GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY, DELHI

MASTER OF BUSINESS ADMINISTRATION (MBA)

STRATEGIC MANAGEMENT (MS - 206)

Course Contents
Unit I
Nature of Strategic Management: Concept of Strategy; Vision Mission, Goals and Objectives; External Environmental Analysis;
Analyzing Companies Resource in Competitive Position; Mintzbergs 5Ps of Strategy; Strategic Management Process,
Corporate Governance . (10 Hours)
Unit II
Strategy Formulation: External Environmental Analysis; Analyzing Companies Resource in Competitive Position- Concept of
Stretch, Leverage and Fit; Strategic Analysis and Choice, Porters Five Forces Model, Concept of Value Chain, Grand
Strategies; Porters Generic Strategies; Strategies for Competing in Global Markets. (10 Hours)
Unit III
Corporate-Level Strategies: Diversification Strategies: Creating Corporate Value and the Issue of Relatedness, Vertical Integration:
Coordinating the Value Chain, The Growth of the Firm: Internal Development, Mergers & Acquisitions, and Strategic
Alliances Restructuring Strategies: Reducing the Scope of the Firm. (12 Hours)
Unit IV
Strategy Implementation and Evaluation : Structural Considerations and Organizational Design; Leadership and Corporate Culture;
Strategy Evaluation: Importance and Nature of Strategic Evaluation; Strategic and Operational Control, Need for Balanced
Scorecard. (10 Hours)
Text Books
1. Thomas L. Wheelen, J. David Hunger (2010). Strategic Management and Business Policy, Pearson/Prentice Hall.
2. Arthur, A, Thomson and Strickland, A. J. (2002). Strategic Management Concept and Cases. Tata McGraw Hill, New Delhi.

Unit I : Nature of Strategic Management

Concept of Strategy
Strategy (Greek ""stratgia, "art of troop leader; office of
general, command, generalship) is a high level plan to achieve one or
more goals under conditions of uncertainty.
Henry Mintzberg from McGill University defined strategy as "a pattern in a
stream of decisions" to contrast with a view of strategy as planning
while Max McKeown (2011) argues that "strategy is about shaping the
future" and is the human attempt to get to "desirable ends with available
means.

Strategy is important because the resources available to achieve these goals

are usually limited.

Contd.
Strategic management analyzes the major initiatives taken by a company's top management on behalf of owners,
involving resources and performance in internal and external environments. It entails 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. A balanced scorecard is often used to evaluate the overall performance of
the business and its progress towards objectives. Recent studies and leading management theorists have
advocated that strategy needs to start with stakeholders expectations and use a modified balanced scorecard
which includes all stakeholders.
Strategic management is a level of managerial activity below setting goals and above tactics. Strategic management
provides overall direction to the enterprise and is closely related to the field of Organization Studies. In the field of
business administration it is useful to talk about "strategic consistency" between the organization and its
environment or "strategic consistency." According to Arieu "there is strategic consistency when the actions of an
organization are consistent with the expectations of management, and these in turn are with the market and the
context."
"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. Strategic Management can also be defined as "the identification of the purpose of the
organisation and the plans and actions to achieve the purpose. It is that set of managerial decisions and actions
that determine the long term performance of a business enterprise. It involves formulating and implementing
strategies that will help in aligning the organization and its environment to achieve organisational goals."

Vision Mission
Vision: outlines what the organization wants to be, or how it
wants the world in which it operates to be (an "idealised"
view of the world). It is a long-term view and concentrates
on the future. It can be emotive and is a source of
inspiration. For example, a charity working with the poor
might have a vision statement which reads "A World
without Poverty.
Mission: Defines the fundamental purpose of an organization
or an enterprise, succinctly describing why it exists and
what it does to achieve its vision. For example, the charity
above might have a mission statement as "providing jobs
for the homeless and unemployed".

Contents of Mission statement

A

mission
statement
is
a
statement
of
the
purpose
of
a company, organization or person, its reason for existing.
The mission statement should guide the actions of the organization, spell out its
overall goal, provide a path, and guide decision-making. It provides "the
framework or context within which the company's strategies are formulated." It's
like a goal for what the company wants to do for the world.
Effective mission statements start by cogently articulating the organization's purpose
of existence.
Mission statements often include the following information:
Aim(s) of the organization
The organization's primary stakeholders: clients/customers, shareholders,
congregation, etc.
How the organization provides value to these stakeholders, for example by offering
specific types of products and/or services
A declaration of an organization's sole core purpose. A mission statement answers
the question, "Why do we exist?"

Contd.
According to Bart, the commercial mission statement consists of 3 essential components:
Key market who is your target client/customer? (generalize if needed)
Contribution what product or service do you provide to that client?
Distinction what makes your product or service unique, so that the client would choose you?
Examples of mission statements that clearly include the 3 essential components:
For example:
McDonald's - "To provide the fast food customer food prepared in the same high-quality manner
world-wide that has consistent taste, serving time, and price in a low-key dcor and friendly
atmosphere.

Key Market: The fast food customer world-wide

Contribution: consistent taste and reasonably-priced food prepared in a high-quality manner
Distinction: delivered consistently (world-wide) in a low-key dcor and friendly atmosphere.

Courtyard by Marriott - "To provide economy and quality minded travelers with a premier,
moderate priced lodging facility which is consistently perceived as clean, comfortable, wellmaintained, and attractive, staffed by friendly, attentive and efficient people

Key Market: economy and quality minded travelers

Contribution: moderate priced lodging
Distinction: consistently perceived as clean, comfortable, well-maintained, and attractive, staffed by friendly,
attentive and efficient people

Contd.
The mission statement can be used to resolve trade-offs between different
business stakeholders. Stakeholders include: managers & executives, nonmanagement employees, shareholders, board of directors, customers,
suppliers, distributors, creditors/bankers, governments (local, state,
federal, etc.), labour unions, competitors, NGOs, and the community or
general public. By definition, stakeholders affect or are affected by the
organization's decisions and activities.
According to Vern McGinis, a mission should:
Define what the company is
Be limited to exclude some ventures
Be broad enough to allow for creative growth
Distinguish the company from all others
Serve as framework to evaluate current activities
Be stated clearly so that it is understood by all

Goals and Objectives

A goal is a desired result a person or a system envisions, plans and commits to achieve
a personal or organizational desired end-point in some sort of assumed
development. Many people endeavor to reach goals within a finite time by
setting deadlines.
It is roughly similar to purpose or aim, the anticipated result which guides reaction, or
an end, which is an object, either a physical object or an abstract object, that
has intrinsic value.
Goal-setting ideally involves establishing specific, measurable, attainable, realistic and
time-bounded (S.M.A.R.T.) objectives. Work on the goal-setting theorysuggests
that it can serve as an effective tool for making progress by ensuring that
participants have a clear awareness of what they must do to achieve or help
achieve an objective. On a personal level, the process of setting goals allows
people to specify and then work towards their own objectives most commonly,
financial or career-based goals. Goal-setting comprises a major component of
personal development.
A goal can be long-term or short-term. The primary difference is the time required to
achieve them.

Contd.
Organizationally, goal management consists of the process of recognizing or inferring
goals of individual team-members, abandoning no longer relevant goals,
identifying and resolving conflicts among goals, and prioritizing goals consistently
for optimal team-collaboration and effective operations.
For any successful commercial system, it means deriving profits by making the best
quality of goods or the best quality of services available to the end-user
(customer) at the best possible cost. Goal management includes:
Assessment and dissolution of non-rational blocks to success
Time management
Frequent reconsideration (consistency checks)
Feasibility checks
Adjusting milestones and main-goal targets
Morten Lind and J.Rasmussen distinguish three fundamental categories of goals
related to technological system management:
Production goal
Safety goal
Economy goal

Contd.
An organizational goal-management solution ensures that individual employee goals
and objectives align with the vision and strategic goals of the entire organization.
Goal-management provides organizations with a mechanism to effectively
communicate corporate goals and strategic objectives to each person across the
entire organization. The key consists of having it all emanate from a pivotal source
and providing each person with a clear, consistent organizational-goal message.
With goal-management, every employee understands how their efforts contribute
to an enterprise's success.
An example of goal types in business management:
Consumer goals: this refers to supplying a product or service that the
market/consumer wants
Product goals: this refers to supplying a product outstanding compared to other
products perhaps due to the likes of quality, design, reliability and novelty
Operational goals: this refers to running the organization in such a way as to make
the best use of management skills, technology and resources
Secondary goals: this refers to goals which an organization does not regard as
priorities

External Environmental Analysis

The analysis of the external environment of a company is called external
environmental analysis. This analysis is part of a companys analysis-system, which
also comprises various other analyses, like the industry analysis, the market
analysis and the analyses of companies, clients and competitors. This system can
be divided into a macro and micro level. Except for the external environmental
analysis, all other analyses can be found on the micro level. Though, the external
environmental analysis describes the macro environment of a company. Obviously,
a company is influenced by its environment. Many environmental factors,
especially economical or social factors, play a big role in a companys decisions,
because the analysis and the monitoring of those factors reveal chances and risks
for the companys business. This environmental framework also gives information
about location issues. A company is thereby able to determine its location sites.
Furthermore, many other strategic decisions are based on this analysis. In
addition, the factors are analyzed to evaluate external business developments. It is
finally the task of the management to adapt the firm to its environment or to
influence the environment in an adequate way. The latter is mostly the more
difficult option. There are different instruments to analyze the companys
environment which are going to be explained afterwards.

