Business Policy Strategic Management E-Book

Business
Amity Directorate
Policy &
of Distance &
Strategic
Management Online Education
Strategy defines as a pattern of purposes, policies, programs,
actions, decisions, or resource allocations that define what an
organization is, what it does, and why it does it.
MBA
Semester - III
Business Policy & Strategic Management
Unit-I : Introduction to Strategic Management
Notes
Structure
1.1 Concept of Strategic Management

1.2 What is a Strategy?

1.2.1 Features of Strategy
1.3 Strategic Management-History and Development

1.4 Basic Financial Planning (Budgeting)
1.5 Long-range Planning (Extrapolation)
1.6 Strategic (Externally Oriented) Planning
1.7 Strategic Planning to Strategic Management
1.8 Complex System Strategy

1.8.1 Emergence
1.8.2 Chaos & Complexity
1.8.3 System Thinking
1.8.4 Darwinian Theory
1.9 Complex Dynamic System

1.9.1 Hybrid Systems
1.9.2 Predictive Modeling
Objective

To study the evolution of strategic management and understand the basics of

strategy and strategic management
To understand the history of strategic management
To analyze how strategic management plays an important role in the growth of

an organization
To understand the various aspects of strategic planning to strategic

management
Study of the functions and responsibilities of general managers; of problems

that affect the success of the total organization and the decisions that determine the
direction of the organization and shape its future
Chance favors the prepared mind
-- Louis Pasteur
1.1 Concept of Strategic Management
Strategic Management is all about identification and description of the strategies

that managers can carry so as to achieve better performance and a competitive
advantage for their organization. An organization is said to have competitive advantage
if its profitability is higher than the average profitability for all companies in its industry.
Strategic management is the process of managing the pursuit of organizational
mission while managing the relationship of the organization to its environment
--James M. Higgins
Amity Directorate of Distance & Online Education
Notes
Strategic management is defined as the set of decisions and actions resulting in the
formulation and implementation of strategies designed to achieve the objectives of the
organization
(John A. Pearce II and Richard B. Robinson, Jr.)
Strategic management can also be defined as a bundle of decisions and acts which
a manager undertakes and that decide the firms performance. The manager must
have a thorough knowledge and analysis of the general and competitive organizational
environment so as to take right decisions. They should conduct a SWOT Analysis
(Strengths, Weaknesses, Opportunities, and Threats), i.e., they should make best
possible utilization of strengths, minimize the organizational weaknesses, make
use of arising opportunities from the business environment and shouldnt ignore the
threats. Strategic management is nothing but planning for both predictable as well as
unforeseen contingencies. It is applicable to both small as well as large organizations
as even the smallest organization face competition. By formulating & implementing
appropriate strategies, they can attain sustainable competitive advantage.
Strategic Management is a way in which strategists set the objectives and proceed
about attaining them. It deals with making and implementing decisions about future
direction of an organization. It helps us to identify the direction in which an organization
is moving.
Strategic management is a continuous process that evaluates and controls
the business and the industries in which an organization is involved; evaluates its
competitors and sets goals and strategies to meet all existing and potential competitors;
and then reevaluates strategies on a regular basis to determine how it has been
implemented and whether it was successful or does it needs any modification.
Strategic Management gives a broader perspective to the employees of an
organization and they can better understand how their job fits into the entire
organizational plan and how it is co-related to other organizational members. It is
nothing but the art of managing employees in a manner which maximizes the ability
of achieving business objectives. The employees become more trustworthy, more
committed and more satisfied as they can co-relate themselves with each organizational
task. They can understand the reaction of environmental changes on the organization
and the probable response of the organization with the help of strategic management.
Employees can judge the impact of such changes on their own job and can effectively
face the changes. Managers & employees need to be both effective as well as efficient.
We can therefore say that Strategic Management helps to-
Develop theme for organization
Provide discipline for long-term thinking
Deal with environmental complexities
More effective resource allocation
Integrate diverse administrative activities
Increase managerial effectiveness
Improve employee motivation
Address stakeholder concerns
One of the major roles of strategic management is to incorporate various functional

areas of the organization and to ensure that these functional areas harmonize and get
together well. Another role of strategic management is to keep an eye on the goals and
objectives of the organization.
Notes
1.2 What is a Strategy?
Strategy can be defined as knowledge of the goals and the uncertainty of unfolding
of events
The word strategy is derived from the Greek word strategeos; stratus (meaning
army) and ago (meaning leading/moving).
Strategy is an action that managers take to attain one or more of the organizations
goals. Strategy can also be defined as A general direction set for the company and its
various components to achieve a desired state in the future. Strategy results from the
detailed strategic planning process.
A strategy is all about integrating organizational activities and utilizing and allocating
the scarce resources within the organizational environment so as to meet the current
objectives. While planning a strategy it is essential to consider that decisions are not
taken in a vaccum and that any action taken by a firm is likely to be met by a reaction
from those affected i.e. competitors, customers, employees or suppliers.
Henry Mintzberg, in his 1994 book, The Rise and Fall of Strategic Planning , points
out that people use strategy in several different ways, the most significant are--:

Strategy is a plan, a how, a means of getting from here to there.
Strategy is a pattern in actions over time; for example, a company that

regularly markets very expensive products is using a high end strategy.
Strategy is position; that is, it reflects decisions to offer particular products or

services in particular markets.
Strategy is perspective, that is, vision and direction.
Strategy needs to take into consideration the likely or actual behavior of others.
Strategy is the blueprint of decisions in an organization that shows its objectives
and goals, reduces the key policies, and plans for achieving these goals. It defines
the business the companies intend to carry on, the type of economic and human
organization they want to be, and the contribution they plan to make to its shareholders,
customers and society at large.

Means of establishing organizational purpose
Definition of the competitive domain
Response to external opportunities and threats and internal strengths and

weaknesses
Way to define managerial tasks with corporate, business and functional

perspectives
Coherent, unifying and integrative pattern of decisions
Definition of the economic and non-economic contribution the firm intends to

make to stakeholders
Notes
Expression of strategic intent
Means to develop organizational core competencies to create sustainable

competitive advantage
1.2.1 Features of Strategy

1. Strategy is Significant because it is not possible to foresee the future. Without a
perfect foresight, the firms must be ready to deal with the uncertain events which
constitute the business environment.
2. Strategy deals with long term developments rather than routine operations, i.e. it
deals with probability of innovations or new products, new methods of productions,
or new markets to be developed in future.
3. Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behavior.
Strategy is a well defined roadmap of an organization. It defines the overall mission,
vision and direction of an organization. The objective of a strategy is to maximize an
organizations strengths and to minimize the strengths of the competitors. Strategy, in
short, bridges the gap between where we are and where we want to be.
1.3 Strategic Management-History and Development
Until the 1940s, strategy was seen as primarily a matter for the military. Military
history is replete with stories about strategy. Almost from the beginning of recorded
time, leaders contemplating battle have devised offensive and counter-offensive
moves to defeat the enemy. The word strategy derives from the Greek for generalship,
strategia, and entered the English vocabulary in 1688 as strategie. According to
James 1810 Military Dictionary, it differs from tactics, which are immediate measures
in face of an enemy. Strategy concerns something done out of sight of an enemy. Its
origin dates back to Sun Tzus The Art of War of 500 BC.
Over the years, the practice of strategy has evolved through five phases (each
phase generally involved the perceived failure of the previous phase):
1. Basic Financial Planning (Budgeting)
2. Long-range Planning (Extrapolation)
3. Strategic (Externally Oriented) Planning
4. Strategic Management
5. Complex Systems Strategy:

Complex Static Systems or Emergence
Complex Dynamic Systems or Strategic Balance
1.4 Basic Financial Planning (Budgeting)
James McKinsey (1889-1937), founder of the global management consultancy that

bears his name, was a professor of cost accounting at the school of business at the
University of Chicago. His most important publication, Budgetary Control (1922), is
quoted as the start of the era of modern budgetary accounting.
Early efforts in corporate strategy were generally limited to the development of a

budget, with managers realizing that there was a need to plan the allocation of funds.
Later, in the first half of the 1900s, business managers expanded the budgeting process
into the future. Budgeting and strategic changes (such as entering a new market)
were synthesized into the extended budgeting process, so that the budget supported
the strategic objectives of the firm. With the exception of the Great Depression, the
competitive environment at this time was fairly stable and predictable.
Notes
1.5 Long-range Planning (Extrapolation)
Long-range Planning was simply an extension of one year financial planning into
five-year budgets and detailed operating plans. It involved little or no consideration of
social or political factors, assuming that markets would be relatively stable. Gradually, it
developed to encompass issues of growth and diversification.
In the 1960s, George Steiner did much to focus business managers attention on
strategic planning, bringing the issue of long-range planning to the forefront. Managerial
Long-Range Planning, edited by Steiner focused upon the issue of corporate longrange planning. He gathered information about how different companies were
using long-range plans in order to allocate resources and to plan for growth and
diversification.
A number of other linear approaches also developed in the same time period,
including game theory. Another development was operations research, an approach
that focused upon the manipulation of models containing multiple variables. Both have
made a contribution to the field of strategy.
1.6 Strategic (Externally Oriented) Planning
Strategic (Externally Oriented) Planning aimed to ensure that managers engaged

in debate about strategic options before the budget was drawn up. Here the focus of
strategy was on the business units (business strategy) rather than in the organization
centre. The concept of business strategy started out as business policy, a term still
in widespread use at business schools today. The word policy implies a hands-off,
administrative, even intellectual approach rather than the implementation-focused
approach that characterizes much of modern thinking on strategy. In the mid-1900s,
business managers realized that external events were playing an increasingly important
role in determining corporate performance. As a result, they began to look externally
for significant drivers, such as economic forces, so that they could try to plan for
discontinuities. This approach continued to find favor well into the 1970s.
While the theorists were arguing, one large US Company was quietly innovating.
General Electric Co. (GE) had begun to develop the concept of strategic business
units (SBUs) in the 1950s. The basic idea-now largely accepted as the normal and
obvious way of going about things-was that strategy should be set within the context of
individual businesses which had clearly defined products and markets. Each of these
businesses would be responsible for its own profits and development, under general
guidance from headquarters.
The evolution of strategy began in the early 1960s, when a flurry of authoritative
texts suddenly turned strategic planning from an issue of vague academic interest into
an important concern for practicing managers. Prior to this strategy wasnt part of the
normal executive vocabulary.
Alfred Chandler (1918-2007), Influential figure in both strategy and business
structure-Strauss Professor of Business History at Harvard since 1971.
Notes
Chandler talks about the development of the management of a large company from
history; in particular from the mid nineteenth century to the end of the First World War
(what he calls the formative years of modern capitalism). During this period, the typical
entrepreneurial or family firm gave way to larger organizations containing multiple units.
A new form of management was needed because the owner-manager could not be
everywhere at once. In addition, a new breed of manager was needed to operate in this
environment the salaried professional.
He advised splitting the functions of strategic thinking and line management. In
Chandlers analysis, the effective organization now separates strategy and day-to-day
operations. Strategy becomes the responsibility of managers at headquarters, leaving
the unit managers to concentrate on the here and now in decentralized units. In effect,
he was advising creating a line management who would carry out plans developed by a
more serious staff function elsewhere.
His influential book Strategy and Structure was published in 1962, appealing to
many large companies that were having difficulty in coping with their size. In recent
years it has come under heavy attack from critics, who maintain that strategy must be a
line responsibility, decided as close as possible
John Gardners Self-Renewal, published in 1964, which pointed out that
organizations constantly need to reassess themselves, had the earliest real impact
on managers. Like people, they need to keep renewing their skills and abilities
something they can only do effectively through careful planning.
Kirby Warren at Harvard looked in depth at what happened in a small number of
companies to see what worked well and what didnt. In several companies for example,
he found that the managers confused the strategic plan with its components in
particular, the marketing plan was often assumed to be the same thing as the overall
corporate plan.
Wickham Skinner (1924-) who was based at Harvard since 1960, pointed out that
an excessive focus on marketing Planning frequently led companies to forget about
manufacturing needs until late in the day, when there was little room for manoeuvre.
Skinner argued for a clear manufacturing strategy to proceed in parallel with the
marketing strategy. In many ways he was ahead of his time, for the concept of
technology strategy or manufacturing strategy had only begun to take root in the 1980s
and many manufacturing companies still have no one in charge of this aspect of their
business.
One particularly influential idea from skinner was the focused factory. He
demonstrated that it was not normally possible for a production unit to focus on more
than one style of manufacturing. Even if the same machines were used to produce
basically similar products, if those products had very different customer demands
that required a different manner of working, the factory would not be successful. For
example, trying to produce equipment for the consumer market, where a certain error
rate in production was compensated for by higher volume sales at a lower price, was
incompatible with producing 100 per cent perfect product for the military. The most likely
outcome was a compromise that satisfies no one.
Paul Lawrence and Jay Lorsch, also from Harvard, put forth their contingency
theory of organizations. They argued that every organization is composed of multiple
paradoxes. On the one hand, each department or unit has its own objectives and
environment. It responds to those in its own way, both in terms of how it is structured,
the time horizons people assume, the formality or informality of how it goes about its
tasks and so on. All these factors contribute towards what they call differentiation. At
the same time each unit needs to work with others in pursuit of common goals. That
requires a certain amount of integration, to ensure that they are all working with rather
than against each other. In their studies of US firms in a variety of manufacturing
industries, they found that companies with a high level of differentiation could also
have a high level of integration. The reason was simple; the greater the differentiation,
the more potential for conflict between departments and therefore the greater the
need for mechanisms to help them work together. Their work forced many managers
to understand that organizations were not fixed; that strategy and planning had to be
adapted to each segment of the environment with which they dealt.
Notes
Igor Ansoff (1918-2002) through his unstintingly serious, analytical and complex,
Corporate Strategy, published in 1965, had a highly significant impact on the business
world. It propelled consideration of strategy into a new dimension. It was Ansoff who
introduced the term strategic management into the business vocabulary.
Ansoffs sub-title was An Analytical Approach to Business Policy for Growth
and Expansion. The end product of strategic decisions is deceptively simple; a
combination of products and markets is selected for the firm. This combination is
arrived at by addition of new product-markets, divestment from some old ones, and
expansion of the present position, writes Ansoff. While the end product was simple,
the processes and decisions which led to the result produced a labyrinth followed only
by the most dedicated of managers. Analysis and in particular gap analysis (the gap
between where Organization are now and where Organization want to be) was the
key to unlocking strategy.
The book also brought the concept of synergy to a wide audience for the first time.
In Ansoffs original creation it was simply summed up as the 2+2=5 effect. In his
later books, Ansoff refined his definition of synergy to any effect which can produce a
combined return on the firms resources greater than the sum of its parts.
While Corporate Strategy was a notable book for its time, it produced what Ansoff
himself labeled paralysis by analysis; repeatedly making strategic plans which
remained unimplemented.
Reinforced by his conviction that strategy was a valid, if incomplete concept, Ansoff
followed up Corporate Strategy with Strategic Management (1979) and Implanting
Strategic Management (1984). His other books include Business Strategy (1969),
Acquisition Behavior in the US Manufacturing Industry, 1948-1965 (1971), From
Strategic Planning to Strategic Management (1974), and The New Corporate Strategy
(1988).
Implanting Strategic Management, co-written with Edward McDonnell, records
much of the research conducted by Ansoff and his associates and reveals a number of
ingenious aspects of the Ansoff model. These include his approach to using incremental
implementation for managing resistance to change, product portfolio analysis, and issue
related to management systems.
The Problem with Strategic Planning (Analysis): The fuel for the modern growth
in interest in all things strategic has been analysis. While analysis has been the
watchword, data has been the password. Managers have assumed that anything
which could not be analyzed could not be managed. The belief in analysis is part of a
search for a logical commercial regime, a system of management which will, under any
circumstances, produce a successful result. Indeed, all the analysis in the world can
lead to decisions which are plainly wrong. IBM had all the data about its markets, yet
reached the wrong conclusions.
There are two basic problems with the reliance on analysis. First, it is all technique.
The second problem is more fundamental. Analysis produces a self-increasing loop.
Notes
The belief is that more and more analysis will bring safer and safer decisions. The
traditional view is that strategy is concerned with making predictions based on analysis.
Predictions, and the analysis which forms them, lead to security. The bottom line is not
expansion, future growth or increased profitability-it is survival. The assumption is that
growth and increased profits will naturally follow. If, by using strategy, we can increase
our chances of predicting successful methods, then our successful methods will lead us
to survival and perhaps even improvement. So, strategy is to do with getting it right or,
as the more competitive would say, winning. Of course it is possible to win battles and
lose wars and so strategy has also grown up in the context of linking together a series
of actions with some longer-term goals or aims.
This was all very well in the 1960s and for much of the 1970s. Predictions and
strategies were formed with confidence and optimism (though they were not necessarily
implemented with such sureness). Security could be found. The business environment
appeared to be reassuringly stable. Objectives could be set and strategies developed to
meet them in the knowledge that the overriding objective would not change.
Such an approach, identifying a target and developing strategies to achieve it,
became known as Management by Objectives (MBO).
Under MBO, strategy formulation was seen as a conscious, rational process. MBO
ensured that the plan was carried out. The overall process was heavily logical and,
indeed, any other approach (such as an emotional one) was regarded as distinctly
inappropriate. The thought process was backed with hard data. There was a belief that
effective analysis produced a single, right answer; a clear plan was possible and, once
it was made explicit, would need to be followed through exactly and precisely.
In practice, the MBO approach demanded too much data. It became overly
complex and also relied too heavily on the past to predict the future. The entire system
was ineffective at handling, encouraging, or adapting to change. MBO simplified
management to a question of reaching A from B using as direct a route as possible.
Under MBO, the ends justified the means. The managerial equivalent of highways were
developed in order to reach objectives quickly with the minimum hindrance from outside
forces.
Henry Mintzbergs book The Rise and Fall of Strategic Planning was first published
in 1994. The confusion of means and ends characterizes our age, Henry Mintzberg
observes and, today, the highways are likely to be gridlocked. When the highways are
blocked managers are left to negotiate minor country roads to reach their objectives.
And then comes the final confusion: the destination is likely to have changed during the
journey. Equally, while MBO sought to narrow objectives and ignore all other forces,
success (the objective) is now less easy to identify. Todays measurements of success
can include everything from environmental performance to meeting equal opportunities
targets. Success has expanded beyond the bottomline.
1.7 Strategic Planning to Strategic Management
Strategic Planning to Strategic Management: Strategic planning was a plausible

invention and received an enthusiastic reception from the business community. But
subsequent experience with strategic planning led to mixed results. In a minority of
firms, strategic planning restored their profitability and became an established part of
the management process. However, a substantial majority encountered a phenomenon,
which was named paralysis by analysis: strategic plans were made but remained
unimplemented, and profits/growth continued to stagnate. Claims were increasingly
made by practitioners and some academics that strategic planning did not contribute to
the profitability of firms. In the face of these claims, Ansoff and several of his colleagues
at Vanderbilt University undertook a four-year research study to determine whether,
when paralysis by analysis is overcome, strategic planning increased profitability of

firms.
Notes
Ansoff looked again at his entire theory. His logic was impressively simple either
strategic planning was a bad idea, or it was part of a broader concept which was not
fully developed and needed to be enhanced in order to make strategic planning
effective. An early fundamental answer perceived by Ansoff was that strategic planning
is an incomplete instrument for managing change, not unlike an automobile with an
engine but no steering wheel to convert the engines energy into movement.
Characteristically, he sought the answer in extensive research. He examined
acquisitions by American companies between 1948 and 1968 and concluded that
acquisitions which were based upon an articulated strategy fared considerably better
than those which were opportunistic decisions. The result of the research was a book
titled Acquisition Behavior of US Manufacturing Firms, 1945-1963.
In 1972 Ansoff published the concept under the name of Strategic Management
through a pioneering paper titled The Concept of Strategic Management, which
was ultimately to earn him the title of the father of strategic management. The paper
asserted the importance of strategic planning as a major pillar of strategic management
but added a second pillar the capability of a firm to convert written plans into market
reality. The third pillar- the skill in managing resistance to change was to be added in
the 1980s.
Ansoff obtained sponsorship from IBM and General Electric for the first International
Conference on Strategic Management, which was held in Vanderbilt in 1973 and
resulted in his third book, From Strategic Planning to Strategic Management.
The complete concept of strategic management embraces a combination of
strategic planning, planning of organizational capability and effective management of
resistance to change, typically caused by strategic planning. Ansoff says that strategic
management is a comprehensive procedure which starts with strategic diagnosis and
guides a firm through a series of additional steps which culminate in new products,
markets, and technologies, as well as new capabilities. Strategic Management aimed
to give people at all levels the tools and support they needed to manage strategic
change. Its focus was no longer primarily external, but equally internal how can the
organization seize and maintain strategic advantage by using the combined efforts of
the people that work in it?
Between 1974 and 1979 Ansoff developed a theory which embraces not only
business firms but other environment-serving organizations. The resulting book titled
Strategic Management, was published in 1979.
Self-confirming Theories: In the 1980s, there was a renewed interest in discovering
ways of dealing with an increasingly complex and changing environment. It was during
this time that the practice of strategy began to move toward a metaphorical application
of an old idea. For many years, management theorists had borrowed the ideas of an
economic theory commonly referred to as equilibrium theory, or equilibrium systems
theory, as a basis for developing management theory. Basically, the concept was
developed around the idea of linearity (and, to some extent, simplicity). Self-confirming
theories of strategy require the strategist to assume that what the firm has done in the
past will be done in the future. In effect, executives confirm that past strategy has
been appropriate by adopting it repeatedly over time.
Self-confirming theories may be recognized by their historic-simple frame and
mental models. Such theories use terms such as mission, core competencies,
competitive advantage, and sustainable competitive advantage. They are founded
Notes
in the theory of comparative advantage developed by economists David Ricardo

and Adam Smith. The theory of comparative advantage, which suggests that some
countries have unique assets, has become the basis for contemporary strategy.
Strategists modified the idea and called it competitive advantage. If it chooses to use
that approach, a firm needs to identify its core competencies, competitive advantage,
and then convert that identification to a mission. In principle, the purpose of the mission
statement is to keep the firm focused upon its unique area of competitive advantage.
Further, the mission is supposed to set boundaries and to keep it in the box.
Generally, self-confirming theories force the assumption of a linear mental model, since
it is historic (including present) competencies or resources that provide the constructs
for future strategy.
Thousands of articles and books have been written on the development of
equilibrium-based strategy. The equilibrium-based strategic model involves a
succession of steps that are designed to keep the firm focused upon its historic
competencies. Out of that concept ideas such as SWOT analysis (strengths,
weaknesses, opportunities, and threats) and five forces analysis were developed. The
latter is dealt with in Michael Porters 1985 book Competitive Strategy. In most cases,
the difference between one key thinker and another is minor at best, but
Michael Porter of Harvard Business School is perhaps the best known of all the
strategy theorists. He has generally been more prolific than the rest. Porter has been
responsible for the writing of numerous books and articles that have been widely
accepted in the field. He has been especially involved in the creation or popularization
of a number of tools that have been widely used in the discipline.
Porters first book for practicing managers, Competitive Strategy; Techniques for
Analyzing Industries and Competitors, was first published in 1980. Drawing heavily
on industrial economics (a field of study that tries to explain industrial performance
through economics), he was trying to take these basic notions and create a much
richer, more complex theory, much closer to the reality of competition. The book defines
five competitive forces that determine industry profitability Potential Entrants, Buyers
(Customers), Suppliers, Substitutes, and Competitors within the industry. Each of these
can exert power to drive margins down. The attractiveness of an industry depends on
how strong each of these influences is. Competitive Strategy brought together in a
rational and readily understandable manner both existing and new concepts to form a
coherent framework for analyzing the competitive environment.
The realization that he had not been focusing on choice of competitive positioning,
this work led Porter in turn to his interests in the concept of competitive advantage,
the theme of his next major book, Competitive Advantage: Creating and Sustaining
Superior Performance (1985). He sought a middle ground between the two polarized
approaches then accepted-on the one hand, that competitive advantage was achieved
by organizations adapting to their particular circumstances; and, on the other, that
competitive advantage was based on the simple principle that the more in-tune and
aware of a market a company is, the more competitive it can be (through lower prices
and increased market share). From analysis of a number of companies, he developed
generic strategies: Porter contends that there are three ways by which companies can
gain competitive advantage:

By becoming the lowest cost producer in a given market
By being a differentiated producer (offering something extra or special to

charge a premium price)
Or by being a focused producer (achieving dominance in a niche market)
Porter insisted that though the generic strategies existed, it was up to each
organization to carefully select which were most appropriate to them and at which
particular time. The generic strategies are backed by five competitive forces which
are then applied to five different kinds of industries (Fragmented, Emerging, Mature,
Declining, and Global).
Notes
To examine an organizations internal competitiveness, Porter advocates the use

of a value chain analysis of a companys internal processes and the interactions
between different elements of the organization to determine how and where value is
added. A systematic way of examining all the activities a firm performs and how they
interact is essential for analyzing the sources of competitive advantage. The value
chain disaggregates a firm into its strategically relevant activities in order to understand
the behavior of costs and the existing and potential sources of differentiation. A firm
gains competitive advantage by performing these strategically important activities
more cheaply or better than its competitors. Each of these activities can be used to
gain competitive advantage on its own or together with other strategically important
activities. Here, the concept of linkages (relationships between the way one value
activity is performed and the cost or performance of another) becomes relevant. These
linkages need not be internal they can equally well be with suppliers and customers.
Viewing every thing a company does in terms of its overall competitiveness, argues
Porter, is a crucial step to becoming more competitive.
This has led to the myth of sustainable competitive advantage. In reality, any
competitive advantage is short-lived. If a company raises its quality standards and
increases profits as a result, its competitors will follow. If a company says that it
is reengineering, its competitors will claim to be reengineering more successfully.
Businesses are quick to copy, mimic, pretend and, even, steal. The logical and
distressing conclusion is that an organization has to be continuously developing
new forms of competitive advantage. It must move on all the time. If it stands still,
competitive advantage will evaporate before its very eyes and competitors will pass.
The dangers of developing continuously are that it generates, and relies on, a
climate of uncertainty. The company also runs the risk of fighting on too many fronts.
This is often manifested in a huge number of improvement programs in various parts
of the organization which give the impression of moving forward, but are often simply
cosmetic.
Constantly evolving and developing strategy is labeled strategic innovation. The
mistake is to assume that strategic innovation calls for radical and continual major
surgery on all corporate arteries. Continuous small changes across an organization
make a difference. We did not seek to be 100 percent better at anything. We seek to
be one percent better at 100 things, says SASs Jan Carlzon.
Porter would suggest that his five forces model and SWOT allow for nonlinear
analysis, but most would agree that the overlaying of a linear mental model (selfconfirming theory) on top of any nonlinear analysis would render any such argument
questionable.
Jay Barney is often credited with popularizing an adaptation of the equilibriumbased model, called the resource view of the firm. This particular view that a firms
resources must also be analyzed and understood in developing corporate strategy
might simply be viewed as an addition to the traditional self-confirming theories.
The equilibrium-based strategic model involves a succession of steps that are
designed to keep the firm in the box or focused upon its historic competencies. Some
might argue that the use of SWOT analysis avoids this problem, since it analyzes the
firms strengths and weaknesses. That generally does not hold true, however, because
Notes
the assumption that the firms current/historic strengths will serve the company well in
the future tends to override any attempts to engage in discontinuous change.
From the early 1980s to the mid-1900s, approaches based on the equilibrium theory
repeatedly failed, and the level of dissatisfaction with this particular approach grew.
The new global competitive environment that emerged in the late 1980s demanded a
solution. TQM gained a great deal of popularity through the early 1990s, but it soon
fell far short of being a holistic solution. The generally accepted failure rate for TQM
initiatives during this period was over 80%. Failure to understand the critical role that
quality plays in corporate success can be disastrous, but TQM cannot replace strategy,
and it is wrong to believe that quality is all a company needs to be competitive. Quality
is simply the price of admission to play the game. Once in the game, it is strategy that
must drive organizational activities.
In the early 1990s, major consulting firms were overwhelmed with clients who
wanted to use process re-engineering as a solution for everything from sagging profits
to product development cycles. Like TQM, process re-engineering failed to deliver,
with a failure rate of around 70%. As a result of these failures, many people began to
suggest that the real issue was change and the usual preponderance of books soon
hit the market. However, once again, the general view was that the majority of change
initiatives added little value to the bottom line.
Discussions with a number of senior executives reveal that most people have given
up on the traditional strategic approach, which is based on mission statements and core
competencies. Interestingly, though, most of their companies still use that traditional
approach. It is important to understand that self-confirming theories of strategy remain
the most frequently used at this time, with well over 90% of all companies making use
of the approach, or of some hybrid that is based upon it. Why do people continue to use
the approach if they no longer trust it? There are a number of answers to that question.
First, most undergraduate and graduate schools still teach that approach, almost
exclusively. Second, the approach is easy to learn and understand. Third, it is
comforting, because it focuses upon what some have called self-confirming theory it
confirms that what we have done in the past is good, since we are going to continue
to do in the future what we have done in the past (i.e. our future strategy will be based
upon our historic competencies).
As early as 1989, Rosabeth Moss Kanter was pointing out, in When Giants Learn
to Dance, the problems with another historic-linear approach, which she refers to as
excellence. People tend to love the idea of excellence. It makes for a great book title,
whether it involves searching for excellence or building something to last. Alongside
these books were the 7 Things That Companies do titles, which again focused upon
excellence in practice.
Benchmarking is a variant of the excellence practice. The underlying mental model
suggests that something someone did somewhere at some point in time will work for
their firm where it is today (and tomorrow). The reality is that it might work but it might
not. Therein lies the problem with linear (simple) historic mental models.
Almost without exception, the companies featured in the excellence books
encountered problems within a few years of the books publication. This is true even for
James C. Collins and Jerry I Porras Built to Last.
As a result of the apparent failure of the self-confirming theories, strategy theorists
have searched for alternatives.
The Reality of Competitive Environments: The new competitive world has moved
from a linear (or highly predictable, somewhat simple) state to a non-linear (or
highly uncertain, complex) state. That does not mean that nothing will continue to be
predictable. It means that in the future historic relationships will most likely not be the
same as they were in the past.
Notes
In 1980, Ansoff published a paper which represented another step in the

development of practical strategic management which concerned the development
of practical tools for managing adaptation of firms to turbulent environments. The
paper, called Strategic Issue Management, presented a way of adapting a firm to the
environment, when environmental change develops so fast that strategic planning
becomes too slow to produce timely responses to surprising threats and opportunities.
From 1991 to 2001, rapid change and high levels of complexity have characterized
the global competitive environment. As the rate of environmental change accelerates,
and the level of complexity rises, the rules of the game change. Such changes mean
that the firm must change in harmony with the environment. If it does not, ultimately the
environment will eliminate it. For the company that does not change in harmony with the
environment, the result is deterioration and, perhaps, demise.
Companies are complex systems operating within complex dynamic systems. In
every case, the complexity as well as the rate of system change will be different at
different points of time. There are a number of implications for this reality.

