Directional Strategies / Grand Strategies

Corporate directional strategies: Corporate strategy provides overall direction for the firm irrespective of its size (small or big). The orientation towards growth can be decided by asking the three basic questions:
Should we continue with the same business with similar efforts? Should we expand in to new business areas by adding new functions, products, and markets? Should we get out of the business or a part of the business?

Based on the above questions three general orientations, known as Grand Strategies are evolved.
Stability strategies consist of No change in the companys current activities. Growth strategies, involve expansion of a firms activities. Retrenchment strategies that reduce the level of companys activities.

Corporate Strategy
Corporate Strategy Strategy for Change Stability Strategy Expansion Strategy

Penetration Diversification Integration

Restructuring

Turnaround

Divestment Liquidation

Vertical Horizontal

Merger
Stability Strategy No-Change Strategy

Takeover

Joint Vent Stra Alliance

Profit Strategy

Proceed with caution

Corporate Directional Strategies

Stability strategy

Growth

Stability

Stability strategy involves in continuing the current activities without any significant change in direction. It is pursued by successful companies in relatively stable and predictable environment. Focuses on incremental improvement in functional performance. It is less risky. Suitable for short run but will be dangerous if pursued for a long period of time.

Retrenchment Managing Change

Turnaround Divestment Liquidation Restructuring

Diversificati No change on Concentric Conglomer ate Pause Proceed with caution

Concentrati Profit on Vertical growth

Horizontal growth

Stability strategy
No change: No change strategy is pursued by small business when the
future is predicted to be the continuation of the present. Company enjoys stable competitive position in the industry and it has no opportunities or threats. Company will make few marginal adjustments for inflation in its sales & profit aims. This strategy is followed by small town businesses.

Pause & Proceed with caution: Companies adopt this strategy after a
prolonged period of rapid growth in order to consolidate resources and results. It is deliberate and conscious attempt to postpone strategic shift. It is a temporary strategy and the company makes incremental improvement till the environment changes. Dell computers relied on on-line selling of personal computers.

Profit: Profit strategy assumes that the difficulties faced by the firm are
temporary. When the companys sales are declining, the profit strategy tries to project a picture of a profit making organization by taking measures such as reducing investments and blaming external environment for its problems. (Government policy changes, competitors sudden moves, etc.) It is a secretive and seductive strategy and if continued for a long time it will result in deterioration of organizations position.

Growth strategies
Growth strategy is a corporate level strategy, designed to achieve
increase in sales, assets, and profits (reducing per unit cost). Companies in expanding industries must grow in order to survive. Growth strategies may be classified as CONCENTRATION & DIVERSIFICATION. CONCENTRATION Strategy: It results in concentration of resources on those product lines, which have growth potential. This strategy is

followed by growing firms in growing industries. There are two basic concentration strategies namely:
VERTICAL GROWTH & HORIZONTAL GROWTH. Vertical growth occurs when one function previously carried over by a supplier or a distributor is being taken over by the company in order to reduce costs, to maintain quality of input and to gain control over scarce resources and also to obtain access to potential customers.. Vertical growth results in vertical integration. Vertical integration means the degree to which a firm operates vertically in multiple locations on an industry value chain from extracting raw materials to manufacturing and retailing. Vertical integration occurs when a company produces its own inputs or disposes of its own outputs. Vertical integration may be either BACKWARD INTEGRATION OR FORWARD INTEGRATION.

VERTICAL GROWTH
Vertical integration may be either BACKWARD INTEGRATION OR FORWARD INTEGRATION. BACKWARD INTEGRATION refers to performing a function previously provided by a supplier. It involves moving into intermediate manufacturing and raw material production. When a textile mill starts its ginning & spinning mill is an example of backward integration. FORWARD INTEGRATION means performing a function previously
provided by a retailer. It involves firms acquisition of one or more of its buyers. It means movement into distribution. A textile mill, which opens its own retail showroom, is an example of forward integration. Backward Forward
Raw material Intermediate manufacturer Assembly Distributor

End user

In TAPER integration , it produces less than half of its requirements and buys the rest from individual suppliers. It also disposes of its output through outside outlets or company owned outlets.