PESTLE analysis
One instrument to analyse the companys external environment is the PEST analysis. PEST stands for political,
economical, social and technological factors. Two more factors, the legal and environmental factor, are defined
within the PESTLE analysis. To explain these environmental factors, it is necessary to say that most of the factors
depend on each other and that they change over the years. Consequently, when one factor changes it also affects
the others. The equality for every company is the main characteristic of the factors in an environmental analysis.
The different environmental factors are covered below.
Political and legal factors
Political and legal factors are here regarded as a unit. They refer to framework given by politics. There exist regulatory
or legal frameworks, which can be binding for regions, nations or on an international basis. The frameworks deal
with economical issues or issues concerning the labour market.Subsidies for instance fall in the category of
economical issues. According to the degree of support through subsidies, a country can be more or less attractive
for a company. With respect to the labour law of a country, it can highly influence location decisions, too. If e.g.
the dismissal protection in a country is very good, a firm may tend to choose a country with a more flexible hireand-fire-system. Furthermore, the stability of a political system is a real important aspect for most firms. A social
market economy with rights for co-determination, regulations for patents, the companys investment and
environment protection are main characteristics for a political stable system.
Economical factors
Economical factors deal with national or international economical developments and have a direct influence on
supplier and consumer markets. Examples of economical factors that play a big role are: the GDP, the rate of
inflation, interests, the change rate, employment or the situation of money markets. These economical factors
influence demand, competition intensity, cost pressure and the will to invest. For instance, if the gross domestic
product of a country is fairly low, the demand is in general lower than in countries with a higher GDP.

Contd.
Social factors
Social factors deal with social issues regarding the values, ideals, opinions and the culture of market
participants. Market participants can be employees, customers or suppliers. Through their contact
with the company, they influence it due to their opinions. The company needs to follow the market
participants change of value and adapt its strategies. Nowadays, a change of values
concerning environmental protection is on the move.
Technological environmental factors
Technological environmental factors are meanwhile of a great importance, especially for industrial
companies, which underlie a fast technological change. The increasing speed of technological
changes, like in microelectronics or robotics can either indicate risks or chances for a company.
Particularly producing companies are affected of that fast evolution.
Environmental factors
At last, environmental factors are becoming more and more important nowadays. They regard natural
resources and the basis of human life. Among those, the availability of raw materials and energy is
the main topic. As the availability of fossil fuels, like oil or coal, gets worse within the next decades,
the dependency on those fuels stays pretty risky. Moreover, to show an ecological responsibility,
companies should assess and reduce their ecological damage. Through rare raw materials and
increasing pollution, an environmentally friendly management gets spotlighted more and more by
the public interest. Consequently, eco-friendly products or technologies can even signify a
competitive advantage.

Contd.
The six environmental factors of the PESTEL analysis are the following:
Political factors
Taxation Policy
Trade regulations
Governmental stability
Unemployment Policy, etc.
Economical factors
Inflation rate
Growth in spending power
Rate of people in a pensionable age
Recession or Boom
Customer liquidations
Socio-cultural
Values, beliefs
language
religion
education
literacy
time orientation

Contd.
Technological factors
Internet
E-commerce
Social Media
Electronic Media
Research and Development
Rate of technological change
Environmental factors
Competitive advantage
Waste disposal
Energy consumption
Pollution monitoring, etc.
Legal factors
Unemployment law
Health and safety
Product safety
Advertising regulations
Product labeling
labor laws etc.

Methods of the external

environmental analysis
The segmentation according to the six presented factors of the PESTLE
analysis is the starting point of the global environmental analysis.
The analysis can be done with the help of a checklist that evaluates
every criteria of a segment. In this manner, the status of the global
environment shall be defined. In general, every segment needs to
be worked on systematically to recognize changes. Then, the factors
and its impacts can be interpreted right. After the segmentation,
the analysis consists of four further steps:

Environmental Scanning
Environmental Monitoring
Environmental Forecasting
Environmental Assessment

Environmental scanning
The first step is called scanning. Through environmental scanning, every segment is analyzed to find trend indicators. Thus, after
having examined the segment, indicators for its development are defined. According to Fahey and Narayanan, scanning
reveals actual or imminent change because it explicitly focuses on areas that the organisation may have previously
neglected. Scanning is also used to detect weak signals in the environment, before these have conflated into a recognizable
pattern, which might affect the organizations competitive environment.
Scanning can include every material published in the media such as television, newspapers and periodicals. This method of
scanning is called media-scanning. Product-scanning includes scanning of products which announce re-emerging consumer
behaviour. Looking for global trends on the internet can be defined as online-scanning.
Modes of scanning
Four modes of scanning can be distinguished. Francis Joseph Aguilar (1967) differentiates between undirected viewing,
conditioned viewing, informal search and formal search.

'Undirected viewing' means reading a variety of publications for no specific purpose with the possible exception of
exploration. This mode is the most cost-efficient one but it also offers the most benefits. There are a lot of varied sources
and information which means that the potential data are unlimited. Data are imprecise and vague and there are no
guidelines which determine where the search should be focused.

Applying 'conditioned viewing' the viewer pays attention to the particular kinds of data and assesses their significance for
the organization. The field of information is more or less clearly identified.

'Informal searching' can be defined as actively seeking specific information in a relatively unstructured way.

The contrast of informal searching is called 'formal searching'. This proactive mode of scanning contains methodologies for
obtaining information for specific purposes.

Environmental monitoring
Environmental scanning is only one component of global environmental
analysis. After having identified critical trends and potential events they
have to be monitored. The next step in global environmental analysis is
called environmental monitoring. It can be defined as 'the process of
repetitive observing for defined purposes, of one or more elements or
indicators of the environment according to pre-arranged schedules in
space and time, and using comparable methodologies for environmental
sensing and data collection. Through environmental monitoring, data
about environmental developments are recorded, followed and
interpreted. Out of this, historical development changes that are
important for the company can be recognized and evaluated. Additionally,
the relevance and the reliability of the data sources are tested.
Furthermore it is checked, where prognoses are required.

Environmental forecasting
The direction, intensity and speed of environmental trends are explored through environmental forecasting. Especially the search
for possible threats is of importance. A prognosis of trends is necessary to get a picture of the future. This is done by
adequate methods, like strategic foresight or scenario analysis. Several other methods of forecasting are the following:
guessing, rule of thumb, expert judgement, extrapolation, leading indicators, surveys, time-series models and econometric
systems.

'Guessing' and related methods totally rely on luck. Consequently it is not generally a useful method. In addition, it is almost
impossible to evaluate the uncertainty of a guess in advance.

'Expert judgement' lacks validation being the only component of forecasting. It is hardly to predict which oracle is
successful.

'Extrapolation' is effective when tendencies exist. Forecasts are most effective when changes are predicted in tendencies.
Prediction in changes in tendencies is likely to miss concerning extrapolative methods.

'Forecasting based on leading indicators' needs a stable relationship between the variables that lead and the variables that
are led. If the reasons for the lead are not clear the indicators may give misleading information.

'Surveys' of businesses can give information about the future. They rely on planning which needs to be realized. Changes in
business implicate changes in planning.

'Time-series models' are popular forecasting methods. They describe historical patterns of data and they focus on
measurable uncertainty.

'Econometric systems' of equations are the main tool of economic forecasting. They consist of equations which attempt to
model the behaviour of economic groups such as consumers, producers, workers, investors etc. moderated by historical
experience. There are several advantages of using formal econometric systems: Economists are able 'to consolidate existing
empirical and theoretical knowledge..., provide a framework for a progressive research strategy..., help to explain their own
failures, as well as provide forecasts and policy advice.'

Environmental assessment
In the last step of the global environmental analysis, the results of the
previous three steps (Scanning, Monitoring, Forecasting) are assessed. The
discovered environmental trends are reviewed to estimate the probability
of their occurrence. Furthermore, they need to be analyzed to evaluate
whether they represent a chance or a risk for the company. The dimension
of the chances or risks is also of importance. Moreover, a reaction strategy
to the occurring risks or chances needs to be defined. This is done with
the help of the Issue-Impact-Matrix, an adequate instrument to evaluate
and prioritize trends. The forecasted environmental factors are here
classified with respect to their probability of occurrence and their impact
on the company. According to their classification, they demonstrate a
high, medium or low priority for the company. The factors with a high
occurrence probability and a high, significant impact on the company have
the highest priority. The higher the priority, the faster need to be reacted
to avoid risks and to benefit from chances. The environmental assessment
represents the last step of the global environmental analysis.

Analyzing Companies Resource in

Competitive Position
A core competency is a concept in management theory originally advocated by two business authors, C. K. Prahalad and Gary
Hamel. In their view a core competency is a specific factor that a business sees as central to the way the company or
its employees work. It fulfills three key criteria:

It is not easy for competitors to imitate.

It can be reused widely for many products and markets.

It must contribute to the end consumer's experienced benefits and the value of the product or service to its customers.
A core competency can take various forms, including technical/subject matter know-how, a reliable process and/or close
relationships with customers and suppliers. It may also include product development or culture, such as employee
dedication, best Human Resource Management (HRM), good market coverage, etc.
Core competencies are particular strengths relative to other organizations in the industry, which provide the fundamental basis for
the provision of added value. Core competencies reflect the collective learning of an organization and involve coordinating
diverse production skills and integrating multiple streams of technologies. It includes communication, involvement and a
deep commitment to working across organizational boundaries. Few companies are likely to build world leadership in more
than five or six fundamental competencies.
As an example of core competencies, Walt Disney World Parks and Resorts has three main core competencies:

Animatronics and Show Design

Storytelling, Story Creation and Themed Atmospheric Attractions

Efficient operation of theme parks

Contd.
A core competency results from a specific set of skills or production techniques that deliver additional value to the customer. These enable an
organization to access a wide variety of markets. Executives should estimate the future challenges and opportunities of the business in
order to stay on top of the game in varying situations.
In an article from 1990 titled "The Core Competence of the Corporation", Prahalad and Hamel illustrate that core competencies lead to the
development of core products which further can be used to build many products for end users. Core competencies are developed
through the process of continuous improvements over the period of time rather than a single large change. To succeed in an emerging
global market, it is more important and required to build core competencies rather than vertical integration. NEC utilized its portfolio of
core competencies to dominate the semiconductor, telecommunications and consumer electronics market. It is important to identify
core competencies because it is difficult to retain those competencies in a price war and cost-cutting environment. The author used the
example of how to integrate core competences using strategic architecture in view of changing market requirements and evolving
technologies. Management must realize that stakeholders to core competences are an asset which can be utilized to integrate and build
the competencies Competence building is an outcome of strategic architecture which must be enforced by top management in order to
exploit its full capacity.
In Competing for the Future, the authors Prahalad and Hamel show how executives can develop the industry foresight necessary to adapt to
industry changes and discover ways of controlling resources that will enable the company to attain goals despite any constraints.
Executives should develop a point of view on which core competencies can be built for the future to revitalize the process of new
business creation. Developing an independent point of view of tomorrow's opportunities and building capabilities that exploit them is
the key to future industry leadership.
For an organization to be competitive, it needs not only tangible resources but intangible resources like core competences that are difficult
and challenging to achieve. It is critical to manage and enhance the competences in response to industry changes in the future. For
example, Microsoft has expertise in many IT based innovations where, for a variety of reasons, it is difficult for competitors to replicate
or compete with Microsoft's core competences.
In a race to achieve cost cutting, quality and productivity, most executives do not spend their time developing a corporate view of the future
because this exercise demands high intellectual energy and commitment. The difficult questions may challenge their own ability to view
the future opportunities but an attempt to find their answers will lead towards organizational benefits.

