MS202

STRATEGIC MANAGEMENT

Lecture 1-10
Introduction to strategy

Defining Strategy
According to Andrews, strategy, polic y and objectives embrace a range of statements from
the “broad” and “important” to “narrow” and “unimportant”. Policies get merged into
procedures and procedures into rules. Strategies get blended into tactics, resulting in an
“end-means continuum” .

Strategy
To start with the word strategy was used in terms of Military Science to mean what a manager
does to offset actual or potential actions of competitors. The word is still being used in the
same sense, though by few only. Originally, the word strategy has been derived from Greek
‘Strategos’, which means generalship. Th e word strategy, therefore, means the art of the
general.
In management, the concept of strategy is taken in slightly differen t form as compared to its
usage in military form; it is taken more broadly. However, in this form, various experts do not
agree about the precise scope of strategy. Lack of unanimity has resulted into two broad
categories of definitions: strategy as action inclusive of objective setting and strategy as
action exclusive of objective setting.

Strategy is:
• A plan or course of action or a set of decision rules forming a pattern or creating a
common thread,
• The pattern or common thread related to the organization’s activitie s which are derived
from its policies, objectives and goals,
• Related to pursuing those activities, which move an organization from its current
position to a desired future state.
Strategy has four components.
Firstly, strategy should include a clear set of long term goals. Second components are that it
should define the scope of the firm i.e. the types of products the firm will serve etc.
Thirdly, a strategy should have a clear statement of what competitive advantage it will
achieve and sustain.
Finally, the strategy must represent the firms’ internal contest that will allow it to achieve a
competitive advantage in the environment in which it has chosen to compete.
Thus, we can say,
‘Goals’ are ‘What’ of the strategy
‘Competitive Advantage; is how of the strategy and the; logic is the ‘Way’ of the strategy.
Strategy covers the following aspects.
1. Exploring and determining the vision of the company in the form of a vision statement.
2. Developing a mission statement of the company that
should include statement of methodology for achieving the objectives, purposes, and the
philosophy of the organisation adequately reflected in the vision statement.
3. Defining the company profile that includes the internal culture, strengths and
capabilities of an organisation.
4. Critical study of external environmental factors, threats, opportunities etc.
5. Finding out ways by which a company profile can bematched with its environment to be
able to accomplish mission statement.
6. Deciding on the most desirable courses of actions for accomplishing the mission of
an organisation.
7. Selecting a set of longterm objectives and also the corresponding strategies to be
adopted in line with vision statement.
8. Evolving shortterm and annual objectives and defining the corresponding strategies that
would be compatible with the mission and vision statements.
9. Implementing the chosen strategies in a planned way based on budgets and allocation of
resource, outlining the action programs and tasks.
10.Installation of a continuous compatible review system to create a controlling
mechanism and also generate data for selecting future course of action)
The 5 Ps
Henry Mintzberg overview of the work of many writers onstrategy suggests five ways in which
the term strategy is used. A strategy can be a plan, ploy pattern, position or perspective.They are
not mutually exclusive.

5 'P's Mintzberg are:

Plan A 'consciously intended course of action'.

Ploy A maneuver in a competitive game. For example a firm might add unnecessary plant
capacity The strategy is not to produce the goods but to discourage a competitor from entering
themarket

Pattern Emergent strategies.

Position Environmental fit and relationships with other organizations. A position might be a
distinctive niche, whereby the firm makes distinctive products or services or exploits a distinct
competence.

Perspective A unique way of looking at the world, of interpreting information from it, judging
its opportunities and choices and acting. Different strategic perspectives might respond to the
same environmental stimulus in different ways.

Processes of Stretegic Management

 The strategic management formulation and implementatio n methods vary with product
profile, compan y profile, environment within and outside the organisation, and various
other factors. Large organizations which use sophisticated planning use detailed strategic
management models whereas smaller organisations where formality is low use simpler
models.
The strategic management consists of different phases, which are sequential in nature.

There are four essential phases of strategic management

process. In different companies these phases may have different, nomenclature s and the phases
may have a different sequences, however , the basic content remains same. The four phases can
be listed as below.
1. Defining the vision, business mission, purpose, and broad objectives.
2.. Formulation of strategies.
3. Implementatio n of strategies.
4. Evaluation of strategies.

Models of Strategi c Plannin g

Comprehensiv e Mode l of Strategic Management

 Visio n of Th e Company
Vision of a company is rather a permanent statement articulated by the CEO of the company
who may be Managing Director, President, Chairman, etc. The purpose of a vision statement
is
to:
1. Communicat e with the people of the organisation and to those who are in some way
connected or concerned with the organisatio n about its very existence in terms of corporate
purpose, business scope, and the competitive leadership.
2. Cast a framework that would lead to development of interrelationship s between firm and
stakeholders viz. employees , shareholders, suppliers, customers, and various communitie s
that may be directly or indirectly involved with the firm.
3. Define broad objective regarding performance of the firm and its growth in various
fields vital to the firm.

DIFFERENCE BETWEEN POLICY, STRATEGY AND TACTICS

Every organisation is involved in a complicated pattern of decisions ranging from broad
decisions of setting long-term objectives to specific decisions about day-to-day operations.
Some of these decisions have long-term orientations while others are made within the context
of earlier decisions. Decisions with long-term orientation provide guidelines to subsequent
decisions.

Strateg y an d Tactics
It is beneficial to make distinction between strategy and tactics so that managers can
concentrate themselves on strategic functions rather than engaging in tactical functions.
Organisational decisions range across a spectrum, having a broad master strategy at one end
and minute tactics at the other. The major difference between strategy and tactics is that
strategy determines what major plans are to be undertaken and allocates resources to them,
while tactics, in contrast, is means by which previously determined plans are executed.
Beyond this major difference, there may be some other differences, which can be understood
better by analysing military use of strategy and tactics.
Distinctio n betwee n Strateg y an d Tactics
1. Level of Conduct.
2. Periodicity.
3. Time Horizon.
4. Uncertainty.
5. Information Needs.
6. Subjective Values.
7. Importance.
8. Type of Personnel Involved in Formulation .

Levels of Strategy
Strategy may operate at different levels of an organisation- corporat e level, business level,
and functional level.
Corporate Level Strategy
 Corporate level strategy occupies the highest level of strategic decision-makin g and covers
actions dealing with the objective of the firm, acquisition and allocation of resources and
coordination of strategies of various SBUs for optimal performance . Such decisions are
made by top management of the organisation. The nature of strategic decisions tends to be
value-oriented, conceptual and less concrete than decisions at the business or functional
level.
Business-leve l Strategy
Business-level strategy is - applicable in those organizations, which have different businesses-
and each business is treated as strategic business unit (SBU). The fundamental concept in
SBU is to identify the discrete independent product/market seg- ments served by an
organisation. Since each prod-uct/market segment has a distinct environment, a SBU is created
for each such segment.
Functional-leve l Strategy
Functional strategy, as is suggested by the title, relates to a single functiona l operation and the
activities involved therein. Decision s at this level within the organisation are often described as
tactical. Such decisions are guided and constrained by some overall strategic considerations.

Strategy Formulation
Formulation of strategies is a creative and analytical process. It is a process because particular
functions are performed in a sequence over the period of time. The.pro-cess involves a number
of activities and their analysis to arrive at a decision. Though there may not be unanimity over
these activities particularl y in the context of or-ganisational variability, a complete process of
strategy formulation and implementa-tion ca n be understood.

Organisationa l Missio n an d Objectives.

1. Organisational Mission and Objectives.
2. Environmenta l Analysis.
3. Corporate Analysis.
4. Identification of Alternatives.
5. Choice of Strategy.
6. Implementation .

Strategy Implementation
Once the creative and analytical aspects of strategy formulation have been settled, the
managerial priority is one of converting the strategy into operationally effective action. Indeed
a strategy is never complete, even as formulation, until it gains a commit- ment of the
organisation’ s resources and becomes embodied in organizational activities. Therefore, to
bring the result, the strategy should be put to action because the choice of even the soundest
strategy will not affect organisational activities and achievement of its objectives. Therefore,
effective implementation of strategy is a must for the organisation.
Implementation of strategy can be defined as follows:
Implementation of strategy is the process through which a chosen strategy is put into
action. It involves the design and management of systems to achieve the best integration
of people, structure, processes and resources in achieving organisational objectives.
Judging from this definition, it can be observed that the scope of managerial activities
associated with strategy implementation is virtually coexistensive with the entire management
process. This is because the entire management process is geared up according to the needs of
the strategy. In particular, following factor s are import-ant in strategy implementation
1. Institutionalisatio n of Strategy The first basic action that is required for putting a strategy
into operation is its institutionalisation .
2. Setting Proper Organisationa l Climate Setting organisationa l climate relevant for
strategy implementation is important for making strategy to work.
3. Developing Appropriate Operating Plans Operating plan s are the action plans,
operational programmes and decisions that take place in various parts of the
organisation
4. Developing Appropriate Organisation Structure Organisation structure is the
pattern in which the various parts of the organisation are interrelated or intercon-
nected.
5. Periodic Review of Strategy There should be periodic review of strategy to find out
whether the given strategy is relevant.

Policy
The term policy has more precise definition as compared to strategy. It has been derived from
the Greek word ‘politeia’ meaning citizen and latin word ‘politis’ mean-ing polished, that is,
to say clear. Policy in management context is defined by Weihrich and Koontz as follows:
“Policies are general statements or undertsanding s which guide or channel think-ing in
decision making”.

Feature s of a polic y ca n be identified

1. A policy provides guidelines to the members of the organisation for deciding a
course of action and, thus, restricts their freedom of action. Policy provides and
explains what a member should do rather than what he is doing. Policies, when
enforced, permit prediction of roles with certainty. Since a policy provides guidelines
to thinking in decision- making, it follows that it must allow some discretion,
otherwise it will become a rule.
2. Policy limits an area within which a decision is to be made and assures that the decision
will be consistent with and contributive to objectives. A policy tends to predecide issues, avoid
rt:;peated analysis, and give a unified structure to other types of plans, thus permitting
managers to delegate authority and still retaining control of action. For example, if the
organisation has framed a policy that higher positions in the organisation will be filled by
internal promotion, the managers concerned can deal with the situation in this light whenever a
vacancy at higher level arises. Thus, organisation gets assurance that higher positions are filled
by internal members without further control.
3. Policies are generally expressed in qualitative, conditional, or general way. The verbs most
often used in stating policies are to maintain, to continue, to follow, to adhere, to provide, to
assist, to assure, to employ, to make, to produce, or to be. Such prescriptions may be either
explicit or these may be interpreted from the behaviour of organisation members, particularly
at the top level. When such a behaviour is interpreted as policy guideline, it is normally known
as prece- dent, that is what has happened in the past on a particular issue if there is no clearly
specified declaration.
 Policy formulation is a function of all managers in the organization because some form of
guidelines for future course of action is required at every level. However higher is the level of a
manager, more important is his role in policy making. Similarly, policies may exist in all areas
of the organization from organizational policies to minor policies applicable to the smallest
segment of the organization.

Polic y an d Strategy : A Comparison

Strategy is now the more common term for what used to be called policy, though there is no
consensus on this also. For example, some writers make distinction between the two referring
as the general or grand strategy as policy and competitive; srategy as the strategy used in
military sense. The situation is, therefore, still confusing. Steiner has observed that for some
years and after much travail, the term policy was fairly understood. Then the game theorists
began to use the term strategy with re result that management literature now is thoroughly
confused about its meaning and relationship to policy. How- ever, in this text, two terms have
been used with fairly different meaning and based on that, the difference between the two can
be identified.