DIVERSIFICATION Strategy
Diversification strategy

Related diversification

Unrelated diversification/ Conglomerate diversification

Vertically Integrated diversification

Concentric diversification

Forward integration

Backward integration

DIVERSIFICATION Strategy
Diversification involves a simultaneous departure from current business,
familiar products & familiar markets. Diversification makes addition to the portfolio of businesses. Firms choose diversification when growth objectives are very high and it could not be achieved within the existing product/market scope. Firms consider diversification as a long term solution to the vulnerability inherent in a single or limited number of business propositions. The main attraction for diversification arises from new and fresh opportunities, which hold promise of high profitability. It is resource intensive strategy and requires managerial competence to make it success. It can be successful if the company has right kind of leadership, dynamic executives, venture loving workforces, efficient structure & systems. The chosen industry should be attractive and the cost of entry barrier should be reasonable. It requires cautious approach. Diversification strategy can be classified into:
Related Diversification Unrelated Diversification.

DIVERSIFICATION Strategy
Related Diversification: In related diversification, the firm enters in to a
new business activity, which is linked, to a companys existing business value chain. The linkages are based on manufacturing, marketing and technological commonalities. The risk is considered to be less. There is much scope for sharing the skills, resources and competencies among the business. Each business derives synergy from the rest. The diversified companies create value in the following ways:
By transferring competencies among businesses and By realizing economies of scope. (when business firms share common resources, manufacturing facilities, distribution channels, advertising campaigns, R&D and so on.) IBM operates in 20 fields all related to each other.

Diversified companies fail due to following reasons:

Too many businesses are in companys portfolio. The extent of coordination required between different businesses is very high.

DIVERSIFICATION Strategy
Unrelated Diversification: When a company enters into new business area that has no obvious connection wit top h any of the existing business. If companys core skills are very highly specialized and if top management is good enough in turning around sick business, unrelated diversification may be suitable. The new businesses/products are unrelated to process/technology of existing business. In Strategic management literature, related diversification is more commonly known as Concentric Diversification and unrelated diversification, Conglomerate Diversification. In CONGLOMERATE diversification a firm acquires business to reduce cyclical fluctuations in cash flows or revenues. Ponds India into leather products. BPL into computer software. Godrej into Poultry business. Escorts into edible oil. Titan into watches, Jewellary & Sunglasses. ITC into hotel business, agro products due to constant threat to its cigarette business.

Conglomerate Diversification
Guiding factors for Related/Concentric Diversification and Unrelated / Conglomerate Diversification

Related/ Concentric Diversification Strong Brand name/image Economies of scale Strength of R&D Manufacturing & Marketing skills Distribution network

Unrelated/Conglomerate Diversification High profitability or ROI First mover/price advantage Multiple products/ markets Corporate restructuring Defence against a take over Technology/ Resource transfer

DIVERSIFICATION Strategy
Concentric diversification is similar to related diversification as there are benefits of synergy when the new business is related to existing business through process, technology, and marketing. The new product is a spin off from the existing facilities, products and processes. It is a departure from existing value chain. Philips in lighting & electronic business entered into personal communication systems, cable TV etc. STRATEGIC ALLIANCE as an alternative to DIVERSIFICATION Diversification is always accompanied with bureaucratic costs, but strategic alliance is cheaper. It means agreement between two or more companies to share the costs, risks, and benefits associated with development of new business opportunities. It involves long-term cooperative relationship between two entities. No new entity is formed as a result of alliance and only working arrangement on specific issues are drawn out. It differs from joint venture , no stock holding is involved. The alliance may be formed between firms of same industry or members of different industries. The alliance may be marketing alliance, advertising alliance, R&D alliance, production sharing alliance etc. IBM, Motorola & Apple computer to develop a new hardware platform.

Managing Change
Managing Change

Reactive

Proactive

Corporate Restructuri ng

Divestment

Liquidation

Corporate turnaround

Managing radical change

Managing uncertainty

Doomsdays management

Change in good times

Retrenchment strategies
Retrenchment strategies are adopted when the firms performance is poor and its competitive position is weak. Turnaround Strategy: It involves reversing negative trend. It involves development of a strategy for turning around the companys core business areas. The corporate decline is attributable to seven reasons:
Poor Management Over Diversification/ Expansions Inadequate Financial Controls High Costs New Competitors Declining demand for the products Organizational inertia.