Competitive advantage
Competitive advantage seeks to address some of the criticisms of comparative advantage. Michael Porter proposed the theory in 1985. Porter
emphasizes productivity growth as the focus of national strategies. Competitive advantage rests on the notion that cheap labor is ubiquitous
and natural resources are not necessary for a good economy. The other theory, comparative advantage, can lead countries to specialize in
exporting primary goods and raw materials that trap countries in low-wage economies due to terms of trade. Competitive advantage
attempts to correct for this issue by stressing maximizing scale economies in goods and services that garner premium prices (Stutz and Warf
2009).[1]
Competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its
competitors. These attributes can include access to natural resources, such as high grade ores or inexpensive power, or access to highly
trained and skilled personnel human resources. New technologies such as robotics and information technology can provide competitive
advantage, whether as a part of the product itself, as an advantage to the making of the product, or as a competitive aid in the business
process (for example, better identification and understanding of customers).
The term competitive advantage is the ability gained through attributes and resources to perform at a higher level than others in the same industry
or market (Christensen and Fahey 1984, Kay 1994, Porter 1980 cited by Chacarbaghi and Lynch 1999, p. 45).[2] The study of such advantage
has attracted profound research interest due to contemporary issues regarding superior performance levels of firms in the present
competitive market conditions. "A firm is said to have a competitive advantage when it is implementing a value creating strategy not
simultaneously being implemented by any current or potential player" (Barney 1991 cited by Clulow et al.2003, p. 221).[3] Successfully
implemented strategies will lift a firm to superior performance by facilitating the firm with competitive advantage to outperform current or
potential players (Passemard and Calantone 2000, p. 18).[4] To gain competitive advantage a business strategy of a firm manipulates the
various resources over which it has direct control and these resources have the ability to generate competitive advantage (Reed and Fillippi
1990 cited by Rijamampianina 2003, p. 362).[5] Superior performance outcomes and superiority in production resources reflects competitive
advantage (Day and Wesley 1988 cited by Lau 2002, p. 125).[6]
Above writings signify competitive advantage as the ability to stay ahead of present or potential competition, thus superior performance reached
through competitive advantage will ensure market leadership. Also it provides the understanding that resources held by a firm and the
business strategy will have a profound impact on generating competitive advantage. Powell (2001, p. 132)[7] views business strategy as the
tool that manipulates the resources and create competitive advantage, hence, viable business strategy may not be adequate unless it possess
control over unique resources that has the ability to create such a unique advantage. Summarizing the view points, competitive advantage is a
key determinant of superior performance and it will ensure survival and prominent placing in the market. Superior performance being the
ultimate desired goal of a firm, competitive advantage becomes the foundation highlighting the significant importance to develop same.

Competitive Strategies/advantages
Cost Leadership Strategy
The goal of Cost Leadership Strategy is to offer products or services at the lowest cost in the industry. The challenge of this strategy is to earn
a suitable profit for the company, rather than operating at a loss and draining profitability from all market players. Companies such as
Walmart succeed with this strategy by featuring low prices on key items on which customers are price-aware, while selling other
merchandise at less aggressive discounts. Products are to be created at the lowest cost in the industry. An example is to use space in
stores for sales and not for storing excess product.
Differentiation Strategy
The goal of Differentiation Strategy is to provide a variety of products, services, or features to consumers that competitors are not yet
offering or are unable to offer. This gives a direct advantage to the company which is able to provide a unique product or service that
none of its competitors is able to offer. An example is Dell which launched mass-customizations on computers to fit consumers' needs.
This allows the company to make its first product to be the star of its sales.
Innovation Strategy
The goal of Innovation Strategy is to leapfrog other market players by the introduction of completely new or notably better products or
services. This strategy is typical of technology start-up companies which often intend to "disrupt" the existing marketplace, obsoleting
the current market entries with a breakthrough product offering. It is harder for more established companies to pursue this strategy
because their product offering has achieved market acceptance. Apple has been a notable example of using this strategy with its
introduction of iPod personal music players, and iPad tablets. Many companies invest heavily in their research and development
department to achieve such statuses with their innovations.
Operational Effectiveness Strategy
The goal of Operational Effectiveness as a strategy is to perform internal business activities better than competitors, making the company
easier or more pleasurable to do business with than other market choices. It improves the characteristics of the company while
lowering the time it takes to get the products on the market with a great start. State Farm Insurance pursues this strategy by promoting
their agents as "good neighbors" who actively help customers.

Mintzbergs 5Ps of Strategy

In 1988, Henry Mintzberg looked at the changing world around him and decided it was time to
reexamine how strategic management was done. He examined the strategic process and concluded
it was much more fluid and unpredictable than people had thought. Because of this, he could not
point to one process that could be called strategic planning. Instead Mintzberg concludes that
there are five types of strategies:
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 behaviour 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
In 1998, Mintzberg developed these five types of management strategy into 10 schools of thought
and grouped them into three categories. The first group is normative. It consists of the schools of
informal design and conception, the formal planning, and analytical positioning. The second group,
consisting of six schools, is more concerned with how strategic management is actually done, rather
than prescribing optimal plans or positions. The six schools are entrepreneurial, visionary, cognitive,
learning/adaptive/emergent, negotiation, corporate culture and business environment. The third
and final group consists of one school, the configuration or transformation school, a hybrid of the
other schools organized into stages, organizational life cycles, or episodes.

Strategic planning
Strategic planning is an organization's process of defining its strategy, or direction, and
making decisions on allocating its resources to pursue this strategy.
In order to determine the future direction of the organization, it is necessary to
understand its current position and the possible avenues through which it can
pursue particular courses of action. Generally, strategic planning deals with at least
one of three key questions:
"What do we do?"
"For whom do we do it?"
"How do we excel?
Many organizations view strategic planning as a process for determining where an
organization is going over the next year ormore typically3 to 5 years (long
term), although some extend their vision to 20 years, or even (in the case
of Mitsubishi) 500 years.
George Friedman in The Next 100 Years summarises "the fundamental principle of
strategic planning: hope for the best, plan for the worst".

Key components
The key components of 'strategic planning' include an understanding of an entity's vision,
mission, values and strategies. (In the commercial world a "Vision Statement" and/or a "Mission
Statement" may encapsulate the vision and mission).
Vision: outlines what the organization wants to be, or how it wants the world in which it operates to be
(an "idealised" view of the world). It is a long-term view and concentrates on the future. It can be
emotive and is a source of inspiration. For example, a charity working with the poor might have a
vision statement which reads "A World without Poverty."
Mission: Defines the fundamental purpose of an organization or an enterprise, succinctly describing
why it exists and what it does to achieve its vision. For example, the charity above might have a
mission statement as "providing jobs for the homeless and unemployed".
Values: Beliefs that are shared among the stakeholders of an organization. Values drive an organization's
culture and priorities and provide a framework in which decisions are made. For example,
"Knowledge and skills are the keys to success" or "give a man bread and feed him for a day, but
teach him to farm and feed him for life". These example maxims may set the priorities of selfsufficiency over shelter.
Strategy: Strategy, narrowly defined, means "the art of the general. - a combination of the ends (goals)
for which the firm is striving and the means (policies) by which it is seeking to get there. A strategy
is sometimes called a roadmap - which is the path chosen to plow towards the end vision. The most
important part of implementing the strategy is ensuring the company is going in the right direction
- defined as towards the end vision.

Contd.
Organizations sometimes summarize goals and objectives into a mission statement and/or
a vision statement. Others begin with a vision and mission and use them to formulate goals
and objectives. A newly emerging approach is to use a visual strategic plan such as is used
within planning approaches based on outcomes theory. When using this approach, the first
step is to build a visual outcomes model of the high-level outcomes being sought and all of
the steps which it is believed are needed to get to them. The vision and mission are then just
the top layers of the visual model.
Many people mistake the vision statement for the mission statement, and sometimes one is
simply used as a longer term version of the other. However they are distinct; with the vision
being a descriptive picture of a desired future state; and the mission being a statement of a
rationale, applicable now as well as in the future. The mission is therefore the means of
successfully achieving the vision. This may be in the business world or the military.
For an organization's vision and mission to be effective, they must become assimilated into the
organization's culture. They should also be assessed internally and externally. The internal
assessment should focus on how members inside the organization interpret their mission
statement. The external assessment which includes all of the businesses stakeholders is
valuable since it offers a different perspective. These discrepancies between these two
assessments can provide insight into their effectiveness.

Tools and approaches

Among the most widely used tools for strategic planning is SWOT
analysis which means (Strengths, Weaknesses, Opportunities, and
Threats). The main objective of this tool is to analyze internal strategic
factors, strengths and weaknesses attributed to the organization, and
external factors beyond control of the organization such as opportunities
and threats.