Simple-historic or simple-linear strategy is insufficient to prepare a firm for

environments that involve varying levels of complexity and rates of change.
As a complex system, every aspect off the firm (not just its strategies) must be
balanced with the future environment if the firm is to maximize performance.
Imbalances between the firm and the environment result in diminished

performance, or in some cases, the demise of the firm.
Put simply, complex environmental systems (the competitive environment) require

complex mental models of strategy if the firm is to succeed. The use of linear mental
models in environments of varying complexity and rate of change is a prescription for
failure.
Henry Mintzberg has famously coined the term crafting strategy, whereby strategy
is created as deliberately, delicately, and dangerously as a potter making a pot. To
Mintzberg strategy is more likely to emerge, through a kind of organizational osmosis,
than be produced by a group of strategists sitting round a table believeing they can
predict the future.
Mintzberg argues that intuition is the soft underbelly of management and that
strategy has set out to provide uniformity and formality when none can be created.
Another fatal flaw in the conventional view of strategy is that it tended to separate
the skills required to develop the strategy in the first place (analytical) from those
needed to achieve its objectives in reality (practical).
Mintzberg argues the case for what he labels strategic programming. His view is
that strategy has for too long been housed in ivory towers built from corporate data and
analysis. It has become distant from reality, when to have any viable commercial life
strategy needs to become completely immersed in reality.
Notes
In an era of constant and unpredictable change, the practical usefulness of strategy

is increasingly questioned. The skeptics argue that it is all well and good to come up
with a brilliantly formulated strategy, but quite another to implement it. By the time
implementation begins, the business environment is liable to have changed and be in
the process of changing even further.
Mintzbergs most recent work is probably his most controversial. Strategy is not
the consequence of planning but the opposite: its starting point, he says countering the
carefully wrought arguments of strategists, from Igor Ansoff in the 1960s to the Boston
Consulting Group in the 1970s and Michael Porter in the 1980s. The Rise and Fall of
Strategic Planning is a masterly and painstaking deconstruction of central pillars of
management theory.
The divide between analysis and practice is patently artificial. Strategy does not stop
and start, it is a continuous process of redefinition and implementation. In his book, The
Mind of the Strategist, the Japanese strategic thinker Kenichi Ohmae says: In strategic
thinking, one first seeks a clear understanding of the particular character of each
element of a situation and then makes the fullest possible use of human brain power to
restructure the elements in the most advantageous way. Phenomena and events in the
real world do not always fit a linear model. Hence the most reliable means of dissecting
a situation into its constituent parts and reassembling them in the desired pattern is
not a step-by-step methodology such as systems analysis. Rather, it is that ultimate
nonlinear thinking tool, the human brain. True strategic thinking thus contrasts sharply
with the conventional mechanical systems approach based on linear thinking. But it also
contrasts with the approach that stakes everything on intuition, reaching conclusions
without any real breakdown or analysis.
When future could be expected to follow neat linear patterns, strategy had a clear
place in the order of things. Organizations are increasingly aware that, as they move
forward, they are not going to do so in a straight unswerving line. The important
ability now is to be able to hold on to a general direction rather than to slavishly
follow a predetermined path. Now, the neatness is being upset, new perspectives are
necessary. The new emphasis is on the process of strategy as well as the output.
Such flexibility demands a broader perspective of the organizations activities and
direction. This requires a stronger awareness of the links between strategy, change,
team-working, and learning. Strategy is as essential today as it ever was. But, equally,
understanding its full richness and complexity remains a formidable task.
Kenichi Ohmae argues that an effective strategic plan takes account of three main
players the company, the customer, and the competition each exerting their own
influence. The strategy that ignores competitive reaction is flawed; so is the strategy
that does not take into account sufficiently how the customer will react; and so, of
course, is the strategic plan that does not explore fully the organizations capacity to
implement it.
Kenichi Ohmae says that a good business strategy is one, by which a company can
gain significant ground on its competitors at an acceptable cost to itself. He believes
there are four principal ways of doing this:
1. Focus on the key factors for success (KFSs). Ohmae argues that certain
functional or operating areas within every business are more critical for
success in that particular business environment than others. If Organization
concentrate effort into these areas and their competitors do not, this is a source
of competitive advantage. The problem, of course, is identifying what these key
factors for success are.
2. Build on relative superiority. When all competitors are seeking to compete on
the KFSs, a company can exploit any differences in competitive conditions.

For example, it can make use of technology or sales networks not in direct
competition with its rivals.
Notes
3. Pursue aggressive initiatives. Frequently, the only way to win against a much
larger, entrenched competitor is to upset the competitive environment, by
undermining the value of its KFSs changing the rules of the game by
introducing new KFSs.
4. Utilizing strategic degrees of freedom. By this tautological phrase, Ohmae means
that the company can focus on innovation in areas which are untouched by
competitors.
In each of these four methods, the principal concern is to avoid doing the same
thing, on the same battle-ground, as the competition, Ohmae explains.
Kathryn Rudie Harrigans first book, Strategies for Declining Businesses focused
on declining businesses. Harrigan believes there is a life-cycle for businesses and they
need to revitalize themselves constantly to prevent decline. From declining businesses,
Harrigan moved on to the subject of vertical integration and the development of
strategies to deal with it. A central premise of the framework she developed was that,
as firms strived to increase their control over supply and distribution activities, they
also increased their ultimate strategic inflexibility (by increasing their exit barriers). In
search of more flexible approaches she carried out lengthy research into joint ventures.
Despite their boom, Harrigans research showed that between 1924 and 1985 the
average success rate for joint ventures was only 46 per cent and the average life span
a meager three and a half years. In her two books on joint ventures, Harrison argued
they will become a key element in competitive strategy. The reasons she gave for this
were: economic deregulation, technological change, increasing capital requirements in
connection with development of new products, increasing globalization of markets. She
predicted:
1. One-on-one competition will be replaced by competition among constellations
of firms that routinely venture together.
2. Teams of co-operating firms seeking each other out like favorite dancing
partners will soon replace many current industry structures where firms stand
alone.
3. To cope with these changes, managers must learn how to co-operate, as well
as compete, effectively.
Harrigans later work focused on mature businesses. Managing Maturing
Businesses (1988) examined the second half of a businesss life or, as it is more
dramatically put, the endgame. She has coined the phrase The last iceman always
makes money, which she explains as The last surviving player makes money serving
the last bit of demand, when the competitors drop away. The importance of her work
in this area was given credence by the fact that over two-thirds of the industries within
mature economies were experiencing slow growth or negative growth in demand for
their products.
Ameliorating the pain and avoiding premature death have been the motivating
factors of Harrigans work. Harrigans argument is that endgame can be highly profitable
if companies adopt a coherent strategy sufficiently early. The strategic options are:
1. Divest now the first company out usually gets the highest price; later leavers
may not get anything.
Notes
2. Last iceman focusing on customer niches which will continue long-term and
will be prepared to pay a premium.
3. Selective shrinking taking the profitable high ground and leaving the less
profitable low ground to the competitors.
4. Milking the business the last option, but none the less a practical alternative
in many situations.
1.8 Complex Systems Strategy
Complexity-based approaches or complex adaptive systems, were developed

in response to the apparent failure of equilibrium-based approaches. Complexitybased thinkers will fall into a number of different camps. The majority believe that the
environment must be understood in terms of its complexity, chaos, and ecological
constructs. This group subscribes to the Darwinian hypotheses (upward evolution of a
system) as a metaphor for the business environment. This kind of thinking has resulted
in the idea of self-organizing companies.
The complexity group falls into two categories. One might be called a pure
complexity-based group, the other a hybrid. In the case of the former, theorists
generally apply the concept of emergence to every situation. According to this group
predictive modeling is rendered useless by the chaotic nature of the environment. They
would suggest that any attempt to plan for the future is pointless.
The hybrid group also assumes that the Darwinian hypotheses may be used as a
metaphor for business systems. This particular group of thought is based upon the idea
that the firm may compete on the edge of chaos, that is in a state in which the system
is complex adaptive, but at the same time with a minimal level of predictability in the
system (Brown and Eisenhardts Competing on the Edge). This group of thinkers has
combined the emergent (complex-historic) approach with the extrapolation (simplefuture) approach
1.8.1 Emergence:
The emergence camp is divided into at least two or three distinctive groups.
Emergence-based theorists begin with the idea of complex systems and chaos theory.
Some suggest that the ability to deal with complexity on a futuristic basis is impossible.
Others suggest that it is possible to understand some aspects of futuristic systems. A
third group imposes naturalistic ecological presuppositions in its theory.
Ralph Stacey and Henry Mintzberg tend to hold to the view that it is simply not
possible to consider future complex environments. As a result they suggest that
the strategist must wait for events to occur, or emerge, then develop strategy. This
approach of incrementalism involves the after the fact development of strategy for
discontinuous events. Mintzberg suggests that, as discontinuous events occur, the firm
should dynamically craft strategy.Stacey generally agrees with Mintzberg, but in his
book Managing the Unknowable, he additionally suggests that it is possible to create
organizations that are designed to deal with ambiguity and complexity.
Others involve themselves in apparently self-defeating arguments. In The Fifth
Discipline, Peter Senge advances the idea of systems thinking and suggests that it
is possible to observe complex systems and make reliable inferences about such
systems. On the other hand, in the multi-author work The Dance of Change, he tends to
take a purely Darwinian emergence view.
The emergent or complex-historic group of strategists is by far the fastest-growing
group in the field. As those who see the failure of self-confirming theories seek
alternatives, the focus on complexity by the emergent group seems to make a lot of
sense.
Notes
1.8.2 Chaos and Complexity:

Around the mid-1950s, there had been a certain amount of investigation into the
idea of cybernetics, or the study of processes. That led some people to think about the
competitive environment in a very different way. Chaos and complexity theory were
introduced. By the early 1990s, complexity theory had taken on a life of its own. At
about the same time, the idea of systems thinking was popularized, particularly, in Peter
Senges 1990 book The Fifth Discipline.
The period was characterized by a blending of disciplines, including natural science,
social sciences, and business. A number of business theorists moved on from the
metaphor of chaos theory in business to complexity theory. Chaos theory had dealt with
the unpredictable processes that were observable in science. Those who moved on to
complexity theory added an interesting twist to the basic idea of complexity. Complex
systems thinking has to do with the fact that the global system or environment is made
up of a limitless number of other systems. Theorists hypothesize that complex systems
may behave in much the same way as the molecules in a glass of water, which interact
randomly.
1.8.3 Systems Thinking:
Another approach for dealing with complex environments is called systems thinking.
Proponents of systems thinking believe that it is possible to consider complex issues
and to make reasonable inferences about the outcomes of such complex systems.
Systems thinking has been widely discussed in corporate circles, but few companies
actually utilize the approach, especially at the senior executive level where it could
be most beneficial. Those few leaders who have the intuitive ability to think in terms of
complex systems, are and will continue to be, highly successful.
1.8.4 Darwinian Theory:
Alongside this hypothesis relating to complex systems, the idea of using Darwins
theory of evolution as a metaphor for complexity was developed. Charles Darwins
concept focused upon two ideas: first, the idea of natural selection, or the survival of
the fittest; second, the idea of evolution. His concept of evolution was based upon
the hypothesis that matter was constantly in a state of moving from a lower level of
complexity to a higher level of complexity. In his view, this accounted for the similarities
between monkeys, apes, and the different races of humans.
Scientific evidence generally refutes these particular views (along with others held
by Darwin), but Darwins hypothesis has none the less been adapted metaphorically to
complexity theory as it is applied in business. Those who subscribe to the theory say
that the evolution (from lower complexity to higher complexity) that occurs naturally
in nature must apply equally to businesses. Complexity management theorists go on
to suggest that one of the goals of every manager should be to allow the business to
emulate nature by self-organizing.
This theme is clearly revealed in Peter Senges 1999 book The Dance of Change. In
one article in the book, entitled The leadership of profound change-toward an ecology
of leadership, Senge suggests that leaders need to understand more about nature and
to manage with that in mind. The CEO, according to Senge, is not the solution to driving
meaningful change in the organization.
In most cases, the complexity-based theorists assume the Darwinian hypotheses
(upward mutation or evolution of complex natural systems) as a metaphor for
management and strategy theory. This idea is developed in what is called selforganization. It is also an integral part of the complexity theorists response to the linear
Notes
economic model referred to as equilibrium theory, which is called complex adaptive

systems theory.
The evidence clearly invalidates the Darwinian hypotheses. Complex dynamic
systems as an idea is finding support not only as a way of describing the natural
environment, but also as a reasonable metaphor for developing management and
strategy theory. This approach deals with complex systems without the prepositional
fallacies related to complex adaptive systems theory.
Shona L. Brown and Kathleen M. EisenhardtBrown and Eisenhardts book
Competing on the Edge (1998) displays their work as somewhat of a hybrid of the
complex adaptive systems approach (including the Darwinian hypotheses) and the
self-confirming schools of thought. In essence, Brown and Eisenhardt suggest that
the firm is competing in complex environments, and thus must deal with high levels
of uncertainty. Their view is that the firm is constantly in a process of changing its
competencies. There is some dissonance between their adoption of competencies and
their prescriptions for dynamic corporate strategy.
Henry Mintzberg The work of Canadian, Henry Mintzberg counters much of
the detailed rationalism of other major thinkers. He falls in the complex-historic
(emergence) category of strategists, although, unlike most in that camp, he does not
appear to have adopted the Darwinian metaphor. Mintzberg believes in incremental
responses to changes as they emerge in the environment. It is clear that he holds to the
idea of a complex environment, yet he also seems to believe that it is not possible to
anticipate or prepare proactively for discontinuous events. His views are the antitheses
of Ansoffs.
Ralph Stacey His book Managing the Unknowable (1992) was really ahead of the
curve among the work of the proponents of complex adaptive systems. Staceys work
differs from that of many of the others in that particular school, since he suggests that
companies need to prepare proactively for complexity.
1.9 Complex Dynamic Systems
The application of a Darwinian-based theory of complexity has resulted in an

alternative to the equilibrium theory of economics complex adaptive systems
which again, proposes that the economic system is characterized by progressive
upward evolution.
The positive aspect of the theory is that it turns managers toward thinking
about complex systems. There is no doubt that linear thinking (equilibrium-based
management theory) can damage a company, but the absence of scientific support
for adaptive systems (in either nature or in business) may also be problematic when
trying to build corporate strategy.
A number of people are now using the idea of complex dynamic systems as a way to
think about the competitive environment. Moving from the Darwinian presupposition of
evolution to recognition of the complex nature of the environment may present a better
opportunity for the corporate strategist.
There is currently a clear trend toward complexity-based corporate strategy.
Emerging research supports the fact that moving from a linear to a non-linear complex
mental model of the environment will help managers to lead a more profitable
organization.
C. K. Prahalad and Gary Hamel in their book Competing for the Future first
published in 1994. Their work has gone through a number of cycles, or changes.
Early on, it seemed to focus on self-confirming theories. However, they were quick
to comprehend the apparent failure of that model, and began to move more toward
a complexity-based model. In their later works they have focused on anticipating the
complex nature of the future environment. At the same time they are not proponents
of strategy based on complex adaptive systems (the Darwinian hypotheses). A very
positive aspect of their work is their emphasis on proactive strategies for dealing with
future uncertainty.
Notes
The phrase core competencies has now entered the language of management. In
laymans terms, core competencies are what a company excels at. Gary Hamel and
C K Prahalad define core competencies as the skills that enable a firm to develop a
fundamental customer benefit. They argue that strategic planning is neither radical
enough nor sufficiently long-term in perspective. Instead its aim remains incremental
improvement. In contrast, they advocate crafting strategic architecture. The
phraseology is unwieldy, but means basically that organizations should concentrate on
rewriting the rules of their industry and creating a new competitive industry.
Richard DAveni The best-known work of Richard DAveni of Dartmouth College is
Hypercompetition (1994), in which he overtly takes on the traditional self-confirming
strategic approaches. Based upon his observations of the real world, the book
concludes that the world is no longer linear, and does not reward those who use linear
approaches to create corporate strategy. In its place, he suggests, the planner needs to
consider a new approach. In assessing the new corporate world, he makes a number of
insightful observations in Hypercompetition:

Firms must destroy their competitive advantage to gain advantage.
Entry barriers work only if others respect them.
A logical approach is to be unpredictable and irrational.
Traditional long-term planning does not prepare for the short term.
Attacking competitors weaknesses can be a mistake. Traditional approaches

such as SWOT analysis may not work in a hypercompetitive environment.
Companies have to compete to win, but competing makes winning more

difficult.
DAveni builds the case for a complex environment and the need to change the
organization continually in response to the environment, then proposes an answer to
his argument about the need for a dynamic theory: the 7-S approach.

Superior stakeholder satisfaction.
Strategic soothsaying.
Positioning for speed.
Shifting the rules of the game.
Signaling strategic intent.
Simultaneous and sequential strategic thrusts
At the heart DAvenis ideas is his conclusion that companies need to be focused
upon disrupting the market. He suggests that there are three critical factors that enable
a firm to deliver sustainable disruption in the market:
1.
A vision for disruption.
2.
Capabilities for disruption (the organization).
3.
Product/market tactics used to deliver disruptions.
There are a number of similarities between the work of Ansoff and that of DAveni.
Both suggest that the environment involves some level of complexity and rate of
Notes
change. Both propose a contingency theory approach that is, the organization must
be designed to respond to the present and future environment. Both believe that
the environment of the 1990s began a new period of highly turbulent, unpredictable,
changing environments.
1.9.1 Hybrid Systems:
One of the more questionable adaptations of the various theories comes from those
who attempt to combine complex adaptive systems and equilibrium-based theory.
These theorists suggest that strategists should apply complex adaptive systems
approaches to their strategy, while at the same time developing historic (or even new)
competencies. Clearly there are problems with this combination.
Observing the global environment, and accepting the fact that there are two
environmental issues that strategists must address complexity and rate of change
it is clear that an organization must be continually changing in nonlinear terms both in
speed and in complexity. Rosabeth Moss Kanters useful idea of contingency theory
(presented in When Giants Learn to Dance) rightly suggests that the organization must
be able to respond contingently to future changes in the environment. Her approach
is similar to W. R. Ashbys requisite variety theorem explained in his Introduction to
Cybernetics.
The modified Ansoff Model is also a hybrid. On one hand, a complex dynamic
systems approach is taken. On the other, an emergence approach is viewed as part of
the firms ability to respond to discontinuous events. Then, the firm is assessed using a
complex model to determine its ability aggressively to create the future strategy the firm
needs and the responsiveness capabilities of the firm to address discontinuous events
as they emerge.
Rosabeth Moss Kanter Also from Harvard Business School, the fact that Kanter
rejects the self-confirming approach to the development of strategy in favor of
contingency design is an important underpinning of her work. She believes that the
strategist must begin with an understanding of the future environment, then contingently
design the firm around that understanding. In her book When Giants Learn to Dance
(1990), she offers seven ideas that describe managers who will be successful in the
new corporate environment:
1. They operate without the power of the might of the hierarchy behind them
(leadership vs. positional power).
2.
They can compete (internally) without undercutting competition).
3.
They must have the highest ethical standards.
4.
They possess humility.
5.
They must have a process focus.
6.
They must be multifaceted and ambidextrous (work across business units/

flexible).
7.
They must be willing to tie their rewards to their own performance.
Evan Dudik Strategic Renaissance (2000) by Evan Dudik takes a complex systems
approach to strategy by suggesting that the planner must understand the level of
uncertainty of the future environment (very similar to Ansoffs turbulence) and, at the
same time, that the firm must create a complex adaptive system (the firm itself) if it is
to deal with that uncertainty. It is clearly an excellent application of contingency theory.
Dudiks book covers all of the positives related to developing complex mental models
and is excellent in presenting contingency approaches to the development of corporate
strategy.
1.9.2 Predictive Modeling:

Predictive modeling involves a complex mental model and a futuristic (as opposed
to historic) strategic frame. Since complex-futuristic approaches involve complexity,
there are a number of types of those approaches, including some hybrids. Even though
some of the approaches are especially concerned with complexity, some tend to be less
holistic or whole-system than others.
Notes
AIS-Artificial Intelligence Simulation:

The first approach might be called or AIS, which involves the creation of a computerbased model in which key variables can be manipulated. The researcher might identify
10 independent variables that appear to drive certain outcomes (dependent variables).
In some cases it is possible to base the behaviors of the variables on statistically based
relationships. That adds power to the model. Regardless, the AIS process allows
the researcher to manipulate variables in order to develop some level of predictive
confidence in the future. In some ways, AIS can be similar to war gaming.
Scenarios and war gaming can be quite helpful in complex environments.
Scenarios: The concept of scenario planning was pioneered by oil giant Shell.
Creating one single strategic plan to be followed with military precision simply didnt
work in practice. As circumstances changed, the strategic plan also needed changing
and executives were either constantly going back to the drawing board or trying to
push through a plan that was no longer appropriate. The longer the planning horizon,
the worse the problem became. Shells answer was to make not one but a number
of sets of assumptions about the future environment. At its simplest, these would be
optimistic, pessimistic, and straightline. Any one of these scenarios could happen,
but managers now drew up plans that followed the most likely series of events, while
building in frequent evaluation points where one of the alternative scenarios could take
over. In effect, what they were doing was thinking through the implications of necessary
deviations of a plan sufficiently far ahead to be able to implement them at minimum cost
and effort.
Scenarios are classified as complex-future models (predictive modeling) and they
have been successfully used for the development of strategy for complex environments
for a number of years. Scenarios involve the analysis of future driving forces in an
environment and the consideration of a range of possible outcomes.. Scenarios tend to
focus on a very narrow area of the future, but ideally will attempt to account for driving
forces, or independent variables that could have an impact upon the area being studied.
Scenarios have two purposes: first, a multiple scenario (i.e. three or four possible
scenarios about a specific issue) can provide a complex systems overview of an issue;
second, they can be extremely helpful in driving organizational learning.
A number of comments have been made regarding driving organizational learning
and managing resistance to change. It is important to remember that dissonant data
(information that indicates that the future environment will shift, and that the rules of the
game will change) is more often rejected by senior managers than accepted. Managing
such resistance (which can be measured using the modified Ansoff model) is quite
important from a profit standpoint.
One of the keys to anticipating future turbulence environments is to ensure that
the firm has the level of adaptiveness required for the level of future turbulence. In
turbulence levels above 3.0, there is a growing expectation of discontinuous or surprise
events. As the turbulence level rises, the ability of the firm to reactively transform
is clearly a profit issue. The higher the level of environmental speed and complexity,
the higher the negative profit impact if the organization has low levels of adaptive
Notes
capabilities. As research by Dawn Kelly and Terry Amburgey reveals, internal resistance
to change slows the organizational response to discontinuous events.
War gaming: War gaming is a good way of preparing for complex futures. War
gaming is somewhat similar to using scenarios. There are a number of ways of doing
it, but it generally involves the gathering of competitor information prior to beginning
the exercise. The information might cover the predisposition or probable behavior of
different competitors. Some might use a five forces analysis and a SWOT analysis (of
each competitor). A modified Ansoff strategic profile of each competitor can be a most
valuable tool.
Wargaming is a dynamic simulation of real business situations. It allows top decision
makers to gain experience and insight into shaping their strategic decisions. With this
tool, managers can test their strategies without risk and at low cost. They therefore
learn how to move in the right direction.
War gaming involves the organization dividing its managers into teams, which take
on the role of competitors. The competitors simulate a battle. The game is played in
terms of successive strategies created by each team. The exercise facilitator creates
ways for the competitors to play out their strategy, based upon the research about the
competitor that they were given. In some cases, the senior executives of the client
firm will take on the role of strategists for their own firm, while their management team
will play the roles of their competitors. This can be an extremely revealing exercise,
especially when the third or fourth passes or battles are completed.
In many ways the value of war gaming, as with scenarios, is that of organizational
learning. War gaming can help internal managers to change their mental models of
the competitive environment as well as their perceptions of competitors most probable
behaviors. One word of caution: there is nothing more boring than a poorly conceived
war game, and the services of external facilitators are recommended; make sure that
the facilitators selected are at the cutting edge in their field. Those that revert to simple
(non complexity-based) approaches, such as SWOT alone, should be avoided
-Evolution of Strategic Management
Summary

Strategic management is defined as the set of decisions and actions resulting in the
formulation and implementation of strategies designed to achieve the objectives of
the organization
Strategic management is a wide concept and encompasses all functions and thus it
seeks to integrate the knowledge and experience gained in various functional areas
of management.
It enables one to understand and make sense of the complex interaction that takes
place between different functional areas.
There are many constraints and complexities, which the Strategic management
deals with. In order to develop a theoretical structure of its own, Strategic
management cuts across the narrow functional boundaries. This in turn helps to
create an understanding of how policies are formulated and also creating a solution
of the complexities of the environment that the senior management faces in policy
formulation.
Notes
Check Your Progress

1. The purpose of strategy is to provide-a) The strategic direction for an organisation in the foreseeable future.
b) Direction and scope of an organisation over the long-term, which achieves
advantage for an organisation within a changing environment to meet the
needs of markets.
c) Direction and scope of an organisation over the long-term, which achieves
advantage in a changing environment through its configuration of resources
and competences with the aim of fulfilling stakeholder expectations.
d) A set of standards which all employees in an organization should strive to
attain.
2. The competencies or skills that a firm employs to transform inputs into outputs are:
a) Tangible resources.
b) Intangible resources.
c) Organizational capabilities.
d) Reputational resources.
3. Which one of the following is not an aspect of profit or contribution arising from a
change in strategy?
a) Growth aspect
b) Usage (or productivity) aspect
c) Price aspect
d) Effectiveness aspect
4. Which statement is CORRECT about strategic-management process?
a) It occurs once a year
b) It is a continuous process
Notes
c) It applies mostly to large business

d) It applies mostly to small businesses
5. A desired future state that the organization attempts to realize. Identify the term
relevant to the given statement.
a) Goal
b) Strategy
c) Policy
d) Procedure
6. The Strategic Management as an academic discipline is-a) An isolated discipline from the rest of the business functions.
b) A discipline which integrates or combines all the courses related to the rest of
the business functions.
c) A discipline which is not practically used in the business world.
d) A philosophical doctrine.
7. Which management function includes breaking tasks into jobs, combining jobs to
form departments and delegating authority?
a) Motivating
b) Staffing
c) Organizing
d) Planning
8. Which of the following is the benefit of strategic management?
a) Fewer complexes
b) More complex
c) Less static
d) More profitable
9. Which of the following period strategic management was considered to be cure for
all problems?
a) Mid 1950s to mid-1960s
b) Mid 1960s to mid-1970s
c) Mid 1970s to mid-1980s
d) Mid 1980s to mid-1990s

Questions & Exercises
1. Briefly define how you will use different types of resources to implement
strategy in order to achieve objectives?
Notes
2. How Strategic management has evolved into a vital tool for management?
Explain its development
3. Define strategy and what is the difference between a strategy and a plan?
4. Explain the importance of strategic management in building an organizations
growth.
5. Explain the history of strategy management.
For Further Readings
1. Exploring Corporate Strategy: Gerry Jhonson, Kevan Scholes
2. Pearce John A & Robinson R B, 1977, Strategic Management : Strategy
Formulation and Implementation, 3rd Ed., A.I.T.B.S. Publishers & Distributors.
3. Aaker David Strategic Market Management, 5th Ed., John Wiley and sons
4. Regular reading of all latest Business Journals : HBR, Strategist, Busienss
World, Business India, Business Today.
5. Porter Michael, Competitive Advantage: Creating and sustaining superior
performance, Free press.
6. Thomson & Strickla d, Business policy and Strategic management, 12th Ed.,
PHI.
7. Munjal, A. Cases and readings in Strategic Management, ABS Handbook.
Case Study
From good to great: world-class innovation in consumer electronics
By streamlining and extending the innovation process, a consumer electronics giant
develops pipeline of breakthrough products
Challenge
A leading consumer electronics company had enjoyed impressive growth over the
last decade by excelling as a fast follower. But the company recognized that future
success would require becoming the leading innovator in the industry.
We worked with the client to diagnose its needs. Historically, innovation had been
led by technology teams in the business units (BU); marketing and sales groups
were brought in later to help execute. As a result, cross-BU collaboration was stifled,
innovation processes were inconsistent and often sub-standard and the process yielded
only incremental improvements rather than breakthrough innovations.
We helped the client develop a multi-year transformation plan. It included specific
goals for margins and profits and laid out a clear, detailed vision to become the leading
innovator of consumer electronics.
32
Notes
Discovery
Working closely with top management, we analyzed the companys innovation
fingerprintthat is, its performance relative to its peers on critical dimensions such
as process, organization, and culture. Based on the companys aspiration to lead the
industry, we analyzed current strengths and weaknesses and developed a blueprint
with five intersecting pieces:

Setting an aspiration and strategy
Discovering actionable market insight
Embedding new innovation processes
Mobilizing the organization
Extending open innovation networks
Setting an aspiration and strategy

It was essential that the entire organization understand and support the new
innovation imperative. The CEO also wanted innovation to complement the other pillars
of its corporate strategy: globalization, go-to-market excellence and brand repositioning.
We worked closely with the CEO to craft a stream of communication and employee
interactions for every level of the organization. Simple, clear messages conveyed
the need for change and how success would be defined and measured. These
messages were syndicated with senior executives, and then cascaded throughout
the organization using several innovative channels including a CEO blog and internal
bulletins.
Discovering actionable market insight
Putting the consumer at the heart of the new approach to innovation was critical.
The CEO wanted the company to pay closer attention to what consumers were saying
(and not saying) about its products. Consumer data were analyzed to detect and exploit
disruptive shifts in consumer preferences. These new insights were then used to
develop new products, services, and business models.
Embedding new innovation processes
We helped redesign and streamline the innovation process from the bottom up,
so that it became easier to move winning ideas along quickly, and to winnow out the
less promising. We also piloted a new way to create breakthrough innovation based
on McKinseys proprietary Insights to Action approach. Pilot teams prototyped the new
process, from defining the strategic where to play choices, to conducting ethnographic
research, to developing and presenting business cases for the best ideas to a senior
executive team. This process was refined and then rolled out to innovation teams
across the company, who then used it to develop a robust pipeline of new electronics
products.
Mobilizing the organization
To sustain the new process, we helped the client rethink its organizational structure,
including integrating innovation planning and investment into core processes, and
introducing regular innovation reviews with the CEO. We established a central lean
team to:

Support innovation in both the corporate center and the businesses
Ensure consistent processes
Facilitate sharing across groups
Provide coaching to teams in bus
33
Critically, this central team also played a role as an internal incubator, and quickly
helped some of the businesses rise above their daily operations, creating five crossfunctional teams to support the goal of innovating as part of daily work. We also helped
design performance indicators so that the company would know when the new system
was working and when mid-course corrections were needed.
Notes
Extending open innovation networks

To ensure that the company incorporated a broad range of thinking, we set up
an open innovation network to tap into new and promising ideas from the venture
community this included a strategic venture investment group with offices in Israel and
Silicon Valley. We also launched a global business plan competition, which received
more than 4,000 business concepts from across the enterprise. The competition
helped to generate and identify new ideas, and reinforced the importance of innovation
throughout the company.
Impact
The company now has a pipeline that includes ten breakthrough products in
development. Several have the potential to reach $1 billion in sales soon after launch,
an aspiration that has become a commitment to investors. The company has rolled
out its new innovation process to all its labs worldwide. And its new incubator team,
charged with collecting and generating insights, is now leading a strategic process to
manage its investments in innovation.
34
Unit-II : Process and Patterns of Strategy

Development
Notes
Structure
2.1 Strategic Management Process

2.2 Environmental Scanning Internal & External Analysis of Environment
2.3 Strategy Formulation
2.4 Strategy Implementation
2.5 Strategy Evaluation

2.5.1 The Process of Strategy Evaluation
2.6 Benefits of Strategic Management

2.6.1 Financial Benefits
2.6.2 Non Financial Benefits
2.7 Limitations of Strategic Management

2.8 Patterns of Strategic Development

2.8.1 Incremental Strategy Development
2.8.2 Intended and Realized Strategies
2.8.3 Emergent, Opportunistic and Imposed Strategies
2.9 Elements of Strategic Decision Making Process

2.10 Paradigm and Risk of Strategic Drift
2.11 Summary
Objectives

To understand the process of strategy management and patterns of strategy

development
To assess the competitors and set goals and strategies to meet all existing and
potential competitors
To decipher each and every component of strategic management process in

detail
To understand different facets of strategic decision making process.
Strategic management is an ongoing process that assesses the business and the
industries in which the company is involved; assesses its competitors and sets goals
and strategies to meet all existing and potential competitors; and then reassesses each
strategy annually or quarterly [i.e. regularly] to determine how it has been implemented
- Lamb 1984
2.1 Strategic Management-Process
The strategic management process means defining the organizations strategy. It is

also defined as the process by which managers make a choice of a set of strategies
for the organization that will enable it to achieve better performance. Strategic
management is a continuous process that appraises the business and industries in
which the organization is involved; appraises its competitors; and fixes goals to meet
35
all the present and future competitors and then reassesses each strategy. Strategic
management process has following four steps:
Notes
1. Environmental Scanning- Environmental scanning refers to a process of

collecting, scrutinizing and providing information for strategic purposes. It helps
in analyzing the internal and external factors influencing an organization. After
executing the environmental analysis process, management should evaluate it
on a continuous basis and strive to improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding best
course of action for accomplishing organizational objectives and hence
achieving organizational purpose. After conducting environment scanning,
managers formulate corporate, business and functional strategies.
3. Strategy Implementation- Strategy implementation implies making the
strategy work as intended or putting the organizations chosen strategy into
action. Strategy implementation includes designing the organizations structure,
distributing resources, developing decision making process, and managing
human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy
management process. The key strategy evaluation activities are: appraising
internal and external factors that are the root of present strategies, measuring
performance, and taking remedial / corrective actions. Evaluation makes
sure that the organizational strategy as well as its implementation meets the
organizational objectives.
These components are steps that are carried, in chronological order, when creating
a new strategic management plan. Present businesses that have already created a
strategic management plan will revert to these steps as per the situations requirement,
so as to make essential changes.
Exhibit 2.1-Components of Strategic Management Process

Strategic management is an ongoing process. Therefore, it must be realized that
each component interacts with the other components and that this interaction often
happens in chorus.
2.2 Environmental Scanning - Internal & External Analysis of