Main aspects of turnaround are: Changing the leadership, Redefining Strategic Focus, Assets sale & Closures, Improving Profitability, Acquisitions. E.g Revival of Indian Bank. Revival of sick units. Poorly managed units merged with healthy units. IPCL merged with Reliance Industries. Indian Airlines merged wit Air India.

Divestment strategy
Divestment strategy requires dropping of some of the businesses or part of business of the firm, in order to reverse the negative trend. It involves redefinition of the business of the corporation. Divestment is a corporate level retrenchment strategy where in a firm sells one or more of its business units. Divestment involves dropping of product, market & functions. May be due to obsolescence of product or process, unprofitable business, high competition, industry over capacity and failure of strategy. Selling off a business unit to independent investors is known as SPIN OFF. Raymond sold its steel & cement division.
Parent Company P&G Dell Computer HUL Tatas Voltas Business Divested Jif peanut butter Web-Division Vanaspati Lakme Acs & Refrigerators Acquiring Company J M Smucker FON Group Bunge Ltd HUL Electrolux

Retrenchment strategies
Liquidation strategy is followed when a firm is in a weak position and in an unattractive industry. It is pursued a s a last step because the employees lose their jobs. Due to top management failures. Trade unions & government will object to this strategy. Under companies act 1956 winding up of a company is done under court order. Liquidation is a corporate level retrenchment strategy where in the company terminates one or more of its business units by sale of their assets. Harvest Strategy involves halting investments in a unit in order to maximize short to medium term cash flow from that unit before liquidating it.

Retrenchment strategies
Corporate Restructuring means organizational change to create a more efficient or profitable enterprise. Also called Revamping, Regrouping, Rationalization or consolidation. Organizational Restructuring:
Changes in the structure, downsizing, redesign positions, reallocation of jobs, Changes in the companys businesses or product portfolios. Changes are done on the basis of movements in market share or performance of different businesses or products to improve efficiency or profitability at the corporate level. Changes made in the Financial Management in terms of equity pattern or equity holdings, debtequity ratios, borrowing pattern, etc.

Business-level restructuring:

Financial Restructuring:

Hindustan lever Project Millennium Tata Industries: 1992 , Tata oil, TISCO (Tat Steel) Larsen & Toubro: Vision 2005, Shipping, Shoe manufacturing, Focus on core business engg projects, Joint ventures in cement, tractors, earth moving equipment business. Steel Authority of India(SAIL) State Bank of India (SBI)

Functional Level Strategy

Functional level strategies focus on the effectiveness of functional operations with in the company, such as Manufacturing, Marketing, Material Management, R&D, and Human Resource Management. Companies use them to achieve Efficiency, Quality, Innovation and Customer responsiveness. Close cooperation is required among these functions to achieve the desired result. Manufacturing & Efficiency : An efficient company has higher productivity than its rivals. Superior efficiency can be achieved by gaining Economies of scale and Learning effects. R&D & Efficiency helps to improve the profit margin by improving process design, product design, reduction in set up time, etc. Marketing Strategy & Efficiency : Pricing, Promotion, Product design, Distribution, Advertising, Ability of the company to satisfy the customers, reduce the customer defection.

Functional Level Strategy

Material Management & Efficiency : JIT is used to improve the efficiency of Material management function. Generally material & transportation cost account for 50% to 70% of revenues. JIT will economize inventory holding cost. Human Resource Strategy & Efficiency: Employee productivity will increase enterprises efficiency & cost structure. Training employee. Self managing teams, linking pay to performance, etc. Infrastructure & Efficiency: Top management leader ship should recognize the need for all functions of the company to focus on improving their efficiency. Good quality management gives lot of advantage. TQM.

Functional Level Strategies

Superior efficiency can be achieved by gaining Economies of Scale and Learning Effects. Learning Effects: Labour productivity increases over time, and unit costs fall as individuals learn the most efficient way to perform a particular task. The production costs decline because of increasing labour productivity and management efficiency. Learning is required in situations where a technologically complex task is repeated, since there is more to learn. Learning effects will be more significant in complex situations. Economies of Scale refers to reduced unit cost of production. Spreading fixed cost over a large volume of output, lets the company to reduce unit costs. Another method is to produce in large volume to achieve a greater division of labour and specialization.

