Strategic-Management       BSPATIL
CONTENTSUnitsUnit 1Lesson   1.1 The business systemLesson   1.2 Objectives of the businessLesson   1.3 Mission – vision – ...
Lesson 4.2 Amalgamation strategyLesson 4.3 joint venture strategyLesson 4.4 Organizational structure and corporateDevelopm...
STRATEGIC MANAGEMENT                              Unit -1                        THE BUSINESS SYSTEM1.1.1.Introduction :  ...
generating ideas about how the company might better fit itsenvironment. Several choices, contingency plans, are often devi...
“strategy as pattern”, respectively. Strategy as pan is a chosencourse of action; it could be a real strategy (one intende...
“Thus, a realized strategy could be either a deliberatestrategy as plan, or an “unelaborated” strategy as pattern. If ther...
BSPATIL
LESSON 1.2 OBJECTIVES OF THE BUSINESS1.2.1. IntroductionThe objective is the starting point of the marketing plan. Onceenv...
1. Profitability ObjectivesTo achieve a 20% return on capital employed by August 2007.   2. Market Share Objectives   To g...
1.2.3 Objectives of growth:      Ansoff Matrix as a marketing tool was first published in theHarvard Business Review (1957...
existing customers. this often happens with the auto marketswhere existing models are updated or replaced and thenmarketed...
The high or low cost of entry e. g. how much will it           cost for the latest technology.           Ease of access to...
Power in high where the brand is powerful e.g.            Cadillac, Pizza Hut, Microsoft.            There is a possibilit...
relation to cost advantage or differentiation advantage. There a sixcore strategic options.Option one-low price/low added ...
Higher margins if competitors do not value follow/risk of      losing market shareOption Seven – increased price/low value...
Outbound LogisticsThe goods are now finished, and they need to be sent along thesupply chain to wholesalers, retailers or ...
marketing activities, lean manufacturing, customer Relationshipmanagement (CRM), and many other technological developments...
LESSON 1.3 MISSION – VISION – GOALS1.3.1 MissionMission is the description of an organization’s reasons forexistence, its ...
Deal and Kennedy claim that a strong culture is the key tolong-term corporate success and that culture has five elements: ...
Dupont: “Better things for better living through chemistry—abelief that product innovation, arising out of chemicalenginee...
Reliance’s mission is to evolve into a significant international      information technology company offering cost-effecti...
We will provide a conducive environment for enabling ouremployees to develop their potential and make a significant.Contri...
necessitated a set of dramatic alterations in the way business wasconducted on a day-to-day basis by key managers. Things ...
of larger class rooms, a Conference Hall, an Auditorium and largePC laboratories. This would help to enlarge the activitie...
Exhibit : Examples of Types of Strategic Goals and Their                           DefinitionsGoal Type        Definition ...
Action plan A description of the means by which activity is           expected to be directed toward striving for specifie...
goals mainly address expectations about the firm’s societallegitimacy. Sometimes included in statements called creeds orgu...
could be achievable partly by acquisition or divestiture moves, butprimarily through the contributions of sales increases ...
Four sets of factors affect the nature of an organization’s collectionof goals: (1) The present goals (and action plans); ...
trying to manage the department without any idea of whatbusiness-level goals were important to top management.The Data Set...
administrative expenses are excessively high as a percentage ofsales. Further analysis might show that sales growth has sl...
Simon (1964):      Goals are constraints on profit maximization                   imposed by decision makers bounded      ...
balanced power, preferences in conflict.MacMillan (1978)    Organizational coalition members demand                    coa...
LESSON 1.4 STRATEGIC ANALYSIS OF FUNCTIONAL AREAS                    1.4.1 LEVELS OF STRATEGY:There is wide diversity in s...
in a given business how the firm should be positioned andmanaged so as to compete in a given business or industry. Finally...
Corporate level planning is that which involved identifying trendsand formulating strategy in global, technical, and marke...
During the mid-1980s some authors began to include the fourthlevel: enterprise or socictal goals and action plans. Societa...
strategy might include a change in compensation policy forsalespersons and a specified increase in the advertising budget....
process of identifying strengths and weaknesses can be one of themost educational top managers can have especially enlight...
relations (in addition to finance, which was discussed earlier).Although most organizations will have these functions in o...
a. Relative position (leader or follower)         b. Image         c. Relationships to gross profit margin   3. Promotion ...
1. Job analysis factors         a.   Are necessary skills present?         b.   Are all necessary jobs present?         c....
planned-for-costs. Examples of evaluative factors for productionare the following:  1. Facilities and equipment        a. ...
c. Excessive overtime charges?         d. ProductivityFor most service organizations, the process of providing the service...
Conducting an internal analysis of the R&D function involvesidentifying strengths and weaknesses in R&D activities such as...
problems are the characteristics that are searched for to determinethe appropriateness of a change in structure. Changing ...
relative success of current strategy can the e fed into the process offormulating and implementing new strategies. In this...
LESSON 1.5 ANALYZING CORPORATE CAPABILITIES1.5.1 Introduction:A great deal must be learned about an organization so thatst...
strengths,   weaknesses,     threats,     and    opportunities  thatcomprehensively descries the internal and external cha...
Analysis of the internal operations of the organization results in acollection of strength and weaknesses that would fill ...
information through informal means often marks the successfulentrepreneur and manager.To rely totally on informal means, h...
shifted their source of supply form middle-eastern countries toVenezuela because of uncertainties about the political ande...
many retailers had to replace cash drawers, or entire cash registers,to accommodate these denominations. More significantl...
economic bases as well as by the degree of control the buying firmcan maintain over them. Though could also provide buying...
environment, it is important to recognize the interrelated nature ofthe participants. The multiplier effect in macroeconom...
restructuring. All of these impositions, in turn, requirements.Governments-mandated sales prohibitions (e.g., on certainfi...
a source of labor.       Finally,the political/legal climate is both a function and adeterminant of public sentiments. Fed...
many instances of technological displacement having adverseeffects on those caught unaware.Technological change has had im...
heavily on its suppliers. Manufacturers may turn to equipmentsuppliers for the latest in robotics, or food processors toph...
video-taped movies at home!Few firms are left untouched by technological change, althoughsome may be more severely or rapi...
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Strategic management book @ bec doms bagalkot

  1. 1. Strategic-Management BSPATIL
  2. 2. CONTENTSUnitsUnit 1Lesson 1.1 The business systemLesson 1.2 Objectives of the businessLesson 1.3 Mission – vision – goalsLesson 1.4 strategic analysis of functional areasLesson 1.5 Analyzing corporate capabilitiesLesson 1.6 SWOTUnit 2Lesson 2.1 Corporate strategyLesson 2.2 Process of strategic planningLesson 2.3 Formulation of strategyLesson 2.4 Project life cycleLesson 2.5 Portfolio analysisLesson 2.6 Strategic decision makingUnit 3Lesson 3.1 stability strategyLesson 3.2 Growth strategyLesson 3.3 Retrenchment strategyLesson 3.4 Turnaround strategyLesson 3.5 DiversificationUnit 4Lesson 4.1 Mergers & acquisition BSPATIL
  3. 3. Lesson 4.2 Amalgamation strategyLesson 4.3 joint venture strategyLesson 4.4 Organizational structure and corporateDevelopmentLesson 4.5 Line and staff functionsLesson 4.6 Management of changeUnit 5Lesson 5.1 Implementation of strategyLesson 5.2 Elements of StrategyLesson 5.3 Leadership And Organisational ClimateLesson 5.4 Planning And Control or ImplementationUnit 6Lesson 6.1 ERPLesson 6.2 ERP Package : BaaNLesson 6.3 ERP Package : MARSHALLLesson 6.4 ERP Package : SAPBibliographyModel Test Paper BSPATIL
  4. 4. STRATEGIC MANAGEMENT Unit -1 THE BUSINESS SYSTEM1.1.1.Introduction : The McKinsey analysis discovered four quite distinct phasesof strategic management evolution .in phase I, financial planning,management focuses on the preparation of budgets with anemphasis on functional operation. Most organization has abudgeting process, in at least rudimentary from, as a way ofallocating resources among functional units, subsidiaries, orproject. The second, forecast- based planning follows naturallyfrom the first as managers project budget requirements beyond theone –year cycle. This phase represents an effort to extendmanagers’ attention beyond the immediate future as scenarios aredeveloped which describe their expectations about future timeperiods. Budgets are often constructed for several years at a timeand are rolled over annually so that the appropriateness of abudgeted amount can be reviewed several times before it isoperationalzed. Phase 2 planning is very “now” oriented. Currentoperations and characteristics are stressed in analyses of the firmand there is little attention to or patience for consideringoperational options or development of strategic changes. Thebusiness portfolio of a phase 2 firm is often viewed as the finalexpression of strategy rather than as an input to the strategyformulation process. Current structure and business activities maybe considered fixed, not as strategic variables. Phase 3, external oriented planning requires a significantchange in management viewpoint. Planners are required to aboutan external orientation and tools and procedures for environmentaland internal assessment. Concern centers on understanding theorganization’s environment and competitive position and BSPATIL
  5. 5. generating ideas about how the company might better fit itsenvironment. Several choices, contingency plans, are often devisedfor how the company might fit its environment. Lower levelplanners and managers are often involved in the process ofgenerating choices, an activity that soon puts top management inthe position of choosing a plan in which it had little involvement indeveloping. Phase 4, strategic management, evolves as top managementsenses the need to more heavily invest in the planning processbecause of its lack of understanding of or involvement in thedetails of earlier plan development. strategic management is themeshing of Phase 3 planning and operational management into oneprocess. It is analysis and conclusion that takes place year- roundand ties performance evaluation and motivational programs tostrategy.1.1.2 Deliberateness of Strategy: Sometimes outsiders impute strategy to the behavior of firms.Obviously, students analyzing case studies are placed in thisposition when they impute strategy from the data they are able togenerate on the firm’s operations. Similarly, journalists and themanagers of competing firms may impute strategy to a firm’sbehavior; and it may or may no0t accurately reflect the real strategyin place. Outsiders may also imply intent to an imputed strategy.That is; they assume not only that the strategy they imputed fromthe firm’s behavior’s is the real strategy its employees areimplementing, but they imply that this strategy is the one intendedfor the firm by its management. Seldom is this the case. Mintzberg developed a taxonomy which is useful fordiscussing the realism and deliberateness of strategy. First, hedistinguished between strategy that is the result of a plan, and of apattern of behavior. He referred to them as “strategy as plan” and BSPATIL
