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BBA SEM 6 : BUSINESS POLICY AND STRATEGY

UNIT - 1 INTRODUCTION TO BUSINESS POLICY AND


STRATEGY

 BUSINESS POLICY
Business policy is the study of the function and responsibilities of senior
management, the crucial problems that affect success in the total enterprise, and
the decisions that determine the direction of the organization and shape its future.
This comprehensive definition covers many aspects of business policy.

It is considered as the study of the functions and responsibilities of the senior


management related to those organizational problems which affect the success of
the total enterprise.

It deals with the determination of the future courses of actions that an organization
has to adopt.

It involves a choosing the purpose and defining what needs to be done in order to
mould the character and identify of an organizations.

Business policy is the study of the roles and responsibilities of top- level
management, the significant issues affecting organizational success and the
decisions affecting organization in the long-run.

Business Policy defines the scope or spheres within which decisions can be taken
by the subordinates in an organization.

It permits the lower level management to deal with the problems and issues
without consulting top level management every time for decisions.

Business policies are the guidelines developed by an organization to govern its


actions. They define the limits (Do’s & Don’ts) within which decisions

Business Policy includes guidelines, rules and procedures established to support


efforts to achieve stated objectives.

Business Policy defines the scope or spheres within which decisions can be taken
by the subordinates in an organization. It permits the lower level management to

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deal with the problems and issues without consulting top level management every
time for decisions.
Business policies are the guidelines developed by an organization to govern its
actions. They define the limits within which decisions must be made. Business
policy also deals with acquisition of resources with which organizational goals can
be achieved. Business policy is the study of the roles and responsibilities of top
level management, the significant issues affecting organizational success and the
decisions affecting organization in long-run.
Policies are guides to decision making and address repetitive or recurring
situations. So, Policy defines the area in which decisions are to be made, but it
does not give the decision. A policy is a verbal, written, or implied overall guide,
setting up boundaries that supply the general limits and direction in which
managerial action will take place.

Examples of Business Policies:

1. HR Policy
i. Hiring-Firing
ii. Employee profile
iii. Training
iv. Transfers
v. Promotions
vi. Wages
vii. Incentives & Bonus

2. Materials Policy
i. Quality-Quantity
ii. Vendors
iii. Payment terms •
iv. Stores & Handling
v. Documentation

3. Marketing Policy Quality Policy


i. What to sell
ii. Where
iii. To Whom
iv. Through Whom
v. Communication

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 CORPORATE STRATEGY - Corporate Strategy is the direction and


scope of an organisation, which achieves advantage for the organisation
through its configuration of resources within a changing environment and to
fulfill stakeholder expectations. Corporate Strategy is the pattern of major
objectives, purposes or goals and essential policies or plans (for achieving
those goals), stated in such a way as to define what business the company is
in, or is to be in, and the kind of company it is, or is to be. The task of
corporate strategy is to create a distinctive way ahead for an organisation,
using whatever skills and resources it has, against the background of the
environment and its constraints.

Difference between Policy and Strategy

The term “policy” should not be considered as synonymous to the term “strategy”.
The difference between policy and strategy can be summarized as follows-

1. Policy is a blueprint of the organizational activities which are


repetitive/routine in nature. While strategy is concerned with those
organizational decisions which have not been dealt/faced before in same
form.
2. Policy formulation is responsibility of top level management. While strategy
formulation is basically done by middle level management.
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3. Policy deals with routine/daily activities essential for effective and efficient
running of an organization. While strategy deals with strategic decisions.
4. Policy is concerned with both thought and actions. While strategy is
concerned mostly with action.
5. A policy is what is, or what is not done. While a strategy is the methodology
used to achieve a target as prescribed by a policy.

Features of Business Policy

An effective business policy must have following features-

1. Specific- Policy should be specific/definite. If it is uncertain, then the


implementation will become difficult.
2. Clear- Policy must be unambiguous. It should avoid use of jargons and
connotations. There should be no misunderstandings in following the policy.
3. Reliable/Uniform- Policy must be uniform enough so that it can be
efficiently followed by the subordinates.
4. Appropriate- Policy should be appropriate to the present organizational
goal.
5. Simple- A policy should be simple and easily understood by all in the
organization.
6. Inclusive/Comprehensive- In order to have a wide scope, a policy must be
comprehensive.
7. Flexible- Policy should be flexible in operation/application. This does not
imply that a policy should be altered always, but it should be wide in scope
so as to ensure that the line managers use them in repetitive/routine
scenarios.
8. Stable- Policy should be stable else it will lead to indecisiveness and
uncertainty in minds of those who look into it for guidance.

 NATURE OF BUSINESS POLICY & STRATEGY

Business policy is the study of the function and responsibilities of senior


management, the crucial problems that affect success in the total enterprise and the
decisions that determine the direction of the organization and shape its future.

The problems in BP have to do with choice of purposes, moulding of organization


character and identity, the continuous definition of what needs to be done, and the
mobilization of resources for the attainment of goals in the face of competition or
adverse circumstances.

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BP is considered as the study of functions and responsibilities of the senior


management related to those organizational problems which affect the success of
the total enterprise.

It deals with the determination of the future course of action that an organization
has to adopt.

In choosing the purpose and defining what needs to be done in order to mould the
character and identity of an organization.

It is also concerned with mobilization of resources which will help organization to


achieve its goal.

The senior management consists of those managers who are primarily responsible
for long term decisions and who carry designations such as CEO, President, GM
or Executive Director.

Deciding a future course of action, the senior mgt are confronted with a wide array
of decisions and actions that could possibly be taken. By moving in a pre-
determined direction, an organization can attain its planned identity and character.

 INTRODUCTION TO THE STRATEGIC MANAGEMENT

Strategy- it is an action that managers take to attain one or more of the


organization’s goals. Strategy can also be defined as “A general direction set for
the company and its various components to achieve a desired state in the future.
Strategy results from the detailed strategic planning process”.

Strategy is a well defined roadmap of an organization.

Features of Strategy

1. Strategy is Significant because it is not possible to foresee the future.


Without a perfect foresight, the firms must be ready to deal with the
uncertain events which constitute the business environment.
2. Strategy deals with long term developments rather than routine operations,
i.e. it deals with probability of innovations or new products, new methods of
productions, or new markets to be developed in future.

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3. Strategy is created to take into account the probable behavior of customers


and competitors. Strategies dealing with employees will predict the
employee behavior.

 STRATEGIC MANAGEMENT - It is the managerial process that focuses


on identifying and building competitive advantage By Generating good ideas
and implementing them effectively.
Strategic Management is all about identification and description of the strategies
that managers can carry so as to achieve better performance and a competitive
advantage for their organization. An organization is said to have competitive
advantage if its profitability is higher than the average profitability for all
companies in its industry.
Strategic management can also be defined as a bundle of decisions and acts which
a manager undertakes and which decides the result of the firm’s performance. The
manager must have a thorough knowledge and analysis of the general and
competitive organizational environment so as to take right decisions. They should
conduct a SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats),
i.e., they should make best possible utilization of strengths, minimize the
organizational weaknesses, make use of arising opportunities from the business
environment and shouldn’t ignore the threats.
Strategic management is nothing but planning for both predictable as well as
unfeasible contingencies. It is applicable to both small as well as large
organizations as even the smallest organization face competition and, by
formulating and implementing appropriate strategies, they can attain sustainable
competitive advantage.

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It is a way in which strategists set the objectives and proceed about attaining them.
It deals with making and implementing decisions about future direction of an
organization. It helps us to identify the direction in which an organization is
moving.
Strategic management is a continuous process that evaluates and controls the
business and the industries in which an organization is involved; evaluates its
competitors and sets goals and strategies to meet all existing and potential
competitors; and then reevaluates strategies on a regular basis to determine how it
has been implemented and whether it was successful or does it needs replacement.
Strategic Management gives a broader perspective to the employees of an
organization and they can better understand how their job fits into the entire
organizational plan and how it is co-related to other organizational members.
It is nothing but the art of managing employees in a manner which maximizes the
ability of achieving business objectives.

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 COMPONENTS OF A STRATEGY STATEMENT/ STRATEGIC


MANAGEMENT RELATED CONCEPTS

The strategy statement of a firm sets the firm’s long-term strategic direction
and broad policy directions. It gives the firm a clear sense of direction and a
blueprint for the firm’s activities for the upcoming years. The main
constituents of a strategic statement are as follows:

1. Strategic Intent

An organization’s strategic intent is the purpose that it exists and why it will
continue to exist, providing it maintains a competitive advantage. Strategic intent
gives a picture about what an organization must get into immediately in order to
achieve the company’s vision. It motivates the people. It clarifies the vision of the
vision of the company.
Strategic intent helps management to emphasize and concentrate on the priorities.
Strategic intent is nothing but, the influencing of an organization’s resource
potential and core competencies to achieve what at first may seem to be
unachievable goals in the competitive environment. A well expressed strategic
intent should guide/steer the development of strategic intent or the setting of goals
and objectives that require that all of organization’s competencies be controlled to
maximum value.
Strategic intent includes directing organization’s attention on the need of winning;
inspiring people by telling them that the targets are valuable; encouraging
individual and team participation as well as contribution; and utilizing intent to
direct allocation of resources.
Strategic intent differs from strategic fit in a way that while strategic fit deals with
harmonizing available resources and potentials to the external environment,
strategic intent emphasizes on building new resources and potentials so as to create
and exploit future opportunities.

2. Mission Statement

Mission statement is the statement of the role by which an organization intends to


serve its stakeholders. It describes why an organization is operating and thus
provides a framework within which strategies are formulated. It describes what the

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organization does (i.e., present capabilities), who all it serves (i.e., stakeholders)
and what makes an organization unique (i.e., reason for existence).
A mission statement differentiates an organization from others by explaining its
broad scope of activities, its products, and technologies it uses to achieve its goals
and objectives. It talks about an organization’s present (i.e., “about where we are”).
For instance, Microsoft’s mission is to help people and businesses throughout the
world to realize their full potential. Wal-Mart’s mission is “To give ordinary folk
the chance to buy the same thing as rich people.” Mission statements always exist
at top level of an organization, but may also be made for various organizational
levels. Chief executive plays a significant role in formulation of mission statement.
Once the mission statement is formulated, it serves the organization in long run,
but it may become ambiguous with organizational growth and innovations.
In today’s dynamic and competitive environment, mission may need to be
redefined. However, care must be taken that the redefined mission statement
should have original fundamentals/components. Mission statement has three main
components-a statement of mission or vision of the company, a statement of the
core values that shape the acts and behavior of the employees, and a statement of
the goals and objectives.
3. Vision

A vision statement identifies where the organization wants or intends to be in


future or where it should be to best meet the needs of the stakeholders. It describes
dreams and aspirations for future. For instance, Microsoft’s vision is “to empower
people through great software, any time, any place, or any device.” Wal-Mart’s
vision is to become worldwide leader in retailing.
A vision is the potential to view things ahead of themselves. It answers the
question “where we want to be”. It gives us a reminder about what we attempt to
develop. A vision statement is for the organization and it’s members, unlike the
mission statement which is for the customers/clients. It contributes in effective
decision making as well as effective business planning. It incorporates a shared
understanding about the nature and aim of the organization and utilizes this
understanding to direct and guide the organization towards a better purpose. It
describes that on achieving the mission, how the organizational future would
appear to be.
An effective vision statement must have following features-

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a. It must be unambiguous.
b. It must be clear.
c. It must harmonize with organization’s culture and values.
d. The dreams and aspirations must be rational/realistic.
e. Vision statements should be shorter so that they are easier to memorize.

In order to realize the vision, it must be deeply instilled in the organization, being
owned and shared by everyone involved in the organization.
4. Goals and Objectives

A goal is a desired future state or objective that an organization tries to achieve.


Goals specify in particular what must be done if an organization is to attain
mission or vision. Goals make mission more prominent and concrete. They co-
ordinate and integrate various functional and departmental areas in an organization.
Well made goals have following features-

a. These are precise and measurable.


b. These look after critical and significant issues.
c. These are realistic and challenging.
d. These must be achieved within a specific time frame.
e. These include both financial as well as non-financial components.

