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Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
Strategic management notes for anna university
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Strategic management notes for anna university

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Anna university examination papers and note.s

Anna university examination papers and note.s

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  • Thank you dearest Nikos. Your words really motivate me to work towards society.
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  • Congratulations dear Prabhakar for your great work and many thanks for sharing. Wish you a beautiful day ! Best greetings from Greece.I wish you also a wonderful week. Nikos.
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  • 1. DEPARTMENT OF MANAGEMENT SCIENCES STRATEGIC MANAGEMENT (571309) Dr.K.Prabhakar BSc MBA PhD Professor COURSE SYLLABUS V 1.0 III- Semester III- 2011 Class Hours: 12.50 to 2:30 am Monday and Wednesday Dr. K.Prabhakar, Professor Contact information Office: Room #9Email: prabhakar.krishnamurthy@gmail.com (best way to contact me) Tel: 91-44-2659 1860 Office hours: Monday-Friday 8.40 am to 4.40 pm (only by prior appointment) 1
  • 2. s DD E/EZ/E K ,EE / W ZdDEd K D E DEd ^/E^KZD EK WZK ^Z/Wd/KE dhZ EKd^^h:d ^ DD /Ed /E z WZKD hh^d dK DZ 2
  • 3. VELAMMAL ENGINEERING COLLEGE CHENNAI-66 DEPARTMENT OF MANAGEMENT SCIENCESLECTUTRE NOTESBRANCH: MBASEMESTER: IIISTAFF: Dr.K.PrabhakarPREPARED BY: Dr.K.Prabhakar APPROVED BY HOD-DMS VICE PRINCIPALPRINCIPAL 3
  • 4. VELAMMAL ENGINEERING COLLEGE, CHENNAI - 600 066 DEPARTMENT OF MANAGEMENT SCIENCES LECTURE NOTE – CHECK LISTCODE : 571309SUBJECT NAME : Strategic ManagementUNITS : 1-5SL.NO DESCRIPTION AVAILABILITY YES NO NA 1 Cover page 2 Check List 3 Syllabus 4 Lecture plan 5 Lesson plan 6 Key words 7 Question bank 8 University Questions 9 2 Mark Questions Answers 10 Assignment 11 Cases 12 Subject notes 4
  • 5. 571309 STRATEGIC MANAGEMENT LT P C 3003UNIT- I STRATEGY AND PROCESS 9Conceptual framework for strategic management, the Concept of Strategy andthe Strategy Formation Process – Stakeholders in business – Vision, Missionand Purpose – Business definition, Objectives and Goals - Corporate Governanceand Social responsibility-case study.UNIT – II COMPETITIVE ADVANTAGE 9External Environment - Porter’s Five Forces Model-Strategic GroupsCompetitive Changes during Industry Evolution-Globalization and IndustryStructure - National Context and Competitive advantage Resources-Capabilities and competencies–core competencies-Low cost anddifferentiation Generic Building Blocks of Competitive Advantage-Distinctive Competencies-Resources and Capabilities durability of competitiveAdvantage- Avoiding failures and sustaining competitive advantage-Case study.UNIT - III STRATEGIES10The generic strategic alternatives – Stability, Expansion, Retrenchment andCombination strategies - Business level strategy- Strategy in the GlobalEnvironment-Corporate Strategy- Vertical Integration-Diversification andStrategic Alliances- Building and Restructuring the corporation- Strategicanalysis and choice - Environmental Threat and Opportunity Profile (ETOP) -Organizational Capability Profile - Strategic Advantage Profile - CorporatePortfolio Analysis - SWOT Analysis - GAP Analysis - Mc Kinseys 7s Framework- GE 9 Cell Model - Distinctive competitiveness - Selection of matrix - BalanceScore Card-case study.UNIT – IV STRATEGY IMPLEMENTATION EVALUATION 9The implementation process, Resource allocation, Designing organizationalstructure-Designing Strategic Control Systems- Matching structure and control tostrategy-Implementing Strategic change-Politics-Power and Conflict-Techniques ofstrategic evaluation control-case study. 5
  • 6. UNIT – V OTHER STRATEGIC ISSUES 8Managing Technology and Innovation- Strategic issues for Non Profitorganizations. New Business Models and strategies for Internet Economy-casestudy.TOTAL:45 PeriodsTEXT BOOKS1.Thomas L. Wheelen, J.David Hunger and Krish Rangarajan, StrategicManagement and Business policy, Pearson Education., 20062.Charles W.L.Hill Gareth R.Jones, Strategic Management Theory, An Integrated approach, Biztantra, Wiley India, 2007.3.Azhar Kazmi, Strategic Management Business Policy, Tata McGraw Hill, ThirdEdition, 2008.REFERENCES1. Fred.R.David, Strategic Management and cases, PHI Learning, 2008.2. Upendra Kachru , Strategic Management concepts cases , Excel Books,2006.3. Adriau HAberberg and Alison Rieple, Dtrategic Management Theory Application, Oxford University Press, 2008.4. Arnoldo C.Hax and Nicholas S. Majluf, The Strategy Concept and Process – A Pragmatic Approach, Pearson Education, Second Edition, 2005.5. Harvard Business Review, Business Policy – part I II, Harvard BusinessSchool.6. Saloner and Shepard, Podolny, Strategic Management, John Wiley, 2001.7. Lawerence G. Hrebiniak, Making strategy work, Pearson, 2005.8. Gupta, Gollakota and Srinivasan, Business Policy and Strategic Management – Concepts and Application, Prentice Hall of India, 2005.STRATEGIC MANAGEMENT 6
  • 7. (571309)Course Description The logo on the first page indicate the essence of strategicmanagement. Given access to same resources and similar market conditionssome firms show excellent performance. This course answers the questionabout the phenomena of superior performance of some organizationscompared to others. This course introduces students to the concepts andprinciples of Strategic Management. Students will finish this course beingable to understand and apply the steps required to create and evaluatebusinesses from a strategic perspective. Present course focuses on some ofthe current issues in strategic management while examining historicalperspective of strategy formulation and implementation. It will focus onanalytical approaches and on sustainable strategic practices in India andabroad. It is consciously designed with a technological and global outlooksince this orientation highlights the emerging trends in strategic managementand the concept of shared value and look at capitalism in different prismcompared to the past two decades. The course is intended to provide thestudents with a pragmatic approach that will guide the formulation andimplementation of corporate, business, and functional strategies in order tobuild competitive advantage for organizations.Course Interaction TimesLectures: 2 sessions / week, 100 minutes / sessionsStarting Date of the Course: 11.08.2011Ending Date of the Course : 9.12.2011Total number of mandatory hours given is= 45 hoursTotal number of hours planned = 54 hoursOverall Course objectives1. Apply strategic evaluation tools to understand how a business is operating. 7
  • 8. 2.Implement an industry analysis using Porters Five Forces with the sixthforce being suggested and find its limitation in Indian environment withoperation of Jugged.3.Analyze organization chosen by you and its competitors value chain.4.Conduct financial analysis to determine performance of a company vis asvis its industry so as to use it as inputs for creating a portfolio matrix.5. Interpret qualitative and quantitative information with respect to anorganization taken up for strategic analysis. Find the core competencies of theorganization.7. Utilize the appropriate analytical tools to interpret gatheredinformation/Reference8.Compare information to determine validity and relevance9. Isolate the key information or points and group data into relevant categories11. Reconcile the impact of economic, social, political, and cultural variableswhich affect a business operation.12. Conduct a SWOT analysis; Conduct a PEST analysis13. Recommend strategies to creatively organize, lead and assume the risksof an organization.14.Summarize the options available for the company15.Summarize the impact on the company’s organizational structure of eachAlternative.Teaching MethodologyThis course will use a combination of readings, case studies, lectures, and willrequire the completion of an individual project. Approximately 50 hours or 25sessions are planned for the course. There will be three sessions ofdiscussion on CT 1, CT2 and model examination is also planned. 8
  • 9. Following Harvard Business Review Articles are given to you as course readings andproviding single page analysis of each of the article is encouraged. 1. Harvard Business Review, May-June 1989; STRATEGIC INTENT; Gary Hamel C.K.Prahalad. 2. Harvard Business Review, November-December 1996; WHAT IS STRATEGY? Michael E.Porter , Z : ,Kt KDWd/d/s KZ^ ^, W ^dZ dz Michael E.Porter 4. Harvard Business Review; THE CORE COMPETENCE OF THE CORPORATION C.K.Prahalad Gary Hamel 5. Harvard Business Review; USING THE BALANCED SCORECARD AS A STRATEGIC MANAGEMENT SYSTEM;Robert S.Kaplan David P.Norton 6. Harvard Business Review;March 2001; STRATEGY AND THE INTERNET;Michael E.PorterNOTE:If you are unprepared for the discussion on any day, please let me know before thatparticular class. To encourage preparation and participation, each case discussionclass will start with the cold calling of one to three members of the class at random.You are encouraged to go through annual reports and from other sources available inthe business press. You should be familiar to use google scholar.This course aims to help you become a critical consumer of company information.Dont accept everything they put on their website as truth; search for alternativesources and critical analysis should be your key.1. Identification and analysis of a business problem or issue that the company faces orhas faced. It is usually good to state the analytical purpose of the paper before startingyou paper; the question you are addressing. Use the topics in the course or in thetextbook as a guide to focusing in on a specific aspect of the business that you willanalyze. It is essential for you to get perspectives from sources other than the 9
  • 10. company itself—newspapers, competitors, industry reports, etc. These will help youtake a critical stance toward the company information.2. Conclusions (or recommendations). Based on your research and analysis, you maysuggest what the company ought to do about the problem you studied. You mayprovide conclusions about the phenomenon you studied or conclusions formanagement in general. You are expected to take a stand and should address issues.Format of the paper There is a need for sequence in your paper. You should use bestwriting skills and judgment to decide how to structure the paper. My own experiencewith good papers are driven by the analytical goals that are identified at thebeginning of your paper.GROUP WORKThis course can best be learned by group work. In some cases your groups will be assignedand in others you can select your own groups. The professor will decide. It is the individualstudent’s responsibility to ensure they are an active, contributing member of group.Internal Assessment Requirements (Total 20 marks)The requirements for the course and the contribution of each towards the final grade areas follows. ACTIVITIES MARKSClass Test 1 2.5Class Test 2 2.5Model Test 5Strategic Analysis of an organization with focus on a particularorganization of choice of the student; write up of 15 pages confirming toAOM guidelines.Students are expected to submit the organization of choice by22/08/2011 5The format of the paper should be text, exhibits, and a bibliography ofsources used. The paper should be no more than 15 double-spaced pagesof text and 10 exhibits, excluding the bibliography. Length is not a virtueand students should spend the time to make the document shorter. Thepaper should provide you with an opportunity to illustrate the application 10
  • 11. ACTIVITIES MARKSof one of the frameworks we developed in class to an industry or firm ofyour choice. ( If AOM is found to be difficult the students are expected touse the IIM Style Guide. The project report will be rejected if it is notfollowing any one of the suggested format.www.iimahd.ernet.in/IIMA_Style_Guide_2004.pdfReality Check: Strategy in ActionYou have to visit any of the organizations and find the strategy adopted 5by the organization to attract and retain customers. You can choose a fishshop, tea shop or a Railway station. You will be given further directionregarding the project. 11
  • 12. Lesson PlanSESSIONS TOPICSNote: Strategy and Process ( Total Lectures suggested is 9; However, it may require 10lecture sessions of 50 minutes each;The unit is expected to be completed in 5 session days). All your course pptpresentations are available on www.slideshare.net.Please visit the first class slides at1 Course overview2 Conceptual Framework for Strategic Management3 The concept of strategy and strategy formation process The concept of strategy and strategy formation process4 ( Why some companies fail and other succeed? Wall Mart and Subhikha; Strategic Leadership; Managing strategy Making process for competitive advantage. Study on Future Group; Devdutt Patnaik) Where to start?6 Stakeholders in business7 Vision, Mission and Purpose8 Business Objectives and Goals9 Corporate Governance and Social Responsibility10 Competitive Advantage (9 Hours- 10 hours planned)Unit II External Environment11 Porter’s Five Force Model12 Porter’s Five Force Model (Sixth force) 12
  • 13. 13 Other important models; Resource based model14 Strategic Groups Competitive Changes during Industry Evolution13 Globalization and Industry Structure14 National Context and Competitive advantage resources15 Capabilities and Competencies16 Core Competencies17 Low cost and differentiation Generic building blocks of competitive advantage18 Resources and Capabilities and durability of competitive advantage Avoiding failures and sustaining competitive advantage19 After completion of the two units there will be a CT 1. As the two units cover substantial subject areas the examination will have a case study.( Unit III. STRATEGIES (Prescribed hours 10; planned hours 15 Hours) This unit is likely to take more thanthe required time prescribed by the university due to its practical importance) The generic strategic alternatives-Stability;Expansion;Retrenchment and21 Combination Strategies (Lecture 2- Deal with examples) Extra Reading: Putting it All Together: Integrating The Critical Tasks of22 Strategy 1 Extra Reading: Putting it All Together: Integrating The Critical Tasks of23 Strategy 224 Corporate Strategy Vertical Integration-Diversification and Strategic Alliances25 (organic and inorganic growth) Building and Reconstructing the Corporation and Strategic Analysis and26 choice 13
  • 14. Environmental Threat and Opportunity Profile (ETOP)27 ( Index created by Prof.Anatanu Gosh)28 Organizational Capability Profile – Strategic Advantage Profile29 Corporate Portfolio Analysis-SWOT Analysis-Gap Analysis30 Mc Kinsey’s 7s Framework31 GE 9 Cell Model32 Distinctive Competitiveness and selection of Matrix33 Balanced Scorecard35 Balanced Scorecard – ExamplesUnit 4 Strategy Implementation and Evaluation36 Balanced Scorecard – ExamplesUnit IV: Strategy Implementation and Evaluation (9 hours )What is structure of organization and why it is needed?42 Summary and Case study37 The implementation process, resource allocation, organizational structureUnit V Other Strategic Issues41 The implementation process, resource allocation44 Managing Technology42 Designing organizational structure45 Innovation38 Designing strategic control systems-Matching structure and control to strategy46 Innovation39 Implementing strategic change47 Strategic Issues for Non Profit Organizations40 Politics-Power- conflict48 New Business Models and Strategies for Internet Economy41 Techniques of strategic evaluation and control49 Case study 14
  • 15. 50 Revision of Unit 1 and Unit 251 Revision of Unit 3 and Unit 452 Revision of Unit 553 Important issues in strategic management1. Power point presentations will be given for all the lectures.2. Guest lectures will be arranged for the following topicsi. Leadership and Strategy Formulation. (Pasupathy)ii. Social Entrepreneurship (Lata Suresh)Anna University Examination Question Papers and Comments.1. Except in two occasions no case study was asked in the examinations;that does not mean they are not important. The best way to learn strategicmanagement is through applications and case studies.2. The part B always has either or choice and all questions are compulsory.3 .It is strongly recommended to quote examples from l from BusinessLine ,Business Today , Economic Times and Mint and other business magazines.4. For every month you will be provided with what is latest in the strategicmanagement area with links to the respective news items. They will bediscussed in the class. However, there will be discussion in the classregarding these trends in the class. M.B.A DEGREE EXAMINATION, NOV/DEC 2006 Third Semester BA 1702 – STRATEGIC MANAGEMENT (Regulation 2005) PART A – (10*2=20 Marks) 15
  • 16. 1. What is Environmental Scanning? 2. Define Corporate Governance. 3. Write the name of factors in Task environment. 4. What is SBU? 5. What is Balanced Scorecard? 6. Define Tactics. 7. What do you mean by ‘Strategic Implementation?’ 8. Define Reengineering. 9. Define Intrapreneurship. 10. What is the meaning of ‘Strategic Piggybacking’? PART B – (5*16=80 Marks)11.a) Explain the basic elements of strategic management process.11.b) What recommendations would you make to improve effectiveness oftoday’s board of directors?12.a) What is relevance of the resource based view of the firm to strategicmanagement in a global environment?12.b) Discuss how a development in a corporations societal environment canaffect the corporations through its task environment.13.a) What is portfolio analysis? Explain the components of portfolio analysis.13.b) Define functional strategy. Explain various functional strategies in anorganization.14.a) Describe the steps in strategic evaluation and control process.14.b) How can a corporate keep from sliding into the decline stage of theorganizational life cycle? 16
  • 17. 15.a) How can a company develop a corporate entrepreneurship culture?15.b) What considerations should small business environment keep in mindwhen the company grows and develops over time? M.B.A. DEGREE EXAMINATION, MAY/ JUNE 2007 Third Semester BA 1702 – STRATEGIC MANAGEMENT (Regulation 2005) PART A – (10*2=20 Marks)1. What is Business Strategy?2. Define Ethics.3. What do you mean by ‘Strategic Myopia’?4. What is Core Competency?5. Define Joint Ventures.6. Give any two examples of Conglomerate Diversification.7. What is Job enrichment?8. Define Corporate Culture.9. Define Corporate Entrepreneurship.10. What is the meaning of ‘Entrepreneurial Venture’? 17
  • 18. PART B – (5*16=80 Marks)11.a) Explain the steps involved in strategic Decision Making Process.11.b) Discuss the relationship between Social Responsibility and CorporateGovernance.12.a) How can a decision maker identify strategic factors in the Corporation’sExternal and International Environment?12.b) In what ways can a corporation’s structure and culture be internalstrengths or weakness.13.a) Define Directional Strategy and explain the dimensions of DirectionalStrategy.13.b) Define Strategy. Explain the factors to be considered for selecting thebest strategy.14.a) How should an Owner-Manager prepare a company for its movement inOrganizational Life Cycle?14.b) Explain the primary measures of Corporate performance in StrategicEvaluation.15.a) What is impact of Strategic Management on Not-for-Profit organization?15.b) Define Innovation. What are the characteristics of an attractive industryfrom an Entrepreneur’s point of view? M.B.A DEGREE EXAMINATION, NOV/DEC 2007 Third Semester BA 1702 – STRATEGIC MANAGEMENT (Regulation 2005) PART A – (10*2=20 Marks) 18
  • 19. 1. What is strategy? 2. What is Corporate Governance? 3. What is competitive advantage? 4. What are core competencies? 5. What is vertical integration? 6. What is hostage taking? 7. What is strategic change? 8. What is strategic control? 9. What are non-profit organizations? 10. What are entrepreneurial ventures?PART B – (5*16=80 Marks) 11.a) Explain the detail components of strategic management process. 11.b) Explain the various governance mechanisms followed to removeincompetent or ineffective managers. 12.a) Explain the Porter’s Five Forces Model to analyze competitiveforces in an industry environment. 12.b) Explain the four generic building blocks of competitive advantage.How to achieve this competitive advantage and make it durable? 13.a) Explain the various strategies to manage rivalry in mature industries. 13.b) What are strategic alliances? Explain their advantages anddisadvantages. How to make strategic alliances work successfully? 14.a) What is the role of organizational structure on strategyimplementation. Explain the two types of organizational design concepts thatdecide how a structure will work. 19
  • 20. 14.b) What is Organizational Conflict? What are its sources?Explain its process. Suggest strategies to resolve it. 15.a) Why failure rate with regard to innovations is high? Elaborate thevarious steps to build a competency in innovation and avoid failure. 15.b) Read the case given below and answer the questions given at theend. GETTING IT RIGHT AT McDonalds In the restaurant business maintaining product quality is a majorproblem because the quality of food, service, and the restaurant premisesvaries with the chefs and waiters as they come and go. If a customer gets abad meal or poor service or dirty silverware, not only that customers may belost, but other potential customers, too, as negative comments travel by wordof mouth. Consider then the problem Ray Croc, the man who pioneeredMcDonald’s growth, faced when McDonald’s franchises began to open by thethousands throughout the US. How could be maintain product quality toprotect the company’s reputation as it grew? Moreover, how could he try toincrease efficiency and make the organization responsive to the needs ofcustomers to promote its competitive advantage? Kroc’s answer was todevelop a sophisticated control system, which specified every detail of howeach McDonald’s restaurant was to be operated and managed.Kroc’s Control System was based on several components. First, hedeveloped a comprehensive system of rules and procedures for bothfranchise owners and employees to follow in running each restaurant. Themost effective way to perform such tasks as cooking burgers, making fries,greeting customers, or cleaning tables was worked out in advance, writtendown in rule books’, and then taught to each McDonald’s manager andemployee through a formal training process. For example, prospectivefranchise owners had to attend ‘Hamburger University’ the company’s trainingcentre in Chicago, where in an intensive, month-long program they learnt allaspects of a McDonald’s operation. In turn, they were expected to train theirwork force and make sure that employees understand operating procedures 20
  • 21. thoroughly. Kroc’s goal in establishing the system of rules and procedureswas to standardize. McDonald’s activities so that whatever franchise customerwalked into they would always find get what they expect from a restaurant, therestaurant has developed superior customer responsiveness.However, Kroc’s attempt to control quality went well beyond written rules andprocedures specifying task activities. He also developed McDonald’sfranchise system to help the company control its structure as it grew. Krocbelieved that a manager who is also a franchise owner(and receives a largeshare of the profits) is more motivated to maintain higher efficiency and qualitythan a manager paid on a straight salary. Thus McDonald’s reward andincentive system allowed it to keep control over its operating structure as itexpanded. Moreover, McDonald’s was very selective in selling its franchises;the franchises had to be people with the skills and capabilities to manage thebusiness, and franchise could be revoked if the holder did not maintain qualitystandards.McDonald’s managers frequently visited restaurants to monitor franchises,and franchises were allowed to operate their restaurant only according toMcDonald’s rules. For instance, they could not put in a television or otherwisemodify the restaurant. McDonald’s was also able to monitor and control theperformance of its franchises through output control. Each franchise providedMcDonald’s with information on how many meals were sold, on operatingcosts, and so forth. So using this mix of personal supervision and outputcontrol, managers at McDonald’s corporate headquarters would quickly learnif sales in a franchise declined suddenly, and thus they could take Correctiveaction.Within each restaurant, franchise owners also paid particular attention totraining their employees and instilling in them the norms and values of qualityservice. Having learned about McDonald’s core cultural values at theirtraining sessions, franchise owners were expected to transmit McDonald’sconcepts of efficiency, quality, and customer service to their employees. Thedevelopment of shared norms, values, and an organizational culture alsohelped McDonald’s standardize employee behavior so that customer would 21
  • 22. know how they would be treated in a McDonald’s restaurant. Moreover,McDonald’s tried to include customers in its culture. It had customers but theirown tables, but it also showed concern for customer needs, by buildingplaygrounds, offering Happy Meals, and organizing birthday parties forcustomer’s children. In creating its family oriented culture, McDonald’s wasensuring future customer loyalty because satisfied children are likely toremain loyal customers as adults.Through all these means, McDonald’s developed a control system thatallowed it to expand its organization successfully and create an organizationalstructure that has led to superior efficiency, quality, and customerresponsiveness. Its control system has played an important role inMcDonald’s becoming the largest the most successful fast-food company inthe world, and many other fast-food companies have imitated it.QUESTIONS 1) What were the main elements of the control system created by Ray Kroc? 2) In What ways would this control system facilitate McDonald’s strategy of global expansion? M.B.A DEGREE EXAMINATION, MAY/JUNE 2008 Third Semester BA 1702 – STRATEGIC MANAGEMENT (Regulation 2005) PART A – (10*2=20 Marks) 1. Define Strategic Management. 2. What is Corporate Social Responsibility? 3. Explain the concept of Competitive advantage. 4. What is PEST analysis? 22
  • 23. 5. What are the 3 forms of diversification? State the means and mode of diversification. 6. What is disinvestment? 7. Explain strategy implementation. 8. What are the primary measures of corporate performance? 9. What is corporate entrepreneurship? 10. Give the characteristics of innovative entrepreneurial culture.PART B – (5*16=80 Marks)11.a) How does strategic management typically evolve in a corporation?11.b) Illustrate the strategic planning process.12.a) Discuss porters model for analyzing Industries and Competitors12.b) Briefly discuss the five generic business level strategies.13.a) What are Grand Strategies? Explain the various retrenchment strategiesa firm may follow.13.b) Explain the cooperative strategies used to gain competitive advantagewithin an industry.14.a) Describe the steps in designing an effective control system.14.b) Illustrate the pattern of structural development corporations follow asthey expand and grow.15.a) Discuss the factors affecting new venture success.15.b) What are the impact of constraints on strategic management that arepeculiar to non-profit organizations? 23
  • 24. M.B.A DEGREE EXAMINATION, NOV/DEC 2008 Third Semester BA 1702 – STRATEGIC MANAGEMENT (Regulation 2005) PART A – (10*2=20 Marks) 1. Define vision and mission with examples. 2. What are planned and reactive strategies? 3. What is strategic intent? 4. What are operating strategies? 5. What is Global compact and global reporting initiative? 6. Differentiate TQM from Reengineering. 7. What are adaptive cultures? Give examples. 8. What is value chain approach to strategy? 9. What is ‘brick and click’ strategy? 10. What are the issues in alliances with foreign companies?PART B – (5*16=80 Marks)11.a) What are the typical industry’s dominant economic features that drivebusiness strategy. (or)11.b) Explain Michael Porter’s five forces model along with three genericstrategies. 24
  • 25. 12.a) What are key success factors? How do we classify them? (or)12.b) What are the possible strengths of an organization identified as part ofthe SWOT analysis?13.a) What were the mistakes committed by the early internet entrepreneurs? (or)13.b) What are three options for achieving cost competitiveness?14.a) What are the advantages and disadvantages of outsourcing? (or)14.b) What are the factors that affect alliances with foreign companies?15.a) What are the different types of strategy supportive cultures? (or)15.b) Is corporate social responsibility with business sense justified? Explainthe issues in the emerging competitive markets. M.B.A DEGREE EXAMINATION, MAY/JUNE 2009 Third Semester BA 1702 – STRATEGIC MANAGEMENT (Regulation 2005) PART A – (10*2=20 Marks) 1. What is meant by corporate strategy? 2. What is environment scanning? 3. What is strategic fit? 4. What are strategic business units? 25
  • 26. 5. What is value chain partnership? 6. What is conglomerate diversification? 7. What is organizational life cycle? 8. What is strategy-culture compatibility? 9. Are performance based-budgets suitable for non-profit organizations? 10. Does small business require strategic planning?PART B – (5*16=80 Marks)11.a) Explain the information needed for proper formulation of strategy.11.b) What measures would you suggest for effective corporate governance?12.a) According to Porter, what determines the level of competitive intensity inan industry.12.b) Discuss how a development in a corporations societal environment canaffect the corporations through its task environment.13.a) What are the advantages and disadvantages of being a first mover in anindustry. Give some examples of first mover and later mover firms. Were theysuccessful?13.b) Compare and contrast SWOT analysis and portfolio analysis.14.a) What are some ways to implement a retrenchment strategy withoutcreating a lot of resentment and conflict with labor unions.14.b) Explain the salient techniques of strategic evaluation and control.15.a) How can a company develop a corporate entrepreneurship culture?15.b) What are the popular strategies adopted by Non-Profit organizations? M.B.A DEGREE EXAMINATION, NOV/DEC 2009 Third Semester 26
