Strategic Management

STRATEGIC MANAGEMENT

Page 1 of 27
 Strategic Management

Q1) Explain the evolution, role and importance of business policy and strategic
management. What would be the role of manager in this age?

Introduction: The term strategic management has been traditionally used. New
title such as business policy, corporate strategy and policy, corporate policies is essentially
and extensively used which means more less the same concept.

Evolution of Strategic Management:

1) In early 1920’s and 1930’s the managers used day-to-day planning methods to
perform any task.
2) To anticipate the future, they tried using tools like preparation of budgets and
control systems like capital budgeting and management by objectives.
3) The techniques were unable to emphasize the future adequately.
4) The next step was they tried using long range planning which was replaced by
strategic planning and later by strategic management.
5) In mid 1930’s, according to the nature of business the planning was done during
Adhoc policy making.
6) As many businesses had just started operations and were mostly in a single product
line, there arose a need for policy making.
7) As companies grew they expanded their products and they catered to more
customers and which in turn increased their geographical coverage.
8) The expansion brought in complexity and lot of changes in the external
environment. Hence there was a need to integrate functional areas.
9) This integration was brought about by framing policies to guide managerial action.
10) Policies helped to have pre-defined set of actions, which helped people to
make decision.
11) Policymaking was the owner’s prime responsibility.
12) Due to increase in the environment changes, in 1930’s and 40’s policy
formulation replaced ad-hoc policy making, which led to emphasis shifted to the
integration of functional areas in this rapidly changing environment.
13) Especially after II World War there was more complexity and significant
changes in the environment.
14) Competition increased with many companies entering into the market.
15) Policy making and functional area integration was not sufficient for the
complex needs of a business.

ROLE OF STRATEGIC MANAGEMENT: -

1) Due to increase in the competition, in 1960’s there was a demand for critical look at
the bane corrupt of business.
2) The environment played an important role in the business.
3) The relationship of business with the environment leads to the concept of strategy.
4) In early sixties, this helped the management to manage between the business and
the environment.
5) In early eighties, as many companies were globalised which lead to the competition
of the rivals access the world.

Page 2 of 27
 Strategic Management

6) Japanese companies along with other Asian companies unleashed a force across the
world and posed a threat for the US and European companies, which led to the
current thinking.
7) Strategic management focused on 2 aspects: -
• Strategic process of business.
• Responsibilities of strategic management.

8) Unlike others, in this phase the role of senior management is vital and of utmost
importance. Their role was important in decision-making like -

a) Whether a company promotes a joint venture/new decision.

b) Decides to go for an expansion.
c) Takes other important actions.

8) All these actions and decision had a long-term impact on the company and its future
operations, which was the result of senior management decision-making.
9) Strategic management is both about the present and future course of action, which
was the prime responsibility senior management.

Strategic Management is

I. The study of function and responsibilities of senior management

II. A crucial problem that affects success in total enterprise.
III. The decision that determine the direction of the organization and shape of its future
IV. Identity and molding of its character
V. Mobilization and their allocation of the resources.

Hence as managers had variety of choices, decisions were based on the circumstances,
which would take the company in specified directions.

IMPORTANCE AND ROLE OF MANAGERS IN STRATEGIC MANAGEMENT: -

I. Strategic management integrates the knowledge and experience gained in various

functional areas.
II. It helps to understand and make sense of complex interaction in various areas of
management.
III. It helps in understanding how policies are formulated and in creating appreciation of
complexities of environment that the senior management faces in policy
formulation.
IV. Managers need to begin by gaining an understanding of the business environment
and to in control.

Here are few steps Indian managers need to do.

a) They should know to manage and understand information technology, which
is changing the face of business.
b) As public and common investors own and more companies managers need to
acquire skills to maximize shareholder value.
c) To have/take a strategic perspective, managers should foresee the future
and track changes in customer expectation. Intuitive, logic reasoning is
required for proper decision-making.

Page 3 of 27
 Strategic Management

d) Successful companies depend on people. For people, management managers

should create capability for imitating and manage things through leadership
and should possess qualities like patience, commitment and perseverance.
e) Managers need to provide speed responses to environmental changes
through informational systems and organizational process.
f) As corporates are becoming more integrated with the public life, corporate
governance is becoming important which manager may have to practice.
g) Managers should learn to deal with confused and complex situations. They
should know to deal with global managers, business protocols and market
conditions.
h) In complex and certain situations, managers should have the courage in
decision-making to make unconventional decisions.
i) Managers should possess high ethical standards in business and focus on
social responsibility.

Conclusion

Thus we can say the purpose of strategic management is manifold. To be successful

in the business one should possess/have holistic approach and should know to integrate the
knowledge gained in various functional area of management. By having generalistic
approach, a senior manager can understand the complex inter linkages operating within the
organisation and should have systematic approach in decision-making in relation with the
changes which takes place in the environment.

Page 4 of 27
 Strategic Management

Q2. What is strategy? At what levels is it formulated?

INTRODUCTION: -

To understand the process of strategic management the concept should be understood and
controlled. The term strategy is derived from the Greek word “STRATEGOS”  Generalship.
The actual direction of military force, as distinct from governing its deployment. The word
strategy means “ THE ART OF GENERAL ”. Based on the studies and views by various
experts and management gurus Strategy in business has taken various connotations.