Environment
Organizational environment consists of both external and internal factors.
Environment must be scanned so as to determine development and forecasts of factors
that will influence organizational success. Environmental scanning refers to possession
and utilization of information about occasions, patterns, trends, and relationships within
an organizations internal and external environment. It helps the managers to decide
the future path of the organization. Scanning must identify the threats and opportunities
existing in the environment. While strategy formulation, an organization must take
advantage of the opportunities and minimize the threats. A threat for one organization
may be an opportunity for another.
36
Notes
In simple, Environmental Scanning can be defined as Careful, diligent monitoring of

an organizations internal and external environments. It amounts to detect early signs
of opportunities and threats that may influence the organizations current and future
plans.
Internal analysis of the environment is the first step of environment scanning.
Organizations should observe the internal organizational environment. This includes
employee interaction with other employees, employee interaction with management,
manager interaction with other managers, and management interaction with
shareholders, access to natural resources, brand awareness, organizational structure,
main staff, operational potential, etc.
Also, discussions, interviews, and surveys can be used to assess the internal
environment. Analysis of internal environment helps in identifying strengths and
weaknesses of an organization.
As business becomes more competitive, and there are rapid changes in the external
environment, information from external environment adds crucial elements to the
effectiveness of long-term plans. As environment is dynamic, it becomes essential to
identify competitors moves and actions. Organizations have also to update the core
competencies and internal environment as per external environment. Environmental
factors are infinite, hence, organization should be agile and vigile to accept and adjust
to the environmental changes. For instance - Monitoring might indicate that an original
forecast of the prices of the raw materials that are involved in the product are no more
credible, which could imply the requirement for more focused scanning, forecasting and
analysis to create a more trustworthy prediction about the input costs.
In a similar manner, there can be changes in factors such as competitors activities,
technology, market tastes and preferences.
While in External Analysis, three correlated environment should be studied and
analyzed

Immediate / industry environment
National environment
Broader socio-economic environment / macro-environment
Examining the industry environment needs an appraisal of the competitive

structure of the organizations industry, including the competitive position of a
particular organization and its main rivals. Also, an assessment of the nature, stage,
dynamics and history of the industry is essential. It also implies evaluating the effect
of globalization on competition within the industry. Analyzing the national environment
needs an appraisal of whether the national framework helps in achieving competitive
advantage in the globalized environment. Analysis of macro-environment includes
exploring macro-economic, social, government, legal, technological and international
factors that may influence the environment. The analysis of organizations external
environment reveals opportunities and threats for an organization.
Strategic managers must not only recognize the present state of the environment
and their industry but also be able to predict its future positions.
2.3 Strategy Formulation
Strategy formation creates strategy, designing new businesses and organizations

to carry out those businesses. Formation involves exploration, the search for new
37
advantages and business possibilities. Strategy formation creates a theory of business

and its accompanying hypotheses. Strategy formation, or creation, is an aspect of
strategic management.
Notes
Strategy formulation refers to the process of choosing the most appropriate course
of action for the realization of organizational goals and objectives and thereby achieving
the organizational vision. The process of strategy formulation basically involves six
main steps. Though these steps do not follow a rigid chronological order, however they
are very rational and can be easily followed in this order.
1. Setting Organizations objectives - The key component of any strategy statement
is to set the long-term objectives of the organization. It is known that strategy is
generally a medium for realization of organizational objectives. Objectives stress
the state of being there whereas Strategy stresses upon the process of reaching
there. Strategy includes both the fixation of objectives as well the medium to be
used to realize those objectives. Thus, strategy is a wider term which believes in
the manner of deployment of resources so as to achieve the objectives.
While fixing the organizational objectives, it is essential that the factors which
influence the selection of objectives must be analyzed before the selection of
objectives. Once the objectives and the factors influencing strategic decisions have
been determined, it is easy to take strategic decisions.
2. Evaluating the Organizational Environment - The next step is to evaluate the
general economic and industrial environment in which the organization operates.
This includes a review of the organizations competitive position. It is essential to
conduct a qualitative and quantitative review of an organizations existing product
line. The purpose of such a review is to make sure that the factors important for
competitive success in the market can be discovered so that the management can
identify their own strengths and weaknesses as well as their competitors strengths
and weaknesses.
After identifying its strengths and weaknesses, an organization must keep a track of
competitors moves and actions so as to discover probable opportunities & threats to its
market or supply sources.
3. Setting Quantitative Targets - In this step, an organization must practically fix the
quantitative target values for some of the organizational objectives. The idea behind
this is to compare with long term customers, so as to evaluate the contribution that
might be made by various product zones or operating departments.
4. Aiming in context with the divisional plans - In this step, the contributions
made by each department or division or product category within the organization is
identified and accordingly strategic planning is done for each sub-unit. This requires
a careful analysis of macroeconomic trends.
5. Performance Analysis - Performance analysis includes discovering and analyzing
the gap between the planned or desired performance. A critical evaluation of the
organizations past performance, present condition and the desired future conditions
must be done by the organization. This critical evaluation identifies the degree of
gap that persists between the actual reality and the long-term aspirations of the
organization. An attempt is made by the organization to estimate its probable future
condition if the current trends persist.
6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The
best course of action is actually chosen after considering organizational goals,
38
organizational strengths, potential and limitations as well as the external

opportunities.
Notes
2.4 Strategy Implementation
Strategic implementation put simply is the process that puts plans and strategies
into action to reach goals. A strategic plan is a written document that lays out the plans
of the business to reach goals, but will sit forgotten without strategic implementation.
The implementation makes the companys plans happen.
Strategy implementation is the translation of chosen strategy into organizational
action so as to achieve strategic goals and objectives. Strategy implementation is
also defined as the manner in which an organization should develop, utilize, and
amalgamate organizational structure, control systems, and culture to follow strategies
that lead to competitive advantage and a better performance. Organizational structure
allocates special value developing tasks and roles to the employees and states how
these tasks and roles can be correlated so as maximize efficiency, quality, and
customer satisfaction-the pillars of competitive advantage. But, organizational structure
is not sufficient in itself to motivate the employees.
An organizational control system is also required. This control system equips
managers with motivational incentives for employees as well as feedback on
employees and organizational performance. Organizational culture refers to the
specialized collection of values, attitudes, norms and beliefs shared by organizational
members and groups.
Following are the main steps in implementing a strategy:

Developing an organization having potential of carrying out strategy

successfully.
Disbursement of abundant resources to strategy-essential activities.
Creating strategy-encouraging policies.
Employing best policies and programs for constant improvement.
Linking reward structure to accomplishment of results.
Making use of strategic leadership.
Excellently formulated strategies will fail if they are not properly implemented. Also, it
is essential to note that strategy implementation is not possible unless there is stability
between strategy and each organizational dimension such as organizational structure,
reward structure, resource-allocation process, etc.
Strategy implementation poses a threat to many managers and employees in an
organization. New power relationships are predicted and achieved. New groups (formal
as well as informal) are formed whose values, attitudes, beliefs and concerns may not
be known. With the change in power and status roles, the managers and employees
may employ confrontation behaviour.
Strategy Formulation vs Strategy Implementation
S.No
Strategy Formulation
Strategy Implementation
Strategy Formulation includes

planning and decisionmaking involved in developing
organizations strategic goals and
plans.
Strategy Implementation involves all

those means related to executing the
strategic plans.
39
Strategy Formulation is placing the

Forces before the action.
Strategy Implementation is managing

forces during the action.
Strategy Formulation is an
Entrepreneurial Activity based on
strategic decision-making.
Strategic Implementation is mainly an

Administrative Task based on strategic
and operational decisions.
Strategy Formulation emphasizes

on effectiveness.
Strategy Implementation emphasizes

on efficiency.
Strategy Formulation is a rational

process.
Strategy Implementation is basically an

operational process.
Strategy Formulation requires coordination among few individuals.
Strategy Implementation requires coordination among many individuals.
Strategy Formulation requires a

great deal of initiative and logical
skills.
Strategy Implementation requires

specific motivational and leadership
traits.
Strategic Formulation precedes

Strategy Implementation.
Strategy Implementation follows

Strategy Formulation.
Notes
Exhibit:2.2-Difference between Strategy Formulation and Strategy Implementation
2.5 Strategy Evaluation
Strategy Evaluation is as significant as strategy formulation because it throws light

on the efficiency and effectiveness of the comprehensive plans in achieving the desired
results. The managers can also assess the appropriateness of the current strategy in
todays dynamic world with socio-economic, political and technological innovations.
Strategic Evaluation is the final phase of strategic management.
The significance of strategy evaluation lies in its capacity to co-ordinate the task
performed by managers, groups, departments etc, through control of performance.
Strategic Evaluation is significant because of various factors such as - developing
inputs for new strategic planning, the urge for feedback, appraisal and reward,
development of the strategic management process, judging the validity of strategic
choice etc.
2.5.1 The process of Strategy Evaluation
1. Fixing benchmark of performance- While fixing the benchmark, strategists
encounter questions such as - what benchmarks to set, how to set them and how
to express them. In order to determine the benchmark performance to be set, it is
essential to discover the special requirements for performing the main task. The
performance indicator that best identify and express the special requirements
might then be determined to be used for evaluation. The organization can use both
quantitative and qualitative criteria for comprehensive assessment of performance.
Quantitative criteria includes determination of net profit, ROI, earning per share,
cost of production, rate of employee turnover etc. Among the Qualitative factors
are subjective evaluation of factors such as - skills and competencies, risk taking
potential, flexibility etc.
2. Measurement of performance- The standard performance is a bench mark with
which the actual performance is to be compared. The reporting and communication
system help in measuring the performance. If appropriate means are available
for measuring the performance and if the standards are set in the right manner,
strategy evaluation becomes easier. But various factors such as managers
contribution are difficult to measure. Similarly divisional performance is sometimes
difficult to measure as compared to individual performance. Thus, variable
40
Notes
objectives must be created against which measurement of performance can be

done. The measurement must be done at right time else evaluation will not meet its
purpose. For measuring the performance, financial statements like - balance sheet,
profit and loss account must be prepared on an annual basis.
3. Analyzing Variance- While measuring the actual performance and comparing it
with standard performance there may be variances which must be analyzed. The
strategists must mention the degree of tolerance limits between which the variance
between actual and standard performance may be accepted. The positive deviation
indicates a better performance but it is quite unusual exceeding the target always.
The negative deviation is an issue of concern because it indicates a shortfall
in performance. Thus in this case the strategists must discover the causes of
deviation and must take corrective action to overcome it.
4. Taking Corrective Action- Once the deviation in performance is identified, it
is essential to plan for a corrective action. If the performance is consistently less
than the desired performance, the strategists must carry a detailed analysis of
the factors responsible for such performance. If the strategists discover that the
organizational potential does not match with the performance requirements, then
the standards must be lowered. Another rare and drastic corrective action is
reformulating the strategy which requires going back to the process of strategic
management, reframing of plans according to new resource allocation trend and
consequent means going to the beginning point of strategic management process.
2.6 Benefits of Strategic Management
There are many benefits of strategic management and they include identification,
prioritization, and exploration of opportunities. For instance, newer products, newer
markets, and newer forays into business lines are only possible if firms indulge in
strategic planning. Next, strategic management allows firms to take an objective view
of the activities being done by it and do a cost benefit analysis as to whether the firm is
profitable.
Just to differentiate, by this, we do not mean the financial benefits alone (which
would be discussed below) but also the assessment of profitability that has to do with
evaluating whether the business is strategically aligned to its goals and priorities.
The key point to be noted here is that strategic management allows a firm to orient
itself to its market and consumers and ensure that it is actualizing the right strategy.
2.6.1 Financial Benefits
It has been shown in many studies that firms that engage in strategic management
are more profitable and successful than those that do not have the benefit of strategic
planning and strategic management. When firms engage in forward looking planning
and careful evaluation of their priorities, they have control over the future, which is
necessary in the fast changing business landscape of the 21st century. It has been
estimated that more than 100,000 businesses fail in the US every year and most of
these failures are to do with a lack of strategic focus and strategic direction. Further,
high performing firms tend to make more informed decisions because they have
considered both the short term and long-term consequences and hence, have oriented
their strategies accordingly. In contrast, firms that do not engage themselves in
meaningful strategic planning are often bogged down by internal problems and lack of
focus that leads to failure.
2.6.2 Non-Financial Benefits
The section above discussed some of the tangible benefits of strategic
management. Apart from these benefits, firms that engage in strategic management
41
are more aware of the external threats, an improved understanding of competitor

strengths and weaknesses and increased employee productivity. They also have
lesser resistance to change and a clear understanding of the link between performance
and rewards. The key aspect of strategic management is that the problem solving
and problem preventing capabilities of the firms are enhanced through strategic
management. Strategic management is essential as it helps firms to rationalize change
and actualize change and communicate the need to change better to its employees.
Finally, strategic management helps in bringing order and discipline to the activities of
the firm in its both internal processes and external activities.
Notes
Closing Thoughts
In recent years, virtually all firms have realized the importance of strategic
management. However, the key difference between those who succeed and those who
fail is that the way in which strategic management is done and strategic planning is
carried out makes the difference between success and failure. Of course, there are
still firms that do not engage in strategic planning or where the planners do not receive
the support from management. These firms ought to realize the benefits of strategic
management and ensure their longer-term viability and success in the marketplace.
2.7 Limitations of Strategic Management
In 2000, Gary Hamel coined the term strategic convergence to explain the limited
scope of the strategies being used by rivals in greatly differing circumstances. He
lamented that successful strategies are imitated by firms that do not understand that for
a strategy for the specifics of each situation.
But in the world where strategies must be implemented, the three elements are
interdependent. Means are as likely to determine ends as ends are to determine
means. The objectives that an organization might wish to pursue are limited by the
range of feasible approaches to implementation. (There will usually be only a small
number of approaches that will not only be technically and administratively possible, but
also satisfactory to the full range of organizational stakeholders.) In turn, the range of
feasible implementation approaches is determined by the availability of resources.
Another critique of strategic management is that it can overly constrain managerial
discretion in a dynamic environment.
How can individuals, organizations and societies cope as well as possible with ...
issues too complex to be fully understood, given the fact that actions initiated on the
basis of inadequate understanding may lead to significant regret?
Some theorists insist on an iterative approach, considering in turn objectives,
implementation and resources.i.e;
A...repetitive learning cycle [rather than] a linear progression towards a clearly
defined final destination
Strategies must be able to adjust during implementation because humans rarely
can proceed satisfactorily except by learning from experience; and modest probes,
serially modified on the basis of feedback, usually are the best method for such
learning.
Woodhouse and Collins claim that the essence of being strategic lies in a capacity
for intelligent trial-and error rather than strict adherence to finely-honed strategic
plans. Strategy should be seen as laying out the general path rather than precise steps.
42
Notes
2.8 Patterns of Strategy Development
Since strategy is about the long-term direction of an Organization, it is typically

thought of in terms of major decisions about the future. However, it would be a mistake
to conceive of Organizational strategy as necessarily developing through one-off
major changes. The strategic development of Organizations is better described and
understood in terms of continuity. There is a tendency towards momentum of strategy:
once as Organization has adopted a particular strategy then it tends to develop from
and within that strategy, rather than fundamentally changing direction.
2.8.1 Incremental Strategy Development
Henry Mintzbergs historical studies of Organizations over many decades showed
that global or transformational change did take place but was infrequent. More
typically, Organizations changed incrementally, during which times strategies formed
gradually; or though piecemeal change, during which times some strategies changed
and others remained constant; there were periods of continuity, in which established
strategy remained unchanged; and also periods of flux, in which strategies did change
but in no very clear direction.
One strategic move - an acquisition, product launch, or significant investment
decision perhaps - may well grow out of the existing mainstream strategy, which in
itself gradually changes. Such moves may over time form an overall strategic approach
of the firm, so that as time goes on each decision taken is informed by this emerging
strategy and, in turn, reinforces it. Over time, this process could, of course, lead to a
quite significant shift in strategy, but gradually.
In many respects such gradual change makes a lot of sense, and arguably
managers should seek to manage strategy so that it is achieved. No Organization
could function efficiently if it were to undergo frequent major revisions of strategy; and,
in any case, it is unlikely that the environment will change so rapidly that this would
be necessary. Incremental change might therefore be seen as an adaptive process
in a continually changing environment; indeed, this is the view held by some writers
on the management of strategy and by many managers themselves. There are,
however, dangers here. Environmental change may not always be gradually enough
for incremental change to keep pace: if such incremental strategic change lags behind
environmental change, the Organization may get out of line with its environment, and in
time may need more fundamental strategic change to occur. Mintzbergs work seems
to suggest that this is so: transformational change tends to occur at times of crisis in
Organizations, typically when performance has declined significantly.
2.8.2 Intended and Realized strategies
Conceiving of Organizations strategies in terms of such patterns of change means
it is important to be careful about just what is meant by strategy. Typically, strategy is
written about as though it is developed by managers in an intended, planned fashion.
Strategy is conceived of as being formulated, perhaps through some planning process,
resulting in a clear expression of strategic direction, the implementation of which is also
planned in terms of resource allocation, structure, and so on. The strategy then comes
about, or is realized in actuality. In this way, strategy is conceived of as a deliberate,
systematic process of development and implementation (route 1 in Exhibit2.3). This is
broadly the framework adopted in this book because it is a convenient way of thinking
through the issues relating to strategy. However, it does not necessarily explain how
strategies are actually realized. It has to be said that such evidence as exists about
the effectiveness of planning systems suggests that in many Organizations that have
them, and which attempt to formulate strategies in such systematic ways, the intended
strategies do not become realized; or only part of what is intended comes about. In
effect, much of what is intended follows route 2 in Exhibit 2.3 and becomes unrealized:
that is, statements of strategy which do not come about in practice.
43
Notes
Exhibit2.3: Strategy Development Routes

2.8.3 Emergent, Opportunistic, and Imposed Strategies
The fact that a planned, intended strategy does not come about, does not
necessarily mean that the Organization has no strategy at all. If strategy is regarded
as the direction of the Organization, which develops over time, then it can also be
conceived as an emergent process (route 3 in Exhibit2.3). It should also be pointed out
that, despite the existence of a stated, intended strategy which appears to have come
about through a planning mechanism, strategy development may still be of an emergent
nature. For example, the planning process may perform the role of monitoring the
progress or efficiency of an emergent strategy. On the other hand, it may do little more
than pull together the views and wisdom of management or industry experts which
have been built up over time. Indeed, it is a frequent complaint of chief executives that
their planning systems seem to have degenerated into little more than rather routinized
elaborations of where the Organization has come from, and the received wisdom which
has been built up in it. This is, in effect, route 4 in Exhibit2.3. It can be dangerous
because the firm appears to be taking a proactive, systematic approach to strategy
development, and this may mask a somewhat complacent view of the situation the
Organization is in.
Strategies may also come about in opportunistic ways (route 5 in Exhibit2.3). For
example, as changes occur in the environment, or new skills are recognized, these
may be taken advantage of in an opportunistic manner. Indeed, a firm may be set up
in the first place because an entrepreneur sees an opportunity in the market; and the
likelihood is that, if the initial strategic approach of that firm is successful, that strategy
will persist for some time. On the other hand, a long-established firm may enter a
new market sector because of an opportunistic acquisition, for example. This is not to
suggest that such opportunistic developments are always wise, but they do occur, and
can lead to changes in the realized strategy of an Organization.
Finally strategy may be imposed (route 6 in Exhibit2.3). A strategy of retrenchment,
with divestments and the cutting of costs, may be forced by recession or a threatened
take-over. Developments of new products may be forced by the obsolescence of
existing products. Government action may have a direct impact on Organizational
strategy; for example, in the public sector; or by privatization of public utilities or stateowned organizations, as has happened most dramatically in recent years in eastern
Europe. Again such pressure may be dealt with through planning mechanisms within
the Organization; or it may be handled through some other mechanism, such as
individual decision making by senior executives. In any event, such imposed strategy
development can result in significant long-term changes for an Organization.
44
Notes
2.9 Elements of Strategic Decision-making Process
There are four stages which can be discerned in decision processes. These are
represented in Exhibit2.4
1. Issue awareness: the recognition that something is amiss, that a state of affairs
exists which needs remedying, or that an opportunity exists for development.
2. Issue formulation: the collection of information about, and examination of the
circumstances of, the issue and the formulation of an organsiational view about it.
3. The development of solutions: the generation of possible solutions.
4. The selection of a solution: the means by which a decision about what is to be done
is reached.
Exhibit2.4: Phases of strategic decision making

The awareness of a strategic issue typically occurs at an individual or small group
level. This is not likely to be an analytical process; rather people get a gut feeling
based on their previous experience. These people may not be managers - they are
likely to be those in most direct contact with whatever stimulates awareness, perhaps
sales staff dealing with customers. This awareness will develop through a period
of incubation in which various stimuli build up a picture of the extent to which an
Organizations circumstances deviate from what is normally to be expected. These
stimuli are likely to be related to internal performance measures such as turnover or
profit performance; customer reaction to the quality and price of service or products;
and changes in the environment, in terms of competitive action, technological change,
and economic conditions.
The importance of the individuals role in problem recognition needs to be
emphasized. There is evidence to suggest that successful business performance is
associated with managements capability in sensing its environment. This does not
necessarily mean that the company has complex or sophisticated means of achieving
this, but rather that people in the Organization - not only managers - respond to or take
into account a wide range of influences.
This accumulation of stimuli eventually reaches a point where the presence of
a problem cannot be ignored and requires an organizational response. Typically, this
triggering point is reached when the formal information systems of the Organization
begin to highlight the problem; perhaps a variance against budget becomes undeniable
or a number of sales areas consistently report dropping sales. At this stage, however,
issues may still be ill defined.
45
Issue formulation involves a number of processes. Information gathering is likely to

take place, but not necessarily in a highly structured, objective manner. Information is
sought and gathered on a verbal and informal basis, particularly among more senior
management. This may, of course, be supplemented through more formal analysis.
However, the rationalization of information so as to clarify the situation is a process
which draws heavily on existing managerial experience. Indeed, the role of information
generated from more formalized environmental analysis in this process is often to postrationalize or legitimize managers emerging views of the situation.
Notes
The resolution (or definition) of what constitutes the nature of the issue may prove
difficult. Overall, formal analysis appears to play much less of a role than is suggested
in some management texts. Through debate and discussion, there will probably be an
attempt to reach an Organizational view or consensus on the problem to be tackled.
The emerging view will therefore take shape in terms of both individual and collective
experience, and different views will be resolved through social and political processes.
It may also be that these processes of issue formulation could trigger a different
problem, so the process tends to be interactive.
In developing solutions, managers search for ready-made solutions through memory
search, in which the manager seeks for known, existing, or tried solutions; or passive
search, which means waiting for possible solutions to be thrown up. It is likely that
there will be a number of these searches in which managers draw on what they have
experienced and tried in the past before there is an attempt to design a solution; that
is, to custom-build a strategy to handle the problem at hand. In either search or design
the process of choice tends to be iterative. Managers begin with a rather vague idea
of a possible solution and gradually refine it by recycling it through selection routines
back into problem identification or through further search routines. The process is
developmental, based on debate and discussion within the organization and, again,
on the collective management wisdom and experience in the Organization. Indeed, the
logical incrementalist view of strategy development suggests that successful managers
actively use bargaining processes in order to challenge prevailing strategic inclinations
and generate information from other parts of the Organization to help in making
decisions.
As has been seen, the process of developing solutions may overlap with the
processes of selecting solutions. They are somewhat arbitrary categorizations for the
purpose of description and might be regarded as part of the same process, in which a
limited number of potential solutions gradually get reduced until one or more emerges.
This may occur through screening, in which managers eliminate that which they
consider not to be feasible. However, the pre-dominant criterion for assessing feasibility
is not formal analysis but managerial judgment followed by political bargaining. Formal
analysis is the least observed of these three approaches, and needs again to be seen
in the context of social and political processes.
It should also be remembered that the process might well be taking place below the
most senior levels of management, so it may be necessary to refer possible solutions
to some higher level, and seeking this authorization is another way of selecting
between possibilities. Typically, though not always, authorization is sought for a
complete solution after screening has taken place. Thus raises the question of whether
it is sensible to view this referral as a sort of checking of an incrementally generated
strategic solution against some overall strategy.
2.10 Paradigm and the Risk of Strategic Drift
Strategic drift is a gradual change that occurs so subtly that it is not noticed until it is
too late. By contrast, transformational change is sudden and radical.
46
Notes
In professional services firms, strategic drift occurs because professionals have

their own perspectives, independent of what the firms leaders may think. Professionals
view themselves as running their own businesses. So strategic drift is inherent in the
professional service business model. Whether it becomes problematic and costly
depends on how its managed.
The conservative influence of the paradigm (i.e., the frame of reference managers
have built up over time consisting of their beliefs and assumptions about the nature
of their business) and the way we do things around here are likely to have important
implications for the development of strategy in Organizations.
Faced with pressures for change, managers will be likely to deal with the situation in
ways which protect the paradigm from challenge. This raises difficulties when managing
strategic change, for it may be that the action required is outside the scope of the
paradigm, and that members of the Organization would therefore be required to change
substantially their core beliefs or routines. Desirable as this may be, the evidence is
that it does not occur easily. Managers are much more likely to attempt to deal with
the situation by searching for what they can understand and cope with in terms of the
existing paradigm, and this seems to be especially so in Organizations in which there
is a particularly high degree of homogeneity in the beliefs and assumptions which
comprise it. Managers will, then, typically attempt to minimise the extent to which they
are faced with ambiguity and uncertainty by looking for that which is familiar.
Exhibit2.5 illustrates how this might occur. Faced with a stimulus for action, in
this case declining performance, managers first seek for means of improving the
implementation of existing strategy: this could be through the tightening of controls.
In effect, they will tighten up their accepted way of operating. It this is not effective,
a change of strategy may occur, but still a change which is in line with the existing
paradigm. For example, managers may seek to extend the market for their business,
but may assume that it will be similar to their existing market, and therefore set about
managing the new venture in much the same way as they have been used to. There
has been no change to the paradigm and there is not likely to be until this attempt to
reconstruct strategy in the image of the existing paradigm also fails. What is occurring
is the predominant application of the familiar and the attempt to avoid or reduce
uncertainty or ambiguity.
Exhibit2.5-The dynamics of paradigm change

[Adapted from P. Grinyer and J. C. Spender (1979). Turnaround: Managerial recipes for
strategic success,Associated Business Press. p. 203.]
47
This is, of course, an alternative explanation of incremental or adaptive strategy

development. Indeed, it may be that changing the strategy within the paradigm makes
sense: after all, it does encapsulate the experience of those in the Organization, and
permits change to take place within what is familiar and understood. However, the
outcome of processes of decision making of this kind may not be the adaptive strategy
making, which keeps in line with environmental change. Rather it may be an adaptation
in line with the experience enshrined in the paradigm. Nonetheless the forces in the
environment will have an effect on performance. Over time this may well give rise
to the sort of strategic drift, in which the Organizations strategy gradually, even if
imperceptibly, moves away from the forces at work in its environment.
Notes
This pattern of drift is made more difficult to detect and reverse because although
changes are being made in strategy - albeit within the parameters of the paradigm such changes is the application of the familiar and may achieve some short-term
improvement in performance, thus tending to legitimize the action taken. However,
in time either the drift becomes apparent or environmental change increases, or
performance is affected. Strategy development is, then, likely to go into a state of flux,
with no clear direction, further damaging performance. Eventually more transformational
change is required, if the demise of the Organization is to be avoided.
The paradigm is, then, an inevitable feature of Organizational life which can be
thought of either as encapsulating the distinctive competences of the Organization or,
more dangerously, as a conservative influence likely to prevent change and result in a
momentum of strategy which can lead to strategic drift.
2.11 Summary
This Unit has dealt with the processes of strategic management as they are to
be found in Organizations: it is therefore descriptive not prescriptive. There is no
suggestion here that, because such processes exist, this is how strategy should
be managed. However, it is important to understand the reality of strategy making
in Organizations not least because those who seek to influence the strategy of
Organizations must do so within that reality. There is little point in formulating strategies
which may be analytically elegant without having an understanding of the processes
which are actually at work. Moreover, it is the intention that the subject should be
approached in such a way that it builds upon this understanding of reality and, wherever
possible, relates an essentially analytical approach to the real world of managers.
In this concluding section, some of the lessons of this Unit are summarized and
related to what follows in the rest of the book.
It is important to distinguish between the intended strategy of managers - which
they say the Organization will follow - and the realized strategy of an Organization that which it is actually following. This is particularly important when considering
how relevant current strategy is to a changing environment: it may be more useful to
consider the relevance of realized strategy than intended strategy.
Strategy usually evolves incrementally. Strategic change tends to occur as a
continual process of relatively small adjustments to existing strategy through activity
within the subsystems of an Organization. However, there is likely to be an overall
strategic direction, a strategic momentum, which is persistent over time.
The incremental change in Organizations is likely to occur through cultural, social
and political processes, or by managers experimenting and learning by doing - the
notion of logical incrementalism.
48
Notes
Formal planning (e.g. corporate planning systems) may be important as an aid to

analysing strategic positions and thinking through options, but it is not necessarily the
vehicle by which strategies are formulated.
Over time the Organization may become out of line with a changing environment
(strategic drift), eventually reaching a point of crisis. At this time, more fundamental or
transformational change may occur.
The way in which managers assess the need for strategic change is through an
essentially qualitative assessment of signals which accumulate from inside and outside
the Organization.
The definition of strategic problems and choice of strategies by managers rely not
so much on dispassionate analysis of data as on (a) perceptions of what powerful
individuals in the Organization see as the problem, and (b) the managers reconciliation
of the circumstances of the situation with past experience and the received wisdom
encapsulated in the core assumptions and beliefs of the Organization, termed here the
paradigm.
The cultural web of an Organization - its political structures, routines, rituals and
symbols - is likely to exert a preserving and legitimizing influence on the core beliefs
and assumptions that comprise the paradigm, hence making strategic change more
difficult to achieve.