  6. 6. “strategy as pattern”, respectively. Strategy as pan is a chosencourse of action; it could be a real strategy (one intended forimplementation) or a ploy (a tactical move whereby a competitormay be influenced into making a mistake). Some people think thatCoca-Cola’s rumored change in Coke’s formula in ht emid-1980swas such a poly. The implication is that Coca-Cola had notintended to really change the formula. The implication is thatCoca-Cola had not intended to really change the formula,introduced a new product with a different formula that tasted a lotlike a competitor’s product, and finally graciously conceded tocontinue producing the old formula product when the publicdemonstrated a preference for it over the new--"similar to acompetitor’s – “formula. (Incidentally, if this was in fact a poly, ithas to rank among the top marketing moves ever attempted by anybusiness. Coca-Cola reaped an immediate increase in market shareof about 15 percent that thrust them once again into unquestioneddominance in the huge U.S. soft drink market). Strategy as plan,when implemented, may or may not be what the firm ends up with.That is, the planned strategy could ultimately be either realized orunrealized. If it is realized, then the entire process would be atextbook case of strategy formulation and implementation in thesense that the firm successfully implemented what was intended. But what happens if he planned strategy is implemented and,for some reason, the strategy that is realized is not the intendedone? We might say that the planned strategy was unrealized, andthe realized strategy (the one that seems to describe what thecompany is actually doing) arises out of some consistency in thebehavior of the company. Mintzberg and Waters call thisunintended realized strategy, “strategy as pattern,” or a pattern in aseries of actions by the organization. Strategy as pattern is whatyou will end up with when you impute strategy to the behavior of acompany you are analyzing in a case study, or what journalistsproduce when they attribute a strategy to a company based only onits actions. BSPATIL
  7. 7. “Thus, a realized strategy could be either a deliberatestrategy as plan, or an “unelaborated” strategy as pattern. If therealized strategy was planned and also accurately the firm’s actions,then strategy as pattern and strategy as plan would be synonymous.However, when realized strategy is not intended strategy (that is, itwas either not what was intended by management when theydrafted a planned strategy, or they drafted a planned strategy, orthey drafted no strategy at all ), then it simply “grew” out of theactivities of the company. In Mintzberg’s terms it “emerged” as apattern of behavior in the absence of intention, or despiteunrealized intention.A realized strategy is what a company is actually doing. If it is theone intended by management then it is deliberate. If not, then theintended strategy was undrealized, and the realized strategy isemergent. An emergent strategy is, by definition, not deliberate.However, a manager may choose nor to consciously formulatestrategy and, instead, “go with” the emergent one. But even here,the resultant emergent strategy could not have been deliberate inthe same way an intended strategy would have been. Often it isconvenient to distinguish between intended and emergentstrategies. When management performs no strategic managementat all, they still will have a realized strategy that is emergent. Thisemergent strategy could be recognized by outsiders (and insidersfor that matter) even though it may not have been intended mymanagement.Question: 1. What is business policy? Why it is important for companies? 2. Under what circumstances strategic management is useful? 3. What are the commitment of top management in strategic outlook? BSPATIL
  8. 8. BSPATIL
  9. 9. LESSON 1.2 OBJECTIVES OF THE BUSINESS1.2.1. IntroductionThe objective is the starting point of the marketing plan. Onceenvironmental analyses and marketing audit have been conducted,their results will inform objectives. Objectives should seek toanswer the question “Where do we want to go?” The purposes ofobjectives include: To enable a company to control its marketing plan. To help to motivate individuals and teams to reach a common goal. To provide an agreed, consistent focus for all functions of an organization.All objectives should be SMART i.e. Specific, Measurable,Achievable, Realistic, and Timed. Specific – Be precise about what you are going to achieve Measurable – Quantify you objectives Achievable – Are you attempting too much? Realistic – Do you have the resource to make the objectives happen (men, money, machines, materials, minutes?) Timed – State when you will achieve the objectives (within a month? By February 2010?)1.2.2. Examples of SMART objectives:Some examples of SMART objectives follow: BSPATIL
  10. 10. 1. Profitability ObjectivesTo achieve a 20% return on capital employed by August 2007. 2. Market Share Objectives To gain 25% of the market for sports shoes by September 2006 3. Promotional ObjectivesTo increase awareness of the dangers of AIDS in India from 12% to25% by June 2004.To insure trail of X washing powder from 2% to 5% of our targetgroup by January 2005. 4. Objectives for GrowthTo survive the current double-dip recession. 5. Objectives for GrowthTo increase the size of out German Brazilian operation from$200,000 in 2002 to $400,000 in 2003 6. Objectives for BrandingTo make Y brand of bottled beer the preferred brand of 21-28 yearold females in North America by February 2006.These are many examples of objectives. Be careful not to confuseobjectives with goals and aims. Goals and aims tend to be morevague and focus on the longer-term. They will not be SMART.However, many objectives start off as aims or goals and thereforethey are of equal importance. BSPATIL
  11. 11. 1.2.3 Objectives of growth: Ansoff Matrix as a marketing tool was first published in theHarvard Business Review (1957) in an article called ‘Strategic forDiversification’. It is used by marketers who have objectives forgrowth. Ansoff’s matrix offers strategic choices to achieve theobjectives. There are four main categories for selection.Market PenetrationHere we market our existing products to our existing customers.This means increasing our revenue by, for example, promoting theproduct, repositioning the brand, and so on. However, the productis not altered and we do not seek any new customers.Market development Here we market our existing product range in a new market. Thismeans that the product remains the same, but it is marketed to anew audience. Exporting the product, or marketing it in a newregion are examples of market development.Product development This is a new product to be market to our existing customers.Here we develop and innovate new product offering to replaceexisting ones. Such product are then marketing to our existingcustomers. This often happens with the auto markets whereexisting models are updated or replaced and then marketed to BSPATIL
  12. 12. existing customers. this often happens with the auto marketswhere existing models are updated or replaced and thenmarketed existing customers.Diversification This is where we market completely new products to newcustomers there are to type of diversification, namely related andunrelated diversification. Related diversification means that weremain in a market or industry with which we are familiar. Forexample, a soup manufacturer diversifies into cake manufacture(i.e. the food industry ). Unrelated diversification is where we haveno previous industry nor market experience for example a soupmanufacturer invests in the roil business Ansoffs matrix is one of the most will know frameworks fordeciding upon strategies for growth. 1. 2. 4. Setting objectives based on competition: Five forces analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, business or SBU (Strategic Business Unit) rather than a single product or range of products. For example. Dell would analyses the market for business computers i.e. one of its SBUs. Five forces looks at five key areas namely the threat of entry, the power of buyers, the power of substitutes, and competitive rivalry The threat of entry Economies of scale e.g. the benefits associated with bulk purchasing BSPATIL
  13. 13. The high or low cost of entry e. g. how much will it cost for the latest technology. Ease of access to distribution channels e.g. Do our competitors have the distribution channels sewn up? Cost advantages not related to the size of the company e.g. personal contracts or knowledge that larger companies do not own or learning curve effects. Will competitors retaliate? Government action e.g. will new laws be introduced that will weaken our competitive position? How important is differention? e.g. The Champagne brand cannot be copied. This desensitizes the influence of the environment.This power of buyers This is high where there a few, large players in a market e.g. the large grocery chains. If there are a large numbers of undifferentiated, small suppliers e.g. small farming businesses supplying the large grocery chains. The cost of switching between suppliers is low e.g. from one fleet suppliers of trucks to another.The power of suppliers The power of suppliers tends to be a reversal of the power of buyers. Where the switching costs are high e.g. Switching from one software supplier to another. BSPATIL
  14. 14. Power in high where the brand is powerful e.g. Cadillac, Pizza Hut, Microsoft. There is a possibility of the supplier integrating forward e.g. Brewers buying bars. Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Gas/Petrol stations in remote places.The threat of substitutes Where there is product-for-product substitution e.g. email for fax. Where there is substitution of need e.g. better toothpaste reduces the need for dentists. Where there is generic substitution (competing for the currency in your pocket) e.g. Video suppliers compete with travel companies. We could always do without e.g. cigarettes.Competitive Rivalry This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is always seen in the center of the diagram.Bewman’s Strategy ClockThe ‘Strategy Clock’ is based upon the work of Cliff Bowman. It’sanother suitable way to analyse a company’s competitive positionin comparison to the offering of competitors. As with Porter’sGeneric. Strategies, Bowman considers competitive advantage in BSPATIL
  15. 15. relation to cost advantage or differentiation advantage. There a sixcore strategic options.Option one-low price/low added value Likely to be segment specific.Option two-low price Risk of price war and low margins/need to be ‘cost leader’.Option three-Hybrid Low cost base and reinvestment in low price and differentiationOption four – Differentiation(a) without a price premium Perceived added value by user, yielding market share benefits.(b) with a rice premium Perceived added value sufficient to bear price premiumOption five-focused differentiation Perceived added value to a ‘particular segment’ warranting a premium price.Option Six – increased price/standard BSPATIL
  16. 16. Higher margins if competitors do not value follow/risk of losing market shareOption Seven – increased price/low values Only feasible in a monopoly situationOption eight – low value/standard price Loss of market share1.2.5 Objectives of delivering Value:The value chain is systematic approach in examining thedevelopment of competitive advantage. It was created by M.E.Porter in his book, Competitive Advantage (1980). The mainconsists of a series of activities that creat and build value. Theyculminate in the total value delivered by an organization. The‘margin’ depicted in the diagram is the same as added value. Theorganization is spit into ‘primary activities’ and ‘support activities’.Primary ActivitiesInbound LogisticsHere goods are received from a company’s suppliers. They arestored until they are needed on the production/assembly line.Goods are moved around the organization.OperationsThis is where goods are manufactured or assembled. Individualoperations could include room serviced in an hotel, packing ofbooks/videos/games/ by an online retailer or the final tune for anew car’s engine. BSPATIL
