STRATEGIC MANAGEMENT 1

NANJIL CATHOLIC COLLEGE OF ARTS AND SCIENCE

KALIYAKKAVILAI
Accredited by NAAC with ‘B’ Grade
Department of Business Administration

UNIT – 2
STRATEGY FORMULATION
MISSION
A mission is a reason why an organization exists, dealing with what it does, and why it does. It
talks about the present such as where we are, how we compete, and what makes us different
leading to the future.
In short, a vision is the future of the organization and a mission is the means how to get the
future of the organization i.e. vision.
The mission statement clarifies the scope and objectives of the business. The statement should
deal with four concerns – how to serve customers, how to manage employees, how to increase
shareholders’ return, and how to support the community not extending the words 250. It reflects
the business’s special niche.
The strategic mission is more concrete than the strategic vision. The mission should be defined
alongside the vision in strategic management. The organization’s mission is founded on its
vision. It defines the industry in which the company plans to compete and service clients.
Like the vision statement, it should define the firm’s uniqueness and be motivating and relevant
to all stakeholders. The strategies should be built on the foundation of the vision and mission.

 “Mission is the unique purpose that sets a company apart from others of its types and
identifies the scope of its operations in product, market, and technology terms.” – Pearce
and Robinson
 “An organization’s mission is the purpose or reason for the organization’s existence.” –
Wheelen and Hunger

A significant number of people should be involved in formulating the strategic mission statement
by the CEO and other top-level management. The fundamental reason for this is that the mission
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has a more direct touch with product markets and consumers, and middle and first-level
managers and other staff have more direct contact with customers and markets.

EXAMPLES OF MISSION STATEMENTS

In simple words, the mission is the sum of products and activities an organization produces and
does to serve its customers and strengthen its position to ultimately support the vision. Some
examples of missions are presented below:

Company Mission

CIT was established in order to expand

investment
opportunities by encouraging the general
public to save
capital and bring dynamism to the
development of
Citizen Investment Trust (CIT) capital market in Nepal.

Be the first employer for our people in each

community
around the world and deliver operational
excellence to
McDonald’s our customers in each of our restaurants.

To refresh the world in mind, body, and

spirit. To inspire
moments of optimism and happiness through
our brands
and actions. To create value and make a
Coca Cola difference.

Facebook To give people the power to share and make

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the world
more open and connected.

To enable people and businesses throughout

the world to
Microsoft realize their full potential.

Toyota will lead the way to the future of

mobility, enriching
lives around the world with the safest and
most responsible
Toyota ways of moving people.

A mission statement reflects the expectations of stakeholders. It makes a difference to others. It

can be redefined if it loses its relevance.

FORMULATION OF MISSION STATEMENT

a) Define the Purpose: It shows why the organization exists. It should be crafted to

communicate the purpose of the organization in terms of market, product, and

stakeholders.
b) Make it Broad in Scope: The scope of an organization is determined by its mission. It

answers the question, “What is our business?” In other words, it clarifies the company’s
product and market. It also serves as a foundation for the development of objectives and
strategies. As a result, it should include every key component of the business.
c) Precise: It should be presented in a precise way. Normally, it includes not more than 250
words.
d) Inspiring: It should be inspiring to all stakeholders so that they rigorously contribute to

the organization.
e) Distinctive: It should be different from other organizations. It should build a unique
image than others.
The following are the important considerations to formulate an effective mission statement.
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 All managers, from the top to the bottom, should be involved in the mission development
process. It increases employee loyalty to the company. It makes the strategy formulation
and implementation easier.
 The managers should be asked to review related literature on the statements and craft a
mission statement for the organization.
 The statements prepared by different managers should be merged into a single document
and distributed the draft statements to all managers.
 A meeting of the managers is held for modifications, additions, and deletions if needed
and to revise the document.
 As previously said, employee and manager involvement and support enhance strategy
creation, implementation, and evaluation activities. As a result, the creation of a mission
statement allows strategists to gain the necessary support from all employees and
managers.
 To update and amend the existing statement, several organizations use group discussions.
To help manage the process and design the language, an outside consultant or facilitator
may be employed.
 After the preparation of the statement, decisions must be made about how to
communicate it to all management, employees, and external stakeholders. A manager
should communicate with all employees and external stakeholders in a clear and
intelligible manner.

OBJECTIVES
The objective is the target that is set to accomplish the organization’s vision and mission. It is the
expected outcome of the organization.
Determining objectives is an integral part of strategic management. They translate the strategic
vision into concrete performance objectives. The managerial commitment to performance
attainment is demonstrated by objectives.
They are, in other words, the end product of planned effort. Every organization was formed with
the intention of achieving specific objectives. As a result, organizational activities are geared

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toward achieving them. Long-term and short-term objectives can both be set. They can also be
expressed at several levels, such as corporate, business, operational, and individual.
An organization’s objective gives it direction. It also establishes coordination and establishes the
priority of organizational actions. The organizational stakeholders’ interests are reflected in the
objectives.
 “Objectives are end results of planned activity.” – Wheelen and Hunger
 “Objectives can be defined as specific results that an organization seeks to achieve in
pursuing its basic mission.” – David

