Syllabus: MBA: BPSM: Semester III

• (301) BUSINESS POLICY & STRATEGIC

MANAGEMENT
1. Strategy and the Quest for Competitive Advantage:
• Military origins of strategy –
• Evolution –
• Concept and Characteristics of strategic management –
• Defining strategy –
• Mintzberg’s 5 ‘P’s of strategy –
• Corporate, Business Levels of strategy –
• Strategic Management Process. (4)
• --------------------------------------------------------------
Ulhas D. Wadivkar. B.E. (Elect), PGDIM,
MBA (Finance)
Management Consultant,
Retired Vice President (Works),
Graphite India Limited. Nashik & Bangalore.
Ulhas D Wadivkar 1st August 2011 1
 Business Policy and Strategic Management
• “Without Business Policy and Strategy, an organisation
is like a ship without rudder, going around in circles. It’s
like a tramp; who has no place to go” – Joel Ross and
Michael Kami.
• Business Policy definition by Christensen :
• “Business Policy is the study of the function and
responsibilities of Senior Management, the crucial
problems that affect success in the total enterprise, and
the decisions that determine the directions of the
organisation and shape of its future.”
The problems of policy in the business, like those of
policy in public affairs, have to do with choice of
purposes, the moulding of organisational identity and
character, the continuous definition of what needs to be
done, and the mobilisation of resources for the
attainment of organisational Goals in the face of
competition or adverse circumstance.
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 Evolution of Business Policy as discipline.
• Origin – 1911- Harvard Business School – Integrated
Course in Management aimed at providing general
management capability.
• Hofer: Strategic Management – A Casebook in Policy
and Planning: The Business Policy evolution has
undergone four Paradigm Shifts. This transition is of
overlapping nature.
• Development of subject of Business Policy has always
followed the demands of real life business.

• 1930 -1960: Environment change: New Products:

Continuously changing market: Ford Foundation
recommended report, by Gordon and Howell, suggested
a “Capstone” course of Business Policy which would
give the students an opportunity to pull together what
they have learned in the separate business fields and
utilise this knowledge in the analysis of complex
business problems.
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 Evolution of Business Policy as discipline.
• 1969: The course was made mandatory by American
Assembly of Collegiate School of Business (AACSB)
• 1990: The course has become an integral part of
management education curriculum.

Evolution of Business Policy has undergone four

Paradigms

• Paradigm One: Ad-hoc Policy – making.

• 1900 -1930: Era of Mass Production – Maximising output,
Normally a Single Product, Standardised and low cost
product, catering to unique set of customers servicing limited
geographical area – Informal control and co-ordination. The
Strategic planning was centred on maximising output.
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 Evolution of Business Policy has undergone four
Paradigms
• Paradigm Two – Integrated Policy Formulation.
• 1930 - 1940: Changes in Technology, Turbulence in
Political environment, Emergence of new industries,
Demand for novelty products even at higher costs,
Product Differentiation, Market segmentation in
increasingly competitive and changing markets. These all
made investment decisions increasingly difficult. This was
era of integrating all functional areas and framing policies
to guide managerial actions.
• Paradigm Three – The Concept of Strategy.
• 1940 - 1960: Planned policy became irrelevant due to
increasingly complex and accelerating changes. Firms
had to anticipate environmental changes. A strategy
needed to be formed with critical look at basic concept of
Business and its relationship to the existing environment
then.
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 Paradigm Four – The Strategic Management.
• 1980 & onwards: The focus of Strategic Management is on
the strategic process of business firms and responsibilities
of general management.
• Everything out side the four walls is changing rapidly and
this phenomenon is called as “Discontinuity” by Mr. Peter
Drucker. Past experiences are no guarantee for future, as
science and technology is moving faster. The future is no
more extension of the past or the present.
• The world is substantially compressed and managing the
External & Internal environment becomes crucial function.
• What to produce, where to market, which new business to
enter, which one to quit and how to get internally stronger
and resourceful are the new stakes.
• Strategic Planning is required to be done to endow the
enterprise with certain fundamental competencies /
distinctive strengths which could take care of eventualities
resulting from unexpected environmental changes.
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 The Indian Scenario:
• However, the evolution of this fourth phase is still
continuing and is yet not formed into a theory of how to
manage an enterprise. But Strategic Management is a
very important tool for and way of thinking to resolve
strategic issues.

• The Indian Scenario:

• IIMs and Administrative Staff College of India formed in
early sixties were based on American Model. IIM-A is
based on Harvard Model. The All India Council of
technical Education (AICTE), The Association of Indian
Management Schools (AIMS) have recommended a
standard curriculum including “Business Policy and
Strategic Management” as a compulsory course.
Business Policy is the preferred nomenclature but
Strategic Management is being progressively adapted.

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Evolution of Strategic Management in India is divided in three periods.

Till 1980 : Pre-liberalisation Stage:

• Strategic management on Government fringes.
• Entwining enterprise objectives into the national Planning
framework.
• Grabbing opportunities, high diversification, non-
competitive scales, and weak technology.
• Secretive & one man Strategic Management Process.
1980 - 2000 : Liberalisation Stage:
• ‘Foreign Complex’ governed strategy.
• Strategy of focus on rationalisation and operations
improvement.
• Strategy of growth through acquisitions, internationalisation
and product market expansion.
• Employing international consulting firms in Strategic
Management.
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Evolution of Strategic Management in India is divided in three periods.

2000- Onwards: Post Liberalisation Stage:

• ‘Global maverick’ mindset & Acquire professional skills in
Strategic Management and synergise entrepreneurial
flair.
• Portfolio rationalisation, entry into emerging sectors.
• Mobilise resources and ensure adequate growth through
existing business.
• De-merge businesses as independent companies and
improve market capabilities.
• Development of Technology capabilities
• Decentralise organisations, develop institutionalised
control mechanism.
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 Core concept of Strategy:
• A company’s concept of Strategy consists of the competitive
moves and business approaches that managers employ to
attract and please customers, compete successfully, grow
the business, conduct operations and achieve targeted
objectives.
• Military Origins of Strategy: Strategy is a term that comes
from the Greek Strategia, meaning "Generalship“. In the
military, strategy often refers to manoeuvring troops into
position before the enemy is actually engaged. In this
sense, strategy refers to the deployment of troops. Once the
enemy has been engaged, attention shifts to tactics. Here,
the employment of troops is central.
• Military origins of strategy are century old. It seems sensible
to begin our examination of strategy with the military view.
• Substitute "resources" for troops and the transfer of the
concept to the business world begins to take form.
• Strategy also refers to the means by which policy is
effected, As per “Clauswitz” the war is the continuation of
political
Ulhas relations via other means.
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• Strategy According to B. H. Liddell Hart
• In his book, Strategy, Liddell Hart examines wars and
battles from the time of the ancient Greeks through World
War II. He concludes that Clausewitz’ definition of
strategy as "the art of the employment of battles as a
means to gain the object of war" is seriously flawed in that
this view of strategy intrudes upon policy and makes
battle the only means of achieving strategic ends.
• Wiser definition of strategy could be "the practical
adaptation of the means placed at a General’s disposal to
the attainment of the object in view." Thus, military
strategy is clearly a means to political ends.
• Concluding his review of wars, policy, strategy and
tactics, Liddell Hart arrives at this short definition of
strategy: "The art of distributing and applying military
means to fulfil the ends of policy."
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• Strategy According to George Steiner
• George Steiner, a professor of management and one of the
founders of The California Management Review. His book,
Strategic Planning, is close to being a bible on the subject.
Steiner points out in his notes that there is very little
agreement as to the meaning of strategy in the business
world.
• Some of the definitions in use to which Steiner pointed
include the following:
• Strategy is that which top management does that is of great
importance to the organization.
• Strategy refers to basic directional decisions, that is, to
purposes and missions.
• Strategy consists of the important actions necessary to
realize these directions.
• Strategy answers the question: What should the
organization be doing?
• Strategy answers the question: What are the ends we seek
and how should we achieve them?
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 Defining Strategy and Concept of Strategic Management
• Alfred D Chandler(1962) : “The determination of basic long-
term goals and the adoption of courses or the courses of
action and the allocation of resources necessary for carrying
out these goals”
• Alfred D Chandler(1984) : “Basically, a strategy is a set of
decisions-making rules for the guidance of organisational
behaviour”
• Kenneth Andrews(1965) : “The pattern of objectives,
purpose, goals, and the major policies and plans for
achieving these goals stated in such a way so as to define
what business the company is in or is to be and the kind of
company it is or to be
• ”Kenneth Andrews (1965) : “Business Strategy is a method
of describing the future position of the company, its
objectives, purposes, goals, policies, and plans that may be
required for guiding the company from its existing position to
where it desires to be”.
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Defining Strategy and Concept of Strategic Management
• Igor Ansoff(1965) : “The common thread among the
organisation’s activities and product-markets…that defines
the essential nature of business that the organisation was
or planned to be in future”
• William F Gleueck(1972) : “A unified, comprehensive and
integrated plan that relates the Strategic advantage of the
firm to the challenges of the environment and is designed
to ensure that the basic objectives of the enterprise are
achieved through proper implementation process”
• Henry Mintzberg(1987) : “Strategy is Organisation’s
pattern of response to its environment over a period of
time to achieve its goals and mission.
• Michael E Porter(1996) : “Creation of a unique and valued
position involving a different set of activities. The company
that is strategically positioned performs different activities
from rivals or performs similar activities in different ways”
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 If we sum up all the above definitions, then Strategy is :

• A plan or course of action or a set of decisions rules

forming pattern or creating a common thread.
• The pattern or common thread related to the
organisation’s activities which move an organisation from
its current position to a desired to a desired future stage
• Concerned with the resources necessary for
implementing a plan or following a course of action and,
• Connected to the strategic positioning of a firm, making
trade-offs between its different activities, and creating a
fit among these activities.
• Set a clear direction to the organisation.
• Enterprise knows its strengths & weaknesses compared
with those of its competitors.
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 Essence Of Strategy

• Strategy includes the determination and evaluation of alternative

paths to an already established Mission and Objectives of
enterprise and choosing the alternative to be adapted. Four
important aspects of Strategy are:
• Long Term Objectives: It emphasises on long term growth and
development. These Objectives give direction for implementing
Strategy.
• Competitive Advantages: The external environment is
continuously monitored & Strategy is made to have the firm a
continuous Competitive Advantage.
• Vector: is a Direction with Force. Series of actions are to be
taken & they should have same direction for whole organisation.
• Synergy: Once a series of decisions are taken to accomplish
the objectives in same direction, there will be synergy. Synergy
can happen due to Competitive Advantages and Growth Vector.
The Objectives need be measurable and could be : ROI, Sales
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Growth Rate,
 Strategy as Action & Nature of Strategy
Three types of actions are involved in Strategy:
2. Determination of Long Term Goals & Objectives.
3. Adoption of courses of action.
4. Allocation of resources.
• Therefore, Strategy is “Creation of unique & valued
position involving a different set of activities. The Company
that is strategically positioned performs different activities
from rivals or performs similar activities in different ways” –
Michael Porter.
Thus Nature of Strategy is:
• Strategy is a major course of action through which
organisation relates itself to its environment. (External)
• Strategy is blend of internal & external factors. Face
opportunities & threats provided by external factors,
internal
Ulhas D Wadivkarfactors are matched with them. 17
 Nature of Strategy – contd…
• Strategic actions are different for different situations. Strategy
is combination of actions to solve a certain problem to
achieve a desirable end.
• Strategy may involve contradictory actions simultaneously or
with a gap of time like closing down some operations and
expanding some at same time.
• Strategy is future oriented. New situations, which have not
arisen in past will require revised Strategic Actions.
• Strategy requires some systems and norms for its efficient
adoption in any organisation.
• Strategy provides overall framework for guiding enterprise
thinking and action.
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 Strategy v/s Policies
• Strategy & Policy are not
synonymous.
• Policy is guideline for
decisions & actions to be
taken by subordinates for the
fulfilment of the set of
objectives.
• Policies are commonly
accepted understanding of
decision making.
• Policies are thought oriented.
• Policies have to be integrated
so that Strategy is
implemented successfully and
effectively.
• Strategy and policies both are
the means directed towards
meeting organisational
objectives.
Ulhas D Wadivkar
• Strategies are concerned with
the direction in which human
and physical resources are
deployed to maximise the
chances of achieving
organisational objectives in
face of variable environment.
• Strategies are specific actions
suggested to achieve
objectives.
• Strategy is action oriented
and empowers concerned to
implement them.
• Strategy cannot be delegated
downwards.
• Strategy is rule for making
decision and Policy is
contingent decision.
19
 Strategy v/s Tactics
• Strategy determines the major
plans to be undertaken.
• Goal of Strategy is to gain
competitive advantage, break
the opponent.
• Strategic decisions cannot be
delegated downwards.
• Strategy formulation is
dynamic, responding to
environment. It can be
continuous or irregular.
• Strategy has a long term
perspective & have a high
element of uncertainty.
• Strategy formulation is
affected by the personal
values of person involved in
the process.
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• Tactics is means by which
previously determined plans are
executed.
• Goal of Tactics is to achieve
success in a given action.
• Tactics decisions can be
delegated to all levels of
organisation.
• Tactics are determined on a
periodic basis with some fixed
timetable.
• Tactical decisions are more
certain as they work upon
framework set by Strategy.
• Tactical decision implementation
is impersonal.
• Tactical decisions are less
important than Strategic
decisions.
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 Strategic Management :

• Definition – “Strategic management is the process of

systematically analysing various opportunities and
threats vis-à-vis organisational strengths and
weaknesses, formulating, and arriving at strategic
choices through critical evaluation of alternatives and
implementing them to meet the set objectives of the
organisation”.

• Definition – “Strategic Management is concerned with

making decisions about an organisation’s future direction
and implementing those decisions”. - By Lloyd L Byras.

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 Aspects of Strategic Management
• Vision Statement
• Mission Statement indicating methodology for achieving the
objectives, purposes and Philosophy of organisation as reflected
in vision statement.
• Company Profile, its internal culture, strengths and capabilities.
• Critical study of external environmental factors, threats and
opportunities.
• Finding out way and deciding the desirable course of actions for
accomplishing the Mission statement.
• Selecting long term objectives and deciding corresponding
strategies.
• Evolving short term objectives, defining corresponding strategies
in tune with Mission and Vision Statements.
• Implementing chosen strategies in planned way, based on
budgets, allocating resources, outlining action plan and tasks.
• Installation of a continuous review system, creating a control
mechanism and Data generation for selecting future course of
action.
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 Five Tasks of Strategic Management
• Forming a strategic Vision of what the company’s future
business make up will be and where the organisation is
headed. (A long term vision to infuse the organisation
with a sense of purposeful action.)
• Setting objectives: converting Strategic vision into
specific measurable performance outcomes.
• Crafting a Strategy to achieve desired outcome.
• Implementing & Executing chosen strategy efficiently
and effectively.
• Evaluating performance & initiating corrective
adjustment in Vision, Long term directions, Objectives,
Strategy in light of actual experience, changing
conditions, new ideas & new opportunities.
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 Who performs these five tasks of Strategic Management?
• CEO is most important Strategy Manager, who is most visible also. He
performs various roles such as, Chief direction setter, Chief objective
setter, Chief strategy maker, Chief Strategy implementer.
• Vice Presidents of various functions have role to play in strategy making
and implementing. Functional heads like Production, Marketing,
Finance, HR etc have responsibilities to deliver measurable
performance as per Strategic Planning.
• All major organisational units, business units, divisions, Staff, Plant
support groups, district offices have leading and supporting roles in
company’s strategic game plan.
• CEO & Senior Corporate executives have responsibility & personal
authority for major strategic decisions.
• Managers with Profit & Loss responsibilities for individual business units
or divisions.
• Functional Heads & Departmental heads with direct responsibility over a
major business areas.
• Managers of operating plants: Strategy making is a job for all the line
managers. Doers should be strategy makers. It should not be left to staff
of Planners. Strategic Planning is not a stand alone function. It is an
integrated
Ulhas team effort.
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 Aspects of Strategic Planning - 1
• Strategic Planning provides the route map for the
enterprise. It lends a framework which can ensure that
decisions concerning future are taken in a systematic and
purposeful way.
• Strategic Planning provides a hedge against uncertainty,
against totally unexpected developments.
• Strategic Planning helps in understanding trends in a better
way and generates a reference frame for investment
decisions.
• Strategic Planning provides the frame work for all major
business decisions, decisions on business, products,
markets, manufacturing facilities, investments, and
organisational structure. It is a path finder for business
opportunities and it is also a defence mechanism to avoid
costly mistakes in choice of product market or investments.
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 Aspects of Strategic Planning - 2
• The more intense the environmental uncertainty, more critical
is the need for strategic planning.
• The success of the efforts and activities of the enterprise
depends heavily on the quality of strategic planning.
• Considerable thought and effort must go in vision, insight,
experience, quality of judgement and the perfection of
methods and measures.
• Strategic Planning is a management task concerned with
growth and future of the business enterprise.
• As a management tool, Strategic Planning utilises both
intuition and logic. Logic is through Planning and information
process and intuition is through experience, knowledge and
vision of top people in Management.
• All vital aspects of corporate governance are perfected
through strategic planning, starting from corporate mission,
philosophy and core values, down to choice of businesses
andDstrategies.
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 Aspects of Strategic Planning - 3
• Through analytical process aspect, involved in Strategic
Planning, corporation understands where its core
competencies are, identifies the competitive advantages,
pinpoints the gaps, formulate steps to bridge them.
• Main aspects of Strategic Planning are Future, Growth,
Environment, basket of businesses of the firm for additions
and deletions, Strategy and not day to day routine matters,
creation of core competency and competitiveness and finally
integration. It views the organisation / business in its totality
and not a particular function. Thus Strategic Planning is
Corporate Strategy.
• Strategic Planning differs from other operative and
administrative functions of management. Strategic Planning
provides objective – strategy design: A) Growth Objective –
Performance levels, Profitability target, B) Product Market
scope, its penetration, C) Growth Vector – Product Market
posture, development or diversification, D) Competitive
Advantages, E) Synergy, strength obtained from new
product-market selections.
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 Mintzberg’s 5Ps of strategy –
• Henry Mintzberg, in his 1994 book, The Rise and Fall of
Strategic Planning, points out that people use "Strategy"
in several different ways, the most common being these
five:
• Strategy is a Plan, a "how," a means of getting from here
to there.
• A strategy can be a Ploy too; really just a specific
manoeuvre intended to outwit an opponent or competitor.
• Strategy is a Pattern in actions over time; for example, a
company that regularly markets very expensive products
is using a "high end" strategy.
• Strategy is Position; that is, it reflects decisions to offer
particular products or services in particular markets.
• Strategy is Perspective, that is, vision and direction.
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• Mintzberg argues that strategy emerges over time as
intentions collide with and accommodate a changing
reality.
• Thus, one might start with a perspective and conclude
that it calls for a certain position, which is to be
achieved by way of a carefully crafted plan, with the
eventual outcome and strategy reflected in a pattern
evident in decisions and actions over time.
• This pattern in decisions and actions defines what
Mintzberg called "realized" or emergent strategy.
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Henry Mintzberg (pictured above,) Bruce Ahlstrand and
Joseph Lampell, in their 2005 book “Strategy Bites Back”,
present 5 "P's" as a way to define strategy. Each "P" shines a
spotlight on what strategy is / means / encompasses from a
different angle, to provide a comprehensive overview that is
probably more useful than definitions that try to fit all into a
couple of sentences.
Ulhas D Wadivkar 30
 Mintzberg’s 5Ps of strategy –

The 5 "P's," adjusted where necessary to fit into the

professional services / Industrial firms, are as follows:
1. Strategy is a PLAN
To almost anyone you care to ask, strategy is a plan - some
sort of consciously intended course of action, a guideline (or
set of guidelines) to deal with a situation. A kid has a
"strategy" to get over a fence; a firm has one to dominate a
market for a particular service or practice area. By this
definition, strategies have two essential characteristics: they
are developed consciously and purposefully.
Ulhas D Wadivkar 31
• 2. Strategy as a PLOY: Strategy can be a ploy, too, which is
really just a specific "manoeuvre" 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 firm may threaten to establish a
new practice area in order to discourage a competitor from
trying to do the same. Here the real strategy (as plan, that is,
the real intention) is the threat, not the new practice area
itself, and as such is a ploy. Threatened litigation often falls
into this category.
• 3. Strategy is a PATTERN: Strategy (whether as general
plans or specific ploys) is pointless if it cannot be realized. In
other words, defining strategy as a plan or ploy is not
sufficient; we also need a definition that encompasses the
resulting behaviour. Thus, strategy is also a pattern -
specifically, a pattern in a stream of actions. By this
definition, strategy is consistent in behaviour, whether or not
intended. The outcome of strategy does not derive from the
design, or plan, but from the action that is taken as a result.
Ulhas D Wadivkar 32
• 4. Strategy is a POSITION: Strategy is also a position;
specifically a means of locating a firm in its environment. In
ecological terms: strategy becomes that firm's "niche." In
management terms: a "domain" consisting of a particular
combination of services, clients and markets. Position is often
defined competitively (literally so in the military, where it
becomes the site of a battle.)
• 5. Strategy is a PERSPECTIVE: While position is outwardly
focused, perspective looks inward into the firm; even into the
heads of the strategists themselves. Strategy in terms of this
definition becomes an ingrained way of perceiving the world.
Some firms are aggressive pacesetters; others build
protective shells around themselves. Almost every profession
has about it unique perspectives, that indelibly flavour the
strategies that firms practicing those professions craft for
themselves. A law firm's view of their business is
fundamentally different to that of an accounting firm, and
engineering firm or a graphic design studio, yet all are staffed
by professionals.
Ulhas D Wadivkar 33
• The Plan provides the roadmap by which the firm
intends to achieve its goals. Ploys add a dimension of
feint and manoeuvre, where one firm's gain is another's
loss and competitive advantage is critical. Pattern
emphasizes that strategy is not a once-off event but a
constant stream of decisions and resultant actions that
drive the firm forward, over time, towards its goal.
Position adds that different firms have different mixes of
markets, clients and services that they provide to those
clients. Finally Perspective provides an insight onto how
the firm and its strategists are informed by their own
professions, their perceptions of business, and the
unique
Ulhas D Wadivkarcharacteristics of each firms own "world." 34
 What Is Strategy? - 1
What, then, is strategy? Is it a plan? Does it refer to how we will
obtain the ends we seek? Is it a position taken? Just as military
forces might take the high ground prior to engaging the enemy;
might a business take the position of low-cost provider? Or does
strategy refer to perspective, to the view one takes of matters,
and to the purposes, directions, decisions and actions stemming
from this view? Lastly, does strategy refer to a pattern in our
decisions and actions? For example, does repeatedly copying a
competitor’s new product offerings signal a "me too" strategy?
Just what is strategy?

Strategy is all these—it is perspective, position, plan, ploy and

pattern. Strategy is the bridge between policy or high-order
goals on the one hand and tactics or concrete actions on the
other. Strategy and tactics together straddle the gap between
ends
Ulhasand means.
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 What Is Strategy? - 2
• In short, strategy is a term that refers to a complex web of
thoughts, ideas, insights, experiences, goals, expertise,
memories, perceptions, and expectations that provides
general guidance for specific actions in pursuit of
particular ends.

• Strategy, then, has no existence apart from the ends

sought. It is a general framework that provides guidance
for actions to be taken and, at the same time, is shaped
by the actions taken.
• The ends to be obtained are determined through
discussions and debates regarding the company's future
in light of its current situation. A SWOT analysis (an
assessment of Strengths, Weaknesses, Opportunities and
Threats) is conducted based on current perceptions.

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A Company’s Situation
External Factors:
•Industry & Competitive
conditions. Adopt / Abandon Strategy
features
•Buyer Preferences
•“PESTEL” – Political,
Economical, Socio-cultural, New Initiatives &
Technological, Environmental & Ongoing Strategy
legal factors Features continued
•Internal Factors like from prior periods
Company’s
Resources, Competitive
strengths & Capabilities, Strategy
Weaknesses & Threats. Adoptive reactions
to Changing
circumstances
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 Strategy
• It is a simple and undeniably relevant matter for managers
to periodically ask the following questions of the
employees reporting to them:

• What have you done to improve customer service?

• What have you done to improve customer satisfaction?
• What have you done to reduce costs?
• What have you done to increase productivity?
• What have you done to increase revenues from new
products and services?

• Some Fundamental Questions

• Regardless of the definition of strategy, or the many
factors affecting the choice of corporate or competitive
strategy, there are some fundamental questions to be
asked and answered. These include the following:
Ulhas D Wadivkar 38
•Related to Mission & Vision 1.Who are we?
2.What do we do?
3.Why are we here?
4.What kind of company are we?
5.What kind of company do we want to
become?
6.What kind of company must we
become?

•Related to Corporate Strategy 1.What is the current strategy, implicit or

explicit?
2.What assumptions have to hold for the
current strategy to be viable?
3.What is happening in the larger, social
and educational environments?
4.What are our growth, size, and
profitability goals?
5.In which markets will we compete?
6.In which businesses?
Ulhas D Wadivkar 7.In which geographic areas? 39
•Related to Competitive 1.What assumptions have to hold for the current
Strategy strategy to be viable?
2.What is happening in the industry, with our
competitors, and in general?
3.What is the current strategy, implicit or explicit?
4.What are our growth, size, and profitability
goals?
5.What products and services will we offer?
6.To what customers or users?
7.How will the selling/buying decisions be made?
8.How will we distribute our products and
services?
9.What technologies will we employ?
10.What capabilities and capacities will we
require?
11.Which ones are core competencies?
12.What will we make, what will we buy, and
what will we acquire through alliance?
13.What are our options?
14.On what basis will we compete?
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 Some Concluding Remarks -1
• Strategy has been borrowed from the military and adapted for
business use. In truth, very little adaptation is required.
• Strategy is about means. It is about the attainment of ends, not
their specification. The specification of ends is a matter of
stating those future conditions and circumstances toward which
effort is to be devoted until such time as those ends are
obtained.
• Strategy is concerned with how you will achieve your aims, not
with what those aims are or ought to be, or how they are
established. If strategy has any meaning at all, it is only in
relation to some aim or end in view.
• Strategy is one element in a four- part structure. First are
the ends to be obtained. Second are the strategies for
obtaining them, the ways in which resources will be deployed.
Third are tactics, the ways in which resources that have been
deployed are actually used or employed. Fourth and last are
the resources themselves, the means at our disposal. Thus it is
that strategy and tactics bridge the gap between ends and
Ulhas D Wadivkar 41
means.
 Some Concluding Remarks -2
5. Establishing the aims or ends of an enterprise is a matter of
policy and the root words there are both Greek: politeia and
polites—the state and the people. Determining the ends of
an enterprise is mainly a matter of governance not
management and, conversely, achieving them is mostly a
matter of management not governance.

• Those who govern are responsible for seeing to it that the

ends of the enterprise are clear to the people who manages
that enterprise and that these ends are legitimate, ethical
and that they benefit the enterprise and its members.

Ulhas D Wadivkar 42
 Some Concluding Remarks - 3

7. Strategy is the joint province of those who govern and those

who manage. Tactics belong to those who manage. Means
or resources are jointly controlled. Those who govern and
manage are jointly responsible for the deployment of
resources. Those who manage are responsible for the
employment of those resources—but always in the context
of the ends sought and the strategy for their achievement.

8 Over the time, the employment of resources yields actual

results and these, in light of intended results, shape the
future deployment of resources. Thus it is that "realized"
strategy emerges from the pattern of actions and decisions.
And thus it is that strategy is an adaptive, evolving view of
what is required to obtain the ends in view.
Ulhas D Wadivkar 43
 Criteria for Effective Strategy
A) Clear, decisive, measurable objectives,
B) Maintaining the initiative proactively,
C) Concentration on what will make the enterprise superior in
power,
D) Flexibility must be built in use of resources, buffers,
reserved capabilities, manoeuvrability and repositioning,
E) Coordinated and committed leadership,
F) Surprise the opponent by use of speed, secrecy and
intelligence,
G) Security: the organisation should secure & develop
resources required, securely maintain all vital operating
points for the enterprise, an effective intelligence system to
prevent effects of surprise by the competitors.
Ulhas D Wadivkar 44
 Importance of Strategy
• Modern era witnesses the tremendous increase in the
External Threats. Companies must have clear Strategies &
must implement them effectively so as to survive.
• We can see some companies like Jessops, Martin Burn
have become extinct and some companies like Reliance,
Infosys have become market leaders.
• The basic factor responsible is not the Government or
infrastructure or labour relations, but the Strategic thinking
that different companies have shown in conducting the
business.
4. Strategy helps an organisation to take decisions on long
range forecasts.
5. It allows the firm to deal with a new trend and meet
competition in the effective manner.
6. With the help of strategy, management develops capacity to
be flexible to meet unanticipated changes.
7. Efficient strategy formation and implementation result into
financial benefits to the organisation in the form of
increased profits.
Ulhas D Wadivkar 45
 Importance of Strategy -2
5. Strategy provides focus in terms of organisational objectives
and provides clarity of direction for achieving the objectives.
6. Strategy contributes towards organisational effectiveness by
providing satisfaction to the personnel.
7. It gets managers into habit of thinking, makes them proactive
and more conscious of their environment.
8. It provides motivation to employees as they can shape their
work in the context of shared corporate goals and make them
work for achieving these goals.
9. Strategy formulation & implementation gives opportunity to
the management to involve different of management in the
process.
10. It improves Corporate communication, coordination and
allocation of resources.
Ulhas D Wadivkar 46
 Identifying a Company’s Strategy – What to look For:

Actions to gain sales & Market share

via lower prices, more performance
Actions to features, more appealing design, Actions to respond
diversify the better quality or customer service, changing market
Company’s wider production selection etc. conditions and
revenue & other external
earnings by circumstances
entering into new
business

The Pattern of
Actions &
Actions to strengthen Business Actions to enter new
competitive capabilities & Approaches that geographic or product
correct competitive define a markets or exit existing
weaknesses Company’s market
Strategy
Actions to
Actions & approaches
merge with or
that define how the Efforts to Actions to form
acquire rival
company manages, pursue new Strategic
companies.
research & market alliances &
development, opportunities & collaborative
production, sales & defend against partnerships
marketing, finance & threats to the
other key activities Company’s
Ulhas D Wadivkar well-being 47
 The Strategy Hierarchy
• In most (large) corporations there are several levels of strategy. Strategic
management is the highest in the sense that it is the broadest, applying to all
parts of the firm. It gives direction to corporate values, corporate culture,
corporate goals, and corporate missions. Under this broad corporate strategy
there are often functional or business unit strategies
Different Levels of Strategy
Levels Structure Strategy

Corporate Corporate Level

Corporate Office

SBU SBU - A SBU - B SBU - C Business level

Functional
Finance Marketing Operations Functional Level

Ulhas D Wadivkar Personnel Information 48

• Corporate Strategy: The companywide game plan for managing a set of
businesses. The levels involved are CEO and other Senior Executives.
• Business & Corporate Strategy
• Business strategy, which refers to the aggregated operational strategies
of single business firm or that of an SBU in a diversified corporation, refers
to the way in which a firm competes in its chosen arenas.
• Corporate strategy, then, refers to the overarching strategy of the
diversified firm. Such corporate strategy answers the questions of "in which
businesses should we compete?" and "how does being in one business
add to the competitive advantage of another portfolio firm, as well as the
competitive advantage of the corporation as a whole
• Business Strategy for Strategic Business Units: One for each
business, the company has diversified into. Actions to build competitive
capabilities and strengthen market position. Executed by General
Mangers, Plant Heads, Division heads of each business with inputs from
Corporate and Functional levels.
• Many companies feel that a functional organizational structure is not an
efficient way to organize activities so they have re –engineered according
to processes or strategic business units (called SBUs). A Strategic
Business Unit is a semi-autonomous unit within an organization. It is
usually responsible for its own budgeting, new product decisions, hiring
decisions, and price setting. An SBU is treated as an internal profit centre
by corporate headquarters. Each SBU is responsible for developing its
business
Ulhas strategies, strategies that must be in tune with broader corporate
D Wadivkar 49
strategies
• Functional Strategies
• Functional strategies include Marketing Strategies, New product
development strategies, Human resource strategies, Financial strategies,
Legal strategies, Supply-chain strategies, and Information technology
management strategies. The emphasis is on short and medium term plans
and is limited to the domain of each department’s functional responsibility
and is executed by Functional heads. Each functional department
attempts to do its part in meeting overall corporate objectives, and hence
to some extent their strategies are derived from broader Corporate &
Business strategies.
• Operational Strategy
• The “lowest” level of strategy is operational strategy. At this level,
detailing is done to add completeness to Business & Functional
Strategies. It is very narrow in focus and deals with day-to-day operational
activities such as scheduling criteria. It must operate within a budget but is
not at liberty to adjust or create that budget. Operational level strategy
was encouraged by Peter Drucker in his theory of Management By
Objectives (MBO). Operational level strategies are informed to business
level strategies which, in turn, are informed to corporate level strategies.
These strategies are executed by ‘Brand Managers’, ‘Operating
Managers’, ‘Plant managers’. Important activities like Advertising, Web
site
Ulhasoperations,
D Wadivkar distributions are involved at this level. 50
• Dynamic Strategy
• Since the turn of the millennium, there has been a tendency in some firms
to revert to a simpler strategic structure. This is being driven by
information technology. It is felt that Knowledge Management Systems
should be used to share information and create common goals. Strategic
divisions are thought to hamper this process. Most recently, this notion of
strategy has been captured under the rubric of Dynamic Strategy,
popularized by the strategic management textbook authored by Carpenter
and Sanders. This work builds on that of Brown and Eisenhart as well as
Christensen and portrays firm strategy, both business and corporate, as
necessarily embracing ongoing strategic change, and the seamless
integration of strategy formulation and implementation. Such change and
implementation are usually built into the strategy through the staging and
pacing facets.
• Strategists - Their Roles & Levels:
• Strategists are individuals or groups who are primarily involved in the
formulation, implementation, and evaluation of Strategy.
• In a limited sense, all managers are Strategists. But we may have outside
agencies involved in various aspects of Strategic Management, who are
Ulhas Strategists.
also D Wadivkar 51
• Board of Directors:- Board is an ultimate legal authority of an
organisation. Board is responsible to owners, share holders,
government, controlling agencies, and financial institutes. They get
elected and appointed by holding or parent company. Board is requires
to direct and is involved in reviewing and screening executive decisions
in light of their environmental, business and organisational implications.
Role of Board of Directors is to guide the senior management in setting
and accomplishing objectives, reviewing and evaluating organisational
performance, and appointing senior executives. Board is involved in
setting strategic direction, establishing objectives & strategy, monitoring
and reviewing achievement.
• Chief Executive Officer:- is responsible for all aspects of strategic
management from the formulation to evaluation of strategy. CEO plays
a pivotal role in setting mission, objectives and goals. He formulates
and implements strategy and ensures that organisation does not
deviate from a predetermined path. CEO is primarily responsible for
strategic management of the organisation
• Entrepreneur:- is the person who starts a new business, is a venture
capitalist. He has to play a proactive role to provide sense of direction,
set objectives and formulate strategies. He is different from formal
system and plays all strategic roles simultaneously.
Ulhas D Wadivkar 52
• Senior management:- consists of higher management level starting
from CEO to functional managers and profit centre or SBU heads. They
are responsible for implementing the strategies and plans and for a
periodic evaluation of their performance. Organisationally they come
together in the form of committees, task forces, work groups, think tanks
and play a very important role in Strategic management.
• SBU level Executives:- SBUs are formed with each business having a
clearly defined product – market segment and a unique strategy. They
are CEOs for their SBUs and hence SBU level strategy formulation and
implementation is their main role.
• Corporate Planning:- It assists management in all aspects of strategy
formulation, implementation and evaluation. They are responsible for
preparation and communication of strategic plans, provides
administrative support and plays a measurement and controlling role.
They do not from strategy and do not initiate a process on their own.
• Consultants:- in absence of a Corporate planning many organisation
take an outside help in the form of a consultants or consulting
companies. Besides providing corporate strategy and strategic
planning, they are specialist, knowledgeable, outsider, unbiased and
provide objective evaluation. E.g. AF Ferguson, PWC, KPMG,
Billimoria, Mckinsey etc.
Ulhas D Wadivkar 53
• Middle Level Managers:- They relate to operational
matters and are seldom play active role in Strategic
Management. They form departmental / functional plan in
light of broad objectives and goals of organisation
provided in vision, mission, goals and objective
statements of the organisation. They are implementers,
followers of guide lines, receivers of communication about
strategic plans. They are basically involved in in the
implementation of functional strategies.

