I .3 UNDERSTANDING STRATEGY Central to the process of strategic management, is the concept of strategy that we will try to understand first.

Afier that, we will go on to discuss the process of strategic management. The Concept of Strategy The concept of strategy is central to understanding the process of strategic man agement. The tenn strategy` is derived from a Greek word srroregos, which means generalship the actual directi on of military force, as distinct from the policy goveming its depl-oyment. Literally, therefore, the wor d strategy means the art of the general. ln business parlance, there is no definite meaning assigned to stra tegy. It is often used loosely to mean a number of things. A strategy could be:: a plan or course of action or a set of decision rules making a pattem or creatin g a common thread; the pattern or common thread related to the organisation s activities which are de rived from the policies, objectives and goals; Introduction to Strategic Management and Business Policy I1 related to pursuing tl1ose activities which move an organisation from its curren t position to a desired future state; concemed with the resources necessary for implementing a plan or following a cou rse of action; connected to the strategic Positioning of a firm, making tradeoffs between its di fferent activities and creating a tit among these activities; and the planned or actual coordination ofthe iim1's major goals and actions, in time and space that continuously co-align the finn with its environment. In simplified terms, a strategy is the means to achieve objectives. ln complex t erms, it may possess all the characteristics mentioned above. With so many different interpretations of a ter m, it is really difiicult to fathom what strategy really means. This is understandable. Yet, we need to consi der all these interpretations at once. This diversity of interpretations gives us valuable insights into what thinkers and writers have proposed from time to time. With the wealth of understanding we have at our command , thanks to the intellectuals who have contributed to creating it, we can broaden our thinking. Strategic management benefits much from such an approach of looking at issues holistically. Practicing strategic ma nagement by doing case analyses and discussions aids in clarifying the issues. Just like there being two sid es to a coin, strategy often emerges as a concept having two differing perspectives, making it a paradox. The process of solving the paradox leading to a synthesis is an interesting practice that leads to greater understanding. This point is elaborated in Exhibit l.3. 12 Strategic Management and Business Policy Undoubtedly, strategy is one of the most significant concepts to have emerged in the subject of management studies in the recent p3Sl. its applicability, relevance, potential and via bility have been put to severe

test. lt has emerged as a critical input to organisational success and has come in handy as a tool to deal with the uncertainties that organisations face. lt has helped to reduce ambiguity and provided a solid foundation as a theory to conduct business: a convenient way to structure the many variables t hat operate in the organisational context and to understand their interrelationship. lt has aided thinkers and practitioners in formulating their thoughts in an ordered manner and to apply them in practice. There have be en several such benefits, yet there are some pitfalls too. lt would be prudent on our pa11 to realise that a blind adherence to the postula tions of strategy could be counter-productive. The limitations of the concept of strategy also need to be u nderstood. This is likely to elicit a mature response so that the full potential of this powerful concept can be realised. lt is also intended to provide a balanced understanding of the concept of strategy. Here are two poi nts of consideration to temper our enthusiasm while embracing the concept of strategy: The application ofthe concept of strategy to real-lite situations may tend to ov ersimplify things. Actual situations are complex and contain several variables that are not amenable to st ructuring. The concept of strategy tends to distort reality and, as an abstraction of reality, it is anyth ing but a true reflection ofthe actual situation. Of course, this limitation is not unique to strategy. It is th ere in any situation where modelling has to be resorted to, to provide a stnrctured understanding of realit y. Several mathematical formulations start with a phrase indicating that a certain number of variables a re assumed to be constant The application of the concept of strategy commits an organisation to a predeter mined course of action. While this is essential to chart out a path ahead, it often blinds the organisat ion to the emergent situations as it goes along the path. Rigidity leads to an attitude of finality with regard to the situations that are actually not known at the time of starting the jo-umey. It might be better, for instance, to move slowly, one step at a time and keep in mind the maxim: look before you leap. One might s ay that this is already known to the perceptive managers. Yet, there is no harm in being cautious. Discr etion is certainly the better pan of valour. Let us proceed with a basic understanding ofthe concept of strategy while keepin g in mind its limitations, to see the levels within an organisation at which strategy operates. Levels at which Strategy Operates lt is not uncommon to find many companies, or a group of companies. that while b eing under the same top management, are working in different business lines with regard to either produc tslservices, markers or technology. Here are a few illustrations: Hindustan Lcvers, the venerable multinational subsidiary. organises itselfinto fo ur businesses of home and personal care, foods, new ventures and exports. The TVS Group has companies like Sundaram Fasteners, Lucas TVS, Brakes India, Wh eels India, Sundaram Brake Linings, TVS Motor Company and TVS Electronics. lt operates in te

chnology areas as diverse as airbrake systems, aluminium castings, automotive components, computer peripherals, software design and two-wheelers. Balmer Lawrie, a public sector company, has a diversified portfolio of businesse s in the fields of grease and lubricants, leather & functional chemicals, packaging, turnkey projects, tea exports, travel and tourism and cargo and logistics. Finolcx Group is a business conglomerate with interests in diverse areas such as telecommunications, petrochemicals, irrigation and education. Introduction to Strategic Management and Business Policy 13 _ For many companies, such as illustrated above, a single strategy is not only i nadequate but also inappropriate. The need is for multiple strategies at different levels. ln order to seg regate different units or segments, each performing a common set of activities, many companies organise on the basis of operating divisions or, simply, divisions. These divisions may also be known as profit centres or strate gic business units ( SBUs). An SBU, as defined by Sharplin, is "any part of a business organisation which is tr eated separately for strategic management purposc."27 Exhibit 1.4 Different Levels of Strategy LEVELS OF MANAGEMENT LEVELS OF STRATEGY conpomre . g%?' conpoaars-tsvra. ice sou H Sgu Sgu Business-Lever FUNCTIONAL FUNCTIONAL-LEVEL Finance Marketing Operations Generally, SBUs are involved in a single line of business. A complementary conce pt to SBU, valid for the extemal environment of a company, is a strategic business area (SBA). lt is defi ned as a distinctive segment ofthe environment in which the limi does (or may want to do) business`.23 A number of SBUs. relevant for different SBAs. form a cluster of units under a c orporate umbrella. Each ofthe SBUs has its own functional departments or a few major functional departme nts while common functions arc grouped under the corporate level. The different levels of strategy co uld be at the corporate level, the SBU level and at the functional levcl. These different levels arc illustrate d in Exhibit 1.4. Two types of levels are depicted in this exhibit. One relates to the organisational levels or hierarchies and the other to the strategic levels. The organisational levels are those ofthe corporate, SBU and f unctional levels. The strategic levels are those ofthe corporate, SBU and fimctional level strategies. Corporate level strategy is an overarching plan of action covering the various f unctions that are perfonned by different SBUs. The plan deals with the objectives ofthe company. allocation of resources and coordina- _ tion ofthe SBUs for optimal pcrfomtancc. ' SBU level (or business) strategy is a comprehensive plan providing objectives fo r SBUs, allocation of resources among functional areas and coordination between them for making optima l contribution to the achievement of the corporate level objectives.

Functional strategy deals with a relatively restricted plan, providing objective s for a specific function, allocation of resources among different operations within that functional area a nd coordination between them for optimal contribution to the achievement of the SBU and corporatc lcvcl objecti ves. Panacea Biotec is a health management company in India, involved in research, ma nufacturing and marketing of pharmaceuticals, biopharmaceuticals, new chemical entities, natural pr oducts and vaccines. lt is organised into five SBUs: Critical Care, Diacar, PRO, GROW and Best on Health (B OH), which enables it to 14 Strategic Management and Business Policy respond to changes in the industry and marketplace with speed and sensitivity. C ritical Care is focused on Nephrology, Diacar for diabetes and cardiovascular managem`ent, PRO SBU promotes therapeutic products, GROW SBU caters to clinicians across the country and Bcst On Health` (BOH) offers therapeutic solutions to cater to the specific needs of customers and promotes natural products develo ped through modem technology and extensive research.?) Another example of a company using multiple-level planning is Bajaj Electricals Ltd. (BEL). lt is a part of the Bajaj Group, which is in the business of steel, sugar, two wheelers and thre e wheelers, besides that of consumer electrical products. The company commissioned Accenture, which recommen ded a comprehensive strategy for businem growth along with organisational restructuring. BEL ha s five major strategic busi- _ ness units comprising of home appliances, fans, lighting, luminaires and enginee ring & projects. The SBU structure aims to lend greater empowerment to the employees and also bring about a significant accountability for the performance of each SBU with the SBU head and his senior team.3 Apart fiom the three levels at which strategic plans are made, occasionally, com panies plan at some other levels too. Firms often set strategies at a level higher than the corporate-leve l. These are called the societal strategies. Based on a mission statement, a societal strategy is a generalised v icw of how the corporation relates itself to the society in terms of a particular need or a set of needs th at it strives to fulfil. Corporate-level strategies could then be based on the societal strategy. Suppose a corporation d ecides to provide alternative sources of energy for the society at an optimum price and based on the latest av ailable technology. On the basis of its societal strategy, the corporation has a number of altematives with regard to the businesses it can take up. It can either be a manufacturer of nuclear power reactors, a maker of e quipments used for tapping solar energy or a builder of windmills among other altematives. The choice is wi de and being in any one of such diverse fields would still keep the corporation within the limits set by it s societal strategy. Corporateand business-level strategies derive their rationale from the societal strategy. Some strategies are also required to be set at lower levels. One step down the f unctional level, a company could set its operational level strategies. Each functional area could have a nu

mber of operational strategies. These would deal with a highly specific- and narrowly defined area. For instance , a fimctional strategy at the marketing level could be subdivided into sales, distribution, pricing, product a nd advertising strategies. Activities in each of the operational areas of marketing, whether sales or adver tising, could be performed in such a way that they contribute to the functional objectives of the marketing department. The functional strategy of marketing is interlinked with those of the finance, production and p ersormel departments. All these functional strategies operate under the SBU-level. Different SBU level strat egies are put into action under the corporate-level strategy which, in tum, is derived from the societal-l evel strategy of the corporation. Ideally, a perfect match is envisaged among all strategies at different le vels so that a corporation, its constituent companies, their different SBUs, functions in each SBU and various o perational areas in every limctional area are synchronised. When perceived in this manner, the organisatio n moves ahead, towards its objectives and mission, like a well-oiled machine. Such an ideal, though extreme ly difficult if not impossible to attain is the intent of strategic management. A note of caution to readers here: when we refer to strategy in business policy texts, it is generally meant to be a corporate-level strategy or a business- or SBU-level strategy. Societal strategies manifest in the form of the vision and mission statements, while functional and operational strategie s take the shape of functional and operational implementation respectively. A reading of this section gives an impression of an organisation having a number of strategies at different levels which would solve its strategic problems or lay down the groundwork for i ts strategic success. Mark ' the words we have used: `the organisation moves ahead ..... like a well-oiled machine'. In reality, however, rarely does an organisation move ahead so smoothly. Strategy has been viewed fro m several perspectives. In some cases, it is seen as something which arises systematically, due to consciou s decision-making. Yet, Introduction to Strategic Management and Business Policy 15 others see it as the product of a messy and complicated series of manoeuvres. Th e next section provides an overview of the strategic decision-making process. I.4 STRATEGIC DECISIONMAKING Decision-making is the most important function of any manager. Strategic decisio n-making is the primary task ofthe senior management. Both these kinds of decision-making are essentiall y the same. The difference lies in the levels at which they operate. While decision-making pertains to all managerial functions. strategic decision-making largely relates to the responsibilities ofthe senior management. Most people agree that decision-making is the process of selecting a course of a ction from among many altematives. The process works somewhat like this: Objectives to be achieved are determined; Alternative ways of achieving the objectives are identified; Each alternative is evaluated in terms of its objective-achieving ability; and

The best altemative is chosen. The end result ofthe above process is a decision or a set of decisions to be imp lemented. Such a process ofdecision-making is deceptively simple. In practice, decision-making is a highl y complex phenomenon. The first set of problems encountered in decision-making is related to objective -setting. Second. the identification of all possible altematives is a difficult task. How to test the obje ctive-achieving ability of each alternative is easier said than done and, lastly, choosing the best altemative i s a formidable task too. The problems encountered in decision-making. as indicated above, are experienced by all managers in the course of their day-to-day activities. On the other hand, strategic tasks are, b y their very nature, complex and varied. Decision-making while performing strategic tasks is, therefore, an extre mely difficult, complicated and, at times, intriguing and enigmatic process. An illustration ofstrategic decision-making in a medium-sized company shows how the top management takes steps to implement its growth strategies. The Ahmedabad-based Astral Poly Technik Ltd. is a manufacturer and provider of chlorinated poly vinyl chloride (CPVC) piping and plumbing systems. Mr. Sandeep Engineer, its managing director, reported a strategic decision of manufacturing and marketing the BlazeMaster fire sprinkler system under an agreement with the $4 biIlion global spec ialty chemical company, Lubrizol, whose wholly-owned subsidiary Noveon Inc. makes Blazelvlaster. F or this purpose, Astral signed a licence agreement with Noveon to manufacture and market its tire sprink ler system under the brand name of BlazeMaster, which is a trademark of Noveon. The company, in order to st rengthen its business plans, had taken a strategic decision to enter into a techno-financial joint ven ture with Specialty Process LLC of USA. which provided it the required technical expertise for manufacturing C P VC pipes and linings for home and industrial applications. Astral was also going for an initial public of fering to further its growth plans.;] The basic thrust of strategic decision-making, in the process of strategic manag ement, is to make a choice regarding the courses of action to adopt. Thus. most aspects of strategy formula tion rest on strategic decisionmaking. The fundamental strategic decision relates to the choice of a mission. I n other words, the answer to such questions as: What is our business'? What will it be'? and What should it b e'? are the basic concems in strategic management. With regard to objective-setting, the senior management is faced with alternatives regarding the different yardsticks to measure performance. Finally, at the level of choosing a strategy, the senior management exercises a choice from among a number of strategic altemative s in order to adopt one specific course of action which would make the company achieve its objectives an d realise its mission. Apart from the fturdamental decisional choice, as pointed above, there are numer ous occasions when the senior management has to make important strategic decisions. Environmental threats and

opportunities are abundant; it is only a few that the senior management focuses its attention on. Comp any strengths and weaknesses, 16 Strategic Management and Business Policy likewise, are many; the senior management considers only a limited number at any given time. With regard to resource allocation. the management faces a strategic choice from among a number of alternatives that it could allocate resources to. Thus, strategic decision-making forms the core of s trategic management. Issues ln Strategic Decision-Making . Being a complex process. strategic decision-making is difficult to perform. lt i s incomprehensible; it cannot be analysed and explained easily. Decision makers are unable to describe the exa ct manner in which strategic decisions are made. Like the working of the human mind. strategic decision makin g is fathomless. And rightly so. for it is based on complex mental processes which are not exposed to view. Henry Mintzberg, commenting on the nature of strategic decision-making says that the key manageria l processes are enormously complex and mysterious, drawing on the vaguest of infomtation and using t he least articulated of mental processes. These processes seem to be more relational and holistic than o rdered and sequential and more intuitive than intelleetual... .32 For these reasons. no theoretical model, however, painstakingly formulated, can adequately represent the difTerent dimensions ofthe process of strategic decision-making. Despite these l imitations, we can still attempt to understand strategic decision-making by considering some important issu es related to it. We deal with six such issues below. I. CHICMB A9f Dvdffvn-IIIEHIQ The process of decision-making requires objectivesetting. These objectives serve as yardsticks to measure the efficiency and effectiveness of the decision-making process. In this way, objectives serve as criteria for decision-making. There are three majo r viewpoints regarding setting criteria for decision-making. (a) The first is the concept of maximisarinn. lt is based on the thinking of eco nomists who consider objectives as those attributes which are set at the highest point. The behaviour of t he firm is oriented towards achieving these objectives and, in the process, maximising its retums. (b) The second view is based on the conce_pt of .sari.$ffcfrrg. This envisages s etting objectives in such a manner that the finn can achieve them realistically, through a process of optimi sation. (c) The third viewpoint is that ofthe concept of ineremenrulism. According to th is, the behaviour ofthe firm is complex and the process of decision-making, which includes objective-setting, is essentially a continually-evolving political consensus-building. Through such an approach, the fi rm moves towards its objectives in small, logical and incremental steps. 2. RBIIOIIEIIQVIH DC C$ IOHm8HIJg Rationality, inthe context of strategic decision mak ing, means exercising a choice from among various altemative courses of action in such a way th

at it leads tothe achievement of objectives in the best possible manner. The economists who support the maximi sing criterion consider a decision to be rational if it leads to profit maximisation. Behaviourists, who a re the proponents of the satisfying concept, believe that rationality takes into account the constraints under w hich a decision maker operates. Incrementalists are of the opinion that the achievement of objectives depends on the bargaining process between different interested coalition groups existing in an organisation and th erefore, a rational decisionmaking process should take all these interests into consideration. 3. CTBBHWWFH DECISION-m3I7I{g To be creative, a decision must be original and dif ferent. A creative strategic decision making process may considerably affect the search for alternati ves where novel and untried means may be looked for and adopted to achieve objectives in an exceptiona l manner. Creativity, as a trait, is normally associated with individuals and is sought to be developed thr ough techniques such as brainstorming. You may recall that one of the attitudinal objectives of a business po licy course it to develop the ability to go beyond and think, which, in other words, is using creativity in st rategic decision-making. Introduction to Strategic Management and Business Policy 17 4. VRHEDIIIIJ/III DCCBIOH-HBHAQ It is a common observation that, given an identi cal set of conditions, two decision makers may reach totally different conclusions. This often happens during case discussions also. A case may be analysed differently by individuals in a group of leamers an d, depending on the differing perceptions ofthe problem and its solutions, they may arrive at different conclu sions. Such things happen due to variability in decision-making. It also suggests that every situation is uniq ue and there are no set formulas that can be applied in strategic decision-making. 5. Pt?I.5`0!H'E'f8ft?dF 9C!0I5` In DCC'l3`l'0HID8Ifng There are a host of person-rel ated factors that play a role in decision-making. Some of these are: age, education, intelligence, person al values, cognitive styles, risk-taking ability and creativity. Attributes like age, knowledge, intelligence , risk-taking ability and creativity are generally supposed to play a positive role in strategic decision-making. A cognitive style which enables a person to assimilate a lot of infomation, interrelate complex variables a nd develop an integrated view ofthe situation is especially helpful in strategic decision-making. Values as en during prescriptive beliefs are culture-specific and important in matters of social responsibility and business ethicsmissues that are important to strategic management. 6. IIIJIIJJHHI VEISUS GIOIIP DOC!i9f0IIII18K}!Jg Owing to person-related factors, there are individual differences among decision makers. These differences matter in strategic decisio n-making. An organisation, possessing special characteristics, operates in a unique environment. Decision m akers who understand an organisations characteristics and its environment are in a vantage position to u ndertake strategic decision-

making. Individuals such as chief executives or entrepreneurs play the most impo rtant role as strategic decision rnakers. But as organisations become bigger and more complex and face an incr easingly turbulent environment, individuals come together in groups for the purpose of strategic de cision-making. Strategic decision making leads to the formation of strategies. On the basis of an understanding ofthe nature of strategic decision-making and the issues related to it, let us now mov e ahead to study the different perspectives to strategy. 1.6 INTRODUCTION TO STRATEGIC MANAGEMENT Strategic decision-making is done through the process of strategic management. I n this section, we deal with four aspects: a definition of strategic management; the dif l`erent phases in the process of strategic management; the elements this process contains; and lastly, the model of strategic man agement that we have adopted in this book. Dellnltlon 01 Strategic Management ln this text, strategic management is defined as the dynamic process offomiuioti on, implementation, evaluation ond control of strategies to realise the organisation '.r strategic intent . First, strategic management is a dynamic process. lt is not a onetime, static or mechanistic process. By being dynamic, strategic management is a continual, evolving, iterative process. By this, it means that 20 Strategic Management and Business Policy i strategic management cannot be a rigid, step-wise collection of a few activities arranged in a sequential order. Rather, it is a continually evolving mosaic of relevant activities. Managers per form these activities in any order contingent upon the situation they face ata particular time. By being iter ative, an activity may not be required to be performed only once but repeated over time as thc situation deman ds. The next part of the definition states the four phases in the strategic manageme nt process of formulation, implementation and evaluation and control. The four phases are shown in Exhibit 1.5. Exhibit 1.5 Four Phases in Strategic Management Process Establishment Formulation Im Iernentatnon . of strategic { or I p gf I L ;iJ;3;)cn I intent strategies _ strategies __-,... |._._i Strategic control The first phase consists ofcstablishing thc smttcgic intent Ihr thc organisation . In this tcxt. strategic intent is the hierarchy ofobjcctivcs that an organisation sets for itsclf`. Within this . there arc thc vision, mission, business definition and objectives. The aim of strategic management is to help t he organisation realise its strategic intent. The second phase ofthe formulation of strategies is concerned with the devising of a strategy or a few strategies. This phase is also called strategic planning. Essentially, this is a n analytical phase in which strategists (managers who are responsible for strategic management in an organisation

) think, analyse and plan strategies. The third phase of implementation is the `putting into action` phase. The strate gies that are fomtulated are implemented through a series of administrative and managerial actions. The fourth and the last phase of evaluation and control involves assessing how a ppropriately the strategies were formulated and how effectively they are being implemented. Depending on the outcome ofassessment, actions could be taken ranging from fine-tuning implementation to a drastic refo rmulation of strategies. These four phases are considered to be sequentially linked to each other and eac h successive phase provides a feedback to the previous phases. However, in practice, the different phases of strategic management may not be clearly differentiable from each other. In fact, we prefer to ca ll them phases rather than stages or steps (as some authors do) to signify that the different phases, at th e interface, may exist simultane_ ously and the strategic activities gradually emerge in one phase to merge into the following phase. The feedback arising from each ofthe successive phases is meant to revise, rcformula tc or redefine the previous phases, if necessary. Such a representation yields a dynamic model of strategic management which takes into account the emerging factors as the process moves on. Elements tn Strategic Management Process Each phase of the strategic management process consists of a number of elements. which are discrete and identifiable activities performed in logical and sequential steps. As many as tw enty different elements could be identified in the models provided by various authors. From the literature on strategic management, we note that most or all of the following activities are considered as parts ofthe strategic management process: A. Establishing the hierarchy nfstraregic intent: l. Creating and communicating a vision Introduction to Strategic Management and Business Policy 21 2. Designing a mission statement 3. Defining the business 4. Adopting the business model 5. Setting objectives B. Formulation oj`strategies: 6. Perfomring environmental appraisal 7. Doing organisational appraisal 8. Formulating corporate - level strategies 9. Formulating business-level strategies l0. Undertaking strategic analysis l l. Exercising strategic choice l2. Preparing strategic plan C. Inrplementatfon of strategies: 13. Activating strategies 14. Designing the structure, systems and processes 15. Managing behavioural implementation I6. Managing functional implementation I 7. Operationalising strategies D. Perfonning strategic evaluation and control: IS. Performing strategic evaluation 19. Exercising strategic control

20. Reformulating strategies Model ol Strategic Management Process The process of strategic management is depicted through a model which consists o f different phases; each phase having a number of elements. Most authors agree on dividing the strategic management process into four phases consisting of about twenty elements. The model of strategic manageme nt that we adopt in this book is provided in Exhibit l.6. Exhibit 1.6 Comprehensive model of strategic management Strategic Intent Strategy Formulation Strategy Strateglc Implementation Evaluation vision Environmental Organisational Mission Appraisal JWQDTEIISQI Project Business definition SWOT Analysis Procedural Bugpesslmodel - Corporate-level Strategies - Resource allocation 1 tecttves Business-level Strategies Structural Strategic analysis and choice Behavioural Strelegrc plan Functional & I Operational Strategic control 22 Strategic Management and Business Policy The remainder of this book will deal with the various elements ofthe strategic m anagement process. Here, we present a bird`s-eye view ofthe different elements of the process. l. The hierarchy of strategic intent lays the foundation for the strategic manag ement of any organisation. ln this hierarchy, the vision, mission, business definition, business model and obj ectives are established. The strategic intent makes clear what the organisation stands for. The element o f vision in the hierarchy of strategic intent serves the purpose of stating what the organisation wishes t o achieve in the long run. The mission relates the organisation to the society. The business definition exp lains the businesses of the organisation in terms of customer needs, customer groups and alternative technol ogies. The business model clari lies how the organisation creates revenue. The objectives of the org anisation state what is to be achieved in a given time period. These objectives then serve as yardsticks an d benchmarks for measuring organisational performance (Chapter 2). 2. Environmental and organisational appraisal deal with identifying the opportun ities and threats operating in the environment and the strengths and weaknesses of the organisation in order to create a match between them in such a manner that oppornmities could be availed of and the impa ct of threats neutralised and to capitalise on the organisational strengths and minimise the w eaknesses (Chapters 3 and 4). 3. Formulation of strategies takes place at four levels: corporate, business, fu nctional and operational. Among these levels, the major ones are the corporate and business level strategi es. Corporate level strategies relate to the strategic decisions regarding the management of a portf olio of businesses. Business strategies aim at developing a competitive advantage in the individual busi nesses that a company

has in its portfolio (Chapters 5, 6, 7 and 8). 4. Strategic altematives and choice are required for evolving alternative strate gies, out of the many possible options and choosing the most appropriate strategy or strategies in the li ght of environmental opportunities and threats and corporate strengths and weaknesses. Strategies are c hosen at the corporate-level and the business-level. The process used for choosing strategies involves strategic analysis and choice. The end result of this set of elements is a strategic plan to be implemented (Chapter 9). 5. For implementation of strategy. the strategic plan is put into action through six sub-processes: project implementation, procedural implementation, resource allocation, structural imple mentation. behavioural implementation and functional and procedural implementation. Project implementat ion deals with the setting up of the organisation. Procedural implementation deals with the differe nt aspects of the regulatory framework within which Indian organisations have to operate. Resource alloc ation relates to the procurement and commitment of resources for implementation. The structural aspec ts of implementation deal with the design of appropriate organisational structures and systems a nd reorganising so as to match the structure to the needs of strategy. The behavioural aspects consider t he leadership styles for implementing strategies and other issues like corporate culture, corporate polit ics and use of power, personal values and business ethics and social responsibility. The functional as pects relate to the policies to be formulated in different functional areas. The operational implementation d eals with the productivity, processes, people and pace of implementing the strategies. The emphasis in the implementation phase of strategic management is on action (Chapters lt}, I l, l2 and I3). 6. The last phase of strategic evaluation appraises the implementation of strate gies and measures organisational performance. The feedback from strategic evaluation is meant to e xercise strategic control over the strategic management process. Strategies may be refonnulated, if n ecessary (Chapter 14). 2. I STRATEGIC INTENT By strategic intent we refer to the purposes the organisation strives for. These may be expressed in terms of a hierarchy of strategic intent. Broadly stated, these could bein the fomi ofa v ision and mission statement for the organisation as a corporate whole. At the business level ofiinns, these coul d be expressed as the business definition and business model. When stated in precise terms, as an expression of aims to be achieved operationally. these may be the goals and objectives. Here we take the position that strategic intent lays down the framework within which firms would operate, adopt a predetermined direction and attempt to achieve their goal. But the term stratcgic intent` has a definite meaning in strategic manageme nt. Let`s first see the meaning and some associated concepts betbre we learn about the different constituent s ofthe hierarchy ofstrategic intent.

