Subject: Strategic Management

Q - Define the term strategy what is its significance for any Business Organization?
Johnson and Scholes define strategy as follows:
"Strategy is the direction and scope of an organisation over the long-term: which
achieves advantage for the organisation through its configuration of resources
within a challenging environment, to meet the needs of markets and to fulfill
stakeholder expectations".
Strategy is when a firm expenses its intent to adopt a current & future course of
action that is blueprint &roadmap with clarity of objectives that need to be achieved
in short term and long term.
n other words, strategy is about:
! "here is the business trying to get to in the long#term $irection!
! "hich mar%ets should a business compete in and what %ind of activities are
involved in such mar%ets& $mar"ets' sco#e(
! )ow can the business perform better than the competition in those mar%ets&
$a$antage(&
! "hat resources $s%ills, assets, finance, relationships, technical competence,
facilities( are re*uired in order to be able to compete& $resources(&
! "hat external, environmental factors affect the businesses+ ability to compete&
$en$ironment(&
! "hat are the values and expectations of those who have power in and around the
business& $sta"eho%ers!
Strategy at ,ifferent -evels of a .usiness
Strategies exist at several levels in any organisation # ranging from the overall
business $or group of businesses( through to individuals wor%ing in it.
Corporate Strategy # is concerned with the overall purpose and scope of the
business to meet sta%eholder expectations. /his is a crucial level since it is heavily
influenced by investors in the business and acts to guide strategic decision#ma%ing
throughout the business. 0orporate strategy is often stated explicitly in a "mission
statement".
Business Unit Strategy # is concerned more with how a business competes
successfully in a particular mar%et. t concerns strategic decisions about choice of
products, meeting needs of customers, gaining advantage over competitors,
exploiting or creating new opportunities etc.
Operational Strategy # is concerned with how each part of the business is
organised to deliver the corporate and business#unit level strategic direction.
1perational strategy therefore focuses on issues of resources, processes, people
etc.
Significance:
"hy Strategy&

2. Survival.
3. 4espond to changes in external environment.
5. /he need to grow.
6. 4espond to changes in customer expectations.
7. 0orporate social responsibility amongst sta%eholders.
8. ncrease share of the mar%et & profitability.
9. :anage competition effectively & gain business dominance in the industry.
;. .uild competencies & capabilities. /echnical expertise, financial capabilities
<. 0ustomer ac*uisition in growing mar%ets. =etting new customers $pursuing larger
customer base(
/he business strategy of a company provides the big picture that shows how all the
individual activities are coordinated to achieve a desired end result.
t is through the strategy process that the overall direction of the business is set. /his
is based on the opportunities and threats in the outside world and the internal
strengths and wea%nesses of the business.
&our Strategy 's ' (eaction )o *n$ironmenta% +hanges )hat ,a$e ,a##ene
Or &ou *-#ect to ,a##en
>s the external environment changes, perhaps due to changes in customers or
competitors or perhaps due to the wider forces # political, economic, social,
technological, and environmental or legislation based # it is important to come bac%
and as% some fundamental *uestions.
/he more the external environment changes, then:
/he more opportunities there are li%ely to be for the well prepared company'
but
.
/he more threats the unwary and the unprepared will face.
?ven if the basic environment is stable, actions and intentions of competitors change
and companies need to review what is happening, prepare for any real or potential
competitive manoeuvres and find new insights into ways to create value for
customers.
Q - *-#%ain ./s for strategy that is strategy as a #%an0 as #attern0 as #osition0 as
#ers#ecti$e an as #ur#ose1
Mintzberg2s . /s for Strategy
/he word "strategy" has been used implicitly in different ways even if it has
traditionally been defined in only one. ?xplicit recognition of multiple definitions can
help people to manoeuvre through this difficult field. :int@berg provides five
definitions of strategy:
Alan
Aattern
Aosition
Aerspective
Aurpose
/%an
Strategy is a plan # some sort of consciously intended course of action, a guideline
$or set of guidelines( to deal with a situation. .y this definition strategies have two
essential characteristics: they are made in advance of the actions to which they
apply, and they are developed consciously and purposefully.
Strategy can be defined as a direction, a guide or a course of action to get from here
to there.
/attern
f strategies can be intended $whether as general plans or specific ploys(, they can
also be realised. n other words, defining strategy as plan is not sufficient' we also
need a definition that encompasses the resulting behaviour: Strategy is a pattern #
specifically, a pattern in a stream of actions. Strategy is consistency in behaviour,
whether or not intended. /he definitions of strategy as plan and pattern can be *uite
independent of one another: plans may go unrealised, while patterns may appear
without preconception.
Alans are intended strategy, whereas patterns are realised strategy' from this we
can distinguish deliberate strategies, where intentions that existed previously were
realised, and emergent strategies where patterns developed in the absence of
intentions, or despite them.
Strategic plans and ploys are both deliberate exercises. Sometimes, however,
strategy emerges from past organi@ational behavior. 4ather than being an intentional
choice, a consistent and successful way of doing business can develop into a
strategy.
Bor instance, imagine a manager who ma%es decisions that further enhance an
already highly responsive customer support process. ,espite not deliberately
choosing to build a strategic advantage, his pattern of actions nevertheless creates
one.
/o use this element of the 7 As, ta%e note of the patterns you see in your team and
organi@ation. /hen, as% yourself whether these patterns have become an implicit
part of your strategy' and thin% about the impact these patterns should have on how
you approach strategic planning.
/osition
Strategy is a position # specifically a means of locating an organisation in an
"environment". .y this definition strategy becomes the mediating force, or "match",
between organisation and environment, that is, between the internal and the external
context.
"Aosition" is another way to define strategy # that is, how you decide to position
yourself in the mar%etplace. n this way, strategy helps you explore the fit between
your organi@ation and your environment, and it helps you develop a sustainable
competitive advantage.
Bor example, your strategy might include developing a niche product to avoid
competition, or choosing to position yourself amongst a variety of competitors, while
loo%ing for ways to differentiate your services.
"hen you thin% about your strategic position, it helps to understand your
organi@ation+s "bigger picture" in relation to external factors. /o do this, use A?S/
>nalysis, Aorter+s ,iamond, and Aorter+s Bive Borces to analy@e your environment #
these tools will show where you have a strong position, and where you may have
issues.
/ers#ecti$e
Strategy is a perspective # its content consisting not just of a chosen position, but of
an ingrained way of perceiving the world. Strategy in this respect is to the
organisation what personality is to the individual. "hat is of %ey importance is that
strategy is a perspective shared by members of an organisation, through their
intentions and C or by their actions. n effect, when we tal% of strategy in this context,
we are entering the realm of the collective mind # individuals united by common
thin%ing and C or behaviour.
/he choices an organi@ation ma%es about its strategy rely heavily on its culture D
just as patterns of behavior can emerge as strategy, patterns of thin%ing will shape
an organi@ation+s perspective, and the things that it is able to do well.
Bor instance, an organi@ation that encourages ris%#ta%ing and innovation from
employees might focus on coming up with innovative products as the main thrust
behind its strategy. .y contrast, an organi@ation that emphasi@es the reliable
processing of data may follow a strategy of offering these services to other
organi@ations under outsourcing arrangements.
/o get an insight into your organi@ation+s perspective, use cultural analysis tools li%e
the 0ultural "eb, ,eal and Eennedy+s 0ultural :odel, and the 0ongruence :odel.
/ur#ose
3sing the . /s
nstead of trying to use the 7 As as a process to follow while developing strategy,
thin% of them as a variety of viewpoints that you should consider while developing a
robust and successful strategy.
>s such, there are three points in the strategic planning process where it+s
particularly helpful to use the 7 As:
2. "hen you+re gathering information and conducting the analysis needed for
strategy development, as a way of ensuring that you+ve considered everything
relevant.
3. "hen you+ve come up with initial ideas, as a way of testing that they+re
realistic, practical and robust.
5. >s a final chec% on the strategy that you+ve developed, to flush out
inconsistencies and things that may not have been fully considered.
Fsing :int@berg+s 7 As at these points will highlight problems that would otherwise
undermine the implementation of your strategy.
>fter all, it+s much better to identify these problems at the planning stage than it is to
find out about them after you+ve spent several years D and millions of dollars D
implementing a plan that was flawed from the start.
Q: *-#%ain the #rocess of Strategic Management in any organization1
4hat are the $arious ste#s of Strategic Management #rocess? Describe the
significance of each ste#1
S/4>/?=0 :>G>=?:?G/ A410?SS $7 Stage Arocess(

5! De$e%o# a strategic $ision for the com#any

Hision D :ission statement Ivision is panoramic view of where we are going & giving
specifics to business plansJ

Hision D dentifies specifics competencies of the organisation, core competencies, states
your basic strength & where you wish to be ISense of ,irectionJ

:ission D is methodology D Aeople, Arocess, Aolicy to get there

2. Birm exhibits strategic intent to favorably alter its mar%et position
=?Ks e.g.: L"e will emerge as global leaders & the preferred choice of the consumer
segment we choose to serve. Fsing /echnology & innovative services we will delight the
customer & be committed to their success by sta%e holders creating wealth L

3. /he strategic vision should be intrinsically, closely lin%ed with companies ethics, value,
beliefs#
?.g.., Muality, building sta%eholder relationships
0ustomer Services
0S4
?conomic Halue add $wealth creation(
0reating a great place to wor%
0ommitted to the success of nternal & ?xternal sta%eholders

5. /he firm should communicate its strategic vision to all sta%e holders lin%ed to value
chain creation
A D Arice
1 D 1perations
0# 0osts
E D Enowledge
? D ?xpenditure
/ D /raining
S D Services

?.g.: G>G1 Supply 0hain 0ost increased -oss C 0osts of 27NN 0rores even before
producing a 0ar. ?xcellent 0ase of ?thics
"almart
)ypermar%et, sells all merchandise across categories below :4A. 9NNNN
:erchandise ;NNN stores across
:odel is based on# -ow 0ost leadership
o Scale D Single longest player as a buyer of :erchandise
# "hatever they save based on S0: cost pass it to the customer & part of it is retained to
open new store "almartKs ESB is LAriceO is to give the best price to his customer

Arofitability is based on excellent S0: & not pricing of final goods Strategic :anagement

:ost Aeople should have in depth %nowledge of organisation

mportance of Strategic Hision: mperative to loo% beyond today & thin% strategically about
the
2. mpact of new technologies on the hori@on
3. -ow customer needs and expectations are changing
5. "hat will it ta%e to overta%e or outrun the competitors&
6. "hich promising mar%et opportunities to be aggressively pursued
7. 1ther external and internal factors the company needs to prepare for future

L/here is no escaping the need for the strategic visionO


55! Setting Objecti$es :

/he firm ma%es an attempt to convert strategic vision into specifics EAs D creating results
& outcome the company wishes to achieve out of strategic intent. /here are principally two
types of objectives namely classify Binancial 1bjectives & Strategic 1bjectives

2( Binancial 1bjectives

i. ncrease the ?AS
ii. ncrease 0redit ratings
iii. >cceptable 4eturn on nvestment $?H>(
iv. Stoc% Arice appreciation $or :H> D :ar%et Halue >dd(
v. =ood 0ash Blow
vi. =ood 0redit worthiness
vii. )igher ,ividends
viii. =rowth in ?arnings C 4evenue
ix. )igher Arofit :argins

State the objective that serves the :anagement intends not only to deliver financial
performance but also to improve position of the organisation:
a. 0ompetitive >dvantage
b. .usiness Aosition
c. -ong 4ange .usiness Arospects


3( Strategic 1bjectives

i. ncrease in xP of top line and yP in bottom line this is the intent, outcome will be
financial.
ii. mprove cash flow eg: negotiate with creditors, create a system.
iii. ncrease share of mar%et.
iv. 4educe 1verall cost of production.
v. 4ate of innovation: ncrease revenue through new product introduction and capitalise on
first mover advantage.
vi. >dopt top bottom approach, this is also called, commander approach.
vii. 0reate stable earning during recession' de#ris% the business$ nfosys gets internal
customers diverse from ban%ing products across many sectors. :onte#0arlo, winter "ear
0ompany, now also in summer wear after saturation in core business areas. nability to
grow into current mar%et.
viii. mprove technology leapfrogging into future. ?g: Sony "al%man, >pple #pod etc.
ix. ncrease share of voice $ jargon of advertising( and augment perceived brand value.
x. ?xpand into new geographic mar%et and new customer segments through brand and
product line extensions.
?g: ,ettol
a( >ntiseptic
b( /alcum Aowder
c( Soap
d( .and#>id >dhesive /ape.

5( Social 1bjectives.

i( 0orporate =overnance
/ransparency around financial health of the company, to the sta%e holders.

0S4 $0orporate Social 4esponsibility(
i. Aromise of *uality and supply of product at affordable price.
ii. 0oncern for ?nvironment.
Aroducts and Aractices of the businesses will not do damage to the environment.
iii. Ahilanthropy
Aledging to the under# privileged members of the society.
iv. ?H> for shareholders.

555! Out%ining +or#orate Strategy1

i( /he firm needs to identify a framewor% of initiatives to be used as a part of overall
corporate strategy in order to establish a dominant business position, across either multiple
segments in a narrow industry or across diversified businesses.
?g: /0.
Aaper, /obacco, )otels, >pparels, B:0=
Aioneer in contract farming concept of e choupal.
S0> $Sustainable 0orporate >dvantage(

Eotlers
# effectively sell what you produce
# :anaging and ac*uiring customers
Aorters
2. .usiness is mar%eting
3. 4ise above average probability' eg D differentiation
5. :anaging competition # %ill competition and stay ahead
6. :ar%eting to create industry leadership C dominate business position and create distance
from your competition
7. >chieve by serving multiple industrial segments, benefit areas, price points
# ?g. )--, multiple products, all segments, multiple price points in a narrow industry D
G4:> D bottom end segment
!:ost important for any business
S)14/ HS1G Q 1.J?0/H? Q S/4>/?4=R S > S/4>/?=0 A->G
56! Strategic *-ecution 7 8Ma"e it ha##en9
# /he underlying essence of strategic execution comes from a price leadership
# /he firm underta%es the operations to shape the current and future performance of core
business activities in support of the objectives around the strategic intent and also ta%ing
both internal and external factors into consideration
# t involves creating strategic business fit for succeeding.
mportant fits include strategy and operations capabilities' strategy and reward structure,
strategy and internal support system, strategy and organisational culture
4esources
o A0 & :>0
o >ccess to mar%ets,
o Binance
o /echnology
0apabilities
o ,elivery
# > firms ability to compete in a chosen industry
?g: /0- D > 0hinese company had resources but no capabilities to deliver
# 0reate and develop budgets to support various initiatives
# Bacilitate strategy execution by utilising best practices in areas around process and policy
# ntroduce or pursue change management if re*uired to create conducive wor% climate
# 0reate good intellectual capital $role of ).4.( within the organisation, initiate performance
management system and organisation development as mandatory and motivation and
culture building.
6! :ine ;ine Strategy
# dentify gap indicators through performance gap analysers based on past results in
periodic reviews. mprove and control for future sustainable performance.
# dentifying lead indicators and commit resources in totality in order to neutralise
competition
# ncrease strategic intent from a firm generally leads to better financial performance
# /est if winning strategy D competitive advantage test, the performance test

Q: ,ow en$ironmenta% ana%ysis he%#s in eciing strategies of a business
organization? 4hat are the ste#s in$o%$e in such ana%ysis? *-#%ain with a suitab%e
i%%ustrati$e e-am#%e1
/he concept of external environment is important for every %ind of business operation.
?xternal environment is an attempt to understand the outside forces of the organisational
boundaries that are helping to shape of the organisation. /he external environment can
provide both facilitating and inhibiting influences on organi@ational performance. Eey
dimension of the external environment principally consists of a micro environment and a
macro environment.
?xternal ?nvironment
:icro environment :acro environment
Micro *n$ironment
:icro environmental factors are internal factors close to a business that have a
direct impact on its strategy. /hese factors include:
+ustomers
1rganisations survive on the basis of meeting Lcustomer needs and wantsO and
providing benefits for their customers. Bailure to do so will result in a failed business
strategy.
*m#%oyees
?mploying the correct staff and %eeping staff motivated is an essential part of an
organisation+s strategic planning process. /raining and development play a critical
role in achieving a competitive edge' especially in service sector mar%eting. /his is
clearly apparent in the airline industry, where customer services are crucial in
obtaining a competitive edge.
Su##%iers
Suppliers provide businesses with the materials they need to carry out their business
activities. > supplier+s behaviour will directly impact the business it supplies. Bor
example if a supplier provides a poor service this could increase timescales or lower
product *uality. >n increase in raw material prices will affect an organisation+s
mar%eting mix strategy and may even force price increases. 0lose supplier
relationships are an effective way to remain competitive and secure *uality
products.
Shareho%ers
>s organisations re*uire inward investment to grow, they may decide to move from
private to public ownership and list on the stoc% mar%et. /he introduction of public
shareholders brings new pressures as public shareholders want a return from the
money they have invested in the company. Shareholder pressure to increase profits
will affect organisational strategy. 4elationships with shareholders need to be
managed carefully as rapid short term increases in profit could detrimentally affect
the long term success of the business.
+om#etitors
/he name of the game in mar%eting is differentiation. 0an the organisation offer
benefits that are better than those offered by competitors& ,oes the business have a
uni*ue selling point $FSA(& 0ompetitor analysis and monitoring is crucial if an
organisation is to maintain or improve its position within the mar%et. f a business is
unaware of its competitor+s activities they will find it very difficult to LbeatO them. /he
mar%et can move very *uic%ly whether that is a change in trading conditions,
consumer behaviour or technological developments. >s a business it is important to
examine competitors+ responses to these changes so that you can maximise the
impact of your response.
Macro *n$ironment
/here are many factors in the macro#environment that will effect the decisions of the
managers of any organisation. /ax changes, new laws, trade barriers, demographic
change and government policy changes are all examples of macro change. /o help
analyse these factors managers can categorise them using the A?S/?- model. /his
classification distinguishes between:
Political factors. /hese refer to government policy such as the degree of
intervention in the economy. "hat goods and services does a government
want to provide& /o what extent does it believe in subsidising firms& "hat are
its priorities in terms of business support& Aolitical decisions can impact on
many vital areas for business such as the education of the wor%force, the
health of the nation and the *uality of the infrastructure of the economy such
as the road and rail system.
Economic factors. /hese include interest rates, taxation changes, economic
growth, inflation and exchange rates. >s you will see throughout the
"Boundations of ?conomics" boo% economic change can have a major impact
on a firm+s behaviour. Bor example:
# higher interest rates may deter investment because it costs more to
borrow
# a strong currency may ma%e exporting more difficult because it may
raise the price in terms of foreign currency
# inflation may provo%e higher wage demands from employees and raise
costs
# higher national income growth may boost demand for a firm+s products
Social factors. 0hanges in social trends can impact on the demand for a firm+s
products and the availability and willingness of individuals to wor%. n the FE,
for example, the population has been ageing. /his has increased the costs for
firms who are committed to pension payments for their employees because
their staffs are living longer. /he ageing population also has impact on
demand: for example, demand for sheltered accommodation and medicines
have increased whereas demand for toys is falling.
Technological factors: new technologies create new products and new
processes. :A5 players, computer games, online gambling and high
definition /Hs are all new mar%ets created by technological advances. 1nline
shopping, bar coding and computer aided design are all improvements to the
way we do business as a result of better technology. /echnology can reduce
costs, improve *uality and lead to innovation. /hese developments can
benefit consumers as well as the organisations providing the products.
Environmental factors: environmental factors include the weather and climate
change. 0hanges in temperature can impact on many industries including
farming, tourism and insurance. "ith major climate changes occurring due to
global warming and with greater environmental awareness this external factor
is becoming a significant issue for firms to consider. /he growing desire to
protect the environment is having an impact on many industries such as the
travel and transportation industries $for example, more taxes being placed on
air travel and the success of hybrid cars( and the general move towards more
environmentally friendly products and processes is affecting demand patterns
and creating business opportunities.
Legal factors: these are related to the legal environment in which firms
operate. n recent years in the FE there have been many significant legal
changes that have affected firms+ behaviour. /he introduction of age
discrimination and disability discrimination legislation, an increase in the
minimum wage and greater re*uirements for firms to recycle are examples of
relatively recent laws that affect an organisation+s actions. -egal changes can
affect a firm+s costs $e.g. if new systems and procedures have to be
developed( and demand $e.g. if the law affects the li%elihood of customers
buying the good or using the service(.
,ifferent categories of law include:
consumer laws' these are designed to protect customers against unfair
practices such as misleading descriptions of the product
competition laws' these are aimed at protecting small firms against bullying by
larger firms and ensuring customers are not exploited by firms with monopoly
power
employment laws' these cover areas such as redundancy, dismissal, wor%ing
hours and minimum wages. /hey aim to protect employees against the abuse
of power by managers
health and safety legislation' these laws are aimed at ensuring the wor%place
is as safe as is reasonably practical. /hey cover issues such as training,
reporting accidents and the appropriate provision of safety e*uipment
Typical PESTEL factors to consider include:
:actor +ou% inc%ue:
Aolitical e.g. Aolitical stability, international trade, taxation policy
?conomic e.g. interest rates, exchange rates, national income, inflation,
unemployment, Stoc% :ar%et
Social e.g. ageing population, attitudes to wor%, income distribution
/echnological e.g. innovation, new product development, rate of technological
obsolescence
?nvironmental e.g. global warming, environmental issues
-egal e.g. competition law, health and safety, employment law
*n$ironmenta% 'na%ysis /rocess

> business manager should be able to analy@e the environment to grasp
opportunities or face the threats. 1rgani@ations need to build strength and repair
their wea%ness available in the business environment. /herefore, this process consists
of not only a single step but a process of various steps.