• Executive Assistant:- An executive assistant is a person

who assists the chief executive in the performance of his
duties like data collection and analysis, suggesting
alternatives. He prepares brief for various plans,
proposals, and projects. He helps in public relations and
liaison functions. He coordinates activities with the internal
staff and outsiders. He is a corporate planner for CEO.
Generally, he orients from finance background ensuring
and opining on ROI and strategic positioning of the
organisation.
Ulhas D Wadivkar 54
• We will now look at a framework developed by Richard Rumlet for
evaluating alternative strategies. It is described in a series of tests:
Consistency: The strategy must not present mutually inconsistent
goals and policies.
• Consonance: The strategy must represent an adaptive response to
the external environment and to the critical changes occurring within it.
• Advantage: The strategy must provide for the creation and/or
maintenance of a competitive advantage in the selected area of activity.
• Feasibility: The strategy must neither overtax available resources
nor create unsolvable sub-problems
•
We shall now look into the advantages and disadvantages of the
strategy:

• Strategy sets direction, but can also serve as a set of blinders to hide
potential dangers.
• Strategy focuses efforts, there may be no peripheral vision and can
become heavily embedded into the fabric of the organization.
• Strategy defines the organization, but defining it too sharply results in
the rich complexity of the system being lost.
• Strategy provides consistency, but could hinder creativity.

Ulhas D Wadivkar 55
 Kinds of Corporate Strategy -1
• There are four Grand Strategic alternatives:
• Stability Strategy: Main aim here is Stabilising and
improving Functional Performance.
a.1) No Change Strategy.
a.2) Profit Strategy.
a.3) Pause / Proceed with caution Strategy.
b) Expansion Strategy: Main aim is here High Growth.
b.1) Concentration.
b.2) Integration.
b.3) Diversification.
b.4) Cooperation.
b.5) Internationalisation.
Mergers, Takeovers, Joint Ventures, Strategic Alliances, Global
Strategy, Trans-national Strategy, International Strategy,
Multi-domestic
Ulhas D Wadivkar Strategy. 56
 Kinds of Corporate Strategy - 2
c) Retrenchment Strategy: Main aim here is contraction of its
activities. It is done through Turnaround, divestment and
liquidation in modes like
c.1) Compulsory winding up.
c.2) Voluntary winding up.
c.3) Winding up under supervision of Court.
d) Combination Strategies: It is combination of all above three
policies simultaneously in different businesses or at different
times. e.g.:
viii) Merger of TTK Chemicals with TTK pharma.
ix) TT industries and Textiles Ltd. expanded through JV.
x) TTK Ltd., diversified into cooking utensils.
xi) TTK maps and publications into the general publishing
business
Ulhas D Wadivkar after a turn-around. 57
 Schools of Thought on Strategy Formation-1
• The fourth paradigm (1980 onwards) says that subject of
Strategic Management is still under evolution. Strategic decision
making is at the core of Managerial activity, their Strategic
behaviour is outcome of Formation of Strategy.
• Mintzberg and other doyens in field of Strategy have formed
various perspectives called as Schools of Thought:
The Perspective Schools:
• Design School-(Sleznic & Andrews): Strategy is unique. The
process of Strategy formation is based on Judgement and
Thinking.
• Planning School-(Ansoff): Strategy is seen as a plan divided into
sub-strategies and programmes. The lead role in Strategy
formation is played by Strategy Planners.
• The Positioning School-(Schendel –Hatten & Porter): Under this
school Strategy is seen as set of planned generic positions
chosen by a firm on the basis of an analysis of the competition
Ulhas D Wadivkar 58
and the industry in which they operate.
 Schools of Thought on Strategy Formation-2
The Descriptive Schools:
4. Entrepreneurial School -(Schumpeter & Cole): Strategy
formation is mainly intuitive, visionary & deliberate. Strategy
is an outcome of a personal & unique perspective to create a
niche.
5. Cognitive School -(Simon & March): Strategy formation is
mental process. The lead role is played by thinker
philosopher.
6. Learning School -(Weick, Quinn, Senge & Lindblom): This
school perceives Strategy formation as an emergent process.
The process is informal and messy and lead role is played by
the learner.
7. Power School - (Allison & Astley): Strategy is seen as political
& cooperative process or pattern. This school perceives
Strategy formation as negotiation process. The process of
Strategy formation is messy, emergent & deliberate.
Ulhas D Wadivkar 59
 Schools of Thought on Strategy Formation-3
8. Cultural School - (Rhenman & Normann): Strategy is seen as
collective perspective. The process of Strategy formation is
ideological, constrained & deliberate.
9. Environmental School -( Hanan, Freeman & Pugh): The lead
role in strategy formation is played by environment as an
entity. The process of Strategy formation is reactive, passive
& imposed and hence deliberate.
The Integrative School: -(Chandler, Miles & Snow):
10. The Strategy is viewed in relation to a specific context and
any of the nine schools mentioned above can be used to
form the Process. The Strategy formation process is
integrative, episodic & sequential.

Ulhas D Wadivkar 60
Strategic Management Process - an Overview
Definition of Strategic Management: Strategic management
is defined as the dynamic process of formulation,
implementation, evaluation and control of strategies to realise
the Organisation’s Strategic intent.
Strategic Management is a continual, evolving, iterative
process. It is not rigid, stepwise activities arranged in a
sequential order. It is repeated over time as situation
demands.

Establish Formulation Implementation

Strategic
Strategic of of
Evaluation
Intent Strategies Strategies

Ulhas D Wadivkar Strategic Control 61

 Strategic Management Process-1
Strategic Intent:
2. Creating & Communicating the Vision.
3. Defining the Business.
4. Designing a Mission Statement.
5. Adopting the Business Model.
6. Clarifying the business mission, purpose & setting broad
Objectives and Goals.
Formulation of Strategies:
8. External Environment Survey. SWOT Analysis.
9. Internal Appraisal of the firm.
10. Setting Corporate Objectives.
11. Formulating the Corporate objectives.
12. Formulating the Corporate strategies.
13. Exercising Strategic Choice.
14.UlhasPreparing
D Wadivkar
a Strategic Plan. 62
 Strategic Management Process-2
Implementation of Strategies:
2. Activating Strategies.
3. Designing Structure, Systems and processes.
4. Managing Behavioural Implementation.
5. Managing Functional Implementations.
6. Operationalising Strategies.
Performing Strategic evaluation & Control:
• Performing Strategic evaluation.
• Exercising Strategic Control.
• Reformulating Strategies.

Ulhas D Wadivkar 63
 Syllabus

2. Strategic Intent & Strategy Formulation:

Vision, mission and purpose –

Business definition, objectives and goals –
Stakeholders in business and their roles in strategic
management –
Corporate Social Responsibility,
Ethical and Social considerations in Strategy

(4)

--------------------------------------------------------------

Ulhas D Wadivkar 64
 Strategic Intent
• Strategic Intent is combination of four levels in the Management.
It involves discussions of Vision, Mission, Business Definition &
Goals and Objectives.
• Strategic Intent refers to the purposes the Organisation strives
for.
• Strategic Intent lays down the frame work within which firms
would operate, adopt a predetermined direction, and attempt to
achieve the Goals.
• Hamel & Prahalad considered Strategic Intent as an obsession
with an Organisation.
• Strategic Intent envisions a desired leadership positioning and
establishes the criterion the Organisation will use for charting its
progress. In addition to ambitions of the Organisation; it
encompasses active Management Process that includes
focussing the organisation’s attention on winning. It covers
motivating the people by communicating the values, targets. The
intent encourages individual and team contributions and
attempts sustaining enthusiasm by providing new operational
definitions. The Strategic Intent guides the organisation through
changing circumstances and guides use of resource allocations.
Ulhas D Wadivkar 65
 Strategy Formulation-
Vision, Mission and Purpose,
• A vision is more dreamt of than it is. Vision Statement is permanent
statement of a company. Vision is future aspirations that lead to an
inspiration. It defines the very purpose of existence of a company.

• The vision of a company is a direction for action for employees. The

essence of a vision is forward looking view of what an organisation
wishes to become.

• Kotter(1990) defines Vision as “ a description of an enterprise. (an

organisation, corporate culture, a business, a technology, an
activity) in future”.

• El-namaki(1992) defines vision as a “mental perception of the kind

of environment an individual, or an organisation, aspires to create
within a broad time horizon and underlying conditions for the
actualisation of this perception”

• Miller and Dess(1996) defines vision as “category of intentions that

are broad, all inclusive, and forward thinking”
Ulhas D Wadivkar 66
 Characteristics of a Vision Statement
• Inspiring and exhilarating.
• It represents, a discontinuity, a step, a jump ahead to dream what
it is to be.
• Creation of common identity and share sense of purpose.
• Competitive, original and unique and practical.
• Foster risk taking and experimentation.
• Foster long term thinking.

• A vision is a statement about what your organization wants to

become.
• It should resonate with all members of the organization and help
them feel proud, excited, and part of something much bigger than
themselves.
• A vision should stretch the organization’s capabilities and image
of itself. It gives shape and direction to the organization’s future.
• Visions range in length from a couple of words to several pages.
• Shorter vision statements is recommended because people will
tend to remember their shorter organizational vision.
Ulhas D Wadivkar 67
 Vision Statement
• Vision Statement Samples:

• "Year after year, Westin and its people will be regarded as the best
and most sought after hotel and resort management group in North
America." (Westin Hotels)
• "To be recognized and respected as one of the premier associations
of HR Professionals." (HR Association of Greater Detroit)

• Vision Statement of “TATA STEEL”

“TATA Steel enters the new millennium with the confidence of
learning, knowledge based and happy organisation. We will
establish ourselves as a supplier of choice by delighting our
customers with our service and products. In the coming decade, we
will become the most cost competitive steel plant and so serve the
community and the nation”.

• Vision Statement of Farm Fresh Produce

• “We help the families of Main Town live happier and healthier lives
by providing the freshest, tastiest and most nutritious local produce:
From local farms to your table in under 24 hours.”
Ulhas D Wadivkar 68
 Developing a Vision Statement
• The vision statement includes vivid description of the organization
as it effectively carries out its operations.
• Developing a vision statement can be quick culture-specific, i.e.,
participants may use methods ranging from highly analytical and
rational to highly creative and divergent, e.g., focused
discussions, divergent experiences around daydreams, sharing
stories, etc. Therefore, visit with the participants how they might
like to arrive at description of their organizational vision.
• Developing the vision can be the most enjoyable part of planning,
but the part where time easily gets away from you
• Note that originally, the vision was a compelling description of the
state and function of the organization once it had implemented the
strategic plan, i.e., a very attractive image toward which the
organization was attracted and guided by the strategic plan.
Recently, the vision has become more of a motivational tool, too
often including highly idealistic phrasing and activities which the
organization cannot realistically aspire.
Ulhas D Wadivkar 69
 Strategic Vision
• Strategic Vision is a road map showing the route a company
intends to take in developing and strengthening the business. It
defines Company’s destination and provides rational for going there. It
culminates in to a Mission Statement. Strategic Vision points an
Organisation in a particular direction, charts a strategic path to follow
for future and moulds the organisation’s identity.
• Strategic Vision is different from Mission Statement: Strategic
Vision deals with where we are going, where as Mission Statement
deals with Company’s present business scope and purpose.
• A company Mission is guided by the buyer’s needs it seeks to satisfy,
the customer groups and market segments it is endeavouring to
serve, and the resources and technologies that it is deploying in trying
to please customers and achieve a Market and Industry position.

Ulhas D Wadivkar 70
 Example of Strategic Vision
• “The San Antonio Express News” developed this
Strategic Vision,
• "EXPAND” our customer base and enhance the
franchise by pursuing multimedia opportunities.
• “DELIVER” an award-winning level of journalistic
excellence, building public interest, trust and pride.
• “PROVIDE” vigorous community leadership and support.
• “INSTILL” an environment of internal and external
excellence in customer service.
• “EMPOWER” and recognize each employee's unique
contribution.
• “ACHIEVE” the highest standards of quality.
• “IMPROVE” financial strength and profitability."

Ulhas D Wadivkar 71
 Mission
• Thompson(1997) defines Mission as “the essential
purpose of the organisation, concerning particularly, why it is
in existence, the nature of businesses it is in, and the
customers it seeks to serve and satisfy”
• Hunger and Wheelen(1999) say that “mission is the
purpose and reason for the organisation’s existence”
• Mission statements could be formulated on the basis of
vision that an entrepreneur decides on in the initial stages.
• A business mission helps to evolve an executive action.
• Mission of organisation is what it is and why it exists. It
represents common purpose which the entire organisation
shares and pursues. It is a guiding principle.
Ulhas D Wadivkar 72
 Mission Statement
• Mission of a company is expressed it terms of products and
geographical scope. It includes a methodology of attaining
the desired goal in vision. It defines the competitive strength
of a company and it emanates from corporate vision and
strategic posture of a company.
• Thus the mission of a business is a statement, a build-up
philosophy of its current and future expected position with
regards to its products, market leadership.
• Mission is statement which defines the role of organisation
plays in a society.
• The corporate mission is growth ambition of the firm.
Ulhas D Wadivkar 73
 Mission
Characteristics of a Mission Statement
• It should be feasible, achievable & It should be precise.

• It should be clear & It should be distinctive.

• It should be motivating.

• It should be indicative of major component of strategy &

Objectives.
• It should be indicative of how objectives are to be accomplished.

• It should be indicative of how Policies will be achieved.

• It should focus Market Rather than Product.

Ulhas D Wadivkar 74
 Mission Statement Creation
• To create your mission statement, first identify your
organization’s “winning idea”.
This is the idea or approach that will make your organization
stand out from its competitors, and is the reason that
customers will come to you and not your competitors.

• Next identify the key measures of your success. Make sure

you choose the most important measures (and not too many
of them!)

• Combine your winning idea and success measures into a

tangible and measurable goal.

• Refine the words until you have a concise and precise

statement of your mission, which expresses your ideas,
measures and desired result.
Ulhas D Wadivkar 75
 Developing a Mission Statement
1. At is most basic; the mission statement describes the
overall purpose of the organization.
2. If the organization elects to develop a vision statement
before developing the mission statement, ask “Why does
the image, the vision exist -- what is it’s purpose?” This
purpose is often the same as the mission.
3. Developing a mission statement can be quick culture-
specific, i.e., participants may use methods ranging from
highly analytical and rational to highly creative and
divergent, e.g., focused discussions, divergent
experiences around daydreams, sharing stories, etc.
Therefore, visit with the participants how they might like to
arrive at description of their organizational mission.
4. When wording the mission statement, consider the
organization's products, services, markets, values, and
concern for public image, and maybe priorities of activities
for survival.
Ulhas D Wadivkar 76
 Mission Statements
1. Consider any changes that may be needed in wording
of the mission statement because of any new suggested
strategies during a recent strategic planning process.
2. Ensure that wording of the mission is to the extent that
management and employees can infer some order of
priorities in how products and services are delivered.
3. When refining the mission, a useful exercise is to add or
delete a word from the mission to realize the change in
scope of the mission statement and assess how concise
is its wording.
4. Does the mission statement include sufficient
description that the statement clearly separates the
mission of the organization from other organizations?

Ulhas D Wadivkar 77
• Mission Statement of Ranabaxy
“To become a $ 1 Billion research based global
(International) pharmaceutical company”
• Mission Statement of Graphite India Limited
“To be within top three companies in the world by achieving
1,00,000 MT Production of Graphite Electrodes before
2012”
• The mission statement of Farm Fresh Produce is:
“To become the number one produce store in Main Street
by selling the highest quality, freshest farm produce, from
farm to customer in under 24 hours on 75% of our range
and with 98% customer satisfaction.”
• "Our goal is simply stated. We want to be the best service
organization in the world." (IBM)
• "To give ordinary folk the chance to buy the same thing as
rich people." (Wal-Mart)
Ulhas D Wadivkar 78
 Mission Statements
• "FedEx is committed to our People-Service-Profit Philosophy.
We will produce outstanding financial returns by providing
totally reliable, competitively superior, global, air-ground
transportation of high-priority goods and documents that
require rapid, time-certain delivery." (Federal Express)
• "Our mission is to earn the loyalty of Saturn owners and grow
our family by developing and marketing U.S.-manufactured
vehicles that are world leaders in quality, cost, and customer
enthusiasm through the integration of people, technology,
and business systems." (Saturn)
• "In order to realize our Vision, our Mission must be to exceed
the expectations of our customers, whom we define as
guests, partners, and fellow employees. (mission) We will
accomplish this by committing to our shared values and by
achieving the highest levels of customer satisfaction, with
extraordinary emphasis on the creation of value. (strategy) In
this way we will ensure that our profit, quality and growth
goals
Ulhas are met." (Westin Hotels and Resorts)
D Wadivkar 79
 Values
• Values are traits or qualities that are considered
worthwhile; they represent an individual’s highest priorities
and deeply held driving forces. (Values are also known as
core values and as governing values; they all refer to the
same sentiment.)
• Value statements are grounded in values and define how
people want to behave with each other in the
organization. They are statements about how the
organization will value customers, suppliers, and the
internal community. Value statements describe actions
which are the living enactment of the fundamental values
held by most individuals within the organization.
Ulhas D Wadivkar 80
 Values
• The values of each of the individuals in your workplace,
along with their experience, upbringing, and so on, held
together to form your corporate culture. The values of your
senior leaders are especially important in the development
of your culture. These leaders have a lot of power in your
organization to set the course and environment and they
have selected the staff for your workplace.
• If you think about your own life, your values form the
cornerstones for all you do and accomplish. They define
where you spend your time, if you are truly living your
values. Each of you makes choices in life according to
your most important top ‘ten’ values. It is necessary to
take the time to identify what is most important to you and
to your organization.
Ulhas D Wadivkar 81
 Developing a Values Statement
• Values represent the core priorities in the organization’s
culture, including what drives members’ priorities and how
they truly act in the organization, etc. Values are
increasingly important in strategic planning. They often drive
the intent and direction for “organic” planners.
• Developing a values statement can be quick culture-
specific, i.e., participants may use methods ranging from
highly analytical and rational to highly creative and
divergent, e.g., focused discussions, divergent experiences
around daydreams, sharing stories, etc. Therefore, visit with
the participants how they might like to arrive at description
of their organizational values.
• Establish four to six core values from which the organization
would like to operate. Consider values of customers,
shareholders, employees and the community.
Ulhas D Wadivkar 82
 Developing a Values Statement
• Notice any differences between the organization’s preferred
values and its true values (the values actually reflected by
members’ behaviours in the organization). Record each
preferred value on a flash card, then have each member
“rank” the values with 1, 2, or 3 in terms of the priority
needed by the organization with 3 indicating the value is
very important to the organization and 1 is least important.
Then go through the cards again to rank how people think
the values are actually being enacted in the organization
with 3 indicating the values are fully enacted and 1
indicating the value is hardly reflected at all. Then address
discrepancies where a value is highly preferred (ranked
with a 3), but hardly enacted (ranked with a 1).
• Incorporate into the strategic plan, actions to align actual
behaviours with preferred behaviours.
Ulhas D Wadivkar 83
 Samples of Values and Value Statements
• "To preserve and improve human life." (Merck)
At Merck, "corporate conduct is inseparable from the conduct of
individual employees in the performance of their work. Every Merck
employee is responsible for adhering to business practices that are
in accordance with the letter and spirit of the applicable laws and
with ethical principles that reflect the highest standards of corporate
and individual behaviour...
• "At Merck, we are committed to the highest standards of ethics and
integrity. We are responsible to our customers, to Merck employees
and their families, to the environments we inhibit, and to the
societies we serve worldwide. In discharging our responsibilities, we
do not take professional or ethical shortcuts. Our interactions with all
segments of society must reflect the high standards we profess."
• Patriot Ledger (SouthofBoston.com): "We have a total commitment
to these values, shaping the way we do business for our employees,
our customers and our company.
• Our employees are the most valued assets of our company,
essential participants with a shared responsibility in fulfilling our
mission.
• We recognize that the quality, motivation and performance of our
employees
Ulhas D Wadivkarare the key factors in achieving our success. 84
 Goals, Objectives and Action Plans
• After you have developed the key strategies, turn your
attention to developing several goals that will enable you to
accomplish each of your strategies. Goals should be
S M A R T : Specific, Measurable, Achievable, Realistic and
Time-based.
• Once you have enabled strategy accomplishment through
setting SMART Goals, you will want to develop action plans
to accomplish each goal. You will need to follow an action
plan:
• Establish a cross section of professionals as a committee
and meet to plan the sessions.
• Determine budget.
• Select topics based on member needs assessment.
• Plan advertising strategies, and so forth.
• Make action plans as detailed as you need them to be and
integrate the individual steps into your planning system. An
effective planning system, whether it uses a personal
computer, a paper and pen system, a handheld computer or
a Palm, will keep your goals and action plans on track and
on target.
Ulhas D Wadivkar 85
 Areas of Objectives
• Objectives represent managerial commitment to achieve
specific results in specific period of time. Objectives could be
• : Profitability
• : Markets
• : Productivity
• : Innovation
• : Product
• : Financial Resources
• : Physical facilities
• : Organisation Structure & Activities
• : Manager Performance & Development
• : Employee performance & Activities.
• : Customer Service
• Ulhas D Wadivkar : Social Responsibility. 86
 Defining the business
• A clear-cut statement of the business, the firm is engaged in
or planning to enter. It is elaboration of the business arena
and the boundaries in which it will play.
• What is our business? What will it be? What should it be?
• Defining business involves three dimensions, namely
“Customer Functions”, “Customer Groups” and “Alternative
technologies”.
• Business Definition sets and limits the contours of the
business. It clarifies the opportunities business can pursue
and the areas in which these opportunities are to be looked
for. It clarifies to the firm the various sources from which
threats and competition will come for.
• Defining Customer functions and Customer groups provides
Blue Print and a reference point for Product-market strategy.
Mission Statement provides the basic inputs for Business
definition and provides a broad frame work.
Ulhas D Wadivkar 87
 Objectives of Business Policy:
• Understand various concepts, like. Strategy, policies,
plans, programmes.
• Knowledge of internal and external environment and how it
affects the functioning of the organisation.
• Application of generalised approach to deal with wide
variety of situations.
• Development of analytical ability to understand situation.
Identify factors relevant to decision making. Analyse
strength, weakness, opportunities and threats to
organisation. Development of attitude of generalist and
asses a situation from all angles.

Ulhas D Wadivkar 88
Some Business definitions:

Modi Zerox : Focus as a service organisation rather than vendor of

zerox machines. Customer focus: Office Communication with high
priced and low priced equipments, marketing services of
maintenance and per copy price. Customer Function: Availability of
spares, Drums, Toner, good after sales service. Technology:
Collaboration with “Rank Zerox”

Helen Curtice: We are in beauty enriching business. We will pursue

ideas that would generate products enhancing beauty and
youthfulness of men and women.

Intel: We are in the business of computing technology and to

consistently develop the artifice/building blocks of computing
technology for the entire computer industry of the world is our
business.
Ulhas D Wadivkar 89
 Attributes of a good business definition:
• It must be related to human needs which the product seeks
to satisfy and should not be limited to just the product.
• It must be related to basic benefits the product offers.
• It should not be narrow. A wrong and or narrow concept
could reduce the life span of organisation.
• It must be related to the functions performed by the product
and not limited to just the product.
• It must encompass in its fold, as many related function /
benefits as possible.
• It must go beyond the immediate product, beyond the
immediate competitors, beyond the immediate market
boundaries.
• It must be wide enough to embrace new opportunities.
• It must be wide enough to give a vision of latent sources of
competition from say, substitute products.
• Business boundaries keep changing and defining Business
is a dynamic situation and becomes an exacting exercise
and
Ulhas it needs to be re-casted over time again and again. 90
D Wadivkar
 Benefits of Business Policy
• Business Policy seeks to integrate the knowledge and experience
gained in various functional areas of Management. Normally
functional areas are aloof of complexities of real life business
situations. Business Policy cuts across the narrow functional
boundaries. Business Policy helps us to create an understanding
of how policies are formulated.
• Managers become more receptive to the ideas and suggestions of
senior Management. Managers feel themselves to be a part of a
greater design.
• Understanding Business Policy provides a basic framework for
understanding strategic decision making and Improvement in Job
Performance.
• Study of business policy leads to personal development.
Managers understand the impact of policy shifts on the status of
one’s department and on the positions one occupies.
• Understanding Business Policy enables manger to avail the an
opportunity or avoid a risk to career planning and development
• Understand senior management’s view point.
Ulhas D Wadivkar 91
 Social Responsibility & Strategic Management
• Social Responsibility along with ethics becomes a stated or
un-stated requirement. It gets attended in Strategic Planning
through environmental appraisals. It has differing views, while
some do not want it to be considered in business operations,
others boast around it. However, most business houses
observe a balance and undertake to deliver social
responsibility and business objectives without contradicting
each other.
• Social Responsibility extends beyond the workforce and
stakeholders and many business houses take up activities for
community welfare, rural development, sports etc.
• Presently, with ISO:14001:2004 which concerns Environment
Management Systems, it has become a necessity to address
the mode and means of delivering social responsibility.
Ulhas D Wadivkar 92
 Social Responsibility
• Scope of Social Responsibility is defined in terms of Social
concern. Business organisation depending on its nature, size,
and breadth of activity, could extend social responsiveness to
the problems of the whole world, nation, local community,
industry and to itself. Business organisations could also
classify Social Responsibilities in terms of relatedness to its
own activities.
• Like any other strategic functions, for successful
implementation, Organisations need to allocate resources,
create Organisations Structure and evaluate its effectiveness.
But all said and done, the society in large remains a major
stake holder and we cannot escape our dues to society and
towards social responsibility.
Ulhas D Wadivkar 93
Corporate Governance : Social Responsibility
• Business provides goods & services to Society for which it receives the price.
•Society provides goods and services to Business for which it receives the
price.
•Business rewards to society for its inputs by paying wages/profits/dividends
•Society and Business are interdependent. Their growth & welfare is dependent
on this mutuality. Business owes responsibility towards society. A firm carrying
very positive image in society has very strong probability of lasting growth.

