The word “strategy” is derived from the Greek word
“strategos”; stratus (meaning army) and “ago” (meaning
leading/moving).
Strategy is an action that managers take to attain one or more
of the organization’s goals. Strategy can also be defined as “A
general direction set for the company and its various
components to achieve a desired state in the future. Strategy
results from the detailed strategic planning process”.
A strategy is all about integrating organizational activities and
utilizing and allocating the scarce resources within the
organizational environment so as to meet the present
objectives.
While planning a strategy it is essential to consider that
decisions are not taken in a vacuum and that any act taken by
a firm is likely to be met by a reaction from those affected,
competitors, customers, employees or suppliers.
Strategy can also be defined as knowledge of the goals, the
uncertainty of events and the need to take into consideration
the likely or actual behaviour of others.
Strategy is the blueprint of decisions in an organization that
shows its objectives and goals, reduces the key policies, and
plans for achieving these goals, and defines the business the
company is to carry on, the type of economic and human
organization it wants to be, and the contribution it plans to
make to its shareholders, customers and society at large.
FEATURES OF STRATEGY
1. Strategy is Significant because it is not possible to foresee the
future. Without a perfect foresight, the firms must be ready to
deal with the uncertain events which constitute the business
environment.
2. Strategy deals with long term developments rather than
routine operations, i.e. it deals with probability of innovations
or new products, new methods of productions, or new markets
to be developed in future.
3. Strategy is created to take into account the probable
behaviour of customers and competitors. Strategies dealing
with employees will predict the employee behaviour.
4. Strategy is a well-defined roadmap of an organization. It
defines the overall mission, vision and direction of an
organization. The objective of a strategy is to maximize an
organization’s strengths and to minimize the strengths of the
competitors.
5. Strategy, in short, bridges the gap between “where we are”
and “where we want to be”.
STRATEGIC MANAGEMENT
The systematic analysis of the factors associated with
customers and competitors (the external environment) and the
organization itself (the internal environment) to provide the
basis for maintaining optimum management practices. The
objective of strategic management is to achieve better
alignment of corporate policies and strategic priorities.
Strategic Management is all about identification and
description of the strategies that managers can carry so as to
achieve better performance and a competitive advantage for
their organization.
An organization is said to have competitive advantage if its
profitability is higher than the average profitability for all
companies in its industry.
Strategic management can also be defined as a bundle of
decisions and acts which a manager undertakes and which
decides the result of the firm’s performance.
The manager must have a thorough knowledge and analysis of
the general and competitive organizational environment so as
to take right decisions.
They should conduct a SWOT Analysis (Strengths, Weaknesses,
Opportunities, and Threats), i.e., they should make best
possible utilization of strengths, minimize the organizational
weaknesses, make use of arising opportunities from the
business environment and shouldn’t ignore the threats.
Strategic management is nothing but planning for both
predictable as well as unfeasible contingencies.
It is applicable to both small as well as large organizations as
even the smallest organization face competition and, by
formulating and implementing appropriate strategies, they can
attain sustainable competitive advantage.
Strategic Management is a way in which strategists set the
objectives and proceed about attaining them.
It deals with making and implementing decisions about future
direction of an organization. It helps us to identify the
direction in which an organization is moving.
Strategic management is a continuous process that evaluates
and controls the business and the industries in which an
organization is involved; evaluates its competitors and sets
goals and strategies to meet all existing and potential
competitors; and then revaluates strategies on a regular basis
to determine how it has been implemented and whether it was
successful or does it needs replacement.
STRATEGIC MANAGEMENT PROCESS HAS FOLLOWING FOUR STEPS:
1. ENVIRONMENTAL SCANNING-
Environmental scanning refers to a process of collecting,
scrutinizing and providing information for strategic purposes.
It helps in analyzing the internal and external factors
influencing an organization. After executing the environmental
analysis process, management should evaluate it on a
continuous basis and strive to improve it.
2. STRATEGY FORMULATION-
Strategy formulation is the process of deciding best course of
action for accomplishing organizational objectives and hence
achieving organizational purpose. After conducting
environment scanning, managers formulate corporate,
business and functional strategies.
3. STRATEGY IMPLEMENTATION-
Strategy implementation implies making the strategy work as
intended or putting the organization’s chosen strategy into
action. Strategy implementation includes designing the
organization’s structure, distributing resources, developing
decision making process, and managing human resources.
4. STRATEGY EVALUATION-
Strategy evaluation is the final step of strategy management
process. The key strategy evaluation activities are: appraising
internal and external factors that are the root of present
strategies, measuring performance, and taking remedial /
corrective actions.
Evaluation makes sure that the organizational strategy as well
as its implementation meets the organizational objectives.
These components are steps that are carried, in chronological
order, when creating a new strategic management plan.
Present businesses that have already created a strategic
management plan will revert to these steps as per the
situation’s requirement, so as to make essential changes.
COMPONENTS OF STRATEGIC MANAGEMENT PROCESS
Strategic management is an on-going process. Therefore, it
must be realized that each component interacts with the other
components and that this interaction often happens in chorus.
TYPES OF GOVERNMENTAL SYSTEM:
1. COMMAND SYSTEM:
A system where the government, rather than the free market,
determines what goods should be produced, how much should
be produced and the price at which the goods will be offered
for sale.
The command system is a key feature of any communist
society. China, Cuba, North Korea and the former Soviet Union
are examples of countries that have command system.
2. FREE MARKET SYSTEM:
A market economy based on supply and demand with little or
no government control.
A completely free market is an idealized form of a market
economy where buyers and sells are allowed to transact freely
(i.e. buy/sell/trade) based on a mutual agreement on price
without state intervention in the form of taxes, subsidies or
regulation.
In financial markets, free market stocks are securities that are
widely traded and whose prices are not affected by availability.
In foreign-exchange markets, it is a market where exchange
rates are not pegged (by government) and thus rise and fall
freely though supply and demand for currency.
3. MIXED ECONOMY:
An economic system that includes a mixture of capitalism and
socialism.
This type of economic system includes a combination of private
economic freedom and centralized economic planning and
government regulation.
TYPES OF MARKET:1. PERFECT COMPETITION:
The concept of perfect competition was first introduced by
Adam Smith in his book "Wealth of Nations".
Later on, it was improved by Edge worth. However, it received
its complete formation in Frank Kight's book "Risk, Uncertainty
and Profit" (1921).
A MARKET STRUCTURE IN WHICH THE FOLLOWING FIVE CRITERIA ARE MET:
All firms sell an identical product.
All firms are price takers.
All firms have a relatively small market share.
Buyers know the nature of the product being sold and the
prices charged by each firm.
The industry is characterized by freedom of entry and exit.
Sometimes referred to as "pure competition".
"Prefect competition is a market in which there are many firms
selling identical products with no firm large enough, relative to
the entire market, to be able to influence market price".
"The perfect competition is characterized by the presence of
many firms. They sell identically the same product. The seller
is a price taker".
2. MONOPOLY:
A situation in which a single company or group owns all or
nearly all of the market for a given type of product or service.
By definition, monopoly is characterized by an absence of
competition, which often results in high prices and inferior
products.
A monopoly is a market containing a single firm. In such
instances where a single firm holds monopoly power, the
company will typically be forced to divest its assets.
Antimonopoly regulation protects free markets from being
dominated by a single entity.
3. OLIGOPOLY:
A situation in which a particular market is controlled by a small
group of firms.
An oligopoly is much like a monopoly, in which only one
company exerts control over most of a market. In an oligopoly,
there are at least two firms controlling the market.
In economics, the market consists of few sellers who are highly
sensitive to each other’s pricing and marketing strategies.
There are few sellers because it is difficult for new sellers to
enter the market. Each seller is alert to competitor’s strategies
and move.
BUSINESS ENVIRONMENT:
The term Business Environment is composed of two words
‘Business’ and ‘Environment’. In simple terms, the state in which
a person remains busy is known as Business. The word Business
in its economic sense means human activities like production,
extraction or purchase or sales of goods that are performed for
earning profits.