STRATEGY:
1. Before making a decision managers have to look into the course of deciding since
Strategy involves situations like

a) How to face the competition.

b) Whether to undertake expansions/diversification
c) To be focused/ broad based
d) How to chart a turn around
e) Ensuring stability/should we go in for disinvestments etc

2. An establishment and successful company would start to face new threats in the
environment. This is due to its success and emergence of new competitors. It has
to rethink the course of action it has been following. This is called strategy.
3. With such rethinking and environment analysis, new opportunities may emerge and
be identified.
4. To make use of these opportunities, the company might fundamentally rethink and
reason the ways and means, the actions it had been following in the past. These are
called “ strategies “.
5. For a company to survive and to be successful strategy is one of the most
significant concepts to emerge in the field of management. According to Alfred
chandler the determination of basic long-term goals and objectives of an enterprise
and the adoption of the course of action and the allocation of resources for carrying
out these goals.
William Gluck defines strategy as “a unified, comprehension and integrated plan
designed to assure that the basic objectives of the enterprises are achieved”.
6. Michael Porter views strategy as the “ core of general management is strategy”.
Managers must make companies flexible, respond rapidly, benchmark the best
practices, outsource aggressively, develop core competencies; Infact should know
how to play new roles everyday. Hyper competition is a common phenomenon that
rivals copy very fast.
7. Companies can outperform rivals only if it can establish a difference it can preserve
and deliver greater value at a reasonable cost.
8. Strategy rests on unique activities –“ The essence of strategy is in the activities –
choosing to perform things differently and to perform different activities than
rivals”.

Page 5 of 27
 Strategic Management

9. Strategy is long term. If company focus is only on operational effectiveness. It can

become good and not better. Overemphasis on growth leads to the dilutions of
strategy. Growth is achieved by deepening strategy.
10. Strategy is the future plan of action, which relates to the companies activities and
its mission/vision i.e. when it would like to reach from its current position.
11. It is concerned with the resource available today and those that will be required for
the future plan of action. It is about the trade off between its different activities and
creating a fit among these activities.

LEVELS OF STRATEGY:

1) When a company performs different business/ has portfolio of products, the

company will organize itself in the form of strategic business units (SBU’s).

2) In order to segregate different units each performing a common set of activities,

many companies are organized on the basis of operating divisions/decisions. These
are known as strategic business units.

CORPORATE LEVEL

FUNCTIONAL LEVEL STRTEGIES [CORPORATE]

SBU1 SBU2 SBU3 (SBU LEVEL)

FUNCTIONAL LEVEL STRATEGIES

3) Strategies are looked at

 Corporate level
 SBU level

4) There exists a difference at functional levels like marketing, finance, productions etc.
Functional level strategies exist at both corporate and SBU level. It has to be aligned and
integrated.

5) CORPORATE LEVEL STRATEGY: It’s a broad level strategy and all its plan of actions is
at corporate level i.e. what the company as a whole. It covers the various strategies
performed by different SBU’s. Strategies needs should be in align with the company
objective.

6) Resources should be allocated to each SBU and broad level functional strategies. To
ensure things there would need to have co-ordination of different business of the SBU’s.

Page 6 of 27
 Strategic Management

FUNCTIONAL STRATEGY: As the SBU level deals with a relatively. Smaller area that
provides objectives for a specific function in that SBU environment are marketing, finance,
production, operation etc.

7) For most companies strategies plans are made at 3 levels.

a) FUNCTIONAL STRATEGY
b) SOCIETAL STRATEGY
c) OPERATIONAL STRATEGY

Societal Strategy:

Larger Companies like conglometers with multiple business in different countries needs
larger level strategy.

1) A relatively smaller company may require a strategy at a level higher than corporate
level.
2) It’s how the company perceives itself in its role towards the society/ even countries
in terms of vision/ mission statement/ a set of needs that strives to fulfill corporate
level strategies are then derived from the societal strategy.

Operational Level Strategy:

In the dynamic environment & due to the complexities of business strategies are needed to
be set at lower levels i.e. one step down the functional level, operational level strategies.
There are more specific & has a defined scope. E.g. Marketing Strategy could be subdivided
into sales Strategies for different segments & markets, pricing, distribution etc.
Some of them may be common & some unique to the target markets.
It should contribute to the functional objectives of marketing function. These are interlinked
with other strategies at functional level like those of finance, production etc

MISSION/VISION LEVEL
CORPORATE LEVEL

FUNCTIONAL LEVEL STRTEGIES [CORPORATE]

SBU1 SBU2 SBU3 (SBU LEVEL)

FUNCTIONAL LEVEL STRATEGIES

Page 7 of 27
 Strategic Management

OPERATIONAL LEVEL

Corporate level is divided from the societal level strategy of a corporation

S.B.U Level is put in to action under the corporate level strategy.
Functional Strategies operate under SBU Level.
Operational Level is derived from functional level strategies

Conclusion:

These are the levels at which strategies are formulated

Page 8 of 27
 Strategic Management

3) What are the Issues in Strategic Decision Making? Explain the role
of Various Strategies. What are the issues in making decisions?