?nvironmental analysis comprises scanning, monitoring, analy@ing, and forecasting the
business situation. Scanning is to get the relevant information from the information
overload. t is to focus on the most relevant information. :onitoring is to chec% the nature
of the environmental factors. >naly@ing re*uires data collection and use of different
re*uired tools and techni*ues. Borecasting is to find the future possibilities based on
the past results and present scenario.

?nvironmental analysis process is not static but a dynamic process. t may differ
depending on the situation. )owever, a general process with few common steps can be
identified as the process of environmental analysis these are
a( :onitoring or identifying environmental factors,
b( Scanning and selecting the relevant factors and grouping them,
c( ,efining variables for analysis,
d( Fsing different methods, tools, and techni*ues for analysis,
e( >naly@ing environmental factors and forecasting,
f( ,esigning profiles, and
g( Strategic positioning and writing a report. .rief discussion is made on each of the step of
this environmental analysis process.
Q: Strategic im#%ementation is cha%%enging tas" in business organizations
ea%ing with a #rob%em of organizationa% structure0 systems0 sty%es0 cu%ture0
#ower an authority1 *-#%ain with an a##ro#riate e-am#%e1
Bormulating strategy is a difficult tas%. :a%ing strategy wor%Texecuting or
implementing it throughout the organi@ationTis even more difficult. /his is where
most failures occur. t is not uncommon for strategic plans to be drawn up annually,
and to have no impact on the organi@ation as a whole.
Some obstac%es to effecti$e e-ecution
/he road to effective strategy execution is full of potholes and dangers. "hat are
some of them&
/%anning an e-ecution are intere#enent1
Strategy formulation and implementation are separate, distinguishable parts
of the strategic management process. -ogically, implementation follows
formulation' one cannot implement something until that something exists. .ut
formulation and implementation are also interdependent, part of an overall
process of planning#executing#adapting. /his interdependence suggests that
overlap between planners and doers improves the probability of execution
success. Got involving those responsible for execution in the planning
process threatens %nowledge transfer, commitment to sought#after outcomes,
and the entire implementation process.
*-ecution ta"es time1
/he successful implementation of strategy ta%es more time than its
formulation. /his can challenge managersK attention to execution details. /he
longer time frame can also detract from managersK attention to strategic
goals. 0ontrols must be set to provide feedbac% and %eep management
abreast of external Lshoc%sO and changes. /he process of execution must be
dynamic and adaptive, responding to unanticipated events. /his imperative
challenges managers responsible for execution.
*-ecution in$o%$es many #eo#%e1
Strategy implementation always involves more people than strategy
formulation. /his presents problems. 0ommunication down the organi@ation
or across different functions becomes a challenge. :a%ing sure that
processes throughout the organi@ation support strategy execution efforts can
be problematical in a large organi@ation. -in%ing strategic objectives with the
day#to#day objectives at different organi@ational levels and locations becomes
a challenging tas%. /he larger the number of people involved, the greater the
challenge to execute strategy effectively.
*ffecti$e e-ecution in$o%$es managers across a%% hierarchica% %e$e%s1
>nother problem is that some top#level managers believe strategy
implementation is Lbelow them,O something best left to lower#level employees.
/his view holds that one group of managers does innovative, challenging
wor% $planning(, and then Lhands off the ballO to lower#levels for execution. f
things go awry, the problem is placed s*uarely at the feet of the Ldoers,O who
somehow couldnKt implement a perfectly sound and viable plan.
Managing change is ifficu%t1
?xecution often involves changeTin structure, incentives, controls, people,
objectives, responsibilities. >s we %now, change can be threatening. /he
importance of managing change well is clearly important for effective strategy
implementation. /he inability to manage change and reduce resistance to
new implementation decisions or actions can spell disaster for execution
efforts.
Other e-ecution-re%ate #rob%ems1
/hey include responsibility and accountability for execution activities and
decisions that are not clear' poor nowledge sharing among %ey functions or
divisions' dysfunctional incentives' inade!uate coordination' poor or vague
strategy' and not having guidelines or a model to shape execution activities
and decisions. Space limitations prevent a complete discussion of how to
overcome all obstacles to strategy execution.
/he easy part of managing a law firm %nows what to do. /he hard part is having
the vision and courage to get it done. :any solutions to strategic issues are
deceptively simple and often appear self#evident on the surface.
U Bor example, if your traditional mar%ets are maturing and becoming more price#
competitive, it is self#evident that you should diversify into new areas andCor
locations.
U /he challenge, of course, is not in %nowing that you should diversify, but in
successfully finding an ac*uisition that affords the right fit, getting the deal done,
wor%ing tirelessly to integrate LstrangersO into an existing culture, and convincing
your partners that success in implementing strategy re*uires patience and
diligent leadership.
0ompanies that attempt strategic change without considering organizationa%
cu%ture ris% failure. .usiness leaders need to be aware that culture is not just
something that happens outside of a business. 0ompanies large and small have
their own cultures as well. > culture can happen spontaneously within a company,
and managers can learn how to harness its power or be overpowered by it.
:anagers can also ta%e an active part in shaping an organi@ational culture, to try to
ensure that it benefits the companyKs goals and its employees.
?very organi@ation has a uni*ue structure. >n organizationa% structure is the
reflection of the companyKs past history, reporting relationships and internal politics.
Rou need to ta%e a very close loo% at your organi@ation structure and evaluate if it
supports your strategy. Rou may need to customi@e your organi@ational structure to
fit your strategy.
Q: *-#%ain how Michae% /orters fi$e forces moe% is he%#fu% in forth coming
S4O) 7 'na%ysis carrie out in formu%ation of Business strategy1
/o formulate effective strategies, managers in an organi@ation need to be aware of
realities in the business environment. Strategy formulation thus begins with a
scanning of the external as well as internal environment. >nalysis of external
environment helps to identify the possible threats and opportunities while analysis of
internal environment helps to identify strengths, wea%nesses and the %ey people
within the organisation.
A14/?4+S BH? B140?S :1,?-:
Aorter argues that there are five forces that determine the profitability of an industry.
/hey are:
Aorter contends that "/he collective strengths of these forces determines the
ultimate profit potential in the industry, where profit potential is measured in terms of
long run return on investment capital".
f you can manage all 7 forces, you can have Sustainable 0orporate >dvantage
$S0>(. S0> is
a( ndustry dominanceCmar%et leader
b( >bove industry average profit
-et us see each of them in detail:
)hreat of new entrants:
Gew entrants to an industry typically brings to it new capacity and desire to gain
mar%et si@e and substantial sources. /hey are therefore threats to established
corporations. /hreat of entry depends on the entry barriers and the reaction that can
be expected from the existing companies. >n entry barrier is an obstruction that
ma%es it difficult for a company to enter into an industry. :ajor entry barriers include:
*conomies of sca%e:
/hese exist whenever large volume firms enjoy significantly lower production cost
per unit than smaller volumes operator do. /his discourages firms, which have less
volume and high production cost from entering into the mar%et.
+ost isa$antage ine#enent of sca%e:
?stablished competitors may have cost advantage even when the new entrant has
comparable economies of scale. /his advantage may include proprietary product
%nowledge such as patents, favourable access to raw materials, favourable
locations, government subsidies etc.
/rouct ifferentiation:
,ifferences in physical or perceived characteristics must ma%e incumbent+s product
uni*ue in the eyes of customer and force customers to overcome existing brand
loyalty.
+a#ita% re<uirement:
f the amount of investment re*uired to enter into an industry is high, the number of
entrants who could afford it would be less.
Switching cost:
Sometimes the cost that would be incurred by the customers to switch from one
supplier to another supplier ma%es it difficult for the new entrants to gain mar%et
share.
'ccess to istribution channe%:
?xisting relationship and agreements between manufacturers and %ey distributors in
a mar%et may also create barriers to entry. 0ompanies aspiring to enter a mar%et
may loo% for uni*ue distribution channel to provide access as well as to differentiate
their products. Binally in addition to these barriers firms may also deter entrants by
harsh retaliation.
Bargaining #ower of su##%iers:
Suppliers can affect the industry through their ability to raise price or to reduce the
*uality of the purchased product and services.
Bollowing are the conditions that ma%e suppliers powerful:
Dominance by few #%ayers an %ac" of substitutes:
> few players might become strong enough to dominate the suppliers industry.
Substitutes might not be readily available as well. /hese two factors limit customer+s
option and increase the supplier+s power.
=reater concentration among su##%iers than among buyers:
> concentrated industry is one in which only a few large firms dominate.
Birms in highly concentrated industry, that supply material to highly fragmented
industry, can exert power over the buyer.
(e%ati$e %ac" of im#ortance of the buyer to the su##%ier grou#:
Some customers are more important than others because of their si@e of their
purchase or the prestige that comes from supplying them.
,igh ifferentiation by the su##%ier an high switching cost:
> buyer could be tied to a particular supplier if other suppliers can+t meet his
re*uirements. >ny switching that might be incurred by the buyer will strengthen the
position of the suppliers.
)hreat of forwar integration:
Borward integration involves a supplier moving into a later stage of the
manufacturing process or distribution i.e. moving into direct competition with its
customers.
Bargaining #ower of buyers:
.uyers can exert bargaining power over a supplier industry by forcing its prices
down, by reducing the amount of goods they purchase from the industry or by
demanding better *uality for the same price.
Bactors that ma%es the buyer more powerful:
3nifferentiate or stanar su##%ies:
f the product being supplied is a commodity good or service then customers can
shop around for the most favourable terms.
+reib%e threat of bac"war integration:
.ac%ward integration involves a buyer moving to an earlier stage of manufacturing
or distribution, thus becoming a competitor for the supplier+s business.
'ccurate information about the cost structure of the su##%ier:
/his allows the customers to exercise more precision in negotiating the price of the
supplier.
/rice sensiti$ity:
.uyers are li%ely to be more price#sensitive if a( Suppliers represent the significant
fraction of the total cost incurred by the buyers b( /he supplier product is
unimportant to the overall *uality or cost of the buyer+s final product and c( /he
buyers already earn a low profit.
> growing trend among small businesses is to augment their bargaining power as
customers through joining or forming buying groups.
)hreat of substitute #roucts:
Substitute products are those products that appear to be different but can satisfy the
same need as another product. /he availability of substitutes places a ceiling on
price limit of an industry product. "hen the price of the product rises above that of
the substitute product customers tend to switch over to the substitutes. ,eregulation
and technology revolution has given rise to a lot of substitutes.
)he intensity of ri$a%ry among e-isting #%ayers:
n most industries individual firms are mutually dependent. 0ompetitive moves by
one firm can be expected to have noticeable effects on its competitors and cause
retaliation or counter efforts. 0ompetition can be in the form of pricing, product
differentiation, product innovation etc.
Bactors that increase competitive rivalry are:
*<ua%%y ba%ance com#etitors:
/he most intense competition results from well#matched rivals in a situation that
doesn+t allow any particular firm to dominate.
S%ow inustry growth:
n slow growth mar%ets, growth has to come by ta%ing mar%et share from rivals.
,igh fi-e cost:
>dditional sales volume can help to offset high fixed cost. )ence competitors might
be willing to fight for any possible sales.
;ac" of ifferentiation or %ac" of switching cost:
/hese two factors ensure that customers can easily switch over to a rival product
and to retain them is a constant struggle.
;arge increase in manufacturing ca#acity:
f a manufacturer can increase capacity by a large increment, by building a new
plant, it will run it at full capacity to %eep the unit cost less # thus producing so much
that the selling price falls throughout the industry.
,igh strategic sta"es:
/he mar%et is well worth fighting for because of its profit potential or the
opportunities it creates elsewhere.
,igh e-it barriers:
Bor economic, strategic or emotional reasons, individual players might consider it
difficult to leave the industry.
/he outcome of industry and external environment analysis results in identifying the
relevant and important opportunities and threats the organisation has to face in the
future.
S4O) '>D O(='>5S')5O> +'/'B5;5)& '>';&S5S
S"1/ analysis is the assessment of comparative strengths and wea%nesses of a
firm in relation to its competitors' and environmental opportunities and threats, which
a company may have to face in the future. t should be based on logic and rational
thin%ing such that a proper strategy improves an organi@ationKs business strength
and opportunities and at the same time reduces the wea%nesses and threats.
Strength and wea%ness are internal forces and factors that are to be assessed from
continuously since more and more competitive organi@ations with state of the art
technology and services are entering into the mar%et and competition is getting
intensified day by day.
1pportunities and threats are the external factors and forces in the business
environment which are also changing day by day with the change of government
policy, industrial policy, monetary policy, political situation at national and
international levels, formation of various trade bloc%s and trade barriers including the
changes in legal and social environment in the business world.
Strength:
Strength is the power and excellence with the resources, s%ills and advantages in
relation to the competitors. > strength is a distinct technical superiority with best
technical %now#how, financial resources and s%ill of the people in the organi@ation,
goodwill and image in the mar%et for the product and services, companyKs access to
best distribution networ%, the discipline, morale, attitude and mannerisms of the
employees at all levels with a sense of belonging.
ndian nstitute of /echnology :adras
Weakness:
"ea%ness is the incapability, limitation and deficiency in resources such as
technical, financial, manpower, s%ills, brand image and distribution pattern. t refers
to constraints or obstacles, which chec% movement in a certain direction and may
also, inhibit an organi@ation in gaining a distinct competitive advantage.
Opportunities:
?nvironmental opportunity is an alternative area for companyKs action in which the
particular company would enjoy a competitive advantage. >n opportunity is a major
favorable advantage to a company. Aroper analysis of the environment and
identification of new mar%et, new and improved customer group with better product
substitutes or supplierKs relationship could represent opportunities for the company.
Threat:
?nvironmental threat is the challenge posed by the unavoidable trend or
development that would lead, in the absence of purposeful action to the erosion of
the companyKs position. Slow mar%et growth, entry of resourceful multinational
companies, increase bargaining power of the buyers or sellers because of a large
number of options, *uic% rate of obsolescence due to major technological change
and adverse situation because of change of government policy rules and regulation
is disadvantageous to any company and may pose a serious threat to business
operation.
S"1/ analysis can be used in conjunction with other tools for audit and analysis,
such as AorterKs Bive#Borce analysis.
Setting the objective should be done after the S"1/ analysis has been performed.
/his would allow achievable goals or objectives to be set for the organi@ation.
dentification of S"1/s is essential because subse*uent steps in the process of
planning for achievement of the selected objective may be derived from the S"1/s.
>s part of the development of strategies and plans to enable the organi@ation to
achieve its objectives, then that organi@ation will use a systematicCrigorous process
%nown as corporate planning. S"1/ can be used as a basis for the analysis of
business and environmental factors.
:ichael Aorter developed the 7 Bive Borces >nalysis model to better identify factors
that shape the character of competition, to assess the structural
attractiveness and business value of any industry and to pinpoint strengths
and wea%nesses in a company.
n addition to and in combination with the S"1/ analysis, the Bive Borces model by
:ichael Aorter provides another analysis tool to identify opportunities and ris%s when
entering untapped territory in any industry or mar%et. AorterKs Bive Borces model
when used with S"1/ analysis provides clear action and thus does not rely solely
on subjective judgment. f the actions that derived from the Bive Borces model are
synchroni@ed with business re*uirements and goals it can become a substantial
business driver in the competitive environment and helps in formulating business
strategy.
Q: Michae% /orters :i$e forces moe% of 5nustry attracti$eness enab%es any
com#any to out#erform their com#etitors1 5%%ustrate your answer by ana%yzing
any 5nustry of your choice
)heory 7 as #er #re$ious <uestion:
5%%ustration 7 /harma inustry
5nustry com#etition
Aharma industry is one of the most competitive industries in the country with as
many as 2N,NNN different players fighting for the same pie. /he rivalry in the industry
can be gauged from the fact that the top player in the country has only 8P mar%et
share, and the top five players together have about 2;P mar%et share.
/hus, the concentration ratio for this industry is very low. )igh growth prospects
ma%e it attractive for new players to enter in the industry.
>nother major factor that adds to the industry rivalry is the fact that the entry barriers
to pharma industry are very low. /he fixed cost re*uirement is low but the need for
wor%ing capital is high.
/he fixed asset turnover, which is one of the gauges of fixed cost re*uirements, tells
us that in bigger companies this ratio is in the range of 5.7 to 6 times. Bor smaller
companies, it would be even higher.
:any smaller players that are focused on a particular region, have a better hang of
the distribution channel, ma%ing it easier to succeed, albeit in a limited way.
>n important fact is that pharma is a stable mar%et and its growth rate generally
trac%s the economic growth of the country with some multiple $2.3 times average in
ndia (/hough volume growth has been consistent over a period of time, value
growth has not followed in tandem.
/he product differentiation is one %ey factor, which gives competitive advantage to
the firms in any industry. )owever, in pharma industry product differentiation is not
possible since ndia has followed process patents till date, with laws favouring
imitators.
0onse*uently, product differentiation is not the driver, cost competitiveness is.
)owever, companies li%e Afi@er and =laxo have created big brands in over the
years, which act as product differentiation tools. /his will enhance over the long
term, as product patents come into play from 3NN7.
Bargaining #ower of buyers
/he uni*ue feature of pharma industry is that the end user of the product is different
from the influencer $read doctor(. /he consumer has no choice but to buy what
doctor says. )owever, when we loo% at the buyer+s power, we loo% at the influence
they have on the prices of the product.
n pharma industry, the buyers are scattered and they as such does not wield much
power in the pricing of the products. )owever, government with its policies, plays an
important role in regulating pricing through the GAA> $Gational Aharmaceutical
Aricing >uthority(.
Bargaining #ower of su##%iers
/he pharma industry depends upon several organic chemicals. /he chemical
industry is again very competitive and fragmented. /he chemicals used in the
pharma industry are largely a commodity.
/he suppliers have very low bargaining power and the companies in the pharma
industry can switch from their suppliers without incurring a very high cost.
)owever, what can happen is that the supplier can go for forward integration to
become a pharma company. 0ompanies li%e 1rchid 0hemicals and Sashun
0hemicals were basically chemical companies, who turned themselves into
pharmaceutical companies.
Barriers to entry
Aharma industry is one of the most easily accessible industries for an entrepreneur
in ndia. /he capital re*uirement for the industry is very low, creating a regional
distribution networ% is easy, since the point of sales is restricted in this industry in
ndia.
)owever, creating brand awareness and franchisee amongst doctors is the %ey for
long#term survival. >lso, *uality regulations by the government may put some
hindrance for establishing new manufacturing operations.
=oing forward, the impending new patent regime will raise the barriers to entry. .ut it
is unli%ely to discourage new entrants, as mar%et for generics will be as huge.
)hreat of substitutes
/his is one of the great advantages of the pharma industry. "hatever happens,
demand for pharma products continues and the industry thrives. 1ne of the %ey
reasons for high competitiveness in the industry is that as an on going concern,
pharma industry seems to have an infinite future.
)owever, in recent times, the advances made in the field of biotechnology, can
prove to be a threat to the synthetic pharma industry.
+onc%usion
/his model gives a fair idea about the industry in which a company operates and the
various external forces that influence it.
)owever, it must be noted that any industry is not static in nature. t+s dynamic and
over a period of time the model, which have used to analyse the pharma industry
may itself evolve.
=oing forward, we foresee increasing competition in the industry but the form of
competition will be different. t will be between large players $with economies of
scale( and it may be possible that some %ind of oligopoly or cartels come into play.
/his is owing to the fact that the industry will move towards consolidation. /he larger
players in the industry will survive with their proprietary products and strong
franchisee.
n the ndian context, companies li%e 0ipla, 4anbaxy and =laxo are li%ely to be %ey
players. /hough consolidation within the current big names is not ruled out. Smaller
fringe players, who have no differentiating strengths, are li%ely to either be ac*uired
or cease to exist.
/he barriers to entry will increase going forward. /he change in the patent regime,
will see new proprietary products coming up, ma%ing imitation difficult. /he players
with huge capacity will be able to influence substantial power on the fringe players
by their aggressive pricing which will create hindrance for the smaller players.
?conomies of scale will play an important part too. -ast but not the least, in a vast
country of ndia+s si@e, government too will have bigger role to play.
Q: - Define the terms 7 ?i! Mission ?ii! 6ision an ?iii! Objecti$e of a business
Organization
- 4rite the mission0 $ision an objecti$e statements for a B
schoo%1 ,ow o these statements he%# in strategy formu%ation
high%ighting +or#orate /hi%oso#hy @ +or#orate =o$ernance?
- 4hat are the ro%e0 sco#e an significance of $ision0 mission0
cor#orate #hi%oso#hy an cor#orate go$ernance in strategic
management of a business organization?
Strategic :anagement process begins after the Hision and :ission statement have
been set. Hision and :ission statement actually indicate the direction of strategic
management process.
Mission Statement
:ission statement is the statement of the role by which an organi@ation intends to
serve itKs sta%eholders. t describes why an organi@ation is operating and thus
provides a framewor% within which strategies are formulated. t describes what the
organi@ation does $i.e., present capabilities(, who all it serves $i.e., sta%eholders( and
what ma%es an organi@ation uni*ue $i.e., reason for existence(. > mission statement
differentiates an organi@ation from others by explaining its broad scope of activities,
its products, and technologies it uses to achieve its goals and objectives. t tal%s
about an organi@ationKs present $i.e., Labout where we areO(. Bor instance,
Microsofts mission is to help people and businesses throughout the world to
reali@e their full potential. 4a%-Marts mission is L/o give ordinary fol% the chance to
buy the same thing as rich people.O :ission statements always exist at top level of
an organi@ation, but may also be made for various organi@ational levels. 0hief
executive plays a significant role in formulation of mission statement. 1nce the
mission statement is formulated, it serves the organi@ation in long run, but it may
become ambiguous with organi@ational growth and innovations. n todayKs dynamic
and competitive environment, mission may need to be redefined. )owever, care
must be ta%en that the redefined mission statement should have original
fundamentalsCcomponents. :ission statement has three main components#a
statement of mission or vision of the company, a statement of the core values that
shape the acts and behaviour of the employees, and a statement of the goals and
objectives.
Features o a Mission
a. :ission must be feasib%e and attainable. t should be possible to achieve it.
b. :ission should be c%ear enough so that any action can be ta%en.
c. t should be ins#iring for the management, staff and society at large.
d. t should be #recise enough, i.e., it should be neither too broad nor too
narrow.
e. t should be uni<ue and distinctive to leave an impact in everyoneKs mind.
f. t should be ana%ytica%,i.e., it should analy@e the %ey components of the
strategy.
g. t should be creib%e, i.e., all sta%eholders should be able to believe it.
!ision
> vision statement identifies where the organi@ation wants or intends to be in future
or where it should be to best meet the needs of the sta%eholders. t describes
dreams and aspirations for future. Bor instance, Microsofts $ision is Lto empower
people through great software, any time, any place, or any device.O 4a%-Marts
$ision is to become worldwide leader in retailing. > vision is the potential to view
things ahead of themselves. t answers the *uestion Lwhere we want to beO. t gives
us a reminder about what we attempt to develop. > vision statement is for the
organi@ation and itKs members, unli%e the mission statement which is for the
customersCclients. t contributes in effective decision ma%ing as well as effective
business planning. t incorporates a shared understanding about the nature and aim
of the organi@ation and utili@es this understanding to direct and guide the
organi@ation towards a better purpose. t describes that on achieving the mission,
how the organi@ational future would appear to be.
>n effective vision statement must have following features#
a. t must be unambiguous.
b. t must be c%ear.
c. t must harmonize with organi@ationKs culture and values.
d. /he dreams and aspirations must be rationa%Area%istic.
e. Hision statements should be shorter so that they are easier to memori@e.
n order to reali@e the vision, it must be deeply instilled in the organi@ation, being
owned and shared by everyone involved in the organi@ation.
O"#ectives
>n organi@ationKs mission gives a framewor% or direction to a firm. /he next step in
planning is focusing on establishing progressively more specific organi@ational
direction by setting objectives. >n organi@ational objective is a target toward which
the organi@ation directs its efforts.
> goal is a desired future state or objective that an organi@ation tries to achieve.
=oals specify in particular what must be done if an organi@ation is to attain mission
or vision. =oals ma%e mission more prominent and concrete. /hey co#ordinate and
integrate various functional and departmental areas in an organi@ation. "ell made
goals have following features#
a. /hese are #recise an measurab%e.
b. /hese loo% after critica% an significant issues.
c. /hese are rea%istic and challenging.
d. /hese must be achieved within a s#ecific time frame.
e. /hese include both financia% as we%% as non-financia% com#onents.
1bjectives are defined as goals that organi@ation wants to achieve over a period of
time. /hese are the foundation of planning. Aolicies are developed in an
organi@ation so as to achieve these objectives. Bormulation of objectives is the tas%
of top level management. ?ffective objectives have following features#
a. /hese are not single for an organi@ation, but mu%ti#%e.
b. 1bjectives should be both short-term as we%% as %ong-term.
c. 1bjectives must respond and react to changes in environment, i.e., they must
be f%e-ib%e.
d. /hese must be feasible, rea%istic an o#erationa%.
,ierarchy of objecti$es
6ision0 Mission @ Objecti$es of a business schoo%1
6ision:
Muality /raining with focused job assistance: /o excel in providing professional
education through innovative education system create desired wor% culture capable
of meeting global challenges to fulfil integrating industrial re*uirements.
Mission:
/o train our young professionals by giving them a solid foothold in management
theories along with real industrial experience to meet the challenges with superior
competence, imagination and @eal which ta%e the students seamlessly to an
advanced level.