Other tools include:

Balanced Scorecards, which creates a systematic framework for strategic
planning;
PEST analysis (Political, Economic, Social, and Technological)
STEER analysis (Socio-cultural, Technological, Economic, Ecological,
and Regulatory factors)
EPISTEL
(Environment, Political, Informatic, Social, Technological, Economic
and Legal).

Balanced scorecard
The
balanced
scorecard
(BSC)
is
a
strategy performance management tool - a semistandard structured report, supported by design
methods and automation tools, that can be used
by managers to keep track of the execution of
activities by the staff within their control and to
monitor the consequences arising from these
actions. It is perhaps the best known of several
such frameworks (it was the most widely adopted
performance management framework reported
in the 2010 annual survey of management tools
undertaken by Bain & Company.).

Contd.
The 1st generation design method proposed by Kaplan and Norton was based on the use of three non-financial
topic areas as prompts to aid the identification of non-financial measures in addition to one looking at
financial. Four "perspectives" were proposed:

Financial: encourages the identification of a few relevant high-level financial measures. In particular,
designers were encouraged to choose measures that helped inform the answer to the question "How do
we look to shareholders?"

Customer: encourages the identification of measures that answer the question "How do customers see
us?"

Internal business processes: encourages the identification of measures that answer the question "What
must we excel at?"

Learning and growth: encourages the identification of measures that answer the question "How can we
continue to improve, create value and innovate?".
These 'prompt questions' illustrate that Kaplan and Norton were thinking about the needs of small to medium
sized commercial organizations in the USA (the target demographic for the Harvard Business Review) when
choosing these topic areas. They are not very helpful to other kinds of organizations, and much of what
has been written on balanced scorecard since has, in one way or another, focused on the identification of
alternative headings more suited to a broader range of organizations.

Strategic Management Process

Strategy
Formulation

Strategy
Evaluation

Strategy
Implementation

Contd.
Strategic management involves the formulation and implementation of the major initiatives taken by a
company's top management on behalf of owners, based on consideration of resources and an assessment
of the internal and external environments in which the organization competes.
Strategic management is often described as involving two major processes: formulation and implementation of
strategy. While described sequentially below, in practice the two processes are iterative and each provides
input for the other.
Formulation
Formulation of strategy involves analyzing the environment in which the organization operates, then making a
series of strategic decisions about how the organization will compete. Formulation ends with a series of
goals or objectives and measures for the organization to pursue.
Environmental analysis includes the:

Remote external environment, including the political, economic, social and regulatory landscape;

Industry environment, such as the competitive behavior of rival organizations, the bargaining power of
buyers/customers and suppliers, threats from new entrants to the industry, and the ability of buyers to
substitute products; and

Internal environment, regarding the strengths and weaknesses of the organization's resources (i.e., its
people, processes and IT systems).

Contd.
Strategic decisions are based on insight from the environmental assessment and are responses to strategic questions
about how the organization will compete, such as:

Who is the target customer for the organization's products and services?

Which businesses, products and services should be included or excluded from the portfolio of offerings?

What differentiates the company from its competitors in the eyes of customers and other stakeholders?

Which skills and resources should be developed within the firm?

What are the important opportunities and risks for the organization?

How can the firm grow, through both its base business and new business?

How can the firm generate more value for investors?

The answers to these and many other strategic questions result in a series of specific short-term and long-term goals or
objectives and related measures.
Implementation
The second major process of strategic management is implementation, which involves decisions regarding how the
organization's resources (i.e., people, process and IT systems) will be aligned and mobilized towards the
objectives. Implementation results in how the organization's resources are structured (such as by product or
service or geography), leadership arrangements, communication, incentives, and monitoring mechanisms to track
progress towards objectives, among others.
Running the day-to-day operations of the business is often referred to as "operations management" or specific terms
for key departments or functions, such as "logistics management" or "marketing management," which take over
once strategic management decisions are implemented.

Corporate Governance
Corporate governance refers to the system by which corporations are directed and controlled.
The governance structure specifies the distribution of rights and responsibilities among
different participants in the corporation (such as the board of directors, managers,
shareholders, creditors, auditors, regulators, and other stakeholders) and specifies the rules
and procedures for making decisions in corporate affairs. Governance provides the structure
through which corporations set and pursue their objectives, while reflecting the context of
the social, regulatory and market environment. Governance is a mechanism for monitoring
the actions, policies and decisions of corporations. Governance involves the alignment of
interests among the stakeholders.
There has been renewed interest in the corporate governance practices of modern corporations,
particularly in relation to accountability, since the high-profile collapses of a number of large
corporations during 20012002, most of which involved accounting fraud. Corporate
scandals of various forms have maintained public and political interest in the regulation of
corporate governance. In the U.S., these include Enron Corporation and MCI Inc. (formerly
WorldCom). Their demise is associated with the U.S. federal government passing
the Sarbanes-Oxley Actin 2002, intending to restore public confidence in corporate
governance. Comparable failures in Australia (HIH, One.Tel) are associated with the eventual
passage of the CLERP 9 reforms. Similar corporate failures in other countries stimulated
increased regulatory interest (e.g., Parmalatin Italy).

Contd.
Corporate governance has also been defined as "a system of law and sound approaches by which corporations are
directed and controlled focusing on the internal and external corporate structures with the intention of
monitoring the actions of management and directors and thereby mitigating agency risks which may stem from
the misdeeds of corporate officers."
In contemporary business corporations, the main external stakeholder groups are shareholders, debtholders,
trade creditors, suppliers, customers and communities affected by the corporation's activities. Internal
stakeholders are the board of directors, executives, and other employees.
Much of the contemporary interest in corporate governance is concerned with mitigation of the conflicts of interests
between stakeholders. Ways of mitigating or preventing these conflicts of interests include the processes,
customs, policies, laws, and institutions which have an impact on the way a company is controlled. An important
theme of governance is the nature and extent of corporate accountability.
A related but separate thread of discussions focuses on the impact of a corporate governance system on economic
efficiency, with a strong emphasis on shareholders' welfare. In large firms where there is a separation of
ownership and management and no controlling shareholder, the principalagent issue arises between uppermanagement (the "agent") which may have very different interests, and by definition considerably more
information, than shareholders (the "principals"). The danger arises that rather than overseeing management on
behalf of shareholders, the board of directors may become insulated from shareholders and beholden to
management. This aspect is particularly present in contemporary public debates and developments in regulatory
policy.(see regulation and policy regulation).
Economic analysis has resulted in a literature on the subject. One source defines corporate governance as "the set of
conditions that shapes the ex post bargaining over thequasi-rents generated by a firm. The firm itself is modelled
as a governance structure acting through the mechanisms of contract. Here corporate governance may include its
relation to corporate finance.

Principles of corporate governance

Contemporary discussions of corporate governance tend to refer to principles raised in three documents released since
1990: The Cadbury Report (UK, 1992), the Principles of Corporate Governance (OECD, 1998 and 2004),
the Sarbanes-Oxley Act of 2002 (US, 2002). The Cadbury and OECD reports present general principles around
which businesses are expected to operate to assure proper governance. The Sarbanes-Oxley Act, informally
referred to as Sarbox or Sox, is an attempt by the federal government in the United States to legislate several of
the principles recommended in the Cadbury and OECD reports.

Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help
shareholders to exercise those rights. They can help shareholders exercise their rights by openly and effectively
communicating information and by encouraging shareholders to participate in general meetings.

Interests of other stakeholders: Organizations should recognize that they have legal, contractual, social, and
market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers,
local communities, customers, and policy makers.

Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to review and
challenge management performance. It also needs adequate size and appropriate levels of independence and
commitment.

Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing corporate officers and
board members. Organizations should develop a code of conduct for their directors and executives that promotes
ethical and responsible decision making.

Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities
of board and management to provide stakeholders with a level of accountability. They should also implement
procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of
material matters concerning the organization should be timely and balanced to ensure that all investors have
access to clear, factual information.

Unit II : Strategy Formulation

Concept of Stretch, Leverage and Fit

Stretch is a misfit between resources and
aspirations.
Leverage refers to concentrating, accumulating,
complementing, conserving and recovering
resources in such a manner that the meager
resource base is stretched to meet the aspirations
that the organization dares to have.
Fit means positioning the firm by matching its
organizational resources to its environment.

Strategic Analysis and Choice

Strategic Analysis is the investigation of the
objective factors being considered in the
process of strategic Choice.
Strategic Choice is a process based on strategic
decision making, which is a highly complex
activity.

Strategic Choice Process

Focusing on Alternatives

Considering the Selection Factors

Evaluation of Strategic Alternatives
Making the Strategic Choice

Porters Five Forces Model

Contd.
Porter five forces analysis is a framework for industry analysis and business strategy development. It draws
upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and
therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An
"unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability.
A very unattractive industry would be one approaching "pure competition", in which available profits for all firms
are driven to normal profit.
Three of Porter's five forces refer to competition from external sources. The remainder are internal threats.
Porter referred to these forces as the micro environment, to contrast it with the more general term macro
environment. They consist of those forces close to a company that affect its ability to serve its customers and
make a profit. A change in any of the forces normally requires a business unit to re-assess the marketplace given
the overall change in industry information. The overall industry attractiveness does not imply that every firm in
the industry will return the same profitability. Firms are able to apply their core competencies, business model or
network to achieve a profit above the industry average. A clear example of this is the airline industry. As an
industry, profitability is low and yet individual companies, by applying unique business models, have been able to
make a return in excess of the industry average.
Porter's five forces include - three forces from 'horizontal' competition: the threat of substitute products or services,
the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition:
the bargaining power of suppliers and the bargaining power of customers.
This five forces analysis, is just one part of the complete Porter strategic models. The other elements are the value
chain and the generic strategies.
Porter developed his Five Forces analysis in reaction to the then-popular SWOT analysis, which he found unrigorous
and ad hoc. Porter's five forces is based on the Structure-Conduct-Performance paradigm in industrial
organizational economics. It has been applied to a diverse range of problems, from helping businesses become
more profitable to helping governments stabilize industries.