Issues in Strategic Decision Making

1. While making a decision the company might have different people at different
periods of time.
2. Decision requires judgments; personal related factors are important in decision-
making. Hence decision ma y differs as person change.
3. Decisions are not taken individually, but often there is a task in decisions which
could be Individual Vs Group decision making. There will be a difference between
the individual and group decision-making.
4. On what Criteria a company should make its decision, for evaluation of the efficiency
& effectiveness of the decision making process, a company has to set its objectives
which serves as main bench mark.
5. 3 Major Criteria in decision Making are
a. The concept of Maximization.
b. The concept of satisfying.
c. The concept of incrementalism.
Based on the concept chosen the strategic decisions will differ.
6. Generally decision-making process is logical and there will be rationality in decision-
making.
7. When it comes to Strategic decision making point of view there would be proper
evaluation & then exercising a choice from various available alternative resources,
which leads to attain the objectives in a best possible way.
8. Creativity in decision-making is required when there is a complete situation & the
Decision taken must be original & different.
9. There could be variability in decision-making based on the situation &
Circumstances.

Various Roles of Strategic Management.

Senior management plays n important role in Strategic Management.

Role of Board Of Directors: Board of Directors is the supreme Authority in a company.

They are the owners/ shareholders/ lenders. They are the ones who direct and responsible
for the governance of the company. The Company act and other laws blind them and their
actions & they sometimes do get involved in operational issues. Professionals on the B.O.D
help to get new ideas, perspectives & provide guidance. They are the link between the
company and the environment.

Role of C.E.O: Chief Executive Officer is the most important Strategist and responsible for
all aspects from formulations/Implementation to review of Strategic Management. He is the
leader, motivator & Builder who forms a link between company and the board of directors
and responsible for managing the external environment and its relationship.

Page 9 of 27
 Strategic Management

Role Of Entrepreneur: They are independent in thought and action and they set / start up
a new business. A Company can promote the entrepreneurial spirit and this can be internal
attitude of an organization. They provide a sense of direction and are active in
implementation.

Role of Senior Management: They are answerable to B.O.Directors & The C.E.O as they
would look after Strategic Management a responsible of certain areas / parts of terms.

Role of SBU – Level Executives: They Co-ordinate with other SBU’s & with Senior
Management. They are more focused on their product / burners line.
They are more on the implementation role.

Role of Corporate Planning Staff: It provides administrative support tools and

techniques and is a Co-ordinate function.

Role of Consultant: Often Consultants may be hired for a specified new business or
Expertise even to get an unbiased opinion on the business & the Strategy.

Role of Middle Level Managers: They form an important link in strategizing &
Implementation. They are not actively involved in formulation of Strategies and they are
developed to be the future management.

Conclusion: These are the issues in strategic decision-making and the role in Strategic
Management.

Page 10 of 27
 Strategic Management

4) What is Strategic Management Process? Explain each step briefly.

Here are few definitions of Strategic Management Process.

1) According to Glueck it’s a stream of decisions and actions that lead to the
development of an effective strategy/ Strategies to help achieve Corporate
Strategies.
2) According to Hofer it’s the process, which deals with fundamental Organisational,
renewal & growth with the development of strategies, Structures and Systems
necessary to achieve such renewal and growth and with the organizational systems
needed to effectively manage the strategy formulation and implementation process.
3) Ansoff defines it as “ The Systematic approach & important responsibility of general
management to position and relate the firm to its environment in a way that will
assure its Continued Success and make it secure from surprises”.
4) Sharplin defines as the formulation & implementation of plans and Carrying out
activities related to the matters, which are vital, and of continuing importance to the
total organization.
5) According to Harrison & St John – Strategic Management is the process through
which organization learn from their internal & external environment, establish
strategic decision create strategies that are intended to help achieve establish goals
& execute there strategies achieve Establish goals and execute there Strategies all
in an effort to satisfy key organizational stake holders.

COMPANY VISION &MISSION/ REQUIREMENTS

OF MAJOR STOCK HOLDERS STRATEGIC
INTENT
EXTENAL & INTERNAL ANALYSIS /
SWOT ENVIRONMENT ANALYSIS

DEFINE STRENGTHS/WEAKNESS/ CORE

COMPENTENCIES

GENERATE STRATEGIC ALTENATIVES/

EVALUATE & SELECT

IMPLEMENT/ FEEDBACK/CONTROL

From the above block diagram it states that Strategic Management is a process, which
leads to the formulation of Strategy/ Set of Strategies & managing thru Organisational
System for the achievement of Vision, Mission Goals and Objectives.

Page 11 of 27
 Strategic Management

Company Vision / Mission

1) Company Vision is What a Company Wishes to become or aspire to be.

2) Company Mission is what the Company is and why it exists
3) James Parras & James Collins divides Vision/Mission into 2 Parts.

Vision/ Core Ideology Core Values Core Purpose

Mission Envisioned Future Audaclous Goals Vivid Description

Core Ideology: Is the unchanging part of organization. It is the character of an

organization, this would not change for a longer time even it were
disadvantage.
Core Values : what it believes in.
Core Purpose : Existence of Organization and that goes far behind

Envisioned Future: Are the goals to be reached.