  17. 17. Outbound LogisticsThe goods are now finished, and they need to be sent along thesupply chain to wholesalers, retailers or the final consumer.Marketing and SalesIn true customer orientated fashion, at this stage the organizationprepares the offering to meet the needs of targeted customers.This area focuses strongly upon marketing communications andthe promotions mix.ServiceThis includes all areas of service such as installation, after-salesservice, complaints handling, training and so on.Support ActivitiesProcurementThis functions is responsible for all purchasing of goods, servicesand materials. The aim is to secure the lowest possible price forpurchases of the highest possible quality. They will be responsiblefor outsourcing (components or operations that would normally bedone in- house are done by other organizations), and Purchasing(using IT and web-based technologies to achieve procurementaims).Technology DevelopmentTechnology is in important source of competitive. Companies needto innovate to reduce costs and to protect and sustain competitiveadvantage. This could include production technology, internet BSPATIL
  18. 18. marketing activities, lean manufacturing, customer Relationshipmanagement (CRM), and many other technological developments.Human resource management (HRM)Employees are an expensive and vital resource. An organizationwould manage recruitment and selection, training and development,and rewards and remuneration. The mission and objectives of theorganization would be driving force behind the HRM strategy.Firm InfrastructureThis activity includes and is driven b corporate or strategicplanning. It includes the Management Information System (MIS),and other mechanisms for planning and control such as theaccounting department.Question: 1. Write a note a Value chain. 2. What are the methods of deciding the objectives of a business? 3. How competition is playing a role in deciding the objectives? BSPATIL
  19. 19. LESSON 1.3 MISSION – VISION – GOALS1.3.1 MissionMission is the description of an organization’s reasons forexistence, its fundamental purpose. It is the guiding principle thatdrives the processes of goal and action plan formulation, “apervasive, although general, expression of the philosophicalobjectives of the enterprise.” Mission should focus on “long-rangeeconomic potentials, attitudes toward customers, product andservice quality, employee relations, and attitudes toward owners.” Itprovides identity, continuity of purpose, and overall definition, andshould convey the following categories of information. 1. Precisely why the organization exists, its purpose, in terms (a) its basic product or service, (b) its primary markets, and (c) its major production technology. 2. The moral and ethical principles that will shape the philosophy and charter of the organization. 3. The ethical climate within the organization.Thus mission outlines the firm’s identity and provides a guide forshaping strategies at all organizational levels. The role played bymission in guiding the organization is an important one.Specifically it. 1. serves as a basis for consolidation around the organization’s purpose. 2. provides impetus to and guidelines for resource allocation. 3. defines the internal atmosphere of the organization, its climate. 4. serves as a set of guidelines for the assignment of job responsibilities. 5. facilitates the design of key variables for a control system. BSPATIL
  20. 20. Deal and Kennedy claim that a strong culture is the key tolong-term corporate success and that culture has five elements: 1. Business Environment, 2. Values, 3. Heroes (People Who Personify Values), 4. Rites And Rituals (Routines of Day-To-Day Corporate Life), 5. The Cultural Network (Communication Systems).The mission statement describes primarily the second of thesecultural factors, corporate values. The strong cultural companiesstudies by Deal and Kennedy all had “a rich and complex systemmust be believable in that the company’s behavior shouldcorrespond to it over both the short and long term. In this way itcan serve as the foundation for the development of respect for andpride in the firm by management, owners, customers, suppliers,and others who interact with it.Broad-based acceptance of the values represented by mission canlead to three characteristics of firms that accomplish thisacceptance: 1. They stand for something—the way in which business is to be conducted is widely understood. 2. From the topmost levels of management down through the firm’s organization structure to the lowest level of production jobs, the values are accepted by all employees. 3. “Employees fees special because of a sense of identity which distinguishes the firm from other firms.”Many examples of firms that have these characteristics as a resultof a finely honed sense of cooperation and value acceptance arepresented by Deal and Kennedy. A few of these are listed here,along with the slogans that have come to represent their valuesystems. BSPATIL
  21. 21. Dupont: “Better things for better living through chemistry—abelief that product innovation, arising out of chemicalengineering…Sears, Roebuck: “Quality at a good price—the massmerchandiser from Middle America.Dana Corporation: “Productivity Through people—enlistingthe ideas and commitment of employees at every level insupport of Dana’s strategy of competing largely on cost anddependability rather than product differentiation…Chubb Insurance Company: “Underwriting excellence—anoverriding commitment to excellence in a critical function.Price Waterhouse and Company: “Strive for technicalperfection” (in accounting).PepsiCo’s overall mission is to increase the value of ourshareholder’s investment. We do this through sales growth,cost controls and wise investment of resources. We believeour commercial success depends upon offering quality andvalue to our consumers and customers; providing productsthat are safe, wholesome, economically efficient andenvironmentally sound; and providing a fair return to ourinvestors while adhering to the highest standards of integrity.SBI ‘s mission is “To retain the bank’s position as the premierIndian financial services group, with world class standardsand significant global business, committed to excellence incustomer, shareholder and employee satisfaction, and to playa leading role in the expanding and diversifying financialsector, while continuing emphasis on its developmentbanking role.BPL’s service mission is to support the vision of the companybecoming the most customer-oriented company in thecountry, by building a proactive service organization thatcontinuously strives to create customer satisfaction, byinternalizing the best practices of customer relationshipsmanagement. BSPATIL
  22. 22. Reliance’s mission is to evolve into a significant international information technology company offering cost-effective, superior quality and commercially viable software services and solutions. Reliance will adhere to strong internal value systems such as pursuit of excellence, integrity and fairness, and these principles will manifest themselves in all of Reliance’s interactions with its clients, partners and employees. The Videocon Group is committed to create a better quality of life for people and furthering the interests of society, by being a responsible corporate citizen.CREATING HAPPINESSWe will bring happiness into every home, offering high qualityconsumer durables at affordable prices, spreading the culture ofconvenience, entertainment and comfort, far and wide.ACHIEVING PROGRESSWe will pursue innovative technologies in the fields of Electronicsand Energy, create products and services that will improve thequality of life, realize the goals of the world community and protectthe environment.SUSTAINIG PROGRESSWe will be a source of pride to our business associates by ensuringmutual prosperity and growth through the implementation offorward-looking corporate strategies, aimed at identifyingopportunities and responding intelligently to the dynamics ofchange.PURSUING EXCELLENCE BSPATIL
  23. 23. We will provide a conducive environment for enabling ouremployees to develop their potential and make a significant.Contribution to the Group’s success.Mission typically is not considered a part of a firm’s strategy set. Itreflects the essential preferences of owners and managers for whatthe firm will do. Strategy will accomplish the task of reducingmission to operational terms. As such mission is somewhat apersonal choice of a firm’s dominant group of actors and is aninput to the strategy formulation process. Mission should addressthe basic purpose of the firm, the reasons for which it exists.Statements of mission can be made up of goals and descriptions ofthe means for achieving them. However, mission-related goals areoften qualitative as opposed to quantitative. Some owner groupsprefer to state broad goals as the organization’s purpose and deferto management to set strategy as the way to achieve them.In some organizations questions about purpose are left solely toowners, whether widely dispersed stockholders acting through aboard of directors, the small group of owners of a closely heldcorporation, or the sole owner of a small business. In these casesmanagers are informed of the owners’ expectations and thesegoals serve as overriding constraints or guidelines on the activitiesand operations of managers. In other firms managers mayparticipate in the process of deciding on purpose, along withowners or their representatives. Managers may eve be called uponto submit basic purpose choices to owners for affirmation or veto.The importance of a generally understood and accepted notion ofpurpose cannot be overstressed. The sole owner of a $30million-a-year industrial supply firm decided, upon reaching fiftyyears of age, that he no longer saw the purpose of his company asprimarily a generator of cash flow for him and his family. Insteadhe decided its purpose was to generate wealth ultimately throughacquisition by a larger company. The change in purpose from ashort-term cash generator to a well-groomed acquisition target BSPATIL
  24. 24. necessitated a set of dramatic alterations in the way business wasconducted on a day-to-day basis by key managers. Things that hadbeen previously assigned low priority-market development,product development, asset reinvestment, development of careercommitments by employees and managers, and so on-suddenlybecame essential goals, the achievement of which, over time, wouldserve the new mission.Although many managers tend to develop qualitative missionstatements, they can be expressed as a set of quantitative goalsstated in financial terms. As such they specify the major financialoutcomes expected by owners and managers from operation of theorganization. Examples include market share, market growth, cashflow, stock performance, and dividend payout.Sapphire Infotech Ltd:To play a vital role in bringing the Global Revolution in IT enabledservices with out unidirectional efforts (integrating People, Processand Technology, giving a face-lift to small medium enterprises,while being conducive for the betterment and upliftment of oursociety; and be a leader for world class IT solutions. Suchlike-mindedness and the attitude to be conducive in making theworld a global village, made the minds unidirectional. Minds of theseasoned SAP & ERP (Enterprise Resource Planning) Consultantswith hands on experience in IT, Telecom or related industries tostud the corona of Indian industries with a SAPPHIRE INFOTECH (P)LTD. Was formally launched on the 12th of April, 1999.Vision 2000 of SBIICMThe Institute plans to introduce specialized courses onwindows-based application software and RDBMS shortly.Plans have been finalized for completing the “Annexe” building, toaugment training capacity and to meet the long felt requirements BSPATIL