Threat of new entrants

Profitable markets that yield high returns will attract new firms. This results in many new entrants,
which eventually will decrease profitability for all firms in the industry. Unless the entry of new
firms can be blocked by incumbents, the abnormal profit rate will trend towards zero (perfect
competition).
The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which
entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms
can exit easily.
Economies of product differences
Brand equity
Switching costs or sunk costs
Capital requirements
Expected retaliation
Access to distribution
Customer loyalty to established brands
Absolute cost
Industry profitability; the more profitable the industry the more attractive it will be to new
competitors.
Threat of new entrants, sources. 1)Economies of scale, 2)Product differentiation, 3)Cost disadvantages
independent of size, 4)Access to distribution channels, 5)Government Policy.

Threat of substitute products or

services
The existence of products outside of the realm of the common product boundaries
increases the propensity of customers to switch to alternatives. For example, tap
water might be considered a substitute for Coke, whereas Pepsi is a competitor's
similar product. Increased marketing for drinking tap water might "shrink the pie"
for both Coke and Pepsi, whereas increased Pepsi advertising would likely "grow
the pie" (increase consumption of all soft drinks), albeit while giving Pepsi a larger
slice at Coke's expense. Another example is the substitute of traditional phone
with VoIP phone.
Buyer propensity to substitute
Relative price performance of substitute
Buyer switching costs
Perceived level of product differentiation
Number of substitute products available in the market
Ease of substitution. Information-based products are more prone to substitution,
as online product can easily replace material product.
Substandard product
Quality depreciation

Bargaining power of customers

(buyers)
The bargaining power of customers is also described as the market of
outputs: the ability of customers to put the firm under pressure,
which also affects the customer's sensitivity to price changes. e.g.
firm can implement loyalty program to reduce the buyer power.
Buyer concentration to firm concentration ratio
Degree of dependency upon existing channels of distribution
Bargaining leverage, particularly in industries with high fixed costs
Buyer switching costs relative to firm switching costs
Buyer information availability
Force down prices
Availability of existing substitute products
Buyer price sensitivity
Differential advantage (uniqueness) of industry products
RFM (customer value) Analysis

Bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers
of raw materials, components, labor, and services (such as expertise) to
the firm can be a source of power over the firm, when there are few substitutes.
Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices
for unique resources.
Supplier switching costs relative to firm switching costs
Degree of differentiation of inputs
Impact of inputs on cost or differentiation
Presence of substitute inputs
Strength of distribution channel
Supplier concentration to firm concentration ratio
Employee solidarity (e.g. labor unions)
Supplier competition - ability to forward vertically integrate and cut out the BUYER
E.g. if you are making biscuits and there is only one person who sells flour, you have no
alternative but to buy it from them.

Intensity of competitive rivalry

For most industries, the intensity of competitive rivalry is
the major determinant of the competitiveness of the
industry.
Sustainable competitive advantage through innovation
Competition between online and offline companies
Level of advertising expense
Powerful competitive strategy
Firm concentration ratio
Degree of transparency

Usage of Five forces

Porter five forces analysis is a framework for industry analysis and business strategy
development formed by Michael E. Porter of Harvard Business School in 1979.
Strategy consultants occasionally use Porter's five forces framework when making a
qualitative evaluation of a firm's strategic position. However, for most consultants,
the framework is only a starting point or "checklist." They might use "Value Chain"
afterward. Like all general frameworks, an analysis that uses it to the exclusion of
specifics about a particular situation is considered nave.
According to Porter, the five forces model should be used at the line-of-business
industry level; it is not designed to be used at the industry group or industry sector
level. An industry is defined at a lower, more basic level: a market in which similar
or closely related products and/or services are sold to buyers. A firm that
competes in a single industry should develop, at a minimum, one five forces
analysis for its industry. Porter makes clear that for diversified companies, the first
fundamental issue incorporate strategy is the selection of industries (lines of
business) in which the company should compete; and each line of business should
develop its own, industry-specific, five forces analysis. The average Global 1,000
company competes in approximately 52 industries (lines of business).

Concept of Value Chain

Contd.
A value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a
valuable product or service for the market. The concept comes from business management and was first
described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and
Sustaining Superior Performance.
"The idea of the value chain is based on the process view of organizations, the idea of seeing a manufacturing
(or service) organisation as a system, made up of subsystems each with inputs, transformation processes
and outputs. Inputs, transformation processes, and outputs involve the acquisition and consumption of
resources - money, labour, materials, equipment, buildings, land, administration and management. How
value chain activities are carried out determines costs and affects profits.
IfM, Cambridge
The concept of value chains as decision support tools, was added onto the competitive strategies paradigm
developed by Porter as early as 1979. In Porter's value chains, Inbound Logistics, Operations, Outbound
Logistics, Marketing and Sales and Service are categorized as primary activities. Secondary activities
include Procurement, Human Resource management, Technological Development and Infrastructure.
According to the OECD Secretary-General (Gurra 2012) the emergence of global value chains (GVCs) in the late
1990s provided a catalyst for accelerated change in the landscape of international investment and trade,
with major, far-reaching consequences on governments as well as enterprises.

Grand Strategies
Grand Strategies help to exercise the choice of direction that an
organization adopts :
Growth Strategies: To expand the companys activities either
through Diversification Strategy
Concentration Strategy (Either through Internal Development
(Horizontal & Vertical Integration) or External Development
(Mergers & Acquisitions, and Strategic Alliances))
Stability Strategies (To make no change to the companys current
activities)
Retrenchment Strategies (To reduce the companys level of
activities)
Combination Strategies (A mixture of above strategies)

Diversification Strategies: Creating

Corporate Value and the Issue of
Relatedness

Contd.
Diversification is a corporate strategy to increase sales volume from new products and new markets. Diversification can be expanding into a
new segment of an industry that the business is already in, or investing in a promising business outside of the scope of the existing
business.
Diversification is part of the four main growth strategies defined by Igor Ansoff's Product/Market matrix.
Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The first three strategies are usually pursued
with the same technical, financial, and merchandising resources used for the original product line, whereas diversification usually
requires a company to acquire new skills, new techniques and new facilities.
Note: The notion of diversification depends on the subjective interpretation of new market and new product, which should reflect the
perceptions of customers rather than managers. Indeed, products tend to create or stimulate new markets; new markets
promote product innovation.
Product diversification involves addition of new products to existing products either being manufactured or being marketed. Expansion of the
existing product line with related products is one such method adopted by many businesses. Adding tooth brushes to tooth paste or
tooth powders or mouthwash under the same brand or under different brands aimed at different segments is one way of
diversification. These are either brand extensions or product extensions to increase the volume of sales and the number of customers.
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 know-how, 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.

The different types of diversification

strategies
The strategies of diversification can include internal development of new products or markets, acquisition of a
firm, alliance with a complementary company, licensing of new technologies, and distributing or importing
a products line manufactured by another firm. Generally, the final strategy involves a combination of these
options. This combination is determined in function of available opportunities and consistency with the
objectives and the resources of the company.
There are three types of diversification: concentric, horizontal, and conglomerate.
Concentric diversification
This means that 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 that helps the particular company to earn
profit. For instance, the addition of tomato ketchup and sauce to the existing "Maggi" brand processed
items of Food Specialities Ltd. is an example of technological-related concentric diversification.
The company could seek new products that have technological or marketing synergies with existing product lin
es appealing to a new group of customers. This also helps the company to tap that part of the market
which remains untapped, and which presents an opportunity to earn profits.

Contd.
Horizontal diversification
The company adds new products or services that are often technologically or commercially unrelated to current
products but that may appeal to current customers. This strategy tends to increase the firm's dependence on
certain market segments. For example, a company that was making notebooks earlier may also enter the pen
market with its new product.
When is Horizontal diversification desirable?
Horizontal 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.
Horizontal integration occurs when a firm enters a new business (either related or unrelated) at the same stage of
production as its current operations. For example, Avon's move to market jewelry through its door-to-door sales
force involved marketing new products through existing channels of distribution. An alternative form of that Avon
has also undertaken is selling its products by mail order (e.g., clothing, plastic products) and through retail stores
(e.g.,Tiffany's). In both cases, Avon is still at the retail stage of the production process.
Conglomerate diversification (or lateral diversification)
The company markets new products or services that have no technological or commercial synergies with current
products but that may appeal to new groups of customers. The conglomerate diversification has very little
relationship with the firm's current business. Therefore, the main reasons for 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. Though this strategy is very risky, it could also, if successful, provide increased growth
and profitability.

The Growth of the Firm: Internal

Development
The growth of the firm internally includes both
Horizontal & Vertical Integration.

Horizontal Integration
In business, horizontal integration is a strategy where a company creates or
acquires production units for outputs which are alike - either complementary or
competitive. One example would be when a company acquires competitors in the
same industry doing the same stage of production. Another example is the
management of a group of products which are alike, yet at different price points,
complexities, and qualities. This strategy may reduce competition and
increase market share by using economies of scale. For example, a car
manufacturer acquiring its competitor who does exactly the same thing.
Horizontal integration is the opposite to vertical integration, where companies
integrate multiple stages of production of a small number of production units.
Benefits of horizontal integration :
Economies of scale
Economies of scope
Strong presence in the reference market.

Vertical Integration: Coordinating the

Value Chain

Contd.
In microeconomics and management, the term vertical integration describes a style of
growth and management control. Vertically integrated companies in a supply
chain are united through a common owner. Usually each member of the supply
chain produces a different product or (market-specific) service, and the products
combine to satisfy a common need. It is contrasted with horizontal integration.
Vertical integration has also described management styles that bring large portions
of the supply chain not only under a common ownership, but also into one
corporation (as in the 1920s when the Ford River Rouge Complex began making
much of its own steel rather than buying it from suppliers).
Vertical integration is one method of avoiding the hold-up problem. A monopoly
produced through vertical integration is called a vertical monopoly.
Nineteenth-century steel tycoon Andrew Carnegie's example in the use of vertical
integration led others to use the system to promote financial growth and efficiency
in their businesses.
Vertical integration is the degree to which a firm owns its upstream suppliers and its
downstream buyers. Contrary to horizontal integration, which is a consolidation of
many firms that handle the same part of the production process, vertical
integration is typified by one firm engaged in different parts of production (e.g.,
growing raw materials, manufacturing, transporting, marketing, and/or retailing).

