STRATEGIC MANAGEMENT

Unit-1: Strategy and Process

Conceptual framework for strategic management, the concept of strategy and the strategy
formation process- Stakeholders in business- Vision Mission and purpose- Business definition,
objectives and goals- corporate overnance and social responsibility- case study
Unit-II: Competitive Advantage
!"ternal !nvironment- porters five forces Model- strategic roups competitive changes during
#ndustry !volution- lobali$ation and #ndustry Structure- %ational conte"t and competitive
advantage &esources- capabilities and competencies- core competencies- 'ow cost and
differentiation, eneric Building Blocks of competitive (dvantage- )istinctive Competencies-
&esources and capabilities- durability of competitive (dvantage- (voiding failures and
sustaining competitive advantage- case study
Unit-III Strategies
*he generic strategic alternatives- stability, !"pansion, &etrenchment and combination
strategies- Business level strategy- Strategy in the lobal !nvironment- Corporate strategy-
Vertical #ntegration- )iversification and strategic (lliances- Building and &estructuring the
corporation- Strategic analysis and choice- !nvironmental *hreat and opportunity profile
+!*,-.- ,rgani$ational Capability profile- Strategic (dvantage profile- corporate portfolio
(nalysis- S/,* (nalysis- ap (nalysis- Mc 0inseys 1s 2ramework- ! 3 cell Model-
)istinctive Competitiveness- Selection of matri"- Balance Score Card- case study
UNIT-I Strategy Imp!ementation " Eva!#ation
*he #mplementation process, &esource allocation, )esigning organi$ational Structure-
)esigning Strategic control systems- Matching structure and control to strategy 4 #mplementing
strategic change- politics- power and conflict- *echni5ues of strategic evaluation6 control- case
study
UNIT- $t%er Strategic Iss#es
Managing *echnology and #nnovation- Strategic issues for %on profit organi$ations
%ew Business Models and strategies for #nternet !conomy
*e"t Books
78 *homas '8 /heelen, 98)avid :unger and 0rish &angarajan, Strategic Management and
Business policy, -earson !ducation, ;<<=
;8 Charless /8'8 :ill 6 areth &89ones, Strategic Management *heory, (n #ntegrated
(pproach, Bi$tantra, /iley #ndia, ;<<1
>8 ($har 0a$mi, Strategic Management 6 Business -olicy, *ata Mcraw :ill
&ect#re notes
Unit-I
Strategy and process
Concept o' strategy ?
*he term strategy is derived from a reek word strategos which means generalship8 ( plan or
course of action or a set of decision rules making a pattern or creating a common thread8
(e'inition 'or strategic management ?
Strategic Management is defined as the dynamic process of formulation, implementation,
evaluation and control of strategies to reali$e the organi$ations strategic intent8
Concept#a! 'rame)or* 'or t%e deve!opment o' strategic management:
Strategic (dvantage
,rgani$ational capability
Competencies
Synergistic !ffects
Strengths and weaknesses
,rgani$ational &esources
organi$ational behavior
Meaning 'or Goa!?
oal denotes what an organi$ation hopes to accomplish in a future period of time
8
Meaning 'or $+,ectives?
,bjectives are the ends that state specifically how the goals shall be achieved8 *hey are concrete
and specific in contrast to goals that are generali$ed8
Ro!e o' $+,ectives:
,bjectives define the organi$ations relationship with its environment8
,bjectives help an organi$ation pursue its vision and mission8
,bjectives provide the basis for strategic decision making8
,bjectives provide the standards for performance (ppraisal8
C%aracteristics o' $+,ectives?
,bjectives should be understandable8
,bjectives should be concrete and specific8
,bjectives should be related to a time frame
,bjectives should be measurable and controllable8
78 ,bjectives should be challenging8
Meaning o' vision:
( vision statement is sometimes called a picture of your company in the future8 Vision statement
is your inspiration@ it is the dream of what you want your company to accomplish8
Meaning 'or mission:
( mission statement is a brief description of a companys fundamental purpose8 *he mission
statement articulates the companys purpose both for those in the organi$ations and for the
public8
Corporate Governance:
Corporate overnance involves a set of relationships amongst the companys management its
board of directors, shareholders and other stakeholders8 *hese relationships which various rules
and incentives provide the structure through which the objectives of the company are set and the
means of attaining the objectives and monitoring performance are determined8
(e'inition 'or -#siness:
( company should define its business in terms of three dimensions?
78 /ho is being satisfied +what customer groups.
;8 /hat is being satisfied +what customer needs.
>8 :ow customer needs are being satisfied +by what skills, knowledge or distinctive
competencies.
Sta*e %o!ders in -#siness:
Stake holders are the individuals and groups who can affect by the strategic outcomes achieved
and who have enforceable claims on a firms performance8 Stake holders can support the
effective strategic management of an organi$ation8
Sta*e %o!der.s re!ations%ip management
Stake holders can be divided into?
1/ Interna! Sta*e%o!ders
Shareholders
!mployees
Managers
)irectors
0/ E1terna! Sta*e%o!ders
Customers
Suppliers
overnment
BanksAcreditors
*rade unions
Mass Media
Sta*e %o!der.s Ana!ysis:
#dentify the stake holders8
#dentify the stake holders e"pectations interests and concerns
#dentify the claims stakeholders are likely to make on the organi$ation
#dentify the stakeholders who are most important from the organi$ations
perspective8
#dentify the strategic challenges involved in managing the stakeholder
relationship8
2ey aspects o' Good Corporate Governance
*ransparency of corporate structures and operations
Corporate responsibility towards employees, creditors, suppliers and local
communities where the corporation operates8
Corporate Governance Mec%anisms?
,wnership concentration
Board of )irectors
*op management compensation
*hreat of takeover
Re!ating corporate Governance to strategic management?
Corporate overnance and strategic intent
Corporate overnance and strategy formulation
Corporate overnance and strategy implementation
Corporate governance and strategy !valuation
Socia! Responsi+i!ity o' -#siness?
Meaning:
Social &esponsibility of business refers to all such duties and obligations of business
directed towards the welfare of society8 *he obligation of any business to protect and
serve public interest is known as social responsibility of business8
3%y s%o#!d +#siness +e socia!!y responsi+!e4
-ublic image
overnment &egulation
Survival and growth
!mployee satisfaction
Consumer (wareness
Socia! Responsi+i!ity to)ards di''erent Interest gro#ps:
1/ Responsi+i!ity to)ards o)ners:
,wners are the persons who own the business8 *hey contribute capital and bear the
business8
&un the business efficiently
-roper utili$ation of capital and other resources8
&egular and fair return on capital invested8
Responsi+i!ity to)ards Investors:
#nvestors are those who provide finance by way of
investment in shares, bonds, etc8 Banks, financial institutions and investing public are all
included in this category8
!nsuring safety of their investment
&egular payment of interest8
Responsi+i!ity to)ards emp!oyees:
Business needs employees or workers to work for it8 #f the
employees are satisfied and efficient, then the business can be successful8
*imely and regular payment of wages and salaries8
,pportunity for better career prospects8
-roper working conditions
*imely training and development
Better living conditions like housing, transport, canteen and crBches8
Responsi+i!ity to)ards c#stomers:
%o business can survive without the support of customers8
-roducts and services must be able to take care of the needs of
the customers8
*here must be regularity in supply of goods and services8
-rice of the goods and services should be reasonable and affordable
*here must be proper after sales-service
rievances of the consumers if any must be settled 5uickly8
Responsi+i!ity to)ards competitors:
Competitors are the other businessmen or organi$ation
involved in a similar type of business8
%ot to offer to customers heavyAdiscounts and or free products in every sale8
%ot to defame competitors through false advertisements8
Responsi+i!ity to)ards s#pp!iers:
Suppliers are businessmen who supply raw materials and
other items re5uired by manufacturers and traders8
iving regular orders for purchase of goods
(vailing reasonable credit period
*imely payment of dues8
5/ Responsi+i!ity to)ards Government:
Business activities are governed by the rules and
regulations framed by the government8
-ayment of fees, duties and ta"es regularly as well as honestly
Conforming to pollution control norms set up by government
%ot to indulge in restrictive trade practices8
6/ Responsi+i!ity to)ards society:
( society consists of individuals, groups, organi$ations, families etc8 *hey all are the members of
the society8
*o help the weaker and backward sections of the society8
*o generate employment8
*o protect the environment
8 *o provide assistance in the field of research on education, medical science,
technology etc8
Steps in strategy 'ormation process:
Strategy 'orm#!ation:
!"isting business model
Mission,Vision, Values and goals
!"ternal (nalysis, opportunities and threats
#nternal (nalysis, Strengths and weaknesses
S/,* Strategic choice
2unctional level strategies
Business level strategies
lobal strategies
Corporate level strategies
Strategy Imp!ementation
overnance and ethics
)esigning ,rgani$ation structure
)esigning organi$ation culture
)esigning organi$ation controls
2eedback
Unit-0
Competitive Advantage
E1terna! Environment
Concept o' Environment:
!nvironment literally means the surroundings, e"ternal objects, influences or circumstances
under which someone or something e"ists8 *he environment of any organi$ation is the aggregate
of all conditions events and influences that surround and affect it8
C%aracteristics o' Environment:
o !nvironment is Comple"?
