business strategy .pptx

BBA TU (Faculty of Management)
Business Strategy
(MGT 208)

Syllabus (Course Description)
Credit: 3 lecture Hours : 48
Unit 1: Introduction (LH 7)
• Concept and importance
of strategic management
• Importance of strategic
decisions
• Elements of strategic
management
• Need for strategy
• Company values
• Level of strategy
• Strategic management
process
• Changes in the approach
to strategic management
• Different perspectives on
strategy formulation
• Concept and features of
strategic planning

Unit 2: Vision, Mission, Objectives and Strategy
LH 7
• Developing Strategic
Vision
• Communicating the
strategic vision
• Crafting a mission
statement
• Linking vision and mission
with company values
• Levels of objectives
• Crafting objectives

Unit: 3 Strategic Analysis
(LH 12)
• Concept the general
environment
• Scanning, monitoring and
forecasting the environment
• Scenario planning
• PEST analysis
• The competitive environment-
porter’s five forces framework
• The value net
• Strategic group
• Hyper competition
• Internal environment analysis
• Value-chain-analysis
• Evaluating value chain
• SWOT analysis
• Concept of internal
environment
• The resource based view of
strategy-resources,
competencies
• Core competencies and
distinctive capabilities
• Identifying sustainable
competitive advantage
• Criticism of resource-based
view
• Knowledge management

Unit: 4 Strategy Formulation
LH 14
• Concept, Business level
strategy
• Generic competitive strategies
• A resource based view to
strategy formulation
• The industry life-cycle
• Corporate level strategies-
growth strategy, related and
unrelated diversification
• Implementing growth
Strategies
• Portfolio analysis- Boston
consulting matrix
• The general electronic
• Hofer’s matrix
• Strategy evaluation

Unit: 5 Strategy Implementation
LH 8
• Concept, Organizational
structures
• The entrepreneurial,
functional, divisional,
matrix and network
• Strategic leadership
• Leadership and
management
• The learning organization
• Emotional intelligence
and leadership
performance
• Leadership capabilities
• Impact of leadership on
vision
• Values and culture
• Corporate culture and
leadership
• Leading strategic change

Plan and strategy
Plan- Activities schedule for certain
time period less than one year.
Strategy – Vision, mission,
objective and activities (plan).
More than 3 years so on.

What is strategy?
• Strategy was born out of military conflicts and the use of a superior
strategy enabled one warning party to defeat another.
• The word strategy derives from the Greek word stratēgos, which
derives from two words: stratos (army) and ago (ancient Greek for
leading). It could be said that a strategy is a leadership plan.
• The definition of business strategy is a long term plan of action
designed to achieve a particular goal or set of goals or objectives.
• Every business needs to have a plan or strategy to survive!
• According to Devid “ Strategies are the means by which long- term
objectives will be achieved”
• According to Hitt and hokison “ A strategy is an coordinated set of
commitments ad actions designed to exploit core competencies ad gain a
competitive advantage.”
• A strategic position represents a company’s answers to the following
questions:

• Who should the company target as customer?
• What product of services should the company offer the targeted
customer’s?
• How can the company do this efficiently?
• Strategies are long term action plans that seeks to achieve sustainable
competitive advantage. They are formulated and implemented
considering the internal as well as external factors of the organization. It is
concerned with the long term direction of an organization.
Characteristics of strategy
Characteris
tics of
strategy
Long
term
A means
only
based on
strategic
decision
strategic fit
Stakeholders
expectation
Competitive
advantage
Comprehensive
actin plan

Strategic Management
• Strategic management is a process that involves formulation and
implementation efforts that result in positive outcomes.
• Strategic management involves a set of managerial decisions and
actions that determines the long term performance of an
organization. More precisely, strategic management involves
formulation, implementation and control of strategies to achieve long
run goals of an organization. It includes the actions and attempts
regarding the resource allocation, making environmental analysis and
preparing the organization ready for change.
• Wheelen and Hunger “ strategic management is a set of managerial
decisions and actions that determine the long run performance of an
organization.
• Strategic management is a set of decisions and actions used to
formulate and execute strategies that will provide a superior fit
between the organization and its environment and help achieve
organizational goal.

Importance of strategic management:
1. Build synergy
2. Delivers value
3. Exploit core competencies
4. Deals with opportunities and Treats
5. Strategic fit
6. Competitive capabilities
7. Organizational unity
8. Resource management
9. Organizational effectiveness
10. Manage change

Elements of strategic management:
1. Competitive advantage
2. Sustained competitive advantage
3. Resource-based view
4. Industrial/organizational view
5. Resource and capabilities
6. Relation between resource, capabilities, competitive advantage and
strategy.
7. Vision and mission statement.

Need of Strategic Management for an
Organization
• Increasing Rate of Changes: The environment in which the business
operates’ is fast, changing. A business concern which does not keep its
policies up-to-date, cannot survive for a long time in the market. In turn, the
effective strategy optimizes profits over a long run.
• Higher Motivation of Employees: The employees (human resources) are
assigned clear cut duties by the top management . what is to be done, who is
to do it, how to do it and when to do it. ? When strategic management is
followed in any organization, employees become loyal, sincere and goal
oriented and their efficiency is also increased. They also get rewards and
promotions resulting in higher motivation for the employees. A strategy must
respect human values and duly consider the aspirations of individual
members.

• Strategic Decision-Making: Under strategic planning, the first step is to set the
goals or objectives of a business concern. Strategic decisions taken under
strategic management help the smooth sailing of an enterprise. Strategic
planning is the overall planning of operations for effective implementation of
policies.
• Optimization of Profits: An effective strategy should develop from policies of a
concern. It takes into account actions of competitors. It considers future
operations in respect of market area and opportunity, executive competence,
available resources and limitations imposed by the Government. An effective
strategy should optimize profits over the long run.
• Miscellaneous: Mr. H.N Broom in his book on ‘Business Policy and Strategic
Action’ has mentioned that a strategy has a primary concern with the
following:
(a) Marketing opportunity: Products, prices, sales potential and sales
promotion.
(b) Available distribution channel and costs.
(c) The scale of company operations.
(d) The manufacturing process required to implement their scale of
operations (with an optimal production cost)
(e) The research and innovation programmed.
(f) The type of organization.

What Are Company Values?
Company values, also known as corporate values or core values, are the
fundamental beliefs upon which your business and its behavior are based. They
are the guiding principles that your business uses to manage its internal affairs as
well as its relationship with customers. Once set, your core values need to be firm
and unwavering — a mandate rather than a suggestion. They should affect every
aspect your business, from employee benefit packages and workplace culture to
marketing strategies and customers service.
Keep in mind that company values should be more than stated values; they must
be practiced values. If your company doesn’t follow through on the values it claims
to hold, you can’t expect your hypocrisy to go unnoticed — or unanswered — by
consumers. Employees, likewise, will notice if your company isn’t living up to its
values statement, which can damage morale.
Johnson & Johnson, Robert wood Johnson, when wrote the organization’s credo or
set of beliefs in 1943. Unusually for this time Johnson explicitly recognized the
importance of meeting stakeholder needs. Stakeholders are those individuals and
groups upon whom the organization depends to achieve its goals. Stakeholders, in
turn, have an interest and can influence the success of the organization. They
include customers, suppliers, shareholders, employees and the local community,
among others.

Robert wood Johnson codified that service to their customers should always come
first, service to the organization’s employees and management should come
second, the local community third, and lastly service to shareholders. It is only
when this chronology of events occurs that the shareholders will receive a fair
return.
Company Values Examples
• American Express: Customer commitment, quality, integrity, teamwork,
respect for people, good citizenship, a will to win, personal accountability.
• Facebook: Focus on impact, move fast, be bold, be open, build social value.
Levels of strategy
Strategy is a means of achieving long term goals. It is potential action of
top management for addressing the business challenges and it requires
commitment of resources over long period of time. It affects an organization’s long
term growth and development. There are six total “strategy” questions all good
leaders must answer.
• Why do we exist?
• How will we behave?
• Where are we going?
• How will we succeed?
• What is most important right “now”

A multi-business organization prepares strategy in three levels. They are;
• Corporate level Strategy
Corporate level strategy is related to choice of direction for a firm as a
whole. It is the uppermost level of strategy. It is derived from the vision and
mission statement. In a multiple –business company, corporate strategy is
concerned with geographical coverage, diversity of products/services or business
units and allocation of resources to different parts or units of the organization.
It addresses the question as what business are we in? It attempts to obtain
synergy among numerous product line and business units so that the corporate
whole is greater than the sum of its individual business unit parts. In this way,
corporate level strategy provides overall direction to the organization.
Types of corporate level strategy:
1. Stability strategy:- The strategy that aims to continues its current activities
without any significant change in direction is called stability strategy.
2. Expansion/ Growth strategy:- The strategy that is designed to achieve
growth in sales, assets, profits or some combination is called expansion/
growth strategy.
3. Retrenchment strategy:- The strategy that aims to reduce the size or
diversity of a company is called retrenchment strategy. It also involves
reduction in expenditure for financial stability.

