Unit-II

Strategic Planning and Management: Process, Importance, 7s Framework, PEST Analysis, ETOP, SAP, CSF, Internal environmental scanning, Corporate Governance

Facilitator-
Deepti Verma
Assistant Professor, AEC
• Strategy is a Comprehensive long term plan.
• It tries to answer three main questions:
•  What is the present position of the firm?
•  What should be the future position of the
firm?
•  What should be done to attain the future
position?
 STRATEGIC PLANNING
• Strategic planning is a process in which organizational leaders
determine their vision for the future as well as identify their goals
and objectives for the organization.
• The process also includes establishing the sequence in which those
goals should fall so that the organization is enabled to reach its stated
vision.

• Strategic planning means planning for making and implementing

strategies to achieve organisational goals.
• It starts by asking oneself simple questions like :
• What are we doing, should we continue to do it or change our product line or the way
of working,
• what is the impact of social, political, technological and other environmental factors
on our operations, are we prepared to accept these changes etc.
 STRATEGIC PLANNING
• "Strategic planning concerns how an organisation
makes sense of where it is going, and the path it will
adopt to get there (Kaplan and Beinhocker)“
• Strategic planning helps in knowing where we are and
where we want to go so that environmental threats
and opportunities can be exploited, given the strengths
and weaknesses of the organisation.
• Strategic planning is “a thorough self-examination
regarding the goals and means of their
accomplishment so that the enterprise is given both
direction and cohesion.”
 STRATEGIC PLANNING
• It is “a process through which managers formulate and implement
strategies geared to optimising strategic goal achievement, given available
environmental and internal conditions.”
• Strategic planning is planning for long periods of time for effective and
efficient attainment of organisational goals. Strategic planning is based on
extensive environmental scanning.
• It is a projection into environmental threats and opportunities and an effort
to match them with organisational strengths and weaknesses.
• Strategic planning is done to comprehend, anticipate and absorb
environmental vagaries. It is a continuous process.
• Every time business organisations want to increase the growth rate or
change their operations, desire for better management information system,
co-ordinate activities of different departments, remove complacency from
organisations; they make strategic plans.
 Features of Strategic Planning
1. Process of questioning: It answers questions like where we are
and where we want to go, what we are and what we want to be.

2. Time horizon: It aims at long-term planning, keeping in view the

environmental opportunities. It helps organisations analyse their
strengths and weaknesses and adapt to the environment. Managers
should be farsighted to make strategic planning meaningful.

3. Pervasive process: It is done for all organisations, at all levels;

nevertheless, it involves top executives more than middle or
lower-level managers since top executives envision the future
through scientific techniques of forecasting.
 Features of Strategic Planning
4. Focus of attention: It focuses organisation’s strengths and
resources on important and high-priority activities rather than
routine and day-to-day activities. It reallocates resources from
non-priority to priority sectors.

5. Continuous process: Strategic planning is a continuous process

that enables organisations to adapt to the changing, dynamic
environment.

6. Co-ordination: It coordinates organisation’s internal environment

with the external environment, financial resources with non-
financial resources and short-term plans with long- term plans.
Reasons for the growth of strategic planning
1. Establish Focus and Direction

2. Create Consensus

3. Enhance Competitive Advantage

4. Control Resources Effectively

5. Minimize Risk

6. Enhance Employee Motivation

7. Achieve Long Term Success

 Importance of Strategic Planning
1. Financial benefits: Firms that make strategic plans have good sales, low
costs, high EPS (earnings per share) and high profits. Firms have financial
benefits if they make strategic plans.
2. Guide to organisational activities
3. Competitive advantage
4. Minimise risk
5. Beneficial for companies with long gestation gap: The time gap between
investment decisions and income generation from those investments is called
gestation period. During this period, changes in technological or political
forces can affect implementation of decisions and plans may, therefore, fail.
Strategic planning discounts future and enables managers to face the threats
and opportunities. Huge capital investments in projects is followed by
expected financial returns.
6. Promotes motivation and innovation
7. Optimum utilisation of resources
 Limitations of Strategic Planning
1. Lack of knowledge: Strategic planning requires lot of knowledge, training and experience.
Managers should have high conceptual skills and abilities to make strategic plans. If they
do not have the knowledge and skill to prepare strategic plans, the desired results will not
be achieved. It will also result in huge financial losses for the organisation. This limitation
can be overcome by training managers to make strategic plans.