COMPONENTS OF OBJECTIVES
Objectives are the expected end results of the organization over a certain period of time.
Following are the main components or features of an effective objective.
i) Specific
An objective must be specific. A specific objective can be understood very easily. For
example, the objective “Revise website based on client feedback” isn’t very specific.
“Change to new color scheme and headers” of the website is more specific.
ii) Measurable
An objective should be clearly measurable, if it is not measurable, it cannot be
accomplished. For example, objectives like “make sales calls” are not measurable.
However, the measurable objective would be “make 10 new calls per day”.
iii) Achievable
It must be achievable in a given period of time. It means objectives should be set with
due consideration of the organizational resources and capability.
For example, for a local business to expand globally within a limited time would not be
achievable. However, increasing its market share in the local area by 20% would be
achievable.
iv) Realistic
An objective must be based on reality. For it to be realistic, it needs to be something that
the business actually does. To be realistic, it should be based on the organizational as
well as external situations.
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v) Timely
An objective must cover a certain period of time. For example, increasing sales by 20% is
not timely. However, increasing sales by 20% over the period of 1 year is timely.
vi) Motivating
People are the most important resource of an organization. Their activities largely
determine the achievement of objectives. Hence, the objective should be such that
motivates the people in the organization.
vii) Flexible
Objectives should be able to address the changes in the firm’s environment. For this, it
should be flexible. In other words, the objective must have sufficient ground for
adjustment to the changes in the environment.
viii) Hierarchical
An objective should be hierarchical. For this, It should be set for different levels of an
organization. They are corporate level, business level, functional level, and individual
level.
ix) Congruent Across Departments
Objectives should be congruent across different departments and units of an organization.
It helps to bring synergy and remove unnecessary conflicts between the departments.

LEVELS OF OBJECTIVES
An organization has different levels. Objectives are formulated for each level. On the basis of the
level of organization, objectives may be classified into the following.
1. Corporate Level
The objective that sets the desired outcome of the whole organization is called the corporate
level objective. This is the top management decision that provides the overall direction of the
organization. It is derived from the vision and mission statement of the organization.
2. Business Level
The business-level objective is set for a particular strategic business unit. More simply, the
desired outcome of a particular strategic business unit within a certain period is called business

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level objective. It is more related to how to achieve a competitive advantage, product/service

scope, diversification, and search for business opportunities.
3. Functional Level
A firm has various functional units that perform various functions. The functional level
objectives are set for each function. Production, marketing, finance, human resources, research,
and development are all part of these objectives.
They are short-term objectives that are critical to the strategy’s implementation. They are
concerned with cost reduction, market expansion, customer happiness, fund acquisition, human
resource development, new product creation, and sales promotion.
4. Individual Level
The objectives that are set for the individual employee of a business are called individual-level
objectives. They are basically related to the performance of employees within a certain period of
time say daily, weekly, and monthly.
These objectives are derived from the functional objectives. They are mainly related to the
output and sales of employees.

Levels of Objectives Examples

Organization
Corporate level Corporate – Increasing Shareholder return.
objectives – Diversification of business.
– Achieving synergy.
– Improving corporate citizenship.
Business-unit level Business-unit – Double-digit annual earnings growth.
objectives – Improving the quality of products.
– Expanding market share.
– Employee development.
Functional Functional – Increasing profits on Brand-A by 10% during the
level/departmental objectives year.
level – Expansion of market share %5 during the year.

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Operating level Operating – Adding 20 more salespeople in the northern sales

objectives territory
– An increasing number of dealers in the southern
sales territory by 30 percent

ROLE OF OBJECTIVE IN STRATEGIC MANAGEMENT

Determination of objectives is an integral part of strategic management. They convert the
strategic vision into specific performance targets. Following are some points to show the
importance of objectives in strategic management.

 Objectives define the relationship of the organization with the environment. They reveal
the contribution and responsibility of the organization towards customers, employees, and
society.
 Objectives show the relevance of the vision and mission of the organization.
 Objectives provide direction to the organization and aid in performance evaluation.
 They reveal priorities and focus coordination.
 They provide a basis for effective planning, organizing, motivating, and controlling
activities.
 They provide the base of strategic decision-making.
 They provide foundations for the development of work standards.
 Effective objectives help develop the distinctiveness and existence of an organization and
enhance organizational attractiveness.

CLASSIFICATION/TYPES OF OBJECTIVE
The types of objectives may also be classified into financial, strategic, short-term, and long-term
objectives.
1. Financial Objectives
Financial objectives are related to financial performance targets, they are expressed in
quantitative terms, set for usually one year, and are supportive of strategic objectives.

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Financial performance is a must for the long-term growth and survival of an organization. Low
profitability and weak balance sheet alarm the stakeholders mainly shareholders and creditors.
They also risk the jobs of shareholders. The financial objectives include the following.
 Annual percentage increase in sales
 Annual percentage increase in after-tax profit
 Annual percentage increase in earnings per share
 Percentage return on capital employed or equity
 Sufficient cash flow
Developing financial objectives is a decentralized process. Managers can acquire acceptance and
commitment by actively participating in the development of financial objectives. The distribution
of resources is based on financial objectives.
They also serve as a benchmark for measuring manager performance. They serve as a tool for
tracking progress toward reaching strategic objectives.
2. Strategic Objectives
Strategic objectives are an organization’s long-term goals, usually greater than five years. They
have to do with increasing market power, competitiveness, and future company opportunities.
They are also expressed in qualitative terms, unlike financial objectives. They have a broad
scope and contribute to the overall vision.
The strategic objective includes the following.
 Percentage increase in market share
 Achieving lower overall cost than the competitors
 Achieving technological leadership
 Superior product performance or quality or customer service
There must be a trade-off between financial and strategic objectives when crucial decisions are
made. In some cases, short-term financial objectives would harm long-term strategic objectives.
For example, improving the financial condition in the short run through higher prices may
threaten long-term market share.