It is classified into:

Audaclous Goals: These are the goals that the company would like to achieve. They are
tough needs extraordinary commitment and effort.
Vivid Description: These Goals are put into words that evoke a picture of what it would be
like to achieve the Audaclous Goals.

SWOT Analysis: External & Internal Analysis:

1. The External Environment is made up of all the Factors, Conditions & influences
outside the organizations.
2. it gives rise to opportunities which can be exploited or it may give rise to threats
which can weaken / cause problem to the organization.

STRENGTHS/WEAKNESS/CORE COMPETENCIES

Strengths: it’s always in relation to the environment. It’s an unborn capacity, which needs
to fulfill two conditions.
1) Requirement for success.
2) It gives the Strategic Advantage.
It has strengths more than the competitor; it could gain more than the Competitor.
E.g. Superior research where new products & Innovations are required.

Weakness: It’s something required for success is missing/inherent inadequacy. It gives

strategic disadvantage to the Organisation.
E.g. Over dependence on a single product line in a mature market.

Page 12 of 27
 Strategic Management

Core Competencies: Is developed over a period of time, using these competencies

exceeding well, it develops a fine art of Competition with its rules. This capacity of exercing
turns them to core competencies.

General Strategic Alternatives / Evaluate & Select.

It means that there is a proper evaluation and exercing a choice from various alternative
available resources in such a way it may lead to the achievement of company’s objective.

Implement / Feedback/ Control

Implementation is the responsibility of CEO. He is responsible from implementation to
review of Strategic Management.

Page 13 of 27
 Strategic Management

5) Explain Core Competencies, Strategic intent, stretch, leverage & Fit.

Introduction: for an effective strategic intent one has to develop effective

strategy, rather than focusing at the resourcefulness of Competition & their pace at which
they are building competencies one has to focus on existing position.

Core Competencies :

1) An organization with its resources and the capacity of converting the resources in to
outputs and the behavior of there (i.e. capability and resources) develops certain
strength and weakness, which their combined lead to synergistic effects.
2) Synergy – Total (is greater) sum of the parts. In terms of organizational
competencies it manifest themselves in advantages over competition.
3) Competencies develop over a period of time.
4) It’s a fine art of competing with its rivals over a period of time and it uses these
competencies to exceed well. The capability of using these competencies to exceed
well turns them into core competence.
5) Core competencies have joined greater currency and popularity as per C.K Prahaled
and Gary Hamel. It’s a portfolio of products/services/different business.
6) In short run competencies for a company is derived from the price performance and
in longer run it’s the ability to build at lower cost and speedily than others.
7) A diversified company is like a large tree. What are not easily visible and apparent –
are the core products and leaves, flowers, fruits are the end product.
8) Root is akin to “Core Competence”.
9) Core competence is communication, collective learning and co-ordination of diverse
production skills and deep involvement and commitment to work and delivery of
value across all levels and functions.
10) Core competencies are the glue that binds existing business and guide
market entries instead of market attractiveness.
11) Core competencies can be identified by conducting 3 tests i.e. provides
potential access to wide variety of markets and significant contributions to the
benefit of the end product difficult for competitors to imitate.
12) Building competencies are not sharing costs by SBU’ (or) out pending rivals
on R and D
13) By not building competencies in emerging markets you may lose the chance
of competing in existing markets.

It’s important to maintain the competencies even it not active in the market.

Strategic Intent is something more than the unfettered ambition. It’s not a soft
target. According to Prahlad & Gray

1) It forsee’s a desired leadership position and establishes the criteria the organization
will chart it’s progress.

Page 14 of 27
 Strategic Management

2) It Captures the essence of winning & is stable over time.

3) It requires personal effort, Commitment and bit of luck to achieve the target.
4) The Important thing that a company asks for is not “How Well Next Year be
different”? But they ask, “ What must we do differently next year to get closer to our
strategic intent?”
5) Most companies look at change and innovations in isolation
6) Innovations come from everywhere & top Management role is to add value to it.
7) Strategic intent leaves room for creativity, innovation & top Management directs it.
8) There must be a balance between resources as a Constrain Vs Resource as leverage
so as to reduce risk. Former is done through building a balanced portfolio of cash
generating and cash consuming business and in the latter a well balanced and
sufficiently broad portfolio/ collection of advantages is assured.
9) It implies a servable stretch for an organization.
10) Since the current capabilities & resources are not------- it will force
inventiveness and the management will keep on involving challenges and they give
time to digest one challenge before launching another.
11) One important parameter is reciprocal responsibility - Which means equal
blame & credit for both operating levels & top management.
12) Companies with good strategic intent know the importance of documenting
failure but instead of blame fixing and nailing people they are more interested in the
management reasons and the orthodoxy, that may have led to future.

Stretch: To Achieve strategic intent one has to stretch forward and has to look at the
resourcefulness instead of looking at resources. One has to make use of Innovation and
resources. Stretch leads to leverage.

Leverage: Refers to concentrating on the resources to achieve strategic intent,

accumulating, learning, experiences & Competencies in a manner to meet the aspirations
by stretching the scarce resource that an organizational resource to the environment.
Instead of allotting the competitors blindly & taking their head companies must leverage
the resources.