Society

Business
Ulhas D Wadivkar 94
 Corporate Governance : Social Responsibility
• “Sole aim of a business is and should be maximisation of
Shareholders’ value”, as stated by Milton Friedman, does not
hold good anymore.
• All modern large corporate have attained their present size
due to support of society in terms of shareholders, suppliers,
lenders, employees, government, local community and
society at large.
• Every business unit of the country must aim at becoming
good corporate citizen of the country and the world as whole.
World Class Quality of goods and services, reasonable prices
is minimum requirement. With this companies would enjoy
excellent image within area, country and world. Indian
examples are Tatas, Birlas, Reliance, Bajaj, L&T, Hero
Honda, HDFC, Dr. Reddy Laboratories. TCS, etc.
• Industrial Corporate Citizens are trustees and should utilise
their wealth for the welfare of the society / community.
Trusteeship invokes code of discipline, ethical behaviour and
strong principle of accountability. Capital and Labour have to
have mutual, peaceful co-existence.
Ulhas D Wadivkar 95
 Corporate Governance : Social Responsibility
• Common feature they all posses is their image not only as
value creator but more as Top Class Corporate citizen of
India and of the world. They are asset to the share holders,
country and society at large by creating world class products
at competitive prices and price and providing these products
to society at desired time and space. Many of them provide
non-core social activities for benefit of society in quest of
their becoming good Corporate Citizens.
• They realise their dependence on Society for their needed
inputs like money, men and skills, society as a market for
their outputs and realise that they cannot exist without
unreserved support from Society. The more closely a
company concentrates on solving societal problems, the
better it is able to solve its own problem of growth and
prosperity.
Ulhas D Wadivkar 96
 Corporate Governance : Social Responsibility
• Capital and labour should supplement and assist each other.
Capital being trustees should look after welfare of labour not
only material but also moral welfare. Principle of mutually
cherishing each other should be developed. Capital should
look after the workers and workers should look after
productivity and profit of the organisation. Presently, capital
has been replaced by knowledge in newer industries like IT
& Pharma. Knowledge workers (professionals) like Bill
Gates, Narayan Murthy are paving the way towards social
responsibilities.
• Social Responsibilities have foundation of Business Ethics,
the moral principles of good & bad, right & wrong or Just &
unjust. Peter Drucker has stated that there are no separate
ethics of business. What is unethical and immoral in society
is also applicable to business. The trick is to put your-self in
shoes of those, against whom a particular action is being
planned / taken, which is known as empathy. Corporate
ethics refers to set of rules, code of conduct acceptable to
society at large without any reservations. The concept of
Business ethics is global phenomenon and is recognised 97
Ulhas D Wadivkar
throughout the world.
 Corporate Governance : Social Responsibility
• Code of Ethics for Indian Business (by PHD
Chambers)
• It is believed that the best way to promote high
standards of business practice is through self regulation.
• Business should be conducted in a manner that earns
the goodwill of all concerned through Quality, efficiency,
transparency & good values with objectives as under:
• a) Be faithful and realistic in stating claims.
b) Be responsive to customer need and concerns.
c) Treat all stakeholders fairly and with respect
d) Protect and promote the Environment and
Community interests
Ulhas D Wadivkar 98
 Stakeholder Definition
• Stakeholders are defined as "those groups without whose
support the organization would cease to exist.
• A corporate stakeholder is a party that affects or can be
affected by the actions of the business as a whole.
• Person, Group, or Organization that has direct or indirect
Stake in an organization because it can affect or be affected
by the Organisation’s actions, Objectives, and Policies.
• Key stakeholders in a Business Organization include
Creditors, Customers, Directors, Employees, Government
(and its Agencies) Owners, Shareholders, Suppliers, Unions,
and the Community from which the business draws its
Resources.
• Although stake-holding is usually self-legitimizing (those who
Judge themselves to be stakeholders are de facto so), all
stakeholders are not equal and different stakeholders are
entitled to different Considerations.
• For example, a firm's customers are entitled to fair trading
practices but they are not entitled to the same consideration
as
Ulhasthe firm's employees.
D Wadivkar 99
Ulhas D Wadivkar 100
 External Stakeholder : Definition:
• Entities such as Customers, Suppliers, Lenders, or the
wider society which influence and are influenced by an
Organisation but are not its 'internal part'
• Stakeholder: Any party that has an interest in an
organization. Stakeholders of a company include
stockholders, bondholders, customers, suppliers,
employees, and so forth.
• "The stakeholders in a corporation are the individuals and
constituencies that contribute, either voluntarily or
involuntarily, to its potential wealth-creating capacity and
activities, and that are therefore its beneficiaries and/or risk
bearers."
Ulhas D Wadivkar 101
 Stakeholders
• Any individual, group or business with a vested interest (a
stake) in the success of an organization is considered to be
a Stakeholder. A Stakeholder is typically concerned with an
organization delivering intended results and meeting its
financial objectives. In general, a Stakeholder can be one of
two types: internal (from within an organization) or external
(outside of an organization). Examples of a Stakeholder are
an owner, manager, Shareholder, Investor, employee,
customer, partner and/or supplier, among others. A
Stakeholder may contribute directly or indirectly to an
organization’s business activities. Other than traditional
business, a Stakeholder may also be concerned with the
outcome of a specific project, effort or activity, such as a
community development project or the delivery of local
health services. A Stakeholder usually stands to gain or lose
depending on the decisions taken or policies implemented.

Ulhas D Wadivkar 102

 Types of stakeholders
• People who will be affected by an endeavour and can influence it
but who are not directly involved with doing the work. In the Private
Sector,*People who are (or might be) affected by any action taken
by an organization or group. Examples are parents, children,
customers, owners, employees, associates, partners, contractors,
suppliers, people that are related or located near by. Any group or
individual who can affect or who is affected by achievement of a
group's objectives.
• An individual or group with an interest in a group's or an
organization's success in delivering intended results and in
maintaining the viability of the group or the organization's product
and/or service. Stakeholders influence programs, products, and
services.
• Any organization, governmental entity, or individual that has a stake
in or may be impacted by a given approach to environmental
regulation, pollution prevention, energy conservation, etc.
• A participant in a community mobilization effort, representing a
particular segment of society. School board members,
environmental organizations, elected officials, chamber of
commerce representatives, neighbourhood advisory council
members, and religious leaders are all examples of local
stakeholders
Ulhas D Wadivkar 103
 Examples of a company stakeholders
Stakeholder Examples of interests

Owners private/shareholders Profit, Performance, Direction

Government Taxation, VAT, Legislation, Low unemployment

Senior Management staff Performance, Targets, Growth

Non-Managerial staff Rates of pay, Job Security

Working conditions, Minimum Wages, Legal

Trade Unions
requirements

Customers Value, Quality, Customer Care, Ethical products

Creditors Credit score, New contracts, Liquidity

Local Community Jobs, Involvement, Environmental issues, Shares

Ulhas D Wadivkar 104
 Syllabus: 3. Strategic analysis:

• Analyzing Company’s Resources and

Competitive Position-

• Organizational Capability Profile –

• Strategic Advantage Profile –

• Core Competence – Distinctive

competitiveness. (4)

Ulhas D Wadivkar 105

 Competitive Strategy According to
Michael Porter
• In a 1996 Harvard Business Review article and in an
earlier book, Porter argues that competitive strategy is
"about being different." He adds, "It means
deliberately choosing a different set of activities to deliver
a unique mix of value“.
• In short, Porter argues that strategy is about competitive
position, about differentiating yourself in the eyes of the
customer, about adding value through a mix of activities
different from those used by competitors.
• In his earlier book, Porter defines competitive strategy as
"a combination of the ends (goals) for which the firm
is striving and the means (policies) by which it is
seeking to get there." Thus, Porter seems to embrace
strategy as both plan and position. (It should be noted
that Porter writes about competitive strategy, not about
strategy in general.)
Ulhas D Wadivkar 106
 Identification and Assessment of firm’s
Competitive Edge & Core Competencies
• A Competence is something an Organisation is good at
doing. It results out of accumulated learning and built-up
proficiencies. Examples are Proficiency in
Merchandising, Working with Customers, Proficiency in
specific technology, Proven capabilities.
• A Core Competence is a proficiently performed activity
that is central to the Organisation Strategy. These are
important activities in which Company is better than
other internal activities. Examples are : Good after sale
service, Skills in Manufacturing, High quality product at
low Cost.
• A Core Competence is knowledge & skill based residing
in people, and in Company’s intellectual capital. (Does
not appear in Balance Sheet)
Ulhas D Wadivkar 107
 Distinctive Competence
• A Distinctive Competence is a competitively valuable
activity that Company performs better than its rivals. It is
Competitive superiority in performing Core activity
generating competitively superior resource strength.
• A strength that is superior / distinctive to competition is
competitive advantage.
• Competitive advantage is a back-up for strategy without
which strategy will not work.
• Competitive advantage finally results in either cost
advantage or differentiation advantage.
• Creating entry barrier is also a way to built up competitive
advantage.
• Building Competitive advantage is a conscious and long
term process.
• Preparing Competitive Advantage Profile for the
organisation is based on internal appraisal and industry-
competition.
Ulhas D Wadivkar 108
 Core Competency

An enduring competency that cannot be easily duplicated

by imitation is Core Competency. Core Competency lies at
the root of products.

Techniques used are : SWOT Analysis

• : Bench marking

• : Value chain analysis

• : Value to customers – Competitive

approach

• : Competitive strength assessment.

Ulhas D Wadivkar 109

 Internal Appraisal of the firm:
Purpose:
• To know one’s organisational capabilities, Strengths
and Weaknesses.
• To select the most suitable Opportunities as per already
appraised capabilities.
• To assess the “Capability GAP” for the opportunity in
hand and also for the Objectives and Goals.
• To take steps to elevate the capability to achieve
Objectives and Goals.
• To select the Product / business in which organisation
can grow as per potentials appraised.
Factors considered for Internal Appraisal:
• Assessment of the Strengths-Weaknesses in different
functions/areas
• Identification and assessment of firm’s Competitive
Edge and Core Competencies.
• Appraisal of the individual business, product lines of the
Ulhas D Wadivkar 110
firm and firm’s know-how status.
 Assessing strengths and weaknesses:
– How well is the company’s present Strategy working?

1. Evaluate company’s competitive approach. Compare

cost effectiveness of the Company products with its
rivals. Are we low cost? Or does our product have
distinctive features? What value for money is offered to
the customers? What is the perception of Customers
about our Product and the Company.
2. Core competencies, distinctive competencies are
building blocks of Strategy. They give the strength.
Similarly resource weaknesses make company
vulnerable and need to be corrected. Strength allows
Company to take advantage of opportunities and guard
against threats.
3. Check Value Chain analysis. Do we competitively
manage value additions in Value chain? Are we
competitively stronger or weaker than our key rivals?
Ulhas D Wadivkar 111
 Main Functions:
• Check what strategic issues need managerial attention.
Find out gaps and take remedial actions. Conduct
Industry analysis and competitive situation analysis and
prepare a “worry list”. Good company situation analysis,
good industry & competitive analysis are valuable pre-
condition for good strategy making.
• Marketing: Market growth, market share of the firm and
its competitors, Production capacity and GAP between
market potential, brand equity, Product’s life cycle and
estimating safe period. Customer’s perception for the
product and level of satisfaction there of. Synergy of the
product-mix, Prices, margins, new product capability,
Advertising, Sales promotion,
Ulhas D Wadivkar 112
 Main Functions:
• Marketing audit: Market share analysis, Price-volume
relationship, Cost analysis, Product line wise profits,
Consumer satisfaction index, Brand monitoring surveys.
• Finance: Level of financial performance – profitability and
productivity, analysis of Assets & Costs, DSCR (debt
service coverage ratio), analysis & efficiency of Cash flow,
liquidity, Appreciation of long term financial plans as per
Cost of capital, adequacy of Capital Expenditures, Tax
administration, dynamism in Tax planning, payback, IRR &
BE analysis, earning ratios like EPS, etc.
• Manufacturing/Operations: Appropriateness of
manufacturing processes, skills, facilities for future
requirements of product trend. Management in planning
and manufacturing controls. Operating efficiency w.r.t
industry standards, Industrial Engineering capability for
improving product and methods. Value engineering to
simplify the product. Analysis of capacity utilisation,
maintenance, breakdowns, inventory analysis, cost of
product
Ulhas D Wadivkar analysis. 113
 Main Functions:
• R & D: Commitment to R&D, nature & depth of R & D
outfit, Allocation of resources, Speed of R & D, New
product development-its records and adequacy, R & D
and market needs, Analysis of patents generated, new
product commercialisation, R & D expenses v/s new
product launch.
• Allocation of resources and Corporate Functions:
chief characteristics of Top Management – Image as
dynamic? Confident? Aggressive? Timid? Reticent?
Change-stability oriented? Future oriented? Coping up
with future challenges? Creative? Realistic? Innovation
record?
• Organisation Culture & Structure – Traditional? Modern?
Rigid? Centralised? Flexible? Flat? Use of information
Technology?
• Quality of strategic planning?
• Executive turnover?
•UlhasDirectors
D Wadivkar – Dummy? Active? Effective Policy makers? 114
 Signs of Strength in Company’s Competitive Position
• Important Core Competencies.
• Strong or leading market Share.
• A pacesetting or distinctive strategy.
• Growing customer base & Customer Loyalty.
• Above average market visibility.
• In a favourably situated strategic group.
• Concentrating on fastest growing Market Segments.
• Strong Differentiated product.
• Cost advantages & above average Profit margins.
• Above average technological and innovative Capability.
• A creative, entrepreneurially alert management.
• In position to capitalise on available opportunities.
Ulhas D Wadivkar 115
 Signs of Weaknesses in Company’s Competitive Position
• Confronted with competitive dis-advantages.
• Losing ground to rival firms.
• Below average growth in revenues.
• Short on financial resources.
• A slipping reputation with customers.
• Trailing in product development.
• In a strategic group destined to lose ground.
• Weak in areas where there is most market potential.
• A higher cost producer.
• Too small to be a major market force or in marketplace.
• Not in good position to deal with emerging threats.
• Weak product quality.
• Lacking skills and capabilities in key areas.
Ulhas D Wadivkar 116
 Organizational Capability Profile &
Strategic Advantage Profile:
Organisational Resources Organisational Behaviour
• OR includes tangible, • OB is manifestation of
Non-tangible, assets, forces and influence of
Capabilities, Internal Environment. (like,
Organisational Management Philosophy,
processes, Technology, Quality of Leadership,
Plant & Equipments, Shared value, Culture,
Human resources, Quality of Work, Work
Information, Knowledge, Environment, Climate,
etc Politics, use of Power)
• Four Types of Resources • OB affects ability of
e.g. “Valuable”, “Rare”, organisation to use its
“Costly to Imitate” and resources.
‘Non-Substitutable”, will • OR is Hardware & OB is
eventually, lead to software
Strategic
Ulhas D Wadivkar Advantage. 117
 Organisational Organisational
Resources Behaviour

Strength &
Weaknesses

Synergistic
Effects

Competencies

Organisational
Capabilities

Strategic
Advantages
Ulhas D Wadivkar 118
 OCP & SAP
Strength & Weaknesses
OR & OB creates S & W. Strength is an inherent capability
of organisation used to gain Strategic Advantage. It could
be finance, Technology etc. A Weakness on other hand is
inherent limitation or constraint creating Strategic
Disadvantage. It could be Plant Location, Layout, Obsolete
machinery, Uneconomical operations etc.

Synergistic Effects
Two or more attributes of S & W, do not add up
mathematically but combine to produce an dramatic,
enhanced or reduced effect. This is Synergy or Dysergy.
e.g. when product, pricing, distribution, promotion support
each other a synergistic effect will occur on marketing
Ulhas D Wadivkar 119
 Competencies
OR & OB develop S & W, which when combined with
Synergistic Effects manifest themselves in terms of
Competencies. This helps Organisations to withstand
pressures of competition. This is ability to compete with
rivals.

Organisational Capability
Organisational Capability is inherent capacity or potential of
an organisation to use its Strengths and overcome
Weaknesses to exploit Opportunities & face Threats. It is a
skill for coordinating resources and putting them to
productive use. Without capability, resources, even though
valuable & unique, will be worthless. Organisational
Capability, though measurable, remains a subjective
attribute.
Ulhas D Wadivkar 120
 Strategic Advantage
• Strategic Advantage is result of Organisational
Capabilities. The advantages can be measured in terms
of Profit, Market Share, Growth etc. Negative results
indicate Strategic Disadvantages. When compared with
known identified rivals, the Strategic Advantage is also
known as Competitive Advantage. In an abundantly profit
making company, Competitive Advantage is used as
stimulus.

Ulhas D Wadivkar 121

 Organisation Capability Profile (OCP): 1
• Organisation capability is nothing but sum total of
capabilities of various functional areas. Largely accepted
main functional areas could be named as Finance,
Marketing, Operations, Personnel, Information and General
Management. These could be different for different types of
organisations.
• Operations Capability: includes Production of Products
and Services. Use of material resources, some factors are:
• Production System: Capacity, Location, Layout, Product
Design, Work systems, Automation, etc.
• Operations & Control: Production Planning, Material
Supply, Inventory, Cost control, Quality control,
Maintenance System, Procedures, Standards etc.
• R&D or Design: Facilities, Product development, Patent
rights, Technology, Collaboration, etc.
Ulhas D Wadivkar 122
 Organisation Capability Profile (OCP): 2
• Financial Capability: is basically, availability, sourcing,
usage and management of Funds. It depends upon various
factors for example:
• Sources of funds:- Capital Structure, Capital procurement,
controllership, financing pattern, working capital availability,
borrowings, reserves & surpluses, relations with banks, audit
authorities.
• Usage of funds:- Capital Investment, Fixed asset
acquisition, Current assets, Loans & advances, Dividend
distributions, Relations with Share Holders.
• Management of funds:- Financial Accounting & Budgeting
Systems, Management control systems, State of Financial
health, Cash inflation, Credit & Risk management, Cost
reduction & Control, Tax planning.
• Organisational Strength & Weaknesses related to above
factors is a measure of Financial Capability.
Ulhas D Wadivkar 123
 Organisation Capability Profile (OCP): 3
• Marketing Capability: is basically, pricing, promotion,
penetration and distribution of Product or Service.
Marketing Capability Factors are: 4 ‘P’s of Marketing:
• Product: Quality, Variety, Product Mix, Differentiation,
Positioning, Packaging etc.
• Price: Pricing objectives & policies, Changes, Protection
etc.
• Place: Distribution, Transportation, Logistics, Marketing
Channels, marketing intermediaries etc.
• Promotion: Tools used for promotion, Sales Promotion,
Advertising, Public Relations etc.
• Systemic: Marketing Mix, Market Standings, Company
Image, marketing System, Marketing Management
Information System etc.
Ulhas D Wadivkar 124
 Organisation Capability Profile (OCP): 4
• Personnel Capability: is related to use of Human
resources & skills, aspects about ability to implement
strategies. Some of the Factors are:
• Personnel System: Manpower planning, selection,
development, compensation, communication, appraisal,
Position of Personnel Dept. in organisation, etc.
• Organisational Characteristics: Corporate Image & Image
as Employer, Quality of Managers, Staff & workers,
Working conditions, Developmental opportunities, etc.
• Industrial Relations: Union-Management Relations,
Collective bargaining, Safety, Welfare, Employee
satisfaction and moral, etc.
Ulhas D Wadivkar 125
 Organisation Capability Profile (OCP): 5
• Information Management Capability: relate to design
& management of flow of information for decision
making. Some factors are:
• Acquisition and retention of information: Sources,
Quantity, Quality, Timeliness, retention, security, etc.
• Processing of Information: Database Management,
Computer Systems, Software Capability, Ability to
synthesise.
• Transmission & Dissemination: Speed, Scope, Width,
depth of coverage,
• Integrative, Systemic, Supportive factors: IT
infrastructure, its relevance & compatibility to
organisational needs, Up-gradation, Computer
Professionals, Top management Support, etc

Ulhas D Wadivkar 126

 Organisation Capability Profile (OCP): 6
• General Management Capability: relates to integration,
co-ordination and direction of the functional capabilities.
Some factors are:
• General Management System: Strategic management
system, Strategy formulation, Strategy implementation
machinery, MIS, Corporate planning, Rewards,
Incentives, etc.
• General Managers: Orientation, Risk-propensity, values,
norms, competence, track records, etc.
• External Relationship: Influence & rapport with Govt.,
Financial institutions, social responsibilities,
• Organisational Climate: Organisational cultures, political
processes, balance of vested interests, Acceptance of
management of change, Organisational Structure &
Control, etc.
Ulhas D Wadivkar 127
 Organisation capability Profile (OCP) : 7
• The Organisation capability Profile (OCP) can be
prepared by systematically assessing the various
Functional areas and subjectively assign values to the
different functional capability factors and sub-factors
along a scale ranging from the values -5 to +5.
• Capability Factor Rating
• --------------- ------------------------------------------------
Factor Weakness Normal Strength
-5 0 +5
-----------------------------------------------------------------
• Sources of Funds -5-4-3-2-1-0+1+2+3+4+5 = +3
• After completion of charts for all the factors and sub-
factors mentioned above, Strategists can assess
Weaknesses and Strengths of the organisation in each
of the six functional areas.
Ulhas D Wadivkar 128
 Preparing the Strategic Advantage Profile (SAP):
• OCP capability Factor Rating chart becomes a base for SAP.

• Strategic Advantage or Disadvantages in each of the main

functional areas can be summarised and presented.

• A ‘SAP’ provides ‘a picture of the more critical areas, which

can have a relationship to the Strategic posture of the Firm’.

Capability Factor Strength & Weaknesses

• Finance: High cost of capital. -2
Reserves & Surplus position is
-3 unsatisfactory.
High Rate of Profit +4
Credit worthiness is favourable for
raising Loans +2
Low rate of Dividend -1
Ulhas D Wadivkar 129
Preparing the Strategic Advantage Profile (SAP)-2:
• Operations: Plant & Machinery is in excellent +4
Condition. Vendors are available. +2
Captive sources for raw material &
spare parts are available. +1
Excellent Technology +4
Poor Quality Control -3
• Marketing: Excellent Pre & Post Sales service +5
Complete understanding of Customer’s
changing preferences to Sales Rep. +3
Close Competition -2
• Human Resources: Capable & Competent Employees +5
Managers without HRM skills -2
Favourable compensation package +3
• General Management: Top Management with Progressive
ideas +4
Outdated Management Style -2
Ulhas D Wadivkar 130
 Syllabus
4. Analyzing Company’s External
Environment:
• Environmental appraisal –
• Scenario Planning –
• Preparing an Environmental Threat and
Opportunity Profile - (ETOP) –
• Industry Analysis – Porter’s Five Forces
Model of competition. (4)

Ulhas D Wadivkar 131

 Company and Environment
External Environment: PESTEL: Political,
Economical, Socio-Cultural, Technological,
Environmental, Legal,

Visions
Missions,
Objectives,
Goals,
Business-
Definition
Feedback
Corrective Strategy
Action Systems
Structures
Targets

Input Processes Outputs

Resources Planning Sales,
: 5 Ms Manufacturing Service,
Inspection Transport of goods
Packing Profits

Ulhas D Wadivkar 132

 Corporate Scenario Planning
• Corporate Scenarios are proforma balance sheets and
income statements that forecast the effect of alternative
strategy and its various programs will likely to have on
division and on corporate return on investment.
• Recommended scenarios are simply extension of the
Industry Scenarios developed earlier. This should be done
for every product and for every country.
• Develop common size financial statements for the
company’s or business unit’s previous years which are basis
for the trend analysis projections of proforma financial
statements.
• Construct detailed proforma financial statements for each
strategic alternatives.
• Compare the assumptions underlying the scenarios with
these financial statements and ratios to determine the
feasibility of the scenarios.
Ulhas D Wadivkar 133
 Scenario Box for use in Generating Financial Pro Forma Statements.
Factor Last Historical Trends 2 0 07 2 0 09 2 0 11 Comments
Year average
O P ML O P ML O P ML
GDP
CPI
SALES
FOREX
PLR
Expnsn
Div.
Profits
EPS
ROI
ROE
Others

Ulhas D Wadivkar 134

 Scenario Planning
• Scenarios are tools for strategists to express their views
about alternative future environment for which today’s
decisions are framed.
• Scenarios resemble a set of stories, built around carefully
constructed plots. The stories express multiple view points,
paradigms on complex events taking place in world.
Scenarios present alternative future images, instead of
extrapolating current trends.
• Creating scenarios requires decision makers to question
their broadest assumptions about the way the world works to
foresee a decision, which could have been missed or denied
• For an organisation, scenarios provide a common
vocabulary giving effective basis for communicating complex
conditions and options.
• By recognising the warning signals, the threats &
opportunities of future, one can avoid surprises, adapt and
act Deffectively.
Ulhas Wadivkar 135
 Implementation of Scenario Planning
• A cross function team is constituted for identifying and
monitoring issues. Employees are encouraged to participate
by offering some incentives.
Step – 1: Understand effects of external factor on the business.
These can be “Technology driven” (New Product, IT
integration), or “Political” (Deregulation, instability), or
“Economic” ( Sudden downturn, boom), “Competitive
positioning” ( moves of Competitors)
Step -2 :Classification of issues by the supportive record or
documents. Then determine the uncertainty and kind of
impact of these issues.
Step – 3 : Analysing and Problem Solving as per A, B, C & D
categories as per given figure.
Ulhas D Wadivkar 136
 High
A. Can be B. Keep a
Discarded close watch

Un-
Certainty
C. Can be used D. Are of Highest
for Long term Concern
Planning

Low

Low Impact
Ulhas D Wadivkar High 137
 Analysing Scenarios & Problem Solving
• D Category : High Impact and Low Uncertainty. Highest
priority issues, need to be addressed immediately and more
cautiously. All employees must first focus on these issues.
• B Category : High Risk issues, need to be observed closely
and monitored strictly because of high uncertainty involved.
• C Category : Low impact – Low uncertainty: These issues
can be used for Long term Planning.
• A Category : Because of High Uncertainty and Low impact to
the organisation is involved, these issues can be discarded
for time being.

The analysis and problem solution can be done by an

individual or by a team depending upon coverage and
importance. All ideas / analysis should then be submitted to
the cross functional strategic teams for further analysis and
strategy making.
Ulhas D Wadivkar 138
 “ETOP” – Environmental Threat
and Opportunity Profile

• Managers must be prepared to steer the Company to a

new direction or alter the Strategy as per the
Environment. The External environment appraisal leads
to the “Opportunities & Threats” and Internal
environment appraisal will lead to find out “Strengths &
Weaknesses” of the organisation. ETOP helps
organisation to face the weaknesses and capture the
Threats.

Ulhas D Wadivkar 139

“ETOP” – Environment Threat and Opportunity Profile”

Thinking strategically about a Thinking strategically about

Company’s External a Company’s Internal
environment Environment

Form a Strategic vision of where the Company need to head

Identify promising strategic options for the Company

Select the best Strategy & Business Model for the Company
Ulhas D Wadivkar 140
 Environment Survey : Purpose:
1. To learn about events and trends in the environment
and project the future of the environment.
2. To identify the favourable and unfavourable factors
in the environment from standpoint of the
firm.
3. To figure out the opportunities and threats hidden in
environmental events and trends.
4. To assess the scope of various opportunities and find
out the ones having potential of becoming promising
businesses and pursue them.
5. To draw up the opportunity-threat profile.
6. To formulate strategy in line with opportunities.
Ulhas D Wadivkar 141
 Scope of Survey - 1
• Macro- environmental factors
• Demographic Environment – Size of population, age
distribution, literacy levels, religious composition,
composition of workforce, household patterns, regional
characteristics, population shifts.
• Socio-cultural, Environment – Culture-language-
education, traditions, beliefs, values, lifestyle, social
class,
• Economic Environment – General Economic conditions
and conditions for the targeted population segment,
purchasing power, consumer spending pattern, rate of
growth of economy and the growth of economy of
targeted sector, rate of inflation, interest rates, tax rates,
price of materials and energy, labour scene – cost, skill,
availability.
• Political Environment –Regulating legislation, stability of
the government, media, social and religious
organisations, pressure groups-lobbies,
Ulhas D Wadivkar 142
 Scope of Survey - 2
• Natural Environment – ecology, climate, endowment of
natural resources, raw material, energy,
• Technology Environment – Technology options
available, their cost effectiveness, technology at
International level. Govt. approach in respect of
technology, technology selection.
• Legal- Business legislation – Corporate affairs,
Consumer protection, Employee protection, Corporate
protection, Regulation on products, controls on trade
practices, protecting national firms.
• Government Policies – Organisations have to
understand govt. policies while setting and operating
units, especially MNCs who operate in various countries.
For example, many MNCs prefer India over China due to
India’s legal environment.
Ulhas D Wadivkar 143
Environmental factors specific to the business
concerned -1
• The Market / Demand – Nature of Demand whether it
is seasonal, related to specific event, repetitive etc.,
Demand Potential, Current level of Demand, Changes
in demand, consumption pattern, buying habits,
invasion of substitute products,
• The Consumer - Consumer tastes and preferences
keep fluctuating and need to be monitored. A perpetual
analysis of customer analysis is required. Who is the
customer, what needs are served by product and what
needs are envisaged by customer is to be analysed.
Other factors are – Purchasing power, buying motive,
buying Habits, Attitudes, lifestyle, brand Awareness,
brand loyalty, nearest competitor, customer’s reaction
to upcoming new products.
Ulhas D Wadivkar 144
Environmental factors specific to the business
concerned -2
• The Industry & competition – Knowledge of Industry and
competition is a fundamental requirement in developing
strategy and industry analysis. The study of demand,
consumer, industry and competition is normally a on-
going activity.
• Government Policies – More important in regulated
economies but even in free economy, Govt. plays role as
large purchaser, offers subsidies, protect home
producers, ban fresh entry, ban products. Some time
Govt. itself is large supplier and regulates the market.
Govt. policies have a great effect on socio-economic
conditions.
• The Supplier related factors – Suppliers as a group have
their own bargaining power and can influence cost.
Scarcity of raw materials can affect output and
deliveries. Supplier becoming manufacturer is always a
threat. Monitoring supplier environment helps in making
aDdecision
Ulhas Wadivkar of integrating or outsourcing. 145
 Porter’s Five Forces Model,
Source: Porter, Michael E, - Competitive Strategies -1985

Potential
Entrants

Threat of new
Entrants

Industry
Suppliers Competitors Buyers
Rivalry among
existing firms
Bargaining Power of Bargaining Power
Suppliers of Buyers

Threat of substitute
products or suppliers

Substitutes
Ulhas D Wadivkar 146
 Forces Shaping Competition in an industry - 1
• According to Porter, a firm develops its business
strategies in order to obtain competitive advantage (i.e.,
increase profits) over its competitors. It does this by
responding to five primary forces:
1. Rivalry amongst existing firms and jockeying for
position - i.e. competition
2. Threat of new entrants
3. Bargaining power of buyers / customers
4. Threat form substitute products and
5. Bargaining power of suppliers
Ulhas D Wadivkar 147
 Forces Shaping Competition in an industry - 2
• These five factors shape competition and determine
Attractiveness / Profitability in an industry.
• Sizing up competition within factory is not enough; all
forces shaping competition and survival of industry must
be sized up. We should know which of these forces are
strong and how they work in its industry, how will they
affect the firm in particular and how to adjust one’s
position to defend or overcome or take advantage of
these forces.
• The company positions itself so as to be least vulnerable
to competitive forces while exploiting its unique advantage
(say - cost leadership). A company can also achieve
competitive advantage by altering the competitive forces.
Ulhas D Wadivkar 148
 Forces Shaping Competition in an industry - 3
• These five forces of competition influence the firm’s
strategy. The five competitive forces model provides a
solid base for developing business strategies that
generate strategic opportunities. In fact the strategy
should be formed in such a way to influence all these
forces in favour of the firm. Strategy should be formed to
build defence against these forces and finding a position
in industry where the influence of these forces is weakest.
• In his recent study, Porter (2001) reemphasized the
importance of analyzing the five competitive forces in
developing strategies for competitive advantage:
• Analyzing the forces illuminates an industry’s fundamental
attractiveness, exposes the underlying drivers of average
industry profitability, and provides insight into how
profitability
Ulhas D Wadivkar will evolve in the future. 149
 Rivalry amongst existing firms and jockeying
for position - i.e. competition
1. Industry members undertake more aggressive and more
frequent actions to boost their market standing &
performance. This makes rivalry stronger.
2. Rivalry is stronger in slow growing markets.
3. More nos. of competitors and competitors who are equal
in size and capability makes rivalry stronger.
4. Rivalry increases as products of rival competitor
becomes more standardised giving good reliability.
5. Rivalry increases as it becomes less costly for buyers to
switch the brand.
6. Rivalry increases as competitors play a price war and
other competitive weapons to boost their market share.
7. Rivalry is strong when nos. of competitors are less than
five.
Ulhas D Wadivkar 150
 8. Rivalry increases when strong companies outside
the industry acquire weak firm in the industry and
launch well-funded, aggressive moves to transform
the acquired company in to a major contender.
– Rivalry is weak in fast growing markets.
– Rivalry is weak when, there are so many rivals, that
impact of one’s action is thin on spread over span.
Typical weapons to combat rivalry are:
6. Lower Prices.
7. More or different features.
8. Better product performance with higher Quality.
9. Stronger Brand image & appeal.
10. Wider selection to customers to choose from
Models & styles.
11. Better & bigger dealer network.
12. Better Customer service capabilities.
Ulhas D Wadivkar 151
 2. Threat of new entrants
Entry threats are stronger when:
• Candidates have resources that make them a formidable
contender.
• Entry barriers are low.
• Newcomers can expect good returns.
• Buyer demand is growing rapidly.
• Industry is unwilling / unable to stop new entrants.

Entry Threats are weaker when:

• Entry candidates are small in nos.
• Entry barriers are high.
• Existing industry is itself struggling for profits.
• Industry outlook is uncertain and risky.
• Buyer demand is stagnant or slow.
• Existing industry members strongly contest and does not
allow
Ulhas new comer to settle.
D Wadivkar 152
 3. Bargaining power of buyers / customers
– When nos. of buyers is small and when a buyer is
particularly important to seller.
– When cost of switching brand is low to buyer.
– When buyer demand is low and sellers are many
– When buyers are well informed about product, prices &
costs.
– When buyer is capable of backward integrating and
making product by themselves.
– When buyers have discretion in whether & when to
purchase the product & when buyer is large and can
demand concessions.
Bargaining power of buyer is low when:
• Infrequent and small purchases.
• Buyers cost of switching to other brands is high.
• It is a seller’s market & Brand reputation is important to
Ulhas D Wadivkar 153
buyer.
 4. Threat form substitute products

• When substitutes are readily available & attractively

priced.
• When buyer view substitute products at par in terms of
quality, performance & other attributes.
• When costs are low to end users to switch to substitutes.

