STRATEGY

 A Unified, comprehensive and integrated plan designed to

assure that the basic objectives of the enterprise are
achieved.
 The common thread among the organizations activities and
product markets that define the essential nature of
business that the organization has or planned to be in
future.
 It is consciously considered and flexibly designed scheme of
CORPORATE INTENT & ACTIONS to mobilize
resources, to direct human behavior & efforts, to handle
events and problems, to perceive and utilize opportunities,
and to met challenges and threats for corporate survival
and success.
 Strategy is meant to fill in the need of organizations for a
sense of dynamic direction, focus and cohesiveness. It
provides integrated framework for the top management
to search for, evaluate and exploit beneficial opportunities
to perceive and meet potential threats and crises.
 STRATEGY

 In large organizations, strategies are formulated at the

corporate, divisional and functional levels.
 At the corporate level strategies include the determination
of the pans for expansion and growth, vertical &
horizontal integration, diversification, takeover and
mergers etc.
 The corporate wide strategies need to be operationalized by
divisional and functional strategies regarding product
lines, production volumes, quality ranges, prices,
product promotion, market penetration etc.
 STRATEGY

 STRATEGY IS PARTLY PROACTIVE AND PARTLY

REACTIVE
 Proactive strategy is planned strategy whereas reactive
strategy is adaptive reaction to changing circumstances.
 STRATEGIC MANAGEMENT

 It refers to managerial process of developing a strategic

vision, setting objectives, crafting a strategy,
implementing and evaluating the strategy and initiating
corrective adjustments where deemed appropriate.
 It emphasizes the monitoring and evaluation of
external opportunities and threats in light of a company
strength and weaknesses and designing strategies for the
survival and growth of the company.
 It gives a direction to the company to move ahead, it helps
to define realistic objectives and goals which are in
line with the vision of the company.
 It helps to be proactive instead of reactive in shaping
the future.
 It serves as a corporate defense mechanism against
mistakes and pitfalls to avoid costly mistakes in product
market choices or investments.
 STRATEGIC MANAGEMENT

 It helps to enhance the longevity of the business. With the

state of competition and dynamic environment.
 To develop certain core competencies and competitive
advantage that would facilitate assist in its fight for
survival & growth.
 It is the process of determining the objectives of the firm,
resources required to attain these objectives and
formulation of policies to govern the acquisition, use and
disposition of resources.
STRATEGIC MANAGEMENT MODEL
 STRATEGIC MANAGEMENT PROCESS

1. Developing a strategic vision and formulation of

statement of mission, goals and objectives.
2. Environmental & organizational analysis.
3. Formulation of strategy.
4. Implementation of strategy
5. Strategic evaluation and control.
DEVELOPING A STRATEGIC VISION AND FORMULATION OF
STATEMENT OF MISSION, GOALS AND OBJECTIVES.

 Company must determine what directional path the

company should take and what changes in the PRODUCT
– MARKET –CUSTOMER – TECHNOLOGY focus would
improve its current market position and its future prospect.
 Concern over here is overall strategic direction.
 Corporate goals & objectives flow from mission – it
represents the quantum of growth the firm seeks to
achieve in given time frame.
 Goal is to convert the strategic vision into specific
performance targets.
 Objectives need to be broken down into performance
targets for each separate business, product line,
functional department, individual work unit.
 ENVIRONMENTAL & ORGANIZATIONAL ANALYSIS.
 External environment consist of economic, social,
technological, market and other forces which affects its
functioning. Its dynamic and uncertain.
 Organisational analysis involves a review of financial
resources, technological resources, productive
capacity, marketing and distribution effectiveness,
R&D, HR skills etc.
 STRATEGY FORMULATION
 Strategy formulation is developing strategic alternatives
in the light of organisation SWOT in the environment.
A company may be confronted with several
alternatives:-
 Should the company continue in the same business
carrying on the same volume of activities?
 It should grow by expanding the existing units or by
establishing new units or by acquiring other units in the
industry.
 Should it diversify into related or unrelated areas.

 Should it get out of an existing business fully or partially?

 STRATEGY IMPLEMENATION
 Implementation & Execution is operations-oriented
activity aimed at shaping the performance of core business
activities in a strategy-supportive manner.
 Developing budgets,
 staffing with needed skills and expertise, building
competencies and capabilities
 Creating a company culture and work climate conducive to
successful strategy.
 Good strategy execution involves creating strong FIT
between strategy and organisational capabilities,
between strategy and reward system, between strategy
and internal operating systems, between strategy and
the organisations work climate and culture.
 STRATEGY EVALUATION & CONTROL
 Evaluating company's progress, assessing the impact of
new external developments, making corrective adjustments
Strategic Intent:- it refers to purposes of what they want
to do and why they want to do. It gives an idea of what
the organization desires to attain in future.
It indicates the long term position which the organization
desires.
 STRATEGIC INTENT
 VISION:- It implies the blue print of the company future
position. It describes where the organization wants to land. It
depicts the aspirations and provides a glimpse of what the
organization would like to become in future. Every sub
system of the organization is required to follow its vision.
 MISSION:- A company's mission statement is typically
focused on its present business scope- “who we are and
what we do”. It broadly describe an organizations present
capabilities, customer focus, activities and business
makeup.
 Business definition:- it seeks to explain the business
undertaken by the firm, with respect to the customer needs,
target markets, alternate technologies.
 Business Model:- Strategy for the effective operation of the
business, ascertaining sources of income. Desired customer
base, financial details. Rival firms, operating in the same
industry rely on different business models.
 Goals and objectives:- these are the base of measurement.
Goals are the end result, that an organization attempts to
achieve. Objectives are time-based measureable targets, which
help in accomplishment of goals.
 ENVIRONMENTAL SCANNING
 Environmental scanning can be defined as the process by
which organizations monitor their relevant environment to
identify opportunities and threat affecting their business for the
purpose of taking strategic decisions.
 It is the process of GATHERING information regarding
company's environment, ANALYSING it and FORECASTING
the impact of all predictable environmental changes.

 Macro environment:- it is largely external to the enterprise and

thus beyond the direct influence and control of the organization,
but which exerts powerful influence over its functioning.
 Micro environment:- also known as task environment, which
affects the business in the daily operating level. Organizations
have to closely monitor the elements in order to stay competitive.
 Environmental Analysis

EXTERNAL
INTERNAL

•Organizational structure MACRO MICRO

•Policies, procedures, •Demographic
rules •Consumers
•Economic •Competitors
•Corporate culture
•Government •Organization
•Financial resources
•Quality of Human
•Legal •Market
resources •Political •Suppliers
•Plant and machinery •Cultural •Intermediaries
•Labour management •Technological
relationship •Global
 SWOT ANALYSIS
 STRENGTH: - It is an inherent capacity which an organization
can use to gain strategic advantage. (superior R&D skills new
product development)

 WEAKNESS:- It is an inherent limitation or constraint which

creates strategic disadvantage. (Overdependence on a single
product line)

 OPPORTUNITY :- It is a favorable condition in the

organizations environment which enables it to consolidate and
strengthen its position.

 THREATS:- It is an unfavorable condition in the organizations

environment which creates a risk for or causes damage to the
organization.
 Strength WEAKNESS
 Strong financial condition  No clear strategic direction
 Strong brand image, company  Obsolete facilities
reputation  A weak balance sheet, burdened
 Widely recognized market leader with debt
and an attractive customer base  Plagued with internal operating
 Ability to take advantage of problems
economies of scale  Underutilized plant capacity.
 Proprietary technology / superior  Deficiency of intellectual capital
technological skills/ important
patents.  Low technological know how
 Cost advantage
 Strong advertising and promotion
 Product innovation skills
 Superior supply chain
management
 Wide geographic coverage
 Opportunity Threats
 Shift in buyers needs and
 Expanding the product line to preferences.
meet broader range of customer  Likely entry of potent new
needs. competitors.
 Integrating forward or backward  Mounting competition.
 Acquisition of rival firms or  Slowdowns in market growth.
companies with attractive  Growing bargaining power of
technological expertise customers or suppliers
 Utilizing existing company skills  Technological changes.
or technical know - how to entre
new product lines or new
business.
 Alliances or joint ventures that
expand the firms market
coverage or boost its competitive
capability.
INDUSTRY ANALYSIS
RESOURCE BASED VIEW
 RESOURCES – COMPETENCE - CAPABILITIES

 Resources:- The stocks of tangible and

intangible assets that are available to the
organization.