4. Combination/ Mixed strategy :-
Business Level strategy:
Business Level strategy refers to the strategy pursued by a firm to gain a
competitive advantage by exploiting core competencies in specific product
market. It deals with the question: How do we compete? It indicates how a firm
competes successfully in an individual product market. It directs a strategic
business unit towards competitive advantage. A strategic business unit is a part
of an organization for which there is a distinct external market for goods and
services that is different from another strategic business unit. It may be separate
business of product.
Types of Business level strategy:
1. Cost leadership strategy:-The cost leadership strategy attempts to achieve
competitive advantage by providing acceptable products at cost lower that
the competitors.
2. Differentiation strategy:- The differentiation strategy involves providing
goods or services which are different than those of competitors at acceptable
cost.
3. Focus strategy:- Focus strategy aims to serve a particular buyer group or
niche more effective than the competitors.

Functional level strategy:
The strategy which aim at bringing effectiveness in different functions of a
business are called functional strategies. They are called operational level
strategy. They deal with the question as how do we support the business-level
strategy?.
Johnson and Scholes “operational level strategies are concerned with how the
component parts of an organization deliver the corporate and business level
strategies in terms of resources, processes and people.”
Types of Functional level strategy :
1. Marketing strategy:- (Pricing, selling and distribution of product)
2. Production strategy:- ( production process, development of physical
resources, relationship with suppliers and optimum level of technology)
3. Finance strategy:- (Acquisition and management of funds required for the
business)
4. HR Strategy:- (Acquisition, development, utilization/motivation and
maintenance)
5. Research and development strategy:- (Acquisition, use and development of
technology)

Changes in the Approach to Strategic management;
We have seen that strategic management is concerned with how firms achieve and
sustain competitive advantage. However, a major disagreement arises when we look
at how competitive advantage is achieved by the firm. The true test of how
organization achieve and sustain competitive advantage is ultimately decided in the
market place.
The changes in strategic management as a discipline reflect the changing dynamics of
modern economics. For example; During the 1950s and 1960s firms could rely on
stable and expanding market conditions with a customer emphasis on price. Under
such conditions major corporation was not unusual to have a corporate planning
function or department which annually developed long term plans for the next five
years, and even longer in some instances.
In 1960s and 1970s the corporate landscape was beating to drum of diversification, in
particular how to increase market share by capturing new markets.
In 1980s, the work of porter (1080,1985) on industry analysis shifted the emphasis to
firms analyzing the competitive forces inherent within their industry as a means of
gaining competitive analysis. In 1980s corporation had also begun to focus on the core
elements of their business.

This continued throughout the 1990s as new management techniques taught
corporate leaders about downsizing, outsourcing, Total quality management,
economic value analysis, benchmarking and re-engineering. Organization were
outsourcing all but the essential elements or the core competencies of the
organization . In contrast with Porter’s work the Resource-based view of the firm.
Some scholars exhorts the organization to look within itself at its own resources
and core competencies and use these as a basis for competitive advantage.
D’ Aveni (1994) coined the term hyper competition to describe the new
competitive situation where firms must continually innovate new product or
services for the customer. Mintzberg (1994) argues turbulence, inasmuch as it
exists at all, is an opportunity for organizations to learn from changing
environment, as the Japanese have done. In 1990s organization began to see the
benefits of collaboration, cooperation and Joint alliances. Networking between
corporations became the new buzzword.

Different Perspectives on strategy formulation;
The issue of how strategy is actually formulated has led to claims and counter-claims
about the merits of different schools of thought within strategic management. There
are numerous perspectives on strategy formulation which in many respects overlap
and branch off from each other. The history of strategic Management has gone
through several perspectives as mentioned below:
1. The design perspective:- This perspective of strategic management was
articulated by Alfred Chandler (1962).The emphasis of this was on the
relationship between strategy and structure. According to him, Strategy and
structure are closely related to each other. More Precisely, changes to the frim’s
strategy demand changes in structure. It is important that matching each
strategy with a structure enables the use of current competitive advantages as
well as provides flexibility required to develop future advantage.
2. The level of perspective:- According to this perspective, strategy should be
thought at different levels. They are corporate level, business level and
functional level.
3. The positioning perspective:- The positioning perspective of strategic
management was advocated by Michael Porter (1980). He argued that a firm’s
profitability depends on the position it occupies in the industry. Positioning is
depended on five forces: Threat of new entrants. Power of suppliers, power of
buyers, threat of product substitutes, and revelry among competitors.

The interactions among these five factors determine and industry’s profit
potential that eventually determines the strategic options of the firms.
4. The resource based perspective:- It emphasizes the importance of resources
and capabilities of a firm in maintaining competitive advantage. The choice of a
particular strategy depends of the resources and capabilities available in relation
to change in the business context.
We can identify two broad perspectives of strategy management.
1. The Design School
2. The learning School
1. The Design School:- The design school is associated with the work of Andrews
(1971) and Ansoff (1965). According to Andrews, an organization need to match
its strengths and weaknesses (Which are internal to the firm, and derived from its
resources and competencies) with the needs of its competitive environment. The
competitive environment comprises both threats and opportunities. This provides
the familiar SWOT analysis.
For the design school, the match between these elements will lead to the
creation of a number of different strategies, each of which can be evaluated and
the best strategy then implemented. Ansoff’s product matrix was an attempt to
help organizations understand the relationship between their existing product
and new products, and how these fitted with the organization’s competencies.
2. The learning school:- In contrast with design school, Mintzberg (1990) argues
that a rational approach to Strategy fails to take account of how strategy making
occurs in reality.

Mintzberg and waters (1985) suggest tree approaches to
strategy making: Intended, Realized and Emergent strategies.
Intended Strategy:- The strategy that the organization has deliberately chosen to
pursue and will therefore have been worked out in detail.
Realized strategy :- The strategy that the organization actually carries out.
Emergent strategy:- Where managers use their experience and learning to develop a
strategy that meets the needs of the external environment.
deliberate strategy
Unrealized strategy Emergent strategy
Intended
Strategy
Realized
strategy

Strategic planning:-
Strategic plane is a long run plan of an organization. It determines where an
organization is going over the time to come, how it is going to get there and how it
will know if it got there or not. It provides a long term road map to the
organization. It involves the development of vision, mission, objective and
strategy. It aims at environmental adaptation and achievement of sustainable
competitive advantage.
Features of strategic plan:
1. Long-term
2. Based on environmental analysis
3. Strategic fit
4. Involvement of top management
5. Set of priority
6. A mean only

Chapter -2
Vision, Mission, Objectives and Strategy
Concept of Vision,
Vision is the picture of desired future sate of an organization. It specifies the
direction that a company intends to follow in developing and strengthening its
business. It provides managers with a reference point in making strategic
decisions and preparing the company for the future. A strategic vision gives shape
to its intended future. It reflects the firm’s value and aspiration.
Some Example :-
Nepal Investment Bank Ltd. “ Our vision is to be the most preferred provider of
financial services in Nepal.”
McDonald’s “To be the world’s best quick services restaurant.”
Wikipedia “Imagine a world in which every single person is given free access to
the sum of all human knowledge.”

Characteristics/Qualities of Strategic Vision
1. Future focused
2. Directional(It described the route a company intends to take in
developing and strengthening its business.)
3. Clear (Clearly articulated and easily understood by stakeholders.)
4. Feasible (In terms of resources and capability)
5. Values based ( It connects people to the organization’s core values)
6. Challenging (It represents a future that is beyond what is possible today
but what we think possible tomorrow)
7. Unique
8. Inspiring (Inspire the people towards organizational objective)
Developing Strategic Vision:
A wider participation in development of strategic vision enhances their
effectiveness.
Communicating the strategic vision
The strategic vision should be well communicated to all managers,
employees, and external stakeholders.

Mission;
A Mission statement defines the business in terms of the customers, employees,
suppliers and the community. It reflects every facet of the business: the range and
nature of the products the business offers, pricing, quality, service, marketplace
position, growth potential, use of technology and the relationships with the
customers, employees, suppliers, competitors and the community. It also helps
clarify the scope ad objectives of the business.
Wheelen & Hunger;
“An organization’s mission is the purpose or reason for the organization’s
existence.”
Examples of Mission :
Nepal Investment Bank Ltd.- To be the leading Nepali Bank, delivering world class
service through the blending of state-of-the-art technology and visionary
management in partnership with competent and committed staff, to achieve
sound financial health with sustainable value addition to all our stakeholders. We
are committed to do this mission while ensuring the highest levels of ethical
standards, professional integrity, corporate governance and regulatory
compliance.