Ulhas D Wadivkar 154

 5. Bargaining power of suppliers
• Major suppliers can have sufficient bargaining power to
influence the terms & conditions in their favour.
• Item supplied is a commodity that is not readily available
from other suppliers in market.
• When few large suppliers are primary suppliers of a
particular item. (Suppliers can have a cartel)
• When it is costly or difficult for buyer to switch to new
brand or alternate items.
• When needed items are in short supply.
• When supplied item has a differentiation, which
enhances performance of final product.
• When certain supplier supplies item has possibilities of
cost savings to industry members on account of its
added quality feature or service.
• Bargaining Power of Supplier is weak when: backward
integration is possible, when buyer is a major customer,
when there are many suppliers available.
Ulhas D Wadivkar 155
 SWOT Analysis:
Identify Company Resource Strengths and Competitive
capabilities.

Identify Company Resource Weaknesses and Competitive

deficiencies.

Identify Company’s Market Opportunities.

Identify External Threats to the Company’s future well

being.
• Next step will be to draw conclusions concerning the
Company’s overall business situation.
• Rank all factors from exceptionally weak to exceptional
strong scale and find out business attractiveness.
• Identify attractive and non-attractive aspects of the
UlhasCompany’s
D Wadivkar situation. 156
 SWOT Analysis:

• Third step will be to plan actions to improve Company

Strategy.
• Use Company’s Strengths & Capabilities to overcome
weaknesses.
• Pursue those opportunities that are suitable to
Company’s Strengths and Competitiveness.
• Correct weaknesses that affect our abilities to take
advantage of market Opportunities.
• Use Company’s Strengths & Capabilities to lessen the
impacts of important external threats.

Ulhas D Wadivkar 157

 Factors to look for in SWOT analysis:
• Potential Resource Strengths & Capabilities
# A powerful Strategy. # Core competencies.
# Distinctive Competence. # A strongly differentiated
Product.
# Competencies & Capabilities matching with Key Success
Factors of Industry.
# A strong financial condition providing ample resources.
# Strong brand image # An attractive Customer base.
# Superior Technological skills / Product Quality/ Patents /
intellectual Capital / Innovation capabilities.
# Cost advantage. # Strong advertising & Promotion.
# Supply Chain Management Capabilities.
# Customer service capabilities.
# Wide geographical coverage / strong Global distribution
capabilities.
# Alliances / joint ventures / collaborations.
Ulhas D Wadivkar 158
Potential Resource Weaknesses & Competitive
Deficiencies.
• No clear Strategic Direction.
• Resources not matching KSFs
• Lack of Core & Distinctive competencies.
• Weak balance Sheet / heavy debt / low resources.
• Too narrow product line compared to rivals.
• Weak Brand image.
• Weaker dealer network.
• Low product Quality, lack of R&D and Technological
know-how.
• Lack of Management depth.
• Loosing market share because………
• Behind rivals in e-commerce capabilities.
• Internal operation problems / obsolete facilities.
• Underutilised Plant capacity.
Ulhas D Wadivkar 159
 Potential Market Opportunities
• Sharply rising buyer demand.
• Serving new market segments / new set of customers.
• Expanding to new geographic markets.
• Expanding product line & range of products to meet
market demand.
• Online sales, e-business.
• Forward or backward integration.
• Overcoming Trade barriers and capturing new foreign
markets.
• Acquire rival firms.
• Enter into alliances.
• Exploit new technologies.

Ulhas D Wadivkar 160

 Potential External Threats
• Increasing intensity of competition among rivals.
• Slowdown of market.
• Entry of new potent rivals.
• Loss of sales to substitute products.
• Growing bargaining power of Customers / Suppliers.
• A shift in buyer needs and tastes.
• Adverse demographic change curtailing demand.
• Restrictive trade policies on the part of foreign
Governments.
• Costly new regulatory requirements.
Ulhas D Wadivkar 161
 Strengths
Technological Skills
Internal Leading Brands
Factors Distribution Channels
Consumer Loyalty
Production Quality
Scale
Management
Opportunities
Changing customer tastes
External Geographical Liberalisation
Technological advances
Factors
Government Policies changes Government Policies changes
Lower personal Taxes
Population age structure
New Distribution Channels
Ulhas D Wadivkar
Positive
Weaknesses
Absence of important skills
Weak Brands
Peer access to distribution
Low Customer retention
Unreliable Product / Service
Sub-scale
Management
Threats
Changing customer tastes
Geographical Closures
Technological advances
Lower personal Taxes
Population age structure
New Distribution Channels
162
Negative
 Syllabus
• 5. Corporate Portfolio Analysis:
• Business Portfolio Analysis – Synergy and
Dysergy –
• BCG Matrix –
• GE 9 Cell Model –
• Concept of Stretch, Leverage and fit

(3)
Ulhas D Wadivkar 163
 Synergy v/s Dysergy -1
• The whole is greater or lesser than sum of its parts.
• 1 + 1 could be 2 or 11 or 111.
• This effect is known as Synergy.
• In any organisation, Resources, Strengths, Weaknesses,
behaviours do not exist independently but they act
together. If these strengths, and resources and
behaviour in the Organisation are directed properly, then
a Synergistic Effect could be seen. The Organisation
should cultivate “Win-Win” and open communication with
philosophy of “Seek to understand first and then to be
understood”.
• In such an atmosphere, two or more strong points add
up to something more than its arithmetic sum. This is
Synergy. Similarly, two or more weaknesses acting in
tandem can damage more than its arithmetic sum. This
is Dysergy.

Ulhas D Wadivkar 164

 Synergy v/s Dysergy -2
• In practice if functions like Product, Pricing, Distribution
and Promotion, work in harmony and support each other,
then, synergistic effect could be seen in Marketing.
Similarly, if Marketing and Production areas support
each other, then synergistic effect could be seen in
Operating Efficiency. Marketing inefficiencies could result
in reduction of operating efficiency as dysergistic effect.
• Synergistic Effects are results of quality and type of
internal environment existing within organisation. These
effects will only lead the organisations to develop
competencies and ward off external threats.

Ulhas D Wadivkar 165

 Business Portfolio Analysis
• Definition : Analyzing “Elements” of a firm's “Product
Mix” to determine the “ Optimum Allocation” of its
“Resources”. Two most “Common Measures” used
in a “Portfolio Analysis” are “Market Growth” and
“Relative Market Share”.
• “The strategic units that make up the company and the
attempts to evaluate current effectiveness and
vulnerabilities” (McDonald et al, 1992)
• “Business Portfolio Management” enable strategic
planners to select the optimal strategies for the individual
products whilst achieving overall corporate objectives”
(McNamee, 1985)
Ulhas D Wadivkar 166
• When a Business Portfolio comprises of Multi-business
Units and / or operating at multi-location, then the Strategist
often ask two questions to take a decision on Business
Strategy.
– How much of our time and money should we spend
on our best products to ensure that they continue to
be successful?
– How much of our time and money should we spend
developing new costly products, most of which could
never be successful?
• Examples of Portfolios:
• Unilever: ice cream, tea, spreads,
• Proctor & Gamble: Detergents, nappies,
• Gillette: batteries, Shaving products
• Virgin : trains, planes, cola, music stores, mobiles
• Wipro : Computers, Vanaspati, Veg. Oils, Soaps,
• Ulhas D Wadivkar ITC : Tobacco, Soaps, Biscuits 167
 Business Portfolio Analysis
• Portfolio Analysis is an analysis of the Corporation as a
portfolio of different businesses with the objective of
managing it for optimum return on its resources.
• Portfolio analysis looks at the corporate investments in
different products or industries under common corporate
jurisdiction. It involves, analysing future implications of
presents resource allocation and continuously deciding,
adding, curtailing or disposing, operations or products, so
that overall portfolio balance is maintained or improved.
• Portfolio analysis takes into considerations aspects such as
“ Companies Competitive Strength”, “Resource Allocation
Pattern” & “Industry Characteristics”.
• All businesses have to balance, three basic aspects of
running the business :
5. Net Cash Flow.
6. State of Development.
7. Ulhas D Wadivkar Risk. 168
Boston Consulting Group – BCG’s Growth – Share Matrix

Ulhas D Wadivkar 169

 BCG’s Growth – Share Matrix
• Different businesses which forms the Business Portfolio
can be characterised by two parameters:
• Company’s Relative Market share for the business,
representing the firm’s competitive position and
• The overall growth rate of the business.
• For each activity in the portfolio, a separate strategy must
be developed depending upon its position in 2 X 2 matrix.
• Higher Market share will mean, higher profits and higher
cash flows. Relative market share is defined as the market
share of the relevant business divided by the market share
of its largest competitor. i.e. A = 10%, B = 20% & C = 60%,
then, ‘A’s relative market share is 1/6 & ‘C’s share is 3.
• Higher Growth rate will mean profitable investment /
expansion opportunities and easier to increase market
share. Earned Cash can be ploughed back to enhance
ROI.
Ulhas D Wadivkar 170
 BCG’s Growth – Share Matrix - Methodology
• Step-by-step procedure to develop the business portfolio
matrix and identify appropriate strategies for different
businesses:
2. Classify various activities of the Company into different
business segments or SBUs. (Strategic Business Units)
3. For each business segment, determine the growth rate of
the market. Plot it on linear scale.
4. Compile assets employed for each business segment and
determine the relative size of the business within the
company.
5. Estimate the relative market shares for the different
business segments. This is done on logarithmic scale.
6. Plot the position of each business on a matrix of business
growth rate and relative market share.
Ulhas D Wadivkar 171
 BCG’s Growth – Share Matrix - illustration
Relative market Share
20
STARS QUESTION MARKS
18

16

14
Business
Growth
12
rate %
10
CASH COWS DOGS
8

2 2

10 X 4X 0.1 X
Ulhas D Wadivkar 1.5 X 1X 0.5 X 172
 Product Life Cycle

Ulhas D Wadivkar 173

 Strategies as per Product Life Cycle-1
• Expansion Strategy : Stars – are the businesses
which have high growth rate & high market share. At times
they are not self sufficient in cash flow, but need to be
supported in view of their potential. This is ‘Growth’ phase
of “Product Life Cycle” (PLC). Such businesses generate as
well as use large amount of cash. The Star generate high
profits and represent the best investment opportunities for
growth. We need to reaffirm the Company’s Competitive
Edge at this phase by sufficient doses of resources for
expansion. The best strategy regarding stars is to make
necessary investments and consolidate the company’s high
relative competitive position.
e.g. Tiles, Electronics & Communications, Pharmaceuticals,
areD Wadivkar
Ulhas “Star” industries. 174
 Strategies as per Product Life Cycle-2
• Hold Strategy - Cash Cows are the businesses with low
growth rate and high market share. High market share leads
to high generation of cash and profits. Cash Cow is a
business that generates cash flows over & above its internal
needs. Cows can be milked to provide a corporate parent
with funds for investing in star / Question Mark businesses,
financing new acquisitions or paying dividends.
Cash cows provide the financial base for the company.
A strong cash flow resulting out of relatively high market
share / low market growth rate ‘Cash Cow’ opportunities
should be able to maintain market share at or around existing
levels.
In this state of business, Corporate can adopt mainly Stability
Strategies. Expansions & investments can be thought only if
the long term prospects are exceptionally bright.
These are generally mature businesses reaping benefits of
experience and expertise. Funds generated are to be used
for “Question Mark” or “Star” businesses as “Cash Cow's are
destined to slow down. A phased retirement need to be 175
Ulhas D Wadivkar
planned.
 Strategies as per Product Life Cycle- 3
• Build Strategy – Question Mark : The Businesses
with high industry growth but low market share are
“Question Marks”. In the business. These ‘Question Mark’
opportunities need investment in order to grow and gain
market share.
Because of their high growth, the cash requirement is
high, but due to their low market share cash generation is
low.
These are sometimes known as “Problem Child” as
someone with huge potential, but not clicking. Here, a
large amount of Cash inflow is required to stabilise and
enter into “Star” phase. Companies must obtain early lead
to strengthen the business and capture growth
opportunities.
A question Mark business can either become a Star or
can go to Dogs depending upon funds & competitive
edge.
Ulhas D Wadivkar 176
 Strategies as per Product Life Cycle - 4
• The business is called Dogs, if business growth rate is low
and the company’s relative market share is also low.
• The lower market share means poor profits and as market
growth is low, any investment is prohibitive as cash
demanded will exceed the cash generation, causing negative
cash flow.
• Under such circumstances, the Strategic solution is to either
liquidate, or if possible harvest or divest the DOG business.
• Harvest Strategy : To develop short term cash flow
irrespective of the long term damaging effect to the product
or business. This strategy is appropriate for any weak
products where disposal in the form of a sale is unavailable
or not preferred due to high exit barriers
• Divest Strategy : To change the capital of the business and
allow resources to be used elsewhere of industries that have
a very slow or negative market growth rate and where a
company has low market share. These are products in late
maturity or declining stage as mostly substitute’s start taking
over these products. They stop generating large amount of
Cash and face a cost disadvantage owing to low market
share. Sometimes to reduce the high costs involved, a
Ulhas D Wadivkar 177
Retrenchment Strategy is also adopted.
 Cash Positions of Various Businesses

Business Cash Cash Net Cash Balance

Type Source Use
COW More Less Funds available, so milk and
deploy
STAR More More Build competitive position
and grow
DOG Less More Divest and re-deploy
proceeds.
QUESTION Less More Funds needed to invest
MARK selectively to improve
competitive position.
Ulhas D Wadivkar 178
 Limitation of BCG Matrix
• Predicting Profitability from Growth and Market Share:- BCG
assumes that profit depends on growth & market share. This may
not be 100% true. Industry attractiveness may be different from
simple growth rate and the firm’s competitive position may not be
reflected in its market share.
• Difficulty in determining Market Share:- BCG has heavy
dependence on market Share as indicator of its competitive
strength. The calculation of market share depends upon how we
decide, what is total market. Sometimes, we may have to consider
“niche’ market for analysis.
• No consideration for experience curve synergy :- In BCG each
quadrant is viewed independently. Low costs due to expertise of
employees can prolong Dog, star or cash cow stages.
• Disregard for Human aspect:- BCG does not recognise human
aspect of business. Cash generated in one business in one
business get associated with the power of concerned manager.
Cash Cow unit may be reluctant to part away with its cash to other
businesses in the house. Strategic options given by BCG may not
be easy
Ulhas to implement.
D Wadivkar 179
 General Electric’s ( or McKinsey) 9 point
Multifactor Portfolio Planning Matrix
• Different businesses in the organisation as SBUs can be
rated for purpose of strategic planning.
• Two parameters are considered based on internal
appraisal of all the SBUs done individually.
• 1. Industry Attractiveness: How attractive is the industry?
The attractiveness index depends upon business
strengths. It is a product of several factors like Industry
potential, the current size of industry, the rate of growth
of industry, structure and profitability of the industry. This
is generally highly profitable, productive arena, where
firm would like to deploy best of everything. Similarly
least attractive business is kept with little attention or is
for grabs i.e. for divestment.
• 2. Company business strength: Company business
strengths is a product of several factors like company’s
current market share, growth rate, differentiation
strength,
Ulhas D Wadivkar brand image, corporate image. 180
 GE’s 9 Point Model.
• The weighted factors for both these areas are plotted in
Company business Strength/Industry attractiveness
Company Business Strength
A
I t Strong Medium Weak
n t
d r High ********** **********
u a
s c
t t
Medium ********** ########
r i
y v Low ######## ########
e
n
e
Invest / Selectivity Harvest /
s Grow /Earnings Divest
Ulhas
s D Wadivkar 181
 General Electric’s Business Screen
I
n C
d Winners Winners
u A
Question
s High B
Marks
t
r D
y
A Winners
t E Average
t Businesses
F
r Medium
a Losers
c
ti
v H
e Losers
G
n
e Low
s Profit
Producers Losers
s

Strong Average Weak

Business Strength / Competitive position

Circle denotes
Ulhas the size of Industry , while blue colour portion corresponds to Market182
D Wadivkar
Share.
 General Electric’s Business Screen
• The vertical axis represents Industry Attractiveness. This
is weighted composite rating based on eight different
factors. These factors are:
2. Size of Market
10%
3. Rate of Growth of Sales & Cyclicality 10%
4. Industry Profit Margin.
40%
5. Competitive intensity including vulnerability to foreign
competition.
15%
6. Seasonality.
5%
7. Economics of Scale. 5%
8. Susceptibility to Technological obsolesce 5%
9. Entry conditions, Social, legal, environmental & human
impacts.
Ulhas10%
D Wadivkar 183
 General Electric’s Business Screen
• The horizontal axis represents business strength
competitive position. This is a weighted composite rating
based on eight factors. These factors are:
2. Relative market Share.
3. Relative cost position.
4. Profit margins relative to competitors.
5. Ability to compete on Price & Quality.
6. Knowledge of Customer & Market.
7. Competitive Strengths & Weaknesses.
8. Technological Capability
9. Calibre of Management.
• The two composite values for ‘Industry Attractiveness’ and
‘Business Strength’ are plotted for each business in a
Company’s Portfolio. The pie charts denote the proportional
size of the industry – white colour & blue segment represent
company
Ulhas D Wadivkar share. 184
 General Electric’s Business Screen
• The horizontal axis represents business strength competitive position.
This is a weighted composite rating based on seven factors. A typical
scoring of Company’s Competitive position
Factor Weightage Rating Score
(1 to 10)
Market Share and Capacity 20% 7 1.4

Growth Rate 10% 7 0.7

Location and Distribution 10% 5 0.5

Management Skill 15% 6 0.9

Work force Harmony 20% 7 1.4

Technical Excellence including Product 20% 8 1.6

and Process Engineering
Company Image 5% 8 0.4
Ulhas D Wadivkar 185
100% 6.9
 Corporate Strategy Implications – GE Nine Cells
• “Grow & Build” Strategy for upper left three cells as Industry
Attractiveness & Competitive Position are high. Top
investment priority to be given to businesses in these cells.
• The three diagonal cells from lower left to upper right gets
medium priority. Steady investments to protect and maintain
their industry position. i.e. Stability / Hold Strategy.
• The businesses in lower right corner do not receive any
investment decisions. Harvest or Divest Strategy may be
employed.
• Strengths: GE Nine Cell allows intermediate ranking between
high & low and between Strong and weak.
• It incorporates much wider variety of strategically relevant
variables, where as BCG Matrix is based on only two
considerations – Industry Growth & Relative Market Share.
Ulhas D Wadivkar 186
• Strengths: GE Nine cell stresses channelling Corporate
resources to businesses with greatest probability of achieving
competitive advantage and superior performance.
• Weaknesses: The nine cell matrix provides no real guidance
on the specific business strategy. The matrix suggests
general strategy like – Aggressive Expansion, Fortify and
Defend or Harvest – Divest. These strategies do not address
the issue of strategic coordination between businesses,
specific competitive approaches and Strategies to be adapted
at business level.
• Weakness: The GE Nine Cells method tend to obscure
business that are about to become winners because their
industries are entering the take off stage.
Ulhas D Wadivkar 187
 Gap Analysis
Desired
Performance

Gap

Performance

Achieved
Performance

Time -1 Time -2

Ulhas D Wadivkar 188

 Gap analysis -2
• Gap analysis is done for focussing on strategic
alternatives.
• On dimension of time various alternatives are evaluated
in different phases to get a clear picture for selection of
strategies.
• What is the result of the present strategy?
• What should be new strategy?
• What should be methodology of implementation?
• If the gap is narrow, policy is to stabilise the strategies.
• If the gap is due to consistent past bad performance;
which is also expected in future, then retrenchment /
withdrawal strategies may be more suitable.

Ulhas D Wadivkar 189

 Gap Analysis - 3
• First step is to identify alternatives. Companies find it
difficult to change their strategies because strategic
thinking is not the core competency of managers. Hence
lot of brain storming, situational analysis need to be
done.
• A correct definition of the problem is the Second step. A
hypothesis is developed after brain storming and
situation analysis. This hypothesis must be tested to
developing clear understanding of the forces that actually
work.
• Next step is to formulate the strategy and address the
driving forces in a “cause and effect” relationship. Find
the 80:20 Pareto Principle and attack the most important
one.
• Prioritise the strategies and a plan for the projects to
implement strategies on time scale is created for future
guidance and analysis.
Ulhas D Wadivkar 190
 From Fit to Stretch:
• Vertical Fit: If a Business house has a strategy to be “Cost
Effective Leader” in the business, then resources and
activities in all functional areas are to be focussed on
adopting low cost structures and reducing costs.
• When all functional areas like Marketing, Finance,
Operations, HRD, and Information Management etc.
contribute to this objective to create a low cost structure,
then it is a congruence of all functional strategies and
coordination between functions operating at different levels
in Organisation, toward a common Objective. Such
congruence is the “Vertical Fit”.
• Horizontal Fit: Along with Vertical Fit, a need is there to
have congruence and co-ordination amongst all the different
activities taking place at same level. This is “Horizontal Fit”.
Ulhas D Wadivkar 191
• Horizontal Fit is operational implementation. It is an
approach adopted by organisation to achieve operational
effectiveness. All functions operate optimally by
performing value creating activities. This is also a value
chain. To support value chain activities various staff
function departments are involved and put along
operations. For e.g. Procurement Department is placed
along with Operations department.
• Horizontal fit means integration of all operational activities
undertaken to provide a product or service to customer.
• Strategy & Structure for Generating Results in
Organizations : The traditional strategic planning seeks a
“fit” between resources and aspirations. You set realistic
goals based on what you think you can achieve with the
resources at hand and then construct strategies and
tactics to achieve them.
• “Fit” means positioning the firm by matching its resources
to its environments as per SWOT analysis. It could be a
compromise formula with regards to Firm’s objectives and
Competitive posture of the Company.
Ulhas D Wadivkar 192
 Strategy as Stretch and Leverage
• Hamel and Prahalad’s (1993) assertion that ‘competitiveness is
born in the gap between a company’s resources and its
managers’ goals’ has entered the mainstream of strategy
thinking. This is one of the concepts of Stretch. Hamel and
Prahalad began their deconstruction of conventional wisdom
by challenging common understandings of the meaning of
strategy.
• Hamel and Prahalad added duel concept of “Stretch” and
“Leverage” to Strategic Intent. Stretch is a gap between
resources and aspirations. “Stretch” is diametrically opposite to
“Fit”. Since “Fit” means positioning the firm to match its
resources to its environment.
• The concept of “Leverage” is concentrating, accumulating,
complementing, conserving and recovering resources in such a
manner that the meagre resources (Gap or Stretch) stretched
to meet the aspirations that organisation has envisaged.
• The idea of “Stretch” & “Leverage” belongs to “Learning School
of Strategy”. Capabilities are not seen as constraints to
achieving. Environment is not seen as given but something
which can be created and moulded.
Ulhas D Wadivkar 193
 Strategy as Stretch and Leverage
• Hamel and Prahalad considered that many managers
understood strategy to mean: "… fit,” or the relationship
between the company and its competitive environment; the
allocation of resources among competing investment
opportunities; and a long-term perspective in which ‘resource
money’ figures prominently. They stressed that ‘being
strategic’ implies a willingness to take the long view, and
‘strategic’ investments mean … betting bigger and betting
earlier.“
• This view obscures the merits of alternatives in which the
ideas of Stretch, Leverage, and Consistency of effort
feature. Creating stretch, "… a misfit between resources and
aspirations is the single most important task Senior Manager.
• Under “Fit”, Strategic intent would seem more realistic; under
“Stretch” & “Leverage” Strategic Intent is more idealistic. In
both cases it is essentially a desired aim to be achieved.
Ulhas D Wadivkar 194
 Porter on Strategy
• - "What is strategy? It is, he wrote "… the creation of a
unique and valuable position, involving a different set of
activities."
• But choosing a unique position is not enough to
guarantee a sustainable advantage. Sustainability
requires trade-offs with other possible positions - for
three reasons:
3. To eliminate or minimise inconsistencies.
4. To maximise and concentrate the benefits of a chosen
position.
5. To recognise and accept the limits of coordination and
control.
• The essence of strategy is choosing what not to do.
"Without trade-offs there would be no need for choice,
and thus no need for strategy."

Ulhas D Wadivkar 195

 Porter’s Three Types of Fit:
• Porter considers ‘Strategic Fit’, as the way various
components of a strategy interlink, or fit together. In this
context ‘Fit’ locks out imitators by creating a value chain
that is as strong as its strongest link, and is a more
potent, and central, strategic concept.
• Porter recognised three types of fit:
• Fit:- First order or simple consistency between activities
• Stretch:- Second order, or reinforcing activities
• Leverage:- Third order, or activities which optimise
organisational effort
• In all three, the whole is more than any individual part.
Competitive advantage grows out of the entire system of
tightly linked activities.
Ulhas D Wadivkar 196
• Thus defined, strategic fit is fundamental not only to
competitive advantage, but also to the sustainability of that
advantage, and the more an organisation’s positioning rests
on activity systems with second- and third-order fit, the more
sustainable its advantage will be. The definition of strategy
then becomes “Creating fit among a company’s
activities."
• The success of a strategy depends on doing many things
and integrating them.
• The strategic agenda is defining a unique position, making
clear trade-offs, and tightening fit. The strategic agenda
demands discipline and continuity.
Ulhas D Wadivkar 197
• For challenges of this sort to be effective, top
management has to:
• A) Create a sense of urgency.
• B) Develop a competitor focus at every level through
widespread use of competitor intelligence.
• C) Provide employees with the skills they need to work
effectively.
• D) Give the organisation time to digest one challenge
before launching another.
• E) Establish clear milestones and review mechanisms.

Ulhas D Wadivkar 198

• --------------------------------------------------------
-
• Syllabus
6. Generic Competitive Strategies:
• Low cost,
• Differentiation,
• Focus (3)
• --------------------------------------------------------
- D Wadivkar
Ulhas 199
 Competitive Strategy
• Competitive Strategy is about being different. It means
deliberately choosing to perform activities differently or to
perform different activities than rivals to deliver unique mix
of value – Michael F Porter.
• Competitive Strategy is about analysing and then
experimenting, trying, learning, and experimenting some
more. – Ian C. McMillan & Rita Gunther Mcgrath.
• The essence of Competitive Strategy lies in creating
tomorrow’s competitive advantages faster than the
competitors mimic the one you posses today. – Gary
Hammel & C K Prahalad.
• A Competitive Strategy concerns the specifics of
management game plan for competing successfully and
achieving a competitive edge over rivals.
Ulhas D Wadivkar 200
 Generic Competitive Strategies
– A low-cost provider Strategy : Appealing to a broad spectrum
of customers by being the overall Low Cost Provider of a
Product or Service.
– A broad-differentiation strategy : Seeking to differentiate the
company’s Product/service by offering different from Rivals to
broad spectrum of Customers.
– A best-cost provider strategy : Giving customers more value
for money by incorporating good to excellent product attributes
at lower cost than rivals.
– A focussed or market niche strategy based on Lower Cost :
Concentrating on Narrow buyer segment and out competing
rivals by offering at lowest cost than rivals
– A focussed or market niche strategy based on differentiation :
Concentrating on Narrow buyer segment and out competing
rivals by offering customised attributes to niche member at
lowest cost than rivals
– The basis of competitive strategy lies in Low-cost or
Differentiation and finding out our own focus on market niche.
Ulhas D Wadivkar 201
 Revamp Value Chain
– A Low-cost advantage can be achieved by re-vamping
the “Value Chain” activities and controlling all factors
that drive the costs. Re–vamping of “Value Chain” is
aimed at increasing efficiencies to out-manage rivals
on costs. Re-vamping of value Chain is also done by
examining the elements of value chain eliminating or
bypassing the activities which are adding costs but not
value to the product. (Waste elimination)
– Re-vamping the value Chain:
3. Use of internet Technology applications.
4. Approaching direct to end user in Sales & Marketing.
5. Purchasing directly from manufacturer.
6. Simplifying product design.
7. Using simpler, less capital intensive, flexible
technologies. Using CADs.
8. Substituting high cost/imported raw materials with
indigenous ones (Value Engineering)
9.D Wadivkar
Ulhas Relocation of facilities. 8. Dropping the dead weight.202
 The value chain
• The value chain is a systematic approach to examining
the development of competitive advantage. It was
created by M. E. Porter in his book, Competitive
Advantage (1980). The chain consists of a series of
activities that create and build value. They culminate in
the total value delivered by an organisation. The 'margin'
depicted in the diagram is the same as added value. The
organisation is split into 'primary activities' and 'support
activities.'

Ulhas D Wadivkar 203

Ulhas D Wadivkar 204
 Primary Activities.
• Inbound Logistics: Here goods are received from a
company's suppliers. They are stored until they are needed on
the production/assembly line. Goods are moved around the
organisation.
• Operations: This is where goods are manufactured or
assembled. Individual operations could include room service in
a hotel, packing of books/videos/games by an online retailer, or
the final tune for a new car's engine.
• Outbound Logistics: The goods are now finished, and they
need to be sent along the supply chain to wholesalers, retailers
or the final consumer.
• Marketing and Sales: In true customer orientated fashion, at
this stage the organisation prepares the offering to meet the
needs of targeted customers. This area focuses strongly upon
marketing communications and the promotions mix.
• Service: This includes all areas of service such as installation,
after-sales service, complaints handling, training and so on.
Ulhas D Wadivkar 205
 Support Activities -1.
• Procurement: This function is responsible for all
purchasing of goods, services and materials. The aim is
to secure the lowest possible price for purchases of the
highest possible quality. They will be responsible for
outsourcing (components or operations that would
normally be done in-house are done by other
organisations), and e-Purchasing (using IT and web-
based technologies to achieve procurement aims).
• Technology Development: Technology is an important
source of competitive advantage. Companies need to
innovate to reduce costs and to protect and sustain
competitive advantage. This could include production
technology, Internet marketing activities, lean
manufacturing, Customer Relationship Management
(CRM), and many other technological developments.
Ulhas D Wadivkar 206
 Support Activities -2.
Human Resource Management (HRM).
• Employees are an expensive and vital resource.
An organisation would manage recruitment and
selection, training and development, and
rewards and remuneration. The mission and
objectives of the organisation would be driving
force behind the HRM strategy.
Firm Infrastructure.
• This activity includes and is driven by corporate
or strategic planning. It includes the
Management Information System (MIS), and
other mechanisms for planning and control such
as the accounting department.
Ulhas D Wadivkar 207
 Five Generic Competitive Strategies
Type of Competitive Advantage Desired
Lower Cost Differentiation

M A Broad Overall Low Broad

a Cross
r Section Cost Provider Differentiation
k of Buyers Strategy Strategy
e
t Best
Cost
S
h
Provider
a A narrow
Strategy
r Buyer Focussed Low Focussed
e segment Differentiation
Cost Strategy
for Strategy
Market
Niche
Ulhas D Wadivkar 208
 Drivers for Low-Cost Strategy -1
Low-Cost Strategy makers generally attend to following
cost drivers:
• Economies or diseconomies of scale: - Larger
volumes can reduce the costs as fixed costs get
spread over large volume. At the same time larger
volume means larger inventories and higher inventory
carrying costs. Manufacturing economies can be
achieved by simplifying product line, longer production
runs, reducing varieties of models, standardising
designs and using common parts, use of modular
designs etc.
• Learning Curve effects: A new product, new plant is
full of innumerable problems. Faster we de-bug,
master the technology, improve plant layout & work
flow, improve design, will bring economies of learning
curve. Aggressively managed companies who capture
benefits of learning are the one who can offer low
costs.
Ulhas D Wadivkar 209
 Drivers for Low-Cost Strategy -2
• Cost of key resource inputs: use of innovative
incentive schemes for unionised labour, use of non –
unionised labours, out sourcing, large scale purchasing
with effective use of bargaining power, variables due to
locations, Effective “Supply chain Management”
• Use of industry value Chain by linking other activities
for other products in the company. Also warranty
claims can be linked with suppliers, there by diverting
the warranty costs, sharing opportunities with other
businesses in the organisations.
• Using vertical integration v/s outsourcing:
backward or forward integration can reduce the
reliance on outsourcing and can reduce the costs.
• Capacity utilisation has direct relation on spread of
fixed costs in the product cost. Low cost leader has to
find ways to operate at close to full capacity year
round.
Ulhas D Wadivkar 210
 Drivers for Low-Cost Strategy -3

g) Strategic Choices & Operating decisions such

as:
• Adding / Cutting services offered to Buyers.
• Incorporating more / fewer performance & quality
features into product.
• Increasing / decreasing distribution channels.
• Lengthening / Shortening delivery times to customers.
• Putting more emphasis on wages, incentives & fringe
benefits to motivate employees.
• Rising / Lowering the specifications for purchased
materials.
•Ulhas DExample : Wall Mart.- The Low Cost Leader :
Wadivkar 211
 Factors for Low Cost Strategy
• Price competition is very high.
• Products are identical and are easily available.
• Product differentiation is low & cannot be achieved.
• Most buyers use the product in the same way.
• Cost of switching brand is low for customer.
• Buyers are large and have power to bargain.
• Newcomers can come with low price and attract
buyers.