 Tangible resources:-
INTANGIBLE RESOURCES
EXAMPLES OF FIRM’S CAPABILITIES
CONDITIONS AFFECTING MANAGERIAL DECISIONS ABOUT
RESOURCES, CAPABILITIES, AND CORE COMPETENCIES
COMPONENTS OF INTERNAL ANALYSIS LEADING TO
COMPETITIVE ADVANTAGE AND VALUE CREATION
 BENCHMARKING

 It is strategy tool used to compare the

performance of the business processes and
products with the best performance of
other companies inside and outside the
industry.
 It is the search for industry best practices
that lead to superior performances.
 Strategic benchmarking. To identify the best
way to compete in the market. During the
process, the companies identify the winning
strategies (usually outside their own industry)
that successful companies use and apply them to
their own strategic process.
 BENCHMARKING

 Performance benchmarking. It is concerned

with comparing your company’s products and
services. The tool mainly focuses on product and
service quality, features, price, speed, reliability,
design and customer satisfaction, but it can
measure anything that has the measurable
metrics, including processes.
 Performance benchmarking determines how
strong our products and services are compared to
our competition.
 BENCHMARKING

 Process benchmarking:- It requires to look at

other companies that engage in similar activities
and to identify the best practices that can be
applied to your own processes in order to improve
them
 It usually derives from performance
benchmarking because companies first identify
the weak competing points of their products or
services and then focus on the key processes to
eliminate those weaknesses.
 VALUE CHAIN ANALYSIS
 Value chain analysis is a strategy tool used to analyse
internal firm activities.
 Its goal is to recognize, which activities are the
most valuable
 By looking into internal activities, the analysis
reveals where a firm’s competitive advantages or
disadvantages are.
 A tool that helps in identifying strength and
weakness towards the competitors.
 How to deliver satisfaction to customers as quickly.
 Divided in two parts Primary Activities and
Secondary Activities.
 VC is formed of primary activities that add value to
the final product directly and support activities
that add value indirectly.
PRIMARY ACTIVITIES
(TASK THAT FIRM PERFORMS TO DELIVER THE PRODUCT TO
CUSTOMER)

 Inbound Logistics : Activities like material handling,

warehousing and inventory control that disseminate a
product of raw material.
 Operations: Activities like Machining, packaging,
assembling and maintenance.
 Outbound Logistics: Activities like collecting, storing,
physical distribution of final products to customers.
 Marketing and Sales: Activities to attract customer to
buy the product like advertising and promotional
campaigns, distribution channel and select develop
the sales force.
 Service: Activities designed to maintain product’s
value. Service related activities like installation,
repair, training and adjustments.
 SUPPORTIVE ACTIVITIES
 Firm Infrastructure: Activities such as general
management, planning, finance, accounting, legal
support that are required to support work of the
entire value chain.
 Human Resource Management: Activities such as
recruiting, hiring, training, development and
compensating all personnel.
 Technological Development: Activities to improve
the firm’s product and method to manufacture it like
basic research, product design and service procedure.
 Procurement: Activities which are needed to produce
firm product. Purchased Input which are consumed
at the time of manufacturing like raw material and
supplies. Fixed Assets like machinery, office
equipment and building.
 Competitive advantage types
Cost advantage Differentiation advantage
This approach is used when The firms that strive to create superior
organizations try to compete on products or services use differentiation
costs and want to understand the advantage approach. (good
sources of their cost advantage or examples: Apple, Google, Samsung
disadvantage and what factors Electronics, Starbucks
drive those costs.(good
examples: Amazon, Wal-
Mart, McDonald's, Ford, Toyot
a

•Step 1. Identify the firm’s •Step 1. Identify the customers’ value-

primary and support activities.
•Step 2. Establish the relative
importance of each activity in the
total cost of the product.
•Step 3. Identify cost drivers for
each activity.
•Step 4. Identify links between
activities.
•Step 5. Identify opportunities for
reducing costs.
creating activities.
•Step 2. Evaluate the differentiation
strategies for improving customer
value.
•Step 3. Identify the best sustainable
differentiation.
STRATEGIC ANALYSIS & CHOICE
BCG GROWTH – SHARE matrix is the simplest way to
portray a firms portfolio of investments.
•The vertical axis represents market growth rate and
provides a measure of market attractiveness.
•The horizontal axis represents relative market share and
serves as a measure of company strength in the market.
 Stars – are products that are growing rapidly. They also
need heavy investment to maintain their position and
finance their rapid growth potential.
 They are closely to the growth stage of PLC.
 They represent best opportunities for expansion.
 E.g.. Electronics, telecommunication, fast foods.

 Cash cows :- are low growth, high market share

businesses or products.
 Which generate large amount of cash but their rate of
growth is slow.
 They are established, successful, and needs less investment
to maintain their market share.
 In long run when the growth rate slows down, stars become
cash cow
 In term of PLC, these are generally mature businesses
which are reaping the benefits of experience curve.
 The business can adopt mainly stability
strategies.
 The cash generated by cash cows is reinvested in
stars and question marks.
 As they loose their attractiveness and tends
towards a decline, a phased retrenchment may be
feasible.
Question marks:- called problem child or wildcats,
are low market share business in high-growth
markets.
 They require a lot of cash to hold their share.
Requires Heavy Investment with low potential to
generate cash.
 They may become stars if enough investment is
made, or may become dog if ignored.
 Dogs:- Low Growth, Low Share business. Do not
have much future in market. They might need
cash for future to survive.
 They neither generate nor require large amount
of cash.
 In PLC dogs are usually products in late
maturity or a declining stage.
 BCG MATRIX – SAMSUNG

1. CASH COWS: Samsung Home appliances

which include Samsung AC’s, Refrigerators,
Washing Machines and Cooking Appliances are
the Cash Cows for the company.
 Over the years, Samsung Home Appliances have
become a household name and stand for quality
and trust. Samsung has been able to attain a
good market share across different industry
segments and still holds a good potential to grow
in the coming future.
2. STARS: The products or business units that have a
high market share in high growth industry are the stars
of the organization. Mobile phones, Tab, and
TV business fall in the Star Category of the BCG
Matrix of Samsung.
 Mobile phones: Samsung Galaxy and Note
Series are quite a hit among customers and have
their own base of loyal customers. In order to
maintain its market share and ward off the
competition, Samsung launches new smartphones
with new features and design.
 Samsung TV: LED and OLED TV from Samsung
are gaining good traction from the global market and
can be considered as the Stars of the company. The
company is experimenting with new
technologies and it coming up with new TV’s
with technologically advanced features to gain
customers.
3. QUESTION MARK:- There are products that
formulate a part of the industry that is still in the
phase of development, yet the organization has
not been able to create a significant position
in that industry. The small market share
obtained by the organization makes the future
outlook for the product uncertain, therefore
investing in such domains is seen as a high-risk
decision.
 Considering the performance of all the products
that Samsung to offer, Samsung Printer is one
such product which can be placed in the Question
Mark quadrant of the BCG Matrix of Samsung.
 High competition and small market share of the
product in the industry is what makes it place in
this quadrant.
4. DOGS:
 Dogs are those products that were perceived to have the
potential to grow but however failed to create magic due
to the slow market growth.
 Failure to deliver the expected results makes the product a
source of loss for the organization, propelling the
management to withdraw future investment in the
venture. Since the product is not expected to bring in any
significant capital, future investment is seen as a wastage
of company resources, which could be invested in
a Question mark or Star category instead.
 With an aim to cater to the growing need of the digital
world, Samsung launched it’s Samsung Smartwatch but
the product failed to achieve the success that it was
expected to achieve.
 Samsung Smartwatch: Tough competition from
competitors like Apple watch led to the downfall of the
product.
 Hence Samsung Smartwatch can easily be placed in the
Dog quadrant of the BCG Matrix.
ANSOFF’S MATRIX