On the other hand, the word ‘Environment’ refers to the aspects
of surroundings. Therefore, Business Environment may be
defined as a set of conditions – Social, Legal, Economical, Political
or Institutional that are uncontrollable in nature and affects the
functioning of organization. Business Environment has two
components:
1. Internal Environment
2. External Environment
INTERNAL ENVIRONMENT:
It includes 5 Ms i.e. man, material, money, machinery and
management, usually within the control of business. Business
can make changes in these factors according to the change in
the functioning of enterprise.
EXTERNAL ENVIRONMENT:
Those factors which are beyond the control of business
enterprise are included in external environment. These factors
are: Government and Legal factors, Geo-Physical Factors,
Political Factors, Socio-Cultural Factors, Demo-Graphical
factors etc. It is of two Types:
1. Micro/Operating Environment
2. Macro/General Environment
MICRO/OPERATING ENVIRONMENT:
The environment which is close to business and affects its
capacity to work is known as Micro or Operating Environment.
It consists of Suppliers, Customers, Market Intermediaries,
Competitors and Public.
(1) SUPPLIERS: –
They are the persons who supply raw material and required
components to the company. They must be reliable and
business must have multiple suppliers i.e. they should not
depend upon only one supplier.
(2) CUSTOMERS: -
Customers are regarded as the king of the market. Success of
every business depends upon the level of their customer’s
satisfaction.
TYPES OF CUSTOMERS:
1. Wholesalers
2. Retailers
3. Industries
4. Government and Other Institutions
5. Foreigners
(3) MARKET INTERMEDIARIES: -
They work as a link between business and final consumers.
TYPES:-
1. Middleman
2. Marketing Agencies
3. Financial Intermediaries
4. Physical Intermediaries
(4) COMPETITORS: -
Every move of the competitors affects the business. Business
has to adjust itself according to the strategies of the
Competitors.
(5) PUBLIC: -
Any group who has actual interest in business enterprise is
termed as public e.g. media and local public. They may be the
users or non-users of the product.
MACRO/GENERAL ENVIRONMENT: –
It includes factors that create opportunities and threats to
business units. Following are the elements of Macro
Environment:
(1) ECONOMIC ENVIRONMENT: -
It is very complex and dynamic in nature that keeps on
changing with the change in policies or political situations.
IT HAS THREE ELEMENTS:
ECONOMIC CONDITIONS OF PUBLIC
ECONOMIC POLICIES OF THE COUNTRY
ECONOMIC SYSTEM
OTHER ECONOMIC FACTORS: –
1. Infrastructural Facilities, Banking, Insurance companies,
2. Money markets, capital markets etc.
(2) NON-ECONOMIC ENVIRONMENT: -
Following are included in non-economic environment:-
(I) POLITICAL ENVIRONMENT: -
It affects different business units extensively. Components:
1. Political Belief of Government
2. Political Strength of the Country
3. Relation with other countries
4. Defense and Military Policies
5. Centre State Relationship in the Country
6. Thinking Opposition Parties towards Business Unit
(II) SOCIO-CULTURAL ENVIRONMENT: -
Influence exercised by social and cultural factors, not within
the control of business, is known as Socio-Cultural
Environment.
These factors include: attitude of people to work, family
system, caste system, religion, education, marriage etc.
(III) TECHNOLOGICAL ENVIRONMENT: -
A systematic application of scientific knowledge to practical
task is known as technology. Every day there has been vast
changes in products, services, lifestyles and living conditions,
these changes must be analysed by every business unit and
should adapt these changes.
(IV) NATURAL ENVIRONMENT: -
It includes natural resources, weather, climatic conditions, port
facilities, topographical factors such as soil, sea, rivers, rainfall
etc. Every business unit must look for these factors before
choosing the location for their business.
(V) DEMOGRAPHIC ENVIRONMENT:-
It is a study of perspective of population i.e. its size, standard
of living, growth rate, age-sex composition, family size, income
level (upper level, middle level and lower level), education
level etc. Every business unit must see these features of
population and recognise their various needs and produce
accordingly.
(VI) INTERNATIONAL ENVIRONMENT: -
It is particularly important for industries directly depending on
import or exports. The factors that affect the business are:
Globalisation, Liberalisation, foreign business policies, cultural
exchange.
CHARACTERISTICS:-
a. Business environment is compound in nature.
b. Business environment is constantly changing process.
c. Business environment is different for different business units.
d. It has both long term and short term impact.
e. Unlimited influence of external environment factors.
f. It is very uncertain.
g. Inter-related components.
h. It includes both internal and external environment.
SECTORAL DIVISIONS OF BUSINESS:
PUBLIC SECTOR:
The public sector is that portion of society controlled by
national, state or provincial, and local governments.
In the United States, the public sector encompasses universal,
critical services such as national Defense, homeland security,
police protection, fire fighting, urban planning, corrections,
taxation, and various social programs.
The part of the economy concerned with providing basic
government services.
The composition of the public sector varies by country, but in
most countries the public sector includes such services as the
police, military, public roads, public transit, primary education
and healthcare for the poor.
The public sector might provide services that non-payer cannot
be excluded from (such as street lighting), services which
benefit all of society rather than just the individual who uses
the service (such as public education), and services that
encourage equal opportunity.
JOINT SECTOR:
The joint sector is a form of partnership between the public
sector and the private sector. Ownership & control shared by
private entrepreneur. State and public.
PRIVATE SECTOR:
The part of a nation's economy which is not controlled by the
government.
The part of the economy that is not state controlled, and is run
by individuals and companies for profit.
The private sector encompasses all for-profit businesses that
are not owned or operated by the government.
Companies and corporations that are government run are part
of what is known as the public sector, while charities and other
non-profit organizations are part of the voluntary sector.
FORMS OF ORGANIZATION: SOLE PROPRIETORSHIP:
When the ownership and management of business are in
control of one individual, it is known as sole proprietorship or
sole tradership. It is seen everywhere, in every country, every
state, every locality.
The shops or stores which you see in your locality — the
grocery store, the vegetable store, the sweets shop, the
chemist shop, the paanwala, the stationery store, the STD/ISD
telephone booths etc. come under sole proprietorship.
It is not that a sole tradership business must be a small one.
The volume of activities of such a business unit may be quite
large. However, since it is owned and managed by one single
individual, often the size of business remains small.
ADVANTAGES OF SOLE PROPRIETORSHIP:
1. EASY FORMATION:
The biggest advantage of a sole tradership business is its easy
formation. Anybody wishing to start such a business can do so in
many cases without any legal formalities.
2. BETTER CONTROL:
The owner has full control over his business. He plans, organises,
co-ordinates the various activities. Since he has all authority,
there is always effective control.
3. PROMPT DECISION MAKING:
As the sole trader takes all the decisions himself the decision
making becomes quick, which enables the owner to take care of
available opportunities immediately and provide immediate
solutions to problems.
4. FLEXIBILITY IN OPERATIONS:
One man ownership and control makes it possible for change in
operations to be brought about as and when necessary.
DISADVANTAGES OF SOLE PROPRIETORSHIP:
1. UNLIMITED LIABILITY:
In sole proprietorship, the liability of business is recovered from
the personal assets of the owner. It restricts the sole trader to
take more risk and increases the volume of his business.
2. LIMITED FINANCIAL RESOURCES:
The ability to raise and borrow money by one individual is always
limited. The inadequacy of finance is a major handicap for the
growth of sole proprietorship.
3. LIMITED CAPACITY OF INDIVIDUAL:
An individual has limited knowledge and skill. Thus his capacities
to undertake responsibilities, his capacity to manage, to take
decisions and to bear the risks of business are also limited.
4. UNCERTAINTY OF DURATION:
The existence of a sole tradership business is linked with the life
of the proprietor. Illness, death or insolvency of the owner brings
an end to the business. The continuity of business operation is,
therefore, uncertain.
PARTNERSHIP
A partnership form of organisation is one where two or more
persons are associated to run a business with a view to earn
profit. Persons from similar background or persons of different
ability and skills may join together to carryon a business. Each
member of such a group is individually known as ‘partner’
and collectively the members are known as a ‘partnership
firm’. These firms are governed by the Indian Partnership Act,
1932.
JOINT STOCK COMPANY
A Joint Stock Company form of business organisation is a
voluntary association of persons to carry on business.
