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STRATEGIC MANAGEMENT

Strategic Management - A Capsule for Quick Revision


It is been the endeavour of the Board of Studies to provide holistic education to the students of Chartered
Accountancy course. The education pedagogy adopted is mix of traditional methods and use of modern
technology to make education convenient to the students and they have better assimilation of concepts.
Covering vast subjects is a time consuming exercise. Keeping this in mind the Board of Studies is
releasing capsules in the Students’ Journal that will help the students to quickly revise the subjects. At
the same time, it may be kept in mind that these are not replacement of the study material. Reading
of Study Material is absolute essential. This capsule on strategic management, first in the series, cover
chapters 1, 2 and 3 under the new syllabus of Intermediate Examination. Students of earlier scheme may
also refer to the relevant portions in the write-up.

Chapter 1 : Introduction to Strategic Management


Business Policy Concept of Strategy
• Origin of business policy can be traced back to early • The common thread among the organization’s
twentieth century. activities and product-markets that defines the
• Harvard Business School introduced an integrative essential nature of business that the organization
course in management aimed at the creation of has or planned to be in future. - Igor H. Ansoff
general management capability among business • A unified, comprehensive and integrated plan
executives. designed to assure that the basic objectives of the
• The study of the functions and responsibilities enterprise are achieved. - William F. Glueck
of senior management, the crucial problems
that affect success in the total enterprise,
and the decisions that determine the Respond to
direction of the organization and shape its dynamic and
future. - Christensen hostile external
• Business Policy presents a framework for forces Unravel
Bring a sense complexity
understanding strategic decision making. Such a of dynamic
framework enables a person to make preparations and to reduce
direction, uncertainty
for handling general management responsibilities focus and Strategy is
effectively. consciously of the
cohesiveness environment
considered and
flexibly designed
What is Management? scheme of
Long range corporate intent Exploit
Management as Management blueprint of and action opportunities
Management set of functions desired image, and meet
as key group Management direction and potential
The is an influence destination Pursuit of threats
In-charge of functions process to mission,
organisational include make things objectives to
affairs. Planning, happen, to
achieve goals
Making Organising, gain
organisation Directing, command
a purposeful Staffing and over
and Control. phenomena, Strategy - Partly proactive and partly reactive
productive Determine to induce and
entity. goals and direct events
Brings activities and people in
together/ Helps in a particular Proactive actions on Reactions to
integrates the allocation manner. the part of managers to unanticipated
resources. of tasks and improve the company’s developments and fresh
resources market position and market conditions
financial performance

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PLANNED STRATEGY
New initiatives plus Actual
ongoing strategy Company
Company Experi- features continued
Strategy
ences, Know-how, from prior periods
Resource Strength
to
& weaknesses and reactions
Adaptive es
g c irc umst anc
Competitive Chan g in
Capabilities

REACTIVE STRATEGY
A Company’s Actual Strategy Is Partly Planned & Partly Reactive

Strategic Management
Developing the company’s vision, environmental scanning (both external and internal),
strategy formulation, strategy implementation and evaluation and control.

Managerial process to develop


vision, set objectives, craft,
implement and evaluate strategy
Concept

Initiate corrective adjustments


where deemed appropriate
Strategic Management

To create competitive
advantage

Objectives

Guide company through


dynamic environment

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Strategic Levels in Organisations

CORPORATE LEVEL
CEO, Board of Directors,
other senior exectives and HEAD OFFICE
corporate staff

BUSINESS LEVEL
Divisional managers DIVISION A DIVISION B DIVISION C
and staff

FUNCTIONAL BUSINESS BUSINESS BUSINESS


LEVEL FUNCTIONS FUNCTIONS FUNCTIONS
Functional managers

MARKET MARKET MARKET

Levels of Strategic Management

Strategic Management in Educational Medical Governmental agencies


*RYHUQPHQWDQG1RWIRUSURÀW Institutions Organizations and departments
Organisations • Significant change • Advances in the • Formulating,
in the competitive diagnosis and implementing, and
climate treatment of evaluating strategies
• There are many organizations diseases • Efficient and
that do not have any commercial • Adopting effective utilization
objective of making profits. different • Providing better of resources
strategies for facilities and • Public funds are
• They are set up for social, attracting best services to the used.
charitable, or educational students patients • Several government
purposes. • There are • Diversification - organizations are
making significant
interactions hospitals opening surpluses
• There are not-for-profit and
between pathological labs
government organizations that • Little freedom to
outperform many private firms Academic • Better alter missions or
in managing their affairs. institutions and collaboration with redirect objectives.
industries physicians • Legislators and
• Often function as a monopoly, • Online politicians can have
produce a product or service that education is new direct or indirect
offers little or no measurability of control.
phenomena
performance. • Issues get discussed
and debated in
• Dependent on outside financing. the media and
legislatures.

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Chapter 2 : Dynamics of Competitive Strategy


Competitive Strategy Time
An organization must identify its position relative to Short-term Long-term
the competitors in the market. Competitive strategy Errors in Changes in the

External
generates competitive advantage, increase the loyalty interpreting the environment lead
of customers and beat competition. A competitive environment cause to obsolescence
strategy consists of: strategic failure of strategy

Strategic Risks
• Attract customers.
• Withstand competitive pressures.
• Strengthen an organization’s market position. Organizational Inconsistencies
capacity is with the strategy

Internal
Having a competitive advantage is necessary for a unable to cope are developed
firm to compete in the market. up with strategic on account
demands of changes in
Competitive Landscape internal capacities
Competitive landscape relates to identifying and and preferences
understanding competitors
It permits the comprehension of vision, mission,
core values, niche market, strengths and weaknesses of
competitors. Strategic Analysis
Competitive intelligence is required to understand
competitive landscape.
Put all the External Analysis Internal Analysis
Determine information
Determine the weak- together. Customer Analysis: Performance Analysis:
Understand the strengths nesses of the Segments, Motivations, Profitability, sales,
Identify the of the competitors.
the competitors competitors unmet needs. customer satisfaction,
competitor Competitor Analysis: product quality, relative
Strategic groups, cost, new products,
Steps to understand the Competitive Landscape performance, obectives, human resources.
strategies, culture, cost Determinants Analysis:
Strategic Analysis structure. Past and current
Proper diagnosis of the company’s situation is necessary Market Analysis: strategies, strategic
for managerial preparation for deciding on a sound Size, growth, profitability, problems, organizational
long-term direction, setting appropriate objectives, entry barriers. Capabilites and
and crafting a winning strategy. The analytical Environmental Analysis: constraints, Financial
sequence is from strategic appraisal of the external Technological, resources, strengths, and
and internal situation, to evaluation of alternatives, government, economic, weaknesses.
to choice of strategy. Two most important situational cultural, demographic.
considerations are:
(1) industry and competitive conditions and
(2) an organisation’s own competitive capabilities,
Opportunities, threats, Strategic strengths,
resources, internal strengths, weaknesses, and
trends, and strategic, weaknesses, problems,
market position.
uncertainties constraints and
uncertainties
Strategy Balance
evolves over of external
a period and internal Risk
of time factors Strategy Identification & Selection
• Identify strategic alternatives
Strategy is result Strategic analysis involves Identify potential • Select strategy
of a series of small a workable balance imbalances or risks • Implement the operating plan
decisions taken between diverse and and assess their • Review strategies
over extended conflicting internal and consequences.
period of time. external considerations.
Issues to consider for Strategic Analysis Framework of Strategic Analysis

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Industry and Competitive Analysis


Industry and competitive analysis provides a way of thinking strategically about any industry’s overall situation
and drawing conclusions about whether the industry represents an attractive investment for organisational funds.

Dominant Economic Factors to consider include size, of market, its growth


Issues in Industry Features of the Industry rate, position in life cycle, rivals, buyers, profitability,
and Competitve capital requirement, etc.
Analysis
Nature and Strength of Delving into the industry’s competitive process
Competition to discover what the main sources of competitive
pressure are and how strong each competitive force is.

Triggers of Change There are driving forces that impact and bring
changes in the industry’s structure and competitive
environment. Analyzing driving forces involves
identifying what the driving forces are and assessing
their impact.

Strategic Group It is done by comparing the market positions of each


Mapping competitor separately or for grouping them into like
positions in an industry

Likely Strategic Moves To outmanoeuvre rivals organisations need to monitor


of Rivals actions, strategies, and anticipate likely moves of
competitors.

Key Success Factors They are strategy elements, product attributes,


resources, competencies, competitive capabilities, and
business outcomes that affect ability to prosper and
lead to competitive success or failure.

Prospects and Financial Strategists assess industry outlook carefully, decide


Attractiveness of whether industry and competitive conditions present
Industry an attractive business opportunity for the organisation
or whether its growth and financial prospects are
gloomy.

Core Competence

C.K. Prahalad and Gary Hamel defined core competency as the collective learning in the organization, especially
coordinating diverse production skills and integrating multiple streams of technologies. Capabilities that are
valuable, rare, costly to imitate, and non-substitutable are core competencies.

Competitor Competence that is unique and difficult for


C.K. Prahalad
differentiation competitors to imitate.
and Gary Hamel
identified major
core competencies
Customer value A fundamental benefit for the end customer that has
in three areas
real impact.
- competitor
differentiation,
customer value
Application of Competence must be applicable to whole organization
and application.
competencies and can open up potential market to be exploited.

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Value Chain Analysis Value Creation


Value chain analysis has been widely used as a means The concept of value creation was introduced primarily
of describing the activities within and around an for providing products and services to the customers
organization, and relating them to an assessment with more worth. Value is measured by a product’s
of the competitive strength of an organization (or features, quality, availability, durability, performance and
its ability to provide value-for-money products or by its services for which customers are willing to pay.
services). The primary activities of the organization
Value to Customer
are grouped into five main areas: inbound logistics,
operations, outbound logistics, marketing and sales, Customer’s
Surplus
and service. For an organisation it is important to Price
identify those competences which critically underpin
Profitable
the organization’s competitive advantage. These are Pricing Band
known as the core competences and will differ from Firm’s
Margin
one organization to another.

