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STRATEGIC MANAGEMENT 14MBA25
Dept of MBA,SJBIT Page 1
STRATEGIC MANAGEMENT
Subject Code:14MBA25 IA Marks: 50
No. of Lecture Hours / Week:04 Exam Hours: 03
Total Number of Lecture Hours: 56 Exam Marks: 100
Practical Component: 01 Hour / Week
Objectives:
• To explain core concepts in strategic management and provide examples of their relevance and use by
actual companies
• To focus on what every student needs to know about formulating, implementing and executing business
strategies in today’s market environments
• To teach the subject using value-adding cases that features interesting products and companies, illustrate
the important kinds of strategic challenges managers face, embrace valuable teaching points and spark
student’s interest.
Module 1 (8 Hours)
Meaning and Nature of Strategic Management, its importance and relevance. Characteristics of Strategic
Management. The Strategic Management Process. Relationship between a Company’s Strategy and its
Business Model.
Module 2 (8 Hours)
Strategy Formulation – Developing Strategic Vision and Mission for a Company – Setting Objectives –
Strategic Objectives and Financial Objectives – Balanced Scorecard. Company Goals and Company
Philosophy. The hierarchy of Strategic Intent – Merging the Strategic Vision, Objectives and Strategy
into a Strategic Plan.
Module 3 (7 Hours)
Analyzing a Company’s External Environment – The Strategically relevant components of a Company’s
External Environment – Industry Analysis – Industry Analysis – Porter’s dominant Economic features –
Competitive Environment Analysis – Porter’s Five Forces model – Industry diving forces – Key Success
Factors – concept and implementation.
Module 4 (8 Hours)
Analyzing a company’s resources and competitive position – Analysis of a Company’s present strategies
– SWOT analysis – Value Chain Analysis – Benchmarking Generic Competitive Strategies – Low cost
provider Strategy – Differentiation Strategy – Best cost provider Strategy – Focused Strategy – Strategic
Alliances and Collaborative Partnerships –Mergers and Acquisition Strategies – Outsourcing Strategies –
International Business level Strategies.
Module 5 (7 Hours)
Business Planning in different environments – Entrepreneurial Level Business planning – Multistage
wealth creation model for entrepreneurs– Planning for large and diversified companies –brief overview of
Innovation, integration, Diversification, Turnaround Strategies - GE nine cell planning grid and BCG
matrix.
Module 6 (10 Hours)
Strategy Implementation – Operationalizing strategy, Annual Objectives, Developing Functional
Strategies, Developing and communicating concise policies. Institutionalizing the strategy. Strategy,
Leadership and Culture. Ethical Process and Corporate Social Responsibility.

Module 7 (8 Hours)
Strategic Control, guiding and evaluating strategies. Establishing Strategic Controls. Operational Control
Systems. Monitoring performance and evaluating deviations, challenges of Strategy Implementation. Role
of Corporate Governance
Practical Components:
• Business Plan: Students should be asked to prepare a Business Plan and present it at the end of the
semester. This should include the following:
Executive Summary
Overview of Business and industry analysis
Description of recommended strategy and justification
Broad functional objectives and Key Result Areas.
Spreadsheet with 5-year P&L, Balance Sheet, Cash Flow projections, with detailed Worksheets for
the revenue and expenses forecasts.
• Analyzing Mission and Vision statements of a few companies and comparing them
• Applying Michael Porter’s model to an industry (Retail, Telecom, Infrastructure, FMCG, Insurance,
Banking etc.
• Pick a successful growing company. Do a web-search of all news related to that company over a one-
year period. Analyze the news items to understand and write down the Company’s strategy and execution
efficiency.
• Pick a company that has performed very badly compared to its competitors. Collect Information on why
the company failed. What were the issues in strategy and execution that were responsible for the
company’s failure in the market. Analyze the internal and external factors
• Map out GE 9-cell matrix and BCG matrix for some companies and compare them
• Conduct SWOT analysis of your institution and validate it by discussing with faculty
• Conduct SWOT analysis of companies around your campus by talking to them
RECOMMENDED BOOKS:
• Crafting and Executing Strategy, Arthur A. Thompson Jr., AJ Strickland III, John E
Gamble, 18/e, Tata McGraw Hill, 2012.
• Strategic Management, Alex Miller, Irwin McGraw Hill
• Strategic Management - Analysis, Implementation, Control, Nag A, 1/e, Vikas, 2011.
• Strategic Management - An Integrated Approach, Charles W. L. Hill, Gareth R. Jones,
Cengage Learning.
• Business Policy and Strategic Management, Subba Rao P, HPH.
• Strategic Management, Kachru U, Excel BOOKS, 2009.
REFERENCE BOOKS:
• Strategic Management: Concepts and Cases, David R, 14/e, PHI.
• Strategic Management: Building and Sustaining Competitive Advantage, Robert A. Pitts & David Lei,
4/e, Cengage Learning.
• Competitive Advantage, Michael E Porter, Free Press NY
• Essentials of Strategic Management, Hunger, J. David, 5/e, Pearson.
• Strategic Management, Saroj Datta, jaico Publishing House, 2011.
• Business Environment for Strategic Management, Ashwathappa, HPH.
• Contemporary Strategic Management, Grant, 7/e, Wiley India, 2012
• Strategic Management-The Indian Context, R. Srinivasan, 4 th edition, PHI

CONTENTS
Module No. Particulars Page No.
1
Introduction to strategic Management
4-16
2
The Strategy Formulation
17-39
3
Analyzing a Company’s External
Environment
40-53
4
Analyzing a company’s resources & Generic
Competitive Strategies
54-72
5
Business Planning in different environments
73-87
6
Strategy Implementation
88-93
7
Strategic Control
94-102

Module – I
Meaning and Nature of Strategic Management, Its importance and relevance, Characteristics of
Strategic Management, The Strategic Management Process – Relationship between company’s
Strategy and its Business Model.
Strategy – What is Strategy?
The term strategy is derived from the Greek word ‘strategos’ which means ‘art of
general’.
Definition
According to Johnson and Scholes, “strategy is the direction and scope of an organization
over the long-term: which achieves advantage for the organization through its configuration of
resources within a challenging environment, to meet the needs of markets and to fulfill
stakeholder expectations”.
In other words, strategy is about:
How:
● How to outcompete rivals.
● How to respond to economic and market conditions and growth opportunities.
● How to manage functional pieces of the business.
● Howto improve the firm’s financial and market performance.
Definition
“The on-going process of formulating, implementing and controlling broad plans guide
the organization in achieving the strategic goods given its internal and external environment”.
Strategy at different Levels of a Business
Strategies exist at several levels in any organization – ranging from the overall business
(or group of businesses) through to individuals working in it.
Corporate Strategy – is concerned with the overall purpose and scope of the business to meet
stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the
business and acts to guide strategic decision-making throughout the business. Corporate strategy
is often stated explicitly in a “mission statement”.
For eg. Coco cola, Inc., has followed the growth strategy by acquisition. It has acquired local
bottling units to emerge as the market leader
Business Unit Strategy – is concerned with how a business competes successfully in a particular
market. It concern strategic decisions about

- Choice of products,
- Meeting needs of customers,
- Gaining advantage over competitors,
- Exploiting or creating new opportunities.
For eg. Apple Computers uses a differentiation competitive strategy that emphasizes
innovative product with creative design.
In contrast, ANZ Grindlays merged with Standard Chartered Bank to emerge competitively.
Operational Strategy – is concerned with how each part of the business is organized to deliver
the corporate and business unit level strategic direction. Operational strategy therefore focuses
on issues of
 resources,
 processes,
 people etc.
Functional Strategy – it is the approach taken by a functional area to achieve corporate and
business unit objectives and strategies by maximizing resource productivity. It is concerned with
developing and nurturing a distinctive competence to provide the firm with a competitive
advantage.
For eg. P & G spends huge amounts on advertising to create customer demand.
Nature of Strategic Management
Strategic management is both an Art and science of formulating, implementing, and evaluating,
cross-functional decisions that facilitate an organization to accomplish its objectives. The
purpose of strategic management is to use and create new and different opportunities for future.
The nature of Strategic Management is dissimilar form other facets of management as it demands
awareness to the "big picture" and a rational assessment of the future options. It offers a strategic
direction endorsed by the team and stakeholders, a clear business strategy and vision for the
future, a method for accountability, and a structure for governance at the different levels, a
logical framework to handle risk in order to guarantee business continuity, the capability to
exploit opportunities and react to external change by taking ongoing strategic decisions.
Importance of Strategic Management:
Strategic management is important because is helps in setting detailed goals, analysing all our internal and
external resources, analysing our external environment, as well as stakeholder views.
Good corporate governance needs an efficient strategic management process.
As the environment changes, companies may change their vision and objectives, structure,
portfolio of business, markets and competitive strategies. The economic liberalization and the

concomitant (associated) wide opening up of business opportunities and increase in competition
have in fact made strategic management a buzz word among the Indian corporate.
The task of Strategic Management is to identify the new and different businesses, technologies
and markets which the company should try to create long range It always reminds us the present
business, should we abandon?
Without competitors, there would be no need for strategy, for the sole purpose of strategic
planning to enable the company to gain, as efficiently as possible, a sustainable edge over it’s
competitors (rivals)
Changes in one stage of the strategic management process will inevitably affect other stages as
well. After a planned strategy is implemented, for example often requires modification as
environmental or organizational conditions change, or as top management’s ability to interpret
these changes improve. Hence, these steps are interrelated; they should be treated as an
integrated, ongoing process.
Relevance of Strategic Management:
Markets are becoming global & products must suit individual needs. There are too much of rules
& regulations prevailing which must be followed strictly. Above all, an organization is expected
to fulfill social responsibilities which, if ignored, may lead to drastic consequences. Due to fast
changing business environment, strategic management has assumed greater relevance today. It
has become increasingly difficult to predict the future as:
 Environment is more complex
 Technologies are changing at a rapid rate
 Both domestic & international events get affected due to globalization
 More reliance on innovation, creativity
 More social responsibility
 Increased legislation
Characteristics of Strategic Management
Long-Term Issues
 Strategic management deals primarily with long-term issues that may or may not have an
immediate effect. For example, investing in the education of the company's work force
may yield no immediate effect in terms of higher productivity. Still, in the long run, their
education will result in higher productivity, and therefore enhanced profits.