The strategic management process means defining the organizations strategy. It is

also defined as the process by which managers make a choice of a set of strategies
for the organization that will enable it to achieve better performance
Strategy management process comprises 4 steps. They were Environment

Scanning, Strategy formulation, Strategy Implementation and strategy evolution.
The 4 Elements of Strategic Decision-making Process were Issue awareness, Issue

Formulation, Development of various solutions and selection of a solution.
It is important to distinguish between the intended strategy of managers - which

they say the Organization will follow - and the realized strategy of an Organization that which it is actually following.
Check your progress:

1. Which one of the following is not a part of the external environment of an
organization?
a) Social factors
b) Political factors
c) Legal factors
d) Organizational culture
2. The term environmental scanning stands for
a) Gathering data about the organization and its surroundings
b) Collecting information about the shareholders
49
c) Gathering information relating to the employees
Notes
d) None of the above

3. One of the important assumptions of the ----------perspective is that uncertainty in
environment is more of an internal problem and less of an external problem
a) Objective environment perspective
b) Perceived environment perspective
c) Enacted environment perspective
4. Political variables have a significant effect on which one of the following?
a) Formulation and implementation of strategy
b) Formulation and Evaluation of a strategy
c) Implementation and evaluation of a strategy
d) Formulation, implementation and evaluation of a strategy
5. Which of the following is NOT a component of external environment analysis?
a) Customer satisfaction feedback
b) Global impacts
c) Legal issues within the industry
d) Competitive position of rival companies
6. The general conditions for competition that influence business firms, which provide
similar products and services is known:
a) Remote environment
b) International environment
c) External environment
d) Industry environment
7. All of these are pitfalls an organization should avoid in strategic planning EXCEPT:
a) Using plans as a standard for measuring performance.
b) Using strategic planning to gain control over decisions and resources
c) Failing to involve key employees in all phases of planning
d) Being so formal in planning that flexibility and creativity are stifled
50
Notes
8. The three organizational levels are:

a) Corporate level, business level, functional level
b) Corporate level, business unit level, functional level
c) Corporate strategy level, business unit level, functional level
d) Corporate strategy level, business level, specialist level
e) Corporate level, strategic business level, functional level
9. The business unit strategy has three major components:
a) Mission, business, and SBU goals
b) Marketing, advertising and pricing objectives
c) Mission, business unit goals, and competencies
d) Business mission, department mission, and daily plans
e) Competencies, abilities, and problem statements
10. A useful framework used to assess a companys investments/divisions is called:
a) Unit production analysis
b) Corporate insight analysis
c) Company productivity analysis
d) Business portfolio analysis
e) SBU knowledge analysis
11. ______ provides focus and direction for formulating strategy to achieve specific
organizational objectives.
a) Strategy by objectives
b) Management by strategy
c) Management by objectives
d) Strategic planning mode
1. Define Organizational Strategy. Explain all the levels of organizational strategy.
2. What are the financial and non-financial benefits of strategic management? Explain
with the help of examples
3. Explain in detail the limitations of strategic management
4. Explain the dynamics of paradigm change
51
5. What is strategic draft? Explain.
Notes
6. What are the differences between strategy implementation and strategy

formulation?
7. Explain the financial and non-financial benefits of strategic management.
4. Regular reading of all latest Business Journals : HBR, Strategist, Busienss World,
Business India, Business Today.
6. Thomson & Strickla d, Business policy and Strategic management, 12th Ed., PHI.
7. Munjal, A. Cases and readings in Strategic Management, ABS Handbook
A Case study on strategy implementation of Virgin Group
Grabbing and successful:
Richard Branson, entrepreneurial owner and founder of Britains untraditional
Virgin Group, has fused two dissimilar lines of work show business and commerce
into a single, extremely profitable enterprise. Virgin Group comprises more than 100
companies in 15 countries. It includes Virgin Atlantic, a 12 plane long distance carrier,
the Virgin Retail Group outlets that sell CDs, videos and games; Virgin Communications
including a small publishing company a commercial AM radio station, and a television
station; Virgin Interactive Communication a computer games software publisher, and
the Voyager Group a collection of diverse assets ranging from a hotel chain to a model
agency.
Bransons business strategy places him at the forefront as the companys most
effective marketing tool. He has become the worlds greatest underdog commented
a London analyst. He is great actor. In addition his strategy also involves making the
most of publicity. If you have got an airline, Branson asserted, youve got to keep it in
the public eye somehow. This he accomplishes through a variety of methods including
headline grabbing adventures such as crossing the Atlantic Ocean by speedboat and
balloon.
Such exploits have served to define Virgins organizational culture. In addition
morale is boosted by the success of Virgin Atlantic which had humble beginning as an
upstart airline and was vulnerable to allegedly unfair competitive tactics by rival British
Airways (BA). Being around through the gulf war, the recession and BAs dirty tricks
campaign has been particularly satisfying. The airline now holds 22 percent of the
transatlantic market. This is less than BAs share, but more than American or United
holds. And Virgin is still expanding.
The structure Branson relies on entails his heavy involvement. He believes in
taking a hands-on approach particularly with airlines. At times, he even greets Virgin
52
Notes
passengers at airports and asks them how they enjoyed their flights. Any time that he
goes out to meet passengers he is always scribbling things he commented.
With the airline in an industry plagued by intense competition and price survival
remains a constant goal. Branson is therefore cautious. There are a lot of big airlines
in America that have gone belly-up. As airlines get bigger they sometimes get more
vulnerable. Branson is determined not to let happen to his airline.
In recent years, Branson appears to have mellowed with regard to his ambitions.
Before he wanted to build the biggest entertainment empire in the world.
Now, the man who has everything, doesnt need more. There is also an element of
social crusading in him that needs to be assuaged. Branson has now found at least a
degree of contentment, He is now complacent that he has enough money to have three
meals a day, to feed his children, clothe them, take holidays and build up and continue
to run his companies. He has no more ambitions to build the biggest company in the
world.
Branson remain conservative in his lifestyle. He attributes this to his respect for
employees. As a businessman he thinks its very important to set an example for his
staff in the way you behave. You dont drive flashy cars and you choose a wife who isnt
into diamond rings and expensive, glitzy clothes .This he implied leads to a staff with
similar values.
In line with this, as Virgin has grown, Branson has broken operations down into
smaller companies of between 50 and 100 people. He believes that each company
should occupy separate offices and that employees should be able to take ownership
of their company. A culture that emphasizes individual responsibility in this way enables
drastic changes to take place quickly and easily.
The systems within the company are also very supportive of empowerment.
For example, through the strong communication system, budgeting is explained to
employees, with daily graphs that display performance by area in comparison to area
budgets. The hiring system also relies on the empowerment of employees. At one point
four junior employees were made responsible for hiring their own replacements when
they were promoted.
Virgin offices are extremely informal. With 15-foot ceilings, working fire places and
lavish gardens the building is more like a home than a place of business. Antiques are
scattered around, along with plush sofas, intimate family pictures, various plaques and
models of Virgin airplanes. And employees dress casually in line with the surroundings.
The elements of Virgins strategy thus clinch the companys success. Under
Bransons creative leader ship exciting twists promise to lie ahead.
53
Unit-III : Environmental Scanning - Strategic Analysis

of Internal and External Variables
Notes
Structure
3.1 External environment

3.2 Macro Environment Analysis
3.2.1 The PESTLE Factors
3.3 Micro Environment Analysis

3.3.1 Elements of Micro Environment
3.4 Industry Analysis, Using 5 Forces Model

3.5 Internal Environment
3.6 Internal Analysis using VRIO Framework: A Resource Based View of the Firm
3.7 Value Chain Analysis
3.8 Profiling Environmental Factors
3.9 Environmental Threat and Opportunity Profile (ETOP)
3.10 Organizational Capability Profile (OCP)
3.11 SWOT Analysis
Objectives

To provide an insight into different types of environment , an organizations works in
To make students understand importance of environmental scanning
To make students understand PESTLE model, Porters five forces model,VRIO

model ,VALUE CHAIN analysis, SWOT models
Introduction
Each business organization operates in its unique environment. Environment

influence businesses and also get influenced by it. No business can function without
interacting and influencing forces that are outside its periphery
A successful business has to not only recognize different elements of the
environment but also respect, adapt, or manage and influence them. The business
must continuously monitor and adapt to the environment if it is to survive and prosper.
Successful business identify, appraise and respond to the various opportunities and
threats in and around its playfield environment.
Environmental scanning can also be referred to environmental monitoring which
includes process of accumulation of information, analyzing it and forecasting the
impact of all predictable environmental changes. It is all about synchronization between
marketing strategies and business environment.
Environmental scanning can be defined as the study and interpretation of the
political, economic, social and technological events and trends which influence a
business, an industry or even a total market
The environment can affect your start-up in dramatic ways. You can have the
best business idea with a great technology but it might still fail miserably if factors
like changes in the policies of the host government, new regulations or an economic
crisis in the host country come along. Therefore, it is imperative that you keep a close
54
Notes
watch over environmental factors that affect your start-up and prepare adequately to
face the emerging challenges. Environmental scanning involves External and Internal
environmental Analysis.
It is not the strongest of the species that survive, nor the most intelligent, but
the one most responsive to change

Charles Darwin
Environmental scanning is the acquisition and use of information about events,

trends, and relationships in an organizations external environment. It is used to assist
management in planning the organizations future course of action. Organizations scan
the environment in order to understand the external forces of change so that they may
develop effective responses which secure or improve their position in the future, in
order to avoid surprises, identify threats and opportunities, gain competitive advantage,
and improve long-term and short-term planning.
Exhibit 3.1 Types of environments and its constituents
3.1 External Environment
The external environment constitutes everything outside a firm that might affect
the ability of the organization to attain its goals. The external environment itself can be
subdivided into two main components.
There is the Micro Environment (also referred as industry or task environment)
confronting the organization, which typically includes actual and potential competitors,
suppliers, and buyers (customers or distributors); firms that provide substitute products
to those sold in the industry; and firms that provide complements. Then there is the
more encompassing Macro Environment (also referred as General environment/
Societal Environment) within which the task environment is embedded.
The Macro environment includes Political and Legal forces, Macroeconomic forces,
Socio-Cultural forces, Technological forces, Ecological and at times International forces.
The Macro or General environment impacts the firm through its influence on the Micro
(also referred as Task /Industry environment)
When managers analyze the External environment they typically look for
Opportunities and Threats. Opportunities arise from circumstances or developments
in the external environment that, if exploited through strategies, enable managers
to better attain the goals of their Organization. Threats arise from circumstances or
developments in the external environment that may adversely affect the ability of
managers to attain the goals of their enterprise.
55
Notes
Exhibit 3.2 Societal Environment and its constituents
3.2 Macro Environment Analysis
It is traditionally the first step of a Strategic Analysis; it is sometimes referred to as

an external analysis, a PEST analysis or a PESTLE analysis. The purpose of the Macro
Environment Analysis is to identify possible opportunities and threats to your industry as
a whole that are outside the control of your industry.
The PESTLE Analysis is a framework used to scan the organizations external
macro environment. The letters stand for Political, Economic Socio-cultural,
Technological, Legal and Environmental.
Some approaches will add in extra factors, such as International, or remove
some to reduce it to PEST. However, these are all merely variations on a theme. The
important principle is identifying the key factors from the wider, Uncontrollable External
Environment that might affect the organization.
3.2.1 The PESTLE Factors
Political factor- First of all, political factors refer to the stability of the political
environment and the attitudes of political parties or movements. This may manifest
in government influence on tax policies, or government involvement in trading
agreements. Political factors are inevitably entwined with Legal factors such
as national employment laws, international trade regulations and restrictions,
monopolies and mergers rules, and consumer protection. The difference between
Political and Legal factors is that Political refers to attitudes and approaches,
whereas Legal factors are those which have become law and regulations. Legal
needs to be complied with whereas Political may represent influences, restrictions
or opportunities, but they are not mandatory.

Economic factor- represent the wider economy so may include economic growth
rates, levels of employment and unemployment, costs of raw materials such as
energy, petrol and steel, interest rates and monetary policies, exchange rates and
inflation rates. These may also vary from one country to another.
56
Notes
Socio-cultural factor- represents the culture of the society that an organization

operates within. They may include demographics, age distribution, population
growth rates, level of education, distribution of wealth and social classes, living
conditions and lifestyle.
Technological factor refer to the rate of new inventions and development, changes
in information and mobile technology, changes in internet and e-commerce or
even mobile commerce, and government spending on research. There is often a
tendency to focus Technological developments on digital and internet-related areas,
but it should also include materials development and new methods of manufacture,
distribution and logistics.
Ecological factor impacts can include issues such as limited natural resources,
waste disposal and recycling procedures.
3.3 Micro Environment Analysis
Micro-environment is the specific or the task environment of a business which

affects its working or operations directly on a regular basis. While the changes in the
macro-environment affect business in the long run, the effects of changes in the microenvironment are noticed immediately.
Micro environment factors are factors close to a business that have a direct impact
on its business operations and success. Before deciding corporate strategy businesses
should carry out a full analysis of their micro environment. At this point we discuss
common micro environment factors.
This is also known as the task environment and affects business and marketing
at the daily operating level. While the changes in the macro environment affect
business in the long run, the effect of micro environmental changes is noticed almost
immediately. Organizations have to closely analyse and monitor all the elements of
microenvironment in order to adapt to rapid change and stay competitive.
When carrying out a Macro environment analyses you will be seeking to answer the
questions What will affect the growth of our Industry as a whole? and What is the
likely impact of all of the things that affect the growth of your industry?
Hence, organizations must closely analyze and monitor all the elements of the
micro-environment on a regular basis. The elements of microenvironment are as
follows:
3.3.1 Elements of Micro-environment
1. Consumers/Customers:
No organization can survive without customers and consumers. A customer is the
one who buys a product or service for the consumer who ultimately consumes or uses
the product or service of the organization.Hence, the consumer occupies the central
position; therefore an organization must closely monitor and analyze the following:
a)
Who are the customers/consumers?
b)
What features or benefits are they looking for?
c)
What are their income levels?
d)
What are their tastes, preferences?
57
e)
What are their buying patterns, etc?
Notes
2. Organization:
An organization refers to a group of all individuals working in different capacities
and the practices and culture they follow. In micro-environment analysis, nothing is as
important as self-analysis, which is done by the organization itself.
Understanding ones own strengths and weaknesses in a particular business is of
vital importance. Organizations consist of specific groups of people who are likely to
influence an organization, which are as follows:
a) Owners-Proprietor, partners, shareholders, etc., who invest resources and also
make major decisions for the business.
b) Board of directors-Elected by share holders, the board is responsible for day-today and general management of the organization to ensure that it is being run
in a way that best serves the shareholders interests.
c) Employees-People who actually do the work in an organization. Employees
are the major force within an organization. It is important for an organization to
have its employees embrace the same values and goals as the organization.
However, they differ in beliefs, education, attitudes, and capabilities. When the
management and employees work towards different goals, everyone suffers.
3. Market:
Market refers to the system of contact between an organization and its customers.
The firm should study the trends and development and the key success factors of the
market, which are as follows:
a)
The existing and the potential demand in market
b)
Market growth rate
c)
Cost structure
d)
Price sensitivity
e)
Technological structure
f)
Distribution system, etc
4. Suppliers:
The suppliers refer to the providers of inputs, like raw materials, equipment and
services, to an organization. Large companies have to deal with hundreds of suppliers
to maintain their production.
Suppliers with their own bargaining power affect working and cost structure of the
industry. Hence it is important for an organization to carry out a study of the following:
a) Who are the suppliers?
b) What are their products, prices and terms and conditions?
c) Whether to Outsource production or get it done in-house depending on this
supplier environment, and so on.
58
Notes
5. Intermediaries:
Intermediaries include agents and brokers who facilitate the contact between
buyers and sellers for a commission. They may exert a considerable influence on
the business organizations as, in many cases, the consumers are not aware of the
manufacturers and their products. Hence, manufacturers use intermediaries to reach
out to consumers.
3.4 Industry Analysis: Using 5 Forces Model
According to Michael E. Porter these are the same thing. He developed Porters
Five forces analysis which is a framework for industry analysis and Business Strategy
Development. He referred to these five forces as Micro environment. The five forces
being;
1)
The threat of the entry of new competitors
2)
The threat of substitute products or services
3)
The bargaining power of customers (buyers)
4)
The bargaining power of suppliers
5)
The intensity of competitive rivalry
Exhibit 3.3 Porters 5 forces model

Porters Five Competitive Forces model is used by businesses when thinking about
business strategy and the impact of Information technology. This model can help a
business decide whether to, enter an industry or expand your business in the industry
you are already working on.
The more powerful these forces in an industry, the lower its profit potential.
The strength of each force differs by industry and changes over time. Porters Five
Competitive Forces model is used for industry analysis in several ways, to guide your
strategic decisions. Benefit from industry analysis by:

Understanding the competitive forces in your industry.
Assessing the attractiveness of, and growth opportunities within, a new

industry.
59
Developing effective strategies to raise your profitability, power, and

competitive position in an industry.
Notes
Industry Rivalry/Competitors
Rivalries naturally develop between companies competing in the same market.
Competitors use means such as advertising, introducing new products, more attractive
customer service and warranties, and price competition to enhance their standing and
market share in a specific industry. To Porter, the intensity of this rivalry is the result
of factors like equally balanced companies, slow growth within an industry, high
fixed costs, lack of product differentiation, overcapacity and price-cutting, diverse
competitors, high-stakes investment, and the high risk of industry exit. There are also
market entry barriers.
Threat from Substitute Products
Substitute products are the natural result of industry competition, but they place a
limit on profitability within the industry. A substitute product involves the search for a
product that can do the same function as the product the industry already produces.
Porter uses the example of security brokers, who increasingly face substitutes in the
form of real estate, money-market funds, and insurance. Substitute products take on
added importance as their availability increases.
Bargaining Power of Suppliers
Suppliers have a great deal of influence over an industry as they affect price
increases and product quality. A supplier group exerts even more power over an
industry if it is dominated by a few companies, there are no substitute products, the
industry is not an important consumer for the suppliers, their product is essential to
the industry, the supplier differs costs, and forward integration potential of the supplier
group exists. Labor supply can also influence the position of the suppliers. These
factors are generally out of the control of the industry or company but strategy can alter
the power of suppliers.
Bargaining Power of Buyers
The buyers power is significant in that buyers can force prices down, demand
higher quality products or services, and, in essence, play competitors against one
another, all resulting in potential loss of industry profits. Buyers exercise more
power when they are large-volume buyers, the product is a significant aspect of the
buyers costs or purchases, the products are standard within an industry, there are
few changing or switching costs, the buyers earn low profits, potential for backward
integration of the buyer group exists, the product is not essential to the buyers
product, and the buyer has full disclosure about supply, demand, prices, and costs.
The bargaining position of buyers changes with time and a companies (and industrys)
competitive strategy.
Threat from Potential Entrants
Threats of new entrants into an industry depend largely on Barriers to Entry. Porter
identifies six major barriers to entry:

Economies of scale, or decline in unit costs of the product, which force the
entrant to enter on a large scale and risk a strong reaction from firms already
in the industry, or accepting a disadvantage of costs if entering on a small
scale.
Product differentiation, or brand identification and customer loyalty.
Capital requirements for entry; the investment of large capital, after all,
presents a significant risk.
Switching costs or the cost the buyer has to absorb to switch from one supplier
to another.
60
Notes
Access to distribution channels. New entrants have to establish their

distribution in a market with established distribution channels to secure a
space for their product.
Cost disadvantages independent of scale, whereby established companies

already have product technology, access to raw materials, favorable sites,
advantages in the form of government subsidies, and experience.
New entrants can also expect a barrier in the form of government policy through
federal and state regulations and licensing. New firms can expect retaliation from
existing companies and also face changing barriers related to technology, strategic
planning within the industry, and manpower and expertise problems. The entry deterring
price or the existence of a prevailing price structure presents an additional challenge to
a firm entering an established industry.
In summary, Porters five-forces model concentrates on five structural industry
features that comprise the competitive environment, and hence profitability, of an
industry. Applying the model means, to be profitable, the firm has to find and establish
itself in an industry so that the company can react to the forces of competition in a
favorable manner.
3.5 Internal Environment
An organizations internal environment comprises its structures and processes,

which are influenced by the dominant culture of the organization. Internal and
external environments are inextricably linked, because the effectiveness of an
organizations structures and processes can help or hinder the task of responding
to environmental change. Where employees share the vision of management,
they may be more likely to embrace external change, rather than fear it and
become reactive rather than proactive. Strong leadership can provide a focused
effort at marshalling the resources of an organization to meet the challenges
and opportunities posed by the external environment. Employees usually make
up a critical element of the internal environment. There are several methods by
which organizations seek to gain the moral involvement of employees to share
the challenges and opportunities of external change. The internal environment
constitutes everything inside the firm that might affect the ability of managers to
pursue certain actions or strategies. The internal environment includes

The organization of the firm (its structure, culture, controls, and incentives),
The employees of the firm(its human capital), and
The resources of the firm (its tangible and intangible assets).
Each of these elements can be strength or a weakness. A Strength is an activity the

organization is good at; it is a potential source of competitive advantage. A Weakness
is an activity that the organization does not excel at; it may be a source of competitive
disadvantage.
When managers analyze the internal environment of their own firm, they often do
so by identifying its strengths and weaknesses. This inward focus complements the
identification of opportunities and threats in the external environment.
Taken together, an inventory of internal strengths and weaknesses and external
opportunities and threats can help managers develop strategy. This methodology,
which is often referred to by the acronym of SWOT analysis (strengths, weaknesses,
opportunities, and threats), is a standard part of strategic planning and decision making;
we will discuss it in more detail later.
61
3.6 Internal Analysis using VRIO Framework: A Resource Based

View of the Firm
Notes
VRIO stand for:

Value (the question of value)
Rarity (the question of rarity)
Imitability (the question of imitability)
Organization (the question of organization)
The company/firm need to ask themselves about the resources or capability to

determine its competitive potential. VRIO is a mechanism that integrates two existing
theoretical frameworks: the positioning perspective and the resource-based view. It is
the primary tool for accomplishing internal analysis.
The VRIO framework, in a wider scope, is part of a much larger strategic scheme
of a firm. The basic strategic process that any firm goes through begins with a vision
statement, and continues on through objectives, internal & external analysis, strategic
choices (both business-level and corporate-level), and strategic implementation. The
firm will hope that this process results in a competitive advantage in the marketplace
they operate in. VRIO falls into the internal analysis step of these procedures, but is
used as a framework in evaluating just about all resources and capabilities of a firm,
regardless of what phase of the strategic model it falls under. VRIO is an acronym
for the four question framework you ask about a resource or capability to determine
its competitive potential: the question of Value, the question of Rarity, the question of
Imitability (Ease/Difficulty to Imitate), and the question of Organization (ability to exploit
the resource or capability).

The Question of Value: Is the firm able to exploit an opportunity or neutralize

an external threat with the resource/capability?
The Question of Rarity: Is control of the resource/capability in the hands of a

relative few?
The Question of Imitability: Is it difficult to imitate, and will there be significant

cost disadvantage to a firm trying to obtain, develop, or duplicate the resource/
capability?
The Question of Organization: Is the firm organized, ready, and able to exploit
the resource/capability?
Valuable?
Rare? Costly to
imitate?
Exploited by the Competitive implication

organization?
No
Competitive disadvantage
Yes
No
Competitive parity
Yes
Yes
No
Yes
Yes
Yes
No
Unexploited competitive
advantage
Yes
Yes
Yes
Yes
Sustained competitive advantage
Temporary competitive
advantage
The resource-based view (RBV) as a basis for a competitive advantage of a firm

lies primarily in the application of the bundle of valuable interchangeable and intangible
tangible resources at the firms disposal. To transform a short-run competitive
62
Notes
advantage into a sustained competitive advantage requires that these resources

are heterogeneous in nature and not perfectly mobile. Effectively, this translates into
valuable resources that are neither perfectly imitable nor substitutable without great
effort). If these conditions hold, the bundle of resources can sustain the firms above
average returns. The VRIO model also constitutes a part of Resource Based View of
the Firm
3.7 Value Chain Analysis
Value Chain Analysis describes the activities that take place in a business and
relates them to an analysis of the competitive strength of the business
Value Chain Analysis is a strategy tool used to analyze internal firm activities. Its
goal is to recognize, which activities are the most valuable (i.e. are the source of cost
or differentiation advantage) to the firm and which ones could be improved to provide
competitive advantage. In other words, by looking into internal activities, the analysis
reveals where a firms competitive advantages or disadvantages are.
Value chain analysis is a powerful tool for managers to identify the key activities
within the firm which form the value chain for that organization, and have the potential
of a sustainable competitive advantage for a company. Therein, competitive advantage
of an organization lies in its ability to perform crucial activities along the value chain
better than its competitors.
The Value Chain framework developed by Michael E Porter is An Interdependent
system or network of activities, connected by linkages. When the system is managed
carefully, the linkages can be a vital source of competitive advantage. The value chain
analysis essentially entails the linkage of two areas.
Firstly, the value chain links the value of the organizations activities with its main
functional parts. Then the assessment of the contribution of each part in the overall
added value of the business is made. In order to conduct the value chain analysis, the
company is split into primary and support activities. Primary activities are those that are
related with production, while support activities are those that provide the background
necessary for the effectiveness and efficiency of the firm, such as human resource
management. The primary and secondary activities of the firm are discussed in detail
below.
Exhibit 3.4 Value Chain Analysis

63
Primary activities
The primary activities (Porter, 1985) of the company include the following:

Inbound logistics: These are the activities concerned with receiving the
materials from suppliers, storing these externally sourced materials, and
handling them within the firm.
Operations: These are the activities related to the production of products and
services. This area can be split into more departments in certain companies.
For example, the operations in case of a hotel would include reception, room
service etc.
Outbound Logistics: These are all the activities concerned with distributing
the final product and/or service to the customers. For example, in case of a
hotel this activity would entail the ways of bringing customers to the hotel.
Marketing and Sales: This functional area essentially analyses the needs and
wants of customers and is responsible for creating awareness among the target
audience of the company about the firms products and services. Companies
make use of marketing communications tools like advertising, sales promotions
etc. to attract customers to their products.
Customer Service: There is often a need to provide services like preinstallation or after-sales service before or after the sale of the product or
service.
Notes
Support activities
The support activities of a company include the following:

Procurement: This function is responsible for purchasing the materials that are
necessary for the companys operations. An efficient procurement department
should be able to obtain the highest quality goods at the lowest prices.
Management: This is a function concerned with recruiting, training, motivating

and rewarding the workforce of the company. Human resources are
increasingly becoming an important way of attaining sustainable competitive
advantage.
Technology Development: This is an area that is concerned with

technological innovation, training and knowledge that is crucial for most
companies today in order to survive.
Firm Infrastructure: This includes planning and control systems, such as

finance, accounting, and corporate strategy etc.
64
Notes
3.8 Profiling Environmental Factors
Exhibit 3.5 What constitutes Strategy

There are many strategy considering parameters which can be classified under
two broad categories viz., internal factors and external factors to the organization. In
order to access the importance and effect of change in such factor on the operation
and strategy of the business various model, such as Strategic Advantage Profile
(SAP), Environmental Threat and Opportunity Profile(ETOP), Organizational Capability
Profile(OCP) are developed by experts.
3.9 Environmental Threat and Opportunity Profile (ETOP):
ETOP is summarized depiction of the environmental actors and their impact on the
organization. The preparation of ETOP involves dividing the environment into different
sectors and then analyzing the impact of each factor of the organization. A derailed
ETOP subdivides each environment sector into sub factor and then the impact of each
sub factor on the organization and is described in a form of statement. A summary of
ETOP shows only the major factors. ETOP is the most useful way of structuring the
result of environmental analysis.
Environmental Factors
Degree of Importance
High
(3)
Medium
(2)
Low
(1)
Degree of Impact
High
3
Medium
2
Low
1
Economic
Political Legal
Technological
Socio-cultural
Competitive

3.10 Organizational Capability Profile (OCP)
OCP is summarized statement which provides overview of strength and weakness

in key result areas likely to affect future operation of the organization. Information in this
profile may be presented in qualitative terms or quantitative terms.
After the preparation of OCP, the organization is in a position to assess its relative
strength and weaknesses vis-a-vis its competitors. If there is any gap in area, suitable
action may be taken to overcome that.OCP shows the companys capacity. OCP tells
about companys potential and capability. OCP tells what company can do.
Capability Factors
Degree of strength and weakness
65
1. Financial capability factors

a. Source of fund and cost
b. Usage of funds
c. Management of funds
Notes
2. Marketing capability factor

a. Product related
b. Price related
c. Promotion related
d. Distribution related
3. Operation capability factor
a. Plant location
b. Production system
c. Operation and control system
d. R & D system
4. Personal capability factor
a. Personnel system
b. Organizational and employee characteristics
c. Industrial relations
d. Quality and motivation of personnel
5. General management capability factor
a. General management system
b. External relations
c. Organizational climate
Strategic Advantage Profile (SAP):
SAP describes the organizations competitive position in the market place. A

comparison of SAP and OCP shows that, OCP indicates what the organization do
base on its capability; SAP indicates what the organization has done or is doing in
comparison to its competitors to generate competitive advantage for itself. Thus, OCP
is internal-oriented, while SAP is external-oriented. In preparing SAP 3 factors are
important:
1. The organization should identify the factors which are relevant for determining
success in the industry concerned. These factors are known as KSF.
2. Organization should measure its performance on these factors in comparison to
its competitors. Based on comparison, the organization can find out whether it has
advantage or disadvantage in terms of various factors.
3. After identifying advantage, the next step is to measure their sustainability because
any advantage may turn into disadvantage due to change in environmental factors.
Factors
Advantage/Disadvantage
High
3
Medium
2
Low
1
Sustainability
High Medium
(3)
(2)
Low
(1)
1. Product related
a. Appearance
b. Style
c. Functionality
d. Range
e. Cost structure
2. Market related
66
Notes
a. Pricing
b. Distribution channel
c. Customer service
d. Customer relationship
e. Customer satisfaction
f. Brand loyalty
g. Market share

3.11 SWOT Analysis
SWOT is an acronym used to describe the particular Strengths, Weaknesses,

Opportunities, and Threats that are strategic factors for a specific company. A SWOT
analysis should not only result in the identification of a corporations core competencies,
but also in the identification of opportunities that the firm is not currently able to take
advantage of due to a lack of appropriate resources.
The SWOT Analysis framework has gained widespread acceptance because it is
both simple and powerful for strategy development. However, like any planning tool,
SWOT is only as good as the information it contains. Thorough market research and
accurate information systems are essential for the SWOT analysis to identify key issues
in the environment.
Assess your market:
What is happening externally and internally that will affect our company?

Who are our customers?
What are the strengths and weaknesses of each competitor? (Think Competitive
Advantage)
What are the driving forces behind sales trends?
What are important and potentially important markets?
What is happening in the world that might affect our company?
What does it take to be successful in this market? (List the strengths all companies
need to compete successfully in this market.)
Assess your company:

What do we do best?

What are our company resources assets, intellectual property, and people?
What are our company capabilities (functions)?
Assess your competition:

How are we different from the competition?

What are the general market conditions of our business?
What needs are there for our products and services?
What are the customer-market-technology opportunities?
67
What are the customers problems and complains with the current products and
services in the industry?
What If only. statement does a customer make?
Notes
Competitor analysis

Identify the actual competitors as well as substitutes.
Assess competitors objectives, strategies, strengths & weaknesses, and reaction

patterns.
Select which competitors to attack or avoid.
The Internal Analysis of strengths and weaknesses focuses on internal factors that
give an organization certain advantages and disadvantages in meeting the needs of
its target market. Strengths refer to core competencies that give the firm an advantage
in meeting the needs of its target markets. Any analysis of company strengths should
be market oriented/customer focused because strengths are only meaningful when
they assist the firm in meeting customer needs. Weaknesses refer to any limitations
a company faces in developing or implementing a strategy (?). Weaknesses should
also be examined from a customer perspective because customers often perceive
weaknesses that a company cannot see. Being market focused when analyzing
strengths and weaknesses does not mean that non-market oriented strengths and
weaknesses should be forgotten. Rather, it suggests that all firms should tie their
strengths and weaknesses to customer requirements. Only those strengths that relate
to satisfying a customer need should be considered true core competencies.
The following area analysis is used to look at all internal factors affecting a company:

Resources: Profitability, sales, product quality brand associations, existing

overall brand, relative cost of this new product, employee capability, product
portfolio analysis
Capabilities: To identify internal strategic strengths, weaknesses, problems,

constraints and uncertainties
The External Analysis examines opportunities and threats that exist in the
environment. Both opportunities and threats exist independently of the firm. The way
to differentiate between a strength or weakness from an opportunity or threat is to
ask: Would this issue exist if the company did not exist? If the answer is yes, it should
be considered external to the firm. Opportunities refer to favorable conditions in the
environment that could produce rewards for the organization if acted upon properly.
That is, opportunities are situations that exist but must be acted on if the firm is to
benefit from them. Threats refer to conditions or barriers that may prevent the firms
from reaching its objectives.
The following area analysis is used to look at all external factors affecting a
company:

Customer analysis: Segments, motivations, unmet needs
Competitive analysis: Identify completely, put in strategic groups, evaluate

performance, image, their objectives, strategies, culture, cost structure,
strengths, weakness
68
Notes
Market analysis: Overall size, projected growth, profitability, entry barriers, cost
structure, distribution system, trends, key success factors
Environmental analysis: Technological, Governmental, Economic, Cultural,

Demographic, Scenarios, Information-need areas
The SWOT Matrix helps visualize the analysis. Also, when executing this analysis
it is important to understand how these elements work together. When an organization
matched internal strengths to external opportunities, it creates core competencies in
meeting the needs of its customers. In addition, an organization should act to convert
internal weaknesses into strengths and external threats into opportunities.
Iternal
External
Strengths
Opportunities
Weaknesses
Threats
Exhibit 3.6 SWOT Analysis
SWOT: Focus on your strengths. Shore up your weaknesses. Capitalize on your

opportunities. Recognize your threats.
Identify

Against whom do we compete?
Who are our most intense competitors? Less intense?
Makers of substitute products?
Can these competitors be grouped into strategic groups on the basis of assets,
competencies, or strategies?
Who are potential competitive entrants? What are their barriers to entry?
Evaluate

What are their objectives and strategies?
What is their cost structure? Do they have a cost advantage or disadvantage?
What is their image and positioning strategy?
Which are the most successful/unsuccessful competitors over time? Why?
What are the strengths and weaknesses of each competitor?
Evaluate competitors with respect to their assets and competencies.
Resources A good starting point to identify company resources is to look at tangible,

intangible and human resources.

Tangible resources are the easiest to identify and evaluate: financial resources
and physical assets are identifies and valued in the firms financial statements.
69
Intangible resources are largely invisible, but over time become more important
to the firm than tangible assets because they can be a main source for a
competitive advantage. Such intangible recourses include reputational assets
(brands, image, etc.) and technological assets (proprietary technology and
know-how).
Notes
Human resources or human capital are the productive services human beings offer
the firm in terms of their skills, knowledge, reasoning, and decision-making abilities.
Capabilities
Resources are not productive on their own. The most productive tasks require
that resources collaborate closely together within teams. The term organizational
capabilities are used to refer to a firms capacity for undertaking a particular productive
activity. Our interest is not in capabilities per se, but in capabilities relative to other
firms. To identify the firms capabilities we will use the functional classification approach.
A functional classification identifies organizational capabilities in relation to each of the
principal functional areas.
70
Notes
Summary
Two types of Business environment exists

a. External or Macro level Environment
b. Internal or Micro level Environment
Porters Five forces Model

a. Potential Entrants
b.
Buyers
c.
Substitutes
d. Suppliers
e. Competition
Porters Five Competitive Forces model is used by businesses when thinking about
business strategy and the impact of Information technology. This model can help a
business decide whether to, enter an industry or expand your business in the industry
you are already working on

Internal Environment Using VRIO Model

VRIO : Value-Rarity-Imitability-Organization
71
VRIO is an acronym for the four question framework you ask about a resource or
capability to determine its competitive potential: the question of Value, the question
of Rarity, the question of Imitability (Ease/Difficulty to Imitate), and the question of
Organization (ability to exploit the resource or capability).