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3. Short-Term and Long-Term Objectives

Each division and the entire corporation have its own number of objectives. Long-term is defined
as more than a year. As a result, long-term objectives refer to an organization’s desired
achievements over a one-year period.
Short-term objectives are those with a life span of less than a year. They are insufficient to
achieve long-term profitability and growth. Strategic managers commonly establish long-term
objectives in seven areas.
 Profitability – Earning per share or return on equity.
 Productivity – Number of items produced or a number of services rendered per unit of
output.
 Competitive Position – Sales amount/ quantity or sales growth.
 Employee Development – Increase in productivity or decrease in turnover.
 Employee Relations – Create a vibrant working environment.
 Technological Leadership – Innovation in product and process.
 Public Responsibility – Charitable and educational contribution, minority training,
public or political activity, community welfare, urban revitalization.
Annual objectives are another word for short-term objectives. Annual objectives are short-term
goals that businesses must meet in order to accomplish long-term objectives. Management,
marketing, finance/accounting, production/operations, research and development, and
management information systems (MIS) accomplishments are all listed in the annual objectives.
Annual objectives are particularly significant in strategy implementation, although long-term
objectives are crucial in strategy creation. Annual objectives serve as the foundation for resource
allocation.

GOALS
Organisations are established and operated to achieve common goal. Goal may be termed as
target and objective. There is a difference between goal and purpose. Purpose generally
determines the reasons for existence of an organization. Organizational goal refers to target point
or end result that an organization attempts to realize in specific future time. Without
organizational goal organizations may not have meaningful existence. Therefore goal setting is
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important and primary function of the organizations. In short, organizational goal is the future
destination point or result which an organization attempts to achieve.
“Goal is desired future state of affairs.” – V.H.Vroom

PURPOSE OF ORGANIZATIONAL GOALS

Here, purpose of organizational goal determines reasons for setting and existence of
organizational goal.
1. Guidelines of action
Organizational goals provide guidelines for accomplishing tasks in future. Goals can be basis
for performance evolution. Moreover organizational goal has purpose of providing guidance
to direct to perform the activities.
2. Formulation of plan
Plan refers to roadmap of achieving the goals. Goals can be useful to formulate plans because
goal is important basis of plan formulation. If there is specific and proper plan, decision
making and resource allocation may be done properly with the basis of proper goal.
3. Source of employee motivation
Employee motivation is one of the important factors for organizational success.
Organizational goal play vital role to motivate employees. Specific acceptable, realistic and
challenging goal may effectively motivate the capable and skilled employees. Employee’s
motivation therefore, is another purpose of goal.
4. Evaluation and control
On the basis of organizational goal, we categorize an organization as business, service,
commonweal or mutual benefit organization. Therefore goal provides distinct image and
identity to the organizations.

TYPES OF ORGANIZATIONAL GOALS

Organizational goals can be classified into various types on different bases. Some important
bases and types are as below:

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1. On the basis of nature of organization

There is various nature of organization in practice; different organizations have different
goals that can be presented as below:
a) Profit earning

Profit earning is important goal of business organization. Business that goes to losses can
no longer exist. Profit is also needed for survival growth and expansion of business.
b) Service/ Welfare providing

Service organizations raise funds as donation. They have goals of providing service to
specific clients. Common weal organizations obtain funds from government. They set
goal of providing welfare to general public at large number.
c) Protecting and promising interest
Mutual benefit organizations establish and operate their activities with the goal protecting
and promoting member’s interest and needs.
The above are some major goals of particular types of organizations. The organizations
have only single goal as above. They may have various and multiple goals. All the types
of organizations may have goals of survival, growth and long run existence. Similarly,
they need to improve efficiency, effective leadership and fulfillment of social
responsibility.
2. On the basis of level of organization
a) Strategic or corporate goal

Strategic goal is related to top level management of an organization. Top level managers
determine strategic/corporate goals by analyzing changes and effects of environment.
Corporate goals are the goals that determined to achieve within atleast five years and
more time period.
Formulation of vision and mission statements is important tasks for formulating strategic
plan. Vision shows basic philosophy of organization and mission specific reasons for
existence of an organization. In short, formulation of strategic goal consists of following
important features;
 Top manager’s involvement

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 Formulating vision and mission statements

 Analyzing environmental changes and development and finding out the effects
 Formulating strategy and setting goals for at least five years

Top level managers should carefully analyze internal as well as external environment
forces. Top management may involve in determining rate of return on investment
research and development, product differentiation, organizational expansion, resource
allocation, etc. on the words, for these things strategic or corporate goal is essential.
b) Tactical goals

Tactical goals are formulated by middle level managers like production manager, finance
manager, marketing manager and human resource manager for their perspective
departments. In other words, tactical goals are department goals. These goals are
formulated on the basis of strategic goal. Therefore tactical goal supports strategic goal.
Strategic goal focuses goal for atleast one year and more.
c) Operational goal
Operational goals are formulated by operational level managers like unit heads and
supervisors. It is formulated on the basis of tactical goal. Operational goal sets target of
daily, weekly, monthly, quarterly works. It works as basis for preparing working schedule
and assigning works as well as resources to the groups, teams and individuals.
3. On the basis of time
a) Long term goal

Long term goal specifies vision, mission, goal for five years or more and strategy. Top
level managers set long term goal of an organization. Five years or more time of
achieving goal is a long time period here.
b) Mid-term goal

Mid-term goal is goal of one year or more. Middle level managers set mid-term goals.
These are departmental goals. Production, finance, marketing, human resource
management departments set mid-term goals.