 A tool that helps business decide the product and

market growth strategy.
 Market Penetration
 A growth strategy where the  Aggressive promotional
business focuses on existing campaign where more
product on existing spending on advertising or
market. personal selling.
 Pricing strategy designed to
 More sales to present make market unattractive
customer without many for competitor
changes in the existing  Develop a new marketing
product. strategy to encourage more
 It is the least risky since it people to choose your product,
or to use more of it.
leverages many of the firms
existing resources and  Introduce a loyalty scheme.
capabilities.  Launch price or other special
offer promotions.
 However it has limits, and
 Increase your sales force's
once the market approaches activities.
saturation another strategy
 Use the Boston Matrix to
must be pursued if the firm is decide which products warrant
to continue to grow. further investment, and which
should be disregarded.
 Market Development
 A growth strategy where
 Target different geographical
business seeks to sell markets at home or abroad.
existing product in new Conduct a PEST Analysis
market.  Use different sales channels,
 Achieved through new such as online or direct sales,
geographical market, new if you are currently selling
product dimension, through agents or
packaging, new intermediaries.
distribution channel or  Use Market
pricing policies to attract Segmentation to target
new customer or new different groups of people,
perhaps with different age,
market segment.
gender or demographic
 Develop related products profiles from your usual
or services customers.
 Use the marketing mix to
understand how to reposition
your product.
 Product Development
 A growth strategy where
business aims to introduce
new product in existing
market
 It requires development of
new competencies and require
the business to develop
modified products which can
be sold in existing market.
 Extend your product by
producing different variants,
or repackage existing
products.
 Develop related products or
services.
 Diversification
 A growth strategy where  Beyond the opportunity to
business focuses on new expand your business, the
products in new market.
main advantage
 A strategy of acquiring of diversification is that,
business outside company’s should one business suffer
current products and from adverse circumstances,
markets. another may not be affected.
 Due to new product and new
market it is a risky strategy
to establish its position.
 There's often little scope for
using existing expertise or for
achieving economies of scale,
because you are trying to sell
completely different products
or services to different
customers
 Zara, a multinational fashion brand is the most
exciting retailer according to the Forbes, here is
why.
 Zara considers the customers to be at the heart of
their unique business model, which includes
design, production, distribution, and sales
through our extensive retail network.
Hence, the growth strategies instated by Zara
makes them the most exciting retailer today.
Old New
Product Development
Market Penetration
Stylish Clothes for differently abled
Bow Ties and other accessories
(handicaps)

Market Development Diversification

Virtual trials and online store Zara Home – the décor store.
 Market Penetration: Zara’s new business plan
focuses on designing and promoting the accessories.
Zara has only introduced CVH for their accessories and
their business plan includes opening exclusive stores
for accessories.
 Product Development: Zara’s ‘diffable’ project is
the most talked about lately. It is targeting a new
customer segment of differently abled people. Zara’s
clothes collection for this has been specially designed
which focuses on convenience of wearing, style and
comfort. Therefore, this growth strategy of Zara can be
successful because it is cost efficient and can also be
considered ethical adding on the brand reputation of
Zara can also help market the new product range,
 Market Development: Virtual Trials technology has
been instated in the trials rooms of Zara in US which
are the first of its kind in the world. This expansion
policy of may not be successful because the installation
of the virtual trial technology would be very costly with
no revenue generating from them, though they would
enhance the shopping experience and increase the
speed of the purchase process. But they would not be
profitable in the long term.
 Diversification: Zara has been planning to diversify
its business in the new market of Home Décor with its
new product range of the décor items, this may be
profitable because home décor is a business which has a
lot of potential and with Zara’s Brand reputation and
economies of scale this would be a feasible and
profitable option.
GE NINE CELL MATRIX
 It is a strategy tool that offers a systematic
approach for the multi business corporation to
prioritize its investments among its business
units.
 In the business world, much like anywhere else,
the problem of resource scarcity is affecting the
decisions the companies make.
 With limited resources, but many
opportunities of using them, the businesses need
to choose how to use their cash best.
 The fight for investments takes place in every level
of the company: between teams, functional
departments, divisions or business units.
 Industry Attractiveness
 Industry attractiveness indicates how hard or
easy it will be for a company to compete in
the market and earn profits.
 The more profitable the industry is the more
attractive it becomes.
 When evaluating the industry attractiveness,
analysts should look how an industry will
change in the long run rather than in the
near future, because the investments needed for
the product usually require long lasting
commitment.
 Industry attractiveness consists of many factors
that collectively determine the competition level in
it.
 Long run growth rate
 Industry size

 Industry profitability: entry barriers, exit

barriers, supplier power, buyer power, threat of
substitutes and available complements
 Industry structure

 Product life cycle changes

 Changes in demand

 Trend of prices

 Macro environment factors

 Seasonality

 Availability of labor

 Market segmentation
 Competitive strength of a business unit or a
product

 Along the X axis, the matrix measures how strong, in

terms of competition, a particular business unit is
against its rivals.
 Try to determine whether a business unit has a
sustainable competitive advantage or not.
 The following factors determine the competitive strength
of a business unit:
 Total market share
 Market share growth compared to rivals
 Brand strength
 Profitability of the company
 Customer loyalty
 Your business unit strength in meeting industry’s
critical success factors Level of product differentiation
 Production flexibility
Invest/Grow box.
 Companies should invest into the business units that fall into
these boxes as they promise the highest returns in the future.
 These business units will require a lot of cash because they’ll
be operating in growing industries and will have to maintain
or grow their market share.
 It is essential to provide as much resources as possible for
BUs so there would be no constraints for them to grow. The
investments should be provided for R&D, advertising,
acquisitions and to increase the production capacity to meet
the demand in the future.

Selectivity/Earnings box.
 Should invest into these BUs only if you have the money
leftover the investments in invest/grow business units group
and if you believe that BUs will generate cash in the future.
 These business units are often considered last as there’s a lot
of uncertainty with them.
 The general rule should be to invest in business units which
operate in huge markets and there are not many dominant
players in the market, so the investments would help to
easily win larger market share.
 Harvest/Divest box. The business units that are
operating in unattractive industries, don’t have
sustainable competitive advantages or are
incapable of achieving it and are performing
relatively poorly fall into harvest/divest boxes.
 Step 1. Determine industry attractiveness of each
business unit
Make a list of factors
 Assign weights - Weights indicate how important a
factor is to industry’s attractiveness. A number from
0.01 (not important) to 1.0 (very important)
 Rate the factors. The next thing you need to do is to
rate each factor for each of your product or business
unit. Choose the values between ‘1-5’ or ‘1-10’, where
‘1’ indicates the low industry attractiveness and
‘5’ or ‘10’ high industry attractiveness.
 Calculate the total scores. Total score is the sum of
all weighted scores for each business unit. Weighted
scores are calculated by multiplying weights and
ratings. Total scores allow comparing industry
attractiveness for each business unit
 Step 2. Determine the competitive strength of
each business unit
 Industry Attractiveness

Business Unit 1 Business Unit 2

Factor Weight Rating Weighted Score Rating Weighted Score

Industry growth rate 0.25 3 0.75 4 1

Industry size 0.22 3 0.66 3 0.66

Industry profitability 0.18 5 0.90 1 0.18

Industry structure 0.17 4 0.68 4 0.68

Trend of prices 0.09 3 0.27 3 0.27

Market segmentation 0.09 1 0.09 3 0.27

Total score 1.00 - 3.35 - 3.06

UNIT 3
 Generic business strategies can be classified into three types
1. Cost leadership
2. Differentiation
3. Focus
COST LEADERSHIP
 Competitive advantage of a firm lies in lower cost of
product relative to what the competitors have to offer,
is termed as cost leadership
 Customers prefers a low cost product particularly if it
offers the same utility.

Achieving cost leadership

 High levels of productivity
 High capacity utilization
 Use of bargaining power to negotiate the lowest prices
for production inputs
 Lean production methods (e.g. JIT)
 Effective use of technology in the production process
 Gujarat cooperative milk marketing federation.
 Differentiation :-
 When the competitive advantage of a firm lies in
special features incorporated into the
product/services, which are demanded by the
customers who are willing to pay for those, then the
strategy adopted is the differentiation business
strategy.
 A differentiated product stands apart in the market
for its special features and attributes.
 The value added by the uniqueness of the product
may allow the firm to charge premium price for it.
Achieving Differentiation
 Access to leading R&D
 Highly skilled and creative product development team
 Strong sales team with the ability to successfully
communicate the perceived strengths of the product.
 Corporate reputation for quality and innovation.
Focus
 The focus business strategy rely on a either a
cost leadership or differentiation but to cater a
narrow segment of the total market.
 Focus strategies are niche strategies.