  • 27. BA 1702 – STRATEGIC MANAGEMENT (Regulation 2005) PART A – (10*2=20 Marks) 1. Corporate Governance 2. Corporate Strategy. 3. TOWS matrix. 4. Strategic Myopia 5. Merger 6. Balance Score Card. 7. Strategic Business Unit 8. Program 9. Intrapreneur 10. Strategic PiggybackingPART B – (5*16=80 Marks)11.a) Explain the steps involved in Strategic Decision Making Process.11.b) “ It is very difficult to implement Corporate Governance in IndianBusiness Environment”. Discuss.12.a) Discuss how a development in a Corporation’s Societal environmentcan effect the Corporation through its task environment.12.b) Elaborate the process of strategy formulation through TOWS matrix andexplain with example.13.a) Define Functional Strategy. Discuss the different phases in functionalstrategy. 27
  • 28. 13.b) Explain the role of portfolio analysis in Corporate Strategy formulation.14.a) How can a corporation keep from sliding into the decline state of theOrganizational life? Explain.14.b) Explain the steps in managing Corporate Culture.15.a) Elaborate the sub stages in small Business Development.15.b) Read the following example of a company that has had its share ofsuccesses and failures in a very unique industry. Consider the questions atthe end of the paragraph and discuss them with others.Kinder-Care Learning Centers had been founded to take advantage of theincreasing numbers of dual-career couples who were turning to day-carecenters to watch their children while they were at work. In comparison tosome centers that were nothing more than babysitting services providing onlyminimal attention to the needs of the children. Kinder-Care offered pleasantsurroundings staffed by well-trained personnel. Soon kinder-Care had over1,000 centers in almost 40 cities in the United States. Not satisfied with itssuccess,however,Kinder-Care’s top management decided to take advantageof its relationship with working parents to diversify into the somewhat relatedbusiness of banking, insurance and retailing. Financed through junk bonds,the strategy failed to bring in enough cash to pay for its implementation. Afteryears of losses, the company was driven to bankruptcy in the later 1980s.It emerged from bankruptcy in 1993,divested of its acquisitions and pledgedto stay away from diversification. The new CEO initiated a concentrationstrategy with an emphasis on horizontal growth.Kinder-Care opened its first center catering expressly to commuters in arenovated supermarket near the Metro line to Chicago. It also offered to buildchild-care centers for big employers or to run existing facilities for a fee. 28
  • 29. It opened its first overseas center in Britain. By 1996, the company wasearning $21.7 million on revenues of $506.5 million with centers in 38 statesand the United Kingdom. i) What did this company do right? ii) What mistakes did it make? iii) Do you think it made the right decision to grow internationally? iv) Should it expand further? If so, what corporate strategy should it use? M.B.A DEGREE EXAMINATION, MAY/JUNE2010 Third Semester BA 1702 – STRATEGIC MANAGEMENT (Regulation 2005) PART A – (10*2=20 Marks) 1. Strategic Management 2. Corporate Governance. 3. Core Competency. 4. Micro-Environment. 5. Balance Score Card. 6. Conglomerate Diversification 7. Politics. 8. Cross Culture Management 9. Intrapreneurship 29
  • 30. 10. Not for-profit Organization PART B-(5*16=80 Marks)11a.) Explain the steps involved in Strategic Planning Process.11b.) Elaborate the concept of corporate Governance and SocialResponsibility with reference to Indian Scenario.12a.) Describe the forces for driving industry competitions as per Michael E.Porter model.12.b) Discuss the meaning and types of Competitive Strategies and Tactics.13.a) Explain the concept of BCG Matrix and GE Business Screen13.b) Describe the detailed features of Corporate directional strategies withexample.14.a) Enumerate the different stages of Organizational life cycle and highlightthe suitable strategies in each stage.14.b) Explain the steps involved in Managing Corporate Culture.15.a) Discuss the sub stages in Small Business development15.b)Explain how can a company develop a corporate EntrepreneurshipCulture. 30
  • 31. Key Words that have specific meaning for Strategic ManagementCompetitive advantage - What a firm does better than its competitors.Characteristics that allow a firm to outperform its rivals. Distinctive competence - Special skills and resources that generate strengths that competitors cannot easily match or imitate. First mover advantage - The competitive advantage held by a firm from being first in a market or first to use a particular strategy. Late mover advantage - The competitive advantage held by firms that are late in entering a market. Late movers often imitate the technological advances of other firms or reduce risks by waiting until a new market is established. Sustainable competitive advantage - A competitive advantage that cannot easily be imitated and won’t erode over time. Group think - A tendency of individuals to adopt the perspective of the group as a whole. It occurs when decision makers don’t question the underlying assumptions.Competitive strategy - How an enterprise competes within a specific industry ormarket. Also known as business strategy or enterprise strategy.Competitor analysis - The competitive nature of an industry. It determines how arival will likely react in a given situation. Barriers to entry - Factors that reduce entry into an industry. Switching costs - The costs incurred when a buyer switches from one supplier to another. Barriers to exit - Factors that impede exit from an industry. Contestable markets - Markets where profits are held to a competitive level. Due to the ease of entry into the market. 31
  • 32. Strategic groups - Clusters of firms within an industry that share certain critical asset configurations and follow common strategies. Predatory pricing - Aggressiveness by a firm against its rivals with the intent of driving them out of business.Concentration - Focus the firm’s efforts and resources in one industry.Core business - The central or major business of the firm. The core business isformed around the core competency of the firm. Management of the firm’s corebusiness is central to any decision about strategic direction.Core competency - What a firm does well. The core competency forms the corebusiness of the firm.Critical success factors - Those few things that must go well if a firm’s is to succeed.Typically 20 percent of the factors determine 80 percent of the performance. Thecritical success factors represent the 20 percent. Also called key success factors.Culture - The collection of beliefs, expectations, and values learned and shared bythe firm’s members and passed on from one generation to another.Diversification - The process a firm into new products or enterprises. Concentric diversification - Diversification into a related industry. Conglomerate diversification - Diversification into an unrelated industry.Economics - Cost savings. Economies of integration - Cost savings generated from joint production, purchasing, marketing or control. Economies of size - Fixed costs decline as output increases. 32
  • 33. Economies of scope - The products of two or more enterprises produced from shared resources which allows for cost reductions. Minimum efficient scale - The smallest output for which unit costs are minimized.Enterprise - The production of a single crop or type of livestock, such as wheat ordairy. A responsibility center. Primary enterprise - An enterprise that provides the foundation of the firm. The success of the primary enterprise is critical to the success of the firm. Secondary enterprise - An enterprise that supports a primary enterprise and/or the mission and goals of the firm. Competitive enterprises - Enterprises for which the output level of one can be increased only by decreasing the output level of the other. Complementary enterprise - Enterprises for which increasing the output level of one also increased the output level of the other. Supplementary enterprises - Enterprises for which the level of production of one can be increased without affecting the level of production of the other. Enterprise strategy - How an enterprise competes within a specific market or industry. Also called business or competitive strategy.Transfer price - The price at which a good or resource is transferred acrossenterprises within a firm. Entrepreneur - An entrepreneur sees change as normal andhealthy. He/she is involved in searching for change, responding to it, and exploiting itas an opportunity.Environmental scanning - To monitor, evaluate and disseminate information fromthe external environment to key people within the firm. Environmental analysis - An analysis of the environmental factors that influence a firm’s operations. 33
  • 34. Environmental opportunity - An attractive area for a firm to participate in where the firm would enjoy a competitive advantage. Environmental threat - An unfavourable trend or development in the firm’s environment that may lead to an erosion of the firm’s competitive position.Excess capacity - The ability to produce additional units of output without increasingfixed capacity.Experience curve - Systematic cost reductions that occur over the life of a product.Product costs typically decline by a specific amount each time accumulated output isdoubled.Externalities - A cost or benefit imposed on one party by the actions of another party.Costs are negative externalities and benefits are positive externalities.Firm vision - The collection of statements listed below indicating the desiredstrategic future for the firm. Mission statement - A statement of the reason why a firm exists. Goals - General statements of where the firm is going and what it wants to achieve. Objectives - Specific and quantifiable statements of what the firm is to accomplish and when it is to be accomplished.Innovation - A new way of doing things. Diffusion curve - The rate over time at which innovations are copied by rivals. Systematic innovation - The purposeful and organized search for changes, and the systematic analysis of the opportunities these changes might offer for economics and social innovation. 34
  • 35. Internal scanning - Looking inside the business and identifying strengths andweaknesses of the firm.Operations management - Focuses on the performance and efficiency of theproduction process. It involves the day-to-day decisions of the business.Portfolio - A group of enterprises within a firm that are managed as individualresponsibility centers. Portfolio analysis - Each product and enterprise is considered as an individual responsibility center for purposes of strategy formulation. Portfolio management - Management of a firm’s individual enterprises and resources across these enterprises.Proactive - Seek out opportunities and take advantage of them. Anticipate threats andneutralize them.Responsibility center - An enterprise whose performance is evaluated separately andis held responsible for its contribution to the firm’s mission and goals. Cost center - An enterprise that has a manager who is responsible for cost performance and controls most of the factors affecting cost. Investment center - An enterprise that has a manager who is responsible for profit and investment performance and who controls most of the factors affecting revenues, costs, and investments. Profit center - An enterprise that has a manager who is responsible for profit performance and who controls most of the factors affecting revenues and costs.Restructuring - Selling off unrelated parts of a business in order to streamlineoperations and return to a core business. 35
  • 36. Stakeholder - Individuals and groups inside and outside the firm who have an interestin the actions and decisions of the firm.Strategic - Manoeuvring yourself into a favourable position to use your strengths totake advantage of opportunities. Strategic audit - A checklist of questions that provide an assessment of a firm’s strategic position and performance. Strategic myopia - Management’s failure to recognize the importance of changing external conditions because they are blinded by their shared, strongly held beliefs. Strategic thinking - How decisions made today will effect the business years in the future. Strategic predisposition - A tendency of a firm by virtue of its history, assets, or culture to favour one strategy over competitive possibilities. Strategic decisions - A series of decisions used to implement a strategy.Strategic management - The act of identifying markets and assembling the resourcesneeded to compete in these markets. The set of managerial decisions and actions thatdetermine the long-run performance of the firm.Strategic planning - A comprehensive planning process designed to determine howthe firm will achieve its mission, goals, and objectives over the next five or ten yearsor longer. business planning - A plan that determines how a strategic plan will be implemented. It specifies how, when, and where a strategic plan will be put into action. Also known as tactical planning.Strategy - A pattern in a stream of decisions and actions. 36
  • 37. Dominant strategy - A strategy that is optimal regardless of the action taken by one’s rival. Emergent strategy - Unplanned strategy that emerge from within the organization. Intended strategy - Planned strategy developed through the strategic planning process. Realized strategy - The real strategy of a firm that is either an intended (planned) strategy of management or an emergent (unplanned) strategy from within the organization. Strategy formulation - The development of long-range plans for the management of environmental opportunities and threats, in light of the firms strengths and weaknesses. Strategy implementation - The process by which strategies and policies are put into action through the development of programs, budgets, and procedures. Strategy control - Compares performance with desired results and provides the feedback for management to evaluate results and take corrective action. Firm strategy - How a firm will reach its goals and objectives by using firm strengths to take advantage of environmental opportunities. Enterprise strategy - How an enterprise competes within its specific market or industry. Also called business or competitive strategies. Niche strategy - A strategy serving a specialized part of the market.SWOT analysis - Analysis of the strengths and weaknesses of the firm, and theopportunities and threats of the firm’s environment. Strategic issues - Trends and forces which occur within the firm or with environment surrounding the firm. Strategic factors - Strategic issues expected to have a high probability of occurrence and impact on the firm. 37
  • 38. Opportunities and threats - Strategic factors in the firm’s external environment are categorized as opportunities or threats to the firm. Strengths and weaknesses - Strategic factors within the firm are categorized as strengths or weaknesses of the firm. Strategic fit - Fit between what the environment wants and what the firm has to offer. Strategic alternatives - Alternative courses of action that achieve business goals and objectives, by using firm strengths to take advantage of environmental opportunities.Vertical integration - The process in which either input sources or output buyers ofthe firm are moved inside the firm. Backward (upstream) integration - Input sources are the firm. Forward (downstream) integration - Output buyers are the firm. Contractual integration - Separate firms in the various stages of production link the stages through contractual arrangements. Full integration - Where one firm has full ownership and control over all the stages in the production of a product Quasi-integration - A firm gets most of its requirements from an outside supplier that is under its partial control. Tapered integration - A firm produces part of its own requirements and buys the rest from outside suppliers.Vertical coordination - The stages in the production of a product are linked by morethan open markets but less than ownership and control by one firm. Vertical merger - Firms in different stages of the production and distribution chain are linked together. 38
  • 39. Examination Questions and Answers This is a low hanging fruit. However, this is not a guidebook. You can use it as a quick read book to understand the basic concepts and start working on the material given to you.This material is prepared to help weaker students to understand the concepts and writeexamination. However, students who are keen on getting expert knowledge of thesubject are expected to go through the material given in the class. All the past questionsare answered. It is not given in a question and answer form but in a sequence that willhelp you to understand the subject as well as write the examination. However some typeof questions answered with required elaboration. All the material are from publicsources from the internet. A separate acknowledgement with comments will be sent toyou in the next installment.Key concepts of strategic managementThe study of strategic management Strategic management is the set of managerial decision and actions that determinesthe long-run performance of a corporation and provide more than average performance ofIndustry. It includes environmental scanning (both external and internal), strategy formulation(strategic or long range planning), strategy implementation, and evaluation and control. Thestudy of strategic management therefore emphasizes the monitoring and evaluating ofexternal opportunities and threats in lights of a corporation’s strengths and weaknesses.Evolution of strategic management or why strategic planning Strategic planning is needed if (1) the corporation becomes large, (2) the layers ofmanagement increase, or (3) the environment changes in its complexity (4). GlobalizationPhase 1 – During 1980’s Basic financial planning was given utmost importance: operationalcontrol by trying meeting budgets based on financial data.Phase 2 – Early 1990’s saw this trend and there is need for ensuring sustainability oforganizations. Many organizations in Forbes list were lost disappeared after a decade due tolack of future orientation. This lead to Fore-cast based planning: Trying more effectiveplanning for growth by trying to predict the future for two to three years.Phase 3. Externally oriented planning: Seeking increasing responsiveness to markets andcompetition by trying to think strategically. The focus is on what is happening in the externalenvironment and building those key factors in to the planning. 39
  • 40. Phase 4. Strategic management: Seeking a competitive advantage and a successful future bymanaging all resources.Phase 4 in the evolution of the strategic management includes a consideration of strategyimplementation and evaluation and control, in addition to the emphasis on the strategicplanning in Phase 3.General Electric led by Jack Welsh one of the pioneers of the strategic planning, hecreated the concept of Boundary less organizations and other concepts that ensuredhigher shareholder return ; Similarly in India Mittal of Airtel used strategic planningby outsourcing key activities to BPOs and marketing was retained. This lead tocreation o largest telecom organization in the world from mere investment of 60,000rupees to 26 billion dollar business.The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaningarmy) and “ago” (meaning leading/moving).Strategy is an action that managers take to attain one or more of the organization’sgoals. Strategy can also be defined as “A general direction set for the company and itsvarious components to achieve a desired state in the future. Strategy results from thedetailed strategic planning process”. An equivalent definition given in the class isselection of actions that will make an organization to have superior performancecompared to industry. Actions means allocating resources. It captures the essence ofstrategy. strategy is all about integrating organizational activities and utilizing andallocating the scarce resources within the organizational environment so as to meetthe present objectives. While planning a strategy it is essential to consider thatdecisions are not taken in a vacuum and that any act taken by a firm is likely to be metby a reaction from those affected, competitors, customers, employees or suppliers.Strategy can also be defined as knowledge of the goals, the uncertainty of events.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. 40
  • 41. 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 or a goal post to be achieved of anorganization. It defines the overall mission, vision and direction of an organization.The objective of a strategy is to maximize an organization’s strengths and to minimizethe strengths of the competitors.Strategy, in short, bridges the gap between “where we are” and “where we want tobe”.Strategic ManagementStrategic management has now evolved to the point that it is primary value is to helpthe organization operate successfully in dynamic, complex global environment.Corporations have to become less bureaucratic and more flexible. In stableenvironments such as those that have existed in the past, a competitive strategy simplyinvolved defining a competitive position and then defending it. Because it takes lessand less time for one product or technology to replace another, companies are findingthat there are no such thing as enduring competitive advantage and there is need todevelop such advantage is more than necessary.Corporations must develop strategic flexibility: the ability to shift from one dominantstrategy to another. Strategic flexibility demands a long term commitment to thedevelopment and nurturing of critical resources. It also demands that the companybecome a learning organization: an organization skilled at creating, acquiring, andtransferring knowledge and at modifying its behaviour to reflect new knowledge andinsights. Learning organizations avoid stability through continuous self-examinationsand experimentations. People at all levels need to be involved in strategicmanagement: scanning the environment for critical information, suggesting changesto strategies and programs to take advantage of environmental shifts, and workingwith others to continuously improve work methods, procedures and evaluationtechniques. At Murugappa Group in Tamil nadu, for example, all employees havebeen trained in small-group activities and problem solving techniques. In Eqitas 41
  • 42. reverse roles are planned where the employees sit on the platform and all mangerslisten to them.Strategic intent includes directing organization’s attention on the need of winning;inspiring people by telling them that the targets are valuable; encouraging individualand team participation as well as contribution; and utilizing intent to direct allocationof resources. Strategic intent differs from strategic fit in a way that while strategic fitdeals with harmonizing available resources and potentials to the externalenvironment, strategic intent emphasizes on building new resources and potentials soas to create and exploit future opportunities. Mission StatementMission statement is the statement of the role by which an organization intends toserve it’s stakeholders. It describes why an organization is operating and thusprovides a framework within which strategies are formulated. It describes what theorganization does (i.e., present capabilities), who all it serves (i.e., stakeholders) andwhat makes an organization unique (i.e., reason for existence). A mission statementdifferentiates an organization from others by explaining its broad scope of activities,its products, and technologies it uses to achieve its goals and objectives. It talks aboutan organization’s present (i.e., “about where we are”).For instance, Microsoft’smission is to help people and businesses throughout the world to realize their fullpotential. Wal-Mart’s mission is “To give ordinary folk the chance to buy the samething as rich people.” Mission statements always exist at top level of an organization,but may also be made for various organizational levels. Chief executive plays asignificant role in formulation of mission statement. Once the mission statement isformulated, it serves the organization in long run, but it may become ambiguous withorganizational growth and innovations. In today’s dynamic and competitiveenvironment, mission may need to be redefined. However, care must be taken that theredefined mission statement should have original fundamentals/components. Missionstatement has three main components-a statement of mission or vision of thecompany, a statement of the core values that shape the acts and behaviour of theemployees, and a statement of the goals and objectives.Features of a Mission 42
  • 43. a. Mission must be feasible and attainable. It should be possible to achieve it. b. Mission should be clear enough so that any action can be taken. c. It should be inspiring for the management, staff and society at large. d. It should be precise enough, i.e., it should be neither too broad nor too narrow. e. It should be unique and distinctive to leave an impact in everyone’s mind. f. It should be analytical, i.e., it should analyze the key components of the strategy. g. It should be credible, i.e., all stakeholders should be able to believe it. VisionA vision statement identifies where the organization wants or intends to be in futureor where it should be to best meet the needs of the stakeholders. It describes dreamsand aspirations for future. For instance, Microsoft’s vision is “to empower peoplethrough great software, any time, any place, or any device.” Wal-Mart’s vision is tobecome worldwide leader in retailing. A vision is the potential to view things ahead ofthemselves. It answers the question “where we want to be”. It gives us a reminderabout what we attempt to develop. A vision statement is for the organization and it’smembers, unlike the mission statement which is for the customers/clients. Itcontributes in effective decision making as well as effective business planning. Itincorporates a shared understanding about the nature and aim of the organization andutilizes this understanding to direct and guide the organization towards a betterpurpose. It describes that on achieving the mission, how the organizational futurewould appear to be.An effective vision statement must have following features- a. It must be unambiguous. b. It must be clear. c. It must harmonize with organization’s culture and values. d. The dreams and aspirations must be rational/realistic. e. Vision statements should be shorter so that they are easier to memorize.In order to realize the vision, it must be deeply instilled in the organization, beingowned and shared by everyone involved in the organization. 43
  • 44. Goals and objectivesA goal is a desired future state or objective that an organization tries to achieve. Goalsspecify in particular what must be done if an organization is to attain mission orvision. Goals make mission more prominent and concrete. They co-ordinate andintegrate various functional and departmental areas in an organization. Well madegoals have following features- 1. These are precise and measurable. 2. These look after critical and significant issues. 3. These are realistic and challenging. 4. These must be achieved within a specific time frame. 5. These include both financial as well as non-financial components.Objectives are defined as goals that organization wants to achieve over a period oftime. These are the foundation of planning. Policies are developed in an organizationso as to achieve these objectives. Formulation of objectives is the task of top levelmanagement. Effective objectives have following features- 1. These are not single for an organization, but multiple. 2. Objectives should be both short-term as well as long-term. 3. Objectives must respond and react to changes in environment, i.e., they must be flexible. 4. These must be feasible, realistic and operational.TacticsTactics are concerned with the short to medium term co-ordination of activities andthe deployment of resources needed to reach a particular strategic goal. Some typicalquestions one might ask at this level are: What do we need to do to reach our growth/ size / profitability goals? What are our competitors doing? What machinesshould we use? The decisions are taken more at the lower levels to implement thestrategies based on ground realities.How strategy is initiated?A triggering event is something that stimulates a change in strategy .Some of thepossible triggering events is: 44
  • 45. New CEO: By asking a series of embarrassing questions, the new CEO cuts throughthe veil of complacency and forces people to question the very reason for thecorporation’s existence.Intervention by an external institution: The firm’s bank suddenly refuses to agreeto a new loan or suddenly calls for payment in full on an old one.Threat of a change in ownership: Another firm may initiate a takeover by buyingthe company’s common stock.Management’s recognition of a performance gap: A performance gap exists whenperformance does not meet expectations. Sales and profits either are no longerincreasing or may even be falling.Innovation of a new product that threatens the existence of the present status quo.Basic model of strategic managementStrategic management consists of four basic elements1. Environmental scanning2. Strategy Formulation3. Strategy Implementation and4. Evaluation and controlManagement scans both the external environment for opportunities and threats andthe internal environmental for strengths and weakness. The following factors that aremost important to the corporation’s future are called strategic factors: strengths,weakness, opportunities and threats (SWOT)Strategy FormulationStrategy formulation is the development of long-range plans for they effectivemanagement of environmental opportunities and threats, taking into considerationcorporate strengths and weakness. It includes defining the corporate mission,specifying achievable objectives, developing strategies and setting policy guidelines.Mission 45