Objectives are defined as goals that organization wants to achieve over a period of
time. These are the foundation of planning. Policies are developed in an
organization so as to achieve these objectives. Formulation of objectives is the task
of top level management. Effective objectives have following features-

a. These are not single for an organization, but multiple.


b. Objectives should be both short-term as well as long-term.
c. Objectives must respond and react to changes in environment, i.e., they must
be flexible.
d. These must be feasible, realistic and operational.

5. Strategic fit – it expresses the degree to which an organization is matching its


resources and capabilities with the opportunities in the external environment. The
matching takes place through strategy and it is therefore vital that the company has
the actual resources and capabilities to execute and support the strategy. Strategic
fit can be used actively to evaluate the current strategic situation of a company as
well as opportunities. A situation that occurs when a specific project, target
company or product is seen as appropriate with respect to an organization's overall
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objectives. Most business managers seeking to expand their company's operation


through a merger or acquisition will look for another company that makes a good
strategic fit with their own firm. “Strategic fit” is an often-used term in strategic
goals. It is a crucial part of strategic process management. Two important key
factors that help organization achieve strategic fit are the planning
and implementing strategy. Strategic fit portrays an organization’s ability to utilize
its resources and depicts how well it is performing in making the most of the
internal and external environmental issues as well as strengths and opportunities.
Strategic fit is linked to the effective utilization of resource by a business
organization which implies that profitability cannot be only achieved through
positioning and selecting the right industry for the organization but rather through
focusing on internal factors that make use of the inimitable distinctiveness of the
organization’s assortment of resources and competences.

 STRATEGIC MANAGEMENT PROCESS


The strategic management process means defining the organization’s strategy. It is
also defined as the process by which managers make a choice of a set of strategies
for the organization that will enable it to achieve better performance.
Strategic management is a continuous process that appraises the business and
industries in which the organization is involved; appraises it’s competitors; and
fixes goals to meet all the present and future competitor’s and then reassesses each
strategy.

These components are steps that are carried, in chronological order, when creating
a new strategic management plan. Present businesses that have already created a
strategic management plan will revert to these steps as per the situation’s
requirement, so as to make essential changes.
Strategic management process has following four steps:

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1. Environmental Scanning- Environmental scanning refers to a process of


collecting, scrutinizing and providing information for strategic purposes. It
helps in analyzing the internal and external factors influencing an
organization. After executing the environmental analysis process,
management should evaluate it on a continuous basis and strive to improve
it.
2. Strategy Formulation- Strategy formulation is the process of deciding best
course of action for accomplishing organizational objectives and hence
achieving organizational purpose. After conducting environment scanning,
managers formulate corporate, business and functional strategies.
3. Strategy Implementation- Strategy implementation implies making the
strategy work as intended or putting the organization’s chosen strategy into
action. Strategy implementation includes designing the organization’s
structure, distributing resources, developing decision making process, and
managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy
management process. The key strategy evaluation activities are: appraising
internal and external factors that are the root of present strategies, measuring
performance, and taking remedial / corrective actions. Evaluation makes
sure that the organizational strategy as well as it’s implementation meets the
organizational objectives.

 LEVELS OF STRATEGY
Strategy may operate at different levels of an organization – corporate level,
business level, and functional level. The strategy changes based on the levels of
strategy.

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1. Corporate Level Strategy


Corporate level strategy occupies the highest level of strategic decision making and
covers actions dealing with the objective of the firm, acquisition and allocation of
resources and coordination of strategies of various SBUs for optimal performance.

Top management of the organization makes such decisions. The nature of strategic
decisions tends to be value-oriented, conceptual and less concrete than decisions at
the business or functional level.

Characteristics of Corporate Strategy

1. Corporate level strategies are formulated by the top management with inputs
from middle level management and lower level management in the formulation
process and designing of sub strategies

2. Decisions are complex and affects the entire organization

3. It is concerned with the efficient allocation and utilization of scarce resources


for the benefit of the organization

4. Corporate level strategies are mapped out around the goal and objectives of an
organization. They seek to translate these goals and objectives to reality. Typical
examples of decisions made are decisions on products and markets

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Types of corporate Strategy

1. Concentration strategy: This is mostly utilized for company’s producing


product lines with real growth potentials. The company concentrates more
resources on the product line to increase its participation in the value chain of the
product. The two main types of concentration strategies are vertical growth
strategy and horizontal growth strategy.

2. Stability Strategy

Stability strategies are mostly utilized by successful organizations operating in a


reasonably predictable environment. It involves maintaining the current strategy
that brought it success with little or no change. There are two basic types of
stability strategies, they are:

1. No change Strategy: When a company adopts this strategy, it indicates that the
company is very much happy with the current operations, and would like to
continue with the present strategy. This strategy is utilized by companies who are
“comfortable” with their competitive position in its industry, and sees little or no
growth opportunities within the said industry.

2. Profit Strategy: In using this strategy, the company tries to sustain its
profitability through artificial means which may include aggressive cost cutting
and raising sales prices, selling of investments or assets, and removing non-core
businesses. The profit strategy is useful in two instances:

To help a company through tough times or temporary difficulty; and

To artificially boost the value of a company in the case of an Initial Public


Offering

3. Integration strategies- It is combing activities related to the present activity of


a firm. Such a combination may be done through value chain. A value chain is a
set of interrelated activity performed by an organization right from the
procurement of basic raw materials down to the marketing of finished products to
the ultimate customers.
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1. Vertical Integration - When pursuing a vertical integration strategy, a firm gets


involved in new portions of the value chain. This approach can be very attractive
when a firm’s suppliers or buyers have too much power over the firm and are
becoming increasingly profitable at the firm’s expense.

2. Forward Integration - When pursuing a vertical integration strategy, a firm gets


involved in new portions of the value chain. This approach can be very attractive
when a firm’s suppliers or buyers have too much power over the firm and are
becoming increasingly profitable at the firm’s expense.

3. Backward Integration - When pursuing a vertical integration strategy, a firm gets


involved in new portions of the value chain. This approach can be very attractive
when a firm’s suppliers or buyers have too much power over the firm and are
becoming increasingly profitable at the firm’s expense.

4. Horizontal Integration - It is a type of integration strategies pursued by a


company in order to strengthen its position in the industry. A corporate that
implements this type of strategy usually mergers or acquires another company that
is in the same production stage.

4. Diversification - Diversification is a corporate strategy to enter into a new


market or industry in which the business doesn't currently operate, while also
creating a new product for that new market. This is the most risky section as the
business has no experience in the new market and does not know if the product is
going to be successful.

1. Concentric diversification
Concentric diversification involves adding similar products or services to the
existing business. For example, when a computer company that primarily produces
computers starts manufacturing laptops, it is pursuing a concentric diversification
strategy.

2. Horizontal diversification
Horizontal diversification involves providing new and unrelated products or
services to existing consumers. For example, a notebook manufacturer that enters
the pen market is pursuing a horizontal diversification strategy.

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3. Conglomerate diversification
Conglomerate diversification involves adding new products or services that are
significantly unrelated and with no technological or commercial similarities. For
example, if a computer company decides to produce notebooks, the company is
pursuing a conglomerate diversification strategy.

5. Growth - Strategy aimed at winning larger market share, even at the expense of
short-term earnings. growth strategy is one under which management plans to
advance further and achieve growth of the enterprise, in fields of manufacturing,
marketing, financial resources etc.

As growth entails risk, especially in a dynamic economy, a growth strategy might


be described as a safest policy of growth-maximising gains and minimising risk
and untoward consequences.

1. Internal growth strategies- Internal growth strategies are those in which a firm
plans to grow on its own, without the support of others.

2. External growth strategies- external growth strategies are those in which a firm
plans to grow by combining with others.

3. Joint Ventures:
Joint venture is a growth strategy in which two or more companies, establish a new
enterprise (or organisation) by participating in the equity capital of the new
organisation and by agreeing to participate in its management in an agreed manner.

4. Mergers:
Merger, as a growth strategy, implies combination (or integration) of two or more
companies into one. Merger may take place with a co-operative approach or it may
take place with a hostile approach. In the latter case, a merger is known as a
takeover.

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5. Horizontal combinations:
In this type of combinations, different business units which have been competing
with one another in the same business line join together and form a combination.

6. Vertical combinations:

Vertical combinations arises as a result of integration of those units which are


engaged in different stages of production of product. It is also known as sequence
or process merger. It may be backward or forward. When manufacturers at
successive stages of production integrate backwards up to the source of raw
materials; it is known as backward merger. On the other hand, when manufacturing
units combine with business units which distribute their product; it is known as
forward integration or merger.

6. Retrenchment strategies- the strategy followed, when a firm decides to


eliminate its activities through a considerable reduction in its business operations,
in the perspective of customer groups, customer functions and technology
alternatives, either individually or collectively is called as Retrenchment Strategy.

A strategy used by corporations to reduce the diversity or the overall size of the
operations of the company. This strategy is often used in order to cut expenses with
the goal of becoming a more financial stable business.

Typically the strategy involves withdrawing from certain markets or the


discontinuation of selling certain products or service in order to make a beneficial
turnaround.
7. Restructuring - Restructuring is the corporate management term for the act of
reorganizing the legal, ownership, operational, or other structures of a company for
the purpose of making it more profitable, or better organized for its present needs.

Forms of restructuring strategy-

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1. Downsizing-In a business enterprise, downsizing is reducing the number of


employees on the operating payroll. Some users distinguish downsizing from a
layoff , with downsizing intended to be a permanent downscaling and a layoff
intended to be a temporary downscaling in which employees may later be rehired.
Businesses use several techniques in downsizing, including providing incentives to
take early retirement and transfer to subsidiary companies, but the most common
technique is to simply terminate the employment of a certain number of people.

2. down scoping-involves restructuring or selling off units that are less related to
the main business, but without layoffs or work force reductions. Down scoping
may be used when the organization must focus on its core strengths, to gain
competitive advantage.

3. levered boyouts-A leveraged buyout (LBO) is the acquisition of another


company using a significant amount of borrowed money to meet the cost of
acquisition. The assets of the company being acquired are often used as collateral for
the loans, along with the assets of the acquiring company. The purpose of
leveraged buyouts is to allow companies to make large acquisitions without having
to commit a lot of capital.

2. Business-Level Strategy
Business level strategy is – applicable in those organizations, which have different
businesses-and each business is treated as strategic business unit (SBU). The
fundamental concept in SBU is to identify the discrete independent product /
market segments served by an organization.

Since each product/market segment has a distinct environment, a SBU is created


for each such segment. For example, Reliance Industries Limited operates in textile
fabrics, yarns, fibers, and a variety of petrochemical products. For each product
group, the nature of market in terms of customers, competition, and marketing
channel differs.

Therefore, it requires different strategies for its different product groups. Thus,
where SBU concept is applied, each SBU sets its own strategies to make the best
use of its resources (its strategic advantages) given the environment it faces. At

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such a level, strategy is a comprehensive plan providing objectives for SBUs,


allocation of resources among functional areas and coordination between them for
making optimal contribution to the achievement of corporate-level objectives.

Corporate strategy is not the sum total of business strategies of the corporation but
it deals with different subject matter. While the corporation is concerned with and
has impact on business strategy, the former is concerned with the shape and
balancing of growth and renewal rather than in market execution.

Purpose:

1. Perform different activities

2. How activities will be performed to create value

3. No strategy better than others

4. Firm must make a deliberate choice To create differences between position


of a firm and its competitors

Forms of business unit level strategies-

1. Cost leadership: This type of strategy is totally based on the price as


a competing factor. In case of commodity products many producers
try to minimize their cost structure and transfer the value to the
customer in terms of low price. It is based on having internal
efficiency to have above average margins to be sustainable. It can
only be achieved by building state of art facility, having very low
operational, R&D cost, overhead expenses etc. Example: Walmart is
known for its lowest prices.
2. Differentiation: the main aim is to position as a provider with unique
features of the product or service being offered over the cost aspect.
High quality product, high customer service, rapid innovation etc are a
few key points of differentiation. Example: apple has differentiated
itself as high quality product provider
3. Focused Low Cost: this kind of strategy provides its offerings only to
a small segment of consumers at a low cost. Example a low cost

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provider supplying goods only to one country thereby serving to the


needs of a very small segment.
4. Focused Differentiation: by doing so companies compete on
differentiating their offering but to a small much targeted segment of
consumers. But they are able to serve this base of customers in a more
efficient manner than their customers. However there are risks that the
segment may become out of interest or other competitors may find the
segment attractive.
5. Integrated Low Cost Differentiation Strategy: with the advent of
globalization many companies adopt this strategy of adapting to the
environmental changes by learning new technology and leveraging on
core competencies to provide differentiated products at low cost.