Firm’s Cost of Value Creation


Firm Infrastructure

Support Human Resource Management


Margin
Activities
Technology Develoment 0
Procurement
Inbound Marketing & Service
Operations Outbond Thus, we can say that the value creation is an activity or
logistics logistic Sales
Margin performance by the firm to create value that increases
the worth of goods, services, business processes or
even the whole business system.
Primary Activities

Value Chain (Michael Porter)


Portfolio Analysis
Experience Curve
Competitive Advantage Experience curve is akin to a learning curve which
explains the efficiency increase gained by workers
Competitive advantage allows a firm to gain an edge through repetitive productive work. Experience curve
over rivals when competing. ‘It is a set of unique features is based on the commonly observed phenomenon that
of a company and its products that are perceived by unit costs decline as a firm accumulates experience
the target market as significant and superior to the in terms of a cumulative volume of production. The
competition.’ concept of experience curve is relevant for a number of
Competitive advantages and the differences they areas in strategic management.
create in the firm’s performance are often strongly
related to the resources firms hold and how they are Product Life Cycle
managed. Resources and capabilities are not inherently Product life cycle (PLC) an S-shaped curve which
valuable, but they create value when the firm can exhibits the relationship of sales with respect of time
use them to perform certain activities that result in a for a product that passes through the four successive
competitive advantage. stages of introduction (slow sales growth), growth
(rapid market acceptance) maturity (slowdown in
Competitive Advantage growth rate) and decline (sharp downward drift).

Capabilities
(Organizational Routlines) y
urit
Sales

De
Mat clin
e

th
ow
Gr
Resources
duction
Intro
Tangible Intangible
Time
Physical Financial Human Skills Technology Reputation
Product Life Cycle

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Boston Consulting Group (BCG) Growth-Share ADL Matrix


Matrix The ADL matrix is a portfolio analysis technique that is
BCG helps to classify different businesses on a two- based on product life cycle. The approach forms a two
dimensional growth-share matrix dimensional matrix based on stage of industry maturity
and the firms competitive position, environmental
Relative Market Share assessment and business strength assessment. Stage
High Low of industry maturity is an environmental measure that
represents a position in industry’s life cycle. Competitive
Stars
Market Growth Rate

Question Marks position is a measure of business strengths that helps


in categorization of products or SBU’s into one of five
High

competitive positions: dominant, strong, favourable,


tenable and weak.

General Electric Matrix [“Stop-Light” Strategy Model]


Cash Cows Dogs The strategic planning approach in this model has been
Low

inspired from traffic control lights. The lights that are


used at crossings to manage traffic are: green for go,
amber or yellow for caution, and red for stop. This
model uses two factors while taking strategic decisions:
Business Strength and Market Attractiveness.
BCG Growth-Share Matrix
Business Strength
• Stars are products or SBUs that are growing rapidly.
Strong Average Weak
Attractiveness

• Cash Cows are low-growth, high market share


businesses or products. High Invest/ Invest/Expand Select/Earn
Market

Expand
• Question Marks are low market share business in
high-growth markets. Medium Invest/ Select/Earn Harvest/Divest
Expand
• Dogs are low-growth, low-share businesses and
products. Low Select/Earn Harvest/Divest Harvest/Divest

Ansoff’s Product Market Growth Matrix The GE Portfolio Matrix


A useful tool to decide product and market growth
strategy. SWOT Analysis
Existing Products New Products Strength Strength is an inherent
To enable capability of the
management organization which it
Markets
Existing

Market Product create a can use to gain strategic


Penetration Development firm-specific advantage over its
competitors.
business
model that Weakness A weakness is an inherent
Markets

Market
New

Development Diversification will best limitation or constraint


align, fit, or of the organization
match an which creates strategic
Ansoff’s Product Market Growth Matrix organisational disadvantage to it.
resources and
i Market penetration refers to a growth strategy capabilities to Opportunity An opportunity is a
the demands favourable condition in the
where the business focuses on selling existing organisation’s environment
products into existing markets. of the
which enables it to
i Market development refers to a growth strategy environment strengthen its position.
where the business seeks to sell its existing products
into new markets. Threat A threat is an unfavourable
i Product development refers to a growth strategy condition in the
where business aims to introduce new products into organisation’s environment
existing markets. which causes a risk
i Diversification refers to a growth strategy where a for, or damage to, the
business markets new products in new markets. organisation’s position.

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TOWS Matrix SO (Maxi-Maxi)


The strengths can be used to capitalize or build upon
Heinz Weihrich developed a matrix called TOWS existing or emerging opportunities.
matrix by matching strengths and weaknesses of an
organization with the external opportunities and ST (Maxi-Mini)
threats. The incremental benefit of the TOWS matrix ST is a position in which a firm strives to minimize
lies in systematically identifying relationships between existing or emerging threats through its strengths.
these factors and selecting strategies on their basis.
Thus TOWS matrix has a wider scope when compared WO (Mini-Maxi)
to SWOT analysis. TOWS analysis is an action tool The firm needs to overcome internal weaknesses and
whereas SWOT analysis is a planning tool. make attempts to exploit opportunities to maximum.
Internal Elements
WT (Mini-Mini)
Organizational Organizational A firm facing external threats and internal weaknesses
Strengths Weaknesses may have to struggle for its survival.

Environmental Globalization
opportunities SO WO
Mini-Maxi For a company globalization means two things: (a)
External Elements

(and risks) Maxi-Maxi


the company commits itself heavily with several
manufacturing locations around the world and offers
products in several diversified industries, and (b) the
ST company’s ability to compete in domestic markets with
Environmental WT foreign competitors.
Threats Maxi-Mini Mini-Mini • It is a conglomerate of multiple units in different
countries but linked by common ownership.
• Multiple units draw on a common pool of resources.
• The units respond to some common strategy.

Chapter 3 : Strategic Management Process


The major dimensions of strategic decisions
Strategic Planning • Strategic decisions require top-management
involvement.
Strategic Planning is the process of determining • Strategic decisions involve commitment of
the objectives of the firm, resources require to organisational resources.
attain these objectives and formulation of policies • Strategic decisions necessitate consideration of
to govern the acquisition use and disposition of factors in the firm’s external environment.
resources. Strategic uncertainty is a key construct in • Strategic decisions are likely to have a significant
strategy formulation. impact on the long-term prosperity of the firm.
• Strategic decisions are future oriented.
Strategic Decision Making • Strategic decisions usually have major
multifunctional or multi-business consequences.

Decision making is a managerial process of Strategic Intent


selecting the best course of action out of several
alternatives. According to Jauch and Glueck Strategic intent provides the framework within which
“Strategic decisions encompass the definition of the firm would adopt a predetermined direction
the business, products to be handled, markets and would operate to achieve strategic objectives.
to be served, functions to be performed and Strategic intent could be in the form of vision and
major policies needed for the organisation to mission statements for the organisation at the
execute these decisions to achieve the strategic corporate level. It could be expressed as the business
objectives.” definition and business model at the business level of
the organisation.

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1. Vision: Vision implies the blueprint of the Vision


company’s future position.
A Strategic vision is a road map of a company’s
2. Mission: Mission delineates the firm’s business, its future – providing specifics about technology
goals and ways to reach the goals. and customer focus, the geographic and product
markets to be pursued, the capabilities it plans to
3. Business Definition: It seeks to explain the develop, and the kind of company that management
business undertaken by the firm, with respect to is trying to create.
the customer needs, target markets, and alternative
technologies.
Essentials of a strategic vision
4. Business Model: Business model, as the • There is challenge in developing a strategic vision
name implies is a strategy for the effective that is creative and future directed.
operation of the business, ascertaining • Forming a strategic vision is an exercise in
sources of income, desired customer base, and intelligent entrepreneurship.
financial details. • A well-articulated strategic vision creates
enthusiasm in organisation.
5. Goals and Objectives: These are the base of • Vision statement illuminates the direction in which
measurement. Goals are the end results, that the organization is headed.
organization attempts to achieve. On the other
hand, objectives are time-based measurable
targets, which help in the accomplishment Mission
of goals.
A company’s mission statement is typically focused
The vision, mission, business definition, and on its present business scope – “who we are and
business model explain the philosophy of the what we do”. Mission statements broadly describe
organisation but the goals and objectives represent an organizations present capabilities, customer
the results to be achieved in multiple areas of focus, activities, and business makeup.
business.
Following points are useful while writing a mission of a
company:
• A role of mission statement is to give the organization
its own special identity, business emphasis and path
Goals and Objectives for development to make it unique.
• A company’s business is defined by what needs
Business Model it is trying to satisfy, which customer groups it is
targeting, the technologies it uses and the activities
it performs.
Business definition • Good mission statements are unique to the
organization for which they are developed.

Mission Purpose
Both mission and purpose go hand in hand, they
can be used together while maintaining the basic
Vision difference between them. Mission refers to the
particular needs of the society. Purpose relates to
what the organization strives to achieve in order to
Strategic fulfil its mission to the society.
Intent
Goals and Objectives
Goals are open-ended attributes that denote the
future states or outcomes. Objectives are close-
ended attributes which are precise and expressed in
specific terms. Thus, the objectives are more specific
Elements of Strategic Intent and translate the goals to both long term and short
term perspective.

