9STRATEGY

Strategy involves matching a firms capabilities with the opportunities present in the external
environment.

Strategy is managements game plan for strengthening the organizations position, pleasing
customers, and achieving performance targets.

STRATEGIC MANAGEMENT
Strategic management is defined as the art and science of formulating, implementing, and evaluating crossfunctional decisions that enable the organization to achieve its objectives."
STRATEGIC MANAGEMENT MODEL / STRATEGIC PLANNING PROCESS

Mintzberg's 5 Ps for Strategy

The word "strategy" has been used implicitly in different ways even if it has traditionally been
defined in only one. Explicit recognition of multiple definitions can help people to manoeuvre
through this difficult field. Mintzberg provides five definitions of strategy:

Plan
Ploy
Pattern
Position
Perspective.

Plan
Strategy is a plan - some sort of consciously intended course of action, a guideline (or set of
guidelines) to deal with a situation. By this definition strategies have two essential characteristics:
they are made in advance of the actions to which they apply, and they are developed consciously
and purposefully.
Eg: A kid has a "strategy" to get over a fence, a corporation has one to capture a market. By this
definition, strategies have two essential characteristics: They are developed consciously and
purposefully
Ploy (threat)
"maneuver" intended to outwit an opponent or competitor. The kid may use the fence as a ploy to
draw a bully into his yard, where his Doberman pincher awaits intruders. Likewise, a corporation
may threaten to expand plant capacity to discourage a competitor from building a new plant. Here
the real strategy (as plan, that is, the real intention) is the threat, not the expansion itself, and as such
is a ploy.
Pattern
Pattern in a stream of actions. The definitions of strategy as plan and pattern can be quite
independent of one another: plans may go unrealised, while patterns may appear without
preconception.
Plans are intended strategy, whereas patterns are realized strategy.
Position
Strategy is also a positionmeans of locating an organization in its "environment." In ecological
terms, strategy becomes a "niche"; in management terms, a product-market "domain." Position is
usefully identified with respect to competitors.
Perspective
While position looks out, seeking to locate the organization in the external environment, perspective
looks inside the organization, indeed inside the heads of the strategists. Here, strategy becomes the
ingrained way of perceiving the world.

Michael Porters 5 forces model

CORPORATE STRATEGY
Corporate-level strategies are basically decisions related to:
allocating resources among the different businesses of a firm

transferring resources from one set of businesses to others, and

managing and nurturing a portfolio of businesses.

A) Growth strategies expand the companys activities.

B) Stability strategies make no change to the companys current activities.
C) Retrenchment strategies reduce the companys level of activities.
D) Combination strategies is the combination of the above three strategies.
A) Growth
(i) Concentration
(ii) Integration
Horizontal Integration
Vertical Integration
- Forward integration
- Backward integration
(iii) Diversification
Concentric
Conglomerate
(iv) Cooperation
Mergers & Acquisitions

 Strategic Alliances
B) Stability
(i) Pause/Proceed with Caution
(ii) No Change
(iii) Profit
C) Retrenchment
(i) Turnaround
(ii) Sell-out / Divestment
(iii) Bankruptcy / Liquidation
A) GROWTH STRATEGY
(i)

CONCENTRATION STRATEGY: It involves converging resources in one or more business in

terms of their respective customer needs, customer satisfaction or alternative technologies in
such a manner that expansion results.
3 types of concentration strategies:

Market Penetration involves selling more products in same market

Market Development means selling same product to new markets.

Product Development involves selling new product in same market.

(ii)

INTEGRATION STRATEGY: Means combining activities related to the present activity of the
firm. It may be done on the basis of value chain where set of linked activities performed right
from procurement of basic raw material to the marketing of finished products and ultimately
selling to consumers.
Vertical Integration means undertaking new activity with the purpose of either supplying inputs or
serving customer for outputs.
2 types

Backward Integration means retreating to the sources of raw materials.

Forward Integration meaning moving an organization ahead, taking it nearer to ultimate

consumers.
Horizontal Integration means when an organization is moving beyond its boundaries into the domain
of rivalry industry (also known as mergers or accusations).
(iii) DIVERSIFCATION STRATEGY: Substantially change in business definition in terms of customer
needs, customer satisfaction, or altering technologies. When new products are made for new market.

 Concentric Diversification (Related): When a firm has a strong competitive position but industry
attractiveness is low. The firm enters in a new industry where the firms product knowledge, its
manufacturing capabilities, and the marketing skills can be put to good use.
3 types :

Market Related: Offering similar type of product with the help of unrelated technology.

Technology Related: Offering a new type of product or service with the help of related
technology.

Market & Technology Related: Offering similar type of product or service with the help of

related technology.
Conglomerate Diversification (Unrelated) takes place when management realizes that the current
industry is unattractive and that the firm lacks abilities or skills to transfer related products, or
services in other industries.
Reasons for Diversification

Adopted to minimize risk by spreading its overall business.

Best utilization of capabilities and skills so as to maximize organizational strengths or weakness.