Normally, it is given a legal status and is subject to certain
legal regulations.
It is an association of persons who generally contribute money
for some common purpose. The money so contributed is the
capital of the company. The persons who contribute capital are
its members.
The proportion of capital to which each member is entitled is
called his share, therefore members of a joint stock company
are known as shareholders and the capital of the company is
known as share capital.
The total share capital is divided into a number of units known
as ‘shares’. You may have heard of the names of joint stock
companies like Tata Iron & Steel Co. Limited, Hindustan Lever
Limited, Reliance Industries Limited, Steel Authority of India
Limited, Ponds India Limited etc.
The companies are governed by the Indian Companies Act,
1956. The Act defines a company as an artificial person created
by law, having separate entity, with perpetual succession and
a common seal.
CO-OPERATIVE SOCIETY
Any ten persons can form a co-operative society. It functions
under the Co-operative Societies Ac t , 1912 and other State
Co-operative Societies Acts .
A co-operative society is entirely different from all other forms
of organisation Forms of Business Organisation. The co-
operatives are formed primarily to render services to its
members. Generally it also provides some service to the
society.
The main objectives of co-operative society are:
rendering service rather than earning profit,
mutual help instead of competition, and
Self-help in place of dependence.
ON THE BASIS OF OBJECTIVES, VARIOUS TYPES OF CO-OPERATIVES ARE FORMED:A. CONSUMER CO-OPERATIVES:
These are formed to protect the interests of ordinary
consumers of society by making consumer goods available at
reasonable prices. Kendriya Bhandar in Delhi, Alaka in
Bhubaneswar and similar others are all examples of consumer
co-operatives
B. PRODUCERS CO-OPERATIVES:
These societies are set up to benefit small producers who face
problems in collecting inputs and marketing their products.
The Weavers co-operative society, the Handloom owners
cooperative society are examples of such co-operatives.
C. MARKETING CO-OPERATIVES:
These are formed by producers and manufactures to eliminate
exploitation by the middlemen while marketing their product.
Kashmir Arts Emporium, J&K Handicrafts, Utkalika etc. are
examples of marketing co-operatives.
D. HOUSING CO-OPERATIVES:
These are formed to provide housing facilities to its members.
They are called co-operative group housing societies.
E. CREDIT CO-OPERATIVES:
These societies are formed to provide financial help to its
members. The rural credit societies, the credit and thrift
societies, the urban co-operative banks etc. come under this
category.
F. FORMING CO-OPERATIVES:
These are formed by small farmers to carry on work jointly and
thereby share the benefits of large scale farming. Besides
these types, other co-operatives can be formed with the
objective of providing different benefits to its members, like
the construction co-operatives, transport co-operatives, co-
operatives to provide education etc.
FORMS OF GROWTH OF BUSINESS:
ORGANIC:
The growth rate that a company can achieve by increasing
output and enhancing sales.
This excludes any profits or growth acquired from takeovers,
acquisitions or mergers. Takeovers, acquisitions and mergers
do not bring about profits generated within the company, and
are therefore not considered organic.
INORGANIC:
A growth in the operations of a business that arises from
mergers or takeovers, rather than an increase in the
company’s own business activity.
Firms that choose to grow inorganically can gain access to new
markets and fresh ideas that become available through
successful mergers and acquisitions.
TAKEOVERS:
A corporate action where an acquiring company makes a bid
for an acquire. If the target company is publicly traded, the
acquiring company will make an offer for the outstanding
shares.
MERGERS AND ACQUISITIONS:
A general term used to refer to the consolidation of companies.
A merger is a combination of two companies to form a new
company, while an acquisition is the purchase of one company
by another in which no new company is formed.
A corporate action in which a company buys most, if not all, of
the target company's ownership stakes in order to assume
control of the target firm.
Acquisitions are often made as part of a company's growth
strategy whereby it is more beneficial to take over an existing
firm's operations and niche compared to expanding on its own.
Acquisitions are often paid in cash, the acquiring company's
stock or a combination of both.
DISSOLUTION:
Termination of a corporation's legal existence. Termination of a
contract.
Dissolution of the partnership (owing to retirement, death or
insolvency of a partner), merely involves change in the relation
of the partners but it does not end the firm; the partnership
would certainly come to an end but the firm, the reconstituted
one might continue under the same name.
So the dissolution of the partnership may or may not include
the dissolution of the firm but the dissolution of the firm
necessarily means the dissolution of the partnership.
On dissolution of the firm, the business of the firm ceases to
exist since its affairs are would up by selling the assets and by
paying the liabilities and discharging the claims of the
partners.
The dissolution of partnership among all partners of a firm is
called dissolution of the firm.
(I) DISSOLUTION BY AGREEMENT: A firm is dissolved in case
1. all the partners give consent or
2. as per the terms partnership agreement.
(II) COMPULSORY DISSOLUTION: A FIRM IS DISSOLVED
COMPULSORILY IN THE FOLLOWING CASES:
1. When all the partners or all excepting one partner becomes
Insolvent or of unsound mind.
2. When the business becomes unlawful.
3. When all the partners excepting one decide to retire from the
firm.
4. When all the partners or all excepting one partner die.
5. A firm is also dissolved compulsorily if the partnership deed
includes any provision regarding the happening of the
following events expiry of the period for which the firm was
formed,
6. Completion of the specific venture or project for which the
firm was formed.
(III) DISSOLUTION BY NOTICE:
In case of a partnership at will, the firm maybe dissolved if any
one of the partner gives a notice in writing to the other partners.
(IV) DISSOLUTION BY COURT:
A court may order a partnership firm to be dissolved in the
following cases:
1. When a partner becomes of unsound mind
2. When a partner becomes permanently incapable of performing
his/her duties as a partner.
3. When partner deliberately and consistently commits breach of
agreements relating to the management of the firm;
4. when a partner’s conduct is likely to adversely affect the
business of the firm;
5. when a partner transfers his/her interest in the firm to a third
party;
6. When the court regards dissolution to be just and equitable.
ROLE OF ENTREPRENEURSHIP:
An entrepreneur is a person who holds a vision, spirit,
intelligence and an art of making an enterprise run
successfully. But what is the role of an entrepreneur from the
social aspect. He as a part of society also has to play an
important role in bringing in new ideas, methods and objects
for the welfare of the society.
Irrespective of the basics of satisfying his personal goals and
ambitions, he should also understand his responsibilities
towards community.
Considering this aspect of a service towards society, can help
the entrepreneurs in generating more contacts in their society
as well as get new business leads and ventures.
For gaining this they should participate in local forums and
community meets. They should give some of their time to some
social awareness programmes.
Entrepreneur is a person who habitually creates and innovates
to build something of recognized value around perceived
(aware) opportunities”
Entrepreneurship is what drives human lives to change for the
better because entrepreneurs put their theoretical innovations
into practice.
Successful new products are usually associated with `idea-
centric' (Full of ideas) creativity.
The action and result of imagination and ingenuity (cleverness
or power of creative imagination).
Creativity is not ability to create out of nothing but the ability
to generate new ideas by combining, changing, or reapplying
existing ideas.
Creativity requires passion (strong feeling or emotion) and
commitment.
INNOVATION
Introduction of something new.
It is the transformation (Conversion or modification) of creative
ideas into useful applications by combining resources in new or
unusual ways to provide value to society for or improved
products, technology, or services.
It is the development of new processes, methods, devices,
products, and services for a useful purpose.
ENTREPRENEURSHIP
1. It is the process of creating value through unique(exclusive)
resource combinations to exploit opportunity.
2. It is the implementation (execution) of innovation.
3. The utilization (using) of the skill sets, qualities and
characteristics inherent (built in) in, or acquired(gained) by,
entrepreneurs.
THE ESSENCE OF ENTREPRENEURSHIP
1. Innovation is the specific instrument of entrepreneurship.
2. India, the largest democracy of the World, with about a sixth
of the World's Human Resource.
3. India also has its strengths in its diversity; it's faith in
equality and freedom.
4. India has a huge potential for innovation and
entrepreneurship.
5. Colleges play a far greater role in the society than just being
centres of knowledge transfer and exchange.