Business Level Strategy

A Good business level strategy involves 3 factors: Customer needs, or what is to be satisfied? Needs are satisfied by means of characteristics of product or service. Product differentiation provide competitive advantage. Designing products/ services. Unique about the product. Satisfy psychological needs. Customer Groups, or who is to be satisfied? Market segments based on customer needs/ preferences. Different cars, TVs, etc. A Company which provides many products for many markets will satisfy more customers, and more profit. Distinctive competencies, or how customer needs are to be satisfied? Four ways of achieving competitive advantage are Superior efficiency, quality, innovation and customer responsiveness.

Business Level Strategy

Selecting a Generic Competitive Strategy at the Business Level. Three Generic competitive approaches are:
Cost Leadership Strategy Differentiation Strategy Focus Strategy These strategies are generic because all business or industries can pursue them regardless of whether they are manufacturing, service or Not-for profit enterprises.

Cost Leadership Strategy : Companies which follow this strategy, try to produce goods/services at a lower cost than other players and try to out perform them.

Business Level Strategy

Differentiation Strategy: Companies which pursue differentiation
strategy create products which are perceived as unique by customers, and they charge Premium price , which is above industry average. Sony makes 24 types of TVs to suit the needs of different market segments. Avenues of Differentiation are: Brand image, Channel clout, Competent structure, Unique process, Advance R&D set up, Product innovation. customer groups or segment. A Focused company pays attention to serve a particular market niche, which may be defined Geographically, by type of customer, or by segment of product line. A customer niche school children, A product line fast food. The firm specializes in some way. It is a specialized differentiator or a cost leader.

Focus Strategy: This strategy is pursued to serve the needs of a limited

Business Level Strategy

Product/Market/Distinctive Competency Choices & Business Level Strategy.
Cost Leadership
Product Differentiation Low ( Principally by Price) Low (Mass Market)

Differentiation
High (Principally by Uniqueness) High (Many market segments) R & D, Sales & Marketing

Focus
Low to High ( Price or Uniqueness) Low (one or few segments)

Market Segmentation

Distinctive Competency

Manufacturing & Materials Management

Any kind of distinctive competency

Tactics
Competitive Tactics; A tactics is specific operating plan that contributes to strategy implementation in terms of When & Where it should be put in to action. Tactics are considered to be a link between Strategy formulation and Strategy Implementation. Companies fail due to poor tactics. Tactics can be classified as timing tactics and market location tactics. Timing tactics : When to compete? The first mover is one who manufactures and sells a new product or service. He is a industry leader, cost leader and enjoys the benefit of learning curve effects. Late movers imitate. Market location tactics:
Offensive tactics: Carried out in established competitors market location. Defensive tactics: Takes place in firms own current market position as a defense against possible attack by a rival.

Strategy Formulation Situation Analysis

Strategy Formulation is concerned with evolving corporations Missions, Objectives, Strategies & Policies. Strategy formulation starts with Situation Analysis. Three tools are used to analyze the situation SWOT Analysis, SFAS Strategic Factor Analysis Summery, TOWS Matrix. SWOT Analysis: SWOT is a acronym for explaining Strength, Weaknesses, Opportunities & Threats for any specific organization. SWOT analysis results in identification of competitive distinctive competencies, opportunities that are not exploited fully due to shortage of resources. An opportunity may not have any value unless the firm has a capacity to exploit the opportunity. SFAS Strategic Factor Analysis Summery: The SFAS matrix incorporates the important factors gathered from environmental scanning and provides necessary information for strategy formulation. TOWS Matrix:

Strategy Formulation Situation Analysis

TOWS Matrix: It is another way of writing SWOT. The TOWS matrix is a systematic analysis for matching opportunities and threats that are external with strengths and weaknesses, which are internal for organization. When Strength, Weaknesses, Opportunities & Threats combine, they result in Four set of different strategic alternatives. TOWS matrix is used to generate several strategic alternatives. The aim of the firms is to move from one position to another desirable position. TOWS matrix is prepared for the whole corporation or for specific business units. It is for a given point of time, because external & internal environments are dynamic. Since environment keeps changing, the strategists usually prepare several TOWS matrix for different point of time. Thus TOWS matrix for past, TOWS matrix for present, TOWS matrix for future in different time periods T1 &T2,

TOWS Matrix
TOWS Matrix
Internal Factors External Factors External Opportunities (O) Economic, Political, Social, Technology,
Internal strength (S) Strengths in Finance, HR, R&D, Operations, General Management.