LONG RANGE PLANNIN G AND STRATEGIC PLANNING

Differenc e betwee n Long-Range Plannin g an d Strategi c Planning

Long-Range Planning Strategi c Planning

Focus Present Growth
Objective Annual Profits Future Profits and share
Constraints Present Resources Environment Future Resources Environment
Rewards Efficiency, Stability Development of Future Potential
Risks No growth Slow Process, Requires Effort
Information Present Business Present Business, FutureOpportunities ,
Organisation Bureaucratic/Stable Entrepreneurial/Flexible
Leadership Conservative Creative
ProblemSolving Reacts, Relies on Past Anticipates, Discovers Creative
Experience Low Risk Approaches High Risk

CHARACTERISTIC S O F STR ATEGIC DECISIONS

Strategi c Decision-making
Strategic management is characterized by its emphasis on strategic decision-making . As an
organization grows bigger and becomes complex with higher degree of uncertainty, decision-
making also becomes increasingly complicated and difficult. Strategi c decisions have to deal
essentially with the long-term future of the organization and have three important
 characteristics.
1. Rare. Strategic decisions are not common and have no precedents.
2. Consequential . Strategic decisions involve committing substantia l resources of the
company and hence a high degree of commitment from persons at all levels.
3. Directive. Strategic decisions can serve as precedents from less important decisions and
future actions of the
organisations .

Mintzberg’ s Model
According to Mintzberg, the modes of strategic decisions- making are:
1. Entrepreneuria l mode. Formulation of strategy is done by a single person in this
mode. The focus is on opportunities. Strategy is guided by the founder’s vision and is
charactersied b y bold decisions. In the Indian set-up, we can cite the case of Wipro Infotech as
an example of this mode of strategy formulation.

2. Adaptice mode. This mode of decisions making is referred to as “muddling through”.

It is characterized by reactive solution s rather than a proactive search for new opportunities.
We can again cite the example of Wipro Infortech introducing the sale of customized Personal
Computers in response to Dell Computers entering the Indian market

3. Planning mode. This mode of decision making involves systematic information

gathering for situational analysis, generating alternate strategies and selection of the
appropriate strategy. As could be inferred, this mode includes both the proactive mode and the
reactive solutions to current problems. For example, entry of MNCs into the automotive
markets in India has made the lead player Maruti Suzuki to come out with new models and
discard/slow down productio n of non-moving and old models.

What Strategic Decisions

How Clear Unclear
Operating I II
Decisions
Clear strategy and effective Unclear strategy but effective
Effective
operations have contributed to operations have contributed to
success in the past and will success in the past but success in the
contribute to success in the future future is doubtful

Ineffective III IV
Clear strategy but ineffective Unclear strategy and ineffective
operations have sometimes operations have meant failure in the
worked in the past in the short past and will be so in the future
run, but increasing competition
makes success doubtful in the
future
 LEVELS OF STRATEGY
Levels of Strategies
You can see the various levels of strategies at the Corporate, SBU and Functional level. The
levels of strategy offers you a glimpse of the complexity about different levels at which
strategy is formulated. The business strategy must contain wellcoordinate d action programs
aimed at securing a longterm competitive edge and which should be sustained by the
company.
Lets take an example of Hindustan Levers,a multinational subsidiary , is in several
businesses such as animal seeds, beverages,oil s and dairy fat , soaps and detergents.
Similarly Sundaram Clayton and its associate companies operate in technology areas as
diverse as brake and signal systems for railways, two wheelers and electrical appliance
Three types of level are depicted in the exhibit.
The first level is the corporate strategy which is an overarching plan of action covering the
various functions performed by different
Corporate Level Strategies

This is the level where vision statement of the companies emerges . Exhibit shows typical
levels of strategy making in an organization.
In the given exhibit you will see that various companies are organized on the basis of
operating divisions. These divisions are known as profit centers or strategic business units.
Generally SBU’s are involved in a single line of business

Busines s Level
This level consists of primarily the business managers or managers of Strategic Business
units. Here strategies are about how to meet the competition in a particular product market
and strategies have to be related to a unit within an organisation.
Operational Level
Planning alone cannot create massive mobilisation of resources and people and can never
generate high quality of strategic thinking required in complex organisational context. For this
to happen, the planning should be carefully dovetailed and integrated with significant
administrative systems viz. management control, communication , information management,
motivation, rewards etc.

Interactio n of Variou s Functions

CHARACTERISTIC S O F STR ATEGIC DECISIONS

Managing The Corporate Image

The fallout from the Enron collapse continues to impact the global business community.
The sad fact is that it appears that it wasn’t the business concept that Enron got wrong; it was
the corporate culture that was wrong. The impact now affects Andersen, the accounting firm
that audited and appears to have approved the methodologies used by senior Enron executives
to “cook” the books and to pad the financial reports given to shareholders, the investment
community, and employees. It also affects numerous other companie s as the investment
community is acutely attuned to not getting caught out by the “next Enron.” Even stalwarts
such as General Electric have seen their stock prices dragged down by worries, concerns, and
questions about how “aggressive” the company has been in interpreting financial reporting
regulations.

ROLE OF STRATEGIC MANAGEMENT

Strategies are developed by strategic management teams. The process for large organisations is
very complex and it cannot effectively take place unless people at various levels are made to
participate to arrive at meaningful conclusions.

The strategic decisions taken by the company are key to its survival and progress, and make a
tremendous impact on the company and need widespread and large commitments of resources
of the company, hence the presence of top managers in these teams is necessary. These
persons are often designated as General Manager, Managing Directors, Presidents,
VicePresidents, Executive Vice-President etc. The traditional view of the General Manager is
that he is a reflective thinker who maps strategy, creates design of an organisation and roles
for people through the tactical plans to achieve the goals, using his vast experience,
knowledge and insight, and sets goals. He is considered to be a strategist, planner, leader, and
is aware of various human, technical, economic, and political needs of the environment of the
organisation.
Mintzberg’s list of roles gives us an example of different roles that the CEO plays in an
organisation and these are termed as interpersonal , informational , and decisional roles. As
the head of the organisation the CEO has to perform numerous functions that are legal and
social in nature. While performing these functions the CEO has to keep the strategies of his
organisation in mind. While staffing, training, motivating ,directing, and performing
several other functions, he has to keep the strategic directions of the company in focus.

CONCEPT OF OBJECTIVE, MISSIO N AND VISION

From planning point of view, an organization must define why it exists, how. it justifies that
existence, and when it justifies the reasons for that existence. The answers of these questions
lie in the organizations:
1. Mission and purpose,
2. Long-term objectives, and
3. Time-bound objectives.

Missio n an d Purpose

Mission and purpose are often used interchangeably, though at theoretical level, there is
difference between the two. Mission has external orientation and relates the organization to
the society in which it operates.
Formulation of Mission
Organizational mission encompasses the broad aims of the organization; it defines what
for the organization strives.
Vision. Vision of an organization has a long-term orientation and is derived from
organizational philosophy. Vision represents a challenging portrait of what the organization
and its members can be in the future.

Key decision makers’ philosophy and visionary long-term concept of the or-ganisation
taken together define organization’ s mission in the form of desires, beliefs and
assumptions in the following form:
1. The product and service offered by the organization can provide benefits at least
equal to its price.
2. The product or service can satisfy the needs of the customers not adequately served by
others presently.
3. Technology used in producing product or service will be cost and quality competitive.
4. The organization can grow and be profitable than just survive in the long run with
the support of various constituents.
5. The organization will create favorable public image which will result in contributions
from environment.
6. Entrepreneur’s self-concept of the business can be communicated and adopted by
employees and stakeholders.
7. The organization will be able to satisfy the entrepreneur’s needs and aspirations which
he seeks to satisfy through the organization.
Characteristic s of Missio n Statement

Every organization has mission either defined explicitly or may be deduced from the actions
of its top management. For a large organization, where its members do not have face-to-face
contact, explicit mission statement is desirable as it serves the
Feature s of a goo d Missio n Statement
Mission should be clear, both in terms of intentions and words used;
1. It should be feasible, neither too high to be unachievable, nor too low to demotivate
the people for work.
2. It should be precise but self-explanatory , neither too narrow so as to restrict the
organization’s activities, nor too broad to make itself meaningless.
3. It should be distinctive, both in terms of the organization’s contributions to the
society and how these contributions can be made.
Exhibit presents the mission statement of ITC Limited which is characterized by the
following concerns:
Feature s of Objectives
1. Each organization, or group of individuals, has some objectives. In fact, organizations
or groups are created basically for certain objectives. Members in the organization or group
try to achieve these objectives.
2. Objectives may be broad or they may be specifically mentioned. They may per-tain to
a wide or narrow part of the organization.
3. Objectives may be clearly defined or these may not be clear and have to be interpreted
by the behaviour of organizational members, particularly those at top level. However,
clearly defined objectives provide clear direction for managerial action.
4. Objectives have hierarchy. At the top level, it may be broad organizational purpose
which can be broken into specific objective s at the departmental level. From departmental
objectives, units of the department may derive their own objectives. This is possible
because organization is created by combining people into sections, departments, divisions,
etc.
5. Organizational objectives have social sanction, that is, they are created within the social
norms. Since organizations are social units, their objectives must conform to the general
needs of the society. Various restrictions on organizational objectives are put through social
norms, rules and customs.
Organizational objectives can be changed; old objectives may be replaced by new ones. It is
possible because organizations are free to set their objectives within the overall social norms.

Rol e of Objectives
Every organisation has some objectives, either specified or unspecified. Clearly de-fined
objectives govern behaviour of organization members, and as such, every or-ganisation
should specify its objectives clearly. or the organisation or individual and an arena for
activities.
Th e Majo r Function s an d Contributions of Objectives are
 Defining an Organisation. Every organisation works in an environment con-sisting of
several forces. These forces provide both opportunities and threats.
• Directions for Decision-making. Objectives provide the directions for
decision- making in various areas of the organisation’ s operation.

2. Performance Standards. Objectives provide standards against which performance of

the organisation, its units, sub-units and individuals can be. measured.
Basis for Decentralization . Decentralization includes assigning decision-making authority to
lower-level people, thereby a subordinate is given considerable leeway in deciding to perform
his work.

UNDERSTANDING OBJECTIVE, MISSION AND VISION

Understanding Vision
A vision is more dreamt of than it is articulated. This is the reason why it is difficult to say what
vision an organisation has. Sometimes it is not even evident to the entrepreneur who usually
thinks of the vision. By its nature, it could be as hazy and vague as a dream that one experienced
the previous night and is not able to recall perfectly in broad daylight. Yet it is a powerful
motivator to action.

The Benefits of Having a Vision

• Good visions are inspiring and exhilarating
• Visions represent a discontinuity, a step function and a jump ahead so that the company knows
what it is to be
• Good visions help in the creation of a common identity and a shared sense of purpose
• Good visions are competitive, original and unique. They make sense in the market place as

Mission
While the essence of vision is a forwardlooking view of what an organisation wishes to become,
mission is what an organisation is and why it exists.

How to Formulate Mission Statements?

Most organisations derive their mission statements from a particular set of tasks they are called
upon to perform in the light of their individual, national or global priorities* Several public
sector organisations, set up in India during the 1950s and 60s owe their existence to the vision of
Jawaharlal Nehru, the first prime minister, who enunciated and tirelessly worked for the national
aim of building a strong and self reliant India by laying the foundations of many of our basic
infrastructural industries. Mission statements, whether derived from set priorities or not, could be
formulated either formally or informally.
Characteristics of a Mission Statement
3. It should be feasible. A mission should always aim high but it should not be an
impossible statement. It should be realistic and achievableits followers must find it to be
credible.
4. It should be precise. A mission statement should not be so narrow as to restrict the
organisation’s activities nor should it be too broad to make itself meaningless.
5. It should be clear . A mission should be clear enough to lead to action. It should not be a
high sounding set of platitudes meant for publicity purposes.
 4. It should be motivating. A mission statement should be motivating for members of the
organisation and of society, and they should feel it worthwhile working for such an
organisation or being its customers.
5. It should be distinctive. A mission statement, which is indiscriminate, is likely to have
little impact. If all scooter manufacturers defined their mission in a similar fashion, there
would not be much of a difference among them.
6. It should indicate major components of strategy. A mission statement along with the
organisational purpose should indicate the major components of the strategy to be
adopted.
7. 7. It should indicate how objectives are to be accomplished. Besides indicating the
broad strategies to be adopted a mission statement should also provide clues regarding
the manner in which the objectives are to be accomplished..