However, a Low Cost provider must always contain

enough attributes to be attractive to prospective buyers.
Low price by itself, is not appealing to buyers.

Ulhas D Wadivkar 212

Aspects of industry for Differentiation Strategy-1
• The essence of broad differentiation strategy is to be
unique in ways that are valuable to a wide range of
customers. and at the same it should be noted that
• Easy to copy differentiators cannot provide sustainable
competitive advantages. As a rule,
• Differentiation yields a longer lasting effect and more
profitable competitive edge, when it is based on:
4. Product innovation by R&D, 2. Technical superiority,
3. Product quality with superior manufacturing abilities.
4. Reliability. 5. Comprehensive customer service,
6. Unique competitive capability
7. Superior supply-chain activities.
8. Maintaining the cost of differentiation in line.
Ulhas D Wadivkar 213
Aspects of industry for Differentiation Strategy-2
Such differentiation should result into:
• Perceived & actual delivered value for customers
• Command a premium price for its products
• Increase unit sales & Gain buyer Brand loyalty
Approaches for achieving Cost Differentiation
6. Incorporate product attributes & user Features that
lowers the buyers overall costs of using the company’s
product.
7. Incorporate features that raise product performance like
quality, reliability, durability etc.
8. Incorporate features that enhance buyer satisfaction in
non-economic or intangible ways.
9. To deliver value to customers via competitive
capabilities that rivals do not have or cannot afford to
match.
Ulhas D Wadivkar 214
 Factors of Differentiation Strategy
• The Product can be differentiated in many ways and buyers
perceive these differences as having value.
• Buyers needs and uses are diverse.
• There is less head to head competition. Few rival firms are
following differentiation approach.
• Technological change is fast paced and competition revolves
around evolving product features.
• Any differentiation that works well gets imitated and there is
need for constant up gradation.
• Differentiating something that does not lower buyer’s cost or
improves perceived value is a mistake.
• Over differentiating increasing service needs or usage
constraints is a mistake.
• Trying to charge a too high a premium price.
• Being timid & not striving to open up about competitors defect
and
Ulhas Ddifferentiating
Wadivkar that is not visible to buyers is a pitfall. 215
 Best Cost Provider Strategies
• Best Cost Provider Strategies are for giving customer
‘more value for money'.
• It is middle path between pursuing a low cost advantage
and differentiation strategy.
• Best Cost Provider Strategies are ‘hybrid’ Strategies
balancing emphasis on Low Cost & Differentiation.
• Target market is Price & Value conscious buyer, with
diversity of products, where differentiation is a norm.
• To be successful, Best Cost Strategy must offer, buyers
significantly better product attributes, so that they can
justify higher price above Low – Cost leaders and with
sufficient differentiation can win over high-end
Differentiation Leaders.
Ulhas D Wadivkar 216
 Focussed or Market Niche Strategies
Focussed Strategies have concentrated attention on a
narrow piece of the total Market. Target market segment is
called as ‘niche’. e.g. Rolls Royce- a status symbol,
Porsche for sports cars, e-Bay for e-auctions.
Focussed Low Cost Strategy:
• Serving buyers in the target market niche at lower cost &
lower price than rivals.
• Producing ‘Private-Label’ imitating Brand name
merchandise & selling directly to retail chains.
Focussed Differentiation Strategy:
• Serving a buyer segment that is looking for special product
attributes or seller capabilities.
• By offering niche members a product perceive as well
suited for their own unique tastes & preferences and be at
top of Market pyramid due to their strength of
differentiation.
• e.g. Gucci, Rolls Royce, Armani, Rolex, Reliance Fresh,
Kesari
Ulhas Tours
D Wadivkar 217
 Low Cost Provider
Strategic Target A broad cross section of the market

Basis of competitive Lower overall costs than

advantage competitors.
Product Line A good basic product with
acceptable quality & few frills.
Production emphasis Continuous cost reduction without
sacrificing attributes
Marketing emphasis Make virtue of product features with
low cost
Keys to sustain Economical prices, good value, low
strategy cost year after year.
Ulhas D Wadivkar 218
 Broad Differentiation
Strategic Target A broad cross section of the market

Basis of competitive Ability to offer something attractively

advantage different.
Product Line Many Product, wide selection, with
differentiating features.
Production emphasis Production superiority with
differentiating features buyers are
willing to pay
Marketing emphasis Advertise features, charge a
premium for differentiation
Keys to sustain Constant innovation to stay ahead,
strategy
Ulhas D Wadivkar
Few key differentiators. 219
 Best Cost Provider
Strategic Target Value oriented buyers

Basis of competitive More value for money

advantage
Product Line Items with appealing & assorted
upscale attributes.
Production emphasis Items with appealing & assorted
upscale attributes with lower costs
Marketing emphasis Advertise best value, comparable
features with lower value.
Keys to sustain Unique expertise in managing costs
strategy while offering upscale features &
Ulhas D Wadivkar
attributes. 220
 Focussed Low Cost Provider
Strategic Target Narrow market niche satisfying
distinctively different buyers needs &
preferences.
Basis of competitive Lower overall costs than competitors
advantage in niche market.
Product Line A product tailored to tastes &
requirements of niche market.
Production emphasis Continuous cost reduction without
sacrificing attributes
Marketing emphasis Communicate budget priced product
features that fits niche market
requirements.
Keys to sustain Stay committed to serving niche at
strategy lowest over all cost . Do not loose
Ulhas D Wadivkar 221
focus by entering other markets..
 Focussed Differentiation Provider
Strategic Target Narrow market niche satisfying
distinctively different buyers needs &
preferences.
Basis of competitive Attributes that appeal specifically to
advantage niche members.
Product Line A product tailored to tastes &
requirements of niche market.
Production emphasis Custom made products that match the
tastes & requirements of niche market.

Marketing emphasis Communicate how product features

does the best of meeting niche
market requirements.
Keys to sustain Stay committed to serving niche market at
strategy better differentiation. Do not loose focus by
entering other markets Economical prices,
Ulhas D Wadivkar good value, low cost year after year. 222
 7. Syllabus
-----------------------------------------------------------------
7. Grand Strategies:
• Stability, Growth, (Diversification Strategies, Vertical
Integration Strategies,
• Mergers, Acquisition & Takeover Strategies, Strategic
Alliances & Collaborative Partnerships),
• Retrenchment, Outsourcing Strategies. (8)
-----------------------------------------------------------------

Ulhas D Wadivkar 223

 Strategic Option Menu

Overall Broad Best Cost Focussed Focussed

Low Cost Differentiation Provider Low Cost Differentiation
Provider Provider

STABILITY EXPANSION / GOWTH RETRENCHMENT COMBINITION

Complimentary Strategic options: 1. Strategic Alliances &

Collaborative Partnerships ? 2. Merge with or acquire other companies?
3. Integrate backward or Foreword? 4. Outsourcing? 5. Initiate offensive
Strategies? 6. Defensive Strategic moves? 7. Using Internet as
Distribution Channel, if so, to what extent?

Functional Strategies to support above Strategic Choices: 1. R &

D, Engineering. 2. Production. 3. Marketing & Sales. 4. Human
Resources. 5. Finance

Timing the Company’s Strategic move in marketplace: a) First Mover,

b) Fast
Ulhas Mover? And/or c) Late Mover.
D Wadivkar 224
 Grand Strategies
• Having settled on one of the Competitive Generic
Strategy, we now need to decide on other Strategic
Actions to complement on the choice basic Competitive
Strategy chosen.
• Grand Strategies are Corporate Level Strategies,
Setting a choice of Direction that a firm should adopt. It
could be a small entrepreneur firm with single location
and single business or a corporate conglomerate with
multi-location, diversified several different businesses.
The Corporate Strategy in both cases is about setting
the basic direction of the firm as a whole.
• Corporate Strategies are basic decisions about allocating
& transferring resources among different businesses and
managing & nurturing portfolios to achieve overall
corporate objectives.

Ulhas D Wadivkar 225

 Business Dimensions
• Any Business is defined along three dimensions and
combinations thereof. These three dimensions are:
– Customer Group
– Customer Functions and
– Alternative Technologies.
• As the organisations becomes large & diversified, the
business definition also becomes complex. According to
Glueck, there are four Grand Strategies, which are used as
alternatives and in a combined way. These Strategies are:
• Stability Strategies.
• Expansion Strategies.
• Retrenchment Strategies.
• Combination Strategies.
• These Strategies are pure and depending upon various
dimensions of the businesses, many mixed “strategies’ do
takeD Wadivkar
Ulhas place. Glueck has described four dimensions, such as:
226
 Business Dimensions 1 & 2
• Internal / External Dimensions:
b) When the Organisation is an independent entity, it is
operating under Internal Dimensions
and
d) When the Organisation adopts a strategy in association
with another entity, it operates under External Dimension.

2. Related / unrelated Dimensions:

g) When organisation adopts a Strategy related to its existing
Business Definition, the Related Dimension operates and
h) When organisation adopts a Strategy that is un-related to
its existing business either in terms of Customer Groups,
Customer functions or alternative Technology; the
unrelated dimension operates.
Ulhas D Wadivkar 227
 Business Dimensions 3 & 4
3. Horizontal / Vertical Dimensions:
b) The horizontal dimensions operates when an organisation
adopts a strategy which results in serving additional
customer groups and/or satisfying other customer functions
in such a way that they compliment the existing business
definition of one or more of its business.
c) The vertical dimension operates when an organisation
adopts a strategy which results in the expansion or
contraction of the existing business definition of one or
more businesses in terms of the utilisation of alternative
technologies.
4. Active / Passive Dimensions:
e) The active dimension operates when an organisation
adopts an offensive strategy in anticipation of
environmental threats and opportunities.
f) The passive dimension operates when an organisation
adopts a defensive strategy as a reaction to environmental
threats and opportunities.
Ulhas D Wadivkar 228
 Thus combination of Four Grand Strategies, four
Dimensions and two types in each dimension give rise
to 32 possible mixed Strategies and if we consider three
dimensions of Business Definition, these possibilities
should be 32 x 3 = 96 and if we consider weight-ages
for each factor the Strategic alternatives could be mind
boggling. However, all alternatives are not feasible or
possible and we narrow down the choice of few major
strategic alternatives.

Ulhas D Wadivkar 229

 1. Stability Strategies:
1.a) No-Change Policy: It is a conscious decision of not
doing anything new and continue with present business
definition. When environment is stable and predictable with
no new significant threats & opportunities in the
environment, it may not be worthwhile to alter strategy in
present situation. Also no new strengths have been
generated and no new weaknesses have been developed.
No new threat of substitutes and new entrants. However,
this should be a conscious decision and should not arise
out of in-activity and owing to inertia. It is dangerous to be
complacent.
1.b) Profit Strategy: No change policy cannot sustain for
long and situations keep changing. However if company
believes that the changes like economic recession, govt.
rules, industry downturn, competitive pressures are
Ulhas D Wadivkar 230
temporary and will turn favourable after some time,
 then firm opts for maintain profit policy by artificial
measures like cut costs, hold investments /
replacements, raise prices, increase productivity and
some such measures to tide over the difficult days.
However, if the problems are not temporary, the
company position deteriorates.

Pause / Proceed – with – caution Strategy is a temporary

strategy like profit strategy and is used for consolidation.
It is used to test the ground before going ahead with full-
fledged Grand Strategy. Sometimes after a major
expansion firms need to stabilise, allow strategic change
to percolate through organisation structure and allowing
existing systems to adopt the strategy and the move for
further expansions. It is also used to bide the time for
more opportune time and move on with rapid strides
again.
Ulhas D Wadivkar 231
 2. Expansion Strategies
1. If organisation is not moving ahead, it is actually going
backwards.
Companies aim for substantial growth to take
advantage of Growing economy, liberalisation,
burgeoning markets, globalisation, Emerging
technologies etc.

2. Expansion Strategies are of 5 types.

– 2.a) Expansion through Concentration:
– 2.b) Expansion through Integration:
– 2.c) Expansion through Diversification:
– 2.d) Expansion through Co-operation:
– 2.e) Expansion through Internationalisation:
Ulhas D Wadivkar 232
• 2.a) Expansion through Concentration: Firms tend to
rely on doing what they know they are best at doing.
Concentration Strategy involves investment of resources
in a product line for an identified market. The firm has
proven technology, market has high potential for growth
and industry is sufficiently attractive for concentration to
take place. The firm should also have financial strength to
sustain expansion. This is a first preference strategy of
firm doing what they are doing already and would like to
invest more in known business. (Bajaj, Maruti)

• Concentration strategy involves minimal organisation

changes, improves competitive advantage due to in depth
knowledge & expertise.
Ulhas D Wadivkar 233
• The limitations of Concentration Strategies are putting all
resources at one project, it is industry dependent and
adverse condition in industry can affect. In the Recession
time, it is too difficult for concentrated firms to withdraw.
Product obsolescence is another threat for the heavy
investment.
• 2.b)Expansion through Integration: When firms use their
existing base to expand in the direction of their raw material
or the ultimate consumer or acquire adjacent businesses;
expansion through Integration takes place. This is exploring
Vertical and Horizontal dimensions of Business. Expansions
are pivoted around present base of customers. Scope of
business definition is widened. Alternative technologies are
used for backward or forward integration. The firm moves up
or down the value chain. The firm aims at cost economics. It
is also one type of ‘Make or Buy’ decision. All integration
strategies require Trade-offs. There are two types of
Integrations.
Ulhas D Wadivkar 234
• Vertical Integration: When an organisation start making new
products that serve its own need or is for self consumption.
• Backward Integration means retreating to source of raw
materials while Forward integration moves the organisation to
its ultimate customers.
• Horizontal Integration: When an organisation takes up the
same type of products at the same level for production or for
marketing. Many a times Horizontal Integration is a merger of
like industries.
• Integration strategy gives more control on Value chain but
carry a risk as industry is set to serve same customer group
and in case product fails or becomes obsolete.
• 2.c) Expansion through Diversification: Several firms
diversify to reduce the risk of dependence on product and
same set of customers. Diversification involves all
dimensions of Strategic Alternatives. It could be internal or
external, related or unrelated, horizontal or vertical,
technological
Ulhas D Wadivkar etc. It changes business definition. 235
• Concentric Diversification: The activity is related to existing
business definition either in businesses, customer groups &
functions and /or alternative technology. It could be market
related concentric diversification as different products for
same set of customers or Technology related Diversification
as related technology to the present business or combination
of Market & Technology related diversification.
• Conglomerate diversification: Diversification in activities
which are totally unrelated to existing business definition of
one or more of its businesses. (ITC – Tobacco & Hotel,
Essar – Shipping & Steel, Shriram – Nylon Fibre & Ball
bearings, etc.)
Ulhas D Wadivkar 236
2.d) Expansion through Co-operation:
1. Mergers Strategy
2. Takeovers or Acquisitions Strategy.
3. Joint Ventures Strategy.
4. Strategic Alliances Strategy

2.e) Expansion through Internationalisation:

1. International Strategy.
2. Multi-domestic Strategy.
3. Global Strategy.
4. Trans-national Strategy.

Ulhas D Wadivkar 237

 3. Retrenchment Strategies.
• Retrenchment Strategy is followed when an organisation
substantially reduces scope of its activities. The
organisation need to find out problem areas and
diagnose the causes of the Problems, accordingly,
various types of Retrenchment Strategies are adopted.
• External Developments, Government Policies, Substitute
Products, Changing Customer needs, Wrong Strategies,
Obsolete Products, could be reasons for decline.
• Symptoms are noticed in poor performance, declining
profits, dwindling Cash flow, falling sales, Shrinking
markets, Shrinking market share, increasing debt.
• The organisation with proper monitoring controls can
sense impending danger and position itself to find
alternatives.
Ulhas D Wadivkar 238
 Retrenchment Strategy Situations for Recovery
• Slatter has described four types of Retrenchment Strategy
situations for recovery
Realistically non recoverable situation with little chance of
Survival :
Not competitive company, Low potential for Improvement,
Company with cost dis-advantage, Products or Services are in
terminal decline..
Temporary recovery situation but no sustained turn-around:
Possible product re-positioning, new forms of Competitive
advantage, cost reduction, revenue generation is possible.
Sustained survival situation but no potential for future growth:
Turnaround is possible but Industry is in slow decline, which
cannot be revived. Therefore, a very little potential for growth is
possible. Divestment is possible or Turn-around is possible by
finding ‘niche’ market, where organisation can be a leader.
Sustained recovery situation with genuine possibility of Turn-
around:
A possible new developed product, Possible market development
or a possible market re-positioning. Industry has attractiveness is
still available and decline was caused more by internal factors.239
Ulhas D Wadivkar
3.a) Retrenchment Strategies: Turnaround Strategies:
• 3.a.1.: If CEO has credibility with Banks and Financial
Institutions and if a qualified Consultant is available, then
management team handles the entire turn-around
strategy with support of advisory specialist external
consultant.
• 3.a.2: In another situation, Turnaround specialist is
employed to do the job and existing team is temporarily
withdrawn. The person could be deputed by banks.
• 3.a.3: Replacement of existing team, especially CEO and
/ or merging sick unit with a healthy one.
• Possible actions could be: Analysis of Product, market,
production processes, competition, market segment
positioning, production logic, Target setting, feedback,
remedial actions.
Ulhas D Wadivkar 240
 3.b) Retrenchment Strategies : Divestment Strategies:

• 3.b.1: Divestment is done due to negative cash flows,

mismatch of business with the company, project feared
to be non-viable in long range, severe competition,
Technological up-gradation asking for funds which are
not available, Selling a part of company for survival of
organisation, a better alternative is available for
investment, Divestment as a part of merger plan of
mutual exchange,
• Divestment is done in two ways : A part of company is
divested or firm may sell a unit outright to a buyer, who
finds the purchase as a strategic fit.
Ulhas D Wadivkar 241
 3.c) Retrenchment Strategies : Liquidation Strategies:

• This is most un-attractive strategy, where company

shuts down and tries to sell its assets. It is a last
resort. Liquidation is difficult due to various legal
constraints and protection given to employees in
labour law.
• Liquidation may be inevitable in spite of best efforts of
the entrepreneur. In case of Textile Mills of Mumbai,
writing was on wall as Mills did not invest in to new
technology for more than 50 years. Secondly, it could
be a planned liquidation, in view of prices of real
estate in Mumbai. The neglect may have been
deliberate. Some times liquidation can happen
through court order for compulsory winding up and
sometimes winding up can be voluntary.
Ulhas D Wadivkar 242
 Combination Strategies
• Combination Strategies are mixture of Stability,
Expansion and Retrenchment strategies. They are either
followed simultaneously or in a sequential way. It is very
difficult in the business environment to follow a single
pure Strategy. Situation is Complex and business
demands different strategies to suit the situational
demands made upon the organisation.

• As an example, we observe “Asian Paints Ltd” company

following three strategies together. Addition of new
variety of ‘Decorative paint’ for widening customer base,
(Stability), and Adding an entirely new product like
‘Automotive Paint’ with new set of customers & functions
(Expansion), while eliminating or closing the contract
division, which used to take Painting Contracts
(Retrenchment).
Ulhas D Wadivkar 243
 Complimentary Strategic options:
• 1. Strategic Alliances & Collaborative Partnerships?
• 2. Merge with or acquire other companies?
• 3. Integrate backward or Foreword?
• 4. Outsourcing?
• 5. Initiate offensive Strategies?
• 6. Defensive Strategic moves?
• 7. Using Internet as Distribution Channel, if so, to what
extent?

Timing Tactics the Company’s Strategic move in

marketplace:
• a) First Mover,
• b) Fast Mover? And/or
• c) Late Mover.

Ulhas D Wadivkar 244

Timing Tactics the Company’s Strategic move in marketplace:
• A Tactic is a sub Strategy. A specific operating plan how & when a
Strategy to be implemented.
• “When” is often as important as “what”.
• 1st mover has advantage of taking inroads and establishing in
market as leader– being remembered (Bisleri), creating image as
pioneer.
• Can capture raw material suppliers, distribution channels.
• First time consumers are likely to remain loyal.
• Disadvantage: could be costlier to be first. Apart from cost of
technique, creating awareness in consumers is also costly.
• Late mover can come up with superior product by imitating & has
fewer risks as market is already developed. They can be successful
if they have staying power.
• First mover risks obsolescence due to technological advancements,
smart late mover can turn apple cart & beat first mover. Sometime
fence sitter moves in by fine tuning on mistakes of first mover. 245
Ulhas D Wadivkar
 1. Strategic Alliances & Collaborative Partnerships?
• In the present era of Privatisation & Globalisation,
Industries have to face altogether different challenges not
faced hitherto. Rapid advances in technology, free
economy, new markets in developed & under developed
countries, and invasion of foreign companies are forcing
Industries to enter into race of building Global presence
and into race of adopting new technologies.
• Industries also find that they do not have expertise for
running the race of Global leadership. The global
environment requires diverse & expensive skills,
resources, technological skills. The fastest & surest way
to fill up the gap is Alliances with enterprises having
desired strengths.
• Strategic Alliances are collaborative partnerships where
two or more companies join forces to achieve mutually
beneficial strategic outcomes. These alliances are more
than company to company give & take dealings but fall
short of Merger or JV. These alliances are mainly for
bridging
Ulhas D Wadivkargap of resources and technology. 246
 Advantages of Alliance:
• Alliance is basically between equals, but alliances are
also done with suppliers, distributors as partners by
many big business houses. These alliances are mostly
done with Value chain contributors.
• It is now common for companies to pursue their
strategies in collaboration with suppliers, distributors,
makers of complimentary product and some select
companies. e.g. IBM & DELL.
Advantages of Alliance:
• Get into critical country markets quickly.
• Gain, in-side information & knowledge about unknown /
unfamiliar markets & cultures.
• Access valuable skills & competencies.
• Get a handle to participate in target technology or
industry.
• Master new technology; build new expertise &
competencies faster.
• Open
Ulhas up broader opportunities.
D Wadivkar 247
 Stability of Alliances:
• Alliances have a very high rate of divorce. In US only about
39% of Alliances are found to be stable. Others are either
outright failures or are limping along.
• Alliances to be successful should have partners working
together. Stability of alliances depend upon their success in
adopting to changing internal & external conditions,
willingness to bargain on issues, real collaboration and not
merely arm length exchange of ideas. Each partner must
bring in high value allied skills, resources and contributions
and respect each other. They should have co-operative
arrangements working for win-win solutions.
• Causes for failures of alliances could be, diverging objectives
and priorities, inability to work together, changing conditions
which make initial reason for alliance as obsolete, more
attractive technologies and / or rivalry at marketplace.
• Alliance partners should guard themselves from undue
dependence. Over a period the partners must learn skills and
technology. To be a market leader companies must develop
their own capabilities or alliance will ultimately lead to Merger
or Acquisition.
Ulhas D Wadivkar 248
 Merger & Acquisition Strategies:
• The phrase Mergers and Acquisitions (abbreviated
M&A) refers to the aspect of corporate strategy,
corporate finance and Management dealing with the
buying, selling and combining of different Companies
that can aid, finance, or help a growing company in a
given industry to grow rapidly without having to create
another business entity.

• In the pure sense of the term, a Merger happens when

two firms, often of about the same size, agree to go
forward as a single new company rather than remain
separately owned and operated. This kind of action is
more precisely referred to as a “Merger of equals."
Both companies' stocks are surrendered and new
company stock is issued in its place. For example, both
Daimler-Benz and Chrysler ceased to exist when the two
firms merged, and a new company, DaimlerChrysler,
was created.
Ulhas D Wadivkar 249
 Merger & Acquisition Strategies-2:
• When one company takes over another and clearly
established itself as the new owner, the purchase is called an
Acquisition. From a legal point of view, the Target Company
ceases to exist, the buyer "swallows" the business and the
buyer's stock continues to be traded.
• Whether a purchase is considered a Merger or an
Acquisition really depends on whether the purchase is
friendly or hostile and how it is announced. In other words, the
real difference lies in how the purchase is communicated to
and received by the target company's Board of Directors,
employees and Shareholders.
• Hostile Takeovers are takeovers, where existing
Management resists and opposition is expected. The bidder
picks up shares from Market and obtains controlling interests.
Bidder sometimes takes help of FI or majority share holder to
enter Company’s board and gain control. Examples are NEPC
bidding for Modiluft or Starlite Industries bid for Indian
Aluminium.
Ulhas D Wadivkar 250
• M & A have not produced hoped-for results on many
instances. Resistance of rank and file employees of two large
companies is some times too formidable to resolve. Conflicts
of management styles and difference in Corporate Cultures
create problems in integration. Cost savings, expertise
sharing, and enhanced competitive capabilities take
substantially long time to materialise in view of above
problems.
• Pros & Cons of M & A: 1) M&A ensures management
accountability, 2) offer easy growth, 3) create mobility of
resources, 4) avoid gestation period & hurdles involved in new
projects, 5) offers a chance to sick units to revive, have
possible selective divestment, 6) venture into new business &
markets, 7) increase market share & 8) decrease competition.
• As against; in takeovers, 1) money power takes over
professionalism. 2) Takeovers do not create any real assets
for Society, 3) are detrimental to national economy, 4)
reduces competition, 5) facilitate monopolistic, oligopolistic
tendencies, 6) reduces employments, 7) affects cultural
integration.
Ulhas D Wadivkar 251
Strategic objectives of Mergers & Acquisitions:
1. To pave the way for the acquiring company to gain
more market share and, further, create a more efficient
operation out of combined companies by closing high
cost plants and eliminating surplus capacity industry-
wise.
2. To expand companies geographic coverage.
3. To extend company’s business into new product
categories or international markets.
4. To gain quick access to new technologies and avoid
the need for a time consuming R & D effort.
5. To try to invent new industry and lead the convergence
of industries whose boundaries are being blurred by
changing technologies and new market opportunities
6. To fill resource gaps
Ulhas D Wadivkar 252
 Outsourcing Strategies:
• Unlike Integration; outsourcing is narrowing boundaries
of the business. Integration has problems of mismatch of
capacities, as economic size for individual items in value
chain could be different and hence such specialised
skilled processes or items in value chain could be
outsourced to specialists.
• A company should generally not perform any value chain
activity internally that can be performed more efficiently
or effectively by its outside business partners – the
exception is when an activity is strategically crucial and
internal control over the activity is deemed essential.
Ulhas D Wadivkar 253
 Advantages of Outsourcing:
1. Cost reduction – An activity can be performed more
cheaply by outside specialists.
2. A particular skilled activity can be performed better by
outside specialist.
3. The activity not connected with core competence and
not crucial to firm’s ability to achieve sustainable
competitive advantage and will not affect the technical
‘Know-how’ can be outsourced to advantage.
4. Outsourcing reduces company’s risk due to changes in
technology and/ or change in buyer preferences.
5. Outsourcing streamlines the Company operations in
ways that cut time it takes to get the newly developed
product in to the market.
6. Outsourcing allows the company to concentrate on
strengthening and leveraging its core competencies.
Ulhas D Wadivkar 254
 Offensive Strategy
• Offensive Strategic moves include yielding a cost
advantage, a differentiation advantage, a resource
advantage. These advantages, when used with initiative
are termed as Offensive Strategy giving Competitive
advantage to the initiator.
• However, competent, resourceful rivals won’t take lightly
and exert pressure to overcome the disadvantage they
are facing because of initiative taken by one of their
associates.
• The initiator of the Offensive Strategy has to come up
follow-up offensive & defensive moves to sustain the
initially won competitive advantage.

Ulhas D Wadivkar 255

 Types of Offensive Strategies-1
• Initiatives to match or exceed the competitor strengths:
When rivals have strong competitive advantage, then
firms are forced to take an initiative and take an
offensive stand to whittle away from pressure.
In second instance, when competitor is very strong and
established, an offensive strategy to offer alternate
products at faster pace and at cheaper price
sometimes works and afterwards people get used to
alternate product. e.g. AMD & Intel.
One of the options is to offer equally good product at
lower price.
Other option could be to outsmart competitor by
bringing in latest version of product in market before
him and making his product obsolete.
Adding new features, running Comparison ads, having
plant in backyard of rival, superior customer service
capability are some other options.
Ulhas D Wadivkar 256
 Types of Offensive Strategies-2
• Initiatives to capitalise on weaknesses of the
competitor: This option has better chance than
challenging strengths of competitor.
Options could be going after rival whose product lag in
quality & features, or making special sales campaign,
Service camps where rival lacks in service department,
or Win away customers with your strong brand appeal
over his weak brand,
or take advantage of geographic reasons, where rival
has weak presence in market,
or paying special attention to market segment which
your rival is neglecting.
Ulhas D Wadivkar 257
 Types of Offensive Strategies-3
• 3. Simultaneous initiatives on many fronts: Company
may launch a Grand Offensive on many fronts
simultaneously and compel rivals to take defensive
actions,
Such offensive may include, price cuts, increased
advertising, additional performance features, new models
& styles, customer service thrust & improvements, free
samples, coupons, rebates, in store displays, etc.
When a product has sufficient Brand image & when a new
specifically attractive product or service is being launched,
such an offensive measure has more chances of success
Ulhas D Wadivkar 258
 Types of Offensive Strategies- 4
• End-run offensives: involves going around competitors
instead of taking them head on and change rules of game
& competition.
This may include, introducing new products that redefine
the market & terms of competition, e.g. digital camera,
wireless communication.
It could also include launching initiative in geographic
area where competitors have not yet reached or introduce
products in new market segments for selected buyers
with different attributes & performance features, e.g.
sport-utility-vehicles of Honda Accura or ford Lexus.
Taking a jump ahead- leapfrogging by using next
generation technology, which support existing business &
technology such as 3 G hand sets, blackberries, i-phone,
LCD screens
Ulhas D Wadivkar 259
 Types of Offensive Strategies- 5
• Guerrilla offensives: This is adopted by small
challenger companies, who do not have resources or
market visibility to challenge the leaders. This is hit &
run technique.
Challenger Companies attack in areas neglected by
biggies or where they have become vulnerable.
Offering quality, when leaders have some quality
problems
or having a big discount sale week,
or offering products at shortest & confirmed deliveries
when leaders are facing delivery problems,
a short offensive and win away selected client account,
prompt technical support when clients are frustrated
with leaders. etc.
Ulhas D Wadivkar 260
 Types of Offensive Strategies - 6
• Pre-emptive strikes: This is one of a kind offensive move.
Whosoever is first gains maximum competitive advantage!
Pre-emptive strategies involve being first to secure an
advantageous position, where rivals are kept away and
cannot duplicate and then strike competitors by
b) May be securing a big renowned distributor,
c) New geographic area, new shopping mall,
d) Good location for to cheap transportation & raw materials,
etc,
e) Choose which rivals to attack. It could be leaders, who are
always vulnerable or
f) Second run firm with weaknesses, here the challenger
must be strong to strike weak company,
g) Struggling enterprises who are on the verge of going under,
h) Small local & regional firms with limited capabilities.
The pre-emptive strikes are done on the basis of
core competency of challenger, where they are best in
areas like Resource strengths and competitive capabilities,
otherwise chance of success are dim.
Ulhas D Wadivkar 261
 Defensive Strategies:
In competitive environment every successful company has to
face the threat of challenges from rivals and new entrants.
The defensive strategies are used to lower the risk of being
attacked and weakening the impact of attack.
The defensive strategies do not improve competitive edge but
they help to fortify company’s competitive position, protect
valuable resources and prevent possibilities of imitation. Two
forms of Defensive Strategies are:
1. Blocking the avenues open to Challengers:
Defender can participate in alternative Technology to reduce
attack of better Technology which may be offered by rivals.
• New Products, new features, broaden the product range, close
vacant niches,
Ulhas D Wadivkar 262
• Have economy priced product range to ward off price wars.
• Lengthening warranty periods, free service training or camps.
• Developing capability to provide spare parts.
• Providing free coupons, give away samples, sponsoring gift
hampers,
• Search & appoint creditable distributors & book them with
volume discounts & other finance terms so as to discourage
them from trying other suppliers.
2. Signalling Challengers that retaliation is likely & let
challengers know that the battle will cost more than its worth.
• Publicly announcing management’s commitment to maintain the
firm’s present share.
• Publicly committing the company to match competitors’ terms &
prices.
• Maintaining a war chest & marketable securities.
• Making an occasional strong reaction on moves of weak
competitor to enhance the company’s image of tough defender.
Ulhas D Wadivkar 263
 Strategies for Using Internet as distribution channel
• The internet era has brought second wave of Internet
entrepreneurship.
Companies need to address how best to make internet as
part of the business to use as distribution channel.
How much emphasis to be placed for use of internet?
Managers must decide how to use the Internet in positioning
the company in marketplace?
• Using Internet Just to Disseminate Product Information:
and use internet to direct customers to distribution channel
partners for sales transaction or indicate locations retail
stores. This is to avoid conflict with already existing
distribution channel partners. Direct sale on net will indicate
weakening commitment to distributors.
Dealers are considered better positioned to deal with “brick &
click” Strategy for Company products / services. Company
considers that strong support and goodwill of dealer network
is essential. Web is considered in partnership with dealers
and not in competition.
Ulhas D Wadivkar 264
 Using Internet as Minor Distribution Channel:
Here, the strategy is to use Internet to gain online sale
experience, doing market research, testing product,
getting feed back from web surfers and create
sufficient interest about Company’s Product and
Services in web community.
e.g. ‘Nike’ selling some footwear on line, giving buyers
option for colour & features so as to gain more & first
hand knowledge about customers’ choices.
This path will be beneficial to dealers & will not create
resistance.

