Q) Define strategic management.

Explain the need for

strategic management.Q) Explain steps involved in strategic
mgt process
1.2 Definition of Strategic Management

1. “Strategic management is concerned with the determination of the basic long-term

goals and theobjectives of an enterprise, and the adoption of courses of action and
allocation of resources necessaryfor carrying out these goals”. – Alfred Chandler,
1962

2. “Strategic management is a stream of decisions and actions which lead to the

development of aneffective strategy or strategies to help achieve corporate objectives”.
– Glueck and Jauch, 1984

3. “Strategic management is a process of formulating, implementing and evaluating

cross-functionaldecisions that enable an organisation to achieve its objective”. – Fed R
David, 1997

4. “Strategic management is the set of decisions and actions resulting in the formulation
and implementation of plans designed to achieve a company’s objectives.” – Pearce
and Robinson, 1988

We have so far discussed the concepts of strategic thinking, strategic decision-making and
strategic approach which, it is hoped, will serve as an a background understand the nature of
strategic management. However, to get an understanding of what goes on in strategic
management, it is useful to begin with definitions of strategic management.

1.8 Strategic Management Process Developing an organisational strategy involves four

main elements – strategic analysis, strategic choice, strategy implementation and strategy
evaluation and control. Each of these contains further steps, corresponding to a series of
decisions and actions, that form the basis of strategic management process.

1.Strategic Analysis: The foundation of strategy is a definition of organisational purpose.

This defines the business of an organisation and what type of organisation it wants to be.
Many organisations develop broad statements of purpose, in the form of vision and mission
statements. These form the spring – boards for the development of more specific objectives
and the choice of strategies to achieve them

2. Strategic Choice: The analysis stage provides the basis for strategic choice. It allows
managers to consider what the organisation could do given the mission, environment and
capabilities – a choice which also reflects the values of managers and other stakeholders.

3. Strategy Implementation: Implementation depends on ensuring that the organisation has a

suitable structure, the right resources and competencies (skills, finance, technology etc.),
 right leadership and culture. Strategy implementation depends on operational factors being
put into place.
4. Strategy Evaluation and Control: Organisations set up appropriate monitoring and
control systems, develop standards and targets to judge performance.

1.5 Need for Strategic Management

No business firm can afford to travel in a haphazard manner. It has to travel with the
support of some route map. Strategic management provides the route map for the firm. It
makes it possible for the firm to take decisions concerning the future with a greater
awareness of their implications. It provides direction to the company; it indicates how
growth could be achieved. The external environment influences the management practices
within any organisation. Strategy links the organisation to this external world. Changes in
these external forces create both opportunities and threats to an organisation’s position – but
above all, they create uncertainty. Strategic planning offers a systematic means of coping
with uncertainty and adapting to change. It enables managers to consider how to grasp
opportunities and avoid problems, to establish and coordinate appropriate courses of action
and to set targets for achievement. Thirdly, strategic management helps to formulate better
strategies through the use of a more systematic, logical and rational approach. Through
involvement in the process, managers and employees become committed to supporting the
organisation. The process is a learning, helping, educating and supporting activity. An
increasing number of firms are using strategic management for the following reasons:
1. It helps the firm to be more proactive than reactive in shaping its own future.
2. It provides the roadmap for the firm. It helps the firm utilize its resources in the best
possible manner.
3. It allows the firm to anticipate change and be prepared to manage it.
4. It helps the firm to respond to environmental changes in a better way.
5. It minimizes the chances of mistakes and unpleasant surprises. 6. It provides clear
objectives and direction for employees.

STRATEGIC MANAGEMENT PROCESS

Strategic management is a dynamic process .it is continual, evolving, iterative process.
it means that it cannot be a rigid, step- wise collection of few activities arranged in a
sequential order rather it is a continually evolving mosaic of relevant activities. Managers
perform these activities in any order contingent upon the situation they face at a particular
time. And this is to be done again & again over the time as the situation demands. There are
four major phases of strategic management process which are as under.
A) Establishment of strategic intent.
B) Formulation of strategies.
C) Implementation of strategies.
D) Strategic evaluation.

A. Establishment of strategic intent:

It is a first step in strategic management Process. It involves the hierarchy of

objectives that an organization set for itself. Generally it includes vision, mission, business
definition and objectives establishing the hierarchy of strategic intent which includes -
1. Creating and communicating a vision.
2. Designing the mission statement.
3. Defining the business.
4. Adopting the business model.
5. Setting objectives.

The hierarchy of strategic intent lays the foundation for strategic management of any
organization. The strategic intent makes clear what organization stand for. In the hierarchy,
the vision intent serves the purpose of stating what the organization wishes to achieve in the
long run. The mission relates the organization to the society. The business definition explains
the businesses of the organization in terms of customer needs, customer groups and
alternative technologies. The business model clarifies how the organization creates revenue.
And the objectives of the organizations state what is to be achieved in a given period of time.

B. Formulation of strategy:

Formulation of strategy is relates to strategic planning. It is done at different levels i.e.

corporate, business, and operational level. The strategic formulation consists of the following
steps.

1. Framing of mission statement :

Here the mission states the philosophy and purpose of the organization. And all most
all business frames the mission statement to keep its activities in the right direction.

2. Analysis of internal & external environment:

The management must conduct an analysis of internal and external environment.
Internal environment consists of manpower, machines, and other sources which resides
within the organization and easily alterable and adjustable. These sources reveal the strength
and weakness of the organization. External environmental factor includes government,
competitions, consumers, and technological developments. These are not adjustable and
controllable and relates to organizations opportunities and threats

3. Setting of objectives:
After SWOT analysis, the management is able to set objectives in key result areas
such as marketing, finance, production, and human resources etc. While setting objectivities
in these areas the objectives must be realistic, specific, time bound, measurable, and easy
attainable.

4. Performance comparison :
By undertaking gap analysis management must compare and analyze its present
performance level with the desired future performance. This enables the management to find
out exact gap between present and future performance of the organization. If there is
adequate gap then, the management must think of strategic measures to bridge the gap.

5. Alternative strategies :
After making SWOT analysis and gap analysis management needs to prepare (frame)
alternative strategies to accomplish the organizational objectives.
It is necessary as some strategies are to be hold and others to be implemented.
6. Evaluation of strategies :
The management must evaluate the benefits and costs of each every alternative
strategy in term of sales, market share, profit, goodwill and the cost incurred on the part of
the strategy in terms of production, administration, and distribution costs.

7. Choice of strategy :
It is not possible to any organization to implement all strategies therefore management
must be selective. It has to select the best strategy depending on the situation and it has to
consider in terms of its costs and benefits etc.

C. Strategy Implementation :

Once the strategies are formulated the next step is to implement them. The strategic
plan is put into action through six sub processes known as project, procedural, resource
allocation, structural, behavioral, and functional implementation. The project implementation
deals with the setting up of organization. Procedural implementation deals with the different
aspects of the regulatory framework within which organizations have to operate. Resource
allocation relates to the procurement and commitment of resources for implementation. The
structural aspect of implementation deals with the design of organizational structures and
systems and reorganizing so as to match the structure to the needs of strategy. The behavioral
aspects consider the leadership style for implementing strategies and other issues like
corporate culture, corporate politics, and use of power, personal values and business ethics
and social he responsibilities. The functional aspects relates to the policies to be formulated
in different functional areas. The operational implementation deals with the productivity,
processes, people and pace of implementing the strategies

For any strategy implementation there are five major steps.

Such as
1. Formulation of plans.
2. Identification of activities.
3. Grouping of activities.
4. Organizing resources.
5. Allocation of resources.

D. Strategic Evaluation:

Strategic evaluation appraises the implementation of strategies and measures

organizational performance. The feedback from strategic evaluation is meant to exercise
control over the strategic management process. Here the managers try to assure that strategic
choice is properly implemented and is meeting the objectives of the firm. It consists of
certain elements which are given below.

1.Setting of standards:- The strategists need to set standards, targets to implement the
strategies. it should be in terms of quality, quantity, costs and time. The standard should be
definite and acceptable by employees as well as should be achievable.
2.Measurement of Performance:- Here actual performances are measured in terms of
quality, quantity, cost and time.
2.Comparison Of Actual Performance With Set Targets:- The actual performance needs
to be compared with standards and find out variations, if any.
3.Analyzing Deviation And Taking Corrective Measures:- If any deviation is found then
higher authorities tries to find out the causes of it and accordingly as per its nature takes
corrective steps. Here some time authority may re-set its goals, objectives or its planning,
policies and standards.

Q) What is vision & mission? Write the characteristics or good

vision & mission statement

2.3 Business Vision

The first task in the process of strategic management is to formulate the organisation’s
visionand mission statements. These statements define the organisational purpose of a firm.
Togetherwith objectives, they form a “hierarchy of goals.”
• Plans
• Objectives
• Goals
• Mission
• Vision
A clear vision helps in developing a mission statement, which in turn facilitates setting
of objectives of the firm after analysing external and internal environment. Though vision,
missionand objectives together reflect the “strategic intent” of the firm, they have their
distinctive characteristics and play important roles in strategic management.
Vision can be defined as “a mental image of a possible and desirable future state of the
organisation” (Bennis and Nanus). It is “a vividly descriptive image of what a company
wants to become in future”.
Vision represents top management’s aspirations about the company’s direction and
focus. Every organisation needs to develop a vision of the future. A clearly articulated vision
moulds organisational identity, stimulates managers in a positive way and prepares the
company for the future.
“The critical point is that a vision articulates a view of a realistic, credible, attractive
future for ther organisation, a condition that is better in some important ways than what now
exists.” Vision, therefore, not only serves as a backdrop for the development of the purpose
and strategy of a firm, but also motivates the firm’s employees to achieve it. According to
Collins and Porras, a well-conceived vision consists of two major components: 1. Core
ideology 2. Envisioned future Core ideology is based on the enduring values of the
organisation (“what we stand for and why we exist”), which remain unaffected by
environmental changes. Envisioned future consists of along-term goal (what we aspire to
become, to achieve, to create”) which demands significant change and progress.

2.3.1 Defining Vision

Vision has been defined in several different ways. Richard Lynch defines vision as “ a
challenging and imaginative picture of the future role and objectives of an organisation,
significantly going beyond its current environment and competitive position.” E1-Namaki
defines it as “a mental perception of the kind of environment that an organisation aspires to
create within a broad time horizon and the underlying conditions for the actualization of this
perception”. Kotter defines it as “a description of something (an organisation, corporate
culture, a business, a technology, an activity) in the future.”
2.3.2 Nature of Vision
A vision represents an animating dream about the future of the firm. By its nature, it is
hazy and vague. That is why Collins describes it as a “Big hairy audacious goal” (BHAG).
Yet it is a powerful motivator to action. It captures both the minds and hearts of people. It
articulates a view of a realistic, credible, attractive future for the organisation, which is better
than what now exists. Developing and implementing a vision is one of the leader’s central
roles. He should not only have a “strong sense of vision”, but also a “plan” to implement it.
Example: Henry Ford’s vision of a “car in every garage” had power. It capturedthe
imagination of others and aided internal efforts to mobilize resourcesand make it a reality. A
good vision always needs to be a bit beyond acompany’s reach, but progress towards the
vision is what unifies the efforts of company personnel.

2.3.3 Characteristics of Vision Statements As may be seen from the

above definitions, many of the characteristics of vision given by these authors are common
such as being clear, desirable, challenging, feasible and easy to communicate. Nutt and Back
off have identified four generic features of visions that are likely to enhance organisational
performance:
1. Possibility means the vision should entail innovative possibilities for dramatic
organisational improvements.
2. Desirability means the extent to which it draws upon shared organisational norms
and values about the way things should be done.
3. Action ability means the ability of people to see in the vision, actions that they can
take that are relevant to them.
4. Articulation means that the vision has imagery that is powerful enough to
communicate clearly a picture of where the organisation is headed.

2.3.4 Importance of Vision

Having a strategic vision is linked to competitive advantage, enhancing organisational
performance, and achieving sustained organisational growth. Clear vision enables firms to
determine how well organisational leaders are performing and to identify gaps between the
vision and current practices. Organisations preparing for transformational change regularly
undertake “envisioning” exercises to help guide them into the future. The visioning process
itself can enhance the self-esteem of the people who participate in it because they can see the
potential fruits of their labours. Conversely, a “lack of vision” is associated with
organisational decline and failure. As Beaverargues “Unless companies have clear vision
about how they are going to be distinctly different and unique in adding and satisfying their
customers, they are likely to be the corporate failure statistics of tomorrow”. Lacking vision
is used to explain why companies fail to build their core competencies despite having access
to adequate resources to do so. Business strategies that lack visionary content may fail to
identify when change is needed. Lack of an adequate process for translating shared vision
into collective action is associated with the failure to produce transformational organisational
change.
 2.3.5 Advantages of Vision
Several advantages accrue to an organisation having a vision. Parikh and Neubauer
point out the following advantages:
1. Good vision fosters long-term thinking.
2. It creates a common identity and a shared sense of purpose.
3. It is inspiring and exhilarating.
4. It represents a discontinuity, a step function and a jump ahead so that the company
knows what it is to be.
5. It fosters risk-taking and experimentation.
6. A good vision is competitive, original and unique. It makes sense in the market
place.
7. A good vision represents integrity. It is truly genuine and can be used for the benefit
of people
Nutt and Backoff identify three different processes for crafting a vision:
1. Leader-dominated Approach: The CEO provides the strategic vision for the
organisation This approach is criticized because it is against the philosophy of
empowerment, which maintains that people across the organisation should be involved in
processes and decisions that affect them.
2. Pump-priming Approach: The CEO provides visionary ideas and selects people
and groups within the organisation to further develop those ideas within the broad
parameters set out by the CEO.
3. Facilitation Approach: It is a “co-creating approach” in which a wide range of
people participate in the process of developing and articulating a vision. The CEO acts as a
facilitator, orchestrating the crafting process. According to Nutt and Backoff, it is this
approach that is likely to produce better visions and more successful organisational change
and performance as more people have contributed to its development and will therefore be
more willing to act in accordance with it.

3.2 Defining Mission

Thompson defines mission as “The essential purpose of the organisation, concerning
particularly why it is in existence, the nature of the business it is in, and the customers it
seeks to serve and satisfy”. Hunger and Wheelen simply call the mission as the “purpose or
reason for the organisation’s existence”. A mission can be defined as a sentence describing a
company’s function, markets and competitive advantages. It is a short written statement of
your business goals and philosophies. It defines what an organisation is, why it exists and its
reason for being. At a minimum, a mission statement should define who are the primary
customers of the company, identify the products and services it produces, and describe the
geographical location in which it operates. Example: 1.
l. Ranboxy Petrochemicals: To become a research based global company.
2. Reliance Industries: To become a major player in the global chemicals business
and simultaneously grow in other growth industries like infrastructure.
3. ONGC: To stimulate, continue and accelerate efforts to develop and maximize the
contribution of the energy sector to the economy of the country.
4. Cadbury India: To attain leadership position in the confectionery market and
achieve a strong national presence in the food drinks sector.
5. Hindustan Lever: Our purpose is to meet everyday needs of people everywhere – to
anticipate the aspirations of our consumers and customers, and to respond creatively and
competitively with branded products and services which raise the quality of life.
6. McDonald: To offer the customer fast food prepared in the same high quality
worldwide, tasty and reasonably priced, delivered in a consistent low key décor and friendly
manner. Most of the above mission statements set the direction of the business organisation
by identifying the key markets which they plan to serve. “Mission describes the present and
vision the future”. With this statement in mind compare mission and vision statements?

3.3 Importance of Mission Statement

The purpose of the mission statement is to communicate to all the stakeholders inside
and outside the organisation what the company stands for and where it is headed. It is
important to develop a mission statement for the following reasons:
1. It helps to ensure unanimity of purpose within the organisation.
2. It provides a basis or standard for allocating organisational resources.
3. It establishes a general tone or organisational climate.
4. It serves as a focal point for individuals to identify with the organisation’s purpose
and direction.
5. It facilitates the translation of objectives into tasks assigned to responsible people
within the organisation.
6. It specifies organisational purpose and then helps to translate this purpose into
objectives in such a way that cost, time and performance parameters can be assessed and
controlled.