Discussion on case studies

Lecture 11-20
STRATEGIC INTENT

By strategic intent we refer to the purposes the organisation strives for. These may be expressed
in terms of a hierarchy of strategic intent. Broadly stated, these could be in the form of a vision
and mission statement for the organisation as a corpo rate whole. At the business level of a firm
these could be expressed as the business definition. When stated in precise terms, as an
expression of the aims to be achieved operationally, these may be the goals and objectives.

Prof F. Drucker has framed the following questions

(a) What is our Business?

(b) What will our Business be?
(c) And what should it be ?

Vision

The vision of an organisation refers to an idealized, Yet achievable status to which the
organisation stands committed. A worker in an organisation can attain managerial vision only
through his performance. In other words, a worker sees the enterprise as if he were a manager
responsible, through his performance for its success and survival.

This vision an employee of a business enterprise can only attain through the experience of
participation. Vision gives an employee pride in his work and a sense of importance or
accomplishment.

P. F. Drucker has suggested eight important areas of business objectives

1. Marketing
2. Innovation
3. Human Organisation
4. Physical Resources
5. Financial Resources
6. Productivity
7. Social Responsibility
8. Profit Requirement

APPROACHES TO STRATEGY

The 5 Ps
Henry Mintzberg’s overview of the work of many writers on strategy suggests five ways in
which the term strategy is used. A strategy can be a plan, ploy pattern, position or perspective.
They are not mutually exclusive.
The strategy had emerged, agents managers’ conscious inten- tions, but they eventually
responded to the new situation.

'P' Comment

Plan A 'consciously intended course of action'.

Ploy A manoeuvre in a competitive game. For example a firm might add

unnecessary
plant capacity. The strategy is not to produce the goods but to discourage a
competitor from entering the market

Pattern Emergent strategies.

Position Environmntal fit and relationships with other organisations. A position

might be a distinctive niche, whereby the firm makes distinctive
products or services or exploits a distinct competence.

Perspective A unique way of looking at the world, of interpreting information

from it, judging its opportunities and choices and acting. Different
strategic perspectives might respond to the same environmental
stimulus in different ways.

Deliberate and emergent strategies

(a) Intended strategies are plans. Those plans or aspects of

plans which are actually realised are called deliberate strategies.
(b)Emergent strategies are those which develop out of patterns of behaviour.

Implicit or explicit strategies

Entrepreneurs often have a theory of the business, which they mayor may not document.
• Implicit strategies may exist only in the chief executive’s head
• Explicit strategies are properly documented
Some plans are more explicit than others

Crafting emergent strategies

Managers cannot simply let emerging strategies take over. Why?
(a) Direction. The emergent strategy may be inappropriate for the long-term direction of the
organisation and may have
to be corrected.
(b)Resources. It may have future implications for resource use elsewhere: in most organisations,
different parts of the business compete for resources.
(c)Managers might wish to build on the strategy by actively devoting more resources to it.

Deliberate strategies introduce strategic change as a sort of quantum leap in some organisations.
In this case, a firm undergoes only a few strategic changes in a short period but these are very
dramatic.
The strategist must be able to recognize patterns and to manage the process by which emergent
strategies are crea8ted. In other words, the strategist must be able to find strategies as well as
invent them.

They describe the following phases in the strategic decision-making process.

Step 1 Problem awareness

Step 2 Problem diagnosis
Step 3 Solution development
Step 4 Solution selection

Bounded Rationality
In practice, managers are limited by time, by the information they have and by their own skills,
habits and reflexes.
• Strategic managers do not evaluate all the possible options open to them in a given situation,
but choose from a small number of possibilities.
• Strategy making necessitates compromises with interested groups through political bargaining.
This is called partisan mutual adjustment.
• The manager does not optimize (ie get the best possible solution).

Instead the manager satisfices. The manager carries on searching until he or she finds an option
which appears tolerably satisfactory, and adopts it, even though it may be less than perfect. This
approach Herbert Simon characterised as bounded rationality.

Definition
Incrementalism involves small scale extensions of past practices.
• It avoids major errors.
• It is more likely to be acceptable, because consultation, and compromise accommodation are
built into the process. .

Disadvantages of Incrementalism
• Incrementalism does not work where radical new approaches are needed, and it has a built-in
conservative bias. Forward planning does have a role.
• Incrementalism ignores the influence of corporate culture, which filters out unacceptable
choices.
• It might only apply to a stable environment.

Logical Incrementalism
Logical incrementalism : managers have a vague notion as to where the organisation should go,
but strategies should be tested in small steps, simply because there is too much uncer- tainty
about actual outcomes.
Strategy is best described as a learning process. Logical incremen- talism has the best of both
worlds.
• The broad outlines of a strategy are developed by an in- depth review
• There is still practical scope for day-to-day incremental decision making

Approaches to Strategic Management

Before we proceed to undertake strategic management process, particularly strategy formulation,
it is desirable to identify the various approaches which are applied In strategic decision making.
This is essential because different approaches put varying emphasis on various elements of
strategic management.
There are different approaches to strategic decision making because an organisation may differ
from other organisations in terms of :
1. Degree of formalisation in decision making process from highly formalised and structured to
informal and unstructured process
2. Managerial power relationship from the dominant role of the strategist to compromise of
different interest groups; and
3. Nature of environment from highly complex to simple and stable.

These differences determine the kind of approach individual organisations would adopt in their
decision making process, Including strategic decision making. However, various ap- proaches
that are available for adoption in strategic decision-making have been described by authors
differently. For example, Mintzberg has classified various approaches into three forms (he has
referred to these as modes). These are entrepre- neurial, planning, and adaptive. As against this
classification, Steiner et al have a fivefold classification: formal structured, intuitive anticipatory,
entrepreneurial opportunistic, incremental, and adaptive. The difference between these two sets
of classification can be resolved to some extent. Formal structured approach resembles planning
approach; incremental and adaptive approaches have common factors than differences and,
therefore can be grouped together; entrepreneurial approach is basically based on intuition and
anticipation as these elements require high level of vision in strategists to anticipate opportu-
nities and threats posed by the relevant environment. Therefore, for further analysis, three types
of approaches will be taken.
These are:
1. Entrepreneurial opportunistic approach
2. Formal structured approach, and
3. Adaptive approach.

Entrepreneurial Opportunistic Approach

Entrepreneurial opportunistic (or simply entrepreneurial) approach is adopted, generally, by
heads of familymanaged organisations and is characterised by pushing an organisation ahead in
the face of environmental odds. The basic features of strategy making under this approach are as
follows:
1. The focus in this approach is on capitalising the opportunities rather than problemsolving.
There is constant search of opportunities in the environment either formally or otherwise.
2. Decision power is centralised in the entrepreneur who is capable of, making bold and unusual
decisions.
3. The bold and unusual decisions made in the face of environmental uncertainty, lead the
organisation to move forward by unusual leaps and thrive with corresponding gains.
4. The most important objective in this approach is growth and expansion In assets, turnover,
and market share.
Thus, decision making becomes emergent process as against formal process.

Formal Structured Approach

Formal structured (or simply formal) approach involves strategic decision making in anticipation
of the future state that the organisation wants to be in. Strategic decisions are based on
socioeconomic purposes of the organisation, values of top management, external opportunities
and threats, and organisation’s strengths and weaknesses. The basic features of this approach are
as follows:
1. Strategy making is based on analysis of various factors which affect the I strategy.
2. It involves systematic and structured approach to the
solution of problems and also the task of assessing the cost and benefit of various alternatives.
3. It is a comprehensive process which produces a set of integrated decisions and strategies.

In India, most of the multinationals follow this approach in which they have formalised and
structured their strategic decision making process.

Suitability and Limitations

Suitability and limitations of formal approach depend on type of organisation, management
styles, complexity of environment, complexity of production processes, nature of problems, and
purpose of planning system.

A basic advantage of this approach is that it generates enough information which enables
decision makers to make decisions in complex situations. However, when decision system
becomes too formalised and highly structured, decision making process becomes slow because
of emergence of professional bureaucracy which relies on standardisation of skills. Decision
making is decentralised and takes place where the expertise exists. With the result, unusual
decisions are hard to come by.

Adaptive Approach
Adaptive approach of strategic decision making is basically reactive and tries to assimilate the
change in decisionmaking contextvarious factors, particularly environmental ones, affecting
strategic decisions. Various features of strategic decision making under adaptive approach are as
follows:
1. Decision making is basically meant for problem solving,
rather than going for new opportunities. Adaptation process is adopted to meet the threats by
changed environment as against the decision making to meet the anticipated changes
in environment which entrepreneurial approach suggests.
2. Decisions are made in sequential, incremental steps, one thing at a time necessitated by
environmental changes. The basic orientation is to maintain flexibility to adapt the decisions to
more pressing needs.
3. Various interest groups and stakeholders put considerable pressure on decision-making
process so as to protect their own interests. Thus, the ultimate decision Is a compromised one
which may be, sometimes, at the cost of optimising organisational effectiveness.
4. Since decision-making is incremental and fragmented, there is lack of integrative decision-
making. With the result, systems approach of decision-making is missing.

In India, most of the public sector organisations follow adaptive approach in their decision
making because of the power distribution between organisations’ management and controlling
ministries of Government. Those organisations in the private sector which cannot anticipate
likely future scenarios either based on vision and intuition or through formal and structured
approach of environmental analysis, follow this approach in their strategic decisionmaking
process.

Suitability and Limitations

Adaptive approach of strategic decision-making is suitable for those organisations, which tend to
play the role of followers rather the role of leaders in the industry sector concerned. This
approach saves them from high risk since the strategic decisions are based’ on the actual
environmental factors. If these factors are less dynamic, this approach produces satisfactory
results.
However, this approach suffers from one basic limitation.
Environmental adaptation as a continuous process works well so long as there is continuity in
environmental changes which can be assimilated quickly by the organisations adopting this
approach. When the environmental factors change fast, this
approach does not work because by the time, the organisations adopt one change which has some
lead time, environment changes further making previous adaptation unworkable. In the present
context of global competition, perhaps, this approach is not very suitable to achieve meaningful
competitive advantage.

Combining Different Approaches

1. Adaptive entrepreneurial
2. Structured adaptive
3. Entrepreneurial structured
4. Adoption of different approaches for different businesses, and
5. Adoption of different approaches at different stages of organisational life.

While combining two or more approaches together. the individual organisations can do better if
they evaluate their culture, human resources, and leadership styles and the nature of environment
in which an organisation or its different businesses operations

Snapshot Of Strategic Management Process

Strategy Formulation
1. Formulation of organisational mission and objectives
Formulating mission and mission statement
Business definition in terms of customer, product, and technology
Formulating longterm broad objectives
2. Environmental analysis
Analysis of general environment
Industry and competition analysis
Preparation of environmental threat and opportunity profile
3. Organisational analysis
Analysis of strengths and weaknesses in different areas
Preparing organisational capability profile
SWOT analysis
Defining core competence and distinctive competence
Developing competitive advantage through
Generic competitive strategies
Strategic intent
Benchmarking
Synergistic approach
Critical success factors approach
Preparing competitive advantage profile
4. Strategic alternatives
Stability strategy
Retrenchment strategy
Turnaround strategy
 Divestment strategy
Liquidation strategy
Growth strategy
Concentric expansion strategy
Vertical integration strategy
Diversification strategy
Merger and acquisition strategy
Joint venture strategy
Strategic alliance
Combination strategy
Business restructuring strategy
5. Choice of strategy
Focusing on strategic alternatives
Evaluating strategic alternatives
Considering decision factors
Strategy choice

Strategy Implementation

1. Activating strategy
Institutionalisation of strategy
Resource mobilisation and allocation
Translating general objectives into specific objectives
2. Procedural implementation
3. Structural implementation
Designing organisation structure
Prescribing organisational systems
4. Functional Implementation
Prescribing policies and strategies in
Production/ operations
Marketing
Finance
Human resources
5. Behavioural implementation
Leadership implementation
Managing organisational culture
Creating values and ethics
Corporate governance
Managing organisational politics
6. Organisational change and innovation
Initiating and implementing organisational change
Managing organisational innovation
Creating learning organisation

Strategy Evaluation and Control

1. Designing evaluation and control system
Setting criteria for evaluation and control
Setting standard in respect of these criteria
2. Exercising control
 Strategic control
Financial performance control
Social performance control

strategic intent, formulation of strategies, implementation of strategies, and performance of

strategic evaluation and control.
• As many as 20 different elements in the process of strategic management have been identified.
In establishing the hierarchy of strategic intent we have the elements of creating and
communicating a vision, designing a mission statement, defining the business, and setting
objectives. In the formulation of strategies we have: performing
environmental appraisal, organisational appraisal, considering corporatelevel strategies;
considering businesslevel strategies; undertaking strategic analysis; exercising strategic choice;
formulating strategies; and preparing strategic plans. In strategy implementation there are the
elements of activating strategies, designing structures and systems, managing behavioural
implementation, managing functional implementation, and operationalising strategies. Finally, in
strategic evaluation and control the elements involved are: performing strategic evaluation,
exercising strategic control, and reformulating strategies.

