SM Module 1

Amity Business School

MBA HR Class of 2015, Semester III
Strategic Management
Module-I (Introduction)
Strategy, the art of war, is especially the

planning of movement of troops and ships,
into favorable positions; plan of action or
policy in business or policies
Oxford Pocket Dictionary
Strategy narrowly defined as the art of general
(Greek StratAgos)
Strategy is determination of long term

goals and objectives of an enterprise and
the adoption of courses of action and the
allocation of resources necessary for
carrying out these goals
Alfred Chandler
Strategy & Structure
Strategy is a set of managerial decisions

and actions involved in making a major
market-creating business offering
W. Chan Kim
INSEAD Faculty
What Business Strategy is all about is, in

one word Competitive Advantage. The
sole objective of Strategic Planning is to
enable a company to gain, as efficiently as
possible, a sustainable edge over its
competitors. Corporate Strategy thus
implies an attempt to alter a companys
strength relative to that of its competitors
in the most efficient way
Kenichi Ohmae
The Mind of the Strategist
Strategy is defined as those actions that a company

plans, in response to, or in anticipation of, changes in
its external environment, its customers and its
competitors.
Strategy is a way company aims to improve its

position vis--vis competition.
Domain of Strategy
Strategic competitiveness and above normal returns
Concerns managerial decisions and actions which
materially affect the success and survival of business
enterprises
Involves the judgment necessary to strategically position
a business and its resources so as to maximize longterm profits in the face of irreducible uncertainty and
aggressive competition
Strategy is the linkage between a business and its
current and future environment
Strategic management is the process of

specifying the organization's mission, vision and
objectives, developing policies and plans, often in
terms of projects and programs, which are
designed to achieve these objectives, and then
allocating resources to implement the policies and
plans, projects and programs.
Strategic management provides overall direction to

the enterprise and is closely related to the field of
Organization Studies
Strategic management is the conduct of drafting,
implementing and evaluating cross-functional
decisions that will enable an organization to
achieve its long-term objectives
Strategic management is an ongoing process that

evaluates and controls the business and the industries in
which the company is involved; assesses its competitors

and sets goals and strategies to meet all existing and
potential competitors; and then reassesses each strategy
annually or quarterly [i.e. regularly] to determine how it has
been implemented and whether it has succeeded or needs
replacement by a new strategy to meet changed
circumstances, new technology, new competitors, a new
economic environment., or a new social, financial, or
political environment. (Lamb, 1984:ix)
The Strategic Management Process
Strategic Management
The Evolution
Major Timeline
DOMINANT
THEME
MAIN
ISSUES
KEY
CONCEPTS&
TOOLS
MANAGEMENT
IMPLICATIONS
1950s
1960s-early 70s
Mid-70s-mid-80s
Late 80s 1990s
Budgetary
planning &
control
Corporate
planning
Positioning
Competitive
advantage
Strategic
innovation
Financial
control
Planning
growth &diversification
Selecting
sectors/markets.
Positioning for
leadership
Focusing on
sources of
competitive
advantage
Reconciling
size with
flexibility &
agility
Capital
budgeting.
Financial
planning
Forecasting.
Corporate
planning.
Synergy
Industry analysis
Segmentation
Experience curve
Portfolio analysis
Resources &
Cooperative
capabilities.
strategy.
Shareholder
Complexity.
value.
Owning
E-commerce.
standards.
Knowledge Management
Coordination
& control by
Budgeting
systems
Corporate
planning depts.
created. Rise of
corporate
planning
Diversification.
Restructuring.
Global strategies. Reengineering.
Matrix structures Refocusing.
Outsourcing.
2000s
Alliances &
networks
Self-organiz
ation & virtual
organization
Major Thought Schools

Alfred Chandler Corporate Strategy
John Dunning IB Strategy

C K Prahalad Inclusive Strategy
Sumantra Ghoshal Problems in T.C.E.
Historical development of Strategic

Management
Birth of strategic management
originated in the 1950s and 60s
Alfred D. Chandler, Jr.,
Philip Selznick,
Igor Ansoff,
Peter F. Drucker
Alfred Chandler
Strategy and Structure
structure follows strategy
Philip Selznick
Organization's internal factors with external
environmental circumstances
SWOT analysis
Igor Ansoff
market penetration strategies
product development strategies
market development strategies
horizontal and vertical integration
diversification strategies
Corporate strategy
Peter Drucker
stressed the importance of objectives
management by objectives (MBO)
Growth and portfolio theory

Profit Impact of Marketing Strategies (PIMS)
effect of market share

Started at General Electric, moved to Harvard in the early
1970s, and then moved to the Strategic Planning Institute in
the late 1970s, it now contains decades of information on
the relationship between profitability and strategy
"PIMS provides compelling quantitative evidence as to
which business strategies work and don't work" - Tom
Peters.
McKinsey 7S Framework
Strategy, Structure, Systems, Skills, Staff,
Style, and Supra-ordinate goals
The Mind of the Strategist was released in
America by Kenichi Ohmae
Tom Peters -In Search of Excellence
Gaining competitive advantage

Gary Hamel and C. K. Prahalad
Strategic intent and strategic architecture
Dave Packard and Bill Hewlett devised an active
management style that they called Management
By Walking Around (MBWA).
Michael Porter
cost minimization strategies, product
differentiation strategies, and market focus
strategies
The Military Theorists