2. Interdependence of units: If business units at different levels (corporate level, business

level and functional level) are not coordinated, it can create problems for effective
implementation of strategic plans.

3. Managerial perception: In order to avoid developing risky objectives and strategies which
they will not be able to achieve, managers may land up framing sub-optimal goals and
plans. Sometimes, short-term commitments also defer making long-term strategies.

4. Financial considerations: Strategic planning requires huge amount of time, money and
energy. Managers may be constrained by these considerations in making effective strategic
plans. These limitations are by and large, conceptual and can be overcome through
rational, systematic and scientific planning. Researchers have proved that companies
which make strategic plans outperform those which do not do so.
 PROCESS OF STRATEGIC PLANNING
1. Objective Formulation:- Strategies are goal-oriented. The overall
purpose or mission, vision and goals of the organisation must be
clearly stated. Mission explains the reason why business is in
existence. It identifies the scope of products/services. The goals can
be economic or social and may relate to size of the organisation,
goods or services or simply the technology or the way an
organisation operates its business.

2. Analyse the Impact of Environment:- Environmental analysis is

the “systematic assessment of information about the firm’s external
environment during the strategic planning process to identify
strategic opportunities for the company as well as major threats,
problems, or other possible impediments.” Managers scan the
environment, pick relevant information and use it for strategy
formulation.
 PROCESS OF STRATEGIC PLANNING
3. Analyse Resource Position of the Firm:- The following steps are identified
by Hofer and Schendel to analyse resource position of the organisation:

(a) Develop a profile of the organisation’s principal resources and skills in three
broad areas: financial; physical, organisational and human; and
technological.

(b) Determine the key success requirement of the product/market segments in

which the organisation competes or might compete.

(c) Compare resource profile with key success requirements to determine the
major strengths on which effective strategy can be based and major
weaknesses to be overcome.

(d) Compare organisation’s strengths and weaknesses with those of competitors

to identify which resources and skills are needed to have competitive
advantage in the marketplace.
 PROCESS OF STRATEGIC PLANNING
4. Establish Alternative Strategies:- It reveals gap between the present
state and future aspirations of the organisation. If existing strategies can
help in reaching the desired objectives, new strategies need not be
formulated but if there is a gap, managers develop strategies to attain
the objectives. The following strategies can be made:

(a) Strategy to concentrate: Companies want to specialise in the existing

line of products, capture bigger market share and become market
specialists in that product line.

(b) Strategy to diversify: Companies want to enter new markets to

increase the share of market.

(c) Strategy to enter international markets: Besides increasing share in the

national markets, firms want to expand their business in other
 PROCESS OF STRATEGIC PLANNING
(d) Strategy to enter into joint ventures: Firms enjoy the benefits of synergy by
collectively exploiting the resources and enlarging their area of operation.

(e) Liquidation strategy: It means to drop the existing product if it is not

profitable.

(f) Retrenchment strategy: It means dropping some of the resources (human and
non-human) to make best use of the remaining ones. Surplus resources are
shed off in this strategy. It results in optimum use of resources.

5. Evaluate Alternative Strategies:- Different strategic options are evaluated

on the basis of their competitive advantages in terms of:
• (a) Risk: Will the strategy be able to achieve the objectives?
• (b) Time: Is it being adopted and implemented at the right time?
• (c) Target: Does it target at matching internal strengths and weaknesses of the
organisation with its external environment?
 PROCESS OF STRATEGIC PLANNING
6. Choice of a Strategy:- After evaluating strategies in terms of risks and
returns (ability to achieve the goals), they are ranked in order of priority and
the strategy best suited to achieve the goals is chosen. The chosen strategy
should be directed to maximise long-term goals of the organisation.

7. Implement the Strategy:- After selection, the strategy is put into action
and practiced. It becomes a guide for the organisation and members to
direct their efforts in a unified direction. Implementation requires designing
the suitable organisation structure, developing a sound system of
communication, motivation and control, allocating authority responsibility,
resources etc.