Contd.
There are three varieties: backward (upstream) vertical integration,
forward (downstream) vertical integration, and balanced (both
upstream and downstream) vertical integration.
A company exhibits backward vertical integration when it
controls subsidiaries that produce some of the inputs used in the
production of its products. For example, an automobile company
may own a tire company, a glass company, and a metal company.
Control of these three subsidiaries is intended to create a stable
supply of inputs and ensure a consistent quality in their final
product. It was the main business approach of Ford and other car
companies in the 1920s, who sought to minimize costs by
integrating the production of cars and car parts as exemplified in
the Ford River Rouge Complex.
A company tends toward forward vertical integration when it
controls distribution centers and retailers where its products are
sold.

Contd.
Examples
One of the earliest, largest and most famous examples of vertical integration was the Carnegie Steel company. The company
controlled not only the mills where the steel was made, but also the mines where the iron ore was extracted, the coal mines
that supplied the coal, the ships that transported the iron ore and the railroads that transported the coal to the factory,
the coke ovens where the coal was cooked, etc. The company also focused heavily on developing talent internally from the
bottom up, rather than importing it from other companies.[2] Later on, Carnegie even established an institute of higher
learning to teach the steel processes to the next generation.
Oil industry
Oil companies, both multinational (such as ExxonMobil, Royal Dutch Shell, ConocoPhillips or BP) and national (e.g. Petronas) often
adopt a vertically integrated structure. This means that they are active along the entire supply chain from locating deposits,
drilling and extracting crude oil, transporting it around the world, refining it into petroleum products such as petrol/gasoline,
to distributing the fuel to company-owned retail stations, for sale to consumers.
Telephone
Telephone companies in most of the 20th century, especially the largest (the Bell System) were integrated, making their
own telephones, telephone cables, telephone exchangeequipment and other supplies.
Reliance
The Indian petrochemical giant Reliance Industries has integrated back into polyester fibres from textiles and further
into petrochemicals, beginning with Dhirubhai Ambani. Reliance has entered the oil and natural gas sector, along with retail
sector. Reliance now has a complete vertical product portfolio from oil and gas production, refining, petrochemicals,
synthetic garments and retail outlets.

Contd.
Media industry
From the early 1920s through the early 1950s, the American motion picture had evolved into an industry controlled by a few companies, a
condition known as a "mature oligopoly". The film industry was led by eight major film studios. The most powerful of these studios
were the fully integrated Big Five studios: MGM, Warner Brothers, 20th Century Fox, Paramount Pictures, and RKO. These studios not
only produced and distributed films, but also operated their own movie theaters. Meanwhile, the Little Three studios: Universal
Studios, Columbia Pictures, and United Artists produced and distributed feature films, but did not own their own theaters.
The issue of vertical integration (also known as common ownership) has been a main focus of policy makers because of the possibility of anticompetitive behaviors affiliated with market influence. For example, in United States v. Paramount Pictures, Inc., the Supreme Court
ordered the five vertically integrated studios to sell off their theater chains and all trade practices were prohibited (United States v.
Paramount Pictures, Inc., 1948). The prevalence of vertical integration wholly predetermined the relationships between both studios
and networks and modified criteria in financing. Networks began arranging content initiated by commonly owned studios and
stipulated a portion of the syndication revenues in order for a show to gain a spot on the schedule if it was produced by a studio
without common ownership. In response, the studios fundamentally changed the way they made movies and did business. Lacking the
financial resources and contract talent they once controlled, the studios now relied on independent producers supplying some portion
of the budget in exchange for distribution rights.
Certain media conglomerates may, in a similar manner, own television broadcasters (either over-the-air or on cable), production companies
that produce content for their networks, and also own the services that distribute their content to viewers (such as television and
internet service providers). Bell Canada, Comcast, and BSkyB are vertically integrated in such a manneroperating media subsidiaries
(in the case of Bell and Comcast, Bell Media and NBCUniversal respectively), and also both provide "triple play" services of television,
internet, and phone service in some markets (such as Bell TV/Bell Internet, Xfinity, and Sky's satellite TV services).
Apple
Apple Inc. have been listed as an example of vertical integration, specifically with many elements of the ecosystem for the iPhone and iPad,
where they control the processor, the hardware and the software. Hardware itself is not typically manufactured by Apple, but
is outsourced to contract manufacturers such as Foxconn or Pegatron who manufacture Apple's branded products to their
specifications. Apple retail stores sell its own hardware, software and services directly to consumers.

Mergers & Acquisitions

Mergers and acquisitions (abbreviated M&A) are both an aspect of corporate strategy,
corporate finance and management dealing with the buying, selling, dividing and
combining of different companies and similar entities that can help an enterprise
grow rapidly in its sector or location of origin, or a new field or new location,
without creating a subsidiary, other child entity or using a joint venture.
The distinction between a "merger" and an "acquisition" has become increasingly
blurred in various respects (particularly in terms of the ultimate economic
outcome), although it has not completely disappeared in all situations. From a
legal point of view, a merger is a legal consolidation of two companies into one
entity, whereas an acquisition occurs when one company takes over another and
completely establishes itself as the new owner (in which case the target company
still exists as an independent legal entity controlled by the acquirer). Either
structure can result in the economic and financial consolidation of the two
entities. In practice, a deal that is an acquisition for legal purposes may
be euphemistically called a "merger of equals" if both CEOs agree that joining
together is in the best interest of both of their companies, while when the deal is
unfriendly (that is, when the target company does not want to be purchased) it is
almost always regarded as an "acquisition".

Contd.
Year

Purchaser

Purchased

Transaction value
(in USD)

2011

Google

Motorola Mobility

9,800,000,000

2011

Microsoft
Corporation

Skype

8,500,000,000

2011

Berkshire Hathaway Lubrizol

9,220,000,000

2012

Deutsche Telekom

MetroPCS

29,000,000,000

2013

Softbank

Sprint Corporation

21,600,000,000

2013

Berkshire Hathaway

H. J. Heinz
Company

28,000,000,000

2013

Microsoft
Corporation

Nokia Handset &

Services Business

7,200,000,000

Strategic Alliances
A strategic alliance is an agreement between two or more parties to
pursue a set of agreed upon objectives need while remaining
independent organizations. This form of cooperation lies between
Mergers & Acquisition M&A and organic growth.
Partners may provide the strategic alliance with resources such as
products, distribution channels, manufacturing capability, project
funding, capital equipment, knowledge, expertise, or intellectual
property. The alliance is a cooperation or collaboration which aims
for a synergy where each partner hopes that the benefits from the
alliance will be greater than those from individual efforts. The
alliance often involves technology transfer (access to knowledge
and expertise), economic specialization, shared expenses and
shared risk.

Contd.
One typology of strategic alliances conceptualizes them as horizontal,
vertical or inter-sectoral:
Horizontal strategic alliance: Strategic alliance characterized by the
collaboration between two or more firms in the same industry, e.g.
the partnership between Sina Corp and Yahoo in order to offer
online auction services in China;
Vertical strategic alliances: Strategic alliance characterized by the
collaboration between two or more firms along the vertical chain,
e.g. Caterpillar's provision of manufacturing services to Land Rover;
Intersectoral strategic alliances: Strategic alliance characterized by
the collaboration between two or more firms neither in the same
industry nor related through the vertical chain, e.g. the cooperation
of Toys "R" Us with McDonald's in Japan resulting in Toys "R" Us
stores with built-in McDonald's restaurants.

Restructuring Strategies: Reducing the

Scope of the Firm
Restructuring is the corporate management term for the act of reorganizing the legal, ownership,
operational, or other structures of a company for the purpose of making it more profitable, or
better organized for its present needs. Other reasons for restructuring include a change of
ownership or ownership structure, demerger, or a response to a crisis or major change in the
business such as bankruptcy, repositioning, or buyout. Restructuring may also be described as
corporate restructuring, debt restructuring and financial restructuring.
Executives involved in restructuring often hire financial and legal advisors to assist in the transaction
details and negotiation. It may also be done by a new CEO hired specifically to make the difficult
and controversial decisions required to save or reposition the company. It generally involves
financing debt, selling portions of the company to investors, and reorganizing or reducing
operations.
The basic nature of restructuring is a zero-sum game. Strategic restructuring reduces financial losses,
simultaneously reducing tensions between debt and equity holders to facilitate a prompt resolution
of a distressed situation.
Corporate debt restructuring is the reorganization of companies outstanding liabilities. It is generally a
mechanism used by companies which are facing difficulties in repaying their debts. In the process
of restructuring, the credit obligations are spread out over longer duration with smaller payments.
This allows companys ability to meet debt obligations. Also, as part of process, some creditors may
agree to exchange debt for some portion of equity. It is based on the principle that restructuring
facilities available to companies in a timely and transparent matter goes a long way in ensuring
their viability which is sometimes threatened by internal and external factors. This process tries to
resolve the difficulties faced by the corporate sector and enables them to become viable again.