Understanding Strategic Intent Hamel and Prahalad coined the term strategic intent` which they believe is an obs ession with an organisation: an obsession ofhaving ambitions that may even be out of proportion to thei r resources and capabilities. This obsession is to win at all levels ofthe organisation, while sustaining that obsession in the quest for global leadership. They explain the term strategic intent` like this: On the one hand, st rategic intent envisions a desired leadership position and establishes the criterion the organisation will use to chart its progress .... At the same time, strategic intent is more than simply unfettered ambition ..... Th e concept also encompasses an active management process that includes: focusing the organisation`s attention o n the essence of winning, motivating people by communicating the value ofthe target. leaving room for indi vidual and team contributions. sustaining enthusiasm by providing new operational definitions as circums tances change and using intent consistently to guide resource allocations`.2 Hamel and Prahalad quote several examples of global firms. almost all ol`America n and Japanese origin, to support their view. In fact. the concept of strategic intent -as evident from t heir pathbreaking article published in 1989 in the Hzxrvurd Business Rcview seems to have been proposed by t hem to explain the Hierarchy of Strategic Intent 33 lead taken by the Japanese firms over their American and European counterparts. Yet, strategic intent has wider implications and carries a lot of meaning for the strategic management of firms. There is merit in their view as business groups and companies, which have aspired for global leadership, can be found in the Indian context too. Bu.rincss Today, in a l998 survey of 50 family business houses, ranked highly th e B.K. - K. M. Birla group, Lalbhai group, Essar group of Ruias, Hero group of Munjals, Ranbaxy and R eliance group of Ambanis (before it split into the Mukesh and Anil Ambani groups) on the criterion of str ategic intent. These groups were considered to be globally competitive, globalflocal players. For instance, the late Dhirubhai Ambani of the Reliance group is credited with having a strategic intent of being a global leader in his tield of activity by being the lowest-cost producer of polyester products -a status achieved by a rele ntless pursuit of scale, vertical integration and operational effectiveness. Likewise, the late Parvinder Singh ofthe Ranbaxy group is considered as a visionary industry leader who worked hard towards the creation o f a globally competitive, research-based pharmaceutical giant.3 It is not as if only the family business groups headed by entrepreneurs exhibit a high propensity for strategic intent. The professionally-managed and multinational subsidiary sectors too have their heroes. Xerox lndia`s strategic intent is to become the leader in the document market in India by helping improve the customer work processes, positively impacting productivity and costs while digit ally empowering them to

transfomi their work. In other words helping people tind better ways to do great work."`* Overall, strategic intent points to what a firm should set out to achieve. The u nderstanding of strategic intent is aided by three important concepts that we sec next. Concepts of Stretch. Leverage and Fit Subsequent to the idea of strategic intent, Hamel and Prahalad added the dual co ncepts of stretch and leverage'. Stretch is a misfit between resources and aspirations`.5 Leverage refer s to concentrating, accumulating, complementing, conserving and recovering resources in such a manner th at the meagre resource base is stretched to meet the aspirations that an organisation dares to have. Th e idea of stretch is diametncally opposite tothe idea of fit` that means positioning the firm by matching its organ isational resources to its environment. The strategic fit is central to the strategy school of positioning (see chapter l for an explanation of the different schools of thought on strategy) where techniques such as the SWOT anal ysis are used to assess organisational capabilities and environmental opportunities. Strategy then becom es a compromise between what the environment has got to offer in terms of opportunities and the counter offer that the organisation makes in the fomt of its capabilities. The ideas of stretch and leverage belong appropriately to the learning school of strategy where the capabilities are not seen as constraints to achievi ng and the cnviromnent is perceived not as something which is considered as given but as something which c an be created and moulded. You would appreciate that the idea of strategic intent could work in both the ca ses, though it might be pereeptively different in terms ofthe levels at which the aspirations are set. U nder t`it, the strategic intent would seem to be more realistic; under stretch and leverage it could be idealist ic. Yet, in both the cases, it is essentially a desired aim to be achieved. Exhibit 2.l presents information related to Tata Stee1 s strategic intent. Note ho w the company lays down different elements of its strategic intent in terms of its vision, mission and s trategic goals, leading to the strategies the organisation plans to adopt. Rciterating the position that we took in the beginning of this chapter, we consi der strategic intent in a broader sense, as a hierarchy ofintentions ranging from a broad vision. through mission and business detinition, downto specific objectives and goals. Vision is at the top level of the hi erarchy of strategic intent and that is what wc try to understand in the next section. 34 Strategic Management and Business Policy 2.2 VISION Aspirations, expressed as strategic intent. should lead to tangible results, oth crwisc they wouldjust bc castles in the air. Those results are the realisation of the vision oi` an organisation or an individual. It is what ultimatcly Ihr: firm or tt person would like to become. For instance, somc of you, s ay in I0 years or may bc cvcn earlier, would like to become general managers managing an SBU in a large, divcr

silicd multinational corporation. Or some others among you would like to believe that you can be an entrcp rcncur owning your own Hierarchy of Strategic intent 35 company dealing with IT services, employing cutting-edge technology to serve a g lobal clientele, in 10-15 years. A firm thinks like that too. Vision, therefore, articulates the position that a firm would like to attain in the distant future. Seen from this perspective, the vision encapsulates the basi c strategic intent. The Nature ol Vlslon Vision is dreamt of more than it is articulated. This is the reason why it is di fficult to say what vision an organisation has unless it is stated explicitly. Sometimes, it is not even evide nt to the entrepreneur who usually thinks of the vision. By nature, it could be hazy and vague, just like t he dream that one experienced the previous night and is not able to recall perfectly in broad daylight. Yet it is a powerful motivator to action. Often, it is from the actions that the vision could be derived. Henry Ford wishe d to democratise the automobile when he visualised that an affordable vehicle must be available for the mas ses. Walt Disney probably wanted to make people happy. Jamshetji Tata dreamt of a self-reliant India in st eel making. Narayana Murthy wants to demonstrate that running a business is legally and ethically possible i n India through entrepreneurship. All these visionaries had a vision that might have gradually become clear as they took actions to materialise their dreams. Exhibit 2.2 tells us what a vision should be and what it s houldn t be. Exhibit 2.2 What a vision should and shouldn't be A vision should be: / An organisational charter of core values and principles / The ultimate source of our priorities, plans and goals f A puller (not pusher) into the future A determination and publication of what makes us unique v' A declaration of independence A vision shouldn`t be: x A 'high concept statement, motto or literature or an advertising slogan A strategy or plan and a view from the top A history of our proud past A soft' business issue Passionless Source: Adapted from Lucas, J. R., Anatorny of a vision statement', Management Re view Feb 1998. 8?(2), pp. 22-26. Defining Vision Vision has been defined in several different ways. Kotter ( 1990) defines it as a "description of something (an organisation, a corporate culture, a business, a technology, an activity) in the future". El-Namaki {1992) considers it as a *mental perception ofthe kind of enviromnent an individual, or an organisation, aspires to create within a broad time horizon and the underlying conditions for the actuali sation of this perception`.? Miller and Dess ( 1 996) view it simply as the category of intentions that are br oad, all-inclusive and forward thinking . The common strand of thought evident in these definitions and several ot

hers available in strategic management literature, relates to vision being future aspirations that lead to an inspiration to be the best in one`s field of activity. The Benefits of Having a Vision Parikh and Neubauer (1993) point out the several benefits accruing to an organis ation having a vision. Here is what they say: Good visions are inspiring and exhilarating. 36 Strategic Management and Business Policy Visions represent a discontinuity, a step function and a jump ahead so that the company knows what it is to be. Good visions help in the creation of a common identity and a shared sense of pur pose. Good visions are competitive, original and unique. They make sense in the market place as they are practical. Good visions foster risk taking and experimentation. Good visions foster long-term thinking. Good visions represent integrity: they are truly genuine and can be used tothe b enefit of people. Next, we Ieam about envisioning: the process of creating a vision. The Process of Envlslonlng The process of envisioning is a ditlicult one as we see from what Collins and Po rras ( l 996) have to say about it.l According to them, a well-conceived vision consists of two major components: core ideology and envisioned iiiture. The core ideology defines the enduring character of an organisat ion that remains urichangeable as it passes through the vicissitudes of vectors such as technology, competition or management fads. The core ideology rests on the C0l'C values ( the essential and enduring tenets of an org anisation) and core purposes (an organisation s reason for being). The envisioned future too consists of two compon ents: a I0-30 years audacious goal and vivid description of what it will be like to achieve that goal. T he process of envisioning is shown in Exhibit 2.3. Many organisations mention terms such as corporate philoso phy, corporate values and the like, that are used to convey what they stand for and what principles guide them in strategic and day-today decision-making. These terms are all part of an effort to state what the org anisation s vision is. Exhibit 2.3 The process of envisioning Welbconceived vision / \ Core ideology Envisioned future / 't l Core values Long-term audacious goal : Core purpose Vivid description of achievement Based on ideas in J. Parilth & F. Neubauer, Corporate Visioning' lntemationai Re view of Strategic Management, Vol. 4, Ed: D. E. Hussey. West Sussex, England; John Wiley & Sons, 1993, pp. 109 -111. From vision, we now move on to the second level of strategic intent, that is the mission. 2.3 MISSION

While the essence of vision is a forward-looking view ol` what an organisation w ishes to become, mission is what an organisation is and why it exists. Several years ago, Peter F. Drucker raised important philosophical questions rel ated to business: what is our business? what will it be'? and what it should be '?ll These three questions though simply worded, are, in reality, the most fundamental questions that any organisation can put to itself. The answers are based on an analysis of the underlying need ofthe society that any organisation strives to f ulfil. The satisfaction of that need is, then, the business ofthe organisation. Hierarchy of Strategic Intent 37 Understanding Mission Organisations relate their existence to satisfying a particular need of the soci ety. They do this in terms of their mission. Mission is a statement which define s the role that an organisation plays in the society. It refers to the particula r needs of the society, for instance, its information needs. A book publisher an d a magazine editor are both engaged in satisfying the information needs of the society, but they do it through different means. A book publisher may aim at pro ducing excellent reading material while a magazine editor may strive to present news analysis in a balanced and unbiased manner. Both have different objectives but an identical mission. Defining Mission A mission was earlier considered as the scope of the business activities a firm pursues. The definition of mission has gradually expanded to represent a concept that embodies the purpose of existence of an organisation. Thompson (1997) defines mission as the 'essential purpose of the organisation, c oncerning particularly why it is in existence, the nature of the business(es) it is in and the customers it seeks to serve and satisfy, .12 Hunger and Wheelen ( 1999) say that mission is the 'purpose or reason for the organisation's existenc e'. 13 At present, there is not much difference of opinion about the definition of miss ion. Yet, one finds instances of organisations confusing mission with vision or objectives. In strategic management literature, mission occupies a definite plac e as a part of strategic intent. How are Mission Statements Formulated and Communicated? Most organisations derive their mission statements from a particular set of task s they are called upon to perform in the light of their individual, national or global priorities. Several public sector organisations, set up in India during t he fifties and sixties, owe their existence to the vision of Jawaharlal Nehru, t he first prime minister, who enunciated and tirelessly worked for the national a im of building a strong and self-reliant India by laying the foundations of many of our basic infrastructural industries. Mission statements, whether derived fr om set priorities or not, could be formulated either formally or informally. Usually, entrepreneurs lay down the corporate philosophy which the organisation follows in its strategic and operational activities. Such a philosophy may not b e consciously and formally stated but may gradually evolve due to the entreprene ur's actions. Generally, an entrepreneur has a perception of the type of organis ation that he wants his company to be. Mission statements could be formulated on the basis of the vision that the entrepreneur decides in the initial stages of an organisation's growth. Major strategists could also contribute to the development of a mission statemen t. They do this informally, by lending a hand in the creation of a particular co rporate identity, or formally, through discussions and the writing down of a mis sion statement. Chief executives play a major role in formulating a mission stat ement, both formally and informally. They may set up executive committees to for mally discuss and decide on a mission statement or enunciate a corporate philoso phy to be followed for strategic management. Consultants may also be called upon

to make an in-depth analysis of the organisation to suggest an appropriate miss ion statement. B.N. Sinha, managing director of the Scientific Instrument Compan y Ltd, who took the help of a management consultant in deciding his company's mi ssion and purpose, describes the process of formulating a mission '....as a star ting point, we (i.e. the company managers, consultant and the chief executive) s pent quite a bit of time on identifying our "mission" of business... After a lot of discussion, we identified our mission as follows: to be a vibrant organisati on set on contributing to the scientific and technical progress of the country; keeping its customers and employees satisfied in terms of service and work rewar d; giving adequate returns on investment to the shareholders.' t4 38 Strategic Management and Business Policy Here are a few more examples of how organisations formulated and communicated th eir mission statement.15 Eicher Consultancy: It was born in 1991, with a mission statement. It decided to have an ambitious statement directly addressed to the well-being of the country . HCL: The environment for computer companies had became quite competitive by 1991 . A need was felt to provide a feeling of oneness in the organisation. A core ma nagement team assessed the internal strengths and designed a customer-centric mi ssion statement for team building, mutual trust, internal customer-server equati ons and empowerment. Marico Industries: Its first mission statement was designed in 1990, triggered b y a divestment of its consumer division. It wanted to be seen as a multiproduct, consumer-oriented company. It took about 7 months to evolve a common, shared pu rpose. The CEO outlined the goals and aspirations after hectic consultations wit h senior management. A 3-day workshop of managers prepared a four-page mission s tatement. A need was felt in 1995 to rewrite the mission statement in the light of changed circumstances. Ranbaxy Laboratories: The company realised that competition in the pharmaceutica ls industry was becoming tough and it could not survive just by selling generic drugs. In 1993, after a year of deliberations on future directions, strategies i nvolved and past experience, the CEO enunciated the mission and values. Later me asures were taken to communicate it extensively throughout the company, down to the level of workers. Unit Trust of India: An extensive corporate planning exercise was undertaken in 1992. UTI's mission statement was formulated as a part of that exercise. A study by Boston-based Bain and company revealed that mission statements are on e of the most popular management tools used by companies. 16 The trend of defini ng a mission statement has become quite popular in India too. Some years ago, th e All India Management Association (AlMA) commissioned a nationwide study to fin d out what management techniques and tools Indian companies are likely to employ . Business Today reported the AlMA study stating that 72 per cent of the total 1 60 companies surveyed had a written mission statement. Among these, 91 per cent were giant companies, 78 per cent were large, 83 per cent were medium-sized and 55 per cent were small companies. 17 Communicating the mission statement is as important as formulating it well. This is so since a positive relationship exists between the performance of a company and the number of methods used to communicate and disseminate a mission stateme nt. 18 High visibility of the mission statements posted on multiple locations, i s an effective tactic to aid mission familiarity and recognition by employees. T here are several methods to communicate the mission statement within the organis ations, 19 such as annual reports, posters/plaques, employee manuals, company in formation kits, word-of-mouth publicity, seminars and workshops, newsletters and advertisements. A mission statement, once formulated and communicated, should serve the organisa tion for many years. But a mission may become unclear as the organisation grows and adds new products, market and technologies to its activities. Then the missi on has to be reconsidered and re-examined to either change or discard it and evo

lve a fresh statement of the organisational mission. An assessment of how effect ive a mission statement is can be done by checking out its characteristics. Characteristics of a Mission Statement Organisations legitimise themselves by performing some function that is valued b y the society. A mission statement defines the basic reason for the existence of the organisation. Such a statement reflects the corporate philosophy, identity, character and image of an organisation. It may be defined explicitly or it coul d be deduced from the management's actions, decisions or the chief executive's p ress statements. When explicitly Hierarchy of Strategic Intent 39 defined, it provides enlightenment to the insiders and outsiders about what the organisation stands for. ln order to be effective. a mission statement should possess the following seven ch aracteristics. I. I! should be FCBSIDIC A mission should always aim high but it should not be a n impossible statement. It should be realistic and achievable its tbllowers must tind it to be credible. B ut feasibility depends on the resources available to work towards a mission. ln the l96{}s. the U.S. National Aeronautics and Space Administration (NASA) had a mission to land on the moon. lt was a feasible missi on that was ultimately realised. 2. H should be PICCISC A mission statement should not be so narrow as to restric t the organisations activities, nor should it be too broad to make itsel f meaningless. Manut`aeturin g bicycles` is a narrow mission since it severely limits the organisations activities while mobility business' is too broad a term as it does not define the reasonable contour within which an organisation could operate. Observ e how Hero Cycles defines its mission: "It's our mission to strive for a synergy between technology, syste ms and human resources, to produce products and services that meet the quality, performance and price aspir ations of our customers. While doing so, we maintain the highest standards of ethics and societal respons ibilities." 3. Il .5 IIOt!Id be C768! A mission should be clear enough to lead to action. lt s hould not just be a highsounding set of platitudes meant for publicity purposes. Many organisations do a dopt such statements (sometimes referred to as the corporate positioning statement) but probably they do s o for emphasising their identity and character. For example, India Todqv saw itself as the complete news magazine` and now visualises its mission as *making sense ot`lndia.` The Administrative Staff College of India co nsiders itself as the college for practising managers`. Better still is the HUL`s mission to `add vitality to life' leading to various strategic actions of being the largest consumer goods company in India. 4. lf Sbatlfdbc HOIIvHfI!!g A mission statement should be motivating for members ofthe organisation and ofthe society and they should feel it worthwhile working for such an organis ation or being its customers. A bank which lays great emphasis on customer service is likely to motivate its e mployees to serve its customers well and to attract clients. Customer service, therefore, is an important pu rpose for a banking institution.

Bank of Baroda`s strategic vision 20 I0, includes the mission of pursuing best gl obal practices for delivering added value to customers` in order to achieve its vision of becoming a "technolo gy-enabled customer-centric financial services organisation". 5 Ifshouldbc Dll$ #IIC f]| t 3 A mission statement which is indiscriminate is likely to h ave little impact. If all scooter manufacturers defined their mission in a similar fashion, there woul d not be much of a difference among them. But if one defines it as providing scooters that would provide value for money, for years, it creates an important distinction in the public mind. Bajaj Auto adopted its popu lar mission of providing value for money, for years` and now believes in inspiring confidence`. 6. I! 5}I0lIdIHd}C8fC {bt? HMO! COHIPOHCRIS 0{Sf!8l`Cg A mission statement, along with the organisational purpose should indicate the major components of the strategy to be adop ted. The mission of HCL lnfosystems is: To provide world-class information technology solutions and servi ces to enable our customers to serve their customers better`. It provides a clear indication of the emph asis in the strategies of the company on providing cutting edge technology and customer-orientation. 22 It shouldlnrilcate [mw 0bjectr've.s are to be Accomplished Besides indicating the broad strategies to be adopted, a mission statement should also provide clues regarding the manner in which the objectives are to be accomplished. LG Electronics has its mission of becoming *2 by IO `. that is. double the sales 2.6 GOALS AND OBJECTIVES Goals denote what on organisation hopes- to accomplish in afitrure period of tim e. They represent the future state or outcome ofeffort put in now. A broad category of financial and non-fina ncial issues are addressed by the goals that a linn sets. Objeruives are the ends that state speci/'icoifv how the goofs shui! be achieved . They are concrete and specific in contrast to goals that are generalised. In this manner, objectives m ake the goa.ls operational. While goals may be qualitative, objectives tend to be mainly quantitative in specifica tion. This way they are measurable and comparable. This fine distinction between goals as broadly stated aim s and the objectives as specifically stated aims is not necessarily maintained in practice by organisati ons. As students of strategic management, we should however tmderstand the subtle difference between goals and objectives. Any organisation always has a potential set of goals. lt has to exercise a choic e from among these goals. This choice must be further elaborated and expressed as operational and measurab le objectives. Exhibit 3.9 illustrates how a public sector company in India states its strategic and financ ial objectives. Hierarchy of Strategic Intent 47 Role of Objectives Objectives play an important role in strategic management. We could identify the various facets of such a role as described below.

Objectives detbie the Organisation is Relationslujs with its Environment By stat ing its objectives, an organisation commits itself to what it has to achieve for its employees, cust omers and the society at large. Objectives new an Organisation pursue its Wsion andrltttssion By defining the lo ng-term position that an organisation wishes to attain and the short-term targets to be achieved, objectives help an organisation in pursuing its vision and mission. l OD]CCI}Vl?SpfOI4ldC the B8.$ $` I0! .$`IfBl0@'( D8d$'}0Hm3k0Ig By directing the att ention of strategists to those areas where strategic decisions need to be taken, objectives lead to de sirable standards of behaviour and, in this manner, help to coordinate strategic decision-making. 0DfCCf}Vl?. pfvlildt? {IIC 5'l`8IId8Id$ [Of PCIYOHIIJHCC Appfifal By stating target s to be achieved in a given time period and the measures to be adopted to achieve them, objectives l ay down the standards against which organisational as well as individual performance could be judged. In the absence of objectives, an organisation would have no clear and definite basis for evaluating its perfor mance. Managers who set objectives for themselves and their organisations are more like ly to achieve them than those who do not specify their perfomiance targets. The importance of the role t hat objectives play in strategic management could be aptly summed up in the truism: if one does not know wher e he has to go, any path will take him there. Characteristics ot Objectives Objectives, as measures of organisational behaviour and performance, should poss ess certain desirable characteristics in order to be effective. Given below are seven such characteristics . I. 0b_/CCIIVBS should bt! Ulldctiifalldablo Because objectives play an important role in strategic management and are put to use in a variety of ways, they should bc understandable b y those who have to achieve them. A chief executive who says that something ought to be done to set things ri ght` is not likely to be understood by his managers. Subsequently, no action will be taken or even a wron g action might be taken. 2. Objddlvt?.9 .$ I|Ot!Id be COHCIBIC and Spcdlff To say that our company plans to achieve a I2 percent increase its sales` is certainly better than stating that our company see ks to increase its sales . The first statement implies a concrete and specific objective and is more likely to lead and motivate the managers. 3. 0bf6 f]| BS 5}I0llIdbC RGIHICJ to 8 TYIHG HEHE lf the first statement given above is restated as our company plans to increase its sales by l2 percent by the end of two years`, i t enhances the specificity of objectives. lf objectives are related to a timeframe, then managers know the dur ation within which they have to be achieved. 4. Ob] C!}VI3S SIIOUIJ be )IC8.$`lIf8b}C and C0I!!f0[[8b]C' Many organisations perc eive themselves as companies which are attractive to work for. If measures like the number and qual ity of job applications received, average emoluments offered or staff tumover per year could be devised,

it would be possible to measure and control the achievement of this objective with respect to comparable companies in a particular industry and in general.