  25. 25. of larger class rooms, a Conference Hall, an Auditorium and largePC laboratories. This would help to enlarge the activities of theInstitute.The Institute to become “Think-Tank” for the Bank and itsAssociates. The Institutes to open up eventually its training,software development and Consultancy services to other banks inIndia and for developing countries in South East Asia and Africa.1.3.3 Goals and objectives: 1. A goal in an expected result. Synonyms for goal include the words aim, end, and objectives. 2. A qualitative goal is an aspiration toward which effort is directed; a goal to be reached for but not necessarily grasped, rather than a quantitative level of a certain variable. Thus, a firm might aspire to be a good corporate citizen. 3. A quantitative goal is one intended to be reached, a quantified expected result. There are two types: (1) A hurdle goal value is a certain level of a quantitative goal that is to be exceeded (synonyms include instrumental and interim goal); (b) a final or overall quantitative goal is a value that should be achieved. A final goal could be established without hurdles have been reached. Achieving a ten percent increase in total revenue within three years would be a final goal. Hurdle goals would be the targeted revenue increase intended at the end of Years 1 and 2. Exhibit : Relationships Among Types of GoalsGoals Qualitative Final ValuesObjectivesAims Quantitative Hurdle (Interim) Values BSPATIL
  26. 26. Exhibit : Examples of Types of Strategic Goals and Their DefinitionsGoal Type Definition ExamplesQualitative An aspiration “Good corporate citizenship” “Ethical practices” ‘Improved quality of life” “Heightened awareness”Quantitative Numerical aim “6 percent increase in sales”(Final Goal) “Raise ROI by percent”Hurdle goal Minimum to be “Increase sales by percent per reached win a year for there timeframeAndrews suggested that breaking up the system of corporate goalsand the character-determining major (actions) for attainment leadsto narrow and mechanical conceptions of strategic managementand endless logic-chopping. According to the other view, goalsetting and the formulation of means for achieving goals aredistinct activities that call for the stabilization of goals followed byselection of the proper strategic alternatives. The ultimateseparation of goals and strategy results in applying the wordstrategy only to statements about the means for achieving goals. Aset of goals would be established first and then discussions aboutstrategy would focus on deciding the best ways to achieve them.However, this view can result in semantic confusion. If the wordstrategy applies to means, then what word will be used to refer togoals plus the means for achieving them? In practice goals plusmeans are often also called strategy.Goal set A collection of quantitative and qualitative goals for a particular organizational level. BSPATIL
  27. 27. Action plan A description of the means by which activity is expected to be directed toward striving for specified goals.Strategy A set of goals and their action plans for a particularstrategy level.Organizational goals manifested as either qualitative orquantitative values would be tied to action plans that identify theappropriate ways to work toward them. A single-line businesswould thus have a set of goals and related action plans thattogether define how it should compete within its business segment.This set of goals and action plans would be called itsbusiness-level strategy. It could also have strategies, still made upof goals and action plans, for other strategy levels. This point iscovered in the next action.“Policy” and “tactic” are other terms that have been defined in manydifferent ways. We use policy to refer to standing directions,instructions that vary little with changes in strategy. Thusorganization can have vacation policy, a policy on absenteeism,affirmative action policy, and so on. Policy tends to have fewercompetitive implications than strategy when used in this way.However, in many curricula the management course is calledbusiness policy. A tactic is a short-term action taken bymanagement to adjust to internal or external perturbations. Theyare formulated and implemented within a strategic effort, usuallywith the intention of keeping the organization on its strategic track.Societal GoalsSocietal goals (also called enterprise goals), in organizations thatemploy societal strategy, would occupy the topmost levels of anorganization’s hierarchy of goals. In those that to not develop aseparate societal strategy, these goals would be woven intocorporate-, business-, and functional-level strategies. Societal BSPATIL
  28. 28. goals mainly address expectations about the firm’s societallegitimacy. Sometimes included in statements called creeds orguiding philosophies, societal goals identify the major ways inwhich the organization will operate so as to stay within the legal,ethical, and cultural constraints placed on it by society. Althoughthey guide the behavior of people at all levels of the organization,they have particular relevance for the decisions of key managersrelated to balancing the claims on the firm of society’s interestgroups and institutions, owners, and managers (which we refer togenerally as the firm’s stakeholders).Legitimacy goals should address the overall role of the firm in thedaily functioning of society. They should include goals that pertainto the major social issues and legislation of the day. “Someexamples are pollution standards, the firm’s antidiscriminationposition, safety in working conditions, and sexual harassment.Corporate levels GoalsCorporate-level goals consist of quantitative and qualitativeoutcomes that encompass management’s expectations about theoptimal combination and types of business that make up thecompany. They direct the integration of the particular collection ofbusinesses that makes up the overall organization and they serveas behavior specifications for staff members at the corporate level.Business-Level GoalsGoals at the business level specify the anticipated performanceresults of each SBU. Their values are intended to balance with thoseof equivalent variables for other SBUs and thereby contribute to theachievement of corporate level goals. For example, acorporate-level final goal of sales growth of 5 percent in one year BSPATIL
  29. 29. could be achievable partly by acquisition or divestiture moves, butprimarily through the contributions of sales increases by present.SBUs. Therefore, in this case an average cross SBU sales increase of5 percent could satisfy the corporate-level target and one wouldexpect each business-level strategy to contain a sales growthelement that defines that SBUs “contribution” so to speak, to thecorporate level sales growth goal.Business-level goals integrate the activities of the SBUs functionaldepartments and guide the behavior of business unit managers. Inother words business satrategy defines the role of each functionalarea relative to each other and to resource requirements andavailability. One might say that business-level strategy balancesthe roles of organizational functions within each business unit interms of their contributions toward reaching higher level goals.Functional-Level GoalsAt this level goals are set for each of the functional departmentsinto which each SBU is organized. The point of functional-levelgoals is to defined several aims for each department in such a waythat their achievement would result in achievement ofbusiness-level goals. Thus to reach a business-level target of 5percent sales growth, it might be necessary for the personneldepartment to recruit and screen twenty-five production workersand three more clerical people; for marketing to raise advertisingcosts by a certain amount increase the number of salesrepresentatives by a specified number within a certain region, andhire one more inside salesperson; and so on. These functionalrequirements become, either directly or indirectly, goals of therespective functional departments to e achieved within appropriatetime frames.Goal Formulation BSPATIL
  30. 30. Four sets of factors affect the nature of an organization’s collectionof goals: (1) The present goals (and action plans); (2) the set ofstrengths weaknesses, threats, and opportunities that result fromenvironmental and internal analysis; (3) the set of politicalinfluences within which individual compete over goal preferences;and (4) the personal values of the organization’s key managers thatshape their preferences.Present Goals and Action PlansThe degree of success experienced by an organizaatio in reachingpast or present goals and in implementing related action plansprovides insight into the need for new or modified goals. Failure tomeet the goal of retired Chairman Willard Rockwell, Jr., to build a$1 billion Rockwell International consumer products division ledcompany managers, under the leadership of new chairman and CEORobert Anderson, to adopt a new goal: $1 billion in foreign sales.This change seems to have been precipitated by the widespreadrealization that the previous consumer products goal was not likelyto be achieved.Direction for goal formulation at any organizational level alsoexists in the strategy of the next highest organizational level.These higher levels’ goals have the effect of partially defining thecontext within which goals are to be set at lower levels. Forexample, when corporate goals are stated in terms of long-termprofitability and sales growth, then business-level goals should beconsistent with them. Of course, more information would berequired about the other factors that affect goal formulation, but atleast corporate goals serve significantly to define the goal choicesavailable for the business level. Similarly, business-level goals canstructure the formulation of goals at the functional level andthereby define the context of functional-level goals. Think for amoment of the difficulties that might be encountered by afunctional department manager, say, the marketing director, in BSPATIL
  31. 31. trying to manage the department without any idea of whatbusiness-level goals were important to top management.The Data SetThe contents of an organization’s environmental and internal dataset provide major clues for goal formulation. Threats andopportunities (determined by analysis and forecasts of theorganization’s external circumstances), along with weakness andstrengths (of the organization’s internal state of affairs, in thepresent and future time frames), can be transformed into goal setsat appropriate organizational levels.At the corporate level, goals are formulated to define the optimalcollection of types of businesses in which the organization isengaged. The firm’s data set can be the primary source ofinformation about what types of businesses would be mostconducive to future success. The internal portion of the data sethighlights problems with existing operations; the external partpoints out merger possibilities as well as types of operations toavoid. Forecasts can identify potential problems with the presentcollections of businesses.Existing business-level goals can e evaluated against the contentsof the data set as well. Since business-level goals address businessunit performance and competition, such factors as performanceshortcomings, competitive position, latent capabilities, potentialobstacles, and new opportunities can be discovered through theenvironment and internal analysis and their respective parts of theresultant data set.The data set is also intended to provide major inputs into decisionsabout the appropriateness of functional-level goals. At this levelthe portions of the data set that reflect internal strengths andweaknesses play a critical role in goal setting. One might find, forexample, during financial analysis that the firm’s selling and BSPATIL