Business War Games by Barrie James, 1984
Marketing Warfare by Al Ries and Jack Trout, 1986
Leadership Secrets of Attila the Hun by Wess Roberts ,
1987
Philip Kotler was a well-known proponent of marketing
warfare strategy
Offensive marketing warfare strategies

Defensive marketing warfare strategies
Flanking marketing warfare strategies
Guerrilla marketing warfare strategies
Strategic change
In 1968, Peter Drucker (1969) coined the phrase Age
of Discontinuity
In 2000, Gary Hamel discussed strategic decay
In 1978, Abell, D. described strategic windows and
stressed the importance of the timing (both
entrance and exit) of any given strategy
Clayton Christensen (1997)

1-disruptive technology
2-agnostic marketing (no one knows how in what
quantities a disruptive product will be used before
experiencing the product)
Henry Mintzberg (1988) Strategy was much more

fluid and unpredictable than people had thought
Strategy as plan - a direction, guide, course of action intention rather than actual
Strategy as ploy - a maneuver intended to outwit a
competitor
Strategy as pattern - a consistent pattern of past behavior realized rather than intended
Strategy as position - locating of brands, products, or
companies within the conceptual framework of consumers
or other stakeholders - strategy determined primarily by
factors outside the firm
Strategy as perspective - strategy determined primarily by a
master strategist
Information and technology driven

strategy
Peter Drucker had theorized the rise of the knowledge worker back in
the 1950s
In 1990, Peter Senge, who had collaborated with Arie de Geus at Dutch
Shell, borrowed de Geus' notion of the learning organization
People can continuously expand their capacity to learn and be
productive
New patterns of thinking are nurtured
Collective aspirations are encouraged, and
People are encouraged to see the whole picture together.
Senge identified five components of a learning organization.

They are:
Personal responsibility
Self reliance
Mastery of Mental models
Team learning -a spirit of advocacy to a spirit of enquiry

Systems thinking
Criticisms of strategic
management
marketing myopia
In 2000, Gary Hamel coined the term strategic
convergence
Ram Charan, aligning with a popular marketing
tagline, believes that strategic planning must not
dominate action. "Just do it!",
Levels of Strategy
Functional Strategy supports Business Strategy which in turn

supports the Corporate Strategy
CORPORATE STRATEGY:
Overall Direction of Company and Management of Businesses
BUSINESS STRATEGY:
Competitive & Cooperative Strategies
It occurs at Business unit or Product level.
It emphasizes on improvement of competitive
position of Corporations product & services
FUNCTIONAL STRATEGY:
Maximize Resource Productivity
It is concerned with developing & nurturing a
distinctive competence to provide a company or
business unit with a competitive advantage
ORGANIZATIONAL STRUCTURE
&
LEVELS OF STRATEGY
Corporate
Strategy
Business
Strategy
Functional
Strategy
Corporate
Head Office
Div-B
Div-A
Prod.
HR
Fin.
Div-C
Marketing
Corporate Level Strategy

What businesses are we in? What
businesses should we be in?
Four areas of focus
Diversification management (acquisitions and
divestitures)
Synergy between units
Investment priorities
Business level strategy approval (but not
crafting)
Business Level Strategy

How do we support the corporate strategy?
How do we compete in a specific business arena?
Three types of business level strategies:
Low cost producer
Differentiator
Focus
Four areas of focus
Generate sustainable competitive advantages

Develop and nurture (potentially) valuable capabilities
Respond to environmental changes
Approval of functional level strategies
Functional / Operational Level Strategy

Functional: How do
we support the
business level
strategy?
Operational: How do
we support the
functional level
strategy?
An example.
Business L.S.: Become the
low cost producer of
widgets
Functional L.S. (Mfg.):
Reduce manufacturing
costs by 10%
Operational (Plant #1):
Increase worker
productivity by 15%
A Simple Organization Chart

(Single Product Business)
Business
Level
Strategy
Research and
Manufacturing
Development
Functional
Level
Strategy
Business
Marketing
Human
Resources
Finance
A Simple Organization Chart

(Dominant or Related Product Business)
Corporate
Level
Multibusiness
Corporation
Business
Level
Business 1
(Related)
Business 2
(Related)
Business 3
(Related)
Functional
Level
Research and
Manufacturing
Development
Marketing
Human
Resources
Finance
An example of an Unrelated Product Business

(Note: By itself, an SBU can be considered a related
product business)
SBU: a single
business or collection
of related businesses
that is independent
and formulates its
own strategy
A
(Multi-business)
Corporation
Strategic Business
Unit 1
Company 1
Co. 2
Ex.: G.E. (General