3.4 Characteristics of a Mission Statement

A good mission statement should be short, clear and easy to understand. It should
therefore possess the following characteristics:
1. Not lengthy: A mission statement should be brief.
2. Clearly articulated: It should be easy to understand so that the values, purposes,
and goals of the organisation are clear to everybody in the organisation and will be a guide to
them.
3. Broad, but not too general: A mission statement should achieve a fine balance
between specificity and generality.
4. Inspiring: A mission statement should motivate readers to action. Employees
should find it worthwhile working for such an organisation.
5. It should arouse positive feelings and emotions of both employees and outsiders
about the organisation.
6. Reflect the firm’s worth: A mission statement should generate the impression that
the firm is successful, has direction and is worthy of support and investment.
7. Relevant: A mission statement should be appropriate to the organisation in terms of
its history, culture and shared values.
8. Current: A mission statement may become obsolete after some time. As Peter
Drucker points out, “Very few mission statements have anything like a life expectancy of
thirty, let alone, fifty years. To be good enough for ten years is probably all one can normally
expect”. Changes in environmental factors and organisational factors may necessitate
modification of the mission statement.
9. Unique: An organisation’s mission statement should establish the individuality and
uniqueness of the company.
10. Enduring: A mission statement should continually guide and inspire the pursuit of
organisational goals. It may not be fully achieved, but it should be challenging for managers
and employees of the organisation.
11. Dynamic: A mission statement should be dynamic in orientation allowing
judgments about the most promising growth directions and the less promising ones.
12. Basis for guidance: Mission statement should provide useful criteria for selecting
a basis for generating and screening strategic options.
13. Customer orientation: A good mission statement identifies the utility of a firm’s
products or services to its customers, and attracts customers to the firm.
14. A declaration of social policy: A mission statement should contain its philosophy
about social responsibility including its obligations to the stakeholders and the society at
large.
15. Values, beliefs and philosophy: The mission statement should lay emphasis on the
values the firm stands for; company philosophy, known as “company creed”, generally
accompanies or appears within the mission statement.

3.5 Components of a Mission Statement

Mission statements may vary in length, content, format and specificity. But most agree
that an effective mission statement must be comprehensive enough to include all the key
components. Because a mission statement is often the most visible and public part of the
strategic management process, it is important that it includes all the following essential
components:
1. Basic product or service: What are the firm’s major products or services?
2. Primary markets: Where does the firm compete?
3. Principal technology: Is the firm technologically current?
4. Customers: Who are the firm’s customers?
5. Concern for survival, growth and profitability: Is the firm committed to growth
and financial soundness?
6. Company philosophy: What are the basic beliefs, values, aspirations and ethical
priorities of the firm?
7. Company self-concept: What is the firm’s distinctive competence or major
competitive advantage?
8. Concern for public image: Is the firm responsive to social, community and
environmental concerns?
9. Concern for employees: Are employers considered a valuable asset of the firm?
10. Concern for quality: Is the firm committed to highest quality?

3.6 Formulation of Mission Statements

There is no standard method for formulating mission statements. Different firms
follow different approaches. As indicated in the strategic management model, a clear mission
statement is needed before alternative strategies can be formulated and implemented. It is
important to involve as many managers as possible in the process of developing a mission
statement, because through involvement, people become committed to the mission of the
organisation. Mission statements are generally formulated as follows:
1. In many cases, the mission is inherited i.e. the founder establishes the mission
which may remain unchanged down the years or may be modified as the conditions change.
2. In some cases, the mission statement is drawn up by the CEO and board of directors
or a committee of strategists constituted for the purpose.
 3. Engaging consultants for drawing up the mission statement is also common.
4. Many companies hold brainstorming sessions of senior executives to develop a
mission statement. Soliciting employee’s views is also common.
5. According to Fred R. David, an ideal approach for developing a mission statement
would be to select several articles about mission statements and ask all managers to read
these as background information. Then ask managers to prepare a draft mission statement for
the organisation. A facilitator or a committee of top managers, merge these statements into a
single document and distribute this draft mission statement to all managers. Then the mission
statement is finalized after taking inputs from all the managers in a meeting.
6. Decision on how best to communicate the mission to all managers, employees and
external constituencies of an organisation are needed when the document is in its final form.
Some organisations even develop a videotape to explain the mission statement and how it
was developed.
7. The practice in Indian companies appears to be a consultative participative route.
For Example, at Mahindra and Mahindra, workshops were conducted at two levels within the
organisation with corporate planning group acting as facilitators. The State Bank of India
went one step ahead by inviting labour unions to partake in the exercise. Satyam Computers
went one more step ahead by involving their joint venture companies and overseas clients in
the process.

Mission of two Global Companies

Mission Statement of IBM At IBM, we strive to lead in the invention,
development and manufacture of the industry’s most advanced information technologies,
including computer systems, software, and storage systems and microelectronics. We
translate these advanced technologies into value for our customers through our professional
solutions, services and consulting businesses worldwide.
Mission Statement of FedEx “FedEx is committed to our People-Service-Profit
Philosophy. We will produce outstanding financial returns by providing totally reliable,
competitively superior, global, air-ground transportation of high-priority goods and
documents that require rapid, time-certain delivery.” Source: ibm.com and fedex.com

3.7 Evaluating Mission Statements

For a mission statement to be effective, it should meet the following ten conditions:
1. The mission statement is clear and understandable to all parties involved. The
organisation can articulate and relate to it.
2. The mission statement is brief enough for most people to remember.
3. The mission statement clearly specifies the purpose of the organisation. This
includes a clear statement about: A. What needs the organisation is attempting to fill (not
what products or services are offered)? B. Who the organisation’s target populations are? C.
How the organisation plans to go about its business; that is, what it’s primary technologies
are?
4. The mission statement should have a primary focus on a single strategic thrust.
5. The mission statement should reflect the distinctive competence of the organisation
(e.g., what can it do best? What is its unique advantage?)
6. The mission statement should be broad enough to allow flexibility in
implementation, but not so broad as to permit lack of focus.
7. The mission statement should serve as a template and be the same means by which
the organisation can make decisions.
8. The mission statement must reflect the values, beliefs and philosophy of operations
of the organisation.
9. The mission statement should reflect attainable goals.
10. The mission statement should be worked so as to serve as an energy source and
rallying point for the organisation (i.e., it should reflect commitment to the vision). Are goals
and objectives the same thing? Justify your answer. Discuss the unique characteristics of
goals and objectives?

Q)How to define goals & objectives? Explain characteristics of

objectives.
3.8.1 Goals
The terms “goals and objectives” are used in a variety of ways, sometimes in a
conflicting sense. The term “goal” is often used interchangeably with the term “Objective”.
But some authors prefer to differentiate the two terms.
A goal is considered to be an open-ended statement of what one wants to accomplish
with no quantification of what is to be achieved and no time criteria for its completion. For
example, a simple statement of “increased profitability” is thus a goal, not an objective,
because it does not state how much profit the firm wants to make.
Objectives are the end results of planned activity. They state what is to be
accomplished by when and should be quantified. For example, “increase profits by 10% over
the last year” is an objective. As may be seen from the above, “goals” denote what an
organisation hopes to accomplish in a future period of time. They represent a future state or
outcome of the effort put in now. “Objectives” are the ends that state specifically how the
goals shall be achieved. In this sense, objectives make the goals operational. Objectives are
concrete and specific in contrast to goals which are generalized. While goals may be
qualitative, objectives tend to be mainly quantitative, measurable and comparable.

Stated vs. Operational Goals

Operational goals are the real goals of an organisation. Stated goals are the official
goals of an organisation. Operational goals tell us what the organisation is trying to do,
irrespective of what the official goals say the aims are. Official goals generally reflect the
basic philosophy of the company and are expressed in abstract terminology, for example,
‘sufficient profit’, ‘market leadership’ etc. According to Charles Perrow, the following are
the important operational goals:
1. Environmental Goals: An organisation should be responsive to the broader
concerns of the communities in which it operates, and should have goals that satisfy people
in the external environment. For example, goals like customer satisfaction and social
responsibility may be important environmental goals.
2. Output Goals: Output goals are related to the identification of customer needs.
Issues like what markets should we serve, which product lines should be followed, etc. are
examples of output goals.
3. System Goals: These goals relate to the maintenance of the organisation itself.
Goals like growth, profitability, stability etc. are examples.
4. Product Goals: These goals relate to the nature of products delivered to customers.
They define quantity, quality, variety, innovativeness of products.
 5. Derived Goals: These goals relate to derived or secondary areas like contribution to
political activities, promoting social service institutions etc.

3.8.2 Objectives
Objectives are the results or outcomes an organisation wants to achieve in pursuing its
basic mission. The basic purpose of setting objectives is to convert the strategic vision and
mission into specific performance targets. Objectives function as yardsticks for tracking an
organisation’s performance and progress.

Characteristics of Objectives
Well – stated objectives should be:
1. Specific
2. Quantifiable
3. Measurable
4. Clear
5. Consistent
6. Reasonable
7. Challenging
8. Contain a deadline for achievement
9. Communicated, throughout the organisation.

Role of Objectives
Objectives play an important role in strategic management. They are essential for
strategy formulation and implementation because:
1. They provide legitimacy
2. They state direction
3. They aid in evaluation
4. They create synergy
5. They reveal priorities
6. They focus coordination
7. They provide basis for resource allocation
8. They act as benchmarks for monitoring progress
9. They provide motivation

Nature of Objectives The following are the characteristics of objectives:

Hierarchy of Objectives : In a multi – divisional firm, objectives should be established
for the overall company as well as for each division. Objectives are generally established at
the corporate, divisional and functional levels, and as such, they form a hierarchy. The zenith
of the hierarchy is the mission of the organisation. The objectives at each level contribute to
the objectives at the next higher level.
Long-range and Short-range Objectives : Organisations need to establish both long-
range and short-range objectives (Long– range means more than one year, and short–range
means one year and less.) Short-range objectives spell out the near – term results to be
achieved. By doing so, they indicate the speed and the level of performance aimed at each
succeeding period.
 Multiplicity of Objectives : Organisations pursue a number of objectives. At every
level in the hierarchy, objectives are likely to be multiple. Example: The marketing division
may have the objective of sales and distribution of products. This objective can be broken
down into a group of objectives for the product, distribution, research and promotion
activities. To describe a single, specific goal of an organisation is to say very little about it. It
turns out that there are several goals involved.
Network of Objectives : Objectives form an interlocking network. They are inter-
related and inter-dependent. The implementation of one may impact the implementation of
the other. If there is no consistency between company objectives, people may pursue goals
that may be good for their own function but detrimental to the company as a whole.
Therefore, objectives should not only “fit” but also reinforce each other. As observed by
Koontz et al., “it is bad enough when goals do not support and interlock with one another. It
may be catastrophic when they interfere with one another.

Q) What do you mean by 'SWOT Analysis'? Explain its

importance in strategic management.

5.3 SWOT Analysis

SWOT stands for strengths, weaknesses, opportunities and threats. SWOT analysis is
a widely used framework to summaries a company’s situation or current position. Any
company undertaking strategic planning will have to carry out SWOT analysis: establishing
its current position in the light of its strengths, weaknesses, opportunities and threats.
Environmental and industry analyses provide information needed to identify opportunities
and threats, while internal analysis provides information needed to identify strengths and
weaknesses. These are the fundamental areas of focus in SWOT analysis. SWOT analysis
stands at the core of strategic management. It is important to note that strengths and
weaknesses are intrinsic (potential) value creating skills or assets or the lack thereof, relative
to competitive forces. Opportunities and threats, however, are external factors that are not
created by the company, but emerge as a result of the competitive dynamics caused by ‘gaps’
or ‘crunches’ in the market. We had briefly mentioned about the meaning of the terms
opportunities, threats, strengths and weaknesses. We revisit the same for purposes of SWOT
analysis.
1. Opportunities: An opportunity is a major favourable situation in a firm’s
environment. Examples include market growth, favourable changes in competitive or
regulatory framework, technological developments or demographic changes, increase in
demand, opportunity to introduce products in new markets, turning R&D into cash by
licensing or selling patents etc. The level of detail and perceived degree of realism determine
the extent of opportunity analysis.

2. Threats: A threat is a major unfavourable situation in a firm’s environment.

Examples include increase in competition; slow market growth, increased power of buyers or
suppliers, changes in regulations etc. These forces pose serious threats to a company because
they may cause lower sales, higher cost of operations, higher cost of capital, inability to
make break-even, shrinking margins or profitability etc. Your competitor’s opportunity may
well be a threat to you.
 3. Strengths: Strength is something a company possesses or is good at doing.
Examples include a skill, valuable assets, alliances or cooperative ventures, experienced
sales force, easy access to raw materials, brand reputation etc. Strengths are not a growing
market, new products, etc.

4. Weaknesses: A weakness is something a company lacks or does poorly. Examples

include lack of skills or expertise, deficiencies in assets, inferior capabilities in functional
areas etc. Though weaknesses are often seen as the logical ‘inverse’ of the company’s
threats, the company’s lack of strength in a particular area or market is not necessarily a
relative weakness because competitors may also lack this particular strength.

Q)Write short notes on Twos Matrix

TOWS Matrix?
TOWS matrix is just an extension of SWOT matrix. TOWS stand for threats,
opportunities, weaknesses and strengths. This matrix was proposed by Heinz Weihrich as a
strategy formulation – matching tool. TOWS matrix illustrates how internal strengths and
weaknesses can be matched with external opportunities and threats to generate four sets of
possible alternative strategies. This matrix can be used to generate corporate as well as
business strategies.
To generate a TOWS matrix, the following steps are to be followed:
1. List external opportunities available in the company’s current and future
environment, inthe ‘opportunities block’ on the left side of the matrix.
2. List external threats facing the company now and in future in the “threats block” on
the left side of the matrix.
3. List the specific areas of current and future strengths for the company, in the
“strengths block” across the top of the matrix.
4. List the specific areas of current and future weaknesses for the company in the
“weaknesses box” across the top of the matrix.
5. Generate a series of possible alternative strategies for the company based on
particular combinations of the four sets of factors.

The four sets of strategies that emerge are:

SO Strategies : SO strategies are generated by thinking of ways in which a company
can use its strengths to take advantage of opportunities. This is the most desirable and
advantageous strategy as it seeks to mass up the firm’s strengths to exploit opportunities. For
example, Hindustan Lever has been augmenting its strengths by taking over businesses in the
food industry, to exploit the growing potential of the food business.
ST Strategies : ST strategies use a company’s strengths as a way to avoid threats. A
company may use its technological, financial and marketing strengths to combat a new
competition. For example, Hindustan Lever has been employing this strategy to fight the
increasing competition from companies like Nirma, Procter & Gamble etc.
WO Strategies : WO Strategies attempt to take advantage of opportunities by
overcoming its weaknesses. For example, for textile machinery manufacturers in India the
main weakness was dependence on foreign firms for technology and the long-time taken to
execute an order. The strategy followed was the thrust given to R&D to develop indigenous
technology so as to be in a better position to exploit the opportunity of growing demand for
textile machinery.
WT Strategies : WT Strategies are basically defensive strategies and primarily aimed
at minimizing weaknesses and avoiding threats. For example, managerial weakness may be
solved by change of managerial personnel, training and development etc.
Weakness due to excess manpower may be addressed by restructuring, downsizing,
delayering and voluntary retirement schemes. External threats may be met by joint ventures
and other types of strategic alliances. In some cases, an unprofitable business that cannot be
revived may be divested. Strategies which utilize a strength to take advantage of an
opportunity are generally referred toas “exploitative” or “developmental strategies”.
Strategies which use a strength to eliminate a weakness may be referred to as “blocking
strategies”. Strategies which overcome a weakness to take advantage of an opportunity or
eliminate a threat may be referred to as “remedial strategies”.
The TOWS matrix is a very useful tool for generating a series of alternative strategies
that the decision-makers of the firm might not otherwise have considered. It can be used for
the company as a whole or it can be used for a specific business unit within a company.
However, it may be noted that the TOWS matrix is only one of many ways to generate
alternative strategies.

Q) Write short notes on 1.Corporate Restructuring

7.7 Restructuring
Restructuring is another means by which the corporate office can add substantial value
to a business. Here, the corporate office tries to find either poorly performing business units
with unrealized potential or businesses on the threshold of significant, positive change.
The parent intervenes, often selling off the whole or part of the businesses, changing
the management, reducing payroll and unnecessary expenses, changing strategies, and
infusing the business with new technologies, processes, reward systems, and so forth. When
the restructuring is complete, the company can either “sell high” and capture the added value
or keep the business in the corporate family and enjoy the financial and competitive benefits
of the enhanced performance. For the restructuring strategy to work, the corporate office
must have insights to detect businesses competing in industries with a high potential for
transformation. Additionally, of course, they must have the requisite skills and resources to
turn the businesses around, even if they may be in new and unfamiliar industries.
Restructuring can involve changes in assets, capital structure or management.
1. Assets restructuring involves the sale of unproductive assets, or even whole lines of
businesses, that are peripheral. In some cases, it may even involve acquisitions that
strengthen the core businesses.
2. Capital restructuring involves changing the debt-equity mix or the mix between
different classes of debt or equity.
3. Management restructuring involves changes in the composition of top
management team, organisational structure, and reporting relationships. Tight financial
control, rewards based strictly on meeting performance goals, reduction in the number of
middlelevel managers are common steps in management restructuring. In some cases,
parental restructuring may even result in changes in strategy as well as infusion of new
technologiesand processes.
Q)what are the tactics of Business strategies.
8.5 Business Tactics
Tactics should work with a firm’s strategy and they are the set of requirements need
for the planto take place. A tactic is a device used by the firm for meeting your goals set by
your strategy. Strategy and tactics should always be relative to one another because the
tactics are the set of actions needed to fulfil your strategy.
1. Tactics are the tools used to achieve goals.
2. Tactics include things like advertising and marketing.
3. Tactics are the steps taken to achieve goals.