Notes
Value Chain Analysis:
Value Chain Analysis is a strategy tool used to analyze internal firm activities. Its
goal is to recognize, which activities are the most valuable (i.e. are the source of cost
or differentiation advantage) to the firm and which ones could be improved to provide
competitive advantage. In other words, by looking into internal activities, the analysis
reveals where a firms competitive advantages or disadvantages are

ETOP , OCP, SAP , SWOT Analysis
ETOP is summarized depiction of the environmental actors and their impact on the
organization. SAP describes the organizations competitive position in the market place.
A comparison of SAP and OCP shows that, OCP indicates what the organizations do
base on its capability. SWOT is an acronym used to describe the particular Strengths,
Weaknesses, Opportunities, and Threats that are strategic factors for a specific
company. A SWOT analysis should not only result in the identification of a corporations
core competencies, but also in the identification of opportunities.
1. All are elements of micro environment except-a) Consumer
b) Suppliers
c) Society
d) Competitors
2. Select the correct statement-a) Environmental factors are totally beyond the control of a single industrial
enterprise.
b) Environmental factors are largely beyond the control of a single industrial
enterprise.
c) Environmental factors are totally within the control of a single industrial
enterprise.
d) None
3. All are elements of macro environment except-a) Society
b) Technology
c) Competitors
d) Competitors
72
Notes
4. Strategy formulation is primarily an _____________ process and strategy

implementation is primarily an _____________ process.
a) Intellectual, Operational
b) Operational, Intellectual
c) Intelligent, Interim
d) Interim, Intellectual
5. An inherit limitation or constraint which creates disadvantages-a) Threat
b) Weakness
c) Loophole
d) Deviation
6. Goal of SWOT analysis is to ____________ the organizations oppurtunities and
strengths while ___________ its threats and _____________ its weakness.
a) Avoid;Neutralize,Correct
b) Exploit,Neutralize,Correct
c) Avoid,Capitalize,Neutralize
d) Exploit,Avoid,Ignore
7. Expand KSF-a) Key Strategic Factors
b) Key Success Factors
c)
Key Sources Facilitators
d) Key Secondary Facilitators

8. Strike out the correct combinations
i.
The environment is constantly changing
ii. Various environmental constituents exist in isolation and do not interact with
each other
iii. The environment has a far reaching impact on organizations
a) i and ii
b)
ii and iii
c)
i and iii
d)
All
73

1. What is Demographic environment of business?
Notes
2. Write a short note on macro and micro environment

3. Discuss Porter 5 forces model with suitable examples.
4. Explain the concept of backward linkages
5. Explain Value Chain Analysis
A case study on Rolls Royce: Porters Five Forces Model
One way in which staff within Rolls- Royce have focused their actions for responding
to the changing role of the business, has been to use Porters Five Forces model of
industry competition. Five Forces analysis gives an improved understanding of the
degree of competition within the business environment. It has helped them to develop a
better understanding of the business environment so that business opportunities could
be analyzed. The model identifies one force within the industry competitive rivalry - as
well as four forces outside the industry:
8.
Potential entrants and the threat of entrants
9.
Power of Buyers
10. Power of Suppliers

11. Threats of Substitutes
Competitive Rivalry
As described above three dominant players operate in this oligopolistic global
industry. The industry is capital intensive and there is a requirement for high investment
in advanced technology and research and development. No single manufacturer
dominates the industry, so balance fuels the rivalry. Competition in the primary market
for aero-engines is intensified by the link to the secondary market for engine part sales
and services. Access to the secondary market is dependent on achieving the original
sale of new engines. In recent years the intensity of competition has increased as
each manufacturer has tried to improve its volumes and market share. Rivalry has also
intensified because gas turbine engines are now essentially a mature product and the
potential for technological differential advantage has been reduced.
74
Notes
Power of Buyers
The numbers of potential buyers of new aircraft are low. Buyers of aircraft engines
are therefore essentially price makers, with the market price for new engines being
largely set by the buyer. The power of buyers has further increased in recent years
as many airlines have become global carriers. The decision to purchase a particular
aircraft or engine combination is a long-term one. This means that failure to secure an
order may prevent an engine manufacturer trading with a particular airline for more
than a decade. The selection of one engine type can lead to a domino effect, with
other competing buyers following the same selection. Airlines are increasingly seeking
lifetime cost of ownership guarantees, and reduced repair costs.
Power of Supplier
The suppliers to the aero-engine manufacturer have limited power. There are many
hundreds of different suppliers to the aero-engine industry. They supply all nature of
components, from nuts and bolts to state-of-the-art electronic control systems costing
hundreds of thousands of pounds. The power of many of the smaller companies,
which represent most of the supplier base, has been reduced. This is due to engine
manufacturers adopting dual sourcing strategies, using a range of alternative sources
of supply. The most powerful suppliers are those involved in the supply of high
specification electronic control equipment.
Threats of Entry
Although not unknown, entry to the aero-engine industry is extremely difficult. The
highly specialized advanced nature of aero-engine design combined with the costs of
research and development as well as the confidence of customers represent significant
barriers to entry. New engines also need extensive testing before gaining airworthiness
approval from the authorities. The market is also sensitive to the reputation of the
engine manufacturer, where names such as Rolls-Royce represent a range of proven
high-technology products.
Threats of Substitutes
There is no substitute for an aero engine and the threat of substitutes for air
transport itself is minor. However, it is thought that the development of video
conferencing capability will reduce some business travel and the growth of high speed
train travel (e.g. Eurostar) will affect some travel decisions. However, both of these
developments are taking place at a time when the demand for air travel is increasing.
This analysis shows that the commercial aero-engine business is highly competitive,
with the buyer possessing and exerting a very powerful influence upon organizations.
The high barriers to entry and the low threat of substitutes indicate that existing
competitors will continue to share the business between them. However, a slowdown
in industry growth and the increasing maturity of products will intensify the degree of
rivalry between the engine manufacturers.
Conclusion
In response to changes within its business environment, Rolls-Royce has developed

its orientation from that of engineering to become more business- and service-focused.
The organization has had to become much more proactive, dealing with new ideas to
create more services and customer focus. In the past, change was rare and slow, the
company tended to follow the market trend. The structure of the organization has been
realigned to meet the needs of the new way of operating. Organizational structures
define important relationships within the business and create a mechanism for meeting
business objectives. At the same time, it has been important to create a new business
culture within Rolls-Royce. A culture exists within the minds and hearts of the people of
75
an organization and contributes to the way they make decisions and develop business
strategies. As an organization changes from a product-focused organization towards
becoming a service-orientated culture, this requires more involvement of its people, with
greater empowerment and rapid decision-taking. The corporate identity is the sum of
the culture and its expression in behaviour and physical terms. Rolls-Royce has defined
the identity that it needs to encourage, building on its past reputation and achievements
for continuing success. As these changes take place, the organization is also realigning
its financial reporting framework and corporate governance. This will change how the
whole business shapes its purposes and priorities.
Notes
76
Unit-IV : Strategy Formulation-Crafting Vision,

Mission, Objectives and Strategy
Notes
Structure
4.1 Strategy Formulation Process

4.2 The Industry and Market Place
4.3 The Competition
4.4 Strength & Weaknesses
4.5 Developing a Strategic Vision, a Mission , and set of Core Values

4.5.1 Developing a Strategic Vision
4.5.2 Communicating the Strategic Vision
4.5.3 Expressing the Essence of the Vision in a Slogan
4.5.4 The Payoffs of a Clear Vision Statement
4.5.5 Crafting a Mission Statement
4.5.6 Linking the Vision and Mission with Company Values
4.6 Setting Objectives

4.6.1 Kinds of Objectives to Set
4.6.2 The Merits of Setting Stretch Objectives
4.6.3 Why Both Short Term and Long Term Objectives are Needed
4.6.4 The Need for Objectives at All the Organizational Levels
4.7 Crafting a Strategy
Objectives

To get an overlook on Strategy formulation phases
To make readers learn about crafting vision-mission-objectives statement of an

organization
To make readers aware ,essence of vision-mission-objectives to an

organization
Strategic Management is not a tool box of tricks or a bundle of techniques, It is

analytical thinking and commitment of resources to action .

Peter Drucker
Introduction
Strategy is consciously considered and flexibly designed scheme of corporate intent

and action to achieve effectiveness to mobilize resources to direct behavior to handle
events and problems to perceive and utilize opportunities and to meet challenges
and threats to corporate survival and success. The concept of strategy into business
organizations is indended to streamline the complexities and reduce uncertainty of the
environment.
The distinction between a strategic vision and a mission statement is fairly clearcut: A strategic vision portrays a companys aspirations for its future (where we are
going), whereas a companys mission describes its purpose and its present business
(who we are, what we do, and why we are here).
77
In most companies, crafting strategy is a collaborative team effort that includes

managers in various positions and at various organizational levels. Crafting strategy is
rarely something only high-level executives do.
Notes
Strategy formulation is the process by which an organization chooses the most

appropriate courses of action to achieve its defined goals. This process is essential to
an organizations success, because it provides a framework for the actions that will lead
to the anticipated results. Strategic plans should be communicated to all employees so
that they are aware of the organizations objectives, mission, and purpose. Strategy
formulation forces an organization to carefully look at the changing environment and
to be prepared for the possible changes that may occur. A strategic plan also enables
an organization to evaluate its resources, allocate budgets, and determine the most
effective plan for maximizing ROI (return on investment).
A company that has not taken the time to develop a strategic plan will not be able to
provide its employees with direction or focus. Rather than being proactive in the face
of business conditions, an organization that does not have a set strategy will find that
it is being reactive; the organization will be addressing unanticipated pressures as they
arise; and the organization will be at a competitive disadvantage.
4.1 Strategy Formulation: Process
Strategy formulation requires a defined set of 4 steps for effective implementation.

Those steps are:
1.
Define the Organization
2.
Define the Strategic Vision and Mission
3.
Define the Strategic objectives
4.
Define the Competitive strategy
We will explore each of the four steps for strategy formulation.

Step 1. Define the Organization
The first step in defining an organization is to identify the companys customers.
Without a strong customer base, whose needs are being filled, an organization will not
be successful. A company must identify the factors that are valued by its customers. Is
the value based on a superior product or service relative to the competition? Are your
customers buying your products for your low prices? Do you produce products that
meet image needs of your customers?
Lets review some of the ways in which companies can define themselves.
End Benefit
Organizations must remember that people are buying benefits not features. For
example, if an airline only defined itself as being in the business of flying people from
one place to another, then it would view its competition as being only other airlines.
However, if it views itself as being in the transportation business, then it will recognize
that its competition includes not only other airlines, but also trains, buses, car rental
companies, and other ways of getting people from one place to another place. An
airline must highlight the benefits of using its method of transportation as a means of
persuading customers to purchase its service.
Furthermore, an organization can explain how its product works or how it is built.
Inevitably, customers will ask the question, Whats in it for me? Companies must be
78
Notes
able to answer this question in order to meet the needs of their customers. They must
be able to respond effectively to the so what? in order to influence customers to buy
their product or service.
Target Market
Companies can become successful by identifying themselves with a particular target
group. This focus should not be limited only to demographic segmentation (i.e., age,
income, education, gender, income, family life-cycle, culture) but also by psychographic
indicators. For example, by understanding the values, attitudes, opinions, and lifestyles
of a companys customers, the organization can better provide ways in which to meet
its customers needs.
For example, Nike has successfully identified itself not only with professional
athletes, but with those who want to be part of the athlete world. Nikes marketing
message has made everyone who wishes to participate in sports feel as if they can
achieve their athletic goals. While most people who purchase Nike products are not
professional athletes, the people who buy Nikes products are able to identify with
Nikes culture and feel like they are part of an exclusive group.
Technology
Computer companies, medical research companies, and other companies that
identify themselves with the tech world will find that they must be able to quickly adapt
to changes in the marketplace. New products, services, and inventions are frequently
introduced, making this a very difficult and challenging business environment in which
to operate. For example, Genentech, Inc. conducts genetic engineering and medical
research for the pharmaceutical industry. This company uncovers and discovers new
advances every day, making it challenging to develop a specific strategy plan for its
products and services. However, by defining the company as being in the biotech
industry, it can develop a strategy for its overall corporate goals.
Step 2. Define the Strategic Vision and Mission
An organizations strategic mission offers a long-range perspective of what
the organization strives for going forward. A clearly stated mission will provide the
organization with a guide for carrying out its plans. Elements of a strong strategic
mission statement should include the values that the organization holds the nature of
the business, special abilities or position the organization holds in the marketplace, and
the organizations vision for where it wants to be in the future.
Step 3. Define the Strategic Objectives
This third step in the strategic formulation process requires an organization to
identify the performance targets needed to reach clearly stated objectives. These
objectives may include: market position relative to the competition, production of
goods and services, desired market share, improved customer services, corporation
expansion, advances in technology, and sales increases.
Strategic objectives must be communicated with all employees and stakeholders
in order to ensure success. All members of the organization must be made aware of
their role in the process and how their efforts contribute to meeting the organizations
objectives. Additionally, members of the organization should have their own set of
objectives and performance targets for their individual roles.
Step 4. Define the Competitive Strategy
The next step in strategy formulation requires an organization to determine where
it fits into the marketplace. This applies not only to the organization as a whole, but
to each individual unit and department throughout the enterprise. Each area must be
79
aware of its role within the company and how those roles enable the organization to
maintain its competitive position.
Notes
A business organisation has to define its competitive strategy to guide and focus its
future decisions, and to gain sustainable competitive advantage over its rivals to make
the organisation successful in long run. Organizational results are the consequences of
the decisions made by its leaders. The framework that guides and focuses competitive
positioning decisions is called competitive strategy. The purpose of competitive strategy
is to gain sustainable competitive advantage over the rivals.
Competitive strategies are essential to organizations competing in markets that
are heavily saturated with alternatives for consumers. To be successful in such type of
market it is necessary for an organisation to define its winning proposition in simple and
compelling way.
Another step in the competitive strategy process requires an organization to
develop proactive responses to potential changes in the marketplace. As discussed, an
organization must not wait for events in the marketplace to occur before taking steps;
they must identify possible events and be prepared to take action.
The final step in defining a competitive strategy is identifying an organizations
resources and determining how those resources will be used. Each department,
division, or location will have its own set of needs, and a company must determine how
it will allocate resources in order to meet those needs.
Three factors must be considered when determining the overall competitive strategy:
The Industry and Marketplace, The Companys Position relative to the Competition, and
the Companys Internal Strengths and Weaknesses.
4.2 The Industry and Market Place
When evaluating the overall industry, factors to be looked at include:

Size of the market,
Past and potential market growth,
Competitive profitability,
New market entries, and
Industry threats.
These market factors must be evaluated on a regular basis, as small changes

may have a large impact on an organizations business activities. For example, if an
organization becomes aware of new technology that is on the verge of being introduced
into the marketplace, then it can avoid making any new plans that would involve the
older, existing technology available. Also, if an organization is considering global
expansion, then it would be beneficial to be aware of emerging markets, other areas of
potential growth, and what other companies have already entered in those markets.
4.3 The Competition
An organization cannot be successful unless it has a full understanding of the

other players in marketplace. A company must be able to identify the strengths and
weaknesses of the competition and analyze the ways in which the competitions
products or services meet the needs of its customer base.
80
Notes
Has the competition created a significant product differentiation strategy? Has

the competition cornered a specific target market?
Is the competition in full-scale competition with another company?
It is essential for these questions to be answered in order to develop the appropriate

strategy for successful competition.
As mentioned earlier, we discussed how competition for an airline is not only other
airlines, but also other modes of transportation. Evaluating competition requires a
company to look at organizations that provide substitutes for its product or service as
well as those who provide the same products and services.
4.4 Strengths & Weaknesses
Lets go back to the traditional, well-known marketing tool of the SWOT analysis. As
you may recall, SWOT is an acronym for Strengths, Weaknesses, Opportunities, and
Threats. Opportunities and threats are external factors; strengths and weaknesses are
internal factors.
When developing a competitive strategy, it is vital for an organization to be fully
aware of its internal strengths and how those strengths relate to the competition. These
strengths should be maximized and leveraged to the companys advantage as well as
highlighted in all business and marketing activities that the company undertakes.
It is equally important for an organization to take an honest look at its areas
of weakness. This is where a company can become vulnerable to outside market
conditions, such as competitive gains, advances in technology, economic shifts, and
other factors. By identifying areas in need of improvement and taking steps to remedy
those areas, a company will be in a stronger competitive position.
4.5 Developing a Strategic Vision, a Mission, and a Set of Core

Values
Managements job is not to see the company as it is . but as it can become.

John W Teets, CEO, Greyhound Corporation
Very early in the strategy-making process, a companys senior managers must

wrestle with the issue of what directional path the company should take. Can the
companys prospects be improved by changing its product offerings and/or the markets
in which it participates and/or the customers it caters to and/or the technologies
it employs? Deciding to commit the company to one path versus another pushes
managers to draw some carefully reasoned conclusions about whether the companys
present strategic course offers attractive opportunities for growth and profitability
or whether changes of one kind or another in the companys strategy and long-term
direction are needed.
4.5.1 Developing a Strategic Vision
Top managements views and conclusions about the companys long-term
direction and what product-customer-market-technology mix seems optimal for the
road ahead constitute a strategic vision for the company. A strategic vision delineates
managements aspirations for the business, providing a panoramic view of where we
are going and a convincing rationale for why this makes good business sense for the
81
company. A strategic vision thus points an organization in a particular direction, charts

a strategic path for it to follow in preparing for the future, and builds commitment to
the future course of action. A clearly articulated strategic vision communicates
managements aspirations to stakeholders and helps steer the energies of company
personnel in a common direction.
Notes
Well-conceived visions are distinctive and specific to a particular organization;

they avoid generic, feel-good statements like We will become a global leader and the
first choice of customers in every market we servewhich could apply to hundreds
of organizations. And they are not the product of a committee charged with coming up
with an innocuous but well-meaning one-sentence vision that wins consensus approval
from various stakeholders. Nicely worded vision statements with no specifics about the
companys product-market-customer-technology focus fall well short of what it takes for
a vision to measure up.
A sampling of vision statements currently in use shows a range from strong and
clear to overly general and generic. A surprising number of the vision statements found
on company Web sites and in annual reports are vague and unrevealing, saying very
little about the companys future direction. Some could apply to almost any company
in any industry. Many read like a public relations statement high-sounding words
that someone came up with because it is fashionable for companies to have an official
vision statement.
But the real purpose of a vision statement is to serve as a management tool for
giving the organization a sense of direction. Like any tool, it can be used properly or
improperly, either clearly conveying a companys future strategic path or not.
For a strategic vision to function as a valuable managerial tool, it must convey what
management wants the business to look like and provide managers with a reference
point in making strategic decisions and preparing the company for the future. It must
say something definitive about how the companys leaders intend to position the
company beyond where it is today.
4.5.2 Communicating the Strategic Vision
Effectively communicating the strategic vision down the line to lower-level managers
and employees is as important as the strategic soundness of the long-term direction
top management has chosen. Company personnel cant be expected to unite behind
managerial efforts to get the organization moving in the intended direction until they
understand why the strategic course that management has charted is reasonable and
beneficial. It is particularly important for executives to provide a compelling rationale for
a dramatically new strategic vision and company direction. When company personnel
dont understand or accept the need for redirecting organizational efforts, they are
prone to resist change.
Hence, reiterating the basis for the new direction, addressing employee concerns
head-on, calming fears, lifting spirits, and providing updates and progress reports
as events unfold all become part of the task in mobilizing support for the vision and
winning commitment to needed actions.
Winning the support of organization members for the vision nearly always means
putting where we are going and why in writing, distributing the statement organization
wide, and having executives personally explain the vision and its rationale to as many
people as feasible. A strategic vision can usually be stated adequately in one to two
paragraphs, and managers should be able to explain it to the company personnel and
outsiders in 5 to 10 minutes.
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Notes
Ideally, executives should present their vision for the company in a manner that
reaches out and grabs people. An engaging and convincing strategic vision has
enormous motivational valuefor the same reason that a stonemason is more inspired
by building a great cathedral for the ages than simply laying stones to create floors and
walls.
When managers articulate a vivid and compelling case for where the company
is headed, organization members begin to say This is interesting and has a lot of
merit. I want to be involved and do my part to help make it happen. The more that
a vision evokes positive support and excitement, the greater its impact in terms of
arousing a committed organizational effort and getting company personnel to move in
a common direction. Thus executive ability to paint a convincing and inspiring picture
of a companys journey and destination is an important element of effective strategic
leadership.
Wording a Vision Statementthe Dos and Donts
The Dos
The Donts
Be graphic. Paint a clear picture of where the Dont be vague or incomplete. Never
company is headed and the market position(s) skimp on specifics about where the
the company is striving to stake out.
company is headed or how the company
intends to prepare for the future.
Be forward-looking and directional. Describe the Dont dwell on the present. A vision is not
strategic course that management has charted about what a company once did or does
and the kinds of product-market-customer- now; its about where we are going.
technology changes that will help the company
prepare for the future.
Keep it focused. Be specific enough to provide Dont use overly broad language. Allmanagers with guidance in making decisions inclusive language that gives the company
license to head in almost any direction,
and allocating resources.
pursue almost any opportunity, or enter
almost any business must be avoided.
Have some wiggle room. Language that allows
some flexibility is good. The directional course
may have to be adjusted as market-customertechnology circumstances change and coming
up with a new vision statement everyone to
three years signals rudderless management.
Dont state the vision in bland or

uninspiring terms. The best vision
statements have the power to motivate
company personnel and inspire shareholder
confidence about the companys direction
and business outlook.
Be sure the journey is feasible. The path and

direction should be within the realm of what
the company can pursue and accomplish; over
time, a company should be able to demonstrate
measurable progress in achieving the vision.
Dont be generic. A vision statement that

could apply to companies in any of several
industries (or to any of several companies in
the same industry) is incapable of giving a
company its own unique identity.
Indicate why the directional path makes

good business sense. The directional
path should be in the long-term interests
of stakeholders (especially shareowners,
employees, and customers).
Dont rely on superlatives only. Visions

that claim the companys strategic course
is one of being the best or the most
successful or a recognized leader or the
global leader usually shortchange the
essential and revealing specifics about the
path the company is taking to get there.
Make it memorable. To give the organization

a sense of direction and purpose, the vision
needs to be easily communicated. Ideally, it
should be reducible to a few choice lines or a
memorable slogan (like Henry Fords famous
vision of a car in every garage).
Dont run on and on. Vision statements

that are overly long tend to be unfocused
and meaningless. A vision statement that is
not short and to-the-point will tend to lose its
audience.
Exhibit 4.1 Dos & Do nots While framing a vision statement

83
4.5.3 Expressing the Essence of the Vision in a Slogan

The task of effectively conveying the vision to company personnel is assisted when
management can capture the vision of where to head in a catchy or easily remembered
slogan. A number of organizations have summed up their vision in a brief phrase:

Levi Strauss & Company: We will clothe the world by marketing the most
appealing and widely worn casual clothing in the world.
Nike: To bring innovation and inspiration to every athlete in the world.
Mayo Clinic: The best care to every patient every day.
Scotland Yard: To make London the safest major city in the world.
Greenpeace: To halt environmental abuse and promote environmental

solutions.
Notes
Creating a short slogan to illuminate an organizations direction and purpose helps

rally organization members to hurdle whatever obstacles lie in the companys path and
maintain their focus.
4.5.4 The Payoffs of a Clear Vision Statement
A well-conceived, forcefully communicated strategic vision pays off in several
respects:
(1) It crystallizes senior executives own views about the firms long-term direction;
(2) It reduces the risk of rudderless decision making;
(3) It is a tool for winning the support of organization members for internal changes
that will help make the vision a reality;
(4) It provides a beacon for lower-level managers in setting departmental
objectives and crafting departmental strategies that are in sync with the
companys overall strategy; and
(5) It helps an organization prepare for the future.
When management is able to demonstrate significant progress in achieving these
five benefits, the first step in organizational direction setting has been successfully
completed.
4.5.5 Crafting a Mission Statement
The defining characteristic of a strategic vision is what it says about the companys
future strategic course the direction we are headed and our aspirations for the
future. In contrast, a mission statement describes the enterprises current business and
purpose who we are, what we do, and why we are here. The mission statements
that one finds in company annual reports or posted on company Web sites are
typically quite brief; some do a better job than others of conveying what the enterprise
is all about. Consider, for example, the mission statement of Trader Joes (a specialty
grocery chain):
The mission of Trader Joes is to give our customers the best food and beverage
values that they can find anywhere and to provide them with the information required
for informed buying decisions. We provide these with a dedication to the highest quality
84
Notes
of customer satisfaction delivered with a sense of warmth, friendliness, fun, individual

pride, and company spirit.
Note that Trader Joes mission statement does a good job of conveying who we
are, what we do, and why we are here, but it says nothing about the companys longterm direction.
Another example of a well-stated mission statement with ample specifics about
what the organization does is that of the Occupational Safety and Health Administration
(OSHA): to assure the safety and health of Americas workers by setting and enforcing
standards; providing training, outreach, and education; establishing partnerships; and
encouraging continual improvement in workplace safety and health.
Microsofts grandiloquent mission statementTo help people and businesses
throughout the world realize their full potentialsays so little about the customer needs
it is satisfying that it could be applied to almost any firm. A well conceived mission
statement should employ language specific enough to give the company its own
identity.
Ideally, a company mission statement is sufficiently descriptive to:

Identify the companys product or services.
Specify the buyer needs it seeks to satisfy.
Identify the customer groups or markets it is endeavoring to serve.
Specify its approach to pleasing customers.
Give the company its own identity.
Not many company mission statements fully reveal all these facets of the
business or employ language specific enough to give the company an identity that is
distinguishably different from those of other companies in much the same business or
industry. A few companies have worded their mission statements so obscurely as to
mask what they are all about. Occasionally, companies couch their mission in terms of
making a profit. This is misguided.
Profit is more correctly an objective and a result of what a company does.
Moreover, earning a profit is the obvious intent of every commercial enterprise. Such
companies as BMW, McDonalds, Shell Oil, Procter & Gamble, Nintendo, and Nokia
are each striving to earn a profit for shareholders; but plainly the fundamentals of their
businesses are substantially different when it comes to who we are and what we do. It
is managements answer to make a profit doing what and for whom? that reveals the
substance of a companys true mission and business purpose.
4.5.6 Linking the Vision and Mission with Company Values
The values of a company (sometimes called core values) are the beliefs, traits,
and behavioral norms that management has determined should guide the pursuit of
its vision and mission. They relate to such things as fair treatment, integrity, ethical
behavior, innovativeness, teamwork, top-notch quality, superior customer service,
social responsibility, and community citizenship. Many companies have developed a
statement of values to emphasize the expectation that the values be reflected in the
conduct of company operations and the behavior of company personnel.
85
Most companies have identified four to eight core values. At FedEx, the six core
values concern people (valuing employees and promoting diversity), service (putting
customers at the heart of all it does), innovation (inventing services and technologies to
improve what it does), integrity (managing with honesty, efficiency, and reliability), and
loyalty (earning the respect of the FedEx people, customers, and investors every day, in
everything it does).
Notes
Home Depot embraces eight valuesentrepreneurial spirit, excellent customer

service, giving back to the community, respect for all people, doing the right thing,
taking care of people, building strong relationships, and creating shareholder valuein
its quest to be the worlds leading home improvement retailer.
Do companies practice what they preach when it comes to their professed values?
Sometimes no, sometimes yesit runs the gamut. At one extreme are companies with
window-dressing values; the values are given lip service by top executives but have
little discernible impact on either how company personnel behave or how the company
operates. Such companies have value statements because they are in vogue and
make the company look good. At the other extreme are companies whose executives
are committed to infusing the company with the desired character, traits, and behavioral
norms so that they are ingrained in the companys corporate culturethe core values
thus become an integral part of the companys DNA and what makes it tick. At such
value-driven companies, executives walk the talk and company personnel are held
accountable for displaying the stated values.
At companies where the stated values are real rather than cosmetic, managers
connect values to the pursuit of the strategic vision and mission in one of two ways.
In companies with long-standing values that are deeply entrenched in the corporate
culture, senior managers are careful to craft a vision, mission, and strategy that match
established values; they also reiterate how the value-based behavioral norms contribute
to the companys business success. If the company changes to a different vision or
strategy, executives take care to explain how and why the core values continue to be
relevant. In new companies or companies having unspecified values, top management
has to consider what values, behaviors, and business conduct should characterize
the company and then draft a value statement that is circulated among managers and
employees for discussion and possible modification.
A final value statement that incorporates the desired behaviors and traits and that
connects to the vision and mission is then officially adopted. Some companies combine
their vision, mission, and values into a single statement or document, circulate it to
all organization members, and in many instances post the vision, mission, and value
statement on the companys Web site.
4.6 Setting Objectives
The managerial purpose of setting objectives is to convert the vision and mission
into specific performance targets. Well-stated objectives are specific, quantifiable
or measurable, and contain a deadline for achievement. As Bill Hewlett, cofounder
of Hewlett-Packard, shrewdly observed, You cannot manage what you cannot
measure. . . . And what gets measured gets done. Concrete, measurable objectives
are managerially valuable for three reasons: (1) They focus efforts and align actions
throughout the organization, (2) they serve as yardsticks for tracking a companys
performance and progress, and (3) they provide motivation and inspire employees to
greater levels of effort. Ideally, managers should develop challenging yet achievable
objectives that stretch an organization to perform at its full potential.
86
Notes
4.6.1 Kinds of Objectives to Set

Two very distinct types of performance targets are required:

Those relating to financial performance and
Those relating to strategic performance.
Financial objectives communicate managements targets for financial performance.

