SMGT Notes FINAL

STRATEGIC MANAGEMENT
STRATEGIC MANAGEMENT (6.1)
STUDY MATERIAL DESIGNED

FOR
TY B.COM (B&I)
By Prof. RAMKI
IES Management College
Bandra(Recl.), Mumbai
1
MODULE – I
STRATEGY FORMULATION
“Whatever action is performed by a great man, common men

following his footsteps and whatever standards he sets by
exemplary acts, all the world pursues.” - Bhagwad Gita
Perform
External
Audit
Implement
Develop Generate, Implement Strategies-
Establish Measur
vision and Evaluate Strategies- Marketing,
long term Evaluat
mission and Select management Finance,
objectives Perform
statements Strategies issues Accounting
, R&D,
MIS Issues
Perform
Internal
Audit
Strategy Formulation Strategy Implementation

Strategy Evaluation
2
Full length questions which can be used for 7 marks or 8 marks
A ( Total weightage for this part is 8/60)
1. Define strategic management? Explain the relevance of strategic management

for an organization.
2. What are the various levels of strategic management in an organization. Give

suitable example.
3. What is strategic management? Illustrate and explain the strategic

management process with the example of a leading nationalized bank.
4. Describe the various steps involved in the strategic management process.

Illustrate & explain with suitable examples.
5. Explain the term ‘environment’ with reference to business and discuss why
environmental analysis is necessary in strategic management.
6. Identify various components of environment that affect the management of an

organisation.
7. What is strategy formulation. Explain the factors to be taken into consideration

while formulating the strategy.
B. (Total weightage for this part is 12/60)
8. “Business must be run in a socially responsible manner”. Comment on the

statement in the context of Indian business.
9. What are the social responsibilities of business?
10. What are the critical components of the social environment of business?
Explain each element with examples.
11. Evaluate the historic role and emerging role of government on the business.
12. Describe the impact of technology on business.
13. “Economic environment impacts business” Critically analyse.
14. What factors have made the management of the technology at enterprise level
important? Explain.
15. How does the economic environment impinge upon business management?
Explain with suitable examples.
16. How do social factors play a role in strategy formulation? Explain with
examples.
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C ( Total weightage for this part is 15/60)

C (1)
17. Distinguish between mission, vision and goals.
18. Bring out the importance of organizational assessment and environmental

information in strategic management.
19. What is SWOT analysis? How it is useful in strategy formulation?
20. How do mission, vision and goals drive an organization? Design mission,
vision and goal for any foreign insurance company operating in India.
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INTRODUCTION TO STRATEGIC MANAGEMENT

OVERVIEW
Strategic management or business policy or corporate strategy

refers to those set of perspective management measures taken with
a view to ensuring the survival and success of enterprise in a
competitive environment. The word “strategy” is derived from the
ancient Greek word strategia, which connoted the art and science of
directing military forces. Strategy is thus, a well thought out
systematic plan of action to defend one self or to defeat rivals.
Strategy is formulated in anticipation of the possible positions,
moves, actions and reactions of the rivals.
It is very relevant to point out in this context that in business the

term rivalry is commonly used to refer competition. Going by the
origin of the word strategy, business strategy is a well thought out
systematic plan of action for survival and success, formulated by
due consideration of the possible positions and defensive and
offensive moves, and the relative strengths and weakness of the
rival vis-à-vis those of the company.
DEFINITION OF STRATEGIC MANAGEMENT
Strategic management can be defined as “the art and

science of formulating, implementing, and evaluating cross-
functional decisions that enable an organization to achieve
its objectives.”
As this definition implies, Strategic management focuses on

integrating management, marketing, finance, productions, research
and development, and computer information systems to achieve
organizational process.
The term Strategic management is used synonymously with the

term strategic planning. The latter term is more often used in the
business world, whereas the former is often used in academia.
Sometimes the term Strategic management is used to refer to
Strategic planning referring only to strategy formulation.
The purpose of Strategic management is to exploit and create new

and different opportunities for tomorrow, long range planning, in
contrast, tries to optimize for tomorrow the trends of today.
The term Strategic planning originated in the 1950s and was very
popular between the mid-1960s to mid-1970s. During these years,
Strategic planning was widely believed to be the answer of all
problems. At the time, much of corporate America was “obsessed”
with strategic planning.
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Following that boom however strategic planning was cast aside

during 1980s and various planning models did not yield higher
returns. The 1990s however brought the revival of Strategic
planning and the process is widely practiced in business world.
LEVELS OF STRATEGY
In a multi business enterprise, having several SBUs, there would be

three levels of strategy, viz, corporate strategy, SBU strategy and
functional strategy. In enterprise that does not have SBUs, there will
be only two levels of strategy.
Corporate Strategy
Corporate strategy is the long-term strategy encompassing the

entire organization. Corporate strategy addresses fundamental
questions such as what is the purpose of the enterprise, what
business it wants to be in and how to expand. In other words,
“corporate level strategic management is the management of
activities which define the overall character and mission of the
organization, the product/segments it will enter and leave, and the
allocation of resources and management of synergy among its
SBUs. Corporate strategy is formulated by the top-level corporate
management (board of directors, CEO, and chiefs of functional
areas).
SBU Strategy
SBU-level strategy, sometimes called business strategy is concerned

with decision pertaining to the product mix, market segments and
maneuvering competitive advantages for the SBU. While corporate
strategy decides the business profile the competitive strategy
decides the strategy to succeed in the chosen business. SBU
strategy has to confirm obviously to the corporate philosophy and
strategy.
In short, “the SBU level strategic management of a SBUs effort to

compete effectively in a particular line of business and to contribute
to the overall organizational purposes.”
The responsibility of the SBU strategy is with the top executives of

the SBU who are normally second-tier executives in the corporate
hierarchy. In single SBU organizations senior executives have both
corporate and SBU level responsibilities.
Functional Strategy
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Functional level strategies are strategies for different functional

areas like production, finance, personnel, marketing etc. in other
words, “functional level strategic management is the management
of relatively narrow areas of activity, which are of vital, pervasive, or
continuing importance to the total organization.”
Corporate
Strategic Business Unit
Functional
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Characteristi Corporate Business

cs Strategy Strategy Functional
Strategy
SBU or
single
Scope Entire business Functional
organizatio company area
n
Source and Board of SBU strategy

motivation directors/CE or single
O Corporate business
strategy company
strategy
Top level
Top level SBU Functional
business managers level
managers or top level managers
Responsibil single
ity business
company
managers
Medium to
long-term
Time Long-term Short to
horizon long-term
General Concrete Action and

statements and implementati
Specificity of overall operational on oriented.
direction and ly oriented
intent
The strategic management model or process
The strategic management process is dynamic and continuous. A

change in any one of the major components in the model can
necessitate a change in any or all of the other components. For
instance, a shift in the economy could represent a major opportunity
and require a major change in the long-term objectives and
strategies; a failure to accomplish annual objectives could require a
change in strategy could require a change in the firm’s mission.
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Therefore, strategy formulation, implementation, and evaluation

activities should be performed on a continual basis, not just at the
end of the year or semi-annually. The strategic management
process never really ends.
The strategic management process is not as cleanly divided and

nearly performed in practice as the strategic management model
suggests. Application of the strategic management process is
typically more formal in larger and well-established organizations.
Perform
External
Audit
Implement
Establish Measure and
long term Evaluate
objectives Performance
, R&D,
MIS Issues
Perform
Internal
Audit

Strategy Evaluation
THE PROCESS OF DEVELOPING A MISSION STATEMENT
What is mission?
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“A mission statement is an enduring statement of purpose that

distinguishes one business from other similar firm. A mission
statement identifies the scope of firms operations in product and
market terms."
According to Mc Ginnis a mission statement
• Should define what the organization is and what the

organization aspires to be.
• Should be limited enough to exclude some ventures and broad
enough to allow for creative growth.
• Should distinguish a given organization from all others.
Goals and Objectives
Objectives may be defined as “the ends which the organization

seeks to achieve by its existence and operations.”
A goal is defined as “an intermediate result to be grand plan. A plan

can, therefore have many goals.”
Objectives are particularly important in strategy formulation.
According to the strategic management model, a clear mission

statement is needed before alternative strategies can be formulated
and implemented. It is important to involve as many managers as
possible in the process of developing a mission statement, because
though involvement, people become committed to an organization.
For developing a mission statement first we select several articles

about mission statements and ask all managers to read these as
background information. Then ask managers themselves to prepare
mission statement for the organization. A facilitator, or committee of
top managers, should then merge these statements into a single
document and distribute this draft mission statement to all
managers.
A request for modification, additions and deletions is needed next,

along with the meeting to revise the document. To the extent that
all managers have input and support the final mission statement
document, organizations can more easily obtain managers support
from other strategy formulation, implementation, and evaluation
activities. Thus, a process of developing a mission statement
represents a greater opportunity for strategies to obtain needed
support from all managers in the firm.
During the process of developing a mission statement, some
organization use discussion group of managers to develop and
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modify the mission statement. Some organization hires an outside

consultant to manage the process and help draft the language.
Sometimes an outside person with expertise in developing mission

statements and unbiased views can manage the process more
effectively then an internal group or committee of managers.
THE PROCESS OF PERFORMING AN EXTERNAL AUDIT
To perform an external audit, a company first must gather

competitive intelligence and information about economic, social,
cultural, demographic, environmental, political, governmental, legal
and technological trends. Individuals can be asked to monitor
various sources of information, such as key magazines, trade
journals, and newspapers. These persons can submit periodic
scanning reports to a committee of managers charged with
performing the external audit.
This approach provides a continuous stream of timely strategic

information and involves many individuals external-audit process.
The Internet provides another source of gathering strategic
information, as do corporate, university, and public libraries.
Suppliers, distributors, customers, salesperson and competitors
represent another source of vital information. Once information is
gathered it should be assimilated and evaluated. A meeting of
managers is needed to collectively identify the most important
opportunities and threats facing the firm.
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THE PROCESS OF PERFORMING AN INTERNAL AUDIT
The process of performing an Internal Audit closely parallels the

process of performing an external Audit. Representative
Managers end employees from through out the firm’s
strength and weaknesses. The internal audit requires
gathering and assimilating information about the firm’s
management, marketing, finance, production, research and
development and management information systems. Key
factors should be prioritized as described so that the firm
most important strengths and weakness can be determined
collectively.
Compared to the external audit, the process of performing an

internal audit provides more opportunity for participants to
understand how their jobs, departments, and divisions fit into
the whole organizations. This is a great benefit because
managers and employees perform better when they
understand how their work affects other areas and activities
of the firm.
For example, when marketing and manufacturing managers jointly

discuss issues related to internal strengths and weakness,
they gain a better appreciation of the issues, problems,
concerns, and needs of all functional areas. In organizations
that do not use strategic management, marketing, finance,
manufacturing managers often do not interact with each
other in significant ways. Performing an internal audit is thus
is an excellent vehicle for improving the process of
communication in the organization. Communication may be
the most important word in management. Performing an
internal audit requires gathering, assimilating and evaluating
information about the firms operations.
ESTABLISH LONG-TERM OBJECTIVES
Long-term objectives represent the result expected from pursuing

certain strategies. Strategies represent the actions to be taken to
accomplish long-term objectives. The time frame for objectives and
strategies should be consistent, usually for two to five years.
THE NATURE OF LONG-TERM OBJECTIVES
Objectives should be quantitative, realistic, understandable,