3. Functional-Level Strategy

Functional strategy, as is suggested by the title, relates to a single functional


operation and the activities involved therein. Decisions at this level within the
organization are often described as tactical. Such decisions are guided and
constrained by some overall strategic considerations.

Functional strategy deals with relatively restricted plan providing objectives for
specific function, allocation of resources among different operations within that
functional area and co-ordination between them for optimal contribution to the
achievement of the SBU and corporate-level objectives.

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Below the functional-level strategy, there may be operations level strategies as


each function may be divided into several sub functions. For example, marketing
strategy, a functional strategy, can be subdivided into promotion, sales,
distribution, pricing strategies with each sub function strategy contributing to
functional strategy.

Functional strategies are formulated by specialists in each area. It outlines the


action plan and sets the milestones that are needed to achieve before reaching to
the final goal of corporate strategy. Functional strategies work as a backbone of
the organization. It provides the basic information on resources and capabilities on
which the higher level strategy is designed. It involves coordinating the various
functions and operations needed to design, manufacture, deliver, and support the
product or service of each business within the corporate portfolio. Functional level
strategy executes the plan developed at a higher level for the growth and
advancement of an organization.

Functional strategies are primarily concerned with:

1. Efficiently utilizing specialists within the functional area.


2. Integrating activities within the functional area (e.g., coordinating
advertising, promotion, and marketing research in marketing; or purchasing,
inventory control, and shipping in production/operations).
3. Assuring that functional strategies mesh with business-level strategies and
the overall corporate-level strategy.

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Key Differences Between Business Strategy and Corporate Strategy

The fundamental differences between corporate and business strategy are


explained in the points hereunder:

1. Business Strategy can be viewed as the strategy designed by the business


managers to improvise the overall performance of the firm. On the other
hand, Corporate Strategy is the one expressed in the mission statement of the
company, which describes the business type and ultimate goal of the
organization.
2. Business Strategy is framed by middle-level management which comprises
of division, unit or departmental managers. Conversely, corporate strategy is
formulated by top level managers, i.e. board of directors, CEO, and
managing director.
3. The nature of business strategy is executive and governing, whereas the
corporate strategy is deterministic and legislative.
4. While the business strategy is a short term strategy, corporate strategy is a
long term one.
5. The business strategies aim at selecting the business plan to fulfil the
objectives of the organization. As against, the corporate strategy focuses on
the business selection in which the company wants to compete in the
marketplace.
6. Business strategy is concerned with a particular unit or division. Unlike
corporate strategy which focuses on the entire organization, comprising of
various business units or divisions.
7. The business strategy focuses on competing successfully in the market place
with other firms. On the contrary, corporate strategy stresses on increasing
profitability and business growth.
8. Business Strategy has an introverted approach, i.e. it is concerned with the
internal working of the organization. In contrast, Corporate Strategy uses
extroverted approach, which links the business with its environment.
9. At the business level, strategies which are employed by the organization
includes, Cost Leadership, Focus and Differentiation. On the other hand, at
the corporate level, the strategies used are Expansion, Stability and
Retrenchment.

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UNIT – 2 COMPANY’S VISION AND MISSION

 MISSION
A written declaration of an organization's core purpose and focus that
normally remains unchanged over time. Properly crafted mission statements
(1) serve as filters to separate what is important from what is not, (2) clearly
state which markets will be served and how, and (3) communicate a sense of
intended direction to the entire organization.

A mission is different from a vision in that the former is the cause and the latter is
the effect; a mission is something to be accomplished whereas a vision is
something to be pursued for that accomplishment. Also called company mission,
corporate mission, or corporate purpose.

A mission statement is a brief description of why a company or nonprofit


organization exists. In one to three sentences, it explains what the company does,
who it serves, and what differentiates it from competitors. It’s used to provide
focus, direction, and inspiration to employees while it tells customers or clients
what to expect from the business.

A mission statement is often part of a business plan.

Features of a Mission

a. Mission must be feasible and attainable. It should be possible to achieve it.


b. Mission should be clear enough so that any action can be taken.
c. It should be inspiring for the management, staff and society at large.
d. It should be precise enough, i.e., it should be neither too broad nor too
narrow.
e. It should be unique and distinctive to leave an impact in everyone’s mind.
f. It should be analytical,i.e., it should analyze the key components of the
strategy.
g. It should be credible, i.e., all stakeholders should be able to believe it.

Mission Statement Examples/specimen

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The best mission statements are clear, concise, and memorable. Here are a few
examples:

 TED: Spread ideas.


 Google: Google’s mission is to organize the world’s information and make it
universally accessible and useful.
 Wal-Mart: We save people money so they can live better.

How to Write a Mission Statement/ formulation of mission statement


Step 1: Identify Past Successes.
Spend some time identifying four or five examples where you have had personal
success in recent years. These successes could be at work, in your community, at
home, etc. Write them down. Try to identify whether there is a common theme (or
themes) to these examples.

Step 2: Identify Core Values.


Develop a list of attributes that you believe identify who you are and what your
priorities are. The list can be as long as you need.

Once your list is complete, see if you can narrow your values down to around five
or six of the most important values. Finally, see if you can choose the one value
that is most important to you.

Step 3: Identify Contributions.


Make a list of the ways you could make a difference. In an ideal situation, how
could you contribute best to:

the world in general | your family | your employer or future employers | your
friends | your community

Step 4: Identify Goals.


Spend some time thinking about your priorities in life and the goals you have for
yourself.

Make a list of your personal goals, perhaps in the short-term (up to three years) and
the long-term (beyond three years).
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Step 5: Write Mission Statement.


Based on the first four steps and a better understanding of yourself, begin writing
your personal mission statement.

 NEED FOR A MISSION STATEMENT


1. It determines the company’s direction
Smart business owners use this statement to remind their teams why their company
exists because this is what makes the company successful. The mission statement
serves as a “North Star” that keeps everyone clears on the direction of the
organization. And as Andy Stanley says, “It’s your direction, not your intention
that determines your destination.” This leads to the second reason.

2. It focuses the company’s future


Many people refer to this as the “vision” which is different than the mission. The
vision is about a preferred future. Where will you be in 1 year? 3 years? 5 years?
The mission tells us what we’re doing today that will then take us where we want
to go in the future.

3. It provides a template for decision-making


A clear mission sets important boundaries which enable business owners to
delegate both responsibility and authority. Mission is to the company what a
compass is to an explorer, a map to a tourist, a rudder to a ship, a template to a
machinist. It provides a framework for thinking throughout the organization. It
provides the boundaries and guardrails you need in order to stay on the path to
your preferred future.

4. It forms the basis for alignment


When a new employee is hired, it’s critical that the new hire know what the
company does and where the company is going. The mission statement forms the
basis for alignment not only with the owner, but the entire team and organization.
Your team will all be on the same page when it comes to what you do and why you
do it, which leads to better effectiveness and efficiency.

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5. It welcomes helpful change


Many people are resistant to change because it causes us to feel insecure and
sometimes out of control. However, if the mission is clear, then team members are
more likely to see the value of the change and how it helps the organization
accomplish the mission. This will create a culture that welcomes change when
warranted.

6. It shapes strategy
Every business and business owner needs a strategy. But strategies must not be
created in a vacuum. Instead of looking at what’s new or what competitors are
doing and trying to copy them, wise business owners create the most effective
strategies possible to accomplish the mission their company is set out to
accomplish.

7. It facilitates evaluation and improvement


It has been said that “What you measure will be your mission.” If you have a clear,
written statement of mission you will know exactly what to measure and how to
measure it.

 CRITERIA FOR EVALUATING A MISSION STATEMENT


1. Informative
A mission statement should convey the overall goal of your organization,
giving insight into the idea that guides each project and decision. It should
communicate the essence of what the organization does without being overly
specific. The informative aspect of a mission statement is particularly
important for unique businesses with a purpose is not readily apparent. Your
mission statement should strike a balance of clarifying your purpose in your
field and providing inspiration.

2. Simple
When it comes to mission statements, too much detail can dilute the overall
meaning. As you write, try to capture the essence of your company in as few
words as possible; too much detail will make it vague. Use simple, clear and

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concise language. Distilling the goals, character and values of your company
into one or two sentences is not an easy process and often takes a significant
amount of time and discussion.
3. Memorable
A mission statement can help guide the actions of employees and decision makers
but not if it is impossible to remember. To help make your mission statement
memorable, use descriptive words that can inspire action. A green engineering firm
might keep it to one sentence with a mission statement that says, "To provide
innovative, sustainable engineering solutions." Employees can use the statement as
a guiding principle in developing creative, environmentally friendly engineering,
while clients will understand the basic services and moral underpinnings of the
company.
4. Achievable
Although it can be tempting to write a grand mission statement, it is usually better
to create one that is achievable. A strong mission statement gives staff something
concrete to work on and a larger goal to work toward. It creates a balance between
what you do and what you can do.
5. “Who” Customers are.
Who is being satisfied? A company should define the type of
customers it wishes to serve. Which customer groups it is targeting.
Customer groups are relevant because they indicate the market to be
served, the geographic domain to be covered, and the types of buyers the
firm is going after.

 VISION
A vision statement identifies where the organization wants or intends to be in
future or where it should be to best meet the needs of the stakeholders. It describes
dreams and aspirations for future. For instance, Microsoft’s vision is “to empower
people through great software, any time, any place, or any device.” Wal-Mart’s
vision is to become worldwide leader in retailing.

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A vision is the potential to view things ahead of themselves. It answers the


question “where we want to be”. It gives us a reminder about what we attempt to
develop. A vision statement is for the organization and it’s members, unlike the
mission statement which is for the customers/clients. It contributes in effective
decision making as well as effective business planning. It incorporates a shared
understanding about the nature and aim of the organization and utilizes this
understanding to direct and guide the organization towards a better purpose. It
describes that on achieving the mission, how the organizational future would
appear to be.
An effective vision statement must have following features-
1. They should be short – two sentences at an absolute maximum. It’s fine to
expand on your vision statement with more detail, but you need a version
that is punchy and easily memorable.
2. They need to be specific to your business and describe a unique outcome
that only you can provide. Generic vision statements that could apply to
any organisation won’t cut it (see our examples below for more on this
point).
3. Do not use words that are open to interpretation. For example, saying you
will ‘maximise shareholder return’ doesn’t actually mean anything unless
you specify what it actually looks like.
4. Keep it simple enough for people both inside and outside your
organisation to understand. No technical jargon, no metaphors and no
business buzz-words if at all possible!
5. It should be ambitious enough to be exciting but not too ambitious that it
seems unachievable. It’s not really a matter of time-framing your vision,
because that will vary by organisation, but certainly anything that has a
timeframe outside of 3 to 10 years should be challenged as to whether it’s
appropriate.
6. It needs to align to the Values that you want your people to exhibit as they
perform their work. We’ll talk more about Values in a future article – but
once you’ve created those Values later on, revisit your Vision to see how
well they gel.
7. Imaginable: Conveys a picture of what the future will look like
8. Desirable: Appeals to the long-term interests of employees, customers,
stockholders, and others who have a stake in the enterprise
9. Feasible: Comprises realistic, attainable goals
10.Focused: Is clear enough to provide guidance in decision making

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11.Flexible: Is general enough to allow individual initiative and alternative


responses in light of changing conditions
12.Communicable: Is easy to communicate; can be successfully explained
within five minutes

In order to realize the vision, it must be deeply instilled in the organization, being
owned and shared by everyone involved in the organization.

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 DRUCKER’S PERFORMANCE AREA


Management By Objectives (MBO), developed by Peter Drucker in a practical
way. After reading you will understand the basics of this powerful strategic
management tool.

Management By Objectives (MBO) is an performance management approach in


which a balance is sought between the objectives of employees and the objectives
of an organization. The essence of Peter Drucker ’s basic principle: Management
By Objectives is to determine joint objectives and to provide feedback on the
results. Setting challenging but attainable objectives promotes motivation and
empowerment of employees. By increasing commitment, managers are given the
opportunity to focus on new ideas and innovation that contribute to the
development and objectives of organizations.