Brand Management One tactic that almost every firm employs is strategic brand
management. Firms must find a way to communicate their products and corporate
philosophy to potential customers. Over time, a business can establish a reputation that gives
its brand name an advantage over the lesserknown competitors. Brand management includes
good advertising and public relations to present an image of that is consistent with the
mission and vision of the company. A company may also conduct researchor poll the general
public to learn about how it is perceived and what changes are necessary.
Diversification and Specialisation Two different business strategies that deal with
the scope of a company are diversification and specialisation. A business can diversify by
simply expanding its products and services, such as adding a new division, or through
merging or acquiring another business.Specialisation is the opposite of diversification. It
refers to narrowing a business’s products tofocus on a more specific type of product. By
focusing limited resources on a smaller product line,a business may hope to improve the
quality of its remaining products, or simply divest itself ofan unprofitable product.
Research and Development Some firms use investments into research and
development as a major tactic to get ahead of competitors. This is particularly true in the
manufacturing field, where new product technologiescan save money and produce products
that will excite consumers. Smaller businesses may lackthe money or in-house talent to
invest directly in research and development, but for largercompanies the ability to innovate
can be the difference between success and failure.
Risk Management Notes Managing risk is a tactic that every firm employs in its own
way. The simple act of founding a business is itself a risk, since market trends and customer
behaviour can be difficult to predict. For an established business, managing risk means
making good decisions about where to invest funds and what types of products to focus on.

Q) What do you mean by strategic choice? Explain the process

of strategy choice.

Strategic analysis and choice is essentially a decision-making process. This involves

generating feasible alternatives, evaluating those alternatives and choosing a specific course
of action that could best enable the firm to achieve its mission and objectives. Alternative
strategies do not come from a vacuum. They are derived from the firm’s present strategies
keeping in view the vision, mission, objectives andalso the information gathered from
external and internal analysis. They are consistent with or built on past strategies that have
worked well.
 9.2 Process for Strategic Choice
According to Glueck and Jauch, “strategic choice is the decision to select from among
the alternatives considered the strategy which will best meet the enterprise objectives. This
decision-making process consists of four distinct steps: 1. Focusing on a few alternatives. 2.
Considering the selection factors. 3. Evaluating the alternatives. 4. Making the actual choice.

9.2.1 Focusing on a few Alternatives

Strategists never consider all feasible options that could benefit the firm because there
are innumerable options. So strategists should narrow down the choice to a reasonable
number of alternatives. But it is still difficult to tell what that reasonable number is. For
deciding on a reasonable number of alternatives, we can make use of the following concepts:

Gap Analysis In gap analysis, a company sets objectives for a future period of time,
say three to five years of time, and then works backward to find out where it can reach at the
present level of efforts.
Business Definition In deciding on what would be a manageable number of
alternatives, it is advisable to start with the business definition. Business definition, as
discussed earlier, determines the scope of activities that can be undertaken by a firm. It tries
to answer three basic questions clearly: (i) who is being satisfied? (ii) what is being satisfied?
and (iii) how the need is being satisfied?

9.2.2 Considering Selection Factors

The concepts of Gap Analysis and Business definition would help the strategist to
identify a few workable alternatives. These must be analysed further against a set of
selection criteria. Selection factors are the criteria against which the alternative strategies are
evaluated. These selection factors consist of:

1. Objective factors : are based on analytical techniques such as BCG matrix, GE

matrix etc. and are hard facts or data used to facilitate a strategic choice. They are also called
rational, normative or prescriptive factors.
2. Subjective factors : on the other hand, are based on one’s personal judgment or
descriptive factors such as consistency, feasibility, etc. which are discussed in the previous
unit.

9.2.3 Evaluating the Alternatives

After narrowing down the alternative strategies to a few alternatives, each alternative
has to be evaluated for its suitability to achieve the organisational objectives. Evaluation of
strategic alternatives basically involve bringing together the results of the analysis carried out
on the basis of objective and subjective criteria.

9.2.4 Making the Actual Choice

An evaluation of alternative strategies leads to a clear assessment of which alternative
is most suitable to achieve the organisational goals. The final step, therefore, is to make the
actual choice. One or more strategies have to be chosen for implementation. Besides the
chosen strategies, some contingency strategies should also be worked out to meet any
eventualities. In both the above two steps, a number of portfolio analyses like BCG, nine–
cell matrix etc., can be useful.

Q).Short Note on Matrix structure

4. Matrix Structure :
The matrix structure is, in effect, a combination of functional and divisional
structures. In this structure, there are functional managers and product or project managers.
Employees report to one functional manager and to one or more project managers.
For example, a product group wants to develop a new product. For this project it
obtains personnel from functional departments like Finance, Production, Marketing, HR,
Engineering etc. These personnel work under the product manager for the duration of the
project.
Thus, they are responsible for two managers – the product manager and the manager
of their functional area. While functional heads have vertical control over the functional
managers, the product or project heads have horizontal control over them. Thus, matrix
structure provides a dual reporting. The dual lines of authority makes the matrix structure
unique. The matrix structure has been used successfully by companies such as IBM,
Unilever, Ford Motor Company etc.

Q)Explain process of strategy implementation in detail.

Q) Discuss the various structures for strategies in strategy
implementation.
Q) Explain the functional strategies in strategy implementation
Q Explain inter relationship of strategy formation &
implementation.

STRATEGIC IMPLEMENTATION
We keep hearing news stories and anecdotes about this “successful business”
or that “entrepreneur who hit the big time with his business idea”. These
stories often leave us in a state of wonder and awe, and we find ourselves
wanting to know more. More about how the business became a success, more
about what inspired a normal working guy (or girl) to think of a novel and
brilliant business idea, and more about how someone can start a business, and
make her dreams a reality.
We become so fixated on these stories that, all too often, we overlook the other
side of that reality: that just as businesses become big and successful, there are
also companies – perhaps in greater numbers – that fail.
What many often fail to realize, is that they can also learn from business ideas
that tanked and business ventures that never really got off the ground. Better,
they can also learn a lot from businesses that were able to get started, and then,
somewhere along the way, something went wrong. They were having
 problems and great difficulty in maintaining their operations, until most of
them declared bankruptcy or liquidated.
Why Businesses fail for a lot of reasons.
Some had to close up shop because of economic upheavals that simply did not
provide any room for new businesses to try making headway in their
operations. Others blame the actions of competitors, and even the business
challenges that are inherent in the market. There are also those businesses that
blame the lack of resources for the failure.
However, this makes one wonder: if the economy, the competitors, the market
and its challenges, and the availability of resources are at fault, how come
other businesses were able to survive, and even become hugely successful? At
this point, the most logical reason that comes to mind is mismanagement.
More often than not, it is about how the business was unable to manage its
strategies very well.
Strategic management is considered to be one of the most vital activities of
any organization, since it encompasses the organization’s entire scope of
strategic decision-making. Through the strategic management process, it
allows the organization to formulate sets of decisions, actions and measures –
collectively known as strategies – that are subsequently implemented in order
to achieve organizational goals and objectives.
Strategy formulation
where the organization’s mission, objectives, and strategies are defined and set
– is the first stage in strategic management. That is where it all begins, which
means that, if the organization was unable to complete that stage with very
good results, then the company’s strategy management is already ruined from
the start. Many organizations fail during the first stage, in the sense that they
are unable to come up with strategies that will potentially take the organization
where it wants to be.
However, there are also a lot of businesses that are able to formulate excellent
and very promising strategies. And yet, the end result is still the organization
having problems and even ultimately closing down. What could have gone
wrong?

Most probably, it was because of poor implementation of the strategies.

The second stage of strategic management, after strategy formulation, is

“strategy implementation” or, what is more familiar to some as “strategy
execution”. This is where the real action takes place in the strategic
management process, since this is where the tactics in the strategic plan will be
transformed into actions or actual performance.
Strategic implementation is a process that puts plans and strategies into
 action to reach desired goals. The strategic plan itself is a written document
that details the steps and processes needed to reach plan goals, and includes
feedback and progress reports to ensure that the plan is on track.

Other writers say Strategy implementation is a term used to describe the

activities within a workplace or organization to manage the activities
associated with the delivery of strategic plan
Needless to say, it is the most rigorous and demanding part of the entire
strategic management process, and the one that will require the most input of
the organization’s resources. However, if done right, it will ensure the
achievement of objectives, and the success of the organization.
If strategy formulation tackles the “what” and “why” of the activities of the
organization, strategy implementation is all about “how” the activities will be
carried out, “who” will perform them, “when” and how often will they be
performed, and “where” will the activities be conducted.
And it does not refer only to application of new strategies. The company may
have existing strategies that have always worked well in the past years, and
are still expected to yield excellent results in the coming periods. Reinforcing
these strategies is also a part of strategy implementation.
The basic activities in strategy implementation involve the following:

• Establishment of annual objectives

• Formulation of policies for execution of strategies
• Allocation of resources
• Actual performance of tasks and activities
• Leading and controlling the performance of activities or tactics in
various levels of the organization
Incidentally, businesses may also find that they have to perform further
planning even during the implementation stage, especially in the discovery of
issues that must be addressed.
Strategy implementation is the stage that demands participation of the entire
organization. Formulation of the strategies are mostly in the hands of
the
strategic management team, with the aid of senior management and key
employees. When it comes to implementation, however, it is the workforce
that will execute the strategic plan, with top or senior management taking the
lead.
 FACTORS THAT SUPPORT STRATEGY
IMPLEMENTATION
Effective execution of strategies is supported by five key components or
factors. All five must be present in order for the organization to be able to
carry out the strategies as planned.

People
There are two questions that must be answered: “Do you have enough people
to implement the strategies?” and “Do you have the right people in the
organization to implement the strategies?”
The number of people in your workforce is an issue that is easier to address,
because you can hire additional manpower. The tougher part of this is seeing
to it that you have the right people, looking into whether they have the skills,
knowledge, and competencies required in carrying out the tasks that will
implement the strategy.
If it appears that the current employees lack the required skills and
competencies, they should be made to undergo the necessary trainings,
seminars and workshops so that they will be better equipped and ready when
it’s time to put the strategic plan into action.
In addition, the commitment of the people is also something that must be
secured by management. Since they are the implementers, they have to be
fully involved and committed in the achievement of the organization’s
objectives.
Resources
One of the basic activities in strategy implementation is the allocation of
resources. These refer to both financial and non-financial resources that (a) are
available to the organization and (b) are lacking but required for strategy
implementation.
Of course, the first thing that comes to mind is the amount of funding that will
support implementation, covering the costs and expenses that must be incurred
in the execution of the strategies. Another important resource is time. Is there
more than enough time to see the strategy throughout its implementation?
Structure
The organizational structure must be clear-cut, with the lines of authority
and responsibility defined and underlined in the hierarchy or “chain of
command”. Each member of the organization must know who he is
accountable to, and who he is responsible for Management should also define the
lines of communication throughout the organization. Employees, even those on the lowest
tier of the organizational hierarchy, must be able to communicate with their supervisors
and top management, and vice versa. Ensuring an open and clear communication network
will facilitate the implementation process.
Systems
What systems, tools, and capabilities are in place to facilitate the
implementation of the strategies? What are the specific functions of these
systems? How will these systems aid in the succeeding steps of the strategic
management process, after implementation?
Culture
This is the organizational culture, or the overall atmosphere within the
company, particularly with respect to its members. The organization should
make its employees feel important and comfortable in their respective roles by
ensuring that they are involved in the strategic management process, and that
they have a very important role. A culture of being responsible and
accountable for one’s actions, with corresponding incentives and sanctions
for good and poor performance, will also create an atmosphere where
everyone will feel more motivated to contribute to the implementation of
strategies.
These factors are generally in agreement with the key success factors or
prerequisites for effective implementation strategy, as identified by
McKinsey. These success factors are presented in the McKinsey 7s
Framework, a tool made to provide answers for any question regarding
organizational design.
The emphasis of the framework is “coordination over structure”, which also
supports how strategy implementation is described to involve the entire
organization and not just select departments or divisions.
The 7 factors are divided into two groups: The Hard S (strategy, structure
and systems) and the Soft S (style, shared values, staff and skills)
Strategy
The strategy – or the plan of the business to achieve competitive advantage
and sustainable growth – must be long-term and clearly defined. It must
indicate a direction that leads to the attainment of objectives. When you take
the organization’s mission and core values, the strategy should also be in line
with them.

Structure
The organizational structure must be visible to everyone, and clearly identify
how the departments, divisions, units and sections are organized, with the
lines of authority and accountability clearly established.
Systems
There should be a clear indication and guide on how the main activities or
operations of the business are carried out. The processes, procedures, tasks,
and flow of work make up the systems of the organization.
Style
This addresses the management or leadership style in force within the
organization, from top management to the team leaders and managers in the
smaller units. Strategy implementation advocates participative leadership
styles, and so this is really more about defining and describing the interactions
among the leaders in the organization and, to some extent, how they are
perceived by those that they lead or manage.

Staff
Organizations will always have to deal with matters regarding staffing. Human
resources, after all, is one of the most important assets or resources of an
organization. Thus, much attention is given to human resource processes,
specifically hiring, recruitment, selection and training.

Skills
Employees without skills are worthless resources to the organization. In order
to aid the organization on the road towards its goals, the employees must have
the skills, competencies and capabilities required in the implementation of
strategies.

Shared Values
This is at the heart of the McKinsey 7s framework, and they refer to the
standards, norms and generally accepted attitudes that ultimately spur
members of the organization to act or react in a certain manner. Employee
behavior will be influenced by these standards and norms, and their shared
values will become one of the driving forces of the organization as it moves
forward.
Usually, organizations may take a look at each of these key success factors for
individual analysis. However, the McKinsey approach takes a wider approach,
assessing if they are well-aligned with the other factors or not. All seven
prerequisites are interconnected, which means all seven must be
present, and they must be effectively aligned with each other, in order to
ensure effective strategy implementation, and overall organizational
effectiveness.
Here is another interesting lecture from Stanford University on how to align
your organization to execute strategy.
 STEPS IN STRATEGY IMPLEMENTATION
To ensure an effective and successful implementation of strategies, it’s a good
idea to have a system to go about it. Take a look at the steps to ensure that
happens.
Step #1: Evaluation and communication of the Strategic Plan
The strategic plan, which was developed during the Strategy Formulation
stage, will be distributed for implementation. However, there is still a need to
evaluate the plan, especially with respect to the initiatives, budgets and
performance. After all, it is possible that there are still inputs that will crop up
during evaluation but were missed during strategy formulation.
There are several sub-steps to be undertaken in this step.

a) Align the strategies with the initiatives. First things first, check that
the strategies on the plan are following the same path leading to the mission
and strategic goals of the organization.
b) Align budget to the annual goals and objectives. Financial
assessments conducted prior will provide an insight on budgetary issues. You
have to evaluate how these budgetary issues will impact the attainment of
objectives, and see to it that the budget provides sufficient support for it. In the
event that there are budgetary constraints or limitations, they must first be
addressed before launching fully into implementation mode.
c) Communicate and clarify the goals, objectives and strategies to all
members of the organization. Regardless of their position in the
organization’s hierarchy, everyone must know and understand the goals and
objectives of the organization, and the strategies that will be employed to
achieve them.
d)
Step #2: Development of an implementation structure
The next step is to create a vision, or a structure, that will serve as a guide or
framework for the implementation of strategies.
a) Establish a linking or coordination mechanism between and among the
various departments and their respective divisions and units. This is mainly for
purposes of facilitating the delegation of authority and responsibility.
b) Formulate the work plans and procedures to be followed in the
implementation of the tactics in the strategies.
c) Determine the key managerial tasks and responsibilities to be
performed, and the qualifications required of the person who will perform
them.
d) Determine the key operational tasks and responsibilities to be
performed, and the qualifications required of the person who will perform
them.
e) Assign the tasks to the appropriate departments of the organization.
f) Evaluate the current staffing structure, checking if you have enough
manpower, and if they have the necessary competencies to carry out the tasks.
This may result to some reorganization or reshuffling of people. In some
cases, it may also require additional training for current staff members, or
even hiring new employees with the required skills and competencies. This is
also where the organization will decide if it will outsource some activities
instead.
g) Communicate the details to the members of the organization. This may
be in the form of models, manuals or guidebooks.