PLANNING PROCESS
Planning as a process involves the determination of future course of action, that is why an
action , what action, how to take action, and when to take action. These why, what, how, and
when are related with different aspects of planning process. Why of action reveals that action has
some objectives or the end result which an organization wants to achieve, what of action
specifies the activities to be undertaken, how and when generate various policies, programs,
procedures, and other related elements. Thus all these elements speak about futurity of action.
Terry has defined Planning as - -
“ Planning is the selection and relating of facts and making and using of assumptions regarding
the future in the visualization and formalization of proposed activities believed necessary to
achieve desired result.”

Features of-Planning
On the basis of the definition of planning, its following features can be identified:
1. Planning is a process rather than behaviour at a given point of time. This process determines
the future course of action.
2. Planning is future oriented It is primarily concerned with looking into future. It requires
forecasting of future situation in which the organisation has to function. Therefore, correct
forecasting of future situation leads to correct decisions about future course of actions.
3. Planning involves selection of suitable course of action. This means that there are several
alternatives for achieving a particular objective or set of objectives. However, all of them are not
equally feasible and suitable for the organisation.
4. Planning is undertaken at all levels of the organisation because all levels of management are
concerned with the determination of future course of action. However, its role increases at
successively higher levels of management. More- over, planning at different levels may be
different in the context that at the top management level, managers are concerned about the
totality of the organisation and tries to relate it with the environment white-managers at lower
levels may be involved in internal planning.
5. Planning is flexible as commitment is based on future conditions which are always dynamic.
As such, an adjustment is needed between the various factors and planning
6. Planning is a pervasive and continuous managerial function involving complex processes of
perception, analysis, conceptual thought, communication, decision, and action.
The very pervasiveness of these planning elements makes it difficult to identify and observe
them in detail.

Importance of Planning

1. Primacy of Planning.
2. To Offset Uncertainty and Change.
3. To Focus Attention on Objectives.
4. To Help in Coordination.
5. To Help in Control.
6. To Increase Organisational Effectiveness

Steps in Planning

It is not necessary that a particular planning process is applicable for all or-ganisations and for all
types of firms because the various factors that go into plan-ning process may differ from plan to
plan or from one organisation to another. For example, planning for a major acting will take
more serious evaluation of various elements necessary for planning but this may not be true for a
minor one. Similarly in a small organisation, planning process may not be taken in the same
ways as in a large organisation. Here is given a process of planning which is applicable for a
major programme like opening of a new product line or acquisition of a major plant.
With minor modifications, the process is applicable to all types of plans.

The Planning Process

The sequences of various steps in planning are in such a way that they lead to the translation of
an idea into action by reaching to the state of establishing of sequences of activities. Each stage
contributes to plan formulation in the following ways:
1. Perception of Opportunities
Perception of opportunities is not strictly a planning process. However, this awareness is very
important for planning process be-cause it leads to formulation of plans by providing clue
whether opportunities exist for taking up particular plans.
2. Establishing Objectives
At this stage, major organisational and unit objectives are set. Objectives specify the results
expected and indicate the end points of what is to be done, where the primary emphasis is to be
placed, and what is to. be accom-plished by the various types of plans.
3. Planning Premises.
After determination of organisational goals, the next step is establishing planning premises, that
is, the conditions under which planning activi-ties will be undertaken. Planning premises are
planning assumptions-the expected” environmental and internal conditions.
4. Identification of Alternatives.
Based on the organisational objectives and plan-ning premises, various alternatives can be
identified. The concept of various alternatives suggests that a particular objective can be
achieved through various actions.
5. Evaluation of Alternatives
Various alternatives which are considered feasible in terms of preliminary criteria” may be taken
for detailed evaluation. At this stage, an attempt is made to evaluate how each alternative
contributes to the organisational objectives in the light of its resources and constraints. This
presents a problem because each alternative may have certain positive points on one aspect but
negative on others
6. Choice of Alternative
After the evaluation of various alternative the most fit one is selected. Sometimes evaluation
shows that more than one alternative is equally good. In such a case, a planner may choose more
than one alternative.
7. Formulation of Supporting Plans.
After formulating the basic plan, various plans are derived so as to support the mall1 plan. In an
organisation there can be various derivative plans like planning for buying equipments, buying
raw materials, recruiting and training personnel, developing new product, etc. These derivative
plans are formulated out of the main plan and, therefore, they support it.
8. Establishing Sequence of Activities.
After formulating basic and derivative plans, the sequence of activities is determined so that
plans are put into action. Based on plans at various levels, it can be decided who will do what
and at what time. Budgets for various periods can be prepared to give plans more concrete
meaning or implementation

STRATEGIC PLANNING PROCESS

Planning involves selecting missions and objectives and the actions to achieve them, it requires
decision making, that is choosing future courses of action from among alternatives. There are
various types of plans ranging from overall purposes and objectives to the most detailed actions
to be taken such as ordering a special stainless steel bolt for an instrument or hiring and training
workers for an assembly line.

Inputs
The inputs from the external environment may include people, capital, and managerial skills, as
well a technical knowledge and skills. In addition, various groups of people will make de- mands
on the enterprise
Enterprise Profile
The enterprise profile is ua1ly the starting point for determining where the company is and where
it should go. Thus, top managers determine the basic purpose of the enterprise and clarify the
firm’s geographic orientation, such as whether it should operate in selected region in all states in
the United States, or even in different countries. In addition managers assess the competitive
situation of their firm.
Orientation of Top Managers
The enterprise profile is shaped by people, especially top managers, and their -orientation is
important for formu1ating the strategy. They set the organizational climate, and they determine
the direction of the firm. Consequently, their values, their preferences, and their attitudes toward
risks have to be carefully examined because they have an impact on the strategy.
Purpose and objectives
The purpose and the major objectives are the end points toward which the activi-ties of the
enterprise are directed. Since the previous chapter dealt with these topics at length, addition
discussion here is unnecessary.
External Environment
The present and future; external environment must be assessed in terms of threats and
opportunities. The evaluation focuses on economic, social, politi-cal, legal, demographic, and
geo- graphic factors. In addition, the environment is scanned for technological development, for
products and services on the market, and for other factors necessary in determining the
competitive situation of the enterprise.

Internal Environment
Similarly, the firm’s internal environment should be audited and evaluated in respect to its
resources and its weaknesses and strengths in research and development, production, operations,
procurement, marketing, and products and services. Other internal factors important for
formulating a strategy include the assessment of human resources, financial resources, and other
factors such as the company image, the organization structure and climate, the planning and
control system, and relations with customers. These are just a few examples of possible
strategies. In practice, companies, especially large ones, pursue a combination of strategies.

Evaluation and Choice of Strategies

The various strategies have to be carefully evaluated before the choice is made. Strategic choices
must be considered in light of the risks involved in a particular decision. Some profitable
opportunities may not be pursued because a failure in a risky venture could result in bankruptcy
of the firm. Another critical element in choosing a strategy is timing. Even the best product may
fail if it is introduced to the market at an inappropriate time.

Medium- and Short-Range Planning, Implementation and Control

Although not a part of the strategic planning process (and therefore shown by broken lines in
Figure), medium- and short-range planning as well as the implementation of the plans must be
considered during all phases of the process. Control must also be provided for monitoring
performance against plan. The importance of feedback is shown by the loops in the model.

COMPETITOR ANALYSIS

The Sustainability of a Competitive Advantage is a Function of three Factors

1. The obsolescence of a core competence, the basis of the value creating strategy, as a result of
environmental changes.
2. The availability of substitutes for the core competence, or the extent to which competitors can
use different core competencies to overcome value created by the original core competence.
3. The imitability of the core competence, or the abilities of competitors to successfully develop
the same core competence.

.
Internal Analysis
Today’s competitive landscape makes it more difficult for companies to expect that they can
sustain a level of strategic competitiveness strictly by managing the costs of labour, capital, and
raw materials (because, in a global environment, all companies potentially can do this).

Internal Analysis Framework

Correctly identifying, developing, deploying, and exploiting company resources, capabilities,
and core competencies requires managers to make difficult decisions. In part, these challenges
are a result of characteristics of both the internal and external environments of the company This
challenge is multiplied because of three conditions that characterise important, strategic
decisions.

The conditions or decision characteristics affecting managerial decisions about Resources,

Capabilities, and Core Competencies basically fall under three heads:
1. Uncertainty regarding the assessment of the general and industry environments,
assessment and predictability of competitive actions and customer preferences.
2. Complexity regarding the nature of any interrelatedness of the causes of change in the
environment and how the environments are perceived, especially regarding decisions as
to which of the company’s resources and capabilities might serve as the foundation for
competitive advantage.
3. Intra-organisational conflicts among managers making decisions about which core
competencies are to be nurtured and about how the nurturing should take place. Intra-
organisational conflicts often develop as a result of uncertainty and complexity.
Thus, managers that must make decisions under conditions of uncertainty, complexity, and intra-
organisational conflict must exercise judgement, a capacity for making a successful decision in
a timely manner when no correct model is available or when relevant data are unreliable
or incomplete.

SWOT ANALYSIS AND VALUE CHAIN

Swot Analysis

SWOT analysis means analysing strengths, weaknesses, opportunities and it is a useful strategic
planning tool and is based on the assumption that if managers carefully review internal strengths
and weaknesses and external threat and opportunities, a useful strategy for ensuring
organisational success can be formulated. It is a simple technique for getting a quick overview of
a strategic situation so that such strategies can be formulated as to produce a good between the
company’s internal competencies (strength and weaknesses) and environment (opportunities and
threats).

Strengths and Weaknesses

A “strength” is a positive characteristic that gives a company an important capability. It is an

important organisational resource which enhances a company, competitive position. Some of the
internal strengths of an organisation are:
• Distinctive competence in key areas
• Manufacturing efficiency
• Skilled workforce Adequate financial resources Superior image and reputation
• Economies of scale
• Superior technological skills
• Insulation from strong competitive pressures
• Product or service differentiation
• Proprietary technology.
A “weakness” is a condition or a characteristic which puts the company at disadvantage.
Weaknesses make the organisation vulnerable to competitive pressures. These are competitive
liabilities and strategic managers must evaluate their impact on the organisation’s strategic
position when formulating strategic policies and plans. Weaknesses require a close scrutiny
because some of them can
prove to be fatal. Some of the weaknesses to be reviewed are:
• No clear strategic direction
• Outdated facilities
• Lack of innovation is Complacency
• Poor research and developmental programmes
• Lack of management vision, depth and skills
• Inability to raise capital
• Weaker distribution network
• Obsolete technology
• Low employee morale
• Poor track record in implementing strategy
• Too narrow a product line
• Poor market image
• Higher overall unit costs relative to competition.

Opportunities and Threats

An “opportunity” is considered as a favourable circumstance which can be utilised for beneficial

purposes. it is offered by outside environment and the management can decide as to how to make
the best use of it. Such an opportunity may be the result of a favourable change in any one or
more of the elements that constitute the external environment. It may also be created by a
proactive approach by the management in moulding the environment to its own benefit. Some of
the opportunities are:
• Strong economy
• Possible new markets
• Emerging new technologies
• Complacency among competing organisations
• Vertical or horizontal integration
• Expansion of product line to meet broader range of customer needs
• Falling trade barriers in attractive foreign markets

A “threat” is a characteristic of the external environment which is hostile to the organisation.