challenging, hierarchical, obtainable and congruent among
organizational units. Each objective should also be associated with a
time line. Objectives are commonly stated in terms such as growth
in assets, growth in sales, profitability, market share, degree and
nature of diversification, degree and nature of vertical integration,
earnings per share and social responsibility. Clearly established
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objectives offer many benefits. They provide direction, allow

synergy, aid in evaluation, establish priorities, reduce uncertainty,
minimize conflicts, and stimulate exertion and aid in both the
allocation of resources and the design of jobs. Long-term objectives
are needed at corporate, divisional and functional levels of an
organization. They are an important measure of managerial
performance.
THE PROCESS OF GENERATING AND SELECTING STRATEGIES
Identifying and evaluating alternative strategies should involve

many of the managers and employees who earlier assembled the
organizational vision and mission statements, performed the
external audit and conducted the internal audit. Representatives
from each department and division of the firm should be included in
the process.
All participants in the strategy analysis and choice activity should

have the firm’s external and internal audit information by their
sides. This information, coupled with the firm’s mission statement,
will help participants crystallize in their own minds particular
strategies that they believe could benefit the firm most. Creativity
should be encouraged in this thought process.
Alternative strategies proposed by participants should be

considered and discussed in the meeting. Proposed strategies
should be listed in writing. When all feasible strategies identified by
participants are given and understood, the strategies should be
ranked in order of attractiveness by all participants, with 1= should
not bee implemented, 2= possibly implemented, 3= probably
should be implemented and 4= definitely should be implemented.
The process will result in a prioritized list of best strategies and
reflect the collective wisdom of the group.
IMPLEMENT STRATEGIES: MANAGEMENT ISSUES
The strategic management process does not end when the firm
decides what strategy or strategies to pursue. There must be a
translation of strategic thought in to strategic action. This
translation is much easier if managers and employees of the firm
understand the business, feel a part of the company, and through
involvement in strategy formulation activities have become
committed to helping the organisation succeed. Without
understanding and commitment, strategy-implementation efforts
face major problems.
Implementing strategy affects an organization from top to bottom; it

affects all the functional and divisional areas of a business. It is
beyond the purpose and scope of this text to examine all of the
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business administration concepts and tools important in strategy

implementation.
Management issues central to strategy implementation include

establishing annual objectives, devising policies, allocating
resources, altering an existing organizational structure,
restructuring and reengineering, revising reward and incentive
plans, minimizing resistance to change, matching managers with
strategy, developing a strategy-supportive culture, adapting
production / operations processes, developing an effective human
resource function and, if necessary, downsizing. Management
changes are necessarily more extensive when strategies to be
implemented move a firm in a major new direction.
V. IMPLEMENT STRATEGIES- MARKETING, FINANCE,

ACCOUNTING, R&D, MIS ISSUES
Strategy implementation directly affects the lives of plant

managers, division managers, department managers, sales
managers, supervisors, and all employees. In some situations,
individuals may not have participated in the strategy-formulation
process at all and may not appreciate, understand, or even accept
the work and thought that went in to strategy formulation. There
may be foot dragging or resistance on their part. Managers and
employees who do not understand the business and are not
committed to the business may attempt to sabotage strategy-
implementation efforts in hopes that the organization will return to
its old ways.
VIII. PROCESS OF EVALUATING THE STRATEGIES
Strategy evaluation is necessary for all sizes and kinds of

organizations. Strategy evaluation should initiate managerial
questioning of expectations and assumptions, should trigger a
review of objectives and values, and should stimulate creativity in
generating alternatives and formulating criteria of evaluation.
Evaluating strategies on a continuous rather then on a periodic

basis allows benchmarks of progress to be established and more
effectively monitored. Some strategies take years to implement;
consequently, associative result may not become apparent for
years.
ORGANIZATIONAL STRATEGIES
Organizational strategies are classified in to four types of

strategies and they are as follows:
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 Integration Strategies
 Forward integration
 Backward integration
 Horizontal integration
 Intensive Strategies
 Market penetration
 Market development
 Product development
 Diversification Strategies
 Concentric diversification
 Horizontal diversification
 Defensive Strategies
 Retrenchment
 Divestiture
 Liquidation
EXPLANATION:
 Integration strategies:
1. Forward integration: It involves gaining ownership or

increased control over distribution or retailers.
Increasing numbers of manufacturers today are
pursuing a forward integration strategy by establishing
web sites to sell products directly to consumers. This
strategy is causing turmoil in some industries.
2. Backward integration: It is a strategy of seeking

ownership or increased control of a firm’s suppliers. This
strategy can be especially appropriate when a firm’s
current suppliers are unreliable, too costly, or cannot
meet the firm’s needs.
3. Horizontal integration: It refers to a strategy of seeking

ownership of or increased control over a firm’s
competitors. One of the most significant trends in
strategic management today is the increased use of the
horizontal integration as a growth strategy.
 Intensive Strategies:
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1. Market penetration: It seeks to increase market share

for present products or services in present markets
through greater marketing efforts. This strategy is
widely used alone and in combination with other
strategies.
2. Market development: It involves introducing present

products or services in to new geographic areas. The
climate for international market development is
becoming more favorable.
3. Product development: It is a strategy that seeks

increased sales by improving or modifying present
products or services. Product development usually
entails large research and development expenditures.
 Diversification strategies:
1. Concentric Diversification: It adds new but relative

products or services.
2. Horizontal diversification: It adds new unrelated

products and services for present customers.
 Defensive strategies:
1. Retrenchment: It occurs when an organization regroups

through cost and asset reduction to reverse declining
sales and profits.
2. Divestiture: Selling a division or part of an organization

is called divestiture.
3. Liquidation: Selling a company’s entire asset in parts for

there tangible worth is called liquidation.
STRATEGIC IMPLEMENTATION
The activation or implementation steps in the strategic

management encompass the operational details to translate the
strategy in to effective practice. A good strategy by itself does not
ensure success. The success depends, to a very large extent, on
how it is implemented. Many strategies fail to produce the expected
results because of the failure in properly implementing the strategy.
Features of Strategic Implementation
 Strategy implementation is more operational in character.
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 Strategy implementation requires special skills in motivating &

managing others.
 Strategy implementation permeates all hierarchical levels.
 Another very important fact to be noted is that “in all but the
smallest organization, the transition from strategy formulation to
strategy implementation requires a shift in responsibility from
strategists to divisional & functional managers.
 Strategy implementation, often described as the action phase of
the strategic management process, covers strategy activation &
evaluation & control.
Some writers break the Strategy implementation phase in to three

components, viz.
1. Operationalising the strategy [communicating strategy, setting

annual objectives, developing divisional strategies, & policies, &
resource allocation].
2. Institutionalizing the strategy [organizational structuring &
leadership implementation].
3. Evaluation & control of the strategy.
It is positioning forces It is managing forces before

1 before the action. the action.
2 It focuses on effectiveness. It focuses on efficiency.
It is primarily an It is primarily an operational

3 intellectual process. process.
It requires good intuitive It requires good leadership

4 and analytical skills. and motivation skills.
It requires coordination It requires coordination

5 among a few individuals. among many individuals.
Successful Strategy Formulation Does Not Guarantee Successful

Strategy Implementation
BUSINESS ENVIRONMENT
A number of factors outside the firm influence a firm’s choice of

direction and action. This in turn, affects organization’s structure
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and internal process. These factors or forces can be broadly divided

into two categories See the following figure.
Macro
Technological Environment
Factors
Socio-
cultural
Factors
Product Price
Political Co.
Factors
Promotion
Place
Legal
Factors
Economic Factors
Micro
Environment
Micro environment or Operating environment

Macro environment or Remote environment
Business environment has decisive influence on opportunities as

well as threats to the organization. In developing alternative
strategies and choosing the best strategy, an in-depth analysis of
environmental scanning.
Micro environment consists of the following - Creditors, customers,

vendor’s competitors, market and general public. Macro
environment consists of a number of forces like political,
economical, social and cultural, demographic and geographic,
technological, and ecological, regulatory and international.
Micro environment is popularly known as “Operating environment”

because this provides the immediate environment in which the firm
operates. Some authors prefer to refer this as “Competitive
environment” or “Task Environment” Operating environment has
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much more interaction with business than remote environment.

There are many forces; prominent they are listed down:
 Competition
 Market forces
 Vendors/Suppliers and Creditors
 Public
 Customers/consumers
Proper assessment of competitive position will enable business firm

to develop realistic strategy. In doing so, Key result areas (KRA) can
be prefixed based on nature of business.
A newcomer faces stiff competition while entering market, from

existing competitors. In order to overcome the same extra efforts
are needed. It is a fact, that none can hold sway over a given
market for a long time. There re number of barriers to new
products/firms. These are discussed here briefly:
Economies of scale: Economies of scale may occur in many fields

like production, R& D, or marketing efforts like promotion/
advertisement, etc.
Customer loyalty: New products break the customer loyalty of old

products and reinforce desire for the new one. This is an involved
process based on behavior-modification theory. Another way to
overcome this problem is by product differentiation and using
advertising techniques.
Capital requirement: Heavy capital requirement is needed to

establish new capacity, set-up new distributional channels,
advertisements, ware housing, inventory holding, transportation and
other promotional steps.
Distributional Channels: Existing channels of distribution of existing

products are not accessible to new ones. This may results in the
creation of new channels which may increase cost and make new
products. Two other important aspects of are the following:
Marketing efforts vis-à-vis compétitions, price, products, etc.
Substitution possibility of products.
Firms depend on vendors on creditors for the supply of raw

materials, equipment and other input – services. Firm depends on
creditors for their financial support for easy credits.
Vendors: In regards to vendors, following are important aspects:
Price advantage
Quality discounts
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Shipping expenses
Quality standards
Rejection rates
Quality of services
Abilities and reputation
Dependability, especially in emergency situation
Creditors: In regards to creditors following are the important

aspects giving competitive
Advantage:
Willingness to value stocks fairly
Readily accepting stocks as collateral security for credits
The Favorable credits rating of the firms by creditors
Favorable record of leverages and working capital management by
the firm
Favorable current loan terms
Timely availability of loan at sufficient level
(1) Economic Environment
The economic environment is by far the most significant and

pervasive component of the external environment. It is therefore
very necessary for the firm to appreciate how the economy works
currently and how it will behave in future.
For the purpose of the discussion we have classified the economic

environment into three main groups, namely,
1. General Economic Conditions
2. Industrial Condition
3. State of Supply of Resources for Production.
The corporate planner should also pay attention to the pattern of

income distribution in the country because that determines the type
of products needed by people of different income groups.
Demand of products is also influenced by savings and debt

patterns.
Industrial condition:
A perceptive assessment of the dynamic environment of the

industry the enterprise serves and of the industry it plans to enter
also provides a strong basis from which strategy can be developed.
Among the various aspects which must receive due attention from a
corporate planner for studying the industrial environment, major
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ones are long term growth or decline of industry, stability of

demand for products and stage in product life cycle.
The needs of customers undergo a change over a period of time not

only because of shifts on economic and social conditions but also
due to development of technology. An in-depth analysis of these
changes provides useful clues about the expansionary tendency of
the industry.
The life cycle of industrial products also helps in predicting demand.