  32. 32. administrative expenses are excessively high as a percentage ofsales. Further analysis might show that sales growth has slowedand that turnover of salespeople is high. Goals could be set for themarketing department that reflects more desirable performancealong these dimensions. Marketing action plans would then bemodified to achieve the new goals.Goal Formulation TheoriesMany explanations have been offered in the management literaturefor how organizational goals are formulated. Mintzberg notes that,during this century, organizational goal formulation theories haveundergone a complete reversal form the “rational man” view (onegoal setter setting a single organizational goal) through thecoalition bargaining view (many goals, many goal setters) to thepolitical arena view no organizational goals, power games amongindividuals).Some examples of the influential goal formulation theories thathave appeared over the past several decades follow, inchronological order:Barnard (1938): Organizational goals are formed by a “trickle-up” process in which subordinates expectations are adopted by a consensus-based acceptance process.Papandreou (1958) A top manager forms the organization’s goals as a multivariate function of the preferences of influential actors.Cyert and March Multiple goals emerge from the bargaining(1963): among various coalitions that form out of the parrying for control and personal power by key actors. BSPATIL
  33. 33. Simon (1964): Goals are constraints on profit maximization imposed by decision makers bounded rationality.Granger (1964): Hierachy of gals results from a process of screening, filtering, and narrowing broad expectations to more focused, specific subgoals in a reasonably logical fashion.Ansoff (1965) New organization goals are tried out iteratively as means for closing gaps between present goals and hoped-for results.Allison (1971) (1) Organization process modes-reasonably stable goals emerge as incompatible constraints the represent the quasi-resolution of conflict among internal and external interest groups; (2) bureaucratic politics modes – key players play” politics to product goals they agree with as individuals.Georgiou (1973): Personal goals of individual come and go as organizational goals according to the short-term victories of key managers as they engage in political combat. There are no organizational goals as such.Hall (1978) Goals are set according to three processes, the appropriateness of which depends upon two contingencies, concentration of power and amount of goal-preference conflict: problem solving – concentrated power, no BSPATIL
  34. 34. balanced power, preferences in conflict.MacMillan (1978) Organizational coalition members demand coalition commitment to personal goals; the coalition responds by developing commitment to generalized versions of individual members’ goals. These generalized goals (not the specific goals of individuals) become the organization’s goals.Questions: 1. What are the methods of developing a mission statement? 2. Write the vision statement of Infosys and analyze the same. 3. What are the various methods of deciding the goal of companies? BSPATIL
  35. 35. LESSON 1.4 STRATEGIC ANALYSIS OF FUNCTIONAL AREAS 1.4.1 LEVELS OF STRATEGY:There is wide diversity in strategic management literature of levelsattached to the different levels of strategy that may exist in a firm.For example, Thompson and Strickland propose four levels:corporate strategy, business strategy, functional area supportstrategy, and operating-level strategy. They go on to say, “Eachlayer [is] … progressively more detailed to provide strategicguidance of the next level of subordinate managers.” Lorangedefines three levels for a typical divisionalized corporation:Portfolio strategy (corporate level), business strategy (division level),and strategic programs (functional level). He defines the focus ofeach as follows: 1. Portfolio strategy: Developing the desired risk/return balance among the businesses of the firm. 2. Business strategy: Source of competitive advantage of a particular business relatie to its competition. 3. Strategic programs: Bringing to bear functional managers’ specialized skills on the development of programs.He notes that smaller firms may involve only the last two of these,but in any firm there rarely would be more than three. Hofer, et.allist four levels of strategy for business organizations. First, strategyat the societal level is concerned with the definition of a firm’s rolein society. It would specify the nature of corporate governance,political involvement of the firm, and trade-offs nature of corporategovernance, political involvement of the firm, and trade-offssought between economic and social objectives. The secondstrategy level is corporate strategy which addresses (1) the natureof the firm’s business and (2) management of the set of businessesnecessary to achieve its goals. Third, business strategy addresseshow the firm should be positioned and managed so as to compete BSPATIL
  36. 36. in a given business how the firm should be positioned andmanaged so as to compete in a given business or industry. Finally,functional area strategy is the lowest level of corporate strategy. Itis concerned with their respective functional area environments.Newman and Logain present two levels-business strategy andfunctional policy—for non diversified firms, and a total of three(with the addition of corporate strategy) for diversified firms.Higgins identifies for levels of strategy: societal response strategy(enterprise strategy), mission determination strategy (corporatelevel), primary mission strategy (business level), and missionsupportive strategy (functional level).He defines their contents as follows: 1. Societal response strategy: how the firm relates to its societal constituents. 2. Mission determination strategy: the organization’s field of endeavor. 3. Primary mission strategy: how the organization will achieve its primary mission. 4. Mission supportive strategies: how primary mission strategy will be supported.Another model proposes five level of strategy but the levels are nottied to organizational structure. Glueck, et al suggest that thelevels of planning activity consist of corporate, sector, sharedresource unit (SRU), natural business unit (NBU), and productmarket unit (PMU). The advantages of this system are (10 itseparates the strategic management process from organizationstructure to a large degree and (2) pushes it father down theorganization than traditional systems do. These characteristicsstem from focusing planning level selection on strategic issues orproblems shared by the organization’s activities rather than on theorganization levels of its business activities. BSPATIL
  37. 37. Corporate level planning is that which involved identifying trendsand formulating strategy in global, technical, and market arenas,responsibility for which rests with corporate headquarters in mostcases. Sector level planning, where sectors represent national andtechnological boundaries, may involve several SBU’s productcategories, or even product/service-based division of anorganization. Shared resources unit planning calls for thedevelopment of strategic for activities of the business that areshared by SBU’s or the various product-market focuses which thecompany might have.Natural business units, “…are largely self-contained businesseswith control over the key factors that govern their success in themarketplace-their market position and cost structure”. Finally,product-market unit planning is the lowest level at which planningtakes place and those activities that directly relate the company’soutput to its markets.There are many other interpretations of the levels of strategy. Theydiffer primarily in terms of the organizational levels to which theyapply. Those discussed above and most of the others have anumber of commonalities. First, the uppermost levels in eachscheme tend to concern the problem of fitting the organization toits environment; lower levels address the problem of integratingfunctional areas in ways consistent with upper-level strategy.Second, the topmost level tends to involve structuring the set ofacquisitions of divisionalized firms and is usually calledcorporate-level strategy. Third, they contain a business or strategicbusiness unit (SBU) level of strategy that applies almost equally to afirm comprised of only one line of business and to the individualsubsidiaries of multibusiness corporations.Finally, the various schemes include a functional level of strategythat represents the ways in which functional departments areexpected to respond to business-level and, in turn, corporate-levelgoals and action plans. BSPATIL
  38. 38. During the mid-1980s some authors began to include the fourthlevel: enterprise or socictal goals and action plans. Societal strategywas intended to capture the essential ways in which the firm wasexpected to respond to goals related to the major social issuesconfronting it.Interpreted fundamentally, then, there are four primary levels ofstrategy: societal-level, corporate-level, business-level, andfunctional-level. The concerns of societal, corporate, andbusiness-level strategy are clearly cross-functional. That is, theycontain implications for each of a firm’s functional areas (althoughmore distantly removed in the case of societal-and corporate-levelstrategy), whatever they may be and regardless of the type of firm.By contrast, functional area strategies are more operationallyfocused than the others. The process of determining how eachfunctional area should be managed is a more specialized problem,defined largely by the practice and theory applicable to eachfunctional (or operational) area. That is, the content of marketingstrategy is the subject of marketing texts and courses, financestrategy can be found in finance texts and courses, personalstrategy in personal texts and courses, and so on.1.4.2 Functional-Level Strategy:In contrast with the other levels of strategy, functional strategiesserve as guidelines for the employees of each of the firm’ssubdivisions. Which ones of these segments or functional areas areincluded in a firm’s functional strategy set is itself a matter ofstrategy. For example, whether to have an R & D department ornot in the first place is a strategic decision. Functional goals andaction plans are developed for each of he functional parts of thefirm to guide the behavior of people in a way that would put theother strategies into motion. If part of a firm’s business-levelstrategy were a target of a 10 percent increase in sales to bebrought about by market penetration, for example, marketing BSPATIL
  39. 39. strategy might include a change in compensation policy forsalespersons and a specified increase in the advertising budget. Inthat way marketing strategy would provide some detail about howthe marketing aspects of the market penetration action plan wouldbe implemented. Similarly, financial strategy would consist of a setof guidelines on how the financial elements of the firm would beput into effect. Personal strategy, production strategy, research anddevelopment strategy, and appropriate other functional strategyareas would do the same.1.4.3 Process of Internal AnalysisThere are two fundamental ways to conduct an internal analysis:vertical end horizontal. For the vertical approach, strengths andweaknesses are identified at each organizational level. Thehorizontal analysis corresponds to the functional areas of the SBUs.Strength and weaknesses are identified for each function. We preferthe horizontal approach because it seems to be more universallyapplicable. Analysis can be focused on functional departments, orwhatever basis of departmentalization has been used in a particularorganization.The major dimensions of each area are outlined and discussed inthe subsections that follow. They are intended as beginning pointsfor analysis to formulate their own evaluation systems for eachcase study or organization analyzed. Stevenson found thatmanagers seem to use three types of criteria in identifyingstrengths and weaknesses: historical, competitive, and normative.Analyzing functional areas by historical criteria means comparingpresent values with their historical counterparts and identifyingstrength and weaknesses on the basis of those comparisons.Competitive comparisons involve assessing similarities anddissimilarities with successful competitors and finding strengthsand weaknesses accordingly. Similarly normative comparisons arethose where present characteristics are compared with ideal valuesas perceived by the analyst or an expert opinion. In practice the BSPATIL