Internal Weaknesses (W) Weaknesses in functional Areas. WO Strategies Mini-Maxi

SO Strategies Maxi-Maxi

Generate strategies that use Generate strategies that take Strengths to take advantage Advantage of opportunities by Overcoming weaknesses. Of opportunities.

External Threats (T) Shortage of energy, ST Strategies Competition, Govt Maxi-Mini Generate strategies that use Role, etc
Strengths to avoid threats.

WT Strategies Mini-Mini
Retrenchment, Liquidation, Joint-venture, Generate strategies that minimizes weakness & avoid Threats.

TOWS Matrix
Dynamics of TOWS Matrix Analysis.
Internal factors

External factors S W

O SO WO T ST WT

Time

BUILDING & RESTRUCTURING THE CORPORATION

There are various methods for the firms to enter into a new business and restructure the existing one. Firms use the following methods: Start up route: It involves starting a new business from the scratch. VIP and Reliance. Acquisition: Means buying an existing business. MNCs like Nestle, P&G, Unilever, Electrolux. Quick expansion Joint venture: Involves starting a new venture with the help of a partner. GM with Hindustan Motors, Tata with AT&T, GE Capital with HDFC, Firms in growth and embryonic industries prefer joint venture. Merger: Two or more firms come together to form a new entity. Merger helps to pool resources & improve operational efficiency. Enjoys economies of scale in production. Take over: In takeover, a portion or whole firm is acquired by another firm and controlled by acquirer firm. Electrolux took over Maharaja Industries which has a loss of Rs. 2 crore

PORTFOLIO ANALYSIS
One of the most popular aids to developing Corporate strategy in a Multi-business corporation is Portfolio Analysis. Companies with multiple product lines or business units must ask themselves how these various products and business units should be managed to boost overall corporate performance. In Portfolio Analysis, Top Management views its Product lines and Business units as a series of investments from which it expects a profitable return. The Product lines/business units form a portfolio of investments that Top management must constantly juggle to ensure the best return on the corporations invested Money. Two of the most popular approaches are the BCG Growth Share Matrix and GE Business Screen.

BCG (BOSTON CONSULTING GROUP) GROWTH SHARE MATRIX

Strategic choice is the process of selecting the best strategy out of the available strategies. Portfolio Planning: BCG Matrix is one of the portfolio technique which helps top management to manage their portfolio of businesses. It identifies the cash flow requirements of different businesses. Construction of BCG Matrix 1. Dividing the company in to strategic business units 22 (SBUs) and assessing the long term prospects of each. 20 2. Comparing SBUs against each other by means of Question Stars Matrix that indicates the relative prospects marks Business Of each. Growth 3. Developing strategic objectives Rate % 10 With respect to each SBUs. It categorizes a firms business units Cash Cows Dogs 5 By the market share that they sold and 2 The growth rate of their respective 0 Markets. 10x 4x 1.5x 1 0.5 0.1

Relative Competitive Position (Market share)

BCG (BOSTON CONSULTING GROUP) MATRIX

SBUs are defined in terms of product markets they are competing in. Managers examine SBUs in terms of relative market share and industry growth rate. Relative market share is defined as the ratio of a SBUs market share to the market share held by the largest rival company in the industry. This will determine whether SBUs market position is a strength or a weakness. A relative market share above 1.0 belongs to the market leader. If the SBUs market share is 10% and the rivals share is 30% then SBUs relative market share is 10/30=0.3. According to BCG matrix, market share gives a company cost advantages from economies of scale and learning curve effects. An SBU with relative market share more than 1.0 has low cost advantage and has advantage of experience curve. If the relative market share is less than 1.0 it is disadvantageous in terms of scale economy and low cost position. Industry growth rate studied whether industry conditions offer opportunities for expansion. BCGs position that high growth industries offer favourable competitive environment and better long-term prospects than slow growth industries.