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Objectives should be quantitative, measurable, realistic, Strategic Management


understandable, challenging, hierarchical, obtainable,
and congruent among organizational units. Objectives The strategic management process is dynamic
are short-term and long-term. Long term objectives and continuous. It involves strategy formulation,
are subdivided into short term such as monthly, implementation, and evaluation The strategic
weekly or daily objectives. management process can best be studied and applied
using a model.

Environmental Analysis

Strategic
Develop Vision, Mission and Generate, Analyse and Implement Evaluation
Objectives select Strategies Strategies and Control

Organisation Appraisal

Analysis Implementation Evaluation

Strategic Management Model

The strategic management consist of following stages 3. Formulating strategy: The stage involves
identifying strategic alternatives, in depth
1. Strategic vision, mission and objective: First a analysis and choosing the most appropriate
company must determine what directional path alternative which will serve as strategy of
the company should take and what changes in the firm.
the company’s product – market – customer –
technology – focus would improve its current 4. Implementation of strategy: Implementation
market position and its future prospect. and execution is an operations-oriented,
Deciding to commit the company to one path activity aimed at shaping the performance of
versus another pushes managers to draw some core business activities in a strategy-supportive
carefully reasoned conclusions about how to manner. Good strategy execution involves
try to modify the company’s business makeup creating strong “fits” between strategy and
and the market position. Corporate goals and organizational capabilities, between strategy
objectives flow from the mission. and the reward structure, between strategy and
internal operating systems, and between strategy
2. Environmental and organizational analysis: and the organization’s work climate and culture.
The stage would reveal organisational strengths
and weaknesses which could be matched with 5. Strategic evaluation and control: Assessing
the threats and opportunities in the external periodically that organisation is moving towards
environment. External environment of a firm achieving its strategic intent is desirable. The
consists of economic, social, technological, final stage of strategic management process –
market and other forces which affect its evaluating the company’s progress, assessing
functioning. Organisational analysis involves the impact of new external developments, and
a review of financial resources, technological making corrective adjustments – is the trigger
resources, productive capacity, marketing point for deciding whether to continue or change
and distribution effectiveness, research and the company’s vision, objectives, strategy, and/
development, human resource skills and so on. or strategy-execution methods.

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STRATEGIC MANAGEMENT – A CAPSULE FOR QUICK REVISION
In the August 2017 issue, the Capsule for quick recap of IIPCC/Intermediate Paper 7B: Strategic Management broadly
covers the topics of strategic management discussed in detail in Chapter 1 to 3 of the Study Material. In continuation, the
capsule on this subject published in this issue covers the remaining Chapters 4 to 8 of the Study Material. Kindly note that
this capsule would be beneficial for both Intermediate and IIPCC of Paper 7B: Strategic Management.
It may be kept in mind that the capsule is not the replacement of the Study Material. Reading of Study Material is absolute
essential. This capsule is intended to assist you in the process of revision of concepts discussed in the Study Material.

CHAPTER 4 : CORPORATE LEVEL STRATEGIES


Strategies are formulated at different levels of an organization The corporate strategies a firm can adopt may be classified
– corporate, business and functional. Corporate level strategy into four broad categories. The basic features of the corporate
occupies the highest level of strategic decision making and covers strategies are as follows:
actions dealing with the objective of the firm, acquisition and Strategy Basic Feature
allocation of resources and coordination of strategies of various Stability The firm stays with its current businesses
SBUs for optimal performance. and product markets; maintains the
We can classify the different types of strategies on the existing level of effort; and is satisfied with
basis of levels of organisation, stages of business life cycle and incremental growth.
Expansion Here, the firm seeks significant growth-
competition. maybe within the current businesses; maybe
Basis of Types by entering new business that are related
Classification to existing businesses; or by entering new
Level Corporate Level businesses that are unrelated to existing
Business Level businesses.
Functional Level Retrenchment The firm retrenches some of the activities in
Stages of Entry/Introduction Stage - Market some business (es), or drops the business as
Business Life Penetration Strategy such through sell-out or liquidation.
Cycle Combination The firm combines the above strategic
Growth Stage - Growth/Expansion Strategy
alternatives in some permutation/
Maturity Stage - Stability Strategy combination so as to suit the specific
Decline Stage - Retrenchment/Turnaround requirements of the firm.
Strategy
Competition Competitive Strategies - Cost Leadership, Stability Strategy
Differentiation, Focus A stability strategy is pursued by a firm when:
Collaboration Strategies - Joint Venture, • It continues to serve in the same or similar markets and deals
Merger & Acquisition, Strategic Alliance in same or similar products and services.
• The strategic decisions focus on incremental improvement of
Corporate Strategy Alternatives functional performance
Stability strategy is not a ‘do nothing’ strategy. It involves
keeping track of new developments to ensure that the strategy
Growth/ Retrenchment Combination
Stability Expansion continues to make sense. This strategy is typical for those firms
whose product have reached the maturity stage of product life
cycle. Small organizations may also follow stability strategy to
Strategic consolidate their market position and prepare for the launch of
Diversification Merger &
Acquisition Alliances growth strategies.

Growth/Expansion Strategy
Intensification Growth/Expansion strategy is often characterised by significant
Diversification
reformulation of goals and directions, major initiatives and
moves involving investments, exploration and onslaught into
Vertically Horizontally Concentric Conglomerate new products, new technology and new markets, innovative
Integrated Integrated Diversification Diversification decisions and action programmes and so on. Expansion also
includes diversifying, acquiring and merging businesses.
Market
Penetration
• Expansion through diversification
Diversification is defined as entry into new products or product
Market Forward Backward
Development lines, new services or new markets, involving substantially
different skills, technology and knowledge. For some firms,
Product diversification is a means of utilising their existing facilities and
Development
capabilities in a more effective and efficient manner.

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Expansion or growth strategy can either be through (i) Vertically integrated diversification: In vertically integrated
intensification or diversification: Igor Ansoff gave a framework diversification, firms opt to engage in businesses that are
as shown which describes the intensification options available to related to the existing business of the firm. The firm remains
a firm. vertically within the same process sequence moves forward
Market Penetration Basic Feature or backward in the chain and enters specific product/process
Increase market share Add product features, steps with the intention of making them into new businesses
Increase product usage product refinement for the firm.
Increase the frequency used Develop a new-generation
Increase the quantity used product Forward and Backward Integration:
Find new application for Develop new product for the
Forward integration is moving forward in the value chain and
current users same market
entering business lines that use existing products.
Market Development Diversification involving
Expand geographically new products and new
target new segments markets On the other hand, backward integration is a step towards
Related / Unrelated creation of effective supply by entering business of input
Product-Market Expansion Grid providers.

(a) Intensification (ii) Horizontal Integrated Diversification: Through the


• Market Penetration: Highly common expansion strategy is acquisition of one or more similar business operating at the
market penetration/concentration on the current business. same stage of the production-marketing chain that is going
The firm directs its resources to the profitable growth of its into complementary products, by-products or taking over
existing product in the existing market. competitors’ products.
• Market Development: It consists of marketing present
products, to customers in related market areas by adding
RELATED UNRELATED
different channels of distribution or by changing the content
DIVERSIFICATION DIVERSIFICATION
of advertising or the promotional media.
Exchange or share assets or • Investment in new
• Product Development: Product development involves
competencies by exploiting product portfolios.
substantial modification of existing products or creation
• Brand name • Employment of new
of new but related items that can be marketed to current
• Marketing skills technologies.
customers through establish channels.
• Sales and distribution • Focus on multiple
capacity products.
(b) Diversification
• Manufacturing skills • Reduce risk by operating
Diversification endeavours can be related or unrelated to existing
• R&D and new product in multiple product
businesses of the firm. Based on the nature and extent of their
capability markets.
relationship to existing businesses, diversification endeavours
• Economies of scale • Defend against takeover
have been classified into four broad categories:
bids.
(i) Vertically integrated diversification
• Provide executive
(ii) Horizontally integrated diversification
interest.
(iii) Concentric diversification
(iv) Conglomerate diversification Related vs. Unrelated Diversification

Forward Backward Horizontal (iii) Concentric Diversification: Concentric diversification


Integration Integration Integration
too amounts to related diversification. In concentric
Raw diversification, the new business is linked to the existing
Materials B
a businesses through process, technology or marketing.
c (iv) Conglomerate Diversification: In conglomerate
Intermediate k diversification, no such linkages exist; the new
Goods w businesses/ products are disjointed from the existing
a By Products businesses/products in every way; it is a totally unrelated
r diversification.
Manufacturing F d Competitive
Horizontal
Products • Expansion through Mergers and Acquisitions
o
Acquisition or merger with an existing concern is an instant
r
Marketing/ Complementary means of achieving the expansion. Merger and acquisition in
Sales w Products simple words are defined as a process of combining two or more
a organizations together.
r  Merger is considered to be a process when two or more
After Sales
d
companies come together to expand their business
Service
operations. In such a case the deal gets finalized on friendly
Diversification

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terms and both the organizations share profits in the newly Retrenchment/Turnaround Strategy
created entity.
 When one organization takes over the other organization (i) Retrenchment Strategy: It is followed when an organization
and controls all its business operations, it is known as substantially reduces the scope of its activity.
acquisitions. In this process of acquisition, one financially (ii) Turnaround Strategy: Retrenchment may be done either
strong organization overpowers the weaker one. internally or externally. For internal retrenchment to take
place, emphasis is laid on improving internal efficiency,
Types of Mergers known as turnaround strategy.
1. Horizontal merger: Horizontal mergers are combinations of (iii) Divestment Strategy: Divestment strategy involves the sale or
firms engaged in the same industry. liquidation of a portion of business, or a major division, profit
2. Vertical merger: It is a merger of two organizations that centre or SBU. Divestment is usually a part of rehabilitation or
are operating in the same industry but at different stages of restructuring plan and is adopted when a turnaround has been
production or distribution system. attempted but has proved to be unsuccessful.
3. Co-generic merger: In Co-generic merger two or more (iv) Liquidation Strategy: A retrenchment strategy considered
merging organizations are associated in some way or the the most extreme and unattractive is liquidation strategy,
other related to the production processes, business markets, which involves closing down a firm and selling its assets.
or basic required technologies. It is considered as the last resort because it leads to serious
4. Conglomerate merger: Conglomerate mergers are consequences such as loss of employment for workers and
the combination of organizations that are unrelated to other employees, termination of opportunities where a firm
each other. There are no linkages with respect to customer could pursue any future activities, and the stigma of failure.
groups, customer functions and technologies being used.
Combination Strategy
• Expansion through Strategic Alliance The above strategies are not mutually exclusive. It is possible to
A strategic alliance is a relationship between two or more adopt a mix of the above to suit particular situations. An enterprise
businesses that enables each to achieve certain strategic may seek stability in some areas of activity, expansion in some
objectives which neither would be able to achieve on its own. and retrenchment in the others. Retrenchment of ailing products
The strategic partners maintain their status as independent followed by stability and capped by expansion in some situations may
and separate entities, share the benefits and control over be thought of. For some organizations, a strategy by diversification
the partnership, and continue to make contributions to the and/or acquisition may call for a retrenchment in some obsolete
alliance until it is terminated. product lines, production facilities and plant locations.