48 Strategic Management and Business Policy 5. 0bj6 fh B.$ .5I!0!Id be C7l8Ik> l4Qll' Objectives that are too high or too low are bot demotivating and, therefore, should be set at challenging but not unrealistic levels. To set a high sales target in a declining market does not lead to success. Conversely, a low sales target in a burgeoning market is easily achievable and, therefore, leads to sub-optimal performance. 62 DIJYCIBHI 0b]0C!]VBS .'b0UId Correlate MTI! Edd! OMC! Organisations set many o bjectives in different areas. lf objectives are set in one area, disregarding the other areas , such an action is likely to lead to problems. A classic dilemma in organisations and a source of inter-department al conflict, is setting sales and production objectives. Marketing departments typically insist on a wider var iety of products to cater to a variety of market segments, while production departments generally prefer to hav e greater product uniformity in order to have economies of scale. Obviously, trade offs are required to be made so that different objectives correlate with each other, are mutually supportive and result in syne rgistic advantages. This is especially true for organisations which are organised on a profit-centre basis. Z 0b}CC f}VI5 .$ Shdllfd be SCI Ildlflffl COIISIIBIIIIS There are many constraints int emal as well as external -which have to be considered during objectivesetting. For example, resourc e availability is an internal constraint which aff`ects objective setting. Different objectives compete for the scarce resources and trade-offs are necessary for optimum resource utilisation. Organisations face ma ny extemal constraints like legal requirements, consumer activism and environmental protection. All these li mit the organisation s ability to set and achieve objectives. In sum, objectives-setting is a complex process. We will lirrther examine a few issues relevant to objectives, in order to nmderstand this complex process. Issues ln Objective-setting There are many issues which have a bearing on different aspects of objective-set ting. We deal here with six such issues. I. .S'pC }E I{|' Objectives may be stated at different levels of specificity. At one e xtreme, they might be very broadly stated as goals, while at the other, they might be specifically sta ted as targets. Many organisations state corporate as well as general specific, functional and operational ob jectives. Note that specificity is related to the organisational level for which a set of objectives has been state d. The issue of specificity is resolved through stating objectives at different levels and prefixing terms such as corporate, general and particular so that they serve the needs of performance and its evaluation. 2. .HI!IlIpI}dIy Since objectives deal with a number of performance areas, a var iety of them have to be formulated to cover all aspects of the functioning of an organisation. No organi

sation operates on the basis of a single or a few objectives. The issue of multiplicity deals with different typ es of objectives with respect to organisational levels (e.g. higher or lower levels), importance (e.g. primary or secondary), ends (e. g. survival or growth), functions (e. g. marketing or finance) and nature (e.g. organisation al or personal)- Another issue related to multiplicity, is the number and type of objectives to be set. Too few or too many objectives are both unrealistic. Organisations need to set adequate and appropriate objectives so as to cover all the major performance areas. 3. P'lll0dI}IfV Objectives are formulated for different time periods. It is possibl e to set long-tenn, medium-term and short-term objectives. Generally, organisations determine objective s for the long-and shortterm. Whenever this is done, objectives for different time periods have to be in tegrated with each other. Long-term objectives are, by nature, less certain and are, therefore, stated in general terms. Short-term I O Hierarchy of Strategic Intent 49 objectives, on the other hand, are relatively more certain, specific and compreh ensive. One long term objective may result in several short-term objectives; many short-term objectives con verge to form a long-term objective. For example, a long-tenn objective may be continual profitability. Sh ort term objectives which support continual profitability may be the target return on investment, profit m argin, return on net worth, etc. computed on an yearly basis. 4. Vcd/Fdbfffy Each objective has to be tested on the basis of its verifiability . ln other words, it should be possible for a manager to state the basis on which to decide whether an objectiv e has been met or not. Only verifiable objectives can be meaningfully used in strategic management. Related to veriliability is the question of quantification. A definite way to measure any objective is to quantify i t. But it may be neither possible nor desirable to quantify each and every obj ective. ln such cases, qualitative objectives have to be set. These objectives could also be verified, but not to the degree of accuracy possible fo r quantitative objectives. For example, a qualitative objective may be stated as: to create a congenial working environment within the factory. In order to make such an objective verifiable, value judgement of infor med experts both insiders . and outsiders could be used. A few quantitative measures could also be devised w hich can serve as indicators of a congenial working environment. Some of these could be staff turnover, absenteeism, accident rates, productivity figures, etc. ln sum, it can be said that the issue of verifiabilit y could be resolved through the judicious use of a combination of quantitative and qualitative objectives. 5. RCBIILV lt is a common observation that organisations tend to have two sets o f objectives: official and operative. Official objectives are those which the organisations profess to atta in, while operative objectives

are those which they seek to attain in reality. Probably, no one would be in a b etter position to appreciate the difference between these two objectives than a harried client of a public sector bank who. on being maltreated by an arrogant bank employee, looks up to find a poster of a smiling and beautiful girl with folded hands looking down at him. The poster carries the caption: Customer service with a smile`! Many organisations state one of their official objectives as the development of human resourc e. But whether it is also an operative objective depends on the amount of resources allocated to human resour ce development. 6. QUEIIIQV Objectives may be both good as well as bad. The quality of an object ive can be judged on the basis of its capability to provide a specific direction and a tangible basis for evaluating performance. An example of a bad objective is: To be market leader in our industry`. lt is insuff icient with respect to its , measurability. To restate the same objective as: To increase market share to a mi nimum level of 40 per cent I of the total with respect to Product A. over a period ofthe next two years and t o maintain it t.hereafter is a good objective since it is specific, relates to performance, is measurable and p rovides a definite direction. Recapitulating what we have said in this and the previous subsection, it can be stated that objectives have a number of characteristics and a variety of issues are involved in setting them . Determination of objectives is, therefore, a complex task. Further, two important questions need to be asked : what objectives are chosen for achievement and how they are determined. We attempt to answer the first ques tion in the following subsection and the second in the next.

52 Strategic Management and Business Policy the various stakeholders may change from time to time, necessitating a correspon ding shift in the importance attached to different objectives. Realities of Enterprise Resources and IntemalPower Relationships These mean that objectives are dependent on the resources capability of a company as well as the relative d ecisional power that different groups of strategists wield with respect to each other in sharing those resource s. Resources both material and human place restrictions on the objective-achieving capability of the organisa tion. Internal power relationships too have an impact on objectives in different ways. A dominant group o f strategists such as the board of directors, or an individual strategist such as a chief executive, may w ield considerable power so as to set objectives in consonance with their respective views. Again, since power configurations within a firm are continually changing, the relative importance attached to different objectiv es may also vary over a period of time. The Value System of the Top Executive This has an impact on the corporate philos ophy that organisations adopt with regard to strategic management in general and objectives in particular. Values, as an enduring set of beliefs, shape percepti ons about what is good or bad, desirable or undesirable. This applies to the cho

ice of objectives too. For example, entrepreneurial values may result in promine nce being given to profit objectives, while a philanthropic attitude and values of social responsibility may lead to setting socially-oriented objectives. Awareness by the Management Awareness of the past objectives may lead the organi sation to a choice of objectives that has been emphasised in the past due to dif ferent reasons. For instance, a dominant chief executive lays down a set of obje ctives and the organisation continues to follow it, or marginally deviates from it in the future. This happens because organisations do not depart radically fro m the paths that they have been following in the recent past. Whatever changes o ccur in their choice of objectives take place incrementally, in an adaptive mann er. Keeping in view the four factors described above, we observe that objective-sett ing is a complex task which is based on consensus-building and has no precise be ginning or end. Vision and mission provide a 'common thread' to bind together th e different aspects of the objective-setting process, by providing a specific di rection along which the organisation can move. The binding together of the different levels of the hierarchy of strategic inten t is facilitated by techniques such as the balanced scorecard that we discuss ne xt. Balanced Scorecard Approach to Objectives-setting The performance management system called balanced scorecard, developed by Robert S. Kaplan and David Norton of Harvard Business School, seeks to do away with th e undue emphasis on short-term financial objectives and seeks to improve organis ational performance by focusing attention on measuring and managing a wide range of non-financial, operational objectives. Later, the system application was enl arged to include its usage as a comprehensive strategic planning technique. In d oing so, the balance scorecard approach advocates a top-down approach to perform ance management, starting with strategic intent being expressed through the orga nisation, down to operationally relevant targets. 33 Exhibit 2.7 shows the balan ced scorecard model. The balance scorecard model requires an evaluation of organisational performance from four different perspectives. Finandal Perspective This perspective considers the financial measures arising f rom the strategic intent of the organisation. Examples of such measures are reve nues, earnings, return on capital and cash flow. Hierarchy of Strategic Intent 53 Exhibit 2.7 The Balanced Scorecard Model What must we excel at? How do we look to shareholders? Financial Perspective Objectives Targets How do customers see us? Customer Perspective Vision & =Strategy Internal Process Perspective Objectives Targets Objectives Targets Learning / Innovation Perspective I Objectives Targets How can we sustain our ability to change and improve? Source: Based on R.S. Kaplan & D.P. Norton, The Strategy-focused orientation: Ho w Balanced Scorecard Companies Thrive in the New Business Environment, Boston, H arvard Business School Publishing, 2000 and R.S. Kaplan & D. P. Norton, The Bala nced Scorecard: Translating Strategies into Action, Boston, Harvard Business Sch ool Press, 1996. Customers' Perspective This perspective measures the ability of the organisation to provide quality goods and services, effective delivery and overall customer satisfaction. Examples of such measures are market share, customer satisfaction measures and customer loyalty. Internal Businesses Perspective Internal business processes are the mechanisms t hrough which performance expectations are achieved. The internal businesses pers pective provides data regarding the internal business results against measures t

hat lead to financial success and satisfied customers. To meet the organisationa l objectives and customers expectations, organisations must identify the key bus iness processes at which they must excel. Examples of such measures are producti vity indices, quality measures and efficiency. Learning and Growth Perspective This perspective focuses on the ability of the o rganisation to manage its businesses and adapt to change. In order to face the c hallenges of changes in the environment and customer expectations, organisations take on new responsibilities that require its employees to develop new skills a nd capabilities. Examples of such measures are morale, knowledge, employee turno ver, usage of best practices, share of revenue from new products and employee su ggestions. Kaplan and Norton used the technique of strategy maps that provide a visual repr esentation of the organisation's strategy. In such maps, the four perspectives w ere connected to each other in a 'cause and effect' fashion, thus making clear t he relationship of all the strategic objectives to the strategic intent of the o rganisation. A typical strategic map is shown in Exhibit 2.8. 54 Strategic Management and Business Policy Exhibit 2.8 A typical strategy map Long term shareholder value Financial Improve cost Imp, ove cost Improve cost Improve cost perspective structure structure structure structur e Customer Customer Value Proposition perspective Price Quality Availability Selection Functionality Service Partn ership Brand PInternal perspective PLearning I innovation perspective Operations Management Processes CustomerI I I Regulatory & Innovation Management Processes Social I Processes I I Processes Human capital -information capital Organisation capital Culture Leadership Alignment Teamwork Source: Based on R.S. Kaplan & D.P. Norton, The Strategy-focused orientation: Ho w Balanced Scorecard Companies Thrive in the New Business Environment, Boston, H arvard Business School Publishing, 2000 and R.S. Kaplan & D. P. Norton, The Bala nced Scorecard: Translating Strategies into Action, Boston, Harvard Business Sch ool Press, 1996. Our purpose here is to note that objective-setting can use the balanced scorecar d approach. The four perspectives above can help an organisation to set objectiv es. The utility of the balanced scorecard approach lies in the prioritisation of key strategic objectives that can be allocated to each of these four perspectiv es and the identification of associated measures that can be used to evaluate or ganisational progress in meeting the objectives. In practice, the balanced scorecard approach works something like this: 1. The development of the scorecard begins with the establishment of the organis ation's strategic intent, including the vision and mission. 2. Next, the design of the balanced scorecard is determined by identifying the s pecific measures related to the four perspectives. The specific strategies that

should be formulated and implemented to realise that vision are also determined. 3. The following step involves mapping the strategy through the identification o f organisational activities that are derived from the strategies. For example, a chieving financial growth may be expressed in terms of sales growth and revenue growth. 4. In the final stage, metrics that can be used to accurately measure the perfor mance of the organisation in the specific areas are established. In the example above, metrics for revenue growth may be expressed in terms of sales to new cust omers, sales of new services or products or entry into new markets.

Hierarchy of Strategic Intent 55 The balanced scorecard approach has become quite popular around the world, inclu ding India. In a study of implementation of the balanced score card approach in 53 Indian companies, the major findings were as follows: 34 The balanced scorecard adoption in Indian corporate sector matches that of the U nited States, indicating its growing popularity. The financial perspective has been found to be the most important perspective, f ollowed by customers' perspective, shareholders' perspective, internal business perspective and learning and growth perspective in that order. The-difficulty in assigning 'weightage' to the different perspectives and in 'es tablishing the cause and effect relationships among these perspectives' has been found to be the most critical issue in the implementation of the balanced score card approach in corporate India. There is enough practical evidence to suggest that strategists do not, in realit y, follow a well-balanced, integrated and comprehensive approach to objective-se tting. In fact, they might start with asking the question: what do we have to ac hieve in order to be successful in our business? The next subsection takes up th is question for discussion. Critical Success Factors Many of us occasionally ask ourselves questions like: What do we need to do in o rder to be successful in our studies? our career? our profession? our marriage? Si milarly, managers too are concerned about knowing those critical factors which l ead to success for their organisations. Critical success factors (CSFs), sometim es referred to as strategic factors or key factors for success, are those which are crucial for organisational success. When strategists consciously look for su ch factors and take them into consideration for strategic management, they are l ikely to be more successful, while putting in relatively less efforts. A shoe manufacturing company may consider the following CSFs: high manufacturing quality, cost efficiency, sophisticated retailing, a flexible product mix and c reation of a product image. Toothpaste is a very personal product and so, it enj oys a high brand loyalty. Besides this, four qualities are important in toothpas tes: form, flavour, foam and freshness. A company manufacturing toothpaste has t o excel in these qualities besides building up a high loyalty, in order to be su ccessful. In general, service organisations exist on the basis of the quality of their customer service. But there are other CSFs too. A courier service, for in stance, is critically dependent on three factors: speedy despatch, reliability a nd price. Observe from these examples that if organisations keep in view the rel evant CSFs, these can be used for objective-setting as well as for exercising a strategic choice (we will deal with the latter in a subsequent chapter). Steiner, based on a study related to identifying strategic factors which are imp ortant in different businesses, confirms that 'there are indeed strategic factor s needed for the success of a business and they can be identified. 35 Seen in th is light, the eight attributes of excellence found by Peters and Waterman could be considered as generalised CSFs across several different American industries. 36 Rockart has applied the CSFs approach to several organisations through a three-s tep procedure for determining CSFs. These steps are: to generate the success fac

tors ('what does it take to be successful in business?'), refining CSFs into obj ectives ('what should the organisation's goals and objectives be with respect to CSFs?) and identifying measures of performance ('how will we know whether the o rganisation has been successful on this factor? ).31 Ohmae treats CSFs (or key factors for success, as he calls them) as a basic busi ness strategy for competing wisely in any industry. He suggests identifying the CSFs in an industry or business and then to 'inject a concentration of resources into a particular area where the company sees an opportunity to gain significan t strategic advantages over its competitors.' 38 Resources are allocated to a pa rticular area only when objectives are set for achievement in that area. A strat egy based on CSFs would, therefore, require setting objectives for those CSFs al so. 3.l CONCEPT OF ENVIRONMENT Environment literally means the surroundings, external objects. influences or ci rcumstances under which someone or something exists. The environment of any organisation is the aggregate of all conditions. events and influences that surround and affect it.`2 Since the environment influences a n organisation in multitudinous Environmental Appraisal 69 ways, its understanding is of crucial importance. The concept of environment can be understood by looking at some of its characteristics. Let us read Exhibit 3. 1 that presents six mega trends that are likely to shape the Indian economy, ind ustry and markets in the near future. Industries and companies are quite interes ted in knowing about such trends as these affect their businesses in multifariou s ways. Exhibit 3.1 Six mega trends likely to shape India's future T. N. Ninan, editor of Business Standard and former editor of The Economic Times , forecasts six mega trends that are likely to shape the Indian economy in the n ear future. He calls them 'mega' trends as they cannot be easily reversed, have large ripple effects and define the future. The trend of acquiring of scale The Indian economy, markets and companies are no longer small or tiny. For example, the total Indian car market in 2000 was just half a million vehicles. By 2010, a single company may be turning out twice tha t number. A budding entrepreneur like Jignesh Shah, is valued at Rs. 5000 crore in 2007, which is roughly equal to what the Ambani family wealth was estimated i n 2000. The trend of spread of connectivity and awareness The Indian telecom market was just 5 million connections and is now being valued at over 180 million, enhancin g connectivity across the nation. Similarly, TV sets increasing 12 times or truc ks moving at double the speed, on new highways, affect the productivity of indus tries directly or indirectly. The trend of growth of the middle class In 2001, there were an estimated 61 mill ion Indians belonging to families earning more than Rs 2 lakh per year. In 2005, that number reached 100 million and by 2010 is likely to be 173 million. In add ition to adding to the consumerism, the middle class is likely to demand better civic amenities such as reliable power, clean water and comfortable mass transpo rt systems. The trend of growing problems of growth Environmental degradation, rising energy demand and income disparities are the problems being increasingly faced and are likely to worsen in the near future. The trend of increasing openness to the world There are indices such as the fore ign trade component of India's GDP that is nearly 55 per cent, foreign instituti onal investors holdings of 25 per cent of Indian stocks, more Indian companies b uying overseas companies abroad, more Indian students studying abroad and the li ke, indicating the increasing openness of India and Indians to the world. This c omes from greater self-confidence, faster acceptance of new influences and ideas

and willingness to accept global benchmarking, resulting in a more adaptive and efficient system. The trend of continuing dominance of youth Demographically, nearly half of India is under 25 years of age. Not only are there a higher number of younger people but they are also different from the older generation in many ways. For instance , they are more mobile and volatile, offering new opportunities and challenges t o marketers. Source: Based on T. N. Ninan, "Six mega trends that define India's future", Busi ness Standard, January 6, 2007; Also available at http //www rediff com/money/20 07/jan/O6bspec htm Retrieved January 15 2007 Characteristics of Environment Business environment (or simple environment) exhibits many characteristics. Some of the important and obvious characteristics are briefly described here. I Erwironment is Complex The environment consists of a number of factors events conditions and influences arising from different sources All these do not exist in isolation but interact with each other to create an entirely new sets of influences It is difficult to comprehend at once what factors constitute a given = environment All in all environment is a complex phenomenon relatively easier to un derstand in parts but difficult to grasp in its totality. 2. Environment is Dynamic The environment is constantly changing in nature. Due to the many and varied influence operating, there is dynamism in the environment causing it to continuously change its shape and character. 70 Strategic Management and Business Policy 3. Environment is Multi-faceted What shape and character an environment assumes depends on the perception of the observer. A particular change in the environmen t, or a new development, may be viewed differently by different observers. This is frequently seen when the same development is welcomed as an opportunity by on e company while another company perceives it as a threat. 4. Environment has a Far-reaching Impact The environment has a far-reaching impa ct on organisations. The growth and profitability of an organisation depends cri tically on the environment in which it exists. Any environmental change has an i mpact on the organisation in several different ways. Since the environment is complex, dynamic, multi-faceted and has a far-reaching impact, dividing it into external and internal components enables us to understa nd it better. But before we do that, it is important to understand that strategi c management is increasingly becoming conscious of the nature of the environment and the ways in which it affects organisations. The traditional approach to strategic management has led to an emphasis on contr ol, order and predictability. But these are antithetical to the concept of organ isations and environment as we realise now. The organisation and the environment are, in reality, more unpredictable, uncertain and non-linear. Exhibit 3.2 pres ents an overview of the chaos theory and its application to strategic management . Exhibit 3.2 Complexity and chaos in strategic management The complexity theory, of which chaos theory is a part, deals with the process o f self -organ isation. Chaos theory, proposed by Edward Lorenz and Mitchel Feige nbaum, postulates that at the root of all complex systems whether they are organis ations or the environment there are a set of rules that provide a dynamic order to the surface complexity. These systems cannot be considered as linear systems Wh ere a simple cause and effect model can explain the behaviour of these systems. Rather, these systems are non-linear and dynamic in nature. Any change that take s place in the non-linear systems is chaotic. Chaos theory uses the mathematical models, known as chaotic models, to interpret the process of non-linear and dyn amic systems. The phenomenon of chaos is observed in a wide variety of processes b iological, sociological, economic and meteorological. The applications of chaos theory in management may range from predicting market behaviour and financial fo

recasting, to anticipating competitive strategies. Organisations and environments display many of the characteristics of the living eco-systems as these are also dynamic, ever changing systems making it possible to apply the tenets of chaos theory to them. In suggesting the use of chaos theory to strategic management, D. Levy gives the following reasons: Long-term planning is difficult Industries do not reach a stable equilibrium Dramatic changes can occur unexpectedly Short-term forecasts and predictions of patterns can be made Guidelines are needed to cope with complexity and uncertainty The lesson that students of strategic management need to learn is that, in a dyn amic environment, it is suicidal for organisations to remain static. They have t o forego maintaining an internal orientation and attempt to change dynamically a s the environment changes. Managers should not fall into the trap of over-ration alisation, over-reliance on sophisticated modelling and the futile attempt to cr eate order where a state of equilibrium simply cannot exist for long. Creative d isorder in the environment, as it is the universe, needs to be taken to heart by managers. Sources. D. Levy, "Chaos theory and strategy: Theory, application and managerial implications", Strategic Management Journal, Vol. 13, 1992, pp. 111- 125; D. N. Chorafas, Chaos Theoty in the Financial Markets, Irwin, Chicago, 1994; R D Stac ey, Complexity and Creativity in Organisations, San Francisco, Berrett-Koehler, 1996; A. T. Pascale, M. Millemann & L. Gioja, Surfing the Edge of Chaos: The Law s of Nature and the New Laws of Business, Crown Business, 2000.

Environmental Appraisal 71 Let us get ahead and grapple with the complexity of the environment by its divis ion into internal and external environments. Internal and External Environment The internal environment refers to all factors within an organisation that impac t strengths or cause weaknesses of a strategic nature. The external environment includes all the factors outside the organisation which provide opportunities or pose threats to the organisation. The environment in which an organisation exists can, therefore, be described in terms of the strengths and weakness existing in the internal environment and the opportunities and threats operating in the external environment. The four envir onmental influences could be described as below. Internal environment: 1. Strength is an inherent capacity which an organisation can use to gain strate gic advantage. Examples of strength are: good reputation among customers, resour ces, assets, people, experience, knowledge, data and capabilities. 2. Weakness is an inherent limitation or constraint which creates strategic disa dvantages. Examples of weakness are: gaps in capabilities, financial deadlines, low morale and overdependence on a single product line. External environment: 3. Opportunity is a favourable condition in the organisation's environment which enables it to consolidate and strengthen its position. Examples of opportunity are: economic boom, favourable demographic shifts, arrival of new technologies, loosening of regulations, favourable global influences and unfulfilled customer needs. 4. Threat is an unfavourable condition in the organisation's environment which c reates a risk for, or causes damage to, the organisation. Examples of threat are : economic downturn, demographic shifts, new competitors, unexpected shifts in c onsumer tastes, demanding new regulations, unfavourable political or legislation , new technology and loss of key staff. An understanding of the external environment, in terms of the opportunities and threats and the internal environment, in terms of the strengths and weakness, is

crucial for the existence, growth and profitability of any organisation. A syst ematic approach to understanding the environment is the SWOT analysis. SWOT Analysis SWOT analysis, evolved during the 1960s at Stanford Research Institute, is a ver y popular strategic planning technique having applications in many areas includi ng management. Organisations perform a SWOT analysis to understand their interna l and external environments. SWOT, which is the acronym for strengths, weaknesse s, opportunities and threats, is also known as WOTS-UP or TOWS analysis. Through such an analysis, the strengths and weaknesses existing within an organisation can be matched with the opportunities and threats operating in the environment s o that an effective strategy can be formulated. An effective organisational stra tegy, therefore, is one that capitalises on the opportunities through the use of strengths and neutralises the threats by minimising the impact of weaknesses, t o achieve pre-determined objectives. A simple application of the SWOT analysis technique involves these steps: 1. Setting the objectives of the organisation or its unit 2. Identifying its strengths, weaknesses, opportunities and threats 3. Asking four questions (a) How do we maximise our strengths? (b) How do we minimise our weaknesses?