Electric Corp.)
S.B.U.
2
Co. 3
Division 1
Div. 2
Div. 3
Corporate Strategy
Corporate Strategy
Approach to future that involves
(1) examination of the current and anticipated factors
associated with customers and competitors
(external environment) and the firm itself (internal
environment),
(2) envisioning a new or effective role for the firm in
a creative manner, and
(3) aligning policies, practices, and resources to
realize that vision.
Corporate Strategies
I. Directional
The firms overall direction toward growth, stability, or retrenchment
II. Portfolio
The industries or markets in which the firm compete through its products and
business units
III. Parenting
The manner in which management coordinates activities and transfers
resources and cultivates capabilities among product lines and business units
(Grand Strategies)
I. Directional Strategies
A.
Growth Strategies
1. Concentration
a. Vertical Growth
b. Horizontal Growth
2. New Product
3. New Market
4. Diversification
a. Concentric
b. Conglomerate
B.
Stability Strategies
1. Pause
2. No Change
3. Profit
C.
Retrenchment Strategies
1. Turnaround
2. Captive Company
3. Sell out or Divestment
4. Bankruptcy or Liquidation
II. Portfolio Strategy
III. Parenting Strategy
i.
Forward Integration
ii. Backward Integration
i. Exporting
ii. Licensing
iii. Franchising
iv. Joint Ventures
v. Acquisitions
vi. Green Field Development
vii. Production Sharing
viii. Turnkey operations
ix. Management contracts
x. Build, Operate, Transfer
(BOT)
Growth Strategies
Related to expansion of companys activities, such as
increasing sales or adding products
Concentration- within one product line or industry
Vertical Growth- Growth can be achieved through

vertical growth by taking over a function previously
provided by a supplier or by a distributor. This may
be done to reduce cost, gain control over a scarce
resource, guarantee quality of a key input, or obtain
access to a new customer. This is logical for a
corporation with a strong competitive position in a
highly attractive industry
Vertical Integration
When a firms grand strategy is to acquire

firms that supply it with inputs (such as raw
materials) or are customers for its outputs
(such as warehouses for finished products),
vertical integration is involved
The main reason for backward integration is
the desire to increase the dependability of the
supply or quality of the raw materials used as
production inputs
7-43
Horizontal Integration
When a firms long-term strategy is based on

growth through the acquisition of one or more
similar firms operating at the same stage of
the production-marketing chain, its grand
strategy is called horizontal integration
Such acquisitions eliminate competitors and
provide the acquiring firm with access to new
markets
7-44
Vertical and Horizontal

Integration
7-45
Full Integration
Company produces all of a particular input

from its own operations.
Disposes of all of its completed products through its own
outlets.
Taper Integration
In addition to company-owned suppliers, the company will
also use other suppliers for inputs or independent outlets
in addition to company-owned outlets.
Full and Taper Integration
Increasing Profitability Through Vertical Integration

A company pursues vertical integration to strengthen the
business model of its original or core business or to
improve its competitive position:
1. Facilitates investments in efficiency-enhancing
specialized assets
Allows company to lower the cost structure or
Better differentiate its products
2. Enhances or protects product quality

To strengthen its differentiation advantage through either forward or
backward integration
3. Results in improved scheduling

Makes it easier and more cost-effective to plan, coordinate, and
schedule the transfer of product within the value-added chain
Enables a company to respond better to changes in demand
Problems with vertical Integration

Companies may disintegrate or exit industries adjacent to the industry value
chain when encountering disadvantages from the vertical integration:
Cost structure is increasing.

Company-owned suppliers develop a higher cost structure than those
of the independent suppliers
Bureaucratic costs of solving transaction difficulties
The technology is changing fast.

Vertical integration may lock into old or inefficient technology
Prevent company from changing to a new technology that could
strengthen the business model
Demand is unpredictable.
Creates risk in vertical integration investments.
Vertical integration can weaken business model when:
Company-owned suppliers lack incentive to reduce costs

Changing demand or technology reduces ability to be competitive
Alternatives to Vertical Integration: Cooperative Relationships
Strategic Alliances are long-term agreement between two or

more companies to jointly develop new products or processes
that benefit all companies concerned.
Short-term contracts and competitive bidding

May signal a companys lack of commitment to its supplier
Strategic alliances and long-term contracting

Enables creation of a stable long-term relationship
Becomes a substitute for vertical integration
Avoids the problems of having to manage a company located in an adjacent industry
Building long-term cooperative relationships

Hostage taking creating a mutual dependency
Credible commitments a believable promise or pledge
Maintaining market discipline power to discipline supplier
Periodic contract renegotiation Parallel sourcing policy
Strategic Outsourcing
Strategic Outsourcing allows one or more of a companys
value-chain activities or functions to be performed by
independent specialized companies that focus all their
skills and knowledge on just one kind of activity.
Company is choosing to focus on a fewer number of valuecreation activities
Companys typically focus on noncore or
In order to strengthen its business model
nonstrategic activities
In order to determine if they can be performed more effectively

and efficiently by independent specialized companies
Virtual Corporation
Describes companies that have pursued extensive strategic

outsourcing
Strategic Outsourcing of Primary Value

Creation Functions
Benefits of Outsourcing
1.
Reducing the cost structure
2.
The specialist company cost is less than what it would cost to perform the
activity internally.
Enhanced differentiation
3.
The quality of the activity performed by the specialist is greater than if the
activity were performed by the company.
Focus on the core business
Distractions are removed.