o !nvironment is )ynamic
o !nvironment is Multi-faceted
o !nvironment has a far- reaching impact
Macro Environmenta! 7actors:
)emographic !nvironment
*echnological !nvironment
Socio-cultural !nvironment
!conomic !nvironment
-olitical !nvironment
&egulatory !nvironment
#nternational !nvironment
Supplier !nvironment
*ask !nvironment
Environmenta! Scanning:
!nvironmental scanning plays a key role in strategy formulation by analy$ing the strengths and
weaknesses and opportunities and threats in the environment8 !nvironmental scanning is defined
as Cmonitoring, evaluating, and disseminating of information from e"ternal and internal
environments to managers in organi$ations so that long term health of the organi$ation will be
ensured and strategic shocks can be avoided8
Porter.s 'ive 'orces mode!:
&isk of entry by potential competitors
Bargaining power of suppliers
Bargaining power of buyers
#ntensity of &ivalry among established firms
*hreat of substitutes
:is model focuses on five forces that shape competition within an #ndustry8
-orter argues that the stronger each of these forces is the more limited is the ability of
established companies to raise prices and earn greater profits8 /ithin porter s framework, a
strong competitive force can be regarded as a threat because it depresses profits8 ( weak
competitive force can be viewed as an opportunity because it allows a company to earn greater
profits8 *he task facing managers is to recogni$e how changes in the five forces give rise to new
opportunities and threats and to formulate appropriate strategic responses8
Strategic gro#ps )it%in Ind#stries
Meaning:
Companies in an industry often differ significantly from each other with respect to the way they
strategically position their products in the market in terms of such factors as the distribution
channels they use, the market segments they serve, the 5uality of their products, technological
leadership, customer service, pricing policy, advertising policy, and promotions8 (s a result of
these differences, within most industries it is possible to observe groups of companies in which
each company follows a business model that is similar to that pursued by other companies in the
group8 *hese different groups of companies are known as strategic groups8
Proprietary gro#p:
*he companies in this proprietary strategic group are pursuing a high risk
high return strategy8 #t is a high risk strategy because basic drug research is difficult and
e"pensive8 *he risks are high because the failure rate in new drug development is very high8
Generic gro#p:
'ow &6) spending, -roduction efficiency, as an emphasis on low prices
characteri$es the business models of companies in this strategic group8 *hey are pursuing a low
risk, low return strategy8 #t is low risk because they are investing millions of dollars in &6)8 #t
is low return because they cannot charge high prices8
Competitive c%anges d#ring Ind#stry Evo!#tion
Ind#stry:
(n industry can be defined as a group pf companies offering products services that are close
substitutes for each other that is product or services that satisfy the same basic customer needs8
( companys closest competitors its rivals are those that serve the same basic customer needs8
Ind#stry and sector:
(n important distinction that needs to be made is between an industry and a sector8 ( sector is a
group of closely related industries8
Ind#stry and mar*et segments:
Market segments are distinct groups of customers within a market that can be differentiated from
each other on the basis of their distinct attributes and specific demands8
Ind#stry !i'e cyc!e Ana!ysis
*he task facing managers is to anticipate how the strength of competitive forces will change as
the industry environment evolves and to formulate strategies that take advantage of
opportunities arise and that counter emerging threats8
Stages in Ind#stry !i'e cyc!e Ana!ysis:
!mbryonic Stage
rowth Stage
#ndustry shakeout
Maturity stage
)eclining stage
G!o+a!i8ation and Ind#stry Str#ct#re
#n conventional economic system, national markets are separate entities separated by trade
barriers and barriers of distance, time and culture8 /ith globali$ation, markets are moving
towards a huge global market place8 *he tastes and preferences of customers of different
countries are converging on common global norm8 -roducts like coco-cola, -epsi, Sony
walkman and Mc)onald hamburgers are globally accepted8
*he intense rivalry forces all firms to ma"imi$e their efficiency, 5uality, innovative power and
customer satisfaction8 /ith hyper competition, the rate of innovation has increased significantly8
Companies try to outperform their competitors by pioneering new products, processes and new
ways of doing business8 -reviously protected national markets face the threat of new entrants
and intense rivalry8 (fter regulation of #ndian economy the industrial sector has witnesses
enormous changes8 *he banking sector reforms also contributed to changes in the economic
conditions of #ndia8 Merger, ac5uisition and joint venture with M%Cs take place in large
number8 Dltimately intense competition is felt in the industrial scene8 ( vibrant stock market has
emerged8
Nationa! Conte1t and Competitive advantage:
#n spite of globali$ation of markets and production successful companies in certain industries
are found in specific countries
9apan has most successful consumer electronics companies in the world
ermany has many successful chemical and engineering companies in the world
Dnited states has many of the worlds successful companies in computer and biotechnology
#t shows that national conte"t has an important bearing on the competitive position of the
companies in the global market
!conomists consider the cost and 5uality of factors of production as the major reason for the
competitive advantage of some countries with respect to certain industries8
2actors of production include basic factors such as labor, capital, raw material, land and
advanced factors such as technological know-how, managerial talent and physical
infrastructure
*he competitive advantages D8S enjoys in bio-technology due to technological know-how,
low venture capital to fund risky start-ups in industries8
(ccording to Michael porter the nations competitive position in an industry depends on
factor conditions, #ndustry rivalry, demand conditions, and related and supporting industries8
T%e determinants o' nationa! competitive advantage?
#ntensity of &ivalry
2actor conditions
'ocal )emand conditions
Competitiveness of related and supporting industries
Strategic Types:
Miles and snow have classified the strategic types into?