Objecti$es:
/o provide a platform to the aspiring students community to lin% their
education to employment in pharmaceutical and health care industry.
/o increase the upta%e of management development and education through
nstitute programmes and *ualifications.
/o increase awareness of the nstitute, and achieve recognition for its
contribution to better management practice in pharmaceutical and health care
industry.
/o cater the %nowledge see%er and shape up their career in the
pharmaceutical and health care professional world through Muality ?ducation,
4esearch based practical %now#how, nnovative and advance teaching
methodologies and =lobal ?xposure.
/o build a strong networ% with the pharmaceutical and health care industries
to fulfil their need of future professionals.
/o design, implement and establish industry integrated professional
education programs in association with leading Fniversities of ndia & abroad.
/o develop the nstitute+s structure, systems, intellectual capital and financial
strength to enable the organisation to fulfil its mission.
Strategy formulation is the process of determining appropriate courses of action for
achieving organi@ational objectives and thereby accomplishing organi@ational
purpose.
/he purpose of a Strategic Bormulation is to describe the future of the organi@ation
through the definition of the organi@ationKs Hision, :ission, =oals, and 1bjectives.
/he strategy statement of a firm sets the firmKs long#term strategic direction and
broad policy directions. t gives the firm a clear sense of direction and a blueprint for
the firmKs activities for the upcoming years.
n the globali@ed business, companies re*uire strategic thin%ing and only by evolving
good corporate strategies can they become strategically competitive. > strategy of a
business organi@ation is a comprehensive master plan stating how the organi@ation
will achieve its mission and objectives. Strategy is significant because it is universal.
t helps corporate to %eep pace with changing environs, provides better
understanding of external environment, minimi@es competitive disadvantage by
forcing to thin% clearly about mission, vision and objectives of enterprise. t improves
motivation of employees and strengthens decision#ma%ing. t forms the basis for
implementing actions.
Strategy ma%ing is an on#going process involving activities li%e defining vision,
mission and goals, analy@ing organi@ation and environment and matching them to
decide suitable actions and objectives, and implementing with a review system.
Hision, mission & objective statements create clarity and form a basis for ma%ing
both strategic and tactical decisions # all of which help a company thrive instead of
survive.
Q: *-#%ain the conce#t of Business Objecti$es an what are the main
ingreients of the same1
.usiness 1bjectives are the end result of planned activity. /hey state what is to be
accomplished by when and should be *uantified if possible. /he achievement of
corporate objective should result in the fulfillment of a corporate mission. /he areas
in which a company might establish its goals and objective are profitability, growth,
shareholder+s wealth, utili@ation of resources etc.
.usiness objectives are important to give direction to a business. f you are running
a business without any business objectives, you shall not be able to grow
successfully in any direction. )aving business objectives, gives you a much better
understanding of where you stand, how to improve and what changes in your current
method of wor%ing will be re*uired to reach your objectives. Got having business
objectives leads to an un#coordinated business that has a very low probability of
being successful.
"hen setting business objectives, one must ma%e sure that they are:
Muantitative: /he business objectives should be expressed in terms of
numbers. t should not be expressed vaguely li%e, L1ur sales should go upVO
/ime#frame specific: /ime frames should be specified in the business
objectives. /his helps you to understand where you stand with respect to the
completion of the current objective.
Blexible: t is very important that your business objectives are adaptable to
change. f the situation in which the business is wor%ing changes, the
business objectives should change to reflect these changes.
Fnderstandable: /he business objectives should be made in an
understandable way. /his helps in communicating your objectives to your
investors, employees, partners etc. "ithout this communication of business
objectives, it becomes very difficult to reach them.
4ealistic: t is important that the business objectives are realistic, or you may
end up disappointing your investors and yourself.
/here are principally two types of objectives namely classify Binancial 1bjectives &
Strategic 1bjectives
B! :inancia% Objecti$es
i. ncrease the ?AS
ii. ncrease 0redit ratings
iii. >cceptable 4eturn on nvestment $?H>(
iv. Stoc% Arice appreciation $or :H> D :ar%et Halue >dd(
v. =ood 0ash Blow
vi. =ood 0redit worthiness
vii. )igher ,ividends
viii. =rowth in ?arnings C 4evenue
ix. )igher Arofit :argins
State the objectives that serve the :anagement intend not only to deliver financial
performance but also to improve position of the organisation:
a. 0ompetitive >dvantage
b. .usiness Aosition
c. -ong 4ange .usiness Arospects
C! Strategic Objecti$es
i. ncrease in xP of top line and yP in bottom line this is the intent, outcome will be
financial.
ii. mprove cash flow eg: negotiate with creditors, create a system.
iii. ncrease share of mar%et.
iv. 4educe 1verall cost of production.
v. 4ate of innovation: ncrease revenue through new product introduction and
capitalise on first mover advantage.
vi. >dopt top bottom approach, this is also called, commander approach.
vii. 0reate stable earning during recession' de#ris% the business $ nfosys gets
internal customers diverse from ban%ing products across many sectors. :onte#
0arlo, winter "ear 0ompany, now also in summer wear after saturation in core
business areas. nability to grow into current mar%et.
viii. mprove technology leapfrogging into future. ?g: Sony "al%man, >pple #pod etc.
ix. ncrease share of voice $ jargon of advertising( and augment perceived brand
value.
x. ?xpand into new geographic mar%et and new customer segments through brand
and product line extensions.
?g: ,ettol
a( >ntiseptic
b( /alcum Aowder
c( Soap
d( .and#>id >dhesive /ape.
D! Socia% Objecti$es1
i( 0orporate =overnance
/ransparency around financial health of the company, to the sta%e holders.
0S4$ 0orporate Social 4esponsibility (
i. Aromise of *uality and supply of product at affordable price.
ii. 0oncern for ?nvironment.
Aroducts and Aractices of the businesses will not do damage to the environment.
iii. Ahilanthropy
Aledging to the under# privileged
Q: ,ow oes the mission an $ision get e$e%o#e? 4hat oes the hierarchy
of strategy intent mean?
6ision Statements
Hision statements and mission statements are very different. > vision statement for a
firm spells out goals at a high level and should coincide with the founder+s goals for
the business. Simply put, the vision should state what the founder ultimately
envisions the business to be, in terms of growth, values, employees, contributions to
society, and the li%e' therefore, self#reflection by the founder is a vital activity if a
meaningful vision is to be developed. >s a founder, once you have defined your
vision, you can begin to develop strategies for moving the organi@ation toward that
vision. Aart of this includes the development of a company mission.
,escribe an ideal future.
4eflect the essence of an organi@ationKs mission and values.
>nswer the *uestion' what impact do we want to have on society&
Fnite an organi@ation in a common, coherent strategic direction.
0onvey a larger sense of organi@ational purpose, so that employees see
themselves as Lbuilding a cathedralO rather than Llaying stonesO.
Mission Statements
/he mission statement should be a concise statement of business strategy and
developed from the customer"s perspective and it should fit with the vision for the
business. /he mission should answer three *uestions:
2. "hat do we do&
3. )ow do we do it&
5. Bor whom do we do it&
#hat do we do$ /his *uestion should not be answered in terms of what is physically
delivered to customers, but by the real andCor psychological needs that are fulfilled
when customers buy your products or services. 0ustomers ma%e purchase
decisions for many reasons, including economical, logistical, and emotional factors.
>n excellent illustration of this is a business in the /win 0ities that imports hand#
made jewelry from east >frica. "hen as%ed what her business does, the owner
replied, ""e import and mar%et east >frican jewelry." .ut when as%ed why
customers buy her jewelry, she explained that, "/hey+re buying a story in where the
jewelry came from." /his is an important distinction and answering this *uestion from
the need#fulfilled perspective will help you answer the other two *uestions effectively.
%ow do we do it$ /his *uestion captures the more technical elements of the
business. Rour answer should encompass the physical product or service and how it
is sold and delivered to customers and it should fit with the need that the customer
fulfills with its purchase. n the example above, the business owner had originally
defined her business as selling east >frican jewelry and was attempting to sell it on
shelves of bouti*ue retail stores with little success. >fter modifying the answer to the
first *uestion, she reali@ed that she needed to deliver the story to her customers
along with the product. She began organi@ing wine parties that included a slide show
of east >frica, stories of personal experiences there, and pictures and descriptions of
the villagers who ma%e the jewelry. /his method of delivery has been very
successful for her business.
&or whom do we do it$ /he answer to this *uestion is also vital, as it will help you
focus your mar%eting efforts. /hough many small business owners would li%e to
believe otherwise, not everyone is a potential customer, as customers will almost
always have both demographic and geographic limitations. "hen starting out, it is
generally a good idea to define the demographic characteristics $age, income, etc.(
of customers who are li%ely to buy and then define a geographic area in which your
business can gain a presence. >s you grow, you can add new customer groups and
expand your geographic focus.
>n additional consideration with mission statements is that most businesses will
have multiple customer groups that purchase for different reasons. n these cases,
one mission statement can be written to answer each of the three *uestions for each
customer group or multiple mission statements can be developed. >lso, as a final
thought, remember that your vision and mission statements are meant to help guide
the business, not to loc% you into a particular direction. >s your company grows and
as the competitive environment changes, your mission may re*uire change to
include additional or different needs fulfilled, delivery systems, or customer groups.
"ith this in mind, your vision and mission should be revisited periodically to
determine whether modifications are desirable.
Strategic intent refers to an obsession with achieving an objective that stretches
the company and re*uires it to build new resources and capabilities. /his strategic
intent usually incorporates stretch targets, which force companies to compete in
innovative ways.
Strategies are involved in the formulation, implementation and evaluation of strategy.
/he hierarchy of strategic intent lays the foundation for strategic management
process. /he process of establishing the hierarchy of strategic intent is very
complex. /he hierarchy of strategic intent covers the vision, mission, business
definition, business model and the goals and objectives. n this hierarchy, the vision,
mission, business definition and objectives are established. Bormulation of strategies
is possible only when strategic intent is clearly set up. /his step is mostly
philosophical in nature. t will have long term impact on the organi@ation.
Hision is at the top in the hierarchy of strategic intent. t is what the firm would
ultimately li%e to become.
:ission is the Lessential purpose of the organi@ation, concerning particularly why it is
in existence, the nature of the business it is in, and the customers it see%s to serve
and satisfy." /he mission statements stage the role that organi@ation plays in society.
.usiness definition explains the business of an organi@ation in terms of customer
needs, customer groups and alternative technologies.
1bjectives refer to the ultimate end results which are to be accomplished by the
overall plan over a specified period of time. /he vision, mission and business
definition determine the business philosophy to be adopted in the long run. /he
goals and objectives are set to achieve them.
Q: *-#%ain the conce#t of Di$ersification1
)he im#ortant as#ects that com#anies must consier before i$ersifying an
measures to juge the success of i$ersification1
Does it i%ute the Business ris" resu%ting in a #athway for success? =i$e
i%%ustrations1
Di$ersification is a (is" (euction e$ise an a #athway for success1
Di$ersification is ine$itab%e to remain in business1 +om#anies ha$e ao#te
ifferent forms of i$ersification to achie$e their objecti$es1 4hat #arameters can
be use to juge the <ua%ity of i$ersification?
4hat are the im#ortant as#ects that com#anies must consier before they embar"
on using i$ersification as a major growth engine?
1rgani@ations usually see% growth in sales, profits, mar%et share, or some other
measure as a primary objective. /he different grand strategies in this category are:
0oncentration
ntegration
Di$ersification
:ergers and ac*uisitions
Joint Hentures
Di$ersification
,iversification is one of the grand strategies, which basically is a growth strategy.
.asically diversification involves a substantial change the business definition in
terms of product range, customers or alternative technologies. ,iversification
strategies have been adopted a number of business groups and individual
companies both in the public and private sectors.
/his strategy involves growth through the ac*uisition of firms in other industries or
lines of business as explained below.
2. 1rgani@ations in slow#growth industries may purchase firms in faster#growing
industries to increase their overall growth rate.
3. 1rgani@ations with excess cash often find investment in another industry
$particularly a fast#growing one( a profitable strategy.
5. 1rgani@ations may diversify in order to spread their ris%s across several
industries.
6. /he ac*uiring organi@ation may have management talent, financial and technical
resources, or mar%eting s%ills that it can apply to a wea% firm in another industry in
the hope of ma%ing it highly profitable.
,iversification may be of different types.
4elated or concentric diversification when the ac*uired firm has production
technology, products, channels of distribution, and Cor mar%ets similar to those of the
firm purchasing it, the strategy is called concentric diversification.. /his strategy is
useful when the organi@ation can ac*uire greater efficiency or mar%et impact through
the use of shared resources.
> case of related or concentric diversification is :ahindra & :ahindra selling 0ars,
/ractors and two wheelers.
Fnrelated or conglomerate diversification when the ac*uired firm is in a completely
different line of business, the strategy is called unrelated or conglomerate
diversification >n example of unrelated conglomerate diversification is :aricoKs
venture into coo%ing oil segment.
4hy i$ersify?
1rgani@ations diversify due to the following reasons. Some of the common reasons
are as follows.
Synergy: Synergy is cited in the most common cause of diversification. Synergy
occurs when two or more activities produce their combined effect greater than the
sum of its parts i.e., 3 Q 3 S :ore than 6.
o 4elated diversification produces synergies rooted in production technology. "ith
the additional technical facilities, a by#product or joint product may be produced.
o .oth related and unrelated enable the companies to sell the products with same
distribution networ% and advertisement facilities. /he advertisement of one product
spontaneously advertises other products with enhanced brand loyalty. /his is
mar%eting synergy.
o Synergetic effect can also be noticed in financial operations, when the positive
cash flow of one business utili@ed in other business helps to generate more positive
cash flows.
S#reaing of (is"1 ,iversification helps to avoid over dependence on one
productCmar%et. t spreads the ris% associated with one product line or few products.
Better o##ortunities1 "ith diversification, company can exploit the better
opportunities in new product line. ?very product has its own product life cycle. /o
gain better mar%et share, company has to either differentiate or diversify.
Better uti%ization of (esources1 "ith diversification, company can better use
hitherto unexploited resources li%e finance, mar%et channels, production facilities,
technological capabilities, managerial %nowledge, etc. /he idle retained earnings
could be utili@ed to produce new products. /heir mar%eting may not be a problem
because the same dealers will sell the new products. Same production facilities and
technology can be utili@ed sometimes adding more capacity to it.
+om#etiti$e Strategy1 ,iversification is a good competitive strategy. > company
may enter new product lines of business to gain a competitive edge over the
competitors or discourage them by entering before their arrival.
Mar"et Dominance. ,iversification ta%e place to exploit tremendous mar%et
opportunities in home as well as in foreign countries with the objective of gaining
mar%et dominance.
)y#es of i$ersification
/here are three general types of diversification strategies: concentric hori@ontal, and
conglomerate.
+oncentric Di$ersification
Fnder concentric diversification new products and services are added to the line with
the condition that these products and services are related to their existing
productsCservices carried by the organi@ation. Bor concentric diversification it
becomes necessary that the products or services that are added must be within the
framewor% of the %now how and experience in technology, product line, distribution
channels or customer base of the organi@ation.
"hen the industry grows, the organi@ation will get strength where concentric
diversification becomes an important strategy for its survival and growth. > study of
68N corporations accounting for twoCthirds of the FS corporate industrial assets
concluded, L/hat diversification that has led to relatively rapid rates of corporate
growth has been to mar%ets that are related to the entering organi@ationKs original
mar%et. 0oncentric diversification has been successfully practiced by a large number
of organi@ations in ndia. Bor instance L>mulO has diversified in chocolates, ce
creams, .utter, =hee etc. 1n the same pattern, L:il% BoodO has diversified.
Similarly, )onda has diversified into to :otor 0ycles, 0ars etc.
n conclusion, it may be stated that concentric diversification has been *uite
successful in the past' it is expected to be successful in future also.
,orizonta% Di$ersification
"here an organi@ation adds unrelated products and services for existing customers,
this is called hori@ontal diversification. /he strategy is comparatively less ris%y
because the customers are %nown. /he organi@ation is fully ac*uainted with their
consumersK preference and their expectations about the *uality and price of the
goods and services.
)ori@ontal diversification can be accomplished by ac*uiring the shareholding of the
competitor, by the purchase of the assets or by pooling of the interests of two
organi@ations. )ori@ontal diversification see%s to eliminate competitors. n our
country a /.H. manufacturing company Fptron has created a new division for
spreading computer education in the country.t is a combination of hardware and
software.
+ong%omerate Di$ersification
0onglomerate diversification is a growth strategy in which new products and
services are added which are significantly different from the organi@ationKs present
product and services.
0onglomerate diversification is effected in the hope that the addition of new products
and services may bring about some turnaround by way of conversion of losses into
profits.
:echanics for adopting conglomerate diversification has been summari@ed as
follows:
2. Supporting some divisions with cash flow from other divisions during the period of
development or temporary difficulty.
3. Fsing the profits of one division to cover the expenses of another division without
payment of taxes from the first division.
5. ?ncouraging growth for its own sa%e or to satisfy the values and ambitions of
management or the owners.
6. /a%ing advantage of unusually attractive growth opportunities.
7. ,istributing ris% by serving several different mar%ets.
8. mproving overall profitability and flexibility of the organi@ation by moving into
industries that have better economic prospects than those of the ac*uiring
organi@ations.
9. =aining better access to capital mar%ets and better stability or growth in the
earnings.
;. ncreasing the price of an originationKs stoc%
<. 4eaping the benefits of synergy. Synergy results from La conglomerate merger
when the combined organi@ation is more profitable than the two organi@ations
operating independently.
/he scheme of 0onglomerate ,iversification should be implemented with caution
and patience. t will create big business and will bring in turn, the problems of
management associated with big businesses. .ig businesses involve greater ris% in
the event of abnormal economic situation li%e recession or stagflation. n the light of
the above, the success of the conglomerate diversification will depend on the
following factors:
2. > clear definition of organi@ational objectives.
3. > determination of the organi@ationKs ability to diversify, which includes an analysis
of its present operations $internal organi@ational analysis( and resources available
for diversification.
5. ?stablishment of specific criteria for purchasing other organi@ations
6. > comprehensive search for organi@ations and their evaluation against the criteria.
?xamples of companies that have diversified into related business concentric
diversification
=5;;*))*:
o .lades and ra@ors
o /oiletries $4ight =uard, Boamy, ,ry dea, Soft & ,ry , "hite 4ain(
o 1ral#. toothbrushes
o .raun shavers, coffeema%ers, alarm cloc%s, mixers, hair dryers, and electric
toothbrushes
EO,>SO> @ EO,>SO>
o .aby products $powder, shampoo, oil, lotion(
o .and#>ids and other first#aid products
o "omenKs health and personal care products $Stay free, 0arefree, Sure & Gatural(
o Geutrogena and >veeno s%in care products
o Gonprescription drugs $/ylenol, :otrin, pepcid >0, :ylanta, :onistat(
o Arescription drugs
o Arosthetic and other medical devices
o Surgical and hospital products
o >ccuvue contact lenses
?xamples of companies that have diversified into unrelated business.
),* 4';) D5S>*& +OM/'>&
o /heme par%s
o ,isney 0ruise -ine
o 4esort properties
o :ove, video, and theatrical productions $for both children and adults(
o /elevision broadcasting $>.0, ,isney 0hannel, /oon ,isney, 0lassic Sports,
Getwor%, ?ASG and ?ASG3, ?V, -ifetime, and >&? networ%s(
o 4adio broadcasting $,isney 4adio(
o :usical recordings and sales of animation art
),* )6S =(O3/
o >uto & auto parts
o 0oach body building
o /ransport
o Basteners
o .ra%e linings & clutch facings
o > citation systems for commercial vehicles
o )ire purchase
o "heel structure & parts
o Boundation bra%es
o /wo wheelers
o >utomobile electrical parts
o /yres & tubes.
4hen to i$ersify
,iversification merits strong consideration whenever a single#business company is
faced with diminishing mar%et opportunities and stagnating sales in its principal
business. .ut there are four other instances that signal for diversifying:
"hen it can expand into industries whose technologies and products complement its
present business.
o "hen it can leverage existing competencies and capabilities by expanding into
businesses where these same resource strengths are valuable competitive assets.
o "hen diversifying into closely related businesses open new avenues for reducing
costs.
o "hen it has a powerful and well#%nown brand name that can be transferred to the
products of other businesses.
4hen not i$ersify?
>ll the organi@ations cannot thin% of diversification as a strategy. 1rgani@ations do
not diversify under the following conditions.
o "hen they are small and cannot afford to try
o "hen they have no power to sustain
o "hen they anticipate some pitfalls
o "hen they are the first to bell the cat in that area.
o "hen on chec%ing they find their functional s%ills are insufficient to diversify
o "hen they donKt want to gamble with public investments
o "hen they do not have attractive tax benefits after diversification
/arameters to Euge Di$ersification
"hether diversification is warranted or not is done by the following methods:
B! 5nustry attracti$eness test:
Fsing 7 forces model where in sole criterion should be that the chosen industry must
yield good 41.
C! +ost of entry test:
/he entry barriers of the cost to entry for the target industry must not be exorbitant or
protective to ma%e it in attractive. Since the larger the gestation time to achieve
brea%even, larger is the ris% and hence threat potential to erode profitability.
)owever, structurally attractive industries have been %nown to be expensive to get
into & buying an existing company with strong mar%et entry costs. )ence the cost of
entry test can help the firm understand the prospects of profitability and companyKs
ability to deliver shareholder value.
D! 8Better O:: 8 )est:
0ompany diversifying into new business must offer potential for firms existing
business Q the new business in order to perform better. ,iversifying firms need to
test whether cross strategic fits will enhance the companyKs competitive ability in
reducing costs, transferring s%ills and technologies & leveraging combined resource
into competitive advantage.
Business i$ersification is a ris" reuction strategy that involves adding
products, services, location, customers and mar%ets to a companyKs portfolio. :any
small companies started as one#trac%, betting their entire futures on a single product,
service, location or even a single customer. /here is nothing wrong with this start as
a narrow start enabled them to focus and concentrate on doing one thing extremely
well.
.ut, as a company grows larger, it found opportunities to add products, services,
locations, customers and mar%ets. ,iversifying in this way has helped many
businesses weather tough times by providing alternate sources of revenue in the
event that it is original mar%et dry up, stops growing or hit by new competition.
t was noted that most companies that survive for long periods of time find that they
have to develop new sources of revenue as tastes change and opportunities evolve.
,iversification helps to avoid over dependence on one productCmar%et. t spreads
the ris% associated with one product line or few products.
,iversification to pool ris%s. /he benefits of ris% pooling are said to come from
merging imperfectly correlated income streams to create a more stable income
stream. >ccording to the advocates of ris% pooling, the more stable income stream
reduces the ris% of ban%ruptcy and is in the best interests of the company+s
stoc%holders.
Q: =eneric strategy is a combination of com#etiti$e strategy an com#etiti$e
sco#e in Broa an >arrow segments1 *-#%ain the sa%ient features of the
same1 4hen shou% a com#any em#%oy S)3+F 5> ),* M5DD;* strategy?
5n e$e%o#ment of com#etiti$e business strategy0 it is necessary to recognize
customer nees0 #rouct ifferentiation0 customer grou#s0 an mar"et
segmentation1 +omment1
*-#%ain the terms cost base strategies an niche base strategies1
f the primary determinant of a firm+s profitability is the attractiveness of the industry
in which it operates, an important secondary determinant is its position within that
industry. ?ven though an industry may have below#average profitability, a firm that is
optimally positioned can generate superior returns.
> firm positions itself by leveraging its strengths. :ichael Aorter has argued that a
firm+s strengths ultimately fall into one of two headings: cost advantage and
differentiation. .y applying these strengths in either a broad or narrow scope, three
generic strategies result: cost leadership, differentiation, and focus. /hese strategies