  • 46. An organization’s mission is its purpose, or the reason for its existence. It states whatit is providing to society .A well conceived mission statement defines the fundamental, unique purpose that sets a company apart from other firms of its types and identifiesthe scope of the company ‘s operation in terms of products offered and markets servedObjectives Objectives are the end results of planned activity; they state what is to beaccomplished by when and should be quantified if possible. The achievement ofcorporate objectives should result in fulfillment of the corporation’s mission.Strategies A strategy of a corporation is a comprehensive master plan stating howcorporation will achieve its mission and its objectives. It maximizes competitiveadvantage and minimizes competitive disadvantage. The typical business firm usuallyconsiders three types of strategy: corporate, business and functional.Policies A policy is a broad guideline for decision making that links the formulation ofstrategy with its implementation. Companies use policies to make sure that theemployees throughout the firm make decisions and take actions that support thecorporation’s mission, its objectives and its strategies.Strategic decision making Strategic deals with the long-run future of the entire organization and havethree characteristic1. Rare- Strategic decisions are unusual and typically have no precedent to follow.2. Consequential-Strategic decisions commit substantial resources and demand a greatdeal of commitment3. Directive- strategic decisions set precedents for lesser decisions and future actionsthroughout the organization.Mintzberg’s mode s of strategic decision making 46
  • 47. According to Henry Mintzberg, the most typical approaches or modes of strategicdecision making are entrepreneurial, adaptive and planning.Making better strategic decisionsHe gives seven steps for strategic decisions1. Evaluate current performance results2. Review corporate governance3. Scan the external environment4. Analyze strategic factors (SWOT)5. Generate, evaluate and select the best alternative strategy6. Implement selected strategies7. Evaluate implemented strategiesSBU or Strategic Business UnitAn autonomous division or organizational unit, small enough to be flexible and largeenough to exercise control over most of thefactors6 affecting its long-term7 performance.Because strategic business units are more agile (and usuallyhave independent11 missions12 and objectives), they allow the owning conglomerate torespond quickly to changing economic or market situations.Corporate Governance Corporate governance is a mechanism established to allow different parties tocontribute capital, expertise and labour for their mutual benefit the investor orshareholder participates in the profits of the enterprise without taking responsibilityfor the operations. Management runs the company without being personallyresponsible for providing the funds. So as representatives of the shareholders,directors have both the authority and the responsibility to establish basic corporatepolicies and to ensure they arte followed. The board of directors has, therefore, an 47
  • 48. obligation to approve all decisions that might affect the long run performance of thecorporation. The term corporate governance refers to the relationship among thesethree groups (board of directors, management and shareholders) in determining thedirection and performance of the corporationResponsibilities of the board Specific requirements of board members of board members vary, dependingon the state in which the corporate charter is issued. The following fiveresponsibilities of board of directors listed in order of importance1. Setting corporate strategy ,overall direction, mission and vision2. Succession: hiring and firing the CEO and top management3. Controlling , monitoring or supervising top management4. Reviewing and approving the use of resources5. Caring for stockholders interestsRole of board in strategic management The role of board of directors is to carry out three basic tasks1. Monitor2. Evaluate and influence3. Initiate and determineCORPORATE SOCIAL RESPONSIBILITYCorporate Social Responsibility (CSR) is an important activity to forbusinesses . As globalization accelerates and large corporations serve as global providers, these corporations have progressively recognized thebenefits of providing CSR programs in their various locations. CSR activities are now being 48
  • 49. undertaken throughout the globe.What is corporate social responsibility?The term is often used interchangeably for other terms such as Corporate Citizenship and isalso linked to the concept of Triple Bottom Line Reporting (TBL) that is people, planet and profits., which is used as a framework for measuring an organization’s performance against economic, social and environmental parameters. It is about building sustainable businesses, which need healthy economies, markets and communities.The key drivers for CSR areEnlightened self-interest - creating a synergy of ethics, a cohesive society and asustainable global economy where markets, labour and communities are able tofunction well together. SustainabilityYou need to understand sustainability. It is being used mostly in organizationalforums and a basic understanding is needed for you. The discussion on sustainabilityis only for your understanding.Sustainability means meeting present needs without compromising the ability offuture generations to meet their needs’. These well-established definitions set an idealpremise, but do not clarify specific human and environmental parameters formodelling and measuring sustainable developments. The following definitions aremore specific: 1. Sustainable means using methods, systems and materials that wont deplete resources or harm natural cycles. 2. Sustainability identifies a concept and attitude in development that looks at a sites natural land, water, and energy resources as integral aspects of the development. 3. Sustainability integrates natural systems with human patterns and celebrates continuity, uniqueness and place making.Combining all these definitions; Sustainable developments are those which fulfilpresent and future needs while using and not harming renewable resources andunique human-environmental systems of a site:[air, water, land, energy, and human 49
  • 50. ecology and/or those of other [off-site] sustainable systems (Rosenbaum 1993 and Vieria 1993). Social investment - contributing to physical infrastructure and social capital is increasingly seen as a necessary part of doing business. Transparency and trust - business has low ratings of trust in public perception. There is increasing expectation that companies will be more open, more accountable and be prepared to report publicly on their performance in social and environmental arenas . Increased public expectations of business - globally companies are expected to do more than merely provide jobs and contribute to the economy through taxes and employment. Corporate social responsibility is represented by the contributions undertaken by companies to society through its core business activities, its social investment and philanthropy programmes and its engagement in public policy. In recent years CSR has become a fundamental business practice and has gained much attention from chief executives, chairmen, boards of directors and executive management teams of larger international companies. They understand that a strong CSR program is an essential element in achieving good business practices and effective leadership. Companies have determined that their impact on the economic, social and environmental landscape directly affects their relationships with stakeholders, in particular investors, employees, customers, businesspartners, governments and communities. According to the results of a global survey in 2002 by Ernst Young, 94 per cent of companies believe the development of a 50
  • 51. Corporate Social Responsibility (CSR) strategy can deliver real business benefits,however only 11 per cent have made significant progress in implementing the strategyin their organisation. Senior executives from 147 companies in a range of industrysectors across Europe, North America and Australasia were interviewed for thesurvey. The survey concluded that CEOs are failing to recognize the benefits ofimplementing Corporate Social Responsibility strategies, despite increased pressure toinclude ethical, social and environmental issues into their decision-making processes.Research found that company CSR programs influence 70 per cent of all consumerpurchasing decisions, with many investors and employees also being swayed in their choiceof companies. While companies recognize the value of an integrated CSR strategy, the majority are failing to maximize the associated business opportunities, said Andrew Grant, Ernst Young Environment and Sustainability Services Principal. Corporate Social Responsibility is now a determining factor in consumer and client choice which companies cannot afford to ignore. Companies who fail to maximize their adoption of a CSR strategy will be left behind.The World Economic Forum has recognized the importance of corporate social responsibilityby establishing the Global Corporate Citizenship Initiative. The Initiative hopes to increasebusinesses engagement in and support for corporate social responsibility as a businessstrategy with long-term benefits both for the companies themselves as well as society ingeneral.http://www.weforum.org/site/homepublic.nsf/Content/Global+Corporate+Citizenship +InitiativeStrategic planning for small businessMany entrepreneurial ventures and small businesses believe that strategic planning isonly for large businesses However, it is very much relevant to learn the gamelans - 51
  • 52. and strategic planning is a major part of any successful business. Small business needsmore careful thought about business. Strategic planning involves setting up a strategythat your business is going to follow over a defined time period. It can be for aspecific part of the business, like planning a marketing strategy, or for the business asa whole. Usually a board of directors sets the overall strategy for the business andeach area of the company plans their strategy in alignment with the overall strategy.Differing businesses use various time periods for their strategic planning. The timeperiod is usually dependent on how fast the industry is moving. In a fast-changingenvironment like the internet, 5-year plans dont make sense. In big industries longerrange planning is possible and desirable. Small businesses start with Writinga business plan which is different from strategic planning. One writes a business planwhen one is starting something new - a business or a product/service line within abusiness. Strategy looks to growth while business planning looks to beginnings. Partof the strategy of a business may be to introduce a new product line. That product linewould then have its own business plan for its development and introduction. Withouta strategy any business small or big business has no direction. Strategy tells whereyou want to go.Strategic Planning in Public and Non-Profit Sector OrganizationsStrategic Planning is a means to an end, a method used to position an organization, through prioritizing its use of resources according to identified goals, in an effort to guide its direction and development over a period of time . Strategic planning in recent years has been primarily focused on private sector organizations and much of the theory assumes that those in executive control of an organization have the freedom to determine its direction.Current theories also appear to assume, that a profit motive will be the drivingforce behind the planning requirement. In public sector organizations or in non profit organizations , however, those in executive positions often have their powers constrained by statute and regulation which predetermine, to various degrees, not only the very purpose of the organization but also their levels of freedom to diversify or to reduce, for example, a loss-making service for example we cannot close Air India even it is making losses; however, it cannot be totally profit oriented only as it has a social purpose .The primary financial driver in these 52
  • 53. organizations is not profit, but to maximize output within a given budget (some organizations currently having to try to do both) and, while elements of competition do exist, it is much more common to think of comparators rather than competitors. Much of the planning literature, currently being published, addresses the necessity of planning in the profit and non-profit sectors. Strategic thought and action have become increasingly important and have been adopted by public and non-profit planners to enable them to successfully adapt to the future . It has been established in literature that strategic planning, can help public and nonprofit organizations anticipate and respond effectively to their dramatically changing environments. In their efforts to provide increased value for money and to genuinely improve their outputs, public and non-profit sector organizations have been increasingly turning to strategic planning systems and models. For example Indian posts adopted a strategy to face competition from courier service by having SPEED POST. It is a thought from the state organization that is not working for profit. Similarly many of the NGOs such as Hand in Hand in Kancheepuram provide funds to people who can pay back and plans all its activities effectively.Strategic ChangeStrategic Change means changing the organizational Vision, Mission, Objectives andof course the adopted strategy to achieve those objectives.Strategic change is defined as changes in the content of a firms strategy as definedby its scope, resource deployments, competitive advantages, and synergy(Hofer andSchendel 1978)Strategic change is defined as a difference in the form, quality, or state over time inorganizations alignment with its external environment (Rajgopal Spreitzer, 1997Van de Ven Pool, 1995). Considering the definition of strategic change, strategic change could be affected by the states in which s firms exists and their external environments. Because the performance of firms might dependent on the fit between firms and their external environments, the appearances of novel opportunities and threats in the external environments, in other words, the change of external environments, require firms to adapt to the external environments again; as a result, firms would change their 53
  • 54. strategy in response to the environmental changes. The states of firms will also affect the occurrence of strategic change. For example, firms tend to adopt new strategies in the face of financial distress for the purpose of breaking the critical situations. Based on the argument of Rajagopalan and Spreitzer (1997), the factors which affect decision makers cognition of external environment would affect strategic change in the organization rather than the actual change that happens in an organization.nvironmental scanning and industry analysisEnvironmental scanning Environmental scanning is the monitoring, evaluating and disseminating ofinformation from the external and internal environments to keep people within thecorporation. It is a tool that a corporation uses to avoid strategic surprise and to ensurelong-term health.Scanning of external environmental variables The social environment includes general forces that do not directly touch on theshort-run activities of the organization but those can, and often do, influence its long-run decisions. These forces are • Economic forces • Technological forces • Political-legal forces • Sociocultural forcesScanning of social environment The social environment contains many possible strategic factors. The numberof factors becomes enormous when one realize that each country in the world can berepresented by its own unique set of societal forces, some of which are very similar toneighboring countries and some of which are very different. 54
  • 55. Monitoring of social trends Large corporations categorized the social environment in any one geographicregion into four areas and focus their scanning in each area on trends with corporate-wide relevance. Trends in any area may be very important to the firms in otherindustries. Trends in economic part of societal environment can have an obvious impacton business activity. Changes in the technological part of the societal environmenthave a significant impact on business firms. Demographic trends are part ofsociocultural aspects of the societal environment.International society consideration For each countries or group of countries in which a company operates,management must face a whole new societal environment having different economic,technological, political-legal, and Sociocultural variables. This is especially an issuefor a multinational corporation, a company having significant manufacturing andmarketing operations in multiple countries. International society environments vary sowidely that a corporation’s internal environment and strategic management processmust be very flexible. Differences in social environments strongly affect the ways inwhich a multinational company.Scanning of the task environmentA corporation’s scanning of the environment should include analysis of all therelevant elements in the task environment. These analyses take the form of individualreports written by various people in different parts of the firms. These and otherreports are then summarized and transmitted up the corporate hierarchy for topmanagement to use in strategic decision making. If a new development reportedregarding a particular product category, top management may then sent memos topeople throughout the organization to watch for and reports on development in relatedproduct areas. The many reports resulting from these scanning efforts when boileddown to their essential, act as a detailed list of external strategic factors.Identification of external strategic factors: 55
  • 56. One way to identify and analyze developments in the external environment isto use the issues priority matrix as follows.1. Identify a number of likely trends emerging in the societal and task environment. These are strategic environmental issues: Those important trends that, if they happen, will determine what various industries will look like.2. Assess the probability of these trends actually occurring.3. Attempt to ascertain the likely impact of each of these trends of these corporations.Industry analysis: Analyzing the task environmentMichael Porter’s approach to industry analysis Michael Porter, an authority on competitive strategy, contends that acorporation is most concerned with the intensity of competition within its industry.Basic competitive forces determine the intensity level. The stronger each of theseforces is, the more companies are limited in their ability to raise prices and earnedgreater profits.Threat of new entrants New entrants are newcomers to an existing industry. They typically bring newcapacity, a desire to gain market share and substantial resources. Therefore they arethreats to an established corporation. Some of the possible barriers to entry are thefollowing.1. Economies of scale2. Product differentiation3. Capital requirements4. Switching costs5. Access to distribution channels6. Cost disadvantages independent of size 56
  • 57. 7. Government policyRivalry among existing firms Rivalry is the amount of direct competition in an industry. In most industriescorporations are mutually dependent. A competitive move by one firm can beexpected to have a noticeable effect on its competitors and thus make us retaliation orcounter efforts. According to Porter, intense rivalry is related to the presence of thefollowing factors.1. number of competitors2. rate of industry growth3. product or service characteristics4. amount of fixed costs5. capacity6. height of exit barriers7. diversity of rivalsTreat of substitute product or services Substitute products are those products that appear to be different but cansatisfy the same need as another product. According to Porter, “Substitute limit thepotential returns of an industry by placing a ceiling on the prices firms in the industrycan profitably charge.” To the extent that switching costs are low, substitutes mayhave a strong effect on the industry.Bargaining power of buyers Buyers affect the industry through their ability to force down prices, bargainfor higher quality or more services, and play competitors against each other.Bargaining power of supplier 57
  • 58. Suppliers can affect the industry through their ability to raise prices or reducethe quality of purchased goods and services. Corporate Governance and Social Responsibility Corporate governance is a mechanism established to allow different parties tocontribute capital, expertise and labour for their mutual benefit the investor orshareholder participates in the profits of the enterprise without taking responsibilityfor the operations. Management runs the company without being personallyresponsible for providing the funds. So as representatives of the shareholders,directors have both the authority and the responsibility to establish basic corporatepolicies and to ensure they arte followed. The board of directors has, therefore, an obligation to approve all decisionsthat might affect the long run performance of the corporation. The term corporategovernance refers to the relationship among these three groups (board of directors,management and shareholders) in determining the direction and performance of thecorporationResponsibilities of the board Specific requirements of board members of board members vary, dependingon the state in which the corporate charter is issued. The following fiveresponsibilities of board of directors listed in order of importance1. Setting corporate strategy ,overall direction, mission and vision2. Succession: hiring and firing the CEO and top management3. Controlling , monitoring or supervising top management4. Reviewing and approving the use of resources5. Caring for stockholders interestsRole of board in strategic management The role of board of directors is to carry out three basic tasks 58
  • 59. 1. Monitor2. Evaluate and influence3. Initiate and determine 59
  • 60. Environmental scanning and industry analysisEnvironmental scanning Environmental scanning is the monitoring, evaluating and disseminating ofinformation from the external and internal environments to keep people within thecorporation. It is a tool that a corporation uses to avoid strategic surprise and to ensurelong-term health.Scanning of external environmental variables The social environment includes general forces that do not directly touch on theshort-run activities of the organization but those can, and often do, influence its long-run decisions. These forces are • Economic forces • Technological forces • Political-legal forces • Sociocultural forcesScanning of social environment The social environment contains many possible strategic factors. The numberof factors becomes enormous when one realize that each country in the world can berepresented by its own unique set of societal forces, some of which are very similar toneighboring countries and some of which are very different.Monitoring of social trends Large corporations categorized the social environment in any one geographicregion into four areas and focus their scanning in each area on trends with corporate-wide relevance. Trends in any area may be very important to the firms in otherindustries. Trends in economic part of societal environment can have an obvious impacton business activity. Changes in the technological part of the societal environment 60
  • 61. have a significant impact on business firms. Demographic trends are part ofsociocultural aspects of the societal environment.International society consideration For each countries or group of countries in which a company operates,management must face a whole new societal environment having different economic,technological, political-legal, and Sociocultural variables. This is especially an issuefor a multinational corporation, a company having significant manufacturing andmarketing operations in multiple countries. International society environments vary sowidely that a corporation’s internal environment and strategic management processmust be very flexible. Differences in social environments strongly affect the ways inwhich a multinational company.Scanning of the task environmentA corporation’s scanning of the environment should include analysis of all therelevant elements in the task environment. These analyses take the form of individualreports written by various people in different parts of the firms. These and otherreports are then summarized and transmitted up the corporate hierarchy for topmanagement to use in strategic decision making. If a new development reportedregarding a particular product category, top management may then sent memos topeople throughout the organization to watch for and reports on development in relatedproduct areas. The many reports resulting from these scanning efforts when boileddown to their essential, act as a detailed list of external strategic factors.Identification of external strategic factors: One way to identify and analyze developments in the external environment isto use the issues priority matrix as follows.1. Identify a number of likely trends emerging in the societal and task environment. These are strategic environmental issues: Those important trends that, if they happen, will determine what various industries will look like.2. Assess the probability of these trends actually occurring.3. Attempt to ascertain the likely impact of each of these trends of these corporations. 61
  • 62. PEST AnalysisA scan of the external macro-environment in which the firm operates can beexpressed in terms of the following factors: • Political • Economic • Social • TechnologicalThe acronym PEST (or sometimes rearranged as STEP) is used to describe aframework for the analysis of these macro environmental factors.Political FactorsPolitical factors include government regulations and legal issues and define bothformal and informal rules under which the firm must operate. Some examples include: • tax policy • employment laws • environmental regulations • trade restrictions and tariffs • political stabilityEconomic FactorsEconomic factors affect the purchasing power of potential customers and the firmscost of capital. The following are examples of factors in the macro economy: • economic growth • interest rates 62
  • 63. • exchange rates • inflation rateSocial FactorsSocial factors include the demographic and cultural aspects of the externalmicroenvironment. These factors affect customer needs and the size of potentialmarkets. Some social factors include: • health consciousness • population growth rate • age distribution • career attitudes • emphasis on safetyTechnological FactorsTechnological factors can lower barriers to entry, reduce minimum efficientproduction levels, and influence outsourcing decisions. Some technological factorsinclude: • RD activity • automation • technology incentives • rate of technological changeExternal Opportunities and Threats 63
  • 64. The PEST factors combined with external micro environmental factors can beclassified as opportunities and threats in a SWOT analysis.SWOT AnalysisA scan of the internal and external environment is an important part of the strategicplanning process. Environmental factors internal to the firm usually can be classifiedas strengths (S) or weaknesses (W), and those external to the firm can be classified asopportunities (O) or threats (T). Such an analysis of the strategic environment isreferred to as a SWOT analysis.The SWOT analysis provides information that is helpful in matching the firmsresources and capabilities to the competitive environment in which it operates. Assuch, it is instrumental in strategy formulation and selection.StrengthsA firms strengths are its resources and capabilities that can be used as a basis fordeveloping a competitive advantage.Examples of such strengths include: • patents • strong brand names • good reputation among customers • cost advantages from proprietary know-how • exclusive access to high grade natural resources • favorable access to distribution networksWeaknesses 64
  • 65. The absence of certain strengths may be viewed as a weakness. For example, each ofthe following may be considered weaknesses: • lack of patent protection • a weak brand name • poor reputation among customers • high cost structure • lack of access to the best natural resources • lack of access to key distribution channelsIn some cases, a weakness may be the flip side of a strength. Take the case in which afirm has a large amount of manufacturing capacity. While this capacity may beconsidered a strength that competitors do not share, it also may be a considered aweakness if the large investment in manufacturing capacity prevents the firm fromreacting quickly to changes in the strategic environment.OpportunitiesThe external environmental analysis may reveal certain new opportunities for profitand growth. Some examples of such opportunities include: • an unfulfilled customer need • arrival of new technologies • loosening of regulations • removal of international trade barriersThreats 65
  • 66. Changes in the external environmental also may present threats to the firm. Someexamples of such threats include: • shifts in consumer tastes away from the firms products • emergence of substitute products • new regulations • increased trade barriersThe SWOT MatrixA firm should not necessarily pursue the more lucrative opportunities. Rather, it mayhave a better chance at developing a competitive advantage by identifying a fitbetween the firms strengths and upcoming opportunities. In some cases, the firm canovercome a weakness in order to prepare itself to pursue a compelling opportunity.To develop strategies that take into account the SWOT profile, a matrix of thesefactors can be constructed. The SWOT matrix (also known as a TOWS Matrix) isshown below:SWOT / TOWS Matrix ^ t ^K tKK ^d tdd • S-O strategies pursue opportunities that are a good fit to the companys strengths. 66
  • 67. • W-O strategies overcome weaknesses to pursue opportunities. • S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats. • W-T strategies establish a defensive plan to prevent the firms weaknesses from making it highly susceptible to external threats.Industry analysis: Analyzing the task environmentMichael Porter’s approach to industry analysis Michael Porter, an authority on competitive strategy, contends that acorporation is most concerned with the intensity of competition within its industry.Basic competitive forces determine the intensity level. The stronger each of theseforces is, the more companies are limited in their ability to raise prices and earnedgreater profits. 67