BCG (BOSTON CONSULTING GROUP) MATRIX

Comparing Strategic Business Units SBUs are compared in terms of relative market share and growth rate. Horizontal dimension shows relative market share and vertical dimension measures industry growth rate. The circles represent SBUs. The size of the circle is in proportion to the sale of SBU. Bigger the circle, the larger the size of SBU. The matrix is divided in to four cells. Stars, Question marks, Cash cows and Dogs. Stars: The leading SBUs in the firms portfolio are Stars. They have high growth rate, high relative market share, competitive advantage and growth opportunities. They have long term profit and opportunities for expansion. The Stars are market leaders and they are at the peak of product life cycle stage. Question Marks: Those SBUs with high industry growth but low relative market share are question marks. Their competitive position is weakfor long term profit and growth. A question mark may become Stars if it has potential for growth and if is nurtured properly. Corporate office decides to invest in question mark and nurture it. It requires lot of cash for development.

BCG (BOSTON CONSULTING GROUP) MATRIX

Cash Cows: Cash cows are SBUs that generate lot of cash but growth potential is negligible. Cash generation exceeds the reinvestment opportunities and the business is in mature stage of product life cycle. Cash cows are those SBUs that have high market share in low growth industries and a strong competitive position in mature industries. They are cost leaders in industry. They lack opportunities for future expansion but they generate cash to the company. Dogs: SBUs that are in low growth industries and have low market share, are dogs. They have very weak competitive position in unattractive industries. The potential for growth is low and Dogs are in the declining stage of product life cycle stage. Dogs should be divested or managed carefully with substantial capital investments. BCG matrix is aimed to find out how the cash resources could be used to maximize the future growth and profitability of a company. BCG makes the following recommendations. The companys portfolio should be made attractive by consolidating the position of Stars and turning potential Question marks in to Stars. The surplus cash from cash cow should be used for selected Question marks and Stars. Question marks with questionable prospects should be divested and dropped. The company should exit from SBUs that are Dogs. If Cash cows, Stars and Question marks are not in sufficient numbers the firm should go for acquisition in order to build a more balanced portfolio.

GENERAL ELECTRICS Business Screen Matrix

GE and Mckinsey Consulting firm have evolved GE Business Screen Matrix,

WHICH CONSISTS OF 9 CELLS BASED ON Industry Attractiveness and Business Strength. Industry attractiveness is studied in terms of market growth rate, industry profitability, market size, pricing practices, competitive intensity, seasonality, cyclicality, economies of scale, technology, social, environmental, legal and human impacts. Business strength is studied in terms of relative market share, profit margin, ability to compete on price and quality, knowledge of customer and market, competitive strength and weakness, technological capability and composite scoring is done. The pie charts represent the proportionate size of the industry and the dark segment the companys market share. The individual product line or business units are identified by a letter and plotted as circles here. The nine cells are grouped on the basis of low to high industry attractiveness and weak to strong business strength. Based on the combinations the following strategies are made. Expansion - Winner Stability - Average Retrenchment - Loser

GE Business Screen Matrix

A

Question Marks

Industry Attractiveness

High Winners A
Winners B Average Businesses F Medium Winners E Loser G
Profit Products

Losers D H

Low Strong Average

Losers Weak

Business Strength / Competitive Position

Strategic Choice
Choice Process: Choice involves decision making process.
Objective factors

Focusing on Strategic alternatives

Evaluating Strategic alternatives

Considering Decision factors

Subjective factors

Choice of strategy

Strategic Choice Process 1. Focusing on Strategic alternatives 2. Evaluating Strategic alternatives 3. Considering Decision factors 4. Objective factors 5. Subjective factors 6. Choice of strategy

CORPORATE PARENTING
CORPORATE PARENTING, views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units. Multi business companies create value by influencing or parenting the business they own. The best parent companies create more value than any of their rivals would if they owned the same businesses. Those companies have what we call parenting advantage. Corporate parenting generates corporate strategy by focusing on the core competencies of the parent corporation and on the value created from the relationship between the parent and its businesses. If there is a good fit between the parents skills and resources and the needs and opportunities of the business units, the corporation is likely to create value.