However, Peter Drucker sets a number of conditions that must be met:

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1. Objectives are determined with the employees;


2. Objectives are formulated at both quantitative and qualitative levels;
3. Objectives must be challenging and motivating;
4. Daily feedback on the state of affairs at the level of coaching and
development instead of static management reports;
5. Rewards (recognition, appreciation and/or performance-related pay) for
achieving the intended objectives is a requirement;
6. The basic principle is growth and development not punishments.

Peter Drucker believed that the survival of the company was at risk when managers
emphasized only the profit objective because this single objective emphasis
encourage managers to take action that will make money today with little regard
for how a profit will be made tomorrow.

8 key areas by Peter Drucker in which managers should set management system
objectives are:
1. MARKET STANDING: Management should set objectives indicating where
it would like to be in relation to its
competitors.
2. INNOVATION: Management should set objectives outlining its commitment
to the development of new methods of
operation.
3. PRODUCTIVITY: Management should set objectives outlining the target
levels of
production.

4. PHYSICAL & FINANCIAL RESOURCES: Management should set


objectives regarding the use, acquisition, and maintenance of capital and
monetary resources.
5. PROFITABILITY: Management should set objectives that specify the profit
the company would like to
generate.

6. MANAGERIAL PERFORMANCE & DEVELOPMENT: Management


should set objectives that specify rates of worker productivity as well as
desirable attitudes for workers to

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possess.

7. WORKER PERFORMANCE & ATTITUDE: Management should set


objectives that specify rates of worker productivity as well as desirable
attitudes for workers to possess.
8. PUBLIC RESPONSIBILITY: Management should set objectives that indicate
the company’s responsibilities to its customers and society and the extent to
which the company intends to live up to those responsibilities.

 Warren bennis’s core problem/ Warren Bennis On Six Competencies

1. Create a sense of mission.

 Clear vision endowed with purpose is definitely an area in which those involved in
human betterment have the advantage. Such a strong belief in vision leads to
alignment to the extent in which people take ownership and are internally rewarded by
the mission statement of the organization.
 In his work with DaVita, a provider of kidney dialysis, Bennis noted that the simple,
direct mission ” to give life” became the best rallying point for those who deal with
patients day in and day out. What Bennis calls “The Big A” – alignment – is easily
created when people share a collective vision of success.

2. Engage and motivate others.

 The idea of getting others behind the mission is key to organizational success. You
must keep reminding people of what is important; people really can forget what they
are there for. For leaders this is easier than others because leaders are in the business
of helping people live better lives; that is your trump card. Part of engagement is
recognizing people. No matter how brilliant you are, you need to remember the
people.

3. Build an adaptive and agile social structure

 Change is given in today’s economy. Individual adaptability is absolutely critical.


You need a hardiness in attitude that allows you to face challenges and adapt all of it
in a way that results in alignment. Bennis went on to say that the many leaders that he
has interviewed across four decades are “all about optimism and possibilities.”

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4. Generate and sustain trust.

 Bennis called trust the emotional glue that no leader can do without. It is important to
create a culture of candor. Every culture gives people license to talk truth – or it
doesn’t. Bennis describes integrity as a tripod with ambition, competence, and a moral
compass forming its three legs. However, when ambition surpasses competence or
surpasses the moral compass, you are in trouble. To the extent to which these qualities
are in balance, integrity can be achieved. However, when ambition surpasses
competence or surpasses the moral compass, you are in trouble.

5. Develop Leaders.

 Abandoning your ego and developing others by drawing out their leadership qualities
is the way of the true leader, said Bennis. Some winning ways to create the necessary
intellectual and human capital include coaching and mentoring, developing the sense
of self, and acknowledging the ideas and accomplishments of others.

6. Get results.

 In the end, you must get the products out of the door. Bennis recalled an interview
with Jack Welch, then-CEO of General Electric, in which he said, “Getting results
truly depends on customer satisfaction, employee satisfaction, and cash flow. If I have
those three measurements, I can win.”

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UNIT - 3 ENVIRONMENTAL ANALYSIS & DIAGNOSIS

 ENVIRONMENTAL SCANNING
Organizational environment consists of both external and internal factors.
Environment must be scanned so as to determine development and forecasts
of factors that will influence organizational success. Environmental
scanning refers to possession and utilization of information about
occasions, patterns, trends, and relationships within an organization’s
internal and external environment. It helps the managers to decide the
future path of the organization. Scanning must identify the threats and
opportunities existing in the environment. While strategy formulation, an
organization must take advantage of the opportunities and minimize the
threats. A threat for one organization may be an opportunity for another.

Internal analysis of the environment – it is the first step of environment


scanning. Organizations should observe the internal organizational
environment. This includes employee interaction with other employees,
employee interaction with management, manager interaction with other
managers, and management interaction with shareholders, access to natural
resources, brand awareness, organizational structure, main staff, operational
potential, etc. Also, discussions, interviews, and surveys can be used to
assess the internal environment. Analysis of internal environment helps in
identifying strengths and weaknesses of an organization.

 ANALYSIS OF COMPANY’S EXTERNAL


ENVIRONMENT/EXTERNAL ANALYSIS
As business becomes more competitive, and there are rapid changes in the external
environment, information from external environment adds crucial elements to the
effectiveness of long-term plans. As environment is dynamic, it becomes essential
to identify competitors’ moves and actions. Organizations have also to update the
core competencies and internal environment as per external environment.
Environmental factors are infinite, hence, organization should be agile and vigile to
accept and adjust to the environmental changes.

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For instance - Monitoring might indicate that an original forecast of the prices of
the raw materials that are involved in the product are no more credible, which
could imply the requirement for more focused scanning, forecasting and analysis to
create a more trustworthy prediction about the input costs. In a similar manner,
there can be changes in factors such as competitor’s activities, technology, market
tastes and preferences.

 Organization's External Environment –Components/factors

The external environment constitutes factors and forces which are external to the
business and on which the marketer has little or no control. The external
environment is of two types:

1. Micro Environment
The micro component of the external environment is also known as the task
environment. It comprises of external forces and factors that are directly related to
the business. These include suppliers, market intermediaries, customers, partners,
competitors and the public

1. Competitors:
The competitive environment consists of certain basic things which
every firm has to take note of. No company, howsoever large it may be,
enjoys monopoly. In the original business world a company
encounters various forms of competition. The most common
competition which a company’s product now faces is from
differentiated products of other companies.

For example, in the Colour Television Market, Philips TV faces


competition from other companies like Videocon, Onida, BPL and
others. This type of competition is called brand competition. It is
found in all durable product markets. The consumer wants to
purchase a two-wheeler, the next question in his mind is with gear or

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without gear, 100 cc or more than that, self starter or kick starter, etc.
This type is otherwise known as ‘Product form competition’.

Philip Kotler is of the opinion that the best way for a company to grasp
the full range of its competition is to take the viewpoint of a buyer.
What does a buyer thinks about that which eventually leads to
purchasing something? So, tracing of the consumer mind set will help
to retain the market share for all the firms.

2. Customers:
According to Peter. F. Drucker, “There is only one valid definition of
business purpose, that is to create a customer.” The business
enterprises aim to earn profit through serving the customer demand.
It now thinks more in terms of profitable sale rather than more sales
volume for its sake. Today marketing of a firm begins and also ends
with the customers.

Now a days, a business firm to be successful, must find customers for


its products. This is the reason the customers thus constitute the most
important element in the micro environment of business. Products
sales depend mainly on the degree of consumer satisfaction.

In fact, this is a reason that gives more importance to customer


satisfaction surveys. Now every business firm set-up systems to
regularly watch customer attitude and customer satisfaction, because
today it is universally accepted that the satisfaction of customers is the
base for company’s success. Normally the customers are not in a same

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group, they are individuals, business enterprises, institutions and


government.

From the company’s point of view it is always better to have customer


from various groups and legions for that easily sustains demand for
the company’s product.

3. Suppliers:
Regarding the suppliers, the organisation can think of availing the
required material or labour according to its manufacturing
programme. It can adopt such a purchase policy which gives
bargaining power to the organisation.

According to Michael Porter, “the relationship between suppliers and


the firm epitomises a power equation between them. This equation is
based on the industry conditions and the extent to which each of them
is dependent on the other.”

Suppliers are either individuals or business houses. They combined


together; provide resources that are needed by the company. Now the
company necessarily should go for developing specifications,
searching for potential suppliers, identifying and analysing the
suppliers and thereafter choose those suppliers who offer best mix of
quality, delivery reliability, credit, warranties and obviously low cost.

The development in the supplier’s environment has a substantial


impact on the operations of the company. In recent trends companies
can lower their supply cost and increase their product quality.

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4. Public:
Literally word ‘public’ refers to people in general. According to Philip
Kotler, “A public is any group that has an actual or potential interest in
or impact on a company’s ability to achieve its objectives.” The
environmentalists, consumer protection groups, media persons and
local people are some of the well-known examples of publics.

The company has a duty to satisfy the people at large along with
competitors and the consumers. It is an exercise which has a larger
impact on the well-being of the company for tomorrow s stay and
growth. Create goodwill among public, help to get a favourable
response for a company. Kotler in this regard has viewed that.

“Companies must put their primary energy into effectively managing


their relationships with their customers, distributors and suppliers.
Their overall success will be affected by how other publics in the
society view their activity. Companies would be wise to spend time
monitoring all their public understanding their needs and opinions
and dealing with then constructively.”

In the modern business public have assumed important role and their
presence in the micro environment of business.

5. Marketing Intermediaries:
Market intermediaries are either individuals or business houses who
come to the aid of the company in promoting, selling and distributing
the goods to the ultimate consumers. They are Middlemen
(wholesalers, retailers and agents), distributing agencies, market

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service agencies and financial institutions. Most of the companies find,


it is too difficult to reach the consumers. In such a cases the agents
and distribution firms help to reach the product to the consumer.

Any type of intermediary the company must take into active


consideration, the following aspects:

(i) The company has also to constantly review the performance of both
middlemen and others helping its efforts periodically. If necessary, it
may take recourse to replacement of those who no longer perform at
the expected level.

(ii) Middlemen come into being to help overcome the discrepancies in


quantities place, time, assortment and possession that would
otherwise exist in a given condition.

(iii) It is advantageous and also efficient to work through the


established Marketing channels instead of creating one and thus going
for experiments.

(iv) The manufacturer has to decide the most cost-effective method of


intermediaries to reach the product to consumer that will help to
increase the profit.

6. Workers and Their Union:


As per the production function theory, the labour gets more
importance. He is also one of the pillars of the company. The
organised labours is highly secured their position compare to
unorganised workers So, the workers now prefer to join labour unions

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which invariably resort to collective bargaining and thereby makes


them less vulnerable to employer’s exploitation.

On the other hand, Trade Unions are a major component of a modern


business. Trade Union of workers is an organisation formed by
workers to protect their interests, improve their working conditions
etc.

All Trade Unions have objectives or goals to achieve, which are


contained in their constitution, and each has its own strategy to reach
those goals Trade Unions are now considered a sub-system, which
seeks to serve the specific sub-group’ s interest (i.e. workers’) and also
considers itself a part of the organisation.

From the point of view of the company, industrial relation is more


important to improve the company, otherwise conflict between labour
and management leads to Sick Unit.

7. Market intermediaries include parties involved in distributing the


product or service of the organization.
8. Partners are all the separate entities like advertising agencies, market
research organizations, banking and insurance companies, transportation
companies, brokers, etc. which conduct business with the organization.

2. Macro Environment
The macro component of the marketing environment is also known as the broad
environment. It constitutes the external factors and forces which affect the industry
as a whole but don’t have a direct effect on the business. The macro environment
can be divided into 6 parts.

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1. Demographic Environment
The demographic environment is made up of the people who constitute the market.
It is characterized as the factual investigation and segregation of the population
according to their size, density, location, age, gender, race, and occupation.

2. Economic Environment
The economic environment constitutes factors which influence customers’
purchasing power and spending patterns. These factors include the GDP, GNP,
interest rates, inflation, income distribution, government funding and subsidies,
and other major economic variables.