Fit: Strategic fit is the traditional way of looking at strategy. Strategic fit is
conservative and seems to be more realistic but u may not be aware of the potential. Under
stretch & leverage Strategic extent could be impossible, idealistic but under fit strategic
something far beyond possibilities and look at the potential possibilities.

Conclusion.

Thus Strategic intent is what the organization strives for e.g. Canon wanted to beat Xerox.
It’s an obsession to an organization & it is to win at all levels of the organization, sustaining
that obsession is in quest for global leadership.

Page 15 of 27
 Strategic Management

6) Write a detailed note on Goals and Objectives.

Goals: - Goal – Target

a) It’s a target that a company wants to achieve in a future period of time.
b) An organization sets a combination of goals, which might be Qualitatively,
Quantitative, and Financial & Non Financial. These Goals must be clear and
unambiguous.
c) On an organizational level goals are broad in nature and they could set goals on
turnover, profits, returns on assets/equity, market share, Customer satisfaction,
Employee satisfaction.
d) Goals should be limited, manageable, and clear& Consistent with each other,
otherwise it may lead to confusion & Contradictions.
e) Goals may be Qualitative, Quantitative in specification.

Objectives:
a) Objectives are the ends that specify how the goals shall be achieved.
b) They are concrete and specific and they are in contrast with the goals.
c) Objectives make the goals operational and tend to Quantitative in specifications.
d) Objectives are set in a way that what the organisation has to achieve for its
employees, shareholders, customers etc.,
e) Objectives are in relation with the environment. They are the brains of Strategic
Decision Making.
f) They are framed in line with the vision/mission of the organization and it helps to
pursue them.
g) Objectives are invariably Quantitative and provide clear measures and standards for
performance.
h) It helps to see whether the Organisation is in right track or not.
i) Objectives should be concrete, specific, and understandable & should have clearly
defined time frame.
j) It must be measurable, actionable, challenging but controllable.
k) There must be co-relation with other objectives.
l) While setting objectives these are the factors to be evaluated. It should be specific
at the level, which it is being set. It should not be either too narrow or too broad.
m) There need to be multiplicity of objectives.
n) It should be formulated at different time frames like short term, medium term, and
long term & should be linked & consistent.
o) Since its in relation with the environment it needs to check whether they are
fulfilling the needs of customers, share holders etc.,
p) It should be in reality with the organizational resources and internal constraints,
including policies & lower relationship.

Conclusion: Thus an organization is set up to make Prompt and Accurate decision. Hence
goals & objectives are set for the accomplishment of an organization.

Page 16 of 27
 Strategic Management

7) What is Environment ? How is it Changing? Explain the process of

SWOT analysis? Elaborate what you would study in the environment?

Introduction : -
Environment means the surrounding. It includes both internal and external objects,
factors & influences under which someone/something exist.

Environment :

1) The Environment of an organization is the aggregate/total of all conditions events

that influences itself & it’s Surroundings,
2) The dynamic & has relationships with each other.
3) The factors in environment may affect the company and visa versa.
4) It has a great impact on the company.

Environment – Changes:

According to Michael Hommer and James Chapey.

1) An Organisation must be flexible enough to adjust quickly with this changing

environment.
2) The Efficiency of the company comes at the expenses of the efficiency of the
company as a whole.
3) It requires co-operation & Co-ordination within the organization.
4) Few Companies are rigid, non-competitive, inefficient and losing money because
they are not able to adjust themselves with the changing environment.
5) In 1776 Adam Smith described in his book, “The Wealth of Nations.” The Principle of
division of labour for increasing the productivity and there by reducing the cost of
goods. American Companies became best in the world after applying the principles.
6) But in today’s world, nothing is constant or predictable & these principles don’t
work.
7) Market growth, customer demand, the rate of technological change, and nature of
competition keeps changing.
8) The three forces that drives company are
Customers
Competition &
Change.
Customers : Earlier days, Customers had little choice they used to buy the product
that was offered to them. These days’ customers come with more specifications and they
demand for customized products and they want individual attention. Hence customers have
upper hands these days. It’s difficult for an organization to survive in the long run unless
they satisfy customers’ needs.

Page 17 of 27
 Strategic Management

Competition : As many companies emerge, the competition rises. They offer good
quality of products at lesser price and consumers prefer such products. Earlier the company
could get into market with an acceptable product/service at the best price would go to sell.
But these days customers prefer high quality at lowest price. The Company, which offers
these at best price, goes high quality and best service becomes standard of all the
competitors.

Changes : Changes has become both pervasive and persistent because companies
face a greater competitors and each one introduces a product and service innovation to the
market with the globalization of the economy. Hence the companies need to move fast in
pace with the changing environment otherwise it’s difficult to move.

CONCLUSION: In today’s environment nothing is constant and predictable hence

for a company to survive in the long run, it has to satisfy customer needs and cope with the
changes in the environment at a faster rate.

INTRODUCTION – SWOT ANALYSIS:

The external environment is made of factors, conditions that influences

outside the organization. The external environment gives rise to opportunities,
which can be accomplished, or it may cause problems to the organization.