Strategic objectives are related to a companys marketing standing and competitive
vitality. Examples of commonly used financial and strategic objectives include the
following:
Financial Objectives
Strategic Objectives
An x percent increase in annual

revenues
Winning an x percent market share
Annual increases in after-tax profits of

x percent
Achieving lower overall costs than rivals
Annual increases in earnings per

share of x percent
Overtaking key competitors on product

performance or quality or customer service
Annual dividend increases of x percent Deriving x percent of revenues from the sale
of new products introduced within the past fi
ve years
Profit margins of x percent
Having broader or deeper technological

capabilities than rivals
An x percent return on capital

Having a wider product line than rivals
employed (ROCE) or return on
shareholders equity investment (ROE)
Increased shareholder valuein the
form of an upward-trending stock price
Having a better-known or more powerful

brand name than rivals
Bond and credit ratings of x
Having stronger national or global sales and

distribution capabilities than rivals
Internal cash flows of x dollars to fund

new capital investment
Consistently getting new or improved

products to market ahead of rivals
Exhibit 4.2 Financial Objectives versus Strategic Objectives

The importance of setting and achieving financial objectives is intuitive. Without
adequate profitability and financial strength, a companys long-term health and ultimate
survival are jeopardized. Furthermore, subpar earnings and a weak balance sheet
alarm shareholders and creditors and put the jobs of senior executives at risk. However,
good financial performance, by itself, is not enough.
4.6.2 The Merits of Setting Stretch Objectives
Ideally, managers ought to use the objective-setting exercise as a tool for stretching
an organization to perform at its full potential and deliver the best possible results.
Challenging company personnel to go all out and deliver stretch gains in performance
pushes an enterprise to be more inventive, to exhibit more urgency in improving both its
financial performance and its business position, and to be more intentional and focused
in its actions. Stretch objectives spur exceptional performance and help build a firewall
against contentment with modest gains in organizational performance.
As Mitchell Leibovitz, former CEO of the auto parts and service retailer Pep Boys,
once said, If you want to have ho-hum results, have ho-hum objectives.
87
Theres no better way to avoid unimpressive results than by setting stretch

objectives and using compensation incentives to motivate organization members to
achieve the stretch performance targets.
Notes
4.6.3 Why Both Short-Term and Long-Term Objectives Are Needed

A companys set of financial and strategic objectives should include both near-term
and longer-term performance targets. Short-term (quarterly or annual) objectives focus
attention on delivering performance improvements in the current period and satisfy
shareholder expectations for near-term progress. Longer term targets (three to five
years off ) force managers to consider what to do now to put the company in position
to perform better later. Long-term objectives are critical for achieving optimal long-term
performance and stand as a barrier to a nearsighted management philosophy and an
undue focus on short-term results. When tradeoffs have to be made between achieving
long-run objectives and achieving short run objectives, long-run objectives should take
precedence (unless the achievement of one or more short-run performance targets has
unique importance).
4.6.4 The Need for Objectives at All Organizational Levels
Objective setting should not stop with top managements establishing of
companywide performance targets. Company objectives need to be broken down into
performance targets for each of the organizations separate businesses, product lines,
functional departments, and individual work units. Company performance cant reach
full potential unless each organizational unit sets and pursues performance targets that
contribute directly to the desired companywide outcomes and results.
Objective-setting is thus a top-down process that must extend to the lowest
organizational levels. And it means that each organizational unit must take care to set
performance targets that supportrather than conflict with or negatethe achievement
of companywide strategic and financial objectives.
The ideal situation is a team effort in which each organizational unit strives to
produce results in its area of responsibility that contribute to the achievement of the
companys performance targets and strategic vision. Such consistency signals that
organizational units know their strategic role and are on board in helping the company
move down the chosen strategic path and produce the desired results.
4.7 Crafting a Strategy
The task of stitching a strategy together entails addressing a series of Hows :

How to grow the business, how to please customers, how to outcompete rivals, how
to respond to changing market conditions, how to manage each functional piece of
the business, how to develop needed capabilities, and how to achieve strategic and
financial objectives. It also means choosing among the various strategic alternatives
proactively searching for opportunities to do new things or to do existing things in new
or better ways.
The faster a companys business environment is changing, the more critical it
becomes for its managers to be good entrepreneurs in diagnosing the direction and
force of the changes under way and in responding with timely adjustments in strategy.
Strategy makers have to pay attention to early warnings of future change and be willing
to experiment with dare to-be-different ways to establish a market position in that future.
When obstacles appear unexpectedly in a companys path, it is up to management to
adapt rapidly and innovatively.
Masterful strategies come from doing things differently from competitors where
it countsout-innovating them, being more efficient, being more imaginative,
88
Notes
adapting fasterrather than running with the herd. Good strategy making is therefore
inseparable from good business entrepreneurship. One cannot exist without the other.
Strategy Making Involves Managers at All Organizational Levels
An Organization without a strategy is like a rudderless ship
A companys senior executives obviously have important strategy-making roles.
The chief executive officer (CEO), as captain of the ship, carries the mantles of
chief direction setter, chief objective setter, chief strategy maker, and chief strategy
implementer for the total enterprise. Ultimate responsibility for leading the strategymaking, strategy-executing process rests with the CEO. In some enterprises the CEO
or owner functions as strategic visionary and chief architect of strategy, personally
deciding what the key elements of the companys strategy will be, although others may
well assist with data gathering and analysis and the CEO may seek the advice of senior
executives or board members.
A CEO-centered approach to strategy development is characteristic of small ownermanaged companies and sometimes large corporations that were founded by the
present CEO or that have a CEO with strong strategic leadership skills. Steve Jobs at
Apple, Andrea Jung at Avon, and Howard Schultz at Starbucks are prominent examples
of corporate .CEOs who have wielded a heavy hand in shaping their companys
strategy.
Even here, however, it is a mistake to view strategy making as a top management
function, the exclusive province of owner-entrepreneurs, CEOs, other senior
executives, and board members. The more a companys operations cut across different
products, industries, and geographic areas, the more that headquarters executives
have little option but to delegate considerable strategy making authority to down-theline managers in charge of particular subsidiaries, divisions, product lines, geographic
sales offices, distribution centers, and plants.
On-the-scene managers who oversee specific operating units can be reliably
counted on to have more detailed command of the strategic issues and choices for
the particular operating unit under their supervisionknowing the prevailing market
and competitive conditions, customer requirements and expectations, and all the other
relevant aspects affecting the several strategic options available.
Managers with day-to-day familiarity of, and authority over, a specific operating unit
thus have a big edge over headquarters executives in making wise strategic choices for
their operating unit.
Take, for example, a company like General Electric, a $183 billion global corporation
with 325,000 employees, operations in some 100 countries, and businesses that
include jet engines, lighting, power generation, electric transmission and distribution
equipment, housewares and appliances, medical equipment, media and entertainment,
locomotives, security devices, water purification, and financial services.
While top-level headquarters executives may well be personally involved in shaping
GEs overall strategy and fashioning important strategic moves, it doesnt follow that a
few senior executives in GEs headquarters have either the expertise or a sufficiently
detailed understanding of all the relevant factors to wisely craft all the strategic
initiatives taken for hundreds of subsidiaries and thousands of products. They simply
cannot know enough about the situation in every GE organizational unit to decide
on every strategy detail and direct every strategic move made in GEs worldwide
organization. Rather, it takes involvement on the part of GEs whole management
teamtop executives, business group heads, the heads of specific business units
89
and product categories, and key managers in plants, sales offices, and distribution
centersto craft the thousands of strategic initiatives that end up constituting the whole
of GEs strategy.
Notes
The level of strategy also has a bearing on who participates in crafting strategy. In
diversified companies, where multiple businesses have to be managed, the strategymaking task involves distinct levels of strategy which are taken up later.
Summary
Developing a strategic vision and mission, setting objectives, and crafting a

strategy are basic direction-setting tasks. They map out where a company is headed,
its purpose, the targeted strategic and financial outcomes, the basic business model,
and the competitive moves and internal action approaches to be used in achieving
the desired business results. Together, they constitute a Strategic Plan for coping with
industry conditions, outcompeting rivals, meeting objectives, and making progress
toward the strategic vision.
Typically, a Strategic Plan includes a commitment to allocate resources to the plan
and specifies a time period for achieving goals (usually three to five years).In some
companies, the strategic plan is focused around achieving exceptionally bold strategic
objectivesstretch goals requiring resources that are well beyond the current means
of the company. This type of strategic plan is more the expression of a strategic intent
to rally the organization through an unshakableoften obsessivecommitment to do
whatever it takes to acquire the resources and achieve the goals. Nikes strategic intent
during the 1960s was to overtake Adidas an objective far beyond Nikes means at
the time. Starbucks strategic intent is to make the Starbucks brand the worlds most
recognized and respected brand.
In companies that do regular strategy reviews and develop explicit strategic plans,
the strategic plan usually ends up as a written document that is circulated to most
managers and perhaps selected employees. Near term performance targets are
the part of the strategic plan most often spelled out explicitly and communicated to
managers and employees.
A number of companies summarize key elements of their strategic plans in
the companys annual report to shareholders, in postings on their Web sites, or in
statements provided to the business media, whereas others, perhaps for reasons of
competitive sensitivity, make only vague, general statements about their strategic plans
In small, privately owned companies, it is rare for strategic plans to exist in written form.
Small-company strategic plans tend to reside in the thinking and directives of owners/
executives, with aspects of the plan being revealed in meetings and conversations with
company personnel, and in the understandings and commitments among managers
and key employees about where to head, what to accomplish, and how to proceed.
Check Your Progress
1. The first step of strategy formulation is-a) Internal analysis
b) Set objectives
c) Set vision and mission
d) External analysis
90
Notes
2. Organization mission and vision are guided by-a) Environment

b) Values
c) Ethics
d) Social Responsibility
3. Strike out the best combination.
i.
Strategies have short range implications
ii. Strategies are rigid

iii. Strategies are action oriented
a) i and ii
b)
i and iii
c)
ii and iii
d)
All
4. Which components are important for a strategic plan?

a) Objectives
b) Vision
c) Mission
d) All
5. Strategic formulation is the process by which organization choses appropriate
actions to achieve-a) Goals
b) Vision
c) Mission
d) Objectives
6. An organization has to define its competitive strategy to ___________ &_________
its future decisions.
a) Supervise, Amend
b) Guide, Focus
c) Plan, Control
d) Implement, Sustain
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7. Opportunities and Threats are _____________ to the organization.
Notes
a) Internal
b) Perpetual
c) External
d) Short Termed
8. Purpose of Vision statement is to provide organization a sense of -a) Motivation
b) Focus
c) Direction
d) Future Plans
1. Elucidate difference between strategic vision and missions by citing suitable
examples
2. Explain steps in strategic formulation
3. Construct a vision and mission statement for a company which is into
manufacturing cars.
4. What do you understand by , defining the corporate strategy
5. Critically examine the merits of setting stretch objectives.
4. Regular reading of all latest Business Journals : HBR, Strategist, Busienss
World, Business India, Business Today.
6. Thomson & Strickla d, Business policy and Strategic management, 12th Ed.,
PHI.
Case in point
Virgin Trains: Vision to Success
Virgin Train is known for running high quality, fast and reliable state-of-the-art
92
Notes
trains, capable of speeds of up to 125 miles per hour. Virgin Trains operates the West
Coast rail franchise with trains running along various routes including from Glasgow,
Manchester and Birmingham to London. The average journey time from Manchester
to London today is just over two hours. Virgin Trains currently operates 333 trains
and carries more than 62,000 passengers a day. Until 1993, railways in Britain had
been part of the public sector. They were run by an organization appointed by the
government called British Rail. The culture was one where managers passed down
instructions and directions to employees who carried them out without questioning
them. Since 1997, Virgin Trains has been running the West Coast and other lines as an
independent private sector business.
Decentralized Structure
Virgin Trains seeks to differentiate itself from other rail competitors in order to
increase customer satisfaction and develop a train service fit for the twenty-first century.
The business is organized on a decentralized regional structure. Each region has a
set of Managers responsible for the important operating areas. These Managers then
link up with other regional Managers to share ideas and expertise. For example, the
structure at Manchesters Piccadilly station links the station with the train crews: Each
region is able to focus on the commercial needs of its area. For example, the Scottish
region focuses on developing services to include the local economy and particularly
tourism. Each seeks to maximize the quality of services to customers, for example, by
cutting unnecessary costs and waste.
New Vision
In 2003, the Chief Executive of the company, Tony Collins, set out his vision for
the company, which has transformed its operations. Virgin Trains vision involves the
empowerment of staff to take responsibility and ownership of their performance. This
vision is what makes Virgin Trains different. This case study looks at how this vision
is transforming the culture and performance of Virgin Trains. A vision enables an
organization to move forward with clarity. It links the business specific objectives and
targets with the core values that govern how the business will operate in order to meet
those targets. It therefore goes further than a mission statement.
A mission statement sets out the purpose of an organization. For example, for Virgin
Trains, this is to run a high quality, efficient and cost-effective rail service. A vision goes
further. It paints a picture in clear language of where the organization is going, linked to
the behaviours it expects of everyone in the organization.
Virgin Trains vision is: To become the most safe, consistent, reliable and profitable
of the train operating franchises in a climate that respects different views and people
need not be afraid to be open and honest.
This is a very clear vision:
1. It sets out the values of the company, e.g. safety and reliability.
2. It sets out clear commercial targets profitability.
3. It sets out the relationship between the organization and its people respecting
different views and encouraging openness and honesty.
4. This vision reflects Virgin Trains forward-thinking style. This may stand the
company in good stead in any future franchise bids
93
Unit-V : Classification of Strategy: Making Strategic

Choices at Different Levels
Notes
Structure
5.1 The components of Strategy

5.1.2 The Three Levels of Organizational Strategy
5.2 Corporate Level Strategy

5.3 Business Unit Level Strategy
5.4 Functional Level Strategy
5.5 Difference &Relationship between Corporate & Business Level Strategies
5.6 Classification of Corporate Strategy
5.7 Corporate directional Strategy

5.7.1 Growth Strategies
5.7.2 Stability Strategies
5.7.3 Retrenchment Strategies
5.8.1 Grand Strategy Selection Matrix (GSSM)
5.8.2 Corporate Portfolio Analysis
5.8.3 The Boston Consulting Group(BCG) Matrix
5.8.4 GE/McKinsey Matrix
5.8.5 Hofers Model or ADL Matrix- Arthur D. Little Matrix
5.9 The Competitive Position

5.9.1 The Life Cycle Stages
5.9.2 The Use of ADL Matrix
5.9.3 Defining the Line of Business in the ADL Matrix
5.9.4 Assessing the Industry Life Cycle Stage in the ADL matrix
5.9.5 Limitation
5.10 Corporate Parenting Strategy

5.11 The Parenting Advantage

5.11.1 Understanding the Parenting Grid
5.12 Classification of Business Level Strategies

5.13 Analysis of Business Level Strategies: Porters Generic Business Strategies

5.13.1 Cost Leadership Strategies
5.13.2 Differentiation Strategies
5.13.3 Focus
5.14 Functional Level Strategies
Objectives

To understand different components of strategy.
To provide students insight into the levels of strategy.
To make students understand Ansoffs Growth Strategy Matrix, Grand Strategy

Selection Matrix (GSSM), Corporate Portfolio Analysis , The Boston Consulting
Group (BCG) Matrix, GE/McKinsey Matrix, Hofers Model and ADL Matrix and
implications of the strategies.
94
Notes
Introduction
There are many types of strategies in the business world, business-level strategies
and corporate-level strategies, functional-level strategies. All types of strategy are
important to businesses, but they are very different. Managers should understand the
differences between these levels of strategy and the relationship between them.
Most corporations have multiple levels of management. Strategic management can
occur at corporate, business and functional levels.

Corporate Level
Business unit Level
Functional or Departmental Level
At the corporate level, Organizations are responsible for creating value through their
businesses. Organization do so by managing their portfolio of businesses, ensuring
that their businesses are successful over the long term, developing business units,
and sometimes ensuring that each business is compatible with others in their portfolio.
Corporate strategy answers the questions, which businesses should we be in? and
how does being in these businesses create synergy and/or add to the competitive
advantage of the corporation as a whole?
Business strategy is the corporate strategy of single firm or a strategic business unit
(SBU) in a diversified corporation. Products and services are developed by business
units. The role of the corporation is to manage its business units, products and services
so that each is competitive and so that each contributes to corporate purposes.
Functional strategies are specific to a functional area, such as marketing, product
development, human resources, finance, legal, and supply-chain and information
technology. The emphasis is on short and medium term plans. Functional strategies are
derived from and must comply with broader corporate strategies.
5.1 The Components of Strategy
A well-developed strategy contains five components, or sets of issues:
Scope. The scope of an organization refers to the breadth of its strategic domain
the number and types of industries, product lines, and market segments it
competes in or plans to enter. Decisions about an organizations strategic scope
should reflect managements view of the firms purpose or mission. This common
thread among its various activities and product-markets defines the essential nature
of what its business is and what it should be.
Goals and objectives. Strategies should also detail desired levels of

accomplishment on one or more dimensions of performance such as volume
growth, profit contribution, or return on investment over specified time periods for
each of those businesses and product-markets and for the organization as a whole.
Resource deployments. Every organization has limited financial and human

resources. Formulating a strategy also involves deciding how those resources
are to be obtained and allocated, across businesses, product-markets, functional
departments, and activities within each business or product-market.
Identification of a sustainable competitive advantage. One important part of any

strategy is a specification of how the organization will compete in each business
95
and product-market within its domain. How can it position itself to develop and
sustain a differential advantage over current and potential competitors? To answer
such questions, managers must examine the market opportunities in each business
and product-market and the companys distinctive competencies or strengths
relative to its competitors.

Notes
Synergy. Synergy exists when the firms businesses, product-markets, resource

deployments, and competencies complement and reinforce one another. Synergy
enables the total performance of the related businesses to be greater than it would
otherwise be: The whole becomes greater than the sum of its parts.
5.1.2 The Three Levels of Organizational Strategy

Explicitly or implicitly, these five basic dimensions are part of all strategies. However,
rather than a single comprehensive strategy, most organizations have a hierarchy of
interrelated strategies, each formulated at a different level of the firm. The three major
levels of strategy in most large, multiproduct organizations are (1) corporate strategy,
(2) business-level strategy, and (3) functional strategies focused on a particular productmarket entry.
In small, single-product-line companies or entrepreneurial start-ups, however,
corporate and business-level strategic issues merge.
Strategies at all three levels contain the five components mentioned earlier, but
because each strategy serves a different purpose within the organization, each
emphasises a different set of strategy
Exhibit 5.1-Three Levels of Strategy
5.2 Corporate Level Strategy
Corporate level strategy fundamentally is concerned with selection of businesses in

which their company should compete and with development and coordination of that
portfolio of businesses.
Corporate level strategy is concerned with:

Reach defining the issues that are corporate responsibilities. These might
include identifying the overall vision, mission, and goals of the corporation, the
type of business their corporation should be involved, and the way in which
businesses will be integrated and managed.
Competitive Contact defining where in their corporation competition is to be

localized.
Managing Activities and Business Interrelationships corporate strategy

seeks to develop synergies by sharing and coordinating staff and other
96
Notes
resources across business units, investing financial resources across business

units, and using business units to complement other corporate business
activities.

Management Practices corporations decide how business units are to be

governed: through direct corporate intervention (centralization) or through
autonomous government (decentralization).
5.3 Business Unit Level Strategy
A strategic business unit may be any profit center that can be planned independently
from other business units of their corporation. At the business unit level, the strategic
issues are about both practical coordination of operating units and about developing
and sustaining a competitive advantage for the products and services that are
produced.
5.4 Functional Level Strategy
The functional level of the organization is the level of the operating divisions and
departments. The strategic issues at the functional level are related to functional
business processes and value chain. Functional level strategies in R&D, operations,
manufacturing, marketing, finance, and human resources involve the development and
coordination of resources through which business unit level strategies can be executed
effectively and efficiently.
Functional units of the organization are involved in higher level strategies by
providing input into the business unit level and corporate level strategy, such as
providing information on customer feedback or on resources and capabilities on which
the higher level strategies can be based. Once the higher level strategy or strategic
intent is developed, the functional units translate them into discrete action plans that
each department or division must accomplish for the strategy to succeed.
5.5 Difference and Relationship between Corporate and Business

Level Strategies
The chief difference between business- and corporate-level strategies is that
business-level strategies are focused, while corporate-level strategies are broad. The
issues in corporate strategy tend to be more complex than business-level strategies,
and they usually have a higher impact on the firm. They, therefore, require more
resources and consideration.
Corporate strategy refers to all strategic decisions that affect the firm as a whole.
Often, corporate-level strategies will have an effect on several business units.
Corporate strategic issues include the financial structure of the firm, mergers and
acquisitions, and the allocation of resources to individual business units. Corporate
strategic decisions are normally made by the board of directors.
Business level strategy is low-level strategy that applies to a single division or
business unit. Business-level strategic issues include pricing and marketing strategies.
Business-level strategies are normally decided by mid-level managers who are
responsible for the business unit or division.
Business-level and Corporate strategies are very different, but they are still closely
related. Corporate strategies will often affect business-level strategies. For example,
if a corporate strategic decision is made to acquire a competing firm, business-level
97
strategies would need to adjust to this, for instance making changes to the marketing
strategy to incorporate the products of the acquired firm.
Level of Strategy
Definition
Notes
Example
Corporate strategy Market definition
Diversification into new product or

geographic markets
Business strategy
Market Navigation
Attempts to secure competitive

advantage in existing product or
geographic markets
Functional
strategy
Support of corporate
strategy and business
strategy
Information systems, human resource

practices, and production processes
that facilitate achievement of corporate
and business strategy
Exhibit 5.2-.Levels of Strategy-Definition and Examples
5.6 Classification of Corporate Strategy
Corporate-level strategies address the entire strategic scope of the organization.

This is the big picture view of the organization and includes deciding in which product
or service markets to compete and in which geographic regions to operate. For multibusiness firms, the resource allocation processhow cash, staffing, equipment and
other resources are distributedis typically established at the corporate level. In
addition, because market definition is the domain of corporate-level strategists, the
responsibility for diversification, or the addition of new products or services to the
existing product/service line-up, also falls within the realm of corporate-level strategy.
Similarly, whether to compete directly with other firms or to selectively establish
cooperative relationshipsstrategic alliancesfalls within the purview corporate-level
strategy, while taking ongoing inputs from managers.
Critical questions answered by corporate-level strategists thus include:
1. What should be the scope of operations; i.e.; what businesses should the firm
be in?
2. How should the firm allocate its resources among existing businesses?
3. What level of diversification should the firm pursue; i.e., which businesses
represent the companys future? Are there additional businesses the firm
should enter or are there businesses that should be targeted for termination or
divestment?
4. How diversified should the corporations business be? Should we pursue
related diversification; i.e., similar products and service markets, or is unrelated
diversification; i.e., dissimilar product and service markets, a more suitable
approach given current and projected industry conditions? If we pursue related
diversification, how will the firm leverage potential cross-business synergies?
In other words, how will adding new product or service businesses benefit the
existing product/service line-up?
5. How should the firm be structured? Where should the boundaries of the firm
be drawn and how will these boundaries affect relationships across businesses,
with suppliers, customers and other constituents? Do the organizational
components such as research and development, finance, marketing, customer
service, etc. fit together? Are the responsibilities or each business unit clearly
identified and is accountability established?
98
Notes
6. Should the firm enter into strategic alliancescooperative, mutually-beneficial

relationships with other firms? If so, for what reasons? If not, what impact might
this have on future profitability?
As the previous questions illustrate, corporate strategies represent the long-term
direction for the organization. Issues addressed as part of corporate strategy include
those concerning diversification, acquisition, divestment, strategic alliances, and
formulation of new business ventures. Corporate strategies deal with plans for the
entire organization and change as industry and specific market conditions warrant.
Top management has primary decision making responsibility in developing corporate
strategies and these managers are directly responsible to shareholders. The role of the
board of directors is to ensure that top managers actually represent these shareholder
interests. With information from the corporations multiple businesses and a view of
the entire scope of operations and markets, corporate-level strategists have the most
advantageous perspective for assessing organization-wide competitive strengths and
weaknesses, corporate strategists are paralyzed without accurate and up-to-date
information from managers at the business-level.
Corporate strategy deals with three key issues facing the corporation as a whole.
Exhibit 5.3: Types of Corporate Strategy

1. Directional Strategy They are also known as Grand Strategy, the firms overall
orientation towards Growth, Stability and Retrenchment. The two basic growth
strategies are Concentration and Diversification. The growth of a company could
be achieved through Merger, Acquisition, Takeover, Joint Ventures and Strategic
Alliances. Turnaround, Divestment and Liquidation are the various types of
Retrenchment Strategy.
2. Portfolio Analysis The industries or markets in which the firm competes through
its products and business units. In portfolio analysis, top management views its
product lines and business units as a series of portfolio investment and constantly
keeps analyzing for a profitable return.
Two of the most popular strategies are the BCG Growth Share matrix and GE
business screen
3. Parenting strategy The manner in which the management coordinates activities
and transfers resources and cultivate capabilities among product lines and business
units.
5.7 Corporate Directional Strategy
Corporate-level strategists have a tremendous amount of both latitude and

responsibility. The myriad decisions required of these managers can be overwhelming
considering the potential consequences of incorrect decisions. One way to deal with
this complexity is through categorization; one categorization scheme is to classify
corporate-level strategy decisions into three different types, or grand strategies. These
grand strategies involve efforts to expand business operations (growth strategies),
99
decrease the scope of business operations (retrenchment strategies), or maintain the

status quo (stability strategies).
Notes
Exhibit 5.4: Types of Corporate Directional Strategy

5.7.1 Growth Strategies
Growth strategies are designed to expand an organizations performance, usually
as measured by sales, profits, product mix, market coverage, market share, or other
accounting and market-based variables. Typical growth strategies involve one or more
of the following:

Concentration Strategy: The firm attempts to achieve greater market penetration

by becoming highly efficient at servicing its market with a limited product line (e.g.,
McDonalds in fast foods).
Vertical Integration Strategy: The firm attempts to expand the scope of its current
operations by undertaking business activities formerly performed by one of its
suppliers (backward integration) or by undertaking business activities performed by
a business in its channel of distribution (forward integration).
Diversification Strategy: It entails moving into different markets or adding different

products to its mix. If the products or markets are related to existing product or
service offerings, the strategy is called Concentric diversification. If expansion is
into products or services unrelated to the firms existing business, the diversification
is called Conglomerate diversification.
Ansoffs Growth Strategy Matrix: First presented in the Harvard Business Review
in 1957, H.I. Ansoffs growth strategy matrix remains a popular tool for analyzing
growth.
Exhibit 5.5- Ansoff Growth Strategy Matrix

The matrix presents four main strategic choices, ranging from an incremental
strategy in which current products are sold to existing customers to a revolutionary
strategy in which new products are sold to new customers.
1. Market penetration. In this quadrant, the company markets existing products
to existing customers. The products remain unchanged and no new customer
100
Notes
segments are pursued; instead, the company repositions the brand, launches
new promotions or otherwise tries to gain market share and accordingly, increase
revenue.
2. Market development. Here, the company markets existing products to one or more
new customer segments. These customers could represent untapped verticals,
virgin geographies or other new opportunities.
3. Product development. This quadrant involves marketing new products to existing
customers. The company grows by innovating, gradually replacing old products with
new ones.
4. Diversification. This quadrant entails the greatest risk; here, the company markets
new products to new customers. There are two types of diversification: related
and unrelated. In related diversification, the company enters a related market or
industry. In unrelated diversification, the company enters a market or industry in
which it has no relevant experience.
These quadrants represent varying degrees of risk. Assuming that the more a
business knows about its market, the more likely to succeed; the market penetration
strategy entails the least risk, while the diversification strategy entails the most. (In fact,
consultants often refer to the diversification cell as the suicide cell.)
International Market Entry/Expansion Strategies
There are a number ways businesses can sell their products in international
markets. The most appropriate method will depend on the business, its products, the
outcome of its Marketing Environment analysis and its Marketing Plan.
Exhibit 5.6- Growth In Foreign Markets-Modes Of Entry

101
5.7.2 Stability Strategies

When firms are satisfied with their current rate of growth and profits, they may
decide to use a stability strategy. This strategy is essentially a continuation of existing
strategies. Such strategies are typically found in industries having relatively stable
environments. The firm is often making a comfortable income operating a business that
they know, and see no need to make the psychological and financial investment that
would be required to undertake a growth strategy.
Notes
5.7.3 Retrenchment Strategies

Retrenchment strategies involve a reduction in the scope of a corporations
activities, which also generally necessitates a reduction in number of employees, sale
of assets associated with discontinued product or service lines, possible restructuring of
debt through bankruptcy proceedings, and in the most extreme cases, liquidation of the
firm.

Turnaround strategy: is undertaking a temporary reduction in operations in an

effort to make the business stronger and more viable in the future. These moves
are popularly called downsizing or rightsizing. The hope is that going through a
temporary belt-tightening will allow the firm to pursue a growth strategy at some
future point.
Divestment strategy: when a firm elects to sell one or more of the businesses in its
corporate portfolio. Typically, a poorly performing unit is sold to another company
and the money is reinvested in another business within the portfolio that has greater
potential.
Bankruptcy: involves legal protection against creditors or others allowing the firm to
restructure its debt obligations or other payments, typically in a way that temporarily
increases cash flow. Such restructuring allows the firm time to attempt a turnaround
strategy. For example, since the airline hijackings and the subsequent tragic
events of September 11, 2001, many of the airlines based in the U.S. have filed
for bankruptcy to avoid liquidation as a result of stymied demand for air travel and
rising fuel prices. At least one airline has asked the courts to allow it to permanently
suspend payments to its employee pension plan to free up positive cash flow.
Liquidation: is the most extreme form of retrenchment. Liquidation involves the

selling or closing of the entire operation. There is no future for the firm; employees
are released, buildings and equipment are sold, and customers no longer have
access to the product or service. This is a strategy of last resort and one that most
managers work hard to avoid.
5.8.1 Grand Strategy Selection Matrix (GSSM)

Grand Strategy Selection Matrix has become an effective tool in devising alternative
strategies. The matrix is based on the following four important elements.

Rapid market growth
Slow market growth
Strong competitive position
Weak competitive position.
The above four elements form a four quadrant matrix wherein every organization
can be placed in a way the identification and selection of appropriate strategy becomes
an easy task. With the result, the matrix can be adapted to choose the best strategy
based on the current growth and competitive state of the company. A huge company
with many divisions can also plot its divisions in this four quadrants Grand Strategy
Matrix by formulating the best strategy for each division.
102
Notes
The management must select the strategy that is cohesive with the market and
competitive position. Broadly speaking the four elements of GSSM can be described as
two evaluative dimensions of Market growth and Competitive position.
Quadrant 1: This quadrant is meant for companies that are in strong competitive
position and flourishing with market growth. The companies have an excellent
strategic position and should focus on current markets and product and its
development strategy. With resources they can also expand in backward, forward,
or horizontal integration. A single product company here should diversify to avert
risks with the slender product line. Companies in this quadrant can afford to exploit
external opportunities and enhance their financial muscle.
Quadrant II: Companies in this quadrant of the GSSM have weak competitive position
in a fast growing market. Companies here are in growing market but they are
competing ineffectively. An intensive and effective strategy must be adopted.
Companies can adapt to horizontal integration. If they cannot have a suitable
strategy, then divestiture of some divisions can be considered. As a last resort,
liquidation can be considered and another business can be acquired.
Quadrant III: Here companies are in a slow growth industry with weak competition.
Drastic changes are required. The management must change its philosophy and
new approaches to governance are the need. Overall revamping at a cost may
be warranted. Strategic asset reduction, retrenchment may be the best option.
Diversifying by shifting the resources may be another option. Final option could be
divestiture or liquidation.
Quadrant IV: The companies are in strong competitive position, but in a slow
growth industry. Companies must look for promising growth areas and to exploit
opportunities in the growing markets as they have the strength. These companies
have limited requirement of funds for internal growth and enjoy high cash flow
due to a strong competitive position. They can look for related or unrelated
diversification with cash flow and funds; they can also look for joint ventures.
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5.8.2 Corporate Portfolio Analysis

One way to think of corporate-level strategy is to compare it to an individual
managing a portfolio of investments. Just as the individual investor must evaluate
each individual investment in the portfolio to determine whether or not the investment
is currently performing to expectations and what the future prospects are for the
investment, managers must make similar decisions about the current and future
performances of various businesses constituting the firms portfolio.
Notes
The Corporate portfolio analysis represents an analytical approach by means

of which managers have the possibility to view the corporation as a set of strategic
business units that must be managed in a profitable way. Also, by taking into account
features specific to the area in which the company operates, by taking into account the
competitive advantage and the modalities of earmarking financial resources thereof, the
Corporate portfolio analysis provides managers the opportunity to approach companies
from a different point of view and to pay increased attention to all activities that need to
be undertaken.
Correlated to visual approach that is based on a series of graphic representations,
the business portfolio analysis corresponding to a company is consolidated by the
comparative assessment procedure of market shares, rates of market increase,
market attractiveness, competitive position and life cycle of products/markets, specific
to each strategic business unit. This corporate portfolio analysis must become routine
activity undertaken by the company, through its carrying out on a regular basis, so
that decisions of earmarking of financial resources may be monitored, updated and
modified with a view to accomplishing corporate objectives, correlated to the process of
generation thereof carried out in an efficient way by each Strategic Business Unit.
5.8.3 The Boston Consulting Group (BCG) Matrix
The Boston Consulting Group (BCG) matrix is a relatively simple technique for
assessing the performance of various segments of the business.
The BCG matrix classifies business-unit performance on the basis of the units
relative market share and the rate of market growth as shown below-
Exhibit 5.7: BCG Model of Portfolio Analysis

Products and their respective strategies fall into one of four quadrants.
1. Question marks are cash users in the organization. Early in their life, they contribute
no revenues and require expenditures for market research, test marketing, and
advertising to build consumer awareness. The typical starting point for a new
business is as a question mark. If the product is new, it has no market share, but
the predicted growth rate is good. What typically happens in an organization is
that management is faced with a number of these types of products but with too
few resources to develop all of them. Thus, the strategic decision-maker must
104
Notes
determine which of the products to attempt to develop into commercially viable

products and which ones to drop from consideration.
2. Stars have high market share in high-growth markets. Stars generate large cash
flows for the business, but also require large infusions of money to sustain their
growth. Stars are often the targets of large expenditures for advertising and
research and development to improve the product and to enable it to establish a
dominant position in the industry. If the correct decision is made and the product
selected achieves a high market share, it becomes a BCG matrix star.
3. Cash cows are business units that have high market share in a low-growth market.
These are often products in the maturity stage of the product life cycle. They are
usually well-established products with wide consumer acceptance, so sales
revenues are usually high. The strategy for such products is to invest little money
into maintaining the product and divert the large profits generated into products with
more long-term earnings potential, i.e., question marks and stars.
4. Dogs are businesses with low market share in low-growth markets. These are
often cash cows that have lost their market share or question marks the company
has elected not to develop. The recommended strategy for these businesses is to
dispose of them for whatever revenue they will generate and reinvest the money in
more attractive businesses (question marks or stars).
Despite its simplicity, the BCG matrix suffers from limited variables on which to base
resource allocation decisions among the business making up the corporate portfolio.
Notice that the only two variables composing the matrix are relative market share and
the rate of market growth. Now consider how many other factors contribute to business
success or failure. Management talent, employee commitment, industry forces such
as buyer and supplier power and the introduction of strategically-equivalent substitute
products or services, changes in consumer preferences, and a host of others determine
ultimate business viability. The BCG matrix is best used, then, as a beginning point,
but certainly not as the final determination for resource allocation decisions as it was
originally intended.
Consider, for instance, Apple Computer. With a market share for its Macintoshbased computers below ten percent in a market notoriously saturated with a number of
low-cost competitors and growth rates well-below that of other technology pursuits such
as biotechnology and medical device products, the BCG matrix would suggest Apple
divest its computer business and focus instead on the rapidly growing iPod business
(its music download business). Clearly, though, there are both technological and market
synergies between Apples Macintosh computers and its fast-growing iPod business.
Divesting the computer business would likely be tantamount to destroying the iPod
business.
5.8.4 GE/McKinsey Matrix:
The GE/McKinsey Matrix was developed in the 1970s by the management
consulting firm McKinsey & Co. as a tool to screen General Electrics large portfolio of
strategic business units (SBUs). The idea behind the matrix ( GE Business Screen or
GE Strategic Planning Grid) is to evaluate businesses along two composite dimensions:
Market Attractiveness and Business strength. Conceptually, this matrix is similar to the
BCG Growth-Share Matrix in that it maps SBUs on a grid of the industry and, at the
same time, marks their competitive position. The GE/McKinsey Matrix improves on the
BCG approach in two ways:
1) It utilizes more comprehensive axes (the BCG matrix uses market growth rate
as a proxy for Market attractiveness and relative market share as a proxy for the
strength of the business unit);
105
2) It consists of nine-cells rather than four, allowing for greater precision.