Management should anticipate such possible threats and prepare its strategies in such a manner
that any such threat is neutralised. Some of the elements that can pose a threat are:
• Entry of lower cost foreign competitors Cheaper technology adopted by rivals
• Rising sales of substitute products
• Shortages of resources
• Changing buyer needs and preferences
• Recession in economy
• Adverse shifts in trade policies of foreign governments
• Adverse demographic changes
SWOT analysis involves evaluating a company’s internal environment in terms Of strengths and
weaknesses and the external environment in terms of opportunities and threats and formulating
strategies that take advantage of all these factors. Such analysis is an essential component of
thinking strategically about a company’s situation.

MANAGEMENT

I. Does the company use strategic management concepts?

2. Are company objectives and goals measurable and well communicated?
3. Do managers at all hierarchical levels plan effectively?
4. Do managers delegate authority well?
5. Is the organisation's structure appropriate?
6. Are job description and job specifications clear?
7. Is employee morale high?
8. Is employee turnover and absenteeism low?
9. Are organisational reward and control mechanisms effective?

MARKETING

1. Are markets segmented effectively?

2. Is the organisation positioned well among competitors?

3. Has the company's market share been increasing?

4. Are present channels of distribution reliable and cost- effective?

5, Does the company have an effective sales organisation?
6. Does the company conduct market research?

7. Is product quality and customer service good?

8. Are the company's products and services priced appropriately?

9. Does the company have an effective promotion, advertising, and publicity strategy?
10. Is marketing planning and budgeting effective?

11. Do the company's marketing managers have adequate experience and training?

RESEARCH AND DEVELOPMENT

1. Does the company have R&D facilities? Are they adequate?

2. If outside R&D companies are used, are they cost- effective?
3. Are the organisation's R&D personnel well qualified?

4. Are R&D resources allocated effectively?

5. Are management information and computer systems adequate?

6. Is communication between R&D and other organisational units effective?
7. Are present products technologically competitive?
COMPUTER INFORMATION SYSTEMS

1 Do all managers in the company use the information system to make decisions?
2. Is there a chief information officer or director of information systems position in the
company?

3. Are data in the information system updated regularly?

4. Do managers from all functional areas of the company contribute input to the information
system?
5. Are there effective passwords for entry into the company's information system?
6. Are strategies of the company familiar with the information system s of rival companies?
7. Is the information system user friendly?

8. Do all users of the information system understand the competitive advantages that
information can provide companies?

9. Are computer training workshops provided for users of the information system?
10. Is the company's information system continually being improved in content and user
friendliness?

Value Chain Analysis

The second framework that companies can use to identify and evaluate the ways in which their
resources and capabilities can add value is value chain analysis. This framework is useful
because it enables companies to understand which parts of their operations or activities create
value by segmenting the value chain into primary and secondary activities.

The first step in value chain analysis is to carefully examine each of the company’s primary
activities to determine the potential for creating or adding value.
• Inbound Logistics: Examine all activities related to the receipt, control, warehousing,
inventory, and distribution of raw materials or component parts into the production process.
• Operations: Activities to be examined are all those necessary to convert the inputs (raw
materials or components)
available as a result of inbound logistics into finished
products. Examples include machining, assembly, equipment maintenance, and packaging.
• Outbound Logistics: This category represents the
company’s activities involved with the collection, storage, and physical distribution of products
to customers. Examples include warehousing or storage of finished products,
material handling, and order processing.
• Marketing and Sales: Several marketing and sales activities must be completed to both
induce customers to purchase products and ensure that products are available. Activities include
developing advertising and promotion campaigns; selecting and developing distribution
channels; and selecting, training, developing, and supporting a sales force.
• Service: These are the activities that a company offers to enhance or maintain a product’s
value, including installation, product use training, adjustment, repair, and warranty services.
The next step in the value chain analysis process is an examination of the company’s support
activities to determine any value creating potential in those activities.
• Procurement: These are activities that are completed to purchase the inputs needed to
produce a company’s products, including items consumed or used in the manufacturing process
(such as raw materials or component parts), supplies, and fixed assets (machinery, equipment
and facilities).
• Technological Development: All activities that are completed to either improve a company’s
products or its production processes. This includes basic research, process and equipment design,
product design, and servicing procedures.
• Human Resource Management: These activities are related to the recruiting, hiring,
training, developing, and compensating (including performance assessment and
reward systems) of a company’s employees.
• Company Infrastructure: These activities support the activities performed in the company’s
value chain, including general management practices, planning, finance, accounting, legal, and
government relations. By performing its infrastructure related activities, a company identifies
external opportunities and threats, and internal strengths and weaknesses related to company
resources and capabilities,
and supports or nurtures its core competencies.

Using the value chain framework enables managers to study the company’s resources and
capabilities in relationship to the primary and support activities performed to design,
manufacture, and distribute products, and to assess them relative to competitors’ capabilities. For
these activities to be sources of competitive advantage, a company must be able to perform
primary or support activities in a manner that is superior to the ways that competitors perform
them. Also perform a primary or support activity that no competitor is able to perform to create
superior value for customers and achieve a competitive advantage.
This implies that, given that individual companies are comprised of unique or heterogeneous
bundles of activities, reconfiguring the value chain, or rebundling resources and capabilities, may
enable a company to develop unique value creating activities. The managerial challenge is that
the value creation process is difficult and there is no one best way to assess a company’s primary
and support activities or to evaluate the value creating potential of those activities either within
the company or relative to competitors, because of incomplete or ambiguous data.

However, by being objective, managers may be able to use the value chain framework to identify
new, unique ways to combine resources and capabilities to create value that are difficult for
competitors to recognise, understand, or imitate. The longer a company is able to keep
competitors “in the dark,” as to how resources and capabilities have been combined to create
value, the longer a company will be able to sustain a competitive advantage.

UNIT3

STRUCTURAL IMPLEMENTATION

Structural implementation of strategy involves designing of organisation structure and

interlinking various units and subunits of the organisation created as a result of the organisation
structure. Organisation structure is the pattern in which the various parts of the organisaion are
interrelated or interconnected. Thus, it involves such issues as to how the work of the
organisation will be divided and .assigned among various positions, groups, departments,
divisions, etc. and the coordination, necessary to accomplish organisational objectives: will be
achieved.

Strategy-Structure Relationship
There is close relationship between an organisation’s strategy and its structure. The
understanding of this relationship is important so that in implementing the strategy, the
organisation structure is designed according to the needs of the strategy. The relationship
between strategy and structure can be thought in terms of utilizing structure -for strategy
implementation because structure is a means to an end and not an end in itself
Relating Structure to Strategy
The close association of structure with strategy suggests that the organisation should relate its
structure with its strategy. It should design the structure according to the needs of the strategy
for- its effective implementation. Without coordination between strategy and structure, the most
likely outcomes are confusion misdirection, and splintered efforts within the organisation.

Mechanism for Relating Structure to Strategy

The first aspect of structure-strategy fit relates to the type of functions that the organisation
structure should facilitate to perform. There are tests which any good organisation structure
should satisfy. First -implement the strategy properly, certain functions must be performed.
In relating structure to strategy, following strategic principles organizing may be helpful. These
principles are not strictly in accordance -with traditional principles of organizing. These
principles are considered be specially pertinent for a firm with multiple products and multiple
industry-market opportunities. These should also suit the smaller but growing firms in a dynamic
volatile environment.

1. To the extent duplication and expense can be avoided. it is highly desirable to relate -
significant areas of authority and responsibility to results desired with given markets, industries,
or sets of customers. Organisation by market can produce the highest degree of strategic
awareness.
2. It is better to delegate authority and decentralize strategic planning and operations for
businesses which are relatively mature, predictable, and stable. This frees top management for
strategic planning in the relatively unknown areas of opportunities.
3. Strategic planning for the unknown areas should be centralized as this requires close
supervision of top management. The critical early choices in unknown fields can pose major
unpredictable risks on resource allocations and technological commitments which are among the
most important decision areas for the management.
4. In centralization decentralisation continuum, there should be centralized measurements. This
implies after-the-fact measurement and not the control which is affected by the divisional heads.
5. Emphasis should be on result-centered rather than profit- centered decentralization. It is not
necessary to effect total profit and loss divisionalisation in order to delegate decision- making
authority’ to lower echelon managers.
Decentralization can be confined to those key operating and support areas that have within their
make-up tradeoff issues which a subordinate manager can resolve to affect timely and market
knowledgeable strategic decisions. In other words, neither centralization nor decentralization are
cut and dried propositions. Many graduations are available to resourceful management, and
entrepreneurial type of responsibilities can be assigned with significant leverage for achieving
results without handing over complete profit responsibility.

Structural Change
If the present organisation structure does not adequately fit the need of chosen strategy in the
light of the above strategy- structure fit and strategic principles of organizing, top management
should look for reorganization. Many companies have reorganized their structures recently
because of the change in their strategies due to the following factors:

1. rapid growth leading to problems of manageable size and communication;

2. excessive diversification of product lines;
3. increasing competition and environmental changes;
4. changes in managerial styles particularly from centralized family decisions to decentralized
decision making;
5. change in organisational climate and managerial commitments; and
6. unsatisfactory work performance because of structural conflicts.

If the change is required, it should be total package of articulated and efficient structure,
effective back-up systems, and motivated people dimensions. Initially, the process reorganization
was the responsible of line management, usually the chief executive. It was, therefore, a highly
intuitive process largely inspired by management’s desire to solve certain existing problems,
make key personnel changes, or take up the fad of
the time.

FUNCTIONAL IMPLEMENTATION

Functional implementation deals with the development of policies and plans in different areas of
functions which an organisation undertakes.
Functional Policies and Plans
Integrated strategic planning system has significant dimension that coordinates the various plans
from the top level of the organisation down through the lower levels. Such plans are coordinated
at different levels so that planning efforts at a lower level contribute to the higher level efforts.
Difference between Policy and Procedure
Before we proceed to the discussion of development of functional policies, it is desirable to make
a comparison of policy and procedure. A procedure is a series of related tasks that make up the
chronological sequence and the established way of performing the work to be accomplished.
1. Policy provides guidance for managerial thinking as well as action.
2. A policy is more flexible as compared to a procedure.
3. Policy is more pronounced at higher levels while procedures are more prevalent at lower
levels.

Role of Functional Policies and Plans

Functional policies play important role in strategy implementation. A functional policy is
formulated basically to control and reinforce implementation of functional strategies and also the
corporate strategy. Control and reinforcement of strategy implementation are facilitated by
functional policies in the following ways:
1. Through the functional policies, top management can ensure that strategy is implemented by
all parts of the organization as policies cover almost entire activities of the organisation.
2. Policies specify the manner in which things can be done and limit discretion for managerial
action. Thus, the top management of the organisation can rest assured that all personnel of the
organisation will direct their efforts in a way relevant for strategy implementation.
3. Policies provide guidelines for managerial decisions. This aspect of the policies serves the
strategy implementation in two ways. First, there will be uniformity throughout the organisation
in managerial action. Second, there will be considerable time savings in decision making as
managers are well aware what kind of actions. are required in a given situation.
4. Functional policies provide basis for control in respective areas as policies lead to consistent
pattern of behaviors: This, in turn, acts as basis for controlling.
5. Policies provide coordination across different functions. Coordination among different
functions is very important for strategy implementation.

All functions of an organisation are interdependent and interrelated. Therefore, what is

happening in one function has its relevance for other- functions. All functions can
contributepositively when they are performed in a coordinated way.

Development of Functional Policies and Plans

Managers develop policies which are decision guides and make the strategy work. Therefore, the
critical element involved in analytical exercise for policy making is the ability to factor the grand
strategy into policies that are compatible, workable and just theoretically sound. It is not enough
for the managers to decide to change the strategy. What comes next is equally important: How
do we get there? When? and How efficiently? A manager answers these questions by preparing
policies to implement the strategy. For example, if an organisation chooses to go for
diversification, the policy maker has to decide what to diversifyinto, where to diversify, how
much money will be needed, from where the money will come and what changes are needed in
various functions of the organisation.