CHAPTER 5 : BUSINESS LEVEL STRATEGIES


An organization’s core competencies should be focused on satisfying customer needs or want in order to achieve organisational
objectives. This is done through business-level strategies. Business level strategies are the courses of action adopted by an organisation
for each of its businesses separately, to serve identified customer groups and provide value to the customers by satisfaction of their
needs. In the process, the organisation uses its competencies to gain, sustain and enhance its strategic or competitive advantage.

Porter’s Five Forces Model –Competitive


Competitive Analysis
Analysis
(Porter’s Five Forces)
Michael Porter believes that the basic unit of analysis for
understanding is a group of competitors producing goods or
services that compete directly with each other. It is the industry
Business Level Strategies
where competitive advantage is ultimately won or lost. It is
through competitive strategy that the organisation attempts to
adopt an approach to compete in the industry.
Michael Porter’s Best Cost A powerful and widely used tool for systematically diagnosing the
Generic Strategies Provider Strategy significant competitive pressures in a market and assessing the
strength and importance of each is the Porter’s five-forces model
of competition. This model holds that the state of competition in
Cost an industry is a composite of competitive pressures operating in
Differentiation five areas of the overall market:
Leadership Focus Strategy
Strategy
Strategy

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Threat of New Entrants
Competitive pressures associated with the market
manoeuvring and jockeying for buyer patronage that New entrants are always a powerful source of competition.
goes on among rival sellers in the industry. They can reduce industry profitability because they add
new production capacity and can substantially erode existing
Competitive pressures associated with the threat of new firm’s market share positions. To discourage new entrants,
entrants into the market. existing firms can try to raise barriers to entry. Common barriers
to entry include:
Competitive pressures coming from the attempts of
companies in other industries to win buyers over to Capital
their own substitute products. Requirements

Competitive pressures stemming from supplier Economies of


Possibility of
bargaining power and supplier-seller collaboration. Scale
Aggressive
Retailation
Competitive pressures stemming from buyer bargaining
power and seller-buyer collaboration. Threats of New
Entrants
Access to Product
Distribution Differentiation
The strategists can use the five-forces model to determine Channels
what competition is like in a given industry by undertaking the
following steps:
Step 1: Identify the specific competitive pressures associated Switching
Brand Identity
with each of the five forces. Costs
Step 2: Evaluate how strong the pressures comprising each of
the five forces are (fierce, strong, moderate to normal, or
weak).
Step 3: Determine whether the collective strength of the five Bargaining Power of Buyers
competitive forces is conducive to earning attractive Buyers of an industry’s products or services can sometimes exert
profits. considerable pressure on existing firms to secure lower prices or
better services. This leverage is particularly evident when:
POTENTIAL
NEW
ENTRANTS Competitive presures
coming from the threat Buyers have full knowledge of the sources of
of entry of new rivals products and their substitutes.

INDUSTRY
COMPETITORS They spend a lot of money on the industry’s
products i.e. they are big buyers.
SUPPLIERS BUYERS
Competitive
RIVALRY AMONG
Competitive pressures The industry’s product is not perceived as
pressures stemming stemming from buyer
from Suppliers
EXISTING FIRMS
Bargaining Power
critical to the buyer’s needs and buyers are
Bargaining Power more concentrated than firms supplying
the product. They can easily switch to the
Competitive substitutes available.
FIRMS IN OTHER pressures
INDUSTRIES coming from
OFFERING sunstitute Bargaining Power of Suppliers
SUBSTITUTE products Suppliers can influence the profitability of an industry in a
PRODUCTS
number of ways. Suppliers can command bargaining power over
a firm when:
Porter’s Five Force Model of Competition
Their products are
crucial to the buyer
Porter’s five forces model is one of the most effective and and substitutes are
not available.
enduring conceptual frameworks used to assess the nature of the
competitive environment and to describe an industry’s structure.
They can erect high
The interrelationship among these five forces gives each industry switching costs.
its own particular competitive environment. By applying
Porter’s five forces model of industry attractiveness to their own They are more
concentrated than
industries, the manager can gauge their own firm’s strengths, their buyers.
weaknesses, and future opportunities.
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The Nature of Rivalry in the Industry


The intensity of rivalry in an industry is a significant determinant of industry attractiveness and profitability. The intensity of rivalry can
influence the costs of suppliers, distribution, and of attracting customers and thus directly affect the profitability. The more intensive the
rivalry, the less attractive is the industry. Rivalry among competitors tends to be cutthroat and industry profitability low when:

Competitors
The industry
Competitors in Competitors Competitors have little
An industry has faces slow or
the industry are operate with face high exit opportunity to
no clear leader. diminished
numerous. high fixed costs. barriers. differentiate
growth.
their offerings.

Threat of Substitutes
A final force that can influence industry profitability is the
Michael Porter’s Generic Strategies
availability of substitutes for an industry’s product. To predict According to Porter, strategies allow organizations to gain
profit pressure from this source, firms must search for products competitive advantage from three different bases: cost leadership,
that perform the same, or nearly the same, function as their differentiation, and focus. Porter called these base generic
existing products. strategies. These strategies have been termed generic because
they can be pursued by any type or size of business firm and even
Business-Level Strategies by not-for-profit organisations.
An organization’s core competencies should be focused on
satisfying customer needs or wants in order to achieve above
average returns. This is done through Business-level strategies Michael Porter’s Generic
Customers are the foundation of an organization’s business- Strategies
Cost leadership emphasizes producing
level strategies. Who will be served, what needs have to be met, standardized products at a very low per-
and how those needs will be satisfied are determined by the unit cost for consumers who are price-
senior management. sensitive.
Differentiation is a strategy aimed
at producing products and services
Who are the customers? considered unique industry wide and
Knowing one’s customers is very important in obtaining and directed at consumers who are relatively
price-insensitive.
sustaining a competitive advantage. Being able to successfully Focus means producing products and
predict and satisfy future customer needs is important. Perhaps services that fulfill the needs of small
one of Compaq’s mistakes was not understanding who their real groups of consumers.
customer was and what that customer -- end user -- wanted.

How to satisfy customer needs? Porter’s strategies imply different organizational arrangements,
Organizations must determine how to bundle resources and control procedures, and incentive systems. Larger firms with
capabilities to form core competencies and then use these core greater access to resources typically compete on a cost leadership
competencies to satisfy customer needs or create value for them. and/or differentiation basis, whereas smaller firms often compete
Business level strategies detail actions to be taken to provide on a focus basis.
value to customers and gain a competitive advantage by
exploiting core competencies in specific individual product or
COMPETITIVE SCOPE

service markets. Having selected a market, the organization must Cost


Broad Leadership Differentiation
develop a plan to be successful in that market. Business strategy
Target
therefore looks at how the organization can compete successfully
in the individual markets that it chooses to operate within.

Narrow Focussed Cost Focussed


Business level strategy is concerned with issues such as:
Target Leadership Differentiation
Achieving advantage over competitors.

Low-Cost Differentiated
Meeting the needs of key customers. products/services products/services
COMPETITIVE ADVANTAGE
Avoiding competitive disadvantage.
Michael Porter’s Generic Strategy