Industry attractiveness and SBU strength are calculated by first identifying
the criteria for each, determining the value of each parameter in the criteria, and
multiplying that value by a weighting factor. The result is a quantitative measure of
Market Attractiveness and the SBUs relative performance in that industry. The Market
attractiveness Index is made up of such factors as market size, market growth, industry
profit margin, amount of competition, the degree of seasonal and cyclical fluctuations in
demand, and industry cost structure. The Business Position Strength index consists of
factors like relative market share, price, competitiveness, product quality, customer and
market knowledge, sales effectiveness, and geographic advantages.
Notes
Exhibit 5.8- GE/McKinsey Matrix

Both axes are divided into three segments, yielding nine cells. The nine cells are
grouped into three zones:
The Green Zone consists of the three cells in the upper left corner. If the SBU falls in
this zone, its in a favorable position with relatively attractive growth opportunities. This
position indicates a green light to invest and grow this SBU.
The Yellow Zone consists of the three diagonal cells from the lower left to the
upper right. A position in the yellow zone is viewed as having medium attractiveness.
Management must therefore exercise caution when making additional investments
in this SBU. The suggested strategy is to protect or allocate resources on a selective
basis rather than growing or reducing share.
The Red Zone consists of the three cells in the lower right corner. A harvest
strategy should be used in the two cells just below the three-cell diagonal. These SBUs
shouldnt receive substantial new resources. The SBUs in the lower right cell shouldnt
receive any resources and should probably be divested or eliminated from a firms
portfolio.
There are strategy variations within these three groups. For example, within the
Red Zone, a firm would be inclined to quickly divest itself of a weak business in an
unattractive industry, whereas it might perform a phased harvest of an average SBU in
the same industry.
106
Notes
While the GE/McKinsey Matrix represents an improvement over the relatively

simplistic BCG Growth-Share Matrix, it still encompasses a limited view of the
competitive landscape. The matrix doesnt take into account interactions among SBUs
or the core competencies that lead to value creation. For these and other reasons,
some believe the matrix is better suited for providing an overview of the current market
rather than serving as a resource allocation tool.
5.8.5 Hofers Model or ADL Matrix - Arthur D. Little Matrix
A significant contribution in the field of strategic business portfolio analysis specific
to a company belongs to Charles W. Hofer. Over time, he undertook a series of
research studies showing that the stage of the life cycle of a product represents a factor
that influences to a greater or smaller extent the success of a strategy.
Also, he was unsatisfied with the G.E. method, developed by the McKinsey &
Company consultancy company and by the General Electric company, which did not
stated clearly the position of strategic business units which have recently penetrated the
market and which presented a high development potential in the future. Consequently,
he proposed a new assessment matrix of business portfolio of the company, organized
into 15 quadrants. The specialty literature mentions in under the name of Hofer Matrix
or Product/Market Evolution Matrix and is quite similar to the Arthur D. Little matrix
The ADL matrix from Arthur D. Little is a portfolio management method that is based
on product life cycle thinking. It uses the dimensions of environmental assessment
and business strength assessment. The environment assessment is an identification
of the industrys life cycle and the business strength assessment is a categorization of
the corporations SBUs into one of five competitive positions, these five competitive
positions by four life cycle stages.
In the ADL, the line of business is not especially defined by a product or
organizational unit. The strategies must identify discrete businesses by finding
commonalties among products and business lines using the following criteria as
guidelines:

Common rivals
Prices
Customers
Quality/Style
Substitutability
Divestment or liquidation
The assessment of the life cycle stage of each business is made on the basis of:

Business market share
Investment
Profitability and cash flow
107
Notes
Exhibit 5. 9 ADL Matrix (derived from Arthur D Little)
5.9 The Competitive Position

Dominant: This results from protected leadership and it is a particular extraordinary

position. Often this is associate with some form of monopoly position or customer
lock-in e.g. Microsoft Windows being the dominant global operating system. This is
rare, often the result from a almost-monopoly or protected leadership
Strong: this strategy does not consider much of the moves made by other rivals,
example of companies that have a lot of freedom since position in an industry is
comparatively powerful e.g. Apples iPod products. A strong company can follow a
strategy without too much consideration of moves by rival companies.
Favorable: There may be more leaders among the strong rivals as industry
is fragmented. Companies with a favorable position tend to have competitive
strengths in segments of a fragmented market place. No single global player
controls all segments. Here product strengths and geographical advantages come
into play. In this the Industry is fragmented and there is no clear leader among
stronger rivals.
Tenable: The business has not defined the product. Here companies may face
erosion by stronger competitors that have a favorable, strong or competitive
position. It is difficult for them to compete since they do not have a sustainable
competitive advantage. This imply that the company has a niche, either
geographical or defined by the product.
Weak: The business may be too small to provide the profit; companies in this
undesirable space are in an unenviable position. Of course there are opportunities
to change and improve, and therefore to take an organization to a more favorable,
strong or even dominant position and in this business is too small to be profitable or
survive over the long term
5.9.1 The Life Cycle Stages

Embryonic: Introduction stage, everything is new.

Growth: Sales increase, many customers start to know the product.

108
Notes
Mature: Market is stable, have many customers and a lot of competition.
Aging: Demand decreases, the companies need to use strategy to add something
new to attract the customers or abandoning the market.
Industry Positioning and Strategy

Strategy involves the state of the industry and understanding how the organization
fits into it, from this, it is easy to figure out the best way tp move forward. Basically the
ADL Matrix is for:

Competitive Position How strong is your strategic position?
Industry Maturity At what stage of its lifecycle is the industry?
5.9.2 The Use of ADL Matrix

For business units that has a strong market and new emerging product line,
increasing market share is different from the declining markets.. In this case extra effort
is needed for new, growing markets as well as competitive positioning in declining
markets.
The ADL Matrix is often associated with strategic planning at business unit level.
However it works equally well when applied to product lines, or at the level of an
individual product.
According to ADL, there are six generic categories of strategy that could be
employed by individual SBUs:

Market strategies.
Product strategies.
Management and systems strategies.
Technology strategies.
Retrenchment strategies.
Operations strategies.
5.9.3 Defining the Line of business in the ADL Matrix

In the ADL Matrix approach, the strategist must identify discrete businesses by
finding commonalities among products and business lines using the following criteria as
guidelines:

Common rivals
Prices
Customers
Quality/Style
Substitutability
5.9.4 Assessing the Industry Life Cycle Stage in the ADL Matrix
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The assessment of the Industry Life Cycle stage of each company is made on the
basis of:

Business market share,
Investment, and
Profitability and cash flow.
Notes
5.9.5 Limitations
Some known limitations of the ADL Matrix are:

There is no standard life cycle length.
Determining the current industry life cycle phase is difficult.
Competitors may influence the length of the life cycle.
5.10 Corporate Parenting Strategy
Corporate parenting is much like parenting children you need to add value, provide
support, create resources and make sure you have the right environment to help the
business grow.
For most corporate enterprises, the corporate strategy is simply the sum of business
strategies, with some broad objectives and statement of business mission. Therefore,
senior managers who are responsible for defining the overall corporate strategy, often
recognize that something in their strategies is wrong. They may conceptually change
strategy through offering some financial guidelines, and determine which businesses
are core. This affirms creating advantage through parenting (Parenting Advantage),
which, as a principle, should guide decisions about the nature of the businesses in the
portfolio and about its structure
5.11 The parenting advantage
The parenting advantage is creating more value than your competitors would with
the same businesses. For example would eBay (previous owner of Skype) or Microsoft
(current owner of Skype) create more value owning Skype. Chances are Microsoft will
create more value so they would have the parenting advantage over eBay in this case.
It is also about asking following questions:

Which businesses should we own rather than our competition and why?
What is the best configuration, processes or structure to foster superior

performance?
Is there a good fit between the skills of the parent and the needs of the
business?
The last question is the most important, if you do not have skills or resources
that the acquired business needs then there is little point owning it and you are
actually more likely to destroy value.
So how does a corporate parent assess which businesses to own?

110
Notes
Step 1: Understand the critical success factors (CSF) of the business, what really
makes a successful business. For example in the hotels market one CSF might be
product branding or site selection.
Step 2: Assess the parenting opportunities i.e. is there any upside? An inefficient
business might have a lot of upside but some businesses will be so well run and
financed that there is little opportunity.
Step 3: Understand the characteristics of the corporate parent. Describe their skills,
experience, structure, processes, and employees.
Step 4: Map these onto the parenting grid.
Exhibit 5.10- Parenting Grid

5.11.1 Understanding the parenting grid
You should focus your attention on businesses in the heartland and possibly those
on the edge of the heartland. Edge of heartland business can be moved into the
heartland when the parent learns the new CSF over time. The ballast businesses have
little upside but can be a reliable source of earnings (cash cow). Those businesses in
the alien territory and value trap should be avoided at all costs, as they will be a drain
on resources and very distracting!
Remember it is much easier to change the portfolio to match the parent, changing
the parent to match the portfolio is much, much harder.
5.12 Classification of Business Level Strategies
Business-level strategies are similar to corporate-strategies in that they focus on

overall performance. In contrast to corporate-level strategy, however, they focus on only
one rather than a portfolio of businesses. Business units represent individual entities
oriented toward a particular industry, product, or market. In large multi-product or multiindustry organizations, individual business units may be combined to form Strategic
Business Units (SBUs).
An SBU represents a group of related business divisions, each responsible to
corporate head-quarter for its own profits and losses. Each strategic business unit
111
will likely have its own competitors and its own unique strategy. A common focus of
business-level strategies are sometimes on a particular product or service line and
business-level strategies commonly involve decisions regarding individual products
within this product or service line. There are also strategies regarding relationships
between products. One product may contribute to corporate-level strategy by
generating a large positive cash flow for new product development, while another
product uses the cash to increase sales and expand market share of existing
businesses. Given this potential for business-level strategies to impact other businesslevel strategies, business-level managers must provide ongoing, intensive information
to corporate-level managers. Without such crucial information, corporate-level
managers are prevented from best managing overall organizational direction. Businesslevel strategies are thus primarily concerned with:

Coordinating and integrating unit activities so they conform to organizational

strategies (achieving synergy).
Developing distinctive competencies and competitive advantage in each unit.
Identifying product or service-market niches and developing strategies for

competing in each.
Monitoring product or service markets so that strategies conform to the needs

of the markets at the current stage of evolution.
Notes
In a single-product company, corporate-level and business-level strategies are the

same. For example, a furniture manufacturer producing only one line of furniture has its
corporate strategy chosen by its market definition, wholesale furniture, but its business
is still the same, wholesale furniture. Thus, in single-business organizations, corporate
and business-level strategies overlap to the point that they should be treated as one
united strategy. The product made by a unit of a diversified company would face many
of the same challenges and opportunities faced by a one-product company. However,
for most organizations, business-unit strategies are designed to support corporate
strategies. Business-level strategies look at the products life cycle, competitive
environment, and competitive advantage much like corporate-level strategies, except
the focus for business-level strategies is on the product or service, not on the corporate
portfolio.
Business-level strategies thus support corporate-level strategies. Corporatelevel strategies attempt to maximize the wealth of shareholders through profitability
of the overall corporate portfolio, but business-level strategies are concerned with
(1) matching their activities with the overall goals of corporate-level strategy while
simultaneously (2) navigating the markets in which they compete in such a way that
they have a financial or market edge-a competitive advantage-relative to the other
businesses in their industry.
5.13 Analysis of Business-Level Strategies: Porters Generic

Business Strategies.
Harvard Business Schools Michael Porter developed a framework of generic
strategies that can be applied to strategies for various products and services, or the
individual business-level strategies within a corporate portfolio.
The strategies are (1) overall cost leadership, (2) differentiation, and (3) focus on
a particular market niche. The generic strategies provide direction for business units
in designing incentive systems, control procedures, operations, and interactions with
suppliers and buyers, and with making other product decisions.
112
Notes
Exhibit 5.11- Porters Generic Strategies for Strategic Advantage

5.13.1 Cost-leadership strategies require firms to develop policies aimed at
becoming and remaining the lowest cost producer and/or distributor in the industry.
Note here that the focus is on cost leadership, not price leadership. This may at first
appear to be only a semantic difference, but consider how this fine-grained definition
places emphases on controlling costs while giving firms alternatives when it comes to
pricing (thus ultimately influencing total revenues). A firm with a cost advantage may
price at or near competitors prices, but with a lower cost of production and sales, more
of the price contributes to the firms gross profit margin. A second alternative is to price
lower than competitors and accept slimmer gross profit margins, with the goal of gaining
market share and thus increasing sales volume to offset the decrease in gross margin.
Such strategies concentrate on construction of efficient-scale facilities, tight cost and
overhead control, avoidance of marginal customer accounts that cost more to maintain
than they offer in profits, minimization of operating expenses, reduction of input costs,
tight control of labor costs, and lower distribution costs. The low-cost leader gains
competitive advantage by getting its costs of production or distribution lower than the
costs of the other firms in its relevant market. This strategy is especially important for
firms selling unbranded products viewed as commodities, such as beef or steel.
Cost leadership provides firms above-average returns even with strong competitive
pressures. Lower costs allow the firm to earn profits after competitors have reduced
their profit margin to zero. Low-cost production further limits pressures from customers
to lower price, as the customers are unable to purchase cheaper from a competitor.
Cost leadership may be attained via a number of techniques. Products can be designed
to simplify manufacturing. A large market share combined with concentrating selling
efforts on large customers may contribute to reduced costs. Extensive investment in
state-of-the-art facilities may also lead to long run cost reductions. Companies that
successfully use this strategy tend to be highly centralized in their structure. They place
heavy emphasis on quantitative standards and measuring performance toward goal
accomplishment.
Efficiencies that allow a firm to be the cost leader also allow it to compete effectively
with both existing competitors and potential new entrants. Finally, low costs reduce the
likely impact of substitutes. Substitutes are more likely to replace products of the more
expensive producers first, before significantly harming sales of the cost leader unless
producers of substitutes can simultaneously develop a substitute product or service
at a lower cost than competitors. In many instances, the necessity to climb up the
experience curve inhibits a new entrants ability to pursue this tactic.
5.13.2 Differentiation strategies require a firm to create something about its product
that is perceived as unique within its market. Whether the features are real, or just in
the mind of the customer, customers must perceive the product as having desirable
features not commonly found in competing products. The customers also must be
relatively price-insensitive. Adding product features means that the production or
113
distribution costs of a differentiated product will be somewhat higher than the price
of a generic, non-differentiated product. Customers must be willing to pay more than
the marginal cost of adding the differentiating feature if a differentiation strategy is to
succeed.
Notes
Differentiation may be attained through many features that make the product or
service appear unique. Possible strategies for achieving differentiation may include
warranty (Sears tools have lifetime guarantee against breakage), brand image (Coach
handbags, Tommy Hilfiger sportswear), technology (Hewlett-Packard laser printers),
features (Jenn-Air ranges, Whirlpool appliances), service (Makita hand tools), and
dealer network (Caterpillar construction equipment), among other dimensions.
Differentiation does not allow a firm to ignore costs; it makes a firms products less
susceptible to cost pressures from competitors because customers see the product as
unique and are willing to pay extra to have the product with the desirable features.
Differentiation often forces a firm to accept higher costs in order to make a product
or service appear unique. The uniqueness can be achieved through real product
features or advertising that causes the customer to perceive that the product is unique.
Whether the difference is achieved through adding more vegetables to the soup or
effective advertising, costs for the differentiated product will be higher than for nondifferentiated products. Thus, firms must remain sensitive to cost differences. They
must carefully monitor the incremental costs of differentiating their product and make
certain the difference is reflected in the price.
5.13.3 Focus, the third generic strategy, involves concentrating on a particular
customer, product line, geographical area, channel of distribution, stage in the
production process, or market niche. The underlying premise of the focus strategy
is that the firm is better able to serve its limited segment than competitors serving a
broader range of customers. Firms using a focus strategy simply apply a cost-leader
or differentiation strategy to a segment of the larger market. Firms may thus be able
to differentiate themselves based on meeting customer needs through differentiation or
through low costs and competitive pricing for specialty goods.
A focus strategy is often appropriate for small, aggressive businesses that do
not have the ability or resources to engage in a nation-wide marketing effort. Such a
strategy may also be appropriate if the target market is too small to support a largescale operation. Many firms start small and expand into a national organization.
Wal-Mart started in small towns in the South and Midwest. As the firm gained in
market knowledge and acceptance, it was able to expand throughout the South, then
nationally, and now internationally. The company started with a focused cost-leader
strategy in its limited market and was able to expand beyond its initial market segment.
Firms utilizing a focus strategy may also be better able to tailor advertising and
promotional efforts to a particular market niche. Many automobile dealers advertise
that they are the largest-volume dealer for a specific geographic area. Other dealers
advertise that they have the highest customer-satisfaction scores or the most awards
for their service department of any dealer within their defined market. Similarly, firms
may be able to design products specifically for a customer. Customization may range
from individually designing a product for a customer to allowing the customer input into
the finished product. Tailor-made clothing and custom-built houses include the customer
in all aspects of production from product design to final acceptance. Key decisions are
made with customer input. Providing such individualized attention to customers may not
be feasible for firms with an industry-wide orientation.
114
Notes
5.14 Functional-Level Strategies
Functional-level strategies are concerned with coordinating the functional areas

of the organization (marketing, finance, human resources, production, research and
development, etc.) so that each functional area upholds and contributes to individual
business-level strategies and the overall corporate-level strategy. This involves
coordinating the various functions and operations needed to design, manufacturer,
deliver, and support the product or service of each business within the corporate
portfolio. Functional strategies are primarily concerned with:

Efficiently utilizing specialists within the functional area.
Integrating activities within the functional area (e.g., coordinating advertising,

promotion, and marketing research in marketing; or purchasing, inventory
control, and shipping in production/operations).
Assuring that functional strategies mesh with business-level strategies and the
overall corporate-level strategy.
Exhibit 5.12- Functional Strategy-Marketing-Key Considerations

Functional strategies are frequently concerned with appropriate timing. For example,
advertising for a new product could be expected to begin sixty days prior to shipment
of the first product. Production could then start thirty days before shipping begins. Raw
materials, for instance, may require that orders are placed at least two weeks before
production is to start. Thus, functional strategies have a shorter time orientation than
either business-level or corporate-level strategies. Accountability is also easiest to
establish with functional strategies because results of actions occur sooner and
are more easily attributed to the function than is possible at other levels of strategy.
Lower-level managers are most directly involved with the implementation of functional
strategies.
Strategies for an organization may be categorized by the level of the organization
addressed by the strategy. Corporate-level strategies involve top management and
address issues of concern to the entire organization. Business-level strategies deal with
major business units or divisions of the corporate portfolio. Business-level strategies are
generally developed by upper and middle-level managers and are intended to help the
organization achieve its corporate strategies. Functional strategies address problems
commonly faced by lower-level managers and deal with strategies for the major
115
organizational functions (e.g., marketing, finance, and production) considered relevant

for achieving the business strategies and supporting the corporate-level strategy.
Market definition is thus the domain of corporate-level strategy, market navigation the
domain of business-level strategy, and support of business and corporate-level strategy
by individual, but integrated, functional level strategies.
Notes
Summary

Strategic management can occur at three levels

1) Corporate Level
2) Business unit Level
3) Functional or Departmental Level
A well-developed strategy contains five components- Scope, Goals & Objectives,

Resource Deployment, Identification of sustainable competitive advantage,
Synergy.
Types of corporate strategy are- directional strategy, portfolio analysis & parenting
strategy.
Ansoffs Growth Strategy Matrix presents four main strategic choices, ranging from
an incremental strategy in which current products are sold to existing customers
to a revolutionary strategy in which new products are sold to new customers. The
choices are- Market penetration, Market development, Product development,
Diversification.
Grand Strategy Selection Matrix (GSSM)
Grand Strategy Selection Matrix has become an effective tool in devising alternative
strategies. The matrix is based on the following four important elements.

Rapid market growth
Slow market growth
Strong competitive position
Weak competitive position.
The Boston Consulting Group (BCG) Matrix
The Boston Consulting Group (BCG) matrix is a relatively simple technique for
assessing the performance of various segments of the business.
The BCG matrix classifies business-unit performance on the basis of the units
relative market share and the rate of market growth as question marks, stars, cash
cows, dogs.

GE MATRIX
The idea behind the matrix (a.k.a., the GE Business Screen or GE Strategic
Planning Grid) is to evaluate businesses along two composite dimensions: Market
Attractiveness and Business strength
116
Notes
Hofers Model or ADL Matrix - Arthur D. Little Matrix
In the ADL, the line of business is not especially defined by a product or

organizational unit. The strategies must identify discrete businesses by finding
commonalties among products and business lines using the following criteria as
guidelines:

Common rivals
Prices
Customers
Quality/Style
Substitutability
The assessment of the life cycle stage of each business is made on the basis of:

Business market share
Investment
Profitability and cash flow

1. The set of decisions and actions used to formulate and implement strategies
that will provide a competitively superior fit between the organization and its
environment so as to achieve organizational goals is known as-a) Strategy formulation.
b) Strategic planning.
c) Strategic management.
d) Strategy implementation.
e) Strategy evaluation
2. Strategy evaluation at the __________ level involves using __________ and
__________ performance measures for each area.
a) functional; quantitative; qualitative
b) marketing; quantitative; qualitative
c) management; financial; quantitative
d) research and development; quantitative; qualitative
3. The three generic types of competitive strategies are-Amity Directorate of Distance & Online Education
117
a) Vertical integration, diversification, and growth.
Notes
b) Cost leadership, differentiation, and focus.

c) Prospector, defender, and analyzer.
d) Build market share, maintain industry rank, and increase business strength.
4. Which strategy is used by businesses that compete in a narrow market and use
only one common competitive weapon?
a) Differentiated strategy
b) Focus strategy
c) Analyzer strategy
d) Prospector strategy
5. Which of the following pertains to the organization as a whole?
a) Business-level strategy
b) Functional-level strategy
c) Corporate-level strategy
d) Operational-level strategy
e) Competitive-level strategy
6. A corporate-level strategy is concerned with the question-a) What business are we in?
b) How do we compete?
c) How do we support our chosen strategy?
d) Where do we market our products?
e) Should we promote from within?
7. Decisions regarding the proper amount of advertising for a particular good or
service are related to-a) Corporate-level strategies.
b) Functional-level strategies.
c) Tactical-level strategies.
d) Business-level strategies.
e) Retrenchment strategies.
118
Notes
8. Which of these questions is central to a functional-level strategy?

a) What business are we in?
b) How do we compete?
c) How do we support our chosen strategy?
d) What business do we buy?
e) Where to market our products?
9. How business units and product lines fit together in a logical way is the essence of-a) Business-level strategy.
b) Portfolio strategy.
c) Competitive strategy.
d) Financial strategy.
e) Functional strategy.
1. Explain all the levels of an organizational strategy with examples.
2. Explain BCG Matrix by taking two organizations as examples.
3. What is a functional strategy? Explain with examples.
4. What are the limitations of BCG matrix?
5. Explain GE Matrix with an example.
119
Case in point:
McKinsey/GE matrix
Notes
The Directional Policy Matrix (or GE-McKinsey Matrix) illustrates which segments
the Host Company should actively pursue, and which segments should be divested.
Development of the multivariate Directional Policy Matrix came about through
recognition of the potential limitations of using only one single variable within the BCG
Matrix. It was considered that a number of additional factors should also be utilized to
develop a more representative analysis of the business.
The matrix shows the relative position of each segment using Relative Competitive
Strength as the (horizontal) X-Axis and Relative Segment Attractiveness as the
(vertical) Y-Axis. The diameter of each pie is proportional to the Volume or Revenue
accruing to each Segment, and the solid slice of each pie represents the share of the
market enjoyed by the Host Company.
The company should invest in Product / Market opportunities that appear to the top
left of the matrix. The rationale is that the company should invest in segments that are
both attractive and in which it has established some measure of competitive advantage.
Product / Market opportunities appearing in the bottom right of the matrix are both
unattractive to the host company and in which it is competitively weak. At best, these
are candidates for cash management; at worst candidates for divestment. Product /
Market opportunities appearing in between these extremes pose more of a problem,
and the host company has to make a strategic decision whether to redouble its efforts
in the hopes of achieving market leadership, manage them for cash, or cut its losses
and divest.
120
Notes
Unit-VI : Implementing & Evaluating Strategy-Strategic

Leadership, Organizational Structure and Control
Structure
6.1 Definition of Strategy Execution

6.2 The Middle Managers View
6.3 Strategic Leadership- Definition & Qualities of a Strategic Leader
6.4 Strategic Leadership Skills

6.4.1 Interpersonal Skills
6.4.2 Conceptual Skills
6.4.3 Technical Skills
6.5 Strategic Decision Making

6.5.1 Reducing Complexity
6.5.2 System Understanding
6.5.3 Understanding Indirect Effects
6.5.4 Future Focus & Vision
6.5.5 Proactive Reasoning
6.6 Role of Organizational Structure & Design in Strategy Implementation
6.7 Different Types of Organizational Structures

6.7.1 Traditional Structures
6.7.2 Divisional Structure
6.7.3 Matrix Structure
6.7.4 Some Other Kinds of Organizational Structure
6.8 The Evaluation & Control of Organizational Strategy

6.8.1 Types of Controls for Performance Evaluation
6.8.2 Strategic Surveillance
6.8.3 Special Alert Control
6.8.4 Operational Control
6.9 Evaluation Techniques for Operational Control

6.10 Managing Strategic Change Strategy, Culture & Action
6.11 Leading & Managing Strategic Change Successfully
6.12 Role of Change Process
Objectives

To gain an insight into strategy execution.
To understand strategic leadership - definition and qualities of a strategic

leader
To decipher role of organizational structure and design in strategy

implementation
To analyze different types of organizational structures.
To understand evaluation and control of organizational strategy
To gain an insight into managing strategic change strategy, culture and action.
121
Strategy execution is the practice of translating, communicating, coordinating,

adapting and allocating resources to a chosen strategy; while managing the process of
strategy implementation
Notes
Leaders rush into implementation before they have adequately identified and
created the upstream conditions for success or before they have adequately completed
their desired state designs and tested them for feasibility
- Anderson & Anderson (2001)
Introduction
Strategy execution is difficult in practice for many reasons, but a key impediment
to success is that many leaders dont know what strategy execution is or how they
should approach it. The architecture of the strategy execution process is often a
rather neglected and ignored part of the strategy process. The strategy typically goes
right from formulation to implementation, without truly considering the structure of
the process. The two most important elements of the strategy execution process
architecture are; translation of the strategy into manageable actions and steps and
continuous adaptation of the strategy to the corporate context.
Organizations need three things to successfully bridge the gap between strategy
formulation and strategy execution:

A structure for the strategy execution process,
Constant focus on avoiding the lock-in effects that damage strategy execution
and
A method to institutionalize the strategy execution process.
When looked up in Collins Cobuild Dictionary (2001), the word execution means
to carry something out. Likewise the word implementation means to ensure that what
has been planned gets done. The distinction here is rather unclear.
When looked up at the McGraw-Hill Online Learning Center: Strategy execution
deals with the managerial exercise of supervising the ongoing pursuit of strategy,
making it work, improving the competence with which it is executed, and showing
measurable progress in achieving the targeted results. Furthermore: Strategy
implementation concerns the managerial exercise of putting a freshly chosen strategy
into place. These definitions provide a much more distinctive reflection to the two
concepts. However, they are still not sufficient, since they can easily be substituted. The
definition here on Strategy Implementation still very much resembles the dictionary
explanation.
According to Wikipedia, strategy implementation involves: Allocation of sufficient
resources, establishing a chain of command, assigning responsibility of specific tasks or
processes to specific individuals or groups and managing the process.
This includes monitoring results, comparing to benchmarks and best practices,
evaluating the efficacy and efficiency of the process, controlling for variances, and
making adjustments to the process as necessary.
Though it seems that strategy execution and strategy implementation are two
rather intertwining concepts, it is possible to make a somewhat clear distinction on the
122
Notes
basis of the aforementioned definitions. While strategy implementation is very much

concerned with the actual conduct of carrying out a chosen plan or strategy, strategy
execution seems more concerned with the conduct of coordination, translation,
communication and resource allocation, yet strategy execution is also concerned with
carrying out the strategy.
The clearest distinction may be that strategy execution is primarily anchored in the
tactical level of the organization, while strategy implementation is primarily anchored
in the operational level. Therefore strategy execution works as a medium between
strategy formulation and strategy implementation.
6.1 Definition of Strategy Execution
Strategy execution is an ongoing process that monitors and makes adjustments to

the strategy implementation process. The strategy execution process therefore is the
process of making the organization ready for implementation. It is in this stage the
strategy is translated into workable plans and metrics that can be controlled.
It is where the strategy gets communicated to the organization, so that everyone
involved knows the what, why and how of the strategy It is where the people,
departments, budgets and resources involved are allocated and coordinated in a
cooperating symbiosis. Strategy execution is also the medium through which the
actual implementation is monitored, managed and adjusted to the experiences and
consequences that the organization encounter, as a result of implementing the strategy
- when the ideas and aspirations actually hit the real world.
6.2 The Middle Managers View
The mid-levels are responsible for setting near- and mid-term goals and directions,
and for developing the plans, procedures and processes used by the lower levels.
(Plans, procedures, and processes are major tools for coordinating effort, particularly in
large-scale organizations with many interdependent parts that must act in a coordinated
way.) The mid-levels are also responsible for prioritizing missions and allocating major
resources to tailor capability at the lower levels. This includes formulating intermediaterange resources allocation plans that implement concepts developed at higher levels,
as in the Planning, Programming, Budgeting and Execution System (PPBES).
Some middle managers think that implementation is just doing things or turning
strategy into action. However, variety of issues is identified by classifying the definitions
into Five categories which are: Management, communication, planning, control, and
daily actions.

The middle managers who had the Management view talked about different
actions, means, methods, and tools, top-down process and organization.
Communicational view on implementation was mainly about communicating the

strategy and enhancing the motivation and commitment of personnel.
Planning view included different plans (e.g. annual plans), goal/objective setting
and recognition.
Control view dealt with instructions, rules, policies, monitoring and measurement.
Strategy implementation as Daily Actions means that strategy is taken into account
in every day work and it shows as changes in working practices and priorities.
123
Noble (1999) has made a large review of research carried out in the dispersed
field of strategy implementation. Noble himself combines the perspectives and,
having a focus on the process of implementation, defines strategy implementation as
communication, interpretation, adoption and enactment of strategic plans.
Notes
6.3 Strategic Leadership - Definition and Qualities of a Strategic

Leader
Strategic leadership refers to a managers potential to express a strategic vision for
the organization, or a part of the organization, and to motivate and persuade others
to acquire that vision. Strategic leadership can also be defined as utilizing strategy in
the management of employees. It is the potential to influence organizational members
and to execute organizational change. Strategic leaders create organizational structure,
allocate resources and express strategic vision. Strategic leaders work in an ambiguous
environment on very difficult issues that influence and are influenced by occasions and
organizations external to their own.
the organization, or a part of the organization, and to motivate and persuade others to
acquire that vision. Strategic leadership can also be defined as utilizing strategy in the
management of employees. It is the potential to influence organizational members and
to execute organizational change.
The main objective of strategic leadership is strategic productivity. Another aim
of strategic leadership is to develop an environment in which employees forecast
the organizations needs in context of their own job. Strategic leaders encourage the
employees in an organization to follow their own ideas. Strategic leaders make greater
use of reward and incentive system for encouraging productive and quality employees
to show much better performance for their organization. Functional strategic leadership
is about inventiveness, perception, and planning to assist an individual in realizing his
objectives and goals.
Strategic leadership requires the potential to foresee and comprehend the work
environment. It requires objectivity and potential to look at the broader picture. A few
main traits / characteristics / features / qualities of effective strategic leaders that do
lead to superior performance are as follows:

Loyalty- Powerful and effective leaders demonstrate their loyalty to their vision by
their words and actions.
Keeping them updated- Efficient and effective leaders keep themselves updated
about what is happening within their organization. They have various formal and
informal sources of information in the organization.
Judicious use of power- Strategic leaders makes a very wise use of their power.
They must play the power game skillfully and try to develop consent for their ideas
rather than forcing their ideas upon others. They must push their ideas gradually.
Have wider perspective/outlook- Strategic leaders just dont have skills in their
narrow specialty but they have a little knowledge about a lot of things.
Motivation- Strategic leaders must have a zeal for work that goes beyond money
and power and also they should have an inclination to achieve goals with energy
and determination.
124
Notes
Compassion- Strategic leaders must understand the views and feelings of their
subordinates, and make decisions after considering them.
Self-control- Strategic leaders must have the potential to control distracting/

disturbing moods and desires, i.e., they must think before acting.
Social skills- Strategic leaders must be friendly and social.
Self-awareness- Strategic leaders must have the potential to understand their own
moods and emotions, as well as their impact on others.