  • 68. Threat of new entrants New entrants are newcomers to an existing industry. They typically bring newcapacity, a desire to gain market share and substantial resources. Therefore they arethreats to an established corporation. Some of the possible barriers to entry are thefollowing.1. Economies of scale: Intel vs. AMD2. Product differentiation: Apple Vs Dell3. Capital requirements: To start Insurance Firms4. Switching costs :example of windows to Linux; it is difficult to switch5. Access to distribution channels: HLL Vs Arasan Soap6. Cost disadvantages independent of size7. Government policy: New banks policy of RBI.Rivalry among existing firms Rivalry is the amount of direct competition in an industry. In most industriescorporations are mutually dependent. A competitive move by one firm can beexpected to have a noticeable effect on its competitors and thus make us retaliation orcounter efforts. According to Porter, intense rivalry is related to the presence of thefollowing factors.1. number of competitors2. rate of industry growth3. product or service characteristics4. amount of fixed costs5. capacity6. height of exit barriers 68
  • 69. 7. diversity of rivalsTreat of substitute product or services Substitute products are those products that appear to be different but cansatisfy the same need as another product. According to Porter, “Substitute limit thepotential returns of an industry by placing a ceiling on the prices firms in the industrycan profitably charge.” To the extent that switching costs are low, substitutes mayhave a strong effect on the industry.Bargaining power of buyers Buyers affect the industry through their ability to force down prices, bargainfor higher quality or more services, and play competitors against each other.Bargaining power of supplier Suppliers can affect the industry through their ability to raise prices or reducethe quality of purchased goods and services.Strategy FormulationCorporate Strategy:Corporate strategy is primarily about the choice of direction for the firm as a whole.This is true whether the firm is a small, one-product Company or a large multinationalcorporation. In a large multi-business company, however, corporate strategy is alsoabout managing various product lines and business units for maximum value. In thisinstance, corporate headquarters must play the role of organizational “parent” in thatit must deal with various product and business unit “children”. Even though eachproduct line or business unit has its own competitive or cooperative strategy that ituses to obtain its own competitive advantage in the marketplace, the corporation mustcoordinate these different business strategies so that the corporation as a wholesucceeds as a “family”. 69
  • 70. Corporate strategy, therefore, includes decisions regarding the flow of financial andother resources to and from a company’s product lines and business units. Though aseries of coordinating devices, a company transfers skills and capabilities developedin a one unit to other units that need such resources. In this way, it attempts to obtainsynergies among numerous product lines and business units so that the corporatewhole is greater than the some of its individual business unit parts. All corporations,from the smallest company offering one product in only one industry to the largestconglomerate operating in many industries in many product must, at one time oranother, consider one or more of these issues.Directional Strategy: Just as every product or business unit must follow a business strategy toimprove its competitive position, every corporation must decide its orientationtowards growth by asking the following three questions: • Should we expand, cut back, or continue our operations unchanged? • Should we concentrate our activities within our current industry or should we diversify into other industries? • If we want to grow and expand, should we do so through internal development or through external acquisitions, mergers, or joint ventures?A corporation’s directional strategy is composed of three general orientations towardsgrowth (sometimes called grant strategies):Growth strategy expands the company’s activities.Stability strategies make no change to the company’s current activities.Retrenchment strategies reduce the company’s level of activities.Growth strategiesBy far the most widely pursued corporate strategies of business firms are thosedesigned to achieve growth in sales, assets, profit, or some combination of these.There are two basic corporate growth strategies: concentration within one product lineor industry and diversification into other product and industries. These can be 70
  • 71. achieved either internally by investing in new product development or externallythrough mergers acquisitions or strategic alliances.Concentration strategiesVertical integration Growth can be achieved via vertical integration by taking over a functionpreviously provided by supplier (backward integration) or by distributor (forwardintegration). This is a logical strategy for a corporation or business unit with a strongcompetitive position in a highly attractive industry. To keep and even improve itscompetitive position through backward integration, the company may act to minimizeresource acquisition costs and inefficient operations, as well as to gain more controlover quality and product distribution through forward integration. The firm, in effect,builds on its distinctive competence to gain greater competitive advantage. Theamount of vertical integration can range from full integration, in which a firm makes100% of key supplies and distributors, to taper integration, in which the firminternally produces less than half of its key supplies, to no integration, in which thefirm uses long term contracts with other firms to provide key supplies anddistribution. Outsourcing, the use of long-term contracts to reduce internaladministrative costs, has become more popular as large corporations have worked toreduce costs and become more competitive by becoming less vertically integrated. Although backward integration is usually more profitable than forwardintegration, it can reduce a corporation’s strategic flexibility; by creating anencumbrance of expensive assets that might be hard to sell, it can thus create for thecorporation an exit barrier to leaving that particular industry.Horizontal integration It is the degree to which a firm operates in multiple geographic locations at thesame point in an industries value changed growth can be achieved via horizontalintegration by expanding firm’s product into other geographic locations or byincreasing the range of product and services offered to current customers.Stability strategies: The corporation may choose stability over growth by continuingits current activities without any significant change in direction. The stability family 71
  • 72. of corporate strategies can be appropriate for a successful corporation operating in areasonably predictable environment. Stability strategies can be very useful in shortrun but can be dangerous if followed for too long.Sum of the more popular of these strategies are1. Pause and proceed with caution strategy2, no change strategy3. Profit strategyCorporate parenting:Corporate parenting views corporation in terms of resources and capabilities that canbe used to build business value as well as generates synergies across business units. The corporate parenting strategies can be developed in following ways.1. Examine each business unit in terms of its critical success factors.2. Examine each business unit in terms of areas in which performance can beimprovedStrategy formulations: Functional strategy Strategic choiceA functional strategy is the approach a functional area takes to achieve corporate andbusiness unit objectives and strategies by maximizing resource productivity. Forexample the difference between McDonalds and Domino Pizza. While McDonaldsexpect you to visit its outlet and have Pizza, Domino Pizza designed its supply chainin such a way that whenever you are hungry you can have Pizza. It is functionalstrategy based on supply chain.Core competency:The Core Competence is a term coined by , C.K. Prahalad and Gary Hamel and it maybe defined as collective learning and coordination skills behind the firmsproduct lines. They made the case that core competencies are the source 72
  • 73. of competitive advantage and enable the firm to introduce an array of new productsand services.According to Prahalad and Hamel, core competencies lead to the development of coreproducts. Core products are not directly sold to end users; rather, they are used tobuild a larger number of end-user products. For example, motors are a core productthat can be used in wide array of end products. The business units of the corporationeach tap into the relatively few core products to develop a larger number of end userproducts based on the core product technology. The intersection of marketopportunities with core competencies forms the basis for launching new businesses.By combining a set of core competencies in different ways and matching them tomarket opportunities, a corporation can launch a vast array of businesses.Without core competencies, a large corporation is just a collection of differentbusinesses. Core competencies serve as the glue that bonds the business units togetherinto a coherent portfolio. For Reliance Group size, scale and project managementskills form the basis of core competence.Core CompetenciesCore competencies arise from the integration of multiple technologies and thecoordination of diverse production skills. Some examples include Philips expertise inoptical media, Sonys ability to miniaturize electronics and Airtel’s ability to providecheapest services in telecom with maximum customer satisfaction.A core competence should: 1. provide access to a wide variety of markets, and 2. contribute significantly to the end-product benefits, and 73
  • 74. 3. be difficult for competitors to imitate. 4. Should be developed by the organization Core competencies tend to be rooted in the ability to integrate and coordinate various groups in the organization. While a company may be able to hire a team of brilliant scientists in a particular technology, in doing so it does not automatically gain a core competence in that technology. It is the effective coordination among all the groups involved in bringing a product to market that results in a core competence.It is not necessarily an expensive undertaking to develop core competencies. Themissing pieces of a core competency often can be acquired at a low cost throughalliances and licensing agreements. In many cases an organizational design thatfacilitates sharing of competencies can result in much more effective utilization ofthose competencies for little or no additional cost.What core competence is not; 1.Trying to overtake others by RD 2.Sharing costs among business units 3.Integrating vertically These strategies with no objective of getting the four aspects elaborated cannot be called core competence. They may help to build but by themselves they do not lend to any competencies.Failure to recognize core competencies may lead to decisions that result in their loss.During 1970s many U.S. manufacturers closed down television manufacturingbusinesses arguing that industry was mature and that high quality, low cost modelswere available from Japanese manufacturers. In the process, they lost their corecompetence in video, and this loss resulted in a handicap in the newer digitaltelevision industry. Similarly American hardware manufacturers started outsourcing 74
  • 75. to China , the cheaper option and lost totally to Foxconn; Foxconn manufactures 170billion $ worth of hardware and America is left with very less number of workers andpeople with the socio eco system of manufacturing competencies.Core ProductsCore competencies manifest themselves in core products that serve as a link betweenthe competencies and end products. Core products enable value creation in the endproducts. Examples of firms and some of their core products include: • 3M - substrates, coatings, and adhesives • UAE motors in any grinding machine in India • Canon - laser printer subsystems • Honda - gasoline powered engines • Intel ProcessorsThe core products are used to launch a variety of end products. For example, Hondauses its engines in automobiles, motorcycles, lawn mowers, and portable generators.Because firms may sell their core products to other firms that use them as the basis forend user products, traditional measures of market share are insufficient for evaluatingthe success of core competencies. Prahalad and Hamel suggest that core productshare is the appropriate measure. While a company may have a low brand share, itmay have high core product share and it is this share that is important from a corecompetency standpoint. Once a firm has successful core products, it can expand thenumber of uses in order to gain a cost advantage via economies of scale andeconomies of scope. 75
  • 76. Implications for Corporate ManagementPrahalad and Hamel suggest that a corporation should be organized into a portfolio ofcore competencies rather than a portfolio of independent business units. Business unitmanagers tend to focus on getting immediate end-products to market rapidly andusually do not feel responsible for developing company-wide core competencies.Consequently, without the incentive and direction from corporate management to dootherwise, strategic business units are inclined to under invest in the building of corecompetencies.If a business unit does manage to develop its own core competencies over time, due toits autonomy it may not share them with other business units. As a solution to thisproblem, Prahalad and Hamel suggest that corporate managers should have the abilityto allocate not only cash but also core competencies among business units. Businessunits that lose key employees for the sake of a corporate core competency should berecognized for their contribution.A core competency is something that a corporation can do exceedingly well. It is akey strength. It should have the following characteristics;1. It should have been developed by the organization2. It cannot be easily copied by others3. It should give access to the wider market.If all the conditions are satisfied then it is known as core competency.Selection of strategy: After the pros and cons of the potential strategies alternatives have beenidentified any one must be selected from implementation. The most important criteriais the identity of the propose strategy to deal with the specific strategic factorsdeveloped earlier in SWOT analysis.Corporate scenario: 76
  • 77. The corporation may choose stability over growth by continuing its currentactivities without any significant change in direction. The stability family of corporatestrategies can be appropriate for a successful corporation operating in a reasonablypredictable environment. Stability strategies can be very useful in short run but can bedangerous if followed for too long.Sum of the strategies are;1. Pause and proceed with caution strategy2, no change strategy3. Profit strategyCorporate parenting:Corporate parenting views corporation in terms of resources and capabilities that canbe used to build business value as well as generates synergies across business units. The corporate parenting strategies can be developed in following ways.1. Examine each business unit in terms of its critical success factors. 2. Examine each business unit in terms of areas in which performance can beimprovedCorporate scenario:Corporate scenario are pro forma balance sheet and income statement that forecast theeffects that each alternative strategy and its various programs will likely have ondivision and corporate return on investment. Corporate scenario is extension ofindustry scenario.Development of policies:The selection of the best strategic alternative is not the end of the strategyformulation. Management now must established policies that define the ground rulefor implementation. Flowing from the selected strategy, policies provide the guidancefor decision making an action throughout the organization. Policies tend to be ratherlong lived and can even outlast the particular strategy that created them. 77
  • 78. Strategy implementation: Organizing for actionStrategy implementation is the sum total of the activities and choices required for theexecution of strategic plan by which strategies and policies are put into action throughthe development of programs , budgets and procedures. Although implementation isusually considered after strategy has been formulated, implementation is a key part ofstrategic management. Thus strategy formulation and strategy implementation are thetwo sides of same coin.Implementing strategyDepending on how the corporation is organized those who implements strategy willprobably be a much more divorced group of people than those who formulate it. Mostof the people in the organization who are crucial to successful strategyimplementation probably had little to do with the development of corporate and evenbusiness strategy. Therefore they might be entirely ignorant of vast amount of dataand work into formulation process. This is one reason why involving middlemanagers in the formulation as well as in the implementation of strategy tends toresult in better organizational performance.Developing programs, budgets and proceduresThe managers of divisions and functional areas worked with their fellow managers todevelop programs, budgets and procedures for implementation of strategy. They alsowork to achieve synergy among the divisions and functional areas in order to establishand maintain a company’s distinctive competence.ProgramsA program is a statement of the activities or steps needed to accomplish a single useplan. The purpose of program is to make a strategy action oriented.BudgetsA budget is a statement of corporation’s program in monitory terms. After programsare developed, the budget process begins. Planning a budget is the last real check acorporation has on the feasibility of its selected strategy. An ideal strategy might 78
  • 79. found to be completely impractical only after specific implementation programs arecosted in detail.ProceduresProcedures are system of sequential steps or techniques that describe in detail how aparticular task or job is to be done.SynergyOne of the goals to be achieved in strategy implementation is synergy betweenfunctions and business units. The acquisition or development of additional productlines is often justified on the basis of achieving some advantages of scale in one ormore of company’s functional areas. For example LG developing a product such asDVD Player will help it to achieve synergy by utilizing the same channel.Stages of corporate developmentSuccessful Corporation tend to follow a pattern of structural development calledstages of development as they grow and expand. Beginning with the simple structureof the entrepreneurial firm, they usually get larger and organize along functional lineswith marketing production and finance department. With continuing success thecompany adds new product lines in different industries and organizes itself intointerconnected divisions. The differences among these three stages of corporatedevelopment in terms of typical problems, objectives strategies, reward systems andother characteristics as specified in detail in table. Stage I Stage II Stage IIIFunction1 Sizing up: major Survival and growth Growth, geographical Trusteeship in problems dealing with short expansion management and term operating investment and problems control of large increasing and diversified resources2 Objectives Personal and Profits and meetings ROI, profits, earnings subjective functionally oriented per share budgets and 79
  • 80. performance targets3 Strategy Implicit and personal Functionally Group and product oriented, exploitation diversification of a basic product or service4 Organization One man show Functionally Multiunit general specialized group staff office and decentralized operating divisions5 Measurement and Personal, subjective Assessment of Complex formula control control functional operation system geared to comparative assessment of performance measure6 Reward punishment Informal, personal, More structures Companywide system subjective policies usually applied to many different classes of managers and workersOrganizational life cycleThe organizational life cycle describes how the organization grow, develop andeventually decline. The stages of organization life cycles are1. Birth ;2. Growth;3. Maturity;4. Decline ;5. DeathThe impact of these stages on corporate and structure are summarized in the table Stage II Stage III Stage IV Stage V Stage IDominate Birth Growth Maturity Decline DeathissuePopular Concentrati Horizontal Concentric Profit Liquidation and vertical and strategy or 80
  • 81. strategies on in a niche integration conglomerat followed by bankruptcy e retrenchmen diversificati t onLikely Entrepreneu Functional Decentraliza Structural Dismemberstructure r dominated management tion into surgery ment of emphasized profit or structures investment centersAn organizational structureThe prime purpose of organizational structure is to reduce the external and internaluncertainty. It defines the relationships within the organization and eternalorganization. It consists of activities such as task allocation, coordination andsupervision, which are directed towards the achievement of organizational aims. Itcan also be considered as the viewing glass or perspective through which individualssee their organization and its environment. Many organizationshave hierarchical structures, but not all organizations have hierarchical structures. Anorganization can be structured in many different ways, depending on their objectives.The structure of an organization will determine the modes in which it operates andperforms. Organizational structure allows the expressed allocation of responsibilitiesfor different functions and processes to different entities such asthe branch, department, workgroup and individual. Organizational structure affectsorganizational action in the following ways; it provides the foundation on whichstandard operating procedures and routines rest. Second, it determines whichindividuals get to participate in which decision-making processes, and thus to whatextent their views shape the organization’s actions.Operational organizations and informal organizationsOrganizational processes are designed to help the organizations to have effective andefficient use of resources. If the informal organizations are formed and try to offsetthe formal organizations there is likely to be a inefficiency in the organization.HistoryOrganizational structure typesEntrepreneurial structures 81
  • 82. entrepreneurial structures lack standardization of tasks. This structure is most commonin smaller organizations and is best used to solve simple tasks. The structure is totallycentralized. The strategic leader makes all key decisions and most communication isdone by one on one conversations. It is particularly useful for new (entrepreneurial)business as it enables the founder to control growth and development.Bureaucratic structuresMax Weber (1948) gives the analogy that “the fully developed bureaucraticmechanism compares with other organizations exactly as does the machine comparewith the non-mechanical modes of production. Precision, speed, unambiguity, …strict subordination, reduction of friction and of material and personal costs- these areraised to the optimum point in the strictly bureaucratic administration.”Bureaucratic structures have a certain degree of standardization. They are better suitedfor more complex or larger scale organizations. They usually adopt a tall structure.Then tension between bureaucratic structures and non-bureaucratic is echoed in Burnsand Stalker[6] distinction between mechanistic and organic structures. It is not theentire thing about bureaucratic structure. It is very much complex and useful forhierarchical structures organization, mostly in tall organizations. The Weberiancharacteristics of bureaucracy are: 1. Clear defined roles and responsibilities 2. A hierarchical structure 3. Respect for merit.Post-bureaucraticIt is often used to describe a range of ideas developed since the 1980s thatspecifically contrast themselves with Webers ideal type bureaucracy. This mayinclude total quality management, culture management and matrix managementamongst others. None of these however has left behind the core tenets ofBureaucracy. Hierarchies still exist, authority is still Webers rational, legal type, andthe organization is still rule bound. It may be argued that it is cleaned upbureaucracies that is removing the problems of bureaucracies rather than a shift awayfrom bureaucracy. Gideon Kunda, in his classic study of culture management attechnological companies he argued that the essence of bureaucratic control - theformalization, codification and enforcement of rules and regulations - does not changein principle.....it shifts focus from organizational structure to the organizations 82
  • 83. culture. That is reason why TCS and Infosys spend lot of time and training people tomake them to be Infocians in the process the bureaucratic system gets embeddedrather resisted as high handed.Another smaller group of theorists have developed the theory of the Post-BureaucraticOrganization., provide a detailed discussion which attempts to describe anorganization that is fundamentally not bureaucratic. Charles Heckscher has developedan ideal type, the post-bureaucratic organization, in which decisions are based ondialogue and consensus rather than authority and command, the organization is anetwork rather than a hierarchy, open at the boundaries (in direct contrast to culturemanagement); there is an emphasis on meta-decision making rules rather thandecision making rules. This sort of horizontal decision making by consensus model isoften used in housing cooperatives, other cooperatives and when running a non-profit or community organization. It is used in order to encourage participation andhelp to empower25 people who normally experience oppression in groups.Functional structureEmployees within the functional divisions of an organization tend to perform aspecialized set of tasks, for instance the engineering department would be staffed onlywith software engineers. This leads to operational efficiencies within that group.However it could also lead to a lack of communication between the functional groupswithin an organization, making the organization slow and inflexible. As a whole,a functional organization is best suited as a producer of standardized goods andservices at large volume and low cost. Coordination and specialization of tasks arecentralized in a functional structure, which makes producing a limited amount ofproducts or services efficient and predictable. Moreover, efficiencies can further berealized as functional organizations integrate their activities vertically so that productsare sold and distributed quickly and at low cost.Divisional structureAlso called a product structure, the divisional structure groups each organizationalfunction into a division. Each division within a divisional structure contains all thenecessary resources and functions within it. Divisions can be categorized fromdifferent points of view. One might make distinctions on a geographical basis (a US 83
  • 84. division and an EU division, for example) or on product/service basis (differentproducts for different customers: households or companies). In another example, anautomobile company with a divisional structure might have one division for SUVs,another division for subcompact cars, and another division for sedans. Each divisionmay have its own sales, engineering and marketing departments.Matrix structureThe matrix structure groups employees by both function and product. This structurecan combine the best of both separate structures. A matrix organization frequentlyuses teams of employees to accomplish work, in order to take advantage of thestrengths, as well as make up for the weaknesses, of functional and decentralizedforms. An example would be a company that produces two products, product a andproduct b. Using the matrix structure, this company would organize functionswithin the company as follows: product a sales department, product a customerservice department, product a accounting, product b sales department, product bcustomer service department, product b accounting department. Matrix structure isamongst the purest of organizational structures, a simple lattice emulating order andregularity demonstrated in nature. • Weak/Functional Matrix: A project manager with only limited authority is assigned to oversee the cross- functional aspects of the project31. The functional managers maintain control over their resources and project areas. • Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and the functional managers. It brings the best aspects of functional and projectized organizations. However, this is the most difficult system to maintain as the sharing power is delicate proposition. • Strong/Project Matrix: A project manager32 is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed.Among these matrixes, there is no best format; implementation success alwaysdepends on organizations purpose and function. 84
  • 85. Organizational circle: moving back to flatThe flat structure is common in entrepreneurial start-ups, university spin offs or smallcompanies in general. As the company grows, however, it becomes more complexand hierarchical, which leads to an expanded structure, with more levels anddepartments.Often, it would result in bureaucracy34, the most prevalent structure in the past. It isstill, however, relevant in former Soviet Republics and China, as well as in mostgovernmental organizations all over the world. Shell Group35 used to represent thetypical bureaucracy: top-heavy and hierarchical. It featured multiple levels ofcommand and duplicate service companies existing in different regions. All this madeShell apprehensive to market changes,[12] leading to its incapacity to grow anddevelop further. The failure of this structure became the main reason for the companyrestructuring into a matrix.Starbucks is one of the numerous large organizations that successfully developed thematrix structure supporting their focused strategy. Its design combines functional andproduct based divisions, with employees reporting to two heads. Creating a teamspirit, the company empowers employees to make their own decisions and train themto develop both hard and soft skills. That makes Starbucks one of the best at customerservice. Similarly Life Insurance Corporation has the flat structure and it is mostsuccessful in implementing its strategies of reaching largest number of people in thecountry. Some experts also mention the multinational design, common in globalcompanies, such as Procter Gamble, Toyota andUnilever. This structure can beseen as a complex form of the matrix, as it maintains coordination among products,functions and geographic areas. In general, over the last decade, it has becomeincreasingly clear that through the forces of globalization, competition and moredemanding customers, the structure of many companies has become flatter, lesshierarchical, more fluid and even virtual.TeamOne of the newest organizational structures developed in the 20th century is team. Insmall businesses, the team structure can define the entire organization.[14] Teams canbe both horizontal and vertical. While an organization is constituted as a set of peoplewho synergize individual competencies to achieve newer dimensions, the quality oforganizational structure revolves around the competencies of teams in totality. For 85