Competitive Advantage
 Strategic management helps managers find new sources of sustainable competitive
advantage. Executives that apply the principles of strategic management in their work
continuously try to deliver products or services cheaper, produce greater customer
satisfaction and make employees more satisfied with their jobs.
Effect on Operations
 Good strategic management always has a sizable effect on operational issues. For
example, a decision to link pay to performance will result in operational decisions being
more effective as employees try harder at their jobs. Operational decisions include
decisions that deal with questions such as how to sell to certain customers or whether to
open a credit line to them. Operational decisions are made in the lower echelons of the
organizational hierarchy.
Shareholders
 Managing the organization strategically fashion requires that the interests of shareholders
be put at the heart of all issues. Whether the question at hand is expansion into a new
market or negotiating mergers and acquisitions, shareholder value should be at the core at
all times.
Strategic Management Process:
The strategic management is a broader term than strategy and is a process that includes top
management’s analysis of the environment in which the organization operates prior to
formulating a strategy, as well as the plan for implementation and control of the strategy.
1. External Analysis Analyze the opportunities and threats or constraints that exist in the
organization’s external environment, including industry and macro- environmental forces.
(external world)
2. Internal Analysis: Analyze the organization’s strengths and weakness in its internal
environment. (within the organization)
3. Mission & Direction: Reassess the organization’s mission and it’s goal in the light of the
previous two steps. (review)
4. Strategy Formulation: Formulate strategies that build and sustain competitive advantage by;
matching the organization’s strengths and weaknesses with the environment’s opportunities and
threats.
5. Strategy Implementation: Implement the strategies that have been developed.
6. Strategic Control: Engage in strategic control activities when the strategies are not producing
the desired outcomes.

The Strategic Planning Process:
Strategic Analysis: The process of Strategic Analysis can be assisted by a number of tools,
including:
PEST Analysis – a technique for understanding the “environment” in which a business
operates.
Scenario Planning - a technique that builds various possible views of possible futures
for a business.
Five Forces Analysis – a technique for identifying the forces which affect the level of
competition in an industry.
Market Segmentation – a technique which seeks to identify similarities and differences
between groups of customers or users.
Directional Policy Matrix – a technique which summarizes the competitive strength of a
business operations in specific markets.
Critical Success Factor Analysis - a technique to identify those areas in which a
business must outperform the competition in order to succeed.
SWOT Analysis – a useful summary technique for summarizing the key issues arising
from an assessment of a business’s “internal” position and “external” environmental influences.
Strategic Choice:
Strategic choice involves understanding the nature of stakeholder expectations
identifying strategic options, and then evaluating and selecting strategic options.
Mission &
Objectives
Environmental
Scanning
Formulation Implementation
Evaluation &
Control

Strategic implementation:
Strategic implementation is the process by which strategies and policies are put into
action through the development of programs, budgets and procedures.
According to Samuel C. Certo and J. Paul Peter, “Strategic management is a continuous,
interactive, cross-functional process aimed at keeping an organization as whole appropriately
matched to its environment.”
Strategic Management is the systematic application of strategic thinking to the development of
the organization. In other words, can be stated as the process by which an organization
formulates its objectives & achieves them. Strategic Management is different from long term
planning. Long time planning is the attempt to forecast the future & set procedures for present
based on past experience. Strategic management focuses on ‘second generation planning’.
Business is analyzed & several scenarios for the future are put forth.
Need for Strategic Management:
Initially business operated in environments which had little or no competition. Industry was
limited to a few firms. The geographical distribution of most organization was limited & changes
in technology were slow. The need for SM was felt in 1960’s due to changing world conditions
that lead to diversification & spreading out of activities in other countries. So the need was:
 Due to change
 To provide guide lines
 Research & Development
 Probability for business performance
 Systemized decision
 Improves Communication
 Allocation of Resources
 Improves co-ordination
 Helps Managers to have Holistic Approach

Relevance of Strategic Management:
Markets are becoming global & products must suit individual needs. There are too much of rules
& regulations prevailing which must be followed strictly. Above all, an organization is expected
to fulfill social responsibilities which, if ignored, may lead to drastic consequences. Due to fast
changing business environment, strategic management has assumed greater relevance today. It
has become increasingly difficult to predict the future as:
 Environment is more complex
 Technologies are changing at a rapid rate
 Both domestic & international events get affected due to globalization
 More reliance on innovation, creativity
 More social responsibility
 Increased legislation
Benefits of Strategic Management:
Though the results of SM cannot be measured directly as there are many other factors that
influence the performance of an organization, there are certain benefits to the organization. They
are:
1. Management process becomes flexible to allow for unanticipated future changes.
2. The organsation is prepared for several future scenarios & is better equipped for face
changes.
3. Since objectives ae defined, direction to all activities of the organization is provided.
4. All parts of the organization work in coordination to achieve organization purposes &
objectives.
5. Corporate communication, allocation of resources & short range planning also greatly
improved.
6. It makes managers proactive & conscious of their environments. It helps them to think of
future.
7. Higher motivational levels are achieved.
8. Conflict between personal/departmental goals & organizational goals is reduced.
9. Resistance to change is reduced as employees realize that changes may be due to achieve
goals.

Strategic Management Process: General representation
Goal Setting: Set by the top management.
Analysis: Scanning of the environment, both external & internal
Strategy Formulation: Crafting a strategy to achieve the objectives.Strategy Formulation
includes developing:
 Vision & Mission(target of the business)
 Strength & Weakness
 Opportunities & Threats( environmental scanning)
The considerations for the best strategy formulation are:
 Allocation of resources
 Business to enter or retain, to divest or liquidate
 Joint Ventures or mergers, Expansion or entry into Foreign markets
 Trying to avoid take over
Analysis
Goal Setting
Strategy
Formulation
Strategy
Implementation
nn
Strategy
Evaluation

Strategy Implementation: Implementing the chosen strategy efficiently & effectively. It
requires developing Strategy supporting culture, creating an effective organization structure,
preparing budgets, developing IS to support the strategy.
Strategy Evaluation: Evaluating the performance & initiating corrective adjustments. This is the
final stage in the Strategic Management process. It is the means to obtain information about
proper implementation of the strategy. All strategies are subject to future modification because
external & internal forces are constantly changing.
Benefits of Strategic Management
 Management process becomes flexible to allow for unanticipated future changes.
 The organization is prepared for several future scenarios & is better equipped for face
changes.
 Since objectives are defined, direction to all activities of the organization is provided.
 All parts of the organization work in coordination to achieve organization purposes &
objectives.
 Corporate communication, allocation of resources & short range planning also greatly
improved.
 It makes managers proactive & conscious of their environments. It helps them to
think of future.
 Higher motivational levels are achieved.
 Conflict between personal/departmental goals & organizational goals is reduced.
 Resistance to change is reduced as employees realize that changes may be due to
achieve goals.
Financial Benefits
Research indicates that organizations using strategic-management concepts are more profitable
and successful than those that do not. Businesses using strategic-management concepts show
significant improvement in sales, profitability, and productivity compared to firms without
systematic planning activities. High-performing firms tend to do systematic planning to prepare
for future fluctuations in their external and internal environments. Firms with planning systems
more closely resembling strategic management theory generally exhibit superior long-term
financial performance relative to their industry. High-performing firms seem to make more
informed decisions with good anticipation of both short- and long-term consequences. On the
other hand, firms that performs poorly often engage in activities that are shortsighted and do not
reflect good forecasting of future conditions. Strategists of low-performing organizations are
often preoccupied with solving internal problems and meeting paperwork deadlines. They
typically underestimate their competitors' strengths and overestimate their own firm's strengths.
They often attribute weak performance to uncontrollable factors such as poor economy,
technological change, or foreign competition.
Non- financial Benefits

 What are Non financial benefits of Strategic Management?
 Why firms do no strategic planning?
 Pitfalls to avoid in strategic planning
 Business Ethics
 Global challenges
 Increased employee productivity
 Improved understanding of competitors’ strategies
 Greater awareness of external threats
 Understanding of performance reward relationships
 Better problem-avoidance
 Lesser resistance to change
Strategy versus tactics:
The word strategy often confused with tactics, from the Greek Taktike. Taktike translates
as organizing the army. In modern usage, strategy and tactics might refer not only to warfare,
but to a variety of business practices. Essentially, strategy is the thinking aspect of planning a
change, organizing something, or planning a war. Strategy lays out the goals that need to be
accomplished and the ideas for achieving those goals. Strategy can be complex multi-layered
plans for accomplishing objectives and may give consideration to tactics.
Both "strategy" and "tactics" are derived from ancient Greek. To the Greeks, taktihos meant
"fit for arranging or maneuvering," and it referred to the art of moving forces in battle, that is
the "art and science of how?". Tactics are the meat and bread of the strategy. They are the
“doing” aspect that follows the planning. Tactics refer specifically to action. In the strategy
phase of a plan, the thinkers decide how to achieve their goals. In other words they think
about how people will act, i.e., tactics. They decide on what tactics will be employed to fulfill
the strategy.
The tactics themselves are the things that get the job done. Strategies can comprise numerous
tactics, with many people involved in attempting to reach an overall goal. While strategy
tends to involve the higher ups of an organization, tactics tend to involve all members of the
organization.
Another term related to strategy and tactics in military operations is logistics. Logistics refers
to how an army will be supported so they can employ tactics. Logistics form a part of
strategy, for example, when one looks at providing a military force with weapons, food and
lodging.
Strategy (what?): What to achieve? To attract more new clients and better retain existing
Ones
Tactics (How?) How to achieve your strategies through who you are, by what you do and
with what you have.