Contd.
Steps:
Ensure the company has enough liquidity to
operate during implementation of a complete
restructuring
Produce accurate working capital forecasts
Provide open and clear lines of communication
with creditors who mostly control the company's
ability to raise financing
Update detailed business plan and considerations

Porters Generic Strategies

Contd.
Michael Porter has described a category scheme consisting of three general types of strategies that are commonly used by
businesses to achieve and maintain competitive advantage. These three generic strategies are defined along two
dimensions: strategic scope and strategic strength. Strategic scope is a demand-side dimension (Michael E. Porter was
originally an engineer, then an economist before he specialized in strategy) and looks at the size and composition of the
market you intend to target. Strategic strength is a supply-side dimension and looks at the strength or core competency of
the firm. In particular he identified two competencies that he felt were most important: product differentiation and product
cost (efficiency).
He originally ranked each of the three dimensions (level of differentiation, relative product cost, and scope of target market) as
either low, medium, or high, and juxtaposed them in a three dimensional matrix. That is, the category scheme was displayed
as a 3 by 3 by 3 cube. But most of the 27 combinations were not viable.
In his 1980 classic Competitive Strategy: Techniques for Analyzing Industries and Competitors, Porter simplifies the scheme by
reducing it down to the three best strategies. They are cost leadership, differentiation, and market segmentation (or focus).
Market segmentation is narrow in scope while both cost leadership and differentiation are relatively broad in market scope.
Empirical research on the profit impact of marketing strategy indicated that firms with a high market share were often quite
profitable, but so were many firms with low market share. The least profitable firms were those with moderate market
share. This was sometimes referred to as the hole in the middle problem. Porters explanation of this is that firms with high
market share were successful because they pursued a cost leadership strategy and firms with low market share were
successful because they used market segmentation to focus on a small but profitable market niche. Firms in the middle were
less profitable because they did not have a viable generic strategy.

Contd.
Porter suggested combining multiple strategies is successful in only one case.
Combining a market segmentation strategy with a product differentiation
strategy was seen as an effective way of matching a firms product strategy
(supply side) to the characteristics of your target market segments
(demand side). But combinations like cost leadership with product
differentiation were seen as hard (but not impossible) to implement due
to the potential for conflict between cost minimization and the additional
cost of value-added differentiation.
Since that time, empirical research has indicated companies pursuing both
differentiation and low-cost strategies may be more successful than
companies pursuing only one strategy.
Some commentators have made a distinction between cost leadership, that
is, low cost strategies, and best cost strategies. They claim that a low cost
strategy is rarely able to provide a sustainable competitive advantage. In
most cases firms end up in price wars. Instead, they claim a best cost
strategy is preferred. This involves providing the best value for a relatively
low price.

Cost Leadership Strategy

This strategy involves the firm winning market share by appealing to cost-conscious or price-sensitive customers. This is achieved
by having the lowest prices in the target market segment, or at least the lowest price to value ratio (price compared to what
customers receive). To succeed at offering the lowest price while still achieving profitability and a high return on investment,
the firm must be able to operate at a lower cost than its rivals. There are three main ways to achieve this.
The first approach is achieving a high asset turnover. In service industries, this may mean for example a restaurant that turns
tables around very quickly, or an airline that turns around flights very fast. In manufacturing, it will involve production of high
volumes of output. These approaches mean fixed costs are spread over a larger number of units of the product or service,
resulting in a lower unit cost, i.e. the firm hopes to take advantage of economies of scale and experience curve effects. For
industrial firms, mass production becomes both a strategy and an end in itself. Higher levels of output both require and
result in high market share, and create an entry barrier to potential competitors, who may be unable to achieve the scale
necessary to match the firms low costs and prices.
The second dimension is achieving low direct and indirect operating costs. This is achieved by offering high volumes of
standardized products, offering basic no-frills products and limiting customization and personalization of service. Production
costs are kept low by using fewer components, using standard components, and limiting the number of models produced to
ensure larger production runs. Overheads are kept low by paying low wages, locating premises in low rent areas,
establishing a cost-conscious culture, etc. Maintaining this strategy requires a continuous search for cost reductions in all
aspects of the business. This will include outsourcing, controlling production costs, increasing asset capacity utilization, and
minimizing other costs including distribution, R&D and advertising. The associated distribution strategy is to obtain the most
extensive distribution possible. Promotional strategy often involves trying to make a virtue out of low cost product features.

Contd.
The third dimension is control over the supply/procurement chain to ensure low costs. This could be
achieved by bulk buying to enjoy quantity discounts, squeezing suppliers on price, instituting
competitive bidding for contracts, working with vendors to keep inventories low using methods
such as Just-in-Time purchasing or Vendor-Managed Inventory. Wal-Mart is famous for squeezing
its suppliers to ensure low prices for its goods. Dell Computer initially achieved market share by
keeping inventories low and only building computers to order. Other procurement advantages
could come from preferential access to raw materials, or backward integration.
Some writers assume that cost leadership strategies are only viable for large firms with the opportunity
to enjoy economies of scale and large production volumes. However, this takes a limited industrial
view of strategy. Small businesses can also be cost leaders if they enjoy any advantages conducive
to low costs. For example, a local restaurant in a low rent location can attract price-sensitive
customers if it offers a limited menu, rapid table turnover and employs staff on minimum wage.
Innovation of products or processes may also enable a startup or small company to offer a cheaper
product or service where incumbents' costs and prices have become too high. An example is the
success of low-cost budget airlines who despite having fewer planes than the major airlines, were
able to achieve market share growth by offering cheap, no-frills services at prices much cheaper
than those of the larger incumbents.
A cost leadership strategy may have the disadvantage of lower customer loyalty, as price-sensitive
customers will switch once a lower-priced substitute is available. A reputation as a cost leader may
also result in a reputation for low quality, which may make it difficult for a firm to rebrand itself or
its products if it chooses to shift to a differentiation strategy in future.

Differentiation Strategy
Differentiate the products in some way in order to compete successfully. Examples of
the successful use of a differentiation strategy are Hero Honda, Asian Paints, HLL,
Nike athletic shoes, BMW Group Automobiles, Perstorp BioProducts, Apple
Computer, Mercedes-Benz automobiles, and Renault-Nissan Alliance.
A differentiation strategy is appropriate where the target customer segment is not
price-sensitive, the market is competitive or saturated, customers have very
specific needs which are possibly under-served, and the firm has unique resources
and capabilities which enable it to satisfy these needs in ways that are difficult to
copy. These could include patents or other Intellectual Property (IP), unique
technical expertise (e.g. Apple's design skills or Pixar's animation prowess),
talented personnel (e.g. a sports team's star players or a brokerage firm's star
traders), or innovative processes. Successful brand management also results in
perceived uniqueness even when the physical product is the same as competitors.
This way, Chiquita was able to brand bananas, Starbucks could brand coffee, and
Nike could brand sneakers. Fashion brands rely heavily on this form of image
differentiation.

Focus or Leadership Strategy

This dimension is not a separate strategy per se, but describes the scope over which the company should compete
based on cost leadership or differentiation. The firm can choose to compete in the mass market (like Wal-Mart)
with a broad scope, or in a defined, focused market segment with a narrow scope. In either case, the basis of
competition will still be either cost leadership or differentiation.
In adopting a narrow focus, the company ideally focuses on a few target markets (also called a segmentation strategy or
niche strategy). These should be distinct groups with specialized needs. The choice of offering low prices or
differentiated products/services should depend on the needs of the selected segment and the resources and
capabilities of the firm. It is hoped that by focusing your marketing efforts on one or two narrow market segments
and tailoring your marketing mix to these specialized markets, you can better meet the needs of that target
market. The firm typically looks to gain a competitive advantage through product innovation and/or brand
marketing rather than efficiency. It is most suitable for relatively small firms but can be used by any company. A
focused strategy should target market segments that are less vulnerable to substitutes or where a competition is
weakest to earn above-average return on investment.
Examples of firm using a focus strategy include Southwest Airlines, which provides short-haul point-to-point flights in
contrast to the hub-and-spoke model of mainstream carriers, and Family Dollar.
In adopting a broad focus scope, the principle is the same: the firm must ascertain the needs and wants of the mass
market, and compete either on price (low cost) or differentiation (quality, brand and customization) depending on
its resources and capabilities. Wal Mart has a broad scope and adopts a cost leadership strategy in the mass
market. Pixar also targets the mass market with its movies, but adopts a differentiation strategy, using its unique
capabilities in story-telling and animation to produce signature animated movies that are hard to copy, and for
which customers are willing to pay to see and own. Apple also targets the mass market with its iPhone and iPod
products, but combines this broad scope with a differentiation strategy based on design, branding and user
experience that enables it to charge a price premium due to the perceived unavailability of close substitutes.

Unit IV : Strategy Implementation and Evaluation

Structural Considerations and

Organizational Design
There is no unanimity with regard to the type of
structure that satisfies the requirements of a
particular strategy.

Contd.
An organizational structure defines how activities such as task allocation,
coordination and supervision are directed towards the achievement of
organizational aims. It can also be considered as the viewing glass or
perspective through which individuals see their organization and its
environment.
Organizations are a variant of clustered entities.
An organization can be structured in many different ways, depending on their
objectives. The structure of an organization will determine the modes in
which it operates and performs.
Organizational structure allows the expressed allocation of responsibilities for
different functions and processes to different entities such as
the branch, department, workgroup and individual.
Organizational structure affects organizational action in two big ways. First, it
provides the foundation on which standard operating procedures and
routines rest. Second, it determines which individuals get to participate in
which decision-making processes, and thus to what extent their views
shape the organizations actions.

Contd.
Functional structure
A functional organizational structure is a structure that consists of activities such as coordination, supervision and task allocation. The
organizational structure determines how the organization performs or operates. The term organizational structure refers to how the
people in an organization are grouped and to whom they report. One traditional way of organizing people is by function. Some common
functions within an organization include production, marketing, human resources, and accounting.
This organizing of specialization leads to operational efficiencies where employees become specialists within their own realm of expertise.
The most typical problem with a functional organizational structure is however that communication within the company can be rather
rigid, making the organization slow and inflexible. Therefore, lateral communication between functions become very important, so that
information is disseminated, not only vertically, but also horizontally within the organization.
Employees within the functional divisions of an organization tend to perform a specialized set of tasks, for instance the engineering
department would be staffed only with software engineers. This leads to operational efficiencies within that group. However it could
also lead to a lack of communication between the functional groups within an organization, making the organization slow and inflexible.
As a whole, a functional organization is best suited as a producer of standardized goods and services at large volume and low cost.
Coordination and specialization of tasks are centralized in a functional structure, which makes producing a limited amount of products
or services efficient and predictable. Moreover, efficiencies can further be realized as functional organizations integrate their activities
vertically so that products are sold and distributed quickly and at low cost. For instance, a small business could make components used
in production of its products instead of buying them.
Communication in organizations with functional organizational structures can be rigid because of the standardized ways of operation and the
high degree of formalization. This can further make the decision-making process slow and inflexible.
Even though functional units often perform with a high level of efficiency, their level of cooperation with each other is sometimes
compromised. Such groups may have difficulty working well with each other as they may be territorial and unwilling to cooperate. The
occurrence of infighting among units may cause delays, reduced commitment due to competing interests, and wasted time, making
projects fall behind schedule. This ultimately can bring down production levels overall, and the company-wide employee commitment
toward meeting organizational goals.