Making Trade-off Decisions

In integrating various functional policies, the organisation faces the situation of trade-off
decisions because of the inherent nature of each organisational function. The demand for
optimizing a particular function may be in one way, for another function, in another way which
may be conflicting to each other.
Intensity of Linkages
All functions of an organisation are interdependent and interlinked; some directly, others
indirectly. Types of linkage determine the level of integration of various functions.
Timing of Implementation of Policies
There should be integration in timing in putting different policies into action. This may bring
better result for the organisation as a whole.

Lecture 21-32
Social Aspects of Corporate Policy

1. Corporations exist not only as economic entities designed to pursue profits through fair
competition, but also as social entities which must make a contribution to society at large.
Members are expected to respect human rights and to conduct themselves in a socially
responsible manner toward the creation of a sustainable society, observe both the spirit as
well as the letter of all laws and regulations applying to their activities both in Japan and
abroad in accordance with the following ten principles.
 2. Members, by the development and provision of socially beneficial goods and services in
a safe and responsible manner, shall strive to earn the confidence of their consumers and
customers, while taking necessary measures to protect personal data and customer related
information.
3. Members shall promote fair, transparent, free competition and sound trade. They shall
also ensure that their relationships and contacts with government agencies and political
bodies are of a sound and proper nature.
4. Members shall engage in communication not only with shareholders but also with
members of society at large, including active and fair disclosure of corporate information.
5. Members shall strive to respect diversity, individuality and differences of their
employees, to promote safe and comfortable workplaces, and to ensure the mental and
physical well-being of their employees.
6. Members shall recognize that a positive involvement in environmental issues is a priority
for all humanity and is an essential part of their activities and their very existence as a
corporation, and shall therefore approach these issues more proactively.
7. As "good corporate citizens," members shall actively engage in philanthropic activities,
and other activities of social benefit.
8. Members shall reject all contacts with organizations involved in activities in violation of
the law or accepted standards of responsible social behavior.
9. Members shall observe laws and regulations applying to their overseas activities and
respect the culture and customs of other nations and strive to manage their overseas
activities in such a way as to promote and contribute to the development of local
communities.
10. Management of members shall assume the responsibility for implementing this charter
and for taking all necessary action in order to raise awareness in their corporation and
inform their group companies and business partners of their responsibility. Management
shall also heed the voice of their stakeholders, both internally and externally, and
promote the development and implementation of systems that will contribute to the
achievement of business ethics.

In the case of incidents contrary to the principles of this charter, management of members must
investigate the cause for the incident, develop reforms to prevent recurrence, and make
information publicly available regarding their intended actions for reform. After the prompt
public disclosure of information regarding the incident, responsibility for the event and its effects
should be clarified and disciplinary action should be taken, including the highest levels of
management where necessary.

Today, there are many references to corporate social responsibility (CSR), sometimes referred to
as corporate citizenship, in our workplaces, in the media, in the government, in our communities.
While there is no agreed-upon definition, the World Business Council for Sustainable
Development defines CSR as the business commitment and contribution to the quality of life of
employees, their families and the local community and society overall to support sustainable
economic development. Simply put, the business case for CSR--establishing a positive company
reputation and brand in the public eye through good work that yields a competitive edge while at
the same time contributing to others--demands that organizations shift from solely focusing on
making a profit to including financial, environmental and social responsibility in their core
business strategies. Despite what the phrase corporate social responsibility suggests, the concept
is not restricted to corporations but rather is intended for most types of organizations, such as
associations, labor unions, organizations that serve the community for scientific, educational,
artistic, public health or charitable purposes, and governmental agencies.
Worldwide, companies and their HR leadership are coming to grips with what exactly CSR
means in their organizations and how to strategically include CSR within business goals and
objectives. There is growing evidence pointing to the validity of and the demand for CSR. For
example, 82% of companies noted that good corporate citizenship helps the bottom line and 74%
said the public has the right to expect good corporate citizenship.

As the concept of CSR becomes more widely accepted and integrated in business, it is helpful in
this discussion to understand that the development of CSR in organizations is in transition. There
are basically three "generations" of CSR in varying stages of sophistication. The first generation
has demonstrated that companies can contribute to society without risking commercial success.
Today, the second generation is developing more fully as CSR gradually becomes an integral
part of companies' long-term business strategies. Finally, the third generation addresses
significant societal issues, such as poverty and cleanup of the environment. Evidence of the
transition of CSR will be discussed throughout this article, with suggestions of how HR
professionals can take on leadership roles that can contribute to CSR initiatives in their
organizations.

Role of CEO and the board

Once a board is clear about its role in the leadership system, it needs to be clear about the
responsibilities associated with that role. Generally we hear CEOs lamenting:
“As the business environment has changed, we need a board which provides external input and
big picture thinking. They just focus on the same old maintenance, detailed and traditional
issues.”
“I don’t receive useful and substantive feedback from the board about how directors see the job I
am doing. It’s just, “Good job, here’s your increase.” I would like to have an evaluation that
helps me learn and grow. I don’t want any surprises”
“Our board focuses almost exclusively on financial performance, and I need it to assure that the
purpose and values of the organization are sustained for the long-term success of the
organization.”
“My board does not seem concerned about succession until someone’s retirement is imminent.
Then it is too late. We need the board’s commitment to a solid succession and development
process to assure attracting and retaining key talent in today’s world where intellectual capital is
so mission critical. This requires an investment.”
“The board does not seem to have the will to take responsibility for evaluating its own
effectiveness and that of the directors.”
“As a new CEO I can see that our board hired me to be a force to resolve conflicts among
directors or factions within the board. They need to be responsible for evaluating and developing
themselves as a board. I am supposed to work for the board, not be its caretaker.”
“Our board is divided among its members in the support for our strategy. Directors cannot seem
to get on the same page and it retards our effectiveness as an organization.”
“Our board brought me in to “shake things up” and put us on a new course. Despite that
mandate, directors lack the will to back decisions when there is resistance to change coming
from the initiatives we all agreed were right.”
The new CEO now faces the financial crisis which has become a media event with media asking,
“Why didn’t the board know what was going on and, if it did, why didn’t it do anything?”
If you had an executive reporting to you with the lack of effective behavior identified in the
issues mentioned above, you would probably fire the person, or at a minimum, do some serious
coaching and counseling for starters. The board expects executive management to assure that a
sound strategy is in place, the resources deployed to implement it, the talent is available and
properly led to execute it and that objective evaluation occurs to track progress and make
effective decisions. However, when it comes to the board’s own responsibilities, only relatively
recently are boards seeing the need to hold themselves accountable for effective execution of
their own role and responsibilities. Who is responsible for seeing that the board effectively
fulfills its own responsibilities? The board itself is responsible but rarely holds itself accountable
and, even more rarely, puts into play processes for evaluating its own effectiveness---until it is
too late.

It is also the responsibility of the board to assure that the core ideology i.e. purpose (beyond
profit) and core values of the organization are alive and well, effectively perpetuated and
preserved for the future, and that key decisions are aligned with the core ideology. In high-
performance organizations, attracting and retaining intellectual capital is key to long-term
success and a mission-critical investment. Therefore, a commitment to developing and sustaining
effective leaders steeped in the core ideology and culture is increasingly critical and a central
responsibility of the board.

Assure Executive Performance And Succession

A key responsibility of the board is CEO feedback and evaluation and assuring there is an
effective process for evaluating executive talent. The best CEOs and executive talent want to
know more fully where they stand, particularly with their boards---what are they as executives
seen as doing well and how can they be more effective. The best executive talent wants to learn
and grow, since they are achievers. However, typically the executive level gets a “pat on the
back” and a salary review with no substantive, descriptive feedback—until things go wrong. The
board needs to assure there is a high- caliber pool of senior executives inside the organization
AND identify possible external candidates with strong capabilities. The board needs to see that
there is an effective process for providing the key internal talent, including the CEO, with
specific feedback to guide development. This process should also provide the board with insight
it needs to fulfill its role in a well-informed manner.

Succession Planning
In a knowledge and service economy, in particular, intellectual capital is needed to assure the
organization’s long-term viability. Therefore, a key responsibility for the board is providing the
best possible talent to achieve the organization’s strategy long after the current group of leaders
are gone. This includes seeing that the key talent develops the competencies required to align
with the strategy for the future.
A swimming team cannot win the meet with swimmers from the shallow end of the gene pool.
It is the responsibility of the board to be proactive and rigorous in seeing that an effective
process is in operation and achieving the desired bench strength with competencies that align
with strategy.
The National Association of Corporate Directors, in a 1998 Blue Ribbon Commission report on
CEO Succession, summarizes the following warning signals that a board has not fulfilled its
responsibilities in succession planning:
Lack of internal candidates for the position.
Continuing poor or mediocre performance by the organization.
Departure of promising top management candidates.
Crisis created by personal or health issues that could or should have been known to and acted
upon by the board.
Retirement of the CEO delayed because of lack of a successor.
Time-based succession planning scheduled around planned retirements instead of performance-
based succession-planning.
It is best to groom talent from within, with a stable and effective management development
program that is focused on the top three layers of the organization. Development and promotion
from within prepares competencies that are aligned with the business strategy for the future, and
steeps rising leaders in the core ideology of the organization so they serve as effective models
and reinforcers of the culture. Of course grooming talent from within also serves as a strong
strategy for attracting and retaining key talent. It is important that directors have adequate and
appropriate contact with key succession candidates at the senior level.

Monitor Organizational Performance

In monitoring organizational performance, one of the board’s key responsibilities is monitoring
implementation of strategic initiatives including the timeline, budget and results achieved—are
the initiatives moving as planned and achieving the intended outcomes? This is contrasted with
a board that finds itself getting “down in the weeds” evaluating day-to-day matters, which is the
role of the CEO and executive management. To the extent the board meddles in the latter, it
cannot hold the CEO accountable.
To facilitate monitoring and appropriate compliance with legal, regulatory and accounting
practices, the board’s role is to assure that relevant and accurate information systems are in
operation and that control and audit processes are in position to meet business objectives.

Maintaining Legal And Ethical Standards

Over the past few years boards have been blindsided by unprofessional, unethical or illegal
actions by inside management. This can represent significant liabilities, affect shareholder value,
influence customer confidence and good will, and significantly affect employee confidence in
top management. Thereby, the organization’s ability to attract and retain critical talent is
damaged.
The board has a key responsibility to assure legal and ethical standards are established and
maintained. It also needs to model these standards in its own behavior and decisions.

Risk Management And Self Management

It is the responsibility of the board to ensure a return on extraordinary capital investments, when
they are made. This means the board should have some sort of review process to see that those
resources are deployed and to provide accurate monitoring of progress toward intended outcomes
for which the resources were deployed.
Organizations face potential threats to their viability every day. Prevention and management of
crises is a key responsibility of a board. A board must be attuned to significant threats to the
organization and assure plans are developed and implemented to prevent those threats or at least
minimize their effects should they occur. When a significant crisis does occur, it is the
responsibility of a board to see that an effective strategy is developed and implemented—one
which aligns with the core ideology and strategy of the organization for long-term performance
and credibility with key constituencies. Johnson and Johnson’s Tylenol contamination crisis is a
good “case in point” of this approach when it pulled its product nation-wide after deaths
occurred from product found to be contaminated only in Chicago. It cost $100 million. But the
Washington Post wrote, “J & J has succeeded in portraying itself as a company willing to do
what’s right, regardless of the cost. The incident, as handled, built public trust. By contrast
Bristol-Myers, only a few days later, faced a very similar situation and did a market-limited
product withdrawal, focusing on cost. Comparisons have been made frequently in the press and
other publications and in a manner which reflects very differently on the reputation of the two
companies. Dealing with a crisis in a manner that undermines the core ideology has significant
consequences well beyond the short-term crisis.