1. Develop your Unique Value Proposition to gain attention
2. Develop your Unique Selling Proposition to stand of the crowd
3. Develop a powerful Audio Logo
4. Start an electronic newsletter
5. Write articles in magazines
As Peter Drucker says: "Strategy is doing the right things, tactics is doing things
right." Also, when you next hire a new employee, decide whether that employee
would do a strategic or a tactical job.
The Strategic Planning Process:
In today's highly competitive business environment, budget-oriented planning or forecast based
planning methods are insufficient for a large corporation to survive and prosper. The firm must
engage in strategic planning that clearly defines objectives and assesses both the internal and
external situation to formulate strategy, implement the strategy, evaluate the progress, and make
adjustments as necessary to stay on track. A simplified view of the strategic planning process is
shown by the following diagram:
Business Model . . . Concerns whether revenues and costs flowing from the strategy
demonstrate a business can be amply profitable and viable
Business Model Design Template:
• Infrastructure
– Core capabilities
– Partner network
• Offering
– Value proposition
• Customers
– Target customer
– Distribution channel
– Customer relationship
• Finances
– Cost structure
– Revenue
Business Model-Components
• The value proposition of what is offered to the market;
• The target customer segments addressed by the value proposition;

• The communication and distribution channels to reach customers and offer the value proposition;
• The relationships established with customers;
• The core capabilities needed to make the business model possible;
• The configuration of activities to implement the business model;
• The partners and their motivations of coming together to make a business model happen;
• The revenue streams generated by the business model constituting the revenue model;
• The cost structure resulting of the business model.
Relationship between a Company’s Strategy and its Business Model.
Strategy . . .
Deals with a company’s competitive initiatives and business approaches
Business Model . . . Concerns whether revenues and costs flowing from the strategy demonstrate
a business can be amply profitable and viable
Develop a Business Model for any Company
• Dominos Pizza
– Infrastructure (larger presence, fast delivery)
– Offerings (Pizza at Rs. 35/-)
– Customers (Lower and middle income group, franchisees, good services)
– Finances (Reduction in Cost through innovative practices, Economies of
Scale)
Good Strategy + Good Strategy Execution = Good Management
Value Creation Competency
 Customer Focus
 Competitor Focus
Planning and Administration Competency
 Activity Fit
 Corporate Fit
 Alliance Fit
 People Fit
 Reward System Fit
 Communications Fit
Global Awareness Competency

 Opportunities / Threats Exist Anywhere
 Different Business Practices
 Cultural Awareness
Leveraging Technology Competency
 Faster Innovation
 Big Companies Act Small
 Small Companies Act Big
Stakeholder Competency
 Shareholders
 Customers
 Employees
 Communities
 Senior Managers
INDIA’S TOP TEN STRATEGISTS
Name of the company Position in the industry
Infosys Technologies 1
Reliance Industries 2
Wipro 3
Hindustan Lever 4
Maruti Udyog 5
Dr. Reddy’s Laboratories 6
HDFC Bank 7
Jet Airways 8
ICICI Bank 9
Ranbaxy Laboratories 10

Module – II
Strategy formulation – Developing Strategic vision and Mission for a company – Setting
Objectives – Strategic Objectives and Financial Objectives – Balanced score card, Company
Goals and Company Philosophy. The hierarchy of Strategic Intent – Merging the Strategic
Vision Objectives and Strategy into a Strategic Plan.
Strategy formulation
Strategy formulation is the process by which an organization chooses the most. appropriate
courses of action to achieve its defined goals. This process is. essential to an organization's
success, because it provides a framework for the. Strategy formulation refers to the process of
choosing the most appropriate course of action for the realization of organizational goals and
objectives and thereby achieving the organizational vision.
DEVELOPING A VISION & MISSION
The mission statement communicates the firm's core ideology and visionary goals, generally
consisting of the following three components:
1. Core values to which the firm is committed
2. Core purpose of the firm
3. Visionary goals the firm will pursue to fulfill its mission
The firm's core values and purpose constitute its core ideology and remain relatively constant.
They are independent of industry structure and the product life cycle.
The core ideology is not created in a mission statement; rather, the mission statement is simply
an expression of what already exists. The specific phrasing of the ideology may change with the
times, but the underlying ideology remains constant.
Mission Statement:
 A mission statement is a brief description of a company’s fundamental purpose. A
mission statement answers the question, “Why does an organization exist?”
 A mission statement is a brief written statement of the purpose of a company or
organization. Ideally, a mission statement guides the actions of the organization, spells
out its overall goal, provides a sense of direction, and guides decision making for all
levels of management

Mission statements contain the following:
 Purpose and aim of the organization
 The organization's primary stakeholders: clients, stockholders, etc.
 Responsibilities of the organization toward these stakeholders
 Products and services offered
Characteristics of Mission Statements:
 An enduring statement of purpose
 Distinguishes one firm from another in the same business
 A declaration of a firm’s reason for existence
Elements of a mission statement,
1. Clearly articulated. – easy to understand the values and purpose.
2. Relevant – in terms of its history, culture and shared values.
3. Current – not outdated
4. Written in a Positive (Inspiring) Tone – capable of inspiring and stimulating
Commitment towards fulfilling the mission.
5. Unique – not copied from similar units.
6. Enduring – Should guide, inspire and challenging.
7. Adapted to the Target Audience – stock holders, consumers, employees through shared
values and standards of behavior.
Mission is the purpose of or a reason for organization existence. Mission is a well
convincible statement included fundamental and unique purpose which makes it different
from other organization. It identifies scope of it operation in terms of product offered and
market served. Mission also means what we are and what we do.
Mission Statements are also known as:
� Creed statement
� Statement of purpose
� Statement of philosophy

� Statement of business principles
 Importance: Mission Statements reveal what an organization wants to be and whom it
wants to serve and how?
 Mission Statements are essential for effectively establishing objectives and formulating
strategies.
Mission is divided into two categories:
 Narrow Mission
 Broad Mission
Narrow Mission:
Narrow mission also identifies the mission but it restrict in terms of:
1. Product and services offered
2. Technology used
3. Market served
4. Opportunity of growth
Broad Mission:
Broad mission wider our mission values in terms of product and services, offered, market
served, technology used and opportunity of growth. But main flow of this mission that if
creates confusion among employee due to its wider sense.
Illustration:For example consider two different firms A & B. A deals in Rail Roads and B
deals in Transportation i.e. we can say A co. has narrow mission and B co. has a wider
mission.
Characteristics of good Mission Statements:
Mission statements can and do vary in length, content, format, and specificity. Most practitioners
and academicians of strategic management consider an effective statement to exhibit nine
characteristics or components. Because a mission statement is often the most visible and public
part of the strategic management process, it is important that it includes all of these essential
components.
Effective mission statements should be:
 Broad in scope

 Generate range of feasible strategic alternatives
 Not excessively specific
 Reconcile interests among diverse stakeholders
 Finely balanced between specificity & generality
 Arouse positive feelings and emotions
 Motivate readers to action
 Generate the impression that firm is successful, has direction, and is worthy of time,
support, and investment
 Reflect judgments re: future growth
 Provide criteria for selecting strategies
 Basis for generating & screening strategic options
 Are dynamic in orientation
Components and corresponding questions that a mission statement should answer are given here.
�Customer: Who are the firm’s customers?
�Products or services: What are the firm’s major products or services?
�Markets: Geographically, where does the firm compete?
�Technology: Is the firm technologically current?
�Concern for survival, growth, and profitability: Is the firm committed to growth and financial
soundness?
�Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
�Self-concept: What is the firm’s distinctive competence or major competitive advantage?
�Concern for public image: Is the firm responsive to social, community, and environmental
concerns?
�Concern for employees: Are employees a valuable asset of the firm?
Examples of Mission Statements of some Organizations:
Apple Computer (www.apple.com)
It is Apple’s mission to help transform the way customers work, learn and communicate by
providing exceptional personal computing products and innovative customer services.
We will pioneer new directions and approaches, finding innovative ways to use computing
technology to extend the bounds of human potential.