are applied at the business unit level. /hey are called generic strategies because
they are not firm or industry dependent. /he following table illustrates Aorter+s
generic strategies:
Porter's Generic Strategies
Target Scope
$dvantage
;ow +ost /rouct 3ni<ueness
Broa
?5nustry 4ie!
+ost ;eaershi#
Strategy
Differentiation
Strategy
>arrow
?Mar"et Segment!
:ocus
Strategy
$low cost(
:ocus
Strategy
$differentiation(
+ost ;eaershi# Strategy
/his generic strategy calls for being the low cost producer in an industry for a given
level of *uality. /he firm sells its products either at average industry prices to earn a
profit higher than that of rivals, or below the average industry prices to gain mar%et
share. n the event of a price war, the firm can maintain some profitability while the
competition suffers losses. ?ven without a price war, as the industry matures and
prices decline, the firms that can produce more cheaply will remain profitable for a
longer period of time. /he cost leadership strategy usually targets a broad mar%et.
Some of the ways that firms ac*uire cost advantages are by improving process
efficiencies, gaining uni*ue access to a large source of lower cost materials, ma%ing
optimal outsourcing and vertical integration decisions, or avoiding some costs
altogether. f competing firms are unable to lower their costs by a similar amount, the
firm may be able to sustain a competitive advantage based on cost leadership.
Birms that succeed in cost leadership often have the following internal strengths:
>ccess to the capital re*uired to ma%e a significant investment in production
assets' this investment represents a barrier to entry that many firms may not
overcome.
S%ill in designing products for efficient manufacturing, for example, having a
small component count to shorten the assembly process.
)igh level of expertise in manufacturing process engineering.
?fficient distribution channels.
?ach generic strategy has its ris%s, including the low#cost strategy. Bor example,
other firms may be able to lower their costs as well. >s technology improves, the
competition may be able to leapfrog the production capabilities, thus eliminating the
competitive advantage. >dditionally, several firms following a focus strategy and
targeting various narrow mar%ets may be able to achieve an even lower cost within
their segments and as a group gain significant mar%et share.
Differentiation Strategy
> differentiation strategy calls for the development of a product or service that offers
uni*ue attributes that are valued by customers and that customers perceive to be
better than or different from the products of the competition. /he value added by the
uni*ueness of the product may allow the firm to charge a premium price for it. /he
firm hopes that the higher price will more than cover the extra costs incurred in
offering the uni*ue product. .ecause of the product+s uni*ue attributes, if suppliers
increase their prices the firm may be able to pass along the costs to its customers
who cannot find substitute products easily.
Birms that succeed in a differentiation strategy often have the following internal
strengths:
>ccess to leading scientific research.
)ighly s%illed and creative product development team.
Strong sales team with the ability to successfully communicate the perceived
strengths of the product.
0orporate reputation for *uality and innovation.
/he ris%s associated with a differentiation strategy include imitation by competitors
and changes in customer tastes. >dditionally, various firms pursuing focus strategies
may be able to achieve even greater differentiation in their mar%et segments.
:ocus Strategy
/he focus strategy concentrates on a narrow segment and within that segment
attempts to achieve either a cost advantage or differentiation. /he premise is that the
needs of the group can be better serviced by focusing entirely on it. > firm using a
focus strategy often enjoys a high degree of customer loyalty, and this entrenched
loyalty discourages other firms from competing directly.
.ecause of their narrow mar%et focus, firms pursuing a focus strategy have lower
volumes and therefore less bargaining power with their suppliers. )owever, firms
pursuing a differentiation#focused strategy may be able to pass higher costs on to
customers since close substitute products do not exist.
Birms that succeed in a focus strategy are able to tailor a broad range of product
development strengths to a relatively narrow mar%et segment that they %now very
well.
Some ris%s of focus strategies include imitation and changes in the target segments.
Burthermore, it may be fairly easy for a broad#mar%et cost leader to adapt its product
in order to compete directly. Binally, other focusers may be able to carve out sub#
segments that they can serve even better.
Aorter used the car industry as an example of generic strategies in practice.
/oyota is $or was at the time( the low cost producer in the industry. /oyota achieves
its cost leadership strategy by adopting lean production, careful choice and control of
suppliers, efficient distribution, and low servicing costs from a *uality product. Gote
how the cost leadership must be in all aspects of the business $or value chain(.
.:" is an example of a differentiation strategy. .:" still serves a relatively wide
range of the total mar%et but its cars are differentiated in the eyes of the customer
who is prepared to pay a higher price for a .:" than for a /oyota, for instance, of
similar specification.
:organ is an example of a Bocus strategy. t only addresses a very small part of the
mar%etT$i.e. those who enjoy getting wet and li%e the sound of an engine more than
conversationV(. ?ach of these three companies has been successful by pushing a
particularly generic strategy successfully.
' +ombination of =eneric Strategies - Stuc" in the Mi%e?
/he firm can get Lstuc% in the middleO between low cost providers and differentiated
cost leaders and hence firms of this %ind should pursue a hybrid strategy. ?.g.:
Aremium Aadmini' Gi%e cheapest shoe starts at 7<< up to 5<<<
/ypically a firm can obtain a competitive advantage by two ways : ?ither a cost
advantage $ meaning selling a product at a lower cost( or by a differentiation strategy
$meaning having features and capabilities that are uni*ue and can therefore be
charged at a slightly higher price( . > firm stuc% in the middle is one that tries to
implement both strategies i.e a low cost and a uni*ue feature.
>n organisation can elect not to have a deliberate competitive strategy by employing
none of the three generic strategies outlined by :ichael Aorter. AorterKs three
generic strategies are' cost leadership strategy, differentiation strategy and the focus
strategy.
nstead of employing any of Aorter three generic strategies a firm can elect to be
stuc% in the middle. >n organisation employing a Lstuc% in the middleO strategy is
neither deliberately pursuing a cost leadership strategy nor a differentiation strategy
nor a focus strategy&
/he airline industry is an example of an industry where most of its players employ
the Lstuc% in the middleO strategy. /hese firms do not pursue a deliberate cost
leadership strategy or a differentiation strategy but they simultaneously employ the
cost leadership strategy and a differentiation strategy. /his is evidenced by their
implied twin objectives of wanting to be perceived as charging the lowest fares than
competition and also at the same time wanting to be viewed as offering superior
*uality service than their competitors.
/his argument is further strengthened by the fact that most of the long haul airlines
offer economy class service, business class service and first class service
simultaneously in the same plane during the same journey and this can neither be
described as employing a cost leadership or differentiation strategy. /his is in
contrast to a strategy employed by 4yanair and ?asyjet.
Aorter argued that being stuc% in the middle does not usually lead to achievement of
competitive advantage because firms employing a stuc% in the middle strategy will
struggle to compete with companies in the same industry which employ one of his
three generic strategies. /his is because very few firms have the ability to be the
best in all areas. n other words a jac% of all trades will struggle to compete when
competing with a master in a specific trade.
n concluding it is also worth mention that Aorter also argued that being struc% in the
middle may wor% sometimes especially when a firm is luc%y enough to be competing
with competitors employing the stuc% in the middle strategy. /his could be one of the
reason why the stuc% in the middle strategy seems to be wor%ing for firms in the long
haul airline business because all airlines seem to be using the same business
model.
Q: 5n toays com#etiti$e wor% the sur$i$a% as we%% as wi%% to e-ce% e#ens
u#on effecti$e combination of Su##%y +hain Management0 6a%ue +hain
+once#ts0 Strategic +ost Management an +ustomer (e%ationshi#
Management1
*-#%ain a%% the four strategies through 6a%ue +hain an /rouct ;ife +yc%e
+once#t1
*-#%ain how is $a%ue chain ana%ysis0 which is an interna% ana%ysis0 usefu% in
ientification of istincti$e com#etencies in a business organization in
formu%ating $arious business strategies?
6a%ue chain +once#t
/he resources audit provides an understanding of an organi@ationKs capabilities. /he
next step is to identify how the organi@ational activities contribute to the value # the
price the customers are willing to pay for the goods and services of the organi@ation.
f this value exceeds the costs of performing those activities, company is said to be
profitable, otherwise it is a loss ma%ing company. /herefore to achieve the long run
objective of maximi@ation of wealth and short Drun goals of generating reasonable
profits, it is imperative that the company should gain a competitive edge over its
competitors.
+har%es 41;1 ,i%% an =areth (1 Eones maintain:
L/o gain a competitive advantage, a company must either perform value D creation
functions at a lower cost than its rivals or perform them in a way that leads to
differentiation and a premium price. /o do either, it must have a distinctive
competence in one or more of its value D creation functions. f it has significant
wea%nesses in any of these functions, it will be at a competitive disadvantageO
:ichael Aorter suggested the concept of Lvalue D chainO that se*uences the
activities related with creation of value. /hese activities can be divided between
$a( Arimary activities, and
$b( Support activities.
Primary Activities
/he primary activities are concerned with physical creation of the product, its
mar%eting and delivery to buyers and after#sales service. /he support activities
provide the inputs and infrastructure for the primary activities.
/rimary 'cti$ities
Some authors classify primary activities into five categories D
$a( nbounded logistics $activities concerned with receiving, storing and distributing
the material, inventory control, warehousing, etc.(
$b( 1perations $activities concerned with transformation of inputs into final product or
service: for example, matching, pac%ing, assembly testing etc.
$c( 1ut bounded logistics $activities concerned with collection, storage and physical
distribution of finished goods to the consumers(
$d( :ar%eting and sales $activities concerned with advertising, selling, administration
of sales personnel, etc.(
$e( Service $activities that enhance or maintain the value of a product C service, such
as installation, repair, training, etc.(
Some others classify primary activities into two main functions
$a( :anufacturing $physical creation of the product(
$b( :ar%eting $concerned with mar%eting, delivery and after sales service(
Su##ort 'cti$ities
/he support activities that provide inputs and infrastructure for primary activities of
manufacturing and mar%eting are classified as follows:
$a( :aterial management activities
$b( 4esearch and ,evelopment activities
Secondary
Activities
$c( )uman 4esources activities
$d( nformation systems activities
$e( 0ompany infrastructure activities
:aterial :anagement activities are concerned with procurement, storage and
issuance of material to the production departments. /he inventory control that aims
at %eeping uninterrupted supply of material at minimum associated costs is
underta%en under this function.
4esearch and ,evelopment activities permeate manufacturing as well as mar%eting
activities. t aims at developing new products or process technology that provide
additional benefits to customers, improve *uality, lower the cost of manufacturing
and ultimately contribute to the creation of value.
/he human resource activities aim at meeting the personnel re*uirement of
manufacturing and mar%eting departments by proper selection of staff, their training
and development.
/he information system activities ensure efficient and expeditious flow of needed
information to the concerned managers for ta%ing decisions and actions.
/he infrastructure activities embrace all other activities li%e finance, legal, public
relations, etc which are essential for the company.
+or#orate 6a%ue +hain 'na%ysis
t involves the following steps.
# ?xamine each product lines value chain in terms of various activities involved in
producing a product or service. ?xamine the S&"
# dentify the lin%ages in product lines value chain
?x: *uality control, chec% 2NNP instead of 2NP to avoid repairs and returns
# ?xamine the synergies among value chains of different product lines or S.FS.
?x: 0ost of advertising, production etc jointly will be cheaper
>fter identifying the resources and relating them to strategic purpose through value
chain analysis, the next step is ientification of com#anys core com#etence1
/he core competence refers to uni*ue strength of the company that competitors
cannot easily match or imitate.
/o =ary )amel and 0.E. Arahalad0
L> core# competence is a bundle of s%ills and technologies that enables a company
to provide a particular benefit to customersO.
Bollowing are the examples of core#competence at global level:
+om#any Benefit to customer +ore 7 com#etence
Sony Aoc%etability :iniaturi@ation
Bederal ?xpress on Dtime ,elivery -ogistics :anagement
"al#:art 0hoice, availability, value -ogistics :anagement
:otorola FnletteredK communication. "ireless communication
L/he diversified corporation is a large tree. /he trun% and major limbs are core
products, the smaller branches are business units' the leaves, flowers and fruit are
end products. /he root system that provided nourishment, sustenance, and stability
is the core competence. Rou can miss the strength of competition by loo%ing only at
their end products in the same way you miss the strength of a tree if you loo% only at
its leaves.O
0ore competence provides strategic advantage to the company. n the short run, a
company can achieve competitiveness from its price C Aerformance attributes' but in
the long run core competence will provide profitability. "ith its core D competence,
company can produce at lower cost and more speedily than competitors and can
differentiate. /hus the real strategic advantage to a company comes from its core
competence. /hus core# competence is the bedroc% of a companyKs strategy.
/rouct ;ife +yc%e +once#t
> new product progresses through a se*uence of stages from introduction to growth,
maturity, and decline. /his se*uence is %nown as the #rouct %ife cyc%e and is
associated with changes in the mar%eting situation, thus impacting the mar%eting
strategy and the mar%eting mix.
/he product revenue and profits can be plotted as a function of the life#cycle stages
as shown in the graph below:
5ntrouction Stage
n the introduction stage, the firm see%s to build product awareness and develop a
mar%et for the product. /he impact on the mar%eting mix is as follows:
/rouct branding and *uality level is established, and intellectual property
protection such as patents and trademar%s are obtained.
/ricing may be low penetration pricing to build mar%et share rapidly, or high
s%im pricing to recover development costs.
Distribution is selective until consumers show acceptance of the product.
/romotion is aimed at innovators and early adopters. :ar%eting
communications see%s to build product awareness and to educate potential
consumers about the product.
=rowth Stage
n the growth stage, the firm see%s to build brand preference and increase mar%et
share.
/rouct *uality is maintained and additional features and support services
may be added.
/ricing is maintained as the firm enjoys increasing demand with little
competition.
Distribution channels are added as demand increases and customers
accept the product.
/romotion is aimed at a broader audience.
Maturity Stage
>t maturity, the strong growth in sales diminishes. 0ompetition may appear with
similar products. /he primary objective at this point is to defend mar%et share while
maximi@ing profit.
/rouct features may be enhanced to differentiate the product from that of
competitors.
/ricing may be lower because of the new competition.
Distribution becomes more intensive and incentives may be offered to
encourage preference over competing products.
/romotion emphasi@es product differentiation.
Dec%ine Stage
>s sales decline, the firm has several options:
:aintain the product, possibly rejuvenating it by adding new features and
finding new uses.
)arvest the product # reduce costs and continue to offer it, possibly to a loyal
niche segment.
,iscontinue the product, li*uidating remaining inventory or selling it to another
firm that is willing to continue the product.
/he mar%eting mix decisions in the decline phase will depend on the selected
strategy. Bor example, the product may be changed if it is being rejuvenated, or left
unchanged if it is being harvested or li*uidated. /he price may be maintained if the
product is harvested, or reduced drastically if li*uidated.
Su##%y +hain Management
> supply chain is a networ% of facilities and distribution options that performs the
functions of procurement of materials, transformation of these materials into
intermediate and finished products, and the distribution of these finished products to
customers. Supply chains exist in both service and manufacturing organi@ations,
although the complexity of the chain may vary greatly from industry to industry and
firm to firm.
/raditionally, mar%eting, distribution, planning, manufacturing, and the purchasing
organi@ations along the supply chain operated independently. /hese organi@ations
have their own objectives and these are often conflicting. :ar%eting+s objective of
high customer service and maximum sales dollars conflict with manufacturing and
distribution goals. :any manufacturing operations are designed to maximi@e
throughput and lower costs with little consideration for the impact on inventory levels
and distribution capabilities. Aurchasing contracts are often negotiated with very little
information beyond historical buying patterns. /he result of these factors is that there
is not a single, integrated plan for the organi@ation###there were as many plans as
businesses. 0learly, there is a need for a mechanism through which these different
functions can be integrated together. Supply chain management is a strategy
through which such integration can be achieved.
Su##%y +hain Decisions
"e classify the decisions for supply chain management into two broad categories ##
strategic and operational. >s the term implies, strategic decisions are made typically
over a longer time hori@on. /hese are closely lin%ed to the corporate strategy $they
sometimes WXit areY the corporate strategy(, and guide supply chain policies from a
design perspective. 1n the other hand, operational decisions are short term, and
focus on activities over a day#to#day basis. /he effort in these type of decisions is to
effectively and efficiently manage the product flow in the "strategically" planned
supply chain.
/here are four major decision areas in supply chain management: 2( location, 3(
production, 5( inventory, and 6( transportation $distribution(, and there are both
strategic and operational elements in each of these decision areas.
;ocation Decisions
/he geographic placement of production facilities, stoc%ing points, and sourcing
points is the natural first step in creating a supply chain. /he location of facilities
involves a commitment of resources to a long#term plan. 1nce the si@e, number, and
location of these are determined, so are the possible paths by which the product
flows through to the final customer. /hese decisions are of great significance to a
firm since they represent the basic strategy for accessing customer mar%ets, and will
have a considerable impact on revenue, cost, and level of service. /hese decisions
should be determined by an optimi@ation routine that considers production costs,
taxes, duties and duty drawbac%, tariffs, local content, distribution costs, production
limitations, etc. $See >rnt@en, .rown, )arrison and /rafton I2<<7J for a thorough
discussion of these aspects.( >lthough location decisions are primarily strategic, they
also have implications on an operational level.
/rouction Decisions
/he strategic decisions include what products to produce, and which plants to
produce them in, allocation of suppliers to plants, plants to ,0+s, and ,0+s to
customer mar%ets. >s before, these decisions have a big impact on the revenues,
costs and customer service levels of the firm. /hese decisions assume the existence
of the facilities, but determine the exact path$s( through which a product flows to and
from these facilities. >nother critical issue is the capacity of the manufacturing
facilities##and this largely depends the degree of vertical integration within the firm.
1perational decisions focus on detailed production scheduling. /hese decisions
include the construction of the master production schedules, scheduling production
on machines, and e*uipment maintenance. 1ther considerations include wor%load
balancing, and *uality control measures at a production facility.
5n$entory Decisions
/hese refer to means by which inventories are managed. nventories exist at every
stage of the supply chain as either raw material, semi#finished or finished goods.
/hey can also be in#process between locations. /heir primary purpose to buffer
against any uncertainty that might exist in the supply chain. Since holding of
inventories can cost anywhere between 3N to 6N percent of their value, their efficient
management is critical in supply chain operations. t is strategic in the sense that top
management sets goals. )owever, most researchers have approached the
management of inventory from an operational perspective. /hese include
deployment strategies $push versus pull(, control policies ### the determination of the
optimal levels of order *uantities and reorder points, and setting safety stoc% levels,
at each stoc%ing location. /hese levels are critical, since they are primary
determinants of customer service levels.
)rans#ortation Decisions
/he mode choice aspect of these decisions are the more strategic ones. /hese are
closely lin%ed to the inventory decisions, since the best choice of mode is often
found by trading#off the cost of using the particular mode of transport with the
indirect cost of inventory associated with that mode. "hile air shipments may be
fast, reliable, and warrant lesser safety stoc%s, they are expensive. :eanwhile
shipping by sea or rail may be much cheaper, but they necessitate holding relatively
large amounts of inventory to buffer against the inherent uncertainty associated with
them. /herefore customer service levels, and geographic location play vital roles in
such decisions. Since transportation is more than 5N percent of the logistics costs,
operating efficiently ma%es good economic sense. Shipment si@es $consolidated
bul% shipments versus -ot#for#-ot(, routing and scheduling of e*uipment are %ey in
effective management of the firm+s transport strategy.
Strategic +ost Management
n the contemporary business environment, cost management has become a critical
survival s%ill for many organi@ations. .ut it is not sufficient to simply reduce costs'
instead, costs must be managed strategically
)ighly competitive mar%ets are characteri@ed by low profit margins, low customer
loyalty and low first move advantages. Got only customers as% for cost
management, also the intense competition between well#matched competitors
increases the strategic importance of cost management.
Strategic cost management is "the application of cost management techni*ues so
that they simultaneously improve the strategic position of a firm and reduce costs".
Strategic cost management needs to include all aspects of production and delivering
the product' the supply of purchased parts, the design of products and the
manufacturing of these products. So, strategic cost management should be inherent
to each stage of a product+s life cycle, i.e. during the development, manufacturing,
distribution and during the service lifetime of a product.
)ence, the term strategic cost management has a broad focus, it is not confined to
the continuous reduction of costs and controlling of costs and it is far more
concerned with management+s use of cost information for decision#ma%ing.
/here are various strategic cost management tools used li%e >ctivity based costing,
/arget costing, Halue ?ngineering, .alance score card etc.
+ustomer (e%ationshi# Management. t is a process or methodology used to learn
more about customers+ needs and behaviors in order to develop stronger
relationships with them.
0ustomer relationship management is a widely implemented strategy for managing
a companyKs interactions with customers, clients and sales prospects. t involves
using technology to organi@e, automate, and synchroni@e business processesT
principally sales activities, but also those for mar%eting, customer service, and
technical support. /he overall goals are to find, attract, and win new clients, nurture
and retain those the company already has, entice former clients bac% into the fold,
and reduce the costs of mar%eting and client service. 0ustomer relationship
management describes a company#wide business strategy including customer#
interface departments as well as other departments. :easuring and valuing
customer relationships is critical to implementing this strategy.
> 04: system may be chosen because it is thought to provide the following
advantages:
Muality and efficiency
,ecrease in overall costs
,ecision support
?nterprise ability
0ustomer >ttention
ncrease profitability
Strategy
Bor larger#scale enterprises, a complete and detailed plan is re*uired to obtain the
funding, resources, and company#wide support that can ma%e the initiative of
choosing and implementing a system successfully. .enefits must be defined, ris%s
assessed, and cost *uantified in three general areas:
Arocesses: /hough these systems have many technological components,
business processes lie at its core. t can be seen as a more client#centric way
of doing business, enabled by technology that consolidates and intelligently
distributes pertinent information about clients, sales, mar%eting effectiveness,
responsiveness, and mar%et trends. /herefore, a company must analy@e its
business wor%flows and processes before choosing a technology platform'
some will li%ely need re#engineering to better serve the overall goal of winning
and satisfying clients. :oreover, planners need to determine the types of
client information that are most relevant, and how best to employ them
Aeople: Bor an initiative to be effective, an organi@ation must convince its staff
that the new technology and wor%flows will benefit employees as well as
clients. Senior executives need to be strong and visible advocates who can
clearly state and support the case for change. 0ollaboration, teamwor%, and
two#way communication should be encouraged across hierarchical
boundaries, especially with respect to process improvement.
/echnology: n evaluating technology, %ey factors include alignment with the
companyKs business process strategy and goals, including the ability to
deliver the right data to the right employees and sufficient ease of adoption
and use. Alatform selection is best underta%en by a carefully chosen group of
executives who understand the business processes to be automated as well
as the software issues. ,epending upon the si@e of the company and the
breadth of data, choosing an application can ta%e anywhere from a few wee%s
to a year or more
Q:
Mergers an 'c<uisition #rocess re<uire a etai%e S4O) 'na%ysis1
*-#%ain in etai%s Mergers an 'c<uisition #rocess1
4hat cou% be the #robab%e reason for com#anies to use the Mergers an
ac<uisition (oute? /%ease %ace your answers with e-am#%es from the
cor#orate wor%1
=rowth strategies:

1rgani@ations usually see% growth in sales, profits, mar%et share, or some other
measure as a primary objective. /he different grand strategies in this category are:
0oncentration
ntegration
,iversification
:ergers and ac*uisitions
Joint Hentures
: & > are an attractive strategy for strengthening a firms competitive position .
/his is particularly relevant in case of organisation heading towards global mar%et
leadership , fre*uently ac*uire companies to build mar%et pressure in such
countries whenever they donot compete. Similarly domestic companies trying to
establish attractive positions in the industry of the future , merge or ma%e
ac*uisition in order to
Bill resource gap or correct competitive deficiencies.
0ombine operations resulting in lower cost.
>ccess to improved technology with better product & services in wider
geographic area
Go company can afford to ignore the strategic & competitive benefits of ac*uiring
& merging with another company to strengthen its mar%et position & open up
avenues of new opportunity.
:erger is pooling of organi@ations having similar resource strengths joining hands to
form a new company, often with a new name with varying degrees of ownership
depending on sta%e holding.
?.g.. Sando@ and 0iba D now called Govartis across the world
,aimler D 0hrysler
.roo% .ond and -ipton merged to become .roo%e bond ndia later ta%en over by
)F-

>c*uisition is when a strong firm, down out player in the industry becomes the
ac*uiring firm which outright purchases the operations of the wea% firm i.e. the
ac*uired firm.