Readiness to delegate and authorize- Effective leaders are proficient at

delegation. They are well aware of the fact that delegation will avoid overloading
of responsibilities on the leaders. They also recognize the fact that authorizing the
subordinates to make decisions will motivate them a lot.
Articulacy- Strong leaders are articulate enough to communicate the vision (vision
of where the organization should head) to the organizational members in terms that
boost those members.
Constancy/ Reliability- Strategic leaders constantly convey their vision until it

becomes a component of organizational culture.
Strategic leaders can create vision, express vision, passionately possess vision and
persistently drive it to accomplishment.
Strategic leaders have a role to play in each of the above-mentioned strategic
leadership actions. In turn, each of these strategic leadership actions positively
contributes to effective strategy implementation.
In the light of the importance of strategy implementation as a component of the
strategic management process, the high failure rate of change initiatives due to poor
implementation of new strategies and the fact that a lack of strategic leadership has
been identified as one of the major barriers to effective strategy implementation.
Strategic leadership requires significantly different techniques in both scope and skill
from direct and organizational leadership. In an environment of extreme uncertainty,
complexity, ambiguity, and volatility, strategic leaders think in multiple time domains and
operate flexibly to manage change. Moreover, strategic leaders often interact with other
leaders over whom they have minimal authority.
6.4 Strategic Leadership Skills
Strategic leaders understand, embody, and execute values-based leadership. The

political and long-term nature of their decisions doesnt release strategic leaders from
the current demands of training, readiness, and unforeseen crises; they are responsible
to continue to work toward the ultimate goals. Values provide the constant reference for
actions in the stressful environment of strategic leaders. Strategic leaders understand,
embody, and execute leadership based on values.
6.4.1 Interpersonal Skills
Strategic leaders continue to use interpersonal skills developed as direct and
organizational leaders, but the scope, responsibilities, and authority of strategic
positions require leaders with unusually sophisticated interpersonal skills.
125
Communication is the key interpersonal skill at the strategic level which is further
complicated by the wide array of staff, functional, and operational components
interacting with each other and with external agencies. These complex relationships
require strategic leaders to employ comprehensive communications skills as they
represent their organizations.
Notes
One of the most prominent differences between strategic leaders and leaders
at other levels is the greater importance of symbolic communication. The example
strategic leaders set, their decisions, and their actions have meaning beyond
their immediate consequences to a much greater extent than those of direct and
organizational leaders.
6.4.2 Conceptual Skills
Strategic leaders have the further responsibility of defining for their diverse
organizations what counts as success in achieving the vision. They monitor their
progress by drawing on personal observations, review and analysis, strategic
management plans.
Strategic leaders, more than direct and organizational leaders, draw on their
conceptual skills to comprehend national, national security, and theater strategies,
operate in the strategic and theater contexts, and improve their vast, complex
organizations. The variety and scope of their concerns demand the application of more
sophisticated concepts.
Strategic leaders need wisdom-and wisdom isnt just knowledge. They routinely deal
with diversity, complexity, ambiguity, change, uncertainty, and conflicting policies. They
are responsible for developing well-reasoned positions and providing their views and
advice.
6.4.3 Technical Skills
Technical skills are required at all levels. However, at the lower levels, technical
skills consist of using or operating a system; at upper levels, technical skills are more
about employing systems within systems in order to create synergy. For example, at the
lower levels, automation-technical skills might consist of what is required to install and
maintain a network of computer systems. At the strategic level, they might be what is
required to achieve the integration of an extensive automation system.
At the direct level, technical focus is on solving well-defined problems, and
performing specific tasks and missions. At the strategic level, the focus is on solving
ill-defined problems-dealing with intangibles and indirect effects that can impact on the
organization. Many of the technical decisions facing these senior leaders require the
assessment of organizational capabilities and an understanding of the intricacies of
resourcing the total organization.
Structuring and re-structuring includes responsibility to develop new kinds of
systems and organizations to provide future operational capability. These strategic
decisions require major resource commitments that cannot easily be reversed (e.g.,
the decision to build an aircraft carrier). They also require calculation of the tradeoffs
between opportunity and risk, with the knowledge that if decisions are wrong, the
defense posture may be weakened.
6.5 Strategic Decision Making
In most Strategic decision making situations, where options are consequential,

situations may not have clear cause-and-effect outcomes. Also, plausible courses of
126
Notes
action may not yet have been developed or identified. In such cases, decision makers
must isolate and identify key issues, visualize and predict potential problems, and
formulate least-risk solutions. Additionally, at the strategic level, some problems may be
so poorly structured that even one clearly workable course of action is not apparent.
The complexity may be too great, and the consequences of possible courses of action
too uncertain. For these complex and ill-structured problems, most organizations make
use of an executive team, composed of the leader and his/her advisors. The assembled
wisdom of the team members enables a broader scope to be considered, and permits a
more careful analysis of the information relevant to the issue.
6.5.1 Reducing Complexity. The complexity and uncertainty of the strategic
environment exceeds that which can be tolerated at the lower levels. Decision
makers at these levels- nominally the mid-levels-develop concrete plans
for allocating resources to operations. The strategic role is to comprehend
the complexity and uncertainty in the strategic environment, and then to set
understandable azimuths for the mid-levels of the organization that can be used as
a rational basis for resource allocation to operational units.
6.5.2 Systems Understanding. This is a capacity to visualize the interactive dynamics
of large systems, including interdependencies, so that decisions taken in one
area will not have adverse impact in another. Strategic decisions must balance
conflicting expectations, requirements and values, over time. Systems-by virtue
of strategic leadership-must deal with current requirements, conceive future
requirements, and balance these requirements with current and future resources.
6.5.3 Understanding Indirect Effects. A strategic leaders frame of reference and
vision must be broad enough to predict the indirect-second-, third-, and fourth-order
effects of decisions. Without this capacity, changes in policy, regulation, or action
may produce effects neither anticipated nor desired.
6.5.4 Future Focus and Vision. Strategic leaders must not only be future oriented,
but must have a sense of time to envision long-term system-wide programs and
schedules for their implementation. Time horizons from 12 years (for the Extended
Planning Annex) to 20 years (for programs requiring major capital resources,
such as the force modernization programs of the various services) are common in
peacetime. The importance of vision at this level is that it provides the umbrella for
defining specific and detailed programs at the organizational.
6.5.5 Proactive Reasoning. Although strategic leaders must react to immediate, nearterm events, they reduce the surprise factor by maintaining a proactive stance.
Being proactive is more than just seeing the future relevance of present-day events.
In this proactive process, strategic leaders use their frames of reference as a tool
to:

Assess current position.
Envision desired future capabilities.
Determine the difference and define steps to close the difference.
Initiate the future program.
Monitor progress.
New organizations may be developed in response to changing threat capabilities,

technological enhancements, or resource changes.
127
Integrating the levels of leadership

Function
Strategic leadership
Organizational
leadership
Vision
Create the vision
Create the plans
Teamwork
Integrate
purpose
Values
Articulate
Set
Cultural
Command
Imperatives and values Climate
Information
Establish concept base Engineer

for information systems systems
structure/ Design
Inter-dependencies
Notes
Direct leadership
Execute the plans
Forge teamwork
Model and reinforce
Values
information Generate/
Apply Information
Exhibit 6.1 Integrating levels of Leadership
6.6 Role of Organizational Structure and Design in Strategy

Implementation
Organizational structure refers to the network of relationships among individuals and
positions in an organization. It can be defined as established pattern of relationships
among components of the organization. It is the formal system of task and reporting
relationships that controls, coordinates and motivates employees. It helps in
associating them and working together to achieve organizations goals. Organization
structure is like the framework of an organization. Organizational structures imply
formal relationships with well defined duties and responsibilities. It also implies to the
hierarchical relationships between superior and subordinates within the organization. It
helps in coordinating various tasks and activities that are assigned to different persons
and departments. Organizational structure helps in having set of policies, procedures,
standards and methods of evaluation of employees performance. It should be
developed as per needs of the people in the organization.
Organizational structure plays significant role in effective and efficient functioning of
organization. There are many significance of organizational structure and they are as
follows:
1. Clear cut authority relationships: Organizational structure helps in delivering
authority and responsibility among employees in an organization. It signifies the
duties and responsibilities concerned with particular post to concerned persons.
It helps in recognizing roles for each employee and his accountability to the
organization. It also correlates relationships of one organizational member to the
other members.
2. Pattern of communication: It provides the patterns of communication and
coordination in an organization. Organizational structure helps in grouping activities
and people and so it facilitates communication between people centered as their
job activities. The sharing of information helps person in solving their joint problems.
3. Location of Decision Centers: It determines the location of centers of decision
making in the organization.
4. Proper Balancing: It helps in creating proper balance and lays emphasizes on
coordination of group activities in the organization.
128
Notes
5. Stimulating creativity: An efficient and sound organization structure provides well

defined patterns of authority that stimulates creative thinking and initiative among
members of the organization. Every organizational member understands his power
and utilizes it to perfection to get appreciation in the organization.
6. Encouraging growth: It provides the framework within which an enterprise functions.
If the structure of organization is flexible then it will help in meeting challenges
and creating opportunity for growth. It helps in facility growth of the enterprise by
increasing its capacity so that increased level of activity can be handled.
7. Making Use of Technical Improvements: Adaptability to the change in a sound
organizational structure and in making maximum use of latest technology. It
modifies the existing pattern of authority responsibility relationship in respect to the
technological improvements in the organization
6.7 Different Types of Organizational Structures
6.7.1 Traditional Structures

These are the structures that are based on functional division and departments.
These are the kind of structures that follow the organizations rules and procedures
to the T. They are characterized by having precise authority lines for all levels in the
management. Various types of structures under traditional structures are:

Line Structure- This is the kind of structure that has a very specific line of
command. The approvals and orders in this kind of structure come from top to
bottom in a line, hence the name line structure. This kind of structure is suitable
for smaller organizations like small accounting firms and law offices. This is the
sort of structure that allows for easy decision-making and is also very informal in
nature. They have fewer departments, which makes the entire organization a very
decentralized one.
Line and Staff Structure- Though line structure is suitable for most organizations,
especially small ones, it is not effective for larger companies. This is where the line
and staff organizational structure comes into play. Line and structure combines
the line structure where information and approvals come from top to bottom, with
staff departments for support and specialization. Line and staff organizational
structures are more centralized. Managers of line and staff have authority over
their subordinates, but staff managers have no authority over line managers and
their subordinates. The decision-making process becomes slower in this type of
organizational structure because of the layers and guidelines that are typical to it.
Also, lets not forget the formality involved.
Functional Structure- This kind of organizational structure classifies people

according to the function they perform in their professional life or according to
the functions performed by them in the organization. The organization chart for a
functional organization consists of Vice President, Sales department, Customer
Service Department, Engineering or production department, accounting department
and Administrative department.
6.7.2 Divisional Structures

These are the kinds of structures that are based upon the different divisions in the
organization. These structures can be further divided into:

Product Structure - A product structure is based on organizing employees and

work on the basis of the different types of products. If the company produces
129
three different types of products, they will have three different divisions for these
products.

Market Structure - Market structure is used to group employees on the basis of

specific market the company sells in. A company could have 3 different markets
they use and according to this structure, each would be a separate division in the
structure.
Geographic Structure - Large organizations have offices at different place,

for example there could be a north zone, south zone, west and east zone. The
organizational structure would then follow a zonal structure.
Notes
6.7.3 Matrix Structure

This is a structure which is a combination of function and product structures. This
combines the best of both worlds to make an efficient organizational structure. This
structure is the most complex organizational structure.
6.7.4 Some Other Kinds of Organizational Structures
Bureaucratic Structure- This kind of structure can be seen in tall organizations
where tasks, processes and procedures are all standardized and this type of
structure is suitable for huge enterprises that involve complex operations and
require smooth administration of the same.

Pre-Bureaucratic Structure - This structural form is best exemplified in flat

organizations where administration and control are centralized and there is very
little, if any, standardization of tasks.
Network Structure - In this kind of structure, the organization managers are

required to maintain and coordinate business/professional relations with third
parties such as clients, vendors and associates in order to achieve a collective
goal of profitability and growth. Most of the time, these relations are maintained and
tasks are coordinated via telecommunications and electronic media and, hence, this
type of structure is also known as Virtual Structure.
Team Structure - Organizations with team structures can have both vertical as well
as horizontal process flows. The most distinct feature of such an organizational
structure is that different tasks and processes are allotted to specialized teams of
personnel in such a way as a harmonious coordination is struck among the various
task-teams.
It is important to find an organizational structure that works best for the organization
as the wrong set up could hamper proper functioning in the organization.
6.8 The Evaluation and Control of Organizational Strategy
The basic premise of strategic management is that the chosen strategy will achieve
the organizations mission and objectives.
A firms successive strategies are greatly affected by its past history and often take
shape through experimentation and ad hoc refinement of current plans, a process
James Quinn has termed logical incrementalism. Therefore, the re-examination of
past assumptions, the comparison of actual results with earlier hypotheses has become
common feature of strategic management.
130
Notes
6.8.1 Types of Controls for Performance Evaluation

a. Strategic Control
Strategic control focuses on the dual questions of whether: (1) the strategy is
being implemented as planned; and (2) the results produced by the strategy are those
intended. Strategic control is the critical evaluation of plans, activities, and results,
thereby providing information for the future action. There are four types of strategic
control: premise control, implementation control, strategic surveillance and special alert
control
b. Premise Control:
Planning premises/assumptions are established early on in the strategic planning
process and act as a basis for formulating strategies. Premise control has been
designed to check systematically and continuously whether or not the premises
set during the planning and implementation processes are still valid. It involves the
checking of environmental conditions. Premises are primarily concerned with two types
of factors:
Environmental factors (for example, inflation, technology, interest rates, regulation,
and demographic/social changes).
Industry factors (for example, competitors, suppliers, substitutes, and barriers to
entry).
All premises may not require the same amount of control. Therefore, managers must
select those premises and variables that (a) are likely to change and (b) would a major
impact on the company and its strategy if they did.
c.
Implementation Control:
Strategic implantation control provides an additional source of feed forward

information. Implementation control is designed to assess whether the overall strategy
should be changed in light of unfolding events and results associated with incremental
steps and actions that implement the overall strategy. The two basis types of
implementation control are:
1. Monitoring strategic thrusts (new or key strategic programs). Two approaches
are useful in enacting implementation controls focused on monitoring strategic
thrusts: (1) one way is to agree early in the planning process on which thrusts
are critical factors in the success of the strategy or of that thrust; (2) the second
approach is to use stop/go assessments linked to a series of meaningful thresholds
(time, costs, research and development, success, etc.) associated with particular
thrusts.
2. Milestone Reviews. Milestones are significant points in the development of a
programme, such as points where large commitments of resources must be made.
A milestone review usually involves a full-scale reassessment of the strategy and
the advisability of continuing or refocusing the direction of the company. In order to
control the current strategy, must be provided in strategic plans.
6.8.2 Strategic Surveillance:
It is designed to monitor a broad range of events inside and outside the company
that are likely to threaten the course of the firms strategy. The basic idea behind
strategic surveillance is that some form of general monitoring of multiple information
131
sources should be encouraged, with the specific intent being the opportunity to
uncover important yet unanticipated information. Strategic surveillance appears to be
similar in some way to environmental scanning. The rationale, however, is different.
Environmental, scanning usually is seen as part of the chronological planning cycle
devoted to generating information for the new plan. By way of contrast, strategic
surveillance is designed to safeguard the established strategy on a continuous basis.
Notes
6.8.3 Special Alert Control:

Special alert controls are the need to thoroughly, and often rapidly, reconsider the
firms basis strategy based on a sudden, unexpected event. (i.e., natural disasters,
chemical spills, plane crashes, product defects, hostile takeovers etc.). Special alert
controls should be conducted throughout the entire strategic management process.
6.8.4 Operational Control
Operational control systems are designed to ensure that day-to-day actions are
consistent with established plans and objectives. It focuses on events in a recent
period. Operational control systems are derived from the requirements of the
management control system. Corrective action is taken where performance does not
meet standards. This action may involve training, motivation, leadership, discipline, or
termination.
6.9 Evaluation Techniques for Operational Control:

Value chain analysis: Firms employ value chain analysis to identify and evaluate
the competitive potential of resources and capabilities. By studying their skills
relative to those associated with primary and support activities, firms are able to
understand their cost structure, and identify their activities through which they can
create value.
Quantitative performance measurements: Most firms prepare formal reports

of quantitative performance measurements (such as sales growth, profit growth,
economic value added, ratio analysis etc.) that managers review at regular
intervals. These measurements are generally linked to the standards set in the first
step of the control process. For example if sales growth is a target, the firm should
have a means of gathering and exporting sales data. If the firm has identified
appropriate measurements, regular review of these reports helps managers stay
aware of whether the firm is doing what it should do. In addition to there, certain
qualitative bases based on intuition, judgment, opinions, or surveys could be used
to judge whether the firms performance is on the right track or not.
Benchmarking: It is a process of learning how other firms do exceptionally highquality things. Some approaches to bench marking are simple and straightforward.
For example Xerox Corporation routinely buys copiers made by other firms and
takes them apart to see how they work. This helps the firms to stay abreast of its
competitors improvements and changes.
A measurement of the quality of an organizations policies, products, programs,

strategies, etc. and their comparison with standard measurements, or similar
measurements of its peers.
The objectives of benchmarking are
(1) To determine what and where improvements are called for,
(2) To analyze how other organizations achieve their high performance levels, and
132
Notes
(3) To use this information to improve performance

Key Factor Rating: It is based on a close examination of key factors affecting

performance (financial, marketing, operations and human resource capabilities) and
assessing overall organizational capability based on the collected information.
Key Factor Analysis, in actual, A technique for predicting fluctuations in population

size based on identifying the relative contributions made to it by the key factors of
births, deaths, immigration, and emigration.
6.10 Managing Strategic Change Strategy, Culture and Action
Strategic change is the movement of a business away from its present state towards
some desired future state to improve its current circumstances. It enables the execution
of the strategy.
Strategic Change is described as a structured approach to transitioning individuals,
teams and organizations from a current state to a desired future state. HRmagazine
suggests it is: The systematic approach and application of knowledge, tools and
resources to leverage the benefits of change. Change management means defining
and adopting corporate strategies, structures, procedures and technologies to deal
with change stemming from internal and external conditions.It is The process, tools
and techniques to manage the people-side of business change to achieve the required
business outcome and to realize that business change effectively within the social
infrastructure of the workplace.
The first step in the process is to recognize that there is a gap between desired
business performance and actual performance. This gap may be recognized by the one
or more of the following:

Inability to meet or influence business outputs and outcomes.
Changes in the external environment impacting performance.
A dysfunctional team.
Requirement for greater efficiency and effectiveness.
A decline in profitability or return on investment.
Business improvement required.
Requirement to solve a complex problem.
Organizations go through long periods when strategies develop incrementally; that

is, decisions build one upon another, so that past decisions mould future strategy.
There may occur more fundamental shifts in strategy as major readjustment of the
strategic direction of the firm takes place but this is infrequent. Some writers, have
argued that such incremental development in organizations is consciously and logically
managed by executives as a means of coping with the complexity and uncertainty of
strategy development. Managers are aware that it is not possible to know about all
the influences that could conceivably affect the future of the organization. They arc also
aware that the organization is a political entity in which trade-offs between the interests
of different groups are inevitable: it is therefore not possible to arrive at an optimal goal
or an optimal strategy; strategies must be compromises which allow the organization to
go forward.
133
To cope with this uncertainty and such compromise, strategies must be developed
gradually so that new ideas and experiments can be tested and commitment within the
organization can be achieved whilst maintaining continual, if low scale change. This is
what has become known as logical incrementalism.
Notes
It is a view of the management of strategy which is often espoused by managers

themselves, although of course they may not use the same terminology.
It is suggested that change can fall into the following broad categories:

Strategic change Comes about when, alterations are made to an

organizations functional parts, for example, through mergers, acquisitions or
consolidations;
Leadership change Relates to reconfiguring the organizations leadership.

This can be through any number of reasons including retirement, ill-health or
death, sacking, a leadership coup, or plain old natural transition
Cultural change Relating to the human aspects such as the relationship

between managers and employees, or staff and customers. This can be the
trickiest and most unpredictable area of all;
Cost-cutting When certain activities and operations are eliminated; and
Process change This focuses on how things get done and how they can be
improved.
6.11 Leading and managing strategic change successfully

Change needs clarity and commitment of direction.
Change invokes conflict and resistance so it needs experienced leadership and

management.
Change is time consuming and can be expensive.
Change needs to be managed and requires continuity of lead resources to ensure it

stays focused.
Change needs to provide coherence meaning that there needs to be continuity of

services while changing.
Change is not a prescribed set of activities and is specific for the organisational
context.
Change needs constant communication.
Change needs to create or enhance value.
Change needs to achieve the desired results.
Change needs to provide a contribution to business outcomes.
Much of todays change management theory can be seen as a hybrid of the

mechanical approach with its strategies, processes and systems and the people
approach, focusing on employees and their culture, behaviors and capacity to change.
134
Notes
Observers of business changes in real life have realized that the extreme application
of either of these two approaches, in isolation, will be unsuccessful, according to Hiatt
and Creasey.
Exhibit 6.2 Cycle of Change
6.12 Role of Change Process
The process of change is not only strategic-leader business but also a strategic
managers business. For that matter, it is the business of the individuals who make up
the organization. Although one can view an organizational chart and view the structure
of a large organization, in reality there are no large organizations, only groups of small
organizations where people work day in and day out to fulfill both organizational and
personal goals.
What does this mean for creating organizational change? The answer is that to
create the desired change to maintain the health of an organization, leaders and
managers need to recognize that real change begins and ends various and sundry
workforce areas. Lead if one has the ability to do so, but as a minimum, manage the
organization with the insights and knowledge needed to create an organizational
reality that will serve both the external community but also workers who make up the
organization. Only then can the organization make the journey toward its vision a fruitful
one.
The implementation of any new strategy will usually require some or all partners to
change their behavior and this need to happen one partner at a time. Your firm will only
travel as far and as fast as each partner and then all partners collectively are prepared
to change their individual behaviors their appetite for change! The success of change
depends on how effectively each partner can be coached and helped to see not only
the need for change, but also the need to take action and the need to follow through.
Even when organizations recognize the importance of human behavior in successful
change, they can fall at various hurdles along the way.
Summary

Strategy execution is the practice of translating, communicating, coordinating,

adapting and allocating resources to a chosen strategy; while managing the
process of strategy implementation.
135

the organization, or a part of the organization, and to motivate and persuade others
to acquire that vision. Strategic leadership can also be defined as utilizing strategy
in the management of employees. It is the potential to influence organizational
members and to execute organizational change.
The main objective of strategic leadership is strategic productivity. Another aim of

strategic leadership is to develop an environment in which employees forecast the
organizations needs in context of their own job.
Organizational structure refers to the network of relationships among individuals

and positions in an organization. It can be defined as established pattern of
relationships among components of the organization. It is the formal system of task
and reporting relationships that controls, coordinates and motivates employees
Strategic change is the movement of a business away from its present state
towards some desired future state to improve its current circumstances. It enables
the execution of the strategy. Strategic Change is described as a structured
approach to transitioning individuals, teams and organizations from a current state
to a desired future state
Notes

1. What does the GE Matrix show?
a) The relationship between profitability and business position.
b) The current status of products in terms of market position.
c) The relationship between market attractiveness and business position.
2. What are the three criteria for the robustness of strategic capability?
a) Core competences, unique resources and dynamic capabilities.
b) Complexity, causal ambiguity and value to customers.
c) Complexity, causal ambiguity and rarity.
d) Complexity, causal ambiguity and culture/history.
3. Industry/sector benchmarking compares--
a) Organisational performance between firms/public sector organisations in
different industries or sectors.
b) Organisational performance between firms/public sector organisations in the
same industry or sector.
c) Organizational performance between firms/public sector organisations in
different countries.
d) Organisational performance between different divisions of the firm.
136
Notes
4. Best in Class Benchmarking seeks to assess Organisational performance

against--
a) The nearest geographical competitor.
b) The competitor who is best in class wherever that may be.
c) The competitor who is the best in the industry.
d) The nearest principal competitor.
5. Robustness of strategic capabilities is more likely when--
a) Linkages in the value network are exploited.
b) Core competences are complex, ambiguous and dependent on culture/history.
c) Competences lie with specific individuals.
d) Core competences lie in separate parts of the organizations value chain.
6. In the resource-based view of strategy, what type of strategic capabilities are the
sources of sustainable competitive advantage?
a) Unique resources and core competences.
b) Dynamic capabilities.
c) Operational excellence.
d) Strategic capabilities which are valuable to buyers, rare, robust and nonsubstitutable.
7.
Which types
advantage?
of
organizational
knowledge
is
source
of
competitive
a) Explicit knowledge which is classified and formalized in a planned and

systematic way.
b) Personal knowledge which is hard to communicate and formalize.
c) Customer databases, market research reports, management reports.
d) Collective and shared experience accumulated through systems, routines and
activities of sharing across the organisation.
8. Which one of the following is not an integral part of the managerial process of
crafting and executing strategy?
a) Developing a strategic vision
b) Developing a proven business model
c) Setting objectives and crafting a strategy to achieve them
137
d) Monitoring developments, evaluating performance, and initiating corrective

adjustments in the companys long-term direction, objectives, strategy, or
execution
Notes
e) Implementing and executing the chosen strategy efficiently and effectively

9. A strategic vision for a company-a) Involves how fast to pursue the chosen strategy and reach the targeted levels
of performance.
b) Consists of thinking through what it will take to make the chosen strategy work
as planned.
c) Is a road map that delineates managements view of the companys futurewhere we are going and why.
d) Spells out how the company is going to get from where it is now to where it
want to go and when it is expected to arrive.
e) Concerns managements view of how to transition the companys business
model from where it is now to where it needs to be.
10. The difference between a companys mission statement and the concept of a
strategic vision is that-a) The mission statement lays out the desire to make a profit, whereas the
strategic vision addresses what strategy the company will employ in trying to
make a profit.
b) A mission statement deals with where we are headed whereas a strategic
vision provides the critical answer to how will we get there?
c) A mission deals with what a company is trying to do and a vision concerns what
a company ought to do.
d) A mission statement typically identifies what the companys products or
services are (what we do) and the customers and markets it serves (why we
are here), whereas the focus of a strategic vision is on where we are going and
why.
e) A mission is about what to accomplish for shareholders whereas a strategic
vision concerns what to accomplish for customers.
11. Which one of the following is not a characteristic of an effectively-worded strategic
vision statement?
a) Directional (says something about the companys journey and destination and
the kinds of business and strategic changes that will be forthcoming)
b) Inspirational (is worded in a motivational and stirring way that will garner
enthusiastic and energetic support from company personnel and shareholders)
c) Graphic (paints a clear picture)
d) Easy to communicate (ideally, explainable in 10 minutes)
138
Notes
e) Focused and flexible (has specifics but stops short of a once-and-for-all-time

pronouncement because the strategic path may need to be changed as events
unfold)
Questions& Exercises
1. Explain GE matrix with an example.
2. Explain the differences between a strategic vision and a mission.
3. Explain strategy execution process
4. Explain the role of change process
5. What is strategic leadership? Explain in detail
6. How the levels of directional strategy in an organization can be integrated? Explain
Case in point:
Strategy execution of UGM: A Case Study
Meeting the specific needs of clients means that UGM embarks on a wide array
of assignments. Our Case Studies represent a small cross-section of our portfolio of
experience, providing brief insights into how we have helped many clients. Contact us
to learn about the numerous other projects weve worked on over 30 years in business.
Turning strategy into action - involving the implementation teams
Having worked with the Senior Leadership Team of an international services
business, UGM was asked to help a larger group convert the high-level strategies
into a set of action plans. One of the most significant challenges was encouraging the
enthusiastic teams to focus on a few core priorities only, rather than wanting to embark
on dozens of projects. We used UGMs customized strategy implementation tools
to help each department determine its own priorities, which were also closely aligned
with the strategic priorities of the business overall. Teams then analyzed their current
and future state, and what steps were needed to bridge the gap. The process also
included identifying and mitigating risks and ensuring that sufficient resourcing would
be available to execute the plans. Our timeline process was used to good effect, to
demonstrate that some of the intentions would need either additional resourcing or
need to be re-prioritized. At the end of the process, there was widespread buy-in from
139
the implementation teams since they had played a key part in developing the detailed
plans that they were auctioning.
Notes
Review of strategic project implementation to analyse lack of progress

Prior to engaging us, our large corporate client had embarked on the implementation
of a technology change project. Despite very detailed project plans, and the investment
of inordinate amounts of peoples time, the project had experienced significant delays.
The UGM team conducted a strategic review of all aspects of the project, largely
through interviews with a variety of stakeholders and the application of our customized
suite of tools. We found that although there had been some small benefits, key project
deliverables had not been achieved, largely due to a lack of common purpose
. Essentially, because the crucial buy-in phase had not been successfully negotiated
up-front, subsequent buy-in and support had only been superficial. This would likely
plague the project going forward and, additionally, people were change fatigued. Since
the project had dragged on for over two years, it was unlikely that it would achieve its
objectives without a substantial rework and additional investment. As a result of our
review the project was terminated in its present form, a key strategic decision that
would prevent any further resources being wasted. This also allowed the organisation to
focus on conerns of a higher priority.
Clarifying & aligning drivers of value to boost strategy implementation
Our client, a business unit within a high-impact not for profit, wished to align
strategic activities for greater impact. They had a measurement system in place that
was helpful but needed some tightening. Essentially, they wanted to be sure that people
were focusing scarce resources on projects and activities that made a difference. UGM
undertook a review of the performance measures in place to identify the key drivers of
value for the business unit. Our evidence-based approach meant that we determined
which factors moved the strategic needle via internal consultation and scanning
the most relevant, current academic literature. This was also key to buy-in, since the
measurement system previously hadnt always enjoyed full support. UGM helped the
organisation craft a range of performance measures that were more clearly defined and
most closely aligned with driving strategic value.
Instead of wasting time measuring and reporting on elements that had relatively little
impact on desired outcomes, management and staff were able to focus more on those
critical few elements that really made a difference to strategic performance. In addition
to being able to monitor performance indicators that would have the biggest impact,
staff were also made aware of how they might prioritise their time. When faced with
a choice between tasks, staff were able to choose actitivities known to generate the
greatest value. Benefits of the project included measuring elements that were tightly
linked with performance and direction and providing a shared focus on those activities
to be prioritised for optimal use of available resources.


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Unit-I : Introduction to Strategic Management

1.1 Concept of Strategic Management

1.2.1 Features of Strategy

1.3 Strategic Management-History and Development

1.8.2 Chaos & Complexity

1.8.3 System Thinking

1.8.4 Darwinian Theory

1.9 Complex Dynamic System

1.9.1 Hybrid Systems

1.9.2 Predictive Modeling

To study the evolution of strategic management and understand the basics of

To understand the history of strategic management

To analyze how strategic management plays an important role in the growth of

To understand the various aspects of strategic planning to strategic

Study of the functions and responsibilities of general managers; of problems

1.1 Concept of Strategic Management

Strategic Management is all about identification and description of the strategies

Business Policy & Strategic Management

Develop theme for organization

Provide discipline for long-term thinking

Deal with environmental complexities

More effective resource allocation

Integrate diverse administrative activities

Increase managerial effectiveness

Improve employee motivation

Address stakeholder concerns

Amity Directorate of Distance & Online Education

Business Policy & Strategic Management

One of the major roles of strategic management is to incorporate various functional

1.2 What is a Strategy?

Strategy is a plan, a how, a means of getting from here to there.

Strategy is a pattern in actions over time; for example, a company that

Strategy is position; that is, it reflects decisions to offer particular products or

Strategy is perspective, that is, vision and direction.

Means of establishing organizational purpose

Definition of the competitive domain

Response to external opportunities and threats and internal strengths and

Way to define managerial tasks with corporate, business and functional

Coherent, unifying and integrative pattern of decisions

Definition of the economic and non-economic contribution the firm intends to

Business Policy & Strategic Management

Expression of strategic intent

Means to develop organizational core competencies to create sustainable

1.2.1 Features of Strategy

1.3 Strategic Management-History and Development

Complex Static Systems or Emergence

Complex Dynamic Systems or Strategic Balance

1.4 Basic Financial Planning (Budgeting)

James McKinsey (1889-1937), founder of the global management consultancy that

Business Policy & Strategic Management

Early efforts in corporate strategy were generally limited to the development of a

1.5 Long-range Planning (Extrapolation)

1.6 Strategic (Externally Oriented) Planning

Strategic (Externally Oriented) Planning aimed to ensure that managers engaged

Business Policy & Strategic Management

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Business Policy & Strategic Management

Business Policy & Strategic Management

1.7 Strategic Planning to Strategic Management

Strategic Planning to Strategic Management: Strategic planning was a plausible

Business Policy & Strategic Management