change in demand for services are
all examples of changes that can occur. In one fell swoop,
change may render your last multi-year strategic plan
unhelpful. To stay nimble, it may be helpful to revisit
strategy on a more frequent basis, perhaps every few
months, as part of regular organizational upkeep.

Summary
Organizational change is defined as any alteration of people,

structure, or technology in an organization. A restructuring of an
organization's business or marketing plan is typicall performed in order to
achieve an important objective. Disruptive Innovation refers to a technology
whose application significantly affects the way a market or industry
functions. Corporate social responsibility (CSR) is to understand that
organisations have more duties, and how their businesses are influencing the
world by their strategic decision about how to make profit in the market and
how to help their employees to give the good money. This unit also discussed
about the strategic issues in public sector, SME and NGOs.
Case study
Case 1 - Alpha
The core business of Alpha is steel and aluminum constructions. The

company was established in 1984. There was a shift of owners in 1999 and
(partly) again in 2011. The company produces to order and works as a
regional supplier, primarily. The company is composed of three
complementing companies, which in combination can provide a total solution
from technical specifications, steel and aluminum cutting, welding as well as
installation. The company employs about 45 people.
The company has a tradition of running dynamic, regular 3 year plans and
revisions to guide its actions as this enables transparency of what is going on.
This process has been driven by management and included the board as well
as the employees. In addition to formal, text based documents, the values and
strategies have been communicated in various ways, such as paintings which
are hanging on the company’s premises. The management group is
dominated by technical education and experience and consists of the CEO, a
technical manager, and the younger partner.
In 2009 management had to deviate from the traditional management style,
following a dramatic drop in activity due to the impact of the global financial
crisis. Consequently, Alpha reduced manning, cancelled strategic initiatives
and went into a day to day management mode. In late 2011 the situation

stabilized and management made a mental decision to “cancel” the crisis. In
NOTES
this connection the company hired a new manager (partner) and initiated a
strategy process, with a new range of activities aiming at positioning the
company closer to the customers, target new markets, and include more
services. This process resulted in a text rich document which management felt
needed a simpler structure to provide a better overview and basis for
discussion within the management group as well as the board and
employees.
The connection between the company and the researcher was established in
the early spring of 2013. In the first meeting the canvas was presented and
served to structure part of the discussion. Different ways of applying the
concept was discussed. The company immediately grasped the idea. Within a
week Alpha managed to depict its business model in the canvas. At this
point, however, there was a kind of mental “lock in” to the graphic
representation. The question “so what?” appeared. The researcher intervened
with a suggestion to change the format of the canvas-map to a table format, in
a spreadsheet. The table format allows the integration of already existing
material in the managerial structure, thereby adding a dynamic dimension.
This include a swot (strengths, weaknesses, opportunities, threats) analysis as
well as scenarios of future (“to be”) business models, thereby adding a
dynamic dimension to the canvas. This format has enabled management to
include and adapt existing plans to encounter the opportunities and threats.
As a further benefit, it has been possible to assign organizational
responsibilities.As a result, the business model has been adapted in the
management of the company. It is hanging on a white board in a meeting
room and updated when needed. The business model has also been
presented and discussed with the board as well as the remaining
organization. Over time the business model has developed and its content
has become much richer than in the beginning.
The modeling process also led to the discussion of two issues. The first was
the strategy horizon for the future business model, as a total, and in the
different areas of the business model. As a consequence the strategy horizon
of e.g. areas of competence development and HR was expanded. In the later
part of the research period, upgrading and investments in new machinery

was included in the business plan. A second issue was a discussion whether
Alpha had one or more business models due to the presence of a subsidiary
which has its own customers. So far the company see it self as having one
business model, i.e. the role of the sister companies are complementary and
integrated.
At the end of the research project the company is thriving although the
development does not fully live up to the ambitions. The company has
achieved certificates which enable it to enter new segments. It has also made
new relations with other companies to strengthen and complement its
resources and value proposition. It has also received the first orders from a
new geographic market.
The effects of the business model explication and application is primarily
related to the management group. The younger partner has been a driving
force in a quite consistent application of the concept in this group. There have
been two regular strategy audits with the business model as a basic element
of these discussions. As a result, the business model concept is effectively
integrated in the management practice. It is a living construct as components
and activities are upgraded or replaced, reflecting new and more relevant
issues. This also means that the general business model canvas is becoming
less and less traceable.
Case 2 – Bravo
Bravo is an engineering company founded only few years ago by a

manager returning from an international position in the mother company
which also has the majority of the ownership. The company offers
engineering services on a project basis. Customers are primarily big
companies in the offshore oil, gas and wind energy industry and naval
architecture. The company operates on a stand-alone basis, but some projects
are solved in cooperation with the mother company.
The initial contact was established with the CEO during in the early spring of
2013. Major topics in the first meeting were the general business model,