 The premise is that the needs of the group can be

better serviced by focusing entirely on it.
 A firm using focus strategy often enjoys high
degree of customer loyalty.
 cost-minimization within a focused market

 Differentiation Focus means pursuing strategic

differentiation within a focused market.
CORPORATE LEVEL STRATEGIES
 Corporate level strategies are basically about the
choice of direction that a firm adopts in order to
achieves its objectives.
 They are basically about the decisions related to
allocating resources among the different
businesses of the firm, transferring resources
from one set of businesses to others, and
managing and nurturing a portfolio of businesses
in such a way that overall corporate objectives
are achieved.
 The Stability Strategy
 It is adopted when the organization attempts to
maintain its current position and focuses only on the
incremental improvement by merely changing one or
more of its business operations in the perspective of
customer groups, customer functions and
technology alternatives, either individually or
collectively.
 Generally, it is adopted by the firms that are risk
averse, usually the small scale businesses.
 The firm is satisfied with its performance, then it will
not make any significant changes in its business
operations.
 The firms, which are slow and reluctant to change
finds the stability strategy safe and do not look for
any other options
 stability

Pause &
No change Profit strategy proceed with
cautiion
1. When an organization aims at maintaining the
present business definition. Simply, the decision of
not doing anything new and continuing with the
existing business operations and the practices
referred to as a no-change strategy.
2. The Profit Strategy is followed when an
organization aims to maintain the profit by whatever
means possible.
 Due to lower profitability, the firm may cut costs,
reduce investments, raise prices, increase
productivity or adopt any methods to overcome the
temporary difficulties.
 The profit strategy focuses on capitalizing the
situation .
 The profit strategy can be followed when the
problems are temporary or short-lived and
will go away with time. The problems could be
the economic recession or inflation, industry
downturn, worst market conditions, competitive
pressure, government policies .
 the firm adopts the artificial measures to tackle
these problems and sustain the profitability of
the firm.
 Pause/Proceed with caution strategy
 A stability strategy followed when an
organization wait and look at the market
conditions before launching the full-fledged grand
strategy.
 is a deliberate action taken by the firm to
postpone the strategic action till the best
opportunity knocks at the door. Thus, waiting for
the right strategy for the right time.
 The pause/proceed with caution strategy is often
followed by the manufacturing companies who
study the market conditions thoroughly and then
launch their new products into the market.
 EXPANSION STRATEGIES

 When a firm aims to grow considerably by

broadening the scope of one of its business
operations in the perspective of customer
groups, customer functions and technology
alternatives, either individually or jointly, then
it follows the Expansion Strategy.

Expansion

Concentration Diversification Integration Cooperation Internationalization

 Expansion through Concentration
 It involves the investment of resources in the
product line, catering to the needs of the
identified market with the help of proven and
tested technology.
 The firms prefer expansion through
concentration because they are required to do
things what they are already doing.
 Due to the familiarity with the industry the firm
likes to invest in the known businesses rather
than a new one.
 Expansion through Integration
 It means combining one or more present operation
of the business with no change in the customer
groups. This combination can be done through a
value chain.
 The value chain comprises of interlinked activities
performed by an organization right from the
procurement of raw materials to the marketing of
finished goods.
 Thus, a firm may move up or down the value chain
to focus more comprehensively on the needs of the
existing customers.
 Integration is also a subset of diversification as it
involves doing something different from what the
firm has been doing previously.
Vertical integration:
 When an organization starts making new
products that serves its own needs.
 Any new activity undertaken with the purpose of
either supplying inputs (raw material) or serving
as a customer for outputs (marketing firms
products) is vertical integration.
 Forward integration :- the manufacturing firm
open up its retail outlet.
 Backward integration:- the shoe company
open up or starts manufacturing of its own raw
material.
 Horizontal Integration: When it takes over the
same kind of product with similar marketing and
production levels. Example, the pharmaceutical
company takes over its rival pharmaceutical
company.
 It is adopted with a view to expand
geographically by buying competitors business, to
increase the market share or to benefit from
economies of scale.
Expansion through Diversification
 It is followed when an organization aims at
changing the business definition, i.e. either
developing a new product or expanding into a
new market, either individually or jointly.
A firm adopts the expansion through
diversification strategy, to prepare itself to
overcome the economic downturns.

Diversification

Concentric Conglomerate
 Concentric Diversification: When an
organization acquires or develops a new product
or service that are closely related to the
organization’s existing range of products and
services
 For example, the shoe manufacturing company
may acquire the leather manufacturing company
with a view to entering into the new consumer
markets and escalate sales.
 Conglomerate Diversification: When an
organization expands itself into different areas,
unrelated to its core business is called as a
conglomerate diversification. ITC. A cigarette
company diversifying into hotel industry.
Expansion through Cooperation
 It is a strategy followed when an organization
enters into a mutual agreement with the
competitor to carry out the business operations
and compete with one another at the same time,
with the objective to expand the market
potential.
 It expresses the idea of simultaneous competition
and cooperation among rival firms for mutual
benefits.
 It is based on the assumption that companies
compete in the market for a limited market
share.
 Merger: The merger is the combination of two or
more firms wherein one acquires the assets and
liabilities of the other in the exchange of cash or
shares, or both the organizations get dissolved,
and a new organization came into the existence.
 The firm that acquires another is said to have
made an acquisition, whereas, for the other firm
that gets acquired, it is a merger.
 1. Horizontal merger

 A merger occurring between companies in the

same industry. It is a business consolidation that
occurs between firms who operate in the same
space, often as competitors offering the same
good or service.
2. Vertical Merger:-
 A merger between two companies producing
different goods or services for one specific
finished product.
 A vertical merger occurs when two or more firms,
operating at different levels within an industry's
supply chain, merge operations.
 Most often the logic behind the merger is to
increase synergies created by merging firms that
would be more efficient operating as one.
 An automobile company joining with a parts
supplier.
 Such a deal would allow the automobile division
to obtain better pricing on parts and have
better control over the manufacturing process.
The parts division, in turn, would be guaranteed
a steady stream of business
3. Concentric merger:
 It refers to combination of two or more firms
which are related to each other in terms of
customer groups, functions or technology.
 Combination of a computer system manufacturer
with a UPS manufacturer.
4. Conglomerate merger:
 It refers to the combination of two firms
operating in industries unrelated to each other.
In this case, the business of the target company
is entirely different from those of the acquiring
company.
 Takeover: Takeover strategy is the other method
of expansion through cooperation. In this, one
firm acquires the other in such a way, that it
becomes responsible for all the acquired firm’s
operations.
 Tender offer :- It is a public bid made by the
acquiring company for a large segment of the
target company’s stocks at a fixed price.
 The price quoted is usually higher than the
market value of the stock.
 The premium price is offered so as to convince
the shareholders to sell their shares.
 The bid holds a specific time limit and may have
conditions which the target company must follow
if the offer gets approval.
 The acquiring company must file required
documents with the regulatory body and should
disclose their plans for the acquired company.

 PROXY FIGHT
The buyer tries to influence the shareholders to
vote out the current management in favour of the
team who will support the takeover.

Usually, managers and displeased shareholders

within the company attempt to change the
ownership by getting the confidence of the
remaining shareholders.

Hewlett-Packard’s hostile takeover of Compaq was

conducted by the proxy fight method.
 Emami and Zandu
 This hostile takeover triggered in May 2008
when the Emami acquired 24% stake of Zandu
from Vaidyas (co-founders) @ Rs. 6900 per share.
Open offer for 20% followed along with Parikh’s
(co-founders) giving in their 18% after 4 months
of futility to save the company. Rs.750 crores
were the consideration paid by Emami for a 72%
stake in the company. Parikh’s tried creeping
acquisition but we guess the offer by Emami
(Rs.16500 per share – Rs.15000 + Rs.1500 as non
– complete fee) was the one that couldn’t be
refused.
 Joint Venture:
 Both the firms agree to combine and carry out the
business operations jointly.. The joint ventures are
usually temporary; that lasts till the particular task is
accomplished.
 It is a business entity created by two or more parties,
generally characterized by shared ownership, shared
returns and risks and shared governance.