The company can focus attention and resources on activities important for
value creation and competitive advantage.
Strategic outsourcing may be detrimental when:
Holdup company becomes too dependent on specialist provider

Loss of information company loses important customer contact or
competitive information
Horizontal Integration
Single-Industry Strategy
Horizontal Integration is the process of acquiring or merging
with industry competitors in an effort to achieve the competitive
advantages that come with large scale and scope.
Staying inside a single industry

allows a company to:
Focus resources
Its total managerial, technological, financial and functional
resources and capabilities are devoted to competing successfully
in one area.
Stick to its knitting

Company stays focused on what it does best, rather than entering
new industries where its existing resources and capabilities add
little value.
Benefits of Horizontal Integration

Profits and profitability increase when horizontal
integration:
1. Lowers the cost structure
Creates increasing economies of scale
Reduces the duplication of resources between two companies
2. Increases product differentiation

Product bundling broader range at single combined price
Total solution saving customers time and money
Cross-selling leveraging established customer relationships
3. Replicates the business model

In new market segments within same industry
4. Reduces industry rivalry

Eliminate excess capacity in an industry
Easier to implement tacit price coordination among rivals
5. Increases bargaining power

Increased market power over suppliers and buyers
Gain greater control
Problems with Horizontal Integration

A wealth of data suggests that the majority of mergers
and acquisitions DO NOT create value and that many
may actually DESTROY value.
Implementing a horizontal integration is not an easy task.
Problems associated with merging very different company cultures
High management turnover in the acquired company when the
acquisition is a hostile one
Tendency of managers to overestimate the benefits to be had in the
merger
Tendency of managers to underestimate the problems involved in
merging their operations
The merger may be blocked if merger is perceived to:

Create a dominant competitor
Create too much industry consolidation
Have the potential for future abuse of market power
(Grand Strategies)
A.
Growth Strategies
1. Concentration
a. Vertical Growth
2. New Product
3. New Market
4. Diversification
a. Concentric
b. Conglomerate
B.
1. Pause
2. No Change
3. Profit
C.
1. Turnaround
2. Captive Company
i.
Forward Integration
i. Exporting
ii. Licensing
iii. Franchising
iv. Joint Ventures
v. Acquisitions
(BOT)
Horizontal Growth
i. Exporting
ii. Licensing
iii.Franchising
iv.Joint Ventures
v. Acquisitions
vi.Green Field Development
vii.Production Sharing
viii.Turnkey operations
ix.Management contracts
x. Build, Operate, Transfer (BOT)
(Grand Strategies)
A.
Growth Strategies
1. Concentration
a. Vertical Growth
2. New Product
3. New Market
4. Diversification
a. Concentric
b. Conglomerate
B.
1. Pause
2. No Change
3. Profit
C.
1. Turnaround
2. Captive Company
i.
Forward Integration
i. Exporting
ii. Licensing
iii. Franchising
iv. Joint Ventures
v. Acquisitions
(BOT)
Market Development
Market development commonly ranks second

only to concentration as the least costly and
least risky of all the grand strategies
It consists of marketing present products, often
with only cosmetic modifications, to customers in
related market areas by adding channels of
distribution or by changing the content of
advertising or promotion
Frequently, changes in media selection,
promotional appeals, and distribution are used to
initiate this approach
7-60
Product Development
Product development involves
the substantial modification of
existing products or the creation of
new but related products that can
be marketed to current customers
through established channels
7-61
Innovation
These companies seek to reap the initially high profits

associated with customer acceptance of a new or greatly
improved product
Then, rather than face stiffening competition as the basis
of profitability shifts from innovation to production or
marketing competence, they search for other original or
novel ideas
The underlying rationale of the grand strategy of
innovation is to create a new product life cycle and
thereby make similar existing products obsolete
7-62
Diversification Strategies
Diversification is a form of corporate strategy for a
company. It seeks to increase profitability through greater
sales volume obtained from new products and new
markets.
Diversification can occur either at the business unit level
or at the corporate level.
At the business unit level, it is most likely to expand into a
new segment of an industry which the business is already
in.
At the corporate level, it is entering a promising business
outside of the scope of the existing business unit.
Diversification usually requires a company to acquire new
skills, new techniques and new facilities
Concentric diversification
When there is a technological similarity between the
industries, which means that the firm is able to leverage
its technical know-how to gain some advantage.
For example, a company that manufactures industrial
adhesives might decide to diversify into adhesives to be
sold via retailers. The technology would be the same but
the marketing effort would need to change. It also seems
to increase its market share to launch a new product
which helps the particular company to earn profit.
However, there's one more example, Addition of tomato
ketchup and sauce to the existing "Maggi" brand
processed items of Nestle is an example of technologicalrelated concentric diversification.
Horizontal diversification
The company adds new products or services that are
technologically or commercially unrelated (but not always)
to current products, but which may appeal to current
customers.
In a competitive environment, this form of diversification is
desirable if the present customers are loyal to the current
products and if the new products have a good quality and
are well promoted and priced.
Moreover, the new products are marketed to the same
economic environment as the existing products, which may
lead to rigidity and instability. In other words, this strategy
tends to increase the firm's dependence on certain market
segments.
For example company was making note books earlier now
they are also entering into pen market through its new
product.
Conglomerate
diversification)
diversification
(or
lateral
The company markets new products or services that