Only way to grow if existing business is blocked due to environmental and regulatory factors.

iv)
COOPERATIVE STRATEGY
A) MERGERS & ACQUISITION
Mergers involve combination of all the assets, liabilities, loans and businesses of two or more
companies such that one of them survives.
Acquisition is an attempt by which a company or an individual or a group of individuals acquires
control over another company called target company.
TYPES
1) Horizontal Merger
Combinations of two or more firms dealing in similar lines of activity combine together.
2) Vertical Merger
Combinations of two or more firms not dealing in similar lines of activity create complementarities
goods or services.
3) Concentric Mergers
Combination of two or more organizations related to each other either in terms of customer functions
or alternative technologies used.
4) Conglomerate Mergers
Combination of two or more organizations unrelated to each other either in terms of customer
functions or alternative technologies used.
REASONS FOR MERGER
1) BUYERS PERPECTIVE

Increase stock value

Increase growth rate

Reduce competition

Avail tax concessions and benefits

Needed resources urgently

Improve stability of earning and sales

Take advantage of synergy

2) SELLERS PERSPECTIVE

Increase growth rate

Acquire resources

Benefit from tax legislations

Increase value of stock and investment.

DANGERS IN M&A

Elimination of healthy competition

Concentration of economic power

Adverse impact on national economy

REASONS FOR FAILURE OF M&A

Unrealistic price paid for the target

Difficulties in Cultural Integration

Poor business fit

High Leverage

Boardroom split

HR Issues

B) STRATEGIC ALLIANCE
A strategic alliance is a form of collaboration between two or more companies which can take on many
forms such as:
technology transfer
purchasing and distribution agreements
marketing and promotional collaboration
joint product development.
After completion both organization remains independent entities.
FACTORS PROMOTING STRATEGIC ALLIANCES / REASONS FOR STRATEGIC ALLIANCES
(i)
To gain access to foreign markets
(ii)
To reduce financial risks
(iii)
To bring complementary skills

(iv)
(v)
(vi)
(vii)
(viii)

To reduce manufacturing cost

To reduce political risks
To achieve competitive advantage.
To set technological standards
To shape industry evolution

BENEFITS
Sharing the risks
Opportunities for growth
Focus on core strengths
Access resources
Access to target market
DISADVANTAGES
Less Profit
Disputes
High level of commitment
Cultural difficulties
Overwhelmed by partner
TYPES OF STRATEGIC ALLIANCES
a) Mutual Service Consortia: A Mutual Service Consortium is a partnership of similar companies in similar
industries who pool their resources to gain a benefit that is too expensive to develop alone.
Eg: IBM offered Toshiba its expertise in chemical mechanical polishing to develop a new
manufacturing process.
b) Joint Venture: A joint venture is a cooperative business activity, formed by two or more separate
organizations for strategic purposes, that creates an independent business identity and allocates ownership,
operational responsibilities and financial risks and rewards to each member, while preserving their separate
identity or autonomy.
c) Licensing Arrangement: A licensing agreement is an agreement in which the licensing firm grants rights to
another firm in another country or market to produce and/ or sell a product.
d) Value-Chain Partnership: The value- chain partnership is a strong and close alliance in which one
company or unit forms a long- term arrangement with a key supplier or distributor for mutual advantage.
B) STABILITY STRATEGIES
Attempt by an organization at incremental improvement of functional performance.
(i) Pause/Proceed With Caution Strategy It is a very deliberate attempt to make only incremental
improvements until a particular environmental situation changes. It is typically conceived as a
temporary strategy to be used until the environmental becomes more hospitable.

(ii) No Change Strategy Is a decision to do nothing new (a choice to continue current operation
and policies for the foreseeable future).
- No opportunities or threats in external envt.
- No major new strengths or weaknesses within org.
- No new aggressive competitors and no new threat of substitute products.
(iii) Profit Strategy The profit strategy is an attempt to artificially support profits when a
companys sales are declining by reducing investment and short term discretionary expenditures.
Rather than announcing the companys poor position to shareholders and the investment community
at large, top management may be tempted to follow this very seductive strategy.
C) RETRENCHMENT STRATEGIES
A company may pursue retrenchment strategies when it has a weak competitive position resulting in poor
performance in sales and profits are becoming losses.
(i)
Turnaround Strategy Emphasizes the improvement of internal efficiency and is probably most
appropriate when a corporations problems are pervasive but not yet critical.
The two basic phases of a turnaround strategy are CONTRACTION and CONSOLIDATION.