 Companies typically pursue joint ventures for :-

 to access a new market, particularly emerging markets;
 to gain scale efficiencies by combining assets and
operations;
 to share risk for major investments or projects;
 to access skills and capabilities.
 to capitalize the strengths of both the firms
 To surmounting hurdles such as tariffs, quotas,
national-political interest cultural roadblocks

 Absorption:- it takes place where the company

acquires another company
 Consolidation:- where two or more companies
combine to form a new company to form a
temporary partnership (consortium) for a specific
purpose.
 STRATEGIC ALLIANCE
 Two or more firms unite to peruse a set of agreed goals
but remain independent subsequent to the formation of
the alliance.
 the partner firms share the benefits of the alliance &
control over the performances of the assigned task.
 Cartels: Big companies can cooperate unofficially, to
control production and/or prices within a certain market
segment or business area and constrain their competition
 Franchising: a franchiser gives the right to use a brand-
name and corporate concept to a franchisee who has to
pay a fixed amount of money. The franchiser keeps the
control over pricing, marketing and corporate decisions in
general.
 Licensing: A company pays for the right to use
another companies´ technology or production
processes.
 Industry standard groups: These are groups of
normally large enterprises, that try to enforce
technical standards according to their own
production processes.
 Outsourcing: Production steps that do not belong
to the core competencies of a firm are likely to be
outsourced, which means that another company is
paid to accomplish these tasks.
 MERGER JOINT VENTURE

 In a merger, two or more  In a joint venture, two or

companies combine forces more companies combine
and become a new, and share their resources
separate entity. The end for the purpose of pursuing
result is a third company a specific goal. The original
with a different name, a companies remain as
new board of directors and separate entities and
separate stocks and share joint ownership in a
ownership. The original newly formed company,
companies no longer which exists solely to fulfill
exist. its function as specified by
the joint venture
Expansion through Internationalization
 It is the strategy followed by an organization when it
aims to expand beyond the national market.
 International Strategy: The firms adopt an
international strategy to create value by offering
those products and services to the foreign markets
where these are not available. This can be done, by
practicing a tight control over the operations in the
overseas and providing the standardized products
with little or no differentiation. E.g.. Coca cola,
IBM, Kellogs

 Multi-domestic Strategy: when they try to

achieve a high level of local responsiveness by
matching their product and service offering to the
national condition operating in the country they
operate in. The firm attempts to extensively
customize their products according to local
condition operating in different countries.
 Global Strategy: The global firms rely on low-cost
structure and offer those products and services to the
selected foreign markets in which they have the
expertise. Thus, a standardized product or service is
offered to the selected countries around the world.

 Transnational Strategy: Under this strategy, the

firms adopt the combined approach of multi-domestic
and global strategy. The firms rely on both the low-
cost structure and the local responsiveness i.e.
according to the local conditions. Thus, a firm offers
its standardized products and services and at the
same time makes sure that it is in line with the local
conditions prevailing in the country, where it is
operating.
RETRENCHMENT STRATEGY
 It is followed when an organization substantially
reduces the scope of its activity.
 External development such as government policy,
demand saturation, emergence of substitute
product or changing customer needs and
preferences , poor management, wrong strategy,
poor quality of management leads to company
failure.
 Turn Around, Divestment and Liquidation are
three types of Retrenchment Strategy.
Turn Around Strategy:
 It is backing out or retreating from the decision
wrongly made earlier and transforming from a
loss making company to a profit making
company.
 Continuous losses

 Poor management

 Wrong corporate strategies

 Persistent negative cash flows

 High employee attrition rate

 Poor quality of functional management

Divestment Strategy
 Divestment ( also called as divestiture or
cutback) strategy involves sales or liquidation or
proportion of a business or major division, profit
centre or SBU.
 It is part of Rehabilitation or restructuring plan
and is adopted when a turn around has been
attempted but has been unsuccessful.
Liquidation Strategy
 It involves closing down of a firm and selling its
assets.
 It is considered ass the last resort because it
leads to serious consequences.
 COMBINATION STRATEGY

 It is followed when an organization adopts a

mixture of stability strategies, expansion,
retrenchment either simultaneously (at the same
time in its different businesses) , or sequential (at
different times in the same business) with the
aim of improving its performance.
 FUNCTIONAL STRATEGIES

 Functional strategies describe the means or methods to be

used by each functional area of the organization in carrying
out the corporate-level or business unit strategy
 The functional areas of organizations include: product &
operations, marketing, finance, human resources, research
and development, and information systems management.
1. Production/operations management (POM) is the basic
function in the business firm. This function of a business
consists of all those activities that transform inputs into goods
and services. POM must guide decisions regarding:
 the technical core,
 quality,
 capacity,
 facilities,
 technology and
 production planning and control.
2. Marketing can be described as the process of defining, anticipating,
creating, and fulfilling customers' needs and wants for products and
services. The major decisions in marketing strategy concern the
 product/service,
 price,
 place/distribution,
 and promotion/advertising.
3. Financial management is primarily concerned with two functions:
1. acquiring funds to meet the organization's current and future
needs;
2. recording, monitoring, and controlling the financial results of an
organization's operations.
Therefore, the major decisions in financial strategy concern
 liquidity and cash management,
 leverage and capital management,
 asset management,
 investment ratios, and
 financial planning and control
.4. Human resource strategies concern
 human resource planning,

 recruitment and selection,

 training and development,

 compensation and rewards,

 employment security, and labor relations.

5. Research and development has two basic

components: product/service R&D and process
R&D..
UNIT 4 – IMPLEMENTATION OF STRATEGY
MCKINSEY 7S MODEL
 Strategy: the plan devised to maintain and build competitive
advantage over the competition.
 Structure represents the way business divisions and units are
organized and includes the information of who is accountable to
whom. In other words, structure is the organizational chart of
the firm. It is also one of the most visible and easy to change
elements of the framework.
 Systems are the processes and procedures of the company,
which reveal business’ daily activities and how decisions are
made. Systems are the area of the firm that determines how
business is done and it should be the main focus for managers
during organizational change.
 Skills are the abilities, capabilities and competences of the
firm’s employees perform. During organizational change, the
question often arises of what skills the company will really
need to reinforce its new strategy or new structure.
 Staff element is concerned with what type and how many
employees an organization will need and how they will be
recruited, trained, motivated and rewarded.
 Style represents the way the company is managed by top-level
managers, how they interact, what actions do they take and
their symbolic value. In other words, it is the management
style of company’s leaders.
 Shared Values are at the core of McKinsey 7s model. They are
the norms and standards that guide employee behavior and
company actions and thus, are the foundation of every
organization.
 The model was developed in 1980s by McKinsey consultants
Tom Peters, Robert Waterman and Julien Philips with a help
from Richard Pascale and Anthony G. Athos.
 The goal of the model was to show how 7 elements of the
company: Structure, Strategy, Skills, Staff, Style,
Systems, and Shared values, can be aligned together to
achieve effectiveness in a company.
 The key point of the model is that all the seven areas are
interconnected and a change in one area requires
change in the rest of a firm for it to function effectively.
 The seven areas of organization are divided into the ‘soft’ and
‘hard’ areas.
 Strategy, structure and systems are hard elements that are
much easier to identify and manage when compared to soft
elements.
 On the other hand, soft areas, although harder to manage, are
the foundation of the organization and are more likely to create
the sustained competitive advantage.
 Placing Shared Values in the middle of the model emphasizes
that these values are central to the development of all the
other critical elements.
 Whatever the type of change – restructuring, new processes,
organizational merger, new systems, change of leadership, and so
on – the model can be used to understand how the organizational
elements are interrelated, and so ensure that the wider impact of
changes made in one area is taken into consideration.
 7-S model to help analyze the
 current situation,
 a proposed future situation
 and to identify gaps and inconsistencies between them.
 It's then a question of adjusting and tuning the elements of the 7-
S model to ensure that your organization works effectively and
well once you reach the desired endpoint.
 The McKinsey 7-S model is one that can be applied to almost any
organizational or team effectiveness issue.
 If something within your organization or team isn't working,
chances are there is inconsistency between some of the elements
identified by this classic model.
 Once these inconsistencies are revealed, you can work to align the
internal elements to make sure they are all contributing to the
shared goals and values.
 STRATEGY STRATEGY
FORMULATION IMPLEMENTATION