have no technological or commercial synergies with
current products, but which may appeal to new groups of
customers.
The conglomerate diversification has very little
relationship with the firm's current business. Therefore,
the main reasons of adopting such a strategy are first to
improve the profitability and the flexibility of the company,
and second to get a better reception in capital markets as
the company gets bigger.
Even if this strategy is very risky, it could also, if
successful, provide increased growth and profitability.
Rationale of diversification
According to Calori and Harvatopoulos (1988), there are two
dimensions of rationale for diversification. The first one relates
to the nature of the strategic objective: diversification may be
defensive or offensive.
Defensive reasons may be spreading the risk of market
contraction, or being forced to diversify when current product
or current market orientation seems to provide no further
opportunities for growth. Offensive reasons may be conquering
new positions, taking opportunities that promise greater
profitability than expansion opportunities, or using retained
cash that exceeds total expansion needs.
The second dimension involves the expected outcomes of
diversification: management may expect great economic value
(growth, profitability) or first and foremost great coherence and
complementary to their current activities (exploitation of knowhow, more efficient use of available resources and capacities).
In addition, companies may also explore diversification just to
get a valuable comparison between this strategy and
expansion.
Risks
Diversification is the riskiest of the four strategies
presented in the Ansoff matrix and requires the most
careful investigation. Going into an unknown market with
an unfamiliar product offering means a lack of experience
in the new skills and techniques required. Therefore, the
company puts itself in a great uncertainty.
Moreover, diversification might necessitate significant
expanding of human and financial resources, which may
detracts focus, commitment and sustained investments in
the core industries. Therefore a firm should choose this
option only when the current product or current market
orientation does not offer further opportunities for growth.
(Grand Strategies)
A.
Growth Strategies
1. Concentration
a. Vertical Growth
2. New Product
3. New Market
4. Diversification
a. Concentric
b. Conglomerate
B.
1. Pause
2. No Change
3. Profit
C.
1. Turnaround
2. Captive Company
i.
Forward Integration
i. Exporting
ii. Licensing
iii. Franchising
iv. Joint Ventures
v. Acquisitions
(BOT)
This strategy is essentially a continuation of existing
strategies. Such strategies are typically found in
industries having relatively stable environments. The firm
is often making a comfortable income operating a
business that they know, and see no need to make the
psychological and financial investment that would be
required to undertake a growth strategy.
Pause Strategy
This strategy in effect, a time-out, an opportunity to rest
before continuing a growth or retrenchment strategy. It may
be a very appropriate strategy to enable a company to
consolidate its resources after prolonged rapid growth in an
industry that faces an uncertain future. It is typically a
temporary strategy to be used until the environment
becomes more hospitable or to enable a company to
consolidate its resources after prolonged rapid growth. This
was the strategy Dell Computer Corporation followed in the
early 1990s after its growth strategy had resulted in more
growth than it can handle. Dell did not give up on its growth
strategy, but merely put it temporarily in limbo until
company could hire new managers, improve the structure,
and build new facility
No Change Strategy
It is a strategic decision to do nothing new, a
choice to continue current operations and
policies for the foreseeable future. Rarely
articulated as a definite strategy, no change
strategy's success depends on a lack of
significant change in a corporations
situation. The corporation has probably
found a reasonably profitable and stable
niche for its products. Most small-town
businesses probably follow this strategy
before a Wal-Mart moves into their areas
Profit Strategy
It is a decision to do nothing new in a
worsening situation, but instead to act as
though the companys problems are only
temporary. It is an attempt to artificially
support profits when a companys sales are
declining by reducing investment and shortterm discretionary expenditures.
(Grand Strategies)
A.
Growth Strategies
1. Concentration
a. Vertical Growth
2. New Product
3. New Market
4. Diversification
a. Concentric
b. Conglomerate
B.
1. Pause
2. No Change
3. Profit
C.
1. Turnaround
2. Captive Company
i.
Forward Integration
i. Exporting
ii. Licensing
iii. Franchising
iv. Joint Ventures
v. Acquisitions
(BOT)
Management may pursue retrenchment strategies
when the company has a weak competitive
position in some or all of its product lines resulting
in poor performance- when sales are down and
profits are becoming losses. These strategies
generate a great deal of pressure to improve
performance. The CEO is under extreme pressure
to do something quickly or be fired. In an attempt to
eliminate the weaknesses that are dragging the
company down, management my follow turnaround
or becoming a captive company to selling out,
bankruptcy or liquidation.
Turnaround Strategy
The firm finds itself with declining profits
Among the reasons are economic recessions,

production inefficiencies, and innovative breakthroughs
by competitors
Strategic managers often believe the firm can survive

and eventually recover if a concerted effort is made
over a period of a few years to fortify its distinctive
competences. This is turnaround.
Two forms of retrenchment:

Cost reduction
Asset reduction
7-76
Elements of Turnaround
A turnaround situation represents absolute and relativeto-industry declining performance of a sufficient

magnitude to warrant explicit turnaround actions
The immediacy of the resulting threat to company
survival is known as situation severity
Turnaround responses among successful firms typically
include two stages of strategic activities: retrenchment
and the recovery response
The primary causes of the turnaround situation have
been associated with the second phase of the turnaround
process, the recovery response
7-77
Captive Company
This strategy involves giving up independence in exchange
for some security by becoming another company's sole
supplier, distributor, or a dependent subsidiary.
Example- J B Mangharam now a captive company of
Britannia
Simpson Industries of Birmingham, Michigan agreed to
have its engine parts facilities and books inspected and its
employees interviewed by a special team from GM. In
return, nearly 80% of the companys production was sold to
GM through long term contracts.
Sell out or Divestment