McDonald’s :- Be the best employer for our people in each community
around the world and deliver operational excellence to our customers in each of
our restaurants.
Characteristics/ Crafting a mission statement:
Character
istics of
Mission
Define
the
purpose
Broad in
scope
Precise
Inspiring
Distinctive

Linking Vision and Mission with Company Value:
The company values are the guiding principles that dictate behavior and action of
person and organization. Company values can help people to know what is right
from wrong; they can help companies to determine if they are on the right path
and fulfilling their business goals. Company values serve as the foundation for the
mission and vision.
There is a close linkage between vision, mission and company value.
To achieve the vision, company needs to have the purpose of its existence which is
mission. Again to realize the vision and mission , it must have some guiding
principles which are called value. Hence, synchronization among these three
components leads to achievement of organizational objectives.
Core
values
• What
do we
believe
in ?
Mission
• Why
do we
exist?
Vision
• Where do
we want to
go?

Objective:
The expected outcomes of an organization are known as objective. They convert
strategic vision into specific performance targets. In other words They are the end
result of planned activity.
David;
“Objectives can be defined as specific results that an organization seeks to
achieve in pursuing its basic mission.”
Crafting objective:
Characteris
tics
Specific
Measurable
Achievable
Realistic
Timely
Motivating
Flexible
Hierarchical
Congruent
across
departments

Levels of objective:
• Corporate level Objective:- The objective that sets the desired outcome of the
whole organization is called corporate level objective. It is derived from the vision
and mission of the organization.
• Business level Objective:- The objective which is set for a particular strategic
business unit is called business level objective. It is basically related to product/
service scope, diversification, competitive position, and search of business
opportunities.
• Functional level Objective:- The objectives set for each function is called
functional level objective. These objectives are related to production, marketing,
finance, human resource, research and development. It is short term objectives.
• Individual level Objective:- The objectives that are set for the individual employee
of a business are called individual level objectives. They are basically related to
performance of employees within a certain period of time say daily, weekly and
monthly.

Chapter-3
Strategic Analysis
Concept of Strategic analysis:
Strategic analysis refers to the analysis of internal and external environment of a firm
to determine alternative course of action, which could best enable the firm to achieve
strategic competitiveness. The firm’s present strategies, objective, vision and mission
along with analysis of external and internal environment provide a basis for
generating and evaluating feasible alternative strategies.
Concept of business environment:
Business environment is the set of all the conditions and events that are directly or
indirectly related to the operation and development of the business. It is formed by
internal and external factors.
Business environment is the aggregate of all conditions, events and influences that
surround and affect a business. It is complex, dynamic, multi-faceted and far-reaching.
Business environment is the combination of the conditions and events prevalent
inside and outside the business and affects it significantly.

Nature / feature of Business Environment:
• Complex
• Dynamic
• Multi-faceted
• Far-reaching impact
• Aggregate of factors
• Interrelatedness
• Reciprocal
Components/ Classification of Business Environment
• Internal Environment:- It is consists of the conditions and resources which are
internal to an organization. It is controllable to the firm in the long run. It
determines the relative Strengths and weaknesses of the firm.
Elements of internal Environment
• Organizational goals and policies
• Organizational resources
a) Tangible resources (Financial, organizational and physical resources)
b) Intangible resources ( Human, Innovation, and reputational resources)

• Organizational structure
• Organizational culture
• External Environment:- External environment of a business comprises the factors
which are external to a firm. It is composed of operating and remote environment.
Elements of External environment:
1. General/Remote/Macro Environment:- It is composed of the factors that are
broad and affect the industries and the firms competing each other. The
different components of general environment are:
• Economic Environment:- It refers to the nature and direction of the economy in
which a firm competes or may compete. The economic components are:
a) Economic system (free market economy, centrally planned economy and mixed
system)
b) Economic policies ( Monetary policy, Fiscal policy and Industrial policy)
c) Economic conditions (GDP, Inflation, Employment indicators, Balance of payment,
Income distribution and business cycles)
d) Economic integration (WTO SAARC etc)
• Political Environment:- It refers to the government actions which affect the
operations of a business. The basic components are:

a) Political Ideology ( Democratic, totalitarian)
b) Constitution
c) Political parties
d) Governments and its Branches (Legislative, Executive, Judiciary and other
constitutional bodies)
• Legal Environment:- It is comprised of the constitution, business related law,
courts and law administration. The components are;
a) Constitution
b) Business law
c) Courts of law
d) Law administrators
• Socio-Cultural Environment:- It is the sum of all the cultural elements that
affect the operation of a business directly or indirectly. The components are;
a) Attitudes
b) Beliefs (descriptive thought)
c) Religion
d) Language
e) Education
f) Family structure and social organization

• Technological Environment:- It includes the institutions and activities involved in
creating new knowledge and translating it into new products, processes and
materials. The component are;
a) Level of technology ( Manual, mechanized, automated, computerized and
robotized)
b) Pace of change
c) Technology transfer
d) Research and development budget
• Physical/ Natural Environment:- It refers to potential and actual changes in the
physical environment. The component are;
a) Energy consumption
b) Environment policy
c) Compliance of environmental laws
d) Natural resources
• Global environment:- It includes relevant global markets, international political
events, and critical cultural characteristics of global markets.

2) Operating/ Task Environment :- It is composed of the factors that are directly
related to the competitive position of a business. It consists of different stakeholders
who have direct of indirect interest in the performance of the business. The
components of Task environments are;
• Customer
• Suppliers
• Competitors
• Creditors/ Financial institutions
• Distributors
• Media
• Government
• Pressure Group
Environmental Analysis
Environmental analysis is a process by which strategists monitor the environment to
determine opportunities for and threats to their firm. The main objective of external
environment analysis is to assess the likely opportunities and threats arising.

Process of Environmental analysis:
1. Scanning:- Environmental scanning involves gathering information from the
environment to assess its nature. It helps identify the early signals of potential
changes in the environment. It also detects changes that are already under
way. It normally reveals ambiguous, incomplete or unconnected data and
information. Many organizations even use special software and internet for
environmental scanning.
2. Monitoring: Monitoring is auditing the environment. It involves observation of
environmental changes to see the trend. It detects meaning in different
environmental events and trends. It helps to identify the effects of
environment in terms of opportunity and threat.
3. Forecasting:- Forecasting involves developing feasible projections of what
might happen and how quickly. It is done on the basis of changes and trends. In
other words, It assesses what is likely to happen in future.
4. Assessing:- Assessing determines the timing and significance of the effects of
environmental changes and trends that have been identified. Assessing
connects the data and information with competitive relevance.

Techniques of Environment Analysis:
1. PEST (PESTLEG) Analysis
2. Scenario Planning
3. Analysis of industry Environment/ Porter’s Five Forces Model
1). PEST is the acronym for Political, Economic, Socio cultural and Technological
factors. It involves the analysis of remote environmental factors. They are analyzed to
identify the environmental trend and assess possible opportunities or Threats.
a) Political Environment
• Political structure
• Government stability
• Taxation policy
• Foreign Trade policy
• Social welfare policy
• Structure of Bureaucracy
• Assumption and System of Governance
• Public Opinion
• Business Government Relations

b) Economic Environment
• System of economic planning and control
• Monetary policy
• Fiscal policy
• Industrial and Trade policy
• Current status of Agriculture, industry and trade
• Business Cycles
• GNP trend
• Interest Rate
• Money supply
• Inflation
• Unemployment
c) Socio- Cultural Environment
• Social institutions
• Social class
• Social Values
• Demographics
• Income distribution
• Social Mobility
• Lifestyle change
• Attitudes to work
• Consumerism
• Level of education

d) Technological Environment
• Government investment in research
• Government and industry focused technology
• New discoveries and development
• Speed of technology transfer
• Rate of obsolesces

2. Scenario Planning:-
A Scenario is a detailed and plausible view of how the future based as grouping of
key environmental influences and drives of change about which there is a high
level of uncertainty.
An industries scenario is a forecasted description of a particular industry’s likely
future.
Scenario planning used for environmental analysis if the traditional forecasting
Techniques fail to predict the changes in environment. It is also called contingency
plan. Scenario are the stories about how the future might unfold and affect the
business issue.
Scenario planning, also called scenario thinking or scenario analysis, is a strategic
planning method that some organizations use to make flexible long-term plans. It
is in large part an adaptation and generalization of classic methods used
by military intelligence.[ It is a planning method that works by understanding the
nature and impact of the most uncertain and important driving forces affecting the
future.
Scenarios are attempts to capture the future for the effectiveness of strategic
management.