 It is a positioning forces  It is managing forces

before action. during action.
 It focuses on effectiveness  It focuses on efficiency.
 It is primarily an  It is primarily an
intellectual process operational process.
 It requires good intuitive  Requires special
and analytical skills motivation & Leadership
 Requires coordination skills
among few individuals.  Requires combination
 It is primarily an among many individuals
entrepreneurial activity  It is mainly administrative
based on strategic decision task based operational
making. decision making.
 STRATEGY IMPLEMENTATION
 It is the translation of chosen strategy into
organizational action so as to achieve strategic goals
and objectives.
 It is 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
 An organization structure is the way in which the
task and subtask required to implement the strategy
are arranged.
 Forward linkage:- with the formulation of new
strategies, or reformulation leading to modified
strategies, many changes have to be effected within
the organization. Organizational structure has
to undergo a change in light of the
requirements of modified or new strategy.
 The strategies formulated provide the direction to
implementation. In this way formulation of
strategies has FORWARD LINKAGE with their
implementation
 Backward Linkage:- formation process is also
affected by factors related with implementation.
 Past strategic actions also determine the choice of
strategy. Organizations tend to adopt those
strategies which can be implemented with the help
of present structure of resources combined with
some additional efforts.
 STRUCTURE MECHANISM
1. Defining the major task required to implement a strategy.
2. Grouping task on the basis of common skills requirement.
3. Subdivision of responsibility and delegation of authority to
perform task.
4. Coordination of divided responsibility.
5. Design the administration of the information system.
6. Design the administration of control system.
7. Design the administration of appraisal system.
8. Design the administration of motivational system.
9. Design the administration of development system.
10. Design the administration of planning system.
 The first four of these mechanism will lead to the
creation of structure. The other six are devised to
hold and sustain the structure.
STRATEGY STRUCTURE RELATIONSHIP
 There is a close relationship between an organization's
strategy and its structure. For the organization to deliver its
plans, the strategy and the structure must be woven together
seamlessly
 The understanding of this relationship is important so that in
implementing the strategy, the organization structure is designed
according to the needs of the strategy.
 An organization's strategy is its plan for the whole business that
sets out how the organization will use its major resources.
An organization's structure is the way the pieces of the
organization fit together internally.
 Without coordination or Relationship between strategy and
structure, the most likely outcomes are confusion, misdirection,
and splintered efforts within the organization
 Changes in organizations strategy bring about new administrate
problems which, in turn, require a newly refashioned structure if
the new strategy is to be successfully implemented.
 Organizational structures need to be designed to meet aims. They
involve combining flexibility of decision making, and the sharing
of best ideas across the organization, with appropriate levels of
management and control from the centre.
 Environmental forces constitute a big driver to change in
organizations. Once strategy has been directed by the
environmental forces, then strategists identify a structure
to match with the strategy
 This is referred to as the strategic alignment‘- aligning the
strategy and the structure to the environment.
 Structure is the design of the organization through which
strategy is administered. Changes in an organization‘s strategy
can lead to new administrative problems which will require a
new structure for the successful implementation of the
new strategy.
 The structural design describes roles, responsibilities and
lines of reporting in organizations and can deeply influence
the sources of organization‘s advantage. Thus, failure to adjust
structures appropriately can totally undermine
implementation.
 This structure must be totally integrated with strategy for the
organization to achieve its mission and goals. - Structure
supports strategy.
 STRATEGY STRUCTURE

 What is our strategy?  How is the company/team

 How do we intend to divided?
achieve our objectives?  What is the hierarchy?
 How do we deal with  How do the various
departments coordinate
competitive pressure? activities?
 How are changes in  How do the team members
customer demands dealt organize and align
with? themselves?
 How is strategy adjusted  Is decision making and
for environmental issues? controlling centralized or
decentralized? Is this as it
should be, given what we're
doing?
 Where are the lines of
communication? Explicit
and implicit?
 Organizational Structure

Functional Divisional SBU Matrix

 FUNCTIONAL ORGANIZATION STRUCTURE

This is based on the primary activities that have to be undertaken by an

organization such as production, finance and accounting, marketing, human
resources and R&D.
Such a structure divides responsibilities according to the organizations
primary roles. Functional structures are found in firms with a single or
narrow product focus and such firms require well-defined skills and area of
specialization to acquire competitive advantages in providing products and
services.
The strategic challenge is thus effective co-ordination of the functional units
 PRODUCT/DIVISIONAL ORGANIZATION STRUCTURE

A Divisional Organizational Structure/Multi-Divisions is adopted by firms

undertaking a product diversification strategy or utilizes unrelated market
channels or begins to serve heterogeneous customer groups. In this case, a
functional structure becomes inadequate and a divisional structure is used.

The new structure is necessary to meet the increased co-ordination and decision
making requirements that result from increased diversity and size. This allows
decision-making in response to varied competitive environments and enables
corporate management to concentrate on corporate-level strategic decisions
 SBU

It is an additional layer of management due to the need to improve strategy

implementation, to promote synergy and to gain greater control over the firm‘s
diverse business units.

The adoption of this type of structure by management is as a result of firms

encountering difficulty in evaluating and controlling the operations of their
divisions as the diversity, size and number of these units continues to increase.

Therefore the change in organization strategy triggers the need to adopt a new
structure for effective implementation of the strategy. It provides a way for the
largest companies to regain focus in different parts of their business.
 STRATEGIC BUSINESS UNIT (SBU)

 SBU, is a fully-functional unit of a business that has its own

vision and direction. Typically, it operates as a separate
unit, but it is also an important part of the company.
 It is a profit center which focuses on product offering and market
segment.
 SBUs typically have a discrete marketing plan, analysis of
competition, and marketing campaign.
 This principle works best for organizations which have
multiple product structure.
Features:-
 They are present in the organizational structure,
 They are small businesses with a high functional and decision-
making autonomy.
 They are organizational units without separate legal personality,
 They utilize "product-market" strategy,
 SBU has divisional structure, which is determined
by the size of production, technology and research
activities financial and accounting processes,
and marketing activities.
 E.g. Proctor and Gamble, LG. These companies
have different product categories under one roof.
LG as a company makes consumer durables.
 It makes refrigerators, washing machines, air-
conditioners as well as televisions. These small
units are formed as separate SBUs so that
revenues, costs as well as profits can be
tracked independently.
 Once a unit is given an SBU status, it can make its
own decisions, investments, budgets etc. It will be
quick to react when the product market takes
a shift or changes start happening before the
shift happens.
 MATRIX

It is a two directional structure where individual works under both

vertical and horizontal lines of command.
It is a combination of structures which could take the form of product and
geographical divisions or functional and divisional structures operating together.
Such structures are used in large companies where there is increased diversity
that leads to numerous products and project efforts of major strategic
significance.

It will allow effective knowledge management since separate areas of skills and
resources will be integrated across organizational boundaries.
Thus, the matrix structure simplifies and increases the focus of resources on a
narrow but strategically important product, project or market
 RESOURCE ALLOCATION

 It deals with the procurement and commitment of financial,

physical & Human resources to strategic tasks for achievement
of organizational objectives.
 Organisational resources in tandem with organisational
behaviour constitute the foundation for the creation of
strengths & weakness, synergistic advantages, core
competencies and capability leading to competitive advantage.

Approaches to Resource Allocation

1. BCG based Budgeting:- BCG product portfolio matrix is
one of the tools that strategists can use to link resource
allocation decisions to choice of strategy. Investment & cash
flow decision can be made on the basis of type of SBU.
2. PLC based budgeting:- RA could be linked to different stages in
a PLC. A product in the introduction and growth stage may
attract more resources.

3. Zero based Budgeting:- each strategist have to justify the

resource allocation demand, not on the previous year budget, but
on ground zero. (which is based on fresh calculation of cost each
time a plan is implemented.

4. Strategic budgeting:- it is the process of creating long –range

budget that spans a period of more than one year. The intent
behind is to develop a plan that supports long range vision for the
future position of an entity.
 Restructuring: A significant change to the
existing business model of a firm. Changes may
include divestment of non-core businesses,
mergers, replacement, cost cutting, streamlining
product portfolio.