Step #3: Development of implementation-support policies and programs

Some call them “strategy-encouraging policies” while others refer to them as
“constant improvement programs”. Nonetheless, these are policies and
programs that will be employed in aid of implementation.

a) Establish a performance tracking and monitoring system. This will

be the basis of evaluating the progress of the implementation of strategies, and
monitoring the rate of accomplishment of results, or if they were accomplished
at all. Define the indicators for measuring the performance of every employee,
of every unit or section, of every division, and of every department.
b) Establish a performance management system. Quite possibly, the
aspect of performance management that will encourage employee
involvement is a recognition and reward structure. When creating the reward structure,
make sure that it has a clear and direct link to the accomplishment of results, which will be
indicated in the performance tracking and monitoring system.

c) Establish an information and feedback system that will gather

feedback and results data, to be used for strategy evaluation later on.
d) Again, communicate these policies and programs to the members of the
organization.
e)
Step #4: Budgeting and allocation of resources
It is now time to equip the implementers with the tools and other capabilities
to perform their tasks and functions.
a) Allocate the resources to the various departments, depending on the
results of financial assessments as to their budgetary requirements.
b) Disburse the necessary resources to the departments, and make sure
everything is properly and accurately documented.
c) Maintain a system of checks and balances to monitor whether the
departments are operating within their budgetary limits, or they have gone
above and beyond their allocation.
 Step #5: Discharge of functions and activities
It is time to operationalize the tactics and put the strategies into action, aided
by strategic leadership, utilizing participatory management and leadership
styles.
Throughout this step, the organization should also ensure the following:

a) Continuous engagement of personnel by providing trainings and

reorientations.
b) Enforce the applicable control measures in the performance of the tasks.
c) Evaluate performance at every level and identify performance gaps, if
any, to enable adjusting and corrective actions. It is possible that the corrective
actions may entail changes in the policies, programs and structures established
and set in earlier steps. That’s all right. Make the changes when necessary.
Basically, the results or accomplishments in Step #5 will be the input in the
next step, which is the third stage of Strategic Management: “strategy
evaluation”.
Some argue that implementation of strategies is more important than the
strategies themselves. But this is not about taking sides or weighing and
making comparisons, especially considering how these two are important
stages in Strategic Management. Thus, it is safe to say that formulating
winning strategies is just half the battle, and the other half is their
implementation. Steps to a Successful Strategy Implementation Process

Q) What are the different levels of strategies? Briefly

explain corporate level strategies.

• CORPORATE LEVEL STRATEGY.

Corporate level strategies are basically related to allocation of resources among the
different businesses of the firm, managing and nurturing portfolio of businesses etc. it helps
to exercise the choice of direction that an organization adopts. Corporate strategy typically
fits within three main categories- stability, growth, and retrenchment strategy. We will
discuss these three strategies in detail.

Corporate level strategies are principally about the decision related to dispersion of
resources among different businesses of an organization, transforming resources from one
set of business to others and managing and nurturing a portfolio of businesses such that the
overall corporate objectives are achieved.
1. Stability strategy:-

This strategy is adopted by the firm when it tries to hold on to their current position in
the market. It also attempts at incremental improvement of its performance by marginally
 changing one or more of its businesses in terms of their respective customer group,
customer function and technologies either individually or collectively. it does not mean that
the firm don’t wants to have any growth. Its attempts are at the modest growth in the same
business line. For example any company offers a special service to a institutional buyers to
increase its sale by encouraging bulk buyer so it is companies strategy of stability by
improving market efficient.
2. Growth Strategy:-

This strategy is also known as expansion strategy. Here the attempts are made to have
substantial growth. This strategy will be pursued when firm increases its level of objectives
upward in a significant increment which is much higher as compared to its past
achievements.

To achieve higher target compared to past the firm may enter into new /introduces new
product lines, enter into additional market segment. it involves more risk and efforts as
compared to stability strategy. The growth strategy is divided into two parts namely

i) Internal growth strategy and

ii) External growth strategy.

Internal growth strategy mainly consists of diversification strategies and

intensification strategy.

External growth strategy consists of merger, takeover, foreign collaboration and joint
venture.

The major objectives of adopting of growth strategies are –

i) Survival: - This is natural tendency of every business to grow. if it does not

then new entrants will be there in the market and its life will be in danger. Survival is also
necessary to face challenges of business environment.

ii) Innovation: - Innovation is important to business as it gives new product, new

methods, new schemes with which business can grow to a desirable extent. With this
business gets high performance, high results which are indication of growth.

iii) Motivation to employees: - growth strategy generates higher performance

and it enables the firm to motivate employees with monetary and non-monetary incentives.

iv) Customer satisfaction: - Growth strategy enables the firm to give more
satisfaction by providing good quality products at reasonable price.

v) Corporate image:- corporate image means creating good image of the

organization in the minds of the all stakeholders. This will be made possible only with
growth strategies of the firm as it gives quality goods to people, good return to investor, fair
wages and salaries to employees with its increased volume of output and enhance
performance.
 vi) Economies of scale: - Due to growth strategy there is increase demand to a
products which results in large scale production, which in turn brings economies of large
scale. It may be in saving labour cost or material cost.

vii) Efficiency:- Efficiency is the ratio of returns to costs. Due to growth strategy
there is innovation, up gradation of technology, training and development of employees and
research and development all these leads to improvement in output and reduction in cost
and increases profit.

vii) Optimum use of resources: - Due to growth strategy there is increased

demand to a product. This leads to large scale production and distribution. Therefore the
firm can make optimum use of resources.

viii) Expansion of business: - The growth strategy facilitates expansion to

business unit. Because the performance of business units improves in terms of sales, market
share and profit. Therefore the business unit can move from its local level function to national or
international level.

ix) Minimize risk: - due to the expansion of business there is change in term of
product sales, market areas. In this case if business suffers a loss in one product or market
then it will be compensated in another market or product. Therefore the business will be
minimize the risk.

3. Intensification Strategy:

In intensification strategy, the business tries to grow within the existing businesses
through market penetration, market development and product development.

Market penetration means increasing current market’s sale by undertaking aggressive

efforts like high advertising, price cutting and sales promotion etc.

Market development means entering into new markets along with the current market.
Here business units undertakes market research, effective pricing policy, effective promotion
mix and distribution chain. And product development means introducing improved or
substitute’s product. It may be in the same market or new market.

4. Diversification Strategy:

Diversification is one type of internal growth strategy. It is changing product or

business line. In this case business enters into in the new business service or product which is
extension of existing activity or there could be a substantial difference in skill technology
and knowledge. There are certain reasons because of company go for diversification. The
reasons are as under

a. Spreading of risk: - Diversification enables to spread the risk. In this the business
operates in a different markets where in one market business suffer a loss, that can be
compensated in other market and the levels of profit will be maintained.

b. Improves corporate image: - Corporate image is creating mental picture of the company
in the peoples mind. Through the diversification company as changes products and
 knowledge gives better quality product and services with which it creates positive impact on
peoples mind.

c. Face competition effectively: - Due to the diversification company introduce wide range
of products and services. This enables company to maintain it’s a sale in the market.

d. Utilization of resources: - Diversification enables company to use the resources

optimally as it has excess capacity manufacturing. If facilities managerial man power and
other resources to production dept and other activities.

e. Economies of scale: - Diversification brings economies of scale especially in the area of

diversification. The company can combine the distribution old product as well as new
products with the help of same distribution chain.

f. Customer satisfaction: - When the company entered into new business it assured to give
qualitative product and good services. This leads to customer’s satisfaction.

g. Synergistic advantages: - Synergistic advantages are those which are gained by putting
little bit improvement in the same product or process which are related to old product and
gain new products. This will be easily attained in diversification.
• TYPES OF DIVERSIFICATION:

There are four major types of diversification knows as:

I) Vertical diversification: - Vertical diversification is the extension of

current business activities. Such extension is of two types known as

a) Backward diversification:- It is a diversification where company moves

one step back from the current line of business for example cupboard manufacturing unit
enter into it’s a raw material supply unit (Color and Hardware)

b) Forward diversification: - In this case company enters into the activity

which is extension of its current business for example cloth manufacturer enter into garment
manufacturing.

II) Horizontal diversification: - In this case company enters into a new

business which is very closely related with existing line of business and it is with the help of
the same technology and the market. For example gent’s garments manufacture enter into
ladies garments manufacturing.

III) Concentric diversification: - In this new business is linked to the existing

business which is indirectly related. For example a car seller may start finance company to
increase his sale.

IV) Conglomerate diversification: - In this type of diversification, the attempt

is made to diversify the present market or product in a totally new product of market. There
is a no linkage between old and a new business. For example Transport operator entered
into furniture manufacturing
 5. Turnaround Strategy:

Turnaround strategy means converting loss making unit into a profitable one. It is
possible when company restructure its business operations. it is broad in nature and
including divestment strategy (where business get out of certain activities or sell off certain
units or divisions) Its aim is to improve the declining sales, market share and profit because
of high cost of materials, lower price utilization for goods and services or increase
competitions, recession, managerial in efficiency.
The turnaround strategy is needed when the following situations arise in business.
Namely:-
I) Liquidity problem
II) Fall in market share
III) Reduction in profit
IV) Under utilization of plant capacity
V) High inventory

6. Divestment Strategy:

Divestment is dropping out or sells off the products, or functions. It involves the sale or
liquidation of a portion of a business or major division or SUB. It is a part of rehabilitation
plan and his adopted when turnaround has been attempted but has proven to be unsuccessful.
There is certain reason for divestment

a. Withdrawal of obsolete products:- Those products which do not give adequate return
to the firm will be removed. And the products which are having good market share and
profitable will be continued.

b. Problem of Mismatch:- The business which is undertaken by the company is not

matching with the existing business line. Therefore the company may take initiative to gate
red of newly acquired business

c. Problem of competition:- Some times due to tough competition company may withdraw
some products from the market or sell the units producing such products.

d. Negative cash flows:- When business gets negative cash flows from a particular
business. The revenue collected from such a business is lower as the expenditure incurred on
it therefore it is to be divested

e. Technology Up-gradation:- Technology Up-gradation is important for survival of

business. But the cost of up-gradation is so high which is not affordable to business therefore
that business activity is to be divested

f. Concentration on Core Business:- When business undertake number of activities at a

time, then it may be difficult to the business to manage all activities satisfactorily. Due to
this business ignore its over activity which leads to loss in business therefore to concentrate
on core business divesting other activities is essential.

g. Alternative for Investment: - Some time, by divesting certain activity company can
 invest its blocked fund into some another investment alternative which will give good return

h. Returns to Shareholders: - Company, by divesting may increase shareholders return by

giving shareholder hefty dividend.

i. Attractive Offers from Other Firm: - Sometimes it happens company may get offer from
another company. To invest in a good return giving from company may divest current
activity.

7. Liquidation Strategy:

This is extreme case of divestment strategy and is undertaken in the situation when all
the efforts of reviving the company have come to an end. There is no possibility that the
business can made profit making unit again. In such situation business takes decision to sell
its entire business and the amount realized from it can be invested in another business. When
it is done it is known is liquidation. This is generally done by small businesses.

There are certain reasons because of the liquidation has taken place that reasons are –
i) When the business continuously suffered loss and all efforts have failed to make it profitable
again.
ii) When there is good offer from other businesses
iii) When business found that there are difficulties to deal with the present business
iv) When the business unit has taken over new business and the current business is not coping
with or matching and current business is not profitable.

Whenever such type of situation has occurred, business, as per company act 1956 can
go for liquidation.

The relief gained on the part of liquidation to the company is

i) It gives relief to financial institution as financial institutions are able to get their funds
back.
ii) It enables the firm to enter into new business.
iii) It enables to the acquirer to consolidate its market.
iv) The shareholders of liquidating company may get shares or compensation from new
company or acquirer.
v) The employees may not lose their job as the new management can continue them in new
business.

8. Modernization strategy:

Modernization is nothing but it is improvement/up-gradation of existing physical facilities

(plant, machinery, process etc) it is done to have improved quality of products and offer
customer value. It is also undertaken to face competition on proactive basis and take
competitive advantages. At present every firm is undertaking this on continuous basis to be
there in competitive business era and ensure its survival, growth and prosperity
 It is to be noted that while doing modernization, it incurred a cost, so before
introducing it the firm must go through cost analysis and find out its impact in long term or
short term basis and then take decision. However modernization has some advantages
i) Modernization can improve both product quality and over all organizational efficiency.
ii) There will be proper utilization of plant capacity, qualitative products will be produced and
there will be increase in sale.
iii) Modernization helps business to face competition in the market. In fact, due to introduction
of liberalization MNC, s and TNC,s are entering in market with sophisticated technology
and competing them is not a easy task to Indian business here modernization helps.
iv) It also helps to build good corporate image in the market as good quality is the result of
modernization.
v) Modernization also leads to economy in production by reducing cost of production per unit.
This is because of reduction in wastages and increase in efficiency.
9. Merger Strategy:

Merger refers to combination of two or more companies where one company survives
and another company ceases to exist. The merger takes place for consideration. Here the
acquiring company pays it either in cash or its shares.
Advantages of Merger :
i) It enables the pooling of resources and streamlining of operations, thereby, resulting in
improved operational efficiencies.
ii) Merger can bring out a revival of sick units. The sick units can be merged with strong
companies, and therefore the problem of industrial sickness can be avoided.
iii) Merger provides faster growth to business as it offers advantages in several areas such as
marketing, production, finance, R&D and so on.
iv) Merger can be used as effective source of tax planning, especially, when one of the
merged entities was having accumulated losses.
v) There are some finance related advantages as merger results in integration of assets and other
resources and provides stability of cash flows and serves as leverage for raising more funds
from the market.

10. Joint Venture Strategy:

Joint venture could be considered as an entity resulting from a long term contractual
agreement between two or more parties, undertaken for mutual benefits. It is a type of
partnership and when both parties establishing new units that time they are exercising
supervising and control over the new business. Joint venture also involves the sharing of
ownership.
Now a days joint ventures are very popular as there is sharing of development cost, risk
spread out and expertise combined to make effective use of resources. It is best way to enter
into foreign collaboration. Generally Indian firms are entering into foreign collaboration with
the help of joint ventures.
 Following are the advantages of joint venture:

a) Huge capital
b) Better use of resources
c) Goodwill and reputation.
d) Risk sharing.
e) Economies of scale
f) Expansion and diversification.
g) Helps to face competitions
h) Customer satisfaction.
i) Motivate employees

Q) What are different level strategies? Write stability, Expansion &

Retrenchment strategy.
Grand Strategies - TYPES

(I)STABILITY STRATEGY

The Stability Strategy is adopted when the organization attempts to maintain its current
position and focuses only on the incremental improvement by merely changing one or more
of its business operations in the perspective of customer groups, customer functions and
technology alternatives, either individually or collectively.
Generally, the stability strategy is adopted by the firms that are risk averse, usually the small
scale businesses or if the market conditions are not favorable, and the firm is satisfied with
its performance, then it will not make any significant changes in its business operations.
Also, the firms, which are slow and reluctant to change finds the stability strategy safe and
do not look for any other options.
To have a better understanding of Stability Strategy go through the following examples in the
context of customer groups, customer functions and technology alternatives.

 The publication house offers special services to the educational

institutions apart from its consumer sale through the market intermediaries, with the
intention to facilitate a bulk buying.

 The electronics company provides better after-sales services to its

customers to make the customer happy and improve its product image.
  The biscuit manufacturing company improves its existing technology to
have the efficient productivity.

In all the above examples, the companies are not making any significant changes in their
operations, they are serving the same customers with the same products using the same
technology.

Example: Steel Authority of India has adopted stability strategy because of overcapacity in
steel sector. Instead it has concentrated on increasing operational efficiency of its various
plants rather than going for expansion. Other industries are heavy commercial vehicle, coal
industry.
Stability Strategies could be of three types:

(a) No – Change Strategy:

The No-Change Strategy, as the name itself suggests, is the stability strategy followed when
an organization aims at maintaining the present business definition. Simply, the decision of
not doing anything new and continuing with the existing business operations and the
practices referred to as a no-change strategy.
When the environment seems to be stable, i.e. no threats from the competitors, no economic
disturbances, no change in the strengths and weaknesses, a firm may decide to continue with
its present position. Therefore, by analyzing both the internal and external environments, a
firm may decide to continue with its present strategy.

The no-change strategy does not imply that no decision has been taken by the firm, however,
taking no decision can sometimes be a decision itself. There should be a clear distinction
between the firms which are inactive and do not want to make changes in their strategies and
the ones which consciously decides to continue with their present business definition by
scrutinizing both the internal and external conditions.

Generally, the small or mid-sized firms catering to the needs of a niche market, which is
limited in scope, rely on the no-change strategy. This stability strategy is suitable till no new
threats emerge in the market, and the firm feels the need to alter its present position.

Example: Cigarette, liquor industries fall in this category because of strict control over
capacity expansion. Both these industries require license under the provisions of Industries
(Development and Regulations ) Act,1951.
(b) Profit Strategy

The Profit Strategy is followed when an organization aims to maintain the profit by
whatever means possible. Due to lower profitability, the firm may cut costs, reduce
investments, raise prices, increase productivity or adopt any methods to overcome the
temporary difficulties.

The profit strategy can be followed when the problems are temporary or short-lived and will
go away with time. The problems could be the economic recession or inflation, industry
downturn, worst market conditions, competitive pressure, government policies and the like.
Till then, the firm adopts the artificial measures to tackle these problems and sustain the
profitability of the firm.