Self-Management
In terms of self-management, the board must establish objectives for its own development and
evaluate board and CEO performance.
Progressive boards recognize they have an obligation to all constituencies to effectively fulfill
their responsibilities in preparing the organization for the future. This requires evolving their
own competencies and practices to align with strategy. The most progressive boards recognize
this requires reflection and evaluation of how well they do their own job and a commitment to
develop proactively and continuously the competencies and practices needed for optimal
effectiveness instead of operating with a “business as usual” paradigm. Therefore, they have a
process to evaluate their collective effectiveness as a board. The most progressive boards also
evaluate directors to provide them with feedback to help enhance director contribution. The
latter serves as a foundation for making the tough decisions of asking weak directors to resign so
strong directors can be added. Our experience indicates that the strongest directors want to be on
a strong board to be worth their time. Being a part of a strong board feeds their own
development by working with other strong directors.
A key responsibility of the board is evaluation of CEO performance. Stories abound about
boards who fell asleep at the wheel only to discover that a CEO was creating effects that came to
light and had a significant negative effect on organizational performance and shareholder value.
When these effects come to light, investor confidence is eroded and is difficult to rebuild. On
the other hand, strong CEOs and boards have developed a CEO evaluation process that is driven
by the board and provides good, descriptive feedback which guides the CEO in continuous
improvement of his/her own performance. It sets expectations that address ineffective behavior
before it becomes a crisis. An effective CEO evaluation process also tends to enhance
significantly CEO/board communication.

THE INTERNATIONAL DIMENSIONS OF STRATEGY

1. In a major trading nation such as the United Kingdom, few companies can afford to ignore the
international dimensions of their marketplace. For several decades now large multinational
corporations, mostly from North America and Europe such as Ford, Shell, BP, Texaco, Unilever
and Coca Cola, have established operations on a worldwide basis,
often taking with them their own management styles and business attitudes. In recent years these
have been joined by a number of major Japanese companies, mostly in electronics and motor
vehicle manufacture, such as Nissan, Sony, Honda, JVC and Toyota. The Japanese have
established production facilities as well as marketing and distribution operations overseas, both
in the USA and in Europe.

2. Other international influences, especially on British companies, include the changing and
developing nature of the European Union (EU), which, with its movement towards free trade, is
slowly but surely increasing the competition in UK domestic markets as well as in the EU itself.
On the other hand the EU is also increasing opportunities for combinations of European
companies to work together in joint ventures, such as aircraft development (such as Airbus
Industrie, Panavia). Nowadays, the costs of many indus-trial developments are so high that
individual businesses cannot undertake them on their own. Aircraft development and production
is one such industry, and in addition to mainly European joint ventures, such as the European
Airbus (civil airliners) and Eurofighter (military), there are growing collaborative ventures with
other nations. For example, McDonnell Douglas in the United States collaborates with British
Aerospace in the design and manufacture of military aircraft such as the British Harrier jump-jet.
British Aerospace has also sought joint ventures in its regional jet-liner business, and reached
agreement with Taiwan Aerospace Corporation for the joint manufacture and marketing of its
BAe 146 series of regional jets.

3. Such agreements not only enable development and manufacturing costs to be shared, but also
provide market entry opportunities for the leading partner. The pay-off for the receiving
company (or nation) includes:
(1) the creation of jobs in high technology areas
(2) an influx of valuable technical and systems know-how
(3) the prospect of either earning foreign currency, or engaging in barter-type deals (especially
where the business or state corporation concerned has something valu-able to bargain with, e.g.
oil, minerals and fresh foodstuffs)
(4) the prospect of building on the experience of operating large-scale collaborative projects to
developing a national industry.

Even a company as large and powerful as BP (British Petroleum plc), which is the third largest
oil producer in the world, cannot undertake safely on its own all the development projects that it
perceives as contributing to its global competitive advantage. Thus it looks for joint ventures,
perhaps through part- ownership, perhaps by means of a collaborative project, to further its work
in various parts of the world. For example, BP Exploration, one of its three core businesses,
obtained such agreements in nations as diverse as the USA, Colombia, Vietnam and Papua New
Guinea.

4. Another important development in the world economy is taking place in the so called Pacific
Basin, where relatively undeveloped nations such as South Korea, Taiwan and Malaysia are
joining their smaller but experienced rivals from Hong Kong and Singapore to supply high
quality goods at very competitive prices to the Western nations. Such goods range from ships
and motor cars to electrical goods and clothing. Together with Japan, such a grouping provides a
major challenge to the UK and its European neighbours, as well as to the other major world
economic grouping – the North Americas (the United States, Canada and Mexico). The nations
of the Pacific Basin -have shown themselves capable of manufacturing goods to the highest of
standards and at a lower level of costs than their counterparts in Europe and North America.
They have thus become an attractive prospect for Western firms wanting to share production
costs -and development risks, whilst gaining possible new markets. Since most of the goods
manufactured in that area are exported to developed nations, there is considerable benefit to the
host nation in terms of overseas earnings and/ or preferential trade deals.

5. Finally, there are the activities of businesses, which, while not international conglomerates,
are major international companies in their own right, such as British Airways, Singapore
Airlines, Cunard and TWA. The activities of such companies are as much -constrained by
national politics as they are by competitive pressures. However, due to the enormous increase in
demand for air travel, airline businesses, in particular, are beginning to benefit from a reduction
in controls by national governments all over the world. Deregulation, or the so-called ‘open
skies’ policy, is gradually being extended from the USA and UK domestic markets to Europe as
a whole (via the EU). It is likely that this process will continue apace, enabling airlines to
compete freely on routes, both regional and international. Because of the costs and sheer scale of
global air transport operations, there is a growing trend towards mergers and joint agreements
between existing carriers. British Airways, for example, already has global alliances with US
Air, Qantas, TAT European Airlines and Deutsche BA, which are intended to provide a ‘network
fit’ in which route structures complement each other. Such alliances enable the participants to
gain access to routes and/ or markets which are at present denied to them -because of current
restrictions imposed by the nations concerned. Other benefits include access to development
finance and a share in a larger market. Deutsche BA, formed by British Airways and a
consortium of German banks, purchased Delta Air, a niche carrier, principally serving a local
business market until linking up with British Airways, the world’s leading international air
passenger carrier. Following the purchase, Delta’s fleet expanded significantly, staff numbers
doubled in 12 months and passenger numbers rose from under 700,000 to over one million in
less than two years.

6. One effect of the international dimension of business is that the concept of the domestic
market becomes less significant. For many companies the world is their marketplace. Such
companies have to think globally, even if they have to act locally in their markets for the purpose
of delivering their corporate strategy. Another effect lies in the cost differences between
producing nations. Most of the countries in the Pacific Basin, for example, can produce highly
competitive products for sale in the West, because they currently have the twin advantages of (a)
access to new microelectronic-based technology, and (b) far lower labour costs than Western
companies. Thus shoes, clothing, ships and motor-cars can be produced at relatively low cost,
but at a very acceptable standard for Western markets. If goods can be produced more cost-
effectively in Malaysia, for example, why should a large international company need to continue
to produce them in high-cost areas, such as Europe? The truth is that whereas in the past century
people bought their finished goods from the factories of Europe and the United States, now they
are increasingly likely to buy them from factories in the Far East. The developed economies are
moving steadily away from manufacturing into services, and into what some have called the
‘information economy.

7. The resulting competition from both old-established and new rivals in manufacturing affects
British companies in several ways:
• Firstly, it forces them to compete fiercely at home on differentiation, where a distinct
competitive advantage can be gained due to close contact with customers and a better
understanding of their specific value requirements.
• Secondly, it forces them to compete as closely as possible on price, where the main aim is to
minimise the cost disadvantages through increased efficiency.
• Thirdly, it forces them to consider how they themselves might find competitive advantage
overseas by taking advantage of the lower labour costs in competitor nations.

Thus, opportunities for investment overseas have to be considered, as well as joint ventures or
other collaborative efforts with existing indigenous companies. Given that entry barriers to
competitor nations are generally very high, such steps are not always available, but there is a
growing world movement to facilitate the expansion of world trade by removing trade and other
restrictions on international operations, for example by means of GATT - the General Agreement
on Trade and Tariffs. UK companies, and their counterparts in the world’s trading nations, have
opportunities to lobby diplomats and governments to this end.
8. A crucial factor in the development of world trade is ease of communications. In recent years
enormous strides have been made in the development of global satellite communications,
electronic mail, facsimile transmissions (fax) and other products of microelectronic technology.
Today, telephone, fax, computer and video links are possible between large numbers of nations.
Markets, and information about them, have never been so accessible in communications terms.
Thus, bids can be scrutinised, contracts agreed, orders made, and payments confirmed all at very
short notice. Such technological developments have also helped international commodity trading
and money markets to improve the speed and efficiency of their services to the international
trading community, all of which helps to facilitate the growth of world trade. Companies that
wish not only to survive, but also to thrive in world markets ensure that they take every possible
advantage of the increasingly sophisticated and ever-cheaper forms of electronic
technology that are available to poorer and richer nations alike.

9. Strategic management on a global basis calls for micro electronically-based communications

systems, and the skills to establish and apply them. Companies not only have to invest in the new
technology as it becomes available, but also have to search constantly for the most appropriate
software systems and organisational forms for their decision- making requirements. As multi-
media forms of communication become increasingly possible, it will soon be feasible for
individual directors and their lawyers to conduct negotiations across the globe using video links,
computerised graphics and excellent sound facilities. The business world at least will indeed
become a smaller place!

10.The greatest influence on UK management policies over the next few years will be the
opening up of the Single European Market, which was inaugurated in January 1993. This has
considerable implications for the British economy, particularly for the management of business
and public sector organisations. Britain’s participation in the European
Union (EU) means that its own laws (and customs) can, and will be, affected by EU laws,
guidance, codes of practice and administrative decisions. Although individual countries will be
permitted to retain, or develop, certain local practices (the notion of ‘subsidiarity’), the overall
intention of the underlying legislation (the Treaty of Rome) is to work towards the harmonisation
of business and economic practices between all the EU nations. In this situation, the key issue for
all concerned is how to balance local (i.e. national) wishes with acceptance of EU-wide policies
and practices, at a time when there will be increased competition in home markets as a direct
result of the lifting of trade barriers within the Union.

11. Whereas in other parts of the world, regional co-operation is by means of trade agree-ments,
the European model, as evidenced in the EU, is intended to achieve close political union
internally, as well as to develop trade both internally
and with the world-wide community. Already, in Europe, the laws of the EU take precedence
over those of its members on certain issues affecting the management of enterprises (such as
equal opportunities legislation). Under EU law, an Article is directly binding on member states,
and a Directive requires a member to introduce its own legislation, whilst not being directly
binding.

12.An example of an Article is Article 117 of the main Treaty, which aims to promote the
harmonisation of improved living and working conditions for workers. Within the context of this
binding legislation, discussions have particularly centred on the EU’s so -called ‘Social Charter’,
which many UK business organisations object to on the grounds that it is too prescriptive and
inflexible, and will lead to increased labour costs at a time when international competitors are
reducing theirs. The fact is that, whilst there are several common problems faced by managers in
the EU (e.g. encouraging greater job flexibility in production, managing employee relations in
times of economic and technological change, achieving greater efficiency with smaller
workforce and so on), the solution to them are quite varied, as each country follows its own
preferred pattern of handing competitiveness, productivity, and employee relations.

13.The emphasis in the UK’s enterprise economy has been to break down large organisational
structures in favour of smaller units with delegated powers, and to encourage individual as
opposed to state initiatives and responsibility. Whilst some decentralisation of business and state
enterprises has also taken place in many EU countries, there is nevertheless a greater emphasis
on community affairs and a more regulated partnership between governments, employers and
trade unions than in the United Kingdom. Thus there are several issues on which British and
other EU opinions are likely to vary, and the so-called ‘social’ aspects of business and economic
activities provide a case-in-point.