Gap Analysis
In Gap analysis, the strategist examines what the organization wants to achieve (desired performance) and what it has really achieved (actual performance). The gap between the two positions constitutes the background for various alternatives and diagnosis. The gap between what is desired and what is achieved widens as the time passes if NO strategy is adopted.

Performance

Desired performance

Present performance

Performance Gap

T1

Time

T2

Gap Analysis
Gap Analysis is a tool that helps a company to compare its actual performance with its potential performance. At its core are two questions: Where are we? Where do we want to be? Gap = Desired performance Present performance. If a company is not making the best use of its current resources or investments in capital or technology, then it may be producing or performing at a level below its potential. The goal of gap analysis is to identify the gap between the optimized allocation and integration of the inputs, and the current level of allocation. This helps a company to find out the areas which could be improved. The gap analysis process involves determining, documenting and approving the variance between business requirements and current capabilities. Gap analysis can be performed at the strategic or operational level of an organization.

McKINSEY 7 S FRAMEWORK FOR STRATEGIC IMPLEMENTATION

HEWLETT PACKARDS INNOVATIVE PEOPLE AT ALL LEVELS IN ORGN
STRUCTURE

STRATEGY

SYSTEMS

SHARED VALUES Culture

SKILLS

STYLE

STAFF

McKINSEY 7 S FRAMEWORK FOR STRATEGIC IMPLEMENTATION The 7-S model can be used to
Developed in early 1980s by Tom Peters & Robert Waterman at the McKinsy & Company consulting firm. The basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful. The problem in strategy lay in its implementation and structure was only one lever in the hands of managemnt The 7S model can be used in a variety of situations where an alignment perspective is useful. It helps to Improve the performance of company Examine the likely effects of future changes within the company Align departments and processes during a merger or acquisition. Ensures that all parts of organization work in harmony.

McKINSEY 7 S FRAMEWORK FOR STRATEGIC IMPLEMENTATION

For effective Organisational change/success, complex relationship exists between 7 s. strategy, structure, systems, style, skills, staff, & shared values (super-ordinate goals) This ensures all parts of organization work in harmony. 1.Strategy:A determination of basic long term goals & objectives of an enterprise& the adoption of courses of action & the allocation of resources necessary for carrying out these goals. 2. Structure: How orgnl tasks are integrated & coordinated. Successful implementation of Strategy. 3.Sytems: Rules and regulations, Procedures, which complements structure. sub-systems, production, plg & control, recruitment, trg, development, capital budgeting. 4.Staff: Way orgn allows, young people into mainstream of activities & how they develop in to managers. Selection, Placement & Training. 5.Skills: Dominant skills of an orgn, new product development, customer service, quality commitment, Distinctive capabilities of personnel, etc 6.Style: Seen from the actions of top-management, cultural style of organization. 7.Shared values: Set of values & aspirations, fundamental idea around which business is built. Strongly connected to the culture of organization.Hewlett Packards innovative people at all levels in orgn

Balanced Score Card

Balance score card has been proposed and popularized by Robert S. Kaplan and David P Norton. It is a performance measurement tool which provides executives with a comprehensive framework that translates a companys strategic objectives into a coherent set of performance measures. It is a management system which can motivate breakthrough improvements in critical areas such as product, process, customer and market development. The score card consists of four different perspectives such as:
Financial perspective How do we appear to share holders Customer perspective How do customers view us? Internal business perspective What must we excel at? Innovation & Learning perspective Can we continue to improve & create value.

These measures are superior to traditional financial indicators. The score card measures are closely related to organizations strategic objectives and competitive demands. Managers are expected to select a few critical indicators within each of the four perspectives, that focus on strategic vision.

Balanced Score Card

Financial Perspective Return on capital Cash flow Profitability Sales backlog Customer perspective Pricing index Customer ranking survey Customer satisfaction index Market share Business segment Innovation & Learning Perspective Rate of improvement Index Revenue per employee No. of employee suggestions Internal business Perspective Hours with customers Tender success rate Rework Safety incident index Project closeout cycle