The product life cycle indicates distinct stages in the sales history of
the product. Specific opportunities and problems are entailed in
these stages.
Scanning of the natural environment also influences managerial

decision regarding location of the firm. It will always be desirable for
an organisation, which depends heavily on natural resources, to be
set up in the region where the resources are available in plenty.
Capital:
Availability of adequate funds to satisfy fixed capital as well as

working capital needs is since quo-non for a business organisation.
New organisation has to depend on capital & money market
institutions for their financial needs. However, existing organizations
finance a portion of their requirements out of their own funds which
they have built by ploughing back their earnings. The management
must analyze the existing structure of financial market & financial
policies of different institutions operating in these markets & assess
its impact on the cost obtaining capital. This will prove to be a very
helpful exercise in taking capital expenditure decisions. Emergence
of broad based institutional structure of money & capital markets &
pursuance’s of subsidized landing policies of various financial
institutions in India offer a great scope for Indian businessman to set
up or expand their organizations to seize opportunities.
Labour:
Adequate supply of labour force with the ability & skills require to
perform the task involved in translating strategy in to action is vital
for the success of an organisation. Without people being able to use
them effectively sophisticated technology, capital & materials are of
little value. The price of labour is also an extremely important
economic unit for an enterprise. High wages create cost problems
for producers. Thus, while deciding about the type of product to be
manufactured, the corporate planner must consider the availability,
quality & price of labour.
Managers:
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Availability of highly qualified managers is also a critical economic

input for an organisation. It is skilled management that makes
optimum utilization of resources & ensures successful functions of
the organizations. Entrepreneurs, while contemplating to choose a
business field, must see if qualified managers are available.
2) Technological Environment
Corporate planners must scan the technology environment & the

nuances of technology because new technological developments
affect the efficiency with which products can be manufactured &
sold. They must be able to perceive how technological change will
affect customer’s demand of product.
The pace of technological change in different parts of the world has

been astounding. In India too there has been rapid technological
development, particularly in the field of electronics, automobiles,
electricity, machine building, and information technology and there
is every possibility of this tendency to persist in the following years.
These developments have brought about breakthroughs in
operating procedures, product line, customer’s taste and fashion.
The management must, therefore, be on the look out for what is
new in the technological environment that offers opportunity or
entails risk to the organisation. The management which possesses
an active imagination and analytical faculties can foresee long-term
consequences of new technology.
There are many sophisticated techniques of technological

forecasting such as ‘Delphi’. Many of the techniques of economic
forecasting can also be used for forecasting technological changes.
Generally, Research and Development (RD) department is assigned

the responsibility of undertaking the task of forecasting
developments on the future state of technology and assessing their
impact on the company’s products, processes or markets. However,
only large organisation can afford to set up separate RD
department. Even small establishments with a few scientists or
engineers can make such a forecast. Furthermore, small
organisation can sometimes get information pertaining to results of
research and engineering ideas from leading concerns particularly
major customers or suppliers
3) Political Environment
The political atmosphere of a country is significantly is relevant to

business organisation. No organisation can think of expanding or
decertifying its activity of the political atmosphere is charged with
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turmoil and instability. Where the ruling party is strong and stable
and relations between central and state governments are cordial
role of opposition party is constructive, decisions-making powers are
reasons ably distributed among different social groups and
government has clear-cut fiscal, financial and trade policies, the
business organisation will find it conducive to expand their
operations. The climate in our country presents a mixed picture.
On the one hand, we have the democratic and federal system of
government in which there is a strong and stable central
government with equally strong state governments working in
harmony with each other and businessmen have freedom to operate
within the prescribed limits. These aspects are quite encouraging
for the growth of private sector business enterprises. However,
emerging regionalism at the political level, occasional communal
disturbances, linguistic problem and politicalisation of trade unions
present threats to business enterprises.
Through the regulatory role the government enacts various laws. In

India as well as other democratic countries, until recently both
consumers and business firms had great freedom to pursue their
course of action.
However, owing to social and political pressures and growing

complexity of technology and business practices, the government
has enacted a web of laws and regulations to constrain and regulate
business activities. Some of these laws currently in vogue in India
are the Industries (Development and Regulation) Act, Monopolies
and Restrictive Trade Practices Act, Contract Act, The Companies
Act, Imports and Exports (control) Act, Foreign Exchange and
Regulations Act, and Essential Commodity Act, besides, there are
innumerable Labour laws, taxation laws and state and local laws.
4) Demographic Environment
Corporate planner should also study the demographic environment

and identify the broad characteristics of the population that effect
the organisation. An alter management will have plenty of advance
notice of potential changes in demographic factors and can start
searching for new product lines and more attractive markets.
Major factors in the demographic environment relevant to business

organisation are trends in size, ageing, geographical shifts and
literacy of population.
Growth in population has significance for the government as well as

for business organisation. A growing population means increasing
human need which, in turn, results in the expansion of product
markets if there is sufficient purchasing power. Where growth size
of population exceeds the availability of food supply and resources
23
there will be rise in costs which will, in turn depress profit margins of
businessmen. The ageing pattern of the population should also be
analyzed because that affects product demand.
For instance, an increase in the population of the age of 18 to 24 will

result in surging sales for motor cycles. Sports products, clothes and
accessories, cosmetics, magazines etc. Shrinking population of old
persons is likely to result in decline in the demand of certain
medical goods and services, certain magazines read exclusively by
older people etc.
Geographical shifts of population also affect business enterprises.

Migration of people from rural areas to urban areas will result in the
rise in demand of consumable products in urban areas.
Organisation engaged in production of such goods after estimating
such development will adopt the expansion strategy so as to exploit
the opportunities.
Owing to the development of quick modes of transportation,

sizeable sections of the working population may move from their
places of work to the suburbs. This will certainly increase the
demand station wagons, home workshops equipment, garden
furniture, lawn and gardening tools and supplies and outdoor
cooking equipment in addition to consumer goods of daily use.
5) Social-Cultural environment
A business organisation can survive in the long run only when it is

responsive to the socio-cultural environment of the society in
which it operates and aims at promoting social welfare. The
management must, therefore, understand the existing
environment of the society and visualize future changes therein
before long-range plans are formulated to accomplish corporate
objectives.
T h e socio-cultural environment is concerned with analysis of the
attitudes, values, desires, expectations, degrees of intelligence
and education, beliefs and customs of people in a society,
traditions and social institutions, class structure and social group
pressure and dynamics. Some of the beliefs and values are much
more important to people.
For example, most Indians believe in work, getting married and

living a simple life. These beliefs shape and colour more specific
attitudes and behaviors found in everyday life. People also hold
secondary beliefs and values that are liable to change in the- wake
of new social forces. For example; belief in. early marriage is a
secondary one. Management must note that it would be unwise
24
to change core beliefs and values and should avoid formulating a

business strategy that violates these beliefs.
Socio-cultural factors also influence the products to be

manufactured by an organisation. An organisation has to produce
that type of product which meets the requirements of the people.
A demand for high quality readymade garments will lead to
modification of product strategy by those in the business.
Increasing awareness of better standards of living and good
nutrition have brought about a proliferation of products and
services such as high quality products, vitamin..-; supplements,
efficient automobiles, decent housing and better educational
facilities.
In order to survive successfully in the long run, the management

must consider the socio-cultural factors while formulating objectives
and product-market strategy.
SIGNIFICANCE OF ENVIRONMENTAL SCANNING
a) Environmental scanning also referred to as the basic

monitoring system is the process of monitoring economic,
competitive, technological, socio-cultural, demographic and
political setting to determine opportunities for threats to the
firms.
b) Firms can set its future direction and targets of performance

and formulate the most suitable strategy only when it has
been able to visualize and perceive the opportunities and
constraints in store for it.
c) The environment may offer major profit opportunities due to

anticipated economic, socio-political and industrial trends and
new opportunities in the market/ product / customer segment
which the company can readily exploit particularly in the case
of technological advances.
d) The entire environmental framework and its component parts

as noted above are dynamic and the pace of changes is
tumultuous and such a change affects the markets for firm’s
present products, the prospects for future products, success
of products and Markey choices. The environmental changes
may threat on the establish strategies and call upon the
management to be alert to the possibility that the opportunity
they have seized will soon expire.
25
e) Environmental appraisal enables the firm to get clear idea

about the existing competitors, their current operation, and
future plan.
f) Environmental appraisal enables the management to predict

future development to make the invisible more visible and
thus, lessen the uncertainty about the future in the face of
spectacular, powerful and rapid environmental changes.
g) Input-output relationship between a firm and environment

also necessitates environmental scanning. A firm, in order to
function, must procure various inputs such as human, capital,
managerial, and technical from the environment.
h) The management must also scan the environment so as to

find out what are the diverse claims and expectations of
opportunities of different section of the society which the firm
has to fulfill in order to be socially acceptable.
i) While scanning environment the management should

remember that such an appraisal facilitates spotting of
opportunities at the level of an industry rather than at firm’s
or product’s level. As a result of this aggregation,
management decisions lose the sharpness needed for
choosing a particular product-market.
END OF STRATEGY FORMULATION MODULE(I)
26
MODULE – II
STRATEGY IMPLEMENTATION
“If the 1980’s were about quality and the 1990;s were about
re-engineering, then the 2000’s will be about velocity. About
how quickly the nature of business will change. Business is
going to change more in next ten years than, it has in the last
fifty” - Bill Gates, Chairman Microsoft Corporation
Perform
External
Audit
Implement
Establish Measur
long term Evaluat
objectives Perform
, R&D,
MIS Issues
Perform
Internal
Audit

Strategy Evaluation
C (2)
21. What is BCG matrix? In what context it is used by an organization?
22. Illustrate and explain BCG matrix. Explain its utility.

27
23. What is GE planning grid? How can you use GE grid in a business
organization? Illustrate and explain.
24. What is Mc Kinsey 7- S framework? How can you use Mc Kinsey framework
when a new bank is being launched.
25. Explain the Product Life Cycle concept with illustration. How does it affect
the Strategy?
26. Compare BCG matrix with product life cycle matrix
D (Total weightage for this part is 25/60)

D (1)
27. “Structure follows strategy” Explain with suitable examples.
28. Do you think strategy drives structure? Elaborate.
D3
29. Explain the role of leadership in strategic management?
30. “Leadership and motivation are key drivers of strategy”. Substantiate with
examples.
D4
31. Explain the role of creativity and innovation in strategic management SA.
NOTE: SOME OF THE TOOLS OF STRATEGIC MANAGEMENT ARE IN

THE ATTACHMENT FILE
28
TOOLS OF CORPORATE LEVEL STRATEGIC MANAGEMENT
BCG MATRIX
The Boston Consulting Group (BCG) matrix provides a graphical

representation for an organization to examine the different business
in its portfolio on the basis of their relative market shares and
industry growth rate.
Business could be classified on the BCG matrix as either low or high

according to their industry growth rate and relative market share.
The vertical axis denotes the growth rate in sales in percentage for
a particular industry. The horizontal axis represents the relative
market share, which is the ratio of a company’s sales to sales of the
industry’s largest competitor or market leader. The result of
combining the industry growth rate and relative market share, each
along a high and low dimension, is a four-cell matrix. Each cell of
this matrix has been given an interesting and appropriate name by
the Boston Consulting Group.
The four cell of BCG matrix has been termed as stars, cash cows,
question marks(or problem children), and dogs. Each of these cells
represents a particular type of businesses.
STARS: Stars are high-growth-high-market business which may or

may not be self-sufficient in terms of cash flow. The cell corresponds
closely to the growth phase of the Product Life Cycle (PLC). A co.
generally pursues an expansion strategy to establish a strong
competitive position with regard to a ‘star’ business.
E.g. Petrochemicals, fast food, electronics and communications.
CASH COWS: As the term indicates, cash cows are business which
generates large amounts of cash but their rate of growth is slow.
These businesses can adopt mainly stability strategies. The cash
generated by ‘cash cows’ is reinvested in ‘stars’ and ‘question
marks’.
E.g.: toothpaste for Colgate, decorative paints for Asian Paints.
QUESTION MARKS: Businesses with high industry growth rate but

low market share for a co. are ‘question marks’ or ‘problem
children’. They require large amounts of cash to maintain or gain
market share. ‘Question marks are usually new products or services
which have a good commercial potential. No single set of strategies
can be recommended here. ‘Question marks’ , therefore, may
become ‘stars’ if enough investment is made, or become ‘dogs’ if
ignored.
29
E.g.: holiday resorts, light commercial vehicles.
DOGS: Those industries which are related to slow-growth industries

and where a company has a low relative market share are termed
as ‘dogs’. They neither generate nor require large amount of cash.
Her, retrenchment strategies are normally suggested. E.g.: cotton
textiles, jute, shipping.
GE 9 GRID APPROACH: REFER TO PPT (ATTACHMENT)
PRODUCT LIFE CYCLE(PLC):