(e'enders:
*he defender strategic type companies have a limited product line and they focus
on efficiency of e"isting operations8
Prospectors:
*hese firms with broad product items focus on product innovation and market
opportunities8 *hey are pre-occupied with creativity at the e"pense of efficiency8
Ana!y8ers:
(naly$ers are firms which operate in both stable and variable markets8 #n stable
markets the companies emphasi$e efficiency and in variable markets they emphasi$e innovation,
creativity and differentiation8
Reactors:
*he firms, which do not have a consistent strategy to pursue, are called reactors8 *here is an
absence of well-integrated strategy structure culture relationship8 *heir strategic moves are
not integrated but piecemeal approach to environmental change makes them ineffective8
Interna! Ana!ysis: (istinctive Competencies9 Competitive advantage9 and Pro'ita+i!ity
Interna! Ana!ysis is a t%ree step process:
Manager must understand process by which companies create value for customers and profit for
themselves and they need to understand the role of resources, capabilities and distinctive
competencies in this process
*hey need to understand how important superior efficiency, innovation, 5uality and
responsiveness to customers are in creating value and generating high profitability8
*hey must be able to identify how the strengths of the enterprise boost its profitability and how
any weaknesses lead to lower profitability8
Competencies9 Reso#rces and Competitive advantage
Meaning o' Competitive advantage?
( company has a competitive advantage over its rivals when its profitability is greater than
the average profitability of all companies in its industry8 #t has a sustained competitive
advantage when it is able to maintain above average profitability over a number of years8
(istinctive Competencies:
)istinctive competencies are firm specific strengths that allow a company to differentiate its
product and achieve substantially lower costs than its rivals and thus gain a competitive
advantage8
Reso#rces:
&esources are financial, physical, social or human, technological and organi$ational factors
that allow a company to create value for its customers8
Capa+i!ities:
Capabilities refer to a companys skills at co-coordinating its resources
and putting them to productive use8
A critica! distinction +et)een Reso#rces and capa+i!ities:
*he distinction between resources and capabilities is critical to understanding what generates a
distinctive competency8
( company may have valuable resources, but unless it has the capability to use those resources
effectively, it may not be able to create a distinctive competency8
2or !"ample?
*he steel mini-mill operator %ucor is widely acknowledged to be the most cost efficient steel
maker in the Dnited States8 #ts distinctive competency in low cost steel making does not come
from any firm specific and valuable resources8 %ucor has the same resources as many other
mini-mill operators8 /hat distinguishes %ucor is its uni5ue capability to manage its resources in
a highly productive way8 Specifically %ucors structure, control systems and culture promote
efficiency at all levels within the company8
Strategy9 Reso#rces9 Capa+i!ities and competencies
*he relationship of a companys strategies distinctive competencies and competitive advantage8
)istinctive competencies shape the strategies that the company pursues which lead to
competitive advantage and superior profitability8 :owever, it is also very important to reali$e
that the strategies a company adopts can build new resources and capabilities or strengthen the
e"isting resources and capabilities thereby enhancing the distinctive competencies of the
enterprise8 *hus the relationship between distinctive competencies and strategies is not a linear
one, rather it is a reciprocal one in which distinctive competencies shape strategies and
strategies help to build and create distinctive competencies8
Competitive advantage of a company becomes depends on three factors?
*he value customers place on the companys products
*he price that a company charges for its products
*he costs of creating those products8
*he value customers place on a product reflects the utility they get from a product, the happiness
or satisfaction gained from consuming or owning the product utility must be distinguished from
price8
Dtility is something that customers get from a product8 #t is a function of the attributes of the
product such as its performance, design, 5uality, and point of sale and after-sale service8
(i''erentiation and cost str#ct#re
*oyota has differentiated itself from eneral motors by its superior 5uality, which allows it to
charge higher prices, and its superior productivity translates into a lower cost structure8 *hus its
competitive advantage over M is the result of strategies that have led to distinctive
competencies resulting in greater differentiation and a lower cost structure8
Consider the automobile #ndustry, #n ;<<> *oyota made ;E<; dollar in profit on every vehicle
it manufactured in %orth (merica8 M in contrast, made only 71F dollar profit per vehicle8
/hat accounts for the differenceG 2irst has the best reputation for 5uality in the industry8 *he
higher 5uality translates into a higher utility and allows *oyota to charge H to 7< percent higher
prices than M8 Second *oyota has a lower cost per vehicle than M in part because of its
superior labor productivity8
Generic -#i!ding -!oc*s o' Competitive advantage:
Superior Iuality
Superior !fficiency
Superior Customer responsiveness
Superior #nnovation
Competitive advantage
'ow cost
)ifferentiation
1/ S#perior E''iciency?
( business is simply a device for transforming inputs into outputs8 #nputs
are basic factors of production such as labor, land, capital, management, and
technological know-how8 ,utputs are the goods and services that the business produces8
*he simplest measure of efficiency is the 5uantity of inputs that it takes to produce a
given output8 *hat is efficiency outputsA#nputs8
T)o important components o' e''iciency:
!mployee productivity
Capital productivity8
0/ S#perior :#a!ity:
( product can be thought of as a bundle of attributes8 *he attributes of many physical
products include their form, features, performance, durability, reliability, style and
design8
;/ S#perior Innovation?
#nnovation refers to the act of creating new products or processes8
-roduct innovation is the development of products that are new to the world or have
superior attributes to e"isting products8 -rocess innovation is the development of a new
process for producing products and delivering them to customers8
S#perior c#stomer Responsiveness:
*o achieve superior responsiveness to customers a
company must be able to do a better job than competitors of identifying and satisfying its
customer needs8 Customers will then attribute more utility to its products and creating a
differentiation based on competitive advantage8
Core competencies:
Core competence is a fundamental enduring strength which is a key to
competitive advantage8 Core competence may be a competency in technology, process,
engineering capability or e"pertise which is difficult for competitors to imitate8 ,ne core
competence gives rise to several products8 :ondas core competence in designing and
manufacturing engines had led to several products and business such as cars, motorcycles,
lawnmowers, generators etc8
T%e d#ra+i!ity o' competitive advantage
Barriers to #mitation
Capability of competitors
eneral dynamism of the #ndustry environment

Avoiding 'ai!#res and s#staining competitive advantage

/hen a company loses its competitive advantage, its profitability falls8 *he company does not
necessarily fail@ it may just have average or below average profitability and can remain in this
mode for considerable time although its resource and capital base is shrinking8 ( failing
company is one whose profitability is new substantially lower than the average profitability of
its competitors, it has lost the ability to attract and generate resources so that its profit margins
and invested capital are shrinking rapidly8
Reasons 'or 'ai!#re:
#nertia
-rior strategic commitments
*he #carus -arado"
Steps to Avoid 'ai!#re:
2ocus on the building blocks of competitive advantage
#nstitute continuous improvement and learning
*rack Best #ndustrial -ractice and Benchmarking
,vercome #nertia
!valuation of key resources ?+ V&#,.
Barney has evolved V&#, framework of analysis to evaluate the firms key resources8
*he following 5uestions are asked to assess the nature of resources8
Value- )oes it provides competitive advantageG
&areness- )o other competitors possess itG
#mitability- #s it costly for others to imitateG
,rgani$ation- )oes the firm e"ploit the resources
Unit-;
Strategies
Generic Strategic A!ternatives
Meaning o' Corporate Strategy:
Corporate strategy helps to e"ercise the choice of direction that an organi$ation adopts8 *here
could be a small business firm involved in a single business or a large, comple" and diversified
conglomerate with several different businesses8 *he corporate strategy in both these cases would
be about the basic direction of the firm as a whole8
According to G!#e*9 t%ere are 'o#r strategic a!ternatives:
!"pansion strategies
Stability strategies
&etrenchment Strategies
Combination strategies
1/ E1pansion strategies:
*he corporate strategy of e"pansion is followed when an organi$ation
aims at high growth by substantially broadening the scope of one or more of its businesses in
terms of their respective customer groups, customer functions and alternative technologies
singly or jointly in order to improve its overall performance8
0/ Sta+i!ity strategies?
*he corporate strategy of stability is adopted by an organi$ation when it
attempts an incremental improvement of its performance by marginally changing one or
more of its businesses in terms of their respective customer groups, customer functions and
alternative technologies respectively8
;/ Retrenc%ment strategies?