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Cost Leadership Strategy


Differentiation Strategy
Cost leadership emphasizes producing standardized products at
a very low per-unit cost for consumers who are price-sensitive. Differentiation is a strategy aimed at producing products and
It is a low cost competitive strategy that aims at broad mass services considered unique industry wide and directed at
market. It requires vigorous pursuit of cost reduction in the areas consumers who are relatively price-insensitive. This strategy
of procurement, production, storage and distribution of product is aimed at broad mass market and involves the creation of a
or service and also economies in overhead costs. Because of its product or service that is perceived by the customers as unique.
lower costs, the cost leader is able to change a lower price for its The uniqueness can be associated with product design, brand
products than its competitors and still make satisfactory profits. image, features, technology, dealer network or customer service.
Because of differentiation, the business can charge a premium
Achieving Cost Leadership Strategy for its product.
To achieve cost leadership, following are the actions that could
be taken: Basis of Differentiation
There are several basis of differentiation: product, pricing and
Forecast the demand of a product or service promptly. organization.
 Product: Innovative products that meet customer needs
Optimum utilization of the resources to get cost advantages. can be an area where a company has an advantage over
competitors. The pursuit of new product offerings can be
Achieving economies of scale leads to lower per unit costly – research and development, as well as production
cost of product/service. and marketing costs can all add to the cost of production
Standardisation of products for mass production to yield and distribution. The payoff, however, can be great as
lower cost per unit. customer’s flock to be among the first to have the new
product.
Invest in cost saving technologies and try using advance
technology for smart working.  Pricing: It can fluctuate based on its supply
and demand, and also be influenced by the customer’s ideal
Resistance to differentiation till it becomes essential. value for the product. Companies that differentiate based
on product price can either determine to offer the lowest
price, or can attempt to establish superiority through
Advantages of Cost Leadership Strategy higher prices.
A cost leadership strategy may help to remain profitable even  Organisation: Organisational differentiation is yet another
with: rivalry, new entrants, suppliers’ power, substitute products, form of differentiation. Maximizing the power of a brand, or
and buyers’ power. using the specific advantages that an organization possesses
can be instrumental to a company’s success. Location
Rivalry – Competitors are likely to avoid a price war, since the
low cost firm will continue to earn profits after competitors advantage, name recognition and customer loyalty can all
compete away their profits. provide additional ways for a company differentiate itself
from the competition.
Buyers – Powerful buyers/customers would not be able to
exploit the cost leader firm and will continue to buy its product. Achieving Differentiation Strategy
Suppliers – Cost leaders are able to absorb greater price To achieve differentiation, following are the measures that could
increases before it must raise price to customers. be adopt by an organization to incorporate that:

Entrants – Low cost leaders create barriers to market entry


through its continuous focus on efficiency and reducing costs. Offer utility for the customers and match the products with
their tastes and preferences.
Substitutes – Low cost leaders are more likely to lower costs to
induce customers to stay with their product, invest to develop
substitutes, purchase patents. Elevate the performance of the product.

Disadvantages of Cost Leadership Strategy


Offer the promise of high quality product/service for
Cost advantage may not be remaining for long as competitors buyer satisfaction.
may also follow cost reduction technique.

Cost leadership can succeed only if the firm can achieve Rapid product innovation.
higher sales volume.
Cost leaders tend to keep their costs low by minimizing Taking steps for enhancing image and its brand value.
advertising, market research, and research and development,
but this approach can prove to be expensive in the long run.
Fixing product prices based on the unique features of the
Technology changes are a great threat to the cost leader. product and buying capacity of the customer.

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Advantages of Differentiation Strategy Achieving Focused Strategy


A differentiation strategy may help to remain profitable even To achieve focused cost leadership/differentiation, following are
with: rivalry, new entrants, suppliers’ power, substitute products, the measures that could be adopted by an organization:
and buyers’ power.
Selecting specific niches which are not covered by cost
Rivalry - Brand loyalty acts as a safeguard against competitors. leaders and differentiators.
It means that customers will be less sensitive to price increases, Creating superior skills for catering to such niche markets.
as long as the firm can satisfy the needs of its customers.
Generating high efficiencies for serving such niche markets.
Buyers – They do not negotiate for price as they get special
features and also they have fewer options in the market. Developing innovative ways in managing the value chain.

Suppliers – Because differentiators charge a premium


Advantages of Focused Strategy
price, they can afford to absorb higher costs of supplies and
Premium prices can be charged by the organisations for their
customers are willing to pay extra too.
focused product/services.

Entrants – Innovative features are an expensive offer. So, new Due to the tremendous expertise about the goods and services
entrants generally avoid these features because it is tough for that organisations following focus strategy offer, rivals and
them to provide the same product with special features at a new entrants may find it difficult to compete.
comparable price.
Disadvantages of Focused Strategy
Substitutes – Substitute products can’t replace differentiated The firms lacking in distinctive competencies may not
products which have high brand value and enjoy customer be able to pursue focus strategy.
loyalty.
Due to the limited demand of product/services, costs are high
which can cause problems.
Disadvantages of Differentiation Strategy
In long run, the niche could disappear or be taken over
In long term, uniqueness is difficult to sustain. by larger competitors by acquiring the same distinctive
competencies.
Charging too high a price for differentiated features may
cause the customer to switch-off to another alternative. Best-Cost Provider Strategy
The new model of best cost provider strategy is a further
Differentiation fails to work if its basis is something that is development of above three generic strategies. It is directed
not valued by the customers. towards giving customers more value for the money by
emphasizing both low cost and upscale differences. The objective
is to keep costs and prices lower than those of other sellers of
Focus Strategies comparable products.
Lower Cost Differentiation
Focus means producing products and services that fulfill
Overall
the needs of small groups of consumers. Focus strategies are A Broad Cross Broad
Low Cost
Section of Differentiation
most effective when consumers have distinctive preferences Buyers
Leadership
Strategy
Strategy
or requirements and when rival firms are not attempting to
Market Target

Best Cost
specialize in the same target segment. Risks of pursuing a focus Provider
strategy include the possibility that numerous competitors Strategy
will recognize the successful focus strategy and copy it, or that A Narrower Focused
Buyer Segment Focused Low Differentiation
consumer preferences will drift toward the product attributes (or Market Cost Strategy Strategy
desired by the market as a whole. An organization using a focus Niche) Company’s
strategy may concentrate on a particular group of customers, Figure: The Five Generic Competitive Strategies
geographic markets, or on particular product-line segments
in order to serve a well-defined but narrow market better than Best-cost provider strategy involves providing customers more
competitors who serve a broader market. value for the money by emphasizing low cost and better quality
 Focused cost leadership: Firms that compete based on difference. It can be done:
price and target a narrow market are following a focused cost (a) through offering products at lower price than what is being
leadership strategy. offered by rivals for products with comparable quality and
 Focused differentiation: Firms that compete based on features or
uniqueness and target a narrow market are following a focused (b) charging similar price as by the rivals for products with much
differentiations strategy. higher quality and better features.

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CHAPTER 6 : FUNCTIONAL LEVEL STRATEGIES


The reasons why functional strategies are needed can be
enumerated as follows:
 Functional strategies lay down clearly what is to be done
at the functional level. They provide a sense of direction
Marketing
Strategy to the functional staff.
 They are aimed at facilitating the implementation
of corporate strategies and the business strategies
Human formulation at the business level.
Resource Financial  They act as basis for controlling activities in the different
Strategy Strategy functional areas of business.
 They help in bringing harmony and coordination as they
Functional are formulated to achieve major strategies.
Strategies  Similar situations occurring in different functional areas
are handled in a consistent manner by the functional
managers.
Research and Thus, strategies need to be segregated into viable

Development Production functional plans and policies that are compatible with
Strategy Strategy each other. In this way, strategies can be implemented by
the functional managers. Environmental factors relevant
Logistics
to each functional area have an impact on the choice of
Strategy
functional strategies. Corporate strategies influence the
formulation of functional strategies.

Marketing Strategy
Marketing is a social and managerial process by which
Once higher level corporate and business strategies have individuals and groups obtain what they need and want
been developed, management need to formulate and through creating, offering and exchanging products of value
implement strategy for each of the functional areas of with others.
business. Strategy of one functional area cannot be looked
at in isolation. Different functional areas of the business Marketing Mix
are interwoven together and how a functional strategy is Marketing mix is a systematic way of classifying the key
synergised with other functional strategies determines its decision areas of marketing management. It is the set of
effectiveness. controllable marketing variables that the firm blends to
Functional strategies play two important roles. Firstly, produce the response it wants in the target market. The
they provide support to the overall business strategy. original framework of marketing mix comprises of 4Ps-
Secondly, they spell out as to how functional managers will product, price, place and promotion. These are subsequently
work so as to ensure better performance in their respective expanded to highlight certain other key decision areas like
functional areas. people, processes, and physical evidence. The elements of
Strategies in functional areas including marketing, original framework are:
financial, production, R & D and human resource  Product: It stands for the “goods-and-service”
management are based on the functional capabilities of an combination the company offers to the target market.
organisation. For each functional area, first the major sub  Price: It stands for the amount of money customers have
areas are identified and then for each of these sub areas, to pay to obtain the product.
content of functional strategies, important factors, and their  Place: It stands for company activities that make the
importance in the process of strategy implementation are product available to target consumers and include
identified. marketing channel, distribution policies and geographical
In terms of the levels of strategy formulation, functional availablity.
strategies operate below the SBU or business-level strategies.  Promotion: It stands for activities that communicate the
Within functional strategies there might be several sub- merits of the product and persuade target consumers to
functional areas. Functional strategies are made within the buy it. Modern marketing is highly promotional oriented.
framework of corporate level strategies and guidelines therein There are at least four major direct promotional methods
that are set at higher levels of the organization. Operational or tools – personal selling, advertising, publicity and sales
plans at the SBU level tell the functional managers what promotion.
has to be done while policies state how the plans are to be Expanded Marketing Mix: Typically, all organizations
implemented. use a combination of 4 Ps in some form or the other.