I. General economic conditions

II. Availability of economic resources

III. Economic policies


IV. Economic forces

3. Physical Environment
The physical environment includes the natural environment in which the business
operates. This includes the climatic conditions, environmental change, accessibility
to water and raw materials, natural disasters, pollution etc.
I. Better utilization of productive resources

II. Improvement in competitive strength


III. Improvement in productivity

IV. Improvement in profitabilty

4. Technological Environment
The technological environment constitutes innovation, research and development
in technology, technological alternatives, innovation inducements also
technological barriers to smooth operation. Technology is one of the biggest
sources of threats and opportunities for the organization and it is very dynamic.
I. Better utilization of resources

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II. Improvement in competitive strength

III. Improvement in productivity

IV. Improvement in profitability

5. Political-Legal Environment
The political & Legal environment includes laws and government’s policies
prevailing in the country. It also includes other pressure groups and agencies which
influence or limit the working of industry and/or the business in the society.

1. political philosophy

2. political condition

3. quality of leadership

4.Regulating relationship among members

6. Social-Cultural Environment
The social-cultural aspect of the macro environment is made up of the lifestyle,
values, culture, prejudice and beliefs of the people. This differs in different
regions.
I. Social structure

II. Demography

III. Social values


IV. Cultural values

7. International environment

The technological environment comprises factors related to the materials &


machines used in manufacturing goods & services. Receptivity of organizations to
new technology & adoption of new technology by consumers influence decisions

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made in an organization. As firms do not have any control over the external
environment, their success depends on how well they adapt to the external
environment. An important aspect of the international business environment is the
level, & acceptance, of technological innovation in different countries. The last
decades of the twentieth century saw major advances in technology, & this is
continuing in the twenty-first century. Technology often is seen as giving firms a
competitive advantage; hence, firms compete for access to the newest in
technology, & international firms transfer technology to be globally competitive. It
is easier than ever for even small business plan to have a global presence thanks to
the internet, which greatly grows their exposure, their market, & their potential
customer base. For the economic, political, & cultural reasons, some countries are
more accepting of technological innovations, others less accepting. In analyzing
the technological environment, the organization may consider the following
aspects:

I. Level of technological development in the country as a whole & specific


business sector.
II. The pace of technological changes & technological obsolescence.
III. Sources of technology.
IV. Restrictions & facilities for technology transfer & time taken for absorption
of technology.

 ORGANIZATIONS DEPENDENCE ON THE ENVIRONMENT


1. Enables to Identify Business Opportunities
All changes are not negative. If understood and evaluated them, they can be the
reason for the success of a business. It is very necessary to identify a change and use
it as a tool to solve the problems of the business or populous.

2. Helps in Tapping Useful Resources


Careful scanning of the Business Environment helps in tapping the useful resources
required for the business. It helps the firm to track these resources and convert them
into goods and services.

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3. Coping with Changes


The business must be aware of the ongoing changes in the business environment,
whether it be changes in the customer requirements, emerging trends, new
government policies, technological changes. If the business is aware of these regular
changes then it can bring about a response to deal with those changes.

4. Assistance in Planning
This is another aspect of the importance of business environment. Planning purely
means what is to be done in the future. When the Business Environment presents a
problem or an opportunity, it is up to the business to decide what plan would it have
to come up with in order to address the future and solve the problem or utilise the
opportunity. After analysing the changes presented, the business can incorporate
plans to counteract the changes for a secure future.

5. Helps in Improving Performance


Enterprises that are thoroughly scanning their environment not only deal with the
changes presented but also flourish with them. Adapting to the external forces help
the business to improve the performance and survive in the market.

6. Keeping Business Flexible and Dynamic: Study of business environment is


needed for keeping business flexible and dynamic as per the changes in the
environmental forces. This will enable the development of business organization.

7. Understanding Future Problems and Prospects: The study of business


environment enables to understand future problems and prospects of business in
advance. This enables business organizations to face the problems boldly and also
take the benefit of favorable situation.

8. Making Business Socially Acceptable: Environment study enables


businessmen to expand the business and also make it acceptable to different social
groups. Business organizations can make positive contribution for maintaining
ecological balance by studying social environment.

9. Ensures Optimum Utilization of Resources: The study of business


environment is needed as it ensures optimum use of resources available. For this,
the study of economic and technological environment is useful. Such study enables

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organization to take full benefit of government policies, concessions provided, and


technological developments and so on.

 ANALYSIS OF REMOTE ENVIRONMENT

Economic factors in the remote environment are not within the control of a company, but its
management has to make decisions keeping them in mind such factors. They include economic
growth, inflation and unemployment.

Remote environment- Ecological, political, social, and technological factors or


forces that affect a form's decision making abilities and freedom, but are beyond its
control or influence.
1. Ecological analysis- Ecological studies are studies of risk-modifying factors on health or
other outcomes based on populations defined either geographically or temporally. Both risk-
modifying factors and outcomes are averaged for the populations in each geographical or temporal
unit and then compared using standard statistical methods.

The political factors take the country’s current political situation. It


2. Political analysis-
also reads the global political condition’s effect on the country and business. When
conducting this step, ask questions like “What kind of government leadership is
impacting decisions of the firm?”

Some political factors that you can study are:

 Government policies
 Taxes laws and tariff
 Stability of government
 Entry mode regulations

3. Social factors
Countries vary from each other. Every country has a distinctive mindset. These attitudes
have an impact on the businesses. The social factors might ultimately affect the sales of
products and services.

Some of the social factors you should study are:

 The cultural implications


 The gender and connected demographics
 The social lifestyles
 The domestic structures
 Educational levels

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 Distribution of Wealth

4. Technological factors
Technology is advancing continuously. The advancement is greatly influencing
businesses. Performing environmental analysis on these factors will help you stay up to
date with the changes. Technology alters every minute. This is why companies must stay
connected all the time. Firms should integrate when needed. Technological factors will
help you know how the consumers react to various trends.

Firms can use these factors for their benefit:

 New discoveries
 Rate of technological obsolescence
 Rate of technological advances
 Innovative technological platforms
5. Legal factors
Legislative changes take place from time to time. Many of these changes affect the
business environment. If a regulatory body sets up a regulation for industries, for
example, that law would impact industries and business in that economy. So, businesses
should also analyze the legal developments in respective environments.

I have mentioned some legal factors you need to be aware of:

 Product regulations
 Employment regulations
 Competitive regulations
 Patent infringements
 Health and safety regulations
6. Environmental factors
The location influences business trades. Changes in climatic changes can affect the trade.
The consumer reactions to particular offering can also be an issue. This most often affects
agri-businesses.

Some environmental factors you can study are:

 Geographical location
 The climate and weather
 Waste disposal laws
 Energy consumption regulation

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 People’s attitude towards the environment

 ANALYSIS OF SPECIFIC ENVIRONMENT


 The portion of the overall business situation that applies directly to an organization achieving
its objectives. A business manager needs to make a careful and realistic assessment of the
specific environment in which their company is operating in order to make the best informed
decisions.

 Specific Environment is the part of the external environment of an


organization with which it interfaces in the course of conducting its
business. Also called: Task Environment.
 The institutions, stakeholders and forces belonging to this group are
directly relevant to the achievement of the organizational goals
because they have direct and immediate impact on the decisions and
actions of its management. The specific environment of each
organization is unique and changes with conditions.
 Typical constituents of the task environment are: customers,
suppliers, competitors, and pressure groups.
 Employees are not considered part of the specific environment,
because they are inside the organization.

1. Competitors
Policies of the organization are often influenced by the competitors.
Competitive marketplace companies are always trying to stay and go
further ahead of the competitors. In the current world economy, the
competition and competitors in all respects have increased tremendously.
The positive effect of this is that the customers always have options and the
overall quality of products goes high.
2. Customers
“Satisfaction of customer”- the primary goal of every organization. The
customer is who pays money for the organization’s product or services.
They are the peoples who hand them the profit that the companies are
targeting.
Managers should pay close attention to the customers’ dimension of the
task environment because its customers purchase that keeps a company
alive and sound.
3. Suppliers
Suppliers are the providers of production or service materials. Dealing with
suppliers is an important task of management.
A good relationship between the organization and the suppliers is important
for an organization to keep a steady follow of quality input materials.
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4. Regulators
Regulators are units in the task environment that have the authority to
control, regulate or influence an organization’s policies and practices.
Government agencies are the main player in the environment and interest
groups are created by its members to attempt to influence organizations as
well as government. Trade unions and chamber of commerce are the
common examples of an interest group.
5. Strategic Partners
They are the organization and individuals with whom the organization is to
an agreement or understanding for the benefit of the organization. These
strategic partners in some way influence the organization’s activities in
various ways.

 ANALYSIS OF SPECIFIC ENVIRONMENT- MICHAEL E. PORTE’S


5 FORCES MODEL

The tool was created by Harvard Business School professor Michael Porter, to
analyze an industry's attractiveness and likely profitability. Since its publication in
1979, it has become one of the most popular and highly regarded business strategy
tools.
Porter recognized that organizations likely keep a close watch on their rivals, but
he encouraged them to look beyond the actions of their competitors and examine
what other factors could impact the business environment. He identified five forces
that make up the competitive environment, and which can erode your profitability.
These are:

Definition: The five forces model of analysis was developed by Michael Porter to
analyze the competitive environment in which a product or company works.

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Description: There are five forces that act on any product/ brand/ company:
The five forces are:

1. Supplier power. An assessment of how easy it is for suppliers to drive up


prices. This is driven by the: number of suppliers of each essential input;
uniqueness of their product or service; relative size and strength of the supplier;
and cost of switching from one supplier to another.

2. Buyer power. An assessment of how easy it is for buyers to drive prices down.
This is driven by the: number of buyers in the market; importance of each
individual buyer to the organisation; and cost to the buyer of switching from one
supplier to another. If a business has just a few powerful buyers, they are often able
to dictate terms.

3. Competitive rivalry. The main driver is the number and capability of


competitors in the market. Many competitors, offering undifferentiated products
and services, will reduce market attractiveness.

4. Threat of substitution. Where close substitute products exist in a market, it


increases the likelihood of customers switching to alternatives in response to price
increases. This reduces both the power of suppliers and the attractiveness of the
market.

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5. Threat of new entry. Profitable markets attract new entrants, which erodes
profitability. Unless incumbents have strong and durable barriers to entry, for
example, patents, economies of scale, capital requirements or government policies,
then profitability will decline to a competitive rate.

 INTERNAL ANALYSIS- INTERNAL ANALYSIS OF THE


ENVIRONMENT – it is the first step of environment scanning.
Organizations should observe the internal organizational environment. This
includes employee interaction with other employees, employee interaction
with management, manager interaction with other managers, and
management interaction with shareholders, access to natural resources,
brand awareness, organizational structure, main staff, operational potential,
etc. Also, discussions, interviews, and surveys can be used to assess the
internal environment. Analysis of internal environment helps in identifying
strengths and weaknesses of an organization.
A SWOT analysis is a common strategic business planning tool that involves
composing a list of four elements related to a new business project:
strengths, weaknesses, opportunities and threats

1. Strengths
In a SWOT analysis, strengths describe the core competencies of a business,
strategic factors that may make a certain project more likely to succeed and areas
where the business may have advantages over other similar businesses. For
example, if an established cereal company plans to launch a new product, brand
recognition might be listed as a strength. Businesses that are aware of their
strengths are better able to improve and exploit them to their advantage.
2. Weaknesses
Weaknesses are things that can make a certain project less likely to succeed and
areas where a company is particularly lacking. For instance, a brand new company
might be unknown to most consumers; low brand recognition and lack of customer
loyalty could be weaknesses. Once weaknesses are identified, a business takes
steps to lessen the impact or turn them into strengths.
3. Opportunities

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Opportunities are things that have the potential to increase profits, productivity or
benefit a business in some other way . Opportunities include things like changes in
government regulations that make it easier for a business to make profit, unfulfilled
consumer need, new markets and new technology. Recognizing and taking
advantage of opportunities are important aspects of running a successful business.
4. Threats
Threats are the final element of a SWOT analysis; they have the potential to harm a
business. For instance, if you run the only pizza shop in town, the possibility that a
new competitor will open a shop and take some of your business is a threat.
Unfavorable changes to laws, higher taxes and changes in consumer preferences
other possible threats. Identifying a threat helps the business manager to limit its
impact.