  • 86. example, every one of the Whole Foods Market42 stores, the largest natural-foodsgrocer in the US developing a focused strategy, is an autonomous profitcentre43 composed of an average of 10 self-managed teams, while team leaders ineach store and each region are also a team. Larger bureaucratic organizations canbenefit from the flexibility of teams as well. Xerox, Motorola,and DaimlerChrysler are all among the companies that actively use teams to performtasks.NetworkAnother modern structure is network. While business giants risk becoming too clumsyto proact (such as), act and react efficiently, the new network organizations contractout any business function, that can be done better or more cheaply. In essence,managers in network structures spend most of their time coordinating and controllingexternal relations, usually by electronic means.HM48 is outsourcing its clothing to anetwork of 700 suppliers, more than two-thirds of which are based in low-cost Asiancountries. Not owning any factories, HM can be more flexible than many otherretailers in lowering its costs, which aligns with its low-cost strategy. The potentialmanagement opportunities offered by recent advances in complex networks theoryhave been demonstrated[20] including applications to product design anddevelopment,[21] and innovation problem in markets and industries.VirtualA special form of boundaryless organization is virtual. Hedberg, Dahlgren, Hansson,and Olve (1999) consider the virtual organization as not physically existing as such,but enabled by software to exist.[23] The virtual organization exists within a networkof alliances, using the Internet. This means while the core of the organization can besmall but still the company can operate globally be a market leader in its niche.According to Anderson, because of the unlimited shelf space of the Web, the cost ofreaching niche goods is falling dramatically. Although none sell in huge numbers,there are so many niche products that collectively they make a significant profit, andthat is what made highly innovative Amazon.com so successful.[24]Hierarchy-Community Phenotype Model of Organizational Structure 86
  • 87. In the 21st century, even though most, if not all, organizations are not of a purehierarchical structure, many managers are still blind-sided to the existence of the flatcommunity structure within their organizations. The business firm is no longer just aplace where people come to work. For most of the employees, the firm confers onthem that sense of belonging and identity- the firm has become their “village”, theircommunity.[26] The business firm of the 21st century is not just a hierarchy whichensures maximum efficiency and profit; it is also the community where people belongto and grow together- where their affective and innovative needs are met.[4]Lim, Griffiths, and Sambrook (2010) developed the Hierarchy-Community PhenotypeModel of Organizational Structure borrowing from the concept of Phenotype fromgenetics. A phenotype refers to the observable characteristics of an organism. Itresults from the expression of an organism’s genes and the influence of theenvironment. The expression of an organism’s genes is usually determined by pairs ofalleles. Alleles are different forms of a gene. In our model, each employee’s formal,hierarchical participation and informal, community participation within theorganization, as influenced by his or her environment, contributes to the overallobservable characteristics (phenotype) of the organization. In other words, just as allthe pair of alleles within the genetic material of an organism determines the physicalcharacteristics of the organism, the combined expressions of all the employees’formal hierarchical and informal community participation within an organization giverise to the organizational structure. Due to the vast potentially different combinationof the employees’ formal hierarchical and informal community participation, eachorganization is therefore a unique phenotype along a spectrum between a purehierarchy and a pure community (flat) organizational structure.Corporate Culture Because an organization’s culture can exert a powerful influence on thebehavior of all employees, it can strongly affect a company’s ability to shift itsstrategic direction. An optimal culture is one that best supports the mission andstrategy of the company of which it is a part. This means that, like structure andstaffing, corporate culture should follow strategy. A key job of management istherefore to evaluate1. what a particular strategy change will mean to the corporate culture2. whether a change in culture will be needed 87
  • 88. 3. Whether an attempt to change the culture will be worth the likely costs. Communication Be Used To Manage Culture. Communication is crucial toeffectively managing change. Companies in which major cultural changes havesuccessfully taken place had the following characteristics in common: 1. The CEO and other top managers had a strategic vision of what the company could become and communicated this vision to employees at all levels. 2. The vision was translated into the key elements necessary to accomplish that vision.Diverse Cultures Be managed In an Acquisition Growth Strategy When merging with or acquiring another company top management mustconsider a potential clash of cultures. The four general methods of managing twodifferent cultures are integration, assimilation, separation and enculturation.Integration involves a relatively balanced give –and –take of culture and managerialpractices between the mares and no strong imposition of culture change on eithercompany. Assimilation involves the domination of one organization by another.Separation is characterized by a separation of the two companies’ culture.Deculturation involves the disintegration of one company’s culture resulting fromunwanted and extreme pressure from the other to impose its culture and practices.Action Planning Activities can be directed towards accomplishing strategic through actionplanning at a minimum an action plan states what actions are going to be taken bywhom during what timeframe and with what expected results. Actions serve as a linkbetween strategy formulation and evaluation and control. The action plan specifieswhat needs to be done differently from the way operations are currently carried out.The explicit assignment of responsibilities for implementing and monitoring theprograms may improve motivation.Management by Objectives (MBO) MBO is an organization-wide approach to help assure purposeful actiontoward desired objectives by liking organizational objectives with individualbehavior.The MBO process involves: 1. Establishing and communicating organizational objectives. 2. Setting individual objectives that help implement organizational ones. 88
  • 89. 3. Developing an action plan of activities needed to achieve the objectives. 4. Periodically reviewing performance as it replace to the objectives and including the results in the annual performance appraisal.Total Quality Management (TQM) TQM is an operational philosophy that stresses commitment to customersatisfaction and continuous improvement.It has four objectives: 1. Better, less-variable quality of the product and service 2. Quicker, less-variable response to customer needs 3. Greater flexibility in adjusting to customers’ shifting requirement 4. Lower cost through quality improvement and elimination of no value-adding work.The essential ingredients of TQM are: 1. An intense focus on customer satisfaction 2. Customers are internal as well as external 3. Accurate measurement of every critical variable in a company’s operations. 4. Continuous improvement of products and services. 5. New work relationships based on trust and teamwork. Evaluation and Control It is the process of by which corporate activities and performance results are monitored so that actual performance can be compared with desired performance. This process can be viewed as a five step feedback model.1. Determine what to measure.2. Establish standards of performance.3. Measure actual performance.4. Compare actual performance with the standard.5. Take corrective action.Evaluation and Control in Strategic Management 89
  • 90. Evaluation and control information consists of performance data and activity reports.Top management need not involved. If however, the processes themselves cause theundesired performance, both top managers and operational managers must knowabout it so that they can develop new implementation programs or procedures.Evaluation and control information must be relevant to what is being monitored. Oneof the obstacles to effective control is the difficulty in developing appropriatemeasures of important activities and outputs.Using of measures Returns on Investment (ROI) are appropriate for evaluating the corporation’sor division’s ability to achieve profitability objectives. This type of measure, however,is adequate for evaluating additional corporate objectives such as social responsibilityor employee development. A firm therefore needs to develop measures that predictlikely profitability. These are referred to as steering controls because they measurethose variables that influence future profitability.Differing of behavior and output control Controls can be established to focus either on actual performance results or onthe activities that generates the performance. Behavior controls specify howsomething is to be done through policies, rules, standard operating procedures andorders from a superior. Output controls specify what is to be accomplished byfocusing on the result on the end result of the behavior through the use of objectivesor performance targets or milestones. They are not interchangeable. Behavior controlsare most appropriate when performance results are hard to measure and a clear cause-effect connection exists between activities and results. Output controls are mostappropriate when specific output measures are agreed upon and no clear cause-effectconnection exists between activities and results.Guideline for Proper Control. Measuring performance is a crucial part of evaluation and control. Withoutobjective and timely measurements, making operational, let alone strategic, decisionswould be extremely difficult. Nevertheless, the use of timely, quantifiable standardsdoes not guarantee good performance.1. Controls should involve only the minimum amount of information needed to give a reliable picture of events. 90
  • 91. 2. Control should monitor only meaningful activities and results, regardless of measurement difficulty.3. Controls should be timely.4. Control should be long term and short-term.5. Control should pinpoint exceptions.6. Controls should be used to reward meeting or exceeding standards rather than to punish failure to meet standards. 91
  • 92. Activity based costing (ABC) is a new accounting method for allocatingindirect and fixed costs to individual products or product lines based on the value-added activities going into that product. This method is very useful in doing a value-chain analysis of a firm’s activities for making outsourcing decisions. It allowsaccountants to charge costs more accurately because it allocates overhead far moreprecisely. It can be used in much type of industries.Corporate performance The most commonly used measure of corporate performance is ROI. It issimply the result of dividing net income before taxes by total assets. Return oninvestment has several advantages. It is a single comprehensive figure that isinfluenced by everything that happens. It measures how well a decision manager usesthe division’s assets to generate profits. It is a common denominator that can becompared with other companies and business units. It provides an incentive to useexisting assets efficiently and to buy new once only when it would increase profits.Stakeholder Measures Each stakeholder has its own set of criteria to determine how well thecorporation is performing. Top management should establish one or more simplemeasures for each stakeholder category so that it can keep tack of stakeholderconcerns.Shareholder value It is defined as the present value of the anticipated future streams cash flowsfrom the business plus the value of the company if liquidated. The value ofcorporation is thus the value of its cash flows discounted back to their present value,using the business cost of capital as the discount rate.Economic value added (EVA) is after tax operating profit minus the total annual costof capital. It measures the pre-strategy value of the business.Responsibility Centers Responsibility centers are used to isolate a unit so that it can be evaluatedseparately from the rest of the corporation. The center resources to produce a serviceor a product.Five major types of responsibility centers is used1. Standard cost centers.2. Revenue centers.3. Expense centers.4. Profit centers.5. Investment centers. 92
  • 93. Guideline for Proper Control. Measuring performance is a crucial part of evaluation and control. Without objective and timely measurements, making operational, let alone strategic, decisions would be extremely difficult. Nevertheless, the use of timely, quantifiable standards does not guarantee good performance. 1. Controls should involve only the minimum amount of information needed to give a reliable picture of events. 2. Control should monitor only meaningful activities and results, regardless of measurement difficulty. 3. Controls should be timely. 4. Control should be long term and short-term. 5. Control should pinpoint exceptions. 6. Controls should be used to reward meeting or exceeding standards rather than to punish failure to meet standards. Corporate Entrepreneurship Sharma and Chrisman present an overview of the different definitions in the field ofentrepreneurship: A variety of terms are used for the entrepreneurial efforts within anexisting organization such as corporate entrepreneurship, corporate venturing,,intrepreneuring , internal corporate entrepreneurship , internal entrepreneurship, strategicrenewal and venturing. Entrepreneurship encompasses acts of organizational creation,renewal or innovation that occur within or outside an existing organization.Entrepreneurs are individuals or groups of individuals, acting independently or as part ofa corporate system, who create new organizations, or instigate renewal or innovationwithin an existing organization. Burgelman, in his work, also proposes a definition:Corporate entrepreneurship refers to the process whereby firms engage indiversification through internal development. Such diversification requires newresource combinations to extend the firm’s activities in areas unrelated or marginallyrelated to its current domain of competence and corresponding opportunity set.Corporate entrepreneurship is the process whereby an individual or a group ofindividuals in association with existing organization, create a new organization orinstigate renewal or innovation within that organization. Ethics Ethics involves learning what is right or wrong, and then doing the right thing -- but the right thing is not nearly as straightforward as conveyed. Most ethical dilemmas 93
  • 94. in the workplace are not simply a matter of yes or no. For example Azim Premji tellsallhis employees whatever that is, “Grey is Black”. That means even if there is somekindof doubt about a transaction, do not go for it. We have to answer a question is therearealways a right thing or ethics depend on situation? We may consider ethics to be theScience of Conduct.” Ethics includes the fundamental ground rules by which we liveour lives. Philosophers such as Socrates and Plato have given guidelines for ethicalbehaviour. Many ethicists consider emerging ethical beliefs to be legal principles, i.e.,what becomes an ethical guideline today is made into to a law, regulation or rule.Therefore following law of the land is one of the basic virtues of ethics. Values,which guide how we ought to behave, are moral values, e.g., values such as respect,honesty, fairness, responsibility, etc. Statements around howthese values are applied are sometimes called moral or ethical principles.Definition of EthicsThe concept has come to mean various things to various people, but generally in thecontext of organizations coming to know what it right or wrong in the workplace anddoing whats right -- this is in regard to effects of products/services and inrelationships with stakeholders. (We will have a discussion on stakeholders later) Intimes of fundamental change, values that were previously taken for granted are nowstrongly questioned. For example, life long employment is considered one of the bestpolicies of organizations. However in the changed competitive situations we find thatdownsizing, delayering, outsourcing production systems raise questions about thefundamental premise of previously laid down good practices. Consequently, there isno clear moral compass to guide leaders through complex dilemmas about what isright or wrong.Attention to ethics in the workplace sensitizes leaders and staff to how they shouldact. Perhaps most important, attention to ethics in the workplaces helps ensure thatwhen leaders and managers are struggling in times of crises and confusion, they retaina strong moral compass.Let us consider the following questions that are likely to arise in our mind withrespect to ethics. 94
  • 95. What kind of knowledge does ethics lay claim to? How is such knowledge defined?What is its relevance/application to business conduct?How is morality acquired? What are the origins of ethics as systems of belief?Should we be good all the time? Must the answer always be Yes or are theredegrees of correct or wrongful action?Is morality necessarily related to religion?Is questionable morality necessarily criminal or needing a framework of control andsanction? What form does a framework of sanction take for example for abusinessperson operating in global market place? For example, an organization maybe following all that is required regarding pollution in a particular country. However,in some other country the rules may not be so stringent regarding pollution control.Now, should the organization follow the same stringent rules?Are some acts committed by people always wrong (murder, theft, corrupt practice,exploitation of others, damaging and irreversible destruction of the naturalenvironment)?Is moral, ethical behaviour bound by absolute, universal, undeniable rules, whicheveryone must accept and follow in life? What are such rules? How could they be soabsolute? Alternatively is such behaviour based more on(a) Avoidance of consequences (fear of punishment) when making decisions oracting? Generally during childhood, certain behaviour is encouraged and other type ofbehaviour is discouraged. In this process ethics are being thought.Broad Areas of Ethics in relation to Business1. Managerial mischief includes illegal, unethical, or questionable practices ofindividual managers or organizations, as well as the causes of such behaviours andremedies to eradicate them. There has been a great deal written about managerialmischief, leading many to believe that business ethics is merely a matter of preachingthe basics of what is right and wrong. More often, though, business ethics is a matterof dealing with dilemmas that have no clear indication of what is right or wrong.2. Moral mazes. The other broad area of business ethics is moral mazes ofmanagement and includes the numerous ethical problems that managers must dealwith on a daily basis, such as potential conflicts of interest, wrongful use of resources,mismanagement of contracts and agreements, etc. Ethics has come to be considered amanagement discipline, especially since the birth of the social responsibility 95
  • 96. movement in the 1960s. In that decade, social awareness movements raisedexpectations of businesses to use their massive financial and social influence toaddress social problems such as poverty, crime, environmental protection, equalrights, public health and improving education. An increasing number of peopleasserted that because businesses were making a profit from using the planet’sresources, these businesses owed it to the planet to work to improve society.Therefore, we replaced the word shareholder to stakeholder. In 1960’s, our objectiveis to maximize the shareholders wealth and it used to be very narrow and leading tosatisfying short run goals.Who are stakeholders?As commerce became more complicated and dynamic, organizations realized theyneeded more guidance to ensure their dealings supported the common good and didnot harm others -- and so business ethics was born. In a survey done by MORI survey66% of those polled said industry and commerce do not pay enough attention to theirsocial responsibilities. In a poll in Guardian newspaper in November 1996, businessleaders came only twelfth out of twenty possible moral role models which peopleshould “try to follow”. However, the scandals of Enron and other organizations haveshaken the faith of people in organization’s ethical behaviour. In fact, they startedquestioning what for the organizations have been created. One manifestation of theneed to demonstrate greater accountability has been the rise in well-organizedstakeholder representatives. For the last thirty years has seen the rise of increasinglywell organized stakeholder representatives. Historically, trade unionism was aresponse to the exploitation of workers by owners, and for many years, this was oneof the principal constraining forces, which governed corporate industrial behaviour.But the last thirty years has seen the raise of increasingly well organized advocatesrepresenting consumers, individual shareholders, the environment and the widercommunity. Some business sectors have non-human species as stakeholders and faceaccountability issues for animal welfare too. The stakeholders can be segregated asprimary, secondary, social, and non-social. The following groups are identified forunderstanding purpose. Primary social Stakeholders1) Local communities2) Suppliers and Business Partners3) Customers4) Investors 96
  • 97. 5) Employees and Managers Primary non social stakeholders 1) the natural environment 2) Non human species 3) Future Generations Secondary Social Stakeholders 1) Government and Civil Society 2) Social and third world pressure groups and unions 3) Media and communications 4) Trade bodies 5) Competitors Secondary Non Social Stakeholder 1) Environmental pressure groups 2) Animal welfare pressure groups Piggy Backing Strategy The primary purpose is to subsidize the service program. It is gaining popularity in recent time. Educational institutes running commercial complexes hospitals manufacturing ophthalmic implements such as Arvind Eye Hospital are examples of piggy backing. It is related to cross subsidizing; for example Government of India proving kerosene at a lower price by charging higher prices for petroleum products is an example of piggy backing. Adoptive culture The key to a successful organization lies in its ability to move forward with its currentendeavors while always maintaining an initiative to innovate without hindering thatorganizations overall operation. Often an organization will exhaust too many of itsresources trying to “fix” things that have gone wrong. By becoming trapped in this cycleof “fixing,” an organization is no longer moving forward and progressing. This can leadto serious problems such as increased turnover, decreased moral and ineffectivecommunication. By definition, an Adaptive Culture is simply a way of operating wherechange is expected and adapting to those changes is smooth, routine and seamless. Withan Adaptive Culture in place, change, growth, and innovation are a given part of the 97
  • 98. business environment.Balanced Scorecard The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more balanced view of organizational performance. While the phrase balanced scorecard was coined in the early 1990s, the roots of the this type of approach are deep, and include the pioneering work of General Electric on performance measurement reporting in the 1950’s and the work of French process engineers (who created the Tableau de Bord – literally, a dashboard of performance measures) in the early part of the 20th century. The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system. The balanced scorecard transforms an organization’s strategic plan from an attractive but passive document into the active plan for implementation for organization on a daily basis. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies. Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to balance the financial perspective. The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise. 98
  • 99. Kaplan and Norton describe the innovation of the balanced scorecard as follows:The balanced scorecard retains traditional financial measures. But financial measurestell the story of past events, an adequate story for industrial age companies for whichinvestments in long-term capabilities and customer relationships were not critical forsuccess. These financial measures are inadequate, however, for guiding andevaluating the journey that information age companies must make to create futurevalue through investment in customers, suppliers, employees, processes, technology,and innovation.PerspectivesThe balanced scorecard suggests that we view the organization from fourperspectives, and to develop metrics, collect data and analyze it relative to each ofthese perspectives: 99
  • 100. The Learning Growth PerspectiveThis perspective includes employee training and corporate cultural attitudes related toboth individual and corporate self-improvement. In a knowledge-worker organization,people -- the only repository of knowledge -- are the main resource. In the currentclimate of rapid technological change, it is becoming necessary for knowledgeworkers to be in a continuous learning mode. Metrics can be put into place to guidemanagers in focusing training funds where they can help the most. In any case,learning and growth constitute the essential foundation for success of any knowledge-worker organization.Kaplan and Norton emphasize that learning is more than training; it also includesthings like mentors and tutors within the organization, as well as that ease ofcommunication among workers that allows them to readily get help on a problemwhen it is needed. It also includes technological tools; what the Baldrige criteria callhigh performance work systems.The Business Process PerspectiveThis perspective refers to internal business processes. Metrics based on thisperspective allow the managers to know how well their business is running, andwhether its products and services conform to customer requirements (the mission).These metrics have to be carefully designed by those who know these processes mostintimately; with our unique missions these are not something that can be developed byoutside consultants.The Customer PerspectiveRecent management philosophy has shown an increasing realization of the importanceof customer focus and customer satisfaction in any business. These are leadingindicators: if customers are not satisfied, they will eventually find other suppliers thatwill meet their needs. Poor performance from this perspective is thus a leadingindicator of future decline, even though the current financial picture may look good.In developing metrics for satisfaction, customers should be analyzed in terms of kindsof customers and the kinds of processes for which we are providing a product orservice to those customer groups. 100
  • 101. The Financial PerspectiveKaplan and Norton do not disregard the traditional need for financial data. Timely andaccurate funding data will always be a priority, and managers will do whatevernecessary to provide it. In fact, often there is more than enough handling andprocessing of financial data. With the implementation of a corporate database, it ishoped that more of the processing can be centralized and automated. But the point isthat the current emphasis on financials leads to the unbalanced situation with regardto other perspectives. There is perhaps a need to include additional financial-relateddata, such as risk assessment and cost-benefit data, in this category.Strategy MappingStrategy maps are communication tools used to tell a story of how value is created forthe organization. They show a logical, step-by-step connection between strategicobjectives (shown as ovals on the map) in the form of a cause-and-effect chain.Generally speaking, improving performance in the objectives found in the Learning Growth perspective (the bottom row) enables the organization to improve its InternalProcess perspective Objectives (the next row up), which in turn enables theorganization to create desirable results in the Customer and Financial perspectives(the top two rows).Business process re-engineering is the analysis and design of workflows andprocesses within an organization. According to Davenport (1990) a business processis a set of logically related tasks performed to achieve a defined business outcome.Re-engineering is the basis for many recent developments in management. The crossfunctional team, for example, has become popular because of the desire to re-engineerseparate functional tasks into complete cross-functional processes. Also, manymanagement information systems aim to integrate a wide number of businessfunctions. Business process re-engineering is also known as business processredesign, business transformation, or business process change management. Businessprocess reengineering (BPR) is a technique to help organizations to rethink howthey do their work in order to dramatically improve customer service and reduceoperational costs, and become world-class organizations. A key enabler forreengineering has been the continuing development and deployment of informationsystems. Leading organizations are becoming bolder in using this technology to 101