SWOT ANALYSIS:

The internal environment refers to all factors within the control of and within the
organization. These factors may impart strengths that can be utilized by the organization or
cause weakness, which becomes threat to the organization.

S – Strength O- Opportunity
W – Weakness T – Threats

Strength: –It is an inherent capacity that is in relation to the environment. For an

organization to be a success it requires strength and it gives strategic advantage to gain
more than the competition.
E.g. Innovation and new products are required for superior research and development
facilities.

Weakness: - It is an inherent inadequacy that is again in relation to the

environment. It gives strategic disadvantage and something that required for success is
missing. It leads to competition where weakness can be used to gain more due to inherent
limitation / constraint/inadequacy.
E.g.1) In a mature market over dependence on a single product line.
2) Lack of capabilities for the development of new product, which is potentially risky for a
company during the time of crisis.

Opportunity : can be accomplished and can help to consolidate and strengthen the
organization. It’s a favorable condition for an organization in its environment.
E.g. Due to better GDP growth a company provides increase in demand for the
products/services. It helps in strengthening its position.

Page 18 of 27
 Strategic Management

Threats : when the opportunities are not utilized properly it can cause problem to
the to the organization which causes threat. It is unfavorable condition for the organization.
It causes risk/damage to an organization.
E.g. Due to opening up of economy, the emergence of multinational companies, which are
stronger and has good resources, offers stiff competition to the existing companies in an
industry.

CONCLUSION – SWOT Analysis

An understanding of both internal and external environment in terms of opportunities,

threat, strength, weaknesses important for existence, growth and profitability of an
organization. A systematic approach and understanding the environment is SWOT analysis
all about.

Environment to be studied

1) Events: Is some specific occurrence that takes place in different environmental

sectors. E.g. Bilateral agreement between 2 countries in which the company is
operating and facing competition from local companies.
2) Trends: is the way the environment is shaping up. They are he course of action
along which events take place like global warming, nuclear families etc.
3) Issues: are the current concerns that arise in response to events and trends. E.g.
Pollution Control, Business ethics after scams.
4) Expectations: are the demands made by interested groups in light of their concern.
Like corporate governance, greater transparency, stricted auditing norms.

Page 19 of 27
 Strategic Management

Q9) Explain the various types of Expansion strategies.

Introduction : Corporate level strategies are the topmost level –for the company
as a whole. They are basically about the direction the company intends to pursue in order
to achieving its objectives. As growth is the most easily accepted as way of life. All
organization looks for the expansion, thus expansion strategies are the most popular and
common corporate strategies. Companies aim for substantial growth. A growing economy,
burgeoning markets, customer seeking new ways of need satisfaction, and emerging
technologies offer ample opportunities for companies to seek expansion. When a company
follows the expansion strategy, it aims at high growth. This can be done by a large increase
in one or more of its business. The scope of the business is broadened in terms of their
respective customer groups, customer functions, and alternative technologies-singly or
jointly in order to improve its overall performance. An expansion strategy has a significant
and profound impact on a company’s internal structure and processes, leading to changes
in most of the aspects of internal functioning. Expansion strategies are more risky as
compared to stability strategies.

Expansion strategies are when environment demand increase in pace of activity,

due to increase in market size and image opportunities being available. Management feels
more satisfied with the prospects of growth from expansion; it is a matter of pride, for
employees to the chief executives, in working for the companies perceived to growth
oriented.

Expansion strategies can be undertaken in a variety of ways:

1. Expansion through concentration:

For expansion, concentrations often the first preference strategy for a company. The
simple reason for this is that it would like to do more of what it is already doing. A
company that is familiar with an industry would naturally like to invest more in known
business rather than unknown ones. Each industry is unique in the sense that there are
established ways of doing things.

Concentration strategies has several advantages:-

a) Concentration involves fewer organizational changes.
b) It is less threatening and more comfortable staying with present business.
c) It also enables the company to specialize by gaining an in-depth
knowledge of these businesses and thus master the knowledge.
d) The decision-making has a high level of predictability.
e) Past experience is valuable as it is replicable.

Limitation of concentration strategies:-

a) Firstly, concentration strategies are heavily dependent on the industry, so
adverse conditions in an industry can also do affect company’s if they are
intensely concentrated.

Page 20 of 27
 Strategic Management

b) Secondly, factors such as product obsolescence, fickleness of markets,

and emergence of newer technologies can be threats

c) Thirdly, doing too much of a known thing may create an organizational

inertia; managers may not be able to sustain interest and find the work
less challenging and less challenging and less stimulating.

d) Finally, concentration strategies may lead to cash flow problems that may
pose a dilemma before a company. For expansion through concentration
large cash inflows are required for building up assets while the business
are growing. But when these business mature, company often faces a
cash surplus with little scope for investing in the present business.

2) Expansion through Integration

Integration basically means combining activities on the basis of the value chain
related to the present activity of a company. Sets of interlinked activities performed by
an organization right from the procurement of basic raw materials right down to the
marketing of the finished products to the ultimate consumers is a value chain. So a
company may prove up or down the value chain and expand their business. This helps it
to concentrate more comprehensively on the customer groups and needs than it is
already serving.