72 Low cost Flexible and can be adapted to varying situations Leads to clarification of issues Development of goal-oriented alternatives Useful as a starting point for strategic analysis The following could be the pitfalls of using the SWOT analysis indiscriminately: Simplicity of use may turn to be simplistic by trivialising the reality that may be more complex than represented in SWOT matrices. May result in just compiling lists rather than think about what is really import ant for achieving objectives. Usually reflects an evaluator's position and viewpoint that can be misinterprete d to justify a previously decided course of action, rather than be used as a mea ns to open new possibilities. Chances exist where strengths may be confused with opportunities or weaknesses w ith threats. May encourage organisations to take a lazy course of action of looking for stren gths that match opportunities rather than developing new strengths that could match the emerging opport unities. The process of strategy formulation starts with and critically depends on, the a ppraisal of the internal and external environment of an organisation. In this ch apter, we will attempt to understand the external environment and, in the next c hapter, we will take up the internal environment for discussion. STRENGTHS WEAKNESSES - Favourable location - Uncertain cash flow - Excellent distribution network - Weak management information - ISO 9000 quality certification system - Established R & D Centre - Absence of strong USP for major - Good management reputation product lines - Low worker commitment OPPORTUNITIES THREATS - Favourable industry trends - Unfavourable political environment - Low technology options available - Obstacles in licensing new business - Possibility of niche target market - Uncertain competitors' intentions -Availability of reliable business - Lack of sustainable financial

partners backing SWOT analysis has several benefits, among the major being: Simple to use

Environmental Appraisal 73 General versus Relevant Environment The external environment, as we said earlier, consists of all the factors which provide opportunities or pose threats to an organisation. In a wider sense, the external environment encompasses a variety of sectors like international, nation al and local economy, social changes, demographic variables, political systems, technology, attitude towards business, energy sources, raw materials and others resources and many other macro-level factors. We could designate such a wider pe rception of the environment as the general environment. All organisations, in so me way or the other, are concerned about the general environment. But the immedi ate concerns of any organisation are confined to just a part of the general envi ronment which is of high strategic relevance to the organisation. This part of t he environment could be termed as the immediately relevant environment or simply , the relevant environment. The conception of the business environment of an org anisation is presented in Exhibit 3.4. Exhibit 3.4 The business environment of an organisation GENERAL ENVIRONMENT LORGANISATIOD RELEVANT ENVIRONMENT A conscious identification of the relevant environment enables the organisations to focus its attention on those factors which are intimately related to its mis sion, purpose, objectives and strategies. Depending on its perception of the rel evant environment, an organisation takes into account those influences in its su rrounding which have an immediate impact on its strategic management process. Ha ving identified its relevant environment, an organisation can systematically app raise it and incorporate the results of such an appraisal in strategic planning. In order to cope with the complexity of the environment, it is feasible to divi de it into different sectors. Classification of Environmental Sectors Aguilar evolved a categorisation scheme for grouping different kinds of informat ion related to the environment into sectors such as customers, competitors, supp liers, techn9logy; social, political, economic conditions, etc.3 Keegan suggests that the sector categorisation should be such that these sectors must be exhaus tive, i.e., each item of information should find a place in one of the sectors; the sectors must be mutually exclusive so that any given item of information mus t belong to one of the category; and the classification must be functional and r elate to actual scanning practices.4 There are several sectors into which the external/general enviroi1mnt cuId be di vided into. But, in a given context, there are certain sectors that merit greate r attention thanth hers. Exhibit 3.5 presents results of three research studies in the Indian context that attempt to identify the vironmental factors on the ba sis of a relative ranking of the different environmental isectors. 74 Strategic Management and Business Policy Exhibit 3.5 Which sectors of the environment did Indian companies focus upon? Given below are the relative rankings of eight environmental sectors that Indian companies focus upon. The rankings are based on three research studies reported over nearly a decade (1987 - 1996). Environmental sectors Dixit Subramaniam Shah / Overall ranking* (1987) (1989) (1996) (N = 24) (N = 16) (N = 61) Market 1 1 1 1 Supplier 2 n c 2 2

Technological nc. 2 3 3 Economic 4 3 4 4 Regulatory 3 4 5 5 Political 6 5 6 6 Socio-cultural 6 6 7 7 International 5 n c 8 8 Overall ranking done by the author n.c. 'not considered' in research study Sources M R Dixit Environmental Factors Relevant for Strategy Formulation in Ind ian Management Jan 1987 pp 31 37 also as part of a larger study in M R Dixit The Concept and Practice of Scanning and Appraisal of the External Environment",Vik alpa Vol 10 No 2 Apr June 1985 pp 119 139;S. Subramaniam Corporate Planning Prac tices in India",Economic and Political Weekly May 27 1989 pp M87 M91 A M Shah En vironmental Factors for Strategy Formulation Productivity Vol 36 No 4 Jan Mar 19 96 pp 594 599. The research studies by Dixit (1987) Subramaniam (1989) and Shah (1996) had an i dentical objective of finding out the environmental sectors in the Indian contex t that have a high relevance for strategy formulation = by Indian organisations. Certain adjustments have been made in the prese ntation of the results in Exhibit 3.5. = Dixit s study ranks 18 domestic and 6 multinational companies separately . Here the weightage average of the relevance scores (a measure used in such studies to determine the extent to whic h a sector is considered relevant to strategic planning by the companies) is tak en for ease of comparison Subramaniam s study ranks sectors on their degree of r elevance Here again the weightage average is calculated Further, the terminology used for sectors by different researchers could be a bit different. We have rel ied on a common terminology in order to arrive at the overall ranking Of interest to us here is the fact that there was a high level of unanimity amon g the three researchers regarding the type of sectors that Indian companies tend ed to focus upon for the purpose of environmental scanning Market environment tu rned out to be the most crucial factor, followed by the supplier and technologic al sectors International environment did not seem to be of much significance the n but in all probability, has gained primacy as larger numbers of Indian compani es are integrating themselves with the global economy. These studies identified eight environmental factors that Indian companies focus sed on These studies are of the period 1987-1997 and may seem outdated but inter est in identification of environmental factors seemed to have waned not only in India but internationally too At present research in environmental factors has m oved to finer points such as environmental scanning behaviour of managers or its relationship with the dynamism of the environment. 6

Environmental Appraisal 75 We will adopt an eight-way classification of environmental factors and present a discussion of each of chm in alphabetic order so as to emphasise the point that there is lack of information at present regarding the relative-iniportance plac ed on each of them by Indian organisations. 3.2 ENVIRONMENTAL SECTORS The classification of the general-environment into sectors helps an organisation to cope with its complexity, comprehend the different influencesoperating and r elating the environmental changes to its strategic management process. Different bases for classification have been adopted by different authors, but the basis itself is not as important as the fact that all the relevant factors in the envi ronment have to be considered. Depending on a variety of factors such as the siz e of the organisation, level and scope of activities, geographical spread of mar kets, nature of product, type of tehnQlogy used and managerial philosophy, an org anisation may divide its environment into sectors capable of being analysed conv

eniently. In this book, we are using an eight-category classification of the env ironment. These eightsectors of the environmentare: the economic, international, market, political, regulatory, socio-cultural, supplier and technological secto rs. We will now take up each of these sectors for discussion. Economic Environment The economic environment consists of macro-level factors related to the means of production and distribution of wealth that have an impact on the business of an organisation. Some of the important factors and influences operating in the economic environme nt are: 1. The economic stage in which a country exists at a given point of time. 2. The economic structure adopted, such as a capitalistic, socialistic or mixed economy 3. Economic policies such as industrial, monetary and fiscal policies. 4. Economic planning, such as five-year plans, annual budgets, etc. 5. Economic indices like national income, distribution of income, rate and growt h of GNP, per capita income, disposable personal income, rate of savings and inv estments, value of exports and imports, the balance of payments, etc. 6. Infrastructural factors such as financial institutions, banks, modes of trans portation and communication facilities, etc. Strategists are acutely aware of the importance and impact of the economic envir onment on their organisations. Almost all annual company reports presented by th e Chairmen devote attention to the general economic environment prevailing in th e country and an assessment of its impact on their companies. We provide here, several examples of the factors and influences operating in the Indian economic environment that have had a far-reaching impact on all business organisations. It is common to read or hear that India and China are the two Asian economic dra gon and elephant respectively, who are set to share with the United States the d istinction of being the world's economic powerhouses. By 2025, the Indian econom y is projected to be about 60 per cent of the size of the U.S. economy. By 2035, the world economy is likely to be tripolar with U.S., China and India being the three leaders. India, which is now the fourth largest economy in terms of purch asing power parity, will overtake Japan and become the third major economic powe r within 10 years. The Indian economy will also surpass that of the European Uni on in terms of growth. But there are significant challenges ahead too. Rising ec onomic disparities, monsoon-dependent agricultural sector, inadequate socio-econ omic reforms, institutional and infrastructure bottlenecks and a volatile stock market are seen as factors holding back a full-scale economic blossoming of Indi a. The Indian organisations, in their strategic planning, have to be acutely awa re of the diverse eonomh enario unfolding before them.

76 Strategic Management and Business Policy India's emerging image as a global economic force sits uncomfortably with the ha rsh reality of the status of its human development. The euphoria regarding the i mpressive economic growth in India pales into insignificance when one looks at t he poverty situation in India. Among the several disparities that exist, economi c disparity poses the most severe challenge. While measures for poverty vary and there is no fixed basis for evaluating or comparing poverty, India's relative g lobal ranking is 55 out of 102 countries. The poverty rate fell to around 22 per cent in 2004-05 as compared to 50 per cent in 1977- 78. While poverty rates hav e been falling and an estimated 200 million Indians joined the middle class, yet nearly 300 million still exist in extreme poverty. Large-scale severe poverty i s concentrated in the five 'BIMARU' states of Bihar, Madhya Pradesh, Rajasthan, Uttar Pradesh and Orissa. Unfortunately, these poorer states also have larger po pulations that are growing faster. Incomes in urban India are four times higher than that of rural areas. The outcomes of poverty are social imbalances leading to social strife that is not considered good for investment. No nation can expec

t to achieve a developed status while a major part of its population lives in po verty. The corporate sector cannot simply afford to wash its hands off and cater only to the economically better sections of the society. It has to get involved in various ways to tackle this significant economic issue having severe social implications. Economic slowdowns result in lesser spending by consumers. But is the converse a lso true? This question has confounded the corporate sector and marketers more t han the economists. Surveys of consumer behaviour are unambiguous on one point: Indian consumers are discerning spenders and try to maximise value from spending money. They are not swayed by hard-sell and exaggeration, look for tangible pay offs and do not rely excessively on brand image alone. Companies, especially in the FMCG sector, have realised this and have been responding with alacrity. Colo ur TVs, mobile phones, personal computers, airlines, hotels and several other in dustries have faced the onslaught of liberalisation and the ensuing competition with a range of innovative marketing strategies. Contrary to common perception, the economic growth in India has mainly been fuel led by the growth in domestic savings and not foreign investment. Such savings b y households are mainly for education, old-age security and health-related conce rns. The country does not have, or maybe cannot afford to have, a generalised so cial security system. Savings in India have been traditionally invested in fixed assets and precious metals. Gold, for instance, is perceived as insurance or a pension product. There has been little trust among the general public for privat e investments. The share of savings entrusted to the government has been channel led through post offices and banks. However, during the 1980s, the investors sta rted turning to other avenues like stock markets and company deposits. Progressi ve changes in economic and fiscal policies have led to many developments. Pensio n reforms could lead to unbundling of huge resources for corporate investment. L easing and financing companies, public sector bonds, mutual funds, venture capit al business, new financial instruments, entry of banks and financial institution s in stock trading are some of these developments which provide the resources fo r capital markets and project financing. Exhibit 3.6 presents basic information about the 'LPG' of an economy, by what is meant liberalisation, privatisation and globalisation. You must have often hear d or read about these terms. This exhibit offers an explanatory view of the term s much used but probably not correctly understood. Liberalisation, privatisation and globalisation are essential features of the economic environment of any cou ntry. No other development has as much affected the business environment in Indi a as these have. Business firms are still in the process of coming to terms with the total impact that these developments are having on them. In fact, these thr ee developments have created the need for a more focussed strategic management b y Indian companies. Since these terms are quite significant, they will often be referred to further in the text, in different contexts. Environmental Appraisal 77 Exhibit 3.6 The 'LPG' of the economic environment By 'LPG', as colourfully stated by the once-redoubtable former chief election co mmissioner T. N. Seshan, is meant liberalisation, privatisation and globalisatio n. You often hear these terms and might have an idea of what they mean. Let us s ee the meaning of these terms in the context of the Indian economic environment. Liberalisation refers to a set of measures and reforms aimed at the creation of an open economy. Broadly, the economic policies talk of liberalisation measures for industry and trade and reforms related to the macro aspects and structural a djustments. Liberalisation measures encompass the following: Industrial policies related to liberalisation of licensing of companies, foreign exchange and its regulation, monopolies and restrictive trade practices and the public sector reforms. Trade policies related to liberalisation through encouragement of foreign invest ments, opening of exports

and imports sectors, lowering of import tariffs, abolition of import licensing a nd convertibility of rupee. The reforms process includes: Fiscal (say, reduction of fiscal deficit and reform of taxation system), monetar y (say, lowering interest rates and controlling inflation), banking sector (say, freeing interest and lending rates and entry of private banks) and capital mark et reforms (say, entry of private sector mutual funds and allowing foreign insti tutional investors in capital markets). Structural adjustments related to phasing out of subsidies and price controls, d isinvestment in public sector units and framing of an exit policy for industry. The ongoing reforms process, often referred to as second-generation reforms, inc lude further financial sector reforms, several legislative actions such as amend ments to the Companies' Act, setting up of Competition Commission and tax reform s related to value-added tax and stricter compliance. Privatisation refers to the process of selling of state-owned enterprises (or pu blic sector units as we call them) to private individuals or corporations. In a limited sense, it also means the hiring of a private business to provide product s and services previously offered by a government agency. Liberalisation in the shape of public sector reforms, for example, entails disinvestment of government equity in public sector units, resulting in their privatisation. Global/sat/on means the integration of a country's economy with the global econo my. This is done in several ways like enhancing the inward flow of foreign funds and technology, opening up the system of trade and investments and, in general, the internationalisation of markets, production and corporations. Operationally , it means that a company that could earlier be successful by focussing only on making and selling goods and services within its national boundaries, now expand s its horizon to the world. You will note that the three terms are not mutually exclusive in terms of their coverage. These should not be viewed in watertight compartments. Instead, these are to be seen as a part of an elaborate economic philosophy of focussing on ent repreneurialism or individual initiative as the vehicle for economic growth, dev elopment and progress, as opposed to state or government-led economic developmen t. International Environment The international (or global) environment consists of all those factors that ope rate at the transnational, cross cultural and across-the-border level, having an impact on the business of an organisation. Some of the important factors and influences operating in the international envi ronment are as below. 1. Globalisation, its process, content and direction 2. Global economic forces, organisations, blocks and forums 3. Global trade and commerce, its process and trends 4. Global financial system, sources of financing and accounting standards 5. Geopolitical situation, equations, alliances and strategic interests of natio ns

78 Strategic Management and Business Policy 6. Global demographic patterns and shifts 7. Global human resource: institutions, availability, nature and quality of skil ls and expertise, mobility of labour and other skilled personnel 8. Global information system, communication networks and media 9. Global technological and quality systems and standards 10. Global markets and competitiveness 11. Global legal system, adjudication and arbitration mechanisms 12. Globalisation of management and allied disciplines and diffusion of manageme nt techniques in industry The international environment constitutes a special class of the environmental s ector. While the other seven sectors we discuss here, are largely limited and ex clusive in nature, the international environment encompasses all the sectors alb

eit in the global context. In other words, what we mean to say is that while the political environment, for instance, within a country, could consist of certain factors related to national politics, the international environment would also have a geopolitical component including the political factors and influences at the global level. Here are three instances to exemplify the significance of international environm ent for Indian business and industry. China number one, India number two: this is what we often get to hear in terms o f economic growth. Comparison in the context of international environment is in order. China's economy is twice that of India. China has enjoyed a long term GDP growth rate of 9 to 10 per cent versus India's 6 to 7 per cent and China's per capita income is more than double that of India. Moreover, China exports 6 times what India does. Not only are the two Asian neighbours contenders for the numbe r one position, they are competitors in various industries internationally too. Yet, there are pockets of excellence for India that other industries need to rep licate. The Indian pharmaceuticals industry is one such example where it is far ahead of its Chinese counterpart in terms of developing international marketing. Indian companies such as Ranbaxy and Dr. Reddy' s sell widely in the U.S., Euro pe, Africa and South America. Quite a few have factories in the U.S. and Europe too. This has significance for strategic planning for the existing and prospecti ve Indian multinational companies. Increasing labour mobility is a significant international environmental trend pr esently. Despite better technology reducing the need for labour, it still remain s the most important factor of production. Internationalisation of markets and p roduction requires a frequent movement of labour, especially high-skill, better qualified people to move frequently across borders. Demographic changes of falli ng fertility rates in developed regions and countries such as European Union, Ja pan and Singapore mean that more influx of skilled people would be required. Tra ditionally and historically, India has been a supplier of labour to the world. T his includes emigration of highly educated people causing a phenomenon called 'b rain drain'. Increasingly, however, there has been phenomenon of 'brain gain', w hereby qualified Indians are returning home to work or set up their own companie s. Indian industry and companies have to take into account these divergent trend s related to labour mobility in the international environment. Among the various external financial sources, the equity market has constituted an important source of financing for Indian companies, followed by bank loans an d loans from financial institutions. The start of India's economic reforms in th e early 1990s led to a flood of overseas equity issues via American and global d epositary receipts. Indian companies now are increasingly seeking cheaper and qu icker loans from the international financial markets where access has been made easier by regulatory reforms of streamlined and liberalised external commercial borrowing procedures and policies. Typically, Indian companies searching for fun ds overseas are drawn from a range of industries from automotive to financial an d some sectors like infrastructure having deep funding requirements. Reliance be ing the first to enter the US private debt placement market and Tata Power, Indi a's largest private-sector power proEnvironmental Appraisal 79 ducer, raising foreign currency convertible bond, signify an increasing trend of international financing. These trends suggest that there will be many more large transactions for the big ger Indian companies that are growing in size and ambition and will continue to look at foreign financing to fuel growth, both for capacity expansion and acquisitions, depending on constraints to international f inancing such as India's sovereign credit rating, exchange-rate risk and stringency of compliance require ments. Earlier, in Exhibit 3.5, we observed that the international environment used to

be considered as of low significance by Indian companies. We also noted that the research studies on environmental factors considered by Indian companies in str ategic planning quoted in that exhibit were conducted in the 1980s and the early - 1990s. There has been a sea-change, starting in the latter half of the 1990s and continuing at present, necessitating Indian companies to increasingly think of aligning themselves to the emerging global economic order. Evidence is found in more frequent references to global standards by exporting companies, eagernes s to adopt global business practices and realisation of the impact that internat ional environment is likely to have on Indian business and industry. The industr y federations such as the Confederation of Indian Industry have increasingly bee n drawing the attention of their constituents to the international environment a nd the impact it is likely to have on them. Progressive companies are also repor ted to have set up special cells and appointed managers to help them in analysin g the impact of the international environment on their businesses. Of all the as pects of global economic order, it is the World Trade Organisation (WTO) that ar ouses a heightened interest among the Indian corporate sector. WTO is among the trilogy of the influential international institutions, the other two being the I nternational Bank for Reconstruction and Development (IBRD) popularly known as t he World Bank and the International Monetary Fund (IMF). Exhibit 3.7 presents a brief description of the WTO and an assessment of its impact on Indian business and industry. Exhibit 3.7 WTO and its relevance as a significant international environment fac tor for Indian companies The World Trade Organisation (WTO) claims to be 'the only global international o rganisation dealing with the rules of trade between nations.' The members negoti ate and sign the agreements that may be ratified by their parliaments. The goal of the WTO is to help producers of goods and services, exporters and importers c onduct their business. The WTO was founded on January 1, 1995 as a successor to the General Agreement o n Trade And Tariff (GATT) by the Uruguay round of negotiations. While GATT focus sed mainly on trade in goods, the WTO covers cross-border trade in services and ideas and the movement of personnel. It has a membership of 150 countries as in January 2007. The functions of the WTO are: Administering WTO trade agreements Forum for trade negotiations Handling trade disputes Monitoring national trade policies Technical assistance and training for developing countries Cooperation with other international organisations The WTO functions on the basic premise that free trade among nations leads to ec onomic growth. Liberal trade policies that allow the unrestricted flow of goods and services help in honing competition, motivating innovation and nurturing suc cess. Its wide-ranging activities relate to agriculture, banking, food sanitatio n, government purchases, industrial standards and product safety, intellectual p roperty, telecommunications, textiles and clothing, etc. Criticism of the WTO rests on several allegations that it considers as misconcep tions arising out of misunderstanding. WTO is now under fire for failing to take into account labour standards or the environmental impact of

80 Strategic Management and Business Policy trade. Besides, it is alleged that its efforts to break down global trade barrie rs are faltering. The more serious criticism relates to it being a tool in the h ands of powerful multinational corporations, dictating policy to sovereign natio ns and prescribing actions that lead to destroying jobs and increasing poverty. WTO addresses many of these criticisms on its website at http://www.wto.org/engl ishL India is a founder member of the GATT and its successor, the WTO. India's partic

ipation aims at the development of an increasingly rule based system in the gove rnance of international trade, so as to ensure more stability and predictability that ultimately would lead to more trade and prosperity for itself and other me mber-nations. India has benefited by the provisions of the WTO such as by being named the most favoured nation principle and enabling of access to a large numbe r of importing countries. India is also a part of the group of developing nation s that seek to secure equity in access to the markets in developed countries and protecting its vital interests in agriculture. Information related to India's r elationship with the WTO is available with the Ministry of Commerce at http://co mmerce.nic.in/. There are important implications of the WTO regulations for strategic management for companies in all industries that come within its purview. Among them are th e pharmaceuticals (e.g. patenting), IT (e.g. outsourcing), agriculture (food saf ety and processed food exports), textiles and garments (dismantling of quotas an d export competitiveness) and service sector (e.g. insurance, banking and accoun ting). Market Environment The market environment consists of factors related to the groups and other organ isations that compete with and have an impact on an organisation's markets and b usiness. Some of the important factors and influences operating in the market environment are as follows: 1. Customer or client factors such as the needs, preferences, perceptions, attit udes, values, bargaining power, buying behaviour and satisfaction of customers. 2. Product factors such as the demand, image, features, utility, function, desig n, life cycle, price, promotion, distribution, differentiation and availability of substitutes of products or services. 3. Marketing intermediary factors such as levels and quality of customer service , middlemen, distribution channels, logistics, costs, delivery systems and finan cial intermediaries. 4. Competitor-related factors such as the different types of competitors, entry and exit of major competitors, nature of competition and relative strategic posi tion of major competitors. The market environment largely depends on the type of industry structure. In mon opolies and oligopolies, the concern for market environment is lesser than what it is under pure competition. In a controlled economy, like that of India, publi c utilities like electricity boards and most public sector companies such as pet rol and cooking gas companies operate in a protected environment. In recent years, the government policies have gradually moved towards allowing c ompetition within the public sector such as between banks and also between the p ublic and private sector companies like in the case of television and computers. The market environment has assumed a greater importance in strategic management as the increasing pace of liberalisation has accentuated its importance. In fac t, as Exhibit 3.5 shows, it is the most important sector for companies in India. Here are several examples to show how the market environment affects and is take n into consideration by the companies. Growing international trade, massive investment in infrastructure, increasing le vels of disposable income and strong manufacturing and retail sectors have combi ned to produce a dynamic market environment in India. Customers and their needs have been featuring more prominently in the business strategies of firms in seve ral industries. Other marketing-related actions include investments in retail ne tworks, increasing opportunities for customer interactions, improving customer s ervice, customer-focussed advertising, demonstrating a more visible presence and improving the overall customer experience. No Environmental wonder, India al industries There was a Appraisal 81 is considered to be one of the best growth opportunities for sever in the developing world. time when the automobile industry hardly seemed to care about its cu

stomers. The few companies that existed did so in a sellers market and customers had to wait for a long time in order to buy a car. Now the situation has change d to such an extent that companies carry unsold stocks, have to resort to variou s sales promotion measures and provide new customer services in order to compete in the market. Facilities such as 24-hour customer service, service set-ups on highways, mobile pollution checking units, mobile service-units facility at serv ice stations and customised training programmes for car mechanics are a common f eature expected by the Indian automobile customer. There is a distinct trend of growing preference for natural products around the world and this trend is also prevalent within India. Eco-friendly products wheth er in agriculture, clothing, cosmetics or health care are seen as better substit utes for synthetic products. Issues such as organic produce, green technology, b iodegradability, non-toxicity or sustainable agriculture are common in product a nd processtechnologies. Indian organisations seem to benefit owing to this trend of growing preference for natural products. Ayurveda, coir, herbal cosmetics an d pesticide industry products are some of the sectors that benefit from customer preferences for natural products. Indians are paying increasingly greater attention to personal grooming. Changing life styles, increasing disposable incomes, availability of local and internati onal brands, influence of satellite television and better awareness of global br ands are some of the major factors that have led to an increasing demand for cos metics. The cosmetics and personal care industry has been growing at a high rate during the last few years. With the demand for cosmetics on the rise and openin g of the market to foreign companies, there is increasing competition offering g reater product choice and availability to the fashion-conscious India women and men in urban as well as suburban areas. The market environment is one of the most dynamic sectors of the environment. In dian marketers are facing a daunting challenge in coming to terms with the dynam ism and the ever-changing nature of the Indian markets. Exhibit 3.8 offers an in sight into the enigma that is the Indian market. Exhibit 3.8 The enigma that is the Indian market Ask any perceptive marketer about the biggest challenge in marketing in India an d chances are that s/he would name it as the heterogeneity of the Indian market. At any given time, it is difficult to segment a market. It is even more difficu lt trying to segment a market as diverse and unpredictable as India's. The Briti sh Broadcasting Corporation's George Arney, who has been reporting on India for many years, wonders: how do you summarise a country which is home to one in six members of the human race, contains a third of the world's poorest people and ye t has an increasingly consumer-oriented middle-class, twice the size of the popu lation of Germany? Market analysts keep struggling with data streaming out from various surveys, co nducted by organisations such as the National Council of Applied Economic Resear ch, National Sample Survey or the Indian Readership Survey. Marketing students q uickly get to adopt the jargon of consumer behaviour: 'SEC C' consumer or 'aspir ing' category consumer. The hype associated with India's economic emergence fuel s the marketing strategists' imagination. Yet, the elusive Indian consuming clas s simply refuses to come within the grips of artful tactics and carefully design ed strategies. Estimates of the number of people in the consuming class vary widely. Invariably , they are quoted in a few hundred millions. Subsequently, several of these esti mates prove to be inflated - based more on self-enlightened prophecies rather th an market realities. So many MNCs with their bloodied noses can relate well to t his. To them, the choice among being a volume-based, mass marketer or a premium, niche marketer has always been clear. They are there for big action in a huge m arketplace. The only problem is there is hardly any homogeneity to base action u pon. The Indian consuming class simply refuses to act like the consuming class i n their own