Apple will make a difference: our products, services and insights will help people around the
world shape the ways business and education will be done in the 21st century.
McDonald’s :To offer the fast food customer food prepared in the same high-quality manner
world-wide, tasty and reasonably priced, delivered in a consistent, low-key decor and friendly
atmosphere.
Key Market: To offer the fast food customer
Contribution: food prepared in the same high-quality manner world-wide, tasty and reasonably
priced,
Distinction: delivered in a consistent, low-key decor and friendly atmosphere.
VISION:
“Vision is the art of seeing things invisible”
.. . . . Jonathan Swift
“The very essence of leadership is that you have vision. You can’t blow an uncertain trumpet”
……...Theodore Hesburgh
VisionDefines the desired or intended future state of a specific organization or enterprise in term
s of its fundamental objective and/or strategic direction.
The difference between a mission statement and a vision statement is that a mission statement fo
cuses on a company’s present state while a vision statement focuses on a company’s future
Importance of Vision and Mission Statements
� Unanimity of purpose within the organization
� Basis for allocating resources
� Establish organizational climate
� Focal point for direction
� Translate objectives into work structure
� Cost, time and performance parameters assessed and controlled
� Most companies are now getting used to the idea of using mission statements.

� Small, medium and large firms in Pakistan are also realizing the need and adopting mission
statements.
Components of vision:
The three components of the business vision can be portrayed as follows
Core Values
The core values are a few values (no more than five or so) that are central to the firm. Core
values reflect the deeply held values of the organization and are independent of the current
industry environment and management fads.
One way to determine whether a value is a core value to ask whether it would continue to be
supported if circumstances changed and caused it to be seen as a liability. If the answer is that it
would be kept, then it is core value. Another way to determine which values are core is to
imagine the firm moving into a totally different industry. The values that would be carried with it
into the new industry are the core values of the firm.
Core values will not change even if the industry in which the company operates changes. If the
industry changes such that the core values are not appreciated, then the firm should seek new
markets where its core values are viewed as an asset.
For example, if innovation is a core value but then 10 years down the road innovation is no
longer valued by the current customers, rather than change its values the firm should seek new
markets where innovation is advantageous.
The following are a few examples of values that some firms have chosen to be in their core:
· excellent customer service
· pioneering technology
· creativity
· integrity
· social responsibility
Core Purpose
The core purpose is the reason that the firm exists. This core purpose is expressed in a carefully
formulated mission statement. Like the core values, the core purpose is relatively unchanging
and for many firms endures for decades or even centuries. This purpose sets the firm apart from
other firms in its industry and sets the direction in which the firm will proceed.
The core purpose is an idealistic reason for being. While firms exist to earn a profit, the profit
motive should not be highlighted in the mission statement since it provides little direction to the

firm's employees. What is more important is how the firm will earn its profit since the "how" is
what defines the firm.
Initial attempts at stating a core purpose often result in too specific of a statement that focuses on
a product or service. To isolate the core purpose, it is useful to ask "why" in response to first-
pass, product-oriented mission statements. For example, if a market research firm initially states
that its purpose is to provide market research data to its customers, asking "why" leads to the fact
that the data is to help customers better understand their markets. Continuing to ask "why" may
lead to the revelation that the firm's core purpose is to assist its clients in reaching their
objectives by helping them to better understand their markets.
The core purpose and values of the firm are not selected - they are discovered. The stated
ideology should not be a goal or aspiration but rather, it should portray the firm as it really is.
Any attempt to state a value that is not already held by the firm's employees is likely to not be
taken seriously.
Visionary Goals
The visionary goals are the lofty objectives that the firm's management decides to pursue. This
vision describes some milestone that the firm will reach in the future and may require a decade
or more to achieve. In contrast to the core ideology that the firm discovers, visionary goals are
selected.
These visionary goals are longer term and more challenging than strategic or tactical goals.
There may be only a 50% chance of realizing the vision, but the firm must believe that it can do
so. Collins and Porras describe these lofty objectives as "Big, Hairy, Audacious Goals." These
goals should be challenging enough so that people nearly gasp when they learn of them and
realize the effort that will be required to reach them.
Most visionary goals fall into one of the following categories:
· Target - quantitative or qualitative goals such as a sales target or Ford's goal to "democratize
the automobile."
· Common enemy - centered on overtaking a specific firm such as the 1950's goal of Philip-
Morris to displace RJR.
· Role model - to become like another firm in a different industry or market.
For example, a cycling accessories firm might strive to become "the Nike of the cycling
industry."
· Internal transformation - especially appropriate for very large corporations.

For example, GE set the goal of becoming number one or number two in every market it serves.
While visionary goals may require significant stretching to achieve, many visionary companies
have succeeded in reaching them. Once such a goal is reached, it needs to be replaced; otherwise,
it is unlikely that the organization will continue to be successful. For example, Ford succeeded in
placing the automobile within the reach of everyday people, but did not replace this goal with a
better one and General Motors overtook Ford in the 1930's.
Strategic vision:
• A strategic vision is a road map showing the route a company intends to take in
developing and strengthening its business. It paints a picture of a company’s
destination and provides a rationale for going there.
• Involves thinking strategically about
– Future direction of company
– Changes in company’s product-market-customer-technology to improve
• Current market position
• Future prospects
•
WHY A SHARED VISION MATTERS
 A strategic vision widely shared among all employees functions similar to how a magnet
aligns iron filings
 When all employees are committed to firm’s long-term direction, optimum choices on
business decisions are more likely
o Individuals & teams know intent of firm’s strategic vision
o Daily execution of strategy is improved
ITC:
To enhance the wealth generation capability of the enterprise in a globalizing environment
, delivering a superior & sustainable stakeholder value.
Infosys
"We will be a globally respected corporation."
General Electric
We will become number one or number two in every market we serve, and revolutionize this
company to have the speed and agility of a small enterprise.
Microsoft Corporation

“Empower people through great software—any time, any place, and on any device.”
Communicating the Strategic Vision
An exciting, inspirational vision
– Contains memorable language
– Clearly maps company’s future direction
– Challenges and motivates workforce
– Provokes emotion and enthusiasm
Winning support for the vision involves
– Putting “where we are going and why” in writing
– Distributing the statement organization-wide
– Having executives explain the vision to the workforce
Strategic Vision vs. Mission
• A strategic vision concerns a firm’s future business path - “where we are going”
– Markets to be pursued
– Future technology-product-customer focus
– Kind of company management is
– trying to create
• The mission statement of most companies focuses on current business activities - “who
we are and what we do”
– Current product and service offerings
– Customer needs being served
– Technological and business capabilities
Linking the Vision With Company Values
• A statement of values is often provided to guide the company’s pursuit of its vision
• Values – Beliefs, business principles, and ways of doing things that are incorporated into
– Company’s operations
– Behavior of workforce
• Values statements
– Contain between four and eight values
– Are ideally tightly connected to and reinforce company’s vision, strategy, and
operating practices
Example: Company Values

SETTING OBJECTIVES
• Purpose of setting OBJECTIVES is to
– Convert mission into performance targets
– Create yardsticks to track performance
– Establish performance goals requiring stretch
– Push firm to be inventive, intentional, focused
• Objectives guards against
– Complacency
– Drift
– Internal confusion
– Status quo performance
–
Objectives of Madras Fertilizers Ltd.
• To produce and market fertilizers and bio-fertilizers and market agro-chemicals,
efficiently and economically, in an environmentally sound manner;
• To take up and implement schemes for saving energy;
• To continuously upgrade the quality of human resources and promote organizational and
management development.
• To continually improve plant and operational safety;
• To take up R&D schemes.
Objectives can be set at two levels:
(1) Corporate level
These are objectives that concern the business or organisation as a whole
Creating
sharehold
er value
Building
strong
relationshi
ps
Entrepren
eurial
spirit
Excellent
customer
service
Giving
back to
the
communit
y
Respect
for all
people
Doing the
right thing
Taking
care of
people

Examples of “corporate objectives might include:
• We aim for a return on investment of at least 15%
• We aim to achieve an operating profit of over £10 million on sales of at least £100 million
• We aim to increase earnings per share by at least 10% every year for the foreseeable future
(2) Functional level
e.g. specific objectives for marketing activities
Examples of functional marketing objectives” might include:
• We aim to build customer database of at least 250,000 households within the next 12 months
• We aim to achieve a market share of 10%
• We aim to achieve 75% customer awareness of our brand in our target markets
Both corporate and functional objectives need to conform to the commonly used SMART
criteria.
The SMART criteria:
SMART:
S specific, unambiguously
M measurable
A ambitious, acceptable, achievable
R realistic, Relevant,
T in a certain time
Specific - the objective should state exactly what is to be achieved.
Measurable - an objective should be capable of measurement – so that it is possible to determine
whether (or how far) it has been achieved
Ambitious - the objective should be achievable given the circumstances in which it is set and the
resources available to the business.
Relevant - objectives should be relevant to the people responsible for achieving them
Time Bound - objectives should be set with a time-frame in mind. These deadlines also need to
be realistic.
Characteristics of Objectives
• Represent commitment to achieve specific performance targets
• Spell-out how much of what kind
• of performance by when
• Well-stated objectives are
• Quantifiable
• Measurable
• Contain a deadline for achievement