Features of scenario planning:
• Depicts future possibilities.
• Used in environmental volatility
• Involves selection of suitable strategies
• Builds longer-term view
• Intellectual process
• Top management activities
Process of Scenario Planning:
• Examine possible Shift
• Identify uncertainties
• Plausible assumptions
• Combine assumptions
• Sources of competitive advantage
• Predict competitor’s behavior
• Select the scenario

The Competitive Environment/ Porter’s Five Forces
Framework:
AN industry is a group of firms producing products that are close substitutes. All the
firms in an industry follow similar strategy. The industry environment is the set of
factors that directly influences a firm and its competitive actions and competitive
responses: the threat of new entrants, the power of suppliers, the power of buyers,
the threat of product substitutes, and the intensity of revalry among competitors.
According to Porter, an industry environment is composed of the threat of new
entrants, power of suppliers, power of buyers, threat of product substitutes, and
revalry among competitors. The interactions among these five factors determine
an industry’s profit potential that eventually determines the strategic options of
the firms. The five forces are also called porter’s diamond.
Threat of new entrants
As the new entrants bring additional production capacity, they can threaten the
market share of existing competitors. The new entrants normally have a keen
interest in gaining a large market share which may force the existing firms to be
more efficient and competitive. There are two factors that determine the likelihood
that firms will enter an industry; they are:

1. Barriers to entry:- Firms competing in an industry normally try to develop
entry barriers to prevent potential competitors. Following are some of the
factors that create barriers for the competitors.
• Economies of scale.
• Capital requirement
• Production differentiation
• Access to distribution channel
• Switching costs
• Government policy
• Cost disadvantages independent of scale.
2) Expected retaliation:- The high level of retaliation by the existing firms creates
entry barrier to the new firm. This is likely when the existing firms have a major
stake in the industry with substantial resources, and the industry growth is slow or
constrained.
Threats of substitutes:
Substitute products are the goods or services that perform similar functions as a
product that the industry produce. There are different forms of substitution:
• Product for product substitute (Tea by coffee)

• Substitution of needs (Paper letter by email)
• Generic substitution (Traveling by a motorcycle)
Threats of substitute;
• Relative price performance of substitute (price lower but quality and performance
are equal)
• Switching cost (Low switching cost)
• Buyer’s Propensity to substitute
The value net in book p 88

Strategic group;
A strategic group is a concept used in strategic management that groups companies
within an industry that have similar business models or similar combinations
of strategies. The number of groups within an industry and their composition depends
on the dimensions used to define the groups. Strategic management professors and
consultants often make use of a two dimensional grid to position firms along an
industry's two most important dimensions in order to distinguish direct rivals (those
with similar strategies or business models) from indirect rivals. Strategy is the
direction and scope of an organization over the long term which achieves advantages
for the organization while business model refers to how the firm will generate
revenues or make money.
The firms in a strategic group may be treated similarly on ground of technological
leadership, product quality, pricing policies, distribution channel and customer
service. The concept of strategic group is useful for analyzing an industry’s
competitive structure which helpful in diagnosing competition, positioning, and the
profitability of firms within an industry.

Hyper-competition:
Hyper-competition is a term used to describe the realities of the competitive scenario.
The conditions of hyper-competition, are based on market instability and change.
Simply stating, Hyper-competition is an environment characterized by intense and
rapid competitive moves. It speeds up the dynamic strategic interactions among
competitors.
This term was first used by D’ Aveni in 1994. Hyper-competition is often seen in video
games, software and mobile industry. According to D’ Aveni: in Hyper-competition the
frequency, boldness and aggressiveness of dynamic movement by players accelerates
to create a condition of consultant disequilibrium and change.
In Hyper-competitive industries, competitive advantage comes from knowledge of
environmental trends and competitive activity. The firms are ready to take for a
possible new advantage. They are willing to replace their own popular product before
competitors do so. This is done to sustain their competitive advantage.

Process of Internal Environment Analysis:
Internal analysis is related to internal environmental scanning. This aims to assessing
the organizational strength which is matched with the likely opportunities. Similarly, it
prepares an organization to mitigate the threats that are likely to create due to
change in environment. It identified unique resources and core competency that
provides strategic advantage which eventually leads an organization towards
achievement of long-term objectives.
The process of internal analysis are;
• Define vision, mission, goals and strategies
• Strength and weakness analysis
• Identification of unique resources (Valuable, difficult to imitate, non -
substitutional and rare)
• Identify core competency (Sum of competencies that is widespread within the
organization. It is something that the organizational can do exceedingly well. )
• Locate strategic advantages.

Methods/ Techniques of Internal Environment Analysis
1. Value Chain Analysis:
A business may be seen as a chain of activities that transforms inputs into outputs
that create customer value. Value chain analysis attempts to understand how a
business creates customer value by examining the contribution if different activities
within the business to that value.
Wheelen and Hunger;
“A value chain is a linked set of value-creating activities that begin with basic raw
materials coming from suppliers, moving on to a series of value- added activities
involved in producing and marketing a product or service, and ending with
distributors getting the final goods into the hands of the ultimate consumer”.
Value chain analysis is a technique of analyzing value generation from different
activities of a firm.
Activities in value chain
1. Primary activities
Primary activities are involved with a product’s physical creation, it sale and
distribution to buyers, and its service after the sale. It is manly related to production
and distribution of goods and business. The activities are;

• Inbound logistics (material handling, warehousing and inventory control i.e.
receive, store and disseminate)
• Operations (Convert – Machining, Packaging, assembly and equipment
maintenance)
• Outbound logistics ( collecting, storing and physical distribution of the final
product to customer i.e. finished goods warehousing, materials handling and
order processing)
• Marketing and sales (Develop advertising and promotional campaigns, select
appropriate distribution channels)
• Service ( Installation, repair, training and adjustment)
2) Supporting activities;
Supporting activities provide infrastructure to the primary activities. The supporting
activities are;
• Procurement (Raw material and supplies machinery, laboratory equipment,
office equipment and buildings.)
• Technological development (forms of process equipment, basic research and
product design and servicing procedures)
• HR management
• Firms infrastructure (general management, Planning, finance, accounting, legal
support and government relation)

Process of Value Chain Analysis:
1. Identification of activities
2. Allocation of cost
3. Identification of the activities that differentiates the firm
4. Evaluation of Value chain:- A value chain consists of two types of activities. They
are primary and supporting activities. The effectiveness of a value chain depends
on the relationship or linkages between these activities. The cost and
performance of an activity affects the effectiveness of other activities.
2). Cost Efficiency Analysis:
Cost efficiency is the utilization of organizational resources in such a way that the
overall costs are minimized without compromising in the quality. It may be a source of
competitive advantage since it is the source of superior customer value.
It is a means of strategic capability. It involves both appropriate resources and
competences to manage costs. It benefits the customers in terms of lower prices or
more product features for the same price. It is a threshold resource to compete
successfully in the market.

The ways of analyzing cost efficiency :
1. Economies of scale: the reduction in product costs from an increase in size of an
operating unit is known as economies of scale.
2. Supply cost:-
3. Product process and design:-
4. Experience:-
3). Effective analysis:
Under this, different features of product and their contribution in customer
satisfaction are analyzed and evaluated. The main objective is to enhance product
effectiveness by matching customer requirement and product features. It assumes
that organizational effectiveness is maintained through the proper matching between
customer requirement and value added by the organization. Following consideration
should be made for effective analysis:
• Customer requirement:- Different customers have different needs and
requirements. Hence, they perceived the quality and value of the products
differently. The customer requirement is reflected through:
a). Product attributes
b). Expected service
c). Price sensitivity

• Value added by organization:- a) Product features b) Service
performance c) communication.
• Degree of Matching:-
4) Comparative analysis:
It involves the comparison of capability of an organization with the competitors as
well as the comparison of the present performance with the past performance.
The different techniques of comparative analysis:
• Historical analysis
• Industry standard
• Benchmarking

The value net:
A Business may be taken as a game where competition and cooperation both are
there. Cooperation leads to an expansion of the business pie and competition to a
slicing up of the pie. Bothe cooperation and competition are necessary and desirable
aspect of a business enterprises.
Value net represents a map of the competitive game, the players in the game, and
their relationship to each other. Brandenburger and Nelebuff (1996) developed the
concept of the value net. The model helps you identify the key players in your
business, so that you can predict their behavior more accurately. This helps you make
more informed strategic decisiocns
The model illustrates the interdependencies between yourself and the four other
types of player in your business:
• Customers – The people who buy your product or service.
• Suppliers – These provide your organization with the resources you need to
produce a saleable product. (Keep in mind that suppliers can be outside
organizations, or your own employees.)
• Competitors – Competitors take a share of your target market by offering a similar
product or service.