82 Strategic Management and Business Policy countries does. There seems to be more emphasis on value for money, aversion to being pushed to buy, little liking for razzle-dazzle and the propensity to rely on reputation and trust in customer relationship. Consumerism, or conspicuous consumption, is a double-edged sword. It fuels econo mic growth but also ignites social disparities and individual guilt. While it is a phenomenon experienced by industrial societies anywhere, in India it struggle s valiantly with the strongly-entrenched social system and values. Take for exam ple, the issue of debt-funded consumption. Is postponing consumption increasingl y difficult for the Indian consumer than taking a loan to satisfy it quickly? Ma ny marketers gleefully report that the Indian consumer has finally gotten over h is aversion for loans or mortgages to buy items for immediate consumption. But i s it really true? It is difficult to say. If one sees it through the prism of ge nerational differences and social mobility, then it may be easier for a 23-year old man, earning a tidy amount out of his call centre job to go for instant grat ification, but practically impossible for his father, running his truncated hous ehold with his meagre government pension, to do so. Who is the marketer really a iming at: the father or the son? They might represent the two sides of the India n consuming class to the marketer, yet they emanate from the same social milieu. On the one hand, undoubtedly, there is a huge untapped market for consumer goods out there in India. On the other, we are already witnessing signs of consumptio n-induced stress. The 'buy-nothing-day': a manifestation of fatigue by over-cons umption and a social movement, against mindless consumerism, observed around the world in November-end every year, was celebrated in Mumbai for the first time i n 2006. Just like the country, the consuming class in India is a bundle of contradiction s. There are so many variables that make it difficult to measure, evaluate or co mpare data. Besides the usual marketing variables such as demography or lifestyl e, the marketers have factors such as the region, caste and cultural diversity t o contend with. Foreign, especially the American models of marketing research ca n offer useful insights, but cannot serve the purpose adequately of helping to h ave a realistic understanding of the Indian consumer behaviour. Indigenous theor etical models, understanding of markets grounded in social realities of India or simply, conservative trial-and-error may help to do so. Despite the heterogeneity of the Indian market, it is prudent to realise that th e Indian society is in a state of ferment. Several differences apparent today ma y dim in intensity or disappear totally tomorrow. This is likely to happen espec ially across the socio-economic classes where for instance, the elite classes be have in a similar way across regional or caste divides. The market environment i s dynamic, complex and multifaceted. Its understanding and evaluation poses a di fficult challenge not only to the marketer but to the strategic planner as well. Political Environment The political environment consists of factors related to management of public af fairs and their impact on the business of an organisation. Some of the important factors and influences operating in the political environm ent are: 1. The political system and its features like nature of the political system, id eological forces, political parties and centres of power. 2. The political structure, its goals and stability. 3. Political processes like operation of the party system, elections, funding of elections and legislation with respect to economic and industrial promotion and regulation. 4. Political philosophy, government's role in business, its policies and interve ntions in economic and business development. India is a democratic country having a stable political system, where the govern ment plays an active role as planner, promoter and regulator of economic activit y. Businessmen, therefore, are conscious of the political environment that their organisations face. Most governmental decisions related to business are based o n political considerations in line with the political philosophy followed by the ruling party at the Centre and the State levels.

Environmental Appraisal 83 Here are a few examples illustrating the impact of political environment on busi ness: Indian industrialists evince a healthy and keen interest in the country`s politi cs for several reasons. Political panics set the agenda for legislation affecting business. The governme nt. despite liberalisation measures. wields enormous regulatory powers that could make or mar an industry. Political funding of elections is widespread among industrialists. In fact. several of them openly co me out in favour of a particular political party while a few have also joined politics. There is a gen uine concern about the stability of coalition governments. a common feature of the political system sin ce the last several years. as stability of the government bodes well for business and industry. The ideological forces that make up the centres of power in the political coalit ions that rule India offer an interesting mosaic of conflicting interests and political posturing. There are l el`tists and rightists of various shades and hues populating the- treasury and opposition benches in the parli ament. Being a genuine. working democracy. though unruly and noisy. the Indian political system has to i ncorporate a wide variety of political ideologies. Owing to social heterogeneity and economic disp arities. the political environment in India inevitably is conflict-ridden. It is difficult in such an e nvironment to build political consensus and organise concerted action toward long-term economic reform. This r esults in weak political action that is often hesitant and halting. For Indian politicians. support f or refomts depends on which side of the goveming divide they are. Once out of power, the politicians oppose reforms that they themselves vociferously supported. Frequently characterised as vote-bank-driven polit ics'. such politics creates a situation where economic sense often is seen to be sacrificed at the alta r of politics. Prime ministers of India have to be astute behavioural experts to manage the disparate elements that make up the coalitions they are supposed to lead. No wonder, only mature politicians are allowed to take the risk of occupying the prime ministerial position. Strategic planners within organisation s need to take into account such political realities in India. Maoists. Naxalites and ultra-leftists are some of the epithets used to designate the violent political protestors in India. Thirteen states of India and a quarter of the nearly 600 distr icts are estimated to be affected by such socio-political movements. The aims of these socio-political mo vements are controversial with supporters and rivals projecting differing viewpoints. The implication s for the economy are

considered to be negative inthe sense that political upheavals create an unfavou rable business environment for the corporate sector. A number of these States where the Maoists are mo st active are rich in iron ore. coal. bauxite, manganese and other minerals and have the potential to attra ct billions of dollars in investment and to create hundreds of thousands of sorely needed jobs. Singur. in West Bengal. a state affected by Naxalism. faced an acute political crisis when the communist state g ovemment allowed Tata Motors to setup an assembly plant in the vicinity of Kolkata. Jharkhand and Oris sa other states seeking to attract domestic and foreign investments - too face similar political predica ments. Prime Minister Manmohan Singh went to the extent of terming these protest movements as the singl e greatest threat to lndia`s internal stability and democratic culture`. To others. they may just rep resent a misplaced response to unbridled capitalism and mindless consumerism`. Regtlltlltlfy E1WlI'0I1mCl'tl The regulatory environment consists of factors related to planning. promotion an d regulation of economic activities by the government that have an impact on the business of an organisat ion. Some of the important factors and influences operating in the regulatory environ ment are as follows: l . The constitutional framework. directive principles. fundamental rights and d ivision of legislative powers between the Central, State and local govemments. 2. Policies related to licensing. monopolies. foreign investment and financing o f industries. 3. Policies related to distribution and pricing and their control. 84 Strategic Management and Business Polity 4. Policies related to imports and exports. 5. Other policies related to the public sector. small scale industries, sick indus tries, development of backward areas. control of environmental pollution and consumer protection. Since the Indian economy is largely centrally planned and controlled. the princi ple of regulation of economic activities by public authorities in the wider interests of all stakehold ers has taken roots. Business and industry operate within a regulatory environment. The relationship between i ndustry and the regulatory environment exists as a two-way process. The government lays down the policies. procedures and rules according to which the industry t`unctions. Occasionally. the industry also trie s to influence the govemment through lobbying. creating public awareness and opinion by issuing press adverti sements and through influencing the parliamentary legislative process to create a favourable policy framework for the benefit of its constituent businesses and companies. But such a two-way relationship is til ted heavily in favour of the government. lt acts through its various ministries and agencies. both at the cen tral and state levels, to regulate the activities of business. ln a previous sub-section, you have seen how the economic environment is undergo ing a sea change due to the liberalisation and the refomts process. ln fact, one of the significant mani

festations of such a process is the decrease in the intensity of regulation and control by the government over i ndustry. This is happening slowly but surely. Several of the control measures that were operating earlier h ave been done away with. Yet several remain and with it, the regulatory role of the govemrnent lingers on. Owing to the controls exercised through the regulatory mechanism, the regulatory environment is one of the important sectors that any organisation has to take into consideration for i ts strategic management. Here are a few instances of the impact of the regulatory environment on companie s: lndia shares the dubious distinction of being an over-regulated but under-goveme d country along with several others. PriceWaterHouseCoopers, the consultancy organisation that conduc ts an annual survey of CEOs. reports on their concems and confidence in the business environment aro un-d the world. In its 10th survey in 2007, it reported that the highest concem of the CEOs is over-reg ulation of businesseven more than that for terrorism or scarcity of oil. The situation in India is symptomatic: there are nearly 2500 central laws and 30000 state laws in force. in addition to a number of subo rdinate legislation. For instance, there are as many as 45 Central Acts directly pertaining to labour bes ides several that are of indirect relevance. Many of these, such as the Weekly Holiday Act of I942 or Sho ps and Establishment Act of l948, have provisions that are inconsistent with the requirements of the modem economy. Besides the laws, there are the rules and regulations and procedures to follow and myriad permissions to be secured from a number of govemment authorities. Naturally. foreign companies are concerned about entering into agreements with Indian companies fearing that the contract enforce ment is likely to be weak. Local business persons, especially entrepreneurs are also discouraged by o ver-regulation. Procedural implementation of strategies is often considered a nightmare. Judicial review or pejorativcly, judicial activism. is a controversial phenomeno n with opposing views, held by those who indulge in it and those who are affected by it. When you hear of a court pulling up a business unit for polluting its environment, it is a case of judicial activism. Rising tendency in India for judicial activism, especially by the Supreme Court of India. has led to its oppo sition by legislators and bureaucrats as they perceive it to be a transgression ofthe court`s authority an d impinging upon theirs. Strategic planning of business firms has to be cognizant ol` this regulatory env ironmental trend as. like a double-edged sword. it can cut both ways in favour and against their vital busin ess interests. The regulatory environment for thc foreign direct investment in India has been p rogressively liberalised during the past decade. Most restrictions on foreign investment have been remove d and the simplificaEnvironmental Appraisal 85 tion of procedures is proceeding quickly. Foreign companies can invest freely in

India, with a few exceptions. The approval for FDI is automatic in most cases. There are a few cases wh ere investment ceilings remain but are likely to be relaxed further. For instance, FDI restriction in th e retail industry is limited up to Sl per cent, but only if the retail operations are restricted to a single bra nd. FDI in retail could still come in without this restriction. provided this is used only for sale to other s hops, but not directly to the consumers. Foreign retail companies can come in either through franchisee arrang ements or in partnership with Indian companies. Another case is ofthe insurance industry. The presen t policy allows FDI in insurance companies only up to 26 per cent, which is likely to go up to 49 per c ent. Such regulatory provisions have profound implications for existing companies and those planning to enter that industry. Gurcharan Das quotes a study by Freddie Mehta of 50 leading Indian companies in which he studied the chairmen`s statements for three years in succession. ln the statements of l993-9 4, there was a specific mention of starting up a finance company in a majority of the chairmen s statement s; the 1994-95 chairmen s speeches proclaimed their interest in the power sector; and the l995 96 r eports showed a desire among many companies to enter telecommunications. Was this just a coincid ence'? Quite likely. the chairmen were responding to the favourable regulatory environment created by encouraging govemment policies pertaining to the three industries in those three years.? There are a number of legislative and administrative controls over business that are exercised through the regulatory mechanism. Some of the important areas of regulation are: 1. Industrial policy making. development and regulation and licensing 2. Regulation over corporate management and avoidance of industrial sickness 3. Regulation of monopolies and restrictive trade practices 4. Regulation of foreign trade. capital. technology and exchange 5. Regulation of money and capital markets and stock exchanges 6. Regulation of pricing and distribution 7. Commodity exchange and its regulation 8. Protection of patents and trademarks 9. Regulation through environmental and consumer protection lll. Regulation of employment conditions through labour legislation: welfare. so cial murity and safety measures; maintenance of industrial relations; trade unionism; and workers partic ipation in management. During the course of its activities, the industry interacts with the govemment i n innumerable ways. ln fact, the industry often blames the govemment for exercising excessive control through a plethora of rules and regulations. On the other hand. the government holds the industry responsible fo r many of the economic problems, for not working within the framework of national priorities and for fa iling to live up to the expectations of the society in general. Such a lovehate relationship between the indus try and the government is clearly evident when managers and bureaucrats interact with each other. Exhibit 3.9 presents an interesting and perceptive insight into the differing views and attitudes of managers and bu

reaucrats. Exhibit 3.9 Why the industry and government mistrust each other? S K. Bhattacharya, an eminent management consultant. made a perceptive analysts ol the mistrust that exists between the industry and government and made suggestions to bridge the gap in su ch a relationship. The diliering perceptions that the industry and the government have, could be largel y attributed to what managers and bureaucrats feel about each other.

86 -Strategic Management and Business Policy What managers feel What bureaucrats fee! Bureaucrats are procedure-bound, precedent-oriented, unable to-look at the overa ll situation independently and lack pragmatism. Bureaucrats are-easy-going, lack motivation and drive, are more concerned about wielding power and playing politics. Bureaucrats do not understand the value of time, delay decisions, play into the hands of their political masters. Managers are of low intellectual calibre, selfish, unaware of macro-level policy matters and do not contribute significantly to economic development. Managers a re snobbish, adopt an exaggeratedly high-style living and indulge in conspicuous consumption. Managers are unprincipled, manipulative and try to use unfair means to gain bene fits. Bureaucrats fail to appreciate that industry has to be Managers do not understan d the political-administraviable in the short-run to achieve long-term national tive equations on which the industry and business-reobjectives. They use state i nvolvement and interven- lated decisions rest. tions as levers for exercising power and patronage. Bhattacharya further suggested that the reality is far removed from what the man agers and bureaucrats feel about each other. He advocated that a consultative an d collaborative approach should be adopted by the government through open commun ication, while the industry should adopt a supportive attitude by recognising th at it is the government's prerogative to regulate and guide industrial and econo mic development in the light of national priorities. In retrospect (Bhattacharya 's perception is based on th situation in the late 1980s), it can be-seen that w elcome changes have taken place. The bureaucrats are no longer as secretive and industrialists adopt quite a supportive attitude to governmental initiatives. Ye t, attitudes are difficult to alter and take a long time to change. What Bhattac harya perceived nearly twenty years ago could still be relevant, especially in r elation to lower-level bureaucrats and industrialists working at places away fro m the industrial centres. Sources: Adapted from "The industry-government hiatus", Business World, Mar. 28Apr.10, 1988, pp.20-21; "Bridging the gap in government-industry relationship", Business World, Apr.25-May 8, 1988, pp.39-40. Both the articles have been writte n by S.K. Bhattacharya. Socio-cultural Environment The socio-cultural environment consists of factors related to human relationship s within the society, the development, forms and functions of such a relationshi p and learned and shared behaviour of groups of human beings having a bearing on the business of an organisation. Some of the important factors and influences operating in the social environment are: 1. Demographic characteristics, such as population, its density and distribution , changes in population and age composition, inter-state migration and rural-urb an mobility and income distribution. 2. Socio-cultural concerns such as environmental pollution, consumerism, corrupt ion, use of mass media and the role of business in society.

3. Socio-cultural attitudes and values, such as expectation of society from busi ness, social customs, beliefs, rituals and practices, changing lifestyle pattern s and materialism. 4. Family structure and changes in it, attitude towards and within the family an d family values. 5. Role. and position of men, women, children, adolescents and aged in family an d society. 6. Educational levels, awareness and consciousness of rights, work ethic of the members of the society and attitude towards minority and disadvantaged groups. The socio-cultural environment primarily affects the strategic management proces s within the organisation in the areas of mission and objective-setting and deci sions related to products and markets. Strategists, in the Indian context, do no t seem to be fully aware of the impact of the socio-cultural environment on busi ness Environmental Appraisal 87 or they are so preoccupied with other environmental influences that they do not give a high priority to sociocultural factors. One reason for such a lack of int erest could be the nature of socio-cultural influences. The socio-cultural chang es take place very slowly and do not seem to have an immediate and direct impact on short-term strategic decisions. Nevertheless, some socio-cultural changes ar e too prominent to be ignored. One such change in the India context is the emerg ence of the mass media as a powerful socio-economic force. Exhibit 3.10 provides some understanding of the social impact of the media and its implications for b usiness and industry in India. Exhibit 3.10 Social impact of media and its implications for business and indust ry The eminent sociologist, Emile Durkheim made two observations: as society grows more complex, specialised institutions serving specialised social needs develop and proliferate to maintain social stability; and new institutional forms displa ce old ones only when the old ones no longer manage to serve their original purp oses effectively. Theevolving Indian society offers an interesting setting of how the mass media h ave emerged as a social institution, fultiing many of the functions that were no longer or inadequately being served by traditional social institutions sucftas the family or the school. Mass media is powerful in the sense that people look to it for direction for val ues and rules of behaviour. Media supply people with membership in groups; Peopl e arrange their daily routines around media activities: the morning newspaper, t he afternoons for checking E-mails and evening for prime-time television serials . Media have a prominent impact on the life-style of people, dictating their dai ly activities, jargon or fashion. At tragic or exciting times, media serves as a comforter and facilitator. People turn to the media for information on railway accidents or air crashes; they put on the TVs to view and hear about the latest election trends. Media performs an educational role too. The Internet is an inst antaneous source of information. People turn to it for myriad purposes: knowledg e entertainment, news .or making new friends. Governments and politicians realis e the power of the media in shaping public opinion. Being media-savvy is anessen tial qualification for political parties' spokespersons. There is a big danger in investing the mass media with so much power. In the Wes tern context, where media was never intended as a social institution, the profit motive is the primary purpose. When private interests override public good, aud ience ratings may be more important than the programme content. Titillation of s enses through excessive sex and violence become essential elements in the 'masal a' to attract audiences and increase advertising exposure for sponsors. The global trends in media have not left India untouched. The spread of the tele vision network, private television channels broadband and telecommunications are some of these popular trends Other trends in the making-digitisation, miniaturi sation, higher bandwidth enabling transmission of images and colour, allowing gr

eater use of portability and the integration of converging technologies are leadin g to decreasing costs and greater user-friendliness of multimedia communications and services. It is to be observed that the social impact of media is an active process that involves those who create the information and those who use it. Th e diffusion of each new communication medium is based on the progressive develop ment of an effective use that may be significantly different from its anticipate d use. Thus, the use of Internet for pornography or mobile phones for blackmaili ng and bomb blasts is unintended usage of technology. Secret filming of corrupti on or sex scandals by some private television channels in India may be another s uch destructive trend that serves little social purpose. The corporate sector pr imarily views the media as a means for advertising and promotion. Yet, media has much wider implications for business and industry than being just a medium for marketing communication. There is research evidence to show that countries with more open economies tend to have higher penetration rates for mass media Indian business and industry continually need to look beyond the traditional uses of me dia Sources: Adapted from A. Silverblatt, "Media as Social Institution", The America n Behavioral Scientist, Thousand Oaks, Sep 2004. Vol.48, Issue 1, pp. 35-42; F. Yang & J. Shanahan, "Economic openness and media penetration", Communication Res earch, Beverly Hills, Oct 2003, Vol.30, Issue 5, pp. 557; V. Manthripragada, "So cial Impact of Media's Exposes" http://news.indiainfo.com/publicopinion/medias-e xpose.htrnl, Retrieved February 4, 2007.

88 Strategic Management and Business Policy Here are a few examples of the impact of socio-cultural environment on business: India's estimated population of about 1.1 billion, in 2005, conceals several lon ger-term trends. One of them relates to the gender disparity: the relative posit ion of development of women with respect to that of men. Overall, population gro wth rates have declined to 1.5 per cent per year. Fertility rates in India have been declining and now stand at 3.4 births per woman. The illiteracy rates among women also continue to drop. Yet, issues such as gender and reproductive rights , gender-based violence, men's involvement in childcare and quality of childcare , increasingly, are being discussed as part of the policy and programme debate. The gender-related development index, a part of the United Nation's Human Develo pment Index, reveals a dismal picture for India as it has a ranking of 122 among 136 countries, indicating that on indices such as life expectancy at birth, adu lt literacy rate and enrolment in educational institutions, women fare worse tha n men. Countries smaller and less-endowed than India such as Angola, Congo, Iraq , Lesotho and Nepal surpass it on some of these indices. The gender disparity ha s serious implications for the corporate sector as women have a significant posi tion as potential consumers and employees. Demographers are divided over the issue whether India faces a demographic divide nd or a demographic disaster. Demographic dividend is an advantage arising out o f increasing population in the working age groups, typically in the 15 to 64-age groups. Seen from this perspective, India is and is likely to remain, one of th e youngest countries in the world. In 2000, a third of Indians were below 15 yea rs and nearly 20 per cent were in the 15 24 age-group. In 2020, the average India n would only be 29 years old compared to the Chinese and American of 37 years, E uropean of 45 years and Japanese of 48 years. On the other hand, a large young p opulation can also be viewed as a demographic disaster. India is likely to face problems of social instability, unemployment and underemployment, crisis of over supply of labour accentuated by increasing industrial productivity factors that co uld lead to a rapid fall in economic growth. Depending on the perspective, demog raphics in India could be an opportunity as well as a threat for Indian organisa tions. India is a diverse civilisation with a large variety of castes. The Anthropologi cal Survey of India in 1941 (caste is not identified now), identified more than

4600 jatis or castes that make up the Indian society. Identity assertion, social mobilisation, politicisation of caste and inter-caste tensions are some of the dominant socio-cultural features of the Indian society. Caste considerations hav e become so much a part of the national political discourse that they form an in alienable part of our social interactions. Business and industry is affected as the corporate culture within is largely a microcosm of the wider socio-cultural environment outside. Supplier Environment The supplier environment consists of factors related to the cost, reliability an d availability of the factors of production or services that have an impact on t he business of an organisation. Some of the important factors and influences operating in the supplier environme nt are as follows: 1. Cost, availability and continuity of supply of raw materials, sub assemblies, parts and components. 2. Cost and availability of finance for implementing plans and projects. 3. Cost, reliability and availability of energy used in production. 4. Cost, availability and dependability of human resources. 5. Cost, availability and the existence of sources and means for supply of plant s and machinery, spare parts and after-sale service. 6. Infrastructural support and ease of availability of the different factors of production, bargaining power of suppliers and existence of substitutes.