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c) Short term goal

Short term goal is goal of at most one year time period. It is formulated by unit heads and
supervisors. They formulated short term goal on the basis of mid-term goal.

FEATURES OF EFFECTIVE ORGANIZATIONAL GOALS

1. Specific
Goals should not be unclear, vague or abstract. It will be difficult to understand vague and
abstract goal. Goal should be clear and specific. For examples, goal of getting higher return
on investment is vague and unclear. Goal of getting 10% return on investment is specific and
clear.
2. Measurable
Goals should be measurable in quantitative term like cost, time, standard level of quality,
quantity, distance, etc. Measurable goal may be helpful for evaluation and control purpose.
For example, goal of getting higher profit is not measurable but goal of getting 25% profit is
measurable in terms of quantity (percentage).
3. Acceptable
Goals should be acceptable for the related parties. Especially it should be agreed by the
employees who actually take part in implementation for achieving it. Employees may not
honestly accomplish the task for achieving unacceptable goals. For sometimes, management
may determine goal for cost reduction that can reduce employee’s facilities then they don’t
accept it to go into implementation.
4. Realistic
Goals should be suited to the ground reality of organization. Goal should be formulated on
the basis of available resources of organization. In other words, goals should be achievable as
much as possible. For example, increasing 200% sales is not achievable but 15% is
achievable.
5. Time
Goals should be time linked. There should be specific time period of achievable goals. For
example, goal of increasing profit by 20% in 2 years has specific time period to achieve.

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ENVIRONMENT SCANNING
An environment should be scanned to determine forecasts and growth of the factors that
influence an organisation’s success. As a result, during the strategy formulation, the organisation
should try to minimise threats and gain from the opportunities. Moreover, this must be noted that
a threat for one can be an opportunity for the other.
Environmental scanning in strategic management has 3 approaches:
 Systematic approach
 Ad-hoc approach
 Processed approach

However, in a large company employees are hired who research the market changes and inform
the top management. This step helps the organisation to make important decisions about the
future. Efforts for environmental scanning in strategic management can be as follows:
 Market research and planning
 Compare the performance with the competitors
 Analysing and interpreting the demographic data
 Collecting information about the trends
 Learning from the higher executives

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COMPONENTS OF ENVIRONMENTAL SCANNING IN STRATEGIC

MANAGEMENT
The environment of business is divided into two parts namely, external and internal environment.
However, there are various components related to both environments which can be studied
further.
1. Internal environment
2. External environment
 Micro-environment
 Macro-environment

Internal Environment
Firstly being an example of environmental scanning in strategic management is internal analysis.
They lie inside the organisation and impacts the performance of the company as a whole. This
involves understanding and interpreting different resources like human resources( employee
relation with management & other employees, management with shareholders, brand awareness),
capital, technological, culture, objectives, corporate structure, value system, labour union etc. As
a result, the internal analysis identifies weaknesses and strengths within the company.
External Environment
Now, the external environment talks about the outside walls of the company. As competition
adds up, the external environment becomes dynamic and plays a crucial role in long term plans.

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The factors are infinite therefore the organisation should be vigilant and adjust according to the
changes. Strategic managers must focus on the present state and future positions.
Micro-Environment
Micro refers to the individual company atmosphere which can be controlled up to one extent
affecting it externally. However, the factors included in the micro sector includes suppliers,
organisation, market, competitors, industry, consumers, etc.
Macro-Environment
Macro indicates the environmental scanning example of the factors which are not under the
control of the company. This sector includes demographical, political, economic, technological,
cultural, environment, etc.

IMPORTANCE OF ENVIRONMENTAL SCANNING

Optimize Resources
Environmental scanning in strategic management results in making correct use of resources like
capital, natural and human. This step limits the wastage of the resources and ensures optimum
utilisation so that they can be saved for the future.

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Growth and Survival

By exploiting the environment with the help of SWOT analysis, an organisation can take
the first-mover advantage; study the competitor’s step, etc. therefore resulting in business
survival and growth.
Identifies Strengths and Weaknesses
Strengths depict the advantage area which acts as the power of the business. They must strive to
make improvements through various strategies and by building immediate plans. Also, the
limitations of the firm are noticed by searching for weaknesses. Therefore, a firm focus on the
area to stop the expansion and correct them.
Identifies Opportunities and Threats
Research of the market is done to find information and gaps where the company can benefit.
Therefore after identifying opportunities, the company should grab them by proper analysing.
Environmental scanning example helps to detect the threats and eliminate the risk if cured on
time.
Long Term Strategy Formation
When the information is gathered and trends are known, the business tries to formulate the
strategies that help in the long run. As a result, environmental scanning in strategic management
enables the organisation to build efficient plans and policies.
Productive Decision-Making
Decision making is a term that depicts choosing the best among the various alternatives
available. Moreover, an example of environmental scanning in strategic management aids the
senior management to take crucial company’s decisions by taking into consideration all the
factors and keeping in mind the success of the organization.