Contraction is the initial effort to quickly stop the bleeding with cutback in size and costs.
Consolidation implements a program to stabilize the now-leaner corporation. To streamline
the company, plans are developed to reduce unnecessary overhead and to make functional
activities cost justified.
(ii) Sell Out / Divestment Strategy If a corporation with a weak competitive position in its industry is
unable either to pull itself by its bootstraps or to find a customer to which it can become a captive company,
it may have no choice to Sell Out.
(iii) Bankruptcy/ Liquidation Strategy When a company finds itself in the worst possible situation with a
poor competitive with few prospects. Because no one is interested in buying a weak company, the firm must
close and sell its assets.
D) COMBINATION STRATEGIES
It is the combination of stability, growth & retrenchment strategies adopted by an organisation, either at the
same time in its different businesses, or at different times in the same business with the aim of improving its
performance.
Reasons for adopting combination strategies are given below
Rapid Environment change
Liquidate one unit, develop another
Involves both divestment & acquisition (take over)
BUILDING AND RE-STRUCTURING THE CORPORATION

Corporate Restructuring can be defined as

1) any change in the business capacity
2) change in portfolio that is carried out by an inorganic route
3) change in business profits
4) change in capital structure of the company
5) change in ownership of / control over the management of the company or a combination thereof.
Re-structuring strategies:

Retrenchment: Adopted when the firms performance is poor and its competitive position is weak.

Divestment Strategy: Divestment strategy requires dropping of some of the businesses or part of the
business of the firm, which arises in order to reverse a negative trend.

Spin-off: Selling of a business unit to independent investors is known as spin-off. It is the best way
to recover the initial investment as much as possible. The highest bidder gets the divested unit.

Management-buyout: selling off the divested unit to its management.

Harvest strategy: A harvest strategy involves halting investment in a unit in order to maximize cash
flow from that unit before liquidating it.

Liquidation: Considered to be an unattractive strategy because the industry is unattractive and the

firm is in a weak competitive position.

Barriers to Restructuring
Resistance to Change
Poor Communication
Absence of Requisite Skills
Failure to understand Benefits of Restructuring
Organizational Workload
STRATEGIES ANALYSIS AND CHOICE
Choice of a strategy involves an understanding of choice mechanism and issues involved in it. Strategies
Choice is the evaluation of alternative strategies and selection of the best alternative.
STRATEGIC CHOICE PROCESS

Step 3 :- Considering decision factors:

(i) Objective factors: Environmental factors
-

Volatility of environment
Input supply from environment
Powerful stakeholders

Organizational factors
- Organizations mission
- Strategic intent
- Strengths and weaknesses
(ii) Subjective factors:- Strategies adopted in the previous period;
- Personal preferences of decision- makers;
- Managements attitude toward risk;
- Pressure from stakeholders;
- Pressure from corporate culture; and
- Needs and desires of key managers.
BALANCED SCORE CARD
Balanced Score Card is a performance tool which Provides executives with a comprehensive framework
that translates a companys strategic objectives into a coherent set of performance measures.
The scorecard consists of 4 different perspectives such as:
Financial
Customer
Internal business

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 Innovation and Learning

(i) Financial Perspective
Return-on-capital employed
Cash flow
Project profitability
Profit forecast reliability
Sales backlog

(ii) Customer perspective

Pricing index
Customer ranking survey
Customer satisfaction index
Market share
(iii) Internal Business Perspective
Hours with customers on tender success rate
Rework
Safety incident index
Project performance index
Project closeout cycle
(iv) Innovation & Learning Perspective
% revenue from new services
Rate of improvement index
Staff Attitude survey
Employee suggestions
Revenue per employee.
Benefits of the balanced scorecard approach

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Provides a comprehensive view of the whole organization

It drives changes in organizational behavior/ performance
It gets everyone focused and aligned to the organizations strategy
It allows effective communication of strategy throughout the organization
It captures the value of business both tangible & intangible
It adds discipline and structure to the day-to-day organizational operations
It is very exible and adaptable

STRATEGY IMPLEMENTATION
Strategy implementation is "the process of allocating resources to support the chosen strategies". This
process includes the various management activities that are necessary to put strategy in motion and
ultimately achieve organizational goals.
Strategic Implementation Process
a) Determining how much the organization will have to change in order to implement the strategy under
consideration.
b) Analyzing the formal and informal structures of the organization.
c) Analyzing the "culture" of the organization.
d) Selecting an appropriate approach to implementing the strategy.
e) Implementing the strategy and evaluating the results.
DESIGNING STRATEGIC CONTROL SYSTEMS
Strategic control systems provide managers with required information to find out whether strategy and
structure move in the same direction. It includes target setting, monitoring, evaluation and feedback system.
The importance of strategic control

Achieving operational efficiency

Maintaining focus on quality

Fostering innovation

Insuring responsiveness to customers

Strategic control process

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Strategic evaluation and control process

1. Setting standards of performance-Standards refer to performance expectations.
2. Measurement of performance-Measurement of actual performance or results with standards.
3. Analyzing variances- The comparison between standards and results gives variances.
4. Taking corrective action-The identifications of undesirable variances prompt managers to think about ways
of corrective them.
Evaluation and control consists of the following steps:
i)
Define parameters to be measured
ii)
Define target values for those parameters
iii)
Perform measurements
iv)
Compare measured results to the pre-defined standard
v)
Make necessary changes

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