Environmental Appraisal 89 The supplier environment occupies a dominant position in strategy formul ation because of the fact that : India is a developing country, having problems of scarcity of capital and approp riate raw material resources Unlike some of the western nations and Japan, the reliability of supply is very low, causing companies to : devote a lot of attention to and energy in maintaining continuity of supply. Alm ost all annual company reports lament the shortage of power and cite the high costs of raw materials as the reason for low profitability. Here are a few illustrations to highlight the importance of the supplier environ ment . Weak infrastructure is often mentioned as one of the reasons for holding back faster economic growth in India Water availability, electricity and transport co nstitute the three weakest components of Indian infrastructure India with 20% of global population receives only 4% of the world's annual supply of fresh water. Besides the substantial household consumption industry requires tremendous amou nts of water. Availability, distribution and pricing of water are potent socio-e conomic issues in India Lack of potable water as well as water for industrial us e is a serious bottleneck in the supplier environment in India No wonder, Chenna i - the automobile capital of India - suffers so much from inadequate water avai lability. The bottled water industry has an opportunity where clean drinking wat er is a rare commodity.Power shortage affects industry considerably. The seven most energy intensive po pular industries in India are aluminium cement fertilisers petrochemicals pulp a nd paper, refineries and steel Consider ing the case of mini steel plants we fin d that their viability is critically dependent on the cost and availability of p ower, as nearly 15 per cent of the total manufacturing costs are accounted for b y power. It is mainly used in electric arc furnaces for both melting and refirin g scrap for steel manufacturing Alternative sources of power supply like generating sets are not economical to use in mini steel plants as large volumes of power are required

Among rnfrastructural inputs road transport is one of the most important in a de veloping economy of a large country like India But there are many problems faced by this secto r. For instance losses owing to - - high taxes on vehicles tyres diesel and spare parts poor conditions of roads del ay in transit and fuel wastage due to bad condition of roads are estimated to be colossal These problem s have a negative impact on the cost and timely delivery of raw materials and ot her inputs to the industry. There are an estimated 500 million workers in India out of whom just 7 per cent are in the formal or organised sector. Official statistics put the unemployment rate at around 10 per cent but unofficial esti mates suggest it could be as high as 20 per cent Such dismal statistics do not seem to matter much for industries such as IT or financial services that have witnessed high employment growth rat es At the same time these industries have faced challenges in hiring the right t ype of people Engineers have been attracted to the IT industry in large numbers making it difficult for the manufacturing and construction industries to find sk illed people IT industry companies such as Wipro and Infosys have had to rely on innovative plans such as hiring science graduates in large numbers at modest sa laries and training them in IT Retailing and construction industries that are wi tnessing a boom also face similar environmental challenges The days when more qu alified people could be hired by Indian companies for lower skill jobs seem to b e getting over. Kiran Karnik the Nasscom president describes the paradox of the Indian labour market nicely While some young men on the brink of starvation desp erately look for work employers elsewhere look with almost similar desperation f or appropriate people to fill tens of thou sands of vacancies 8 Technological Environment The technological environment consists of those factors related to knowledge app lied and the material and machines used in the production of goods and services that have an impact on the business of an organisation

90 Strategic Management and Business Policy Some of the important factors and influences operating in the technological envi ronment are as follows: I. Sources of technology like company sources, external sources and foreign sources; cost of technology acquisition; collaboration in an d transfer of, technology. 2. Technological development, stages of development, change and rate of change o f technology and research and development. 3. Impact of technology on human beings, the man-machine system and the environm ental effects of technology. 4. Communication and infrastructural technology in management. Strategists can ill afford to ignore the technological environment, as technolog y, besides customer groups and customer functions, defines the business of their organisations. The strategic implication of technological change, according to Boris Petrov, are three: it can change relative competitive cost positions withi n a business; it can create new markets and new business segments; and it can co llapse or merge previously independent businesses by reducing or eliminating the ir segment cost barriers.9 In the Indian context, we find that the state of technological development varie s among different sectors of the industry. Generally, it is felt that the techno logy used depends on a number of factors such as cost and availability of techno logy, nature of competition, relevance to customer needs and government policy. At the macro-level, foreign technical collaborations are popular in India but su bjected to strict regulation regarding indigenisation, impact on local technolog ical development and employment, export commitments, etc. Technology is often us ed as a strategic weapon by companies operating in a highly competitive environm

ent. A few specific examples of the factors operating in the technological environmen t and their impact on business are provided here: _______ An interesting mega trend in technological environment is that o f knowledge-based industries. The emphasis in these industries is not on physical or tangible assets, but on intangi ble assets such as knowl_________________ edge. Thus, the value of intellectual capital determines the r ank and competitiveness of an industry or company. Intellectual capital is based on factors such as research and development capabilities, patents, proprietary technologies, databases, brands and relationships with customers and business pa rtners. At present, there is inadequate appreciation of this technological trend in India and the corporate sector needs to internalise this fact by reorienting their focus from merely products and markets to the technolo______________ gies that work behind them. It has become a clich to say that the Internet has revolutionised the way busines s is done. Little is the realisation that the technology behind the Internet has virtually taken the enterprise information system within the reach of the custo mer. The enterprise information system can be linked to the customer through the call centres, Internet and mobile devices. This is the customer relationship ma nagement system or CRM. Customisation and greater interactivity is possible thro ugh the CRM systems, making _- process technology undergo profound changes. There are several service indust ries that are deeply affected by CRM. Among these are financial services, includ ing banking and insurance, travel, transportation and utilities. Manufacturing i ndustries too benefit by using it for retailing as well as for providing after-s ales support. The CRM products and services itself is a sunrise industry. Traditionally, technology transfer in the Indian context meant transfer of know-how through payment of royalty and fee or technology imports through import of plant and machinery and turnkey projects. Increasingly, technology transfer is now associated with foreign direct investme nt. This is an indication _* of greater confidence of international technology suppliers in the technologi cal capacity of India as well as their self-enlightened interest in being partne rs in the fruits of the technological developments of India. Many Indian compani es have been beneficiaries of this new emphasis in technology transfer, especial ly in the information technology industry. This also partly accounts for the num ber of foreign companies building their R& D bases in India or Indian companies acquiring R&D facilities abroad

Environmental Appraisal 91 Technological environment, by its very nature, is perpetually in a state of ferm ent and interest is evidenced in the trends by all concerned. It is frequent to read about yearly or ten-year technological trends. 10 Currently, for instance, we observe keen interest in the issue of digital divide in India. Exhibit 3.11 p resents a brief profile of the digital divide in India and how it can be viewed as a great technological opportunity by the Indian organisations to build strate gies upon. Exhibit 3.11 Digital divide: An emerging aspect of the technological environment in India According to the IT encyclopaedia Whatis.com, the term 'digital divide' describe s the fact that the world can be divided into people who do and people who don't have access to and the capability to use modern information technology, such as the telephone, television or the Internet.

The boundaries of the digital divide in the world could be many. Besides the tra ditional dichotomy of the 'haves versus haves-not', there could be a developed v ersus developing country divide, the rich and poor countries divide, English spe aking and non-English speaking people divide, Anglo-Saxon culture and the rest a nd so on. Within a country or society, the digital divide could be manifested in terms of gender group, age groups, socio-economic groups and rural versus urban groups. I n terms of information technology, it may not be limited to the possession of co mputers or access to the Internet, but also to the skills to use them. Digital divide is a controversial current technological issue. If you access the Internet (assuming the readers of this book are not the victims of digital divi de!) you will find a wealth of information related to this issue. There are the both good and bad stories of digital divide in India. Let's take the bad stories first. The negative aspects of the digital divide are mainly seen, for instance, in ter ms of the dismal statistics related to the telephone density, number of personal computers, access to the Internet in India or even the number of people who kno w the English language. Take this example: most worldwide web sources are in Eng lish. Barely 50 million Indians know English. So what happens to the rest? They may be wealthy, literate, educated or whatever, but since they don't know Englis h, they can't utilise the Internet well. The good stories relate how individuals, organisations and the Central and State governments are working to bridge the digital divide. These relate to how some State governments are providing public services through the Internet such as Mad hya Pradesh government's successful experiment in Dhar district, how Pradeep Lok hande's NGO in Pune helps bring used computers, donated by NRls abroad, to the v illages in rural Maharashtra or how Melurnet provides connectivity to the poor p eople in the Madurai district. Of significance here is the fact that the digital divide is real, it exists and it can be seen as a technological opportunity by the organisations rather than a s a controversial issue to be debated upon endlessly. When EID Parry of Chennai, through its portal (indiagriline.com) connects thesugarcane farmers it deals wi th as suppliers or AmuI of Anand uses it to manage information in association wi th its milk producers through village-based information kiosks, it is an example of utilising the digital divide as a technological opportunity that benefits bo th the company and the community. Sources: Adapted from Keniston K. & Kumar D., Four Digital Divides, Sage Publica tions, Delhi 2003; Nguessan, M., 'Defining the boundaries of the digital divide' , Proceedings of the Second International Conference on Technology, Knowledge an d Society, 12-15 December 2005, Hyderabad; the website of Good News India Magazi ne at: http://www.goodnewsindia.com/Pages/content/economy/ddivide.html, Retrieve d February 2, 2007. This section of the chapter has been devoted to a discussion of the eight differ ent sectors constituting the external environment of an organisation. By no mean s is it claimed that our coverage of environmental sectors is all-encompassing. There are other sectors too worthy of consideration. For instance, the natural, physical or geographical environment, to which a passing reference has been made while discussing regulatory environment, is also of great concern to companies. Environmental protection is of paramount importance in a world where the issues of sustainable development have assumed great significance. The

92 3.3 ENVIRONMENTAL SCANNING ln the preceding two sections. we have seen how organisations can comprehend the environment in which they exist, identify their environment and classify it into different sectors. I n this section, we turn to the

methods and techniques employed by the organisations to monitor their environmen t and to gather data to derive information about the opportunities and threats that affect their busines s. En i-t'ronmcnta! scam: ing can be defined as the process by which organisations monitor their relevant environm ent to identify opportunities and threats affecting their business for the purpose of raking str ategic decisions. Factors to he Considered for Environmental Scanning The extemal environment in which an organisation exists consists of a bewilderin g variety of factors. These factors (could also be termed as influences) are events. trends. issues and expe ctations of different interested groups. These factors are explained below: Events are important and specific occurrences taking place in different environm ental sectors. Trends are the general tendencies or the courses of action along which events ta ke place. Lmtes are the current concems that arise in response to events and trends. Expectations are the demands made by interested groups in the light of their con cern for issues. Take the example of the first public issue of shares of Reliance Industries in 1 977. That was a specific event. The trend that started was of wider participation of public in equity investment in private sector companies. Note that earlier to that event, equity participation in India was limited to an exclusive class of investors and the general public was not aware or interested in investing money in shares. The issue that emerged was of the development of equity culture in India. The expectation by the general public th at resulted was that the fruits of the economic development in the corporate sector would be shared by all and s undry. An allied expectation that ensued was of protection of small or minority shareholders from rapacious p rivate business persons through legislation and govemmental action. Another example is of the gas leakage accident that took place way back in Decem ber l984, at the Union Carbide factory at Bhopal. That accident and the resulting disaster was an event . The trend that has arisen as Environmental Appraisal 93 a result is a general tendency on the part of the regulatory authorities and org anisations to be conscious about safety from hazardous exposure to chemicals. The issue is of a rising concem abo ut environmental pollution. The expectation of the general public from the govemment is of legislating chang es in rules and regulations pertaining to safety measures and stricter enforcement through various mechanism s. Environmental influences are a complex amalgam of the events, trends, issues and expectations that continually shape the business environment of an organisation. There is some res earch evidence to suggest that lndian organisations conduct environmental scanning for strategic planning. Probably. the earliest study reported is by Wadhva, l9'!4. His working paper attempted to provide a framework for scanning the extemal environment of a large industrial enterprise in the private sector in India. The purpose was to help the

company in the long term planning of its activities. The impact of intemational. technological, national, economic. social. demographic. political and governmental regulatory conditions impinging upon the existing activities of the company was analysed. Particular attention was paid to the imp act of the national five-year plans on company operations.' ln an earlier section, we have referred to three ot her studies in the Indian context: Dixit (1987), Subramaniam (_l9S9) and Shah (_l996l.' By monitoring the environment through environmental scanning, an organisation ca n consider the impact of the different events, trends, issues and expectations on its strategic manage ment process. Since the environment facing any organisation is complex and scanning it is absolutely ess ential, strategists have to deal cautiously with the process of environmental scanning. lt has to be done in a manner that unnecessary time and effort is not expended, while important factors are not ignored. For th is to take place, it is important to devise an approach. or a combination of different approaches. to environmenta l scanning. Approaches to Environmental Scanning. Kubr has suggested three approaches which could be adopted for sorting out infor mation for environmental scanning.]3 We could call these approaches as systematic. ad hoc and processed-f orm approaches. I. .$:V5`!Cm8tlC Approach Under this approach. information for environmental scan ning is collected systematically. information related to markets and customers, changes in legisla tion and regulations that have a direct impact on an organisation`s activities. govemment policy statement s pertaining to the organisation s business and industry, etc. could be collected continuously to moni tor changes and take the relevant factors into account. Continuously updating such information is necessa ry not only for strategic management but also for operational activities. 2. Ad hoc AppWC}I Using this approach, an organisation may conduct special surve ys and studies to deal with specific environmental issues from time to time. Such studies may be c onducted, for instance, when an organisation has to undertake special projects, evaluate existing strategies or devise new strategies. Changes and unforeseen developments may also be investigated with regard to thei r impact on the organisation. 3. Processedf0nn Appf03CII For adopting this approach. the organisation uses info rmation in a processed form. available from different sources both inside and outside the org anisation. When an organisation uses information supplied by govemment agencies or private institut ions, it uses secondary sources of data and the information is available in a processed form. Since environmental scanning is absolutely necessary for strategy formulation, o rganisations use different practical combinations or approaches to monitor their relevant environments. The se approaches may range from an informal assessment ofthe environmental factors to a highly systematic a nd formal procedure. Informal assessment may be adopted as a reactive measure to a crisis and ud hoc studi

es may be undertaken occasionally. A highly systematic and formal procedure may bc used as a proactiv e measure in anticipation 94 Strategic Management and Business Policy ef changes in cnvimmncntal factors and structured data collection and processing system may bc used ccntinuciusly.'4 Between the two extremes of thc informal and formal approaches. di t` ferent sta nces adopted by organisations mjght cxist, depending on varying degrees ufccmccm for the environment. Su ch stances are situationalFor example, when an issue-related decision has to bc taken, a periodic monitori ng of thc environment may be done. Systematic and ad hoc approaches can be used for the relevant environme nt of the organisation while thc pI`0C SSGd-f0I'11 l approach could bc used to appraise both thc relevant a s well as thc general environment. Whatever approach is adopted for environmental scanning, data collection i s necessary for deriving information about environmental factors. Sources ol III]0l IlI.lIi0I l lar Environmental Scamning The various sources of information tapped for collecting data fer environmental scanning could be clussificn in different ways. Thcrc could bc furrnal and informal sources. Then there could bc written as wcll as vcrbai sources. ln terms of origin, data sources could bc cxtcmal and intcmal. Given below arc some of the important types of sources of information. 1. Documentary or secondarjv sources of information like different types of publ ications. These cnuld be newspapers. magazines, journals, books, trade and industry association newslette rs, gcvcmmcnt publications, annual reports of competitor companies, commercial databases. ctc. 2. Mass media such as radio, television and Internet. 3. Internal sources like company files and documents, internal reports and memor anda, management information system, databases, company employees, sales staff, ctc. 4. External agencies like customers. marketing intermediaries. suppliers. trade associations. gevcmmcnt agencies. ctc, 5. F umm! studies dcnc by cmployccs. market research agencies, consultants and e ducational institutions. 6. Spying and surveillance through cx-employees of competitors, industrial espio nage agencies. or by planting m0lcs in rival companies. The cthicality of thcsc sources is doubtful but ncvcrthclcss, these arc used and so need a mention. Stratcgists use different information sources dcpcnuing on their needs for envir onmental scanning. Gcvcmmcnt publicatins theugh a rich and comprehensive source of infcirmati0n usua1ly arc available after a considerable time lag. Private sources, though relevant and timely. arc quite expensive to tap. Therefore, whenever a particular infomation source is used, it should bc checked for its reliability, time frame, methods of data collection and analysis used, form of presentation, ctc. Exhibit 3.12 provides some important infomation sources that could be used by strategists in thc India cont ext.

98 3.4 APPRAISING THE ENVIRONMENT In order to draw a clear picture of what opportunities and threats are faced by the organisation at a given time. it is necessary to appraise the environment. This is done by being aware of the factors that affect environmental appraisal, identifying the environmental factors and structuring t he results of this environmental appraisal. Factors Affecting Environmental Appraisal Given the same environmental conditions, no two strategists or two organisations would appraise the environment in a similar fashion. This is due to the many fac-tors that affect the p rocess of environmental appraisal. We could identify these factors by classifying them into three categori es: the strategist-related, organisation-related and environment-related factors. I. Sf!Hf @I!l9]8ICdPYI709 There are many factors related to the strategist, which affec t the process of environmental appraisal. Since strategists play a central role in the formulatio n of strategies, their characteristics such as age. education, experience, motivation level, cognitive styles, ability to withstand time pressures and strain of responsibility have an impact on the extent to which the y are able to appraise their organisation s environment and how well they are able to do it. Apart from these f actors that are related to strategists as individuals, group characteristics could be the interpersonal rel ations between the different strategists involved in appraisal, team spirit and the power equations operating between them. Information consciousness is yet another variable denoting the attitude of top managers towa rds environmental scanning and the communication pattems established among managers within the organisation .;] 2. 0l8llb 8lI`0IIft?I8!CdIBCf0fS Like those of strategists. many characteristics of t he organisation also have an impact on the environmental appraisal process. These characteristics are the nature of business the organisation is in. its age, size and complexity. the nature of its markets and the product or services that it provides. Another variable identified is of information climate. which as assess ed through the information infrastrucgpre implemented, i.e. the processes, technologies and people used in information acquisition and handling. Environmental Appraisal 99 3. Erllrfmnmcnf-ICIEICJ FHCIOIS The nature of environment facing an organisation determines how its appraisal could be done. The nature of the environment depends on its complexity . volatility or turbulence, hostility and diversity. information processing perspectives suggest that scanni ng activity will increase in response to increasing environmental uncertainty. Social cognition perspectives suggest that scanning J decreases at high and low levels of uncertainty since useful information is eith er unattainable or is already known.23 ln sum, how well environmental appraisal is done depends on the strategists, the

ir organisations _and the environment in which their organisations exist. Before strategists can structure the environmental appraisal, it is necessary to identify the environmental factors. . Identifying the Environmental Factors Environmental scanning results in a mass of information related to different sec tors of the environment. Without a technique to deal with this information. a strategist would be at a lo ss to comprehend and analyse the environmental influences. These influences, as we have seen, are the events, trends, issues and expectations of different interested groups. A feasible approach to identify the important environmental factors is to test each factor with regard to its impact on the business of the organisation and the probability of such an impact. Exhibit 3.14 provides a matrix which can help a strategist id entify the high priority environmental factors (termed as issues by Boulton). Exhibit 3.14 Identifying high priority environmental issues Impact on Business Probubl`lir]. of impact High Medium Low High Critical High priority Low priority Medium High priority High priority Low priority Low To hc watched Low priority Low priority Source: Adapted from William Fl. Boulton, Business Policy: The Ad of Strategic M anagement. New York, Macmillan Publishing Co., 1984, p.120. Environmental scanning leads to the identification of many issues that affect th e organisation. These issues could be judged on the basis of the intensity of their impact on the business of the organisation and the relative probability of such an impact. In such a manner, environmental issues { and all the factors) could be distributed among the nine cells ofthe matrix. The issues which are most likely to have a high level of impact on the organisations are the critical issues and need immediate attention of the strategists. High priority issues are those which have a medium to a high probability of impact, while those curre ntly having a high level of impact but a low probability of occurrence need to be kept under watch. All othe r issues could be considered as being of low priority but still requiring continuous monitoring as conditions may change later. ln this way, strategists could narrow the range of environmental issues they have to focus th eir attention upon. These issues help in structuring of the environmental appraisal, when divided into opp ortunities and threats and allocated to different sectors of the environ ment. Structuring Envlromnental Appraisal The identification of environmental issues is helpful in structuring the environ mental appraisal so that the strategists have a good idea of where the environmental opportunities and threat s lie. Structuring the environmental appraisal is a difficult process as environmental issues do not le nd themselves to a

110 Strategic Management and Business Policy

certain other critical areas. There is a need to reduce and redeploy the workfor ce but this is sensitive industrial relations issue in a country where bank uni ons are strong. Information management capability factors: The SBI commissioned Tata Consultancy Services, the global software solutions and consulting services company, to sup ply, customise and implement the centralised core banking system. The project is claimed to -be one of the largest projects of its kind in the world in terms of the number of branches, customers and transaction volume when completed. The in formation management capabilities, which SBI Group will Seek to develop using th e core banking solution, include personalised customer service, 24X7 banking thr ough diverse types of delivery channels, fast product launch and customer relati onship management. General management capability factors: The general management of the bank is qui te competent. It has leveraged its corporate relationships pursued business grow th selectively and has judiciously not competed on the basis of interest rate.The performance indicators used by the SBI are: capital adequacy ratio, business per - employee, profit per employee, return on assets,. - net NPA ratio and dep osits and advances. The banking industry in India is currently under an intense phase of change. The public sector, banks are trying to consolidate on the basis of their large netw ork and customer base. The private sector banks are &opting mergers and acquisit ions to increase their size. The trend is towards consolidation around well-iden tified core competencies.' Like individuals, all organisations such as the State Bank of India we described here, have strengths and weaknesses that lead to their having capabilities. The se capabilities stand the organisations in good stead when they compete for reso urces, customers and market share. In strategic management, we give a lot of imp ortance to an organisation's capabilities as these are central to their achievin g strategic advantage for gaining long-term success. The appraisal of the external environment of a firm helps it to think of what it might choose to do. The appraisal of the internal environment, on the other han d, enables a firm to decide about what it can do. We attempt to understand the i nternal environment of an organisation in terms of the organisational resources and behaviour, strengths and weaknesses, synergistic effects and the competencie s that create strategic advantage. 4.1 DYNAMICS OF INTERNAL ENVIRONMENT An organisation uses different types of resources and exhibits a certain type of behaviour. The interplay of these different resources along with the prevalent behaviour produces synergy or dysergy within an organisation, which leads to the development of strengths or weaknesses over a period of time. Some of these str engths make an organisation especially competent in a particular area of its act ivity causing it to develop competencies. Organisational capability rests on an organisation's capacity and the ability to use its competencies to excel in a pa rticular field, thereby giving it strategic advantage. The resources, behaviour, strengths and weaknesses, synergistic effects and comp etencies of an organisation determine the nature of its internal environment. Ex hibit 4.1 depicts a diagram showing the framework that we adopt for an explanati on of the process of development of strategic advantage by an organisation. It i s expected that readers of this book are aware of these terms in general. Howeve r, we explain each of these terms here to place them in the specific context of strategic management and business policy. - -