  • 102. support innovative business processes, rather than refining current ways of doingwork.http://en.wikipedia.org/wiki/File:Reengineering_guidence.jpghttp://en.wikipedia.org/wiki/File:Reengineering_guidence.jpgIt may be defined as the fundamental rethinkingand radical re-design, made to an organizations existing resources. It is more than justbusiness improvising.It is an approach for redesigning the way work is done to better support theorganization’s mission. Reengineering starts with a high-level assessment of theorganizations mission, strategic goals, and needs of customer. Basic questions areasked, such as Does our mission need to be redefined? Are our strategic goalsaligned with our mission? Who are our customers? An organization may find that itis operating on questionable assumptions, particularly in terms of the wants and needsof its customers. Only after the organization rethinks what it should be doing, does itgo on to decide how best to do it.Within the frame work of this basic assessment of mission and goals, reengineeringfocuses on the organizations business processes—the steps and procedures thatgovern how resources are used to create products and services that meet the needs ofcustomers and markets. As a structured ordering of work steps across time and place,a business process can be broken down into specific activities, measured, modeled, 102
  • 103. and improved. It can also be completely redesigned or eliminated altogether.Reengineering identifies, analyzes, and redesigns an organizations core businessprocesses with the aim of achieving dramatic improvements in critical performancemeasures, such as cost, quality, service, and speed.Reengineering recognizes that an organizations business processes are usuallyfragmented into sub processes and tasks that are carried out by several specializedfunctional areas within the organization. Often, no one is responsible for the overallperformance of the entire process. Reengineering maintains that optimizing theperformance of sub processes can result in some benefits, but cannot yield dramaticimprovements if the process itself is fundamentally inefficient and outmoded. For thatreason, reengineering focuses on redesigning the process as a whole in order toachieve the greatest possible benefits to the organization and their customers. Thisdrive for realizing dramatic improvements by fundamentally rethinking how theorganizations work should be done distinguishes reengineering from processimprovement efforts that focus on functional or incremental improvement.A marketing co-operation or marketing cooperation is a partnership of at least twocompanies on the value chain level of marketing with the objective to tap the fullpotential of a market by bundling specific competences or resources. Other terms formarketing co-operation are marketing alliance, marketing partnership, co-marketing, and cross-marketing. Marketing co-operations are sensible when themarketing goals of two companies can be combined with a concrete performancemeasure for the end consumer. Successful marketing co-operations generate “win-win-win” situations that offer value not only to both partnering companies but also totheir customers. Marketing co-operations extend the perspective of marketing. Whilemarketing measures deal with the optimal organization of the relationship between acompany and its existing and potential customers, marketing co-operations audit towhat extent the integration of a partner can contribute to improving the relationshipbetween companies and customers. In recent years, marketing co-operations havebeen increasingly popular between brands and entertainment properties.ImportanceThe importance of marketing co-operations has significantly increased over the lastfew years: Companies recognize partnerships as an effective means for untappinggrowth potentials they cannot realize on their own. In the big merger and 103
  • 104. acquisition wave at the end of the nineties it became apparent, that co-operations(especially on the value chain level of marketing) often present a much more flexibleapproach with a more immediate growth impact than merging or acquiring entirebusiness entities. Studies show, that companies recognize the increasing relevance andpotential of co-operations.ObjectivesThere are five main objectives of marketing co-operations:[citation needed] • Build-up and/or strengthening of brand9/image10/traffic by implementing joint or exchange communication11 measures • Access to new markets/customers by directly addressing the co-operation partner’s customers or by using its distribution points • Increase of customer loyalty12 by addressing own customers with value added offerings from the partner - often useful for community building • Reduction of marketing costs by bundling or exchanging marketing measures • Measure the potential value of an intangible asset through how much consumers are willing to pay the premium3Ms corporate site describes the value they see in Joint Marketing: Joint marketing refers to any situation where a product is manufactured by one company and distributed by another company. Both parties invest in commercialization dollars. Joint marketing differs from a joint venture in that it deals with commercialization and marketing dollars, rather than equity. The prominence of each logo generally is relative to its use as a primary or secondary contributor. Joint marketing differs from third-party relationships because both brands are present on the product itself. Normally, third-party relationships have both brands on literature and sales materials, but only the manufacturer is present on the product.FormsMarketing co-operations can take on many different forms, for instance:ExamplesExamples of marketing co-operations include:[2] 104
  • 105. • Apple Inc.14 and Nike Inc.15 have formed a long term partnership to jointly develop and sell “Nike+iPod16” products. The Nike + iPod Sport Kit links Nike+ products with Apples MP3-Player iPod nana, so that performance data such as distance, pace or burned calories can be displayed on the MP3-Player’s interface.[3]Diversification strategies are used to expand firms operations by adding markets,products, services, or stages of production to the existing business. The purpose ofdiversification is to allow the company to enter lines of business that are differentfrom current operations. When the new venture is strategically related to the existinglines of business, it is called concentric diversification. Conglomerate diversificationoccurs when there is no common thread of strategic fit or relationship between thenew and old lines of business; the new and old businesses are unrelated.DIVERSIFICATION IN THE CONTEXT OF GROWTH STRATEGIESDiversification is a form of growth strategy. Growth strategies involve a significantincrease in performance objectives (usually sales or market share) beyond past levelsof performance. Many organizations pursue one or more types of growth strategies.One of the primary reasons is the view held by many investors and executives thatbigger is better. Growth in sales is often used as a measure of performance. Even ifprofits remain stable or decline, an increase in sales satisfies many people. Theassumption is often made that if sales increase, profits will eventually follow.Rewards for managers are usually greater when a firm is pursuing a growth strategy.Managers are often paid a commission based on sales. The higher the sales level, thelarger the compensation received. Recognition and power also accrue to managers ofgrowing companies. They are more frequently invited to speak to professional groupsand are more often interviewed and written about by the press than are managers ofcompanies with greater rates of return but slower rates of growth. Thus, growthcompanies also become better known and may be better able, to attract qualitymanagers.Growth may also improve the effectiveness of the organization. Larger companieshave a number of advantages over smaller firms operating in more limited markets. 105
  • 106. 1. Large size or large market share can lead to economies of scale. Marketing or production synergies may result from more efficient use of sales calls, reduced travel time, reduced changeover time, and longer production runs.2. Learning and experience curve effects may produce lower costs as the firm gains experience in producing and distributing its product or service. Experience and large size may also lead to improved layout, gains in labor efficiency, redesign of products or production processes, or larger and more qualified staff departments (e.g., marketing research or research and development).3. Lower average unit costs may result from a firms ability to spread administrative expenses and other overhead costs over a larger unit volume. The more capital intensive a business is, the more important its ability to spread costs across a large volume becomes.4. Improved linkages with other stages of production can also result from large size. Better links with suppliers may be attained through large orders, which may produce lower costs (quantity discounts), improved delivery, or custom-made products that would be unaffordable for smaller operations. Links with distribution channels may lower costs by better location of warehouses, more efficient advertising, and shipping efficiencies. The size of the organization relative to its customers or suppliers influences its bargaining power and its ability to influence price and services provided.5. Sharing of information between units of a large firm allows knowledge gained in one business unit to be applied to problems being experienced in another unit. Especially for companies relying heavily on technology, the reduction of RD costs and the time needed to develop new technology may give larger firms an advantage over smaller, more specialized firms. The more similar the activities are among units, the easier the transfer of information becomes.6. Taking advantage of geographic differences is possible for large firms. Especially for multinational firms, differences in wage rates, taxes, energy costs, shipping and freight charges, and trade restrictions influence the costs of business. A large firm can sometimes lower its cost of business by placing multiple plants in locations providing the lowest cost. Smaller firms with only one location must operate within the strengths and weaknesses of its single location. 106
  • 107. CONCENTRIC DIVERSIFICATIONConcentric diversification occurs when a firm adds related products or markets. Thegoal of such diversification is to achieve strategic fit. Strategic fit allows anorganization to achieve synergy. In essence, synergy is the ability of two or moreparts of an organization to achieve greater total effectiveness together than would beexperienced if the efforts of the independent parts were summed. Synergy may beachieved by combining firms with complementary marketing, financial, operating, ormanagement efforts. Breweries have been able to achieve marketing synergy throughnational advertising and distribution. By combining a number of regional breweriesinto a national network, beer producers have been able to produce and sell more beerthan had independent regional breweries.Financial synergy may be obtained by combining a firm with strong financialresources but limited growth opportunities with a company having great marketpotential but weak financial resources. For example, debt-ridden companies may seekto acquire firms that are relatively debt-free to increase the lever-aged firmsborrowing capacity. Similarly, firms sometimes attempt to stabilize earnings bydiversifying into businesses with different seasonal or cyclical sales patterns.Strategic fit in operations could result in synergy by the combination of operatingunits to improve overall efficiency. Combining two units so that duplicate equipmentor research and development are eliminated would improve overall efficiency.Quantity discounts through combined ordering would be another possible way toachieve operating synergy. Yet another way to improve efficiency is to diversify intoan area that can use by-products from existing operations. For example, brewerieshave been able to convert grain, a by-product of the fermentation process, into feedfor livestock.Management synergy can be achieved when management experience and expertise isapplied to different situations. Perhaps a managers experience in working with unionsin one company could be applied to labor management problems in another company.Caution must be exercised, however, in assuming that management experience isuniversally transferable. Situations that appear similar may require significantlydifferent management strategies. Personality clashes and other situational differences 107
  • 108. may make management synergy difficult to achieve. Although managerial skills andexperience can be transferred, individual managers may not be able to make thetransfer effectively.CONGLOMERATE DIVERSIFICATIONConglomerate diversification occurs when a firm diversifies into areas that areunrelated to its current line of business. Synergy may result through the application ofmanagement expertise or financial resources, but the primary purpose ofconglomerate diversification is improved profitability of the acquiring firm. Little, ifany, concern is given to achieving marketing or production synergy withconglomerate diversification.One of the most common reasons for pursuing a conglomerate growth strategy is thatopportunities in a firms current line of business are limited. Finding an attractiveinvestment opportunity requires the firm to consider alternatives in other types ofbusiness. Philip Morriss acquisition of Miller Brewing was a conglomerate move.Products, markets, and production technologies of the brewery were quite differentfrom those required to produce cigarettes.Firms may also pursue a conglomerate diversification strategy as a means ofincreasing the firms growth rate. As discussed earlier, growth in sales may make thecompany more attractive to investors. Growth may also increase the power andprestige of the firms executives. Conglomerate growth may be effective if the newarea has growth opportunities greater than those available in the existing line ofbusiness.Probably the biggest disadvantage of a conglomerate diversification strategy is theincrease in administrative problems associated with operating unrelated businesses.Managers from different divisions may have different backgrounds and may beunable to work together effectively. Competition between strategic business units forresources may entail shifting resources away from one division to another. Such amove may create rivalry and administrative problems between the units.Caution must also be exercised in entering businesses with seemingly promisingopportunities, especially if the management team lacks experience or skill in the new 108
  • 109. line of business. Without some knowledge of the new industry, a firm may be unableto accurately evaluate the industrys potential. Even if the new business is initiallysuccessful, problems will eventually occur. Executives from the conglomerate willhave to become involved in the operations of the new enterprise at some point.Without adequate experience or skills (Management Synergy) the new business maybecome a poor performer.Without some form of strategic fit, the combined performance of the individual unitswill probably not exceed the performance of the units operating independently. Infact, combined performance may deteriorate because of controls placed on theindividual units by the parent conglomerate. Decision-making may become slowerdue to longer review periods and complicated reporting systems.DIVERSIFICATION: GROW OR BUY?Diversification efforts may be either internal or external. Internal diversificationoccurs when a firm enters a different, but usually related, line of business bydeveloping the new line of business itself. Internal diversification frequently involvesexpanding a firms product or market base. External diversification may achieve thesame result; however, the company enters a new area of business by purchasinganother company or business unit. Mergers and acquisitions are common forms ofexternal diversification.INTERNAL DIVERSIFICATION.One form of internal diversification is to market existing products in new markets. Afirm may elect to broaden its geographic base to include new customers, either withinits home country or in international markets. A business could also pursue an internaldiversification strategy by finding new users for its current product. For example,Arm Hammer marketed its baking soda as a refrigerator deodorizer. Finally, firmsmay attempt to change markets by increasing or decreasing the price of products tomake them appeal to consumers of different income levels.Another form of internal diversification is to market new products in existing markets.Generally this strategy involves using existing channels of distribution to market newproducts. Retailers often change product lines to include new items that appear to 109
  • 110. have good market potential. Johnson Johnson added a line of baby toys to itsexisting line of items for infants. Packaged-food firms have added salt-free or low-calorie options to existing product lines.It is also possible to have conglomerate growth through internal diversification. Thisstrategy would entail marketing new and unrelated products to new markets. Thisstrategy is the least used among the internal diversification strategies, as it is the mostrisky. It requires the company to enter a new market where it is not established. Thefirm is also developing and introducing a new product. Research and developmentcosts, as well as advertising costs, will likely be higher than if existing products weremarketed. In effect, the investment and the probability of failure are much greaterwhen both the product and market are new.EXTERNAL DIVERSIFICATION.External diversification occurs when a firm looks outside of its current operations andbuys access to new products or markets. Mergers are one common form of externaldiversification. Mergers occur when two or more firms combine operations to formone corporation, perhaps with a new name. These firms are usually of similar size.One goal of a merger is to achieve management synergy by creating a strongermanagement team. This can be achieved in a merger by combining the managementteams from the merged firms.Acquisitions, a second form of external growth, occur when the purchasedcorporation loses its identity. The acquiring company absorbs it. The acquiredcompany and its assets may be absorbed into an existing business unit or remain intactas an independent subsidiary within the parent company. Acquisitions usually occurwhen a larger firm purchases a smaller company. Acquisitions are called friendly ifthe firm being purchased is receptive to the acquisition. (Mergers are usuallyfriendly.) Unfriendly mergers or hostile takeovers occur when the management ofthe firm targeted for acquisition resists being purchased.DIVERSIFICATION: VERTICAL OR HORIZONTAL?Diversification strategies can also be classified by the direction of the diversification.Vertical integration occurs when firms undertake operations at different stages of 110
  • 111. production. Involvement in the different stages of production can be developed insidethe company (internal diversification) or by acquiring another firm (externaldiversification). Horizontal integration or diversification involves the firm movinginto operations at the same stage of production. Vertical integration is usually relatedto existing operations and would be considered concentric diversification. Horizontalintegration can be either a concentric or a conglomerate form of diversification.VERTICAL INTEGRATION.The steps that a product goes through in being transformed from raw materials to afinished product in the possession of the customer constitute the various stages ofproduction. When a firm diversifies closer to the sources of raw materials in thestages of production, it is following a backward vertical integrationstrategy. Avons primary line of business has been the selling of cosmetics door-to-door. Avon pursued a backward form of vertical integration by entering into theproduction of some of its cosmetics. Forward diversification occurs when firms movecloser to the consumer in terms of the production stages. Levi Strauss Co.,traditionally a manufacturer of clothing, has diversified forward by opening retailstores to market its textile products rather than producing them and selling them toanother firm to retail.Backward integration allows the diversifying firm to exercise more control over thequality of the supplies being purchased. Backward integration also may be undertakento provide a more dependable source of needed raw materials. Forward integrationallows a manufacturing company to assure itself of an outlet for its products. Forwardintegration also allows a firm more control over how its products are sold andserviced. Furthermore, a company may be better able to differentiate its products fromthose of its competitors by forward integration. By opening its own retail outlets, afirm is often better able to control and train the personnel selling and servicing itsequipment.Since servicing is an important part of many products, having an excellent servicedepartment may provide an integrated firm a competitive advantage over firms thatare strictly manufacturers. 111
  • 112. Some firms employ vertical integration strategies to eliminate the profits of themiddleman. Firms are sometimes able to efficiently execute the tasks beingperformed by the middleman (wholesalers, retailers) and receive additional profits.However, middlemen receive their income by being competent at providing a service.Unless a firm is equally efficient in providing that service, the firm will have a smallerprofit margin than the middleman. If a firm is too inefficient, customers may refuse towork with the firm, resulting in lost sales.Vertical integration strategies have one major disadvantage. A vertically integratedfirm places all of its eggs in one basket. If demand for the product falls, essentialsupplies are not available, or a substitute product displaces the product in themarketplace, the earnings of the entire organization may suffer.HORIZONTAL DIVERSIFICATION.Horizontal integration occurs when a firm enters a new business (either related orunrelated) at the same stage of production as its current operations. For example,Avons move to market jewelry through its door-to-door sales force involvedmarketing new products through existing channels of distribution. An alternative formof horizontal integration that Avon has also undertaken is selling its products by mailorder (e.g., clothing, plastic products) and through retail stores (e.g., Tiffanys). Inboth cases, Avon is still at the retail stage of the production process.DIVERSIFICATION STRATEGY AND MANAGEMENT TEAMSAs documented in a study by Marlin, Lamont, and Geiger, ensuring a firmsdiversification strategy is well matched to the strengths of its top management teammembers factored into the success of that strategy. For example, the success of amerger may depend not only on how integrated the joining firms become, but also onhow well suited top executives are to manage that effort. The study also suggests thatdifferent diversification strategies (concentric vs. conglomerate) require differentskills on the part of a companys top managers, and that the factors should be takeninto consideration before firms are joined.There are many reasons for pursuing a diversification strategy, but most pertain tomanagements desire for the organization to grow. Companies must decide whether 112
  • 113. they want to diversify by going into related or unrelated businesses. They must then decide whether they want to expand by developing the new business or by buying an ongoing business. Finally, management must decide at what stage in the production process they wish to diversify. Conglomerate diversification Type of diversification whereby a firm enters (through acquisition or merger) anentirely different market that has little or no synergy with its core business or technology. Grand Strategy: building your foundation for performance breakthroughs by Daniel J. Knight Imagine you were able to maximize your opportunities, minimize your risks and achieve performance breakthroughs. Youre probably thinking – that would be great, how do I do it? Well its simple but this simplicity demands critical thinking and diligent effort. So if youre interested, lets find out how. Achieving this level of performance requires a deliberate strategy with a performance management and measurement system that enables you to scan the business horizon, focus your time, energy, knowledge, relationships and resources and execute courses of action that possess the highest pay-off, lowest costs and easiest implementation trajectory. You may wonder whether such a strategy formulation is worth your time and effort, especially if youre in a quickly changing business environment. This issue came up in a discussion with leading business writer and consultant Seth Godin. We concluded that business strategy drives growth and prosperity for businesses, both large and small. Godin said that for example Howard Shultz, founder and head of Starbucks Coffee, could have decided to open and run only a few stores, but you better believe that to grow Starbucks like he has he had to have a business strategy. So with that as introduction lets go through a step-by-step process for developing a business strategy with a performance management and measurement system for your business. Lets call it a Grand Strategy because it equates to a necessary precursor for all subordinate strategies and systems whether they be marketing, innovation or 113
  • 114. otherwise. There are 12 steps to this Grand Strategy process. The first 11 steps of thisprocess are best developed as a living document with your top management team anda facilitator at an off-site meeting to avoid distractions. And step twelve, Execute,Adjust, Execute requires strong top management commitment, support andinvolvement.Step One. Ask whats your Theory of Business? As philosophers tell us, there isnothing as practical as good theory. Briefly answer these four questions to uncoveryours.What business are you in and where are you now? • Where are you going? • How will you get there? • How will you know youve arrived?Step Two. Create a clear expression of your intangible business resources. Theseintangibles form an intellectual and emotional grounding for your Grand Strategy.They drive your business and business relationships. Without them, you wont be ableto commit the time, energy and tangible resources that move your business forward.These intangibles are: • Values – high level concepts that you pour your life into regardless of financial return because they define you and your business. Some examples are family well being, charity and goodwill toward others, honesty and integrity, and making a difference in the world. • Beliefs - key principles that state your assumptions about the cause and effect relationships that drive you and your business. For example, if we provide excellent products and services that please our customers at a competitive price, we will be a profitable business. • Attitudes – emotional orientations exhibited by you and your business toward others that affects how you view them and treat them, and in turn how they react to you and your business. Attitudes result in either positive or negative expressions such as most people tend to be fair if treated fairly or most people 114
  • 115. will take advantage of you if you let them. • Capabilities – inherent knowledge and relationships that support getting work done for you and your business. For example, such things as patents, suppliers and customer data bases, production processes, sales force knowledge, knowledge about competitors, technological expertise and customer relationships fit here.What are your Values, Beliefs, Attitudes and Capabilities? List them.Step Three. Write a Mission Statement. This statement provides you with thearticulation of your business purpose or reason for being. Answering the followingfour questions in a satisfying amount of detail provides compelling backgroundinformation from which you can extract a hard hitting mission statement to move yourbusiness and Grand Strategy forward. • Why are you in business? • What does your business do and how does it do it? • Who does your business, who supports it, who benefits from it and who, if anyone, suffers from it? • How many different kinds of resources are involved in your business, how much do they costs and how much profit do you expect to make from them?Answer these questions and notice the power of their focusing affect on yourbusiness. From your answers, develop a condensed and hard hitting MissionStatement.Step Four. Perform an Environmental Scan by asking and answering the followingquestions: 1. What industry are you in (retail, wholesale, finance, manufacturing, durable or non-durable goods and so on) and what are its trends? 2. What is the economic situation (interest rates, costs of labor and materials, unemployment levels, consumer demand, inflation and prices) and how will it affect your business? 115
  • 116. 3. Who are your competitors and potential competitors? What relevant advantages and disadvantages do they possess? 4. Who are your suppliers and potential suppliers? What mutual interests do you share with them? What natural conflicts exist? 5. Who are your customers and potential customers and who are their customers? What segments do they fall in? 6. What are the demographics that impact your business – age groups, ethnics, economic status? What are their differences in terms of needs and preferences? 7. What is the regulatory environment and how does it affect your business? 8. What are the emerging technologies and how might they affect your business? 9. Who are your stakeholders (employees, suppliers, customers, investors and community) and what are their expectations?Answer these Environmental Scan questions in order to possess the necessarybusiness intelligence and insight to proceed to the next step.Step Five. After you complete your scan, then perform a SWOT Analysis. SWOTstands for Strengths, Weaknesses, Opportunities and Threats.Your Strengths and Weaknesses are internal. Your Opportunities and Threats areexternal.The areas for you to explore under each SWOT Analysis category are: Strengths or Weaknesses 1. Customer Service 2. Products 3. Systems and Processes 4. RD 5. Cash Flow 6. Employee Training 7. Employee Loyalty 8. Others? Opportunities or Threats 1. Emerging Products and Services 2. Technological Change 116