6. It is therefore, required of colleges and other educational
institutions to cultivate (educate) the habit of innovation,
within themselves and in their students.
CHARACTERISTIC OF SUCCESSFUL ENTREPRENEURS
a. Self-confident and optimistic (Positive thinking)
b. Able to take calculated risk
c. Respond positively to challenges
d. Flexible and able to adapt
e. Knowledgeable of markets
f. Able to get along well with others
g. Independent minded
h. Versatile (variety ) knowledge
i. Energetic and diligent (carrying out a task steadily)
j. Creative, need to achieve
k. Dynamic (active) leader
l. Responsive (reacting or responding positively) to suggestions
m.Take initiatives (to go ahead)
n. Resourceful and persevering (performer)
o. Perceptive(sharp or interested) with foresight (advance
thinking)
p. Responsive to criticism (comments or judgements)
MINTZBERG MODES/APPROACHES:
Mintzberg, proposed that traditionally organizations (profit
making or not for profit) can be divided into five components.
In practice organizational structure may differ from proposed
model. Factors influencing organizational structure are
industry norms, size, experience, culture, external forces
(competition, inflation, minimum wage legislation etc).
Components identified by Mintzberg are useful for
understanding the workflow of organizations.
1. STRATEGIC APEX.
Strategic apex is the most senior level in the organization.
Management working at this level is referred as board of
Directors (chairman, CEO, executes and non-executive
directors).
They set the objectives (increase sales by 10% in one year) and
strategic direction (new product and markets developments) of
the organization.
They take major investing (takeovers) and financing (Shares
issue) decisions. They are not involved in day to day operations
of the business.
They do not deal with customers and suppliers except in
exceptional cases (dealing with complaints).
They represent the organizational face to external
stakeholders (person have interest in the organization like
government).
Integrity of organization can be judged by integrity of its board
of directors.
2. MIDDLE LINE.
Middle line managers interpret objectives and strategies of the
strategic level management into feasible plans and standards
to get the work done through operational managers (see
below).
They set budget, receives reports from management
accountants, monitors performances and take corrective
actions where necessary.
They often take investing (purchase equipment) and financing
(Trade payable and overdraft management) decision to the
extent of authority given by strategic level management.
They synchronize works of individual departments so that all
departments work in single direction towards the achievement
of organizational objectives.
Making 20000 units of a product by production department
does not help achieve organizational objectives if sales
department cannot sell them.
3. OPERATIONAL CORE.
Operational core manager often referred to as operational
managers are involved in day to day running of the
organizations.
They are the personnel who actually achieve organizational
objectives under the guidance of senior managers. They deal
with external stakeholder (Customers and suppliers etc).
They are responsible for quality and efficiency of the
organizational results.
They provide important information in deciding strategic
directions and budgeting by senior managers, as they now
better what is practicable due their operational experience.
4. TECHNO STRUCTURE.
Personnel work in techno structure are employees and
managers just in the same way as chain command runs from
strategic apex to operational core.
Difference is they do not involved in any revenue generating or
core (for which organization exists) activity. They only assist
managers at all levels performing core activities to perform it
effectively and efficiently and report whenever corrective
actions needs to be taken to achieve the performance targets
and objectives.
What activity or functional department is considered under
techno structure depends on industry like in banking sector
accounting is considered a core activity, while in supermarket
accounting is optional activity because supermarket will not
closedown if accountants get absent, they just provides
information on inventory, debtors and creditors information.
5. SUPPORT STAFF.
Support staff is of least importance to the organization as their
absence does not directly affects the performance of
organization.
Organization still spends on supporting activities because it
provides good working environment and facilities (peon) to
core employees to prevent down time.
Departments like canteen, cleaning and maintenance comes
under this heading.
As like techno structure, what is considered supporting
activities depends on the industry.
COMPONENETS OF STRATEGIC PLANNING:
ELEMENTS TO STRATEGIC PLANNING
1. COMMUNICATION STRATEGY –
The development of a communication strategy is essential for
the effective development and implementation of a strategic
plan.
In the communications strategy, you should determine who
will be involved in the planning process, how they will be
involved and what is being communicated to whom on the
staff.
2. STRATEGIC PLANNING TASK FORCE –
The development of a core team of organizational leaders is
mandatory in the effective creation of a strategic plan.
Each task force member should represent a key business area
or department of the organization to ensure the plan has
organization wide input and buy-in.
The task force meets regularly with clearly defined
deliverables to be presented at each meeting.
3. VISION STATEMENT –
An organization’s vision statement is simply their roadmap for
the future.
The direction of the organization should be broad to include all
areas of impact but narrow enough to clearly define a path.
4. MISSION STATEMENT –
An organization’s mission is a definition of whom and what
they are.
Often mission statements include core goals and values of the
organization.
5. VALUES –
Values are the organization’s fundamental beliefs in how they
operate. Values can provide a guideline for management and
staff for acceptable organizational behaviour.
Often values relate to the organization’s organizational
culture.
6. GOALS –
Goals are broad based strategies needed to achieve your
organization’s mission.
7. OBJECTIVES –
Objectives are specific, measurable, action oriented, realistic
and time bound strategies that achieve the organization’s
goals and vision.
8. TASKS –
Tasks are specific actionable events that are assigned to
individuals/departments to achieve. They, too, should be
specific, measurable and time bound.
9. IMPLEMENTATION STRATEGY –
Once the plan has been outlined, a tactical strategy is built
that prioritizes initiatives and aligns resources.
The implementation strategy pulls all the plan pieces together
to ensure collectively there are no missing pieces and that the
plan is feasible.
As a part of the implementation strategy, accountability
measures are put in place to ensure implementation takes
place.
10. MONITORING OF STRATEGIC PLAN –
During implementation of a strategic plan, it is critical to
monitor the success and challenges of planning assumptions
and initiatives.
When evaluating the successes of a plan, you must look
objectively at the measurement criteria defined in our goals
and objectives.
It may be necessary to retool the plan and its assumptions if
elements of the plan are off track.
STRATEGY IMPLEMENTATION:
Strategy implementation is "the process of allocating
resources to support the chosen strategies".
This process includes the various management activities that
are necessary to put strategy in motion, institute strategic
controls that monitor progress, and ultimately achieve
organizational goals.
"The implementation process covers the entire managerial
activities including such matters as motivation, compensation,
management appraisal, and control processes".
Strategy implementation is the translation of chosen strategy
into organizational action so as to achieve strategic goals and
objectives.
Strategy implementation is also defined as the manner in
which an organization should develop, utilize, and amalgamate
organizational structure, control systems, and culture to follow
strategies that lead to competitive advantage and a better
performance.
Organizational structure allocates special value developing
tasks and roles to the employees and states how these tasks
and roles can be correlated so as maximize efficiency, quality,
and customer satisfaction-the pillars of competitive advantage.
But, organizational structure is not sufficient in itself to
motivate the employees.
An organizational control system is also required. This control
system equips managers with motivational incentives for
employees as well as feedback on employees and
organizational performance.
Organizational culture refers to the specialized collection of
values, attitudes, norms and beliefs shared by organizational
members and groups.
Following are the main steps in implementing a strategy:
1. Developing an organization having potential of carrying out
strategy successfully.
2. Disbursement of abundant resources to strategy-essential
activities.
3. Creating strategy-encouraging policies.
4. Employing best policies and programs for constant
improvement.
5. Linking reward structure to accomplishment of results.
6. Making use of strategic leadership.
CORPORATE GOVERNANACE:
Corporate Governance refers to the way a corporation is
governed. It is the technique by which companies are directed
and managed.
It means carrying the business as per the stakeholders’
desires. It is actually conducted by the board of Directors and
the concerned committees for the company’s stakeholder’s
benefit.
It is all about balancing individual and societal goals, as well
as, economic and social goals.
Corporate Governance is the interaction between various
participants (shareholders, board of directors, and company’s
management) in shaping corporation’s performance and the
way it is proceeding towards.
The relationship between the owners and the managers in an
organization must be healthy and there should be no conflict
between the two.
The owners must see that individual’s actual performance is
according to the standard performance. These dimensions of
corporate governance should not be overlooked.