111 Organisational Appraisal 111 Exhibit 4.1 Framework for the development of strate

gic advantage by an organisation STRATEGIC ADVANTAGE ORGANISATIONAL CAPABILITY COMPETENCIES SYNERGISTIC EFFECTS STRENGTHS AND WEAKNESSES ORGANISATIONAL ORGANISATIONAL RESOURCES BEHAVIOUR Organisational Resources The dynamics of the internal environment of an organisation can be best understo od in the context of the resource-based view of firms or the resource-based theo ry of strategy. According to Barney (1991), who is credited with developing this view of strategy as a theory, a firm is a bundle of resources tangible and intang ible that include all assets, capabilities, organisational processes, information, knowledge, etc. These resources could be classified as physical, human and orga nisational resources. The physical resources are the technology, plant and equip ment, geographic location, access to raw materials, etc. The human resources are the training, experience, judgement, intelligence, relationships, etc. present in an organisation. The organisational resources are the formal systems and stru ctures as well as informal relations among groups.- Elsewhere, Barney says that resources of an organisation can ultimately lead to strategic advantage for it i f they possess four characteristics, i.e., if these resources are valuable, rare , costly to imitate and nonsubstitutable. The resource-based theory of strategic management holds that firms possess resources of which those that are valuable and rare enable them to achieve strategic advantage. Other resources that cannot be imitated or substituted lead to superior long-term performance and a sustain able strategic advantage.3 Empirical studies over the years have generally suppo rted the resource-based theory.4 We observe here that the resource-based theory is concerned with the efficiency of resource utilisation. It clearly focuses on the internal environment of the f irm and postulates that the strategic advantage would flow from the efficiency w ith which the resources would be utilised. When firms possess superior resources , they enable them to produce more efficiently and better satisfy customer needs , delivering better value for a given cost and yielding a superior strategic adv antage to them. 112 Strategic Management and Business Policy Very few organisations, like individuals, are born with a silver spoon in the mo uth; most organisations have to acquire resources the hard way. The cost and ava ilability of resources are the most important factors on which the success of an organisation depends. If an organisation is favourably placed with respect to t he cost and availability of a particular type of resource, it possesses an endur ing strength which may be used as a strategic weapon by it against its competito rs. Conversely, the high cost and scarce availability of a resource are a handic ap which causes a persistent strategic weakness in an organisation. But mere possession of resources does not make an organisation capable. Much dep ends on their usage within the organisation. The usage, in turn, is based on the organisational behaviour that we study next. Organisational Behaviour Organisational behaviour is the manifestation of the various forces and influenc es operating in the internal environment of an organisation that create the abil ity for, or place constraints on, the usage of resources. Organisational behavio ur is unique in the sense that it leads to the development of a special identity and character of an organisation. Some of the important forces and influences t hat affect organisational behaviour are: the quality of leadership, management p

hilosophy, shared values and culture, quality of work environment and organisati onal climate, organisational politics, use of power, etc. The perceptive reader would note that what we are proposing here is marrying of the hard side of an organisation, i.e., its resource configuration, with the sof t side of behaviour. The resources and the behaviour are thus the yin and yang o f organisations. What they collectively produce are the strengths and weaknesses . Strengths and Weaknesses Organisational resources and behaviour do not exist in isolation. They combine i n a complex fashion to create strengths and weaknesses within the internal envir onment of an organisation. Strength is an inherent capability which an organisat ion can use to gain strategic advantage. A weakness, on the other hand, is an in herent limitation or constraint which creates a strategic disadvantage for an or ganisation. Financial strength, for example, is a result of the availability of sources of finances, low cost of capital, efficient use of funds, etc. Another e xample is of a weakness in the operations area which results due to inappropriat e plant location and layout, obsolete plants and machinery, uneconomical operati ons, etc. In the following sections, we will take up a comprehensive discussion of possible strengths and weaknesses in different functional areas within an org anisation. Strengths and weaknesses do not exist in isolation but combine within a function al area, and also across different functional areas, to create synergistic effec ts. Synergistic Effects It is the inherent nature of organisations that strengths and weaknesses, like r esources and behaviour, do not exist individually, but combine in a variety of w ays. For instance, two strong points in a particular functional area add up to s omething more than double the strength. Likewise, two weaknesses acting in tande m result in more than double the damage. In effect, what we have is a situation where attributes do not add mathematically, but combine to produce an enhanced o r a reduced impact. Such a phenomenon is known as the synergistic effect. Synerg y is an idea that the whole is greater or lesser than the sum of its parts. It i s also expressed as 'the two plus two is equal to five or three effect'. Within an organisation, synergistic effects occur in a number of ways. For examp le, within a functional area, say of marketing, the synergistic effect may occur when the product, pricing, distribution and promotion aspects support each othe r, resulting in a high level of marketing synergy. At a higher level, the market ing and production areas may support each other leading to operating synergy. On the other hand, a marketing Organisational Appraisal 113 inefficiency reduces productions efficiency, the overall impact being negative, in which, case dysergy (or negative synergy) occurs. In this manner, synergistic effects are an important determinant of the quality and type of the internal en vironment existing within an organisation and may lead to the development of com petencies. Competencies On the basis of its resources and behaviour, an organisation develops certain st rengths and weaknesses which when combined lead to synergistic effects. Such eff ects manifest themselves in terms of organisational competencies. Competencies a re special qualities possessed by an organisation that make them withstand the p ressures of competition in the marketplace. In other words, the net results of t he strategic advantages and disadvantages that exist for an organisation determi nes its ability to compete with its rivals. Other terms frequently used as being synonymous to competencies are unique resources, core capabilities, invisible a ssets, embedded knowledge, etc. When an organisation develops its competencies over a period of time and hones t hem into a fine art of competing with its rivals, it tends to use these competen cies exceedingly well. The capability to use the competencies exceedingly well t

urns them into core competencies. When a specific ability is possessed by a particular organisation exclusively or relatively in large measure, it is called a distinctive competence. Many organisations achieve strategic success by building distinctive competencie s around the critical success factors. Recall that critical success factors are those which are crucial for organisational success (for a detailed discussion, r efer to section 2.5). A few examples of distinctive competencies are given below . Superior product quality on a particular attribute, say, a two-wheeler, which is more fuel efficient than its competitor products. Creation of a marketing niche by supplying highly specialised products to a part icular market segment. Differential advantage based on superior research and dev elopment skills of an organisation, not possessed by its competitors. Access to a low-cost financial source, like equity shareholders, not available t o its competitors. A distinctive competence is 'any advantage a company has over its competitors be cause it can do something which they cannot or it can do something better than t hey can'. It is not necessary, of course, for all organisations to possess a dis tinctive competence. Neither do all organisations, which possess certain distinc tive competencies, use them for strategic purposes. Nevertheless, the concept of distinctive competence is useful for the purpose of strategy formulation. The i mportance of distinctive competence to strategy formulation rests with 'the uniq ue capability it gives an organisation in capitalising upon a particular opportu nity; the competitive edge it may give a firm in the market place; and the poten tial for building a distinctive competence and making it the cornerstone of stra tegy' 6 To some of you, we may seem to be making a hairline distinction here between the three terms: competencies, core competencies and distinctive competencies. The difference, as you must have noted, lies in the degree of uniqueness associated with the net synergistic effects occurring within an organisation. You could thi nk of them as being synonymous so long as you are able to make a distinction amo ng them when necessary. Among the three, it is the term 'core competence' that h as gained greater currency and popularity. The term 'core competence' has been p opularised by Prahalad and Hamel as an idea around 'which strategies could be fo rmulated by an organisation. Exhibit 4.2 presents an understanding of the idea o f core competence.

114 Strategic Management and Business Policy Exhibit 4.2 Understanding the idea of 'core competence' C. K. Prahalad and Gary Hamel are mainly credited for the dynamic capabilities a pproach that considers strategic management as a collective learning process aim ed at developing and then exploiting distinctive competencies by an organisation that are difficult to replicate by their rivals. Through a series of publicatio ns such as 'The Core Competence of the Corporation' (1990) and 'Strategy as Stre tch and Leverage' (1993) in the Harvard Business Review, and a book Competing fo r the Future (1994), they have, sought to propagate the idea of dynamic capabili ties. This idea rests on the thinking that strategy depends on learning, and lea rning depends on the capabilities of an organisation. According to Prahalad and Hamel, the competitive (or strategic, as we call it he re) advantage can be traced to the core competencies of an organisation. They ta ke the analogy of a tree in describing core competence. 'The diversified corpora tion is a large tree. The trunk and major limbs are core products, the smaller b ranches are business units; the leaves, flowers, and fruit are end products. The root system that provides nourishment, sustenance, and stability is the core co mpetence.' Further they explain core competence as: '... the collective learning in the org anisation, especially how to coordinate diverse production skills and integrate

multiple streams of technologies.....it is also about the organisation of work a nd the delivery of value... (it) is communication, involvement and a deep commit ment to working across organisational boundaries. It involves many levels of peo ple and all functions... (and it) does not diminish with use.' To identify a core competence, Prahalad and Hamel prescribe three tests: it should be able to provide potential access to a wide variety of markets; it should make a significant contribution to the perceived customer benefits of the end product; and it should be difficult for the competitors to imitate. From the several examples of corporations that Prahalad and Hamel use to exempli fy their concept of core competence, we quote here a few. Canon's core competenc e lies in optics, imaging and microprocessor controls, Sony's in miniaturisation , Philip's in optical-media, 3M's in stick tape and Honda's in engines and power trains. The core competencies of these corporations have enabled them to operat e in diverse markets offering different products. For instance, Canon has entere d, and even dominated, diverse markets such as copiers, laser printers, cameras and image scanners. Source: C. K. Prahalad and Gary Hamel, "The Core Competence of the Corporation", Harvard Business Review, Vol. 68, No. 3, May-June 1990, pp. 79-91. Several Indian companies took to the idea of core competence in right earnest in the 1990s. Examples abound of companies shedding businesses that are not in lin e with their perceived core competencies and focussing upon those that are. Nand as of Escorts may perceive their core competence in light engineering, NuT in of fering technology-based learning, Reliance Industries in skilful project managem ent and execution and S. Kumar sees its core competence in textile processing. The idea of core competence, presented in Exhibit 4.2, seems to be a brilliant w ay to focus upon the latent strength of an organisation. Yet there are pitfalls of which an organisation has to be aware of. Core competencies can be developed but so also, lost. They cannot be taken for granted. The ability of a core compe tence to provide strategic advantage can diminish over time as they do not exist perpetually. A dilemma associated with all core competencies is that they have the potential of turning into core rigidities.7 External environment is responsi ble for this sad turn of events. New competitors may figure out a way to serve c ustomers better or new technologies may emerge, causing the existing company to lose its strategic advantage. Over-reliance on core competencies to the extent o f becoming prisoners of one's own excellence may result in strategic myopia. Core competence acting as a double-edged sword is demonstrated by the concept of strategic commitment enunciated by Pankaj Ghemawat. This term refers to an orga nisation's commitment to a particular way of

Organisational Appraisal I 15 doing business, i.e.. developing a particular set of resources and capabilities. Ghemawafs contention is that once a company has made a strategic commitment. it Ends it difficult to respond to new competition if doing so requires a break with its commitment} The idea of a single core competence as the bedrock for strategy fomtulation has not gone unchallenged. Critics feel that a core competence, narrowly defined. may restrict an organisat ions freedom to act when fresh opportunities in the business environment lure it towards a new direction. This is especially seen in the case of the Indian business environment where organisations need to be constantl y on the look-out for new opportunities emerging and to be willing to act upon them despite the busincss's requiring them to move out oftheir core competence area. In rt situation, where organised retail isjust tak ing off, the country still remains undeninsured, agriculture has not yet been exploited as an organised industry an

d the infrastructure sector needs overhauling. it would be imprudcnt for organisations to stick to a single core competence and deprive itself of taking advantage of the opportunities. There might bc several differen t core competencies required. In one case, it may be the ability to raise and manage capital. in another, it m ight be the ability to manage the regulatory environment or simply. the ability to roll out operations quickly}! N o wonder. when asked to define his group`s core competence. Kumar Mangalam Birla. of the A.V. Birla grou p. perceived it in a wide array of skills related to process industries. project management. operations, r aw material sourcing, distribution and logistics, setting up dealer networks, commodity branding and raising f inance at a competitive cost. *0 Core or distinctive competencies serve a useful purpose if they are used to deve lop a sustained strategic advantage through building up of organisational capability. which is the subject matter of the next subsection. Organisational Capability Orgunimrinnal capability is the inherent capacity or porenrial of an organisatio n ro use its srrerrh.r and overcome its weaknesses in order to exploit the opportunities and face the threa ts in its external erwironment. It is also viewed as a skill for coordinating resources and putting them to prod uctive use. Without capability, resources even though valuable and unique-may be worthless. Since organisational c apability is the capacity or potential of an organisation. it means that it is a measurable attri bute. And since it can be measured. it follows that organisational capability can he compared. Yet. it is very difticult to measure organisational capability as it is. in the ultimate analysis. a subjective attri bute. As an attribute. it is the sum total of resources and behaviour. strengths and weaknesses. synergistic effects occurring in and the competencies of. any organisation. Several thinkers in the field of strategy favour the line that capabilities are the outcomes of an organisation s knowledge base. i.e., the skill and knowledge of its employees. The re is a growing body of opinion that considers organisations as reservoirs of knowledge. in which case t hey are all learning organisations. In fact. the concept of organisational learning has spawned a who le school of strategy thought. Readers are advised to refer to Exhibit 4.3 that provides some basic understandi ng of the leaming organisation. It is to be noted that while the concept of a Ieaming organisation is applicable to strategic management in a wider sense at several places, here we are referring to it in th e specific context of a capability that is seen as an outcome of organisational leaming. Strategists are primarily interested in organisational capability because of two reasons. First. they wish to know what capacity exists within the organisation to exploit opportunities or fa ce threats in its environment. Secondly, they are interested in knowing what potential should be developed with in the organisation so that

opportunities could be exploited and threats could be faced in future. 116 Strategic Managetnent and Business Poliry Exhtblt 4.3 Understanding organisational leaming Crcssan. Lana and Wh-its (1997) define organisational teaming as 'the process et change in individual and shared thought and action, which is attracted by and embedded in tha institution s of the organisation'. Four basic processes of organisational teaming are: intutting {su bconscious process of lea rning that occurs at the individual level); interpreting {sharing teaming at the group level); integrating (collecti ve understanding at the group level and ta-king it to the level of organisation): and rnsrirutfonalising (incorporat ing teaming across the organisation by embedding it in systems, structures, routines and practices). Nonaka and Takeuchi (1995) place value on knowledge creation within organisation s through focussing on insight. intuition and hunch that are gained through experience. Chris Argyrls ( 1977) earlier, and later Garratt (1987), ditterentiated single-loop teaming, which is a simple case about reviewi ng performance against targets and taking corrective action, from double-loop teaming that questions the existi ng framework in which decisions take place. Organisations that engage in double-loop learning are able to discov er new things and act In novel ways that enable them to adapt to changes and sustain and improve their capabili ty and competitiveness. Peter Sanger (1990) poputarised the concept ct at teaming organisation which cou ld be explained as an organisation skilled at creating, acquiring and transferring knowledge, and at m odifying its behaviour to reflect i new knowledge and insights. From the classic term of Peter Drucker: the knowle dge worltsr down to the emerging discipline 01 knowledge management whtch is considered as gathering and managi ng intellectual capita-I that can be leveraged ter generating intemal responsiveness of org-anisatlcn tha f ocus is clearly on the capability ol an organisation tor developing and sustaining strategic advantage. Sources: C. Argyris, "D0ubIe Loop Learning in Organisati0ns", in Harvard Busines s Review. Sept-Oct 1977. pp. 115-125; B. Garrett, The Leamfng Organisation, Fontana, 1987; P. M. Sengo, The F ifth Discipline: The Arr and Practice of the Learning Organisation, New York: Doubleday. Currency, 1990; I- N enaka & H. Takeuchi, The Knowledge-creating Company: How Japanese Companies Create the Dynamkrs of Innova tion, New York, Oxterd University Press, 1995; M. Crossan. H. Lana & Ft. White. Organisati0nat Le arning: Toward Theeqf, Working Paper, London. Ontario; Ftichard Ivey School et Bust ness, University of Western Ontario, 1997. Organisational capability is measured and compared through the process of organi sational appraisal which is the subject matter of this chapter. A feasible approach to appraising the org anisation is to Slat'! with the factors and influences operating within the organisation. These could he called the organisational capability factors. . But before we move on to a substantive description ol` the capability factors. t he last component of organisational appraisal, strategic advantage, has to be understood. This we do

in the next sub-section. Strategic and Competitive Advantage Strategic advantages are the outcomes of organisational capabilities. They are t he results ol` organisational activities leading to rewards in terms ol` financial parameters. such as profit or shareholder value andfor nonfinancial parameters, such as market share or reputation. in contrast. strategic disadvantages are penalties in the form of linancial loss or damage to market share. Clearly. such advantages o r disadvantages are the outcomes ofthe presence or absence of organisational capabilities. Strategic adv antages are measurable in ahsolute terms using the parameters in which they are expressed. So. profitabili ty could be used to measure strategic advantage: higher the profitability better is the strategic advantage. They are comparable in terms of the historical perfomtance ot` an organisation over a period of time or its curr ent performance with respect to its competitors in the industry. Competitive advantage is a special case of strategic advantage where there is on e or more identitied rivals against whom the rewards or penalties could he measured. So, outpcrforming rival s in profitability or market 124 Strategic Management and Business Policy 4.3 CONSIDERATIONS IN ORGANISATIONAL APPRAISAL The purpose oforgr1nis a!i`na! opp raiso! ( also rdirrred to as interna} approfm}, i nternalar1oI)*.rf.r, organisarional onal_vsi. . cornpartjr ortolvsis, etc. ) is to dererrrtirtv the orgoriisorion of capability in terms of strengths and weak:ws.res that lie in the dilferenr functional areas. This is necessary si nce the strengths and weaknesses have to be matched with the environmental opportunities and threats for s trategy formulation to take place. ln organisational appraisal. the various forces and inlluences operating within the internal environment of an organisation have to be analysed. These forces and influences result from the organisational resources. behaviour, synergistic effects and the competencies of the organisati on. Organisational capability is dependent on these forces and influences. By appraising the organisation. the strategists have to develop an Organisational Appraisal 125 assessment of their organisational capability to compete in the markets. There a re a number of considerations in organisational appraisal. The various considerations involved in an organisational appraisal relate to the factors that affect appraisal, the approaches that can be adopted to appraise them and the sources o f information available to perform the appraisal. ln the previous chapter. we have dealt with these issues as they pertain to the appraisal of the extemal environment. Much of what we said there is relevant here too and. therefore, the discussion is limited only to the main points. Factors Attectlng Organisational Appraisal The factors that affect organisational appraisal relate to the strategists. the organisation and to the internal environment. The various characteristics ofthe strategists as they matter so far a

s their general management capability is conce-med -affect the manner in which organisational appraisal would be done. The nature of organisation and the internal environment its complexity and diversity determine how well the appraisal can be done. To understand how these factors affect organisational appraisal. co nsider a l`ew situations. The ability of the strategists to comprehend complexity determines how well the different forces and influences. operating within the intemal environment. are analysed. The size ofthe organisation affects the quality of appraisal. Larger organisatio ns are usually more di f iicult to appraise than smaller ones. lf the intemal environment of an organisation is vitiated owing to opposing poli tical forces and power games. the quality of appraisal is likely to suffer. A cohesive management team. on the other hand. is more likely to appraise the organisation better. Approaches to Organisational Appraisal The approaches adopted for preparing an organisational appraisal may range from a highly systematic to an ad hoc one. A systematic approach is adopted as a proactive measure to appraise the organisation and is used when the strategists opt for formal soategic planning systems. An nd hrir approa ch is generally used as a reactive measure. in response to a crisis. ln this approach. occasional organisa tional studies may be undertaken, whenever required. to determine capability. it is true that not all organisations have a formal or even an ud hoc system to appraise their intemal environment. For instance, in sm aller organisations which operate under the entrepreneurial mode. the chief executive may do the appraisal by himself. without the aid of formal systems, or by conducting rrd hoc studies. Overall. the appraisal of o rganisations is an essential prerequisite to strategy formulation. Sources of rntormarton for Organisational Appraisal The strategists need to tap different types of information sources for organisat ional appraisal. These sources may be verbal as well as written. They may also be intemal as well as extemal so urces. The assessment of organisational capability may rely on employees` opinion. company files and docu ments, financial statements. the management infomtation system, and other intemal sources. ln a w ay, we could say that, the effectiveness of tapping thc sources would largely depend on the information cap ability of an organisation. For a comparative appraisal with similar organisations in the industry and acros s industries, it may be necessary to have access to external sources of information like company reports , magazines and journals. For systematic. as well as ud hoc studies. help may be sought from consultants. In sum, we could say that the sources of information used for environmental appraisal could he partially used t`or organisational appraisal as well. Having dealt with the three considerations involved in an organisational apprais al. we describe further. the methods and techniques used for appraising an organisation.

126 Strategic Management and Business Policy 4.4 METHODS AND TECHNIQUES USED FOR ORGANISATIONAL APPRAISAL The methods and techniques used for organisational appraisal can be identical to those used for the performance evaluation of an organisation. But there is an i mportant difference between performance evaluation and organisation appraisal. T he emphasis in evaluating performance is on assessing the current behaviour of t he organisation with respect to its efficiency and effectiveness and such an ass essment is generally of a short-term nature. On the other hand, organisational a ppraisal is of a comprehensive and long-term nature and the emphasis is not on c urrent behaviour, but also on what the organisation needs to do in order to gain the capability to compete in the market, take advantages of the available oppor tunities and overcome the threats operating in its relevant environment. Keeping in view the differences between performance evaluation and organisationa l appraisal, the methods and techniques used could be classified as broadly in t hree parts as below. internal Analysis 1. VRIO framework 2. Value chain analysis 3. Quantitative analysis (i) Financial analysis (ii) Non-financial analysis 4. Qualitative analysis Comparative Analysis 1. Historical analysis 2. Industry norms 3. Benchmarking Comprehensive Analysis 1. Key factor rating 2. Business intelligence systems 3. Balanced scorecard We now proceed to explain the methods and techniques of organisational appraisal . Internal Analysis The internal analysis of an organisation deals with an investigation into its st rengths and weaknesses by focussing on factors that are specific to it. In contr ast, as we will see a bit later, comparative analysis deals with an examination of strengths and weaknesses of an organisation in relation to its own past recor d or with reference to its competitors. 1. JRIO Framework The VRIO framework is the contribution of Barney, who is credi ted with the enunciation of the resource-based theory." We explained the resourc e-based theory in Section 4.2. The acronym VRIO stands for valuable, rare, inimitable and orgaiidfor usage. Thes e terms are briefly described below. Valuable: The organisational capabilities possessed by the firm that help it to generate revenues by capitalising on opportunities and/or to reduce costs by eut raiising threats. Examples of valuable capabilities are: the ability to generate an amicable relationship with the government or to provide high quality after-s ale service to customers.

Organisational Appraisal 127 Rare: The organisational capabilities that are possessed by the firm exclusively or just by a few other firms in the industry. Examples of rare capabilities are : capability derived out of an exclusive location or the presence of a highly sa tisfied and motivated workforce. Inimitable: The organisational capabilities possessed by the firm that are impos sible, very difficult or not worthwhile to duplicate or substituted by the compe titors. Examples of inimitable resources are: a favourable corporate image or th

e ability to acquire and integrate new businesses. Organised for usage: The organisational capabilities possessed by the firm that could be used through appropriate organisational structure, business processes, control systems and reward systems that are present in the firm. Examples of a f irm organised for usage are: the availability of competent R & D personnel and r esearch laboratories to innovate new and improved products continually or the av ailability of potential business partners who are competent and willing to integ rate their information systems with that of the firm. Exhibit 4.10 presents a table that shows how the four attributes of organisation al capabilities can contribute to strengths and weaknesses in a firm. Exhibit 4.10 How organisational capabilities contribute to strengths and weaknes ses? Are the Are the Are the capabilities Are the capabilities Are the capabili ties capabilities capabilities costly to imitate? organised for usage? strengths or valuable? rare? weaknesses? No No Weakness Yes No Yes Strength Yes Yes No Yes Strength and distinctive competence Yes Yes Yes Yes Strength and sustainable distinctive competence Source: Adapted from J.B. Barney, Gaining and Sustaining Competitive Advantage, Reading, MA: Addison Wesley Publishing Company, 1997, Tables 5.2 and 5.3, p. 163 . To summarise the use of the VRIO framework for internal analysis, we note that s ustainable strategic advantage results through the use of capabilities that are valuable, rare, inimitable and for which the firm is organised for usage. Exhibi t 4.10 indicates that the consequences of combining the four criteria of the VRI O framework can help to determine the strategic significance of an organisation' s capabilities. Capabilities that are not valuable, rare or that can be imitated should not be emphasised by the organisation. In fact, if the organisation puts in place systems and processes and attempts to organise the usage of such capab ilities, this may lead to a strategic disadvantage. Capabilities that yield stre ngths need to be organised for usage by the organisation. 2. Value Chain Analysis This is a method for assessing the strengths and weaknes ses of an organisation based on an understanding of the series of activities it performs. Porter (1985) is credited with the introduction of the framework calle d value chain. 12 A value chain is a set of interlinked value-creating activitie s performed by an organisation. These, activities may begin with the procurement of basic raw materials and go through processing in various stages right up to the end products marketed to the ultimate consumer. The value chain of a company may be linked to the value chain of its upstream supplier and downstream buyers , forming a series of chains that Porter terms as the value system.

128 Strategic Management and Business Policy Porter divided the value chain of a manufacturing organisation into primary and support activities. Primary activities are directly related to the flow of the p roduct to the customer and include five sub-activities as listed below: Inbound logistics: All activities that an organisation uses for receiving, stori ng and transporting inputs going into the production process. Typical inbound lo gistics activities performed in organisations are materials handling, warehousin g and inventory control. Operations: All activities required for transformation of raw materials to finis hed products. Typical operations activities performed in organisations are assem

bling, fabricating, machining, maintaining and packaging. Outbound logistics: All activities that an organisation uses for receiving, stor ing and transporting outputs going out of the production process. Typical outbou nd logistics activities performed in an organisation are of materials handling, order processing, physical distribution, and warehousing. Marketing and sales: All activities that an organisation uses to market and sell its products to customers. Typical marketing and sales activities performed by organisations are of pricing, developing products, advertising, promoting and di stributing. Service: All activities that an organisation uses for enhancing and maintaining a product's value. Typical service activities performed by organisations are of installation, repair, maintenance and customer training. Support activities are provided to sustain the primary activities. These consist of: Firm infrastructure: All activities that an organisation uses for ascertaining t he external opportunities and threats, identifying strengths and weaknesses and generally managing the organisation for achieving its objectives. Typical firm i nfrastructure activities performed by organisations are of accounting, finance, planning, general management, legal support and managing government relations. Human resource management: All activities that an organisation uses for managing human resources. Typical human resource management activities performed by orga nisations are of recruitment, selection and training, developing, appraising and compensating employees. Technology development: All activities that an organisation uses for creating, d eveloping and improving products and services. Typical technology development ac tivities performed by organisations are research and development, product design , process design, equipment design and servicing procedures. Procurement: All activities that an organisation uses for procuring inputs neede d to produce products or provide services. Typical procurement activities perfor med by organisations are purchasing fixed assets such as machinery and equipment s, raw materials and supplies. Exhibit 4.11 provides a simplified depiction of the value chain. As you can obse rve, it is a representation of the interrelated chain of activities that are req uired to be undertaken for bringing the finished product to the doorstep of the customer. The profit margin that an organisation earns depends on how effectivel y the value chain is managed. The value chain provides a systematic view of exam ining all the activities performed by an organisation and how these activities i nteract and are interrelated. An illustration of the value chain can be seen in the case of oil companies in I ndia. Here the value chain is broken down into two parts of upstream and downstr eam activities. The upstream activities refer to oil exploration, drilling and t ransporting the crude oil to the refinery. The downstream activities start from refining and then transporting and marketing of oil and allied products through distributors and petrol pumps. Most integrated oil companies perform all the ups tream and downstream activities, but they often vary in terms of the capability they possess in one or more of the activities in the value chain. The major glob al oil companies are highly integrated, covering the complete value chain, but O NGC is India's sole oil exploration and production company. IOC is in refining, transportation and marketing of oil and BPCL is strong in transportation and mar keting, with a marginal presence in refining. Essar Oil and Reliance are in refi ning

Organisational Appraisal 129 Exhibit 4.11 Porter's generic value chain Firm infrastructure Human Resource Management Technology development

Procurement Inbound Operations Outbound logistics Marketing Service logistics and Sales Primary activities while IBP is in marketing only. Obviously, each of these companies has a set of strengths and weaknesses contributing to their organisational capability. Each h as a defined strategic advantage and a specific competitive advantage in the oil industry with respect to each other. The value chain analysis requires: Identifying the activities that make up the organisation's value chain and class ifying them into primary and support activities Identifying the things done in those activities that contribute to providing val ue for the customer Identifying how the value contribution can be increased so that it costs less to provide the same or more value, thereby increasing the profit margin for the or ganisation Identifying how the value configuration could be improved by innovatively reconf iguring or recombining activities The value chain analysis is a useful method for organisational appraisal as it h elps in providing clarity about the areas where the strengths and weaknesses of the organisation reside. In general, the activities that can be provided in a ma nner that they create more value to the customer at less cost, are strengths. Th ose activities that provide less value at more cost are weaknesses. In such a ca se, it would be better for the organisation to outsource those activities to ext ernal parties who could perform them better. Those areas where the organisation is strong should be retained as they are the competencies. The technique of value chain analysis has some limitations: The technique is deceptively simple but difficult to implement. It applies to industrial organisations and needs to be adapted for application t o service organisations. U) a) > 0 a) 0 0 0 0 C', Profit margin

130 Strategic Management and Business Policy The concept of value is hazy. It is difficult to say what constitutes value for the customer. Value remains a theoretical construct until the customer is actual ly willing to pay what the organisation determined its value to be. The determination of cost cannot rely on traditional cost accounting methods. Ac tivity-based costing is required to assess the correct estimates of costs. The analysis requires collecting data from varied sources. The periodicity of th e sources of information needs to be common. Where figures of costs, for instanc e, are not available for the same period, it becomes difficult to make the analy sis. The application of information technology upsets the calculations in the value c hain analysis as often, it results in increasing value and reducing costs simult aneously. / 3. Quantitative Analysis Relying on numbers is a popular technique for assessing the performance of an organisation. Among the numbers are the financial figures , which are most often used for performance evaluation as well as an assessment of strengths and weaknesses. But financial figures alone are not the sole basis.