Complementors – These are other players who provide a product or service that can
be linked to your own to make both offerings more attractive to your customers.
The Value Net Model can also be used to highlight the symmetries between the four
key players.

How to Use the Value Net Model
To shape your strategy, Brandenburger and Nalebuff suggest using the Value Net
Model alongside their PARTS approach. PARTS is an acronym for:
• Players.
• Added value.
• Rules.
• Tactics.
• Scope.
Let's look at these elements in greater detail, and discuss how you can apply each one
with the Value Net Model to think about the strategy of your organization.
Step 1: Identify Players
Your first step is to use the Value Net Model to identify the players that influence your
business. To do this, list the people and organizations that fall within each role in the
model.
• Look at the players you've identified. Bear in mind that your own participation in
the market makes you a player, too, and consider these questions:
• Are there opportunities for cooperation or competition in any of these
relationships?

• Would bringing in extra players (such as additional suppliers or new customers)
create any more benefits?
• Who stands to gain from forming a strategic partnership with you? Would any of
these players pay you to join them, if their gain was great enough?
• Who stands to lose? Would any of these players pay you to avoid joining forces, if
their loss stood to be big enough?
Step 2: Calculate Added Value
Added value measures what each person, in each role, brings to the table. This helps
you identify who has the most power, and helps you think about how you might
increase the value you provide for others.
• To calculate your own organization's added value, identify where you add value
through:
• Your USP – how uniquely valuable is your product to the market, and how
sustainable is this?
• Supply and demand – can you expand to meet growing demand without creating
excess, unused capacity?
• Trade-ons and trade-offs – can you reduce costs in a way that delivers a better
product, or deliver a better product in a way that reduces costs? Can you raise
costs to make a better product without reducing the customer's willingness to
pay?

• Rewards you offer (or could offer) as a "thank you" to customers or suppliers. (Be
careful not to contravene local or home country bribery laws when offering
rewards.)
• Creating greater customer or supplier loyalty.
Also, think about what the added values are for the other players you identified in
Step 1, and look at ways that you can get a share of this for yourself.
Step 3: Define Rules
Every industry has certain established and unwritten "rules" that must be followed.
While developing your strategy, evaluate which of these:
• Help your organization.
• Limit what your organization can achieve.
• Could be changed to benefit customers and clients.
• Could be changed in your supplier contracts to your mutual benefit.
Clearly, some rules cannot be changed. However, it might make sense to change
others if it allows you to shape your strategy better. Even small changes to some rules
can dramatically change the competitive game.

Step 4: Identify Tactics
Each player in the Value Net Model perceives your organization in a certain way. How
you shape and manage these perceptions is the foundation of your business tactics.
Consider these questions
• How have you established credibility in your market? Could you offer additional
guarantees, free trials or performance contracts to strengthen your credibility and
add value?
• Are your organization's actions predictable or unpredictable? If a rival company
wanted to "take you on" by offering higher quality goods or services, or more
competitive pricing, would you be able to respond, or would you have something
else up your sleeve?
• How do your customers perceive your organization? Use the Perceptual
Mapping tool to better understand their views.
• Is your product or service priced simply, or is pricing more complex? How would
switching from simple to complex, or complex to simple, change others'
perceptions and benefit your organization?
Another way to look at tactics is to analyze how much you're spending on branding
and advertising. Higher spending often signals that you have greater confidence in
your product or service. How might increased (or decreased) spending change
perceptions in your market?

Step 5: Define Scope
Scope is perhaps best understood as the boundaries of your game, or market, but
these can be extended by linking to other markets. Your goal in this last step is to
identify where those links are and whether there are benefits to increasing scope, or
whether you should sever existing links to redefine the boundaries.

The resource based view of strategy:
Resource:
Resource may be defined as the sum of asset(both tangible and intangible) that an
organization uses to perform the activities effectively. They are the source of
competitive advantage and it is serve as the input in production process.
Resource availability and allocation are very important in strategic management.
Wheelen and Hunger;
“Resource are an organization’s assets and are thus the basis building blocks of the
organization.”
Types of Resource:
• Available resources :- The resources that are currently available in the
organization are called available resources. Some of available resources are:
1. Physical resources
2. Human resources
3. Financial resources
4. Intellectual resources

• Threshold resources:- Threshold resources are the minimum resources required to
withstand competition. In this competitive business world; Technology, It
infrastructures, large scale operation and capital are threshold resources.
• Unique resources:- The resources that are critical for gaining competitive
advantage are called unique resources. They are related to critical success factors.
They are developed over a long period of time. Unique resources are valuable,
non-substitutable, costly to imitate and rare.
Competency:
A competency is something that an organization is good at doing. It is the activity that
an organization has learned to perform well. It is a cross-functional integration and
coordination of capabilities.
Core competency:
A core competency is the sum of competencies that is widespread within the
organization. It is something that the organization can do exceedingly well. It is also
source of competitive advantage. Normally, It is knowledge based, residing in people
not in the balance sheet.
Hitt;
“core competencies are resources and capabilities that serve as a source of
competitive advantage for a firm over its rivals.”

It can be related to
• expertise in integrating multiple technologies to create a new product.
• In cost efficient supply chain management
• Expertise in after sale services
• Skills in manufacturing high quality products at low cost.
Distinctive Competency/ Capabilities
When core competency is superior to those of the competitors, it is called distinctive
competency. It indicates a greater proficiency than a core competency.

Identifying Sustainable Competitive Advantage
Sustainable Competitive Advantages, Sustainable competitive advantages are
company assets, attributes, or abilities that are difficult to duplicate or exceed; and
provide a superior or favorable long term position over competitors. Sustainable
competitive advantage occurs when an organization is implementing a value creating
strategy that is being implemented by current or potential competitors and when
these competitors are unable to duplicate the benefits of this strategy. Organizational
resources are the sources of sustainable competitive advantage. The resources must
have four attributes valuable, rare, costly to imitate ( Unique location, Path
dependency, Casual ambiguity and Social complexity) and non- substitutional.
Criticism of resource-based view:
• The resource based view explains very little about how resources are developed
and changed over the time.
• It also does not address the dynamic role played by an individual within the
organization.
• It lacks details roadmap. Hence, it is difficult to implement.
• It does not recognize the role played by emergent strategy.
• It only focuses on the internal elements of a firm and it does not consider the
external factors like the demand side of the market.
• It has a limited ability to make reliable prediction of future resource requirement.

It is very difficult to achieve sustained competitive advantage as the firms are in a
dynamic environment where innovation and changed are needed to stay ahead of
the competition.
Knowledge Management
Knowledge is increasingly being recognized as the new strategic asset of
organization. Knowledge may be defined as the organized body of information. It
is the acquaintance with facts, truth or principles as from study or investigation or
the familiarity with a particular subject , branch of learning etc. The fundamentals
knowledge rests on data and information. There are two types of knowledge: tacit
and explicit knowledge. Tacit knowledge is that store in the brain of a person.
Explicit knowledge is that contained in a document or other form of storage other
than the human brain.
Knowledge management is the conversion of tacit knowledge into explicit
knowledge and sharing it within the organization. It concerned with the process of
identifying, acquiring, distributing and maintaining knowledge.

It may be seen from three perspective.
Result oriented:- To have right knowledge at the right place, at the right time in
the right format.
Process oriented:-The systematic management of process by which knowledge is
identified, created, gathered, shared and applied.
Technology oriented:- Combination of business intelligence, collaboration, search
engines and intelligent agent.
Elements of knowledge Management:
1. Knowledge creation and capture
2. Knowledge sharing and enrichment
3. Information storage and retrieval
4. Knowledge Dissemination

SWOT Analysis:
SWOT analysis is the acronym for strength, weakness, opportunities and Threats
that are the strategic factors for a company. A SWOT analysis summarizes the key
issues from the business environment and the strategic capability of an
organization that are most likely to impact the strategy development. Hence it is
also called the situational analysis. Under this, the information about external and
internal environment is presented in a structured way.
• It helps to answer the following question:
• Will the current strength matter as much in the future as well?
• Should the existing resources gaps be filled?
• Are new types of competitive capabilities to be developed?
• Which resource and capabilities need to be emphasized greater?
Strength:
Strong strategy, Sound financial condition, strong brand image, market
leadership, skill manpower, sophisticated technology etc.
Weakness:
Unclear goal, lack of strong strategy, Weak financial condition, inferior product,
obsolete technology etc.

Opportunities:
Product development, market expansion, entry into new business, new
technology, strong economy, social development etc.
Threats:
Entry of new firm, insufficient resources, low worker commitment, change in
need and preference of customer, unfavorable law and politics.