*he corporate strategy of retrenchment is followed when an
organi$ation aims at contraction of its activities through a substantial reduction or elimination
of the scope of one or more of its businesses in terms of their respective customer groups,
customer functions or alternative technologies either singly or jointly in order to improve its
overall performance8
</ Com+ination strategies?
*he combination strategy is followed when an organi$ation adopts a mi"ture of stability,
e"pansion and retrenchment strategies either at the same time in its different businesses or at
different times in one of its businesses with the aim of improving its performance
=/ Gro)t% strategy:
rowth strategy is a corporate level strategy, designed to achieve increase
in sales, assets and profits8
rowth strategies may be classified as follows?
Vertical growth
:ori$ontal growth
Vertical growth occurs when one function previously carried over by a supplier or a
distributor is being taken over by the company in order to reduce costs, to maintain 5uality of
input and to gain control over scarce resources8 Vertical growth results in vertical integration8
1/ >ori8onta! integration:
( firm is said to follow hori$ontal integration if it ac5uires another
firm that produces the same type of products the same type products with similar production
processAmarketing practices8
;8 ertica! integration:
Vertical integration means the degree to which a firm operates vertically
in multiple locations on an industrys value chain from e"tracting raw materials to
manufacturing and retailing8 Vertical integration occurs when a company produces its own
inputs or disposes of its own outputs8
;/ -ac*)ard Integration:
Backward integration refers to performing a function previously provided by a supplier8
</ 7or)ard integration?
2orward integration means performing a function previously provided by a retailer8
(iversi'ication:
)iversification is considered to be a comple" one because it involves a
simultaneous departure from current business, familiar products and familiar markets8 2irms
choose diversification when the growth objectives are very high and it could not be achieved
within the e"isting productAmarket scope8
Types o' diversi'ication:
Re!ated diversi'ication?
#n related diversification the firm enters into a new business activity,
which is linked in a companys e"isting business activity by commonality between one or
more components of each activitys value chain8
Unre!ated diversi'ication?
#n unrelated diversification, the firm enters into new business area that
has no obvious connection with any of the e"isting business8 #t is suitable, if the companys
core functional skills are highly speciali$ed and have few applications outside the companys
core business8
Concentric diversi'ication?
Concentric diversification is similar to related diversification
as there are benefits of synergy when the new business is related to e"isting business through
process, technology and marketing8
Meaning:
Strategic A!!iance
( strategic alliance is a formal relationship between two or more parties to pursue a set of
agreed upon goals or to meet a critical business need while remaining independent
organi$ations8
Types o' Strategic A!!iances?
9oint Venture
!5uity Strategic (lliance
%on-e5uity Strategic (lliance
lobal Strategic (lliance
Stages o' A!!iance operation:
Strategy )evelopment
-artner (ssessment
Contract %egotiation
(lliance ,peration
(lliance *ermination
Advantages o' Strategic a!!iance:
(llowing each partner to concentrate on activities that best match their capabilities
'earning from partners developing competences that may be more widely e"ploited
elsewhere8
(de5uacy a suitability of the resources competencies of an organi$ation for it to survive
(isadvantages o' strategic A!!iance?
(lliances are costly
(lliances can create indirect costs by blocking the possibility of cooperating with competing
companies, thus possibly even denying the company various financing options8
9oint ventures also e"pose the company to its partners and the uni5ue technologies that it has are
sometimes revealed to its partner company8
M c2 in sey. s ?S M od e!
*his was created by the consulting company Mc0insey and company in the early 73F<s8 Since
then it has been widely used by practitioners and academics alike in analy$ing hundreds of
organi$ations8 *he -aper e"plains each of the seven components of the model and the links
between them8 #t also includes practical guidance and advice for the students to analy$e
organi$ations using this model8 (t the end, some sources for further information on the model
and case studies available8
*he Mc0insey 1S model was named after a consulting company, Mc0insey and company,
which has conducted applied research in business and industry8 (ll of the authors worked as
consultants at Mc0insey and company, in the 73F<s, they used the model to analy$e over 1<
large organi$ations8 *he Mc0insey 1S 2ramework was created as a recogni$able and easily
remembered model in business8 *he seven variables, which the authors terms JleversK, all begin
with the letter JSK8
(escription o' ?Ss:
Strategy? Strategy is the plan of action an organi$ation prepares in response to, or anticipation
of changes in its e"ternal environment8
Str#ct#re: Business needs to be organi$ed in a specific form of shape that is generally referred
to as organi$ational structure8 ,rgani$ations are structured in a variety of ways, dependent
on their objectives and culture8
Systems: !very organi$ation has some systems or internal processes to support and implement
the strategy and run day-to-day affairs8 2or e"ample, a company may follow a particular
process for recruitment8
Sty!e@c#!t#re: (ll organi$ations have their own distinct culture and management style8 #t
includes the dominant values, beliefs and norms which develop over time and become
relatively enduring features of the organi$ational life8
Sta'': ,rgani$ations are made up of humans and its the people who make the real difference to
the success of the organi$ation in the increasingly knowledge-based society8 *he importance
of human resources has thus got the central position in the strategy of the organi$ation, away
from the traditional model of capital and land8
S%ared a!#es@s#per ordinate Goa!s: (ll members of the organi$ation share some common
fundamental ideas or guiding concepts around which the business is built8 *his may be to
make money or to achieve e"cellence in a particular field8
*he seven components described above are normally categori$ed as soft and hard components?
:ard components
Soft components
>ard components are:
Strategy
Structure
Systems
So't components are:
Shared values
Style
Staff
Skills
Meaning:
(istinctive Competitiveness
)istinctive Competence is a set of uni5ue capabilities that certain firms possess allowing
them to make inroads into desired markets and to gain advantage over the competition@
generally, it is an activity that a firm performs better than its competition8 *o define a
firms distinctive competence, management must complete an assessment of both
internal and e"ternal corporate environments8 /hen management finds an internal
strength and both meets market needs and gives the firm a comparative advantage in the
market place, that strength is the firms distinctive competence8
(e'ining and -#i!ding (istinctive Competence:
*o define a companys distinctive competence, managers often follow a particular
process8
78 *hey identify the strengths and weaknesses in the given marketplace8
;8 *hey analy$e specific market needs and look for comparative advantages that they
have over the competition8
-a!anced Scorecard:
*he balanced scorecard is a strategic performance management tool- a
semi- standard structured report supported by proven design methods and automation
tools that can be used by managers to keep track of the e"ecution of activities by staff
within their control and monitor the conse5uences arising from these actions8
>istory:
*he first balanced scorecard was created by (rt Schneider man +an independent
consultant on the management of processes. in 73F1 at (nalog )evices, a mid-si$ed
semi-conductor company8 (rt Schniederman participated in an unrelated research study
in 733< led by )r8&obert S80aplan in conjunction with DS management consultancy
%olan-%orton, and during this study described his work on balanced Scorecard8
Subse5uently, 0aplan and )avid -8%orton included anonymous details of this use of
balanced Scorecard in their 733; article on Balanced Scorecard8 0aplan 6 %orton s
article wasnt the only paper on the topic published in early 733;8 But the 733;
0aplan6
%orton paper was a popular success, and was 5uickly followed by a second in 733>8 #n
733=, they published the book *he Balanced Scorecard8 *hese articles and the first book
spread knowledge of the concept of Balanced Scorecard widely, but perhaps wrongly
have led to 0aplan 6 %orton being seen as the creators of the Balanced Scorecard
concept8
7o#r Perspectives:
78 7inancia!: !ncourages the identification of a few relevant high-level financial
measures8
;8 C#stomer: !ncourages the identification of measures that answer the 5uestion J:ow
do customers see usGK
>8 Interna! -#siness Process: encourages the identification of measures that answer
the 5uestion J/hat must we e"cel atGK
E8 &earning and Gro)t%: encourages the identification of measures that answer the
5uestion JCan we continue to improve and create valueGK
-#siness !eve! strategy
*his chapter e"amines how a company selects and pursues a business model that will allow it to
complete effectively in an industry and grows its profits and profitability8 ( successful business
model results from business level strategies that create a competitive advantage over rivals and
achieve superior performance in an industry8
#n this chapter we e"amine that competitive decisions involved in creating a business model that
will attract and retain customers and continue to do so over time so that a company enjoys
growing profits and profitability8
To create a s#ccess'#! +#siness mode!9 strategic managers m#st:
78 7ormulate business- level strategies that will allow a company to attract customers away
from other companies in the industry8
;8 #mplement those business level strategies which also involve the use of functional level
strategies to increase responsiveness to customers, efficiency, innovation and 5uality8
Competitive positioning and t%e -#siness mode!:
78 *o create a successful business model, managers must choose a set of business-level
strategies that work together to give a company competitive advantage over its rivals
;8 *o craft a successful model a company must first define its business, which entails
decisions about
a8 Customer needs or what is to be satisfied
b8 Customer groups or what is to be satisfied
c8 )istinctive competencies or how customer needs are to be satisfied8
*he decision managers make about these three issues determine which set of strategies they
formulate and implement to put a companys business model into action and create value for
customers8
7orm#!ating t%e -#siness mode!: C#stomer needs and prod#ct (i''erentiation
1/ C#stomer needs? are desires, wants that can be satisfies by means of the attributes or
characteristics of a product a good or service8
2or !"ample? ( persons craving for something sweet can be satisfied by chocolates,
ice-cream, spoonful of sugar8
2actors determine which products a customer chooses to satisfy these needs?