8. Measurement and Control of Strategy:- Organisational performance is

measured at periodic intervals to assess whether strategic objectives are
being achieved or not.
 Strategic Management
Strategic management consists of the analysis ,decisions ,and actions an
organization undertakes in order to create and sustain competitive
advantages. Dess et al (2005).This definition captures two elements @
the heart of strategic management:
(a) Strategic management of an organization entails three ongoing
processes: analysis, decisions & actions.
(b) The essence of strategic management is the study of why some firms
outperform others, leading to two fundamental sub-questions;
How should we compete in order to create competitive advantages in
the marketplace?
How can we create competitive advantages in the marketplace that are
not only unique and valuable but also difficult for competitors to copy
or substitute?
 Strategy & Strategic Management
Strategic management is a broader term than strategy
and is a process that includes top management’s
analysis of the environment in which the organization
operates prior to formulating a strategy, as well as the
plan for implementation and control of the strategy.

The difference between a strategy and the strategic

management process is that the latter includes
considering what must be done before a strategy is
formulated, implementation of the strategy as well as
assessing the success of an implemented.
HIERARCHY OF STRATEGY
 Strategic Management Process
The strategic management process can be summarized in five steps:
1.Strategic Analysis which is split as follows:
(a) Internal Analysis: Analyze the org ’s strengths and weaknesses in its internal environment. Internal
analysis is based cultural analysis (vision & mission),strengths & weaknesses (SWOT
Analysis),resource focused analysis, value chain analysis or Mckinsey 7s framework.
(b) External Analysis: Analyze the opportunities and threats, or constraints, that exist in the org ’s
external environment, including industry and forces in the external environment. External analysis is
supported by PESTELI Analysis, SWOT Analysis, Five Forces Model, SPECTACLES Analysis,
Competitor Analysis, Strategic Group Analysis etc
2. Strategy Formulation: Formulate strategies that build and sustain competitive advantage by matching
the org ’s strengths and weaknesses with the environment’s opportunities and threats. Functional,
business level (competitive) & corporate strategies are formulated.
3. Strategy Implementation: Execute the strategies that have been developed.
4. Strategic Control and Evaluation: Measure success, provide feedback, & make corrections when the
strategies are not producing the desired outcome.
 Mckinsey 7s framework
* The Mckinsey 7s framework is a very comprehensive
and better alternative to SWOT Analysis in respect of
analyzing the internal environment.
Strategy: the plan devised to maintain and build
competitive advantage over the competition.
 Structure: the way the organization is
structured and who reports to whom.
Systems: the daily activities and procedures that
staff members engage in to get the job done.
 Shared Values: called "subordinate goals"
when the model was first developed, these are
the core values of the company that are
evidenced in the corporate culture and the
general work ethic.
 Style: the style of leadership adopted.
 Staff: the employees and their general
capabilities.
 Skills: the actual skills and competencies of the
employees working for the company.
• Let's look at each of the elements individually:
• THE HARD S-1- Strategy: this is your organization's plan for building and
maintaining a competitive advantage over its competitors. Examples. •
Low-cost strategy through economic production or delivery • Product
differentiation through distinct features or innovative sales
• THE HARD S-2- Structure: • Ways in which task and people are
specialized and divided, and authority is distributed. Four main
structures • Functional Structure • Divisional Structure • Matrix
Structure • Network Structure
• THE HARD S-3-Systems: • Formal processes and procedures to manage
the organization. Examples: • Performance Measurements • Reward
Systems • Planning • Budgeting • Resource Allocation • Information
System • Distribution System
• THE Soft S-1:-: Shared values: these are the core values of the organization,
as shown in its corporate culture and general work ethic. They were called
"subordinate goals" when the model was first developed. Organization’s
approach to recruitment, selection, socialization, and training and employee
development is important for effective staffing..
• THE Soft S-2 Skills • Distinctive competencies in the organization. • Can be of
People, Management Practices, Systems and/or Technologies.
• THE Soft S-3 Style • Leadership style of top management and overall
operating style of organization. • Impacts norms followed by people, how
they work and interact with each other and customers.
• THE Soft S-4 Shared Values • Core values shared in the organization and
serve as guiding principles of what is important. • Helps focus attention and
provides a broader sense of purpose. Placing shared values in the center of