 THE IMPORTANCE OF ORGANIZATIONAL CAPABILITY

An organizational capability is a company's ability to manage resources, such as


employees, effectively to gain an advantage over competitors. The company's
organizational capabilities must focus on the business's ability to meet customer
demand. In addition, organizational capabilities must be unique to the organization
to prevent replication by competitors. Organizational capabilities are anything a
company does well that improves business and differentiates the business in the
market. Developing and cultivating organizational capabilities can help small
business owners gain an advantage in a competitive environment by focusing on
the areas where they excel.
1. Competitive Advantage
Organizational capabilities provide a company with an advantage in the
marketplace. When an organization continues to create new capabilities and
develops existing ones, it will maintain the advantage over its competitors.
Capabilities that provide a competitive advantage include knowledge, product
licenses and innovative designs.
2. Flexibility and Responsiveness

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The responsiveness of an organization is its ability to change in response to


customer demand. Knowledge and skilled employees are organizational
capabilities that provide a company with the ability to respond to customer
demands and remain flexible to changes in the business environment.
3. Knowledgeable Workforce
The skills and knowledge of a company's workforce allow the organization to
direct those skills to achieve the business's goals. Training programs, education
assistance and effective recruiting and hiring programs are organizational
capabilities that ensure a knowledgeable workforce. To maintain the capability,
companies should ensure the workforce has the resources available to improve
continuously. Managing a talented workforce is an organizational capability that
provides a competitive advantage in the marketplace.
4. Improved Customer Relationships
Good customer relationships ensure the continued growth and competitiveness in
the market. The relationship between the organization and its customers is an
organizational capability that affects sales, reputation and loyalty for future
business. Maintaining existing relationships with customers as well as developing
new ones ensures the company will grow and thrive in the future. A lean
manufacturing environment is an organizational capability that focuses on the
voice of the customer and meeting demand. This organizational capability
improves the relationship with the customer for the business.
 COMPETITIVE ADVANTAGE AND CORE COMPETENCE
 Definition of Competitive Advantage

Competitive Advantage alludes to a condition, that puts a firm in a position,


favorable to it, i.e. one which allows the company to produce products or services
at reasonable prices, which are in vogue, for the customers. In such a situation, the
firm is able to reap more profits or generate more revenue, when compared to its
competitors.

Competitive Advantage is something that keeps you a step ahead than the
competitors. It can be attained due to some factors like product quality, brand, cost
structure, customer loyalty and so forth.

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The three strategies by which a firm can gain competitive advantage, according to
Michael Porter, are:

 Cost Leadership Strategy


 Differentiation strategy
 Focus strategy

 Definition of Core Competence

Core Competence can be defined as the fundamental strength of a business which


includes a unique combination of various resources, knowledge and skills, which
differentiates a company in the marketplace. It is the profound dexterity that
provides one or more lasting competitive advantage to the company in creating and
delivering perceived benefits to the customers.

Core Competency is something that provides access to a number of markets,


difficult to catch up by rivals and must make a considerable amount of
contribution, in providing value to the customers. It can be gained by the
distinct set of skills or production techniques. It provides a structure to the
companies, which is helpful in ascertaining their major strengths, to
strategize accordingly.

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 Key Differences Between Competitive Advantage and Core Competence

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Conclusion

Core competencies are the major source of attaining competitive advantage and
determines the areas, which a firm must focus. It helps the firms in identifying
prospective opportunities for adding value to customers. On the other hand,
competitive advantage helps a firm to get an edge over the competitors.

 MICHAEL E. PORTER’S VALUE CHAIN ANALYSIS

 Value chain analysis (VCA) is a process where a firm identifies its primary
and support activities that add value to its final product and then analyze
these activities to reduce costs or increase differentiation.
 Value chain represents the internal activities a firm engages in when
transforming inputs into outputs.

 Value chain analysis is a strategy tool used to analyze internal firm


activities. Its goal is to recognize, which activities are the most valuable (i.e.
are the source of cost or differentiation advantage) to the firm and which
ones could be improved to provide competitive advantage. In other words,
by looking into internal activities, the analysis reveals where a firm’s
competitive advantages or disadvantages are. The firm that competes
through differentiation advantage will try to perform its activities better than
competitors would do. If it competes through cost advantage, it will try to
perform internal activities at lower costs than competitors would do. When a
company is capable of producing goods at lower costs than the market price
or to provide superior products, it earns profits.

 M. Porter introduced the generic value chain model in 1985. Value chain
represents all the internal activities a firm engages in to produce goods and
services. VC is formed of primary activities that add value to the final
product directly and support activities that add value indirectly.

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Primary activities of Porter’s value chain are as follows

1) Inbound logistics
Bring raw material from source to the company. The value chain can be enhanced
in this step by improving the quality of raw material as well as optimizing the cost
of inbound logistics.

2) Operations
Converting the raw material to finished goods is the job of Operations. The
customer value is increased majorly in this step if the operations are up to mark
and the product is manufactured in the right manner and meets quality standards.
You can take example of Television or Air conditioners to understand the
importance of Operations and manufacturing in the Value chain.

3) Outbound logistics
Sending finished goods from manufacturing point to distributors and retailers. The
value chain receives a boost if the out bound logistic activities are carried out in
time with optimal costs and the product is delivered to end customers with
minimum affect to the quality of the product. Food products can be an example of

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how value can be added during outbound logistics by delivering product on time
with best quality.

4) Marketing and sales


The marketing and sales apply push as well as pull strategy to increase the sales of
the product. The company exists to make profits and if profits can be increased by
marketing and sales, than the company has to use these tools. However,
marketing needs to be done in the right manner to build brand equity and sales
should be done in the proper channel without any false commitments given to
customers to add value to the end product and the brand.

5) Service
The post sales service is the most important because it directly affects the word of
mouth publicity of the product. If the service is not upto mark, no one will buy the
product and the brand will lose market share and may be taken out of the market
eventually. Thus service is very important in the Porter’s value chain.

Secondary activities involved in the Porter’s Value chain are as follows

6) Procurement
The management of vendors and the procurement of the raw material on a timely
basis is where procurement comes in.

7) Technology development
No product can survive if the company does not keep it updated as per the
latest technology.

8) Human resource management


The right people in the right place can make all the difference for the company and
hence the HR department is a support activity most important for the firm.

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9) Firm infrastructure
Without a proper infrastructure, and lack of government handling or legal support,
a firm might face a big hurdle. Similarly, administration department will help in
maintenance of the facilities in a firm.

The secondary activities like Technology and the right people are the elements
which add differentiation for the company. Samsung proved that Technology can
destroy a big competitor like Nokia.

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UNIT – 4 FORMULATION OF COMPETITIVE STRATEGIES

 INTRODUCTION TO STRATEGIES OF GROWTH, STABILITY


AND RENEWAL

 Growth Strategy- An organization substantially broadens the scope of


one or more of its business in terms of their respective customer
group, customer functions and alternative technologies to improve its
overall performance. A growth strategy is when an organization
expands the number of markets served or products offered, either
through its current business or through new business.

Because of its growth strategy, an organization may increase


revenues, number of employees, or market share. Organizations grow
by using concentration, vertical integration, horizontal integration, or
diversification.

 Stability- A stability strategy refers to a strategy by a company where


the company stops the expenditure on expansion, in other words it
refers to situation where company do not venture into new markets or
introduce new products.

Definition: The Stability Strategy is adopted when the organization


attempts to maintain its current position and focuses only on the
incremental improvement by merely changing one or more of its
business operations in the perspective of customer groups, customer
functions and technology alternatives, either individually or
collectively.

Stability strategy is adopted by company due to following reasons –

1. When the company plans to consolidate its position in the industry in which
company is operating.

2. When the economy is in recession or there is a slowdown in the economy than


companies want to have more cash in their balance sheet rather than investing
that cash for expansion or other such expenses.

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3. When company has too much debt in the balance sheet than also company
stops or postpones their expansion plans because if company takes more debt
for expansion than it would not able to pay interest rate on such debt and it may
create liquidity crunch for the company.

4. When the company is operating in an industry which has reached maturity


phase and there is no further scope for growth than also company adopts
stability strategy.

5. When the gains from expansion plans are less than the costs involved for such
expansion than company follows the stability strategy.

 Renewal strategy - A corporate renewal strategy, or a corporate


turnaround strategy, is a response to a decline in the corporation's
performance. If customers start buying less of a company's products,
or the company has unexpected cost increases for materials and labor,
the corporation can create a strategy to alleviate these problems.
Another corporation can buy out a poorly performing firm, and use a
corporate renewal strategy to make it more productive.

A renewal approach to strategy refreshes the vitality and


competitiveness of a firm when it is operating in a harsh environment.
When circumstances are so difficult that the current way of doing
business cannot be sustained, changing course to preserve and free up
resources—and then later to redirect toward growth—is the only way
to not merely survive but to eventually thrive again.

 TYPES OF GROWTH STRATEGIES-


1. Concentrated growth- A concentrated growth strategy involves
focusing on increasing market share in existing markets. This strategy
is also sometimes called a concentration or market dominance
strategy. In a stable environment where demand is growing,
concentrated growth is a low risk strategy. Concentration may involve
increasing the rate of use of a product by current customers; attracting
competitor's customers; and/or attracting nonusers/ new customers.
I. Increased market share
II. Increase product usage
III. Increase the frequency usage
IV. Increase the quantity used

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V. Find new application for current users

2. Product development- The creation of products with new or different


characteristics that offer new or additional benefits to the customer.
Product development may involve modification of an existing product
or its presentation, or formulation of an entirely new product that
satisfies a newly defined customer want or market niche.
I. Add product features
II. Product refinement
III. Develop new generation product
IV. Develop new product for the same market

3. Integration- Integration strategies allow a firm to gain control over


distributors, suppliers, and/or competitors. Integration Strategy also
called Management Control Strategy.

Vertical integration is a competitive strategy by which a company


takes complete control over one or more stages in the production or
distribution of a product.

Horizontal integration is the acquisition of business activities that


are at the same level of the value chain in similar or different
industries.
vertical integration integrates a company with the units supplying raw
materials to it (backward integration), or with the distribution
channels that carry its products to the end-consumers (forward
integration).

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A car manufacturer may acquire tire and electrical-component


factories (backward integration) or open its own showrooms to sell its
vehicle models or provide after-sales service (forward integration).

4. Diversification- Diversification is a corporate strategy to enter into a


new market or industry in which the business doesn't currently
operate, while also creating a new product for that new market. It is
Practice under which a firm enters an industry or market different
from its core business.
Reasons for diversification include
(1) Reducing risk of relying on only one or few income sources,
(2) Avoiding cyclical or seasonal fluctuations by producing goods or
services with different demand cycles,
(3) Achieving a higher growth rate, and (
4) Countering a competitor by invading the competitor's core industry
or market.
types
1. Concentric diversification
Organizations carry out concentric diversification through enlarging the production portfolio by adding new
products with the aim of fully utilizing the potential of the existing technologies and marketing system. It
occurs when the organization adds related products or markets. The goal of such diversification is to
achieve strategic fit. Strategic fit allows the organization to achieve synergy. In essence, synergy is the
ability of two or more parts of the organization to achieve greater total effectiveness together than would
be experienced if the efforts of the independent parts were summed.
Synergy may also be achieved by combining different organizations with complementary marketing,
financial, operating, or management efforts.
Financial synergy can be obtained by combining an organization with strong financial resources but
limited growth opportunities with an organization having great market potential but weak financial
resources.
Strategic fit in operations can result in synergy by the combination of operating units of an organization to
improve overall efficiency. Combining two units improve overall efficiency since the duplicate equipment
or parallel work on research and development are eliminated. Concentric diversification can be a lot more
financially efficient as a strategy, since the business may benefit from the synergies in this diversification
model. It may enforce some investments related to modernizing or upgrading the existing processes or
systems.
2. Conglomerate diversification
It is also known as heterogeneous diversification. It relates to moving to new products or services that
have no technological or commercial relation with current products, equipment, distribution channels, but
which may appeal to new groups of customers. The major motive behind this kind of diversification is the
high return on investments in the new industry. Furthermore, the decision to go for this kind of
diversification can lead to additional opportunities indirectly related to further developing the main
business of the organization such as access to new technologies, opportunities for strategic partnerships,
etc

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In this type of diversification, synergy can result through the application of management expertise or
financial resources, but the primary purpose of conglomerate diversification is improved profitability of the
organization. In this type of diversification there is little or no concern that is given to achieve marketing or
production synergy.
One of the most common reasons for pursuing a conglomerate diversification strategy is that
opportunities in the organizational current line of business are limited. Finding an attractive investment
opportunity requires the organization to consider alternatives in other types of business.
Organizations may also pursue a conglomerate diversification strategy as a means of increasing the
growth rate. Growth in sales can make the organization more attractive to investors.
The disadvantage of a conglomerate diversification strategy is the increase in administrative problems
associated with operating unrelated businesses.
3. Horizontal diversification
Horizontal integration occurs when an organization enters a new business (either related or unrelated) at
the same stage of production as its current operations. It involves acquiring or developing new products
or offering new services that could appeal to the organization´s current customer groups. In this case the
organization relies on sales and technological relations to the existing product lines.
Horizontal diversification is desirable if the present customers are loyal to the current products and if the
new products have a good quality and are well promoted and priced. Moreover, the new products are
marketed to the same economic environment as the existing products, which may lead to rigidity or
instability.
4. Vertical diversification
Vertical diversification occurs when an organization goes back to previous stages of its production
cycle (backward integration) or moves forward to subsequent stages of the same cycle (forward
integration). This means that the organization goes into production of raw materials, distribution of its
products, or further processing of the present end product.
Backward integration allows the diversifying organization to exercise more control over the quality of the
supplies being purchased. Backward integration can be undertaken to provide a more dependable source
of needed raw materials. Forward integration allows the organization to assure itself of an outlet for its
products. Forward integration also allows the organization better control over how its products are sold
and serviced. Furthermore, the organization may be better able to differentiate its products from those of
its competitors by forward integration.