*he way a product is differentiated from other products of its type so that it
appeals to customers
*he price of the product
(ll companies must differentiate their products to a certain degree to attract
customer
Some companies however decide to offer customers a low prices products and do
not engage in much product differentiation
Companies that seek to create something uni5ue about their product differentiation, their
products to a much greater degree that others so that they satisfy customers needs in ways
other products cannot8
-roduct differentiation? #t is the process of designing products to satisfy customers needs8 (
company obtains a competitive advantage when it creates makes and sells a product in a way that
better satisfies customer needs than its rivals do8 #f managers devise strategies to differentiate a
product by innovation, e"cellent 5uality, or responsiveness to customers they are creating a
business model based on offering customers differentiated products8
2ormulating the Business model
>8 C#stomer gro#ps: *he second main choice involved in formulating a successful
business model is to decide which kind of products to offer to which customer groups8
Customer groups are the sets of people who share a similar need for a particular product8
Because a particular product usually satisfies several different kinds of desires and needs,
many different customer groups normally e"ist in a market8 #n the car market, for
e"ample some customers want basic transportation and others want the thrill of driving a
sports car8 Some want for lu"ury purpose8
E8 Identi'ying c#stomer gro#ps and mar*et segments: #n the athletic shoe market the two
main customer groups are those people who use them for sporting purposes those who
like to wear them because they are casual and comfort8 /ithin each customer group there
are often subgroups composed of people who have an even more specific need for a
product8 #nside the group of people who buy athletic shoes for sporting purposes, for
e"ample are subgroups of people who buy shoes suited to a specific kind of activity, such
as running, aerobics, walking and tennis8
( company searching for a successful business model has to group customers according to
the similarities or differences in their needs to discover what kinds of products to develop for
different kinds of customers8 ,nce a group of customers who share similar or specific need
for a product has been identified, this group is treated as a market segment8
T%ree Approac%es to Mar*et Segmentation:
No Mar*et segmentation: 2irst a company might choose not to recogni$e that
different market segments e"ist and make a product targeted at the average or typical
customer8 #n this case customer responsiveness is at a minimum and the focus is on
price, not differentiation8
>ig% Mar*et segmentation? Second a company can choose to recogni$e the
differences between customer groups and make a product targeted toward most or all
of the different market segments8 #n this case customer responsiveness is high and
products are being customi$ed to meet the specific needs of customers in each group,
so the emphasis is on differentiation not price8
7oc#sed Mar*et segmentation? *hird a company might choose to target just one or
two market segments and decide its resources to developing products for customers in
just these segments8 #n this case, it may be highly responsive to the needs of
customers in only these segments, or it may offer a bare-bones product to undercut
the prices charged by companies who do focus on differentiation8
Generic -#siness- !eve! strategies?
Cost !eaders%ip? ( companys business model in pursuing a cost-leadership strategy is
based on doing everything it can to lower its cost structure so it can make and sell goods
or services at a lower cost than its competitors8 #n essence a company seeks to achieve
competitive advantage and above average profitability by developing a cost leadership
business model that positions it on the value creation frontier as close as possible to the
lower costsAlower prices a"is8
7oc#sed Cost !eaders%ip? ( cost leader is not always a large national company that targets
the average customer8 Sometimes a company can target one or a few market segments
and successfully pursue cost leadership by developing the right strategies to serve those
segments8
(i''erentiation: ( differentiation business model is based on pursuing a set of generic
strategies that allows a company to achieve a competitive advantage by creating a
product that customers perceive as different or distinct in some important way8
7oc#sed (i''erentiation? ( in the case of the focused cost leader, a company that pursues a
business model based on focused differentiation chooses to speciali$e in serving the
needs of one or two market segments of niches8 ,ne it has chosen its market segment8 (
focused company position itself using differentiation
Gap Ana!ysis
Meaning: #n gap (nalysis, the strategist e"amines what the organi$ation wants to achieve
+desired performance. and what it has really achieved +actual performance.8 *he gap between
what is desired and what is achieved widens as the time passes no strategy adopted8
Corporate port'o!io Ana!ysis
Meaning:
Corporate portfolio analysis could be defined as a set of techni5ues that help
strategists in taking strategic decisions with regard to individual products or business in a
firms portfolio8 #t is primarily used for competitive analysis and strategic planning in multi-
product and multi-business firms8 *hey may also be used in less diversified firms, if these
consist of a main business and other minor complementary interests8 *he main advantages in
adopting a portfolio approach in a multi-product multi-business firm is that resources could
be targeted at the corporate level to those businesses that possess the greatest potential for
creating competitive advantage8
Environment T%reat and $pport#nity Pro'i!e AET$PB
Meaning o' Environmenta! Scanning:
!nvironmental scanning can be defined as the process by which organi$ations
monitor their relevant environment to identify opportunities and threats affecting their
business for the purpose of taking strategic decisions8
Appraising t%e Environment:
#n order to draw a clear picture of what opportunities and threats
are faced by the organi$ation at a given time8 #t is necessary to appraise the environment8 *his is
done by being aware of the factors that affect environmental appraisal identifying the
environmental factors and structuring the results of this environmental appraisal8
Str#ct#ring Environmenta! Appraisa!?
*he identification of environmental issues is helpful in structuring the environmental appraisal so
that the strategists have a good idea of where the environmental opportunities and threats lie8
*here are many techni5ues to structure the environmental appraisal8 ,ne such techni5ue
suggested by luek is that preparing an !*,- for an organi$ation8
*he preparation of an !*,- involves dividing the environment into different sectors and then
analy$ing the impact of each sector on the organi$ation8
Environment t%reat and opport#nity pro'i!e AET$PB 'or a +icyc!e company
S/No Environmenta!
sector
Nat#re o'
Impact
Impact o' eac%
sector
7 !conomic Dp (rrow rowing
affluence
among urban
consumers
rising
disposable
incomes and
living standards
; Market :ori$ontal
(rrow
,rgani$ed
sector a virtual
oligopoly with
four major
manufacturers,
buyers critical
and better
informed
overall industry
growth rate not
encouraging
unsaturated
demand
traditional
distribution
systems
> #nternational )own (rrow lobal #mports
growing but
#ndias
share
shrinking
Major
importers are
the DS and !D
but #ndia
e"ports mainly
to (frica8
Dp (rrow indicates 2avorable #mpact
)own (rrow indicates unfavorable #mpact
:ori$ontal (rrow indicates %eutral #mpact
*he preparation of an !*,- provides a clear picture to the strategists about which sectors
and the different factors in each sector have a favorable impact on the organi$ation8 By
the means of an !*,-, the organi$ation knows where it stands with respect to its
environment8 ,bviously, such an understanding can be of a great help to an organi$ation
in formulating appropriate strategies to take advantage of the opportunities and counter
the threats in its environment8
Meaning o' organi8ationa! Appraisa!?