Chapter- 4
Process of Strategy Formulation
1. Review of Strategic elements:- In the first step of strategy formulation, the
strategic elements i.e. Vision, mission, objective, strategies and policy should
be reviewed.
2. SWOT analysis:- It is the process of finding a strategic fit between external
opportunities and internal strength while working around external threats
and internal weakness. It provides a useful framework for making the best
strategic choice.
3. Identification of strategic options:- after SWOT analysis, different strategic
alternatives are developed. Strategic options would be stability, growth,
retrenchment, combination for corporate level, cost leadership,
differentiation and focused for business level. There are four alternative
directions for strategy development. They are Protect/ build on current
position, product development, market development and diversification.
Method of strategy development also provides various option i.e. internal
development, merger and acquisition, joint development and strategic
alliances.

4) Evaluation of strategic option: They evaluated on the basis of three elements:
suitability, acceptability and feasibility.
5) Selection of strategy:
RBV and strategy formulation
• Firms in possession of a resource, or mix of resources that are rare
among competitors, are said to have a comparative advantage. This
comparative advantage enables firms to produce marketing offerings
that are either (a) perceived as having superior value or (b) can be
produced at lower costs. Therefore, a comparative advantage in
resources can lead to a competitive advantage in market position.[25]
• In the resource-based view, strategists select the strategy or
competitive position that best exploits the internal resources and
capabilities relative to external opportunities. Given that strategic
resources represent a complex network of inter-related assets and
capabilities, organizations can adopt many possible competitive
positions. Although scholars debate the precise categories of
competitive positions that are used, there is general agreement, within
the literature, that the resource-based view is much more flexible than
Porter's prescriptive approach to strategy formulation. Hooley et al.
[26]

• Price positioning
• Quality positioning
• Innovation positioning
• Service positioning
• Benefit positioning
• Tailored positioning (one-to-one marketing)

Strategic alternatives at different levels:
Corporate level strategy:
The strategy that is formulated at corporate level to achieve corporate objectives
is called corporate strategy.
Johnson and Scholes;
Corporate level strategy is concerned with overall purpose and scope of an
organization and how value will be added to the different parts (business units) of
the organization.
Wheelen and Hunger;
Corporate strategy states a company’s overall direction in terms of its general
attitude towards growth and the management of its various business and product
lines.
Corporate level strategy addresses the question as what business are we in? It is
related to the acquisition of new business, additions or divestments of business
units, plants or product lines, and joint ventures with other companies in new
areas. It includes decisions regarding the flow of financial and other resources to
and from an organization’s product lines and business units.

Strategic Alternatives at corporate strategy:
1. Stability Strategy:- Under stability strategy, an organization continues its
current activities without any significant change in its product, market and
activities. It can be appropriate for successful organization operating in a
reasonably predictable environment. Following are the strategic alternatives
under it:
• Pause/proceed with caution strategy:- It is a deliberate attempt to make only
incremental improvements until a particular environmental situation changes.
It is a temporary strategy.
• No- Change strategy:- It is a decision to do nothing new i.e. continue current
operations and policies for the predictable future.
• Profit strategy:- It is an attempt to artificially support profits when a
company’s sales are declining by reducing investment and short term
discretionary expenditure.

2. Expansion/ growth Strategy:- Growth strategies are designed to
achieve growth in sales, assets, profits, or some combination. An organization
can grow internally by expanding its operation or it can grow externally
through mergers, acquisitions and strategic alliances. This is pursued in
competitive and dynamic environment. It is suitable when the products of an
organization are in the growth stage of their life cycle. The following are the
strategic alternatives under it:
• Concentration:- It is a decision to concentrate resources on certain product
lines. It can be vertical and horizontal growth. Vertical growth can be achieved
by taking over a function previously provided by supplier’s or by distributors.
Horizontal can be achieved by expanding organizational operations into other
geographic locations and/or by increasing the range of products and services
offered to current market (acquisition and strategic alliances).
• Diversification:- It is a decision to enter into a new business. The two basic
diversification strategies are concentric and conglomerate. Concentric
(Related) diversification is diversifying into an industry related to the current
one. Conglomerate (Unrelated) diversification is diversifying into an industry
unrelated to its current one.
3. Retrenchment strategy:
4. Mixed strategy:

3. Retrenchment strategy:- The company attempts to reduce its scope partially
and fully. Under this, the existing products, market, and activities are
retrenched. Some of the retrenchment strategies are:
• Turnaround strategy:- This can be achieved by reducing/ cutting costs and
expenses and selling assets.
• Captive company strategy:- It involves giving up independence in exchange for
security.
• Sell-out/ divestment strategy:- Better for it to sell-out the business.
• Bankruptcy/ liquidation strategy.
4. Mixed strategy:

Implementing Growth Strategy:
1. Internal development
2. Merger and Acquisitions
3. Joint development and Strategic alliances
Internal Development
Internal development is a managerial approach to develop strategies by building
and developing organization’s own capabilities. It is the primary and organic
strategy development as it involves building up an organization’s own resources
and competencies. The way of internal development are;
• Product development
• Market development
• Competence building through learning
• Cost spread
It is appropriate for small companies or many public services, which may not have
the resources available for major investment. This strategy is pursued to expand
the market by using core competency and highly technical product.

Acquisition and Merger
An acquisition is a strategy in which one firm buys a controlling, or 100 %, interest
in another firm. In acquisition, an existing organization takes over another
organization through purchase of shares or ownership.
A merger is a strategy through which two firms agree to integrate their operations
on a relatively coequal basis. It is the combination of two or more organization
into one single organization. Merger can be :
• Horizontal merger ( merger between same line of business i.e. commercial
bank)
• Vertical Merger ( Merger between two complementary products i.e. Leather
processing firm and shoes company)
• Concentric merger( merger between serving the same customer group i.e. two
colleges)
• Conglomerate Merger (Merger between two firms with different product i.e.
School and hotel)

Reasons of Acquisition and Merger
1. Increased Market power
2. Overcoming entry barriers
3. Increased speed to market
4. Low risk
5. Increased diversification
6. Reshaping the firm’s competitive scope
7. Learning and developing new capabilities

Joint Development and strategic Alliance:
A company can also use cooperative strategies to gain competitive advantage
within an industry by working with other firm. A cooperative strategy is a strategy
in which firms work together to achieve a shared objective.
Wheelen and Hunger;
Cooperative strategies involves working with other firms to gain competitive
advantage within an industry.
Cooperative strategies are pursued for mutual benefits of the partner.
The two common cooperative strategies are collusion and strategic alliances:
1. Collusion:- Collusion is the active participation of firms within an industry to
reduce output and raise prices. It can be explicit and tacit collusion. In Explicit
collusion, firms cooperate through direct communication and negotiation and
in tacit, firms cooperate indirectly through an informal system of signals.
2. Strategic alliance:- In strategic alliance, firms combine some of their
resources and capabilities to create a competitive advantage.

Types of strategic Alliance:
1. Joint venture:- A joint venture is a strategic alliance in which two or more
firms create a legally independent company to share some of their resources
and capabilities to develop a competitive advantage.
2. Equity alliance:- under this, two or more firms own different percentages of
the company they have formed by combining some of their resources and
capabilities to create a competitive advantage.
3. Non-equity alliance:- A non-equity alliance involves two or more firms
develop a contractual relationship to share some of their unique resources
and capabilities to create a competitive advantage.
Reasons for strategic alliance:
1. To obtain or learn new capabilities
2. To obtain access to specific market
3. To reduce financial risk
4. To reduce political risk
5. Co-specialization

Components for the success of strategic alliance:
1. Trust
2. Top management support
3. Performance expectation
4. Clear goal and organizational arrangements
5. Compatibility
6. Evolve and change

Portfolio Analysis for strategic choice,
Portfolio in simple terms means a range of investments held by an organization.
Wheelen and Hunger,
“Portfolio analysis is an approach to corporate strategy in which top management
views its product lines and business units as a series of investment from which it
expects a portfolio returns.”
Portfolio analysis is a quantitative method for selecting an optimal portfolio that
can strike a balance between maximizing the return and minimizing the risk in
various uncertain environments.
Conclusion, Portfolio analysis enables an organization to revise and refresh the
portfolio by closing down the unprofitable business units or products and adding
new investment in profitable way.
A number of tools are developed for portfolio analysis. They provide strategic
options in strategy formulation. They are:
1. Boston consulting group (BCG) matrix.
2. General electric matrix.
3. Hofer’s matrix.