  40. 40. process of identifying strengths and weaknesses can be one of themost educational top managers can have especially enlighteningare the enumeration and discussion of weaknesses. Sinceresponsibility for the performance of SBUs and functional oftenrests with single manager, identification of weaknesses at theselevels can be painful and embarrassing for these people. Thesediscussions must be handled carefully to prevent alienation and tobring about constructive solutions to whatever problems arerevealed. However, the analyst must make sure that all weaknessesare identified, even though some feeling may be hurt.The process of internal analysis involves the following steps: 1. Perform a complete financial analysis. 2. Comprehensively identify the major functional areas that make up SBU operations. 3. Enumerate the critical operational factors of each functional area. 4. Identify both qualitative and quantitative variables to describe performance of the SBU on each operational factors. 5. Conduct research to assign either qualitative or quantitative values to the variables identified in (4). 6. Organize findings by function according to whether they represent strengths or weaknesses.1.4.4 Identification of Major Functional Areas:Whatever organization is analyzed, the analyst should select acomprehensive set of categories that define the firm’s operations.These categories, or functional areas, can vary from oneorganization to another, and depend upon whether the analyst isconducting a vertical or a horizontal analysis. We have selected fordiscussion of horizontal analysis the common functional areas ofmarketing, personnel, production, and R&D, along withorganization structure, present and past strategies, and external BSPATIL
  41. 41. relations (in addition to finance, which was discussed earlier).Although most organizations will have these functions in operation,the analyst should not restrict the internal analysis to them. Theparticular set of functions for which data are gathered should betailored to the firm in question. The key characteristic of the set offunctions selected must be comprehensiveness. Analysis shouldmake sure that all pertinent are covered.Operational Factors of Each Functional AreaAfter identifying the appropriate functional areas to study in theinternal analysis, the next step is to decide what aspects of eachone to analyze. By the time most students take a course in strategicmanagement, they have completed course in each functional areaand topics related to them. Those courses and the texts used inthem are the best sources of evaluative criteria for the functions oforganizations.Marketing: Consistent with marketing convention, this function isanalyzed by examining the operqating characteristics of theorganizations’ products/services, price, promotion, distribution,and new product development systems. Interest is focused on allaspects of each of these systems that have not already beenidentifies as part of the financial analysis. Examples of checkpointsfor each factor are as follows: 1. Products/services a. Market share b. Penetration c. Quality level d. Market size e. Market expansion rate 2. Price BSPATIL
  42. 42. a. Relative position (leader or follower) b. Image c. Relationships to gross profit margin 3. Promotion a. Effectiveness b. Appropriateness of emphases c. Budget as percent of sales d. Is return measurable, acceptable? 4. Distribution a. Delivery record b. Are other methods more appropriate? c. Unfilled orders d. Costs 5. New product development a. New product introduction rate b. Sources of ideas effective? c. Extent of market feedback d. Success rateThe problem is not to identify simply what the organization’smarketing department is doing, but instead what it is doingparticularly well or poorly.Personnel and Union Relations: The overall purpose of hepersonnel function is to manage the relationship betweenemployees and the organization. Therefore, internal analysis of thepersonnel function is an assessment of the strengths andweaknesses of that relationship. This function can be analyzed byexamining the following factors and questions or others tailored tothe organization: BSPATIL
  43. 43. 1. Job analysis factors a. Are necessary skills present? b. Are all necessary jobs present? c. Are selection and placement systems effective? d. Recruiting capability e. Training effectiveness 2. Job evaluation factors a. Pay scales appropriate? b. Image of pay scale within labor market c. Do pay differential reflect job content differences? d. Adequacy of benefits 3. Turnover/absenteeism 4. Turnover rate 5. Absenteeism rate 6. Attitude of employees, managers 7. Seasonality a factor? 8. Performance evaluation a. Reliability b. Validity 9. Union-management relations a. Unions representing employees b. Bargaining positions c. Quality of relations d. Negotiation scheduleProduction: The production or manufacturing area’s strengths andweakness relate to the origination’s ability to produce itsproducts/services at the desire quality level on time at the BSPATIL
  44. 44. planned-for-costs. Examples of evaluative factors for productionare the following: 1. Facilities and equipment a. Capacity level b. Per-unit costs of manufacturing c. Obsolescence; today, future d. Level of technology applied e. Process optimality f. Replacement, maintenance 2. Quality level a. Defective units b. Inspection costs c. Remanufacturing costs d. Competitive position e. Consistency 3. Inventory a. Level, turnover b. Costs and trends c. Is inventory rationally maintained? 4. Procurement a. Sources b. Quality of inputs c. Constant lead times 5. Planning, scheduling a. Formal system b. Is demand smoothed? BSPATIL
  45. 45. c. Excessive overtime charges? d. ProductivityFor most service organizations, the process of providing the servicecan be roughly equated to the production of a product. Costs ofproviding the service, as well as quality of the service delivered, canbe the focus of analysis. Wheelwright suggests evaluatingproduction strategy by analyzing its consistency and emphasis.First, the analyst should evaluate the consistency of productionstrategy with business strategy, other functional strategies, andwith the overall business environment. The categories withinproduction strategy itself should exhibit a high level of consistencyas well. Then, the extent to which production strategy is focusedon factors of success should be evaluated. This involves makingsure that priorities among production activities are appropriate tobusiness strategy, that business level opportunities have beenaddressed, and that production strategy is communicated,understood, and integrated with other functional strategymanagers.Research and Development: Research and development (R&D)provides technical analysis and support to other departments, anddesigns products or processes to meet market needs and therebygenerate a profit. Operation of R&D must strike a balance betweenpracticality and creativity in order to contribute successfully toprofit goals. Overemphasis on practical matters can impair futureprofitability because few innovations will be generated.Overemphasis on creativity could result in generation of fewmarketable product ideas while researchers explore the frontiers oftheir scientific disciplines. The correct balance between creativityand practicality for a particular firm is a strategic issue that cannotbe decided absolutely. That is, this balance is a function of theextent to which the organization required either innovation ormarket emphasis and that issue is a function of business-levelgoals and action plans. BSPATIL
  46. 46. Conducting an internal analysis of the R&D function involvesidentifying strengths and weaknesses in R&D activities such as thefollowing: 1. Demand for R&D a. Is demand for R&D services stable? b. Is R&D funding stable? c. Is R&D funding vulnerable to profit variations? 2. Facilities and equipment a. Are facilities and equipment state-of-the-art? b. Is obsolete equipment expendable? c. Is space a problem? 3. Market and production inputs a. Does market information get fed into the R&D process? b. Does production information influence the R&D process? c. Are marketing and production influences balanced? 4. Planning and scheduling a. Are jobs planned and scheduled? b. Are costs effectively monitored? c. Are human resource needs planned? 5. Is the level of uncertainty associated with the type of R&D activity is which the organization is involved appropriate for the intended level of risk?Organization: Organization structure must support strategies andfacilitate their successful implementation. To do so, structure mustprevent a certain set of problems from materializing. These BSPATIL
  47. 47. problems are the characteristics that are searched for to determinethe appropriateness of a change in structure. Changing structure isrisky. Therefore, it should not e tampered with unless there iseither a problem present that must be corrected or one that canreasonably be expected to develop if a change is not made. Ineither case, though, organization structure should be changes onlybecause of specific problems. That is, there is no absolutely beststructure, but only the structure that minimizesorganization-related problems.Some of the criteria that can be used to analyze organizationstructure are as follows: 1. Does structure make sense? a. Is it confusing? b. Are there too many levels? c. Are there horizontal communication channels? d. Does it expedite communication? e. Are the forms of organization used appropriate? 2. Accountability and control a. Does structure fix responsibility? b. Are there single functions assigned to more than one person? c. Are there too many committees?Present strategiesWhether present strategies are stated explicitly or must be inferredfrom behavior of the organization, the goals and action planscurrently applicable must e identified and analyzed. The idea is todetermine which strategies are working (that is, which action plansare being implemented in such a way that their associated goalsare being met) and which ones are not. Information about the BSPATIL
  48. 48. relative success of current strategy can the e fed into the process offormulating and implementing new strategies. In this way problemsassociated with existing strategies can e corrected by formulatingmodification or replacements for them and effective strategies cane improved upon, retained as is, or extended so what strategicsuccess is facilitated.The following steps can be followed to evaluate current strategy atan of the four levels of strategy: 1. Select strategy levels for analysis. 2. Identify present goals and action plans at each level. 3. Determine extent to which short- and long-term goals have or have not been met. 4. determine which action plans have and have not been effective.Of course, a strategy successfully carried out constituted a positiveattribute of the firm, and one unsuccessfully implemented is aproblem to be deal with. For an internal analysis, however, thepoint is to identify strategies that are particularly effective – theybecome strengths. Examples include McDonald’s consistency,Coca-Cola’s distribution strategy, Miller Lite’s marketing strategy,and Nissan’s production strategy. Weaknesses are strategies thathave been especially unsuccessful in their operation.Questions: 1. Why functional area strategies are considered crucial? 2. What are the reasons for the strategies to go by functional areas? 3. Give examples of Indian companies soley practicing based on functional areas? BSPATIL