*he purpose of organi$ational appraisal is to determine the organi$ational capability in
terms of strengths and weaknesses that lie in different functional areas8 *his is necessary
since the strengths and weaknesses have to be matched with the environmental
opportunities and threats for strategy formulation to take place8
Strategic Advantage Pro'i!e ASAPB:
( S(- can also be prepared directly when students analyses cases during classroom
learning, without making a detailed ,C-8 (n S(- provides a picture of the more critical
areas which can have a relationship with the strategic picture of the firm in the future8
Strategic (dvantage -rofile for a bicycle company
S8%o Capability 2actor %ature of #mpact Competitive
strengths or
weaknesses
78 2inance )own (rrow :igh cost of capital,
reserves and surplus
position
unsatisfactory
; Marketing :ori$ontal (rrow 2ierce competition
in industrys
company
> #nformation Dp (rrow (dvanced
Management
information system
in place, most
traditional functions
such as payroll and
accounting
computeri$ed,
company website
has limited scope
for !-Commerce
Dp (rrow indicates Strength
)own (rrow indicates /eaknesses
:ori$ontal (rrow indicates %eutral
$rgani8ationa! Capa+i!ity Pro'i!e A$CPB
Meaning:
*he organi$ational capability profile is drawn in the form of a chart8 *he strategists are
re5uired to systematically assess the various functional areas and subjectively assign values to
the different functional capability factors and sub factors along a scale ranging from values of -H
to LH
Summari$ed form of ,C-
Capability 2actors /eakness %ormal Strength
2inancial Capability
2actors
-H < LH
Sources of funds
Dsage of funds
Management of
funds
S3$T Ana!ysis
Meaning:
!very organi$ation is a part of an industry8 (lmost all organi$ations face competition
either directly or indirectly8 *hus the industry and competition are vital considerations in making
a strategic choice8 #t is 5uite obvious that any strategic choice made by an organi$ation cannot be
made unless the industry and competition have been analy$ed8 *he environmental as well
organi$ational appraisal dealt with the opportunities, threats, strengths and weaknesses relevant
for an organi$ation8
Conso!idated S3$T pro'i!e 'or a +icyc!e company
!*,- Sector #mpact S(- #mpact factor
!conomic Dp (rrow 2inance )own (rrow
Market :ori$ontal (rrow Marketing :ori$ontal (rrow
#nternational )own (rrow ,perations Dp (rrow
-olitical :ori$ontal (rrow -ersonnel :ori$ontal (rrow
&egulatory :ori$ontal (rrow #nformation
management
Dp (rrow
Social Dp (rrow eneral
Management
Dp (rrow
-#i!ding and Re-str#ct#ring t%e corporation
*here are various methods for the firms to enter into a new business and restructure the e"isting
one8
2irms use following methods for building?
Start-#p ro#te: #n this route, the business is started from the scratch by building
facilities, purchasing e5uipments, recruiting employees, opening up distribution outlet
and so on8
Ac:#isition: (c5uisition involves purchasing an established company, complete with
all facilities, e5uipment and personnel8
Coint ent#re: 9oint venture involves starting a new venture with the help of a
partner8
Merger: Merger involves fusion of two or more companies into one company8
Ta*eover: ( company which is in financial distress can undergo the process of
takeover8 ( takeover can be voluntary when the company re5uests another company
to takeover the assets and liabilities and save it from becoming bankrupt8
Re-str#ct#ring:
&e-structuring involves strategies for reducing the scope of the firm by e"iting
from unprofitable business8 &estructuring is a popular strategy during post liberali$ation era
where diversified organi$ations divested to concentrate on core business8
Re-str#ct#ring strategies:
Retrenc%ment? &etrenchment strategies are adopted when the firms performance
is poor and its competitive position is weak8
(ivestment Strategy? )ivestment strategy re5uires dropping of some of the businesses
or part of the business of the firm, which arises from conscious corporate judgement in
order to reverse a negative trend8
Spin-o'': Selling of a business unit to independent investors is known as spin-off8 #t is
the best way to recover the initial investment as much as possible8 *he highest bidder gets
the divested unit8
Management-+#yo#t? selling off the divested unit to its management is known as
management buyout8
>arvest strategy: ( harvest strategy involves halting investment in a unit in order to
ma"imi$e short- to- medium term cash flow from that unit before li5uidating it8
&i:#idation: 'i5uidation is considered to be an unattractive strategy because the
industry is unattractive and the firm is in a weak competitive position8 #t is pursued as a
last step because the employees lose jobs and it is considered to be a sign of failure of the
top management8
Introd#ction:
Strategy in G!o+a! Environment
#n international business operations business enterprises pursue global
e"pansion to support generic business level strategies such as cost leadership and
differentiation8 Companies e"pand their operations globally in order to increase their
profitability8 *hey perform the following activities towards this end8
*ransferring their distinctive competencies
)ispersing various value creation activities to favorable locations
!"ploiting e"perience curve effects8
lobal Strategies?
#nternational Strategy
Multi-domestic strategy
lobal Strategy
*ransnational Strategy
Entry Mode:
lobal companies have five options to enter into a foreign market
!"porting
'icensing
2ranchising
Subsidiary
9oint venture
/holly owned subsidiaries
G!o+a! Strategic A!!iance:
( strategic alliance is a cooperative agreement between companies
who are competitors from different companies8 #t may take the form of formal joint venture or
short-term contractual agreement with e5uity participation or issue-based participation8
*o gain access to foreign market
*o reduce financial risk
*o bring complementary skills
*o reduce political risks
*o achieve competitive advantage
*o set technological standards
GE Nine-ce!! Matri1
*his corporate portfolio analysis techni5ue is based on the pioneering efforts of the eneral
!lectric Company of the Dnited States, supported by the consulting firm of Mc0insey6
company8 *he vertical a"is represents industry attractiveness, which is a weighted composite
rating based on eight different factors8 *hese factors are? market si$e and growth rate, #ndustry
profit margin, competitive intensity, seasonality, cyclicality, economies of scale, technology and
social, environmental, legal and human impacts8 *he hori$ontal a"is represents business strength
competitive position, which is again a weighted composite rating based on seven factors8 *hese
factors are? relative market share, profit margins, ability to compete on price and 5uality,
knowledge of customer and market, competitive strengths and weaknesses, technological
capability and calibre of management8
Strategic Ana!ysis and c%oice
Meaning o' strategic c%oice:
Choice of a strategy involves an understanding of choice mechanism
and issues involved in it8
(e'inition:
leuek has defined strategic choice as the process of selecting the best strategy out of
all available strategies8
Steps in strategic c%oice:
2ocusing on strategic alternatives
!valuating strategic alternatives
Considering )ecision factors
Choice of strategy
$+,ective 'actors are gro#ped into t)o categories:
!nvironmental factors? #t includes volatility of environment, input supply from environment and
powerful stakeholders8
,rgani$ational factors? #t includes organi$ations mission, the strategic intent, its business
definition and its strengths and weaknesses8
S#+,ective 'actors:
Various subjective factors may be classified as?