The Boston Consulting Group (BCG) Matrix,
The Boston Consulting Group (BCG) is a renowned organization. It is a growth share 2×2
matrix. The matrix is established in 1970 by Bruce Doolin Henderson (1915–1992) for the
BCG in Boston, Massachusetts, the USA. Henderson was the President and Chief Executive
Officer (CEO) until 1980. He was also Chairman until 1985. The matrix helps the business
corporations for the improvement of the skills to run their business efficiently and
profitably.
a healthy balance of products within their range. It is useful for a company to achieve
balance between the four categories of products a company produces.
To help businesses further analyze its assets, the BCG matrix divides the business products
into four categories as:
1. „Question Marks‟ indicates the products in high growth markets, and with low market
share.
2. „Stars‟ shows that both, the growth markets and market share are in the highest
position.
3. „Cash Cows‟ predicts that the products are in low growth markets, and market share is
in high.
4. „Dogs‟ displays that both growth and market share are in low position.
Along the top of the entire box is market share or cash generation, while running down the
left hand side of it is growth rate or cash use. If one goes to the left of the top of the box,
he/she sees high market share and low market share. He/she also sees high cash use at the
top and low cash growth rate at the bottom of the box.

The BCG matrix provides some assumptions as follows , Market share can be achieved by
the investment in marketing sector. Market share gains will always create cash surpluses.
Cash surpluses are generated when the product is in the maturity stage of the life cycle.
The best opportunity to build a dominant market position is during the growth phase.
A company’s running portfolio of Stars, Cash Cows, Question Marks and Dogs are given as
follows:
Figure 1. BCG Matrix.

1. Stars They are indicated by achieving a large market share in a fast growing market
(figure 1). They are considered as the best opportunities for the growth and benefits
of the company (Thompson and Strickland, 1995). They are the leaders in the
business, but still need a lot of support for promotion a placement. In this situation
they create large sums of cash to support strong market share. They also consume
large amounts of cash due to their high growth rate. They have a tendency to make a
large profit from their business. When the market share becomes very large, the
industry matures, and the market growth rate declines; the star transform to a cash
cow .Stars tend to have new plant and equipment, high capacity utilization, high R&D
expenses, broad domains, high sales per employee, high value added, and superiority
on a number of competitive devices.
Star examples: iPhone of Apple, Vitamin Water of Coca-Cola.
2. Cash Cows: They have a large market share in a mature period of a slow growing
industry. They are called Cash Cows, because they generate cash in excess of their
needs, they often are milked (milk these products as much as possible without killing
the cow!). They need very little investment, and create significant cash to utilize for the
investment in other business units (figure 1). Product development is considered as
attractive strategies for strong cash cows. After the achievement of a competitive
advantage, cash cows have high profit margins, and generate a lot of cash flow. As the
growth of industry is low, so that promotion and placement investments are also low.
As a result capital reinvestment and competitive maneuvers are needed to maintain
present market share of cash cows. The infrastructure of them can be improved by the
investment. Hence, efficiency is developed and cash flow increases.

Many of today’s cash cows were yesterday’s stars (figure 2). Although Cash cows are
less attractive from a growth standpoint, they are valuable in businesses .
3. Question Marks: Question marks, which are also known as problem children or wild cats,
are business units that have a small market share in a high growth market. They do not try
to generate much cash in their industry (figure 1). They are called Question Marks, because
of the organization must decide whether to build up them by practicing a rigorous strategy
(market access, market development, or product development) or to sell them, i.e., it is
not known if they will become a Star or drop into the Dog. They have high demand and low
profit due to low market share. They have to spend large amount of cash to gain market
share. They try to produce new goods to attract buyers. They have no fixed strategy to run
their business. In real life most of the business start as Question Marks. As initially the
company tries to enter a high growth market with existing market share. The question
marks may become dogs if they are ignored while huge investment is made (figure 2). On
the other hand, they have potential of becoming stars and eventually a cash cow when the
market growth slows. Question marks have a tendency to produce new plant and
equipment, low capacity of utilization, top current asset levels, large R&D expenses, dear
marketing expenses, narrow domains, heavy new product activity, high direct costs, and
competitive devices that lag Star competitors on all fronts .
They have the worst cash characteristics of all, because they have high cash demands, and
generate low returns due to low market share. If its market share remains unchanged, it
will simply absorb great amounts of cash .
Question mark examples: Mac Book Air of Apple, FUZE Healthy Infusions of Coca-Cola.

4. Dogs They represent businesses procedures which have weak market shares in low
growth, or no market growth mature industries. They can neither generate nor consume a
large amount of cash due to their weak business strategy (figure 1). They are called Dogs,
because of their weak internal and external position. The businesses of Dogs often are
liquidated, divested, or trimmed down through the economization. These business units
face cost disadvantages due to their low market share. They have weak market share due
to high costs, poor quality, ineffective marketing, etc. The business firms of dogs should be
avoided and minimized in an organization, and savings to turn Question Marks into Stars
(figure 2). Dogs must distribute cash to avoid liquidity. Dogs have a tendency to achieve
medium capital intensity, dated plant and equipment, low R&D expenses, narrow domains,
high inventory levels, moderate marketing expenses, low value added, and competitive
devices that lag Cow competitors on all fronts.
Dog examples: New Coke of Coca-Cola.

General Electronic (GE) Matrix,
GE-McKinsey nine-box matrix is a strategy tool that offers a systematic approach for the
multi business corporation to prioritize its investments among its business units.
GE-McKinsey is a framework that evaluates business portfolio, provides further strategic
implications and helps to prioritize the investment needed for each business unit (BU).
In 1970s, General Electric was managing a huge and complex portfolio of unrelated
products and was unsatisfied about the returns from its investments in the products. At
the time, companies usually relied on projections of future cash flows, future market
growth or some other future projections to make investment decisions, which was an
unreliable method to allocate the resources. Therefore, GE consulted the McKinsey &
Company and as a result the nine-box framework was designed. The nine-box matrix plots
the BUs on its 9 cells that indicate whether the company should invest in a product,
harvest/divest it or do a further research on the product and invest in it if there’re still
some resources left. The BUs are evaluated on two axes: industry attractiveness and a
competitive strength of a unit.
1. Industry Attractiveness
Industry attractiveness indicates how hard or easy it will be for a company to
compete in the market and earn profits. The more profitable the industry is the more
attractive it becomes.
Industry attractiveness consists of many factors that collectively determine the
competition level in it. the following are the most common:

• Long run growth rate
• Industry size
• Industry profitability: entry barriers, exit barriers, supplier power, buyer power, threat
of substitutes and available complements (use Porter’s Five Forces analysis to
determine this)
• Industry structure (use Structure-Conduct-Performance framework to determine this)
• Product life cycle changes
• Changes in demand
• Trend of prices
• Macro environment factors (use PEST or PESTEL for this)
• Seasonality
• Availability of labor
• Market segmentation
2. Competitive strength or business Position
The following factors determine the competitive strength of a business unit:
• Total market share
• Market share growth compared to rivals
• Brand strength (use brand value for this)
• Profitability of the company
• Customer loyalty

• VRIO resources or capabilities (use VRIO framework to determine this)
• Your business unit strength in meeting industry’s critical success factors
(use Competitive Profile Matrix to determine this)
• Strength of a value chain (use Value Chain Analysis and Benchmarking to determine
this)
• Level of product differentiation
• Production flexibility
Beside growth rate and market share of BCG matrix it includes much more data in its two
key factors in its nine cells. This has been presented below:
Business Strength or Position
Strong Average Weak
Industry
Attractiveness
Low Medium
High
1. Winner 2. Winner 3. Question marks
4. Winner 5. Average
Business
6. Losers
7. Profit Producer 8. Losers 9. Loser

The matrix can be divided in three Zones:
1. Cell 1, 2 and 4
The strategic business units in cell 1, 2 and 4 are the winners. They should be
given priority in portfolio. They get priority in investment.
2. Cell 3, 5 and 7
Cell 3, 5 and 7 indicate the medium or average situation of strategic business
units. They should be included in the portfolio on a selective basis for investment.
3. Cell 6, 8 and 9
Cell 6, 8 and 9 are the loser strategic business units. They should be diverted or
closed down.

3. Hofer’s Matrix:
According to this model, a firm’s business is positioned in a 15-cell matrix based
on two major variables viz., stage of production-market development and the
competitive position. Charles W. Hoffer has suggested a further refinement of
GE/Mckinsey portfolio matrix by identifying companies, particularly new
businesses, that are about to accelerate their growth. This matrix is also called
‘life-cycle portfolio matrix.
Hofer’s matrix reflects the stage of development of the product or market.
Business units are placed on a grid showing their stage of product-market
evolution and their competitive position. Circles represent the industry and the
pie wedges represent the market share of the business unit. Hoffers evolution
matrix are useful to develop strategies that are appropriate at different stages of
the product life cycle.
In Hofer’s matrix, the vertical axis represents the stages of product-market
evolution and horizontal axis represents the SBU’s competitive position. In this
matrix, three stages of competitive position of SBU (viz., strong, average and
week) are shown on horizontal axis. The vertical axis shows the industry’s state in
the evolutionary life cycle, starting with initial development and passing through
the growth, competitive shake-out, maturity, saturation and decline stages.