the model emphasizes that these values are central to the development of
all the other critical elements. The model states that the seven elements
need to balance and reinforce each other for an organization to perform well
 External Assessment
• a) PESTLE Analysis
• b) SPECTACLES Analysis
• c) Competitor Analysis
• d) Strategic Group Analysis
• e) Porter `s Five Forces Model
• f) Porter `s Four Corner Analysis Model
• PESTLE I Analysis
•
• (i) Political Factors
•  Political stability
•  Influence of Political parties
•  Gvt, gvt bodies & quasi-gvt bodies
•  Gvt ideology e.g. free market or socialist thrust
•  Changes in gvts
•  Gvt policies
• (ii) Economic factors
•  GDP per capita(income levels)
•  Income distribution
•  Interest rates
•  Inflation
•  Exchange rates
•  Stock Market Performance
• (iii) Social Factors
• Culture
• Demographic Trends
• Social expectations
• Customer tastes and preferences
• Educational levels
• (iv) Technological Factors
• Rate of innovation
• Globalization
• Infrastructural Requirements
• Information technology
• Research & Development
• (v)Legal Factors: Relates to how the legal framework
• affects corporate strategy:
•  Regulatory framework & competitiveness
•  Legal framework & resources (tangible & intangible
• resources)
•  Legal framework & growth
•  Legal framework & marketing of goods
•  Legal framework & corporate governance
• (vi) Environmental /Ecological Factors
• Raw materials
• Cost of energy
• Pollution & green imperatives
• Business & climate change
• Discovery of new natural resources
• (vii) International Factors: The aggregate of
• factors that include world
economic,political,socio-
• cultural,technological,environmental,legal
• framework & other imperatives.
• SPECTACLES Analysis
• *Cartwright (2002) takes a detailed approach to assessing
• the environmental factors under which the activities have
• to be conducted and decisions taken under a ten point
• acronym SPECTACLES.
• (i)Social: changes in society & societal trends, demographic
• trends & influences.
• (ii)Political: political processes & structures,political
• institutions & their influence on business
• (iii)Economic: referring to sources of finance,stock markets,
• inflation,interest rates, property
• prices,local,regional,national & global economies.
• (iv)Cultures; local,regional & international,cultural
• changes,cultural pressures on organizational activities.
• (v) Technological:technological needs of
• business,technological pressures,technology and
• functional level efficiency & effectiveness.
• (vi) Aesthetic: communication, marketing &
• promotion,image,fashion,organisational,public
• relations.
• (vii) Customer: needs & wants,customer
• care,anticipating,future requirements,consumer
• behaviour.
• (viii)Legal: Legal pressures,product
• liability,employment law,competition legislation
• (ix)Environmental: responsibities to the
• planet,responsbilities to
communities,pollution &
• other environmental imperatives.
• (x)Sectoral:Competition,market
structures,competitive
• forces,co-operation,differentiation & market
• segmentation
• For those responsible for strategic management &
• direction of organizations, the SPECTACLES
• approach generates a broadness of considerations
• that, in many cases, is not present at all.
• The key benefit of SPECTACLES approach is to
• ensure that every aspect of the business &
• environment is addressed.
• It requires that even the softer aspects of the org like
• culture & aesthetics are considered.
•  It makes managers think more deeply about every
• issue & constrain
• Competitor Analysis
• *Competitor Analysis Framework
• i) Competitor Identification; The starting point in
• competitor analysis is identifying existing as well as
• potential competitors
• (ii) Competitor Assumptions;The assumptions that a
• competitor`s managers hold about their firm & their
• industry help define the moves they are likely to make
• (iii) Competitor Objectives; Knowledge of a competitor
• objectives facilitates a better prediction of the `s
• competitor`s reaction to different competitive moves
• (iv) Competitor Strategies; Knowledge of the
• competitor`s strategy ensures that the firm will
craft
• a strategy that aimed at outperforming
competition
• v) Competitor Capabilities; competitor capabilities
• can be analysed according to its strengths &
• weaknesses in functional areas
• Strategic Group Analysis
• • A strategic group is a group of firms following
• the same strategy in a given target market.
• • The firm’s in a strategic group provide direct
• competition to each other.
• • A firm must thus always monitor the activities
• of those competitors in its strategic group
• more closely than those out- side the group.
• • Strategic groups are identified by the key
• competitive variables in that industry
• Porter `s Five Forces Model
• Porter's five forces of competitive position analysis was
• developed in 1979 by Michael E. Porter of Harvard Business
• School as a simple framework for assessing and evaluating
• the competitive strength and position of a business
• organisation.
• This theory is based on the concept that there are five forces