PROCESS OF ENVIRONMENTAL SCANNING IN STRATEGIC MANAGEMENT

Choosing Personnel
Commonly termed as the EAU (Environmental Analysis Unit) is a set of chosen people who
focus on the analysis and deliver the results to strategists. However, it’s not always necessary to
have an extra section for the research work but a special task force is established as mentioned.

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Trigger
The term refers to the event that tends the industry to start with the changes or a desire for data.
The factors can be outside or inside the organisation like a change in government policy. As a
result, managers take environment studies seriously.
On-Going Study
Ongoing study of the environment refers to the greater environment coverage. Making analysis
limited leaves few areas leaving the scope of potential spots. However, ongoing research locates
better and existing impact of the organisation. Furthermore, the technique serves as the
complementary source of informal scanning.
Data Collection
After choosing the path, the information is gathered relating to the specific strategy chosen
which may include all the factors affecting the analysis. Also, the analysis should not be made on
the whims of higher-level management but rather going through the proper analysis and data
interpretation.
Strategic Decisions
This step involves the decision making which should be made by the specified groups plus the
people working closely in the area of environmental scanning in strategic management. The
employees responsible for strategic decisions must make a contact to ensure better performance.
Also, the changes may be needed and fluctuate with time. Therefore the awareness of
environmental factors is required constantly.

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TECHNIQUES OF ENVIRONMENTAL SCANNING

According to environmental scanning in strategic management, new strategies are made to take
the benefit of the opportunities in the future. As a result, different techniques are used for
environmental scanning which is as follows:

Research
Environmental scanning in strategic management is followed to know about the recent trends so
that the exploitation of the opportunities can be done. As a result, to reduce the impacts, strategic
steps can be taken. However, research is termed as the old method yet a different department
named R&D is established for the purpose to find information about the market.
SWOT Analysis
The term SWOT stands for strengths, weakness, opportunity, and threat. This kind of technique
helps the organisation to conduct an internal analysis of its strengths and weaknesses.
Furthermore, it becomes significant to know about the company’s project planning and
competition. This method aids in identifying the factors which can support the achievement of
organisational goals.
PEST/PESTEL/PESTLE Analysis
This type of analysis is executed to know about the macro-environment. Therefore, here the term
denotes political, economic, technological, legal, social and environmental. Although these
factors are not under the control of the company, still it can be prepared for the impact the factors
may cause.

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Environmental Scanning example states, change in employment laws, tax policy etc can be
regarded as the political factors which impact the business.
Analysis of the Industry
There are various company’s prevailing in the industry which can be either indirect or direct
competitors which exist in the category of the microenvironment. As a result, to beat the
competition environmental scanning in strategic management is conducted (like knowing the
trade secrets) to make the strategies.
Delphi Method
Environmental scanning in strategic management includes forecasting the state of the future and
therefore includes statistical methods. In the Delphi technique, the experts from the internal and
external rankings from wide but related fields are asked to fill a questionnaire regarding the
problem. The summary is again reviewed and then used to forecast the strategies to be made.
Brainstorming
The process is conducted where the participants open up with ideas. They are encouraged to be
innovative and think about the situation in different ways which are then analysed according to
the view of benefits, implications and costs.
Benchmarking
Environmental scanning in strategic management through benchmarking explains setting up
standards or an option is chosen by any competitor/individual. If a competitor company
manufactures the same product hierarchy with less price then the leading company should learn
the concepts ( like tear down or value engineering) and apply them. An example of
environmental scanning who learned from benchmarking, Xerox Corporation.

EXAMPLE OF ENVIRONMENTAL SCANNING IN STRATEGIC MANAGEMENT

Environmental scanning example includes various ideas of the real-time who researched and
gained by evaluating the market.
 PepsiCo planned to shift its investment in functional and healthier foods by observing the
demand among the customers moving towards healthy habits. Also, customers are
reluctant to use fast food, knowledge of which was gained through market research. As a

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result, the company collaborated with different food companies to avail them of healthy
beverages and food.
 Microsoft works on R&D (research and development) to keep itself updated with the
trends in mobile devices and software. Firstly, the company started with rooting in
software for mobile PCS and desktops along with which it produced devices like pads
and phones to expand its global reach.

SWOT ANALYSIS
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. By definition,
Strengths (S) and Weaknesses (W) are considered to be internal factors over which you have
some measure of control and Opportunities (O) and Threats (T) are considered to be external
factors over which you have essentially no control.

SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic position
of the business and its environment. Its key purpose is to identify the strategies that will create a
firm specific business model that will best align an organization’s resources and capabilities to
the requirements of the environment in which the firm operates. In other words, it is the
foundation for evaluating the internal potential and limitations and the probable/likely
opportunities and threats from the external environment. It views all positive and negative factors
inside and outside the firm that affect the success. A consistent study of the environment in
which the firm operates helps in forecasting/predicting the changing trends and also helps in
including them in the decision-making process of the organization.