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However, the above elements of marketing mix are not evolved, which are given below:
exhaustive. It is pertinent to discuss a few more elements
that may form part of an organizational marketing mix Social Marketing: It refers to the design, implementation, and
strategy. They have got more currency in recent years. control of programs seeking to increase the acceptability of a social
idea, cause, or practice among a target group.
Growth of services has its own share for the inclusion
of newer elements in marketing. A few new Ps are as
follows: Augmented Marketing: It is provision of additional customer
services and benefits built around the core and actual products that
 People: all human actors who play a part in delivery of the relate to introduction of hi-tech services like movies on demand,
market offering and thus influence the buyer’s perception, on-line computer repair services, secretarial services, etc. Such
namely the firm’s personnel and the customer. innovative offerings provide a set of benefits that promise to elevate
customer service to unprecedented levels.
 Process: the actual procedures, mechanisms and flow of
activities by which the product / service is delivered.
Direct Marketing: Marketing through various advertising media
 Physical evidence: the environment in which the market that interact directly with consumers, generally calling for the
offering is delivered and where the firm and customer consumer to make a direct response.
interact.
Relationship Marketing: The process of creating, maintaining, and
Marketing Strategy Formulation enhancing strong, value-laden relationships with customers and
Marketing Analysis: A company must carefully analyze its other stakeholders.
environment in order to avoid the threats and take advantage
Services Marketing: It is applying the concepts, tools, and
of the opportunities. Areas to be analyzed in the environment techniques, of marketing to services. Services is any activity  or
normally include: benefit that one party can offer to another that is essentially
1. Forces close to the company such as its ability to serve intangible and does not result in the banking, savings, retailing,
educational or utilities.
customers, other company departments, channel
members, suppliers, competitors, and publics.
Person Marketing: People are also marketed. Person marketing
2. Broader forces such as demographic and economic forces, consists of activities undertaken to create, maintain or change
political and legal forces, technological and ecological attitudes and behaviour towards particular person.
forces, and social and cultural forces.
Organization Marketing: It consists of activities undertaken
to create, maintain, or change attitudes and behaviour of target
audiences towards an organization. Both profit and non-profit
Analysis
organizations practice organization marketing.

Planning Implementation Control


Develop strategic Carry out the Measure results Place Marketing: Place marketing involves activities undertaken
plans plans to create, maintain, or change attitudes and behaviour towards
Evaluate results particular places say, business sites marketing, tourism marketing.
Develop marketing Take corrective
plans action
Enlightened Marketing: It is a marketing philosophy holding that a
company’s marketing should support the best long-run performance
of the marketing system; its five principles include customer-
Strategic marketing management process oriented marketing, innovative marketing, value marketing, sense-
of-mission marketing, and societal marketing.

Strategy Formulation: Marketing planning involves deciding Differential Marketing: It is a market-coverage strategy in which a
firm decides to target several market segments and designs separate
on marketing strategies that will help the company attain its offer for each.
overall strategic objectives. A detailed plan is needed for
each business, product, or brand. A product or brand plan
Synchro-marketing: When the demand for a product is irregular
may contain different sections: executive summary, current due to season, some parts of the day, or on hour basis, causing idle
marketing situation, threats and opportunity analysis, capacity or overworked capacities, synchro-marketing can be used
objectives and issues, marketing strategies, action programs, to find ways to alter the pattern of demand through flexible pricing,
promotion, and other incentives.
budgets, and controls.

Strategy Control: Strategic control involves monitoring and Concentrated Marketing: It is a market-coverage strategy in which
a firm goes after a large share of one or few sub-markets.
measuring of results and their evaluation. This would lead to
taking corrective actions in the 4 P’s of marketing.
Demarketing: It includes marketing strategies to reduce demand
temporarily or permanently. The aim is not to destroy demand,
Strategic Marketing Techniques but only to reduce or shift it. This happens when there is overfull
Over the years, a number of marketing strategies have been demand.

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Financial Strategy products, transportation and deployment of inventory.


The financial strategies of an organization are related to Improvement in logistics can result in saving in cost of doing
several finance/ accounting concepts considered to be central business.
to strategy implementation. These are: acquiring needed When a company creates a logistics strategy, it is defining
capital/sources of fund, developing projected financial the service levels at which its logistics systems are highly
statements/budgets, management/ usage of funds, and effective. A company may develop a number of logistics
evaluating the worth of a business. strategies for specific product lines, specific countries
Various methods for determining a business’s worth can be or specific customers to address different categorical
grouped into three main approaches which are as follows: requirements.
(i) Net worth or stockholders’ equity: Net worth is the total
assets minus total outside liabilities of an organisation. Supply Chain Management
(ii) Future benefits to owners through net profits: These The term supply chain refers to the linkages between
benefits are considered to be much greater than the suppliers, manufacturers and customers. Supply chains
amount of profits. A conservative rule of thumb is to involve all activities like sourcing and procurement of
establish a business’s worth as five times the firm’s current material, conversion, and logistics. Planning and control of
annual profit. A five-year average profit level could also supply chains are important components of its management.
be used. Naturally, management of supply chains include closely
(iii) Market-determined business worth: This, in turn, working with channel partners – suppliers, intermediaries,
involves three methods. First, the firm’s worth may be other service providers and customers.
based on the selling price of a similar company. The Supply chain management is defined as the process of
second approach is called the price-earnings ratio method planning, implementing, and controlling the supply chain
whereby the market price of the firm’s equity shares is operations. It is a cross-functional approach to managing
divided by the annual earnings per share and multiplied the movement of raw materials into an organization and
by the firm’s average net income for the preceding years. the movement of finished goods out of the organization
The third approach can be called the outstanding shares toward the end-consumer who are to be satisfied as
method whereby one has to simply multiply the number efficiently as possible. It encompasses all movement and
of shares outstanding by the market price per share and storage of raw materials, work-in-process inventory,
add a premium. and finished goods from point-of-origin to point-of-
consumption. Organizations are finding that they must
Production/Operations Strategy rely on the chain to successfully compete in the global
Production System market.
The production system is concerned with the capacity, Modern organizations are striving to focus on core
location, layout, product or service design, work systems, competencies and reduce their ownership of sources of raw
degree of automation, extent of vertical integration, and such materials and distribution channels. These functions can be
factors. Strategies related to production system are significant outsourced to other business organizations that specialize
as they deal with vital issues affecting the capability of the in those activities and can perform in better and cost
organisation to achieve its objectives. effective manner. In a way organizations in the supply chain
Strategy implementation would have to take into account do tasks according to their core-competencies. Working in
the production system factors as they involve decisions which the supply chain improve trust and collaboration amongst
are long-term in nature and influence not only the operations partners and thus improve flow and management of
capability of an organisation but also its ability to implement inventory.
strategies and achieve objectives. Is logistic management same as supply chain management?
Supply chain management is an extension of logistic
Operations Planning and Control management. However, there is difference between the
Operations planning and control provides an example of two. Logistical activities typically include management of
an organizational activity that is aimed at translating the inbound and outbound goods, transportation, warehousing,
objectives into reality. Some companies use quality as a handling of material, fulfilment of orders, inventory
strategic tool. management, supply/demand planning. Although these
activities also form part of Supply chain management, the
Logistics Management latter has different components. Logistic management can
Management of logistics is a process which integrates the be termed as one of its part that is related to planning,
flow of materials into, through and out of an organization to implementing, and controlling the movement and storage of
achieve a level of service that the right materials are available goods, services and related information between the point
at the right place at the right time, of right quality and at of origin and the point of consumption.
the right cost. For a business organization effective logistics Supply chain management includes more aspects
strategy will involve raising and finding solutions to the apart from the logistics function. It is a tool of business
questions relating to raw material, manufacturing locations, transformation and involves delivering the right product

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at the right time to the right place and at the right price. Research and Development Strategy
It reduces costs of organizations and enhances customer Research and Development (R&D) personnel can play an
service. integral part in strategy implementation. These individuals
are generally charged with developing new products and
Implementing Supply Chain Management improving old products in a way that will allow effective
System strategy implementation. R&D employees and managers
The following are the major steps which are required for the perform tasks that include transferring complex technology,
successful implementation of Supply Chain Management in adjusting processes to local raw materials, adapting processes
the business organizations: to local markets, and altering products to particular tastes
and specifications.
Product development: Customers and suppliers must work together Strategies such as product development, market
in the product development process. When products are developed penetration, and concentric diversification require that new
and launched in shorter time, it would help organizations to remain products be successfully developed and that old products be
competitive. significantly improved. But the level of management support
for R&D is often constrained by resource availability.

Procurement: Procurement requires careful resource planning,


Human Resource Strategy
quality issues, identifying sources, negotiation, order placement, Strategic Role of Human Resource Manager
inbound transportation and storage. Organizations have to coordinate The prominent areas where the human resource manager can
with suppliers in scheduling the uninterrupted supplies and also to play strategic role are as follows:
involve them in planning the manufacturing process.
Providing purposeful direction: The human resource
manager leads people and the organization towards the
desired direction involving people. He can ensure harmony
Manufacturing: Flexible manufacturing processes must be in place to between organisational objectives and individual objectives.
respond to market changes. They should be adaptive to accommodate
customization and changes in the taste and preferences. Changes in Creating competitive atmosphere: In the present business
the manufacturing process be made to reduce manufacturing cycle. environment, maintaining competitive position or gains
is an important objective of any business. Having a highly
committed and competent workforce is very important for
getting a competitively advantageous position.
Physical distribution: Delivery of final products to customers is the
last position in a marketing channel. Availability of the products at Facilitation of change: The human resource manager will
the right place at right time is important for each channel participant. be more concerned about furthering the organization not
Through physical distribution processes serving the customer become just maintaining it. He can devote more time to promote
an integral part of marketing. acceptance of change rather than maintaining the status
quo.

Diversion of workforce: In a modern organization,


Outsourcing: Outsourcing is not limited to the procurement of management of diverse workforce is a great challenge.
materials and components, but also include outsourcing of services Workforce diversity can be observed in terms of male
that traditionally have been provided within an organization. The and female, young and old, educated and uneducated,
company ought to focus on those activities where it has competency unskilled and professional employee and so on. Motivation,
and everything else will be outsourced. maintaining morale and commitment are some of the key
tasks that a HR manager can perform.