• which determine the competitive intensity and attractiveness
• of a market.
• Porter’s five forces helps to identify where power lies in a
• business situation.
• This is useful both in understanding the strength of an
• organisation’s current competitive position, and the strength
• of a position that an organisation may look to move into.
• Threats of New Entrants
• Profitable markets attract new entrants, which
• erodes profitability.
•  Unless incumbents have strong and durable barriers
• to entry, for example, patents, economies of scale,
• capital requirements or government policies, then
• profitability will decline to a competitive rate.
• If barriers to entry are low then the threat of new
• entrants will be high, and vice versa
• Bargaining Power of Suppliers
• If a firm’s suppliers have bargaining power they will:
• Exercise that power
• Sell their products at a higher price
• Squeeze industry profits
• *Bargaining power of suppliers depends on
• (i) Uniqueness of the input supplied
• (ii) The relative size & strength of the supplier
• (iii) The number of suppliers for each essential input
• (iv) Competition for the input from other industries
• (v) Cost of switching to alternative sources
• Bargaining Power of Buyers
• Powerful customers are able to exert pressure to
• drive down prices, or increase the required quality
• for the same price, and therefore reduce profits in an
• industry.Several factors determine the bargaining
• power of customers, including:
• (i)Number of customers /buyers in the market
• (ii)Their size of their orders
• (iii)Number of firms supplying the product
• (iv)The threat of integrating backwards
• (v)The cost of switching from one supplier to another
• Threat of Substitute Products
• A substitute product can be regarded as
something
• that meets the same need
• If there are many credible substitutes to a
firm’s
• product, they will limit the price that can be
• charged and will reduce industry profits.
• Degree of Competitive Rivarly
• If there is intense rivalry in an industry, it will
• encourage businesses to engage in
• Price wars (competitive price reductions),
• Investment in innovation & new products
• Intensive promotion (sales promotion and higher
• spending on advertising)
• All these activities are likely to increase costs
• and lower profits.
• Sixth Force ? (Power of
• Complementors)
• *The sixth force, “The Power of Complementors’’ was
• added by Brandenburger & Nalebuff (1996) who
• identified the power of affect the usage & sales of PC
• market players like IBM,DELL & HP
• -Complementors are not found in every industry &
• reseaerchers only noticed them when they were studying
• new industries like software.
• -Complementors do not complete in the industry ,do not
• supply it or buy from it.
• -Porter (2001) disputes the power of complementors to
• directly affect the profitability of an industry-in his fiew
• its not a true force.
• Sources of Competitive Advantage
• a) Resources
• b) Corporate Culture
• c) Technological know-how
• d) Market Power
• e) Relationships
• f) Size of the organization.
 What is ETOP analysis?
• ETOP analysis (environmental threat and
opportunity profile) is the process by which
organizations monitor their relevant
environment to identify opportunities and
threats affecting their business for the
purpose of taking strategic decisions.
 Why ETOP is needed?
• Helps organization to identify opportunities and threats
• To consolidate and strengthen organizations position
•Provides the strategists of which sectors have a
favorable impact on the organization
• Help organization know where it stands with respect to
its environment
• Helps in formulating appropriate strategy
•Helps in formulating SWOT analysis (Strategic
weakness, opportunities and threats)
 How to prepare an ETOP?
• ➢Dividing the environment into different sectors
such as economical, market, social, international,
legal, technological, political, ecological, etc.
• ➢ Analyzing the impact of each sector on the
organization
• ➢ Sub-dividing each environmental sector into
sub factors
• ➢ Impact of each sub-sector on organization in
form of a statement
OPPORTUNITY MATRIX
THREAT MATRIX
 Strategic Advantage Profile (SAP)
• Strategic Advantage Profile (SAP) is a
summary statement which provides an
overview of advantages and disadvantages in
key areas likely to affect future operations of
an organization.
• The strategic advantage profile is a tool for making a
systematic evaluation of the enterprises internal
factors which are significant for the company in its
environment.
• The SAP shows the strengths and weakness of an
organization in different functional areas.
• For preparing the SAP it is necessary to analyze the
internal environment ( related to functional areas like
finance, marketing, production, human resources etc.)
as well as the external environment of an organization.
 In Short
• SAP is the technique of analyzing the internal factors of the
organization by preparing a critical picture of different capacity
factors.
• It is a relative strength of the company over its competitors.
Strategic advantage profile is a summary statement which
provides an overview of the advantages and disadvantages in