Integration results in a widening of scope of the business definition of a company.

Integration is also a part of diversification strategies as it involves doing something
different from what the company has been doing previously.

There are certain conditions under which a company adopts integration strategies.
Most common condition is a ‘make or buy’ decision. Transaction cost economies, a
branch of study in the economics of transaction and their costs helps to explain the
situation where integration strategies are feasible.

Types of integration:

There are two types of integration- vertical and horizontal

• Vertical integration: this could be of two types: backward and forward

integration. Backward integration means retreating to the source of raw
materials- in simple terms becoming your own supplier-while forward
integration moves the organization nearer to the ultimate customer-in simple
terms becoming your own customer. When an organization starts making
new products that are serve its own needs, vertical integration takes place.

• Horizontal integration: when a company starts serving the same

customers that it knows very well with additional products that are different
from the earlier products in any of the termsof their respective customer
needs. The simplest example is, a hardware manufacture starts supplying
software also.

3) Expansion through Diversification:

Page 21 of 27
 Strategic Management

Diversification is a much debated strategy and involves all the dimensions of

strategic alternatives. Diversification involves a drastic change in the business in terms of
customer functions, customer groups, or alternatives technologies of one or more of a
company’s business in isolation or in combination.

Different types of diversification strategies

There are basically two types of diversification strategies

1. Concentric diversification: when an organization takes up an activity in such a

manner that it is related to the existing business, it is called concentric
diversification.

2. Conglomerate diversification: When an organization undertakes a strategy

which requires taking up those activities which are unrelated to the existing
business, it is called conglomerate diversification.

4) Expansion through cooperation

Cooperative strategies could be of the following types:

Mergers: For a merger to take place two organizations are needed. one is the buyer
organization and the other is the seller. Both these types of organizations have a set of
reasons on the basis of which they merge.

The buyers wishes to merge

• to increase the value of the organization’s stock-to increase the growth rate and
make a good investment- to improve stability of earning and sales –to balance,
complete, or diversify product line- to reduce competition and to take advantages of
synergy.
•
The seller wishes to merge

• to increase the value of the owner’s stock and investment –to increase the growth
rate- to acquire resources to stabilize operations- to benefit from tax concessions.

Joint Ventures Strategies: joint ventures conditions may be useful to gain access to
a new business under the following condition:
• activity is uneconomical for one organization alone.
• Risk of business has to be shared and, is reduced for the participation companies.
• Distinctive competence of two or more organizations can be brought together

Joint ventures are common within industries and in various countries. But they are
especially useful for entering international markets.

Page 22 of 27
 Strategic Management

Q11) Write short notes on Integration & Diversification.

Integration:

Integration basically means combining activities on the basis of the value chain related to
the present activity of a company. Sets of interlinked activities performed by an organization
right from the procurement of basic raw materials right down to the marketing of finished
products to the ultimate consumers is a value chain. So a company may move up or down the
value chain and expand their business. This helps it to concentrate more comprehensively on
the customer groups and needs than it is already serving.

Integration results in a widening of the scope of the business definition of a company.

Integration is also a part of diversification strategies as it involves doing something different
from what the company has been doing previously. Typically in process-based industries such
as, petrochemicals, steel, textiles or hydrocarbons, we see enough examples of integrated
companies. These companies deal with products with a value chain extending from the basic
raw material to be ultimate consumer. One of the best examples is the Reliance Group.
Companies operating at one end of the value chain attempt to move up or down in the process
while integrating activities adjacent to their present activities.

These are certain conditions under which a company adopts integration strategies. Most
common condition is a ‘make or buy’ decision. Transaction cost economics, a branch of study
in the economics of transactions and their costs helps to explain the situation where integration
strategies are feasible. The cost of making the items used in the manufacture of one’s own
products is to be evaluated against the cost of procuring them from suppliers. If the cost of
making is less than the cost of procurement then the company moves up the value chain to make
the items itself. Likewise, if the cost of selling the finished products is lesser than the price paid
to the sellers to do the same thing then it is profitable for the company to move down on the
value chain. In both these cases the company adopts an integration strategy.

Types of Integration:

Integration is actually of two types namely,

 Vertical Integration &

 Horizontal Integration.

Page 23 of 27
 Strategic Management

1. Vertical Integration: Vertical integration could be of two types: backward and

forward integration. Backward integration means retreating to the source of raw
material – in simple terms becoming your own supplier- while forward integration
moves the organization nearer to the ultimate customer – in simple terms becoming
your own customer. When an organization starts making new products that serve its
own needs, vertical integration taken place. In other words, any new activity
undertaken with the purpose of either supplying inputs (such as raw materials, an
automobile company going in for a steel mill, this is backward integration) or serving
as a customer for outputs (such as marketing of company’s product, for example,
Titan going into setting their own retail outlets – this is forward integration) is
vertical integration.

2. Horizontal Integration: When a company starts serving the same customers that it
knows very well with additional products that are different from the earlier products
in any of the terms of their respective customer needs, customer functions, or
alternative technologies, either singly or jointly, it is horizontal integration. An
example, a hardware manufacturer starts supplying software also, a car manufacturer
getting into vehicle insurance or selling fuel.