Life cycle is a conceptual model that suggests that products,
markets, businesses, and industries evolve through sequential
stages of introduction, growth, maturity and decline. From the
viewpoint of strategic analyses it is important to note that as life
cycles moves from one stage to the next, the strategic conditions
too change.
PLC is a S-shaped curve which exhibits the relationship of sales with

respect to the time it takes for a product to pass through the four
successive stages of: introduction (slow sales growth), growth (rapid
market acceptance), maturity (slow down in growth rate), and
decline (sharp downward drift). If markets, business or industries
are substituted for a product, the concepts of PLC could work just as
well. The main advantage of the life cycle concept is that it can be
used to diagnose a portfolio of products (or markets, businesses, or
industries) in order to establish the stage at which each of them
exists.
The life cycle concept provides a useful framework for carrying out
an analysis to formulate business level strategies. Essentially the
benefit of the life cycle concept lies in its ability to provide
strategists with a convenient method of devising a broad approach
to business strategy formulation, on the basis an understanding of
the stage of the life cycle a business is in at a particular period of
time. Here it is significant to note that the life cycle concept is not to
be used as a guide to when a change will occur in the life cycle.
Rather it is a useful guide to what changes might occur over a
period of time, with regard to the market or industry conditions.
Further, it is also important to remember that the life cycle can

sometime be reversible, as seen in the case of products that are
revived after a declining trend. Products, markets, businesses, and
industries sometimes experience reverse trends as often happens in
the case of fashion when discarded clothing fashion come into
vogue again. Strategists need to be aware of the possibility of such
reverse trends in the life cycle.
30
The PLC is one of the best known models of marketing. It is useful

because it illustrates clearly that change is inevitable as an offering
moves through its life in the market. Each of the stages of the cycle
is characterized by different conditions of demand and supply. To
get the best returns from a product at all times the manager must
be able to change the marketing mix, at the different stages. For
example, a high price may be appropriate for a newly launched
innovative product with few competitors. The ‘skimming’ strategy
will generate high profits early in the product’s life, but once
challenged by competitors in the growth stage, prices need to fall if
market share is to be won. Similarly, promotional activities must
change from awareness generating, through persuasion to reminder
as the product matures.
One reason for portfolio analysis is to ensure that managers have

located each product on its life cycle before strategies are
developed for them.
Product life cycle
Introduction Growth Maturity Decline
Sales
Volume
Revenue
During
Maturity,
Profit
Growth slows down and Profit
Levels off
Loss Time
Note: Whilst there are various classic PLC shapes covering, for example, fashion goods, the principal
Stages apply, and the value of the model is to encourage managers to see how dynamic business is.
There are a number of practical limitations to the use of the product

life cycle and some pitfalls to be avoided, but it does demonstrate
the reason for developing a balanced portfolio and shows managers
why products at the height of their revenue – generating life are not
popular with the owners, because profit growth has levelled off.
Most owners expect to see profit growth. To achieve that the
business needs growing products or must find strategies for
extending the life of already mature products – for example,
boosting sales by opening up new markets, new distribution
channels or modifying the existing product to encourage repeat
purchases.
31
MCKINSEY 7’S FRAMEWORK
According to McKinsey and company, strategy is only one seven

elements in successful business practice.
The first three elements- strategy, structure, and systems- are

considered “hard- ware” of success.
The next four – style, skills, staff, and shared values- are the “soft-
ware”.
The first “soft” element, style, means that company employees

share a common way of thinking and behaving.
The second, skills, means that the employees have the skills to
carry out the company’s strategy.
The third, staffing, means that the company has hired able people,
trained them well and assigned them to the right jobs.
The fourth, shared values, means that the employees share the
same guiding values.
When these elements are present, companies are usually more
successful at strategy implementation.
ORGANISATIONAL STRUCTURE
An organization structure is the ways in which the tasks and

subtasks are required to implement a strategy are arranged.
STRUCTURES FOR STRATEGIES
Entrepreneurial Structure
The entrepreneurial structure as shown in Exhibit 1, is the most

elementary form of structure and is appropriate for an organization
that is owned and managed by one person.
Owner-Manager
Exhibit 1 Employees
The advantages that an entrepreneurial structure offers are:
 Quick decision-making, as power is centralized

 Timely response to environmental changes
32
 Informal and simple organizational systems
The disadvantages of the entrepreneurial structure are:
 Excessive reliance on the owner-manager and so proves to be

demanding for the owner-manager
 May divert the attention of the owner-manager to day-to-day
operational matters and ignore strategic decision
 Increasingly inadequate for future requirements if volume of
business expands
Functional Structure
As the volume of business expands, the entrepreneurial structure

outlives its usefulness. The need arises for specialized skills and
delegation of authority to managers who can look after different
functional areas. A typical functional structure is shown in Exhibit 2.
Exhibit 2
CEO
PR Legal
Finance Marketing Personnel Production
Note that specialization of skills is both according to the line and

staff functions. The functional structure seeks to distribute decision-
making and operational authority along functional lines.
The advantages that a functional organization offers are:
 Efficient distribution of work through specialization

 Effective delegation of day-to-day work
 Providing time for the top management to focus on strategic
decisions
The disadvantages of a functional structure are:
 Creates difficulty in coordination among different functional

areas
 Creates specialists, which results in narrow specialization,
often at the cost of the overall
benefits of the organization.
33
 Leads to functional and line and staff conflicts
Despite the disadvantages, the functional structure is quiet common

and exists in its original or modified form as the organization
evolves from the initial to the mature stages of development.
Divisional Structure
The structural needs of expansion and growth are satisfied by the

functional structure but only up to a limit. There comes a time in the
life of organization when growth and increasing complexity in terms
of geographic expansion, market segmentation, and diversification
make the functional structure inadequate. Some form of divisional
structure is necessary to deal with such situations. Basically, work is
divided on the basis of product lines, type of customers served, or
geographical area covered, and then separate divisions or groups
are created and placed under the divisional-level management.
Within divisions, the functional structure may still operate.
CEO
Corporate Finance Corporate Legal / PR
General Manager General Manager
Marketing Marketing
Operations Operations
Personnel Personnel
Exhibit 3
The advantages that a divisional structure offers are:
 Enables grouping of functions required for the performance of

activities related to a division.
 Generates quick response to environmental changes affecting
the businesses of different divisions.
 Enables the top management to focus on strategic matters.
The disadvantages of the divisional structure are:
 Problems in the allocation of resources and corporate overhead

costs; particularly if the business and corporate objectives are ill-
defined.
34
 Inconsistency arising from the sharing of authority between the

corporate and divisional levels.
 Policy inconsistencies between different levels.
Strategic Business Unit
Strategic Business Unit (SBU) has been defined by Sharplin as “any

part of business organization which is treated separately for
strategic management purposes”. When organizations face difficulty
in managing divisional operations due to an increase in diversity,
size, and number of divisions, it becomes difficult for the top
management to exercise strategic control. Here, the culture of SBU
is helpful in creating an SBU-organizational structure.
Conceptually, an SBU is “a discrete element of the business serving

specific products-markets with readily identifiable competitors and
for which strategic planning can be constructed.” Essentially, SBUs
can be created by adding another level of management in a
divisional structure after the divisions have been grouped under a
divisional top management authority on the basis of common
strategic interests.
Exhibit 4 SBU Organization Structure
C EO
G ro up H ead S B U 1 G ro up H ead S B U 2 G ro up H ead S B U 3
D ivisio ns D ivisio ns D ivisio ns

A B C D E F G H I
The advantages that the SBU-organization structure offers are:
 Establishes coordination between divisions having common

strategic interests.
 Facilitates strategic management and control of large, diverse
organizations.
 Fixes accountability at a level of distinct business units.
The disadvantages of the SBU-organization structure are:
 There are too many different SBUs to handle effectively in a large,

diverse organization.
35
 Difficulty in assigning responsibility and defining autonomy for

SBU heads.
 Additional of another level of management between corporate and
divisional management.
Matrix Structure
In large organizations, there is often a need to work on major products

or projects, each of which is strategically significant. The result is the
requirement of matrix type of organizational structure. Essentially, such
a type of structure is created by assigning functional specialists to work
on a special project or a new product or service. For the duration of the
project, specialists from different areas form a group or team and report
to the team leader. Simultaneously, they may also work in their
respective parent departments. Once the project is completed, the
team members revert to their respective departments.
Exhibit6 Matrix
CEO
Finance Marketing Personnel Operations
Project
Manager A
Functional
Specialists
Project
Manager B
Project
Organizational Manager C
Structure
The advantages that the Matrix structure offers are:
 Allows individual specialists to be assigned where their talent

is most needed.
 Fosters creativity because of pooling of diverse talents.
 Provides good exposure to specialists in general management.
The disadvantages of the Matrix structure are:
 Dual accountability creates confusion and difficulty for individual

team members.
 Requires a high level of vertical and horizontal combination.
 Shared authority may create communication problems.
Network Structure
The increasing volatility of the environment, coupled with the

emergence of knowledge based industries, has lead to the creation of
36
a network structure. Also known as the “spider’s web structure” or

the “virtual organization”, the network structure is “composed of a
series of project groups or collaborations linked by constantly
changing non-hierarchical cobweb networks”. This structure is highly
decentralized and organized around customer groups or geographical
regions. Rather than being located in one place, the business
functions are scattered far and wide.
The core organization is only a shell with a small headquarters acting

as a “broker” connected to the suppliers and the specialized
functions performed by autonomous teams & workforce.
The network structure is most suited to organizations that face a

continually changing environment requiring quick response, high
level of adaptability, and strong innovations skills. This structure
makes extensive use of the outsourcing of support services required
to produce and market products or services. There are few internal
resources and a network structure firm relies heavily on outsiders
Project Project Group Function