,rgani$ations past strategies
-ersonal factors
(ttitude to risks
#nternal political consideration
-ressure from stakeholders
Process o' Strategic c%oice:
Strategic choice involves evaluation of the pros and cons of each
strategic alternative and selection of the best alternative8 *hree techni5ues are used in the process
of selection of a strategy8
)evils (dvocate
)ialectical !n5uiry
Strategic shadow Committee
78 )evils (dvocate in strategic decision making is responsible for identifying potential
pitfalls and problems in a proposed strategic alternative by making a formal presentation8
;8 )ialectical in5uiry involves making two proposals with contrasting assumptions for each
strategic alternative8 *he merits and demerits of the proposal will be argued by advocates
before the key decision makers8 2inally one alternative will emerge viable for
implementation8
>8 ( strategic shadow committee consists of members drawn below e"ecutive level8 *hey
serve the committee for two years8 *hey inspect all materials and attend all meetings of
e"ecutive strategy8 *he members generate views regarding constraints faced by
management8 *heir report is submitted to Board of )irectors8
Unit-<
Strategy Imp!ementation and Eva!#ation
Introd#ction:
,rgani$ational structure and culture can have a direct bearing on a companys
profits8 *his chapter e"amines how managers can best implement their strategies through
their organi$ations structure and culture to achieve a competitive advantage and superior
performance8
#mplementing strategy through organi$ational design?
Strategy implementation involves the use of organi$ational design, the process of deciding how a
company should create, use and combine organi$ational structure control systems and culture to
pursue a business model successfully8
Strategy Imp!ementation t%ro#g% $rgani8ationa! design:
T%e imp!ementation o' strategy invo!ves t%ree steps:
,rgani$ational structure
,rgani$ational culture
control systems
-asics o' designing organi8ation str#ct#re:
*he following basic aspects which re5uire a strategists attention while designing structure
)ifferentiation
#ntegration
Bureaucratic cost
(llocating (uthority and &esponsibility
Span o' contro!:
Span of control means the number of subordinates manager controls
effectively8 *he term span of control refers to the number of subordinates who report directly
to a manager8
rouping *asks, functions and )ivisions
*all and 2lat organi$ations
Centrali$ation
)ecentrali$ation
Integration and Integrating Mec%anisms:
Much coordination takes place among people, functions
and divisions through the hierarchy of authority, often however as a structure becomes comple",
this is not enough and top managers need to use various integrating mechanisms to increase
communication and coordination among functions and divisions8 reater the comple"ity of an
organi$ations structure the greater is the need for coordination among people, functions and
divisions to make the organi$ational structure work efficiently8
*hree kinds of integrating mechanisms?
)irect contact
'iaison &ole
*eams
Introd#ction:
(esigning Strategic Contro! Systems:
Strategic control systems provide managers with re5uired information to find out
whether strategy and structure move in the same direction8 #t includes target setting,
monitoring, evaluation and feedback system8
Steps in Strategic Contro! process:
!stablish standards and *argets
Create Measuring and monitoring systems
Compare (ctual with targets
!valuate and take corrective actions
&eve!s o' contro!:
Corporate level managers
)ivisional level managers
2unctional level managers
2irst level managers
*ypes of control system?
-ersonal control
,utput control
Behavior control
$rgani8ationa! po)er and Po!itics:
$rgani8ationa! po)er:
*he organi$ational power is the ability to influence people or things
usually obtained through the control of important resources8
$rgani8ationa! Po!itics:
*he organi$ational politics may be viewed as the tactics by which
self interested individuals and groups try to power to influence the goals and objectives of
the
organi$ation to further their own interest8
Sources of power
(bility to cope with uncertainty
Centrality
Control over information
%on-substitutability
Control over contingencies
Control over resources
$rgani8ationa! Con'!ict:
Conflict may be defined as a situation when the goal directed behavior of
one group blocks the goal directed behavior of another8
$rgani8ationa! con'!ict process:
'atent conflict
-erceived conflict
2elt conflict
Manifest conflict
conflict aftermath
Con'!ict Reso!#tion strategies:
Changing task &elationship
Changing controls
#mplementing strategic change
Changing 'eadership
Changing the strategy
Managing t%e organi8ation:
*he basic principles for organi$ation change are as follows?
Dnfree$ing
Movement
&efree$ing
Tec%ni:#es o' Strategic Eva!#ation and contro!:
Strategic Contro!:
Strategy formulation is based on assumptions about environmental and
organi$ational factors which are nebulous and dynamic in nature8 *he time gap between
strategy formulation and implementation is the major reason for these assumptions turned out
to be invalid8
Types o' strategic contro!s:
-remise control
#mplementation control
Strategic Surveillance
Special (lert control
Tec%ni:#es o' Strategic Eva!#ation and contro!:
T%ere are t)o met%ods in strategic eva!#ation and contro!:
Strategic momentum control
Strategic leap control
Strategic #ssue Management
Strategic field (nalysis
Systems Modeling
Scenarios
UNIT-=
$t%er Strategic Iss#es
Strategic Iss#es in Managing Tec%no!ogy and Innovation
*he strategic issues in managing technology and innovation and their influence on environmental
scanning, Strategy formulation, Strategy implementation, Strategy evaluation and control are
worth studying from the perspective of strategists in modern organi$ation8
&esearch studies have pointed out that innovative companies such as >M, -rocter amble and
&ubbermaid are slow in introducing new products and their rate of success is not encouraging
Ro!e o' Management?
*he top management should emphasi$e the importance of technology and innovation and they
should provide proper direction8
!nvironmental Scanning?
!"ternal Scanning
#mpact of stakeholders on innovation
'ead users
Market &esearch
%ew product !"perimentation
#nternal scanning
&esource allocation issues
Time to Mar*et Iss#es:
*he new product development period is again a crucial issue8 /ithin four
years many new products are imitated8 Shorter the period, more beneficial for the company8
9apanese auto manufacturers have gained competitive advantage over their rivals due to
relatively short product development cycle8
Strategy 2ormulation?
*he following crucial 5uestions are raised in strategy formulation
#s the firm a leader or follower in respect of &6) strategyG
Should we develop our own technologyG
,r should we go for technology outsourcingG
/hat should be the mi" of basic and applied researchG
Tec%no!ogy so#rcing:
*here are two methods for ac5uiring technology8 #t involves make or buy
decision8 #n-house &6) capability is one method and tapping the &6) capabilities of
competitors, suppliers and other organi$ations through contracts is another choice available for
companies8
Strategic &6) alliance involves
9oint programmes to develop new technology
9oint ventures establishing a separate company to take a new product to market8
Minority investments in innovative firms8
#t will be appropriate for companies to buy technology which is commonly available from
others but make technology themselves which is rare, to remain competitive8 ,utsourcing of
technology will be suitable under the following conditions8
*he technology is of low significance to competitive advantage
*he supplier has proprietary technology
*he suppliers technology is easy to adopt with the present system
*he technology development needs e"pertise
*he technology development needs new resources and new people
Tec%no!ogy competence:
#n the case of technology outsourcing, the companies should have a
minimal &6) capability in order to judge the value of technology developed by others8
Strategy Imp!ementation:
*o develop innovative organi$ations deployment of sufficient resources
and development of appropriate culture are crucial at all stages of new product development8
Innovative C#!t#re:
!ntrepreneurial culture is a part of innovative culture which presupposes
fle"ibility and dynamism into the structure8 J)iffusion of #nnovationK observes that an
innovative organi$ation has the following characteristics8
-ositive (ttitude to change
)ecentrali$ed )ecision Making
#nformal structure
#nter connectedness
Comple"ity
Slack resources
System openness
*he employees who are involved in innovative process usually fulfill three different roles
such as?