Corporate Governance deals with the manner the providers of
finance guarantee themselves of getting a fair return on their
investment. Corporate Governance clearly distinguishes
between the owners and the managers.
The managers are the deciding authority. In modern
corporations, the functions/ tasks of owners and managers
should be clearly defined, rather, harmonizing.
Corporate Governance deals with determining ways to take
effective strategic decisions. It gives ultimate authority and
complete responsibility to the Board of Directors.
In today’s market- oriented economy, the need for corporate
governance arises. Also, efficiency as well as globalization are
significant factors urging corporate governance.
Corporate Governance is essential to develop added value to
the stakeholders.
Corporate Governance ensures transparency which ensures
strong and balanced economic development.
This also ensures that the interests of all shareholders
(majority as well as minority shareholders) are safeguarded.
It ensures that all shareholders fully exercise their rights and
that the organization fully recognizes their rights.
Corporate Governance has a broad scope. It includes both
social and institutional aspects. Corporate Governance
encourages a trustworthy, moral, as well as ethical
environment.
BENEFITS OF CORPORATE GOVERNANCE
1. GOOD CORPORATE GOVERNANCE ENSURES CORPORATE
SUCCESS AND ECONOMIC GROWTH.
2. STRONG CORPORATE GOVERNANCE MAINTAINS INVESTORS’
CONFIDENCE, AS A RESULT OF WHICH, COMPANY CAN RAISE
CAPITAL EFFICIENTLY AND EFFECTIVELY.
3. IT LOWERS THE CAPITAL COST.
4. THERE IS A POSITIVE IMPACT ON THE SHARE PRICE.
5. IT PROVIDES PROPER INDUCEMENT TO THE OWNERS AS WELL
AS MANAGERS TO ACHIEVE OBJECTIVES THAT ARE IN
INTERESTS OF THE SHAREHOLDERS AND THE ORGANIZATION.
6. GOOD CORPORATE GOVERNANCE ALSO MINIMIZES WASTAGES,
CORRUPTION, RISKS AND MISMANAGEMENT.
7. IT HELPS IN BRAND FORMATION AND DEVELOPMENT.
8. IT ENSURES ORGANIZATION IN MANAGED IN A MANNER THAT
FITS THE BEST INTERESTS OF ALL.
CORPORATE SOCIAL RESPONSIBILITY (CSR) IS:
An obligation, beyond that required by the law and economics,
for a firm to pursue long term goals that are good for society.
The continuing commitment by business to behave ethically
and contribute to economic development while improving the
quality of life of the workforce and their families as well as that
of the local community and society at large.
About how a company manages its business process to
produce an overall positive impact on society
CORPORATE SOCIAL RESPONSIBILITY MEANS:
Conducting business in an ethical way and in the interests of
the wider community
Responding positively to emerging societal priorities and
expectations
A willingness to act ahead of regulatory confrontation
Balancing shareholder interests against the interests of the
wider community
Being a good citizen in the community
IS CSR THE SAME AS BUSINESS ETHICS?
There is clearly an overlap between CSR and business ethics
Both concepts concern values, objectives and decision based
on something than the pursuit of profits
And socially responsible firms must act ethically
The difference is that ethics concern individual actions which
can be assessed as right or wrong by reference to moral
principles.
CSR is about the organisation’s obligations to all stakeholders
– and not just shareholders.
THERE ARE FOUR DIMENSIONS OF CORPORATE RESPONSIBILITY
1. Economic - responsibility to earn profit for owners
2. Legal - responsibility to comply with the law (society’s
codification of right and wrong)
3. Ethical - not acting just for profit but doing what is right, just
and fair
4. Voluntary and philanthropic - promoting human welfare and
goodwill
Being a good corporate citizen contributing to the community
and the quality of life
THE DEBATE ON SOCIAL RESPONSIBILITY
Not all business organisations behave in a socially responsible
manner
And there are people who would argue that it is not the job of
business organisations to be concerned about social issues and
problems
There are two schools of thought on this issue:
In the free market view, the job of business is to create wealth
with the interests of the shareholders as the guiding principle
The corporate social responsibility view is that business
organisation should be concerned with social issues
PLANNING HORIZON:
Period covered by a particular plan or a firm's planning cycle.
In general, its length is dictated by the degree of uncertainty
in the external environment: higher the uncertainty, shorter
the planning horizon.
The planning horizon is the amount of time an organization will
look into the future when preparing a strategic plan. Many
commercial companies use a five-year planning horizon, but
other organizations such as the Forestry Commission in the UK
have to use a much longer planning horizon to form effective
plans.
In manufacturing, a planning horizon is a future time period,
during which, departments that support production will plan
production work and determine material requirements.
In Economics, a planning horizon is the length of time an
individual plans ahead. It's important in the quest for total
value, as opposed to short term pleasure consumption.
ENVIRONMENTAL SCANNING AND FORECAST
Environmental scanning is the process of gathering
information about events and their relationships within an
organization's internal and external environments.
The basic purpose of environmental scanning is to help
management determine the future direction of the
organization.
The most widely accepted method for categorizing different
forms of scanning divides into the following three types:
IRREGULAR SCANNING SYSTEMS:
These consist largely of ad hoc environmental studies.
REGULAR SCANNING SYSTEMS:
These systems revolve around a regular review of the
environment or significant environmental components. This
review is often made annually.
Continuous scanning systems: These systems constantly
monitor components of the organizational environment.
Environmental forecasting is a technique whereby managers
attempt to predict the future characteristics of the
organizational environment and hence make decisions today
that will help the firm deal with the environment of tomorrow.
Forecasting involves the use of statistical and non-statistical,
or qualitative, techniques. Four techniques can be particularly
helpful: time series analysis, judgmental forecasting, multiple
scenarios, and the Delphi technique.
INDUSTRY ANALYSIS
a. General features / basic conditions of the
b. industry
c. Industry Environment
d. Industry structure
e. Industry attractiveness
f. Industry performance
g. Industry Practices
h. Industry trends / the future of the industry
COMPETITION ANALYSIS
a. Five force shaping competition in the industry
b. Profiling of competitors
c. Firm’s competitive position in the industry
INDUSTRY STRUCTURE
a. No. of players
b. Total market size
c. Relative share of the players
d. Nature of competition : Monopoly, oligopoly, Perfect
competition
e. Differentiation practiced by various players
f. Barriers in the industry - Entry Barriers - Mobility
g. Barriers - Exit Barriers
EFAS (EFEM):
The EFE matrix allows strategies to summarize and evaluate
economic, social, cultural, demographic, environmental,
political, governmental, legal, technological, and competitive
information.
The EFE matrix is the strategic tool used to evaluate firm
existing strategies, EFE matrix can be defined as the strategic
tool to evaluate external environment or macro environment of
the firm include economic, social, technological, government,
political, legal and competitive information.
The EFE matrix is similar to IFE matrix the only difference is
that IFE matrix evaluate the internal factors of the company
and EFE matrix evaluate the external factors.
The EFE matrix consists of following attributes mentioned
below.
EXTERNAL FACTORS
External factors are extracted after deep analysis of external
environment. Obviously there are some good and some bad for
the company in the external environment.
That’s the reason external factors are divided into two
categories opportunities and threats.
OPPORTUNITIES
Opportunities are the chances exist in the external
environment, it depends firm whether the firm is willing to
exploit the opportunities or maybe they ignore the
opportunities due to lack of resources.
THREATS
Threats are always evil for the firm, minimum no of threats in
the external environment open many doors for the firm.
Maximum number of threats for the firm reduces their power in
the industry.
STEPS IN DEVELOPING THE EFE MATRIX:
1. Identify a list of KEY external factors (critical success factors).
2. Assign a weight to each factor, ranging from 0 (not important)
to 1.0 (very important).
3. Assign a 1-4 rating to each critical success factor to indicate
how effectively the firm’s current strategies respond to the
factor. (1 = response is poor, 4 = response is extremely good)
4. Multiply each factor’s weight by its rating to determine a
weighted score.