A M X
CORPORATE
HEADQUATERS
Project Project Group Function

B N Y
who are specialized in their respective areas.
Exhibit 7 Network Organization Structure
The advantages that the network structure offers are:
 High level of flexibility to change structural arrangements in

line with business requirements
 Permits concentration on core competencies of the firm
 Adaptability to cope with rapid environment change
The disadvantages of a network structure are:
 Loss of control and lack of coordination as there are several

partners
 Risks of overspecialization as most tasks are performed by
others
 High costs as a duplication of resources could be there
37
STRUCTURE FOLLOWS STRATEGY?
Q. Do you think Strategy drives structure? Elaborate.
Ans:- “Structure is static, Strategy is dynamic” seems to be more applied statement

in the present day scenario, where organizations are striving for excellence in
everything they do. Competition is ‘getting’ intense, and organizations have no other
choice, but either to PROSPER or PERISH! Organisational structures have also
undergone tremendous makeovers in the recent years. Tall structures have given way
to FLAT STRUCTURES. Decision making is speedier in flat than tall structures.
HMT watches lost to TITAN watches in this aspect.
Strategy is usually developed at three levels – Corporate level, SBU level &
Departmental level. Every big organization has a Strategic Management Group
(SMG) which develops the Strategies for the organization to achieve in the years to
come. This team works on the changes in the Environment which can impact and
affect the business. New Ventures, expansion, turnaround, new product development,
diversifications, divestures, etc.
Strategies are prepared by organizations to fight competition. With the Malhotra

Committee Reforms recommendations to privatize Insurance business in India in
1991 in place, the Government opened up Insurance Sector for private participation.
IRDA (Insurance Regulatory Development Authority) was set up as an apex body to
look into the ethical business practices of the Insurance Sector. Around 18 private
players entered the Insurance Sector in India like ICICI, HDFC, TATAS, BIRLAS,
BAJAJ, RELIANCE, etc. LIC, the Government player which enjoyed a virtual
monopoly had to wake up to beat the competition. All the players had big – money
and great marketing skills.
LIC was a mammoth player in the Insurance Sector and was literally an undisputed
player. LIC came to know that, if it doesn’t revamp its strategy, it cannot protect its
leadership status. It took a series of steps, to combat competition from the private
players.
LIC believed that being a Government body, decision making was literally slow and
this would hamper the fighting spirit. So, LIC overhauled its entire Organisation
Structure. A lot of changes were initiated to bring in more transparency and faster
decision making. From a tall hierarchical structure, LIC worked on various
departments of the organization and tried to bring flat structures, where flexibility is
there and would ultimately lead to faster decision making.
LIC also initiated massive promotional plans. They created new advertisements
mostly through outdoors. They also – unveiled their new punchline “Jeevan ke sath
bhi, jeevan ke baad bhi”. If LIC did not wake up to the increasing competition, it
would have died a natural death. To drive the Strategy, LIC did make slight structural
adjustments in their organizational structure to make the smooth flow of their
strategy. A record 10 million policies were sold by LIC in March 2006, earning a
premium income of Rs. 6,000 crore. LIC’s first premium from new policies rose 48.5
38
percent to Rs. 18,085 crore, from Rs. 12,170 crore last year, thus proclaiming its
market leadership.
The above example, signifies that Strategy should always try to fit into the Structure.
An organization cannot change its structure, just to meet its strategy requirements.
However, if the need arises, a slight change in the structure can also power the
strategy. But, in many instances, Structures follow the Strategy.
LEADERSHIP IN STRATEGIC MANAGEMENT
Who is the leader?
A leader is someone who has the authority to tell a group of people

what to do. A leader can also represent a group of people. Good
leaders are made not born. If you have the desire and willpower,
you can become an effective leader. Good leaders develop through
a never ending process of self-study, education, training, and
experience.
Define leadership:
Leadership is a process by which a person influences others to

accomplish an objective and directs the organization in a way that
makes it more cohesive and coherent. Leaders carry out this
process by applying their leadership attributes, such as beliefs,
values, ethics, character, knowledge, and skills. Although your
position as a manager, supervisor, lead, etc. gives you the authority
to accomplish certain tasks and objectives in the organization, this
power does not make you a leader...it simply makes you the boss.
Leadership differs in that it makes the followers want to achieve
high goals, rather than simply bossing people around.
How it influences a strategy?
 Influential leaders are adept at building teams and

partnerships that rise above personal
interests and cultural differences within organizations and
between countries.
 Develop critical leading and influencing skills necessary to
sustain long-term organizational success through a
combination of lecture, discussion, simulation and self-
assessment.
 Understand regulatory and cultural challenges and see how
commercialization has been accomplished globally.
 Understand how new technology can revolutionize
established industries, presenting challenges for participants
and opportunities for new entrants.
39
 Strengthen your position in the global marketplace by

understanding how knowledge is generated
Leadership Implementation
Leadership implementation refers to ensuring the right people in

positions responsible for implementation of the strategy. It
encompasses the chief executive officer (CEO) and the key
manager. The first dimension of Leadership implementation is to
make sure that the right strategists are in the right position for the
strategy chosen for the SBU or firm. The ability, integrity and
commitment of the CEO and other top executives are very critical to
the successful implementation of the strategy. The critical role of
the leader in strategic management is clear from the fact that major
changes in strategy are often preceded by or quickly followed by a
change in the CEO. It is aptly said that in strategic management the
nature of the CEO’s role is both symbolic and substantive.
The symbolic role is very important to instill confidence and to

inspire. The substantive nature of the CEO role will be reflected in
the amount of interest the CEO has in the strategy and the amount
of time he invested in implementing the strategy. Besides the CEO,
other top executives have a critical role in the strategy
implementation. It is, therefore, essential to ensure that such key
position are held by the right people.
CREATIVITY & INNOVATION IN STRATEGY:
Human beings are relentlessly creative & crucial issues that

creativity must have some tangible outcome in products, in
services, in a new structure or strategy or more diffusely in a
pervasive shift in corporate culture.
An invention is the solution to a problem, often a technical one,

where as innovations is the commercially successful use of the
solution. Innovation starts after examining market needs, technical
production and marketing requirements.
Successful innovations result from a conscious, purposeful search

for innovation opportunities. Innovations arise out of:
• Unexpected occurrences
• Incongruities
• Precise needs
• Industry and market changes
• Demographic changes
• Changes in perception
• New knowledge.
40
Innovation means change. Such changes can be incremental or

radical, evolutionary or revolutionary. They can have different
effects upon procedures and users.
Innovation is not a technical term. Innovation creates new wealth or

new potential of action rather than new knowledge.
Organisations know that it is not something that takes place within

an organization but a change outside. The measure of innovation is
the impact on the environment. Innovation in a business enterprise
therefore always be market focused.
The most market focused innovator succeeds like business

strategies, an innovative strategy starts out with the question “What
is our business and what should it be?” The ruling assumption of an
innovative strategy is that what ever exists is aging. Existing
products lines and services, existing markets and distillation
channels go down rather than up. The foundations of innovative
strategy is planned and systematic sloughing of the old, the dying
and the obsolete.
Innovation is perhaps the single most important building block of

competitive advantage. Successful innovations gives a company
something unique – something that the competitors lack. This
uniqueness may allow a company to differentiate itself from its
rivals and change a premium price for its products. Alternatively, it
may allow a company to reduce its unit costs for below those of
competitors.
END OF STRATEGIC IMPLEMENTATION MODULE (II)
MODULE – III
STRATEGY CONTROLLING
“Induce your competitors not to invest in those products, markets and

services where you expect to invest the most. That is the most
fundamental rule of strategy” – Bruce D. Henderson
41
Perform
External
Audit
Implement
Establish Measur
long term Evaluat
objectives Perform
, R&D,
MIS Issues
Perform
Internal
Audit

Strategy Evaluation
D5
32. Explain the meaning, nature and importance of controlling function.
33. Explain the meaning and various steps involved in the process of control with
reference to strategic management.
34. Explain the process of evaluation and control of strategy.
35. What are the various tools that can be used for controlling a strategy?
EVALUATION AND CONTROL OF STRATEGIES
Once the Strategy is implemented, there is no guarantee that

the Strategy generates the results as aimed at. Therefore, the
Strategist has to evaluate the strategy to assess whether the
implementation of the Strategy is as per the Strategic plan. Further,
a number of deviations wither in the external environment or in
organizational environment, may take place. These deviations may
necessitate a change in the Strategy. These changes may require a
Strategic evaluation and control.
42
Definition:
Controlling is the process of regulating organizational

activities so that actual performance conforms to exposed
organizational standards. It is the process of monitoring
and adjusting organizational activities in such a way as to
facilitate accomplishment of organizational objectives.
There are two broad types of control:

1) Strategic control
2) Operational control
1. Strategic Control:
Strategic control focuses on monitoring and evaluating the

strategic management process to ensure that it functions in process
to ensure that it functions in the right direction. The basic purpose
of strategic control is to help top management to achieve Strategic
goals as planned. There are 4 basic types of Strategic controls viz
(a) premises control (b) implementation control (c) Strategic
surveillance (d) speed alert control.
a) Premises control: Strategies are often based on premises,

i.e. assumptions are predicted conditions. A strategy may
be rated only as long as the planning premises remain
valid. A strategy may be based on certain premises
related to the industry and environmental factors like
government policies and regulations. Changes in the vital
premises may necessitate changes on strategy.
b) Implementation control: In several cases, the
implementation of a strategy may not progress as
planned, or the cost, sales volume, revenue, etc. may be
at considerable variance with the planned ones. The
lessons of the first phase of the implementations could be
helpful in the implementation of the subsequent phases.
In short, implementations control is designed to asses
whether overall strategy should be changed in the light of
unfolding events and results associated with incremental
steps and actions that implement the overall strategy.
c) Strategic surveillance: Strategic Surveillance is designed
to monitor a broad range of events inside and outside the
company that are likely to threaten the course of the
firm’s strategy. The strategy of a company could be
defeated by certain such events. It is therefore,
necessary that the company exercise surveillance for
timely detections of such developments and corrective
actions.
43
d) Special alert control: Sudden and unexpected

developments like alliance between competitors, takeover
/ mergers, a major competition move by a competitor, etc.
could have serious impact on a firm’s strategy. Eg.: In the
wake of the consolidation of the market by Hindustan
Lever by taking over Tomco, Godrej Soaps felt insecure
and forged an alliance with Proctor and Gamble.
e) Operational Control: Operational control systems guide,
monitor and evaluate progress in meeting annual
objectives. With strategic control attempts to steer the
company over an extended time period, operational
controls provide post-action evaluation and control over
short time periods.
The operational control system involves the following

steps:
a) Establishing criteria and standards
b) Measuring and comparing performance
c) Performance gap analysis
d) Taking corrective measures
a) Establishing criteria and standards: Criteria and standards
provide the basis for evaluation. Selection of the criteria
for evaluation depends on a number of factors. For
example, the evaluation criteria appropriate for stability.
Strategy may not be appropriate for growth strategy or
retrenchment strategy.
b) Measuring and comparing performance: One actual
performance is measured and is compared with the
standards to identify the shortfalls if any.
c) Performance gap analysis: Performance gap is the
difference between the actual performance of a given
organizational unit and the planned performances of that
unit. If there is any performance gap it is necessary to
identify the reasons for the gap to determine the
appropriate corrective measure. In other words,
performance gap analysis is a diagnostic step.
d) Corrective measures: Performance gap analysis will reveal
the reasons for the gap and will help decide the corrective
measures.
Strategy evaluation and control process may be
graphicalluy presented as under:
Deciding criteria Measuring and Performance gap Corrective
and standards comparing analysis measures
for evaluation performances
TOOLS FOR CONTROLLING STRATEGIES