key areas likely to affect future operations of a firm.
• It is a total for making systematic evaluation of strategic
advantage factors which are significant for the company in its
environment. it involves functional areas like marketing,
production, finance, accounting, personnel, human resource and
R&D SAP is a summary statement of corporate capabilities,
 Critical Success Factors (CSF)
• Critical Success Factors (CSF) are specific elements or action
areas a business, team, or department must focus on and
successfully implement to reach its strategic objectives.
• Successful execution of these success factors should
generate a positive outcome and create meaningful value for
the business.
• CSFs are important because each one works as a guiding
compass for a company.
• When they are explicitly clarified to everyone at the
company, they function as a reliable point of reference for
focus and for determining success.
• Critical success factor (CSF) is a management term for an
element that is necessary for an organization or project to
achieve its mission. To achieve their goals they need to be aware
of each key success factor (KSF) and the variations between the
keys and the different roles key result area (KRA).
• A critical success factor may sound complicated, but it’s actually
a pretty simple concept. A critical success factor (often
abbreviated “CSF”) is a high-level goal that is imperative for a
business to meet. In order to be effective, a critical success factor
must:
• Be vital to the organization’s success.
• Benefit the company or department as a whole.
• Be synonymous with a high-level goal.
• Link directly to the business strategy.
Internal Environmental Scanning
• Internal environmental components are the ones that lie
within the organization, and changes in these
components affect the general performance of the
organization.
• There are different internal environmental like human
resources, capital resources, technological resources,
and a lot more like objectives, Organizational structure,
Value system, corporate structure, and labor union, etc.
• These components play a crucial role in building the
future of an organization; therefore, it is essential to
examine these components as a part of environmental
scanning thoroughly.
• What is Corporate Governance?
• Corporate governance is something altogether
different from the daily operational
management activities enacted by a
company’s executives. It is a system of
direction and control that dictates how a 
board of directors governs and oversees a
company.
• Corporate governance is a system of rules,
policies, and practices that dictate how a
company’s board of directors manages and
oversees the operations of a company;
• Corporate governance includes principles of
transparency, accountability, and security.
• Poor corporate governance, at best, leads to a
company failing to achieve its stated goals, and,
at worst, can lead to the collapse of the
company and significant financial losses for
shareholders.
• Positive Impacts of Corporate Governance in Companies
• A good corporate governance system:
• Ensures that the management of a company considers the best interests of
everyone;
• Helps companies deliver long-term corporate success and economic growth;
• Maintains the confidence of investors and as consequence companies raise
capital efficiently and effectively;
• Has a positive impact on the price of shares as it improves the trust in the
market;
• Improves control over management and information systems (such as
security or risk management)
• Gives guidance to the owners and managers about what are the goals
strategy of the company;
• Minimizes wastages, corruption, risks, and mismanagement;
• Helps to create a strong brand reputation;
• Most importantly – it makes companies more resilient.
• Consequences of Poor Corporate Governance
• One of the biggest purposes of corporate governance is to set up a system of
rules, policies, and practices for a company – in other words, to account for
accountability. Each major piece of the “government” – the shareholders, the
board of directors, the executive management team, and the company’s
employees – is responsible to the others, therefore keeping them all
accountable. Part of this accountability is the fact that the board regularly
reports financial information to the shareholders, which reflects the corporate
governance principle of transparency.
• Poor corporate governance is best explained with an example, and there is no
better example than Enron Corp. Many of the executives used shady tactics and
covert accounting methods to cover up the fact that they were essentially
stealing from the company. Erroneous figures were passed along to the board of
directors, who failed to report the information to shareholders.
• With responsible accounting methods gone out the window, shareholders were
unaware that the company’s debts and liabilities totalled much more than the
company could ever repay. The executives were eventually charged with a
number of felonies, and the company went bankrupt. It killed 
employee pensions and hurt shareholders immeasurably.
• When good corporate governance is abandoned, a company runs the risk of