TYPES OF OBJECTIVES
• Strategic Objectives
Outcomes that will result in greater competitiveness & stronger long-term market
position
• Financial Objectives
Outcomes that relate to improving firm’s financial performance
Examples: Financial Objectives
• X % increase in annual revenues
• X % increase annually in after-tax profits
• X % increase annually in earnings per share
• Annual dividend increases of X %
• Profit margins of X %
• X % return on capital employed (ROCE)
Examples: Strategic Objectives
• Winning an X % market share
• Achieving lower overall costs than rivals
• Overtaking key competitors on product performance or quality or customer service
• Deriving X % of revenues from sale of new products introduced in past 5 years
• Achieving technological leadership
Unilver’s Strategic and Financial Objectives
• Grow annual revenues by 5-6% annually
• Increase operating profit margins from 11% to 16% within 5 years
• Trim company’s 1200 food, household, and personal care products down to 400 core
brands
• Focus sales and marketing efforts on those brands with potential to become respected,
market-leading global brands
• Streamline company’s supply chain
Short-Term vs. Long-Term Objectives
• Short-term objectives
– Targets to be achieved soon
– Milestones or stair steps for reaching long-range performance
• Long-term objectives
Targets to be achieved within 3 to 5 years

– Prompt actions now that will permit reaching targeted
– long-range performance later
Objectives Are Needed at All Levels
1. First, establish organization-wide objectives and performance targets
2. Next, set business and product line objectives
3. Then, establish functional and departmental objectives
4.Individual objectives are established last
Importance of Top-Down Objectives
 Guide objective-setting and strategy-making at lower levels
 Ensures financial and strategic performance targets for all business units, divisions, and
departments are directly connected to achieving company-wide objectives
 Integration of objectives has two advantages
 Helps produce cohesion among objectives and strategies of different parts of
organization
 Helps unify internal efforts to move a company along the chosen strategic path
Goals vs objectives:
Balanced scorecard-by Robert Kaplan & David Norton
Difference between goals and objectives
Goals Objectives
Broad in scope Narrow in scope
Are general intentions Very precise.
Intangible Tangible.
Abstract in nature Concrete in nature
Can't be validated Can be validated
Very short statement, few words Longer statement, more descriptive
Directly relates to the Mission
Statement
Indirectly relates to the Mission
Statement

I n t r o d u c t i o n t o t h e b a l a n c e d s c o r e c a r d
The background
 Developed by Robert Kaplan and David Norton in 1992
 No single measures can give a broad picture of the organisation’s health.
 So instead of a single measure why not one use a composite scorecard involving a
number of different measures.
 Kaplan and Norton devised a framework based on four perspectives – financial,
customer, internal and learning and growth.
 The organisation should select critical measures for each of these perspectives.
Balanced Scorecard:
History:
The Balanced Scorecard was developed in the early 1990s by two guys at the Harvard
Business School: Robert Kaplan and David Norton. The key problem that Kaplan and
Norton identified in the business of the day was that many companies tended to manage
their businesses based solely on financial measures. While that may have worked well in
the past, the pace of business in today's world requires more comprehensive measures.
Though financial measures are necessary, they can only report what has happened in the
past — where a business has been, but not where it is headed. It's like driving a car by
looking in the rearview mirror.

To provide a management system that was better at dealing with today's business pace
and to provide business managers with the information they need to make better
decisions, Kaplan and Norton developed the Balanced Scorecard.
 Balanced scorecard methodology is an analysis technique designed to translate an
organization's mission statement and overall business strategy into specific,
quantifiable goals and to monitor the organization's performance in terms of
achieving these goals.
 A system of corporate appraisal which looks at financial and non-financial elements from
a variety of perspectives.
 An approach to the provision of information to management to assist strategic policy
formation and achievement.
 It provides the user with a set of information which addresses all relevant areas of
performance in an objective and unbiased fashion.
 A set of measures that gives top managers a fast but comprehensive view of the business.
Importance of balanced scorecard…
 The Balanced Scorecard balances the financial perspective with the organisational,
customer and innovation perspectives which are crucial for the future of an organisation
 The balanced scorecard methodology is a comprehensive approach that analyzes an
organization's overall performance in four ways, based on the idea that assessing
performance through financial returns only provides information about how well the
organization did prior to the assessment, so that future performance can be predicted and
proper actions taken to create the desired future.
 Allows managers to look at the business from four important perspectives.
 Provides a balanced picture of overall performance highlighting activities that need to be
improved.
 Combines both qualitative and quantitative measures.
 Relates assessment of performance to the choice of strategy.
 Includes measures of efficiency and effectiveness.
 Assists business in clarifying their vision and strategies and provides a means to translate
these into action.
Main benefits of using the balanced scorecard
 Helps companies focus on what has to be done in order to create a breakthrough
performance
 Acts as an integrating device for a variety of corporate programmes
 Makes strategy operational by translating it into performance measures and targets
 Helps break down corporate level measures so that local managers and employees can
see what they need to do well if they want to improve organisational effectiveness
 Provides a comprehensive view that overturns the traditional idea of the organisation as a
collection of isolated, independent functions and departments

B a l a n c e d s c o r e c a r d - f o u r p e r s p e c t i v e s
The four perspectives are:
 Financial perspective - how does the firm look to shareholders?
 Customer perspective - how do customers see the firm?
 Internal perspective - how well does it manage its operational processes?
 Innovation and learning perspective – can the firm continue to improve and create
value? This perspective also examines how an organisation learns and grows.
For each of four perspectives it is necessary to identify indicators to measure the performance of
the organisations.
From the financial perspective
This is concerned with the shareholders view of performance.
Shareholders are concerned with many aspects of financial performance: Amongst the measures
of success are:
 Market share
 Revenue growth
 Profit ratio
 Return on investment
 Economic value added
 Return on capital employed
 Operating cost management
 Operating ratios and loss ratios
 Corporate goals
 Survival
 Profitability
 Growth
 Process cost savings
 Increased return on assets
 Profit growth
 Measures
 Cash flow
 Net profitability ratio
 Sales revenue
 Growth in sales revenue
 Cost reduction
 ROCE
 Share price
 Return on shareholder funds
From the customerperspective

How do customers perceive the firm?
This focuses on the analysis of different types of customers, their degree of satisfaction and the
processes used to deliver products and services to customers.
Particular areas of focus would include:
 Customer service
 New products
 New markets
 Customer retention
 Customer satisfaction
 What does the organisation need to do to remain that customer’s valued supplier?
Potential goals for the customer perspective could include:
 Customer satisfaction
 New customer acquisition
 Customer retention
 Customer loyalty
 Fast response
 Responsiveness
 Efficiency
 Reliability
 Image
The following metrics could be used to measure success in relation to the customer
perspective:
 Customer satisfaction index
 Repeat purchases
 Market share
 On time deliveries
 Number of complaints
 Average time to process orders
 Returned orders
 Response time
 Reliability
 New customer acquisitions
 Perceived value for money
From the internal perspective
This seeks to identify:

 How well the business is performing.
 Whether the products and services offered meet customer expectations.
 The critical processes for satisfying both customers and shareholders.
 Activities in which the firm excels?
 And in what must it excel in the future?
 The internal processes that the company must be improved if it is to achieve its
objectives.
This perspective is concerned with assessing the quality of people and processes.
Potential goals for the internal perspective include:
 Improve core competencies
 Improvements in technology
 Streamline processes
 Manufacturing excellence
 Quality performance
 Inventory management
 Quality
 Motivated workforce
The following metrics could be used to measure success in relation to the internal perspective:
 Efficiency improvements
 Reduction in unit costs
 Reduced waste
 Improvements in morale
 Increase in capacity utilisation
 Increased productivity
 % defective output
 Amount of recycled waste
 Amount of reworking
The innovation and learning perspective
This perspective is concerned with issues such as:
 Can we continue to improve and create value?
 In which areas must the organisation improve?
 How can the company continue to improve and create value in the future?
 What should it be doing to make this happen?
Potential goals for the innovation and learning perspective include:
 New product development
 Continuous improvement

 Technological leadership
 HR development
 Product diversification
The following metrics could be used to measure success in relation to the innovation and
learning perspective:
 Number of new products
 % sales from new products
 Amount of training
 Number of strategic skills learned.
 Value of new product in sales
 R&D as % of sales
 Number of employee suggestions.
 Extent of employee empowerment
Critical success factors:
– Success factors on which the company concentrates, to distinguish oneself for
competition to build up an advantage in completion
Performance indicator
– Translation of critical success factors to measurable indicators
Company goals & philosophy :Objectives, Measures, Targets, Initiatives
• Each perspective of the Balanced Scorecard includes, objectives, measures of those
objectives, target values of those measures, initiatives, defined as follows:
– Objectives – Major objectives to be achieved (Profitable Growth)
– Measures – the observable parameters that will be used to measure progress
reaching the objective. (the objective of profitable growth might be measured by
growth in net margin)
– Targets – the specific targets values for measures (+2% growth in net margin)
– Initiatives – action programs to be initiated in order to meet the objectives
Objectives Measures Targets Initiatives
Financial
Customer
Process
Learning