5. Sum the weighted scores.
6. Average total weighted score is 2.5.
PORTOR’S APPROACH TO INDUSTRY ANALYSIS
Michael Porter (Harvard Business School Management
Researcher) designed various vital frameworks for developing an
organization’s strategy. One of the most renowned among
managers making strategic decisions is the five competitive
forces model that determines industry structure. According to
Porter, the nature of competition in any industry is personified in
the following five forces:
1. THREAT OF NEW POTENTIAL ENTRANTS
2. THREAT OF SUBSTITUTE PRODUCT/SERVICES
3. BARGAINING POWER OF SUPPLIERS
4. BARGAINING POWER OF BUYERS
5. RIVALRY AMONG CURRENT COMPETITORS
FIGURE: PORTER’S FIVE FORCES MODEL:
The five forces mentioned above are very significant from point
of view of strategy formulation.
The potential of these forces differs from industry to industry.
These forces jointly determine the profitability of industry
because they shape the prices which can be charged, the costs
which can be borne, and the investment required to compete in
the industry.
Before making strategic decisions, the managers should use
the five forces framework to determine the competitive
structure of industry.
LET’S DISCUSS THE FIVE FACTORS OF PORTER’S MODEL IN DETAIL:
1. RISK OF ENTRY BY POTENTIAL COMPETITORS:
Potential competitors refer to the firms which are not currently
competing in the industry but have the potential to do so if
given a choice.
Entry of new players increases the industry capacity, begins a
competition for market share and lowers the current costs.
The threat of entry by potential competitors is partially a
function of extent of barriers to entry. The various barriers to
entry are-
Economies of scale
Brand loyalty
Government Regulation
Customer Switching Costs
Absolute Cost Advantage
Ease in distribution
Strong Capital base
2. RIVALRY AMONG CURRENT COMPETITORS:
Rivalry refers to the competitive struggle for market share
between firms in an industry.
Extreme rivalry among established firms poses a strong threat
to profitability.
The strength of rivalry among established firms within an
industry is a function of following factors:
Extent of exit barriers
Amount of fixed cost
Competitive structure of industry
Presence of global customers
Absence of switching costs
Growth Rate of industry
Demand conditions
3. BARGAINING POWER OF BUYERS:
Buyers refer to the customers who finally consume the product
or the firms who distribute the industry’s product to the final
consumers. Bargaining power of buyers refer to the potential
of buyers to bargain down the prices charged by the firms in
the industry or to increase the firms cost in the industry by
demanding better quality and service of product.
Strong buyers can extract profits out of an industry by
lowering the prices and increasing the costs.
They purchase in large quantities. They have full information
about the product and the market. They emphasize upon
quality products.
They pose credible threat of backward integration. In this way,
they are regarded as a threat.
4. BARGAINING POWER OF SUPPLIERS:
Suppliers refer to the firms that provide inputs to the industry.
Bargaining power of the suppliers refer to the potential of the
suppliers to increase the prices of inputs( labour, raw
materials, services, etc) or the costs of industry in other ways.
Strong suppliers can extract profits out of an industry by
increasing costs of firms in the industry. Suppliers products
have a few substitutes. Strong suppliers’ products are unique.
They have high switching cost. Their product is an important
input to buyer’s product. They pose credible threat of forward
integration. Buyers are not significant to strong suppliers. In
this way, they are regarded as a threat.
5. THREAT OF SUBSTITUTE PRODUCTS:
Substitute products refer to the products having ability of
satisfying customers needs effectively. Substitutes pose a
ceiling (upper limit) on the potential returns of an industry by
putting a setting a limit on the price that firms can charge for
their product in an industry.
Lesser the number of close substitutes a product has, greater
is the opportunity for the firms in industry to raise their
product prices and earn greater profits (other things being
equal).The power of Porter’s five forces varies from industry to
industry.
Whatever be the industry, these five forces influence the
profitability as they affect the prices, the costs, and the capital
investment essential for survival and competition in industry.
This five forces model also help in making strategic decisions
as it is used by the managers to determine industry’s
competitive structure.Porter ignored, however, a sixth
significant factor- complementaries. This term refers to the
reliance that develops between the companies whose products
work is in combination with each other.
Strong complementors might have a strong positive effect on
the industry. Also, the five forces model overlooks the role of
innovation as well as the significance of individual firm
differences. It presents a stagnant view of competition.
INTERNAL ENVIRONMENT SCANNING:
Environmental scanning refers to possession and utilization of
information about occasions, patterns, trends, and
relationships within an organization’s internal and external
environment.
It helps the managers to decide the future path of the
organization. Scanning must identify the threats and
opportunities existing in the environment.
While strategy formulation, an organization must take
advantage of the opportunities and minimize the threats. A
threat for one organization may be an opportunity for another.
Internal analysis of the environment is the first step of
environment scanning. Organizations should observe the
internal organizational environment.
This includes employee interaction with other employees,
employee interaction with management, manager interaction
with other managers, and management interaction with
shareholders, access to natural resources, brand awareness,
organizational structure, main staff, operational potential, etc.
Also, discussions, interviews, and surveys can be used to
assess the internal environment.
Analysis of internal environment helps in identifying strengths
and weaknesses of an organization.
SWOT ANALYSIS: (OR) TOWS MATRIX
SWOT is an acronym for Strengths, Weaknesses, Opportunities
and Threats. By definition, Strengths (S) and Weaknesses (W)
are considered to be internal factors over which you have some
measure of control.
Also, by definition, Opportunities (O) and Threats (T) are
considered to be external factors over which you have
essentially no control.
SWOT Analysis is the most renowned tool for audit and
analysis of the overall strategic position of the business and its
environment.
Its key purpose is to identify the strategies that will create a
firm specific business model that will best align an
organization’s resources and capabilities to the requirements
of the environment in which the firm operates.
In other words, it is the foundation for evaluating the internal
potential and limitations and the probable/likely opportunities
and threats from the external environment.
It views all positive and negative factors inside and outside the
firm that affect the success.
A consistent study of the environment in which the firm
operates helps in forecasting/predicting the changing trends
and also helps in including them in the decision-making
process of the organization.
An overview of the four factors (Strengths, Weaknesses,
Opportunities and Threats) is given below-
STRENGTHS-
Strengths are the qualities that enable us to accomplish the
organization’s mission.
These are the basis on which continued success can be made
and continued/sustained. Strengths can be either tangible or
intangible.
These are what you are well-versed in or what you have
expertise in, the traits and qualities your employees possess
(individually and as a team) and the distinct features that give
your organization its consistency.
Strengths are the beneficial aspects of the organization or the
capabilities of an organization, which includes human
competencies, process capabilities, financial resources,
products and services, customer goodwill and brand loyalty.
Examples of organizational strengths are huge financial
resources, broad product line, no debt, committed employees,
etc.
WEAKNESSES-
Weaknesses are the qualities that prevent us from
accomplishing our mission and achieving our full potential.
These weaknesses deteriorate influences on the organizational
success and growth. Weaknesses are the factors which do not
meet the standards we feel they should meet.
Weaknesses in an organization may be depreciating
machinery, insufficient research and development facilities,
narrow product range, poor decision-making, etc. Weaknesses
are controllable.
They must be minimized and eliminated. For instance - to
overcome obsolete machinery, new machinery can be
purchased.
Other examples of organizational weaknesses are huge debts,
high employee turnover, complex decision making process,
narrow product range, large wastage of raw materials, etc.
OPPORTUNITIES-
Opportunities are presented by the environment within which
our organization operates.
These arise when an organization can take benefit of
conditions in its environment to plan and execute strategies
that enable it to become more profitable.
Organizations can gain competitive advantage by making use
of opportunities.
Organization should be careful and recognize the opportunities
and grasp them whenever they arise.
Selecting the targets that will best serve the clients while
getting desired results is a difficult task.
Opportunities may arise from market, competition,
industry/government and technology.
Increasing demand for telecommunications accompanied by
deregulation is a great opportunity for new firms to enter
telecom sector and compete with existing firms for revenue.
THREATS-
Threats arise when conditions in external environment
jeopardize the reliability and profitability of the organization’s
business.
They compound the vulnerability when they relate to the
weaknesses. Threats are uncontrollable. When a threat comes,
the stability and survival can be at stake.
Examples of threats are - unrest among employees; ever
changing technology; increasing competition leading to excess
capacity, price wars and reducing industry profits; etc.