If a company in a weak position is unable or
unlikely to succeed with a turnaround or
captive company strategy, it has few choices
other than to try to find a buyer and sell itself
(or divest, if part of a diversified corporation)
When Monsanto realized that its well known
chemical business had been overshadowed
by advances in biotechnology and in
agricultural products such as Roundup, it
sold its chemical unit.
Bankruptcy or Liquidation
When a company has been unsuccessful in
or has none of the previous three strategic
alternatives available, the only remaining
alternative is liquidation, often involving a
bankruptcy. There is a modest advantage of
a voluntary liquidation over bankruptcy in
that the board and top management make
the decisions rather than turning them over
to a court, which often ignores stockholders'
interests.
Corporate-Level Strategies
Valuable
strengths
Firm
Status
Concentric Diversification
(Economies of
Corporate
Scope)
growth
strategies
Conglomerate
Diversification
(Risk Mgt.)
Critical
weaknesses
Abundant
environmental
opportunities
Corporate
stability
strategies
Corporate
retrenchment
strategies
Can still go for business-level growth
(economies of scale)
Environmental Status
Critical
environmental
threats
Vision, Mission and Business Definition

Whether you are starting a new company or
improving an existing one, you should define its
purpose for existence. Then it is important to have
a mission, plans and a vision for your company or
business enterprise.
Questions you may have include:
What factors are in the purpose of a business?
How do you define a mission?
What about a business concept?
Vision/Mission Statements
Statements that explain who we are
Type of organization
Products/services
Needs we fill
Statements that explain our direction, our

purpose, our reason for being
What difference do we make?
Statements that explain what makes us unique

Values
People
Combination of products and services
Major Components of the

Strategic Plan / Down to Action
Strategic Plan
What we want to be
Vision
Action Plans
Evaluate Progress
Mission
Why we exist
What we must achieve to be successful
Goals
Objectives
Initiatives
Measures
Targets
AI1
M1 M2
T1
T1
O1
AI2
M3
T1
O2
AI3
Specific outcomes expressed in

measurable terms (NOT activities)
Planned Actions to
Achieve Objectives
Indicators and
Monitors of success
Desired level of
performance and timelines
VISION : Desired future state; the

aspiration of the Organization
What are our Dreams and Aspirations?
Where do we want to go?

What do we want to look like in 5, 10,
15 years?
A Vision is
How the organization wants to be perceived in the future what
success looks like
An expression of the desired end state
Challenges everyone to reach for something significant
inspires a compelling future
Provides a long-term focus for the entire organization
A guiding philosophy
Consistent with organizational value
Influenced by the strengths and weaknesses of the
business
Components of a Vision Statement

Core ideology
Core Values - timeless guiding principles
Core Purpose - reason for being
Envisioned future
Big Hairy Audacious Goals (BHAG) - clearly articulated goals
Vivid description - a graphic description of what success and the
future will be like
Recognition of service to stakeholders

Owners/creditors
Employees
Customers
Essentials of good Business Vision

Statement
Should significantly stretch the resources and
capabilities of the firm
Should inspire people in the organization to
achieve things they never thought possible
Should unite people in the organization toward
the pursuit of one common goal
MISSION :It is the unique purpose or

reason for organizations existence.
Overriding purpose in line with the values
or expectations of the stakeholders
Who are we?

What business are we in?
The mission statement of an organization is

normally short, to the point, and contains the
following elements:
Provides a concise statement of why the
organization exists, and what it is to achieve;
States the purpose and identity of the organization;
Defines the institution's values and philosophy;
and
Describes how the organization will serve those
affected by its work.
Importance of Mission
Benefits from a strong mission
Unanimity of Purpose
Resource Allocation
Mission
Organizational Climate
Focal point for work
structure
Customers
Products
Services
Markets
Technology
Employees
Mission
Elements
Survival
Growth
Profit
Public
Image
Self-Concept
Philosophy
Mission Statements
Fleetwood Enterprises will lead the recreational vehicle and manufactured

housing industries (2, 7) in providing quality products, with a passion for
customer-driven innovation (1). We will emphasize training, embrace
diversity and provide growth opportunities for our associates and our
dealers (9). We will lead our industries in the application of appropriate
technologies (4). We will operate at the highest levels of ethics and
compliance with a focus on exemplary corporate governance (6). We will
deliver value to our shareholders, positive operating results and industryleading earnings (5). (Comment: Statement lacks two components:
Markets and Concern for Public Image)
We are loyal to Royal Caribbean and Celebrity and strive for continuous
improvement in everything we do. We always provide service with a friendly
greeting and a smile (7). We anticipate the needs of our customers and
make all efforts to exceed our customers expectations (1). We take
ownership of any problem that is brought to our attention. We engage in
conduct that enhances our corporate reputation and employee morale (9).
We are committed to act in the highest ethical manner and respect the
rights and dignity of others (6). (Comment: Statement lacks five
components: Products/Services, Markets, Technology, Concern for
Survival/Growth/Profits, Concern for Public Image)
We aspire to make PepsiCo the worlds (3)

premier consumer products company, focused
on convenient foods and beverages (2). We
seek to produce healthy financial rewards for
investors (5) as we provide opportunities for
growth and enrichment to our employees (9),
our business partners and the communities (8)
in which we operate. And in everything we do,
we strive to act with honesty, openness, fairness
and integrity (6). (Comment: Statement lacks
three components: Customers, Technology,
and Self-Concept)
Vision vs. Mission