Arincipally, though mergers & ac*uisitions are a parallel process, it may differ in
terms of engagement, ownership levels, management control and financials.
)owever, the objective remains the same i.e. the *uest to fill a resource vulnerability
gap and in turn attain S0>.
,efn : > merger is a combination & pooling of two e*ually strong companies with a
new craeted company ta%ing on a new name.
,efn : > ac*uisition when one company namely the ac*uisition purchases &
absorbs the operation of another that is the ac*uired.
Mergers an 'c<uisitions are efine by the fo%%owing Strategic Objecti$es:
/he dominant rationale used to explain :&> activity is that ac*uiring firms see%
improved financial performance. /he following motives are considered to improve
financial performance:
*conomy of sca%e: /his refers to the fact that the combined company can
often reduce its fixed costs by removing duplicate departments or operations,
lowering the costs of the company relative to the same revenue stream, thus
increasing profit margins.
*conomy of sco#e: /his refers to the efficiencies primarily associated with
demand#side changes, such as increasing or decreasing the scope of
mar%eting and distribution, of different types of products.
5ncrease re$enue or mar"et share: /his assumes that the buyer will be
absorbing a major competitor and thus increase its mar%et power $by
capturing increased mar%et share( to set prices.
+ross-se%%ing: Bor example, a ban% buying a stoc% bro%er could then sell its
ban%ing products to the stoc% bro%er+s customers, while the bro%er can sign
up the ban%+s customers for bro%erage accounts. 1r, a manufacturer can
ac*uire and sell complementary products.
Synergy: Bor example, managerial economies such as the increased
opportunity of managerial speciali@ation. >nother example are purchasing
economies due to increased order si@e and associated bul%#buying discounts.
)a-ation: > profitable company can buy a loss ma%er to use the target+s loss
as their advantage by reducing their tax liability. n the Fnited States and
many other countries, rules are in place to limit the ability of profitable
companies to "shop" for loss ma%ing companies, limiting the tax motive of an
ac*uiring company.
=eogra#hica% or other i$ersification: /his is designed to smooth the
earnings results of a company, which over the long term smoothens the stoc%
price of a company, giving conservative investors more confidence in
investing in the company. )owever, this does not always deliver value to
shareholders $see below(.
(esource transfer: resources are unevenly distributed across firms $.arney,
2<<2( and the interaction of target and ac*uiring firm resources can create
value through either overcoming information asymmetry or by combining
scarce resources.
6ertica% integration: Hertical integration occurs when an upstream and
downstream firm merges $or one ac*uires the other(. /here are several
reasons for this to occur. 1ne reason is to internalise an externality problem.
> common example of such an externality is double marginali@ation. ,ouble
marginali@ation occurs when both the upstream and downstream firms have
monopoly power and each firm reduces output from the competitive level to
the monopoly level, creating two deadweight losses. Bollowing a merger, the
vertically integrated firm can collect one deadweight loss by setting the
downstream firm+s output to the competitive level. /his increases profits and
consumer surplus. > merger that creates a vertically integrated firm can be
profitable.
Di$ersification: "hile this may hedge a company against a downturn in an
individual industry it fails to deliver value, since it is possible for individual
shareholders to achieve the same hedge by diversifying their portfolios at a
much lower cost than those associated with a merger.
)y#es of Mergers
2. )ori@ontal :ergers
3. Hertical :ergers
5. 0onglomerate :ergers
,orizonta% Mergers
/his type of merger involves two firms that operate and compete in a similar %ind of
business. /he merger is based on the assumption that it will provide economies of
scale from the larger combined unit.
*-am#%e: =laxo "ellcome Alc. and SmithEline .eecham Alc. megamerger
/he two .ritish pharmaceutical heavyweights =laxo "ellcome A-0 and SmithEline
.eecham A-0 early this year announced plans to merge resulting in the largest drug
manufacturing company globally. /he merger created a company valued at Z2;3.6
billion and with a 9.5 per cent share of the global pharmaceutical mar%et. /he
merged company expected Z2.8 billion in pretax cost savings after three years. /he
two companies have complementary drug portfolios, and a merger would let them
pool their research and development funds and would give the merged company a
bigger sales and mar%eting force.
6ertica% Mergers
Hertical mergers ta%e place between firms in different stages of
productionCoperation, either as forward or bac%ward integration. /he basic reason is
to eliminate costs of searching for prices, contracting, payment collection and
advertising and may also reduce the cost of communicating and coordinating
production. .oth production and inventory can be improved on account of efficient
information flow within the organisation.
Fnli%e hori@ontal mergers, which have no specific timing, vertical mergers ta%e place
when both firms plan to integrate the production process and capitalise on the
demand for the product. Borward integration ta%e place when a raw material supplier
finds a regular procurer of its products while bac%ward integration ta%es place when
a manufacturer finds a cheap source of raw material supplier.
*-am#%e: :erger of Fsha :artin and Fsha .eltron
Fsha :artin and Fsha .eltron merged their businesses to enhance shareholder
value, through business synergies. /he merger will also enable both the companies
to pool resources and streamline business and finance with operational efficiencies
and cost reduction and also help in development of new products that re*uire
synergies.
+ong%omerate Mergers
0onglomerate mergers are affected among firms that are in different or unrelated
business activity. Birms that plan to increase their product lines carry out these types
of mergers. Birms opting for conglomerate merger control a range of activities in
various industries that re*uire different s%ills in the specific managerial functions of
research, applied engineering, production, mar%eting and so on. /his type of
diversification can be achieved mainly by external ac*uisition and mergers and is not
generally possible through internal development. /hese types of mergers are also
called concentric mergers. Birms operating in different geographic locations also
proceed with these types of mergers. 0onglomerate mergers have been sub#divided
into:
Binancial 0onglomerates
:anagerial 0onglomerates
0oncentric 0ompanies
:inancia% +ong%omerates
/hese conglomerates provide a flow of funds to every segment of their operations,
exercise control and are the ultimate financial ris% ta%ers. /hey not only assume
financial responsibility and control but also play a chief role in operating decisions.
/hey also:
mprove ris%#return ratio
4educe ris%
mprove the *uality of general and functional managerial performance
Arovide effective competitive process
Arovide distinction between performance based on underlying potentials in
the product mar%et area and results related to managerial performance.
Manageria% +ong%omerates
:anagerial conglomerates provide managerial counsel and interaction on decisions
thereby, increasing potential for improving performance. "hen two firms of une*ual
managerial competence combine, the performance of the combined firm will be
greater than the sum of e*ual parts that provide large economic benefits.
+oncentric +om#anies
/he primary difference between managerial conglomerate and concentric company
is its distinction between respective general and specific management functions. /he
merger is termed as concentric when there is a carry#over of specific management
functions or any complementarities in relative strengths between management
functions.
)he Merger @ 'c<uisition /rocess can be bro"en own into fi$e #hases:
/hase B - /re 'c<uisition (e$iew: /he first step is to assess your own situation
and determine if a merger and ac*uisition strategy should be implemented. f a
company expects difficulty in the future when it comes to maintaining core
competencies, mar%et share, return on capital, or other %ey performance drivers,
then a merger and ac*uisition $: & >( program may be necessary.
t is also useful to ascertain if the company is undervalued. f a company fails to
protect its valuation, it may find itself the target of a merger. /herefore, the pre#
ac*uisition phase will often include a valuation of the company # >re we
undervalued& "ould an : & > Arogram improve our valuations&
/he primary focus within the Are >c*uisition 4eview is to determine if growth targets
$such as 2NP mar%et growth over the next 5 years( can be achieved internally. f not,
an : & > /eam should be formed to establish a set of criteria whereby the company
can grow through ac*uisition. > complete rough plan should be developed on how
growth will occur through : & >, including responsibilities within the company, how
information will be gathered, etc.
/hase C - Search @ Screen )argets: /he second phase within the : & > Arocess
is to search for possible ta%eover candidates. /arget companies must fulfill a set of
criteria so that the /arget 0ompany is a good strategic fit with the ac*uiring
company. Bor example, the target+s drivers of performance should compliment the
ac*uiring company. 0ompatibility and fit should be assessed across a range of
criteria # relative si@e, type of business, capital structure, organi@ational strengths,
core competencies, mar%et channels, etc.
t is worth noting that the search and screening process is performed in#house by the
>c*uiring 0ompany. 4eliance on outside investment firms is %ept to a minimum
since the preliminary stages of : & > must be highly guarded and independent.
/hase D - 5n$estigate @ 6a%ue the )arget: /he third phase of : & > is to perform a
more detail analysis of the target company. Rou want to confirm that the /arget
0ompany is truly a good fit with the ac*uiring company. /his will re*uire a more
thorough review of operations, strategies, financials, and other aspects of the /arget
0ompany. /his detail review is called "due diligence." Specifically, Ahase ,ue
,iligence is initiated once a target company has been selected. /he main objective
is to identify various synergy values that can be reali@ed through an : & > of the
/arget 0ompany. nvestment .an%ers now enter into the : & > process to assist
with this evaluation.
> %ey part of due diligence is the valuation of the target company. n the preliminary
phases of : & >, we will calculate a total value for the combined company. "e have
already calculated a value for our company $ac*uiring company(. "e now want to
calculate a value for the target as well as all other costs associated with the : & >.
/he calculation can be summari@ed as follows:
Halue of 1ur 0ompany $>c*uiring 0ompany( Z 78N
Halue of /arget 0ompany 298
Halue of Synergies per Ahase ,ue ,iligence 5;
-ess : & > 0osts $-egal, nvestment .an%, etc.( $ <(
/otal Halue of 0ombined 0ompany Z 987
/hase G - 'c<uire through >egotiation: Gow that we have selected our target
company, it+s time to start the process of negotiating a : & >. "e need to develop a
negotiation plan based on several %ey *uestions:
)ow much resistance will we encounter from the /arget 0ompany&
"hat are the benefits of the : & > for the /arget 0ompany&
"hat will be our bidding strategy&
)ow much do we offer in the first round of bidding&
/he most common approach to ac*uiring another company is for both companies to
reach agreement concerning the : & >' i.e. a negotiated merger will ta%e place. /his
negotiated arrangement is sometimes called a "bear hug." /he negotiated merger or
bear hug is the preferred approach to a : & > since having both sides agree to the
deal will go a long way to ma%ing the : & > wor%. n cases where resistance is
expected from the target, the ac*uiring firm will ac*uire a partial interest in the
target' sometimes referred to as a "toehold position." /his toehold position puts
pressure on the target to negotiate without sending the target into panic mode.
n cases where the target is expected to strongly fight a ta%eover attempt, the
ac*uiring company will ma%e a tender offer directly to the shareholders of the target,
bypassing the target+s management. /ender offers are characteri@ed by the
following:
/he price offered is above the target+s prevailing mar%et price.
/he offer applies to a substantial, if not all, outstanding shares of stoc%.
/he offer is open for a limited period of time.
/he offer is made to the public shareholders of the target.
> few important points worth noting:
=enerally, tender offers are more expensive than negotiated : & >+s due to the
resistance of target management and the fact that the target is now "in play" and
may attract other bidders.
Aartial offers as well as toehold positions are not as effective as a 2NNP
ac*uisition of "any and all" outstanding shares. "hen an ac*uiring firm ma%es a
2NNP offer for the outstanding stoc% of the target, it is very difficult to turn this
type of offer down.
>nother important element when two companies merge is Ahase ,ue ,iligence.
>s you may recall, Ahase ,ue ,iligence started when we selected our target
company. 1nce we start the negotiation process with the target company, a much
more intense level of due diligence $Ahase ( will begin. .oth companies, assuming
we have a negotiated merger, will launch a very detail review to determine if the
proposed merger will wor%. /his re*uires a very detail review of the target company #
financials, operations, corporate culture, strategic issues, etc.
/hase . - /ost Merger 5ntegration: f all goes well, the two companies will
announce an agreement to merge the two companies. /he deal is finali@ed in a
formal merger and ac*uisition agreement. /his leads us to the fifth and final phase
within the : & > Arocess, the integration of the two companies.
Some of the reasons behin fai%e mergers are:
Aoor strategic fit # /he two companies have strategies and objectives that are too
different and they conflict with one another.
0ultural and Social ,ifferences # t has been said that most problems can be traced
to "people problems." f the two companies have wide differences in cultures, then
synergy values can be very elusive.
ncomplete and nade*uate ,ue ,iligence # ,ue diligence is the "watchdog" within
the : & > Arocess. f you fail to let the watchdog do his job, you are in for some
serious problems within the : & > Arocess.
Aoorly :anaged ntegration # /he integration of two companies re*uires a very high
level of *uality management. n the words of one 0?1, "give me some people who
%now the drill." ntegration is often poorly managed with little planning and design. >s
a result, implementation fails.
Aaying too :uch # n today+s merger fren@y world, it is not unusual for the ac*uiring
company to pay a premium for the /arget 0ompany. Aremiums are paid based on
expectations of synergies. )owever, if synergies are not reali@ed, then the premium
paid to ac*uire the target is never recouped.
1verly 1ptimistic # f the ac*uiring company is too optimistic in its projections about
the /arget 0ompany, then bad decisions will be made within the : & > Arocess. >n
overly optimistic forecast or conclusion about a critical issue can lead to a failed
merger.
Q: Dr1=0 the management consu%tant sai that a%% strategies are e$a%uate on%y
on the basis of the fo%%owing two #arameters $iz1
a1 Sustainab%e +om#etiti$e '$antage
b1 (is" 6As1 (eturn 'na%ysis
----'s a strategic #%anner0 #%ease e-#%ain the abo$e e$a%uation to the core
grou# of managers of your com#any1
Sustainab%e +om#etiti$e '$antage
"hen a firm sustains profits that exceed the average for its industry, the firm is said
to possess a Sustainable competitive advantage over its rivals. /he goal of much of
business strategy is to achieve a sustainable competitive advantage.
:ichael Aorter identified two basic types of competitive advantage:
cost advantage
differentiation advantage
> competitive advantage exists when the firm is able to deliver the same benefits as
competitors but at a lower cost $cost advantage(, or deliver benefits that exceed
those of competing products $differentiation advantage(. /hus, a competitive
advantage enables the firm to create superior value for its customers and superior
profits for itself.
0ost and differentiation advantages are %nown as positional advantages since they
describe the firm+s position in the industry as a leader in either cost or differentiation.
> resource#based view emphasi@es that a firm utili@es its resources and capabilities
to create a competitive advantage that ultimately results in superior value creation.
/he following diagram combines the resource#based and positioning views to
illustrate the concept of competitive advantage:
' Moe% of +om#etiti$e '$antage
Resources
Distinctive
Competencies
Cost Advantage
or
Differentiation Advantage
Value
Creation
Capabilities
(esources an +a#abi%ities
>ccording to the resource#based view, in order to develop a competitive advantage
the firm must have resources and capabilities that are superior to those of its
competitors. "ithout this superiority, the competitors simply could replicate what the
firm was doing and any advantage *uic%ly would disappear.
4esources are the firm#specific assets useful for creating a cost or differentiation
advantage and that few competitors can ac*uire easily. /he following are some
examples of such resources:
Aatents and trademar%s
Aroprietary %now#how
nstalled customer base
4eputation of the firm
.rand e*uity
0apabilities refer to the firm+s ability to utili@e its resources effectively. >n example of
a capability is the ability to bring a product to mar%et faster than competitors. Such
capabilities are embedded in the routines of the organi@ation and are not easily
documented as procedures and thus are difficult for competitors to replicate.
/he firm+s resources and capabilities together form its distinctive competencies.
/hese competencies enable innovation, efficiency, *uality, and customer
responsiveness, all of which can be leveraged to create a cost advantage or a
differentiation advantage.
+ost '$antage an Differentiation '$antage
0ompetitive advantage is created by using resources and capabilities to achieve
either a lower cost structure or a differentiated product. > firm positions itself in its
industry through its choice of low cost or differentiation. /his decision is a central
component of the firm+s competitive strategy.
>nother important decision is how broad or narrow a mar%et segment to target.
Aorter formed a matrix using cost advantage, differentiation advantage, and a broad
or narrow focus to identify a set of generic strategies that the firm can pursue to
create and sustain a competitive advantage.
6a%ue +reation
/he firm creates value by performing a series of activities that Aorter identified as
the value chain. n addition to the firm+s own value#creating activities, the firm
operates in a value system of vertical activities including those of upstream suppliers
and downstream channel members.
/o achieve a competitive advantage, the firm must perform one or more value
creating activities in a way that creates more overall value than do competitors.
Superior value is created through lower costs or superior benefits to the consumer
$differentiation(.
Strategic O#tions to achie$e +om#etiti$e '$antage

2.( Strategy based on critical success factors $0SB(

0SB are competitive factors which affect industry members ability to prosper in
the mar%et place.
CSF

Core Competencies !S"F resource capability# !inherent strength#

"rand Promise

Differentiation$ Positioning

Core Value Proposition
?.g.. 1f 0SB
2. ?conomies of Scales D 4eliance
3. 0ost -eadership # -east cost /0 )F-
a. 0ost low D sell low - superia
b. 0ost low D sell HB: : Hivel Sunsil%
c. 0ost low # Sell [ ) B1" ,ove
n all these products principal 4aw material is the same which constitutes <NP of
the products. Scale brings down costC unit.
5. Aricing D Supply 0hain ?fficiencies.
?.g. "al:art D /hey too have the scale
6. /echnology & nnovation: # Sony
7. Aroduct line .ase: Birm that serves broad industry categories in multiple
benefit areas with a variety
of price points along with brand line extensions.
8. 4elated S%ills & 0apability D s%illed talented wor%force.
9. 1verall -ow 0ost.
Aositioning :
:other brand $ .rand ?*uity(

?xtend the brand into other >reas ?.g. ,ettol , .andaids, )andwash, Soaps,
>ntiseptic lotion. "ith core value proposition remaining same.
0hange the form of the Aroduct ?.=. -iril D Soaps, /alcum Aowder, ,eos
?.g. . 0olgate# 0omplete 1ral Solution care form.
-ine is vertical extension , .rand is )ori@ontal.
>ny 0ompany having various price points, multiple products for multiple
segments.
> firm needs to identify the Eey Success Bactors from any of the above points &
concentrate all resources behind the same to create a S0> $ Sustainable
0ompetitive >dvantage(
Fse EBSKs as cornerstones of 0ompanyKs Strategies and gain S0> by excelling
in 2 ESB
3.( Strategy based on 4elative Superiority

/o create a distinctive competency from within internal value chain activities &
use it to exploit relative wea%ness of other industry competitors. ?.g. )aldirams D
?thnic Snac%s.
mpulse purchase 0ategory ?.g. -ays came up with Eur%ure.

=uerilla Alayers# Alays war in his strength play within a certain geographic
location. ?.g. .alaji, "agh .a%ri 0hai =arden Bresh snac%s.
5.( Strategy based on >ggressive nitiatives

?.g. Gew )onda :odel arrow vCs S x 6 of :aruti

Bantastic :odel
>n initiative that is underta%en to dislodge established player in the industry by
challenging the current strategic business fit. /his would include product design,
technology, cost inputs & at times uni*ue advertising measures.

6( ?mploy strategic degrees of freedom
>nsoffKs share growth matrix refers to strategic options for growth that is
available with the firm



(is" 6As1 (eturn 'na%ysis
Q: *-#%ain the rationa%e for a com#any to ta"e o$er another com#any1
'c<uisition A )a"eo$er Strategies:
"hy do companies feel compelled to ac*uire other businesses& >fter all, the
typical buyer %nows its own mar%et niche *uite well, and can safely increase its
revenues over time by continual, careful attention to internal organic growth.
Gonetheless, thousands of ac*uisitions occur every year. )ere are some
reasons for doing so:
Business model% /he targetKs business model may be different from that of
the buyer, and so generates more profits. Bor example, a target may operate
without labor unions, or have a substantially less burdensome benefits plan.
/he buyer may not be able to re#create this business model in#house without
suffering significant unrest, but can readily buy into it through an ac*uisition.
Cyclicality reduction% > buyer may be trapped in a cyclical or seasonal
industry, where profitability fluctuates on a recurring basis. t may deliberately
ac*uire a company outside this industry with the goal of offsetting the
business cycle to yield more consistent financial results.
&eensive% Some ac*uisitions ta%e place because the buyer is itself the
target of another company, and simply wants to ma%e itself less attractive
through an ac*uisition. /his is particularly effective when the buyer already
has a large mar%et share, and buying another entity in the same mar%et gives
it such a large share that it cannot be bought by anyone else within the
industry without anti#trust charges being brought.
'(ecutive compensation. > buyerKs management team may be in favor of
an ac*uisition for the simple reason that a larger company generally pays
higher salaries. /he greater heft of the resulting organi@ation is fre*uently
viewed as being valid grounds for a significant pay boost among the surviving
management team. /his is not a good reason for an ac*uisition, but it is a
common one.
)ntellectual property1 /his is a defensible %nowledge base that gives a
company a competitive advantage, and is one of the best reasons to ac*uire
a company. ntellectual property can include patents, trademar%s, production
processes, databases that are difficult to re#create, and research &
development labs with a history of successful product development.
)nternal development alternative. > company may have an extremely
difficult time creating new products, and so loo%s elsewhere to find
replacement products. /his issue is especially li%ely to trigger an ac*uisition
if a company has just decided to cancel an in#house development project, and
needs a replacement immediately.
*ocal market e(pertise1 n some industries, effective entry into a local
mar%et re*uires the gradual accumulation of reputation through a long
process of building contacts and correct business practices. > company can
follow this path through internal expansion, and gain success over a long
period of time D or do it at once through an ac*uisition. -ocal mar%et
expertise is especially valuable in international situations, where a buyer has
minimal %nowledge of local customs, not to mention the inevitable obstacles
posed by a different language.
Market gro+th. Go matter how hard a buyer may push itself, it simply cannot
grow revenues very fast in a slow#growth mar%et, because there are so few
sales to be made. 0onversely, a target company may be situated in a mar%et
that is growing much faster than that of the buyer, so the buyer sees an
avenue to more rapid growth.
Market share. 0ompanies generally strive toward a high mar%et share,
because this generally allows them to enjoy a cost advantage over their
competitors, who must spread their overhead costs over smaller production
volumes. /he ac*uisition of a large competitor is a reasonable way to *uic%ly
attain significant mar%et share.
,roduction capacity. /hough not a common ac*uisition justification, the
buyer may have excess production capacity available, from which it can
readily manufacture the targetKs products. Fsually, tooling differences
between the companies ma%e this a difficult endeavor.
,roducts. /he target may have an excellent product that the buyer can use
to fill a hole in its own product line. /his is an especially important reason
when the mar%et is expanding rapidly, and the buyer does not have sufficient
time to develop the product internally before other competing products ta%e
over the mar%et. >lso, ac*uired products tend to have fewer bugs than ones
just emerging from in#house development, since they have been through
more field testing, and possibly through several build cycles. )owever,
considerable additional effort may be needed to integrate the ac*uired
products into the buyerKs product line, so factor this issue into the purchase
decision.
-egulatory environment% /he buyer may be burdened by a suffocating
regulatory environment, such as is imposed on utilities, airlines, and
government contractors. f a target operates in an area subject to less
regulation, the buyer may be more inclined to buy into that environment.
Sales channels. > target may have an unusually effective sales channel that
the buyer thin%s it can use to distribute its own products. ?xamples of such
sales channels are as varied as door#to#door sales, electronic downloads,
telemar%eting, or a well#trained in#house sales staff. >lso, the targetKs sales
staff might be especially effective D in some industries, sales is considered
the bottlenec% operation, and so may be the prime reason for an ac*uisition
offer.
!ertical integration. /o use a military term, a company may want to Lsecure
its supply linesO by ac*uiring selected suppliers. /his is especially important if
there is considerable demand for %ey supplies, and a supplier has control
over a large proportion of them. /his is especially important when other
suppliers are located in politically volatile areas, leaving few reliable
suppliers. n addition to this Lbac%ward integration,O a company can also
engage in Lforward integrationO by ac*uiring a distributor or customer. /his
most commonly occurs with distributors, especially if they have unusually
excellent relationships with the ultimate set of customers. > company can
also use its ownership of a distributor from a defensive perspective, so that
competitors must shift their sales to other distributors.
)argete O#tions
2. -oo% for company for net operating losses but have strong turnaround
prospects.
3. See% a cashless company, which has not exploited its mar%et potential or has
undervalued licensed.
5. See% an under capitali@ed company where promoterKs sta%e low and mount a
hostile ta%eover initiative.
6. "atch out for family run business with no proven successor.