5. International expansion- The planned expansion of a company's


business activities into countries in several regions throughout the
world. Global expansion implies more than just making investments
in nations outside of the company's home; the concept includes
maintaining an actual business presence in those countries.

i. multi domestic approach- A multidomestic strategy is an


international marketing approach that chooses to focus advertising and
commercial efforts on the needs of a local market rather than taking a
more universal or global approach. This means that companies
employing this marketing strategy will seek to understand the culture

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of various local markets and tailor their entry into those markets based
on the demographics of that area.

ii. franchising- Arrangement where one party (the franchiser) grants another
party (the franchisee) the right to use its trademark or trade-name as well as
certain business systems and processes, to produce and market a good or
service according to certain specifications. The franchisee usually pays a
one-time franchise fee plus a percentage of sales revenue as royalty, and
gains (1) immediate name recognition, (2) tried and tested products, (3)
standard building design and décor, (4) detailed techniques in running and
promoting the business, (5) training of employees, and (6) ongoing help in
promoting and upgrading of the products.

iii. Licensing- Licensing a product means you allow someone else to use
your intellectual property, logo or design in exchange for fees. Those fees
can include a lump sum, ongoing royalties or a percentage of the licensee’s
sales. Companies strive to create brands, characters and celebrities they can
license to other businesses. Licensing helps them increase their market
share, drives consumer preference and loyalty for their artists and brands,
maximizes exposure and increases sales revenue.

iv. joint ventures- Joint Venture is a business preparation in which more


than two organizations or parties share the ownership, expense, return of
investments, profit, governance, etc. To gain a positive synergy from their
competitors, various organizations expand either by infusing more capital or by
the medium of Joint Ventures with organizations. In short, when two or more
organizations join hands together for creating synergy and gain a mutual
competitive advantage, the new entity is called a Joint Venture. It can be a
private company, public company or even a foreign company.

 TYPES OF RENEWAL STRATEGIES-


A corporate renewal strategy, or a corporate turnaround strategy, is a
response to a decline in the corporation's performance. If customers start
buying less of a company's products, or the company has unexpected cost
increases for materials and labor, the corporation can create a strategy to
alleviate these problems. Another corporation can buy out a poorly
performing firm, and use a corporate renewal strategy to make it more
productive.

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1. Retrenchment Strategy- The Retrenchment Strategy is adopted when


an organization aims at reducing its one or more business operations
with the view to cut expenses and reach to a more stable financial
position. in other words, the strategy followed, when a firm decides to
eliminate its activities through a considerable reduction in its business
operations, in the perspective of customer groups, customer functions
and technology alternatives, either individually or collectively is
called as Retrenchment Strategy.

The firm can either restructure its business operations or discontinue it, so as to
revitalize its financial position.

2. Turnaround- The Turnaround Strategy is a retrenchment strategy


followed by an organization when it feels that the decision made
earlier is wrong and needs to be undone before it damages the
profitability of the company. Simply, turnaround strategy is backing
out or retreating from the decision wrongly made earlier and
transforming from a loss making company to a profit making
company. Following are certain indicators which make it mandatory
for a firm to adopt this strategy for its survival.
Reasons for turnaround strategy
1. Continuous losses
2. Poor management
3. Wrong corporate strategies
4. Persistent negative cash flows
5. High employee attrition rate
6. Poor quality of functional management
7. Declining market share
8. Uncompetitive products and services
 Features for turnaround strategy

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Steps for turnaround strategy:


For turnaround strategies to be successful, it is imperative to focus on the short and long-term financing
needs as well as on strategic issues. Workable action plan for turnaroun would involve the following
stages;

Step One -Assessment of Current Problems:

The first step of the turnaround strategy is to assess the root cause of problem for decreasing the sales
and cash flow of the company. To find out the reasons for the problem, management has to evaluate
the whole organisation structure from internally as well as from externally so that the appropriate '
reasons behind the retrenchment or turnaround is caused in the business organisation. When once the
problems would be found out, some efficient steps to rectify the same can be taken.

Step Two Analyze the Situation and Develop:

Strategic Plan:

After evaluating the main reason for the declining phaseof the business activity in the organisation, a
strategic plan should be formulated to face the situation appropriately so that the organisation can
come out of the poor situation of the present time period. For this one should look for the viable core
businesses, adequate bridge financing and available organizational resources. Even the business has to
undertake SWOT analysis before it makes any action plan to let the business Out of it critical condition.

Step three implementing an Emergency Action Plan:

If the organisation is passing through the critical stage, an appropriate action plan must be develop to
stop the damaging condition of the business for its survival. This plan typically includes human
resources, financial, marketing and operations actions to restructure debts, improve working capita1,
reduce costs, improve budgeting practices, prune product lines and accelerate high potential products.

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Step Four Restructuring the Business:

If the business organisation is passing through the teething trouble, it has to formulate the strategy of
restructuring the business unit as a whole to keep their existence continuous in the market. During the
turnaround, the product mix may be changed, requiring the organization to do some repositioning. Core
products neglected over time may require immediate attention to remain competitive. Some facilities
might be closed; the organisation may even withdraw from certain markets to make organisation target
its products towards a diff cut direction.

Step Five Returning to normal:

This is the final stage of turnaround strategy After accomplishing the above four step solution
appropriately there are chances that the firm would establish itself at the normal condition.

The above all step would give a new strength to the business organisation to combat with the current
situation and would survive comfortably.

Thus, the renewal strategy of the business organisation would help the business to get themselves
established again and make their business profitable again.

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UNIT – 5 STRATEGIC FRAMEWORKS

 STRATEGIC ANALYSIS & CHOICE

Strategic analysis - The process of conducting research on the business


environment within which an organization operates and on the organization
itself, in order to formulate strategy. Strategic analysis is a tool that
businesses use to map out their current positions before they develop
strategic plans for future direction and growth.

Why use it? - take advantage of the path of least resistance to achieve your
goal.

When to use it? - When you are planning to make a change in your
organization, and you need to determine the best path to take.

Strategic choice involves understanding the nature of stakeholders’


expectations, identifying the strategic option and evaluating and selecting
the best/optimal choice amongst all.

As environment changes, companies need to change their strategies to adapt to the


environment not only to prosper but also to survive. Based on the multiple strategic
choices, each choice is analyze and the best one is selected and implemented.

Strategic analysis and choice are two important components of the implementation
stage of the strategic management plan. These two components are crucial links in
the strategic management implementation procedure.

Strategic analysis is all about analyzing the strength of businesses’ position and understanding
the important external factors that may influence that position.

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Characteristics of Strategic Analysis and Choice

Following are the features of strategic analysis and choice:

 Establishment of long term goals


 Producing strategy options
 Choosing strategies to act on
 Selecting the best option and accomplishing mission and g

At the time of performing strategic analysis and arriving at strategic choices, long
term goals are fixed and different types of strategies are chosen that are most
appropriate for the mission of the company and the variable conditions.

 STRATEGIC GAP ANALYSES

Gap Analysis refers to the comparison between what the performance was
(actual) and what the performance should has been (potential). The results of
this analysis help identify the errors in resource allocation and what steps need
to be taken further to help improve performance through better utilization of the
input resources.
The current performance is extrapolated back and compared with the desired
performance level to get the results.

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Gap= Current Performance- Desired Performance

Strategic Gap Analysis helps identify performance gap with respect to the
strategy the company follows to achieve its goals, whether the performance is
aligned with the mission and vision of the company. This leads to resource
optimization through the sages of determination, writing and application.

Strategic Gap = what the firm is doing - what the firm must do

The variance between the current and desired performance is an indicator of the
gap in this case. The outcome is the identification of means to fill the gap.
Strategic gap analysis is an evaluation of the difference between desired outcome
and actual outcome, and what must be done to achieve a desired goal. Strategic gap
analysis attempts to determine what a company should do differently to achieve a
particular goal by looking at the time frame, management, budget and other factors
to determine where shortcomings lie.

Stages in Gap Analysis

1. Ascertain the present strategy: On what assumptions the existing strategy is


based?
2. Predict the future environment: Is there any discrepancy in the assumption?
3. Determine the importance of gap between current and future environment:
Are changes in objectives or strategy required?

 PORTFOLIO ANALYSES- he business portfolio is one of the most crucial


factors for any organization. Why? Because it is about what the organization
plans, sells, and stops to sell. The business portfolio must be based on the
company’s mission, objectives and strategy, in order to fit the company’s
strengths and weaknesses, philosophy and competencies to opportunities in
the market environment. Designing the business portfolio involves analysing
the company’s current portfolio, before strategies for growth and downsizing
can be developed.

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1. BCG (Boston Consulting Group) Matrix


 Every business needs strategic planning to rule in the industry. Therefore,
The Boston Consulting Group designed product portfolio matrix (BCG
matrix) or growth-share matrix to help business with long-term strategic
planning.

 Definition
BCG Matrix helps business to analyze growth opportunities by reviewing
the market growth and market share of products and further help in deciding
where to invest, to discontinue or develop products. BCG Model puts each
of a firm’s businesses into one of four categories. The categories were all
given remarkable names- Cash Cows, Stars, Dogs, and Question Marks.

 The four categories are explained below with BCG Matrix diagram:

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Let’s understand BCG Matrix in detail with examples:

1. Question Marks (High Growth, Low Market Share)


These businesses represent a low market share in a high growth industry. As the
name suggests, it is difficult to say if these products will become the Stars or drop
into the Dogs category. Generally, these products are the startup or new products,
which have a good commercial prospect. Therefore, they require a huge amount of
investment to gain or maintain market share and to become a Star product. No
doubt the market has growth opportunities, but these products have not succeeded
to take benefits of these market opportunities to such an extent that they can be
recognized as Stars.

2. Cash Cows (Low Growth, High Market Share)


Cash Cows category represents businesses having a large market share in a mature,
slow-growing industry. Businesses under this category usually follow stability
strategies. Further, these firms required little investment and generate cash that can
be utilized for investment in other business units. However, when Cash Cows lose
their appeal and move towards decline, a retrenchment policy may be followed.

3. Stars (High Growth, High Market Share)


Stars are leaders in business. These products have rapid growth and dominant
market share. However, they require heavy investment to maintain its position and
its large market share. Furthermore, Stars lead to a large amount of cash
consumption and cash generation. Therefore, an attempt should make to hold

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market share and to support further growth, otherwise, a star will become a cash
cow.

4. Dogs (Low Growth, Low Market Share)


Dogs represent business having a low market share in a low growth market. These
firms have low market share due to poor quality, ineffective market, high cost, etc.
They neither generate cash nor require a huge amount of cash. Due to low market
share, these firms face cost disadvantages. Therefore, in such situation, managers
need to decide whether the investment currently being spent on keeping these
products alive, could be spent on making something that would be more profitable.