-roduct champion
Sponsor
,rchestrator
Corporate entreprene#rs%ip:
Corporate !ntrepreneurship is also known as intrapreneurship8
(ccording to ifford -inchot an intrapreneur is a person who focuses on innovation and
creativity and who transforms and dreams of an idea into a profitable venture by operating within
the organi$ational environment8 #ntrapreneur acts like an entrepreneur but within the
organi$ational environment8
Eva!#ation and contro!:
*he purpose of research is to gain more productivity at a speedy rate8
*he
effectiveness of research function is evaluated in different ways in various organi$ations8
Improving R"(:
*he following best practices can be considered as benchmark for a companys &6)
activities8
Corporate and business goals are well defined and clearly communicated to &6)
department8
#nvestments are made in order to develop multinational &6) capabilities to tap ideas
throughout the world8
2ormal, cross functional teams are created for basic, applied and developmental projects8
Ne) -#siness mode!s and strategies 'or t%e Internet Economy
INTERNET EC$N$MD?
*he internet economy is an economy is based on electronic goods and
services produced by the electronic business and traded through electronic commerce8
*he #nternet !conomy refers to conducting business through markets whose
infrastructure is based on the internet and world-wide web8 (n internet economy differs
from a traditional economy in a number of ways, including communication, market
segmentation, distribution costs and price8
#mpact of the #nternet and !-commerce
78 #mpact on e"ternal industry environment
;8 Changes character of the market and competitive environment
>8 Creates new driving forces and key success factors
E8 Breeds formation of new strategic groups
H8 #mpact on internal company environment
=8 :aving, or not having, an e-commerce capability tilts the scales
18 toward valuable resource strengths or threatening weaknesses
F8 Creatively reconfiguring the value chain will affect a firms
competitiveness rivals8
Characteristics of #nternet Market Structure?
#nternet is composed of
78 #ntegrated network of users connected computers
;8 Banks of servers and high speed computers
>8 )igital switches and routers
E8 *elecommunications e5uipment and lines
Strategy-shaping characteristics of the !-Commerce !nvironment
#nternet makes it feasible for companies everywhere to compete in global markets8
Competition in an industry is greatly intensified by new e-commerce8 Strategic initiatives
of e"isting rivals and by entry of new, enterprising e-commerce rivals8
!ntry barriers into e-commerce world are relatively low
,n-line buyers gain bargaining power
#nternet makes it feasible for firms to reach
E''ects o' t%e Internet and E-commerce?
Major groups of internet and e-commerce firms comprising the supply side include
78 Makers of speciali$ed communications components and e5uipment
;8 -roviders of communications services
>8 Suppliers of computer components and hardware
E8 )evelopers of speciali$ed software
H8 !-Commerce enterprises
,verview of !-Commerce Business Models and Strategies?
-#siness Mode!s: S#pp!iers o' comm#nications E:#ipment:
1/ *raditional business model of a manufacturer is being used by most firms to make money8
;8 Sell products to customers at prices above costs
>8 -roduce a good return on investment
E8 Strategic issues facing e5uipment makers
H8 Several competing technologies for various components of the internet infrastructure e"ist
=8 Competing technologies may have different performance pluses and minuses and be
compatible
Strategy options for suppliers of communications !5uipment?
78 #nvest aggressively in &6) to win the technological race against rivals
;8 2orm strategic alliances to build consensus for favored technological approaches
>8 (c5uire other companies with complementary technological e"pertise
E8 :edge firms bets by investing sufficient resources in mastering one or more of the competing
technologies
-#siness Mode!s: S#pp!iers o' Comm#nication Services?
78 Business models based on profitably selling selling services for a fee-based on a flat rate per
month or volume of use
;8 2irms must invest heavily in e"tending lines and installing e5uipment to have capacity to
provide desired point-to- point service and handle traffic load8
>8 #nvestment re5uirements are particularly heavy for backbone providers, creating si$able up-
front e"penditures and heavy fi"ed costs
Strategic $ptions:
78 -rovide high speed internet connections using new digital line technology
;8 -rovide wireless broadband services or cable internet service
>8 Bundle local telephone service, long distance service, cable *V service and #nternet access
into a single package for a single monthly fee
-#siness Mode!s: s#pp!iers o' Comp#ter Components and >ard)are:
*raditional business model is used-Make money by selling products at prices above costs
Strategic approaches
Stay on cutting edge of technology
#nvest in &6)
Move 5uickly to imitate technological advances and product innovations of rivals
0ey to success- Stay with or ahead of rivals in introducing ne"t-generation products
Competitive advantage will most likely be based on strategies key to low cost
Business Models? )evelopers of Speciali$ed !-Commerce Software
Business model involves
#nvestments in designing and developing speciali$ed software
Marketing and selling software to other firms
-rofitability hinges on volume
Strategic approaches? Sell software at a set price per copy
Collect a fee for every transaction provided by the software8
&ent or lease the software
-#siness Mode!s: Media Companies and content providers:
Dsing intellectual capital to develop music, games, video,
and te"t, media firms
Charge subscription fees or
&ely on a pay-per-use model
Business model of content providers involves creating
content to attract users, then selling advertising to firms
wanting to deliver a message
0ey success factors for content providers
Create a sense of community
)eliver convenience and entertainment value as well as
information8
-#siness Mode!s: E-Commerce Retai!ers:
Sell products at or below cost and make money by selling
advertising to other merchandisers
Dse traditional model of purchasing goods from
manufacturers and distributors, marketing items at a web
store
2illing orders from inventory at a warehouse
,perate website to market and sell productA service and
outsource manufacturing, distribution and delivery activities
to specialists8
Strategic Approac%es: E-Commerce Retai!ers:
Spend heavily on advertising to build widespread
(dd new product offerings to help attract traffic to firms
website8
Be a first-mover or at worst on early mover
-ay consideration attention to website attractiveness to
generate Jbu$$K about the site among surfers
0eep the web site innovative, fresh, and entertaining
2ey S#ccess 7actors: Competing in t%e E-Commerce Environment:
!mploy an innovative business model
)evelop capability to 5uickly adjust business model and
strategy to respond to changing conditions
2ocus on a limited number of competencies and perform a
relatively speciali$ed number of value chain activities
Stay on the cutting edge of technology
Dse innovative marketing techni5ues that are efficient in
reaching the targeted audience and effective in stimulating
purchases
!ngineer an electronic value chain that enables
differentiation or lower costs or better value for the money8
Meaning:
Strategic iss#es 'or Non-Pro'it organi8ations
J( non-profit organi$ations also known as a not-for- profit organi$ation is an
organi$ation that does not distribute its surplus funds to owners or shareholders, but instead uses
them to help pursue its goalsA
*ypes of non-profit-organi$ations?
-rivate non-profit organi$ations
-ublic governmental units
T)o Ma,or Reasons:
Society needs certain goods services
-rivate not for profit organi$ation are e"empted8
So#rces o' Reven#e?
-rofit making organi$ation +Sales of goods or services.
%ot for profit organi$ation +Sponsor or donations.
Constraints in Not-'or-pro'it organi8ation:
Service is intangible in nature8
*he clients have very little influence8
*he sponsor mainly donate the fund for not for profit organi$ation
the professional people is going to join
&estraints on the use of rewards and punishments8
Pro+!ems in t%e strategy 'orm#!ation:
*he main aim is to collect the funds8
*hey don t know how to frame strategy8
#nternal conflict with the sponsor
/orthless will be rigid8
Pro+!ems in Strategy imp!ementation:
*he problem in decentrali$ation
'inks in internal e"ternal
&ewards and punishment8
Pop#!ar Strategies 'or Not-'or-pro'it organi8ations:
Strategic piggybacking
Mergers
Strategic (lliances