14.There has been great interest worldwide in the phenomenal success of Japanese enterp-rises in
securing such a significant proportion of world trade. In Britain, also an island nation, this
interest has more than been awakened by the considerable investment in the British economy by
major Japanese firms. The latter have introduced a number of Japanese management practices
into their UK-based organisations, some of which have led directly to efficiency savings over
earlier practices (e.g. development of core
workers supported by part-time/ casual (non-core) workers; insistence on non-specialised career
paths and job flexibility for core workers; team-working seen as essential; single
status working conditions; a respect for the company culture; and meticulous attention paid to
production planning and quality). Other practices, such as the employment of a central core of
workers with guarantees of secure employment, and the attention paid to employee selection and
training, are seen as less effective in that they can reduce flexi-bility and/ or raise labour costs.

15.Some of the above practices have been incorporated into the personnel policies of Japanese
companies in Britain, and they appear to have worked successfully. No employment guarantees
were given, but unions were recognised, single status applied, and thorough training provided,
including key worker visits to Japan to the parent company. A particularly significant advantage
for employers in the British context was the acceptance of job flexibility after training.

16.Japanese firms investing in Britain have undoubtedly been able to take competitive advantage
of a situation in which entry barriers have been reduced due to:
1. Government policy of attracting foreign investment in the
UK economy
2. High unemployment in the areas selected for investment
3. Availability of enterprise grants from the government
4. Diminished trade union power due to changes in the law and high unemployment. The
investing firms have nevertheless won the support of the British workforce, who have
demonstrated their ability to collaborate positively with the Japanese styles of management to
produce quality products efficiently.

17.The pay-off for the Japanese companies who have invested in Britain is that they have been
able to provide themselves with regional manufacturing bases from which to launch
their products into Europe at a time when that continent is steadily becoming one vast market.
Part of the price of that advantage has to be paid for in accepting a gradu-ally higher proportion
of British and/or EU supplied parts in finished manufactured goods. Toyota, for example, not
only
produces body shells and assembles cars at its Derbyshire factory (an investment of over
£800m), but also supplies engines for one of its major models from another factory in Deesside.
Increasingly, other parts are also being supplied from a UK or European source. Manufacturers
who can
claim that ’80% of our leading models are built with UK/ European-made engines and parts’ are
clearly heading for a competitive advantage over those whose finished products still rely heavily
on parts made in Japan. Ultimately, car manufacturers, such as Honda, Nissan and Toyota hope
to be thought of as British as Fords or Vauxhalls (both American-owned companies).

18.The Japanese investment in Britain has been undertaken by large business corporations rather
than small companies, and this is typical of internationalisation in business. There -are three
principal strategies that a national firm can adopt in relation to overseas -markets:
1. It can export its goods or services from the home base, as in the cases of a supplier of Scotch
whisky, or Irish peat, or architectural services. This approach works best where there is no real
substitute product (or service) available locally.
2. It can establish franchise arrangements, where the local franchisee takes responsi-bility for
sales and specific (local) aspects of marketing, leaving the parent company to provide the
business framework and the brand name, and thus achieve significant investment without
excessive capital outlay and minimising local/ national bureaucracy. Examples of this approach
include the McDonald’s fast food chain, the Pizza Hut chain and Hertz Car Rentals. This kind of
approach favours service industries rather than manufacturing, although the latter can produce
goods under licence from a parent company. Industrial examples include aircraft, tractors and so
forth.
3. It can set up manufacturing plants or business centres in the overseas countries making the
same, or similar, goods (or services) as in the home country. For example as in Toyota’s
motorcar manufacturing operations in the UK, and the Coca Cola Company’s bottling plants in
India. Service examples include major accountancy firms with overseas offices, and management
consultancies with bases overseas. The advantage of this approach, which gives multinational
status, is that the organisation concerned is able to make use of local labour and local
businesses/suppliers in -making the goods or supplying the services. This is often welcomed by
nations who -(a) have insufficient employment opportunities for their own nationals, and (b) are
keen to support investment in their national economy by overseas companies.

19.One American writer (Korth, 1985) sees four stages, or degrees, of internationalisation
ranging from domestically- based reactive trading with foreign countries to full-blooded
multinational operations on a global scale. Only in the later stages of international trading do
companies actually invest in foreign countries. Such investment plays an important part in the
shaping of company business strategy, even though headquarters is still in the home country. Full
multinational status is likely to confine the influence of headquarters to that of a holding
company, since it is the international divisions that are responsible for the success of the
company’s overall product-market strategies.

20.The sheer size (and wealth) of multinationals means that they can have a significant effect on
their host nations. Many such companies have total sales well in excess of the -Gross National
Product of many of the world’s nations. For example, the large oil firms, Exxon and Shell, are
larger in economic terms than nations such as South Africa, Austria - and Argentina. Most of
their effects on their hosts are likely to be beneficial, for they include:
• Provision of capital investment in major economic activities that would be beyond the scope
of the nation concerned
• Contribution to the creation of jobs, usually in the context of high unemployment
• Making available a wider range of products to customers
• Introduction of new technology
• Supply of scarce skills and passing them on to nationals
• usually a contribution to social needs (e.g. road building, water supply plants, power
generation)
• improvement to the nation’s balance of payments following the export of goods and services.

21.Nevertheless, the power of multinationals to influence national economies due to the extent of
their investment in host nation cannot be denied, and it is always open to such large enterprises
to threaten to remove their operations to another country at relatively short notice, which is a
powerful sanction on the host. However, the evidence seems to be
that most hosts at government level are willing to take the risks since they perceive the benefits
as outweighing the costs. Others may feel some reservations. Local suppliers, for example, who
have come to depend on the multinational’s business for their very existence know that any
decision to move out would be disastrous for them. A clear strategic option for such businesses is
to aim to widen their customer base, so as not to be reliant on just the multinational’s custom.

Criteria of Sustainable Competitive Advantage

The relationship between resources, capabilities, and the decision point at which managers
determine whether or not capabilities are (or are not) core competencies.
This decision point, which includes four criteria, should be used to determine whether or not a
company’s capabilities are core competencies and can be a source of competitive advantage.
However, a short term competitive advantage is available when company capabilities are
valuable, rare, and non substitutable. The length of time that a company possessing such
capabilities can expect to sustain a competitive advantage depends on how long it takes for
competitors to successfully imitate the value creating activity or process, or reproduce valued
features or characteristics of the product or service.
Thus, the ability to sustain a competitive advantage is dependent on company capabilities being
valuable, rare, non substitutable, and costly to imitate as given below

Core Competencies must be:

- Valuable

- Capabilities that either help a firm to exploit Opportunities

- To create value for customers or to neutralize threats in

- The environment aware

- Capabilities that are possessed by few, if any, current or

 potential competitors

- Costly to Imitate

- Capabilities that other firms cannot develop easily, usually

- Due to unique historical conditions, causal ambiguity or

- Social complexity

- Non Substitutable

- Capabilities that do not have strategic equivalents, such as firm -specific knowledge or trust-
based relationships

Valuable

Capabilities that are valuable help a company exploit opportunities and / or neutralize threats in
the external environment.
Valuable capabilities enable a company to develop and implement strategies that create value for
customers. For example, Sony uses its valuable capabilities to design, manufacture, and market
miniaturised electronic technology to add value for consumers (or to serve as a joint venture
partner or perform outsourced activities for other manufacturers who do not possess these
valuable capabilities).

Rare
Capabilities are rare when they are possessed by few, if any, current or potential competitors. If
many companies have the same capabilities, the same value creating strategies will be selected.
As a result, none of the companies will be able to achieve a sustainable competitive advantage.
Companies that develop and nurture capabilities that are different from those held by other
companies would achieve a competitive advantage.

Costly To Imitate
Capabilities are costly to imitate when other companies are unable to develop them except at a
cost disadvantage relative to companies that already have them. This usually is a result of
one or a combination of three conditions:

1. Unique historical conditions such as establishing facilities in a key location that preempts
competition when no other locations have the same or similar value related characteristics or
developing a unique organisational culture in the early stages of the company’s life that cannot
be duplicated by cultures developed at different times. A unique culture can not only serve as a
source of competitive advantage, but also may be a source of competitive disadvantage. The
latter may be the case when a company’s culture prevents it from recognising or successfully
adapting to changes in a turbulent environment. At the same time, a unique culture may be a
source of sustainable competitive advantage.

2. Causal ambiguity also may prevent competitors from perfectly imitating a competency if the
link between a company’s resources, capabilities, and core competencies is not identified or
understood. Also, competitors may not be able to identify or determine how a company uses its
competencies to achieve a sustainable competitive advantage.

3. Social complexity means that a company’s capabilities are the product of complex social
phenomena such as interpersonal relationships within the company or between The Company
And Its Customers And Suppliers.

Non substitutable

A company’s capabilities are non substitutable when they do not have strategic equivalents. In
addition, if capabilities are invisible, it is even more difficult for competitors to identify viable
substitutes. Examples of capabilities that can be difficult to identify or to find suitable substitutes
for include company specific knowledge and trust based working relationships.

Major Inferences that you can Draw:

Resources and capabilities that are neither valuable, rare, costly to imitate, nor non substitutable
mean that the company will be at a competitive disadvantage and will earn below average
returns.

Resources and capabilities that are valuable, but are neither rare nor costly to imitate and may or
may not be non substitutable mean that the company can achieve competitive parity and earn
average returns.

Resources and capabilities that are both valuable and rare, but are not costly to imitate and may
or may not be non substitutable, may enable the company to achieve a temporary competitive
advantage and will earn above average to average returns.

Resources and capabilities that are valuable, rare, costly to imitate, and non-substitutable will
enable the company to achieve a sustainable competitive advantage and earn above average
returns.

Because they are generally knowledge based, capabilities that are company’s core competencies
become more valuable as they are used over time. For example:
Sharing knowledge, across people, jobs and organisational functions, may result in an increase in
the value of that knowl- edge in ways that are competitively relevant.
Core competencies can also become core rigidities (or core incompetencies).
Core competencies must be strategically relevant, which means that companies must continually
strive to develop new competencies.
New competencies must be developed to meet the changes (and challenges) of the new
competitive landscape as both technological and global factors are rapidly changing.
Thus, nurturing existing competencies must be balanced by efforts to encourage the development
of new competencies

BENCHMARKING

Benchmarking is another tool which can be used to generate competitive advantage. It is a

process of identifying in a systematic way superior products, services, processes. and practices
that can be adopted in an organisation to reduce costs, decrease operations cycle time, and
provide greater customer satisfaction. he concept of benchmarking has been derived rom land
surveying in which it indicates a reference point called benchmark which is established as a base
for surveys. Webster Dictionary defines benchmark as “a survey’s mark; previously determined
position used as a reference point; standard by hich something can be measured and judged.”
Sarah Cook has defined benchmarking as follows:
“Benchmarking is a process of identifying, understanding, and adapting outstanding practices
from within the same organisation or from other businesses to help improve performance.”

Features of Benchmarking

1. Benchmarking is based on the theme “see what others do and try to improve upon that.”
Therefore, this implies some kind of measurement which can be accomplished in two forms:
internal and external. Both internal and external practices are compared and a statement of
significant differences is prepared to identify the gap which should be filled.

2. Benchmarking can be applied to all facets of a business; it includes products, services,

processes, and methods. It goes beyond the traditional competitor analysis in the form of
identifying strengths and weaknesses and includes clear understanding of how the best practices
are used.

3. Benchmarking is not aimed solely at direct product competitors but those organisations and
businesses that are recognised as best or industry leaders.

4. Benchmarking is a continuous process and not just one shot action. It is continuous because
industry practices constantly change and a continuous monitoring of these practices is required to
bring suitable change in the organisation.

Types of Benchmarking

There are different types of benchmarking. Since benchmarking is an evolutionary process in an

organisation, its application varies over the period, of time resulting into different types of
benchmarking as shown in

At each subsequent stage, the complexity and sophistication increase because emulation of
practices becomes gradually more difficult. For example, emulation of product features of a
company is much easier as compared to its competitive practices. The first generation of
benchmarking is related to product
analysis which reveals what product features are valued by the customers most. At the second
level comes competitive benchmarking in which the performance of a company is compared
with either close competitor or industry leader depending on the competitive position of the
company in industry. At the third level, process benchmarking is undertaken to make a
comparative analysis of various

Discussion on case studies will be done consequently between these lectures