  49. 49. LESSON 1.5 ANALYZING CORPORATE CAPABILITIES1.5.1 Introduction:A great deal must be learned about an organization so thatstrategy formulation decisions can be based upon appropriateinformation. It almost goes without saying that strategists mustunderstand all there is to know about the internal operations of anorganization before strategy can e effectively formulated andimplemented. The external influences acting on the firm also mustbe analyzed, documented, and understood to mange the strategyprocess effectively. This chapter focuses on conducting bothexternal and internal analysis for the purpose of generatinginformation for strategy formulation.An organization’s environment consists of two parts: The industrywithin which it operates (for multibusiness firms, the industry isusually considered the activity’ in which the firm generates themajority of its revenue), and other environmentaldimensions—economic, political/legal, social and technological.The section of this chapter devoted to internal analysis firstaddresses financial analysis—the process of learning about thefinancial performance of the firm or organization. Very oftenfinancial analysis will bring to light several financial strengths andweakness that are indicative of strategic or operating capabilitiesand problems within the various strategy levels and withinfunctional areas.Financial analysis is typically followed by internal diagnosis offunctional areas. This process identifies strengths and weaknesseswithin such areas as marketing, personnel, research anddevelopment, and others.Together these four analytical activities-environmental, industry,and financial analysis and internal diagnosis of functionalareas—are undertaken to generate a data set consisting of BSPATIL
  50. 50. strengths, weaknesses, threats, and opportunities thatcomprehensively descries the internal and external characteristicsof the organization. This information is then used as input to thestrategy formulation process. It is factored with data about paststrategies, mission, corporate culture, and managers’ values, andso on to evaluate the success or failure of present strategies. As aresult present strategies can be modified, left as they are orreplaced as necessary in a particular situation.The key to effective strategic management is to make majormanagerial decisions that shape actions by the firm that willcorrespond positively with the context within which those actionsultimately take place. On the other hand, the action context isdictated to a great degree by conditions external to the firm. Theseconditions constitute the firm’s operating “environment.” To someextent the firm can shape the overall environment to its advantage.Henry Ford’s introduction of mass production of automobilesstimulated the U.S. economy in a manner that invigoratedconsumer markets of his products. Genentech, the recombinantDNA research firm, made biotechnical advances that had profoundimpacts, not just on Genentech’s operating circumstances, but onthe future of humankind as well. Nonetheless, few firms enjoy ascale of impact that allows major shaping of the overall climate inwhich they operate, particularly over the long run. Insteadwe4ll-managed business enterprises adapt to environmentalchange so that they can take advantage of opportunities that ariseand minimize the otherwise adverse impacts of environmentalthreats. This involves assessment of present environmentalcircumstances (for reaction) and the forecasting of futureconditions (for proaction).A data set has both present and future time frames as internal andexternal, positive and negative factors are forecast into futureperiods. Environmental and industry analysis involves filling theright-hand sectors of the data set with information pertiment to aparticular firm. BSPATIL
  51. 51. Analysis of the internal operations of the organization results in acollection of strength and weaknesses that would fill the left-handcells of the data set model.Environmental conditions affect the entire strategic managementprocess. Management’s perceptions of present and futureoperating environments and internal strengths and weaknessesprovide inputs to goal and actions plan choices. They can alsoaffect the manner in which implementation and internalcircumstances will dictate the effectiveness of strategies as they areimplemented (including alternation in the environment itself).Both environmental and industry analysis procedures consist offour interrelated processes: 1. Developing an assessment taxonomy to outline major environmental dimensions. 3. Defining environmental boundaries (the “relevancy envelope”) 5. Monitoring and forecasting change in key variables. 7. Assessing potential impacts on the firm (or industry) in terms of whether they are treats of opportunities.1.5.2 Formal Versus Informal Scanning:Sensing the pulse of environmental threats and opportunities is anatural and conditions process in business planning. In manyorganizations it is done on an informal basis. The construction firmexecutive who learns from a golfing colleague of a request for bidson a major construction project is gaining information that couldaffect the performance of his firm—information that would be notmore valuable had it been acquired through more systematicmeans. Discovering changes in tax statues by perusing the WallStreet Journal is not less important than learning about themthrough a well-established monitoring system within the firm’s taxaccounting office. Indeed, the talent for acquiring valuable BSPATIL
  52. 52. information through informal means often marks the successfulentrepreneur and manager.To rely totally on informal means, however, increasingly exposesthe firms to missed opportunities and unforeseen threats. Areined-out golf game or an overlooked column in the Wall StreetJournal can have profound implications, even if the implicationthemselves go unnoticed. Therefore, a systematic approach toenvironmental assessment is important for the management ofuncertainty and risk.One formal approach to generating data about environmentalconditions is survey research. The use of both original andcontracted survey research for purposes of evaluating the presentcorporate environment offers a lot of promise for strategists. Foranalysis of external concern in the present, survey research is away to accurately identify the attitudes of selected populationgroups toward the company. In fact, virtually any externalconstituency’s attitudes toward the organization can be assessedthrough survey research methods.The dimensions of environment can be generally classifies by set ofkey factors that describe the economic, political/legal,technological, and social surroundings. These, in turn, can beoverlaid by the various constituents of the firm, includingshareholders, customers, competitors, suppliers, employees, andthe general public (Exhibit 2-3). To assess environmentalconditions, concern is focused on opportunities and threats thatexist, or may arise, through impacts on and by the firm’sconstituents.Key Economic VariablesFirms that anticipate economic change and identify the constituentsthrough which that change will be applied; can better adapt goalsand action plans. By the late-1990s, major oil producing firms has BSPATIL
  53. 53. shifted their source of supply form middle-eastern countries toVenezuela because of uncertainties about the political andeconomic environment of the Middle East. Shareholderexpectations of financial return are dictated in part by alternativeinvestments and their associated return and risks. Interest rates,tax policies, shareholder incomes, availability of funds formargin-purchased equity investments, and expectations of futureeconomic circumstances will shape changes in equity investorprofiles and/or the financial performance expectations of the firm’sowners. In the early 1980s, high returns on money marketinstruments (representing corporate and government debt) led tomassive shifts from equity holding s by private investors to thoseshorter-term debt instruments. In many cases this disturbedlong-standing shareholder composites (making more room forinstitutional investors to those shorter-term debt instruments. Inmany cases this described long-standing shareholder composites(making more room for institutional investors, for example) andpressured management to focus more closely on generating highershort-term returns. Personal income, savings, employment, andprice-level trends can have dramatic effects on the attractivenessof a firm’s products or services in output markets—not only finalmarkets, but intermediate markets as well. In efforts to reducecosts during inflationary periods, automotive manufactures duringhe 1980’s reduced their reliance on outside suppliers forautomobile components. This, in turn, led many componentmanufactures to retrench or redirect their marketing effortselsewhere (e.g. replacement parts).Similarly, total sectoral outputs, movements in private-sectorcapital replacement and expansion, government spending, and theallocation of the consumer dollar can have dramatic impactsbetween and within industrial sectors. Each can be set offmacroeconomic changes well outside the control of the firm, yetmay be buffered by appropriate strategic action. Twenty years ofinflation, for example, increased consumer use of $50 and $100bills in retain trade. Among other implications, this meant that BSPATIL
  54. 54. many retailers had to replace cash drawers, or entire cash registers,to accommodate these denominations. More significantly, thecollapse of he Soviet Union has led to decreased governmentspending in the U.S. on defense items. Many thousands of primedefense contractors and their subcontractors spent theearly-1990s trying to develop new strategies based onnon-military products.Economic conditions faced by competitors can play a large part inshaping a firm’s strategies and policies. The movement ofmanufactures out of the “snow belt” to areas of the country withlower energy costs could provide decisive competitive advantagesvis-avis those who remain. Transportation costs, on the other hand,could reduce those savings. Competitors selling to diverse marketsmight realize less volatility in their capital bases and abilities tocompete across economic cycles than might a firm with a narrowproduct/market scope. In any case it is important to recognize thatthe economic conditions faced by the competition may be differentin form and substance from those faced by the target firm.The capacity, reliability, and, in some case, the survivability ofsuppliers are largely a function of their economic climate. Bothdebt and equity capital markets often realize significant swings asa result of overall economic conditions. The firm accessing thesemarkets experiences the repercussions. Federal discount rates andchange in reserve requirements have both short-term andlong-term implications in primary capital markets, and often affectthe private sector borrower through secondary markets. Theavailable supply of goods and services can be affected by theoverall economic health of suppliers, including their productivity,alternative markets, and cost structures. To the extent that thetarget firm represents a major market for a supplier. To the extentthat the target firm represents a major market for a supplier, thatfirm becomes a significant factor in the economic climate thesupplier experiences. The choice of multiple versus singularsources of supply might be dictated by assessments of suppliers’ BSPATIL
  55. 55. economic bases as well as by the degree of control the buying firmcan maintain over them. Though could also provide buyingleverage for the firm or represent new opportunities for backwardintegration.The economic climate of the firm is also manifested throughemployees. Wage and benefit escalations are often as much afunction of he overall econimci circumstances employees face asthey are unilateral policy set forth by employers. Rising consumerprices are usually translated into expectations and/or demands forincreased compensation. Shifts in employment status, includingsocietal and regional unemployment levels, can increase ordecrease these pressures. Economic conditions usually affectemployees unevenly, thus requiring creative policy adaptation.Depression of gousing markets in the early 1980s’ for example, leda number of large employers to buy homes from transferredexecutives, who were unable to sell them at reasonable prices, if atall. This inadvertently put a number of these firms into the realestate “business” (albeit on a relatively small scale), typing upcapital and effort.Clearly, economic conditions have wide-reaching effects on thegeneral public. These can be as abstract as an alteration in highbirth rate rends or as direct as changes in personal income.Conversely, public expectations and behavior substantiallydetermine the health or inadequacy of the economy, throughearning, spending, and saving patterns. In any case the generalpublic is so interwined in the mechanics and psychology of a firm’seconomic climate that movement by one can have dramaticimplications for the other. Kinder-Care Learning Centers, Inc., achain of child care centers, both profited by the economic (andsocial) trend toward working mothers and contributed to the trendby providing necessary child care at reasonable cost. The overallimpact was synergistic.Finally, in assessing he economic dimension of a firm’s BSPATIL