  • 117. 3. New Markets 4. Competitive Pressures 5. Supplier Relationships 6. Economic Conditions 7. Others?Now, brainstorm to generate ideas under each category/area. Generate as many asideas as possible. Using your best judgment, select the top six ideas in terms ofrelevance and importance for improving the performance and competitiveness of yourbusiness. Next, translate the top six selected ideas into goal statements. For thistranslation process, use the following format: action verb + (restated idea) in order to(object). For example, a goal statement would look like this: Increase customersatisfaction in order to reduce customer losses and defections.Step Six. Determine your Strategic Focus. Business is becoming more and morecompetitive. Lets call this phenomenon Hyper-Competition. From it we see thetime lapse between finding a competitive edge and having it copied shrinking. Hyper-Competition demands that you differentiate. This differentiation starts with youselecting a Strategic Focus for your business. Otherwise your products and servicesbecome commoditized.Strategic Focus breaks down into the following three disciplines: • Customer Intimacy - emphasizes paying close attention to customers desires and providing them with total, not to be beaten service and solutions. Ritz Carlton Hotels and Nordstroms lead with this discipline. 1. Product Leadership – emphasizes RD and providing the best technology and quality available in products. Intel and Starbucks lead with this discipline. 2. Operational Excellence – emphasizes efficient operations and costs controls to provide the lowest costs. Wal-Mart and Southwest Airlines lead with this discipline.Picking one of these as your lead focus represents a smart thing to do. Thisimperative does not mean that you dont try to do well in the other two. It means thatyou dont try to do all three equally well. Trying to be all things for all customers puts 117
  • 118. you on a path to failure because customers will not behave in a way that profits yourbusiness. Business is just too hyper-competitive for you to succeed doing all threebetter than anyone else.So now look at your: Theory of Business; Values, Beliefs, Attitudes and Capabilities;Mission Statement, Environmental Scan and SWOT Analysis, and then make ajudgment call. Pick your Strategic Focus and lead with it.Step Seven. Seek performance breakthroughs. You begin this process by selectingyour Strategic Focus and limiting your goal statements to the top six. These top sixgoals represent your Strategic Goals for achieving performance breakthroughs.If you look at the time you spend on your business, you find it can be broken downinto three categories. These are: • Administrative and Operations – the time you spend keeping the routine day to day business running • Crisis – the time you spend solving unanticipated problems • Breakthrough – the deliberate time you spend on creative efforts to improve performanceWhat happens is that the first two time categories grow to occupy all your time andthey push out your breakthrough time. Maintaining a Strategic Focus combined withdeveloping Strategic Goals to execute amounts to the only workable solution to thischallenge. Now, incorporate this thinking into the succeeding steps of your GrandStrategy process.Step Eight. Understand and apply Cause and Effect Relationships. Lets discuss thedynamics of Cause and Effect Relationships among your Strategic Goals. There arefour basic Perspectives that provide the framework for linking your goals in toyour Grand Strategy. These Perspectives are: 118
  • 119. • Human Capital – the people talent in your organization and the systems and process that directly enable them to be productive. A good way to look at the people part is that its what goes home at night. • Structural Capital – the systems, structures and strategies that the organization owns and produces value with. It stays in the organization when you turn off the lights. • Customer Capital – the relationship, level of satisfaction, reputation, potential for referrals and loyalty which your organization enjoys with its customers. • Financial Performance – the level of economic return provided to you and your owners relative to investment. Performance under this perspective is also compared to alternative investments like T-Bills.So imagine that you possess superior Human Capital by recruiting, training andretaining top talent and acquiring excellent people support systems. Given thissuperior Human Capital, might you not be able to improve and createsuperior Structural Capital? And with superior Human and Structural Capital, mightyou not be able to improve and create superior Customer Capital which in turn wouldimprove and create superior Financial Performance? What we have described hereequates to a virtuous cycle which enables you to make more money for you and yourowners and at the same time invest more in your Human Capital. This virtuous cyclein turn starts succeeding rounds of improvement which should cause an upward spiralto higher and higher levels of performance. You will learn how to developthese Perspectives and link them in the next step.Step Nine. Develop a Strategy Map. Lets start by looking at an example.A Harvard Business Review article, The Employee – Customer Profit Chain at Sears,Jan-Feb 1998, chronicled a transformation of Sears. Based on this article, anextraction of the Strategy Map for Sears follows:Mission StatementBe a compelling place to Work, Shop and InvestStrategy Map 119
  • 120. o Financial Performance Goals – Increase Revenues and Profitability (What would it take to accomplish these strategic goals? Their answer was to increase customer satisfaction to cause increased revenues and profitability) Customer Capital Goal - Increase Customer Satisfaction (What would it take to accomplish this Strategic Goal? Their answer was to create and maintain well stocked and attractive shelves and provide friendly and helpful service that causes increased customer satisfaction.) • Structural Capital Goals - Create and Maintain Well Stocked and Attractive Shelves and Provide Friendly and Helpful Service • (What would it take to accomplish these Strategic Goals? Their answer was to increase employee training and development in relevant areas. This would increase employee competence and satisfaction. And this in turn would make employees able and willing to create and maintain well stocked and attractive shelves and provide friendly and helpful service) • Human Capital Goals - Increase Employee Training and Development in the Relevant Areas in order to cause an Increase in Employee Competence and Satisfaction. • (What would it take to accomplish these Strategic Goals? The answer was top management belief in the complete series of Cause and Effect Relationships and top management commitment of the time and resources for successful accomplishment.) Financial (Place Goals here) Performance Example: Increase Revenue and Profits Customer (Place Goals here) Capital Example: Reduce Customer Losses and Defections by Increasing Customer Satisfaction Structural (Place Goals here) Capital Human (Place Goals here) 120
  • 121. CapitalAs proof of this Cause and Effect Relationship, Sears developed and validated apredictive model that showed that for each 5 percent increase in employee satisfactiona 1.3 percent increase in customer satisfaction resulted which in turn resulted in a .5percent increase in revenue. And Sears realized a 4 percent increase in customersatisfaction in the 12 month period before the article was published and they wereexpecting revenues to increase by $200 million.So how do you develop a Strategy Map? The answer - you take a clean sheet of paperand place your Mission Statement at the top. Lay out the four Perspectives underneathto form a Strategy Map framework. Next, use your best judgment and assign yourtop Strategic Goals to one of the four Strategy Map Perspectives (see examplebelow).Mission Statement: (Briefly state your Mission here)Start with the Financial Perspective and work your way down in order to validateyour Strategic Goals. You do this by asking for each goal So what, who cares?Using this question, you probably wont get much change on the FinancialPerformance Strategic Goals because these drive the train. But take for example theabove Strategy Map Strategic Goal under Customer Capital. It reads in part ReduceCustomer Losses and Defections. You may find out that you dont care about allthese customer losses and defections. In fact, some of these customers may not beprofitable so you indeed want to loss them. Suddenly, you find yourself restating thispart of the goal to the more useful Reduce Losses and Defections of Our MostProfitable Customers. Do you see how the questions So what, who cares? helpsyou validate and refine your goals? Its an extremely value tool.Continuing in the Customer Capital Perspective, ask Are there other goals (enablinggoals) that should be developed and penned in to move the CustomerCapital and Financial Performance Goals in the direction we want them to move? Ifthere are, then generate these enabling goals and draw in the cause and effectrelationship between them and the other goals. 121
  • 122. Next move to the Structural Capital Perspective and then the Human CapitalPerspective and repeat the process. Often the Human Capital Perspective Goals dontsurface in your SWOT Analysis so they have to be generated as enabling goals tomake your Strategy Map provide a viable basis to support your Grand Strategy.Step Ten. Translate your Strategy Map goals into Key Performance Measures(KPMs) and perform a Gap Analysis. First, translate your goals into measurableterms. In some cases, a goal may already be stated in measurable terms. But youoften have to break goals down and restate them in measurable terms. For example,the Structural Capital Goal of Create and Maintain Well Stocked and AttractiveShelves may be broken down and restated as the KPM Mystery Shoppers Rating forStore Product Display and Appeal.Financial Performance Goals are usually stated in measurable terms so use theseterms for your Financial Performance KPMs as appropriate. On Customer,Structural and Human Capital Goals, you usually have to restate them in KPM termswith a number, percentage or ranking. Some examples of KPMs follow:Financial Perspective KPMs:-Revenue - $xxx-Profit - $xxx-Cash Flow - $xxx-Revenue per Employee - $xxx-Return on Investment – x%Customer Capital KPMs:-Customer Retention – x%-Customer Satisfaction – x%-Customer Profitability Segment 1 - $xxx 122
  • 123. Segment 2 - $xxxStructural Capital KPMs:-Ratio of Sales Persons to General and Administrative - x/y-Time to Market for New Products – x months-Inventory Turnover – 100% every x months • -Mystery Shoppers Rating of Store Product Display and Appeal – Grade • -Mystery Shoppers Rating of Employee Helpfulness – GradeHuman Capital KPMs:-Employee Turnover - x% per period-Average Days missed per Employee – x% -Employee Satisfaction - x% Highly Satisfied, Satisfied and so on-Number of Suggestions Submitted - xx-Number of Suggestions Adopted – xx-Number of Employees Fully Qualified for Their Position – xxSo translate all of your Strategy Map goals into KPMs.Now youre ready to perform your Gap Analysis. Start this process by determiningwhere you are on each KPM. For the status on Financial KPMs, use your availablefinancial numbers, but for the status on Customer, Structural and HumanCapital KPMs, you usually have to create estimated numbers, percentages orrankings. These initial estimates are okay because you want to put a stake in theground. But youll also want to put in place a process to collect data and refine theseKPMs as you move forward.Next develop your desired Targets for each KPM. Again, this initially amounts toan estimating process based on your best judgment and level of ambition. You then 123
  • 124. break these Targets down into quarterly aiming points to begin to close the gaps.Again youll want to put in place a research, analysis and benchmarking process tocollect data and refine these Targets as you move forward.Step Eleven. Prepare a Scorecard to keep track and drive your Grand Strategy.Heres a format with examples to illustrate how to prepare one.Grand Strategy ScorecardPerspective/ Quarterly DataSource/Goals KPM Target Actual Status* OwnerFinancial PerformanceIncreaseProfitability ROI 12% 13% (+) CFOCustomer CapitalIncrease CustomerSatisfaction Sat Rating 95% 94% (-) Customer ServiceStructural CapitalCreate and Maintain Grade A- A- (0) MysteryWell Stocked and ShopperAttractive ShelvesHuman CapitalIncrease Employee Sat Rating 90% 90% (0) HumanSatisfaction Resources* (+) = ahead of target / (0) = on target / (-) = behind target 124
  • 125. Once you have this Scorecard you have the centrepiece of your Grand Strategy. Nowmove on to implementation.Step Twelve. Execute, Adjust, Execute. A Fortune Magazine study in June 1999found that many CEOs were fired because they failed to execute their strategy. Thingsreally have not changed much since then. As a friend, Mike Kipp, a consultant fromNashville, Tennessee, says All organizations are perfectly designed to achieve theresults they are getting. Dont confuse creating your Grand Strategy with takingaction. Now the Grand Strategy process demands real work and organizationalchange. Otherwise improvement wont occur and things might even get worse.Execution and appropriate adjustments are imperative or youve only done anacademic exercise.Finally, to keep your Grand Strategy and Scorecard up to date and on track, you forma small team of high performers. This team should be prepared to facilitate and helpyou with implementation across and down through the organization. In this way,youll get your total organizations brainpower and energy behind your GrandStrategy. People tend to support what they help build. And with your strongleadership combined with openness to involvement and feedback, youll realizestrategic goal linkage and alignment from the top to the bottom of your organization.And with this linkage and alignment, your Grand Strategy will move forward andachieve the breakthroughs you desire in marketing, innovation and performanceimprovement.Grand Strategy StepsSummary • Step One. Answer whats your Theory of Business? • Step Two. Identify your Values, Beliefs, Attitudes and Capabilities. • Step Three. Write your Mission Statement. 125
  • 126. • Step Four. Perform an Environmental Scan. • Step Five. Perform a SWOT Analysis. • Step Six. Determine your Strategic Focus. • Step Seven. Seek Performance Breakthroughs. • Step Eight. Understand and Apply Cause and Effect Relationships. • Step Nine. Develop a Strategy Map. • Step Ten. Translate goals into KPMs and Perform Gap Analysis. • Step Eleven. Prepare a Scorecard to track and drive Your Grand Strategy. • Step Twelve. Execute, Adjust, Execute.Notes: 1 This conversation occurred at the Greater Washington Areas Society ofAssociation Executives Great Ideas Conference in Washington, DC on March 21,2003.2 Treacy , Michael Fred Wiersema, The Discipline of Market Leaders, Addison-Wesley, New York,NY 19953 Rucci , Anthony J., etc., Harvard Business Review article, The Employee –Customer Profit Chain at Sears by, Jan-Feb 1998Copyright Daniel J. Knight 2004Bricks-and-clicks is a business model by which a company integrates both offline(bricks) and online (clicks) presences. It is also known as click-and-mortar or clicks- 126
  • 127. and-bricks, as well as bricks, clicks and flips, flips referring to catalogs. One exampleof the bricks-and-clicks model is when a chain of stores allows the user to orderproducts online, but lets them pick up their order at a store. For example Landmark inChennai has both online service as well as books can be purchased in the retail outlet.Conversely, a consumer durable home may have displays at a local store from whicha customer can order an item electronically for delivery to their home. The bricks andclicks model has typically been used by traditional retailers who have extensivelogistics and supply chains. Part of the reason for its success is that it is far easier for atraditional retailer to establish an online presence than it is for a start-up company toemploy a successful pure dot com strategy, or for an online retailer to establish atraditional presence (including astrongbrandhttp://www.readability.com/articles/lhmtmt9n - rdb-footnote-4. Thesuccess of the model in many sectors indicate that both the channels are necessary orcomplement each other. On the other hand, an online-only service can remain a best-in-class operation because its executives focus on just the online business. It hasbeen argued that a bricks-and-clicks business model is more difficult to implementthan an online-only model. In the future, the bricks-and-clicks may be moresuccessful, but in 2010 some online-only businesses grew at a staggering 30%, whilesome bricks-and-clicks businesses grew at a lower level. The key factor for a bricks-and-clicks business model to be successful will, to a large extent, be determined by acompany’s ability to manage the trade-offs between separation and integration oftheir retail and online businesses. For example in the case of Flipkart it establisheditself as a guanine player in book delivery and its does not require any physical shopto sell its products. Therefore one of the argument is if the e commerce picks up therewill be less need for physical interface.Entrepreneurship is the act of being an entrepreneur, which can be defined as onewho undertakes innovations, finance and business acumen in an effort to transforminnovations into economic goods. This may result in new organizations or may bepart of revitalizing mature organizations in response to a perceived opportunity. Themost obvious form of entrepreneurship is that of starting new businesses (referredas Startup Company); however, in recent years, the term has been extended to includesocial and political forms of entrepreneurial activity. When entrepreneurship isdescribing activities within a firm or large organization it is referred to as intra- 127
  • 128. preneurship and may include corporate venturing, when large entities spin-off organizations. According to Paul Reynolds, entrepreneurship scholar and creator of the Global Entrepreneurship Monitor, by the time they reach their retirement years, half of all working men in the United States probably have a period of self-employment of one or more years; one in four may have engaged in self-employment for six or more years. Participating in a new business creation is a common activity among U.S. workers over the course of their careers. And in recent years has been documented by scholars such as David Audretsch to be a major driver of economic growth in both the United States and Western Europe. Entrepreneurial activities are substantially different depending on the type of organization and creativity involved. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many high value entrepreneurial ventures seek venture capital or angel funding (seed money) in order to raise capital to build the business. Angel investors generally seek annualized returns of 20-30% and more, as well as extensive involvement in the business. Any kinds of organizations now exist to support would-be entrepreneurs including specialized government agencies, business , science parks, and some NGOs. In more recent times, the term entrepreneurship has been extended to include elements not related necessarily to business formation activity such as conceptualizations of entrepreneurship as a specific mindset (see also entrepreneurial mindset) resulting in entrepreneurial initiatives e.g. in the form of social entrepreneurship, political entrepreneurship, or knowledge entrepreneurship have emerged. Organizational Politics Organizational politics have been defined as “actions by individuals which aredirected toward the goal of furthering their own self interests without regard for the well-being of others or their organization” (Kacmar and Baron 1999, p. 4). Research suggeststhat perceptions of organizational politics consistently result in negative outcomes forindividuals (Harris, Andrews, and Kacmar 2007). According to Harris and Kacmar(2005), politics has been conceptualized as a stressor in the workplace because it leads toincreased stress and/or strain reactions. Members of organization react physically and 128
  • 129. psychologically to perceptions of organizational politics, physical reactions includingfatigue and somatic tension (Cropanzano et al. 1997), and psychological reactions includereduced commitment (Vigoda 2000) and reduced job satisfaction (Bozeman et al. 2001). Following are the main differences between Strategy Formulation and Strategy Implementation- Strategy Formulation Strategy Implementation Strategy Formulation includes planning and Strategy Implementation involves all those means decision-making involved in developing related to executing the strategic plans. organization’s strategic goals and plans. In short, Strategy Formulation is placing the In short, Strategy Implementation is managing Forces before the action. forces during the action. Strategy Formulation is an Entrepreneurial Strategic Implementation is mainly Activity based on strategic decision-making. an Administrative Task based on strategic and operational decisions. Strategy Formulation emphasizes Strategy Implementation emphasizes on effectiveness. on efficiency. Strategy Formulation is a rational process. Strategy Implementation is basically an operational process. Strategy Formulation requires co-ordination Strategy Implementation requires co-ordination among few individuals. among many individuals. Strategy Formulation requires a great deal Strategy Implementation requires of initiative and logical skills. specific motivational and leadership traits. Strategic Formulation precedes Strategy Strategy Implementation follows Strategy Implementation. Formulation. Strategic 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 129
  • 130. 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 taskperformed by managers, groups, departments etc, through control ofperformance. Strategic Evaluation is significant because of various factors such as -developing inputs for new strategic planning, the urge for feedback, appraisal andreward, development of the strategic management process, judging the validity ofstrategic choice etc.The process of Strategy Evaluation consists of following steps- 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 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. 130
  • 131. 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.Characteristics/Features of Strategic Decisions and TacticsStrategic decisions are the decisions that are concerned with whole environment inwhich the firm operates, the entire resources and the people who form the companyand the interface between the two. a. Strategic decisions have major resource propositions for an organization. These decisions may be concerned with possessing new resources, organizing others or reallocating others. b. Strategic decisions deal with harmonizing organizational resource capabilities with the threats and opportunities. 131
  • 132. c. Strategic decisions deal with the range of organizational activities. It is all about what they want the organization to be like and to be about. d. Strategic decisions involve a change of major kind since an organization operates in ever-changing environment. Strategic decisions are complex in nature. f. Strategic decisions are at the top most level, are uncertain as they deal with the future, and involve a lot of risk. g. Strategic decisions are different from administrative and operational decisions. Administrative decisions are routine decisions which help or rather facilitate strategic decisions or operational decisions. Operational decisions are technical decisions which help execution of strategic decisions. To reduce cost is a strategic decision which is achieved through operational decision of reducing the number of employees and how we carry out these reductions will be administrative decision.The differences between Strategic, Administrative and Operational decisions can besummarized as follows-Strategic Decisions Administrative Decisions Operational DecisionsStrategic decisions are long-term Administrative decisions are Operational decisions are notdecisions. taken daily. frequently taken.These are considered where The These are short-term based These are medium-period basedfuture planning is concerned. Decisions. decisions.Strategic decisions are taken in These are taken according to These are taken in accordanceAccordance with organizational strategic and operational with strategic and administrativemission and vision. Decisions. decision.These are related to overall Counter These are related to working of These are related to production.planning of all Organization. employees in an Organization.These deal with organizational These are in welfare of These are related to productionGrowth. employees working in an and factory growth. organization. 132
  • 133. Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix)developed by BCG, USA. It is the most renowned corporate portfolio analysis tool. Itprovides a graphic representation for an organization to examine different businessesin it’s portfolio on the basis of their related market share and industry growth rates. Itis a two dimensional analysis on management of SBU’s (Strategic Business Units). Inother words, it is a comparative analysis of business potential and the evaluation ofenvironment.According to this matrix, business could be classified as high or low according totheir industry growth rate and relative market share.Relative Market Share = SBU Sales this year leading competitors sales this year.Market Growth Rate = Industry sales this year - Industry Sales last year.The analysis requires that both measures be calculated for each SBU. The dimensionof business strength, relative market share, will measure comparative advantageindicated by market dominance. The key theory underlying this is existence of anexperience curve and that market share is achieved due to overall cost leadership.BCG matrix has four cells, with the horizontal axis representing relative market shareand the vertical axis denoting market growth rate. The mid-point of relative marketshare is set at 1.0. if all the SBU’s are in same industry, the average growth rate of theindustry is used. While, if all the SBU’s are located in different industries, then themid-point is set at the growth rate for the economy.Resources are allocated to the business units according to their situation on the grid.The four cells of this matrix have been called as stars, cash cows, question marks anddogs. Each of these cells represents a particular type of business. 133
  • 134. 10 x 1x 0.1 xFigure: BCG Matrix 1. Stars- Stars represent business units having large market share in a fast growing industry. They may generate cash but because of fast growing market, stars require huge investments to maintain their lead. Net cash flow is usually modest. SBU’s located in this cell are attractive as they are located in a robust industry and these business units are highly competitive in the industry. If successful, a star will become a cash cow when the industry matures. 2. Cash Cows- Cash Cows represents business units having a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be utilized for investment in other business units. These SBU’s are the corporation’s key source of cash, and are specifically the core business. They are the base of an organization. These businesses usually follow stability strategies. When cash cows loose their appeal and move towards deterioration, then a retrenchment policy may be pursued. 3. Question Marks- Question marks represent business units having low relative market share and located in a high growth industry. They require huge amount of cash to maintain or gain market share. They require attention to determine if the 134
  • 135. venture can be viable. Question marks are generally new goods and services which have a good commercial prospective. There is no specific strategy which can be adopted. If the firm thinks it has dominant market share, then it can adopt expansion strategy, else retrenchment strategy can be adopted. Most businesses start as question marks as the company tries to enter a high growth market in which there is already a market-share. If ignored, then question marks may become dogs, while if huge investment is made, then they have potential of becoming stars. 4. Dogs- Dogs represent businesses having weak market shares in low-growth markets. They neither generate cash nor require huge amount of cash. Due to low market share, these business units face cost disadvantages. Generally retrenchment strategies are adopted because these firms can gain market share only at the expense of competitor’s/rival firms. These business firms have weak market share because of high costs, poor quality, ineffective marketing, etc. Unless a dog has some other strategic aim, it should be liquidated if there is fewer prospects for it to gain market share. Number of dogs should be avoided and minimized in an organization.Limitations of BCG MatrixThe BCG Matrix produces a framework for allocating resources among differentbusiness units and makes it possible to compare many business units at a glance. ButBCG Matrix is not free from limitations, such as- 1. BCG matrix classifies businesses as low and high, but generally businesses can be medium also. Thus, the true nature of business may not be reflected. 135
  • 136. 2. Market is not clearly defined in this model. 3. High market share does not always leads to high profits. There are high costs also involved with high market share. 4. Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability. 5. At times, dogs may help other businesses in gaining competitive advantage. They can earn even more than cash cows sometimes. 6. This four-celled approach is considered as to be too simplistic.Ansoffs product / market matrixIntroductionThe Ansoff Growth matrix is a tool that helps businesses decide their product andmarket growth strategy.Ansoff’s product/market growth matrix suggests that a business’ attempts to growdepend on whether it marketsnew or existing products in new or existing markets. 136
  • 137. The output from the Ansoff product/market matrix is a series of suggested growthstrategies that set the direction for the business strategy. These are described below:Market penetrationMarket penetration is the name given to a growth strategy where the business focuseson selling existing products into existing markets.Market penetration seeks to achieve four main objectives:• Maintain or increase the market share of current products – this can be achieved by acombination of competitive pricing strategies, advertising, sales promotion andperhaps more resources dedicated to personal selling• Secure dominance of growth markets• Restructure a mature market by driving out competitors; this would require a muchmore aggressive promotional campaign, supported by a pricing strategy designed tomake the market unattractive for competitors 137