An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given
below-
1. Strengths - Strengths are the qualities that enable us to accomplish the organization’s
mission. These are the basis on which continued success can be made and
continued/sustained. Strengths can be either tangible or intangible. These are what you are
well-versed in or what you have expertise in, the traits and qualities your employees possess

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(individually and as a team) and the distinct features that give your organization its
consistency.

Strengths are the beneficial aspects of the organization or the capabilities of an organization,
which includes human competencies, process capabilities, financial resources, products and
services, customer goodwill and brand loyalty. Examples of organizational strengths are huge
financial resources, broad product line, no debt, committed employees, etc.

2. Weaknesses - Weaknesses are the qualities that prevent us from accomplishing our mission
and achieving our full potential. These weaknesses deteriorate influences on the
organizational success and growth. Weaknesses are the factors which do not meet the
standards we feel they should meet.

Weaknesses in an organization may be depreciating machinery, insufficient research and

development facilities, narrow product range, poor decision-making, etc. Weaknesses are
controllable. They must be minimized and eliminated. For instance - to overcome obsolete
machinery, new machinery can be purchased. Other examples of organizational weaknesses
are huge debts, high employee turnover, complex decision making process, narrow product
range, large wastage of raw materials, etc.

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3. Opportunities - Opportunities are presented by the environment within which our

organization operates. These arise when an organization can take benefit of conditions in its
environment to plan and execute strategies that enable it to become more profitable.
Organizations can gain competitive advantage by making use of opportunities.

Organization should be careful and recognize the opportunities and grasp them whenever
they arise. Selecting the targets, that will best serve the clients while getting desired results is
a difficult task. Opportunities may arise from market, competition, industry/government and
technology. Increasing demand for telecommunications accompanied by deregulation is a
great opportunity for new firms to enter telecom sector and compete with existing firms for
revenue.

4. Threats - Threats arise when conditions in external environment jeopardize the reliability
and profitability of the organization’s business. They compound the vulnerability when they
relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and
survival can be at stake. Examples of threats are - unrest among employees; ever changing
technology; increasing competition leading to excess capacity, price wars and reducing
industry profits; etc.

Advantages

SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but it
involves a great subjective element. It is best when used as a guide, and not as a prescription.
Successful businesses build on their strengths, correct their weakness and protect against internal
weaknesses and external threats. They also keep a watch on their overall business environment
and recognize and exploit new opportunities faster than its competitors.

SWOT Analysis helps in strategic planning in following manner-

a. It is a source of information for strategic planning.
b. Builds organization’s strengths.
c. Reverse its weaknesses.
d. Maximize its response to opportunities.

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e. Overcome organization’s threats.

f. It helps in identifying core competencies of the firm.
g. It helps in setting of objectives for strategic planning.
h. It helps in knowing past, present and future so that by using past and current data,
future plans can be chalked out.

SWOT Analysis provide information that helps in synchronizing the firm’s resources and
capabilities with the competitive environment in which the firm operates.

SWOT ANALYSIS FRAMEWORK

Limitations

SWOT Analysis is not free from its limitations. It may cause organizations to view
circumstances as very simple because of which the organizations might overlook certain key
strategic contact which may occur. Moreover, categorizing aspects as strengths, weaknesses,
opportunities and threats might be very subjective as there is great degree of uncertainty in
market. SWOT does stress upon the significance of these four aspects, but it does not tell how an
organization can identify these aspects for itself.
There are certain limitations of SWOT Analysis which are not in control of management. These
include-
a. Price increase;
b. Inputs/raw materials;
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c. Government legislation;
d. Economic environment;
e. Searching a new market for the product which is not having overseas market due to
import restrictions; etc.

Internal limitations may include-

a. Insufficient research and development facilities;
b. Faulty products due to poor quality control;
c. Poor industrial relations;
d. Lack of skilled and efficient labour; etc

ETOP ANALYSIS

ETOP (Environment Threat and Opportunity Profile) analysis is the process by which
organization monitor their relevant environment to identify opportunities and threats affecting
their business for the purpose of taking strategic decisions.
ENVIRONMENTAL THREAT AND OPPORTUNITY PROFILE [ETOP]
There are many techniques available for environmental appraisal (assessment), one such
technique suggested by Glueck is ETOP. The preparation of ETOP involves dividing the
environment into different sectors & then analyzing the impact of each sector on the
organization. The preparation of an ETOP provides a clear picture to the strategists about which
sectors & the different factors in each sector have a favorable impact on the organization.
By the means of an ETOP, the organization knows where it ne stands with respect to its
environment. Obviously, such an understanding can be of a great help to an organizations in
formulating strategies to take advantage of the opportunities & counter the threats in its
environment.
MEANING
ETOP is a device that considers environmental information & determines the relative impact of
threats & opportunities for the systematic evaluation of environmental scanning. ETOP is an
environmental analysis results in a mass of information expectations. Structuring of
environmental issues is necessary to make them meaning full of strategy related to forces in the

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environment. They deal with events, trends, issues & formulation. In short, it is a technique to
structure environmental issues.
It is the process by which organizations monitor their relevant environment to identify
opportunities & threats affecting their business for p purpose of taking strategic decision.
WHY ETOP?
 Helps organization to identify opportunities and threats
 To consolidate and strengthen organization’s position
 Provides the strategists of which sectors have a favorable impact on the organization.
 Helps organization knows where its stands with respect to its environment.
 Helps in formulating appropriate strategy.
 Helps in formulating SWOT analysis.