If the problem persists for long, then profit strategy would only deteriorate the firm’s overall
financial position. In the crisis, the companies may overcome the temporary difficulties by
selling the assets such as land or building or setting off the losses of one division against the
profits of another division. Also, the firms may offer the outsourcing facilities to those firms
who are in need of it and can realize the temporary cash.

The profit strategy focuses on capitalizing the situation when the obsolete technology or the
old technology is to be replaced with the new one. Here no new investment is made; the
same technology is followed, at least partially with new technological domains.

Example: Sylvania, GE are among the firms that followed this strategy. They decided to stay
in the vacuum tube market until the ‘end of the game’.

(c ) Pause/Proceed with Caution Strategy

The Pause/Proceed with Caution Strategy is well understood by the name itself, is a
stability strategy followed when an organization wait and look at the market conditions
before launching the full-fledged grand strategy. Also, the firm that has intensely followed
the expansion strategy would wait till the time the new strategies seeps down
the organizational levels and look at the changes in the organizational structure before taking
the next step.

Like the Profit Strategy, the Pause/Proceed with Caution strategy is also a temporary strategy
followed by the firms. But however, these both differ significantly; the profit strategy
focuses on sustaining profitability until the temporary difficulties or the conditions become
more hospitable. Whereas the Pause/Proceed with caution strategy is a deliberate action taken
by the firm to postpone the strategic action till the best opportunity knocks at the door. Thus,
waiting for the right strategy for the right time.

The pause/proceed with caution strategy is often followed by the manufacturing companies
who study the market conditions thoroughly and then launch their new products into the
market. It is more prevalent in the army attacks; wherein the reconnaissance party moves
ahead to examine the situation before the troops, who comes in full strength to ultimately,
attack the enemies.
 Example: Hindustan Levers better known for soaps and detergents, produces substantial
quantity of shoes and shoe uppers for the export market. In late 2000, it started selling a few
thousand pairs in the cities to find out the market reaction. This is a pause proceed with
caution strategy before it goes full steam into another FMCG sector that has a lot of
potential.

(II) EXPANSION STRATEGY

The Expansion Strategy is adopted by an organization when it attempts to achieve a high
growth as compared to its past achievements. In other words, when a firm aims to grow
considerably by broadening the scope of one of its business operations in the perspective of
customer groups, customer functions and technology alternatives, either individually or
jointly, then it follows the Expansion Strategy.
The reasons for the expansion could be survival, higher profits, increased prestige,
economies of scale, larger market share, social benefits, etc. The expansion strategy is
adopted by those firms who have managers with a high degree of achievement and
recognition. Their aim is to grow, irrespective of the risk and the hurdles coming in the way.

Go through the examples below to further comprehend the understanding of the expansion
strategy. These are in the context of customer groups, customer functions and technology
alternatives.

▪ The baby diaper company expands its customer groups by offering the
diaper to old aged persons along with the babies.

▪ The stock broking company offers the personalized services to the

small investors apart from its normal dealings in shares and debentures with a view to having
more business and a diversified risk.

▪ The banks upgraded their data management system by recording the

information on computers and reduced huge paperwork. This was done to improve the
efficiency of the banks.

In all the examples above, companies have made significant changes to their customer
groups, products, and the technology, so as to have a high growth.

The firm can follow either of the five expansion strategies to accomplish its objectives:

(a) Expansion through Concentration

The Expansion through Concentration When an organization focuses on intensifying its
core businesses with a view on expanding through either acquiring a new customer base or
diversifying its product portfolio, it is having a concentration strategy.
The organization may follow any of the ways to practice Expansion through concentration:

(i) Market penetration strategy: It occurs when a company penetrates a market

in which current or similar products already exist. A way to achieve this is by gaining
 competitor’s customers(part of their market share).
➢ Adding channels of distribution or
➢ Changing content of advertising or promotion
➢ Frequently, changes in media selection, promotional appeals, and distribution are used to
initiate this approach
➢ Product launch in New Market .
Divide the number of people who have purchased your product by the number of people in
the targeted market to get your market. If you have a potential market of 100000 people and
you have sold your product to 5000 people, then you have a market penetration of 0.05 or 5
percent.
Example: Nike features famous athletes in print and television ads designed to take market
share within the athletic shoes business from Adidas and other rivals.
(ii) Market Development type of concentration: It involves taking existing
products and trying to sell them within new markets. One way to reach a new market is to
enter a new retail channel.

Example: Starbucks has stepped beyond selling coffee beans only in its stores and now sells
beans in grocery stores. This enables starbucks to reach consumers that do not visit in the
coffeehouses.
(iii) Product Development type of Concentration: The firms develop new
products targeted to its existing market.
Example: Coca- cola and Pepsi regularly introduce new varieties – such as Coco-cola zero
and Pepsi Cherry Vanilla – in an attempt to take market share from each other and from their
smaller rivals.
MARKET PENETRATION Selling more products in the same market

MARKET Selling same products to new markets

DEVELOPMENT
PRODUCT Selling new products to the same market
DEVELOPMENT
EXAMPLE: Bajaj Auto has undertaken all the above mentioned strategies.

(b) Expansion through Diversification

The Expansion through Diversification is followed when an organization aims at

changing the business definition, i.e. either developing a new product or expanding into a
new market, either individually or jointly. A firm adopts the expansion through
diversification strategy, to prepare itself to overcome the economic downturns.

Generally, the diversification is made to set off the losses of one business with the profits of
the other; that may have got affected due to the adverse market conditions. There are mainly
two types of diversification strategies undertaken by the organization:

Example: Avon’s move to market jewellery through its door- to –door sales force involved
marketing new products through existing channels of distribution.
(i) Concentric Diversification: When an organization acquires or develops a new product or
service that are closely related to the organization’s existing range of products and services is
called as a concentric diversification. For example, the shoe manufacturing company may
acquire the leather manufacturing company with a view to entering into the new
consumer markets and escalate sales.

Example: The addition of tomato ketchup and sauce to the existing ‘Maggi’ brand
processed items of food specialties limited.

(ii) Conglomerate Diversification: When an organization expands itself into

different areas, whether related or unrelated to its core business is called as a conglomerate
diversification. Simply, conglomerate diversification is when the firm acquires or develops
the product and services that may or may not be related to the existing range of product and
services. Generally, the firm follows this type of diversification through a merger or takeover
or if the company wants to expand to cover the distinct market segments.

Example: ITC is the best example of conglomerate diversification. (Hotel Industries,

Paper, Agriculture)

(c ) Expansion through Integration

The Expansion through Integration means combining one or more present operation of the
business with no change in the customer groups. This combination can be done through a
value chain.

The value chain comprises of interlinked activities performed by an organization right from
the procurement of raw materials to the marketing of finished goods. Thus, a firm may move
up or down the value chain to focus more comprehensively on the needs of the existing
customers.

The expansion through integration widens the scope of the business and thus considered as
the grand expansion strategy. There are two ways of integration:
(j) Vertical integration: When pursuing a vertical integration strategy, a firm gets involved in
new portions of the value chain. This approach can be very attractive when a firm’s
suppliers or buyers have too much power over the firm and are becoming increasingly
profitable at the firm’s expense.

The vertical integration is of two types: forward and en an organization moves close to the
ultimate customers i.e. facilitate the sale of the finished goods is said to have made a forward
integration. Example, the manufacturing firm open up its retail outlet
.Whereas, if the organization retreats to the source of raw materials, is said to have made a
backward integration. Example, the shoe company manufactures its own raw material such
as leather through its subsidiary firm.

Example:

(ii) Horizontal Integration: A firm is said to have made a horizontal integration when it
takes over the same kind of product with similar marketing and production levels. Example,
the pharmaceutical company takes over its rival pharmaceutical company.

(d) Expansion through Cooperation

The Expansion through Cooperation is a strategy followed when an organization enters

into a mutual agreement with the competitor to carry out the business operations and
compete with one another at the same time, with the objective to expand the market
potential.

The expansion through cooperation can be done by following any of the strategies as
explained below:
(k) Merger: The merger is the combination of two or more firms wherein one acquires the
assets and liabilities of the other in the exchange of cash or shares, or both the organizations
get dissolved, and a new organization came into the existence. The firm that acquires another
is said to have made an acquisition, whereas, for the other firm that gets acquired, it is a
merger.
(a) Merger through Absorption – Absorption is combination of two or
more companies into an existing company. All companies except one lose their identity.
Example: Absorption of Tata fertilizers Limited (TFL) by Tata Chemicals Limited (TCL)
and Tata Oil Mills Limited (TOMCO) with Hindustan Lever Limited (HLL).
(b) Merger through Consolidation – A consolidation is a combination of
two or more companies into a new company. All companies are dissolved to form a new
company.
Example: Hindustan Computers Ltd+ Hindustan Instruments Limited +Indian Software
Co.Ltd + Indian Reprographic Limited = Hindustan Computer Limited (HCL)

Types of Merger
▪ Horizontal Merger – It refers to the merger of two companies who
are direct competitors of one another. They serve the same market and sell the same product.
Example: The formation of Brook Bond Lipton India Ltd. through the merger of Lipton
India and Brook Bond• The merger of Bank of Mathura with ICICI (Industrial Credit and
Investment Corporation of India) Bank.

▪ Vertical Merger – This type of merger involves a customer and a

company or a supplier and a company merging. Imagine a bat company merging with a wood
production company. This would be an example of the supplier merging with the producer
and is the essence of vertical mergers.
Example—• Pixar & Disney
▪ Market - extension Merger –This involves the combination of two
companies that sell the same products in different markets. A market-extension merger
allows for the market that can be reached to become larger and is the basis for the name of
the merger.
Example- Dell’s Alien ware Gaming Laptops
▪ Product extension Merger –It takes place between two business
organizations that deal in products that are related to each other and operate in the same
market. Companies which sell different products of a related category..
▪ Conglomeration Merger - It refers to the merger of companies,
which do not either sell any related products or cater to any related markets. Here, the two
companies entering the merger process do not possess any common business ties. Example
:Tata-Sky

ACQUISITION -An Acquisition may be an act of acquiring effective control by one

company over assets or management of another company without any combination of
companies……..Companies may remain independent, separate. But there may be change in
control of Companies……..
Example: Godrej Consumer Care bought Keyline Brands-Dabur acquired Balsara
 (ii) Takeover: Takeover strategy is the other method of expansion through
cooperation. In this, one firm acquires the other in such a way, that it becomes responsible
for all the acquired firm’s operations. The takeovers can either be friendly or hostile. In the
former, both the companies agree for a takeover and feels it is beneficial for both. However,
in the case of a hostile takeover, a firm tries to take on the operations of the other firm
forcefully either known or unknown to the target firm.

Types of Takeovers:
(a) Friendly Takeover- Also commonly referred to as ‘negotiated
takeover’, a friendly takeover involves an acquisition of the target company through
negotiations between the existing promoters and prospective investors. This kind of takeover
is resorted to further some common objectives of both the parties.

(b) Hostile Takeover- A hostile takeover can happen by way of any of

the following actions: if the board rejects the offer, but the bidder continues to pursue it or
the bidder makes the offer without informing the board before hand. Example- HP taking
over COMPAQ
Why Should Firms Takeover?

• To gain opportunities of market growth

• To seek gain benefits from economies of scale

• To gain a more dominant position in the market

• To acquire the skills or strengths of another firm to complement existing business

• To diversify its products or service range in the market

(iii) Joint Venture: Under the joint venture, both the firms agree to combine
and carry out the business operations jointly. The joint venture is generally done, to
capitalize the strengths of both the firms. The joint ventures are usually temporary; that lasts till the
particular task is accomplished.

A joint venture is preferred when two or more firms lack the necessary components for
success in a business. Many companies like joint ventures to overcome resource constraints
and/or take advantage of the distinctive competencies of the partner companies.

Example: Foreign companies may have joint ventures with Afghanistan organizations for
the development of infrastructure. The foreign company brings the capital and expertise
whereas the Afghan company brings the local knowledge and logistical support to the joint
venture.

Sony Ericsson, Maruti Suzuki, Google and Naasa developing Google earth
 (iv) Strategic Alliance: Under this strategy of expansion through cooperation,
the firms unite or combine to perform a set of business operations, but function
independently and pursue the individualized goals. Generally, the strategic alliance is
formed to capitalize on the expertise in technology or manpower of either of the firm.

Thus, a firm can adopt either of the cooperation strategies depending on the nature of
business line it deals in and the pursued objectives.

(e) Expansion through Internationalization

The Expansion through Internationalization is the strategy followed by an organization

when it aims to expand beyond the national market. The need for the Expansion
through Internationalization arises when an organization has explored all the potential to
expand domestically and look for the expansion opportunities beyond the national
boundaries.
But however, going global is not an easy task, the organization has to comply with the
stringent benchmarks of price, quality and timely delivery of goods and services, that may
vary from country to country. The expansion through internationalization could be done by
adopting either of the following strategies:

(i) International Strategy: The firms adopt an international strategy to create value by offering
those products and services to the foreign markets where these are not available. This can be
done, by practicing a tight control over the operations in the overseas and providing the
standardized products with little or no differentiation.Example: Harley Davidson
(ii) Multidomestic Strategy: Under this strategy, the multi-domestic firms offer the customized
products and services that match the local conditions operating in the foreign markets.
Obviously, this could be a costly affair because the research and development, production and
marketing are to be done keeping in mind the local conditions prevailing in different
countries .Example: Heinz, Mc Donald’s
(iii)Global Strategy: The global firms rely on low-cost structure and offer those products and
services to the selected foreign markets in which they have the expertise. Thus, a
standardized product or service is offered to the selected countries around the world.
Example: Caterpillar, Texas Instruments
(iv) Transnational Strategy: Under this strategy, the firms adopt the combined approach of
 multi-domestic and global strategy. The firms rely on both the low- cost structure and the
local responsiveness i.e. according to the local conditions. Thus, a firm offers its
standardized products and services and at the same time makes sure that it is in line with the
local conditions prevailing in the country,where it is operating. Example: Coco- cola and Nestle

So, in order to globalize, the firm should assess the international environment first, and then
should evaluate its own capabilities and plan the strategies accordingly to enter into the
foreign markets.

(III) RETRENCHMEN T STRATEGY

The Retrenchment Strategy is adopted when an organization aims at reducing its one or
more business operations with the view to cut expenses and reach to a more stable financial
position.

In other words, the strategy followed, when a firm decides to eliminate its activities through
a considerable reduction in its business operations, in the perspective of customer groups,
customer functions and technology alternatives, either individually or collectively is called as
Retrenchment Strategy.

To further comprehend the meaning of Retrenchment Strategy, go through the following

examples in terms of customer groups, customer functions and technology alternatives.

▪ The book publication house may pull out of the customer sales through
market intermediaries and may focus on the direct institutional sales. This may be done to
slash the sales force and increase the marketing efficiency.

▪ The hotel may focus on the room facilities which is more profitable
and may shut down the less profitable services given in the banquet halls during occasions.

▪ The institute may offer a distance learning programme for a particular

subject, despite teaching the students in the classrooms. This may be done to cut the
expenses or to use the facility more efficiently, for some other purpose.
In all the above examples, the firms have made the significant changes either in their
customer groups, functions and technology/process, with the intention to cut the expenses
and maintain their financial stability.

The firm can either restructure its business operations or discontinue it, so as to revitalize its
financial position. There are three types of Retrenchment Strategies:
 (a) Turnaround Strategy

The Turnaround Strategy is a retrenchment strategy followed by an organization when it

feels that the decision made earlier is wrong and needs to be undone before it damages the
profitability of the company. Simply, turnaround strategy is backing out or retreating from
the decision wrongly made earlier and transforming from a loss making company to a profit
making company.

Now the question arises, when the firm should adopt the turnaround strategy? Following are
certain indicators which make it mandatory for a firm to adopt this strategy for its survival.

These are:
▪ Continuous losses
▪ Poor management
▪ Wrong corporate strategies
▪ Persistent negative cash flows
▪ High employee attrition rate
▪ Poor quality of functional management
▪ Declining market share
▪ Uncompetitive products and services

Also, the need for a turnaround strategy arises because of the changes in the external
environment Viz, change in the government policies, saturated demand for the product, a
threat from the substitute products, changes in the tastes and preferences of the customers,
etc.

Example: Dell is the best example of a turnaround strategy. In 2006. Dell announced the
cost-cutting measures and to do so; it started selling its products directly, but unfortunately,
it suffered huge losses. Then in 2007, Dell withdrew its direct selling strategy and started
selling its computers through the retail outlets and today it is the second largest computer
retailer in the world.

(b) Liquidation Strategy

The Liquidation Strategy is the most unpleasant strategy adopted by the organization that
includes selling off its assets and the final closure or winding up of the business operations.
It is the most crucial and the last resort to retrenchment since it involves serious
consequences such as a sense of failure, loss of future opportunities, spoiled market image,
loss of employment for employees, etc.