Advantages:
• Structure in collection and assimilation of performance information
• Translation of strategy to operational performance indicators
• Perspective of learning and growing gives a challenge to improving processes
continuously
• BSC can be used as a planning instrument
• Gives insight in performance per critical success factor.
Disadvantages
• A laborious and difficult process
• Use external experts
• Involve employees with the process
• Choose a limited amount of performance indicators
• Pay attention to the availability of information of performance indicators
Company Philosophy
It is in the form of a Slogan or Statement. It projects the ethical and value based
concept(philosophy) a Company contributes to public. This is more related to the Social
Responsibility& Public Good. The corporation is a creation of society whose purpose is the
production and distribution of needed goods and services, for profit of society and itself. The
Company in it’s own interest has to promote the public welfare in a positive way. Indeed, the
corporate interest broadly defined by management can support involvement in helping to solve
virtually any social
problem, because people who have good environment, education and opportunity make better
employees, customers and neighbors for business than those who are poor, ignorant and
oppressed. Pollution control, contributing to public cause in the areas of health, education &
poverty. Payment of taxes genuinely, fair wages to employees, quality products/services to
consumers, all actions are based on legal and moral foundation etc
Hierarchy of Strategic Intent
HAMEL AND PRAHALAD coined the term strategic intent
• “strategic" is mainly used with long term
• "Intent" is basically related to "intentions" that is "a plan to do something" is an
intention
“Strategic Intent -a plan to do something in the long term"
strategic intent is the immediate point of view of a long term future that company would
like to create. It is the intent of the strategies that company may evolve i.e. it creates
spotlight for directing the strategy in a company. When carefully worded, provides a
strategic theme filled with emotion for the whole organization..

• It involves the following:
– Creating and Communicating a vision
– Designing a mission statement
– Defining the business
– Setting objectives
• Vision serves the purpose of stating what an organization wishes to achieve in the long run.
• Mission relates an organization to society.
• Business explains the business of an organization in terms of customer needs, customer
groups and alternative technologies.
• Objectives state what is to be achieved in a given time period.
 Strategic intent is about clarity, focus and inspiration
Characteristics of Strategic Intent
 Indicates firm’s intent to making quantum gains in competing against key rivals and to
establishing itself as a winner in the marketplace, often against long odds
 Involves establishing a grandiose performance target that is out of proportion to its
immediate capabilities and market position but then devoting the company’s
full resources and energies to achieving the target over time
 Signals relentless commitment to achieving a particular market position and competitive
standing

A Company’s Strategy-Making Hierarchy
Strategic Plan:
Merging the Strategic Vision, Objectives and Strategy into a Strategic Plan:
In today's highly competitive business environment, budget-oriented planning or forecast-based
planning methods are insufficient for a large corporation to survive and prosper. The firm must
engage in strategic planning that clearly defines objectives and assesses both the internal and
Its strategic
visionand
business
mission
Its strategy
Its
strategicand
financial
objectives
A
Company’s
Strategic
Plan
Consists
of

external situation to formulate strategy, implement the strategy, evaluate the progress, and make
adjustments as necessary to stay on track.
The strategic plan projects a prescriptive model based on predictive environment which is a
roadmap for execution. Strategic plan is translated into the operations planning. Any deviation
required is to be directed by strategic plan which takes care of the corporate objective and factors
commanding the change.
The emergent strategy is “let us try this strategy and continue it or change it depending in our
experience. The prescriptive strategy prescribed, “this is our strategy for the next five years,
administer it. “The emergent approach holds that the long term being uncertain, it is unrealistic
to prescribe in advance a strategy with long term perspective. The strategy should evolve
responding to emerging developments, and therefore, to some extent, strategy development and
implementation occur concurrently.

Module-III
Analyzing a Company’s External Environment – The Strategically relevant components of a
Company’s External Environment – Industry Analysis – Porter’s dominant economic features –
Competitive Environment Analysis – Porter’s Five Forces model – Industry diving forces – Key
Success Factors – concept and implementation.
Analyzing a Company’s External Environment
The performance of a company is affected by external factors like the economy, demographics,
social values, and technological changes. The factors in a company’s macro-environment which
have the largest strategy impact relates to the company’s environment, the industry, competition,
buyer relations, and supplier relations. To do a company’s analysis of its external environment, a
company needs to do an industry analysis on dominant economic characteristics, an industry’s
competitive forces, the driving forces of the industry, the market positions of the industry’s
rivals, the strategic moves of rivals, key success factors, and the industry’s outlook on future
profitability.
The Industry’s Dominant Economic Characteristics
Identification of the industry’s dominant economic characteristics is important for analyzing a
company’s industry and preparing a proper competitive analysis of their environment.
Understanding the economic characteristics provides an overview of the industry and provides an
understanding of the different kinds of strategic moves that the industry members are likely to
use.
The performance of a company is affected by external factors like the economy, demographics,
social values, and technological changes. The factors in a company’s macro-environment which
have the largest strategy impact relates to the company’s environment, the industry, competition,
buyer relations, and supplier relations. To do a company’s analysis of its external environment, a
company needs to do an industry analysis on dominant economic characteristics, an industry’s
competitive forces, the driving forces of the industry, the market positions of the industry’s

rivals, the strategic moves of rivals, key success factors, and the industry’s outlook on future
profitability.
The Strategically relevant components of a Company’s External Environment :
The Industry’s Dominant Economic Characteristics
Identification of the industry’s dominant economic characteristics is important for analyzing a
company’s industry and preparing a proper competitive analysis of their environment.
Understanding the economic characteristics provides an overview of the industry and provides an
understanding of the different kinds of strategic moves that the industry members are likely to
use.
Examples of Economic Characteristics:
Market size and growth rate
• Scope of competitive rivalry
• Number of buyers and rivals
• A competitive analysis of the geographic scope
• Degree of product differentiation
• Technological changes and innovations
• Economies of scale
• Capacity utilization
• Industry profitability
• Learning and experience curves
• Degrees of vertical integration
• Supply and Demand Conditions
• Product innovation and characteristics
• Ease of entry/exit in the industry
Environmental Scanning
The systematic collection and analysis of information about relevant macro environmental
trends. It helps in increased general awareness of environmental changes, better strategic

planning and decision-making, greater effectiveness in governmental matters and proper
diversification and resource allocation decisions Environmental scanning also forecast future
trends and changes. A number of forecasting techniques are available to strategic managers and
they are:
 Time series analysis – an empirical forecasting procedure in which certain historical
trends are used to predict such variables as a firm’s sales or market share.
 Delphi technique – a forecasting procedure whereby experts are independently and
repeatedly questioned about the probability of some event’s occurrence until consensus is
reached regarding the particular forecasted events.
 Judgmental forecasting - A procedure whereby employees, consumers, suppliers and /or
trade associations serve as sources of qualitative information regarding future trends.
 Multiple scenarios - a forecasting procedure in which management formulates several
plausible hypothetical descriptions of sequence of future events and trends.
Role of Environmental Analysis for an Industry
1. The environment changes so fast that new opportunities and threats are created which may
result in disequilibrium into organization’s existing equilibrium Strategists have to analyze the
environment to determine what factors in the environment present opportunities for greater
accomplishment of organizational objectives and that factors in the environment present threats
to the organization’s objective accomplishment so that suitable adjustment in stagiest can be
made to derive maximum benefits.
2. Environmental analysis allows strategists time to anticipate opportunities and plan to take
optional responses to threes opportunities. Similarly, it helps to develop an early warning system
to prevent the threats or to develop strategies which can turn the threats to the organization’s
advantages.
3. Environmental analysis helps strategists to narrow the range of available alternatives and
eliminate options that are clearly inconsistent with forecast opportunities or threats. The analysis
helps in eliminating unsuitable alternatives and to process most promising alternatives. Thus it
helps strategists to reduce time pressure and to concentrate on those which are important.
Five Components of an Organization's External Environment
The external environment of an organization are those factors outside the company that affect the
company's ability to function. Some external elements can be manipulated by company
marketing, while others require the organization to make adjustments. Monitor the basic
components of your company's external environment, and keep a close watch at all times.
Customers

Your customers are among the external elements you can attempt to influence, via marketing and
strategic release of corporate information. But ultimately, your relationship with your clients is
based on finding ways to influence them to purchase your products. Market research is used to
determine the effectiveness of your marketing messages, and to decide what changes can be
made to future marketing programs to improve sales.
Government
Government regulations in product development, packaging and shipping play a significant role
in the cost of doing business and your ability to expand into new markets. If the government
places new regulations on how you must package your product for shipment, that can increase
your unit costs and affect your profit margins. International laws create processes that your
company must follow to get your product into foreign markets.
Economy
As with the majority of the elements of your organization's external environment, your company
must be efficient at monitoring the economy and learning how to react to it, rather than trying to
manipulate it. Economic factors affect how you market products, how much money you can
spend on business growth, and the kind of target markets you will pursue.
Competition
Your competition has a significant effect on how you do business and how you address your
target market. You can choose to find markets that the competition is not active in, or you can
decide to take on the competition directly in the same target market. The success and failure of
your various competitors also determines a portion of your marketing planning, as well. For
example, if a long-time competitor in a particular market suddenly decides to drop out due to
financial losses, then you will need to adjust your planning to take advantage of the situation.
Public Opinion
Any kind of company scandal can be damaging to your organization's image. The public
perception of your organization can hurt sales it's negative, or it can boost sales with positive
company news. Your firm can influence public opinion by using public relations professionals to
release strategic information, but it is also important to monitor public opinion to try and defuse
potential issues before they begin to spread.
Key External Forces
External forces can be divided into five broad categories:
� Economic forces;
� Social, cultural, demographic, and environmental forces;
� Political, governmental, and legal forces;
� Technological forces; and