There are other numbers too which can he relied upon. We see here first a finan cial analysis and then the non-financial quantitative analyses. (i) Financial Analysis The traditional methods used for evaluating financial per formance, cover various types of activities in different functional areas within an organisation. A technique such as the financial ratio analysis assesses the liquidity, profita bility, leverage and activity aspects of any organisation. It can be used for an alysing strengths and weaknesses and provides valuable data that can be used in an organisational appraisal. It has an added advantage in that the existing acco unting systems and procedures can be used for generating information for organis ational appraisal. Ratio analysis is used on the basis of the reasonable assumpt ion that ratios cover nearly all the important aspects of an organisation's acti vities and provides a selective approach to measuring effectiveness and efficien cy. The details regarding the techniques of ratio analysis are covered well in a lmost any book in the finance area, so they will not be provided here. It should , however, be pointed out that though ratios have been in use for a long time an d managers are aware of the technique as well as its applications, its use in st rategic management is limited. Only if financial ratio analysis is used with due care, can it realistically ser ve the purpose of organisational appraisal. The precautions which need to be tak en include a realisation of the limitations of ratio analysis, taking sufficient ly long-term data to extrapolate trends, applying subjective analysis to numeric al results by strategists, considering the data within an industry and across in dustries and supplementing the financial analysis with an appraisal in other are as such as marketing, technology, etc. Apart from the traditional and popular techniques such as the ratio analysis, ce rtain other newer and improved techniques have also been devised to offset the l imitations inherent in the older ones. We refer to two such techniques here. Fir st, there is the economic value-added (EVA) analysis. Used to determine the weal th of a company, EVA is a popular technique devised by Stem Stewart & Company of the USA. EVA is defined as the system of corporate management that defines prof itability in terms of the returns on capital above the cost of servicing the cap ital employed. EVA is the wealth an organisation creates for its owners and is e xpressed as the difference of after-tax operating profits and the total cost of capital. In other words, EVA is the representation of the simple idea that an or ganisation needs to earn more from a business than the cost of the capital inves ted in it. The ca1culaton of EVA offers a yardstick to an organisation to assess whether it has the required capability to take a strategic action and whether t he potential returns from such an action are likely to be greater than the cost of capital required to take it. The second technique that we talk about here is that of activity-based cost (ABC ) accounting that attempts to do away with some of the limitations of the tradit ional cost accounting. ABC identifies the major activities

Organisational Appraisal 131 in the value chain within a firm and keeps a tab on the costs within each activi ty. This helps-in identifying the factors that determine cost (known as cost dri vers) and the areas where costs are actually incurred. From the perspective of a nalysing strengths and weaknesses, ABC, as well as EVA, helps in locating the ar eas where these lie within an organisation. In sum, financial analysis offers a convenient and reliable basis for organisati onal appraisal, provided it is used with appropriate modifications and with a co mplete understanding of the limitations of financial statements in any long-term assessment of organisational performance. ii. Non-financial quantitative analysis The obvious advantage of financial analy sis is that all numbers can be expressed in terms of a common monetary unit such as rupees, pounds or dollars. But not everything that goes on in an organisatio n can be best expressed in monetary units. It might not even be desirable to do

so. For instance, many of the operational parameters are best expressed in physi cal terms. Quantification of intangibles such as goodwill or employee morale may be possible, but it is not desirable to do so in monetary terms. Here, the nonfinancial quantitative analysis can help an organisation in appraisal. Examples of nonfinancial quantitative measures are: employee turnover, absenteeism, marke t ranking, rate of advertising recall, total cycle time of production, inventory units used per period, service call rate, number of patents registered per peri od, etc. 4. QualitatIveAnalysis An organisational appraisal can be based primarily on qua ntitative analysis since it is possible to measure and compare on a numerical or financial basis. Yet, as most strategists are aware, quantification has its lim itations. The quantitative analysis has to be tempered with a qualitative analys is. Such an analysis is based on informed opinion, judgement, intuition or hunch . Many of the strengths and weaknesses of an organisation cannot be expressed in q uantitative terms. For example, qualitative analysis can best be used to express the tenor of corporate culture, ability to absorb and assimilate knowledge or t he level of morale among employees. A systematic qualitative analysis may use th e survey approach to finding the status of organisational climate for instance. These factors do matter so far as the strengths and weaknesses of an organisatio n are concerned. Qualitative analysis can also effectively supplement a quantitative analysis. Co nversely, quantitative analysis could be used to support and reinforce a qualita tive assessment. Most often, qualitative analysis is considered as 'soft' as com pared to the 'hard' analysis based on numbers. But this does not mean that quali tative analysis is not meant to be rigorous or is based on emotions or fancy. Ra ther, such an analysis is hard-headed too as several other mental faculties are also involved, apart from the plain and simple number-crunching that goes into q uantitative analysis. Comparative Analysis Recall how we defined the strengths and weaknesses of an organisation and its di stinctive competencies earlier in this chapter. These were defined with respect to the competitors of an organisation. We said that strengths and weaknesses as well as distinctive competencies are not absolute, but relative. The relativity is based on the uniqueness and exclusivity of the strengths, weaknesses and the distinctive competencies of an organisation in comparison to its competitors. Co mparative analysis thus forms the cornerstone of the assessment of the strengths and weaknesses of an organisation. It can be done in three ways: historical ana lysis, on the basis of industry norms and by benchmarking, each of which we desc ribe below. 1. Ifi'storicalAna/ysis One way to compare performance and identify strengths an d weaknesses is to start with the historical analysis of one's own organisation over a period of time. Historical analysis is a good measure of how well or badl y an organisation has progressed with respect to its own past performance. Frequ ently, we see that the performance of companies is shown in terms of comparative figures over the last 132 Strategic Management and Business Policy year or for the same period in the past year. Such a practice is standard in pre sentation of balance sheets and profit and loss accounts in the annual reports o f companies. This is an evidence of how the organisation has performed on the ba sis of some common parameters. Durable strengths or nagging weaknesses will cert ainly contribute to a good or bad performance respectively. Conversely, areas wh ich show consistent good performance are an indicator of strengths in those area s and the reverse, i.e., areas that show repeated bad performance may be an indi cator of weaknesses. Continuous improvement, which is an important objective, ca n be measured adequately through historical analysis. Historical analysis has some limitations that should be kept in view. First, foc us should not only be on areas of bad performance as it just shows where an orga

nisation is lacking. The analysis should delve deeper to uncover the reasons for the bad performance so that corrective measures could be taken. This way, the w eaknesses could be removed. Secondly, measurement of past performance on a small base could show dramatic improvements that could turn out to be illusory. Lastl y, historical analysis is only meant to show up improvements with regard to one' s own performance, while organisations should be more concerned with their perfo rmances in comparison to their competitors. Here enters the relevance of other c omparison standards such as industry norms and benchmarking that we describe bel ow. 2. IndusiryNorms The industry to which a business belongs is the most obvious ch oice for comparison with regard to a wide range of parameters. A company might c heck whether its cost structure is comparable to that of its competitors or the budget spending on advertising is equal to that of its nearest rival. In doing s o, it is assumed that businesses in an industry operate under a similar relevant environment and a comparison could throw up significant information on the basi s of which to assess where one stands with respect to others. Rather than comparing oneself with all the firms in an industry, it would be mor e instructive to consider the firms that follow similar strategies. The concept of a strategic group is helpful here. 'Strategic groups are conceptually defined clusters of competitors that share similar strategies and therefore, compete mo re directly with one another than with other firms in the same Though used for a nalysing competition in an industry, the concept of a strategic group is helpful in recognising the firms that fall into a similar category and could be referre d to for comparative analysis. Even with all their attendant benefits, industry norms have some limitations tha t have to be kept in view. First, comparisons based on industry norms aim at ave rages and so, could lead to erroneous conclusions regarding one's capability. Wh at is important is to learn how to exceed the industry norms rather than simply conform to them. Secondly, industry norms are aggregated figures of several diff erent types of firms in an industry. A firm should be more interested in compari ng itself with only those firms that are of a similar nature. A classification b ased on strategic groups will be helpful here. Thirdly, industry norms are diffi cult to obtain as firms closely guard information which could be of use to their competitors. Yet, information sources that provide data regarding several param eters such as annual reports are available in public domain. These could be used for determining the industry norms. All in all, industry norms provide a good idea to firms regarding the areas in w hich they excel or need improvements. This can help them in locating their areas of strengths and weaknesses. 3. Bdnchmarldng A benchmark is a reference point for 'taking measures against. T he process of benchmarking is aimed at finding the best practices within and out side the industry to which an organisation belongs. The purpose of benchmarking is to find the best performers in an area so that one could match one's own perf ormance with them and even surpass them. The American Productivity and Quality C entre gives an interesting interpretation of the term benchmarking by saying tha t it is 'the practice of being humble enough to admit that someone else is bette r at something, and being wise enough to learn how to match and even surpass the m at it' 14 Organisational Appraisal 133 When one is interested in finding out what is to be compared, then there are thr ee types of benchmarking: the performance, process and strategic benchmarking. P erformance benchmarking is comparing one's own performance with that of some oth er organisation for the purpose of determining how good one's own organisation i s. Process benchmarking is comparing the methods and practices for performing pr ocesses while strategic benchmarking is comparing the long-term, significant dec isions and actions undertaken by other organisations to achieve their objectives . When one is interested in determining against whom it should compare itself, the n there could a different classification into four types of benchmarking. Intern

al benchmarking is comparison between units or departments of the same organisat ion. Competitive benchmarking is direct comparison of own performance against th e best competitors. Functional benchmarking is comparison of processes or functi ons against noncompetitive organisations within the same sector or technological area. Generic benchrnarking is comparison of own processes against the best pra ctices anywhere, in any type of organisation. A firm could attempt benchmarking at several levels using the different types of benchmarking. The main purpose should be to find out the best practices so that one could conform to it. But before one does that, benchmarking is enough to sh ow where a firm excels or lags behind. This is helpful in assessing the strength s and weaknesses of an organisation and determining its capability. Despite its popularity in industry and elsewhere, benchmarking has some limitati ons. First, it is a tough process to use, is time-consuming and expensive and re quires a high level of commitment. Secondly, it serves little purpose if it is u sed sporadically. It needs to be done on a continuous basis for effective result s. Thirdly, financial statements of publicly-held companies are easily and openl y available and therefore, organisations may be tempted to do much of benchmarki ng on the basis of these. However, it must be remembered that financial statemen ts provide lagging indicators and may not be really useful as the basis for benc hmarking. Lastly, it may be difficult to find comparable benchmarking candidates in all types of areas and activities and organisations may have to rely on the second-best available choice. Comprehensive Analysis While it would be useful to use a range of analytical methods to evaluate the st rengths and weaknesses of a firm and to determine its capability, a better way i s to use a combination of techniques, as each one of these have a different purp ose and limitations. A comprehensive analysis helps to deal with these limitatio ns. We describe below three popular methods and techniques of key factor rating, business intelligence systems and balanced scorecard for performing a comprehen sive analysis. 1. Key Factor Rating A comprehensive method, which can be used in association wi th a financial analysis, is that of key factor rating. Many systems have been evolved by consultants (for a detailed discussion, see Re ference 14)15 to assess organisational strengths and weaknesses. Essentially, th ese systems are based on rating, depending on a number of key factors, each of w hich is analysed on the basis of a series of thoughtful and penetrating question s. A detailed study of the areas covered by these questions leads to a reliable appraisal of an organisation. If we consider the different factors that have been mentioned in Section 4.2 und er various headings of functional capabilities, we can suggest the following ill ustrative questions that can be asked with regard to the different functional ar eas. The sequence of questions roughly corresponds to factors included under dif ferent sub-sections dealing with functional capability in Section 4.2 For financial capability factors I. Questions related to sources of funds Is the organisation's capital structure satisfactory? Can the organisation raise capital in the market? Where does the effective controllership rest? Is the debt-equity

134 Strategic Management and Business Policy ratio satisfactory as compared to other competitive organisations? Does the fina ncing pattern cause the organisation to be dependent on outsiders? Is the reserv es and surplus position healthy? Is relationship with banks and financial instit utions cordial? 2. Question related to usage of funds Are adequate investment opportunities avai lable? How does the organisation compare with others so far as the dividend reco rd is concerned? What type of relationship exists with its shareholders? 3. Questions related to management offunds How effective and efficient are the f inancial, accounting and budgetary systems? Does the management control system s

atisfy the organisational needs? What trends do the various financial ratios ind icate? Have they been satisfactory over the last few years? What strengths and w eaknesses does the ratio analysis indicate? Has inflation been taken into accoun t? What is the status of the ongoing projects? Have there been time-and cost-ove rruns? How far have the tax advantages accrued to the organisation? For marketing capability factors 1. Questions related to products or services Does the organisation offer the req uisite variety of products or services? What is the level of product differentia tion? Does the product-mix satisfy market requirements? Are there products which do not contribute to profitability? What steps have been taken to phase out suc h products? How do the products compare with others in the industry in terms of quality, packaging, etc? 2. Questions related to price What pricing objectives are pursued? Are they orie nted towards profit maximisation or sales revenue maximisation? Do the pricing p olicies conform to market requirements? Does the organisation avail of price pro tection and other advantages available to it? 3. Questions related to promotion Does the organisation use relevant promotional tools? Are the different forms of promotion used effectively in generating sale s? What does market research indicate with regard to promotion and public relati ons? Are the funds allocated to promotion being used effectively? 4. Questions related to integrative and systemic factors How does the organisati on compare with others of its kind in terms of market standing and image? What s trengths and weaknesses are there in the marketing organisation? How effective i s the marketing management information system? For operations capability factors 1. Questions related to the production system Does the plant location offer any unique advantages or disadvantages? Is the layout appropriate? Is the plant capa city of the requisite level? Do work systems support efficiency and productivity ? What is the extent of vertical integration? Does it offer certain unique advan tages to the organisation? 2. Questions related to operations and control Is aggregate planning able to abs orb short-term demand fluctuations? Is there an adequate supply of the factors o f production? Does the organisation have any unique advantages with respect to i ts factors of production? is the material supply system reliable? Does the organ isation have access to sources of material supply not available to its competito rs? What is the efficiency and effectiveness of the inventory control system? Ho w effective are the cost, quality and maintenance systems? 3. Questions related to the & D system Does the organisation possess certain di stinct advantages with respect to its R & D personnel, facilities and technology ? Does it possess patent rights? Does it have access to the latest technology? H ow far do technology collaborations benefit the organisation? For personnel capability factors 1. Questions related to the personnel systm How effective are the various personn el systems like manpower planning, selection, development, etc'? What importance does the personnel function enjoy within the organisation? Organisational Appraisal 135 2. Questions related to organisational and employee characteristics How does the organisation compare with others of its kind in terms of corporate image? Does the organisation possess unique advantages with regard to the quality of its man agers, staff and workers? How is the organisation perceived as an employer? What special benefits does the organisation offer to its employees that others do no t offer? 3. Questions related to industrial relations What is the organisation's record w ith regard to industrial relations? Is the union-management relationship amicabl e? Have the outstanding issues been resolved? How effectively does the system of collective bargaining work? Does the organisation offer safety, welfare and sec urity measures over and above the statutory requirements? What is the general le vel of employee satisfaction and morale? Does it benefit the organisation in ter

ms of competitive advantage through increased productivity and low cost? For information management capability factors I. Questions related to acquisition and retention of information Where does the organisation stand with respect to the sources, quantity, quality and timeliness of information for decision making? What is the level of its retention capacity for information? How secure are its information systems? 2. Questions related to processing and synthesis of information How well does th e database management work in the organisation? What is the state-of-the art wit h respect to computer systems and software capability of the organisation? What is the level of its ability to synthesise information? 3. Questions related to retrieval and usage of information Is the availability a nd appropriateness of the information format adequate? What is the capacity of t he organisation to assimilate and use information? 4. Questions related to transmission and dissemination What are the speed, scope , width and depth of coverage of information in the organisation? What is the le vel of willingness on the part of managers to accept information? 5. Questions related to integrative systemic and supportive factors What is the situation regarding the availability of the IT infrastructure within the organis ation? Is it relevant and compatible with the organisational needs? Does the org anisation carry out regular and periodical upgradation of its IT facilities? Is there willingness on the part of the top management to invest in the latest IT s ystems? Are competent IT professionals available within the organisation? Does t he top management support IT application within organisation? For general management capability factors 1. Questions related to general management system Does the organisation use stra tegic management systems and what is the level of their effectiveness? Have the mission, purposes and objectives been identified clearly? What is the effectiven ess level of the strategy formulation, implementation and evaluation processes? Is the management information system reliable? Does the organisation possess dis tinct* ve advantages with respect to its corporate planning system? Are the rewa rds and incentives systems for top managers consistent with the achievement of o bjectives? 2. Questions related to general managers Does the top management possess the req uired orientation to implement strategies? As compared to similar organisations, what are the qualities and capabilities of the general managers? Do these quali ties and capabilities offer any unique advantages to the organisation? 3. Questions related to external relationships What is the level of influence th at the organisation has on governmental regulatory institutions and financial in stitutions? Is the organisation able to manage its public relations well? Does t he organisation discharge its social responsibilities well? How does the organis ation compare with regard to its public image with respect to its competitors? 4. Questions related to organisational climate Does the organisational culture s upport the achievement of objectives? Is the use of power, political equations a nd the balance of vested interests conducive to the achievement of its objective s? Do these factors offer any unique advantages? How effectively does the organi sation imbibe strategic changes? Is the nature of organisational structure and c ontrols consistent with strategy implementation?

136 Strategic Management and Business Policy Key factors rating is quite a comprehensive method as you can observe from the r ange of issues covered. Yet, it has some limitations. First, its comprehensivene ss may make it an unwieldy method to use. It will require a variety of informati on from different parts of an organisation, making it a slow and inefficient met hod. Secondly, this method is basically a subjective method as managers have to assign the rating on the basis of their judgement. Subjectivity has its limits a nd would require improvement based on reference to objective factors as one set of factors after the other are considered. Lastly, the key factor rating method needs to be dovetailed with the audit processes that are ongoing in organisation

s, otherwise there is a possibility of evaluation efforts being duplicated. Having answered the questions for each of the functional areas detailed above, t he strategists are in a position to pinpoint the strengths and weaknesses in eac h of the functional areas. Based on this, the organisational capability can be j udged. 2. Business Inlelliqence Systems Information technology has made a huge impact o n the way organisations use their information systems for organisational apprais al. Methods like key factors rating and balanced scorecard are implemented by th e means of sophisticated IT tools to make them feasible for the purpose of decis ion-making. Business intelligence is one of the concepts used for discovering kn owledge from various internal and external data repositories available to an org anisation, to support effective decision-making. Business intelligence (BI), a term coined by Howard J. Dresner of the Gartner Gr oup in 1989, became popular in the late 1990s. BI is defined by the Gartner Grou p as 'a broad category of applications and technologies for gathering, storing, analysing, and providing access to data to help enterprise users make better bus iness decisions.' 16 The applications of BI include the activities of decision s upport systems, query and reporting, online analytical processing (OLAP), statis tical analysis, forecasting and data mining. BI can help an organisation in strategic and operational decision-making. A Gart ner survey ranked the strategic use of BI in the following order: 17 1. Corporate performance management 2. Optimising customer relations, monitoring business activity and traditional d ecision support 3. Packaged stand-alone BI applications for specific operations or strategies 4. Management reporting of business intelligence Among these, the issue of corporate performance management is of interest to us here. This application can be used to uncover the strengths and weaknesses of th e organisation and can help in determining the organisational capability. Among several techniques in corporate performance management, is the immensely popular one of the balanced scorecard. 3. Balanced Scorecard The balanced scorecard method is discussed in Section 2.5 where we described how it can be relevant for objective setting in organisations . Here we need to focus again on the balanced scorecard as a means of assessment of strengths and weaknesses of an organisation. Proposed by Robert S. Kaplan an d David P. Norton, balanced scorecard attempts to do away with the bias in perfo rmance measures towards financial indices and tries to build a holistic system o f measurement. Balanced scorecard is considered as 'a set of measures that gives top managers a fast but corn rrehensive view of the business.... (It) includes financial measures that tell the results of actions already taken. And it comple ments the financial measures on customer satisfaction, internal processes, and t he organisation's innovation and improvement activities operational measures that are the drivers of future financial performance.' 8 The balanced scorecard identifies four key performance measures as follows: 1. Customer perspective: 'How do customers see us?' 2. Internal business perspective: 'What must we excel at?'

Organisational Appraisal 137 3. Innovation and learning perspective: 'Can we continue to improve and create v alue?' 4. Financial perspective: 'How do we look at shareholders?' Each of these perspectives could be used individually, but using them in combina tion provides deeper insights and a balanced approach to strategy formulation. O ne perspective is not allowed to outweigh others when the strengths and weakness es of an organisation are assessed. The balanced scorecard is per se a comprehen sive strategic management system, 19 but for our limited purpose here, it could as well be used as a means to identify the strengths and weaknesses in an organi sation. Keeping score of the strengths and weaknesses in critical areas of perfo

rmance enables a quantitative as well as qualitative analysis of the organisatio n. A comprehensive picture of organisational capability can be prepared through str ucturing the process of organisational appraisal. 4.5 STRUCTURING ORGANISATIONAL APPRAISAL Just as environmental appraisal is structured through an environmental threat an d opportunity profile (for details, see Chapter 3), organisational appraisal can also be structured through various techniques. For instance, Glueck proposes a preparation of the strategic advantage profile (SAP) where the results of organi sational appraisal are presented in a summarised form. 20 Another approach, sugg ested by Rowe et al, is to prepare a company capability profile as a means for a ssessing a company's strengths and weakness in dealing with the opportunities an d threats in the external environment. 21 We propose a similar approach here of making an organisational capability profile, which can be summarised in the form of a strategic advantage profile. The SAP is then matched with the environmenta l threats and opportunity profile, prepared while structuring the environmental appraisal, in order to look for strategic alternatives and exercise a strategic choice. Preparing the Organisational Capability Profile The organisational capability profile (OCP) is drawn in the form of a chart as d epicted in Exhibit 4.12, which shows a summarised OCP. The strategists are requi red to systematically assess the various functional areas and subjectively assig n values to the different functional capability factors and sub-factors, along a scale ranging from values of 5 to +5. A detailed OCP may run into several pages where each of the sub-factors constituting the different functional capability f actors can be assessed. In this manner, a summarised OCP, as shown in Exhibit 4. 12, may be prepared. Exhibit 4.12 Summarised form of organisational capability profile Capability factors Weakness Normal Strength 5 0 +5 Financial capability factors (a) Sources of funds (b) Usage of funds (c) Management of funds 2. Marketing capability factors (a) Product-related (b) Price-related (c) Promotion-related (d) Integrative and systematic