The firm adopting the liquidation strategy may find it difficult to sell its assets because of the
non-availability of buyers and also may not get adequate compensation for most of its assets.
The following are the indicators that necessitate a firm to follow this strategy:
▪ Failure of corporate strategy
▪ Continuous losses
▪ Obsolete technology
▪ Outdated products/processes
▪ Business becoming unprofitable
▪ Poor management
▪ Lack of integration between the divisions

Generally, small sized firms, proprietorship firms and the partnership firms follow the
liquidation strategy more often than a company. The liquidation strategy is unpleasant, but
closing a venture that is in losses is an optimum decision rather than continuing with its
operations and suffering heaps of losses.

(c ) Divestment Strategy

The Divestment Strategy is another form of retrenchment that includes the downsizing of
the scope of the business. The firm is said to have followed the divestment strategy, when it
sells or liquidates a portion of a business or one or more of its strategic business units or a
major division, with the objective to revive its financial position.

The divestment is the opposite of investment; wherein the firm sells the portion of the
business to realize cash and pay off its debt. Also, the firms follow the divestment strategy
to shut down its less profitable division and allocate its resources to a more profitable one.

An organization adopts the divestment strategy only when the turnaround strategy proved to
be unsatisfactory or was ignored by the firm. Following are the indicators that mandate the
firm to adopt this strategy:

▪ Continuous negative cash flows from a particular division

▪ Unable to meet the competition
▪ Huge divisional losses
▪ Difficulty in integrating the business within the company
▪ Better alternatives of investment
▪ Lack of integration between the divisions
▪ Lack of technological upgradations due to non-affordability
▪ Market share is too small
▪ Legal pressures

Example: Tata Communications is the best example of divestment strategy. It has started the
process of selling its data center business to reduce its debt burden.

(IV) COMBINATION STRATEGY

The Combination Strategy means making the use of other grand strategies (stability,
expansion or retrenchment) simultaneously. Simply, the combination of any grand strategy
used by an organization in different businesses at the same time or in the same business at
 different times with an aim to improve its efficiency is called as a combination strategy.
Such strategy is followed when an organization is large and complex and consists of several
businesses that lie in different industries, serving different purposes. Go through the
following example to have a better understanding of the combination strategy:

▪ A baby diaper manufacturing company augments its offering of

diapers for the babies to have a wide range of its products (Stability) and at the same time, it
also manufactures the diapers for old age people, thereby covering the other market segment
(Expansion). In order to focus more on the diapers division, the company plans to shut
down its baby wipes division and allocate its resources to the most profitable division
(Retrenchment).
In the above example, the company is following all the three grand strategies with the
objective of improving its performance. The strategist has to be very careful while selecting
the combination strategy because it includes the scrutiny of the environment and
the challenges each business operation faces. The Combination strategy can be followed
either simultaneously or in the sequence.

I. GENERIC COMPETITIVE STRATEGIES

Michael E. Porter has suggested 3 strategic tools for the for the development of strategic
advantage & to win over competition.
1) Porters 5 Forces of Competition for Industry Environment Analysis
2) Value Chain Analysis for effective delivery of value to the customers
3) Generic Strategies for creation of competitive advantages over competitors.

BUSINESS LEVEL STRATEGIES – Meaning

Business level strategy deals with how a particular business competes. The principle focus is
on meeting competition, protecting market share and earning profit at the business unit level
by performing activities differently, offering superior value to customers.

A firm is able to deliver superior value to customers when it is in a position to perform an

activity that is distinct or different from that of its competitors. This is popularly defined as
competitive advantage.
Competitive advantage implies a distinct sustainable advantage over competitors. It is a kind
of clear superiority or distinctive competence in some functions or area over the competitors.
The areas may include finance, marketing, production, human resources, new product
development, research etc.
Firms usually build competitive advantage by initiating certain unique steps that help them
gain an edge over their rivals in attracting customers. These steps would include offering
best customer service, producing at the lowest cost or focusing efforts on a specific segment
or niche of the industry.

Michael E Porter studied a number of business organizations and proposed that business
level strategies are the result of five competitive forces in the company’s environment.
 According to porter, buyers, product substitutes, Suppliers and potential new companies
within the industry all contribute to the level of rivalry among industry firms.By applying
these strengths in either a broad or narrow scope, three generic strategies result: cost
leadership differentiation, and focus

◼ Three basic competitive approaches:

– Cost Leadership - To outperform competitors by doing everything it
can to produce goods or services at the lowest possible cost.
– Differentiation- The differentiated product has the ability to satisfy a
customer’s need in a way that competitors cannot.
– Focus- Directed toward serving the needs of a limited customer group
or segment.
–
According to Porter, two competitive dimensions are the keys to business- level strategy.
• The first dimension is a firm’s source of competitive advantage.
• The second dimension is firms’ scope of operations.
◼ Competitive advantages are conditions that allow a company or country to produce a good
or service of equal value at a lower price or in a more desirable fashion. These conditions
allow the productive entity to generate more sales or superior margins compared to its market
rivals

Examples of Competitive Advantage

◼ Access to natural resources that are restricted to competitors.
◼ Highly skilled labor.
◼ A unique geographic location.
◼ Access to new or proprietary technology. ...
◼ Ability to manufacture products at the lowest cost.
◼ Brand image recognition.

◼ The competitive scope of an organization is defined as a function of the number of value

chains (distinct but interrelated) in which the organization is engaged. There are two types of
competitive scope – broad target and narrow target. Firms serving a broad target market
seek to use• their competitive advantage on an industry- wide basis.
A narrow• competitive scope means that the firm intends to serve the needs of a narrow
target customer group.
(a) COST LEADERSHIP – Meaning
It is a strategy that focuses on making an organization more competitive by producing its
products more cheaply than competitors can. Organizations can offer products to
customers at lower prices than the competitors and thereby hope to increase market share.
Cost leadership is a part of marketing strategy. Although, it is highly effective in gaining
market share as well as drawing the customers' attention, it is difficult to deploy.

The management team of the company has to constantly work towards reducing the cost
of not just one product, but the entire range of products in the company's portfolio. Cost
leadership does not mean that a company produces goods which are of inferior quality at
comparatively cheap rates. That strategy will ultimately lead to failure.
To deploy this strategy, a company has to produce goods which are of acceptable
quality and specific to a set of customers at a price which is much lower or competitive
than other companies producing the same product.
Example:
- Mc DONALD’s This fast food chain has proven to be very successful using
this strategy. They keep costs low by maintaining a division of labor that allows them to
employ and train inexperienced staff instead of skilled cooks. This method allows them to
hire a few managers who usually receive higher wages.

- BIG BAZZAR They have positioned themselves as a low cost provider for a
broad market to increase the conversion rate of footfalls into buying. By offering wide range
of products at a low cost they are differentiating themselves from the other players in the
market.
-TATA STEEL India’s largest steel company Tata Steel, the cost leader in the steel
manufacturing sector owns raw material assets such as coal and limestone mines through
joint ventures or completely, with the assets spread across countries such as Australia, Oman
and Mozambique. Tata Steel has largely been able to withstand raw material price
fluctuations due to captive iron ore mines.
-RELIANCE Reliance Industries has become a global leader in various business activities
based on innovation and cost by achieving more efficient production arising from experience
and economies of scale, innovation in production methods, and deferential Low-Cost Access
 to Productive Inputs
Organizations exhibiting cost-leadership often exhibit a number of traits and attributes which
make them suited for this approach:

• Access to capital or technology required to drive costs down

• High levels of productivity
• High efficiency and capacity utilization
• A low-cost base (e.g. labour, materials, facilities) and a method of maintaining this
• Use of bargaining power to negotiate low production costs
• Access to effective distribution channels

(b) DIFFERETIATION STRATEGY – Meaning

The methods of achieving differentiation can vary broadly across industries, products and
services; however, it can involve various features, functionality, durability, and also how the
brand and the product are marketed to achieve an image which customers value. When
designing products, the organization will focus on various criteria considered by consumers
within the industry, and will then orient them uniquely to meet those criteria.

Though not universally, this strategy is often associated with charging premium prices for the
products or services in question. This reflects the potentially higher production costs
associated with developing unique items, and also the extra features and uniqueness
exhibited by said product. As higher prices are often a forced measure to cover production
costs, it is crucial that the differentiation of the product is appealing enough to justify these
prices to consumers.

Here are the most important traits associated with differentiation-led organizations:

• Strong research, development and innovation

• Superior product quality
• Recognizable branding, effective branding and marketing
• Industry-wide distribution within all major channels (stocked by most retailers)

Types of Differentiation
➢ Unique taste – Dr. Pepper
➢ Multiple features – Microsoft Windows and Office
➢ Wide selection and one-stop shopping – Home Depot, Amazon.com
➢ Superior service - FedEx, Ritz-Carlton
➢ Spare parts availability – Caterpillar
➢ Engineering design and performance – Mercedes, BMW
➢ Prestige – Rolex
➢ Product reliability – Johnson & Johnson
➢ Quality manufacture – Toyota
➢ Technological leadership – 3M Corporation
➢ Top-of-line image – Ralph Lauren, Starbucks,
 (c )FOCUS STRATEGY

A focus strategy involves offering the niche-customers a product customized to their tastes
and requirements. It is directed towards serving the needs of a limited customer group.

According to Hitt, Ireland, and Hoskisson, a niche strategy/focus strategy is an integrated set
of actions designed to produce or deliver goods and services that serve the needs of a
particular competitive segment. A company usually follows a focus strategy when it can
serve a narrow piece of the market better than competitors.

A niche can be identified based on certain issues:

-particular buyer group (such as women, youths, adolescents or aged 50+),
-geographic uniqueness (such as south of USA or South of France),
-special product attributes that appeal only to niche members (such as specially designed
neck-tie or fancy Punjabi),
-a particular product line (such as lemon juice, children’s shoes or detergent with bleach).
In a nutshell, it can be said that the focus strategy:
-Serves a limited segment by choice.
-The segment is understood and targeted.
-The organization has the resources, skill, and competence to serve the segment.
The organization can opt to offer a low cost or a high differentiation advantage to the served
segment.

Examples of Focus Strategies .

1.Animal Planet and History ChannelCable TV
2.Porsche Sports cars
3.Cannondale Top-of-the line mountain bikes
4.Enterprise Rent-a-Car Provides rental cars to repair garage customers

Types of Focus Strategy

A company can pursue a focus strategy either with a low-cost approach or a differentiation
approach.

There can, thus, be 2 types of focus strategy;

(a) Focused Low-Cost Strategy.

(b) Focused Differentiation Strategy.

Focused Low-Cost Strategy

The focused low-cost strategy of entering into a niche market at a low cost with a unique
type of product that has a special need among the customers in the niche market. This
strategy is targeted to those via so desire to have unique products at a low cost. The
company that follows this strategy competes against the cost leader in the niche market
where it has a cost advantage.

With this strategy accompany concentrates on small volume custom-built products for which
it has a cost advantage. The company may adopt this strategy to serve a buyer segment
whose needs can be satisfied with less cost compared to the rest of the market.

Focused Differentiation Strategy

‘Focused Differentiation Strategy’ is the strategy of operating a business with a

differentiated product in a chosen niche market. When a company pursues a focused strategy
based on differentiation, it concentrates on a harrow buyer-segment and offers customized
attributes in products better than competitors’ products.

Here, the focuser company competes against competitors not based on low-cost, rather based
on product differentiation. Since the focuser company knows the needs of niche customer-
groups, it can successfully differentiate its products.

Examples: Coca-Cola Company has introduced ‘diet cola’ to serve the niche market
consisting of diabetic patients.

OR
7.2 Expansion Strategies
Growth strategies are the most widely pursued corporate strategies. Companies that do
business in expanding industries must grow to survive. A company can grow internally by
expanding its operations or it can grow externally through mergers, acquisitions, joint
ventures or strategic alliances.
Reasons for Pursuing Growth Strategies Firms generally pursue growth strategies
for the following reasons:
1. To obtain economies of scale: Growth helps firms to achieve large-scale
operations, whereby fixed costs can be spread over a large volume of production.
2. To attract merit: Talented people prefer to work in firms with growth.
3. To increase profits: In the long run, growth is necessary for increasing profits of the
organisation, especially in the turbulent and hyper–competitive environment.
4. To become a market leader: Growth allows firms to reach leadership positions in
the market. Companies such as Reliance Industries, TISCO etc. reached commanding heights
due to growth strategies.
5. To fulfill natural urge: A healthy firm normally has a natural urge for growth.
Growth opportunities provide great stimulus to such urge. Further, in a dynamic world
characterized by the growth of many firms around it, a firm would have a natural urge for
growth.
 6. To ensure survival: Sometimes, growth is essential for survival. In some cases, a
firm may not be able to survive unless it has critical minimum level of business. Further, if a
firm does not grow when competitors are growing, it may undermine its competitiveness.

Categories of Growth Strategies

Growth strategies can be divided into three broad categories:

1. Intensive Strategies
2. Integration Strategies
3. Diversification Strategies

Concentration Strategies Without moving outside the organisation’s current range of

products or services, it may be possible to attract customers by intensive advertising, and by
realigning the product and market options available to the organisation. These strategies are
generally referred to as intensification or concentration strategies. By intensifying its efforts,
the firm will be able to increase its sales and market share of the current product-line faster.
This is probably the most successful internal growth strategy for firms whose products or
services are in the final stages of the product life cycle. Most of the approaches of intensive
strategies deal with product-market realignments. Thus, there are three important intensive
strategies:
1. Market penetration
2. Market development
3. Product development

1. Market penetration: Market penetration seeks to increase market share for existing
products in the existing markets through greater marketing efforts. This includes
activities like increasing the sales force, increasing promotional effort, giving
incentives etc.

2. Market Development: Market development seeks to increase market share by

selling the present products in new markets. This can be achieved through the following
approaches:
(a) By entering new geographic markets:A company, which has been confined to
some part of a country, may expand to other parts and foreign markets. Thus, market
development can be achieved through:
(i) Regional expansion
(ii) National expansion
(iii) International expansion Example: Nirma, which was confined to local markets or
some parts of the country in the beginning, later expanded to the regional market and then to
the national market.
(b) By entering new market segments: This can be achieved through:
(i) Developing product versions to appeal to other segments
(ii) Entering other channels of distribution
(iii) Advertising in other media
Example: Hindustan Lever entered the low price detergent segment by introducing a
low-priced detergent called “Wheel” to compete with “Nirma”. This strategy will be
effective when:
(i) New untapped or unsaturated markets exist
(ii) New channels of distribution are available
(iii) The firm has excess production capacity
(iv) The firm’s industry is becoming rapidly global
(v) The firm has resources for expanded operations

3. Product Development: Product development seeks to increase the market share by

developing new or improved products for present markets. This can be achieved through:
(a) Developing new product features
(b) Developing quality variations
(c) Developing additional models and sizes (product proliferation)
Example: Hindustan Lever keeps on adding new brands or improved versions of
consumer products from time to time to maintain its market share. This strategy will be
effective when:
(a) The firm’s products are in maturity stage
(b) The firm witnesses one of the rapid technological developments in the industry
(c) The firm is in a high growth industry
(d) Competitors bring out improved quality products from time to time
(e) The firm has strong R&D capabilities.

Integrative Strategies Integration basically means combining activities relating to the

present activity of a firm. Such a combination can be done on the basis of the industry value
chain. A company performs a number of activities to transform an input to output. These
activities include right from the procurement of raw materials to the production of finished
goods and their marketing and distribution to the ultimate consumers. These activities are
also called value chain activities. Vertical integration can be:
Full integration: participating in all stages of the industry value chain.
Partial integration: participating in selected stages of the industry value chain. A
firm can pursue vertical integration by starting its own operations or by acquiring a company
already performing the activities, it wants to bring in house. Thus, integration is basically of
tw0 types:
1. Vertical integration and
2. Horizontal integration
Vertical Integration As already explained above, vertical integration involves gaining
ownership or increased control over suppliers or distributors. Vertical integration is of two
types:
1. Backward Integration: Backward integration involves gaining ownership or
increased control of a firm’s suppliers. For example, a manufacturer of finished products
may take over the business of a supplier who manufactures raw materials, component parts
and other inputs. Brooke Bond’s acquisition of tea plantations is an example of backward
integration.
2. Forward Integration: Forward integration involves gaining ownership or increased
control over distributors or retailers. For example, textile firms like Reliance, Bombay
Dyeing, JK Mills (Raymond’s) etc. have resorted to forward integration by opening their
own showrooms.
Advantages of Vertical Integration: The following are the advantages of vertical
integration: 1. A secure supply of raw materials or distribution channels.
2. Control over raw materials and other inputs required for production or distribution
channels.
3. Access to new business opportunities and technologies.
4. Elimination of need to deal with a wide variety of suppliers and distributors.

Risks
1. Increased costs, expenses and capital requirements.
2. Loss of flexibility in investments.
3. Problems associated with unbalanced facilities or unfulfilled demand.
4. Additional administrative costs associated with managing a more complex set of activities.