� Competitive forces.
Macro environment – the general environment that affects all business firms in an industry,
which includes political-legal, economic, social and technological forces.
PEST – An acronym referring to the analysis of the four macro environmental forces are
Political, Economic, Social and Technology.
1. Political-legal – include such factors as the outcomes of elections, legislation and judicial
court decisions, as well as decisions rendered by various commission and agencies in the Govt.
Trade restrictions will always exist to some of the optically sensitive areas like trade sanctions.
2. Economic- significantly influence business operations including growth deadline in Gross
Domestic Product and increases or decreases in inflation rate, and exchange rate.
3. Social - such as social values, trends, traditions, religion, culture , societal trends
4. Technology – include scientific improvement and innovations and productivity..
Industry analysis
An industry analysis is a business function completed by business owners and other individuals
to assess the current business environment. A marketassessmenttooldesigned to provide a
business with an idea of the complexity of a particular industry. Industry analysis involves
reviewing the economic, political and market factors that influence the way the industry
develops. Major factors can include the power wielded by suppliers and buyers, the condition of
competitors, and the likelihood of new market entrants.
Porter’s dominant economic features –Competitive Environment Analysis – Porter’s Five
Forces model:
Industries differ significantly on such factors as market size and growth rate, the number and
relative sizes of both buyers and sellers, the geographic scope of competitive rivalry, the degree
of product differentiation, the speed of product innovation, demand–supply conditions, the extent
of vertical integration, and the extent of scale economies and experience/learning curve effects.
Porter’s Five Forces model

Industry factors have been found to play a dominant role in the performance of many companies
with the exception of those that are its notable leaders of failures. As such, one needs to
understand these factors at the outset before delving into the characteristics of a specific firm.
Michel Porter, a leading authority on industry analysis, proposed a systematic means of
analyzing an industry’s potential profitability known as Porter’s “Five Forces” model. According
to Porter, an industry’s overall profitability depends on five basic competitive forces, the relative
weights of which vary by industry.
1. The Intensity of Rivalry among incumbent firms.- Concentration of competitors, High
Fixed or Storage Costs, Slow, Lack of Differentiation or Low Switching costs, Capacity
Augmented in Large Increments, Diversity of Competitors, High strategic Stakes, High
Exit Barriers.
Potential factors:
Sustainable competitive advantage through innovation
Competition between online and offline companies
Level of advertising expense
Powerful competitive strategy
Firm concentration ratio
Degree of transparency
2. The Threat of new competitors entering the industry.- Economies of Scale, Brand Identity
and Product Differentiation, Capital Requirements, Switching costs, Access to Distribution
Channels, Cost disadvantages Independent of Size, Govt. policy
The following factors can have an effect on how much of a threat new entrants may pose:
 The existence of barriers to entry (patents, rights, etc.). The most attractive segment is
one in which entry barriers are high and exit barriers are low. Few new firms can enter
and non-performing firms can exit easily.

 Government policy
 Capital requirements
 Absolute cost
 Cost disadvantages independent of size
 Economies of scale
 Economies of product differences
 Product differentiation
 Brand equity
 Switching costs or sunk costs
 Expected retaliation
 Access to distribution
 Customer loyalty to established brands
 Industry profitability (the more profitable the industry the more attractive it will be to
new competitors)
3. The threat of substitute products or services. – Rising of a Substitute Products that satisfy
similar consumer needs.
Potential factors:
 Buyer propensity to substitute
 Relative price performance of substitute
 Buyer switching costs
 Perceived level of product differentiation
 Number of substitute products available in the market
 Ease of substitution
 Substandard product
 Quality depreciation
 Availability of close substitute
4. The bargaining power of buyers. – Buyers raising the weaknesses on the product, costs,
credit etc to bring down the rates or threaten to discontinue buying. Or buyers go to their own
production for economic reasons.
Potential factors:
 Buyer concentration to firmconcentration ratio
 Degree of dependency upon existing channels of distribution
 Bargaining leverage, particularly in industries with high fixed costs
 Buyer switching costs relative to firm switching costs
 Buyer information availability
 Force down prices
 Availability of existing substitute products
 Buyer price sensitivity
 Differential advantage (uniqueness) of industry products

 RFM (customer value) Analysis
 The total amount of trading
5. The bargaining power of suppliers. - On the guise of rising costs, the suppliers bargain to
raise the rates or threaten to stop supplies. Competitor cornering the production of the supplier as
a threat. Monopoly of the supplier
Potential factors are:
 Supplier switching costs relative to firm switching costs
 Degree of differentiation of inputs
 Impact of inputs on cost or differentiation
 Presence of substitute inputs
 Strength of distribution channel
 Supplier concentration to firm concentration ratio
 Employee solidarity (e.g. labor unions)
 Supplier competition: the ability to forward vertically integrate and cut out the buyer.
Industry diving forces
Key internal forces (such as knowledge and competence of management and workforce) and
external forces (such as economy, competitors, technology) that shape the future of an
organization.
All industries are characterised by trends and new development that gradually or speedily
produce changes important enough to require a strategic response from participating firms.
Also Industries go thru a life cycle changes- its difference stages and hence the Industry
change….but it is far from complete
There are more causes…..that need to be identified and their impact to be understood.
The Concept of Driving Force:
Industry conditions change because important forces are driving industry participants competitor,
customer, or suppliers) to alter their actions; the driving forces in an industry are the major
underlying causes of changing industry and competitive conditions- they have the biggest
influence on how the industry landscape will be altered. Some originate in the outer ring of
macro-environment and some originate from the inner ring.

Driving forces Analysis:
Identifying what the driving forces are
1. Assessing whether the drivers of change are, on the whole, acting to make the industry
more or less attractive
2. Determining what strategy changes are needed to prepare for the impact of the
driving forces
Identifying an Industry’s Driving Forces:
1) Emerging new internet Capabilities and Applications
 Got into every days biz operation and social fabric of life all across the world.
 Increasing internet usage & Speed->Growing internet shopping
 Companies using online technology
 Collaborate closely with suppliers and streamline their supply chain
 Revamp internal operations and squeeze our cost saving
 Manufacturer-> website-> Direct customers.
 All Biz->Extend Geographical Reach
Low cost increases the no. of online rival and hence the compitition of online v/s brick and
mortar sellers.
Internet gives customer-> Power to research the product offering and shop the market for the
best Value.
untig Ability of Consumer to download Music from internet has reshaped traditional music
retailers
 Emails has eroded fax services and first class mail delivery revenues of govt postal
services world wide
 Videoconferencing has eroded the demand of biz travels
 Online cources offering have the potential of revolutionise higher education
Internet will feature faster speed, dazzling applications and over a billion connected gadgets
performing an array of functions thus driving firther industry and competitive changes. Internet
related impacts vary from industry to industry
2) Increasing Globalisation:
Competition begin to shift from regional & national focus to an inernational or global focus
Industry members begin seeking out customers in foreign market. Production activities begin to
migrate to countries where costs are lowest. Global competition really starts when one or more
ambitious Companies precipitate a race for world wide market leadership.
Globalization happens:-
Blossoming of customer and demand in more and more countries
 Action of govt to reduce the trade barrier .Europe,Latin America and Asia

 Significant difference in labour cost ->locate plant e.g China, india , Singapore, Maxico
and Brazil ¼ of those in US, Germany and Japan
Eg.Industires :- Credit Card, CellPhone, Digital Camera, Golf and Ski Equipment, Motor
Vehicles, Steel, Petrolium, Personal Computers, Vedio Games, Public Accounting and Text
Publishing….
3) Changes in an Industry Long Term Growth Rate.
Shift in industry growth or are driving force for industry change, affecting the balance between
industry supply and buyer demand, entry and exit of the firms
Increase in buyers demand triggers a race among established firms and new comers to capture
the new sales opportunities, in turn will launch offensive strategies to broaden customer base and
grow significantly
Decrease or slow down in rate at which demand is growing firms fight for their market share
If industry sales suddenly turns flat competition itencify, consolidation takes shapes by mergers
and acquisitions,
Stagnating sales forces both weak and strong firms to sell their biz to those who elect to stick->
forces to close inefficient plants and retrench to small prod base…
4) Changes in who buys the Product and how they use it:
Shift in buyer demographics-New ways of using product- firms broaden or narrow their product
line-diff sales & promotion…Downloading Music From Internet-Storing Music Files on HD &
PC, Burning CD-forced to reexamin the traditional music stores-also have stimulated the sales of
Disc burners and blank discs.PC & Internet- Banks to expand their electronics bill payment
services and retailers to move more of their customer services online
5) Product Innovation:
Rivals racing to be first to introduce the new product or product enhancement after another.
Competition changes->attracting more 1st time buyers ->Rejuvenating ind growth, creating
wider or narrow prod differentiation.
Strong market position of Successful innovators at the cost of slow innovators
Eg. Degital Cameras, Golf Glub, Video games, Toys and Prescription Drugs.
6) Technology Change & Manufacturing Process Innovation
Advances in the technology can dramatically alter an industry’s landscape.
Gives birth to new and better products at lower costs opening up new industry frontier.