Empowerment of human resources: Empowerment


Customer services: Organizations through interfaces with the involves giving more power to those who, at present, have
company’s production and distribution operations develop customer little control on what they do and little ability to influence
relationships so as to satisfy them. They work with customer the decisions being made around them.
to determine mutually satisfying goals, establish and maintain
relationships. This in turn helps in producing positive feelings in the Building core competency: The human resource
organization and the customers. manager has an important role to play in developing core
competency of the firm. A core competence is a unique
strength of an organization which may not be shared by
others. Organization of business around core competence
Performance measurement: There is a strong relationship between implies leveraging the limited resources of a firm.
the supplier, customer and organisation. Supplier capabilities and
customer relationships can be correlated with a firm performance. Development of works ethics and culture: A vibrant
Performance is measured in different parameters such as costs, work culture will have to be developed in the organizations
to create an atmosphere of trust among people and to
customer service, productivity and quality.
encourage creative ideas by the people.

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CHAPTER 7: ORGANISATION AND STRATEGIC LEADERSHIP


Organization Structure Simple Structure
In order to implement strategies organisations need an A simple structure is an organizational form in which the
organizational structure. Changes in corporate strategy often owner-manager makes all major decisions directly and
require changes in the way an organization is structured monitors all activities, while the company’s staff merely
for two major reasons. First, structure largely dictates how serves as an executor. Little specialization of tasks, few rules,
operational objectives and policies will be established to little formalization, unsophisticated information systems and
achieve the strategic objectives. The second major reason direct involvement of owner-manager in all phases of day-to-
why changes in strategy often require changes in structure day operations characterise the simple structure.
is that structure dictates how resources will be allocated to
achieve strategic objectives. Functional Structure
A functional structure groups tasks and activities by business
Chandler’s Strategy-Structure Relationship function, such as production/operations, marketing, finance/
accounting, research and development, and management
New strategy is New Organizational information systems.
formed administrative performance
problems emerge declines
Divisional Structure
A divisional structure can be organized in one of the four ways:
Organizational A new organizational by geographic area, by product or service, by customer, or
performance improves structure is established by process. With a divisional structure, functional activities
are performed both centrally and in each division separately.
Changing organizational design
Multi Divisional Structure
Multidivisional (M-form) structure is composed of operating
Old Organizational Design New Organizational Design
divisions where each division represents a separate business to
One large corporation Mini-business units & which the top corporate officer delegates responsibility for day-
cooperative relationships
to-day operations and business unit strategy to division managers.
Vertical communication Horizontal communication
Centralised top-down decision Decentralised participative Strategic Business Unit (SBU) Structure
making decision making
The SBU structure is composed of operating units where each
Vertical integration Outsourcing & virtual
organizations
unit represents a separate business to which the top corporate
officer delegates responsibility for day-to-day operations
Work/quality teams Autonomous work teams
and business unit strategy to its managers. The structure is
Functional work teams Cross-functional work teams
relevant to multi-product, multi-business enterprises. An
Minimal training Extensive training
SBU is a grouping of related businesses, which is amenable
Specialised job design focused Value-chain team-focused job
to composite planning treatment. The three most important
on individual design
characteristics of a SBU are:
 It is a single business or a collection of related businesses
which offer scope for independent planning and
Simple which might feasibly stand alone from the rest of the
Structure organization.
Hourglass
Structure  It has its own set of competitors.
 It has a manager who has responsibility for strategic
Functional
Structure planning and profit performance, and who has control of
profit-influencing factors.
Network
Structure Organisational Matrix Structure
Structure
Divisional A matrix structure is the most complex of all designs
Structure because it depends upon both vertical and horizontal
flows of authority and communication (hence the term
Matrix matrix). A matrix structure has dual lines of authority, dual
Structure
Multi sources of reward and punishment, shared authority, dual
Strategic Divisional reporting channels, and a need for an extensive and effective
Business Structure
Unit communication system. Matrix structure was developed to
Structure combine the stability of the functional structure with the
flexibility of the product form.

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Network Structure
A company with network structure is often called a virtual
organization because it is composed of a series of project
groups or collaborations linked by constantly changing
non-hierarchical, cobweb-like networks. It could be termed
a “non-structure”, by its virtual elimination of in-house
business functions as many activities are outsourced.

Hourglass Structure
With the diminishing role played by middle management as
the tasks performed by them are increasingly being replaced
by the technological tools, a new form of organisation
structure is seen. Hourglass organization structure consists of
three layers with constricted middle layer. A shrunken middle
layer coordinates diverse lower level activities. Contrary to
traditional middle level managers who are often specialists,
the managers in the hourglass structure are generalists and
perform wide variety of tasks.

Strategic Leadership Strategy Supportive Culture


Every organisation has a unique organizational culture.
It has its own philosophy and principles, its own ways of
A strategic leader sets the firms direction
by developing and communicating vision approaching problems and making decisions, its own work
Strategic of future, formulate strategies in the light climate. It has its own embedded patterns of how to do things.
leadership of internal and external environment, its own ingrained beliefs, behaviour and thought patterns,
brings about changes required to and practices that define its corporate culture.
implement strategies and inspire the staff
to contribute to strategy execution. An organization’s culture is either an important
contributor or an obstacle to successful strategy execution.
The beliefs, vision, objectives, and business approaches and
practices underpinning a company’s strategy may or may not
Uses charisma and enthusiasm to inspire be compatible with its culture. Strong culture promotes good
people to exert them for the good of the strategy execution when there’s fit and impedes execution
organization. They offer excitement, when there’s negligible fit.
Transformational vision, intellectual stimulation and
leadership style personal satisfaction. They inspire
involvement in a mission, giving followers
a ‘dream’ of a higher calling so as to elicit Entrepreneurship and Intrapreneurship
higher performance. The terms Entrepreneur and Intrapreneur are frequently
used in the business world.
Entrepreneurship is the attempt to create value through
Focus is more on designing systems, recognition of business opportunity, the management of
Transactional controlling the organization’s activities risk taking appropriate to the opportunity and through
leadership style and improving the current situation. They management skills to mobilize financial, human and
try to build on the existing culture and
enhance current practices. The style uses material resources. The person who perceives the business
the authority to exchange rewards, such idea and takes steps to implement the idea is known as an
as pay and status. entrepreneur. He takes all types of risks, not only to put
the product or service into reality but also to make it an
extremely demanding one.
Strategic leader has several responsibilities, including the An intrapreneur is nothing but an entrepreneur who
following: operates within the boundaries of an organisation. He is an
• Making strategic decisions. employee of a large organisation, who is vested with authority
• Formulating policies and action plans to implement of initiating creativity and innovation in the company’s
strategic decision. products, services and projects, redesigning the processes,
• Ensuring effective communication in the organisation. workflows and systems. The intrapreneurs believe in change
• Managing human capital (perhaps the most critical of the and do not fear failure. They discover new ideas, look for such
strategic leader’s skills). opportunities that can benefit the whole organisation and
• Managing the company’s operations. take risks, promote innovation to improve the performance
• Sustaining high performance over time. and profitability of the organisation.

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CHAPTER 8 : STRATEGY IMPLEMENTATION AND CONTROL


Strategic management process does not end when the firm Organizational success is a function of good strategy and
decides what strategies to pursue. There must be a translation proper implementation. The matrix in the figure below
of strategic thought into strategic action. This requires represents various combinations of strategy formulation and
support of all managers and employees of the business. implementation:
Implementing strategy affects an organization from top to
bottom; it affects all the functional and divisional areas of a
business. Strategy implementation requires introduction of
change in the organisation to make organisational member
adapt to the new environment. A B

Strategy Formulation

Sound
Strategic control has been discussed as an integral part of
strategic management. Strategic control focuses on whether
the strategy is being implemented as planned and the results
produced are those intended. In addition, we will also have an

C D

Flawed
overview of the emerging concepts in strategic management
namely strategy audit, business process reengineering and
benchmarking.

Weak Excellent
Interrelationship Strategy Implementation
between Strategy
Formulation and Strategy formulation and implementation matrix
Implementation

Square A is the situation where a company apparently has


Benchmarking Strategic formulated a very competitive strategy, but is showing
Change difficulties in implementing it successfully.

Square B is the ideal situation where a company has


Strategy succeeded in designing a sound and competitive strategy
Implementation and and has been successful in implementing it.
Control
Square C is reserved for companies that haven’t succeeded in
Business Strategic coming up with a sound strategy formulation and in addition are
Process Control bad at implementing their flawed strategic model.
Reengineering
Square D is the situation where the strategy formulation
is flawed, but the company is showing excellent
Strategy Audit implementation skills.

Successful strategy formulation does not guarantee successful


strategy implementation. It is always more difficult to do
something (strategy implementation) than to say you are
going to do it (strategy formulation)! Although inextricably
Interrelationship between Strategy linked, strategy implementation is fundamentally different
Formulation and Implementation from strategy formulation. Strategy formulation and
implementation can be contrasted in the following ways:
Strategic implementation is concerned with translating a
strategic decision into action, which presupposes that the Strategy Formulation Vs. Strategy Implementation
decision itself (i.e., the strategic choice) was made with some Strategy Formulation Strategy Implementation
thought being given to feasibility and acceptability. The Strategy formulation focuses on Strategy implementation focuses
allocation of resources to new courses of action will need effectiveness. on efficiency.
to be undertaken, and there may be a need for adapting the Strategy formulation is primarily Strategy implementation is
organization’s structure to handle new activities as well as an intellectual process. primarily an operational process.
training personnel and devising appropriate systems. Strategy formulation requires Strategy implementation requires
conceptual intuitive and motivation and leadership skills.
analytical skills.
Relationship with strategy formulation Strategy formulation requires Strategy implementation
A company will be successful only when the strategy coordination among the requires coordination among
formulation is sound and implementation is excellent. executives at the top level. the executives at the middle and
lower levels.