Disadvantages of Vertical Integration: The following are the disadvantages of vertical

integration
1. It boosts the firm’s capital investment.
2. It increases business risk.
3. It denies financial resources to more worthwhile pursuits.
4. It locks a firm into relying on its own in-house sources of supply.
5. It poses all kinds of capacity-matching problems.
6. It calls for radically different skills and capabilities, which may be lacked by the
manufacturer.
7. Outsourcing of component parts may be cheaper and less complicated than in-house
manufacturing. Most of the world’s automakers, despite their expertise in automobile
technology and manufacturing, strongly feel that purchasing many of their key parts and
components from manufacturing specialists result in:
1. Higher quality
2. Lower costs
3. Greater design flexibility So, they feel that vertical integration option is not preferable.

Weighing the Pros and Cons of Vertical Integration: All in all, vertical integration strategy
can have both strengths and weaknesses. The choice depends on:
1. Whether vertical integration can enhance the performance of the organisation in ways that
lower costs, build expertise or increase differentiation.
2. Whether vertical integrations impact on costs, flexibility, response times and
administrative costs of coordinating more activities, are more justified.
3. Whether vertical integration substantially enhances a company’s competitiveness. If there
are no solid benefits, vertical integration will not be an attractive strategic option. In many
cases, companies prefer to focus on a narrow scope of activities and rely on outsiders to
perform the remaining activities.

Horizontal Integration Horizontal integration is a strategy of seeking ownership or

increased control over a firm’s competitors. Some authors prefer to call this as horizontal
diversification. By whichever name it is called, this strategy generally involves the
acquisition, merger or takeover of one or more similar firms operating at the same stage of
the industry value chain. Recent acquisition of Arcelor by Mittal Steels and the acquisition of
Corus by Tata Steel are good examples of horizontal integration. The most important
advantage of horizontal integration is that it generally eliminates or reduces competition.
Other advantages are:
1. It yields access to new markets.
2. It provides economies of scale.
3. It allows transfer of resources and capabilities. When horizontal integration is appropriate
Horizontal integration is an appropriate strategy when:
1. A firm competes in a growing industry.
2. Increased economies of scale provide a major competitive advantage.
3. A firm has both the capital and human talent needed to successfully manage an expanded
organisation.
4. Competitors are faltering due to lack of managerial expertise or resources, which the firm
has.

Diversification Strategies
Diversification is the process of adding new businesses to the existing businesses of the
company. In other words, diversification adds new products or markets to the existing ones.
A diversified company is one that has two or more distinct businesses. The diversification
strategy is concerned with achieving a greater market from a greater range of products in
order to maximize profits. From the risk point of view, companies attempt to spread their
risk by diversifying into several products or industries.
Example: An air-conditioning company may add room-heaters in its present product lines,
or a company producing cameras may branch off into the manufacturing of copying
machines.

Types of Diversification: Broadly, there are two types of diversification:

1. Concentric Diversification: Adding a new, but related business is called concentric
diversification. It involves acquisition of businesses that are related to the acquiring firm in
terms of technology, markets or products. The selected new business has compatibility with
the firm’s current business.
2. Conglomerate diversification: Adding a new, but unrelated business is called
conglomerate diversification. The new business will have no relationship to the company’s
technology, products or markets. For example, ITC which is basically a cigarette
manufacturer, has diversified into hotels, edible oils, financial services etc. Similarly,
Reliance Industries, which is basically a textile manufacturer, has diversified into petro
chemicals, telecommunications, retailing etc. Unlike concentric diversification,
conglomerate diversification does not result in much of synergy. The main objective is profit
motive. But it has important advantages.

Advantages
(a) Business risk is scattered over diverse industries.
(b) Financial resources are invested in industries that offer the best profit prospects.
(c) Buying distressed businesses at a low price can enhance shareholder wealth.
(d) Company profitability can be more stable in economic upswings and downswings.

Disadvantages
(a) It is difficult to manage different businesses effectively.
(b) The new business may not provide any competitive advantage if it has no strategic fits.

Diversification into both Related and Unrelated Businesses: Some companies may
diversify into both related and unrelated businesses. The actual practice varies from company
to company. There are three types of enterprises in this respect:
1. Dominant business enterprises: In such enterprises, one major “core” business accounts
for 50 to 80 per cent of total revenues and the remaining comes from small related and
unrelated businesses, e.g. TISCO.
2. Narrowly diversified enterprise: These are enterprises that are diversified around a few
(two to five) related or unrelated businesses e.g. BPL.
3. Broadly diversified enterprises: These enterprises are diversified around a wide-ranging
collection of related and unrelated businesses e.g. ITC, Reliance Industries.

7.3 Retrenchment Strategies

They are the last resort strategies. A company may pursue retrenchment strategies when it
has a weak competitive position in some or all of its product lines resulting in poor
performance – sales are down and profits are dwindling.

In an attempt to eliminate the weaknesses that are dragging the company down, management
may follow one or more of the following retrenchment strategies.

1. Turnaround
2. Divestment
3. Bankruptcy
4. Liquidation

7.3.1 Turnaround Strategy

A firm is said to be sick when it faces a severe cash crunch or a consistent downtrend in its
operating profits. Such firms become insolvent unless appropriate internal and external
actions are taken to change the financial picture of the firm. This process of recovery is
called “turn around strategy”.

When Turnaround becomes Necessary Do companies turn sick overnight and qualify as
potential candidates for turnaround or do they become sick slowly which can be stopped by
timely corrective action? Obviously, the latter is true in most of the cases. But the reality is
also that companies becoming sick often do not themselves recognize this fact, and fail to
take timely action to remedy the situation. Despite the fact that factors that lead to sickness
may vary from company to company, there are some common signals which herald the onset
of sickness. John M Harris has listed a dozen danger signals of impending sickness.
1. Decreasing market share : This is the most significant symptom of a major sickness. A
company which is losing its market share to competition needs to sit up and take careful
note. Regular monitoring of market share helps companies to keep a tag on them
performance in the market vis-à-vis their competitors. Any indication of declining market
share should trigger off immediate corrective action.
2. Decreasing constant rupee sales : Sales figures, to be meaningful, should be adjusted for
inflation. If constant rupee sales figures are showing a declining trend, then this is a danger
signal to watch out. 3. Decreasing profitability : Profit figures are a good indication of a
company’s health. Care must be taken to interpret the profit figures correctly, so as to avoid
any misjudgements. Decreasing profitability can show up as smaller profits in absolute terms
or lower profits per rupee of sales or decreasing return on investment or smaller profit
margins.
4. Increasing dependence on debt : A company overly reliant on debt soon gets into a tight
corner with very few options left. A substantial rise in the amount of debt, a lopsided debtto-
equity ratio and a lowered corporate credit rating may cause banks and other financial
institutions to impose restrictions and become reluctant to lend money. Once financial
institutions are hesitant to lend money, the company’s rating on the stock market also slides
down and it becomes very difficult for the company to raise funds from the public too.
5. Restricted dividend policies : Dividends frequently missed or restricted dividends signal
danger. Often, such companies may have earlier paid substantially higher proportion of
earnings as dividends when in fact they should have been reinvesting in the business. Current
inability to pay dividends is an indication of the gravity of the situation.
6. Failure to reinvest sufficiently in the business : For a company to stay competitive and
keep on the fast growth track, it is essential to reinvest adequate amounts in plant, equipment
and maintenance. When a business is growing, the combination of new investments and
reinvestments often warrants borrowing. Companies which fail to recognize this fact and try
to finance growth with only their internal funds are applying brakes in the path of growth.
7. Diversification at the expense of the core business : It is a well observed fact that once
companies reach a particular level of maturity in the existing business, they start looking for
diversification. Often this is done at the cost of the core business, which then starts to
deteriorate and decline. Diversification in new ventures should be sought as a supplement
and not as a substitute for the primary core business.
8. Lack of planning : In many companies, particularly those built by individual
entrepreneurs, the concept of planning is generally lacking. This can often result in major
setbacks as limited thought or planning go into the actions and their consequences.
9. Inflexible chief executives : A chief executive who is unwilling to listen to fresh ideas
from others is a signal of impending bad news. Even if the CEO recognises the danger
signals, his unwillingness to accept any proposal from his subordinates further blocks the
path towards recovery.
10. Management succession problems : When nearly all the top managers are in their
modifies, there may be a serious vacuum at the second line of command. As these older
managers retire or leave because of perception of decreasing opportunities, there is bound to
be serious management crisis.
11. Unquestioning boards of directors : Directors, who have family, social or business ties
with the chief executive or have served very long on the board, may no longer be objective in
their judgment. Thus, these directors serve limited purpose in terms of questioning or
cautioning the CEO about his actions.
12. A management team unwilling to learn from its competitors: Companies in decline
often adopt a closed attitude and are not willing to learn anything from their competitors.
Companies which have survived tough competitive times continuously analyse their
competitors’ moves.
Types of Turnaround Strategies
Slater has classified the turnaround strategies into two broad categories. These are strategic
turnaround and operating turnaround. Whether a sick business needs strategic or operating
turn-around can be ascertained by analysing the current strategic and operating health of the
business. The operating turnarounds are easier to carry out and can be applied only when
there are average to strong strategic strengths (product-market relationship) in the business.
The strategic turnaround choices may involve either a new way to compete existing business
or entering an altogether new business. Entering a new business as a turnaround strategy can
be approached through the process of product portfolio management. The strategic
turnaround focuses either on increasing the market share in a given product-market
framework or by shifting the product-market relationship in a new direction by repositioning.
The operating turnaround strategies are of four types.

These are: 1. Revenue-increasing strategies

2. Cost-cutting strategies
3. Asset-reduction strategies
4. Combination strategies The focus of all these choices is on short-term profit.

Thus, if a sick firm is operating much below its break-even, it must take steps to
reduce the levels of fixed cost and help in reducing the total costs of the firm. In real life, it is
always a difficult choice to identify the assets which can be sold without affecting the
productivity of the business. To identify saleable assets, the firm may have to keep in mind
its strategic move in the next two to three years.
The turnaround strategies appropriate under different circumstances are: If the sick
firm is operating substantially but not extremely below its break-even point, then the most
appropriate turnaround strategy is the one which generates extra revenues. These may be in
the form of price reduction to increase sales, stimulating product demand through
promotional efforts or sometimes by introducing scaled down versions of the main products
of the firm.
The increased quantities of product sales not only result in higher sales but also reduce
the per unit cost, thus leading to higher operating profits. If the firm is operating closer but
below break-even point then the turnaround strategy calls for application of combination
strategies. Under combination strategies cost reducing, revenue generating and asset-
reduction actions are pursued simultaneously in an integrated and balanced manner. The
combination strategies have a direct favourable impact on cash flows as well as on profits.
Turnaround Process The process of turning a sick company into a profitable one is
rather complex and difficult. It is complex because a successful turnaround strategy demands
corrective actions in many deficient areas of the firm. It is necessary that all these actions are
integrated and do not contradict each other.

7.3.2 Divestment
Selling a division or part of an organisation is called divestiture. This strategy is often
used to raise capital for further strategic acquisitions or investments. Divestiture is generally
used as a part of turnaround strategy to get rid of businesses that are unprofitable, that
require too much capital or that do not fit well with the firm’s other activities. Divestiture is
an appropriate strategy to be pursued under the following circumstances: 1. When a business
cannot be turned around 2. When a business needs more resources than the company can
provide 3. When a business is responsible for a firm’s overall poor performance 4. When a
business is a misfit with the rest of the organisation 5. When a large amount of cash is
required quickly 6. When government’s legal actions threaten the existence of a business.
Reasons for Divestitures 1
. Poor fit of a division : When the parent company feels that a particular division
within the company cannot be managed profitably; it may think of selling the division to
another company. This does not mean the division itself is unprofitable. The other firm with
greater expertise in the line of business could manage the division more profitably. This
means the division can be managed better by someone else than the selling company.
2. Reverse synergy : Synergy refers to additional gains that can be derived when two
firms combine. When synergy exists, the combined entity is worth more than the sum of the
parts valued separately. In other words, 2 + 2 = 5. Reverse synergy exists when the parts are
worth more separately than they are within the parent company’s corporate structure. In
other words, 2 + 2 = 3. In such a case, an outside bidder might be able to pay more for a
division than what the division is worth to the parent company.
3. Poor performance : Companies may want to divest divisions when they are not
sufficiently profitable. The division may earn a rate of return, which is less than the cost of
capital of the parent company. A division may turn out to be unprofitable due to various
reasons such as increase in the material and labour cost, decline in the demand etc.
4. Capital market factors : A divestiture may also take place because the post
divestiture firm, as well as the divested division, has greater access to capital markets. The
combined capital structure may not help the company to attract the capital from the
investors. Some investors are looking at steel companies and others may be looking for
cement companies. These two groups of investors are not interested in investing in combined
company, with cement and steel businesses due to the cyclical nature of businesses. So each
group of investors are interested in stand-alone cement or steel companies. So divestitures
may provide greater access to capital markets for the two firms as separate companies rather
than the combined corporation.
5. Cash flow factors : Selling a division results in immediate cash inflows. The
companies that are under financial distress or in insolvency may be forced to sell profitable
and valuable divisions to tide over the crisis.
6. To release the managerial talent : Sometime the management may be
overburdened with the management of the conglomerate leading to inefficiency. So they sell
one or more divisions of the company. After the divestiture, the existing management can
concentrate on the remaining businesses and can conduct the business more efficiently.
7. To correct the mistakes committed in investment decisions: Many companies in
India diversified into unrelated areas during the pre-liberalization period. Afterwards they
realised that such a diversification into unrelated areas was a big mistake. To correct the
mistake committed earlier, they had to go for divestiture. This is because they moved into
product market areas with which they had less familiarity than their existing activities.
8. To realise profit from the sale of profitable divisions : This type of divestiture
occurs when a firm acquires under-performing businesses, makes it profitable and then sells
it to other companies. The parent company may repeat this process to make profit out of it.
9. To reduce the debt burden : Many companies sell their assets or divisions to reduce
their debt and bring the balance in the capital structure of the firm.
10. To help to finance new acquisitions : Companies may sell less profitable
divisions and buy more profitable divisions in order to increase the profitability of the
company as a whole.

Types of Divestitures
1. Spin-off : It is a kind of demerger when an existing parent company distributes on
a prorate basis the shares of the new company to the shareholders of the parent company free
of cost. There is no money transaction, subsidiary’s assets are not revalued, and transaction
is treated as stock dividend. Both the companies exist and carry on their businesses
independently after spin-off. During spin-off, a new company comes into existence.
2. Sell-off : It is a form of restructuring, where a firm sells a division to another
company. When the business unit is sold, payment is received generally in the form of cash
or securities. When the firm decides to sell a poorly performing division, this asset goes to
another owner, who presumably values it more highly because he can use the asset more
advantageously than the seller. The seller receives cash in the place of asset. So the firm can
use this cash more efficiently than it was utilising the asset that was sold. The firm can also
get premium for the assets because the buyer can more advantageously use such assets. Sell-
off generally have positive impact on the market price of shares of both the buyer and seller
companies. So sell-offs are beneficial for the shareholders of both the companies.
3. Voluntary corporate liquidation or bust-ups : It is also known as complete sell-off.
The companies normally go for voluntary liquidation because they create value to the
shareholders. The firm may have a higher value in liquidation than the current market value.
Here the firm sells its assets/divisions to multiple parties which may result in a higher value
being realised than if they had to be sold as a whole. Through a series of spinoffs or sell-offs
a company may go ultimately for liquidation.
4. Equity carve outs : It is a different type of divestiture and different form of spin-off
and sell off. It resembles Initial Public Offering (IPO) of some portion of equity stock of a
wholly owned subsidiary by the parent company. The parent company may sell a 100%
interest in subsidiary company or it may choose to remain in the subsidiary’s line of business
by selling only a partial interest (shares) and keeping the remaining percentage of ownership.
After the sale of shares to the public, the subsidiary company’s shares will be listed and
traded separately in the capital market.
5. Leveraged buyouts (LBO’s) : A leveraged buyout is an acquisition of a company in
which the acquisition is substantially financed through debt. Debt typically forms 70-90% of
the purchase price. Much of the debt may be secured by the assets of the company (asset
based lending). Firms with assets that have a high collateral value can more easily obtain
such loans. So LBOs are generally found in capital intensive industries. Debt is obtained on
the basis of company’s future earnings potential.

7.3.3 Bankruptcy
This is a form of defensive strategy. It allows organisations to file a petition in the
court for legal protection to the firm, in case the firm is not in a position to pay its debts. The
court decides the claims on the company and settles the corporation’s obligations.

7.3.4 Liquidation
Liquidation occurs when an entire company is dissolved and its assets are sold. It is a
strategy of the last resort. When there are no buyers for a business which wants to be sold,
the company may be wound up and its assets may be sold to satisfy debt obligations.
Liquidation becomes the inevitable strategy under the following circumstances: 1. When an
organisation has pursued both turnaround strategy and divestiture strategy, but failed. 2.
When an organisation’s only alternative is bankruptcy. A company can legally declare
bankruptcy first and then wind up the company to raise needed funds to pay debts. 3. When
the shareholders of a company can minimize their losses by selling the assets of a business.