Identifying an Industry’s Driving Forces: Technology change contd.. Eg. Internet based phones
are stealing large number of customers from using traditional telepone co world wide( high cost
technology, hard weird connections via overheads and underground telephone lines
 Flat screen technology are killing CRT monitors
 LCD and Plasma screen tech are driving CRT tech further
 Digital tech driving huge change in camera and film industry
 MP3 technology is transforming how people listen to music.
7) Marketing Innovation :
Successful in introducing new ways to MARKET their products:
 Spark a burst in buyer interest
 Widen industry demand
 Increase product differentiation
 Lower unit cost
Any or all of which can alter the competitive position of rival firmEg.On line marketing of
Electronics goods, Music artist mkting their own website V/s contract with recording Studios….
8) Entry or Exit of Major Firms
Entry of one or more foreign co. into a geographic market once dominated by domestic firms
shakes up the competitive scenario.Pushes the competition to new direction, Bring in new rules
of competiting
Exit:- Reduces the no of mkt leaders, dominance of existing players and rush to capture existing
firm’s customers.
9) Diffusion of Technical Know how across more companies and more countries.
As the knowledge spreads, the competitive advantage of existing firm originally possessing it
erodes.
It happens thru Scientific Journals, Trade Publications, On site Plant tours, Word of mouth,
Employees Migration, and internet sources
Tehnology knowledge license / Royaltee fees
Cross border technology transfer has made the once domestic industries of automobile, tires,
consumer electronics, telecommunication and computers truly global
10) Change in cost and efficiency
Widening or shrinking differences in the costs among key competitors tend to dramatically alter
the state of competition
Low cost fax and e mail put mounting pressure on the inefficient and high cost operation of
Postal Dept.

Shrinking cost of differences in producing multifeatured mobiles is turning the mobile phone
market into commodity business and making more buyers to base Price as their Purchase
decision
11) Growing buyer preferences for differentiated products instead of a commodity product
When buyers taste and preferences start to diverge, sellers can win a loyal following by
providing different variants and taste then the competitors.
Eg.Beer, Automobile
12) Reduction in uncertainty and Business Risk.
An emerging industry is typically characterized by much uncertainty and risk in terms of time
and efforts required to cover-up with the investments.Emerging industries tend to attract only
risk-taking entrepreneurial companies. over time how ever, if the business model of industry
pioneers proves profitable and market demand for the product appears durable, more
conservative firms are usually enticed to enter the market. Often the later entrants are large
& financially strong looking to invest into attractive growth industry.
Low biz risk and less industry uncertainty also affect competition in international market. In the
early stage the co. enters foreign market with a conservative approach with less risky strategies
like exporting, licensing, joint marketing agreement and JV with local companies.
As time goes and the co accumulates experience, it starts moving boldly and independently
making acquisitions, constructing their own plants, putting their own sales and marketing
capabilities to build strong competitive position...
13) Regulatory Influence and government Poliy Changes.
Govt regulatory actions can often forces significant changes in industry practices and strategic
approaches.Deregulation has proved to be a potent pro competitive force in the airline, banking,
natural gas, telecommunications, and electric utility industries.Govt efforts to reform
MEDICARE and HEALT Insurance have become potent driving forces in the health care
industry.
Key Success Factors - Concept and Implementation:
Critical success factor vs. key performance indicator: Critical success factors are elements that
are vital for a strategy to be successful. A critical success factor drives the strategy forward, it
makes or breaks the success of the strategy (hence “critical”).
Kenichi Ohmae in his “The Mind of the Strategist” observes, “A good business strategy is oneby
which a company can gain significant ground on its competitors at an acceptable cost to itself.
Finding a way of doing this is real task of the strategist. He suggests the following four ways
ofstrengthening a Company’s position relative to that of its competitors.
1. Strategy Based on KFS - Key Factors for Success – to identify such critical factors in the
areas like sourcing raw materials, production, marketing and concentrate resources on them to
gain strategic advantage over the competitors.

2. Strategy based on Relative Superiority – Avoids head on competition and seeks to exploit
competitor’s weaknesses. Even when the competitors are very strong on the whole, there may be
some critical factors or market segments where the company enjoys relative superiority which it
can build into a strategic advantage. The relative superiority may be in respect of technology,
cost, product quality, suitability of the product to market environment, distribution, after sales
service, customer relations, cultural factors etc.
3. Strategy Based On Aggressive Initiatives – When competitors are so well established that it
may be hard to dislodge. Sometimes the only answer is in unconventional strategy aimed at
upsetting the key factors for success on which the competitor has built an advantage. Ask every
point as “Why”? You will get a point.
4. Strategy Based on SDF:; Strategic degrees of freedom (SDF). Superior competitive
performance is to exploit the strategic degrees of freedom. This is relevant for consumer goods
companies and cost-conscious industrial goods manufacture. Successful deployment of
innovations is an alternative.. These innovations may involve the opening up of new markets or
the development of new products.
In the words of Ohmae, “in each of these, the principal concern is to avoid doing the same thing,
on the same battle ground, as the competition. The aim is to attain a competitive situation in
which your company can (1) gain a relative advantage through measures is competitors will
findhard to follow and (2) extend that advantage still further.
Industry conditions change because important forces driving industry participants
(competitors,customers, suppliers) to alter their actions, the driving forces in an industry are the
major underlying causes of changing industry and competitive conditions. Several factors can
affect anindustry powerful enough to act as driving forces
1. Changes in the long-term industry growth rate
2. Changes in who buys the product and how they use it.
3. Product innovation.
4. Technological change.
5. Marketing innovations
6. Entry or exit of major firms.
7. Diffusion of technical know-how.
8. Increasing globalization of the industry.
9. Changes in cost and efficiency.
10. Emerging buyer prefers for a differentiated product
11. Regulatory influences and govt policy changes.

12. Changing societal concerns, attitudes and life-style.
13. Reduction in uncertainty and business risk.
Concept of implementation:

MODULE IV
Analyzing a company’s resources and competitive position – Analysis of a Company’s present strategies
– SWOT analysis – Value Chain Analysis – Benchmarking- Generic Competitive Strategies – Low cost
provider Strategy – Differentiation Strategy – Best cost provider Strategy – Focused Strategy – Strategic
Alliances and Collaborative Partnerships –Mergers and Acquisition Strategies – Outsourcing Strategies –
International Business level Strategies.
Analyzing Company’s Resources & Competitive Position:
The object of any industry is to develop the competitive advantage over similar industries in order to
sustain growth and profitability. For this, a constant assessment of Strength and Weaknesses in every area
of management is to be done on a continuous basis to retain its stability & strengths. The external factors
are guiding the internal actions to take advantage of the situation. It is the internal strength h is the real
strength of the Management to combat with external changes.
Internal Analysis gives the manager the information they need to choose the strategies and business
model that will enable their Company to attain a sustained competitive advantage. Internal analysis is a
three-step process.
(1) The manager must understand the process by whichcompanies create value for customers and profit
for themselves, and they need to understand the role of resource, capabilities and distinctive competencies
in this process.
(2) Secondly, the Managers need to understand how important superior efficiency, innovation, quality and
responsiveness to customers are in creating value and generating high profitability.
(3) Thirdly, the Managers must be able to analyze the sources of their company’s competitive advantage
to identify what is driving the profitability of their enterprise and where opportunities for improvement
might lie. In other words, they must be able to identify how the strengths of the enterprise boost its
profitability and how any weakness leader to lower profitability.
Three more critical issues in internal analysis are addressed
(1) what factors influence the durability of competitive advantage?
(2) Why do successful companies are often lose their competitive advantage?
(3) How can companies avoid competitive failure and sustain their competitive advantage over time?
Internal Analysis:
“ Internal Analysis is the process by which strategists examine a firm’s marketing & distribution,
research & development, production, research & development to determine where the firm has it’s
strength’s & weaknesses, determine how to exploit the opportunities & meet the threats the environment
is presenting.”

Types of Resources
Tangible Resources
Relatively easy to identify, and include physical and financial assets used to create value for customers
 Financial resources
 Firm’s cash accounts
 Firm’s capacity to raise equity
 Firm’s borrowing capacity
 Physical resources
 Modern plant and facilities
 Favorable manufacturing locations
 State-of-the-art machinery and equipment
 Technological resources
 Trade secrets
 Innovative production processes
 Patents, copyrights, trademarks
 Organizational resources
 Effective strategic planning processes
 Excellent evaluation and control systems
Intangible Resources
Difficult for competitors (and the firm itself) to account for or imitate, typically embedded in
unique routines and practices that have evolved over time
 Human
 Experience and capabilities of employees
 Trust
 Managerial skills
 Firm-specific practices and procedures
 Innovation and creativity
 Technical and scientific skills
 Innovation capacities
 Reputation
 Effective strategic planning processes
 Excellent evaluation and control systems
Organizational Capabilities
Competencies or skills that a firm employs to transform inputs to outputs, and capacity to combine
tangible and intangible resources to attain desired end
 Outstanding customer service
 Excellent product development capabilities
 Innovativeness of products and services
 Ability to hire, motivate, and retain human capital
Significance of Internal Analysis:
 It helps to know where the firm stands in terms of strengths & weaknesses.
 It helps to select the opportunities to be tapped in line with its capacity.

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