Contd.
Divisional structure
The Divisional structure or product structure is a configuration of an organization, which breaks down the company into
divisions that are self-contained. A division is self-contained and consists of a collections of functions which work
to produce a product. It also utilizes a plan to compete and operate as a separate business or profit center.
According to Zainbooks.com, divisional structure in America is seen as the second most common structure for
organization today.
Employees who are responsible for certain market services of types of products, are placed in divisional structure in
order to increase their flexibility. The process can be further broken down into geographic(for example a U.S
Division and an EU division), and product services for different consumers; companies or households). Another
example of divisional structure would be an automobile company which utilizes a divisional structure. The
company would have one division for trucks, another for SUVS, and another for cars. The divisions may also have
their own departments such as marketing, sales, and engineering.
The advantage of divisional structure is that it uses delegated authority so the performance can be directly measured
with each group. This results in managers performing better and high employee morale. Another advantage of
using divisional structure is that it is more efficient in coordinating work between different divisions, and there is
more flexibility to respond when there is a change in the market. Also, a company will have a simpler process if
they need to change the size of the business by either adding or removing divisions. When divisional structure is
utilized more specialization can occur within the groups. When divisional structure is organized by product, the
customer has their own advantages especially when only a few services or products are offered which differs
greatly. When using divisional structures that are organized by either markets or geographic areas they generally
have similar function and are located in different regions or markets. This allows business decisions and activities
coordinated locally.
The disadvantages of the divisional structure is that it can support unhealthy rivalries among divisions. This type of
structure may increase costs by requiring more qualified managers for each division. Also, there is usually an overemphasis on divisional more than organizational goals which results in duplication of resources and efforts like
staff services, facilities, and personnel.

Contd.
Matrix structure
The matrix structure groups employees by both function and product. This structure can combine the best of both separate structures. A
matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as
make up for the weaknesses, of functional and decentralized forms. An example would be a company that produces two products,
"product a" and "product b". Using the matrix structure, this company would organize functions within the company as follows:
"product a" sales department, "product a" customer service department, "product a" accounting, "product b" sales department,
"product b" customer service department, "product b" accounting department. Matrix structure is amongst the purest of organizational
structures, a simple lattice emulating order and regularity demonstrated in nature.
Weak/Functional Matrix: A project manager with only limited authority is assigned to oversee the cross- functional aspects of the project.
The functional managers maintain control over their resources and project areas.
Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and
the functional managers. It brings the best aspects of functional and projectized organizations. However, this is the most difficult system
to maintain as the sharing of power is a delicate proposition.
Strong/Project Matrix: A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign
resources as needed.
Matrix structure is only one of three major structures such as Functional and Project structure. Matrix management is more dynamic then
functional management in that it is a combination of all the other structures and allows team members to share information more
readily across task boundaries. It also allows for specialization that can increase depth of knowledge in a specific sector or segment.
There are both advantages and disadvantages of the matrix structure; some of the disadvantages are an increase in the complexity of the
chain of command. This occurs because of the differentiation between functional managers and project managers, which can be
confusing for employees to understand who is next in the chain of command. An additional disadvantage of the matrix structure is
higher manager to worker ratio that results in conflicting loyalties of employees. However the matrix structure also has significant
advantages that make it valuable for companies to use. The matrix structure improves upon the silo critique of functional
management in that it diminishes the vertical structure of functional and creates a more horizontal structure which allows the spread of
information across task boundaries to happen much quicker. Moreover matrix structure allows for specialization that can increase
depth of knowledge & allows individuals to be chosen according to project needs. This correlation between individuals and project
needs is what produces the concept of maximizing strengths and minimizing weaknesses.

Leadership and Corporate Culture

Leadership has been described as "a process of social
influence in which one person can enlist the aid
and support of others in the accomplishment of a
common task", although there are alternative
definitions of leadership. For example, some
understand a leader simply as somebody whom people
follow, or as somebody who guides or directs
others, while others define leadership as "organizing a
group of people to achieve a common goal".
Studies of leadership have produced theories involving
traits,
situational
interaction,
function,
behavior, power, vision and values, charisma, and
intelligence, among others.

Contd.
Organizational culture is the behavior of humans who are part of an organization and the
meanings that the people attach to their actions. Culture includes the organization values,
visions, norms, working language, systems, symbols, beliefs and habits. It is also the pattern
of such collective behaviors and assumptions that are taught to new organizational members
as a way of perceiving, and even thinking and feeling. Organizational culture affects the way
people and groups interact with each other, with clients, and with stakeholders.
Ravasi and Schultz (2006) state that organizational culture is a set of shared mental assumptions
that guide interpretation and action in organizations by defining appropriate behavior for
various situations. At the same time although a company may have their "own unique
culture", in larger organizations, there is a diverse and sometimes conflicting cultures that coexist due to different characteristics of the management team. The organizational culture
may also have negative and positive aspects.
Schein (2009), Deal & Kennedy (2000), Kotter (1992) and many others state that organizations
often have very differing cultures as well as subcultures.
According to Needle (2004), organizational culture represents the collective values, beliefs and
principles of organizational members and is a product of such factors as history, product,
market, technology, and strategy, type of employees, management style, and national
cultures and so on. Corporate culture on the other hand refers to those cultures deliberately
created by management to achieve specific strategic ends.

Contd.
Mergers, organizational culture, and cultural leadership
One of the biggest obstacles in the way of the merging of two organizations is
organizational culture. Each organization has its own unique culture and most
often, when brought together, these cultures clash. When mergers fail employees
point to issues such as identity, communication problems, human resources
problems, ego clashes, and inter-group conflicts, which all fall under the category
of "cultural differences".
One way to combat such difficulties is through cultural leadership. Organizational
leaders must also be cultural leaders and help facilitate the change from the two
old cultures into the one new culture. This is done through cultural innovation
followed by cultural maintenance.
Cultural innovation includes:
Creating a new culture: recognizing past cultural differences and setting realistic expectations
for change
Changing the culture: weakening and replacing the old cultures

Cultural maintenance includes:

Integrating the new culture: reconciling the differences between the old cultures and the new
one
Embodying the new culture: Establishing, affirming, and keeping the new culture

Importance and Nature of Strategic

Evaluation
Frameworks for analysis
Formulation and implementation of strategy have resulted in a variety of frameworks to direct and inform
analysis. The difficulty of fully comprehending and responding to the complex issues faced by an
organization has led to a proliferation of such frameworks. Each attempts to organize a number of issues
and make them more readily understandable.

External environment: PEST analysis or STEEP analysis is a framework used to examine the remote external
environmental factors that can affect the organization, such as political, economic, social/demographic,
and government regulation. Common variations include SLEPT, PESTLE, STEEPLE, and STEER analysis, each
of which incorporates slightly different emphases.

Industry environment: The Porter Five Forces Analysis framework helps to determine the competitive
rivalry and therefore attractiveness of a market. It is used to help determine the portfolio of offerings the
organization will provide and in which markets.

Relationship of internal and external environment: One of the most basic and widely-used frameworks is
the SWOT analysis, which examines both internal elements of the organization Strengths
and Weaknesses and external elements Opportunities and Threats. It helps examine the
organization's resources in the context of its environment.

Determining objectives and measures: The Balanced Scorecard attempts to measure the performance of
an organization from the perspective of various stakeholders. While often used in a performance
management or operational management context, the balanced scorecard is also valuable to strategic
management in helping to define and maintain competitive advantage.

Contd.
Industry analysis
Porter also developed a framework for analyzing the profitability of
industries. In five forces analysis he identified the forces that shape the
industry environment. The framework involves the bargaining power of
buyers and suppliers, the threat of new entrants, the availability of
substitute products, and the competitive rivalry of firms in the industry.
The framework helps describe how a firm can use these forces to obtain
a sustainable competitive advantage. Porter modifies Chandler's dictum
about structure following strategy by introducing a second level of
structure: while organizational structure follows strategy, it in turn follows
industry structure. Porter's generic strategies detail the interaction
between cost minimization strategies, product differentiation strategies,
and market focus strategies. Although he did not introduce these terms,
he showed the importance of choosing one of them rather than trying to
position your company between them. He also challenged managers to
see their industry in terms of a value chain.

Contd.
Scenario planning
A number of strategists use scenario planning techniques to deal with change. The way Peter
Schwartz put it in 1991 is that strategic outcomes cannot be known in advance so the sources of
competitive advantage cannot be predetermined. The fast changing business environment is too
uncertain for us to find sustainable value in formulas of excellence or competitive advantage.
Instead, scenario planning is a technique in which multiple outcomes can be developed, their
implications assessed, and their likeliness of occurrence evaluated. According to Pierre Wack,
scenario planning is about insight, complexity, and subtlety, not about formal analysis and numbers.
Some business planners are starting to use a complexity theory approach to strategy. Complexity can be
thought of as chaos with a dash of order. Chaos theory deals with turbulent systems that rapidly
become disordered. Complexity is not quite so unpredictable. It involves multiple agents interacting
in such a way that a glimpse of structure may appear.
Balanced scorecard
Information systems allow managers to take a much more analytical view of their business than before.
One
such
system
is
the
balanced
scorecard.
It
measures financial,marketing, production, organizational development, and new product
development factors to achieve a 'balanced' perspective.

Strategic and Operational Control

Establish
Standards

Determine
Corrective
Performance

Measure
Performance

Evaluate Actual
Performance
against Standards

Important Questions

Contd.

Contd.

Contd.