Ulhas D Wadivkar 265

• Using “Brick and Click” Strategy:
Sell directly to customers on line and at the same time use
traditional whole sale & retail channels.
This policy is beneficial in certain circumstances. e.g.
“Software Programmes”, where direct downloading is more
comfortable than going to shop and getting a CD.
Internet has more reach and geographic constraints are
taken care of with help of dealers in that area, though
Distribution channels are necessary and customer need to
have a physical contact with Product / Services,
On-line sell improves profitability as dealer commission
could be up to 35 – 40% of retail price.
Customers visiting web site are automatic prospective
buyers.
Also where the technology is more suitable for ‘build to
order’ strategy.
Ulhas D Wadivkar 266
 First / Fast / Late Mover Strategy
• ‘When’ to make a Strategic move is equally important as
‘what’ move to make. It will depend upon the product life
cycle, technology requirement. First mover has many
advantages, but fast & late mover can also be a profitable
move.
• First mover builds up reputation & image. (Bisleri)
• First mover’s early commitment to new technology, new
features, new distribution channels can give a cost
advantage over rivals.
• Being first mover is an offensive move of ‘pre-emptive
strike’. Rivals are not ready & this makes imitation difficult.
Bigger the first mover advantage, more attractive the
move is.

Ulhas D Wadivkar 267

• First mover’s customers are likely to retain brand loyalty
giving him firm footage in market. However, first mover has
to have good financial resources, important competencies,
competitive capabilities and high quality management.
• The first move cannot be for name sake. First mover must
time his product entry with precise combination of features,
customer value & sound revenue – cost – profit economics
to sustain the edge over rivals and maintain market
leadership.
• Being the first mover need competency and cost. It may be
cheaper to copy. If the product life cycle is long, the initial
advantages of first mover can be nullified over a time and
with safety. A follower and late mover assume that first
mover to be slow in learning and updating his products.
Ulhas D Wadivkar 268
• First mover risks obsolescence due to technological
advancements, smart late mover can turn apple cart & beat
first mover. Sometime fence sitter moves in by fine tuning on
mistakes of first mover
• Being a Fast follower and late starter can also be an
advantageous move with wait and see policy. It may be
easier to copy first mover and improve upon by learning from
errors on part of first mover and de-bug the problems.
• Late mover can come up with superior product by imitating &
has fewer risks as market is already developed. They can be
successful if they have staying power.
Ulhas D Wadivkar 269
 Syllabus
===============================
8. Tailoring strategy to fit specific
industry:
• Life Cycle Analysis –
• Emerging, Growing, Mature & Declining
Industries. (4)
===============================

Ulhas D Wadivkar 270

 Tailoring strategy to fit specific industry
Strategies for:
• Competing in Emerging Industries.
• Competing in turbulent, high-Velocity Markets.
• Competing in Mature Industries.
• Firms in Stagnant or Declining Industries.
• Competing in Fragmented Industries.
• Sustaining Rapid Company Growth.
• Industry Leaders.
• Runner-Up Firms.
• Weak and Crisis-Ridden Businesses.
Ulhas D Wadivkar 271
 Strategies for : Competing in Emerging Industries:
1. Strategy deals with risks & opportunities.
2. Try for winning early race to Industry leadership, Risk
taking entrepreneurship.
3. Broad or focussed differentiation Strategy with
technological superiority.
4. Strategy to go all out for perfecting the Technology,
improved product quality with additional performance
features.
5. Form strategic alliance with key suppliers for gaining
technological expertise, specialised skills, and critical
material component.
6. Pursue new customer groups, new user applications,
new geographical areas.
7. Acquire, merge, form JVs with companies having
complementary technology.
8. Make it easy & cheap for first time buyers for them to
experience industry’s first generation product.
Ulhas D Wadivkar 272
 Strategies for: Competing in Turbulent, High-
Velocity Markets
The Strategy could be offensive or defensive, depending
upon where you react to change or you lead the change. A
middle path is anticipating change.
• Strategies to invest aggressively in R & D for leading edge
of technical know how.
• Develop quick response capability.
• Have strategic partnerships with suppliers making tie in
products.
• Initiate fresh actions regularly in every few moths without
waiting for situations compelling change, thereby
• keep company’s product & services fresh & exciting to
withstand changing environment.
Ulhas D Wadivkar 273
 Strategies for : Competing in Mature Industries:
• At matured stage, check your portfolio and prune added
products & models being in list for name sake.
• Concentrate on Value Chain, trim costs, & do not allow
Fat additions.
• Concentrate on increased sales to present customers..
• Acquire rival firms.
• Expand Internationally.
• Build new or more flexible capabilities.
Strategies for : Firms in Stagnant or Declining
Industries:
• Concentrate on Value chain, drive down your costs and
strategise to become industry leader as low cost
provider.
• Even in declining industry, some segments are growing.
Know the needs of buyers in that segment & fulfil them.
• Concentrate on product differentiation with quality
Ulhas Dimprovement
Wadivkar & innovation. 274
 Strategies for: Competing in Fragmented
Industries:

There are hundreds of industries co-existing in a very big

market without differentiation and there is an absence of
clear market leader. Entry barriers are low, initial
investment can be low to start business, product is global,
young product crowded with many aspirants.
• Become a low cost operator.
• Add differentiators.
• Have good distributor chain, specialised and mange low
cost with differentiation, in view of volume.
• Focus on limited geographic area.

Ulhas D Wadivkar 275

 Strategies for : Sustaining Rapid
Company Growth:
• Short span strategy could be to expand in present business
and obtain increased revenue. Time span 1 to 3 years.
• Medium span Strategy: use existing resources and
capabilities and enter into new business having a growth
potential. Time span 3 to 5 years
• Long Span Strategy: Look at businesses that do not exist
today. Use present resources for venture investment.
Present cash flow reduces, some loss expected on new
business but strategy is longevity & significant future gains
Ulhas D Wadivkar 276
• Strategies for : Industry Leaders:
• Stay on Offensive Strategy : Strategy is to be first mover and
a proactive market leader. Keep rivals in reactive mode or
scrambling to keep up your pace. Grow faster than the
Industry as whole and wrestle marker share from rivals.
• Fortify and defend Strategy: Increased spending on
advertisement, bigger R & D outlay. Add personalised
services. Keep prices reasonable. Patenting feasible
alternative technologies.
• Muscle flexing strategy :– Overkill : Quickly matching and
exceeding challenges from rivals. Use Promotional
campaigns to keep rivals away from gaining. Use arm
twisting tactics. Display displeasure on customer for trying
others and offer some specific benefits for Brand Loyalty.
Ulhas D Wadivkar 277
• Strategies for: Runner-Up Firms: These are second tier
companies with lesser market share than the leader. These
are also up-coming market challengers.
• Offensive Strategy to build market share.
• Strategy to grow through acquisition.
• Strategy to fill up vacant niche.
• Strategy to be a specialist, or to have superior product or to
have a distinct image (Differentiation)
• Strategy to be a content follower – no trendsetting moves but
steal customers aggressively by copying and with special
privileges.
• Strategies for: Weak and Crisis-Ridden Businesses.
These are Retrenchment & Turn around strategies.
• Selling off Assets.
• Revising the existing Strategy.
• Launching efforts to boost revenues.
• Pursuing cost reduction.
• Ulhas
Using a combination of these efforts.
D Wadivkar 278
 Crafting a successful Business Strategy: 1 :
• Take a long term view for Company’s Competitive position
and take those Strategic moves on top priority.
• Be alert about unmet customer needs, buyer’s wishes for
something better, emerging technological alternatives and
be prompt in adapting to changing market conditions.
• Be alert needs of non consumers, which is a very large
share of the Market.( e.g.- Wall Mart at 14%)
• Invest in creating sustainable competitive advantage.
• Do not assume most optimistic circumstances while
forming Strategies. Avoid Strategies which can be
successful only in optimistic circumstances. (if not, then
what?)
• Do not under-estimate rivals in their reactions or
commitment to do better.
• Attacking competitive weakness is always safer and
profitable than attacking competitive strength.
Ulhas D Wadivkar 279
 Crafting a successful Business Strategy: 2 :
• Check possible cost advantages before cutting prices.
You need to cut costs before cutting prices. You need
to be Low cost provider for winning Price cutting war.
• If you have a differentiation Strategy as a base, then
we should really strive meaningful jump in quality /
services / performance. Any minor variation in rival’s
product will not be noticed by buyer and will not be
important to them.
• It should be noted that a middle path strategy and
compromise strategy are two different matters.
Compromise Strategies are not sustainable. Best cost
provider Strategy is not a compromise, it must be a
well thought & well executed.
• Be aware that offensive Strategies will always invite
retaliation. Aggressive moves to capture market share
from rivals will invite a price war which will be
detrimental to every body. Prepare your defences
before being aggressive.
Ulhas D Wadivkar 280
 Syllabus
9. New Business Models and strategies for
Internet Economy:
• Shaping characteristics of E-Commerce
environment –
• E-Commerce Business Model and Strategies –
• Internet Strategies for Traditional Business –
• Key success factors in E-Commerce –
• Virtual Value Chain. (6)

Ulhas D Wadivkar 281

 What is E-commerce?
• E-Commerce from Communication point of view: It is the
ability to deliver products, services, information, payments
via network like internet.
• E-commerce from Interface point of view means
information and transaction exchange: Business to
Business (B2B), Business-to-Consumer (B2C), Consumer
to Consumer (C2C) and Business to Government (B2G).
• E- Commerce as Business Process means activities that
support commerce electronically by networked
connections, for example, business process like
manufacturing and inventory and business to business
process like supply chain management are managed by
the same networks as business to consumer processes.
• E-Commerce as Online process: E-commerce is an
electronic environment that allows sellers to buy and sell
products / services and information on the internet. The
products may be physical, like cars or services like news
or consulting.
Ulhas D Wadivkar 282
 What is E-commerce?

• E-Commerce-Structure: E-commerce deals various

media: data, text, web pages, internet telephony, and
internet desktop video.
• E-Commerce Market: E-commerce is a worldwide
network. A local store can open a web storefront and find
that the world is at its door step – customers, suppliers,
competitors, and payment services along with
advertisement presence.
• E-commerce is selling goods and services on the retail
level with anyone, anywhere, via internet. It includes new
business opportunities that result in greater efficiency
and more effective exchange of good and services.
Every transaction is blocks of information exchanged
between E-merchant and a customer via the corporate
Web site. Examples : www.amazon.com,
www.ebay.com, www.crutchfield.com,
Ulhas D Wadivkar 283
 What is E-business?
• E-business is conducting critical business systems and
constituencies directly via internet, extranets and
intranets.
• E-business is the conduct of business on the internet, in
supply-chain planning, tracking, fulfilment, invoicing and
payment. It includes buying, selling as well as servicing
customers and collaborating with business partners.
E-business has various Goals:
• Reach new markets.
• Create new products or services.
• Build customer loyalty.
• Enrich human capital.
• Make the best use of existing and emerging
technologies.
• Achieve market leadership and competitive advantage.
• Example: “SAP”: Provider of Business Software used for
ERP. “Online banking services” is one more example. 284
Ulhas D Wadivkar
 E-commerce Business Models:1:
• The important generic models are
• B2B, B2C and C2B, C2C
• B2B is “Business to Business” E-commerce is an
automated exchange of information between different
organisations. B2B involves only the firm’s business /
trading partners, like Suppliers, Distributors, Dealers,
Vendors and so on. This is used for awareness, product
research, supplier sourcing, transactions, post-support
sales. B2B transactions can be EDI, mails for purchasing
goods and services, buying information, consulting
services, requesting proposals, receiving proposals.
• B2B are alternative ways of executing transactions
between buyers and sellers that are business
organisations; a network of independent organisations
and long term trading partners.
• B2C : “Business to Consumers” Commerce is retailing
on World Wide Web.
Ulhas D Wadivkar 285
 E-commerce Business Models:2:
• Storefront Model: It is an E-commerce site which offers
products or goods for a price. Website displays products
with product information, cost with a shopping cart and
ordering mechanism. The web business merchant
makes money the same way as traditional shop
merchant. Typically, books, computers, electronic goods,
pizza delivery are sold through Storefront Model
• Click and Mortar Model is a shop that combines both
Website and a physical store. Goods can be physically
examined and returned to store directly.
• Built to Order Merchant Model is website which offers
goods or services with an ability to order customised
versions. Generally Computer vendor adapts this model.
• Service Provider Model: for ex. ‘Pizza delivery Service’,
Movie Ticket delivery service, Flower delivery service.
Some service providers provide advertising based
access to their service. One of the successful ad-driven
sites is www.yahoo.com
Ulhas D Wadivkar 286
 E-commerce Business Models:3:
• Subscription based Access model: Visitor registers
himself, pays monthly or annually and access unlimited
service. Typical for accessing database, news, articles,
online games. Movie shows etc. One of the Indian
example is www.bharatmatrimony.com
• Prepaid Access Model: Some services like telephony,
movies are accessible by offering payment by minute
and handled via a subscription.
• Broker Model: Brokers are intermediaries; they bring
buyers and sellers together and facilitate transaction
between them by charging fee for every facilitated
transaction. These transactions can be B2B, B2C, C2C
etc. www.ebay.com is an example.
• Advertiser Model: These are free sites which offer free
access for something and display advertisements as
banners. Visitor can click the advertisement and visit the
webpage of the advertiser and can order his
requirements.
Ulhas D Wadivkar 287
 E-commerce Business Models:4:
• Portal Site Model: For news, Stock information, Weather, message
boards, chats etc. These sites allow the visitors to personalise the
interface and content. For example www.my.yahoo.com or
www.my.cnn.com
• Free access Model: Provides free web space. www.blogspot.com
• Virtual Mall Model: A site that hosts many merchants, service
providers, brokers and other businesses.
• Virtual Community Model is a website that attracts a group of users
with a common interest who work together on the site. Few social
networks are www.orkut.com, www.facebook.com.
• Infomediary Model: An Infomediary collects, evaluates and sells
information on consumers and their buying behaviour to other
parties. Infomediary offers something free to visitor that requires
free registration by visitor, which allows Infomediary to monitor the
visitor’s online activities.
• Trust Intermediary Model is an entity that creates trust between
buyer and the seller, which provides a secure environment for buyer
and seller. They offer branded goods and provide escrow services
and maintain privacy. Examples are ‘verisign’, ‘cybercash’, https//:
Ulhas D Wadivkar 288
 Strategies for Internet Economy.
• Many companies doing e-business are still in the investment
and brand-building phase and have yet to show a profit.
However, as e-businesses shift their focus from building a
customer base to increasing revenue growth and
profitability, it is required for the e-business to re-evaluate
their current business strategies.
• E-commerce is fundamentally changing the economy and
the way business is conducted. E-commerce forces
companies to find new ways to expand the markets in which
they compete, to attract and retain customers by tailoring
products and services to their needs, and to restructure their
business processes to deliver products and services more
efficiently and effectively.
• McCarthy’s four marketing mix model and Porter’s five
competitive forces model are used to identify strategies for
Internet and achieve a competitive advantage. The
development and implementation of e-business strategies
will contribute to increased profit.
Ulhas D Wadivkar 289
 McCarthy's Four Marketing Mix Model:1:
• Internet Economy has impact on McCarthy’s four
marketing mix (product, price, promotion, and place) and
also on Porter’s 5 competitive forces (the threat of new
entrants, rivalry among existing firms, the threat of
substitutes, the bargaining power of suppliers, and the
bargaining power of buyers)
• According to McCarthy (1960) and again McCarthy
(1999), a firm develops its marketing strategies by first
identifying the target market for its products or services.
It then develops a marketing mix. A particular
combination of product, price, promotion, and place (i.e.,
distribution and delivery functions in the supply chain)
designed to enhance sales to the target market. A
unique mix of these elements in a given industry allows
firms to compete more effectively, thus ensuring
profitability and sustainability. Since the Internet has a
significant impact on the makeup of this marketing mix,
Internet companies should develop strategies that take
the
Ulhas unique nature of online marketing into account.
D Wadivkar 290
 McCarthy’s Product Strategies
• On the Internet, consumers can easily collect information
about products or services without travelling to stores to
inspect products and compare prices. Strategy shall be
to differentiate the product by adding extra features. This
is known as Product Bundling which counteracts the
threat of product Substitutes and rivalry.
• Introduce ‘niche’ product by understanding need of small
segment of customers.
• Use ‘customer centric’ strategy rather than ‘product
centric’ strategy. Pull information from customers and
improve and customize the products.
• Internet companies can also expand their product line
into areas related to their existing product lines. For
example, www.amazon.com recently started selling
personal computers in addition to its existing line of
electronic products such as disk drives and memory.
Ulhas D Wadivkar 291
 McCarthy’s Price Strategies
• Employ appropriate pricing strategies for selling products
over the Internet.
• Sellers can employ a price discrimination strategy that
makes it difficult for buyers to compare the prices of
alternative product offerings. For instance,
www.staples.com charges different prices for different
markets by asking customers to enter their zip codes
before they can obtain prices.
• Protect profits by achieving cost leadership in a particular
market or industry

Ulhas D Wadivkar 292

 McCarthy’s Promotion Strategies
• Mass marketing and sales promotions result in
expensive, inefficient brand management. To manage e-
brands effectively and efficiently, companies have to
employ promotion strategies different from those used by
traditional marketing
• To manage e-brands effectively and efficiently,
companies have to employ promotion strategies like
building a direct link with consumers and enter into a
dialogue with them about products (dialogue-based
marketing or one-to-one marketing).
• Build a base of loyal and profitable customers by
formulating ‘customer-centric promotion strategies’ and
respond to this new customer power.
• A revenue-sharing marketing strategy is an affiliated
marketing program with partners based on commissions.
For example, www.amazon.com launched its affiliate
program and now has some 400,000 affiliates
Ulhas D Wadivkar 293
 McCarthy’s Place Strategies
• For most companies, place refers to the supply chain (or
value chain). The place aspects of the marketing mix are
closely related to the distribution and delivery of products or
services. The Internet and its associated application software
have significantly changed the way companies’ products or
services are delivered by reducing transaction and
distribution costs. One way for companies to differentiate
their products from rival companies is faster and more
efficient delivery of products to their customers
• Integrate ‘online’ (Click) and ‘bricks-and-mortar’ businesses
(clicks-and-mortar strategy). E-businesses (particularly e-
retailers) need fully automated distribution warehouses to
meet demand from shoppers on the Internet. For example,
Amazon.com leased a new 322,560 sq. ft. distribution centre
in Fernley, Nevada. By Investing in physical assets such as
a warehouse, Amazon.com can compete more effectively
with Barnes & Noble.
Ulhas D Wadivkar 294
 Porter's Five Competitive Forces Model
• According to Porter, a firm develops its business strategies in
order to obtain competitive advantage (i.e., increase profits)
over its competitors. It does this by responding to five primary
forces: (1) the threat of new entrants, (2) rivalry among
existing firms within an industry, (3) the threat of substitute
products/services, (4) the bargaining power of suppliers, and
(5) the bargaining power of buyers.
• The company positions itself so as to be least vulnerable to
competitive forces while exploiting its unique advantage (cost
leadership). A company can also achieve competitive
advantage by altering the competitive forces.
• The five competitive forces model provides a solid base for
developing business strategies that generate strategic
opportunities. The Internet dramatically affects these
competitive forces. Companies should take effect of internet
on these forces into account while formulating their strategies.
• Analyzing the forces illuminates an industry’s fundamental
attractiveness, exposes the underlying drivers of average
industry profitability, and provides insight into how profitability
will evolve in the future.
Ulhas D Wadivkar 295
Impact of the Internet on Marketing Mix and
Competitive Forces
• The Internet can dramatically lower entry barriers for new
competitors. Entering into e-commerce has become very
easy for new entrants.
• The number of people with Internet access has reached an
estimated 304 million worldwide, an increase of almost 78
percent. The Internet also brings many more companies
into competition by expanding geographic markets.
• The Internet also changes the balance of power in
relationships with buyers and suppliers by increasing or
decreasing the switching costs of these buyers and
suppliers.
Ulhas D Wadivkar 296
• By reducing customers' search costs, the Internet makes
price comparison easy for customers, and thus
increases price competition and shifts bargaining power
of customer’s new promotion venues. The Internet
creates new substitution threats by enabling new
approaches to meeting customer needs and performing
business functions (Porter 2001). World Wide Web
(www) technology itself has produced new promotion
venues. The Internet also facilitates an electronic
integration of the supply chain activities, achieving
efficient distribution and delivery. It also facilitates
partnerships or strategic alliances by networking partners
or allies.
Ulhas D Wadivkar 297
E-Business Strategies for Competitive Advantage:
Product, Price, Promotion, and Place Strategies

Product Price Promotion Place

Threat of Differentiation, Price Customer Outsourcing
New Discrimination, centric
Entrant Promotion,
Innovation or Strategic
Cost Alliance,
Niche Product leadership, Performance
based Click &
Value added Appeal, Mortar
Products Strategy
Revenue
Sharing

Ulhas D Wadivkar 298

 Product Price Promotion Place
Threat of Product Price Clicks
Substitutes Differentiation discrimination and
Mortar
like bundling Cost
Strategy
Innovation and leadership.
or Niche Product Value added
Customer products /
centric strategy services

Rivalries Product Price Customer Outsourc

among differentiation discrimination Centric ing
Existing Strategic
Innovation and Promotion
firms Alliances
or Niche Product Cost Performance
Clicks
leadership. based Brand
and
appeal Mortar
Value added Revenue Strategy
Ulhas D Wadivkar products Sharing 299
 Product Price Promotion Place

Bargaining Value added Revenue Outsourcing

Power of products / Sharing Strategic
Suppliers services marketing alliances

Bargaining Value added Customer Outsourcing

Power of products / Centric
Buyers services Promotion Strategic
Performance alliances
based Brand
appeal
Revenue
Ulhas D Wadivkar 300
Sharing
 Key success factors in E-Commerce.
• Information is a key part of the value chain in all
businesses. By providing a vehicle for the delivery of
information with unprecedented availability and reach,
today's information technology, in particular Internet
technology, is dramatically changing the very
fundamentals of business. This explosion in connectivity
is the latest—and for business strategists, the most
important—wave in the information revolution.
• Internet technology and its derivative Intranets
(connecting employees and internal systems) and
Extranets (connecting external partners and systems) are
having a profound and far-reaching impact on business.
• Information such as pricing, costs, customer lists,
supplier relationships, product information, employment
statistics, legal proceedings, defect records, and
historical statements and plans is now available to all
freely. Businesses that do not rethink their fundamental
value proposition based on this possibility may lose their
competitive edge, or worse.
Ulhas D Wadivkar 301
Ulhas D Wadivkar 302
• However, if you want to benefit from this new Internet economy,
you will need to apply technology and electronic media to
improve two basic aspects of your operation. You must:
• Differentiate your products and services—and improve your
market share.
• Enhance your efficiency—a move that will lead to improved
profitability
• To see how these efforts can lead to greater levels of competitive
success, refer to the following graphic. In this graphic, the four
quadrants represent overall characteristics of value propositions
—for individual products, services or entire companies in any
industry. In the top right quadrant, companies successfully
differentiate their products and services to capture increased
market share, while at the same time leveraging the power of
technology to slash the cost of sales and operations and
generate market-leading profitability, which in turn finances
ongoing reinvestment. In the top left quadrant, companies are
often fighting a multitude of new combatants within a
commoditized market, where price competition is acute. In this
situation, technology must be maximally leveraged to maintain
even modest profits.
Ulhas D Wadivkar 303
• In the bottom right quadrant, companies—usually inheriting
their market differentiation from their legacy—still enjoy
acceptable profit margins but are at extreme risk of new
market entrants inventing new ways to leverage technology
to deliver the same or superior value to their customers
less expensively and more rapidly. In the lower left
quadrant are usually the enterprises that offer customers
products or services that are not differentiated from less
expensive options, and that are generally trailing the pack
in leveraging IT. They lose market share and ultimately risk
failure.
• The underlying canvas of this diagram—the market itself—
is constantly being pulled down and to the left by new
competitors with innovative ideas and new technologies
that make those ideas less expensive to realize. Moving up
and to the right, maintaining market leadership requires a
disciplined focus on continual improvement along both
dimensions. Following strategies are required to be
employed to accomplish continual improvement in both
market share and profitability.
Ulhas D Wadivkar 304
 1. Market Share: Through Increased Differentiation:1:
• Customers from anywhere can reach out to merchants
anywhere—and vice versa—they can evaluate their
options with a few clicks of a mouse button.
• In this environment, it has become difficult to differentiate
products and services. If you are to remain competitive,
you will need to set yourself apart from your competition.
a) Economic and Pricing Models
• a.1) Customers will only purchase products or services
with real, understandable value.
• a.2) Profit is dependent upon differentiated value.
• It is absolutely vital that differentiation be achieved and
maintained through constant attention to innovation in
intrinsic value, branding, distribution and affinity with
complementary products and services.
Ulhas D Wadivkar 305
 1. Market Share: Through Increased Differentiation:2:
• a.3) Distribution channels are more important then ever
• a.4) Make sure your value proposition, as expressed on the
Internet, is real and understandable, and you have a strong
differentiation strategy to drive profitability and you've
constructed a distribution strategy that leverages new
intermediaries. Then continually improve all of the above.
• a.5) Understand the information dynamics of your
marketplace as it changes with the Internet, evaluate the
activities of your competitors, try to develop breakthrough
ideas, keep your plans confidential until they're ready to
launch and continually improve every aspect of your
electronic value proposition and operations. And move
quickly.
Ulhas D Wadivkar 306
 b) Distribution Channel Reengineering
• b.1) "Distributors are dead on the Internet." The
disintermediation process is on. Large percentage of retail
stock market transactions are now conducted on line rather
than through human brokers. This has happened barely
within 24 months since the first large-scale launch of
Internet trading services.
• b.2) New intermediaries known as "aggregators" such as
search, news and community Web sites. Yahoo is perhaps
the best known new intermediary. In many fundamental
respects, so also is America Online (AOL)
• b.3) Understand what's happening to intermediation within
your industry, develop a strategy to grapple with it as
aggressively as possible, and ensure that it works through
measurement of results.
Ulhas D Wadivkar 307
 c) Customer Service Re-engineering and Optimization
c.1) Customer support is one of the most powerful
differentiators in the online world. Assess where self-
service Web sites can be implemented, integrate them with
your existing support knowledge systems, build
communities among customers and adapt the systems to
the patterns of customer behaviour
d) Brand Strategy and Development :
d.1) Brand loyalty has become one of the most powerful
differentiators in e-commerce. Brand gets embodied
through set of thoughts and emotions. Greater the depth of
these impressions, the stronger the brand—in a positive or
negative direction.
d.2) In the online world, impressions can be transmitted in
seconds to millions of people, therefore, the process of
managing publicity—both good and bad—is as important
as ever. Recognize the power of online opinion, a material
market advantage might get lost and a new and an
undesirable brand attribute might get attached
Ulhas D Wadivkar 308
d.3) Understand that your online brand must be
differentiated from competitors, that it must be developed
within a disciplined and planned program.
e) Audience Development
e.1) On the Internet, it is easier than ever to actually
communicate a message to large numbers of people.
However, in many cases, it's much harder for your
message to be heard. Successful online marketing
program boils down to the same objective as in the
physical world: developing an audience or "Audience
Development" is preferred phrase for online marketing,
e.2) To succeed in any marketing endeavour, you must
have an audience. Create an Audience Development.
Ulhas D Wadivkar 309
 f. User Experience Design
f.1) Users expect a Web site, Intranet or Extranet to present
information in an intuitive, compelling and efficient manner,
and leverage the interactivity of computing. This is part of the
process of creating a powerful user experience.
f.2) Optimal user experience blends several common objectives
into a seamless visual and interactive experience: the
personality of the brand, the purpose of the interaction, the
ease of comprehension and the speed of the results.
f.3) Critical success factors for any Internet application are
usability, interactivity and efficiency. These factors should be
integrated into a user experience plan aligned with brand,
audience and purpose, and then measured for optimization
Ulhas D Wadivkar 310
 2 - Profitability: Through Increased Efficiency
• The first step to leverage Internet technology within business
processes across your company is to establish an Internet
Architecture. An Internet Architecture is defined as an IT
infrastructure model with the following attributes:
• It should support any type of user device.
• It should support self-service access to the information
infrastructure. All databases should be server-based, including
user profiles, as well as authentication and security systems,
enabling nomadic users to access application systems and
databases from any access point.
• It should employ self-teaching content and make it readily
accessible and understandable.
• Applications should operate from within a single Internet
browser standard.
• It should comply with standard networking protocols
• It should permit any type of device or system to act as a server.
• It should support multi-tiered architecture. Multi-tiered
architecture, which is the basis for client/server systems,
• Ulhas
It should be structured within a standard network and resource
D Wadivkar 311
management infrastructure.
• Once the IT infrastructure model is ready as above,
following business processes are to be used.
• E-commerce, both business-to-business and business-to-
consumer.
• Value chain integration.
• Human resources benefits administration, recruiting and
stock administration.
• Sales force automation.
• Inventory and configuration management.
• Customer support.
• Distribution and service channel automation.
• Document management and workflow.
• Knowledge management.
• Financial reporting, analysis and EIS.
•Ulhas
Point-to-point,
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conference and broadcast communication.
312
 3 - Profiles of Success in the Internet Economy
• Successful profile in Internet Economy occurs by tapping
the increased efficiencies of Internet Architecture and by
adopting new differentiation strategies through the Internet.
Examples are given of the businesses finding they can
provide better products and services—and even new
products and services—faster and at a lower cost. Some
are expanding their market by making the Internet the
integral core of their businesses
• Dell Computers was one of the first PC makers to
recognize the tremendous market potential for e-commerce
on the Internet. Because its products are highly
commoditized, the Web offered Dell an excellent avenue
for reaching new customers and re-establishing itself as an
innovator and market leader. Dell now conducts a
considerable portion of its total business on line, and
projects that ultimately 100 percent of its business will be
conducted
Ulhas D Wadivkar on line 313
• Manheim Auctions recognized that selling used cars is a
difficult, "dog-eat-dog" business that makes many
potential customers uncomfortable. This company found
a way to propel the used-car business into the '90s with
new and innovative ways of selling that eliminated the
need for high-pressure sales tactics on a car lot. The
company reports that it has generated sales from more
than 4,000 dealers subscribing to its online used-car
auction site.