  • 138. • Increase usage by existing customers – for example by introducing loyalty schemesA market penetration marketing strategy is very much about “business as usual”. Thebusiness is focusing on markets and products it knows well. It is likely to have goodinformation on competitors and on customer needs. It is unlikely, therefore, that thisstrategy will require much investment in new market research.Market developmentMarket development is the name given to a growth strategy where the business seeksto sell its existing products into new markets.There are many possible ways of approaching this strategy, including:• New geographical markets; for example exporting the product to a new country• New product dimensions or packaging: for example• New distribution channels• Different pricing policies to attract different customers or create new marketsegmentsProduct developmentProduct development is the name given to a growth strategy where a business aims tointroduce new products into existing markets. This strategy may require thedevelopment of new competencies and requires the business to develop modifiedproducts which can appeal to existing markets.DiversificationDiversification is the name given to the growth strategy where a business marketsnew products in new markets.This is an inherently more risk strategy because the business is moving into marketsin which it has little or no experience. 138
  • 139. For a business to adopt a diversification strategy, therefore, it must have a clear ideaabout what it expects to gain from the strategy and an honest assessment of the risks.The 7-S framework of McKinsey is a Value Based Management (VBM)model that describes how one canholistically and effectively organize a company.Together these factors determine the way in which a corporation operates.Shared ValueThe interconnecting center of McKinseys model is: Shared Values. What does theorganization stands for and what it believes in. Central beliefs and attitudes.StrategyPlans for the allocation of a firms scarce resources, over time, to reach identifiedgoals. Environment, competition, customers. 139
  • 140. StructureThe way the organizations units relate to each other: centralized, functional divisions(top-down); decentralized (the trend in larger organizations); matrix, network,holding, etc.SystemThe procedures, processes and routines that characterize how important work is to bedone: financial systems; hiring, promotion and performance appraisal systems;information systems.StaffNumbers and types of personnel within the organization.StyleCultural style of the organization and how key managers behave in achieving theorganization’s goals.SkillDistinctive capabilities of personnel or of the organization as a whole. CoreCompetences 140
  • 141. GE MatrixThe business portfolio is the collection of businesses and products that make up thecompany. The best business portfolio is one that fits the companys strengths andhelps exploit the most attractive opportunities.The company must:(1) Analyse its current business portfolio and decide which businesses should receivemore or less investment, and(2) Develop growth strategies for adding new products and businesses to the portfolio,whilst at the same time deciding when products and businesses should no longer beretained.The two best-known portfolio planning methods are the Boston Consulting GroupPortfolio Matrix and the McKinsey / General Electric Matrix (discussed in thisrevision note). In both methods, the first step is to identify the various StrategicBusiness Units (SBUs) in a company portfolio. An SBU is a unit of the companythat has a separate mission and objectives and that can be planned independently fromthe other businesses. An SBU can be a company division, a product line or evenindividual brands - it all depends on how the company is organised.The McKinsey / General Electric MatrixThe McKinsey/GE Matrix overcomes a number of the disadvantages of the BCG Box.Firstly, market attractiveness replaces market growth as the dimension of industryattractiveness, and includes a broader range of factors other than just the marketgrowth rate. Secondly, competitive strength replaces market share as the dimensionby which the competitive position of each SBU is assessed.The diagram below illustrates some of the possible elements that determine marketattractiveness and competitive strength by applying the McKinsey/GE Matrix to theUK retailing market: 141
  • 142. Factors that Affect Market Attractiveness 1. Whilst any assessment of market attractiveness is necessarily subjective, there are several factors which can help determine attractiveness. These are listed below: - -Market Size - Market growth - Market profitability - Pricing trends - Competitive intensity / rivalry - Overall risk of returns in the industry - Opportunity to differentiate 142
  • 143. products and services - Segmentation - Distribution structure (e.g. retail, direct, wholesaleFactors that Affect Competitive StrengthFactors to consider include:- Strength of assets and competencies- Relative brand strength- Market share- Customer loyalty- Relative cost position (cost structure compared with competitors)- Distribution strength- Record of technological or other innovation- Access to financial and other investment resourcesStrategic leadership refers to a manger’s potential to express a strategic visionfor the organization, or a part of the organization, and to motivate and persuadeothers to acquire that vision. Strategic leadership can also be defined as utilizingstrategy in the management of employees. It is the potential to influenceorganizational members and to execute organizational change. Strategic leaders createorganizational structure, allocate resources and express strategic vision. Strategicleaders work in an ambiguous environment on very difficult issues that influence andare influenced by occasions and organizations external to their own.The main objective of strategic leadership is strategic productivity. Another aim ofstrategic leadership is to develop an environment in which employees forecast theorganization’s needs in context of their own job. Strategic leaders encourage theemployees in an organization to follow their own ideas. Strategic leaders make greateruse of reward and incentive system for encouraging productive and quality employeesto show much better performance for their organization. Functional strategicleadership is about inventive 143
  • 144. Strategic leadership requires the potential to foresee and comprehend the workenvironment. It requires objectivity and potential to look at the broader picture.A few main traits / characteristics / features / qualities of effective strategic leadersthat do lead to superior performance are as follows:Loyalty- Powerful and effective leaders demonstrate their loyalty to theirvision by their words and actions.Keeping them updated- Efficient and effective leaders keep themselvesupdated about what is happening within their organization. They havevarious formal and informal sources of information in the organization.Judicious use of power- Strategic leaders makes a very wise use of theirpower. They must play the power game skillfully and try to develop consentfor their ideas rather than forcing their ideas upon others. They must pushtheir ideas gradually.Have wider perspective/outlook- Strategic leaders just don’t have skills intheir narrow specialty but they have a little knowledge about a lot of things.Motivation- Strategic leaders must have a zeal for work that goes beyondmoney and power and also they should have an inclination to achieve goalswith energy and determination.Compassion- Strategic leaders must understand the views and feelings oftheir subordinates, and make decisions after considering them.Self-control- Strategic leaders must have the potential to controldistracting/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 understandtheir own moods and emotions, as well as their impact on others.Readiness to delegate and authorize- Effective leaders are proficient atdelegation. They are well aware of the fact that delegation will avoidoverloading of responsibilities on the leaders. They also recognize the factthat authorizing the subordinates to make decisions will motivate them a lot.Articulacy- Strong leaders are articulate enough to communicate thevision(vision of where the organization should head) to the organizationalmembers in terms that boost those members. 144
  • 145. Constancy/ Reliability- Strategic leaders constantly convey their visionuntil it becomes a component of organizational culture.To conclude, Strategic leaders can create vision, express vision, passionately possessvision and persistently drive it to accomplishmentGap analysis generally refers to the activity of studying the differences betweenstandards and the delivery of those standards. For example, it would be useful for afirm to document differences between customer expectation and actual customerexperiences in the delivery of medical care. The differences could be used to explainsatisfaction and to document areas in need of improvement.However, in the process of identifying the gap, a before-and-after analysis mustoccur. This can take several forms. For example, in lean management we perform aValue Stream Map of the current process. Then we create a Value Stream Map of thedesired state. The differences between the two define the gap. Once the gap isdefined, a game plan can be developed that will move the organization from itscurrent state toward its desired future state.Another tool for identifying the gap is a step chart. With the step chart, variousclasses of performance are identified—including world-class status. Then, currentstate and desired future state are noted on the chart. Once again, the differencebetween the two defines the gap.The issue of service quality can be used as an example to illustrate gaps. For thisexample, there are several gaps that are important to measure. From a service qualityperspective, these include: (1) service quality gap; (2) management understandinggap; (3) service design gap; (4) service delivery gap; and (5) communication gap.Service Quality Gap.Indicates the difference between the service expected by customers and the servicethey actually receive. For example, customers may expect to wait only 20 minutes tosee their doctor but, in fact, have to wait more than thirty minutes. 145
  • 146. Management Understanding Gap.Represents the difference between the quality level expected by customers and theperception of those expectations by management. For example, in a fast foodenvironment, the customers may place a greater emphasis on order accuracy thanpromptness of service, but management may perceive promptness to be moreimportant.Service Design Gap.This is the gap between managements perception of customer expectations and thedevelopment of this perception into delivery standards. For example, managementmight perceive that customers expect someone to answer their telephone calls in atimely fashion. To customers, timely fashion may mean within thirty seconds.However, if management designs delivery such that telephone calls are answeredwithin sixty seconds, a service design gap is created.Service Delivery Gap.Represents the gap between the established delivery standards and actual servicedelivered. Given the above example, management may establish a standard such thattelephone calls should be answered within thirty seconds. However, if it takes morethan thirty seconds for calls to be answered, regardless of the cause, there is a deliverygap.Communication Gap.This is the gap between what is communicated to consumers and what is actuallydelivered. Advertising, for instance, may indicate to consumers that they can havetheir carss oil changed within twenty minutes when, in reality, it takes more thanthirty minutes.IMPLEMENTING GAP ANALYSISGap analysis involves internal and external analysis. Externally, the firm mustcommunicate with customers. Internally, it must determine service delivery and 146
  • 147. service design. Continuing with the service quality example, the steps involved in theimplementation of gap analysis are: • Identification of customer expectations • Identification of customer experiences • Identification of management perceptions • Evaluation of service standards • Evaluation of customer communicationsThe identification of customer expectations and experiences might begin with focus-group interviews. Groups of customers, typically numbering seven to twelve pergroup, are invited to discuss their satisfaction with services or products. During thisprocess, expectations and experiences are recorded. This process is usually successfulin identifying those service and product attributes that are most important to customersatisfaction.After focus-group interviews are completed, expectations and experiences aremeasured with more formal, quantitative methods. Expectations could be measuredwith a one to ten scale where one represents Not At All Important and tenrepresents Extremely Important. Experience or perceptions about each of theseattributes would be measured in a similar manner.Gaps can be simply calculated as the arithmetic difference between the twomeasurements for each of the attributes. Management perceptions are measured muchin the same manner. Groups of managers are asked to discuss their perceptions ofcustomer expectations and experiences. A team can then be assigned the duty ofevaluating manager perceptions, service standards, and communications to pinpointdiscrepancies. After gaps are identified, management must take appropriate steps tofill or narrow the gaps.THE IMPORTANCE OF SERVICE QUALITY GAP ANALYSISThe main reason gap analysis is important to firms is the fact that gaps betweencustomer expectations and customer experiences lead to customer dissatisfaction.Consequently, measuring gaps is the first step in enhancing customer satisfaction.Additionally, competitive advantages can be achieved by exceeding customer 147
  • 148. expectations. Gap analysis is the technique utilized to determine where firms exceedor fall below customer expectations.Customer satisfaction leads to repeat purchases and repeat purchases lead to loyalcustomers. In turn, customer loyalty leads to enhanced brand equity and higherprofits. Consequently, understanding customer perceptions is important to a firmsperformance. As such, gap analysis is used as a tool to narrow the gap betweenperceptions and reality, thus enhancing customer satisfaction.PRODUCT APPLICATIONSIt should be noted that gap analysis is applicable to any aspect of industry whereperformance improvements are desired, not just in customer service. For example, theproduct quality gap could be measured by (and is defined as) the difference betweenthe quality level of products expected by customers and the actual quality level. Themeasurement of the product quality gap is attained in the same manner as above.However, while service delivery can be changed through employee training, changesin product design are not as easily implemented and are more time consuming.Gap analysis can be used to address internal gaps. For example, it is also applicable tohuman resource management. There may be a gap between what employees expect oftheir employer and what they actually experience. The larger the gap, the greater thejob dissatisfaction. In turn, job dissatisfaction can decrease productivity and have anegative effect on a companys culture.Ford Motor Co., for example, utilized gap analysis while developing an employeebenefit program. While management may believe it has a handle on employeeperceptions, this is not always true. With this in mind, Fords management set out tounderstand employee desires regarding flexible benefits. Their cross-functional teamapproach utilized focus groups, paper and pencil tests, and story boards to understandemployee wants and needs. Their team, consisting of finance, human resources, linemanagers, benefits staff, and consultants, identified gaps in benefit understanding,coverage, and communications. As a result of gap analysis, Ford implemented acommunications program that gained employee acceptance. 148
  • 149. Distinctive CompetenceDistinctive competence is a set of unique capabilities that certain firms possessallowing them to make inroads into desired markets and to gain advantage over thecompetition; generally, it is an activity that a firm performs better than itscompetition. To define a firms distinctive competence, management1 must completean assessment of both internal and external corporate environments. Whenmanagement finds an internal strength that both meets market needs and gives thefirm a comparative advantage in the marketplace, that strength is the firms distinctivecompetence. Taking advantage of an existing distinctive competence is essential tobusiness strategy development. Firms can possess distinctive competence in a widevariety of areas, including technology, marketing, and management.THEORETICAL ORIGINSFrom 1949 to 1957, Philip Selznick studied vastly differing organizations, from theCommunist Party to the Tennessee Valley Authority. He noticed that as theseinstitutions developed, there was a gradual emergence of special strengths andweaknesses in each one of them. Thus, he coined the term distinctive competence in1957. Kenneth R. Andrews elaborated on this concept in 1971, when he posited thatdistinctive competence included more than just the strengths of an organization. In hisview, distinctive competence was the set of activities that an organization couldperform especially well in relation to its competitors. In 1976, Howard H. Stevensonreleased a study that examined the strategic planning of six companies. He found thattop managers had a wide variation in perception of their own organizations strengthsand weaknesses, and not surprisingly, in their distinctive competencies as well.FORMULATING STRATEGYStrategy can be defined as the tool managers use to adjust their firms to ever-changingenvironmental conditions. Unless a firm produces only one type of merchandise orservice, it must devise strategies at both the corporate and business levels.Corporatestrategy2 defines the underlying businesses and determines the best methodsof coordinating them. At the business level, strategy outlines the ways that a businesswill compete in a given market. Strategic planning is often closely tied to thedevelopment and use of distinctive competencies, and having an area of distinctivecompetence can present a major strategic advantage to any firm. 149
  • 150. To devise corporate strategy, firm managers must consider a host of influences intheir surrounding environment that can affect the firms ongoing operations as well asthe internal strengths and weaknesses that characterize the firm. When assessing theexternal business environment, management must analyze the given situation, forecastpotential changes to it, and either try to change the situation or adapt to it. Theassessment must include an evaluation of current and projected market needs and anevaluation of any existing comparative advantage over competitors.Moreover, to determine the best strategy for their firm, managers must realisticallyassess their own firms status. A firms internal strengths and weaknesses make itbetter suited to pursue some strategic paths than others. When looking for a matchbetween opportunities and capabilities, managers must try to build upon the strongestqualities of the firm and avoid activities that rely on more vulnerable areas or areadverse to the firms existing corporate culture. Further, it is important for managersto account for potential problems involved in carrying out a strategy before theyembark upon it. Thus, managers should examine potential strategies, while keeping inmind their firms history, its culture and experiences, and its basic proficiencies. Oncethis assessment is complete, management must decide which opportunities in thebusiness environment to pursue and which ones to pass up. Even if a firm does nothave a distinctive competence, as is the case for many, it must devise its overallstrategy to build upon its strengths and best use its resources.Obviously, many successful business strategies are built around a determineddistinctive competence. To truly succeed, a firm will have a competitive advantageover its rivals, giving it some sort of strategic advantage. Logically, strengthening acompetitive position is made a great deal easier for a firm with one or more distinctivecompetencies. Having a distinctive competence can allow a firm to follow a differentpath than rival firms, utilize a strategy difficult for them to imitate, and end up in abetter position over the long term. If other firms in the marketplace do not have asimilar or countervailing competence, they will have a very difficult time remainingcompetitive. 150
  • 151. DEFINING AND BUILDING DISTINCTIVE COMPETENCETo define a companys distinctive competence, managers often follow a particularprocess. First, they identify the strengths and weaknesses of their firm. Next, theydetermine the strategic importance of these strengths and weaknesses in the givenmarketplace. Then, they analyze specific market needs and look for comparativeadvantages that they have over the competition. Importantly, while managersgenerally follow this process, they often undertake more than one stepsimultaneously.Distinctive competence can be built in a number of ways. Firms can hire morequalified professionals than those employed by competitors; they can find and exploitpreviously neglected market niches; and they can be especially innovative or can gainadvantage over competitors through sheer strength of management. There arenumerous areas in which a firm can have a distinctive competence. Some companieshave distinctive competence because they manufacture a product with superiorquality. Other firms excel in technological innovation, research and development, ornew product introduction. Still other firms have advantages in low-cost production,customer support, or creative advertising. For example, McDonalds distinctivecompetence is its system of controls for operating its fast-food restaurant franchises,which gives the company an unusually high profit margin.PREDICTING FUTURE DISTINCTIVE COMPETENCESince business environments and marketplaces are always changing, the challenge forstrategists is to maintain the firms distinctive competence. As defined earlier,distinctive competencies are distinctive skills and capabilities firms can use to achievean unusual market position or to gain an advantage over the competition. Thus, afirms advantage comes largely from the fact that it has differentiated itself from itscompetition. It follows that if the environment changes such that numerous rivalshave obtained competencies identical to those characterizing a particular firm, thefirm is in a very poor position and would do well to reconsider its strategy.Future strategic success requires that firms keep their distinct advantages over theirrivals. Thus, firms must continuously assess their surrounding environments. Theymust be aware of potential shifts in industrial standings and must realistically evaluate 151
  • 152. whether the distinctive competency continues to yield an advantage. They should alsolook to new markets and evaluate the potential use of their distinctive competencies inthose markets.As business conditions and markets change, many of the strengths and weaknessesthat characterize a firm will also change. Through strategic planning and leadership,management will be able to determine how the basis for competition may be changingand whether the firms distinctive competencies need to be realigned. Indeed, somevulnerabilities and strengths will be exaggerated, while others will be eliminated.Success in these changing conditions can only come from taking advantage ofopportunities highlighted by close scrutiny of a firms internal and externalenvironment. The most successful firms will be those that are able to locate and usedistinctive competencies found in these assessments.The final stage in strategic management is strategy evaluation and control. Allstrategies are subject to future modification because internal and external factors areconstantly changing. In the strategy evaluation and control process managersdetermine whether the chosen strategy is achieving the organizations objectives. Thefundamental strategy evaluation and control activities are: reviewing internal andexternal factors that are the bases for current strategies, measuring performance, andtaking corrective actions.Strategic management is a broader term that includes not only the stages alreadyidentified but also the earlier steps of determining the mission and objectives of anorganization within the context of its external environment. The basic steps of thestrategic managementcan be examined through the use of strategic managementmodel.The strategic management model identifies concepts of strategy and the elementsnecessary for development of a strategy enabling the organization to satisfy itsmission. Historically, a number of frameworks and models have been advanced whichpropose different normative approaches to strategy determination. However, a reviewof the major strategic management models indicates that they all include the followingelements: 152
  • 153. 1. Performing an environmental analysis. 2. Establishing organizational direction. 3. Formulating organizational strategy. 4. Implementing organizational strategy. 5. Evaluating and controlling strategy.Strategic management is a continuous and dynamic process. Therefore, it should beunderstood that each element interacts with the other elements and that this interactionoften happens simultaneously.The major models differ primarily in the degree of explicitness, detail, andcomplexity. These differences derive from the differences in backgrounds andexperiences of the authors. Some of these models are briefly presented below.In 1965, Kenneth Andrews developed a simple model. This model includes the choiceof a strategy, but ignores implementation and control. In 1971, Andrews formulated amore complete model that included implementation, but it still ignores a strategiccontrol and evaluation.William F. Glueck developed several models of strategic management based on thegeneral decision-making process.The phases of this model are as follows:* Strategic managements elements: ...to determine mission, goals, and values ofthe firm and the key decision makers.* Analysis and diagnosis: ...to search the environment and diagnose the impact ofthe threats and opportunities.* Choice: ...to consider various alternatives and assure that the appropriate strategyis chosen.* Implementation: ...to match plans, policies, resources, structure, andadministrative style with the strategy.* Evaluation: ...to ensure strategy and implementation will meet objectives. 153
  • 154. As major contribution to the strategic management process, Glueck considered twoelements: enterprise objectives (the mission and objectives of the enterprise, andenterprise strategists (who are involved in the process).Moreover, Glueck broke down the planning process into analysis and diagnosis,choice, implementation, and evaluation functions. This model also treats leadership,policy, and organizational factors.However, Glueck omitted the important medium- and short-range planning activitiesof strategy implementation.William F. Glueck developed several models of strategic management based on thegeneral decision-making process.The phases of this model are as follows:* Strategic managements elements: ...to determine mission, goals, and values ofthe firm and the key decision makers.* Analysis and diagnosis: ...to search the environment and diagnose the impact ofthe threats and opportunities.* Choice: ...to consider various alternatives and assure that the appropriate strategyis chosen.* Implementation: ...to match plans, policies, resources, structure, andadministrative style with the strategy.* Evaluation: ...to ensure strategy and implementation will meet objectives.As major contribution to the strategic management process, Glueck considered twoelements: enterprise objectives (the mission and objectives of the enterprise, andenterprise strategists (who are involved in the process).Moreover, Glueck broke down the planning process into analysis and diagnosis,choice, implementation, and evaluation functions. This model also treats leadership,policy, and organizational factors.However, Glueck omitted the important medium- and short-range planning activitiesof strategy implementation.The Schendel And Hofer ModelDan Schendel and Charles Hofer developed a strategic management model,incorporating both planning and control functions.Their model consists of several basic steps:(1) goal formulation, 154
  • 155. (2) environmental analysis,(3) strategy formulation,(4) strategy evaluation,(5) strategy implementation, and(6) strategic control.According to Schendel and Hofer, the formulation portion of strategic managementconsists of at least three subprocesses:- environmental analysis,- resources analysis,- and value analysis.Resource and value analyses are not specifically shown, but are considered to beincluded under other items (strategy formulation).The Thompson And Strickland ModelThompson and Strickland developed several models of strategic management.According to Thompson and Strickland strategic management is an ongoing process:nothing is final and all prior actions and decisions are subject to futuremodification.This process consists of five major five ever-present tasks:1. Developing a concept of the business and forming a vision of where theorganization needs to be headed.2. Converting the mission into specific performance objectives.3. Crafting a strategy to achieve the targeted performance.4. Implementing and executing the chosen strategy efficiently and effectively.5. Evaluating performance, reviewing the situation, and initiating correctiveadjustments in mission, objectives, strategy, or implementation in light of actualexperience, changing conditions, new ideas, and new opportunities.Thompson and Strickland suggest that the firms mission and objectives combine todefine What is our business and what will it be? and what to do now toachieve organizations goals. How the objectives will be achieved refers to thestrategy of firm.In general, this model highlights the relationships between the organizations mission,its long- and short-range objectives, and its strategy. 155

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