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Strategic Change Strategic Control


The changes in the environmental forces often require Controlling is one of the important functions of management,
businesses to make modifications in their existing strategies and is often regarded as the core of the management process.
and bring out new strategies. Strategic change is a complex The controlling function involves monitoring the activity
process that involves a corporate strategy focused on new and measuring results against pre-established standards,
markets, products, services and new ways of doing business. analysing and correcting deviations as necessary and
maintaining/adapting the system. Primarily there are three
Steps to initiate strategic change: For initiating strategic types of organizational control, viz., operational control,
change, three steps can be identified as under: management control and strategic control.
Recognize the need for change: The first step is to diagnose which
parts of the present corporate culture are strategy supportive and
which are not. This basically means going for environmental scanning Operational Management Strategic
involving appraisal of both internal and external capabilities and Control:
then identify the problems/improvement areas and determine scope Control: When Control:
The thrust of compared with
for change. Strategic Control
operational operational control,
control is on is the process
management control of evaluating
individual tasks
is more inclusive and strategy as it is
or transactions
Create a shared vision to manage change: Objectives and vision of more aggregative,
as against total or formulated and
individuals and organization should coincide. Strategy implementers in the sense of
more aggregative implemented.
have to convince all those concerned that the change in business embracing the
management It is directed
culture is not superficial or cosmetic. The actions taken have to integrated activities
be fully indicative of management’s seriousness to new strategic functions. towards
of a complete
initiatives and associated changes. identifying
department, division
or even entire problems,
organisation, instead changes
or mere narrowly in premise
Institutionalise the change: This is basically an action stage
which requires implementation of changed strategy. Creating and circumscribed and making
sustaining a different attitude towards change is essential to ensure activities of sub- necessary
that the firm does not slip back into old ways of thinking or doing units. adjustments.
things. Besides, change process must be regularly monitored and
reviewed to analyse the after-effects of change. Any discrepancy or
deviation should be appropriately addressed.

Strategic control focuses on the dual questions of whether:


Kurt Lewin’s Model of Change: To make the change lasting, (1) the strategy is being implemented as planned; and (2) the
Kurt Lewin proposed three phases of the change process results produced by the strategy are those intended.
for moving the organization from the present to the future.
These stages are unfreezing, changing and refreezing. Types of Strategic Control: There are four types of strategic
control as follows:
Unfreezing the situation: The process of unfreezing simply makes Premise control: Strategic Special alert Implementation
the individuals or organizations aware of the necessity for change and Premise control surveillance: control: At times control:
prepares them for such a change. Lewin proposes that the changes
is a tool for Contrary to the unexpected Implementation
should not come as a surprise to the members of the organization.
Unfreezing is the process of breaking down the old attitudes and systematic and premise control, events may force control is directed
behaviours, customs and traditions so that they start with a clean slate. continuous the strategic organizations towards assessing the
This can be achieved by making announcements, holding meetings monitoring of the surveillance is to reconsider need for changes in
and promoting the ideas throughout the organization.
environment to unfocussed. It their strategy. the overall strategy
verify the validity involves general Sudden changes in in light of unfolding
and accuracy of monitoring of government, natural events and results
Changing to new situation: Once the unfreezing process has been
completed and the members of the organization recognise the need the premises on various sources calamities, terrorist associated with
for change and have been fully prepared to accept such change, their which the strategy of information attacks, unexpected incremental steps and
behaviour patterns need to be redefined. H.C. Kellman has proposed has been built. It to uncover merger/acquisition actions.The two forms
three methods for reassigning new patterns of behaviour. These are
compliance, identification and internalisation. primarily involves unanticipated by competitors, of implementation
monitoring two information industrial disasters control are:
types of factors: having a and other such
(i) Monitoring
(i) Environmental bearing on the events may trigger
Refreezing: Refreezing occurs when the new behaviour becomes strategic thrust
a normal way of life. The new behaviour must replace the former factors organizational an immediate and
behaviour completely for successful and permanent change to take (ii) Industry factors strategy. intense review of (ii) Milestone reviews
place. In order for the new behaviour to become permanent, it must
strategy.
be continuously reinforced so that this new acquired behaviour does
not diminish or extinguish.

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Strategy Audit includes three basic activities:


Strategic Surveillance

Examining the underlying bases


of a firm’s strategy.
Premise Control

Special Alert Control


Comparing expected results
with actual results.
Strategy Formulation Implementation Control

Strategy
Implementation Taking corrective actions
Time 1 Time 2 Time 3 to ensure that performance
conforms to plans.

Strategy Audit
“Strategy audit is a process for taking an objective look at the
existing strategies of the organization. It involves assessing the
direction of a business and comparing that to the course to the Richard Rumelt’s Criteria for Strategy Audit
direction required to succeed in a changing environment.”

“A strategy audit is an examination and evaluation


of areas affected by the operation of a strategic
management process within an organization”. Consistency: Consonance: Consonance
A strategy should not refers to the need for
present inconsistent strategists to examine
A strategy audit provides an excellent platform for discussion goals and policies. sets of trends, as well
with the top management regarding necessary corporate Organizational conflict as individual trends, in
actions or changes in the existing business plan. It also and interdepartmental auditing strategies.
identifies a company’s need to adjust the existing business bickering are often A strategy must represent
plan as well as its business. symptoms of managerial an adaptive response to
disorder, but these the external environment
Need of Strategy Audit problems may also and to the critical changes
A strategy audit is needed under the following conditions: be a sign of strategic occurring within it.
 When the performance indicators reflect that a strategy inconsistency.
is not working properly or is not producing desired
outcomes.
 When top-priority goals and objectives of the strategy are
not being accomplished.
 When a major change takes place in the external
environment of the organization. Feasibility: A strategy must
 When the top management plans: neither overtax available
a) to fine-tune and an introduce a new set of strategies resources nor create Advantage: A strategy must
unsolvable sub-problems. provide for the creation
and The final broad test of and/or maintenance of a
b) to ensure that a strategy that has worked in the past strategy is its feasibility; competitive advantage in
continues to be in-tune with subtle internal and that is, can the strategy a selected area of activity.
external changes that may have occurred since the be attempted within the
Competitive advantages
physical, human, and
formulation of strategies. normally are the result of
financial resources of the
Adequate and timely feedback is the cornerstone of effective enterprise? The financial superiority in one of three
strategy audit. Strategy audit can be no better than the resources of a business areas: (1) resources, (2)
information on which it is based. are the easiest to quantify skills, or (3) position.
and are normally the first
limitation against which
strategy is audited.

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Business Process Reengineering
Time 3
Business Process Reengineering (BPR) is an approach to
unusual improvement in operating effectiveness through Customer Cycle Time
the redesigning of critical business processes and supporting
business systems. It is revolutionary redesign of key business
processes that involves examination of the basic process itself.
It looks at the minute details of the process, such as why the
work is done, who does it, where is it done and when it is Customer need is
recorded by the Customer need satisfier is
done. BPR refers to the analysis and redesign of workflows organization provided by the organization
and processes both within the organization and between
the organization and the external entities like suppliers,
Customer Time Cycle
distributors, and service providers. The orientation of
redesigning efforts is basically radical. In other words, it is
a total deconstruction and rethinking of business process in Benchmarking
its entirety. Benchmarking is an approach of setting goals and measuring
productivity of firms based on best industry practices or
BPR involves the following steps: against the products, services and practices of its competitors
or other acknowledged leaders in the industry. It developed out
Determining objectives: Objectives are the desired end results of the
redesign process which the management and organization attempts to
of need to have information against which performance can
realise. This will provide the required focus, direction, and motivation be measured. Benchmarking helps businesses in improving
for the redesign process. performance by learning from the best practices and the
processes by which they are achieved. Thus, benchmarking is a
process of continuous improvement in search for competitive
Identify customers and determine their needs: The Process advantage. Firms can use benchmarking practices to achieve
designers have to understand customers – their profile, their steps in improvements in diverse range of management functions like
acquiring, using and disposing a product. The purpose is to redesign product development, customer services, human resources
business process that clearly provides value addition to the customer.
management, etc.

The various steps in Benchmarking Process are as under:


Study the existing process: The study of existing processes will
Identifying the need for benchmarking: This step will define
provide an important base for the process designers. The purpose is to the objectives of the benchmarking exercise. It will also involve
gain an understanding of the ‘what’, and ‘why’ of the targeted process. selecting the type of benchmarking. Organizations identify realistic
However, some companies go through the reengineering process with opportunities for improvements.
clean perspective without laying emphasis on the past processes.

Clearly understanding existing decisions processes: The step will


involve compiling information and data on performance.
Formulate a redesign process plan: Formulation of redesign plan is
the real crux of the reengineering efforts. Customer focused redesign
concepts are identified and formulated. Alternative processes are
considered and the optimum is selected. Identify best processes: Within the selected framework best
processes are identified. These may be within the same organization
or external to them.

Implement the redesigned process : It is easier to formulate new


process than to implement them. It is the joint responsibility of the Comparison of own process and performance with that of others:
designers and management to operationalise the new process. Benchmarking process also involves comparison of performance of the
organization with performance of other organization. Any deviation
between the two is analysed to make further improvements.

Central Thrust of BPR


BPR is a continuous improvement process. Although BPR Prepare a report and implement the steps necessary to close the
is a multi-dimensional approach in improving the business performance gap: A report on benchmarking initiatives containing
recommendations is prepared. Such a report also contains the action
performance its thrust area may be identified as “the plans for implementation.
reduction of the total cycle time of a business process.” BPR
aims at reducing the cycle time of process by eliminating
the unwanted and redundant steps and by simplifying the Evaluation: Business organizations evaluate the results of the
systems and procedures and also by eliminating the transit benchmarking process in terms of improvements vis-à-vis objectives
and waiting times as far as possible. Even after redesigning and other criteria set for the purpose. They also periodically evaluates
and reset the benchmarks in the light of changes in the conditions that
of a process, BPR maintains a continuous effort for more and impact the performance.
more improvement.

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