• SBU A with average competitive position and in development stage holds out prospects
for future development deserves expansion and desired financial resources to be
allotted to exploit the opportunities.
• SBU B with strong competitive position and in growth stage requires to adopt growth
strategies to make it a future winner.
• SBU C with weak competitive position which is in growth stage of the industry should
give lot of attention and requires a careful formulation of marketing strategies to make
it more competitive in the industry.
• SBU D with moderately strong position is in the shake-out stage can be probable with
close attention and careful marketing strategy formulation. This may also requires
adoption of growth strategies.
• SBU E with average competitive position and in maturity stage of the industry needs to
adopt stability strategies.
• SBU F with moderately strong competitive position and is in the maturity stage of the
industry life cycle, needs the stability, harvest and retrenchment strategies need to be
adopted. No further funds to be invested in this SBU. The market strategies require to
hold the market position without fall.
• SBU G with moderately weak competitive position and is in the decline state of the
industry life cycle need to be divested immediately to arrest any cash loss since it is in a
position of loosing. Revival of this SBU is not suggested. The Hofer’s product-market
evolution matrix displays business portfolio of an international firm with relative
greater degree of accuracy and completeness.

Chapter- 5
Strategy Implementation
Organizational Structure:
Organization exist because they are more effective at undertaking economic
activities than individuals are on their own. Therefore, organization are a means
by which human economic activity can be coordinated.
Organizational structure is concerned with the division of labor into specialized
tasks and coordinated between these tasks. In 1962, Chandler wrote his famous
dictum that ‘Structure follows strategy’. Strategy affects structure but structure
also affects strategy. A change in strategy is more likely to produce a change in
structure than a change in structure is to produce a change in strategy.
New strategy is
formulated
New administrative
problems emerge.
Organizational
performance declines
New organizational
structure is stablished
Organizational
performance improves

Types of Organizational structure
1. The entrepreneurial Structure
The entrepreneurial or simple structure revolves around the founder of the firm.
This is a centralized structure in which the founder or entrepreneur takes all the
major decision. In these small organizations staff members will often be expected
to be flexible in their work roles which may not be clearly drawn.
2. The functional structure
A functional structure is appropriate for an organization which produce one or a
few related product or services. Tasks are grouped together according to
functional specialism such as finance, marketing .Production, HR and R & D. A
manager will be responsible for a department which comprises these functions.
CEO
Production Finance
HR/
Personnel
Marketing R & D

3. The divisional structure
The divisional structure comprises individual business units that include their own
functional specialism and have direct responsibility for their own performance. A
divisional structure may be organized according to product, market, or geographic
areas. The divisional manager will have autonomy to set a business-level strategy.
CEO
Head office centralized services e.g.
legal services
Division A Division B Division C
Production Finance HR Marketing R & D

4. The matrix Structure
A matrix structure is an attempt to increase organizational flexibility to meet the
needs of a rapidly changing environment. It involves learning new roles and
modes of behavior. In a matrix structure an individual reports to two manager.
This will include their functional head ( for instance, the head of manufacturing)
and also a project manager.
CEO
Project manager Marketing manager
Finance
manager
Production
manager
Project X
Project Y
Project Z
Marketing Staff Finance Staff
Production
Staff
Marketing Staff
Marketing Staff
Finance Staff
Finance Staff
Production
Staff
Production
Staff

5. The net work structure
A network structure involves a configuration of outsourced activities that are
controlled by a central hub. The network structure allows the core competences
of the organization to be retained at the Centre while non-core activities are
outsourced to specialist firms which allows for greater efficiency.
Manufacturers
Head office-Broker Distributors
Designers
Suppliers

Strategic Leadership
A key factor in effective strategy implementation is the quality of strategic
leadership at the top of the organization. The ability of leaders to communicate
organizational goals clearly and guide employees to focus their attention on
achieving these goals is crucial to success.
The leader of an organization is ultimately responsible for a strategy’s success or
failure, their role should be to encourage and create an organizational culture
that empowers individuals to respond to opportunities.
Leadership and Management
Management is about coping with complexity to produce orderly and consistent
results.
Leadership is concerned with creating a shared vision of where the organization is
trying to get to, and formulating strategies to bring about the changes needed to
achieve the vision.

Leadership activities Management activities
Dealing with change Coping with organizational complexity
Developing a vision and setting a direction
for the organization
Planning and budgeting
Formulating strategy Implementing strategy
Aligning stakeholders with the
organization’s vision
Organizing and staffing to achieve strategy
Motivating and inspiring employees Controlling behavior and problem- solving
to ensure strategy is implemented
Recognizing and rewarding success.

The learning Organization
It is said that the only sustainable competitive advantage is the speed and ability
of an organization to learn. The role of everyone else within the organization was
assumed to be to carry out the leader’s vision and earn their approval.
Senge (1990a, p. 7; 1990b) argues that ‘the old model, the top think and the local
acts, must now give way to integrating thinking and acting at all levels.’
Senge sees the learning organization as comprising both adaptive and generative
learning. Adaptive learning is the ability to cope with changes in one’s
environment, while generative learning is about creating change by being
prepared to question the way we look at the world.
• Building the learning organization:- Ta challenge the mental models of how we
view the world and to encourage a more systemic pattern of thinking. The
leader’s role is to help bring about learning in the organization. This requires
the leader to develop a vision of where the organization wants to be and to
juxtapose this with the current reality of where the organization actually is.
(Creative tension)
• Leadership role:- We can address the three distinctive leadership roles. They
are:

i) The leader as designer :- The leader’s role as designer can be seen in the
building of the core values and purpose of the organization.
ii) The Leader as Teacher :- The leader as teacher involves helping individuals in
the organization to be aware of their mental models and the assumptions on
which these are based. Leaders in a learning organizations influence
individuals’ perceptions or reality at three levels: events, patterns of
behavior, systemic structure.
iii) The leader as steward:- The concerns of the leader as steward involve
stewardship for all the people in the organization that he directs. It also
involves stewardship for the purpose and core values on which the
organization is based.
• Leadership skills:- These leadership skill need to be disseminated throughout
the organization; they are not the preserve of a few key individuals.
i) Building a shared vision
ii) Surfacing and testing Mental model
iii) System thinking

Emotional intelligence and leadership performance
Emotional intelligence is an ability to recognize your own emotions and the
emotions of others. It is manifest in self-awareness, self-regulation, motivation,
empathy and social skills.
Self- awareness:- It is an ability to speak candidly about one’s own emotions and
the impact they have one’s work as well as their effect on other. Self- awareness
people can also be recognized their self-confidence.
Narcissistic Leaders and leadership capabilities
We have seen that leaders who possess emotional intelligence are more
effective and capable of managing change in organization. In contrast with these
leaders, Maccoby (2000) identifies a different type of leader who is equally
effective in dealing with dynamic change but also has the potential for creating
destruction. Freud identified three main personality: erotic, obsessive and
narcissistic. Erotic personality is one for whom loving and being loved are
important i.e Teacher, nurse and social worker etc. Obsessive personality always
looking for ways to help people listen better and find win-win situation.
Narcissists are independent, aggressive and innovative, they want to be admired.

Leadership capabilities :- ability to develop vision, motivates employees and
monitor performance.
The Impact of leadership on vision, values and Culture
Leadership, vision and values;
Visionary companies have a core ideology which comprises their core values and
purpose. The core value can be thought of as the principles on which the firm was
founded. An organization’s purpose is the reason why it exists, this transcends
merely making money.
The effective leader….. is primarily an expert in the promotion and protection of
values, and dealing with the shaping of values…. become pre- eminently the
mission of the CEO.
Leadership and Culture
A dimension is simply as aspect of culture which can be measured in relation to
other culture. The four dimensions are power distance, collectivism versus
individualism, femininity versus masculinity, and uncertainty avoidance. The
model is a way of measuring differences between national culture.

• Masculinity refers the societies in which gender roles are clearly defined: Men
are expected to be assertive and tough. Femininity refers to societies in which
gender roles are less clearly defined: both men and women are expected to
modest and caring.
• Uncertainty Avoidance :- it is extent to which people feel threatened by
uncertain or unknown situations. This manifests itself in the need for
predictability and clearly defined rules.
Leading strategic Change:
• Charismatic Leaders : Charismatic Leaders are the individuals who are
dissatisfied with the status quo and who can articulate a vision that captures
the imagination of their followers. ( Downsizing and restructuring)
• Theory E:- It assumes that organizational change should be based on
enhancing shareholder values ( Downsizing and restructuring).
• Theory O :- It assumes that change should help develop corporate culture abd
improves organizational capabilities.

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