selected projects and activities with other firms. The CEO (an engineer by
NOTES
education) had a quite elaborated understanding of what a business model is,
but wanted to explore it more thoroughly after the presentation of the general
business model canvas.
As a first step it was decided to focus on a new service related to ship energy
efficiency. This topic is very hot in the industry due to the (then) strong
increase in fuel prices, as well as future legislation on emissions. The current
business model of this emergent service was mapped in the canvas in August
2013. This meeting involved a project manager and the senior project
manager in charge of the specific service area. A major point in the discussion
was the relation between the traditional business model and the new service.
The initial model was very much in line with the general (consulting) model
of the company. Different alternatives were discussed in the light of the
expected development of the market, the customers, the competitors, the
available resources and potential revenues.
In October 2013 the project manager of the company received training on
business modeling. During, and after this, the company worked on a business
model canvas for their existing activities as well. This model was discussed
and modified through the involvement of the employees. A third meeting
with the company in February 2014 was dedicated to a general follow up and
sharing of experience. The strengths and weaknesses of the business model
canvas were evaluated. In general the project managers were very happy
with the process so far. Major contributions were related to providing an
overview and shared picture of the situation, for discussing different issues
and the involvement of the employees. Some of the points missing were the
dynamics, including the future oriented initiatives. The leading project
manager, in particular, was asking for more structure in this area and a link
to other tools. Consequently, different strategy and managerial tools from the
company were reviewed during this meeting (budgets, swot, customer
statistics, project pipeline, mission statements, the relation to the mother
company and the board etc.). The researcher suggested the possible
integration of these in the business model (in line with the interventions in
the Alpha case). These ideas were partly adapted.

After the meeting, however, other events in the company distracted further
work on this. The senior project manager of the new service left for a related
position in a much larger company, leaving this business area in a temporary
vacuum. In June 2014 the company announced a merger. At a fourth meeting
with the company in August 2014 the project manager expressed that the
need for further work on the business model and structuration had not
decreased but practical issues of the merger and integration had taken most
of the resources available. The differences and similarities between the
business models of the two merging companies were discussed.
So far the business modeling process in Bravo had been centered on
management and employees. The scalability and the immediate simplicity of
the model has enabled “non-strategists” to discuss strategic issues based on a
shared model of the firm. Further integration was possible but the resources
were allocated for the merger. The discussion of integration also revealed a
need to supplement with “missing” elements of context and dynamics of
mission/vision.
Case 3 - Charlie
Charlie is a company providing surface repair kits to the maritime sector.

Products are manufactured by a supplier and the company sells them
globally and advises on their application. The company was established in
1984 by its current owner, who is formally also the CEO. Daily operations are
in the hands of a general manager, who has been the main driver of the
strategy processes and the main contact during the research. The board
consists of three people, two external members and the CEO.
The founder of the company has a strong entrepreneurial profile with an
emphasis on sales. He has very ambitious growth targets for the company.
The general manager is an MBA by education and has been in charge of the
company since 2011 after a career in an international industrial company. In
this period the general manager has been working on establishing a strategy
process involving the board and the employees. For motivational and
organizational reasons the general managers sees a major need to substantiate
the ambitious growth objectives. There have been a couple of attempts to

identify and substantiate such a growth path but for various reasons this has
NOTES
failed. A recent reason was the challenging environment resulting in sudden
slowdown of sales in 2012, which meant a reduction in manning. Charlie has,
however, competitive products and a healthy financial situation.
Charlie learned about the business model from a network meeting in which
Alpha was present. This resulted in a dialogue between the management of
the company and the researcher in September 2013. At this time the general
manager was again trying to define its future strategy, but management felt
dissatisfied with some of the models in play. This included well known
concepts such as the 7S framework models, “big bang” models, generic
strategies, the value chain, the “hot spot model” etc. A major problem was the
nature of these models, which were too abstract, too complex or incomplete
and generally difficult to communicate in the limited time available.
In an attempt to break new ground and facilitate progress the business model
concept was applied. The depiction of the current business model was done
fast by the company itself. At this point, however, the process reached a point
of stagnation. The feeling was an absence of future orientation. After sharing
experience with Alpha and a meeting with the researcher in October 2013,
this process was restarted. The approach was similar to that of Alpha and
Bravo; change the format of the business model to a table-based spreadsheet
model. The swot model was included in the model. A formal process
involving the organization and the board was established. The organization
was involved in relatively short sessions addressing selected topics (e.g. sales,
marketing, and channels) of the business model. Each session was limited to 1
hr., but more sessions were possible for each topic. The purposes of the
sessions were to generate facts, objectives and options for activities. This
process revealed additional needs of information, such as a deeper
understanding of the actual performance of the company’s products (its value
proposition), new segments, potential conflicts in distribution channels and
possible risks.
In the process, the original canvas was gradually changed into a more
company specific model through further decomposition and changes of terms
and labels. A financial simulation model was developed simultaneously. This
enabled management to describe and compare possible, future (“to be”)