There are various evaluation and control tools like:
a) Standards
44
b) Bench marking
c) Cost benefit analysis
d) Performance gap analysis
e) Responsibility centres
f) Return on Investments
g) Budgeting
(a) Standards:
Standards are the basis for evaluation of performance and
are related to the goals of an enterprise. They are the
specific criteria which are required to be fulfilled by the
workers. A standard is a desired outcome or expected
event with which managers can compare subsequent
activities, performance or change. Setting of standards is
useful for an enterprise for the following reasons:
(i) They enable the employees to know their limitations

of work and the expectations that the managers have
from them.
(ii) They enable the employees to know as to whether or
not they posses the necessary ability to perform the
work, according to standards. If not, necessary
training can increase the employee potential.
(iii) They co-ordinate the individual goals with the
organizational goals.
A company may set the following standards:
• Time Standard: these relate to the time that an employee

should take to perform a particular activity. It may be a
product produced or service rendered.
• Production Standard: Production standard specify the
number of units of a product that should be produced
within the time specified in the time standards. For
example, the company can set production standard that
each employee should produce 10 units of Product A in one
hour.
• Cost standards: The products produced or services
rendered must be cost effective so as to generate
maximum profits for the firm. The cost standards specify
the cost per unit of the products produced.
• Quality standards: The quality standards aim at
maintaining the quality of products. Not only should the
goods be cost effective, they must also be qualitative in
nature.
Once the standards have been set, the workers perform their
activities according to these standards. The activities having been
45
performed, how many units have actually been produced, at what

cost, within what time period is monitored by the managers.
(b) Bench marking:

A major focus in determining a firm’s resources and
competitiveness is comparison with existing and potential
competitor’s firms in the same industry often have different
marketing skills, financial resources, operating facilities and
locations, technical know-how, brand images, levels of integration
and so on. These different internal resources can become relative
strengths or weaknesses depending on the strategy the firm
chooses. In choosing a strategy, managers should compare the
firm’s key internal capabilities with those of its rivals, thereby
isolating its key strengths and weaknesses.
Bench marking, comparing the way ‘our’ company performs a

specific activity with a competitor or other company doing the same
thing has become a central concern of mergers in quality
commercial companies worldwide. In structuring the internal
analysis, managers seek to systematically benchmark the costs and
results of the smaller value activities against relevant competitors
on other useful standards because it has proven to be an effective
way to continuously improve that activity. The ultimate objective in
bench marking is to identify the “best practices” in performing an
activity, to learn how to lower costs, fewer defects, or excellence are
achieved. Companies committed to bench marking attempt to
isolate and identify where their costs or outcomes are out of line
with what the best practitioners of a particular activity experience
and then attempt to change their activities to achieve the new best
practices standard.
(c) Cost – benefit analysis:

Business is done with an ultimate objective of profits.
Therefore, the strategist should analyze the costs associated with a
profit centre and the benefits accruing therefrom. Both direct and
indirect costs are taken into consideration to arrive at the costs.
Total income out of the product line is taken into consideration to
arrive at the profits or benefits. The policy of transfer pricing is
followed to arrive at indirect benefits. On the basis of costs and
benefits arrived by such analysis strategy for a business line or
product is pursued.
(d) Performance Gap Analysis:

Over all plan of a business is arrived at based on divisional
plans. The unit heads of each department’s branches in case of
multi-locational business units are guided by the corporate goal.
Business units contribute for achievement of corporate goals. Such
goals are compared with the achievements periodically. If there is a
gap in achievement by different units, such deficit of business is
46
called as performance gap. It gives incite into projections and

performance. Strategic manager takes corrective steps to improve
the performance gap is reduced. Identification of performance gap
is a valuable strategic control measure. Mid way, corrective
measures can be suggested by identifying the performance gap.
(e) Responsibility Centres:

The organization is usually divided into smaller units where
each unit is headed by a manager who is responsible for achieving
the targets of the unit. These units are called responsibility centres
and the head of each responsibility centre is responsible for
controlling the activities of his centre. There are four major types of
responsibility centres:
(i) Cost centre: these centres aim at achieving their
goals within the given cost constraints. The various
direct costs (raw material, labour, etc. and indirect
costs (research and development) are determined in
monitoring terms and the centre head strives to limit
the expenses within the constraints of the budgeted
expenses or costs.
(ii) Revenue centres: The revenue to be carried out of
sales is estimated and expressed in monetary terms
and the actual sales figures are compared with the
budgeted figures. This determines the efficiency of
the revenue centre. Corrective action is taken if the
estimated figures of revenue are not achieved.
(iii) Profit centre: This centre is credited with the
responsibility of earning desired level of profits,
computed by finding out the difference between
revenues and costs. These centres can be divisions,
departments, or the organization as a whole.
(iv) Investment centre: The profits that different centres
earn depend upon the efficient use of assets. The
investment centres take care to invest money in
assets which will generate maximum revenue and
profits for the enterprise as a whole. The efficiency
of the investment centre is judged through the
returns that these centres earn on their investments.
(f) Return on investments (ROI):

Return on investment is a measure of control that measures
financial performance of a firm in relative terms. Rather than
measuring company’s performance on the basis of absolute figure
of profit, ROI measures a rate of return that firms are able to earn
on their capital employed. This technique of control was adopted by
Du Pont company of USA in 1919. ROI is used to measure the
efficiency of capital. Higher the efficiency of capital other factors
remaining the same, higher will be the ROI and higher the financial
47
performance of the firm. The ROI measure can be used to compare

the firm on different products of the same department or different
firms within the industry. A company, besides comparing its
performance with other companies, can also compare its overall
performance in the current year with reference to earlier years. A
trend of ROI can help company in assessing the stability of earnings
that it has been able to maintain over a period of time. A directing
trend, for instance, calls for a corrective action or control. The ROI
can be calculated by the application of the following formula:
Sales earnings
_____ x _______
capital sales
Precisely, ROI measures the earnings of the firm as a percentage of
its capital.
(g) Budgeting:
A budget is a statement which reflects the future incomes,
expenditures and profits that can probably be earned by a firm. It is
a future projection of the firm’s financial position. Non-financial
aspects like number of units produced, number of units sold,
material and labour required per unit of output, etc. can also be
important components of a budget.
Budgeting control refers to comparison of actual performance with

the planned or budgeted performance. It is a basic technique of
control and is used at every level of organization.
Purpose of budgets: The budget intends to serve the following

purposes:
(i) It provides a yard-stick for measuring and
comparing the quantitative performance of
different departments, at different levels and at
different time periods.
(ii) It facilitates co-ordination of various resources
vis-à-vis projects undertaken by the business
organizations.
(iii) It provides guidelines about the resources and
expectations of an organization.
(iv) It facilitates intra and inter-management and
divisional performance of an organization.
Budget as controlling device: Budget is a single use plan which

provides a standard for measurement of performance. Framing
standards is an important feature of plans and a budget, therefore,
can be rightly construed to mean a plan. It specifies anticipated
results in financial terms which serves as a basis for controlling the
future revenues, and expenses. As a controlling device, it provides
a basis for feedback, evaluation and follow-up. It facilitates
comparison of actual performance with planned performance and
48
helps to detect and correct deviations in the actual performance vis-

à-vis the planned performance. This comparison of performance
and rectification of errors is the essence of control. A budget can,
therefore, be viewed as both a plan and a device for control.
END OF EVALUATION AND CONTROL OF STRATEGY

MODULE(III)
CONCEPT QUESTIONS FOR STRATEGIC MANAGENT
Concept questions which can be asked for short note for 5 marks
1. Define Strategy
2. Define Strategic management
3. Integration
4. Diversification and types of diversification
5. Divestment. What is Disinvestment? Is India successful in disinvestment?
6. Downsizing
7. Levels of strategic management
8. Generic strategies
9. Question marks
10. Cash cows
11. Performance gap analysis
12. Responsibility centres
13. Return on investment(ROI)
14. Benchmarking
15. Standards
16. Cost-benefit analysis
17. Budgeting
18. Creativity and innovation
19. Political environment
20. Social responsibility of business
21. Future of strategic management
22. Role of leadership in strategic management
23. Role of Motivation in Strategic Management.
24. How can you mobilize the resources for Strategy? Explain them.
25. Role of Creativity and Innovation in Strategy formulation.
NOTE: MOST OF THE CONCEPTS ARE FEATURING IN THE

ABOVE 3 MODULES, THE LEFT OVERS ARE FEATURED HERE
RESOURCE MOBILIZATION FOR STRATEGY
Management can be viewed as a process where human

resources are integrated and directed towards the achievement of
49
the organizational goals. Any economic activity depends upon the

availability and effective utilization of various resources like men,
material, capital and technology. Market plays an important role in
providing the resources and also for sale of the outputs of any
enterprise.
1. Money:
Capital is the basic resource for starting any business. Money
means capital in economic sense. Capital provides the ability to
borrow to the firm. Capital can buy other resources required for
any business. Capital is generally brought by the entrepreneur in
the form of equity. In a reasonable ratio debt is provided by the
financial institutions like banks.
Capital can be sourced by various modes. Generally initial capital is

brought by the entrepreneur. Depending on the ownership pattern,
capital can be sourced by offer of shares to the public, international
investors, mutual funds, venture capitalists, high networth,
individuals, etc. Capital market helps in mobilizing capital for a firm.
Debt can be sourced as working capital from bank, external

commercial borrowings from abroad, deferred payment, factoring,
bill discounting, buyer’s credit, hire purchase, leasing and so on.
Dividend is the cost of equity and interest is the cost for the debt.
There are various debt instruments through which debt can be
evidenced. The borrowing ratio indicates the component of equity
and debt. Higher this ratio, riskier the form is a capital as acting as
risk-absorbing mechanism.
2. Markets:
Market provides the physical infrastructure for exchange of
goods and services. Market plays an important role in providing the
necessary inputs for production. It also helps to sell the outputs of
goods and services provided by the business enterprise. Market
behaviour is decided by the consumers. Consumers have needs and
specific behaviour. Market provides competition, sustains some
firms, allows disintegration of others. Market helps to discover
price, level of consumptions and demand for goods and services.
The art of understanding the customer behaviour and selling the

goods and services is collectively called as marketing. This is one of
the important management function in competitive market.
3. Machine:
Machine represents technology used in any business. In a
competitive environment the quality of the product decides the fact
of the business. Quality depends on the technology used.
Therefore, technology is an important deciding factor.
50
Machine or technology can produce identical products in large

numbers at reasonable speed. Machines are untiring and can work
continuously standardization of products / components is possible in
goods and services produced by machines. Machines reduce the
cost and improve quality giving an edge to the business. Innovation
helps to refine the products and machines help innovation.
Machines are the outcomes of technological innovations. Machines
require reviewers outputs i.e. power and fuel. Machines have to be
maintained and need skilled persons to work on. Machines displace
labour. Machines are made for mass production.
4. Material:
All physical inputs which go into production can collectively
termed as ‘material’. Material forms the inventory in the balance
sheet of the firm. Inventory is an idle asset and therefore involves
cost in the form of interest on working capital required to hold such
inventory. Optional holding of inventory is called material
management. Excessive holding of material can lead to increase in
cost of the ultimate product. Effective materials management
involves maximizing materials productivity. Modern material
management attempts for zero inventory. Excessive material
varieties and unpredictability of demand for materials and spares
frustrate the attempt to minimize material on hand. Proper
planning of stores, issuing policies, avoidance of pilferage can help
reduce inventory holding. Standardization and codification are
variety reduction methodologies for improving materials
productivity. Minimisation of wastage is another aspect of
improving efficiency.
5. Merit:
Human resources forms only living input in resources. Human
resources are characterized by emotions, skill levels, psychological
aspect. Therefore, management of human resources is important in
any organization. Unlike other resources, human resources can be
motivated for improved performance.
Depending on the job, human resources should provide the skill sets
required. Human resource management involves recruitment,
selection, inductions and orientation, training and development and
also periodic performance appraisals which helps to review the
contribution of each employee.
Human resources are costly inputs and therefore it is necessary to