The vision is more broad and future
oriented the goal on the horizon
The mission is more focused how you
will get to the horizon
GOAL: General statement of Aim or

Purpose.
It is an open ended statement of what one
wishes to accomplish with no quantification
and no time frame for completion.
Describes a future end-state desired outcome that is

supportive of the mission and vision.
Shapes the way ahead in actionable terms.
Best applied where there are clear choices about the
future.
Puts strategic focus into the organization specific
ownership of the goal should be assigned to someone
within the organization.
May not work well where things are changing fast
goals tend to be long-term for environments that have
limited choices about the future.
Developing Goals
Cascade from the top of the Strategic Plan Mission,
Vision, Guiding Principles.
Look at your strategic analysis SWOT, Environmental
Scan, Past Performance, Gaps .
Limit to a critical few such as five to eight goals.
Broad participation in the development of goals:
Consensus from above buy-in at the execution level.
Should drive higher levels of performance and close a
critical performance gap.
OBJECTIVE
: Quantification or more precise
statement of objective
Definable: It should defined to compare the performance
Quantifiable: It should be expressed in terms of Value Or Market
share
( Avoid Vague terms such as increase, improve or maximize)
Achievable:
e.g.
To increase sales of product globally by 30% in real terms within 5yrs.
To increase market share for the product in the India from 10%-15% over
2yrs
Relevant - directly supports the goal

Compels the organization into action
Specific enough so we can quantify and
measure the results
Simple and easy to understand
Realistic and attainable
Conveys responsibility and ownership
Acceptable to those who must execute
May need several objectives to meet a goal
GOALS
OBJECTIVES
Very short statement, few

words
Longer statement, more

descriptive
Broad in scope
Narrow in scope
Directly relates to the

Mission Statement
Indirectly relates to the

Mission Statement
Covers long time period

(such as 10 years)
Covers short time period (such

1 year budget cycle)
GOAL
To be
No. 1
in the
market
OBJECTIVE
Increase
market
share by
15% in
three years
STRATEGY
i)
Increase product
promotion
ii) Design product pricing
iii) Penetration
iv) New market
development
v) Product-Service mix
vi) Quality improvement
Business Definition
A Business Definition is a clear statement of

the business the firm is engaged in or is
planning to enter.
What is our Business in precise way:
We are in the beauty enriching Business
(Helen and Curtis)
We are in the Business of Computing
Technology (Intel)
We are Watch makers of the nation (HMT)
We are in the transportation business (TELCO)
Business Definition
Abells Framework
http://www.12manage.com/methods_abell_three_dimensional_business_definition.html
Business Definition Statements

Define the space that the business wants to
create for itself in competitive terrain
Broadly specifies the opportunities that the
business may exploit within the space and the
threats it may encounter from rival firms in course
of time
Must be defined in broad ways, keeping changing
customer tastes and aspirations in mind
Product Oriented V/S market Oriented

Company
Product Definition
Market Definition
Railways
We run railways
We are a people and

Goods mover
Oil Company
We Sell Gasoline
We supply energy
Film Producing
Company
We make movies
We make entertainment
Air conditioning
company
We make air
conditioners
We provide climate
control in the home
Publishing Company
We produce and sell

books
We distribute
information
Copying Company
We make copying
equipments
We help improve office

productivity
VALUES
What do we prize?
What drives our business?

What are our criteria for making
ethical decisions?
Guiding Principles and Values

Every organization should be guided by a set of values and
beliefs
Provides an underlying framework for making decisions
part of the organizations culture
Values are often rooted in ethical themes, such as honesty,
trust, integrity, respect, fairness, . . . .
Values should be applicable across the entire organization
Values may be appropriate for certain best management
practices best in terms of quality, exceptional customer
service, etc.
Examples of
Guiding Principles and Values
We obey the law and do not compromise moral or ethical principles ever!
We expect to be measured by what we do, as well as what we say.
We treat everyone with respect and appreciate individual differences.