Ste#s in$o%$e in )a"eo$er /rocess
2. ?stimate the degree of over subscription of the stoc% of the company that you
intend to ac*uire in consultation with primary mar%et bro%ers.
3. 1n the basis of this information, apply for a *uantum of shares whose
allotment exceeds the promoterKs sta%e.
5. Aurchase further shares from the mar%et to increase the holding in the
company.
6. 1ffer shares to be bought out from financial institutions that are loo%ing to exit.
7. .uyout foreign investors and minority G4 sta%eholders with an offer of
marginal premium.
8. :a%e an open offer to ndian sta%eholders or their portfolio managers by
offering suitable premium.
9. nitiate all out stoc% mar%et purchase on all stoc% exchanges with maximum
publicity.
M:
8)he wor% is suffering from recession toay9 sai Dr1 E=0 the turnaroun
strategist1 )a"e any com#any of your choice an assume that this com#any
is suffering from the effects of recession1 /%ease e-#%ain as to what ste#s
this com#any shou% ta"e to rie o$er this recessionary tren in the mar"et1
' )urnaroun Strategy is use for con$erting a :ai%e com#any or a Sic"
+om#any into a successfu% com#any1 &ou ha$e been a##ointe as a
consu%tant to turnaroun a :ai%e +om#any or a Sic" +om#any1 /%ease
#re#are an action #%an to turn aroun a fai%e or a sic" com#any1 ?)a"e any
com#any of your choice!1
/urn around strategies for critically sic% companies C crises ridden coKs
"hen an organi@ationKs survival is threatened and it is not competing effectively,
retrenchment strategies are often needed. /he three basic types of
retrenchment are

/urnaround,
,ivestment, and
-i*uidation.

/urnaround strategy is used when an organi@ation is performing poorly but has
not yet reached a critical stage. t usually involves getting rid of unprofitable
products, pruning the wor% force, trimming distribution outlets, and see%ing other
methods of ma%ing the organi@ation more efficient. f the turnaround is
successful, the organi@ation may then focus on growth strategies.
/urnaround defined
/urnaround derives its name from the action involved that is reversing a
negative trend.
/urnaround management refers to the measures, which reverse the negative
trends in the performance indicators of the company. n other words, turnaround
management refers to the management measures which turn a sic%#company
bac% to a be healthy one or those measures which reverse the deteriorating
trends of the performance indicators such as falling mar%et share, sales $in
constant rupees(, and profitability and worsening debt#e*uity ratio.
?xamples of turn around
,uring 2<9N#;N .: dominated the computer industry world wide particularly the
A0S. ,uring early 2<<Ns computer sales were falling. )A, ,ell, 0ompa*,
=ateway etc entered the mar%et A0 clones in .: style were offered cheaply by
them. ndustry experts called .: Lbureaucratic dinosaurO and profits %ept on
falling in 2<<3#<5. /he .1, hired a new 0?1, -ouis =erstner to lead a
\0orporate turn aroundK who leads the \.= .-F?K strategy following the rigid
dress code. /he wor% force was reduced to 6NP. ?mphasis was on *uic%er
decision ma%ing and strong customer orientation. /he 0?1 spo%e to at least
one customer a day. > new mainframe was released once in a year. A0
business increased its mar%et share to ;.<P in 2<<8. Stoc% price moved from Z
6N in 2<<N to Z 26N in 2<<8. 4evenue increased by 6NP and profits rose by
5.8P.
.: is still in the process of turning around.

:eatures of crisis rien cos

2( t happens when firms compete in an industry with generic commodity
products, low levels of differentiation thus the A-0 and as the industry matures
they at the best achieve an also ran Lme tooO status.
3( Such firms manage below average industry profitability and do not posses
re*uired resources and capabilities to compete effectively in the industry
5( /hey are financially wea% and have deployed an inefficient competitive
strategy often with poor execution capabilities. n a wea% economyC recession
and fast changing consumer preferences can further wea%en the business
position for such firms.
6( >ll above factors can lead to financial debt due to high cost and low price
reali@ation further burdened by excess capacity and inventory.
7( 1ften such firms adopt overtly aggressive pricing in the *uest for scale and
mar%et share ignoring profitability at times. /hey yet get beaten by more focused
rival and lac% of innovation and in#house 4&, is the reason for lac% of any %ind of
credible response.
Strategic O#tions:
2( 1ffensive turn around strategy
a( Aump in financial resources $0,4 D 0orporate ,ept 4estructuring(' revamp
product line either on a low cost focus or a high differentiated focus in order to
appeal to consumers.

3( Bortify and defend:
Fse variation and alternatives pursued by rival to capture mar%et share form the
chosen rival

5( Strategy revision in following acres:
i( 4evamp all internal operations and revisit cost across the value chain
ii( 4evisit all functional area strategies
iii( :erge or ac*uire small, wea% regional players that compliment the firmKs
strategic business fit.
iv( 0ompete on a narrow front as close as possible to core competences in
product line and geographics.
6( .oost 4evenues
a( 4evenue building options include price cuts, value for money products
extending he line giving value added services & increase level of promotions.
/his will be adopted if the firm pursues focused cost leadership.
b( Aursue a focused differentiation strategy improve *uality and brand image
and serve the *uality conscious segment at higher prices
7( Sell off all non#performing assets, non#viable plants, reduce wor%force and
employ content labour, eliminate wastages & unnecessary frills from the product
design that consumerKs donKt perceive as values $.ring in cash(
8( 0ombination efforts of many of the above pointKs turnaround strategies are
fraught with danger and high ris% & more often than not fail due to lac% of
financial resources.

0onclusion: n case if the turnaround strategies donKt wor% as part of the end
game firm may pursue li*uidation as the last resort. -i*uidation strategy may be:
a( > *uic% exit by selling off to a stronger rival
b# A slo% e&it after harvesting short term cash flo%s.
M:
4hat cou% be the #robab%e contents of a com#etitor #rofi%e? )a"e any
com#any ?#%ease s#ecify the name of the com#any! of your choice an
ientify its main com#etitor an com#are the strengths an wea"ness
of this com#any with that of its com#etitor1
/re#are a com#etitor #rofi%e for any organization of your choice1
+om#etitor ana%ysis in mar%eting and strategic management is an assessment of
the strengths and wea%nesses of current and potential competitors. /his analysis
provides both an offensive and defensive strategic context to identify opportunities
and threats. Arofiling coalesces all of the relevant sources of competitor analysis into
one framewor% in the support of efficient and effective strategy formulation,
implementation, monitoring and adjustment.
0ompetitor analysis is an essential component of corporate strategy. t is argued that
most firms do not conduct this type of analysis systematically enough. nstead, many
enterprises operate on what is called Linformal impressions, conjectures, and
intuition gained through the tidbits of information about competitors every manager
continually receives.O >s a result, traditional environmental scanning places many
firms at ris% of dangerous competitive blind spots due to a lac% of robust competitor
analysis.
+om#etitor #rofi%ing
/he strategic rationale of competitor profiling is powerfully simple. Superior
%nowledge of rivals offers a legitimate source of competitive advantage. /he raw
material of competitive advantage consists of offering superior customer value in the
firmKs chosen mar%et. /he definitive characteristic of customer value is the adjective,
superior. 0ustomer value is defined relative to rival offerings ma%ing competitor
%nowledge an intrinsic component of corporate strategy. Arofiling facilitates this
strategic objective in three important ways. Birst, profiling can reveal strategic
wea%nesses in rivals that the firm may exploit. Second, the proactive stance of
competitor profiling will allow the firm to anticipate the strategic response of their
rivals to the firmKs planned strategies, the strategies of other competing firms, and
changes in the environment. /hird, this proactive %nowledge will give the firms
strategic agility. 1ffensive strategy can be implemented more *uic%ly in order to
exploit opportunities and capitali@e on strengths. Similarly, defensive strategy can be
employed more deftly in order to counter the threat of rival firms from exploiting the
firmKs own wea%nesses.
0learly, those firms practicing systematic and advanced competitor profiling have a
significant advantage. >s such, a comprehensive profiling capability is rapidly
becoming a core competence re*uired for successful competition. >n appropriate
analogy is to consider this advantage as a%in to having a good idea of the next move
that your opponent in a chess match will ma%e. .y staying one move ahead,
chec%mate is one step closer. ndeed, as in chess, a good offense is the best
defence in the game of business as well.
> common techni*ue is to create detailed profiles on each of your major competitors.
/hese profiles give an in#depth description of the competitor+s bac%ground, finances,
products, mar%ets, facilities, personnel, and strategies. /his involves:
.ac%ground
o location of offices, plants, and online presences
o history # %ey personalities, dates, events, and trends
o ownership, corporate governance, and organi@ational structure
Binancials
o A#? ratios, dividend policy, and profitability
o various financial ratios, li*uidity, and cash flow
o Arofit growth profile' method of growth $organic or ac*uisitive(
Aroducts
o products offered, depth and breadth of product line, and product
portfolio balance
o new products developed, new product success rate, and 4&,
strengths
o brands, strength of brand portfolio, brand loyalty and brand awareness
o patents and licenses
o *uality control conformance
o reverse engineering
:ar%eting
o segments served, mar%et shares, customer base, growth rate, and
customer loyalty
o promotional mix, promotional budgets, advertising themes, ad agency
used, sales force success rate, online promotional strategy
o distribution channels used $direct & indirect(, exclusivity agreements,
alliances, and geographical coverage
o pricing, discounts, and allowances
Bacilities
o plant capacity, capacity utili@ation rate, age of plant, plant efficiency,
capital investment
o location, shipping logistics, and product mix by plant
Aersonnel
o number of employees, %ey employees, and s%ill sets
o strength of management, and management style
o compensation, benefits, and employee morale & retention rates
0orporate and mar%eting strategies
o objectives, mission statement, growth plans, ac*uisitions, and
divestitures
o mar%eting strategies
>ew com#etitors
n addition to analysing current competitors, it is necessary to estimate future
competitive threats. /he most common sources of new competitors are:
0ompanies competing in a related productCmar%et
0ompanies using related technologies
0ompanies already targeting your prime mar%et segment but with unrelated
products
0ompanies from other geographical areas and with similar products
Gew start#up companies organi@ed by former employees andCor managers of
existing companies
/he entrance of new competitors is li%ely when:
/here are high profit margins in the industry
/here is unmet demand $insufficient supply( in the industry
/here are no major barriers to entry
/here is future growth potential
0ompetitive rivalry is not intense
=aining a competitive advantage over existing firms is feasible
Q: +or#orate Strategy shou% ta"e into account the i$erse interests of a%% the sta"eho%ers of
an organization1 *-#%ain1
L1ur sta%eholders are our business.O Standard .an% U 3NN7 annual report
0ompanies have always had relationships with their sta%eholders, which include
shareowners, customers, suppliers, employees, regulators, and local communities.
n fact, it would be difficult for a company to stay in business if it did not operate with
the interests of these %ey groups in mind. "hen engaging with its sta%eholders, a
business is ac%nowledging that it is an interdependent entity, which is impacted by
and has an impact on many different groups. Bor many companies, however, finding
the right approach to sta%eholder engagement and tapping the wider benefits it
offers to their business is still uncharted territory.

4ecent improvements in global wealth, welfare, and opportunity most li%ely to be
sustained in the 32st century by an economic system that operates on mar%et
principles and provides ample opportunity for creation of new enterprises, as well as
the growth of established ]rms. >nd the long#term success of the corporate system
re*uires greater and systematic managerial attention to the interests and concerns
of the diverse individuals and groups who are voluntarily or involuntarily affected by
corporate activity.
/a%ing sta%eholder concerns and interests into account can improve relationships,
which may ma%e it easier for a company to operate, lead to ideas for products or
services that will address sta%eholder needs, and allow the company to reduce costs
and maximi@e value. 4esearchers have also found correlations between sta%eholder
performance indicators and conventional measures of corporate profitability and
growth. /he reasons may vary. Bor instance, companies that ta%e a sta%eholder view
may have a more responsible approach to ris%#ta%ing, which can deliver higher
returns by not unreasonably pursuing competitive advantage. Sta%eholder#oriented
companies are also welcomed more readily into new mar%ets, as existing companies
embedded in those mar%ets perceive them as less hostile to local values and ways
of operating.
1verall, sta%eholder# responsive corporate governance results in a more
comprehensive understanding of corporate ris% and opportunity while contributing to
a strong reputation over time.
Sta%eholders can have economic, technological, political, social or even managerial
effects on a company and engagement is therefore an important part of anticipating
business opportunities and ris%s, which, in turn, is fundamental to proactive,
strategic management. 1ver time, as economies, labor mar%ets, and supply chains
have become increasingly globali@ed, the number and variety of sta%eholders
impacted by individual companies has grown and the need for sta%eholder
engagement has become an essential part of doing business.
0ompanies can capture and respond to sta%eholder concerns in three ways:
/he corporation ma%es business decisions that ta%e into account its
understanding of sta%eholder interests.
/he corporation engages with sta%eholders to get their input on what
decisions should be made and then ma%es the decisions itself.
/he corporation involves sta%eholders in the decision ma%ing process.
4egardless of process, one also needs to consider the principles behind the
decision ma%ing process. "ill the corporation ta%e sta%eholder interests into account
only when they have a direct influence on existing business performance&
"ill the corporation ta%e sta%eholder interests into account when the actions of the
corporation affects sta%eholders but a change will either not improve performance or
ma%e performance worse&
Fnderstanding sta%eholder needs, interests and concerns is a fundamental part of
managing indirect or nonfinancial ris%s. n fact, nonfinancial ris%s often have their
own associated costs T whether social, environmental, or economic T and will
li%ely in time affect the companyKs financial bottom line. ?ngaging with sta%eholders,
and using information from sta%eholder engagements in decision#ma%ing, is
fundamental to understanding nonfinanical ris%s and managing an enterprise
responsibly. Bor this reason, social investment indices, such as the ,ow Jones
Sustainability ndex, give more weight to sta%eholder engagement than to any other
social impact measure.
Q : +onsier any organization in an inustry of your choice1 /re#are a S4O)
ana%ysis for that organization an then suggest on the basis of this ana%ysis
what shou% be its future course of action1
S4O) 'na%ysis

S"1/ is an acronym for the internal Strengths and "ea%nesses of a business and
environmental 1pportunities and /hreats facing that business. S"1/ analysis is a
systematic identification of these factors and the strategy that reflects the best match
between them. t is based on the logic that an effective strategy maximi@es a
businessKs strengths and opportunities but at the same time minimi@es its
wea%nesses and threats. /his simple assumption, if accurately applied, has
powerful implications for successfully choosing and designing an effective strategy.


1pportunities:

>n opportunity is a major favorable situation in the firmKs environment. Eey trends
represent one source of opportunity. dentification of a previously overloo%ed mar%et
segment, changes in competitive or regulatory circumstances, technological
changes, and improved buyer or supplier relationships could represent opportunities
for the firm.
/hreats
> threat is a major unfavorable situation in the firmKs environment. t is a %ey
impediment to the firmKs current and C or desired future position. /he entrance of a
new competitor, slow mar%et growth, increased bargaining power of %ey buyers or
supplier, major technologies change, and changing regulations could represent
major threats to a firmKs future success.
0onsumer acceptance of home computers was a major opportunity for .:. /he
second fundamental focus in S"1/ analysis is identifying %ey strengths and
wea%ness based on examination of the company profile.
Strengths and wea%nesses can be defined as follows:
Strengths
Strength is a resource, s%ill, or other advantage relative to competitors and the
needs of mar%ets a firm serves or anticipates serving. a strength is a distinctive
competence that gives the firm a comparative advantage in the mar%etplace.
Binancial resources, image, mar%et leadership, and buyer C supplier relations are
examples.