intake just sufficient manpower. Manpower can bring success or
failure in an organization by their contribution or otherwise. One art
of handling manpower is most important in today’s businesses.
COST-BENEFIT ANALYSIS (CBA)
51
To ensure efficiency in resources allocation and to achieve

maximum gains in social welfare, it may be necessary to use
evaluation procedures that are based on systematic and careful
assessment of all options under consideration. One such procedure
is cost-benefit analysis (CBA). CBA is a method distinctively
developed for the evaluation of public policy issues. Under the CBA
methodology all potential gains and losses from proposal are
identified, converted into monetary units and compared on the basis
of decision rules to determine if the proposal is desirable from
society’s stand point.
CBA is particularly designed from the evaluation on the basis of

public interest. Costs and benefits in CBA are measured in terms of
welfare losses and gains rather than cash or revenue flows.
CBA proceeds in four essential steps:

a) identification of relevant costs and benefits
b) measurement of costs and benefits.
c) Comparison of cost and benefit streams accruing
during the lifetime of a project and
d) Project selection.
CBA has been widely applied in under-developed countries to

irrigators, hydro electric and transport investments.
Creativity & Innovation in Strategy:
Human beings are relentlessly creative & crucial issues that

creativity must have some tangible outcome in products, in
services, in a new structure or strategy or more diffusely in a
pervasive shift in corporate culture.
An invention is the solution to a problem, often a technical one,

where as innovations is the commercially successful use of the
solution. Innovation starts after examining market needs, technical
production and marketing requirements.
Successful innovations result from a conscious, purposeful search

for innovation opportunities. Innovations arise out of:
• Unexpected occurrences
• Incongruities
• Precise needs
• Industry and market changes
• Demographic changes
• Changes in perception
• New knowledge.
52
Innovation means change. Such changes can be incremental or

radical, evolutionary or revolutionary. They can have different
effects upon procedures and users.
Innovation is not a technical term. Innovation creates new wealth or

new potential of action rather than new knowledge.
Organisations know that it is not something that takes place within

an organization but a change outside. The measure of innovation is
the impact on the environment. Innovation in a business enterprise
therefore always be market focused.
The most market focused innovator succeeds like business

strategies, an innovative strategy starts out with the question “What
is our business and what should it be?” The ruling assumption of an
innovative strategy is that what ever exists is aging. Existing
products lines and services, existing markets and distillation
channels go down rather than up. The foundations of innovative
strategy is planned and systematic sloughing of the old, the dying
and the obsolete.
Innovation is perhaps the single most important building block of

competitive advantage. Successful innovations gives a company
something unique – something that the competitors lack. This
uniqueness may allow a company to differentiate itself from its
rivals and change a premium price for its products. Alternatively, it
may allow a company to reduce its unit costs for below those of
competitors.
BENCH MARKING :
The process of measuring a firm’s performance against that of the

top performers in its industry. After determining the appropriate
bench marks a firm’s managers then set goals to meet or exceed
the performance of the firm’s top competitors. Taken to its logical
conclusions, competitive bench marking if practiced by all the firms
in an industry – would result in increased industry-wide
performance. Increasingly, companies may be bench-marking
against the best on the world.
Fortune magazine annually publishes the most and best admired

U.S. corporations. Corporate dimensions are evaluated along the
following lines:
• Quantity of products and services
• Quality of investment
• Innovations
• Long term investment value
• Firm sounders
• Community and environmental responsibility
53
• Use of corporate assets.

• Ability to allocate, develop & keep initial productivity.
These can be used as bench marks or standards.
GENERIC STRATEGIES
Michael Porter has proposed three generic strategies that provide a

good starting point for strategic thinking: overall cost leadership,
differentiation, and focus.
• Overall cost leadership: The business works hard to achieve

the lowest production and distribution costs so that it can
price lower than its competitors and win a large market share.
Firms pursuing this strategy must be good at engineering,
purchasing, manufacturing, and physical distribution. They
need less skill in marketing. Texas Instruments is a leading
practitioner of this strategy. The problem with this strategy is
that other firms will usually compete with still lower costs and
hurt the firm that rested its whole future on cost.
• Differentiation: The business concentrates on achieving
superior performance in an important customer benefit area
valued by a large part of the market. The firm cultivates
those strengths that will contribute to the intended
differentiation. Thus the firm seeking quality leadership, for
example, must make products with the best components, put
them together expertly, inspect them carefully, and effectively
communicate their quality. Intel has established itself as a
technology leader by introducing new microprocessors at
breakneck speed.
• Focus: The business focuses on one or more narrow market
segments. The firm gets to know these segments intimately
and pursues either cost leadership or differentiation within the
target segment. Airwalk shoes came to fame by focusing on
the very narrow extreme-sports segment.
DOWNSIZING:
Where there is surplus workforce, trimming of labour force will be

necessary. The trimming or downsizing plan shall indicate;
1. Who is to be made redundant and where and when;

2. Plans for re-development or re-training, where this has not
been covered in the re-development plan;
3. Steps to be taken to help redundant employees find new jobs;
4. Policy for declaring redundancies and making redundancy
payments; and
5. Programme for consulting with unions or staff associations
and informing those affected.
54
Another method of dealing with surplus labour is to retain all

employees but reduce the work hours (thus realize payrolls savings)
perhaps to a four day, 32- hour work week. In this way a company
can spread a 20 percent decrease in demand (and in pay) equitably
across the whole workforce, rather than keep 80percent of the
employees full-time and lay-off 20 percent of them.
Depending on the nature of the surplus, a firm may be able to

transfer or reassign employees to jobs in parts of the organization
that are still experiencing demand. Or if the firm expects the surplus
to be short-lived and can afford to keep excess workforce on payroll,
the company can use the slack time to provide cross training in
related jobs to enhance workforce skills and flexibility. Alternatively,
the surplus workers can perform equipment maintenance and
overhaul or engage themselves in other activities that were
postponed when demand was high.
Offering high incentives for early retirement I another way of

handling surplus labour. Euphemistically called as Voluntary
Retirement Scheme (VRS), this method is widely practiced. But hr
planners and trainers may be forced to scramble to deal with a
sudden short fall of experienced staff, particularly when VRS is
selected by a large number of employees.
Laying-off is another strategy for dealing with surplus staff. This

action is determinal to both employees and employers. For
employers, lay-off means joblessness and for employees it means
loss of reputation. Notwithstanding this, several firms are laying off
their surplus employees.
DISINVESTMENT
1. The action of an organization or government selling or liquidating

an asset or subsidiary. Also known as "divestiture".
2. A reduction in capital expenditure, or the decision of a company

not to replenish depleted capital goods.
Investopedia Says:
1. A company or government organization will divest an asset or

subsidiary as a strategic move for the company, planning to put the
proceeds from the divestiture to better use that garners a higher
return on investment.
2. A company will likely not replace capital goods or continue to

invest in certain assets unless it feels it is receiving a return that
justifies the investment. If there is a better place to invest, they may
55
deplete certain capital goods and invest in other more profitable

assets.
DIVERSIFICATION
Main objectives of diversification;:
1. Raising resources:
The first main objective of disinvestment of public sector units is to

raise resources from within public sector units to meet three
categories of cost associated with transformation of public sector
enterprises. They are as follows:
 A part of the resources will be utilized to bear expenses

related with Voluntary Retirement Scheme when sick public
sector enterprises which cannot be revived will be closed
down by the govt.
 A part of the resources will be utilized to provide additional

capital to public sector units which can be revived.
 A part of the resources will be utilized to retrain the workers

displaced from the closure of public sector enterprises.
2. Autonomy to management:
The second important objective of disinvestment of public sector

units is to provide autonomy to its management. The autonomy to
the management in public sector enterprises will give freedom to
management to take independent decisions and operate public
sector enterprises on commercial lines.
3. Reduce political interference:
The third important objective of disinvestment is to reduce political

interference in day-to-day functioning of public sector enterprises.
The disinvestment of public sector enterprises would make public
sector units more accountable to shareholders. The govt. officials
are thus expected to take more independent decisions rather than
just serving the selfish interest of politicians.
4. Generation of employment:
The fourth important objective of disinvestment of public sector

enterprises is to increase employment opportunities’ in the country.
The restructuring of the public sector enterprise through proceeds of
56
disinvestment would improve efficiency and profitability of public

sector enterprises. The increase in level of profitability would help
public sector to expand and diversify its production activities. This
would further generate employment opportunities in the country.
5. Retiring of public debt:
The fifth important objective of disinvestment is to utilize the

proceeds of disinvestment to retire the public debt. The retiring of
public debt would help to reduce the burden of both massive public
debt and huge interest payments on it. The decline in burden of
debt servicing charges would also help the govt. to control the fiscal
deficit.
6. Building up of competitive environment:
Finally the major objective of disinvestment was to build up healthy

competitive environment in the economy. The govt. would ensure
that the disinvestment does not result in creation of pvt. Monopolies
.it would also develop suitable framework for regulation of
companies beyond a particular size by in acting a competition act.
INTEGRATION STRATEGIES:-
1) Forward Integration – Forward integration and horizontal

integration are some time collectively referred to as vertical
integration strategies. Vertical integration strategies allow a
firm to control over distributors, suppliers, and competitors.
Six guidelines for when forward integration may be an especially

effective strategy are:
 When an organizations present distributors are specially

expensive, or unreliable, or incapable of meeting the
firms distribution needs.
 When the availability of quality distributors is so limited
as to offer a competitive advantage to those firms that
integrate forward.
 When an organization competes in an industry that is
growing and expected to continue to grow markedly;
this is a factor because forward integration reduces an
organizations ability to diversify if its basic industry
falters.
 When an organization has both the capital and human
resources needed to manage the new business of
distributing its own products.
 When the advantages of stable production are
particularly high; this is a consideration because an
57
organization can increase the predictability of the

demand for its output through forward integration.
 When present distributors or retailers have high profit
margins; this situation suggests that a company
profitably could distribute its own products and price
them more competitively by integrating forward.
2) Backward Integration –
Both manufacturers and retailers purchase needed materials from

suppliers. Backward integration is a strategy of seeking ownership
or increased control of a firm’s suppliers. This strategy can be
especially appropriate when a firm’s current suppliers are
unreliable, too costly, or cannot meet the firm’s needs.
Seven guidelines for when backward integration may be an

especially effective strategy are:
 When an organization present suppliers are especially

expensive, or unreliable, or incapable of meeting a firms
needs for parts, components, assemblies, or raw
materials.
 When the numbers of supplier’s are small and the
number of competitors is large.
 When an organization competes an industry that is
growing rapidly; this is a factor because integrative type
strategies reduce an organizations ability to diversify in
a declining industry.
 When an organization has both capital and human
resources to manage the new business of supplying its
own raw materials.
 When the advantages of stable prices are particularly
important; this is a factor because an organization can
stabilize the cost of its raw materials and the associated
price of its products through backward integration.
 When present suppliers have high profit margins, which
suggest that the business of supplying products or
services in the given industry is a worthwhile venture.
 When an organization needs to acquire a needed
resource quickly.
3) Horizontal Integration –
Horizontal integration refers to a strategy of seeking ownership of or

increased control over a firm’s competitors. One of the most
significant trends in strategic management today is the increased
use of horizontal integration as a growth strategy. Mergers,
acquisition, takeovers among competitors allow for increased
58
economies of scale and enhanced transfer of resources and

competencies.
Five guidelines when horizontal integration may be an especially

effective strategy are:
 When an organization can gain monopolistic

characteristics in a particular area or region without
being challenged by a federal government for “tending
substantially” to reduce competition.
 When an organization competes in a growing industry.
 When increased economies of scale provide major
competitive advantages.
 When an organization has both the capital and human
talent needed to successfully manage an expanded
organization.
 When competitors are faltering due to a lack of
managerial expertise or a need for particular resources
that an organization possesses; note that horizontal
integration would not be appropriate if competitors are
doing poorly, because in that case overall industry sales
are declining.
DIVERSIFICATION STRATEGIES:-
There are three general types of diversification strategies:

Concentric, Horizontal and Conglomerate. Overall, diversification
strategies are becoming less popular as organizations are finding it
difficult to manage diverse business activities. In the 1960’s and
1970’s, the trend was to diversify so as not to be dependent on any
single industry, but the 1980’s saw a general reverse of that
thinking. Diversification is now on the retreat.
1) Concentric Diversification –
Adding new, but related, products or services is widely called as

concentric diversification.
Six guidelines for when concentric diversification may be an
effective strategy are provided below:
 When an organization competes in a no growth or a slow

growth industry.
 When adding new, but related, products would
significantly enhance the sales of current products.
 When new, but related, products could be offered at
highly competitive prices.
59
 When new, but related, products have seasonal sales

levels that counterbalance an organization’s existing
peaks and valleys.
 When an organization’s products are currently in the
declining stage of the product’s lifecycle.
 When an organization has a strong management team.
2) Horizontal Diversification:
Adding new, unrelated products or services for present customers is

called horizontal diversification. This strategy is not as risky as
conglomerate diversification because a firm already should be
familiar with its present customers.
Four guidelines for when horizontal diversification may be an

effective strategy are provided below:
 When revenues derived from an organization’s current

products or services would increase significantly by
adding the new, unrelated products.
 When an organization competes in a highly competitive
and/or a no growth industry, as indicated by low
industry profit margin and returns.
 When an organization’s present channels of distribution
can be used to market the new products to current
customers.
 When the new products have counter-cyclical sales
patterns compared to an organization’s present
products.
3) Conglomerate Diversification: Adding new, unrelated products

or services is called conglomerate diversification.
Six guidelines for when conglomerate diversification may be an

especially effective strategy to pursue are listed below:
 When an organization’s basic industry is experiencing

declining annual sales and profits.
 When an organization has the capital and managerial
talent needed to compete successfully in the new
industry.
 When the organization has the opportunity to purchase
an unrelated business that is an attractive investment
opportunity.
 When there exists financial synergy between the
acquired and acquiring firm.
 When the existing markets for an organization’s present
products are saturated.
60
 When anti-trusts actions could be charged against an

organization that historically has concentrated on a
single industry.
Gap analysis
The concept:
Another important step in strategic management is the gap
analysis. Gap analysis is also a means for motivating top
management to initiate steps for strategic management. Gap is
the deviation between events which is perceived, planned or
forecasted and that of actual. Based on the system analysis, the
outcome is based on the objectives, which is conditioned by the
criteria and constraints. Hence, broadly, gap analysis is classified
under the following categories:
 Gap analysis on outcome

 Gap analysis on the objective
 Gap analysis on the constraints like environment
 Gap analysis on the criteria like planning promises and
assumptions.
Based on existing strategy, organisation has evolved a particular

way of planning to accomplish a given set of objectives. A formal
evaluation must be made as to the way the existing strategy is
working. Based on analysis of environment, anew set of
opportunities is opened up.
In order to take advantage of the new opportunities, a set of new

strategies are contemplated. Therefore at a future date there are
two sets of outcome, which are to be achieved. One set of outcome
is those based on existing strategy, which is considered as
“expected outcome.” Another set of outcome is that which comes
out of the contemplated new strategy, considered as “desired
outcome.” The analysis between the two outcomes is called gap
analysis of the outcome.
Gap analysis is an important technique in motivating top

management to initiate strategic management process. The
capability of gap analysis to do so depends upon three conditions
they are as follows:
1. Significance: The gap itself can provide the “catalytic effect”

of top management. This depends on the significance of the
gap. Suppose the “expected outcome”, at a future date is the
same or nearly the same as that of the “desired outcome”,
there is no need to change the existing strategy. In other
words, the gap acts as a “triggering agent” for initiating a new
strategy, provided the gap is significant.
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2. Importance: Gap analysis, can act as a motivation provided

the gap is important. Suppose, the company finds that there is
a scope for improving the market share from the present level
of 10% to 25% in the next year. At the same time expected
increase of share with existing strategy for the next year is
only 15% then there will be a genuine motivation is generated
because there is a gap between the expected and desired
outcome in one of its objectives, viz, market share.
3. Reducibility: This is major important criterion of success. This

is the belief of top management that the projected gap is
reducible. In other words, this is the confidence level of top
management in the capacity of the proposed strategy to
reduce the gap. There are certain constraints, which are
beyond the capacity of the organisation to correct.
4. Responsibility centers Control systems can be established to

monitor specific functions, projects, or divisions. Budgets are
one type of control system that is typically used to control the
financial indicators of performance. Responsibility centers are
used to isolate a unit so that it can be evaluated separately
from the rest of the corporation. Each responsibility center,
therefore, has its own budget and is evaluated on its use of
budgeted resources. The manager responsible for the center’s
performance heads it. The center uses resources to produce a
service or a product. There are five major types of
responsibility centers. The type is determined by the way the
corporation’s control system measures these resources and
services or products.
5. Standard cost centers: Primarily used in manufacturing

facilities, standard costs are computed for each operation on
the basis of historical data. In evaluating the center’s
performance, its total standard costs are multiplied by the
units produced. The result is the expected cost of production,
which is then compared to the actual cost of production.
6. Revenue centers: Production, usually in terms of unit or dollar

sales, is measured without consideration of resource costs.
The center is thus judged in terms of effectiveness rather than
efficiency. The effectiveness of a sales region, for example, is
determined by comparing its actual sales departments have
very limited influence over the cost of the products they sell.
7. Expense centers: Resources are measured in dollars without

consideration for service or product costs. Thus budgets will
have been prepared for engineered expenses and for
62
discretionary expenses. Typical expense centers are

administrative, service, and research departments. They cost
organisation money but they only indirectly contribute to
revenues.
8. Profit centers: Performance is measured in terms of the

difference between revenues. A profit center is typically
established whenever an organizational unit has control over
both its resources and its products or services. By having such
centers, a company can be organized in to divisions of
separate product lines. The manager of each division is given
autonomy to the extent that she or he is able to keep profits
at a satisfactory level.
9. Investment centers: Because many divisions in large

manufacturing corporations use significant assets to make
their products, their asset base should be factored in to their
performance evaluation. Thus it is insufficient to focus only on
profits, as in the case of profit centers. Thus it is insufficient to
focus only on profits, as in the case of profit centers. An
investment center’s performance is measured in terms of the
difference between its resources and its services or products.
10. ROI budgeting The most commonly used measure of corporate

performance is return on investments (ROI). It is simply the
result of dividing net income before taxes by total assets.
Although ROI has several advantages, it also has several
distinct limitations.
Advantages:
1) ROI is a single comprehensive figure influenced by every thing
that happens.
2) It measures how well the division manager uses the property
of the company to generate profits. It is also a good way to
check on the accuracy of capital investment proposals.
3) It is a common denominator that can be compared with many
entities.
4) It provides an incentive to use existing assets efficiently.
5) It provides an incentive to acquire new assets only when doing
so would increase the return.
Limitations:
1) ROI is very sensitive to depreciation policy. Depreciation write-
off variances between divisions affect ROI performance.
Accelerated depreciation techniques increase ROI, conflicting
with capital budgeting discounted cash-flow analysis.
2) ROI is sensitive to book value. Older plants with more
depreciated assets have relatively lower investment bases
than newer plants, thus increasing ROI.
63
3) In many firms that use ROI, one division sells to another. As a

result, transfer pricing must occur. Expenses incurred affect
profit. Since, in theory, the transfer price should be based on
the total impact on firm profit, some investment center
managers are bound to suffer. Equitable transfer prices are
difficult to determine.
4) If one division operates in an industry that has favorable
conditions and another division operates in an industry that
has unfavorable conditions, the former division will
automatically “look” better than the other.
5) The time span of concern here is short range. The
performance of division managers should be measured in the
long run. This is top management’s time span capacity.
6) The business cycle strongly affects ROI performance, often
despite managerial performance.
…THE END…
64

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STRATEGIC MANAGEMENT

STRATEGIC MANAGEMENT (6.1)

STUDY MATERIAL DESIGNED

“Whatever action is performed by a great man, common men

Strategy Formulation Strategy Implementation

Full length questions which can be used for 7 marks or 8 marks

A ( Total weightage for this part is 8/60)

1. Define strategic management? Explain the relevance of strategic management

2. What are the various levels of strategic management in an organization. Give

3. What is strategic management? Illustrate and explain the strategic

4. Describe the various steps involved in the strategic management process.

6. Identify various components of environment that affect the management of an

7. What is strategy formulation. Explain the factors to be taken into consideration

B. (Total weightage for this part is 12/60)

8. “Business must be run in a socially responsible manner”. Comment on the

9. What are the social responsibilities of business?

12. Describe the impact of technology on business.

13. “Economic environment impacts business” Critically analyse.

C ( Total weightage for this part is 15/60)

17. Distinguish between mission, vision and goals.

18. Bring out the importance of organizational assessment and environmental

19. What is SWOT analysis? How it is useful in strategy formulation?

INTRODUCTION TO STRATEGIC MANAGEMENT

Strategic management or business policy or corporate strategy

It is very relevant to point out in this context that in business the

DEFINITION OF STRATEGIC MANAGEMENT

Strategic management can be defined as “the art and

As this definition implies, Strategic management focuses on

The term Strategic management is used synonymously with the

The purpose of Strategic management is to exploit and create new

Following that boom however strategic planning was cast aside

In a multi business enterprise, having several SBUs, there would be

Corporate strategy is the long-term strategy encompassing the

SBU-level strategy, sometimes called business strategy is concerned

In short, “the SBU level strategic management of a SBUs effort to

The responsibility of the SBU strategy is with the top executives of

Functional level strategies are strategies for different functional

Strategic Business Unit

Characteristi Corporate Business

Source and Board of SBU strategy

General Concrete Action and

The strategic management model or process

The strategic management process is dynamic and continuous. A

Therefore, strategy formulation, implementation, and evaluation

The strategic management process is not as cleanly divided and

Strategy Formulation Strategy Implementation

THE PROCESS OF DEVELOPING A MISSION STATEMENT

“A mission statement is an enduring statement of purpose that

According to Mc Ginnis a mission statement

• Should define what the organization is and what the

Goals and Objectives

Objectives may be defined as “the ends which the organization

A goal is defined as “an intermediate result to be grand plan. A plan

Objectives are particularly important in strategy formulation.

According to the strategic management model, a clear mission

For developing a mission statement first we select several articles

A request for modification, additions and deletions is needed next,

modify the mission statement. Some organization hires an outside

Sometimes an outside person with expertise in developing mission

THE PROCESS OF PERFORMING AN EXTERNAL AUDIT

To perform an external audit, a company first must gather

This approach provides a continuous stream of timely strategic

THE PROCESS OF PERFORMING AN INTERNAL AUDIT