models with the current (“as is”) model to identify the major gaps. One future
business model was presented to the board (March 2014), including the major
gaps to be closed to realize this model. The board approved this approach
and the next decision point of preparing a 3 year plan. Eventually, the
organization was engaged in preparing this plan.
At this point (April 2014), however, the general manager decided to resign
following some disagreements with the owner. These disagreements were not
related to the business modeling process or the performance of the company,
which at this time was according to plan. Consequently, the owner decided to
take charge for a period, which has led to the roll back of some of the
initiatives due to a different management style. The former general manager
is, however, enthusiastic about the results of the process and continues to
work with the business model concepts in a new position.
10. What is Strategic Change?

11. What is Disruptive Innovation?
12. What is Corporate Social Responsibility?
13. What is strategic management?
14. What is disruptive innovation?
15. What is corporate social responsibility?
16. How attractive is the industry?
17. What is the cost of entry?
18. What is strategic planning?
19. What are the Key Elements Of SMEs Strategies
20. Explain in detail about the disruptive innovation.
21. Explain about the effective Change Management Strategies.
22. Explain how CSR helps to achieve corporate goals.
23. Explain about the competitive advantage to corporate
advantage.
24. Explain the Concepts of corporate strategy.
25. Explain about the strategic issues in public sector
26. What are the strategic issues facing by the NGO

27. Strategic issues in SMEs – explain in detail.
NOTES
28. Strategic Planning Process – explain.
29. Explain the variou Types of Non-Profit Organizations
Further Reading
1. Kachru Upendra (2005), Strategic Management- Concepts and Cases,

Excel Books, New Delhi.
2. John Pearce II and Richard B. Robinson Jr(1996), Strategic
Management, A.I.T.B.S, New Delhi
3. N.S. Gupta, Business Policy and Strategic Management, Himalaya
4. Fred R. David (2003), Strategic Management : Concepts and Cases,
Pearson Education, New Delhi.
5. Francis Cherunilam(2000),Strategic Management, Himalaya

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DIRECTORATE OF DISTANCE EDUCATION

SRM INSTITUTE OF SCIENCE AND TECHNOLOGY,

S.N NAME DESIGNATION ORGANISATION

Course Writer(s) Dr. E. NIXON AMIRTHARAJ

DIRECTORATE OF DISTANCE EDUCATION

OVERVIEW OF STRATEGIC MANAGEMENT

1.1 Introduction to strategic management

1.2 Phases of Strategic Management

1.3 Impact of globalization and its challenges to Strategic Management

1.4 Environmental Scanning

1.5 Process of Strategic Formulation

1.6 Mintzberg’s Models of strategic decision making

1.7 Responsibilities of the Board

1.8 Carroll’s Four Social Responsibilities of Business

ENVIRONMENTAL SCANNING AND INDUSTRY ANALYSIS

2.1 External Environmental analysis

2.2 Environmental Scanning

2.3 Identifying external strategic factors

2.4 Industry analysis: Porter’s approach to Industry analysis

2.5 Stake holder analysis & Non market strategy

2.6 Categorizing international industries

2.7 Strategic types

2.8 Competitive intelligence

2.9 Strategic audit

ORGANIZATIONAL ANALYSIS AND STRATEGY FORMULATION

3.1 Core and distinctive competencies

3.2 Competitive advantage and firm resources

3.3 Generic strategies and competitive advantage

3.4 Determining the substainability of an advantage

3.5 Dynamics of competitive advantage and value chain

3.6 Competing through business models

3.7 Value Chain Analysis

3.8 Industry value chain analysis

3.9 Scanning functional resources and capabilities

3.10 Corporate culture

3.11 Strategic Audit

3.13 TOWS Matrix

3.14 Business level strategies

3.15 Corporate strategies

3.16 Portfolio analysis

3.17 Corporate parenting

3.18 Functional strategies

3.19 Strategic choice

3.20 Grand strategy

STRATEGY IMPLEMENTATION, EVALUATION AND CONTROL

4.1 Strategy Implementation

4.2 Process of implementation

4.4 Process of evaluation and control

4.5 Types of controls

4.6 Techniques of controls

4.7 Strategic Information systems

4.8 Corporate Governance and Corporate Ethics

STRATEGIC CHANGE AND INNOVATION

5.1 Strategic Change

5.2 Disruptive Innovation

5.3 Corporate Social Responsibility

5.4 Competitive advantage to Corporate advantage

5.5 Integrative analysis