Benefits of the matrix:

1. Easy to perform;
2. Helps to understand the strategic positions of business portfolio;
3. It’s a good starting point for further more thorough analysis.

conclusion
The BCG model helps in strategic planning, but like any other marketing model, it
works in some situation and in others. It helps companies to assess which products
need to be promoted to generate revenue and which one needs to be discontinued.
In short, BCG Model gives a true picture of how marketing efforts will affect
business’s overall cash flow.

2. The GE Matrix
In consulting engagements with General Electric in the 1970’s, McKinsey & Company developed nine-
cell portfolio matrix as a tool for screening GE’s large portfolio of strategic business unit. The GE matrix
is similar to the BCG growth share matrix in that it maps strategic business unit on a grid of the industry
and the SBU’s position in the industry. The GE matrix however, attempts to improve upon the ECG
matrix. Industry attractiveness and business unit strength are calculated by first identifying criteria for
each, determine the value of each parameter in the criteria, and multiplying that value by a weighting
factor.

This model is also known as Business Planning Matrix, GE Nine-Cell Matrix and GE Model. The strategic
planning approach in this model has been 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. The
vertical axis indicates market attractiveness and the horizontal axis shows the business strength in the
industry.

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The market attractiveness is measured by a number of factors like;

 Size of the market: For market attractiveness the size of the market plays important role. Here
the management needs to think about expanding market share from what market share they
possess at present.
 Market growth rate: The business having certain level of market share and how and what ways
it can be enhanced can be determined by the analysis of the GE matrix so that the volume of the
business for the future can be enhanced expectedly.
 Industry Profitability: For a strategic business unit, it must be considered about the overall
profitability of the industry. If it is more it would inspire the business unit more to take some
step to increase the market share. Competitive intensity: The market attractiveness can also be
measured effectively with the help of the competitive intensity in the market which keep the
business unit alert all the time to combat the competitive intensity by improving their
performance as much as they can with the changing competitor’ s outcome.
 Availability of Technology-Strategic business unit needs to get updated with the changing
modernization 1n the business concerns. Technological availability play very important role for
the determination of the market share for the business unit.
 Pricing Trends: The price trends in the economy are also one of the important factors that can
be determined by the business unit for the portfolio analysis. If the pricing are much volatile in
the market then the strategic planning should be changed accordingly so that the business can
sustain even in the volatile market situation.
 Overall risk of returns in the industry: Portfolio analysis also analyses the risk of return in the
industry. With the changing time, the risk of return changes then it must be focused by the
business unit whether it is increasing or decreasing
 Opportunities for differentiation of products and services: It is also very important factor for
market attractiveness that the business unit needs to continuously observe the opportunities
for differentiation of products and services in the market or not so that the development and
growth strategy can be designed by increasing the product range by the business.

The horizontal axis shows market strength and it is measured by considering various factors which can
he explained as follows:

 Market share: The strength of the market can be analyzed with the total market share the
business unit is having at present. It is very important to analyze the market share because the
strategy that a business unit is determining is depending on the market share it possess.
 Market share growth rate: after knowing the market share, the growth of the same is equally
important to know for the business unit for the determination of portfolio analysis of the
strategic business unit.

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 Profit Margin: There are various factors which are meeting the business unit to determine the
profit margin If it is decreasing then the strategy would be to increase maxket share so that the
profit can be maintain with the past or if it is increasing then the strategy would be to
accumulate maximum profit to combat uncertainty of the future.
 Distribution Efficiency: If the distribution efficiency of the business unit is good it would be
considered as one of the biggest strength because with this strength the growth potential of the
business can be enhanced remarkably.
 Brand Image: The business unit which is having very good brand image in the market is always
capable enough to make some innovative changes and for that the strategy can be formulated
as people would definitely put trust of such business which has good public image in the market.
 Ability to compete on price and quality: It is strength of the business unit if it can compete on
price and quality with the changing situation in the market due to internal as well as external
factors with which business is continuously affecting. It can formulate better strategy as they
have ability to compete on price as well as on quality.

Thus, the above market attractiveness and business strength are two important sides that determine
the GE matrix.

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If a product falls in the green section, the business 15 at advantageous position. To reap the benefits,
the strategic decision can be to expand, to invest and grow. If a product is in the amber or yellow zone,
it needs caution and managerial discretion is called for making the strategic choices. If a product is in the
red zone, it will eventually lead to losses that would make things difficult for organizations.

The most desirable SBU’s are those located in the highly attractive industries where the company has
high business strength. One difference is that the GE approach considers more than just market growth
rate and relative market share in order to determine market attractiveness and business strength.

3. Product Market Evolution Matrix:

The Product Market Evolution Matrix is another tool for business portfolio analysis. The business
portfolio is the collection of businesses and products that make up the company. The best business
portfolio is one that fits the company’s strengths and helps exploit the most attractive opportunities.
Business portfolio analysis as an organizational strategy formulation technique is based on the
philosophy that organizations should develop strategy much as they handle investment portfolios. Just
as sound financial investments should be supported and unsound ones discarded, sound organizational
activities should be emphasized and unsound ones deemphasized.

Hofers Product Market Evolution Matrix displays the matrix where strategic business units are
graphically represented according to two basic indicators: Competitive position on the market stage
corresponding to the product or market evolution,

Charles W. Hofer described seven stages of the life cycle, each with certain characteristics by which the
position of the market can be identified. These seven stages can be explained as follows;

 Business Unit A: It would be for a developing winner. Its relatively large share of the market
combined with its being at the development stage of product. Market evolution and its potential
for being in a strong competitive position make it good candidate for receiving more corporate
resources.
 Business Unit B: It is somewhat similar to business unit A. However, it has a relatively small
share of the market given its strong competitive position. A strategy would have to be
developed to overcome this low market share in order to justify more investments.
 Business Unit C: It might be classified as a potential loser. A strategy must be developed to
overcome the low market share and weak competitive position in order to justify future
investments.
 Business Unit D: It is in a shakeout period, has a relatively large share of the market, and is in a
relatively strong position. Investment should be made to maintain that position.
 Business Unit E & F: They have relatively large market share and has strong competitive
position. It should be used for cash generation.
 Business Unit G: It has low market share and weak competitive position. It should be managed
to generate cash in the short-run, if possible, however, the long-run strategy will more likely to
be divestment or liquidation.

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Thus, the Product Market Evolution Matrix presented by Hofers explains in different seven stages that
can be opted by the business unit for the determination of the portfolio analysis Of the business to
combat the emerging situation in the market and keep the survival and profitability for the business
unit.

4. Experience curve- Experience curve refers to a diagrammatic representation of


the inverse relationship between the total value-added costs of a product and the
company experience in manufacturing and marketing it. For many products and
services, unit costs decrease with increasing experience.

The logic behind the Experience Curve is this:


1. As businesses grow, they gain experience...
2. That experience may provide an advantage over the competition...
3. The “experience effect” of lower unit costs is likely to be particularly strong
for large, successful businesses (market leaders)

5. Directional policy matrix- DPM analysis is aimed at determining the


appropriate strategic planning goals and the right strategies to achieve those goals
across the portfolio of products, strategic business units (SBUs) and markets.

In broad terms, the DPM is a framework and process to review the performance
and relative potential of each product/SBU/market and to decide which
products/SBUs/markets to:

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1. Build/develop further/increase market share of


2. Maintain/resource to keep the status quo or current market share
3. Harvest/sell off or withdraw from having squeezed the last potential sales
4. Divest/drop or exit immediately.

6. Life cycle portfolio matrix

Most companies understand the different product life cycle stages, and that the products they sell all have a limited
lifespan, the majority of them will invest heavily in new product development in order to make sure that their
businesses continue to grow.

The product life cycle has 4 very clearly defined stages, each with its own characteristics that mean different things
for business that are trying to manage the life cycle of their particular products.

 Introduction Stage – This stage of the cycle could be the most expensive for a company launching a new
product. The size of the market for the product is small, which means sales are low, although they will be
increasing. On the other hand, the cost of things like research and development, consumer testing, and the
marketing needed to launch the product can be very high, especially if it’s a competitive sector.
 Growth Stage – The growth stage is typically characterized by a strong growth in sales and profits, and
because the company can start to benefit from economies of scale in production, the profit margins, as well
as the overall amount of profit, will increase. This makes it possible for businesses to invest more money in
the promotional activity to maximize the potential of this growth stage.
 Maturity Stage – During the maturity stage, the product is established and the aim for the manufacturer is
now to maintain the market share they have built up. This is probably the most competitive time for most
products and businesses need to invest wisely in any marketing they undertake. They also need to consider

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any product modifications or improvements to the production process which might give them a competitive
advantage.
 Decline Stage – Eventually, the market for a product will start to shrink, and this is what’s known as the
decline stage. This shrinkage could be due to the market becoming saturated (i.e. all the customers who will
buy the product have already purchased it), or because the consumers are switching to a different type of
product. While this decline may be inevitable, it may still be possible for companies to make some profit by
switching to less-expensive production methods and cheaper markets.

7. Grand strategy selection matrix-


The Grand Strategy Selection Matrix has become a popular tool for portfolio analysis for a business
organisation. Grand strategy matrix is the instrument for creating alternative and different strategies for
the organisation. All companies and divisions can be positioned in one of the Grand Strategy Matrix’s
four strategy quadrants.

The Grand strategy matrix is based on two dimensions; competitive position and market growth. Data
needed for positioning SBUs in the matrix is derived from the portfolio analysis. This matrix offers
feasible strategies for a company to consider which are listed in sequential order of attractiveness in
each quadrant of the matrix.

 Quadrant I: (Strong Competitive Position and Rapid Market Growth): Firms located in Quadrant
[of the Grand Strategy Matrix are in an excellent strategic position. The first quadrant refers to

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the firms or divisions with strong competitive base and operating in fast moving growth
markets. Such firms or divisions are better to adopt and pursue strategies such as market
development, market penetration, product deve10pment etc. The idea behind is to focus and
make the current competitive base stronger.
 Quadrant II: (Weak Competitive Position and Rapid Market Growth): Firms positioned in
Quadrant II need to evaluate their present approach to the market place seriously. Although
their industry is growing, they are unable to compete effectively, and the}? need to determine
why the firms current approach is ineffectual and how the company can best change to improve
its competitiveness. The suitable strategies for such firms are to develop the products, markets
and to penetrate into the markets.
 Quadrant III: (Weak Competitive Position and Slow Market Growth): The films fall in this
quadrant compete in slow-growth industries and have weak competitive positions. These firms
must make some drastic changes quickly to avoid further demise and possible liquidation.
Extensive cost and asset reduction should be pursued first. An alternative strategy is to shift
resources away from the current business into different areas.
 Quadrant IV: (Strong Competitive Position and Slow Market Growth): Finally, Quadrant IV
businesses have a strong competitive position but are in a slow-growth industry. Such firms are
better to go into related or unrelated integration in order to create a vast market for products
and services. These firms also have the strength to launch diversified programs into more
promising growth areas.

In general, strategies listed in the first quadrant of Grand Strategy Matrix are intended to maintain a
firm’s competitive edge and boost rapid growth, while the other three quadrants represent appropriate
actions to take to reach the best position, which is the first quadrant. Increasing market share,
expanding to new markets and creating new products are common strategies.

Advantages of Grand Strategy Matrix are that, this model allows better implementation of strategy
because 'of the intensified focus and objectivity. It conveys a lot of information about corporate plans in
a simplified format.

However, Grand Strategy Matrix may not be as simple as it seems, upon application to real life due to
the unforeseen factors and also complication in the business world. In addition, the relationship
between market share and profitability differs in different industries.

5. Behavioural considerations affecting choice of strategy-

a.Role of current strategy


 What is the amount of time and resources invested in previous
strategies?

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 How close are new strategies to the old?


 How successful were previous strategies?

b. Degree of firm’s external dependence


 How powerful are firm’s owners, customers, competitors, unions,
and its government?
 How flexible is firm with its environment?

c.Attitudes toward risk


 Industry volatility and industry evolution affectmanagerial attitudes
 Risk oriented managers prefer offensive, opportunistic strategies
 Risk-averse managers prefer defensive, conservative strategies

d. Managerial priorities different from stockholder interests


 Agency theory suggests managers frequently place their own
interests above those of their shareholders

e.Internal political considerations


 Major sources of company power are CEO, key subunits, and key
departments
 Power can affect corporate decisions over analyticalconsiderations

f. Competitive reaction
 Probable impact of competitor response must be considered during
strategy design process
 Competitor response can alter strategy success

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