• Amazon.com saw a huge market of people who prefer to

browse the Web rather than browse through
bookshelves in a retail store. As a result of its early
innovation, the company has quickly created a large and
growing Internet-based business. Amazon.com realizes
all its revenues from the Internet.
Ulhas D Wadivkar 314
 Characteristics of Internet Economy
• Information is a key part of the value chain in business, and
Internet technologies have taken a giant leap in making information
universally and economically available.
• Internet has created a wave that is engulfing just about every
business and changing its fundamentals.
• The customers themselves are driving much of this change. They
are demanding online services such as e-commerce, 24-hour
service and support information, the ability to check product
availability and track their accounts or portfolios, and the
availability of timely news and updates.
• They expect companies to make it as easy as possible for them to
purchase products and services—without the need to go from store
to store in search of the items and services they need. Customers
are demanding that businesses deliver these services through the
Internet.
• Businesses must understand the complex technologies that have
come together on the Internet; they also must understand how to
integrate their Internet strategy with their overall business strategy.
• Internet technology to be used to deconstruct and reconstruct the
value
Ulhas chain in just about every industry,
D Wadivkar 315
 Getting There from Here
• But many are taking a haphazard approach, resulting in wasted
time, effort, money and, more significantly, lost opportunity.
• For example, Forrester Research found that one of the most
common mistakes companies make when implementing an
Internet project is not having a clear vision or purpose for the
solution.
• Integrating Internet technology successfully into a business
involves fundamental considerations. Companies must rethink their
business strategies and plans in light of the oncoming Internet
wave, using it to their advantage.
• Internet is a relatively new arena that will have a far-reaching
impact; many companies have not yet developed the necessary
skills and technology expertise in-house to create solutions that tap
the full potential of the Internet.
• That's why it is important to partner with companies such as
Dynamic Net, Inc. that have the breadth of expertise, experience
and resources necessary for developing new strategies and
improving business processes using Internet-based technologies.
• By partnering with a strategic firm such as Dynamic Net Inc., PWC,
to help you accomplish these objectives, you can ride the Internet
Ulhas D Wadivkar 316
wave to new levels of success.
Ulhas D Wadivkar 317
 The virtual value chain:1:
• The virtual value chain, created by John Sviokla and
Jeffrey Rayport, is a business model describing the
dissemination of value-generating information services
throughout an Extended Enterprise. This value chain
begins with the content supplied by the provider, which is
then distributed and supported by the
information infrastructure; thereupon the context provider
supplies actual customer interaction. It supports
the physical value chain of procurement, manufacturing,
distribution and sales of traditional companies.
• There are many businesses that employ both value chains
including banks which provide services to customers in the
physical world at their branch offices and virtually online.
The value chain is separated into two separate chains
because both the marketplace (physical) and the
marketspace (virtual) need to be managed in different
ways to be effective and efficient (Samuelson 1981).
• Nonetheless, the linkage between the two is critical for
effective
Ulhas D Wadivkarsupply chain management. 318
 The virtual value chain:2:
• In the virtual value chain (VVC), information has become a
dynamic element in the formation of a business’ competitive
advantage. The information collected is utilized to generate
innovative concepts and ‘new knowledge’. This translates to a
new value for the consumer. An examination of the VVC model
informs the business to what function they have in the chain,
and if they are not currently offering services that are
information based (i.e. Internet services), how they can make
the transition to the information based model.
• In the virtual value chain the ‘virtual’ indicates that the value
adding steps are performed with information. The transfer of
information between all events and among all members is a
fundamental component in using this model. In the VVC the
creation of knowledge/added value involves a series of five
events: gathering, organization, selection, synthesize
and distribution of information. The completion of these five
events, allows businesses to generate new markets and new
relationships within existing markets. The process of a business
refining raw material into something of value and the sequence
of events involved is similar to that of business collecting
information and adding value through its cycle of events.
Ulhas D Wadivkar 319
 Stages of the value adding information process
• Businesses implement value-adding information by using the
three stages of the Rayport and Sviokla model:
• Visibility – By using information businesses learn the ability
to view physical operations more effectively. The virtual value
chain is used to co-ordinate the activities of the physical
value chain. With the assistance of IT, it is then fully possible
to plan, implement, and assess events with greater precision
and speed.
• Mirroring Capability – Businesses duplicate their once
physical activities for virtual, by producing a parallel value
chain in the marketspace. In other words, the business
moves the value adding activities from the marketplace to the
marketspace.
• New Customer Relationships – Businesses present value
to the customer by new means and in new fashions. IT
creates value in the marketspace. The new relationship
between business and customer is strongly based on using
IT. This implies that products and services are presented by
IT in the form of bits.
Ulhas D Wadivkar 320
 Relevance to the business world:1:
• The Virtual Value Chain has the benefit of having a view
that encompasses the entire network along with its
strong employment of IT. The VVC model has a strong
relationship to the supply chain and the goal of that
relationship is to produce materials, information and
knowledge for the market. IT maintains the relationship
among the members of the chain. The VVC model does
not indicate any shifts in the market, or how and when
the customer’s needs will change.
• New technological developments in IT are drastically
changing the way businesses operate. Each business’
internal and external relationships are managed by IT
and value adding and generation of ideas are relying
more and more on IT. This trend has led to a different
approach to value chain thinking. Using this approach
Mary Cronin separates the VVC into three
elements: inputs from supplier, internal operations, and
customer relations.
Ulhas D Wadivkar 321
 Relevance to the business world:2:
• The inputs from supplier element are focused on the Internet and
how it can add value to the business’s acquisition activities. In
other words, business’ with use of the Internet have the capability
to find different suppliers quickly (effective) and for different
purposes (efficient).
• The internal operations element is in regards to the business’ value
adding events which are based on the effective procurement and
distribution of the information within the business. It is essential
that businesses can emulate this model because of the increasing
large role information plays in the business world. With use of the
Internet, the business can procure and distribute information
globally with relative ease and low cost.
• The customer relations element concentrates on applying the
information directly from the customers’ needs and attitudes about
the product or service to add value. The internet is a useful tool in
acquiring the direct information about the customer’s needs and
attitudes. The internet is also used to distribute information about
the products and services to the market (i.e. electronic
catalogues). Following the distribution, forums and
discussion groups collect the necessary information about the
products
Ulhas and services that the business provides
D Wadivkar 322
 The Management of Virtual Value Chain:1:
• Today managers need to concentrate on how their business
creates value in both the physical and virtual world. However,
the methods for creating value are different in these worlds.
By careful interpretation of the differences and interactions
among the value adding events of the physical and virtual
worlds, managers can more clearly visualize the strategic
issues facing the business.
• Managers must learn to utilize and value the virtual world of
information. "By thinking boldly about the integration of place
and space," Sviokla and Rayport comment, "executives may
be able to create valuable digital assets that, in turn, could
change the competitive dynamics of industries." (Rayport et
al. 1996) To properly use the information, that is to create
value from it, managers must explore the marketspace.
Although the value chain or the marketspace is similar to that
of the marketplace, there is an increased dynamic involved.
The processes for transferring raw information to products
and services are unique to the information world.
Ulhas D Wadivkar 323
 The Management of Virtual Value Chain:2:
• The conventional value chain model uses information for
solely support, not as a source of value itself. However,
with the arrival of the Internet the virtual value chain has
been enabled, allowing businesses to use information for
the creation of innovative products and services that are
exclusive to the marketspace.
• This study establishes that the strategy of IT is an
important issue for a business. Productivity, quality, cost
structure and profitability are all characteristics that are
directly affected by IT. It is essential for businesses to
use IT in the most effective way and to have knowledge
to implement IT systems. Lastly, both users and
businesses need to realize the potential that IT has for
their business.
Ulhas D Wadivkar 324
 The Management of Virtual Value Chain:3:

• An example of using the VVC to create such services

includes the Federal Express Corporation which recently
created a customer designed website to track packages
by using their air bill number. FedEx has been able to
capitalize using the VVC by adding value for the
customer (for free) and in turn has increased customer
loyalty in an intensely competitive market. In this
increasingly information based economy managers must
extract value from both the physical and virtual value
chains to succeed.
Ulhas D Wadivkar 325
 Syllabus
10. Strategy Implementation:
• Project Implementation –
• Procedural Implementation –
• Resource Allocation –
• Organization Structure –
• Matching structure and strategy.

(3)
Ulhas D Wadivkar 326
 Issues in implementation:
• Project Implementation.

• Procedural Implementation.

• Resource Allocation.

• Structural Implementation.

• Behavioural Implementation.

• Functional & Operational Implementation.

Ulhas D Wadivkar 327

 Strategy Implementation
• Strategy Implementation is managerial exercise of putting
freshly chosen Strategy into place.
• Action orientation: Strategy implementation entails action, it is
putting formulated Strategies into action through the
management processes.
• Strategy Implementation is comprehensive in scope. It
includes everything that is included in the discipline of
management studies.
• Strategist must have somebody with a wide range of
knowledge, skills, attitudes and Attributes for Implementation.
Actual Implementation demands varied Skills
• Wide range of involvement. Along with CEO every employee
is involved in Strategy implementation.
• The various tasks in strategy cannot stand alone. They are
interrelated. Each task performed is related to other and thus
create an interconnected network.
Ulhas D Wadivkar 328
• Adopting a clear model of Strategy Implementation: A Clear
unambiguous Strategy, Clear Responsibilities & Accountabilities,
Comprehending, how various elements are interconnected.
• Effective management of change in complex situations: Behavioural
changes, leadership style changes,
• Strategy Implementation is “Activating Strategies”, preparing ground
for managerial tasks & activities. ( Project implementation,
Procedural Implementation & Resource Allocation)
• The core of strategy implementation is “ Managing Change”.
(Structural Implementation, Leadership Implementation and
Behavioural Implementation). It involves Degree of change, Timing
of change & Activity areas of the change.
• The outcome of Strategy Implementation is to “Achieve
Effectiveness” through Functional and Operational Implementation.
Goal Model, Resource – based Model, Internal process Model and
the Conflicting Values Model. (Attempt to consolidate different
view points & using diverse indicators of performance)
Ulhas D Wadivkar 329
 Mintzberg’s
Conception of the Implemented
Formulated Type of Strategies Strategy
Strategy

Intended Deliberate Strategy Realised

Strategy Strategy

Unrealised Strategy Emergent Strategy

Ulhas D Wadivkar 330

 Strategies

Plans

Program

Projects

Budgets

Policies, Procedures, Rules & Regulations

Ulhas D Wadivkar 331

 Strategies
A
n
F B n
Corporate Plan u
Corporate u r
n o al
Long Term /
c a Medium Term
t Sector Plan d O
p
Objectives :
io
n e Market Share,
al O r ROI, ROE, New
Business
Divisional Plan bj a
sector e t Markets.
ct I These are
I o
Pl Product / v n
integrated and
technology e coordinated,
Division a
Plan s B
n consistent,
u
d prioritised and
Product g
Level e measurable
ts objectives.

Medium Short
Long Term
Term Term
(5-10 years)
(3 Yrs) (1 Year)
Ulhas D Wadivkar 332
 Advantages of Annual Objectives:

– Tangible Growth targets.

– Focus on Growth.
– Role clarity to managers and sub-ordinates.
– Mobilise people and enable them to participate in
direction of growth.
– Unifying all groups in one direction.
– Basis for strategic control.
– Motivate employees.
– Provide challenges for functional groups
– Tool to Operationalising strategies.
Ulhas D Wadivkar 333
 1. Project Implementation:
Strategic Management Process

Strategy Implementation Strategy Evaluation & Control

Project Control
Objectives Measures

Initiating Planning Executing Controlling Closing

Project Management Process

Ulhas D Wadivkar 334
 1. Project Implementation:
• Conception Phase: Extension of Strategy Formulation Phase.
Prioritising projects conceived.
• Definition Phase: Preparation of Detailed Project Report
considering marketing, technical, financial (eligible for
scrutiny by financial institutes, economic and ecological
aspects), feasibility study,
• Organisation, location, whether new or Modernisation or
expansion or diversification, backward integration, nature of
Industry, nature of products.
• Project promoters & Financial details of the company.
• Project details. Detailed Cost of project.
• Means of financing, Profitability and cash flow.
• Marketing arrangements
Ulhas D Wadivkar 335
• Economic considerations like competition, economic
benefits to country or region, contribution to
development, ancillaries etc.
• Environment aspect
• Govt. consents like licence, capital goods, foreign
Exchange, technical collaboration permission etc.

• Planning and organising phase: Designs, budgets,

finance, schedules, manpower, systems and procedures.

• Implementation Phase : detailed engineering, order

placement, testing, trial and commissioning of the
project.

• Clean up phase : disbanding the project set up and

handing over of the facility to operation.
Ulhas D Wadivkar 336
 2. Procedural Implementation
• Formation of the company
• Licensing procedures
• SEBI requirements
• MRTP requirements
• Foreign collaborations procedures
• FEMA requirements
• Import and Export Licences / requirements
• Patenting and trade mark requirement
• Labour legislation requirement
• Environmental requirement and Pollution board
requirements
• Consumer protection requirements
• Procedures for availing Incentives and facilities to
get benefits.
Ulhas D Wadivkar 337
 3. Resource Allocation
• Resource allocation deals with procurement and commitment of
financial, physical and human resources to strategic tasks.
• Project related resources are generally one time requirements and
for on-going concern the resources are required on continuous
basis.
• Finance is primary resource. It is required for creation and
maintenance of other resources. Long term resources are required
for creation of capital assets and short term finance is required for
working capital.
• Resources could be internal or external. Internal resources are
retained earnings, depreciation provisions, other reserves etc.
• External resources are equity and long term loans. Also money
market resources such as bank credits, hire purchase debt,
instalment credit and fixed deposits.
• Resource allocation : This could be top down where resources are
allocated by top level to all other levels of organisation based on
budgets. In a bottom up scenario budgets are drawn by operation
group as required. However Strategic Budgeting is a mix of both
and is dynamic. It involves to and fro communications and actions
between
Ulhas all levels of management based on strategic decisions.
D Wadivkar 338
 Resources
availability

Top Corporate Goals Approvals

Policy Short & sanctions
management
Guidelines & Long

Strategic
budget

Minimising P
R
gaps O
P
Core Competencies, O
Executive Marketing & past S
Performance, A
Management Environment, culture L
S

Targets /
Operation Implementa
Operating tion
Budgets
Management
Ulhas D Wadivkar 339
 Types of Strategic Budgets

High BCG Matrix for Strategic Decisions SBUs / Multi-

I
divisions / Multi-
20% departments are
n
d identified for
u
st Stars Question Resource
r 15% Marks allocations for
y
Investment.
G
r
o 10%
w Cash flows are
t
h
based on their
Cash Dogs strengths in BCG
R Cows
5%
Matrix.
a
t
e Low

High Relative Market Share Low

Ulhas D Wadivkar 340
 Types of Strategic Budgets
• PLC Based Budget: Product / SBU Life Cycle: Resources are
allocated based on different stages Product / SBU Life Cycle.
• Capital Budgeting: A separate budget is drawn for Capital
requirement in case of new SBU or new product or expansion
or modernisation. In case of capital sources fund raising are
different.
• Zero based Budgeting: ZSB is based on present evaluation
and not based on past performance. Each requirement is to be
justified by operation group on the basis of fresh calculation of
costs and targets. In other words the resource allocation
demand is based on “ground zero”
• Parta System: This system is mainly used by conservative
business houses where CEO is basically a financial wizard.
This system is based on daily net cash flow (before tax and
dividend) statement. The net cash flow is pre determined and
agreed figure between SBU In-charge / Operating
Management and the Chairperson / owner / major stock holder
of the
Ulhas company. This is a daily budgeting and reporting 341
D Wadivkar
system.
 Factors affecting Resource Allocation:
• Objectives of the Organisation – Realisation of Strategic Intent.
• Dominant Strategists – Powerful Lobbying, influential departmental
heads, CEO preferences etc.
• Internal Politics – Resource allocation is construed a Power
Statement and SBU In-charges, departmental heads strive for
grabbing more resources for their departments.
• External Influences – Government policies, statutory requirements,
demands from financial institutes, Share holders, Community,
necessity of Pollution control and safety equipments.
• Scarcity of Resources – Financial, physical and human resources,
cost of capital and that of cash credits, Government Policies with
regards to raw materials and Technology.
• Credit-worthiness of organisation– ability to raise funds.
• Overstatement of needs – Bottom up or democratic ways of
resource allocation gets developed in to every one grabbing his
share of pie by overstating and dramatising their needs.
• It is a role for CEO for managing resources. He need to have a
Strategic Plan and communicate the same to all executives and342
Ulhas D Wadivkar
ensure that resource allocation decisions are taken amicably.
 4. Structural Implementation
Owner - Manager
Entrepreneurial:
Employees

Functional CEO

Public Production Finance Marktg. Personnel Legal

Relations

Divisional / Product CEO

Corporate Finance Legal / PR

Division Gen. Manager- DIV. A Gen. Manager- Div. B

Marktg., Operations, Pers., Marktg., Operations, Pers.,

Ulhas D Wadivkar 343
• SBU Based
CEO

Head SBU 1 Head SBU 2 Head SBU 3

Div. A,B,C Div. D,E,F Div. G,H,K

Ulhas D Wadivkar 344

 Matrix CEO

Corporate Finance Operations Personnel Marketing

Head – A
Location /
Product /
Plant

Head – B
Location /
Product /
Plant

Head – C
Location /
Product /
Plant

Ulhas D Wadivkar 345

 Network

Region Project Function

A M X

Corporate
HQ

Region Project Function

B N Y

Ulhas D Wadivkar 346

• Product based Structures: In large volume scenario it
makes a sense to have a separate organisation
dedicated to a product. This enables optimum use of
specialised skills. Product separation helps organisation
in addition /deletion decisions.
• Customer based Structures: Assuming that sales volume
justifies the need of separate setup; it enables
organisation to concentrate on specific customer group
and provide exclusive attention required for that
particular product / services. It helps in creating
specialised skills and timely response to changing needs
of the customers.
• Geographic Structures: Set ups at different sites
sometimes evolve due to expansions and mergers. It
also offers advantage of nearness to raw materials or to
markets / customers. It helps in fair degree of de-
centralisation. It needs a very good top level co-
ordination and communication amongst all locations and
corporate office.
Ulhas D Wadivkar 347
• Intrapreneurial Structure: This is a cluster of various owner
driven set-ups. It encourages entrepreneurial abilities of its
employees. Employees as entrepreneurs with support of
parent organisation can apply its full attention to his part of
business for development of new ideas for products and
services.
• There are also “Horizontal Organisations” and “Delaminated
matrices.”
• In horizontal type; the structure corresponds to process of
providing products or services directly served to customer
thereby eliminating special corporate functions like
marketing, finance etc. Executives have to be multi-
functional in such a case as the core process is managed by
cross functional teams.
• Delaminated Matrices are combination of Horizontal
organisations with a Functional structure. The firm employs
both process oriented horizontal teams and functional
departments. These two layers of matrix organisation are
separated providing depth of expertise and capabilities to
the
Ulhas organisation.
D Wadivkar 348
Organisational Design: Structural Dimensions:
• Formalisation: Written Documents, Procedures, Job
Descriptions, Regulations & Policy Manuals.
• Specialisation: Specialised tasks are subdivided into
separate groups.
• Hierarchy of Authority: Span of Control of Managers,
Reporting structure, Nos. of Sub-ordinates.
• Centralisation: Decision making process, Delegation of
decision making authority.
• Professionalism: Formal Education & Training
requirements.
• Personnel Ratios: Deployment of people to various
functions & Departments, Administrative Ratio, Clerical Ratio,
Indirect v/s Direct labour Ratio.
Contextual Dimensions: Environment, Goals & Strategy,
Culture, Technology and size of Organisation are factors that
influence the shape the structural dimensions.
Ulhas D Wadivkar 349
• Organisations are structured to implement strategic plan in
best possible way. All functions and activities that are
critical from strategy view point are required to be
considered. Thus key activities performed to achieve
Objectives and realise the Mission are required to be
considered in Organisational design.

• Identification of key activities necessary to be performed

for achieving Objectives and realising the Mission through
the formulated strategy.
• The activities which are similar in nature and skills are
grouped together.
• Different groups of activities are accommodated in the
structure.
• Creation of Departments, Divisions; Regions and so on to
which the group of activities are assigned.
• Design establishes an interrelationship between these
different departments for the purpose of coordination and
communications.
Ulhas D Wadivkar 350
Traditional Organisations Emerging Organisations

One large firm Small business units with

Cooperative relationship.
Vertical Communication Horizontal Communication

Centralised and Top-down Decentralised and participative

decision Making decision making
Vertical Integration Outsourcing and virtual
organisations
Work / Quality based Teams Autonomous work teams

Functional Work teams Functional Work teams

Minimum Training Extensive Training

Individual-focussed
Ulhas D Wadivkar
specialised value chain team-focussed Job
351
Job Design Design
 Organisational Systems
• Control Systems – The measurement and correction of
the performance of activities of all the people in
structure in order to make sure that enterprise
objectives and plan devised to achieve the same is
accomplished.

Establish
Standards

Determine Measure
corrective Performance
performance

Evaluate
Performance
against
Standards

Ulhas D Wadivkar 352

 Organisational Systems
• Information Systems – The Organisational
Arrangements that provides information to managers
to perform their tasks and relate their works to others.
This is also known as MIS
• Appraisal Systems – Evaluating managerial
performance. Appraisals are used for salary fixation,
awards, incentives, management development, etc.
• Motivation Systems – to enforce desirable behaviour.
Motivation can be monetary such as Salary, Bonus,
Rewards and non monetary such as recognition,
designation, perks
Ulhas D Wadivkar 353
 Organisational Systems

• Planning Systems – Planning is basically formulating

strategy. Planning can be centralised or decentralised
depending upon Organisational Character. Plans are
provided as packaged plan for implementation in
centralised planning by planning committee. In
decentralised planning corporate strategy performs a
directive role for divisions, who in turn does planning
taking environment into consideration.

Ulhas D Wadivkar 354

 • Development systems – is a process of gradual,
systematic improvement in knowledge, skills and
performance of mangers to enable them to perform
their duties.
The process of management Development

Individual Organisational Training &

Characteristics Characteristics Education,
New Experiences

Managerial Performance Experience Learning

behaviour

Management
Development

Ulhas D Wadivkar 355

 5. Behavioural Implementation.

• Behaviour of the strategist has a huge impact on

implementing the chosen strategy. Implementation of

strategy has thus many behavioural issues.

• Leadership.

• Corporate Culture.

• Corporate Politics.

• Use of Power.

• Personal Values and Business Ethics.

Ulhas D Wadivkar 356
 Leadership in Implementation:1:
• Leadership plays a critical role in the success and failure of an
enterprise. It is one of the most important elements affecting
Organisational performance.
• Leaders have Personality traits and Qualities.
• Leaders Influence relationship between individuals.
• Behaviour of leader lead to actions around.
• Situation in which leader has to operate decides the mettle of
a leader. Subordinates and situation at times show
dependence on a leader.
• This generates Contingency behaviour within the leader.
• Leader transacts with sub-ordinates and indicates Role
differentiation.
• Leader with absence of a real concepts provides anti
leadership.
• Leadership thrives on entire organisational Culture.
• Leader uses his influence and creates intrinsic motivation and
bring about Transformation of the organisation
• Risk Taking Leader: Willingness to take high risks. This is
required at times depending on the strategy which involves
high
Ulhas Dreturns.
Wadivkar 357
 Leadership in Implementation:2:
• Technocracy: Optimum decisions based on technical
needs
• Organicity: The flexibility and adaptability in changing
requirements is required to satisfy an agile operating staffs.
• Participation: Inviting participation at all levels in the
decision-making, Process and strategy implementation.
• Coercion involves domination, authoritarianism by top
management complied with wishes given in Mission and
adjectives.
• Key role of Leaders: CEO: Identifying Strategy and
implement. He remains accountable for success or failures.
He should identify changes in environment and should
operate a trigger. He should have interpersonal skills and
creativity to Mobilise people.
• CEO should develop and choose future strategists. Their
career planning and establish a succession plans. Normally
a promotion within, is useful for moral of the organisation.
Ulhas D Wadivkar 358
 Corporate Culture
• Corporate Culture is a set of important assumptions-
often un-stated but most members share in common.
Something like “people at top do not understand” or
“Whether you work or don’t work, you will get salary”,
“there is stagnation at Top” or “Turnover is important.”
• Thus shared things like uniforms, Shared sayings,
shared actions like service oriented approach, shared
feelings like “hard work is not rewarded here” creates a
Corporate culture.
• Strategists have four approaches to create a strategy
related supportive culture. This depends on strategy-
culture relationship.
Ulhas D Wadivkar 359
 Ignore corporate To adapt strategy
culture: implementation to suit
Changes required are corporate culture.
very high and Changes required are
compatibility of change very high and
is low, then compatibility of change
is also high, then

To change strategy to To change corporate

fit corporate culture culture to suit strategic
Changes required are requirements :Changes
very low and required are very low
compatibility of change and compatibility of
is also low, then change is high, then

Ulhas D Wadivkar 360

• Corporate Politics and Power: Power is an ability to
influence others and politics is carrying out activities
though not prescribed by any Policy to gain advantages
and influence distribution.
• Corporate politics is not good or bad but it creates
divisiveness which is not good.
• Sources of Power : ‘Reward Power’ – ability of Manager
to reward people of his choice. ‘Coercive Power’ – Ability
to penalise negative results. ‘Legitimate Power’ Ability of
Mangers to influence behaviour of sub ordinates.
Referent Power is Managers to create liking among
subordinates due to charisma or knowledge. Expert
Power is due to competence, knowledge and experience
of Managers.
Ulhas D Wadivkar 361
 Personal Values and Business Ethics
• Value is a view of life and a judgement of what is
desirable and what is correct. These views forms
personality of a leader and creates a group’s morale.
Business ethics are traditionally been considered as core
values like honesty, trust, respect & fairness.
To inculcate these value and ethics:
• Consider Values & Ethics of a person during recruitment.
• Incorporate in new comer trainees and in training
programme.
• Top management to set examples.
• Communicate Values & Ethics through wide publicity.
• Consistently monitor and nurture values and build ethics.
Ulhas D Wadivkar 362
Social Responsibility and Strategic Management
• Social Responsibility along with ethics becomes a stated or
un-stated requirement. It gets attended in Strategic Planning
through environmental appraisals. It has differing views, while
some do not want it to be considered in business operations,
others boast around it. However, most business houses
observe a balance and undertake to deliver social
responsibility and business objectives without contradicting
each other.
• Social Responsibility extends beyond the workforce and
stakeholders and many business houses take up activities for
community welfare, rural development, sports etc.
• Presently, with ISO:14001:2004 which concerns Environment
Management Systems, it has become a necessity to address
the mode and means of delivering social responsibility.
• Like any other strategic functions, for successful
implementation, Organisations need to allocate resources,
create Organisation Structure and evaluate its effectiveness.
But all said and done, the society in large remains a major
stake holder and we cannot escape our dues to society and
towards social responsibility.
Ulhas D Wadivkar 363
 Functional and Operational Implementation.
• Enterprise Vision, Mission, Objectives and Goals are of
generic nature.
• Various functions like Marketing, Operation, Finance,
HRD etc. are created for effective implementation of the
Strategic Plans.
• Functional Plans and Policies are developed.
• Functional Strategy deals with limited restricted plan
which provides objectives for a specific function.
• Resources are allocated function wise for their optimal
contribution to the achievement of Business and
Corporate level Objectives.

Ulhas D Wadivkar 364

 Functional Plans and Policies:
• Functional Strategies are implemented through defined
plans and policies for various functions.
2. The strategic decisions are implemented by all the
functions of the organisations.
3. A basis is created for controlling activities of all different
functional areas of business.
4. Plans are laid down clearly for all functional
departments and Policies provide discretionary
framework. Thus functional mangers do not spend time
groping in dark.
5. Functional mangers can handle similar situations
effectively.
6. Co-ordination across the different functions takes place
where necessary.
Ulhas D Wadivkar 365
 Strategy Formulation

Nature of Product Nature of market Manner in

/ Services which Market
is to be
served

Operational
Operational
System
System
Objective
Structure

Operational
Policies and
plans
Ulhas D Wadivkar 366
 Syllabus
11. Behavioural issues in implementation:

• Corporate culture –
• Mc Kinsey’s 7s Framework –
• Concepts of Learning Organization

(3)

Ulhas D Wadivkar 367

 Description of the 7-S Frame work of MC Kinsey

Ulhas D Wadivkar 368

 Description of the 7-S Frame work of MC Kinsey
• The 7-S framework of McKinsey is a Value Based Management
(VBM) model. Together these factors determine the way in which a
corporation operates.
• Shared Value: The interconnecting centre of McKinsey's model is:
Shared Values. What does the organization stands for and what it
believes in. These are Central beliefs and attitudes.
• Strategy: Strategy is a Plan for the allocation of a firm’s scarce
resources, over a time to reach identified goals. Strategy considers
Environment, Competition and Customers.
• Structure: The way the organization's units relate to each other:
centralized, functional divisions (top-down); decentralized (the trend
in larger organizations); matrix, network, holding, etc.
• System: The procedures, processes and routines that characterize
how important work are to be done: financial systems; hiring,
promotion and performance appraisal systems; information
systems.
• Staff: Numbers and types of personnel within the organization.
• Style: Cultural style of the organization and how key managers
behave in achieving the organization’s goals.
• Skill: Distinctive capabilities of personnel or of the organization369
Ulhas D Wadivkar
as
a whole. (Core Competencies).
 The McKinsey 7S Framework
• Ensuring that all parts of your organization work in
harmony
• While some models of organizational effectiveness go in and
out of fashion, one that has persisted is the McKinsey 7S
framework. Developed in the early 1980s by Tom Peters and
Robert Waterman, two consultants working at the McKinsey
& 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 McKinsey 7S model can be applied to elements of a
team or a project as well. The alignment issues apply,
regardless of how you decide to define the scope of the
areas you study
* The 7S model can be used in a wide variety of situations
where an alignment perspective is useful, for example:
• Improve the performance of a company;
• Examine the likely effects of future changes within a
company;
• Align departments and processes during a merger or
acquisition;
Ulhas D Wadivkar 370
 The Seven Elements
Hard Elements Soft Elements
Strategy Shared Values
Structure Skills
Systems Style
Staff

•"Hard" elements are easier to define or identify and

management can directly influence them: These are
strategy statements; organization charts and reporting
lines; and formal processes and IT systems.
•"Soft" elements, on the other hand, can be more difficult
to describe, and are less tangible and more influenced by
culture. However, these soft elements are as important as
the hard elements if the organization is going to be
successful.
Ulhas D Wadivkar 371
• The way the model is presented in Figure depicts the
interdependency of the elements and indicates how a
change in one affects all the others.
• Placing Shared Values in the middle of the model
emphasizes that these values are central to the
development of all the other critical elements. The
company's structure, strategy, systems, style, staff and
skills all stem from why the organization was originally
created, and what it stands for. The original vision of the
company was formed from the values of the creators. As
the values change, so do all the other elements

Ulhas D Wadivkar 372

 How to Use the Model
• The model is based on the theory that, for an
organization to perform well, these seven elements need
to be aligned and mutually reinforcing. So, the model can
be used to help identify what needs to be realigned to
improve performance, or to maintain alignment (and
performance) during other types of change.
• Whatever the type of change - restructuring, new
processes, organizational merger, new systems, change
of leadership, and so on - the model can be used to
understand how the organizational elements are
interrelated, and so ensure that the wider impact of
changes made in one area is taken into consideration.
• You can use the 7S model to help analyze the current
situation (Point A), a proposed future situation (Point B)
and to identify gaps and inconsistencies between them.
It's then a question of adjusting and tuning the elements
of the 7S model to ensure that your organization works
effectively and well once you reach the desired endpoint.
Ulhas D Wadivkar 373
• However, it is not simple. Changing your organization
probably will not be simple at all! Whole books and
methodologies are dedicated to analyzing organizational
strategy, improving performance and managing change.
The 7S model is a good framework to help you ask the
right questions - but it won't give you all the answers. For
that you'll need to bring together the right knowledge,
skills and experience.
• When it comes to asking the right questions, we've
developed a Mind Tools checklist and a matrix to keep
track of how the seven elements align with each other.
Supplement these with your own questions, based on
your organization's specific circumstances and
accumulated wisdom.
Ulhas D Wadivkar 374
 7S Checklist Questions
• Here are some of the questions that you'll need to explore to
help you understand your situation in terms of the 7S
framework. Use them to analyze your current (Point A) situation
first, and then repeat the exercise for your proposed situation
(Point B).
• Strategy:
• What is our strategy?
• How to we intend to achieve our objectives?
• How do we deal with competitive pressure?
• How are changes in customer demands dealt with?
• How is strategy adjusted for environmental issues?
• Structure:
• How is the company/team divided?
• What is the hierarchy?
• How do the various departments coordinate activities?
• How do the team members organize and align themselves?
• Is decision making and controlling centralized or decentralized?
Is this as it should be, given what we're doing?
Ulhas D Wadivkar
• Where are the lines of communication? Explicit and implicit?375
• Systems:
• What are the main systems that run the organization? Consider
financial and HR systems as well as communications and
document storage.
• Where are the controls and how are they monitored and
evaluated?
• What internal rules and processes does the team use to keep on
track?
• Shared Values:
• What are the core values?
• What is the corporate/team culture?
• How strong are the values?
• What are the fundamental values that the company/team was
built on?
• Style:
• How participative is the management/leadership style?
• How effective is that leadership?
• Do employees/team members tend to be competitive or
cooperative?
• Ulhas
AreD Wadivkar
there real teams functioning within the organization or are376
they just nominal groups?
• Staff:
• What positions or specializations are represented within
the team?
• What positions need to be filled?
• Are there gaps in required competencies?
• Skills:
• What are the strongest skills represented within the
company / team?
• Are there any skills gaps?
• What is the company / team known for doing well?
• Do the current employees/team members have the
ability to do the job?
• How are skills monitored and assessed?