ADVANTAGES OF SWOT ANALYSIS
SWOT Analysis is instrumental in strategy formulation and
selection. It is a strong tool, but it involves a great subjective
element.
It is best when used as a guide, and not as a prescription.
Successful businesses build on their strengths, correct their
weakness and protect against internal weaknesses and
external threats.
They also keep a watch on their overall business environment
and recognize and exploit new opportunities faster than its
competitors.
SWOT Analysis provide information that helps in
synchronizing the firm’s resources and capabilities with the
competitive environment in which the firm operates.
SWOT ANALYSIS HELPS IN STRATEGIC PLANNING IN FOLLOWING MANNER-
1. It is a source of information for strategic planning.
2. Builds organization’s strengths.
3. Reverse its weaknesses.
4. Maximize its response to opportunities.
5. Overcome organization’s threats.
6. It helps in identifying core competencies of the firm.
7. It helps in setting of objectives for strategic planning.
8. It helps in knowing past, present and future so that by using
past and current data, future plans can be chalked out.
LIMITATIONS OF SWOT ANALYSIS
SWOT Analysis is not free from its limitations. It may cause
organizations to view circumstances as very simple because of
which the organizations might overlook certain key strategic
contact which may occur.
Moreover, categorizing aspects as strengths, weaknesses,
opportunities and threats might be very subjective as there is
great degree of uncertainty in market.
SWOT Analysis does stress upon the significance of these four
aspects, but it does not tell how an organization can identify
these aspects for itself. There are certain limitations of SWOT
Analysis which are not in control of management.
THESE INCLUDE-
1. Price increase;
2. Inputs/raw materials;
3. Government legislation;
4. Economic environment;
5. Searching a new market for the product which is not having
overseas market due to import restrictions; etc.
INTERNAL LIMITATIONS MAY INCLUDE-
1. Insufficient research and development facilities;
2. Faulty products due to poor quality control;
3. Poor industrial relations;
4. Lack of skilled and efficient labour; etc.
SFAS MATRIX:
Strategic Factor Analysis Summary (SFAS) matrix includes only
the most important factors gathered from environmental
scanning – thus provides info essential for strategy
formulation.
The use of EFAS and IFAS tables together with SFAS matrix
deal with many of the criticism of SWOT analysis.
BCG MATRIX:
Boston Consulting Group (BCG) Matrix is a four celled matrix (a
2 * 2 matrix) developed by BCG, USA.
It is the most renowned corporate portfolio analysis tool. It
provides a graphic representation for an organization to
examine different businesses in its portfolio on the basis of
their related market share and industry growth rates.
It is a two dimensional analysis on management of SBU’s
(Strategic Business Units). In other words, it is a comparative
analysis of business potential and the evaluation of
environment.
According to this matrix, business could be classified as high
or low according to their industry growth rate and relative
market share.
Relative Market Share = SBU Sales this year leading
competitors sales this year.
Market Growth Rate = Industry sales this year - Industry Sales
last year.
The analysis requires that both measures be calculated for
each SBU. The dimension of business strength, relative market
share, will measure comparative advantage indicated by
market dominance.
The key theory underlying this is existence of an experience
curve and that market share is achieved due to overall cost
leadership.
BCG matrix has four cells, with the horizontal axis
representing relative market share and the vertical axis
denoting market growth rate. The mid-point of relative market
share is set at 1.0.
If all the SBU’s are in same industry, the average growth rate
of the industry is used. While, if all the SBU’s are located in
different industries, then the mid-point is set at the growth
rate for the economy.
Resources are allocated to the business units according to
their situation on the grid. The four cells of this matrix have
been called as stars, cash cows, question marks and dogs.
Each of these cells represents a particular type of business.
10 x 1 x 0.1 x
Figure: BCG Matrix
STARS-
Stars represent business units having large market share in a
fast growing industry.
They may generate cash but because of fast growing market,
stars require huge investments to maintain their lead. Net cash
flow is usually modest.
SBU’s located in this cell are attractive as they are located in a
robust industry and these business units are highly
competitive in the industry.
If successful, a star will become a cash cow when the industry
matures.
CASH COWS-
Cash Cows represent business units having a large market
share in a mature, slow growing industry.
Cash cows require little investment and generate cash that can
be utilized for investment in other business units.
These SBU’s are the corporation’s key source of cash, and are
specifically the core business. They are the base of an
organization.
These businesses usually follow stability strategies. When cash
cows lose their appeal and move towards deterioration, then a
retrenchment policy may be pursued.
QUESTION MARKS-
Question marks represent business units having low relative
market share and located in a high growth industry.
They require huge amount of cash to maintain or gain market
share. They require attention to determine if the venture can
be viable.
Question marks are generally new goods and services which
have a good commercial prospective.
There is no specific strategy which can be adopted. If the firm
thinks it has dominant market share, then it can adopt
expansion strategy, else retrenchment strategy can be
adopted. Most businesses start as question marks as the
company tries to enter a high growth market in which there is
already a market-share.
If ignored, then question marks may become dogs, while if
huge investment is made, and then they have potential of
becoming stars.
DOGS-
Dogs represent businesses having weak market shares in low-
growth markets. They neither generate cash nor require huge
amount of cash. Due to low market share, these business units
face cost disadvantages.
Generally retrenchment strategies are adopted because these
firms can gain market share only at the expense of
competitor’s/rival firms.
These business firms have weak market share because of high
costs, poor quality, ineffective marketing, etc.
Unless a dog has some other strategic aim, it should be
liquidated if there is fewer prospects for it to gain market
share. Number of dogs should be avoided and minimized in an
organization.
LIMITATIONS OF BCG MATRIX
The BCG Matrix produces a framework for allocating resources
among different business units and makes it possible to
compare many business units at a glance. But BCG Matrix is
not free from limitations, such as-
BCG matrix classifies businesses as low and high, but
generally businesses can be medium also. Thus, the true
nature of business may not be reflected.
Market is not clearly defined in this model.
High market share does not always leads to high profits. There
are high costs also involved with high market share.
Growth rate and relative market share are not the only
indicators of profitability. This model ignores and overlooks
other indicators of profitability.
At times, dogs may help other businesses in gaining
competitive advantage. They can earn even more than cash
cows sometimes.
This four-celled approach is considered as to be too simplistic.
GE MATRIX:
The business portfolio is the collection of businesses and
products that make up the company. The best business portfolio
is one that fits the company's strengths and helps exploit the
most attractive opportunities.
The company must:
a. Analyse its current business portfolio and decide which
businesses should receive more or less investment, and
b. Develop growth strategies for adding new products and
businesses to the portfolio, whilst at the same time deciding
when products and businesses should no longer be retained.
The two best-known portfolio planning methods are the Boston
Consulting Group Portfolio Matrix and the McKinsey / General
Electric Matrix (discussed in this revision note).
In both methods, the first step is to identify the various
Strategic Business Units ("SBU's") in a company portfolio.
An SBU is a unit of the company that has a separate mission
and objectives and that can be planned independently from the
other businesses.
An SBU can be a company division, a product line or even
individual brands - it all depends on how the company is
organised.
THE MCKINSEY / GENERAL ELECTRIC MATRIX
The McKinsey/GE Matrix overcomes a number of the
disadvantages of the BCG Box.
Firstly, market attractiveness replaces market growth as the
dimension of industry attractiveness, and includes a broader
range of factors other than just the market growth rate.
Secondly, competitive strength replaces market share as the
dimension by which the competitive position of each SBU is
assessed.
The diagram below illustrates some of the possible elements
that determine market attractiveness and competitive strength
by applying the McKinsey/GE Matrix to the UK retailing market:
FACTORS THAT AFFECT MARKET ATTRACTIVENESS
Whilst any assessment of market attractiveness is necessarily
subjective, there are several factors which can help determine
attractiveness. These are listed below:
a. Market Size
b. Market growth
c. Market profitability
d. Pricing trends
e. Competitive intensity / rivalry
f. Overall risk of returns in the industry
g. Opportunity to differentiate products and services
h. Segmentation
i. Distribution structure (e.g. retail, direct, wholesale
FACTORS THAT AFFECT COMPETITIVE STRENGTH
FACTORS TO CONSIDER INCLUDE:
a. Strength of assets and competencies
b. Relative brand strength
c. Market share
d. Customer loyalty
e. Relative cost position (cost structure compared with
competitors)
f. Distribution strength
g. Record of technological or other innovation
h. Access to financial and other investment resources
BENCHMARKING
Benchmarking is the process of identifying "best practice" in
relation to both products (including) and the processes by
which those products are created and delivered.