 Re-engineering: Optimizing business processes

to secure improve efficiency, productivity and/or
effectiveness. i.e. Improving my on time delivery
rate, lowering my cost per unit transportation
cost, reduce labour hours on mature products thru
automation, etc. The current dominant
methodologies are Six Sigma. These are tactical
level changes.
 Theory X Theory Y
 Theory X managers tend to take a pessimistic view of
their people, and assume that they are naturally
unmotivated and dislike work. They think that team
members need to promoted, rewarded or punished
constantly to make sure they complete their task.
 Dislike their work.
 Avoid responsibility and need constant direction.
 Have to be controlled, forced and threatened to deliver
work.
 Need to be supervised at every step.
 Have no incentive to work or ambition, and therefore
need to be enticed by rewards to achieve goals.
 Organizations with a Theory X approach tend to have
several tiers of managers and supervisors to oversee
and direct workers.
 Authority is rarely delegated, and control remains
firmly centralized. Managers are more authoritarian
and actively intervene to get things done.
 Theory Y managers have an optimistic, positive opinion of
their people, and they use a decentralized, participative
management style. This encourages a more collaborative
and trust based relationship between managers and their
team members.
 People have greater responsibility, and managers
encourage them to develop their skills and suggest
improvements. Appraisals are regular, also give employees
frequent opportunities for promotion.

This style of management assumes that workers are:

 Happy to work on their own initiative.

 More involved in decision making.
 Self-motivated to complete their tasks.
 Enjoy ownership of their work
 Seek and accept responsibility, and need little
direction.
 View work as fulfilling and challenging.

 Solve problems creatively and imaginatively.

 Vroom expectancy motivation theory

Expectancy: effort → performance (E→P)

Instrumentality: performance → outcome (P→O)
Valence: V(R) outcome → reward
 Expectancy theory is about the mental processes regarding
choice, or choosing. It explains the processes that an
individual undergoes to make choices.

 This theory emphasizes the needs for organizations to

relate rewards directly to performance and to
ensure that the rewards provided are those rewards
deserved and wanted.

 The individual makes choices based on estimates of how

well the expected results of a given behavior are going to
match up with or eventually lead to the desired results.

 Motivation is a product of the individual's expectancy that

a certain effort will lead to the intended performance, the
instrumentality of this performance to achieving a certain
result, and the desirability of this result for the individual,
known as valence
 Expectancy is the belief that increased effort will lead to increased
performance i.e. if I work harder then this will be better. This is affected
by:-

 Having the right resources available (e.g. raw materials, time)

 Having the right skills to do the job
 Having the necessary support to get the job done (e.g. supervisor support,
or correct information on the job)

 Instrumentality is the belief that if you perform well that a valued

outcome will be received. The degree to which a first level outcome will
lead to the second level outcome. i.e. if I do a good job, there is something
in it for me. This is affected by:-

 Clear understanding of the relationship between performance and

outcomes – e.g. the rules of the reward 'game'
 Trust in the people who will take the decisions on who gets what outcome
 Transparency of the process that decides who gets what outcome

 Valence is the importance that the individual places upon the expected
outcome. For the valence to be positive, the person must prefer attaining
the outcome to not attaining it. For example, if someone is mainly
motivated by money, he or she might not value offers of additional time
off.
UNIT 6

o A business model is nothing more than a model,

holistic description of the logical contexts how a
company generates value for its customers and itself.
 The business model of a company is thus an analytical
unit to systematically identify the starting point for
innovation, which means that companies can change
parts of their business model and thus create an
advantage over their competitors.
 A business model innovation is thus the conscious
change of an existing business model or the creation of
a new business model that better satisfies the needs of
the customer than existing business models.
 For companies in all industries, innovation is immensely
important.
 In many cases, however, innovation is only associated with
new, innovative products or technical renewals.

 However, business model innovations are significantly

more profitable. Changes in customer behaviour,
globalization and technological innovations are
currently creating a "window of opportunity" for new
business models.

 It is one of the most effective ways for companies to stand out

from the competition and thus secure the existence of the
company, especially in instable times.

 Ultimately, it is a matter of breaking down a company into its

building blocks, analysing it and evaluating it, re-inventing
them, and, in combination with other, new building blocks, to
set them back together systematically.
 Disruptive Innovation refers to a technology whose
application significantly affects the way a market or
industry functions.
 An example of a modern disruptive innovation is the
internet, which significantly altered the way companies did
business and which negatively impacted companies that
were unwilling to adopt it.
 Identify “white space” growth opportunities—tapping
into an entirely new customer opportunity with a completely
new business model that changes the competitive landscape.
 Generate valuable, new ideas for engaging with
customers, designing new or transformed business models
that fulfil the jobs customers need to get done more
effectively, efficiently and profitably.
 Successfully enter emerging markets, re-conceiving
business models that recognize the unique unmet needs of
consumers in these markets, profitably and efficiently.
 Create new systems, rules, and metrics that enable
companies to organize for and implement new businesses
successfully.
 The theory goes that a smaller company with fewer resources
can unseat an established, successful business by targeting
segments of the market that have been neglected by the
incumbent, typically because it is focusing on more profitable
areas.
 As the larger business concentrates on improving products and
services for its most demanding customers, the small company
is gaining a foothold at the bottom end of the market, or
tapping a new market the incumbent had failed to notice.
 This type of start-up usually enters the market with new or
innovative technologies that it uses to deliver products or
services better suited to the incumbent’s overlooked customers
– at a lower price.
 Then it moves steadily upmarket until it is delivering the
performance that the established business’s mainstream
customers expect, while keeping intact the advantages that
drove its early success.
 Disruption happens when the incumbent’s mainstream
customers start taking up the start-up’s products or services in
volume. Think Netflix.
 IT is becoming more and more a game changer in
the industry. The IT trends for 2018 are
dominated by artificial intelligence, followed by
the cloud and innovative digital platforms such
as fog computing, server less Paa and block
chain. 5G is also becoming increasingly
important as a key technology for the
implementation of Industry.
 BLUE OCEAN STRATEGY

 Blue ocean strategy is the simultaneous pursuit

of differentiation and low cost to open up a new
market space and create new demand.
 It is about creating and capturing uncontested
market space, thereby making the competition
irrelevant.
 It is based on the view that market boundaries
and industry structure are not a given and can be
reconstructed by the actions and beliefs of
industry players.
 Red oceans are all the
industries in existence today
– the known market space.
 In red oceans, industry
boundaries are defined and
accepted, and the
competitive rules of the
game are known.
 Here, companies try to
outperform their rivals to
grab a greater share of
existing demand.
 As the market space gets
crowded, profits and growth
are reduced. Products
become commodities,
leading to cutthroat or
‘bloody’ competition. Hence
the term red oceans.
 and powerful in terms of
 Blue oceans, in contrast,
denote all the industries not
in existence today – the
unknown market space,
untainted by competition.
 In blue oceans, demand is
created rather than fought
over. There is ample
opportunity for growth that
is both profitable and rapid.
 In blue oceans, competition
is irrelevant because the
rules of the game are
waiting to be set.
 A blue ocean is an analogy
to describe the wider, deeper
potential to be found in
unexplored market space.
 A blue ocean is vast, deep,
profitable growth.
 STRATEGIC CONTROL