  56. 56. environment, it is important to recognize the interrelated nature ofthe participants. The multiplier effect in macroeconomics has itsmicro counterpart. Raw data on prices, wages, savings, governmentspending, manufacturers’ shipments, and the like are valuable inthemselves but represent only the front line of a trulycomprehensive analysis.Key Political/Legal VariablesBusiness firms, like people, are touched directly and indirectly bypolitical/legal influences at all levels of government (federal, state,and local). These influences run the alphabetic gamut fromantitrust to zoning. The scale of facteral intervention in business ismatched only by its turbulence. The Center for the Study ofAmerican Business concluded that fedral regulation of business“cost the American economy more than $100 billion on 1980.Approximately $5 billion represented the administrative costs ofthe major regulatory agencies, and the balance, compliance costs.”In addition to serving as regulatory bodies, governments alsorepresent a major factor in the private sector through fiscal policy.Taxation and government spending can represent bothopportunities and threats, depending upon the nature, timing, andposition of the impacted enterprise. And, of course, fiscal policycan have dramatic impacts on the overall economic climate of thefirm.Shareholders are affected by governments in a variety of ways.Changes in tax structures can affect tax exposure on corporatepayouts when treatments of capital recovery versus earningsdistributions are considered. To the extent that corporationsthemselves are shareholders, intercorporate shareholding can becan affect the “tradability” of shares as well as dictate corporatedisclosures. Laws dealing with pension funds and other forms ofinstitutional investing can exhilarate or impair changes in investorprofiles. Incorporation laws often constrain flexibility in capital BSPATIL
  57. 57. restructuring. All of these impositions, in turn, requirements.Governments-mandated sales prohibitions (e.g., on certainfirearms) can limit markets. Similarly, export restrictions (nationaland interstate can impose market constraints. Conversely, publicpolicies targeting industries for rejuvenation or expansion canopen up a host of market opportunities (such as trade-adjustmentprograms in energy and steel). Social legislation (e.g.,environmental protection, health, consumer protection) can createmarkets for new classes of products and services as well as limitthose where noncompliance exists.Politics and law are influenced by, and have an impact on,competitors. Antitrust can sustain or impair industry structures andthereby affect the nature of present and future competition. Importrestriction can limit foreign competitions. Patent laws providecompetitive protection for patent holders. Governments themselvescan be suppliers (e.g., mineral rights). And, of course the viabilityof suppliers as a whole can be affected by all forms ofpolitical/legal influences. During mid-1993, hospitaladministrators in the state of maine estimated that they were abouta 20 percent vacancy for a large number of facilities. Retrenchmentbecome necessary to survival for a large number of facilities. Themaine legisilature asset-sharing among institutions. This minorlegal change alone may save countless millions of dollars in miane’s health care industry by eliminating unnecessary duplication ofequipment purchases and operations. Cooperation among hospitalis no longer an antitrust violation. Similarly, state legislaturesadopting mandatory automobile insurance laws have had dramaticaffects on their states’ insurance industries.Protection of employees is clearly a major matter in any firm. Wagelaws, labor statutes, equal employment opportunity, accupationalsafety and health, employee privacy,and pension funds controls allrepresent areas of strategy concern. Further the public sectorcompetes with the private sector for employees. through support ofeducation and training programs, the public sector also represents BSPATIL
  58. 58. a source of labor. Finally,the political/legal climate is both a function and adeterminant of public sentiments. Federal regulatory reform(including deregulation ) is a prime example. Public expectations ofbusiness behavior can cause, and be caused by, shifts in partitionpolitics, which in turn can affect the overcall socioeconomic climatein which private sector enterprises operate. Expansionary andtechnologically aggressive moods on the part of the general publichave their counterparts in business and industry, though they neednot always be similarly timed (wall street, the public, andWashington are occasionally out of phase in this regard ). Assessing and forecasting the political/legal environmentrequire creativity and sensitivity to industry-specific matters. Unlikethe economic environment, the political/legal environment requireslargely “soft” calculus where numerical relationships andextrapolations are often unavailable or inappropriate.Key Technological VariablesElectronics, bioengineering, chemicals, energy, medicine, andspace are but a few of the fields in which major technologicalchange have opened new areas to private enterprise. In some casesentire industries have emerged seemingly overnight (such asgenetic engineering), bringing with them new opportunities, andnew threats, in the marketplace. In other cases technologicalchanges within industries have brought new forms of productcompetition (e.g. micro technologies in electronics) have led todifferent competitive advantages in production costs and productquality. In all instances the firm subject to technologicalobsolescence or intent on maintaining some form of technologicalleadership must stay abreast of technological innovation, and tothe extent possible, forecast future technological change and itspotential for acceptance. That Timex vastly underestimated marketacceptance of the digital watch early in its life cycle is but one of BSPATIL
  59. 59. many instances of technological displacement having adverseeffects on those caught unaware.Technological change has had implications for shareholders,primarily through communications and information processing.High-speed, computer-based market reports are reachingincreasingly larger proportions of stock market participants.On-line office and in-the-home displays mean quicker reactiontime in market “plays,” and the proliferation of FAX machines andworldwide e-mail systems make round-the-clock real-timecommunications commonplace.New products and process resulting from technological innovationcan result in redefinition of customer bases or customer demands.The design of new, relatively lightweight diesel engines opened upa host of opportunities in the passenger-car industry.Computer-aided design and computer-aided manufacturing(CAD/CAM) have led to the expectation of shorter lead times andmuch closer tolerances in many industrial and consumer productsindustries (e.g., aerospace and automobiles). The homeinformation revolution not only may expand markets for consumerproduct retailers, but may well lead to better informed, morediscerning retail customer.So too the nature of competition can be redefined as technologicaladvances unfold. In the oil-well wire-line (or “logging”) industry,new techniques sallow in-the-well sensing of critical geophysicalcharacteristics (temperatures, pressures, etc.) while drilling gear isin place. Older technologies require expensive andtime-consuming removeal of the gear before these measurementscan be made. Thus those firms with access to the new technologyhave a marked, competitive advantage. Price is no longer asignificant factor when the competition for business is betweenthose with and those without the technology.In acquiring the advantages of new technology, a firm might rely BSPATIL
  60. 60. heavily on its suppliers. Manufacturers may turn to equipmentsuppliers for the latest in robotics, or food processors topharmaceutical or chemical firms for the latest in preservatives. Ineach case technological advantage is passed through theproduction chain, with competitive differentials possible at eachstage.Sources of supply can also be redefined with technologicalinnovation. Fiber optics, for example, may well displace metal wireas a primary medium in telecommunications. Telecommunicationsfirms thus would turn to the glass industry instead of the wireindustry for this critical material.Employees continually experience the impact of technology byvirtue of changes in requisite skills and job assignments.Automation has led to the conversion of hand labor to higher skillsneeded in machine design, operation, and maintenance. Even workroutines are affected. As telecommunicating attracts ever-greaterinterest, more and more types of work may be accomplished moreeffectively and efficiently away from the traditional workplace (athome or at local offices).Finally, technological change looms large in the overall picture ofpublic experiences and expectations. Dissatisfaction withtechnological lags in the steel industry led to governmentinvestigations. Fear about runaway advances in bioengineeringhave resulted in self-imposed restring among firms involved.Expectations of technological solutions to serious socioeconomicproblems (e.g., energy may have implication for public policy andfor strategic adaptations within affected industries. And of courseeveryday life is changed permanently by technology. The spread ofAutomatic Teller Machines in banking has dramatically changed ourbanking habits. Not many people under-thirty remember thepre-ATM day when consumer had difficulty accessing their cash onweekends because the banks were closed. The time we savepreparing food by microwave oven we now lose by watching BSPATIL
  61. 61. video-taped movies at home!Few firms are left untouched by technological change, althoughsome may be more severely or rapidly affected than others. To theextent that technological innovation is a key factor of success in agiven industry, it must be monitored and forecast aggressively. Inal cases at least a general sensitivity to the technologicalenvironment is a primary component of successful strategicplanning.Envoronmentsl boundaries can be at least generally established byexamining the firm’s strategic postures regarding: 1. Geographic diversity 3. Product/market scope 5. Sources of supply 7. Sources of capital 9. Technology/innovation 11.Regulatory vulnerability 13.Return horizon on fixed commitments 15.Overall flexibilityThe depth and breadth of environmental scanning also areconstrained by available resources. Larger firms can often makesubstantial resource commitments within planning units to conductformalized scans on a continual basis. Smaller enterprises, however,rarely can make such communications and must rely onintermittent or more closely focused analysis.FORECASTINGIn many cases the environmental forecaster needs in make multipleforecast so that contingency goals and action plans can bedeveloped. For example, a single-point forecast of interest ratesone year hence may be a dangerous premise upon which to baseon expansion strategy. Instead well reasoned multiple forecasts of BSPATIL

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