Diversification:

Diversification is a much-debated strategy and involves all the dimensions of strategic

alternatives. Diversification involves a drastic change in the business in terms of customer
functions, customer groups, or alternative technologies of one or more of a company’s
businesses in isolation or in combination.

Types of Diversification:

1. Concentric diversification: When an organization takes up an activity in such a manner

that it is related to the existing business, it is called concentric diversification.
2. Conglomerate diversification: When an organization undertakes a strategy, which
requires taking up those activities, which are unrelated to the existing business, it is
called conglomerate diversification.

Page 24 of 27
 Strategic Management

Q14) What do you understand strategic evaluation and control?

Introduction: Strategic evaluation operates at two levels; strategic evaluation and

operational evaluation. At the strategic level, we are concerned more with the consistency of
strategy with the environment. At the operation level, the effort is directed at accessing how well
the organization is pursuing a given strategy.

Nature of strategic Evaluation: the purpose of strategic evaluation is to evaluate the

effectiveness of strategy in achieving organizational objectives, thus it is process of determining
the effectiveness of a given strategy in achieving the organizational objectives and taking
corrective action wherever required.
From this definition, we can infer that the nature of the strategic evaluation and control process
is to test the effectiveness of strategy.

Importance of strategic evaluation: the importance of strategic evaluation lies in its

ability to coordinate the tasks performed by individual managers, divisions or SBU’s, through
the control of performance. In the absence of this, individual managers may pursue goals, which
are inconsistent with the e overall objectives, there is a need of feedback, appraisal and reward;
check on the validity of strategic choice; congruence between decision and intended strategy;
and creating inputs for new strategic planning.
Strategic evaluation helps to keep a check on the validity of a strategic choice. An ongoing
process of evaluation would, in fact, provide feedback on the continued relevance of the
strategic choice made during the formulation phase. This is due to the efficacy of strategic
evaluation to determine the effectiveness of strategy.

Participation in strategic evaluation:

The board of directors enacts the formal role of reviewing executive decisions in the
light of their environment, business and organizational implications.
Chief executives are ultimately responsible for all the administrative aspects of strategic
evaluation and control.

The SBU or profit-center heads may be involved in performance evaluation at their

levels and may facilitate evaluation by corporate level executives.
Audit and executive comities may be changed with the responsibility of continuous screening of
performances.

The corporate planning staff or department may also be involved in strategic evaluation.

Page 25 of 27
 Strategic Management

Barriers in Evaluation:

 The limits of control,

 Difficulties in measurement,
 Resistance to evaluation,
 Tendency to rely on the short term assessment, and
 Relying on efficiency versus effectiveness.

Requirements for effective evaluation:

Control should involve only the minimum amount of information. Too much information
tends to clutter up the control system and creates confusion.
Control should monitor the managerial activities and results even if the evaluation is
difficult to problem.
Long term and short term controls should be used so that a balanced approach to
evaluation can be adopted.
Rewards for meeting or exceeding standards should be emphasized so that, managers are
motivated to perform. Unnecessary emphasis on penalties tends to pressurize the managers to
rely on the efficiency rather than effectiveness.

Premise Control :

Every strategy is based on certain assumptions about environment and organizational

factors. Some of these factors are highly significant and lay change in them can affect the
strategy to a large extent. Premise control is necessary to identify the key assumptions, and keep
track of any change in them so as to assess their impact on strategy and its implementation. It
enables the strategies to take the corrective action at the right time.

Implementation control :

The implementation control is aimed at evaluating whether the plans, programs and
projects are actually guiding the organization towards its predetermined objectives or not.
Implementation control may be put into practice through the identification and monitoring of
strategic thrusts.

Another method of implementation control is milestone review.

Strategic Surveillance:

The premises and implementation types of strategy controls are specific in nature.
Strategy surveillance, is designed to monitor a broad range of events inside and outside the
company that are likely to threaten the course of a firm’s strategy.
Broad based, general monitoring on the basis of selected information sources to uncover events
that are likely to affect the strategy of an organization.

Page 26 of 27
 Strategic Management

Emergency alert control:

It is base on a trigger mechanism for rapid response and immediate reassessment of

strategy in the light of sudden and unexpected events.
Emergency alert control can be exercised through the formulation of contingency strategies and
assigning the responsibility of handling unforeseen events to crisis management teams.

The first step of signal detection can be performed by the emergency alert control
systems.

Process of Evaluation:

The process of evaluation basically deals with four steps:

1) Setting standards of performance.

2) Measurement of performance.
3) Analyzing variances.
4) Taking Corrective actions.

Measurement of performance:

 Standards of performance act as the benchmark against which the actual performance
is to be compared.
 Understand how the measurement of performance can take place.
 The information system is the key element in any measurement exercise.
 Operationally, measuring is done through the accounting, reporting, and
communication systems.
 Important to look at the difficulties, timing and periodically in measuring.

Difficulties in measurement :

 It is not so difficult to measure effort, as it is to assess departmental performance.

 Timing of measurement.
 Delay in measurement can defeat the purpose of evaluation itself.
 On the other hand measuring before time cannot serve the purpose either.
 It is better to measure at critical points in a task schedule.

Page 27 of 27