 Strategic controls take into account the changing

assumptions that determine a strategy, continually
evaluate the strategy as it is being implemented,
and take the necessary steps to adjust the strategy
to the new requirements.
 In this manner, strategic controls are early
warning systems and differ from post-action
controls which evaluate only after the
implementation has been completed.
1. Premise Control: Every strategy is based on
certain assumptions about environmental
and organisational factors. Some of these
factors are highly significant and any change in
them can affect strategy to a large extent.
 Premise control is necessary to identify the key
assumptions, and keep track of any change in
them so as to assess their impact on strategy and
its implementation.
 Premise control serves the purpose of continually
testing the assumptions to find out whether they
are still valid or not.
 This enables the strategists to take corrective
action at the right time rather than continuing
with a strategy which is based on erroneous
assumptions.
2. Implementation Control:
 Implementation of strategy results in series of
plans, programmes & projects, it is aimed at
evaluating whether PPP are actually guiding the
organisation towards its predetermined
objectives or not.
 Implementation control may be put into practice
through the identification and monitoring of
strategic thrusts such as:-
 An assessment of the marketing success of a
new product after pre-testing – (company may
evaluate whether new product launch will be
advantageous or it should be abandoned in
favour of other.
 Checking the feasibility of a diversification
programme after making initial attempts at
seeking technological collaboration.
 Strategic Surveillance: it is designed to
monitor a broad range of events inside and
outside the company that are likely to threaten
the course of a firms strategy.
 Special Alert Control: Special alert control is
based on trigger mechanism for rapid response
and immediate reassessment of strategy in the
light of sudden and unexpected events called
crises. Crises are critical situations that occur
unexpectedly and threaten the course of a
strategy.
 Strategic momentum control
 These types of evaluation techniques are aimed at
finding out what needs to be done in order to allow
the organization to maintain its existing strategic
momentum.
 There are three techniques , which could be used to
achieve these aims:
1. Responsibility control centres
2. Critical success factors
3. Generic strategies
 Responsibility controls form the core of management
control systems and are of four types: revenue,
expense, profit, and investment centres.
 CSFs form the bases for strategists to continually
evaluate the strategies to assess whether or not these
are helping the organization to achieve the objective.
 Critical Success Factors

 Critical success factors (CSF) are the key areas,

which must be performed at the highest possible
level of excellence if organizations want succeed in
the particular industry.
 They vary between different industries or even
strategic groups and include both internal and
external factors.
 The more critical success factors are included the
more robust and accurate the analysis is.
Market Share Union relations Power over suppliers

Product Quality Skilled workforce Access to key suppliers

Clear strategic direction Location of facilities Efficient supply chain

Customer service Production capacity Supply chain integration

Customer loyalty Added product features On time delivery

Brand reputation Price competitiveness Strong online presence

Effective social media

Customer satisfaction Low cost structure
management

Experience and skills

Financial position Variety of products
in e-commerce

Management qualification
Cash reserves Complementary products
and experience

Innovation in products and

Profit margin Level of product integration
services
Inventory turnover Successful product promotions Innovative culture

Superior marketing
Employee retention Efficient production
capabilities
Superior advertising
Income per employee Lean production system
capabilities

Innovations per employee Superior IT capabilities Strong supplier network

Cost per employee Size of advertising budget Strong distribution network

Effectiveness of sales
R&D spending Product design
distribution

Strong patent portfolio Employee satisfaction Level of vertical integration

Effective planning and Effective corporate social

New patents per year
budgeting responsibility programs

Variety of distribution
Revenue per new product Sales per outlet
channels

Successful new introductions Power over distributors Parent company support

 The generic strategies approach to strategic
control is based on the assumption that the
strategies adopted by a firm similar to
another firm are comparable.
 Based on such a comparison, a firm can study
why and how other firms are implementing
strategies and assess whether or not its own
strategy is following a similar path.
 A strategic group is a group of firms that
adopts similar strategies with similar resources.
Firms within a strategic group, often within the
same industry and sometimes in other industries
too, tend to adopt similar strategies.
 Strategic Leap Control
 Organisational environment may be dynamic.
Firms operating in dynamic environment
probably have major shifts in strategies and their
assumptions may require more drastic changes.
 Developing and maintaining control in such an
environment need new strategic rules and to cope
with emerging environmental realities.
 Therefore, the strategies, under dynamic
environments should redefine the rules for
developing and operationalising strategies.
There are four forms of strategic leap
control:-
1. Strategic issue management
2. strategic field analysis
3. systems modelling
4. scenarios.
 Strategic Issue Management: It involves the
identification of one or a few key issues that are
perceived as crucial to an organisation to achieve its
performance objectives.
 It is designed to reduce the chances of an organisation
being caught unaware by a major environmental
change.
 These control techniques encourage the company to
remain sensitive to potential environmental changes,
plan appropriate actions for changes and avoid
becoming locked into a particular course of action.

 Strategic Field Analysis: It is a way of examining

the nature and extent of synergies that exist or are
lacking between/among components of an
organisation.
 This examination allows the managers to exploit the
opportunities provided by the environment.
 Systems Modelling: Systems models are
typically computer-based models trying to
capture the administrative realities of an
organisation and how it interfaces with its
environment.

 Scenarios: It focuses on qualitative aspects of

the organisation broad trends, describing
alternative major scenarios and developing an
assessment of which scenario is most likely.
 Portfolio analysis
 It involves identification and evaluation of all
products or service groups offered by company on
the market (so called product mix) and preparing
specific strategies for every group according to
its relative market share and actual or
projected sales growth rate.
 It allows to answer key questions how to shape
the present and future business portfolio (of
product or services) in order to reduce the risk of
functioning in a changing environment, and
increase the effects of the implemented strategy.
PROCESS OF STRATEGIC CONTROL
STEP 1: KEY AREAS TO BE MONITORED
 Macro-environment: The external environmental
forces must be continuously monitored as the changes
in the environment influence the strategic
implementation process of the company.
 Strategic Monitoring and Control Includes:
Modifying any one or more of the areas like
company’s mission, objectives, goals, strategy
formulation and strategy implementation.
 Industry Environment: The purpose is to modify
the company’s strategy goals and operations in order
to capitalise the new opportunities and defend against
the new threats effectively.
 Internal Operations: The strategist has to evaluate
the internal operations continuously
in view of the changes in the macro-environment and
industry environment.
STEP 2: ESTABLISHING STANDARDS

 The standards may include:

Quality of Products/Services.
Quantity of Products to be Produced.
Quality of Management.
Innovativeness/Creativity.
Long term investment value.
Volume of sales and/or market share.
Production targets, rate of capacity utilisation,
Ability to attract, develop and retain competent
and skilled people.
Use of company’s assets.
Corporate image among the customers and
general public.
STEP 3: MEASURING PERFORMANCE

 The strategist has to measure the performance

through Strategic audits and strategic audit
measurement methods.
 Strategic Audit
A strategic audit is an execution and evaluation
of organisation’s operations affected by the
strategy implementation. Strategic audit may be
very comprehensive, emphasising all facets of a
strategic management process.
 Strategic Audit Measurement Methods
 Qualitative Methods
 Quantitative Methods
Qualitative Methods
 Qualitative measurements are in the form of non-
numerical data that are subjectively summarised.
 Critical questions are designed to reflect important facts
of organisational operations. Answers to these questions
form as the basis for measurements.
 Qualitative measurement methods are efficient and are
useful. But applying them relies mostly on human
judgement. Conclusion based on such methods should be
drawn carefully due to the subjectivity of the judgement.

 Is organisational strategy appropriate, given

organisational resources?
Quantitative Methods
 Under quantitative organisational measurements of
the performance of strategy implementation is taken
place in the form of numerical data.

 Quantitative measurements can be used to evaluate:

(i) Number of units produced per time period,
(ii) Cost of production, cost of marketing,
(iii) Productivity and production efficiency levels,
(iv) Employee turnover, absenteeism levels,
(v) Sales and sales growth market shares,
(vi) Profit-gross, net, earning per share, dividend rate,
return on equity, market price of
the share,
(vii) Cost of production,
(viii) Cost of marketing, etc.
 STEP 4: COMPARE PERFORMANCE WITH
STANDARDS
1. Profitability Standards: These standards include how much
gross profit, net profit, return on investment, earning per share,
percentage of profit to sales the company should
earn in a given time period.

2. Market Position Standards: These standards include total sales,

sales-region wise and product-wise, market share, marketing costs,
customer service, customer satisfaction, price, customer loyalty
shifts from other organisations’ products etc.

3. Productivity Standards: These standards indicate the

performance of the organisation in terms of conversion of inputs
into outputs. These standards include capital
productivity, labour productivity, material productivity.

4. Product Leadership Standards: These standards include the

innovations and modifications in products to increase the new uses
of the existing product, developing new products with new uses.
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. The strategy
should just allow the process to continue.
However, 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

 The strategists compare the performance with standards. If

they find any deviation
between the standards and performance, they should take
corrective action.
 Causes of Deviations:
Was the cause of deviation internal or external?
Was the cause random, or should it have been anticipated?
Is the change temporary or permanent?
Are the present strategies still appropriate?
 Corrective Action:
Strategies that do not achieve standards produce three
possible responses.
 To revise strategies
 To change standards
 To take corrective action in the existing process without
changing standards and strategies.