PREPARING ETOP
 Dividing the environment in different sector
 Analyzing the impact of each sector on the organization.
 Subdividing each environmental sector into sub factor.
 Impact of each sub sector on organization in form of a statement.

ETOP, PROFILE INVOLVES

The profile is a technique of environment analysis was organizations make of profile of their
external environment. ETOP analysis provides information about environment threats &
opportunities & their impact on strategic opportunities for the company. The profile contains
mainly 3 issues, they are
1) Forecasting: Forecasting means predicting the future events & analyzing their impact on
present plans business organizations analyze the environment but applying various
techniques to forecast government is used to formulate business plans & strategies.
2) Verbal Written information: Verbal information is collected but hearing & written
information is collected by reading articles, journals, newspaper, newsletters etc..,
common sources of information are radio, television, workforce, outsiders. It informs

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changes in the environment & prepares business organization to incorporate than in their
business plans & strategies.
3) Management Information System [MIS]: It is a formal method of making available to
management to management the accurate & timely information necessary to facilitate the
decision making proceeds & enable the organization planning, control & operational
functions to be carried out effectively. It helps in making decisions based on future
environment.
The profile involves,- Environment, Threats & Opportunities Profile
A. ENVIRONMENTAL FACTORS
It presents the impact of each environmental factor like economic, political & social on the
organization. The important factors are as follows,
a) Economic factors:
 General economic condition.
 Rate of inflation.
 nterest rate/Exchange rate
b) Technological factors:
 Source of technology.
 Technological development.
 Impact of technology
c) Socio cultural factors:
 Demographic characteristics.
 Social attitudes.
 Education level, awareness, and consciousness of rights.
d) Environmental factors:
 Weather change
 Climatic change.
 Demand related factors.
 Suppliers related factors.
e) Political factors:
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 Political system.
 Political structure, its goals and stability.
 Government policies, degree of intervention
f) Legal factors:
 Policies related to licensing, monopolies.
 Policies related to export and import.
 Policies related to distribution and pricing.
Sl.No FACTORS COULD INVLOVE
1. Political international trade taxation policy
2. Economic interest rates, exchange rates, national income, inflation,
unemployment, Stock Market
3. Social ageing population, attitudes to work, income distribution
4. Technological innovation, new product development, rate of technological
obsolescence
5. Environmental global warming, environmental issues
6. Legal competition law, health and safety, employment law

B. THREAT MATRIX
The threats restrain them from entering into new business lines

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C. OPPURINITY MATRIX
The opportunity of the firm indicates new lines of the business.

ADVANTAGES
 Help to determine the key factor of threats and opportunities.
 Good tool to qualify the factors related to company’s strategy.
 Can consider many factors for each special case.
 It provides a clear of which sector & subsectors have favorable impact on the
organization.
 It helps to interpret the result of environmental analysis.
 The organization can assess its competitive position.
 Appropriate strategies can be formulated to take advantage of opportunities & counter the
threat.
DISADVANTAGES
 It doesn’t show the interaction between the factors.
 It can’t reflect the dynamic environment.
 It’s a subjective analysis tool
EXAMPLE: MILLIPORE COMPANY LTD, India
ABOUT MILLIPORE
Millipore is a multinational company, high technology, Bioscience Company that provides
technologies, tools and services for the development and production of new therapeutic drugs.
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The company, headquartered in Bedford, England. It serves the worldwide life science research,
biotechnology and pharmaceutical industries. In India its subsidiary company was located in
Bangalore.
MILLIPORE PRODUCT LINE
Life science, Drug discovery, Sample preparations, Lab water, Process development, Bio
production, & Process monitoring.
ETOP – Profile of the company
A] Environmental factor
Sl.No Factors Nature of Impact Impact of each sector
1. Economic  Fluctuation in exchange rate
 Increasing rate of inflation
 Worsening economic conditions
2. Technological  Market Leaders
 Strong R&D program
 Better solution providers
 New “ Intergral”-2008
3. Political No significant change.
4. Legal  Following FCPA (Foreign corrupt
practices act).
 Strict IPR laws – No poaching
5. Socio cultural No significance change
6. Competitive Competition particularly from low priced
products.
7. Demand related  Downfall in demand due to low priced
products.
 Containment of rising healthcare cost.
8. Governmental No excise duty, only vat for product
policies manufactured in India

- up arrows indicate favorable impact

- horizontal arrows indicate a neutral impact
- Down arrows indicate unfavorable impacts

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B] Threat Matrix
1} Competition particularly from low priced 1} IPR laws are not so strong in INDIA.
products. 2}Switching over form process patent to
2} Concentration majorly on big Fishes. product patent
3} Patent law not well defined
1} Expensive products. 1}Lack of geographical division (remote
2} Bad rapport with customers (unsatisfied areas).
customer). 2} Poor dealer network.
3} Low investment in marketing.

C] Opportunity Matrix
1} Market leaders – brand value and brand 1} Provide customized protocol support.
awareness. 2} Dedicated service team. (Toll Free
2} Special offers with OEM’s. (Agilent). numbers).
1} Large installation base. 1} Saturation point of market is far away
2} New low budget product lines. 2} New markets are opening.