The search for "best practice" can take place both inside a
particular industry, and also in other industries (for example -
are there lessons to be learned from other industries?).
The objective of benchmarking is to understand and evaluate
the current position of a business or organisation in relation to
"best practice" and to identify areas and means of performance
improvement.
THE BENCHMARKING PROCESS
Benchmarking involves looking outward (outside a particular
business, organisation, industry, region or country) to examine
how others achieve their performance levels and to
understand the processes they use. In this way benchmarking
helps explain the processes behind excellent performance.
When the lessons learnt from a benchmarking exercise are
applied appropriately, they facilitate improved performance in
critical functions within an organisation or in key areas of the
business environment.
APPLICATION OF BENCHMARKING INVOLVES FOUR KEY STEPS:
1. Understand in detail existing business processes
2. Analyse the business processes of others
3. Compare own business performance with that of others
analysed
4. Implement the steps necessary to close the performance gap
Benchmarking should not be considered a one-off exercise. To be
effective, it must become an on-going, integral part of an on-
going improvement process with the goal of keeping abreast of
ever-improving best practice.
TYPES OF BENCHMARKING
THERE ARE A NUMBER OF DIFFERENT TYPES OF BENCHMARKING, AS SUMMARISED BELOW:
TYPE DESCRIPTION MOST APPROPRIATE FOR THE FOLLOWING PURPOSES
Strategic Benchmarking
Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed. It involves considering high level aspects such as core competencies, developing new products and services and improving capabilities for dealing with changes in
Re-aligning business strategies that have become inappropriate
the external environment.
Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise
Performance Or Competitive Benchmarking
Businesses consider their position in relation to performance characteristics of key products and services.
Benchmarking partners are drawn from the same sector. This type of analysis is often undertaken through trade associations or third parties to protect confidentiality.
Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking
Focuses on improving specific critical processes and operations. Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services.
Process benchmarking invariably involves producing process maps to facilitate comparison and analysis. This type of benchmarking often results in short term benefits.
Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes. This sort of benchmarking can lead to innovation and dramatic improvements.
Improving activities or services for which counterparts do not exist.
Internal Benchmarking
Involves benchmarking businesses or operations from within the same organisation (e.g. business
Several business units within the same organisation
units in different countries). The main advantages of internal benchmarking are that access to sensitive data and information is easier; standardised data is often readily available; and, usually less time and resources are needed.
There may be fewer barriers to implementation as practices may be relatively easy to transfer across the same organisation. However, real innovation may be lacking and best in class performance is more likely to be found through external benchmarking.
exemplify good practice and management want to spread this expertise quickly, throughout the organisation
External Benchmarking
Involves analysing outside organisations that are known to be best in class. External benchmarking provides opportunities of learning from those who are at the "leading edge".
This type of benchmarking can take up significant time and resource to ensure the comparability of data and information, the credibility of the findings and the development of sound recommendations.
Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units
International Benchmarking
Best practitioners are identified and analysed elsewhere in the world, perhaps because there are too few benchmarking partners within the same country to produce valid results.
Globalisation and advances in information technology are increasing opportunities for international projects.
Where the aim is to achieve world class status or simply because there are insufficient “national" businesses against which to benchmark.
However, these can take more time and resources to set up and implement and the results may need careful analysis due to national differences
STRAEGIC PIGGY BACKING:
It is a new fund generating activity undertaken by the non-
profit organization which is aimed at reducing the gap between
expenses and revenue.
The primary purpose is to subsidize the service program. It is
gaining popularity in recent time.
Educational institutes running commercial complexes hospitals
running a meditation class and fitness program are typical
example of piggy backing.
The non-profit organization should have the following
resources before adopting piggy backing strategy;
Something to sell
Critical mass of management talent
Trustee support
Entrepreneurial attitude.
TACTICAL PLANNING:
Tactical Planning is Short range planning that emphasizes the
current operations of various parts of the organization.
Short Range is defined as a period of time extending about one
year or less in the future.
Managers use tactical planning to outline what the various
parts of the organization must do for the organization to be
successful at some point 1year or less into the future.
Tactical plans are usually developed in the areas of production,
marketing, personnel, and finance and plant facilities.
COMPARING AND COORDINATING STRATEGIC & TACTICAL PLANNING:
Basic differences between strategic planning and tactical
planning:
Since upper managers generally have a better understanding
of the organization as a whole than lower level managers do,
upper management generally develops the strategic plans and
because lower level managers generally have better
understanding of the day to day organizational operations,
generally the lower level managers develop the tactical plans.
Because Strategic Planning emphasizes analyzing the future
and tactical planning emphasizes analysing the everyday
functioning of the organization, facts on which to base
strategic plans are usually more difficult to gather than are
facts on which to base tactical plans.
Because strategic plans are based primarily on a prediction of
the future and tactical plans on known circumstances that
exist within the organization, strategic plans are generally less
detailed than tactical plans.
Because strategic planning focuses on the long term and
tactical planning on the short term, strategic plans cover a
relatively long period of time whereas tactical plans cover a
relatively short period of time.
Despite their differences, tactical and strategic planning are
integrally related. Manager need both tactical and strategic
planning program, and these program must be closely related
to be successful.
Tactical planning should focus on what to do in the short term
to help the organization achieve the long term objectives
determined by strategic planning.
FOUR TYPES OF STRATEGIC CONTROLS
PREMISE CONTROL
IMPLEMENTATION CONTROL
STRATEGIC SURVEILLANCE
SPECIAL ALERT CONTROL
PREMISE CONTROL:
A type of strategic control that involves identifying key
assumptions and premises for plans and then gathering data
systematically to monitor their on-going accuracy. A major
issue is determining which assumptions and premises should
be monitored.
Systematic recognition and analysis of assumptions on which a
plan is based, to determine if they remain valid in changed
circumstances or in light of new information.
Premises control is necessary to identify the key assumptions
and its implementation. Key assumptions and its
implementation.
Premises control serves the purpose of Premises control serves
the purpose of continually testing the assumptions to find out
continually testing the assumptions to find out whether they
are still valid or not.
This whether they are still valid or not.
This enables the strategists to take corrective enables the
strategists to take corrective action at the right time rather
than continuing action at the right time rather than continuing
with a strategy which is based on erroneous with a strategy
which is based on erroneous assumptions.
IMPLEMENTATION CONTROL:
Implementation control is aimed at evaluating Implementation
control is aimed at evaluating whether the plans, programmes,
and projects whether the plans, programmes, and projects are
actually guiding the organization towards are actually guiding
the organization toward sits predetermined objectives or not.
Its predetermined objectives or not.
STRATEGIC SURVEILLANCE:
Strategic surveillance aimed at a more Strategic surveillance
aimed at a more generalized and overarching control
generalized and overarching control³designed to monitor a
broad range of events³designed to monitor a broad range of
events inside and outside the company that are likely inside
and outside the company that are likely to threaten the course
of a firms strategy´.to threaten the course of a firms strategy´.
SPECIAL ALERT CONTROL:
Special alert control, which is based on a Special alert control,
which is based on a trigger mechanism for rapid response and
trigger mechanism for rapid response and immediate
reassessment of strategy in the immediate reassessment of
strategy in the light of sudden and unexpected event slight of
sudden and unexpected events
GAP ANALYSIS:
A technique for determining the steps to be taken in moving from
a current state to a desired future-state. Also called need-gap
analysis, needs analysis, and needs assessment.
GAP ANALYSIS CONSISTS OF:
(1)Listing of characteristic factors (such as attributes,
competencies, performance levels) of the present situation
("what is"),
(2)Cross listing factors required to achieve the future objectives
("what should be"), and then
(3)Highlighting the gaps that exist and need to be filled.