Ulhas D Wadivkar 377

 7S Matrix questions
• Using the information you have gathered, now examine
where there are gaps and inconsistencies between elements.
Remember you can use this to look at either your current or
your desired organization.
• Check off alignment between each of the elements as you go
through the following steps:
• Start with your Shared Values: Are they consistent with your
structure, strategy, and systems? If not, what needs to
change?
• Then look at the hard elements. How well does each one
support the others? Identify where changes need to be made.
• Next look at the other soft elements. Do they support the
desired hard elements? Do they support one another? If not,
what needs to change?
• As you adjust and align the elements, you'll need to use an
iterative (and often time consuming) process of making
adjustments, and then re-analyzing how that impacts other
elements and their alignment. The end result of better
Ulhas D Wadivkar 378
performance will be worth it.
• Key points:
• The McKinsey 7Ss model is one that can be applied to
almost any organizational or team effectiveness issue.
• If something within your organization or team isn't working,
chances are there is inconsistency between some of the
elements identified by this classic model.
• Once these inconsistencies are revealed, you can work to
align the internal elements to make sure they are all
contributing to the shared goals and values.
• The process of analyzing where you are right now in terms of
these elements is worthwhile in and of itself.
• But by taking this analysis to the next level and determining
the ultimate state for each of the factors, you can really move
yourD Wadivkar
Ulhas organization or team forward. 379
 Concepts of Learning Organization
• Organisational Learning vs. Learning Organisation
• There is a difference between Organisational Learning
and Learning Organisation. Argyris (1977) defines
Organisational Learning as the process of "detection and
correction of errors"
• while Senge (1990) defines Learning Organisation as "a
group of people continually enhancing their capacity to
create what they want to create". Senge further remarks
that "the rate at which organizations learn may become
the only sustainable source of competitive advantage".
• Organisational Learning is a Process and Learning
Organisation is a Structure.
• A Learning Organisation is an Organisation that learns
and encourages learning among its people in an effort to
create a more knowledgeable and flexible workforce
capable to adapt to cultural changes.
Ulhas D Wadivkar 380
• A Learning Organization is the term given to a company that
facilitates the learning of its members and continuously
transforms itself. Learning Organizations develop as a result of
the pressures facing modern organizations and enables them to
remain competitive in the business environment. A Learning
Organization has five main features; systems thinking,
personal mastery, mental models, shared vision and team
learning.
• Donald Schon. He provided a theoretical framework linking the
experience of living in a situation of an increasing change with the
need for learning.
• The loss of the stable state means that our society and all of its
institutions are in continuous processes of transformation. We
cannot expect new stable states that will endure for our own
lifetimes. We must learn to understand, guide, influence and
manage these transformations. We must make the capacity for
undertaking them integral to ourselves and to our institutions.
• We must, in other words, become adept at learning. We must
become able not only to transform our institutions, in response to
changing situations and requirements; we must invent and develop
institutions which are ‘learning systems’, that is to say, systems
capable of bringing about their own continuing transformation.
Ulhas D Wadivkar 381
(Schon 1973: 28)
• Subsequently, we have seen very significant changes in
the nature and organization of production and services.
Companies, organizations and governments and we
have to operate in a global environment and that has
altered its character in significant ways.
• Productivity and competitiveness are, by and large, a
function of knowledge generation and information
processing. Firms and Territories are organized in
networks of production, management and distribution.
The core economic activities are global – that is they
have the capacity to work as a unit in real time, or
chosen time, on a planetary scale. (Castells 2001: 52)
• A failure to attend to the learning of groups and
individuals in the organization spells disaster in this
context. As Leadbeater (2000: 70) has argued,
companies need to invest not just in new machinery to
make production more efficient, but in the flow of know-
how that will sustain their business. Organizations need
to be good at knowledge generation, appropriation and
exploitation
Ulhas D Wadivkar 382
 Why do Learning Organizations develop?
• Organizations do not organically develop into Learning
Organizations; there are usually factors prompting their change.
• It has been found that as organizations grow, they lose their natural
capacity to learn as company structures and individual thinking
becomes rigid.
• When problems arise in the company, the solutions that are
proposed often turn out to be only short term (single loop learning)
and re-emerge in the future.
• To remain competitive, many organizations have restructured,
which has resulted in fewer people in the company. This means
those who remain need to work more effectively.
• To create a competitive advantage, companies need to be able to
learn faster than their competitors and also develop a customer
responsive culture.
• Modern organizations need to maintain knowledge about new
products and processes, understand what is happening in the
outside environment and produce creative solutions using the
knowledge and skills of all employed within the organization.
• This requires co-operation between individuals and groups, free
and reliable communication, and a culture of trust. These needs
can
Ulhas be met through embracing the tenets of the Learning
D Wadivkar 383
Organization.
 Learning Organisation : Definitions
• The Learning Company is a vision of what might be possible. It
is not brought about simply by training individuals; it can only
happen as a result of learning at the whole organization level.
(Pedler et. al. 1991: 1) Pedler et al, later redefined this concept
to “an organization that facilitates the learning of all its
members and consciously transforms itself and its
context”, reflecting the fact that change should not happen just
for the sake of change, but should be well thought out.
• "Organisations where people continually expand their capacity
to create the results they truly desire, where new and expansive
patterns of thinking are nurtured, where collective aspiration is
set free, and where people are continually learning to learn
together" (Peter Senge, 1990).
• Learning organizations are characterized by total employee
involvement in a process of collaboratively conducted,
collectively accountable change directed towards shared values
or principles. (Watkins and Marsick 1992: 118)
• According to Sandra Kerka (1995) most conceptualisations of
the learning organisations seem to work on the assumption that
‘learning is valuable, continuous, and most effective when
shared
Ulhas and that every experience is an opportunity to learn’. 384
D Wadivkar
 Characteristics of a Learning Organization-1
• Learning Organization exhibits five main characteristics;
Systems thinking, Personal mastery, Mental models, a
Shared vision and Team learning.
• Systems thinking
• This is a conceptual framework that allows people to study
businesses as bounded objects.
• Learning Organizations employ the method of thinking when
assessing their company and develops information systems
that measures the performance of the organization as a
whole and of its various components.
• Systems thinking also state that all the characteristics listed
must be apparent at once in an organization for it to be a
Learning Organization. If any of these characteristics is
missing, then the organization will fall short of its goal.
• However O’Keeffee believes that the characteristics of a
Learning Organization are factors that are gradually
acquired,
Ulhas D Wadivkarrather than developed simultaneously. 385
 Characteristics of a Learning Organization-2
• Personal Mastery
• Personal mastery is the commitment by an individual to
the process of learning. There is a Competitive
Advantage for an organisation whose workforce can
learn quicker than the workforce of other organisations.
• Individual learning is acquired through staff training and
development. However learning cannot be forced upon
an individual if he or she is not receptive to learning.
• Research has shown that most learning in the workplace
is incidental, rather than the product of formal training;
therefore it is important to develop a culture where
personal mastery is practiced in daily life.
• A Learning Organisation has been described as the sum
of individual learning, but it is important for there to be
mechanisms by which individual learning is transferred
into Organisational Learning.
Ulhas D Wadivkar 386
 Characteristics of a Learning Organization-3
• Mental models
• Mental Models are the terms given to ingrained assumptions
held by individuals and organisations.
• To become a Learning Organisation, these mental models
must be challenged.
• Individuals tend to espouse theories, which they intend to
follow, and theories-in-use, which is what they actually do.
• Similarly, organisations tend to have ‘memories’ which
preserve certain behaviours, norms and values. In the
creation of a learning environment it is important to replace
confrontational attitudes with an open culture that promotes
inquiry and trust.
• To achieve this, the Learning Organisation will have
mechanisms for locating and assessing organisational
theories of action. If there are unwanted values held by the
organisation, these need to be discarded in a process called
‘unlearning’ Wang and Ahmed refer to this as ‘triple loop
learning.’
Ulhas D Wadivkar 387
 Characteristics of a Learning Organization-4
Shared vision
• The development of a shared vision is importantly provides
incentive to the workforce to learn as it creates a common
identity that can provide focus and energy for learning.
• The most successful visions are built on the individual visions
of the employees at all levels of the organisation
• The creation of a shared vision is likely to be hindered by
traditional structures where a company vision is imposed
from above. Therefore…
• Learning Organisations tend to have flat, decentralised
organisational structures.
• The topic of shared vision is often to succeed against a
competitor, however Senge states that these are transitory
goals and suggests that there should also be long term goals
thatDare
Ulhas intrinsic within the company.
Wadivkar 388
 Characteristics of a Learning Organization-5
• Team learning is the accumulation of individual learning.
• The benefit of sharing individual learning is that employees
grow more quickly and the problem solving capacity of the
organisation is improved through better access to knowledge
and expertise.
• Learning Organisations have structures that facilitate team
learning with features such as boundary crossing and
openness.
• Team learning requires individuals to engage in dialogue and
discussion, therefore it is important that team members
develop open communication, shared meaning and
understanding.
• Learning Organisations also have excellent knowledge
management structures, which allow creation, acquisition,
dissemination, and implementation of this knowledge
throughout
Ulhas D Wadivkar the organisation. 389
 Characteristics of a Learning Organization-6
• The basic rationale for such organisations is that in situations
of rapid change, only those that are flexible, adaptive and
productive will excel.
• For this to happen, it is argued that organisations need to
‘discover how to tap people’s commitment and capacity to
learn at all levels’ (Peter Senge, 1990)
• And that “the pressure of change in the external
environments of organisations... is such that they need to
learn more consciously, more systematically, and more
quickly than they did in the past...
• They must learn not only in order to survive but also to thrive
in a world of ever increasing change” (Pearn, 1997).
• The key ingredient of the Learning Organisation is in how
organisations process their experiences and how they learn
from their experiences rather than being bound by their past
experiences.
Ulhas D Wadivkar 390
 Learning Organisation Concepts

• The concept of organisational learning evolved from the

individual learning process, but organisational learning is
not simply the collectively of individual learning
processes, but it engages interaction between:
• Individuals in the organisation
• Interaction between organisations as an entity
• Interaction between the organisation and its environment
• The major Learning Organisational concepts focus on
“Continuous Improvement”, “Culture” and “Innovation
and Creativity”.
Ulhas D Wadivkar 391
 Focus The concept of Learning Organisation Practices
1. Continuous “A learning organisation should consciously and
Improvement
The adoption of
intentionally devote to the facilitation of individual
learning in order to continuously transform the Total Quality
entire organisation and its context “ (Pedler et al. Management
1991) practices
2. Culture
“A learning organisation should be viewed as a Creation and
metaphor rather than a distinct type of structure, maintenance of
whose employees learn conscious communal learning culture:
processes for continually generating, retaining and adopting to cultural
leveraging individual and collective learning to change, collaborati
improve performance of the organisational system ve team working,
in ways important to all stakeholders and by employee
monitoring and improving performance” (Drew & empowerment and
Smith, 1995) involvement, etc.
3. Innovation
and Creativity Facilitation of
Organisation learning is the process by which
learning and
the organisation constantly questions existing
knowledge
product, process and system, identify
creation; focus
strategic position, apply various modes of
on creative
learning, and achieve sustained competitive
quality and value
advantage
innovation
Ulhas D Wadivkar 392
Problems / issues that may be encountered in a Learning
Organisation:
• Even within a Learning Organisation, problems may be
encountered that stall the process of learning or cause it to
regress.
• Most of the problems arise from an Organisation not fully
embracing all the facets outlined above that are necessary in
a Learning Organisation.
• If these problems can be identified, work can begin on
improving them.
Organisational barriers to learning:
• Some organisations can find it hard to embrace personal
mastery because as a concept it is intangible and the benefits
cannot be quantified. Additionally, personal mastery can be
seen as a threat to the organisation.
• This threat can be real, as Senge points out, that “to empower
people in an unaligned organisation can be counterproductive”.
Ulhas D Wadivkar 393
Organisational barriers to learning: (Contd.)
• In other words, if individuals do not engage with a shared
vision, personal mastery could be used to advance their own
vision.
• In some organisations a lack of a pro-learning culture can
be a barrier to learning.
• It is important that an environment is created where
individuals can share learning without it being devalued and
ignored.
• So more people can benefit from their knowledge and the
individual becomes empowered.
• A Learning Organisation needs to fully embrace the removal
of traditional hierarchical structures. These are a barrier to
the development of shared vision and to the sharing of
knowledge.
Ulhas D Wadivkar 394
 Individual barriers to learning
• Resistance to learning can occur within a Learning
Organisation if there is not sufficient “buy in” at an individual
level.
• This is often encountered by people who feel threatened by
change or believe that they have the most to lose.
• The same people who feel threatened by change are likely to
have closed mind sets are not willing to embrace
engagement with mental models.
• Unless implemented coherently across the whole
organisation, learning can be viewed as elitist and restricted
to more senior levels within the organisation.
• If this is the case, learning will not be viewed as a shared
vision.
• If training and development is compulsory, it can be viewed
as a form of control, rather than a form of personal
development.
• Learning and the pursuit of personal mastery needs to be an
individual choice, therefore enforced take up will not work.
Ulhas D Wadivkar 395
 Ideas on the "Why Learning Organisation?"
• Because we want superior performance and competitive
advantage
• For customer relations
• To avoid decline
• To improve quality
• To understand risks and diversity more deeply
• For innovation
• For our personal and spiritual well being
• To increase our ability to manage change
• For understanding
• For energized committed work force
• To expand boundaries
• To engage in community
• For independence and liberty
• For awareness of the critical nature of interdependence
• Because
Ulhas D Wadivkar
the times demand 396
 Syllabus
• =====================================
• 12. Functional issues:
• Functional plans and policies –
• Financial,
• Marketing,
• Operations,
• Personnel,
• IT, (2)
======================================

Ulhas D Wadivkar 397

 Functional Plans & Policies:
• Functional Strategies are derived from Business &
Corporate Strategies and are implemented through
Functional & operational Implementation.
• Functional Strategies deal with limited plan designed to
achieve Objectives in a specific Functional area, allocation
of resources for that functional area and coordination
among different functional operations to achieve Functional
Objectives.
• Functional Plans & Policies are developed for:
4. The Strategic decisions are implemented by all parts of an
Organisation.
5. There is a basis available for controlling activities in
different functional areas of Operation.
6. Plans are laid down for what is to be done and Policies
provide guideline for discretions and Functional Manager’s
time in decision making is reduced.
7. Required Coordination amongst different functions takes
place.
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 Financial Plans & Policies
Sources of Funds:
2. Capital Mix Decisions.
3. Capital Structure.
4. Procurement of Capital.
5. Working Capital Borrowings.
6. Reserves & Surpluses as source of Funds.
7. Relationships with Lenders, Banks & FIs.
Plans & Policies related to sources of funds determine how
financial resources will be made available for implementation of
Strategies.
Usage of Funds:
• Investment or Asset mix decisions.
• Capital Investments,
• Fixed Asset acquisitions,
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5. Dividend decisions,
6. Relationship with Shareholders,
Usage of Funds relates to efficiencies & effectiveness of
resource utilisation in the process of Strategy Implementation.
Management of Funds:
6. System of Finance,
7. Accounting & Budgeting,
8. Management Control Systems,
9. Cash, Credit and Risk Management,
10. Cost control, cost reduction and Tax planning
11. Aiming at Conservation and Optimum utilisation of Funds.
Organisations which implement business strategies of
Cost leadership must practice proper management of Funds.
Good management of funds often creates the difference
Between strategically successful or unsuccessful Company.
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 Marketing Plans & Policies
• These are 4Ps of Marketing
Product: Goods & Services offered by Organisation to its
Target market. (Choice of Models, Quality, Features, Brand
names, Packaging etc.)
Pricing : Money that Customers pay in exchange of Goods &
Services. (Discounts, Mode of payment, Allowances,
Payment period, Credit terms)
Promotion: Marketing communications intended to convey
the company and product or service image to prospective
buyers. (Advertising, Personal Selling, Sales Promotion and
Publicity)
Place: Distribution process by which goods or services are
made available to the customers. (Transportation, logistics,
inventory storage management, coverage of markets, etc.,)
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Integrative & Systematic Factors:
• This part of the plans & policies related to Marketing
Management. (Marketing mix, Segmentation, Targeting,
Positioning, Market Standing, Company Image, Marketing
Organisation, Marketing System, Marketing Management
Information System)
Operations Plans & Policies:
Production System – Capacity, Location, Layout, Product or
Service design, Work systems, Degree of Automation, extent
of vertical integration. Operation Plans & Policies deals with
vital issue affecting the capability of the Organisation to
achieve objectives.
Operational Planning & Control – Production Planning,
Materials supply, inventory, Cost, Quality Management,
Maintenance of Plant and Equipment.
Research & Development
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 Personnel Plans & Policies:
• HRM Plans & Policies relate to providing & maintaining
human resources:
Personnel System: Manpower Planning, Selection,
Development, Compensation, Communication and Appraisal
Organisational & Employee Characteristics: Corporate
image, Quality of Managers, Staff & Workers, Image of
Organisation as an Employer, availability of Development
opportunities for employees, working conditions etc.,
Industrial Relations: Union – Management relationship,
Collective bargaining, Safety & Security, Employee
satisfaction & morale.
Information management Plans & Policies:
Information capability factors relate to design & management
of the flow of information within and from outside. The value of
information
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• Acquisition and Retention of Information: Sources,
Quantity, Quality, and timeliness of Information, retention
capacity and security of information.
• Processing and Synthesis of Information: Database
management, Computer Systems, Software capability and
ability to synthesise information.
• Retrieval & Usage of Information: Availability and
appropriateness of Information formats and the capacity to
assimilate and use information.
• Transmission & Dissemination of Information: speed,
scope, width & depth of coverage of information with
willingness to accept the information.
• Integrative, Systematic and Supportive Factors: availability
of IT infrastructure and its relevance, compatibility to
organisational needs, up gradation facilities, investing in state
of art systems, Computer professionals, top management
support.
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 Syllabus
==================================

13. Strategy Evaluation:

• Operations Control and Strategic Control
• Symptoms of malfunctioning of strategy
• Balanced Scorecard. (2)
==================================

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 Balanced Score Card (BSC)
• The Balanced scorecard (BSC) is a
strategic Performance Management tool for measuring
whether the smaller-scale operational activities of a
company are aligned with its larger-scale objectives in
terms of vision and strategy.
• Balance Card focuses not only on financial outcomes but
also on the operational, marketing and developmental
inputs to these. Organizations measure, those factors
which influenced the financial outputs. For example,
process performance, market share / penetration, long
term learning and skills development, and so on.
• The Balanced Scorecard helped organizations achieve a
degree of “Balance" in selection of performance
measures Balanced Scorecard helps provide a more
comprehensive view of a business
• This tool is also being used to address business
response to Environmental Changes.
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• Organizations must also control those factors which
influences the financial outputs, such as, process
performance, market share / penetration, long term learning
and skills development, and so on.
• Organisations cannot directly influence Financial Outcomes
as they relate to past. There is a "lag" between actions and
Financial Outcome. Also to use of financial measures alone
for the strategic control of the firm is unwise. Organizations
should also measure those areas where direct management
intervention is possible.
• Balanced Scorecard helps organizations achieve a degree of
"balance" in selection of performance measures. Scorecards
achieve this balance by selecting measures from three
additional categories or perspectives: "Customer," "Internal
Business Processes" and "Learning and Growth."
• Phrase “Balanced Scorecard" was coined in the early 1990s.
In 1992, by Dr. Robert Kaplan and David P Norton. They
added another innovation, the Strategy Map. This new tool,
which provided a visual way to craft business strategies.
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• Balanced Score Cards helps managers, in focussing their
attention on strategic issues and the management of the
implementation of strategy, it is important to remember
that the balanced scorecard itself has no role in the
formation of strategy. In fact, balanced scorecards
comfortably co-exist with strategic planning systems and
other tools.
• Implementing Balanced Scorecards typically includes four
processes:
3. Translating the vision into operational goals;
4. Communicating the vision and link it to individual
performance;
5. Business planning; index setting;
6. Feedback and Learning, and adjusting the Strategy
accordingly
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 Methodology of Strategy Mapping
• Measures are selected based on a set of "strategic
objectives" plotted on a "strategic linkage model" or
“Strategy Map".
• The strategic objectives are distributed across the four
measurement perspectives, so as to "connect the dots" to
form a visual presentation of strategy and measures.
• To develop a ”Strategy Map”, managers select a few
strategic objectives within each of the perspectives, and
then define the cause-effect chain among these objectives
by drawing links between them.
• A balanced scorecard of strategic performance measures is
then derived directly from the strategic objectives. This type
of approach provides greater contextual justification for the
measures chosen, and is generally easier for managers to
work through.
• Strategy Mapping:A strategy map is a visual
representation of the strategy of an organization. It
illustrates how the organization plans to achieve its mission
and vision by means of a linked chain of continuous
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improvements.
 Strategy Mapping
• For a commercial business, the strategy map illustrates the
long-term game plan or competitive strategy to achieve
increased profitability. For a non-profit or governmental
organization, it illustrates the plan by which the organization
intends to improve performance of its mission. In either case
it illustrates the cause-and-effect relationships between
different strategic objectives and their measures, or Key
Performance Indicators (KPIs) that are included in a
Balanced Score Card.
• Strategy maps are communication tools used to tell a story
of how value is created for the organization. They show a
logical, step-by-step connection between strategic objectives
(shown as ovals on the map) in the form of a cause-and-
effect chain. Generally speaking, improving performance in
the objectives found in the Learning & Growth perspective
(the bottom row) enables the organization to improve its
Internal Process perspective Objectives (the next row up),
which in turn enables the organization to create desirable
results in the Customer and Financial perspectives (the top
twoDrows).
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• Kaplan and Norton found that companies are using
Balanced Scorecards to:
• Drive strategy execution;
• Clarify strategy and make strategy operational;
• Identify and align strategic initiatives;
• Link budget with strategy;
• Align the organization with strategy;
• Conduct periodic strategic performance reviews to learn
about and improve strategy.

The four perspectives

• Financial perspective;
• Customer perspective;
• Internal process perspective;
• Innovation and learning perspective.
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 1. The Financial Perspective
• The company’s implementation and execution of its
strategy must contribute to the bottom-line improvement of
the company. It represents the long-term strategic
objectives of the organization and thus it incorporates the
tangible outcomes of the strategy in traditional financial
terms.
• The three possible measurements as described by Kaplan
and Norton (1996) are:
• Rapid growth: Increased sales volumes, Acquisition of
new customers, Growth in revenues etc
• Sustain: Operations and Costs, by calculating the Return
On Investment, Return On Capital Employed, EVA, etc
• and Harvest: Cash Flow analysis with measures such as
Payback Periods and Revenue Volume. Profit Margins, Net
Operating Income
• Financial KPIs : Cash Flow, Return on Investments,
Financial Results, Return on Capital Employed, Return on
Equity, Residual Income, Economic Value Addition, etc.
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 2.The Customer Perspective
• The Customer Perspective defines the value
proposition that the organization will apply to satisfy
customers and thus generate more sales to the most
desired (i.e. the most profitable) customer groups.
• The measures are value that is delivered to the customer
(value proposition) and Cost
• Value proposition: (e.g., customer satisfaction, market
share).
• Cost: Delivery Time, Quality, Performance and Service,
• The value proposition can be centred on one of the
three: operational excellence, Customer Intimacy, or
product leadership,
• KPIs could be : Cost Leadership, CSI – Customer
Satisfaction Index, Quality Parameters – Six Sigma
initiatives, Performance – Customer Complaint Record –
Claims,
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 3. Internal Process Perspective
• The Internal Process Perspective is concerned with the
processes that create and deliver the customer value
proposition. It focuses on all the activities and key processes
required in order for the company to excel at providing the
value expected by the customers both productively and
efficiently.
• These can include both short-term and long-term objectives as
well as incorporating innovative process development in order
to stimulate improvement.
• Operations management - (by improving asset utilization,
supply chain management, etc),
• Customer management - (by expanding and deepening
relations - CSI),
• Innovation - (by new products and services)
• Continual Improvement - KPI and
• Regulatory & Social - (by establishing good relations with the
external stakeholders).
• KPIs – Opportunity Success rate, Accident Ratios, Environment
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 4. Innovation and Learning Perspective
• The innovation and learning perspective is the foundation
of any strategy and focuses on the Intangible Assets of an
organization, mainly on the internal skills and capabilities
that are required to support the value-creating internal
processes.
• The Innovation & Learning Perspective is concerned with
the jobs (human capital), the systems (information capital),
and the climate (organisation capital) of the enterprise.
• These three factors relate to the infrastructure that is
needed in order to enable ambitious objectives in the other
three perspectives to be achieved.
• This of course will be in the long term, since an
improvement in the learning and growth perspective will
require certain expenditures that may decrease short-term
financial results, whilst contributing to long-term success.
• Learning and growth: KPIs: Investment Rate, Illness Rate,
Internal Promotions, (Succession Plan), Employee
Turnover, Gender Ratios
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 Key Success factors – Non Financial
• Customer Related : Bookings, Backorders-Backlog,
Market Share, Key Account orders, CSI – Customer
Satisfaction Index, Customer Retention, Customer
loyalty,
• Internal Business Processes: Capacity Utilisation,
(Sold Time for Consultants, Occupancy rates for Hotels
etc.), On time Delivery, Inventory Turnover,
• Throughput Cycle Time = Processing Time (Value
Adding) + Storage Time + Movement Time + Inspection
Time (Non Value adding times),
JIT Index = Process Time / Total Cycle Time
• Quality –Defective units, Late deliveries, Yields, Rework
Percentage, Scrap, Machine Breakdowns, Customer
Complaints and Claims, Field service Expenses,
Products Returned,
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 Symptoms of Mal-Functioning of Strategy -1
• The strategic Symptoms frequently include one or more
of the following (Grant, 2002):
• Low growth exposes ‘strategic sloppiness’ and
‘strategic errors’
• Strategic change is often ‘lumpy’ as firms lurch from
strategy to strategy to combat low growth;
• Whilst some policy appears proactive, much is
reactive
• Contains elements of ‘hasty opportunism’
6. Poor Organisational Results:
• Unsustainable Business Results,
• Poor Financial Results and / or,
• Poor Operational results.
4. Low employee Morale:
• High Employee Turnover,
• Missing Commitments,
•Ulhas DMissing
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 Symptoms of Mal-Functioning of Strategy-2
5. Customer Dissatisfaction:
• Customer Complaints non-specific to Quality,
• Repeated Customer complaints for same cause,
• Loss of key account Customers or loss of customers in
general,
• Very few repeat orders.
• Delayed deliveries, missing commitments,
• 6. Loss of Market Share:
• Lack of Innovation,
• Lack of Up-Gradation,
• Unable to sustain market competition,
• Unable to manage competition,
• 7. Poor Work Climate in Organisation:
• Organisation developing unsustainable work practices.
• Quality taking second place lagging behind practice
prevailing over law,
• UlhasResulting
D Wadivkar into decreased Quality in all spheres of 423

Operation.
 Symptoms of Mal-functioning for a CEO:
1. Are you attending too many meetings, and ones which are
discussing the wrong things?
2. Do subordinates consult you too often before taking action?
3. Do you learn about things only after they’ve already
happened?
4. Are your subordinates apparently trying to anticipate your
likes and dislikes - and forming ‘their’ opinions accordingly?
5. Are you unclear about where you stand with your boss or
bosses?
6. Are your incentives disproportionately dependent on the
share price?
7. Do you have few, if any, activities which are not connected to
the company?
All these personal behaviours are symptoms of a corporate
disease - and that illness is as common as the cold. The disease
is chronic mismanagement. All seven of the symptoms show
that you and others in the corporation are being hampered in
managing effectively by faults which manifests to failure or poor
Ulhas D Wadivkar 424
performance.
 CEO Cult in Organisations
This happens due to a CEO Cult :The Cult holds these seven
Beliefs:
3. The CEO runs the company.
4. He or she does so, on the basis of order-and obey.
5. The CEO controls all events and is the source of all
important information.
6. His or her authority is enhanced by the exercise of
personality - even charisma.
7. The CEO has no trouble in turning the other directors into
acquiescent poodles.
8. CEOs place pleasing shareholders above all else, primarily
by boosting ‘shareholder value’ (i.e., the share price)
9. They are expected to deploy superhuman qualities in order
to live up to the previous six postulates.

The Cult is fallacious and dangerous. Each of these seven

items
Ulhas D puts the company and its stakeholders at risk.
Wadivkar 425
 What a CEO should do?
• Generate collective, collaborative processes that make
excellent decisions and effective execution far more likely.
For example, CEO should...
• Limit the number of meetings you attend to those whose
purpose are clearly defined and demand your presence.
• Delegate ample authority and autonomy to subordinates so
that they can take decisions and actions on their own
initiative.
• Establish communications bottom-up, top-down and lateral
so that everybody, including you, has the fullest possible
picture of what’s going on everywhere.
• Listen to full and frank discussion with subordinates before
guiding people to the best consensus.
• Operate on a mutual, advise-and-consent basis (avoiding
order-and-obey) in relations with superiors and subordinates
• Work out the vital metrics of the business, and concentrate
on them, not the share price.
• Ulhas
Stop the business taking over the whole of your life.
D Wadivkar 426
 Case Study Method - Comments
• Case Method is quite old & method of learning from real life
situations. First introduced by Harward Law School in 1871.
• A case is narration of events in, & Conditions of, an
organisation. Through these events & conditions, reader of a
case gets to know the situation prevailed in that organisation
for him to dwell on, understand, discuss, analyse and suggest
remedies and practical workable solutions.
Guidelines for systematic approach to prepare a case for
Discussions.
5. Read case once for familiarity, get a feel of the situation.
6. Read case again, grasp the facts, make notes, jot down
important points.
7. Evaluate the situation described in Case. Attempt to
understand objectives, strategies, policies, problems & their
causes, issues and role of individuals in the case.
8. Prepare ETOP & SAP in your notes.
9. Think of Strategic Alternatives & suggest best options. Support
your proposal with facts, reasons & arguments.

Ulhas D Wadivkar 427

6. Propose comprehensive plan for Strategy Implementation
considering resources and manageability of implementation.
7. Evaluate you proposal. State quantitative & qualitative criteria,
you assumptions for arriving at your conclusion.
8. Keep the written analysis simple, but do not overlook major
issues.
9. Adopt nice style of writing. Do not copy word to word from Case.
Use headings,, Labels, Topic issues. Present whole written
structure to be in one logical & integrated way.
10. Include analysis based on techniques like ETOP, SWOT, SAP,
Value Chain, Industry analysis, competitive analysis.
11. Specifically state you assumptions when making
recommendations. Provide supporting evidence and benchmarks
used for evaluation.
12. Provide a summary, in a page, for major issues and
recommendations made by you.
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