VALUE CHAIN ANALYSIS

The value chain analysis system is one of the most important Strategic Management Models for
analyzing a company situation. Value chain analysis in strategic management is undertaken to
evaluate a company’s value chain elements. In this article, we analyze the value chain as a tool
for a business firm’s situation analysis. However, it would help if you remembered that value
chain analysis helps identify each element of the firm’s value chain’s strengths and weaknesses.
It cannot be used to identify external opportunities and threats.
The concept of value chain analysis has been polarized by Michael Porter (his most popular five
forces model). He has termed it a useful tool for analyzing a business unit and assessing the
unit’s competencies. The value chain analysis makes available a disaggregated view of a firm.
When you have a disaggregated view of your firm, you can diagnose the firm’s strengths and
weaknesses for each element of the firm’s value chain. Michael Porter’s Value chain analysis is a
methodical way of inspecting the sequence of activities a firm performs to provide a product to
its customers. Every factory can be watched as a collection of value events that are executed to
produce, design, market, and deliver its activities. The value chain of a firm consists of the firm’s

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primary and support activities. A firm’s value chain identities the primary activities that create
value for customers and the related support activities that enhance primary activities’
performance. In a manufacturing firm, the chain of value-creating activities starts with the
procurement of raw materials. It continues through manufacturing, assembly, wholesale
distribution, and retailing to the ultimate end-users of the product or service.
Primary Activities in Value Chain Analysis:

The value chain analysis’s primary activities are involved in the physical creation of a product,
its distribution and marketing, and the after-sales service related to the product. The primary
activities are inbound logistics, operations/production, outbound logistics, marketing, and
services. Such as:
 Inbound logistics are those that are associated with receiving, storing, and handling inputs to
the production process. These include material handling, storing products in the warehouse,
scheduling vehicles for the transport of materials/products, and returns to suppliers.
 Operations comprise packaging, machining, testing, equipment maintenance, assembly, and
other activities associated with transforming inputs into the ultimate products. This is the
physical process of making, testing, and packaging the product.
 Outbound logistics are those performed to collect, store, and physically distribute products to
customers. Material handling, delivery vehicles, order processing, and scheduling are included
in outbound logistics.
 Marketing is an element of primary activities in value chain analysis. It is concerned with
providing the buyer with information, inducement, and opportunities to buy the product. It
includes promotional activities such as advertising, sales promotion, public relations, personal
selling, sales force, selection of distribution channel, pricing of products, and other activities
related to providing a means by which customers can buy the products.
 Service concerns itself with activities associated with enhancing and maintaining the products’
value to customers, such as repair of machines, installation of machinery, training to customer’s
supply of parts, prompt response to customer’s query, etc. All these primary activities are present
in varying degrees in each firm and, therefore, deserve attention in the firm’s internal analysis.

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Supportive Activities in Value Chain Analysis:

The support activities in the value chain analysis are necessary for supporting the primary
activities to take place. The support activities in the value chain analysis have indicators. Such
as:
 Firm’s infrastructure
o Activities related to the company’s overhead and management, including financing and
planning

 Human resource management

o Activities related to the recruitment, hiring, training, development, retention, and
compensation of employees

 Technological development
o Activities related to research and development, including product design, market research,
and process development

 Procurement of resources, finance, inventory, etc.

o Activities related to the sourcing of raw materials, components, equipment, and services

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Collectively, all these support activities and primary activities create the value chain. The chain
comprises an earnings margin because a markup over the cost of perming value-creating
activities is customarily part of the price borne by buyers.

The usefulness of Value Chain Analysis:

Large manufacturing companies often conduct value chain analysis to understand their internal
cost structure and evaluate their strengths and weaknesses. The value chain assumes that a firm’s
basic economic purpose is to create value. The strategy-constructing lesson of value chain
analysis is that enlarged company competitiveness pivots on managerial efforts to essence
company resources and talent on those skills and activities where the company can improve
dominating expertise to assist its mark consumers.
Value chain analysis is a powerful managerial tool for identifying which chain activities have
competitive advantage potential. The maximum significant claim value chain analysis depicts
how a specific company’s cost situation compares with the cost positions of its rivals. What is
needed are competitor-versus-competitor estimates for supplying a product to a market segment.
Data derived from the value chain analysis can be used to compare a firm’s costs activity-by-
activity against those of the competitors. Managers can also learn about the sources of cost
advantages and cost disadvantages.
When a manager understands the firm’s value chain, he/she can identify strategic options based
on the strengths and weaknesses of each value-chain element. In value chain analysis, the most
important learning is the linkages between value activities that contribute to competitive
advantage. This has implications for strategy-making and implementation. Competitors cannot
copy this aspect of the value chain because these are unique to the firm.
Under the value chain analysis, cost-competitiveness depresses a company in the costs of on the
inside executed happenings and on cost in the value chains of its suppliers and forward channel
allies. A company’s relative cost position and overall competitiveness are linked with the entire
industry value chain analysis system. A typical single industry value chain incorporates the
‘supplier-Related Value Chains,’ ‘company Value Chains’ and ‘Forward Channel value Chains.’

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DR. P. JASBIN BINO