Q) What are the critical factors in resource allocation?

10.0 Resource Allocation
Most strategies need resources to be allocated to them if they are to be implemented
successfully. Let us examine some special circumstances that may affect the allocation of
resources. Resource allocation deals with the procurement and commitment of financial,
physical and human resources to strategic tasks for achievement of organisational
objectives. This involves the process of providing resources to particular business units,
divisions, functions etc for the purpose of implementing strategies. All organisations have at
least five types of resources:

1. Physical Resources
2. Financial Resources
3. Human Resources
4. Technological Resources
5. Intellectual Resources

These resources may already exist in the organisation or may have to be acquired. Resource
allocation decisions are very critical in that they set the operative strategy for the firm.
Resource allocation decisions about how much to invest in which areas of business reinforce
the strategy and commit the organisation to the chosen strategy.

10.6.1 Importance of Resource Allocation

A company’s ability to acquire sufficient resources needed to support new strategic
initiatives and steer them to the appropriate organisational units has a major impact on the
strategy implementation process. Too little funding arising from constrained financial
resources or from sluggish management action slows progress and impedes the efforts of
organisational units to execute their part of the strategic plan effectively. At the same time,
too much funding wastes organisational resources and reduces financialperformance. Both
these extremes emphasize the need for managers to be careful about resource allocation.
Resource allocation becomes a critically important exercise when there are majorshifts from
the past strategies in terms of product/ market scope. For example, if the firm’sstrategy is
expansion in one line, withdrawal from another and stability in the rest of theproducts, then
greater resources will have to flow to the first and lesser to the second and thethird.
Similarly, if the strategy is to develop competitive edge through product development,
greater resources will have to be committed to R&D. Resource allocation is a powerful
means of communicating the strategy in the organisation as itgives the signals to all
concerned. It will demonstrate what strategy is really in operation.Resource allocation
decisions should be taken judiciously because using a formula approach (i.e. allocating funds
as a percentage of sales or profits), may be inappropriate and counterproductive.Care should
be taken to see that the resources are not allocated or withdrawn because of easy availability
or paucity.

10.6.2 Managing Resource Conflict

The common approach to resource allocation is through budgetary system. There are
however, many other tools, which can be used for this purpose. Some of the important tools
used for resource allocation are discussed below:

BCG Matrix
The BCG matrix, which is generally used for portfolio analysis, can also be used as a
guideline for resource allocation. The surplus resources from “cash cows” can be reallocated
to “stars” or “question marks”. In so far as businesses categorized as “dogs” are concerned,
with low growth and low market share, they may not need any thrust, and resources can be
gradually withdrawnfrom such businesses and invested in other promising businesses. The
BCG matrix is a useful tool because it impresses upon a portfolio approach to
resourceallocation. It helps in averting over-investment in any particular type of business and
underinvestmentin promising businesses from the long-term perspective. Despite the utility
of theBCG matrix, however, it should be used with care and only as a guideline. It does not
provide aconcrete measure for making a finer choice, particularly among the businesses of
the samenature.

PLC-based Budgeting
Resource allocation can also be linked to different stages of a Product Life Cycle (PLC). A
product in introductory and growth stages may require more resources than a product in
mature and decline stages.

Zero-based Budgeting (ZBB)

The key differences between ZBB and traditional budgeting is that ZBB requires managers
to justify their budget requests in detail from the scratch, without relying on the previous
budget allocations.

Therefore, instead of taking the last year’s budget as the base for projecting the future
allocations, ZBB forces the managers to review the objectives and operations afresh and
justify the budget requests. ZBB is, therefore, a type of budget that requires managers to
rejustify the past objectives, projects and budgets and set priorities for the future. It amounts
to recalculationof all organisational activities to see which should be eliminated or funded at
a reduced orincreased level.

Capital Budgeting
Capital Budgeting techniques can be used for long-term commitment of resources, such as
capital investments in mergers, acquisitions, joint ventures, and setting up of new plants etc.
Various techniques like payback period, net present value, internal rate of return, etc. can be
used to find which investments would earn maximum returns.

Operating Budgets
Operating budgets are necessary for more routine resource allocation for conducting
operations. There are two types of systems:

1. Fixed budgeting system: This system commits resources based on activity levels. In
this type of budgeting, there may be a tendency to retain the committed resources even if the
activity levels are not being achieved, thus depriving other divisions of the resources, which
have a better potential.
2. Flexible budgeting system: This system provides for transfer of funds from one unit to
another if a fall is expected in actual activity level in a particular unit, thus ensuring better
resource utilization. But this system has the disadvantage of encouraging non-seriousness
about budgetary allocations.

10.6.3 Criteria for Resource Allocation Process

In large, diversified companies, the corporate office plays a major role in allocating
resources among various strategies proposed by its operating units or divisions. In many
cases, product groups,
business units or functional areas may bid for funds to support their strategic proposals.

There are three criteria which can be used when allocating resources.
1. Contribution towards fulfillment of organisational objectives: At the centre of the
organisation, the resource allocation task is to steer resources away from areas that are poor
at delivering the organisation’s objectives and towards those that are good at delivering the
organisation’s objectives.

2. Support of key strategies : In many cases, the problem with resource allocation is that
the requests for funds usually exceed the funds normally available. Thus, there needs to be
some further selection mechanism beyond the delivery of the organisation’s mission and
objectives. This second criterion relates to two aspects of resource analysis:
(a) Support of core competencies : Resources should develop and enhance core
competencieswhich, in turn, help achieve competitive advantage.
(b) Enhancement of value chain activities : Resources should assist particularly those
activities of the value chain which help the organisation to achieve low cost or differentiation
and thereby enhance and sustain competitive advantage of the firm.

(c) Risk-acceptance level of the organisation: Clearly, if the risk is higher, there is a lower
likelihood that the strategy will be successful. Some organisations will be more comfortable
with accepting higher levels of risk than others. So, the criterion in this case needs to be
considered in relation to the risk-acceptance level of the organisation.

10.6.4 Factors affecting Resource Allocation

Resource allocation may not necessarily be a purely ‘rational’ decision-making process. It is
also a behavioural and political process involving people who may be motivated by different
objectives. Some of the major factors affecting resource allocation are discussed below:
1. Objectives of the organisation: People motivated by different objectives exercise
theirinfluence over the funding of projects. There are two types of objectives. Official
(explicit) objectives and operative (implicit) objectives. Allocations of resources are more
guided by implicit objectives than explicit objectives. The formal and informal organisations
also influence the perception of which projects should be chosen for funding.
2. Powerful units: Sometimes, powerful SBU heads secure larger allocation of funds than
their ‘fair share’.
3. Dominant strategists: The preferences of dominant strategists like the CEO, Directors,
SBU heads, etc. are reflected in the way resources are allocated. The divisional and
departmental heads know that such preferences matter and try to present their demands in
line with them.

4. Internal politics: Resources are often construed as power, and those units, which
manage to secure substantial resources, are perceived as more powerful than others. Internal
politics within the organisation to secure more and more resources, affect the process of
resource allocation.
5. External influences: Apart from internal politics, external influences like government
policy, demands of shareholders, financial institutions, community and others, also affect
resource allocation. For example, legal requirements may require additional finances in
labour welfare and social security, pollution control, safety equipments and energy
conservation. The shareholders may expect higher dividends, and resources have to be
directed to them. Financial institutions may impose restrictions or require companies to
invest in technology up-gradation and R&D. Similarly, the discharge of social
responsibilities by the firm requires allocation of sufficient funds. Thus, external influence
affect the process of resource allocation.

10.6.5 Difficulties in Resource Allocation

The resource allocation process can sometimes become fairly complex, and may even create
several difficulties to the strategists. Some of the difficulties that can create problems are:

1. Scarcity of Resources: Resources are hard to find. Even if finance is available, the cost
ofcapital could be a constraint. Non-availability of highly skilled people could be another
problem.
2. Restrictions on Generating Resources: Within organisations, the new units which have
greater potential

for growth in the future, may not be able to generate resources in the short run. Allocation of
resources on par with existing SBUs, divisions and departments through the usual budgeting
process, will put them at a disadvantage.
3. Bloated Demands: Unit managers may sometimes submit inflated or overstated
demands for funds to guard against any budget-cuts. This subverts the decision process.
4. Negative Attitude: Units, which do not get the desired allocations, may develop a
negative attitude towards the corporate managers. They may work at cross purposes, which
may obstruct the implementation of the intended strategy.
5. Budget Battles: The actual allocation of funds to any unit has a major effect on the
work environment of the unit and the career of the manager concerned. If a manager loses
the ‘budget battle’, his subordinates feel that the manager has failed them, and may not
cooperate with him.
6. Budgetary Process: The budgetary process itself can lead to problems if it is not tied to
the strategic plans of the firm. If top management fails to communicate the shifts in the
strategic plans and the lower levels are unaware of the shifts, any intended strategy is
unlikely to succeed.
7. New SBUs: The budgetary process is tied to the way units and divisions are arranged
organisationally. New SBUs can be at a disadvantage if they are unaware of the intricacies of
the budget procedures used in their organisations.
To avoid the above difficulties, strategists should pay maximum attention to resource
allocation, and ‘prioritize’ budgeting allocations in the initial stages taking overall objectives
into account

Q)Write types & techniques of strategic control.

14.3 Strategic Control

Strategic control is a type of “steering control”. We have to track the strategy as it is

beingimplemented, detect any problems or changes in the predictions made, and make
necessaryadjustments. This is especially important because the implementation process itself
takes a long time before we can achieve the results. Strategic controls are, therefore,
necessary to steer the firm through these events.

14.3.1 Types of Strategic Control

There are four types of strategic controls:
1. Premise control
2. Strategic surveillance
3. Special alert control
4. Implementation control

Premise Control : Strategy is built around several assumptions or predictions, which are
called planning premises. Premise control checks systematically and continuously whether
the assumptions on which the strategy is based are still valid. If a vital premise is no longer
valid, the strategy may have to bechanged. The sooner these invalid assumptions are detected
and rejected, the better are the chances of changing the strategy.

Strategic Surveillance : Strategic surveillance is a broad-based vigilance activity in all daily

operations both inside and outside the organisation. With such vigilance, the events that are
likely to threaten the course ofa firm’s strategy can be tracked. Business journals, trade
conferences, conversations, observationsetc. are some of the information sources for
strategic surveillance.
Special Alert Control : Sudden, unexpected events can drastically alter the course of the
firm’s strategy. Such events trigger an immediate and intense reconsideration of the firm’s
strategy.

Implementation Control : Strategy implementation takes place as a series of steps,

programmes, investments and moves that occur over an extended period of time. Resources
are allocated, essential people are put in place, special programmes are undertaken and
functional areas initiate strategy related activities.Implementation control is aimed at
assessing whether the plans, programmes and policies areactually guiding the organisation
towards the predetermined objectives or not. Implementationcontrol assesses whether the
overall strategy should be changed in the light of the results ofspecific units and individuals
involved in implementation of the strategy. Two important methodsto achieve
implementation control are:

A. Monitoring Strategic Thrusts: Strategic thrusts are small critical projects that need to
bedone if the overall strategy is to be accomplished. They are critical factors in the success
ofstrategy.One approach is to agree early in the planning process on which thrusts are critical
factorsin the success of the strategy. Managers responsible for these - implementation
controls will single them out from other activities and observe them frequently. Another
approachis to use stop/go assessments that are- linked to a series of these thresholds (time,
costs,success etc.) associated with a particular thrust.
B. Milestone Reviews: Milestones are critical events that should be reached during
strategyimplementation. These milestones may be fixed on the basis of.
(a) Critical events
(b) Major resource allocations
(c) Time frames etc.

14.0 Techniques of Strategic Control

Organisations use many techniques or mechanisms for strategiccontrol. Some of the important
mechanisms are:

1. Management Information systems: Appropriate information systems act as an effective

control system. Management will come to know the latest performance in key areas and take
appropriate corrective measures.

2. Benchmarking: It is a comparative method where a firm finds the best practices in an area and
then attempts to bring its own performance in that area in line with the best practice. Best
practices are the benchmarks that should be adopted by a firm as the standards to exercise
operational control. Through this method, performance can be evaluated continually till it
reaches the best practice level. In order to excel, a firm shall have to exceed the benchmarks. In
this manner, benchmarking offers firms atangible method toevaluate performance.
 3. Balanced scorecard: It is a method based on the identification of four key performance
measures i.e. customer perspective, internal business perspective, innovation and learning
perspective, and the financial perspective. This method is a balanced approach to performance
measurement as a range of financial and non- financial parameters are taken into account for
evaluation.

1.9.1 Role of Board of Directors

• Trusteeship: The board of directors' act as trustees to the property and

welfare of the company.
• Formulation of mission, objectives and policies: The board of directors
must see the long run view and have long run perspectives of the
company.
• Designing organisational structure: The board design the structure of the
organisation based on the objectives, policies, environmental factors,
degree of competition, role of quality, expectation of employees etc.
• Selection of top executives: The board should assume the responsibility
of screening and selecting the top executives who can formulate and
implement the strategies
• Financial sanction: The important financial decisions like sanctioning of
finances to various projects, reserves, distribution of profit to
shareholders and repayment of loans and advances etc.
• Link between the company and external environment: The board acts a
vital and continuous link between the company and external environment
like government, other companies, social and economic institutions etc.

Q)What is strategic leadership? Explain different types or strategic

leadership.
12.3 Strategic Leadership
Leadership is the art and process of influencing people so that they will strive
willingly and enthusiastically towards achievement of the organisation’s purpose. Specific
styles of leadership are often associated with specific approaches to the crafting and
execution of strategies. The organisation’s purpose and strategy do not just drop out of a
process of discussion, but are actively directed by an individual with strategic vision, whom
we call “strategic leader”. Strategic leadership establishes the firm’s direction by developing
and communicating a vision of the future and inspiring organisation members to move in
that direction. Unlike managerial leadership which is generally concerned with the short-
term day-to-day activities, strategic leadership is concerned with determining the firm’s
strategy, direction, aligning the firm’smstrategy with its culture, modeling and
communicating high ethical standards, and initiatingmchanges in the firm’s strategy when
necessary. The most successful leadership is not just tom define the vision and mission of an
organisation in a cold, abstract manner but to communicate trust, enthusiasm and
commitment to strategy.

Leaders play a central role in performing six critical and interdependent activities in
implementation of strategies:
1. Clarifying strategic intent: Leaders motivate employees to embrace change by
setting forth a clear vision of where the business’s strategy needs to take the organisation.

2. Setting the Direction: Leaders set the direction and scope of the organisation through
formulating appropriate corporate and business strategies.

3. Building the organisation: Since leaders are attempting to embrace change, they are
often required to rebuild their organisation to align it with the ever – changing environment
and needs of the strategy. And such an effort often involves overcoming resistance to change
and addressing problems like the following:
(a) Ensuring a common understanding about organisational priorities
(b) Clarifying responsibilities among managers and organisational units
(c) Empowering managers and pushing authority lower in the organisation
(d) Uncovering and remedying problems in coordination and communication across the
organisation
(e) Gaining personal commitment from managers to a shared vision
(f) Keeping closely connected with “what’s going on in the organisation”.

4. Shaping organisational culture: Leaders play a key role in developing and sustaining
a strategy supportive culture. Leaders know well that the values and beliefs shared
throughout their organisation will shape how the work of the organisation is done. And when
attempting to embrace accelerated change, reshaping their organisation’s culture is an
activity that occupies considerable time for most leaders.

5. Creating a learning organisation: Leaders must also play a central role in creating a
learning organisation. Learning organisation is one that quickly adapts to change. The five
elements central to a learning organisation are:
(a) Inspiring and motivating people with a mission or purpose
(b) Empowering people at all levels throughout the organisation
(c) Accumulating and sharing internal knowledge
(d) Gathering external information
(e) Challenging the status quo to stimulate creativity

6. Instilling ethical behaviour: Ethics may be defined as a system of right and wrong.
Business ethics is the application of general ethical standards to commercial enterprises. A
leader plays a central role in instilling ethical behaviour in the organisation. The ethical
orientation of a leader is generally considered to be a key factor in promoting methical
behaviour among employees. Leaders who exhibit high ethical standards become role
models for others in the organisation and raise its overall level of ethical behaviour. In
essence, ethical behaviour must start with the leader before the employees can be expected to
perform accordingly.
 There are three levels of strategy formulation used in an organization:

▪ Corporate level strategy: This level outlines what you want to achieve: growth, stability, acquisition or
retrenchment. It focuses on what business you are going to enter the market.

▪ Business level strategy: This level answers the question of how you are going to compete. It plays a role in
those organization which have smaller units of business and each is considered as the strategic business unit
(SBU).

▪ Functional level strategy: This level concentrates on how an organization is going to grow. It defines daily
actions including allocation of resources to deliver corporate and business level strategies.

Hence, all organisations have competitors, and it is the strategy that enables one business to become more
successful and established than the other.