"ea%nesses
> wea%ness is a limitation $or( deficiency in resources, s%ills, and capabilities that
seriously impedes effective performance. Bacilities, financial resources,
management capabilities, mar%eting s%ills, and brand image could be sources of
wea%nesses. Sheer si@e and level of customer acceptance proved to be %ey
strengths around which .: built its successful strategy in the personal computer
mar%et.
)ow is it useful&
Fnderstanding the %ey strengths and wea%nesses of the firm further aids in
narrowing the choice of alternatives and selecting a strategy. ,istinct competence
and critical wea%ness are identified in relation to %ey determinants of success for
different mar%et segments' this provides a useful framewor% for ma%ing the best
strategic choice.
S"1/ analysis can be used in at least three in strategic choice decisions. /he most
common application provides a logical framewor% guiding systematic discussions of
the businessKs situation, alternative strategies, and ultimately, the choice of strategy.
"hat one manager sees as an opportunity, another may see as a potential threat.
S4O) ana%ysis of +aburys
Strength
2. 0adbury is a company, which is reputed internationally as the topmost chocolate
provider in the world.
3. /he brand is well %nown to people & they can easily identify it from others.
5. 0adbury the world leaders in chocolate, is a well#%nown force in mar%eting and
distribution.
6. Fsers have a positive perception about the *ualities of the brand.
7. 0adbury main strength is ,airy mil%. ,airy mil% is the most consumed chocolate in
ndia.
8. .y using popular models li%e 0yrus .rocha, Areety ^inta and others 0adburys
has managed to portray a young and sporty image, which has resulted in converting
buyers of other brands to become its staunch loyalists.
9. 0adbury has well adjusted itself to ndian custom.
;. t has properly repositioned itself in ndia whenever re*uired i.e. from children to
adults, togetherness bar to energi@ing bar for young ones etc.
4ea"ness:
2. /here is lac% of penetration in the rural mar%et where people tend to dismiss it as
a high end product. t is mainly found in urban and semi#urban areas.
3. t has been relatively high priced brand, which is turning the price conscious
customer away.
5. Aeople avoid having their chocolate thin%ing about the egg ingredients.
O##ortunities:
2. /he chocolate mar%et has seen one of the greatest increases in the recent times
$almost _ 5NP(
3. /here is a lot of potential for growth and a huge population who do not eat
chocolates even today that can be converted as new users.
)hreat:
2. /here exists no brand loyalty in the chocolate mar%et and consumers fre*uently
shift their brands.
3. Gew brands are coming and existing brands are introducing new variants to add
up to an already overcrowded mar%et.
Q: Managing +hange is the ha%%mar" of any successfu% %eaer1 ,ow o you
tac"%e the #rocess of change management?
> great leader not only manages change well, he is an agent of change himself
when the need arises. )e is able to affect change, prepare and manage the stress
that the team has to go through during times of change. )e understands the
implications of change well and hence is prepared to face the results that change
may bring.
4esearch shows that the success rate for implementing major organi@ational change
is *uite low, for several reasons. Birst, as%ing organi@ations to change the way they
conduct their business is similar to as%ing individuals to change their lifestyle. t can
be done but only with the greatest determination, discipline, persistence,
commitment and a clear plan for implementing the change.
Second, resistance to change is a natural human phenomenon. >ll people resist
change, some more than others. :anaging that resistance is an essential part of the
process.
/hird, change creates uncertainty. 1rgani@ations generally achieve fairly predictable
results with their existing business model. /heir outcomes may not be the desired
results, but they are predictable. 0hange is unpredictable. /he results may be far
better D but they may also be far worse. >nd success often loo%s and feels li%e
failure until the change is very nearly completed. Staying the course of implementing
a change D which is essential for its success D meets with continuing human and
organi@ational resistance and pressure to pull the plug before the process is
completed.
.o+ to tackle the process o change management/
'. (ccept that change is a process
Birst, recogni@e that change is a process and to move from crisis to control, we must
follow the process. "e must engage everyone in the change. t is not complex but it
is a journey./here were a number of sub#committees identified:
). *ove forward step by step
"hen companies strive to restructure or gain greater efficiency, experts warn that
moving too *uic%ly or failing to carefully implement changes can be detrimental to
the process and ultimate result. .ut in the words of John Eotter, LS%ipping steps
creates only the illusion of speed and never produces satisfactory resultsO and
L:a%ing critical mista%es in any of the phases can have a devastating impact,
slowing momentum and negating hard#won gains.
+. (ssess potential riss and generate motivation
Birst, executives or other players in the organi@ation need to assess potential ris%s
and stir up a sense of urgency among wor%ers and sta%eholders in order to generate
the motivation to spur change within the firm. )owever, this sense of urgency has to
be strong enough and perpetuated by outside analysts, consumers, and other voices
in order to propel change forward.
,. &orm a powerful guiding coalition
1nce change is identified as the best solution to mar%et share, profit losses, or other
catalysts, leaders throughout the organi@ation have to band together to guide the
transformation process, and these leaders can include board members, consumers,
union leaders, executives, chairmen, and others.
-. .reate a shared vision for corporate change
/he group then coalesces to create a shared vision for corporate change, and this
vision should go beyond the normal five#year forward loo%ing plan generated at most
firms annually and be easily communicated and clear. > clear vision should also
include transformation steps that are coordinated and propel the organi@ation toward
the overall goal, and these visions should be communicated in not only words and
speeches, but also actions of managers, supervisors, and executives. /he
transformation of a company should also include short#term goals that can be
trac%ed to show executives and wor%ers that progress is being made toward the
ultimate vision and that the long journey will be worth it, even in spite of short#term
job cuts for instance. ?xperts warn, however, that transformations can ta%e between
five and 2N years to complete, and should not be declared as complete until the
company culture has transformed to meet the vision. -eaders will %now to tac%le
other processes and structures reflecting the old culture of the firm and to engrain
the new behaviors and procedures into wor%ers in order to ma%e the change
complete.
/. .ommunicate that vision
-eadership should estimate how much of the vision is needed, and then multiply that
effort by a factor of ten. > transformation effort will fail unless most of the
organi@ation understand, appreciate, commit and try to ma%e the effort happen. /he
guiding principle is simple: use every existing communication channel and
opportunity.
0. Empower others to act on the vision
4emove obstacles there may be to getting on with change. /his entails several
actions. >llocate budget money to the new initiative and free up %ey people from
existing responsibilities so they can concentrate on the new effort. >llow people to
start living the new ways and ma%e changes in their areas of involvement. Gothing is
more frustrating than believing in the change but then not having the time, money,
help or support needed to effect it.
1. Plan for and create short2term wins
4eal transformation ta%es time therefore' the loss of momentum and the onset of
disappointment are real factors. >ctively plan to achieve short#term gains which
people will be able to see and celebrate. /his will provide proof that efforts are
wor%ing and adds to the motivation to %eep going.1nce change is identified as the
best solution to mar%et share, profit losses, or other catalysts, leaders throughout the
organi@ation have to band together to guide the transformation process, and these
leaders can include board members, consumers, union leaders, executives,
chairmen, and others.
3. .onsolidate improvement and eep the momentum for change moving
> premature declaration of victory can %ill momentum, allowing the powerful forces
of tradition to regain ground. Eeep in mind that new approaches are fragile and
subject to regression. Fse the feeling of victory as the motivation to delve more
deeply into the organi@ation: to explore changes in the basic culture, expose the
systems relationships of the organi@ation that need tuning, and to move people
committed to the new ways into %ey roles.
'4. 5nstitutionali6e the new approaches
>t the end of the day, change stic%s when it seeps into the bloodstream of the
corporate body and becomes Lthe way we do things around here.O /his re*uires a
conscious attempt to: show people how the new approaches, behaviours and
attitudes have helped improve the organi@ation and when the next generation of
leaders believe in and embody the new ways.
Q: Distinguish between fo%%owing conce#ts with suitab%e e-am#%es:
' 6ision an Mission statements
6ision
"hat is the future you want to create for the community you wish to address&

Mission
"hat do we do&
Bor whom do we do it&
"hat is the impact&
6ision - )he :uture
/he way in which one sees or conceives something' a mental image' >n overall
statement of the goal of the organi@ation.
Mission - )he /resent
>n assignment one is sent to carry out' a self#imposed duty. > mission statement
identifies the reason for the existence of the organi@ation. /he statement should be
lin%ed to the overall operations and business of the organi@ation.
!ision 0&estination1
"hatKs the destination of the organi@ation& Hisuali@e what the organi@ation would
loo% li%e in 7 and 2N years. ,escribe the detail: who are your customers, what do
your products or services loo% li%e, who is your mar%et, what is your revenue, how
many employees do you have, etc. 4emember this is the future.
Mission 0!ehicle1
"hat is the focus of your organi@ation& )ow are you structured to achieve your
organi@ationKs goal or objectives& "hat are your organi@ationKs values and core
competencies& 4emember this is your present operation, you may identify changes
needed to your vehicle in order to reach your destination.
McDona%s *-am#%e:
Hision: L/o be the worldKs best *uic% service restaurant experience.O $/he destination
or the future(
:ission: L.eing the best means providing outstanding *uality, service, cleanliness,
and value, so that we ma%e every customer in every restaurant smile.O $/he vehicle
to reach the destination or the present operation(
B =rowth Mar"ets an ,igh 6e%ocity Mar"ets
=rowth Mar"ets:
Bre*uent launches of new competitive moves
0ontains survivors
Birms are more established
-ess variety of strategies
Strategic groups begin to form
Arofits ta%e off
0ustomers more sophisticated
?ntry barriers emerge
Strategic 1ptions:
:ust try to grow faster than the mar%et
,rive down costs
Aursue rapid product innovation
=ain access to distribution channels and sales outlets
?xpand geographic coverage
?xpand product line
,igh 6e%ocity Mar"ets
4apid technological change
Short product life#cycles
?ntry of important new rivals
-ots of competitive maneuvering by rivals
Bast evolving customer re*uirements and expectations
Swirling mar%et conditions
/ossib%e Strategies
Geed to figure out how to deal with change
nvest aggressively in 4&, to stay on the leading edge of
technological %now#how
Eeep the companies products and services fresh and exciting
enough to stand out in the midst of all the change that is ta%ing
place
,evelop *uic%#response capability
4ely on strategic partnerships with outside suppliers and with
companies ma%ing tie#in products
nitiate fresh actions every few months
+ *ntry barriers an *-it barriers
Barriers to entry
.arriers to entry are designed to bloc% potential entrants from entering a mar%et
profitably. /hey see% to protect the monopoly power of existing $incumbent( firms in
an industry and therefore maintain supernormal $monopoly( profits in the long run.
.arriers to entry have the effect of ma%ing a mar%et less contestable
/he economist Joseph Stigler defined an entry barrier as "> cost of producing $at
some or every rate of output( which must be borne by a firm which see%s to enter an
industry but is not borne by firms already in the industry"
/his emphasises the asymmetry in costs between the incumbent firm $already inside
the mar%et( and the potential entrant. f the existing businesses have managed to
exploit some of the economies of scale that are available to firms in a particular
industry, they have developed a cost advantage over potential entrants. /hey might
use this advantage to cut prices if and when new suppliers enter the mar%et, moving
away from short run profit maximisation objectives # but designed to inflict losses on
new firms and protect their mar%et position in the long run.
*H'M/;*S O: B'((5*(S )O *>)(&
/atents
=iving the firm the legal protection to produce a patented product for a number of
years $see below(
;imit /ricing
Birms may adopt predatory pricing policies by lowering prices to a level that would
force any new entrants to operate at a loss
+ost a$antages
-ower costs, perhaps through experience of being in the mar%et for some time,
allows the existing monopolist to cut prices and win price wars
'$ertising an mar"eting
,eveloping consumer loyalty by establishing branded products can ma%e successful
entry into the mar%et by new firms much more expensive. /his is particularly
important in mar%ets such as cosmetics, confectionery and the motor car industry.
(esearch an De$e%o#ment e-#eniture
)eavy spending on research and development can act as a strong deterrent to
potential entrants to an industry. 0learly much 4&, spending goes on developing
new products $see patents above( but there are also important spill#over effects
which allow firms to improve their production processes and reduce unit costs. /his
ma%es the existing firms more competitive in the mar%et and gives them a structural
advantage over potential rival firms.
/resence of sun" costs
Some industries have very high start#up costs or a high ratio of fixed to variable
costs. Some of these costs might be unrecoverable if an entrant opts to leave the
mar%et. /his acts as a disincentive to enter the industry.
5nternationa% trae restrictions
/rade restrictions such as tariffs and *uotas should also be considered as a barrier
to the entry of international competition in protected domestic mar%ets.
Sun" +osts
Sun% 0osts are costs that cannot be recovered if a businesses decides to leave an
industry ?xamples include: " 0apital inputs that are specific to a particular industry
and which have little or no resale value " :oney spent on advertising C mar%eting C
research which cannot be carried forward into another mar%et or industry "hen sun%
costs are high, a mar%et becomes less contestable. )igh sun% costs $including exit
costs( act as a barrier to entry of new firms $they ris% ma%ing huge losses if they
decide to leave a mar%et(.
Barriers to e-it
Bor many businesses there are also barriers to exit which increase the intensity of
competition in an industry because existing firms have little choice but to Lstay and
fightO when mar%et conditions have deteriorated. /here are several costs associated
with exiting an industry.
?B! 'sset-write-offs D e.g. the expense associated with writing#off items of plant and
machinery, stoc%s and the goodwill of a brand
?C! +%osure costs including redundancy costs, contract contingencies with suppliers
and the penalty costs from ending leasing arrangements for property
?D! )he %oss of business re#utation an consumer goowi%% # a decision to leave
a mar%et can seriously affect goodwill among previous customers, not least those
who have bought a product which is then withdrawn and for which replacement parts
become difficult or impossible to obtain.
?G! ' mar"et ownturn may be perceived as temporary and could be overcome
when the economic or business cycle turns and conditions become more favourable
D Strategic '%%iance an Eoint 6entures
Strategic alliances or joint ventures allow you to partner with an existing business to
share the ris%s and opportunities in a new mar%et.
Joint venture is a union of two or more parties, who contractually agree to contribute
to a specific tas% for specified time period. Fnder JH two firms join and form a
separate legal entity and operate ar per partnership >ct. /he JH can be between
individuals or corporations.
"hile Stategic >lliance is mutual 0oordination of strategic planning and
management in order to achieve long term objectives between two organisations.
Fnder this, each organisation will wor% independently and no separate entity is
formed. S> is considered as less ris%y due to less legality.
' strategic a%%iance is a form of collaboration between two or more companies
which can ta%e on many forms such as:
technology transfer
purchasing and distribution agreements
mar%eting and promotional collaboration
joint product development.
?ach partner in the alliance usually retains their independence while contributing
towards a mutual shared goal.
' joint $enture involves a potentially long term investment of funds, facilities and
resources by two or more companies to a combined venture, which benefits all
companies. >ll involved will have an e*uity sta%e in the new venture.
> joint venture may be formed to:
run production facilities in another country
establish a mar%eting and distribution presence
use complementary technologies held by each participant.
Joint ventures can also be used to get around country trade barriers. n some cases
a joint venture with a local company may be re*uired to enter some overseas
mar%ets.
Short >otes:
B1 =%oba% Strategy:
,uring the last half of the twentieth century, many barriers to international trade fell
and a wave of firms began pursuing global strategies to gain a competitive
advantage. )owever, some industries benefit more from globali@ation than do
others, and some nations have a comparative advantage over other nations in
certain industries. /o create a successful global strategy, managers first must
understand the nature of global industries and the dynamics of global competition.
Sources of +om#etiti$e '$antage from a =%oba% Strategy
> well#designed global strategy can help a firm to gain a competitive advantage. /his
advantage can arise from the following sources:
*fficiency
o ?conomies of scale from access to more customers and mar%ets
o ?xploit another country+s resources # labor, raw materials
o ?xtend the product life cycle # older products can be sold in lesser
developed countries
o 1perational flexibility # shift production as costs, exchange rates, etc.
change over time
Strategic
o Birst mover advantage and only provider of a product to a mar%et
o 0ross subsidi@ation between countries
o /ransfer price
(is"
o ,iversify macroeconomic ris%s $business cycles not perfectly
correlated among countries(
o ,iversify operational ris%s $labor problems, earth*ua%es, wars(
;earning
o .roaden learning opportunities due to diversity of operating
environments
(e#utation
o 0rossover customers between mar%ets # reputation and brand
identification
C1 6ertica% an ,orizonta% 5ntegration
ntegration may ta%e two forms: vertical and hori@ontal integration1

6ertica% integration

Hertical integration strategy involves growth through ac*uisition of other
organi@ations in a channel of distribution. "hen an organi@ation purchases other
companies that supply it, it engages in bac%ward integration. /he organi@ation that
purchases other firms those are closer to the end users of the product $such as
wholesalers and retailers( engages in forward integration.
Hertical integration is used to obtain greater control over a line of business and to
increase profits through greater efficiency or better selling efforts.
/he degree to which a firm owns its upstream suppliers and its downstream buyers
is referred to as $ertica% integration. .ecause it can have a significant impact on a
business unit+s position in its industry with respect to cost, differentiation, and other
strategic issues, the vertical scope of the firm is an important consideration in
corporate strategy.
?xpansion of activities downstream is referred to as forward integration, and
expansion upstream is referred to as bacward integration.
/he concept of vertical integration can be visuali@ed using the value chain. 0onsider
a firm whose products are made via an assembly process. Such a firm may consider
bac%ward integrating into intermediate manufacturing or forward integrating into
distribution, as illustrated below:
,orizonta% integration

/his strategy involves growth through the ac*uisition of competing firms in the same
line of business. t is adopted in an effort to increase the si@e, sales, profits, and
potential mar%et share of an organi@ation. /his strategy is sometimes used by
smaller firms in an industry dominated by one or a few large competitors, such as
the soft drin% and computer industries.
/he ac*uisition of additional business activities at the same level of the value chain
is referred to as horizonta% integration. /his form of expansion contrasts with
vertical integration by which the firm expands into upstream or downstream
activities. )ori@ontal growth can be achieved by internal expansion or by external
expansion through mergers and ac*uisitions of firms offering similar products and
services. > firm may diversify by growing hori@ontally into unrelated businesses.
Some examples of hori@ontal integration include:
/he Standard 1il 0ompany+s ac*uisition of 6N refineries.
>n automobile manufacturer+s ac*uisition of a sport utility vehicle
manufacturer.
> media company+s ownership of radio, television, newspapers, boo%s, and
maga@ines.
D1 Strategic 'uit
t is an operational framewor% designed to access whether the firmKs corporate
strategy is delivering the desired results. >ny strategy that is formulated is generally
speculative & the critical ris%s or success often lies with the external environment
which is non controllable.
)ence, firms resort to periodic appraisals of the EAKs & to access performance gaps
and their solution as part of the audit outcome.
Some organi@ations do strategic audits as a matter of periodic routine while some
forms conduct it when they see negative operating signals.
"hat are the EAs&
2. Mualitative and Muantitative performance indicators namely
a. :ar%et Share
b. Get 4ealisation
c. Arofit :argins
3. Stoc% Arice & ?arning per share
5. :ar%et penetration, launching of new product ideas and the success there of.
6. ?xtent of value delivery, brand image & perception by consumers.
7. >re the policies & action plans as per the strategy approach appropriate&
8. ,oes the strategy build companyKs strength and resource capabilities ade*uate
enough to gain competitive advantage&
9. "hether the companyKs strategy is wor%able for the future.
mplementation of the audit
t aims in understanding whether the strategy employed has helped the company to
meet its benchmar%ed EAKs. Bollowing Muestions need to be as%ed as the part of
the audit.
2. "hether strategy is consistent with the firmKs culture, capabilities, values &
ethics.
3. "hether the strategy is structured to achieving stated mar%eting business
objectives.
5. "hether the information systems in the company monitor strategic
implementation and provides for real time, business intelligence that helps the firm to
fine tune strategy.
6. "hether there is a consensus within the companyKs strategic formulation and
implementation.
7. "hether there is weight balance in the companyKs efforts in monitoring the
present & preparing for the future.
8. "hether the strategy deployed is consistent with the actual business priorities of
the firm.
0onclusion:
t is the best way to address & access a wide array of complex and independent
issues that need to be analysed to reap growth and profits fro strategic planning.
Birm also need to periodically visit core value chain activities to ensure that
technology & processes are contemporary & their costs are an industry benchmar%.
G1 =%oba% an Mu%ti +om#any O#erations
=%oba% O#erations:
Gi%e and 4eebo%, for example, manufacture their athletic shoes in various
countries thorough out >sia for sale on every continent. nstead of using one
international division to manage everything outside the home country, large
corporations are now using matrix structures in which product units are interwoven
with country or regional units. nternational assignments are now considered %ey
for anyone interested in reaching top management.

>s more industries become global, strategic management is becoming an
increasingly important way to %eep trac% of international developments and position
the company for long#term competitive advantage.
Mu%ti +om#any O#erations:
/he correlation between company si@e and operating in multiple businesses is not
an accident. >fter all, most firms that stay in a single business reach a saturation
point in that business sooner or later, and have to ma%e a choice. /hey can accept
the fact that they are now mature companies and settle into that status, or they can
aspire for more growth, usually by entering new businesses and new mar%ets. "hile
not every large firm is a =eneral ?lectric or Siemens, most large firms have
expanded beyond their original mar%ets $both in terms of products and geography(.