We carefully consider the impact of business decisions on our people and we
recognize exceptional contributions.
We are strategically entrepreneurial in the pursuit of excellence, encouraging original

thought and its application, and willing to take risks based on sound business
judgment.
We are committed to forging public and private partnerships that combine diverse
strengths, skills and resources.
Stakeholders
Individuals and groups who have an interest in a
firms performance and an ability to influence its
actions
Interest in performance coupled with ability to
influence the firm through their decision to support
the firm or not companies have important
relationships with their stakeholders.
111
112
ETHICS
The word ethics is derived from the Greek word
ethos meaning character and latin word mores
meaning customs
To better understand ethics let us understand and
contrast the definition of ethics and law
Law is a consistent set of universal rules that are
widely published, generally accepted and usually
enforced. These rules describe the ways in which
people are required to act in society.
Ethics defines what is good for the individual and
for society and establishes the nature of duties that
people owe to oneself and others in society
What are ethics

The principle of conduct professional
ethics
A system or philosophy of conduct
A discipline dealing with what is good and
bad- moral duty and obligation
A set of moral principles or values.
Relation between ethics and law
ETHICS
Reflection in a companys operations of the values

and moral principles used in the communities in
which they operate
Successful markets and corporate performance are
founded on a commitment to basic ethical principles
aligned as much as possible to the interests of
individuals, corporations and society.
Ethical standards may be expressed in a companys
formal conduct requirements, or contained in
generally stated principles that guide a companys
preferred conduct or behavior.
Most companies have put in place a code of ethics
for its employees to conduct themselves in a
particular manner while doing business.
Purpose of Ethics
Ethics are the guiding principles.
Where the proposed business activity/
operation of the company borders on the
unknown, the company needs to apply the
ethics principle to decide on the project.
Ethics help make relationships mutually
pleasant and productive- imbibes a sense of
community among members- a sense of
belongingness to society.
Why have a code of ethics?
To define acceptable behavior

To promote high standards of practice
To provide a benchmark for self-evaluation
To establish a framework for professional
behavior and responsibilities
As a vehicle for occupational identity
As a mark of occupational maturity.
Code of ethics -transition

Original
Revised
Compliance
Integrity
Enforcement
Inspiration
Punishment
Motivation
Directive
Educational
Secretive
Open
Creating the Ethical Imperative
Written code of ethics

Employee commitment
Employee training
Discipline process
Full disclosure
Building expectations
Resolution process conflict
management
THE INFOSYS MODEL

A formal code of business
conduct and ethics.
To be signed and adhered to by
employees.
Action against any employee for
violation thereof.
THE INFOSYS MODEL -Contents

General standards of conduct
Management of conflicts of interest
Prohibition of exploitation of corporate
opportunities
Protection
of
companys
confidential
information
Obligations under securities laws
Use of assets
An entire section on responsibilities to
customers and stakeholders.
Definitions and Relationships

Corporate social responsibility (CSR) is the
process by which businesses negotiate their
role in society
In the business world, ethics is the study of
morally appropriate behaviors and decisions,
examining what "should be done
Although the two are linked in most firms, CSR
activities are no guarantee of ethical behavior
Main Concepts of CSR

CSR (Carrol, 1979)
Firms have responsibilities to societies including economic, legal,
ethical and discretionary (or philanthropic).
- See also DeGeorge (1999) on the Myth of the Amoral Firm
Social Contract (Donaldson, 1982; Donaldson and Dunfee, 1999)
There is a tacit social contract between the firm and society; the
contract bestows certain rights in exchange for certain
responsibilities.
Stakeholder Theory (Freeman, 1984) A stakeholder is any group

or individual who can affect or is affected by the achievement of an
organization's purpose. Argues that it is in the companys strategic
interest to respect the interests of all its stakeholders.
Corporate Social Responsibility Continuum
Maximize
firms profits to
the exclusion
of all else
Do what it takes
to make a profit;
skirt the law; fly
below social
radar
Do more than
required; e.g.
engage in
philanthropic
giving
Fight social
responsibility
initiatives
Integrate social
objectives and
business goals
Balance
profits and
social
objectives
Comply;
do what is
legally
required
Articulate
social value
objectives
Lead the industry

and other
businesses with
best practices
CSR are Grounded by Opposing Objectives

(Maximize Profits to Balance Profits with Social
Responsibility) and so Activities Range Widely
Do what it takes to make a profit; skirt the law; fly
below social radar
Fight CSR initiatives
Comply with legal requirements
Do more than legally required, e.g., philanthropy
Articulate social (CSR) objectives
Integrate social objectives and business goals
Lead the industry on social objectives
Main Concepts of CSR
CSR = political economy

The rights and responsibilities assigned to private industry.
Key Issues in CSR

Labour rights:
child labour
forced labour
right to organise
safety and health
Environmental conditions
water & air emissions
climate change
Human rights
cooperation with paramilitary forces
complicity in extra-judicial killings
Poverty Alleviation
job creation
public revenues
skills and technology
Context Globally
Liberalization of markets reduction of the
regulatory approach
Emergence of global giants, consolidation of
market share
Development of the embedded firm and the

global value chain
Development of supplier networks in developing
countries
Key drivers of CSR

Around the world
Developing Countries
NGO Activism
Foreign customers
Responsible investment
Domestic consumers
Litigation
FDI
Gov initiatives
Government
CSR Management:
Systems approach
Sustainable business development does not come
about of its own accord. Rather, commitment to
sustainability demands that corporate processes
be reliably controlled and that everyone's actions in finance as much as in environmental and social
areas - be coordinated. Prerequisites for this are
binding guidelines, unambiguous corporate
goals and a clear organizational structure.
- Deutsche Telekom
CSR Management: Amity Business School

Plan, Do, Check, Act method
Plan
Do
Consult stakeholders
Establish management
systems and personnel
Establish code of conduct

Set targets
Promote code compliance
Act
Check
Corrective action
Measure progress
Reform of systems
Audit
Report

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