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Chapter VI

Strategic Planning

Aim

The aim of this chapter is to:

introduce the concept of strategic planning

explain SWOT analysis

explicate the strategic planning process

Objectives

The objectives of this chapter are to:

explain the importance of SWOT matrix

elucidate the use of SWOT analysis

enlist threats of SWOT analysis

Learning outcome

At the end of this chapter, you will be able to:

describe strategic planning

explain strategic planning and it properties

describe SWOT analysis

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6.1 IntroductionStrategic planning consists of a set of decisions which leads to the development of an effective strategy. This includes matching of external threats and opportunities with strategic advantage factors. Strategic planning also develops possible alternative strategies and evaluates pros and cons of various alternatives so as to choose the most appropriate alternative. Strategic planning can be defined as the continuous process of making present entrepreneurial decisions systematically and with the greatest knowledge of their futurity; organising systematically the efforts needed to carry out these decisions; and measuring the results of these decisions against the expectations through organised systemic feedback.Strategic planning is a well organised effort aiming at fulfilling business objectives in a systematic manner.

6.2 Strategic PlanningStrategic planning is a systematic and disciplined exercise to formulate strategy. It is more comprehensive as it concentrates on the whole organisation. Strategic planning is a forward-looking exercise which determines the future posture of the enterprise. Strategic plans help enhancing and sustaining the organisational competitive advantage based on external and internal variables. It is through this plan an organisation can accomplish its stated goals using available resources. Strategic planning is an organisations process of defining its strategy or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people.

6.2.1 MethodologiesThere are many approaches to strategic planning but typically a three step process may be used:

Situation Evaluate the current situation and how it came about. Target Define goals and/or objectives (sometimes called ideal state).

Path Map a possible route to the goals/objectives.

Alternative approach is called Draw-See-ThinkDraw What is the ideal image or the desired end state?

See What is todays situation? What is the gap from ideal and why?

Think What specific actions must be taken to close the gap between todays situation and the ideal state?

Plan What resources are required to execute the activities?

An alternative to the Draw-See-Think approach is called See-Think-DrawSee What is todays situation?

Think Define goals/objectives.

Draw Map a route to achieving the goals/objectives.

6.3 Strategic Planning ProcessFormulation of a strategy needs complete analysis of the situation. While discussing the need for strategic formulation, it is said that business environment provides required information.

The environment includes: The economy Technology Society Law and political situation Available resources Consumers

Information from these associated factors will help the organisation to prepare a workable strategy to handle a critical situation. Strategic plan is a long range plan of action in which plan and strategy are integrated.

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Four managerial activities are involved in strategic planning process. These are: Environmental adaptation Resource allocation Internal co-ordination Organisational awareness

These four activities together help formulating a workable strategy. However, the following broad outline is given in strategy formulation which takes into account these four managerial activities. The outline includes the following steps in strategic planning.

Organisational mission and purpose Setting organisational goals and objectives Swot analysis Formulation of strategic alternatives Selecting the best strategy Preparing an operational plan Resource allocation Co-ordinating internal factors Integrating strategy and operation plan Implementing the strategic plan Evaluation Redesign the strategy if necessary

6.3.1 Organisation Mission and PurposesFollowing is the importance of mission and vision statement in an organisation:

Mission statement: Tells the current position of the organisation. It informs you about the desired level of performance needed for the organisation.Vision statement: Outlines what a company wants to be. It concentrates on the future. It is a source of inspiration. It provides clear decision-making criteria and process.Values: Main values protected by the organisation during the progression, reflecting the organisations culture and priorities.

6.3.2 Importance of Vision StatementCorporate vision is a short, concise and inspiring statement of what the organisation intends to become and to achieve at some point in the future and is often stated in competitive terms. Vision refers to the category of intensions that are broad, all-inclusive and forward-thinking. Vision is the image that a business must have about its goals before it sets out to reach them. It describes aspirations for the future, without specifying the means that will be used to achieve those goals. The corporate success depends on the vision articulated by the chief executive or the top management. For a vision to have any impact of the employees of an organisation, it has to be conveyed in a dramatic and enduring way. The most effective visions are those that inspire, usually asking employees for the best, the most or the greatest.

6.3.3 Importance of Mission StatementA mission statement is an organisations vision translated into written form. It makes the leaders view of the direction and purpose of the organisation concrete. For many corporate leaders it is a vital element in any attempt to motivate employees and to give them a sense of priorities. A mission statement should be a short and concise statement of goals and priorities. In turn, goals are specific objectives that relate to specific time periods and are stated in terms of facts.

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The primary goal of any business is to increase stakeholders value. The most important stakeholders are shareholders who own the business, employees who work for the business and clients or customers who purchase products and/or services from the business. Many people may mistake vision statement for mission statement. The vision describes a future and the mission describes why it will be achieved. A mission statement defines the purpose or broader goal for being in existence or in the business. It serves as an ongoing guide without time frame. The mission can remain the same for decades if crafted well. Vision is more specific in terms of objective and future and future state. Vision is related to some form of achievement if successful. Features of an effective vision statement may include following points:

Clarity and lack of ambiguity Paint a vivid and clear picture, not ambiguous Describing a bright future Memorable and engaging expression Realistic aspirations, achievable Alignment with organisational values and culture Time bound if it talks of achieving any goal or objective

In order to become really effective, an organisational vision statement must acclimatise into the organisations culture. Leaders have the responsibility of communicating the vision regularly, creating narratives that illustrate the vision, acting the vision, and encouraging the vision, creating short-term objectives compatible with the vision, and encouraging others to craft their own personal vision compatible with the organisations overall vision.

6.3.4 Benefits of Vision

The purpose and outcomes of vision may seem vague and superfluous. The long term benefits are substantial. However vision:

Breaks you out of boundary thinking. Provides continuity and avoids the stutter effect of planning. Indentifies direction and purpose.

Alerts stakeholders to needed change. Promotes interest and commitment. Promotes laser-like focus. Encourages openness to unique and creative solutions. Encourages and builds confidence.

Builds loyalty through involvement. Results in efficiency and productivity.

6.3.5 Developing a Mission StatementThe mission statement describes the overall purpose of the organisation. If the organisation elects to develop a vision statement, the question why the image of the vision exists and its purpose should be raised before the mission statement is developed. When wording the mission statement, consider the organisations products, services, markets, values and concern for public images, and maybe priorities of activities for survival. Consider any changes that may be needed in working of the mission statement because of any new suggested strategies during a recent strategic planning process. Ensure that wording of the mission is to the extent that management and employees can infer some order of priorities in how products and services are delivered. When refining the mission, a useful exercise is to add or delete a word from the mission to realise the change in scope of the mission statement and assess how concise is its wording.

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6.3.6 Developing a Vision StatementThe vision statement includes vibrant description of the organisation as it effectively carries out its operations. Developing the vision can be the most enjoyable part of planning, but the part where time easily slips away. Note that, originally, the vision was a compelling description of the state and function of the organisation once it had implemented the strategic plan, i.e. a very attractive image toward which the organisation was attracted and guided by the strategic plan. Recently the vision has become more of a motivational tool, too often including highly idealistic phrasing and activities which the organisation cannot realistically aspire

6.3.7 Setting Organisational Goals and ObjectivesFollowing are the organisational goals and objectives:

The major outcome of strategic road-mapping and strategic planning, after gathering all necessary information, is the setting of goals for the organisation based on its vision and mission statement. A goal is a long-range aim for a specific period.

It must be specific and realistic.

Long-range goals set through strategic planning are translated into activities that will ensure reaching the goal through operational planning.Setting objectives involves a continuous process of research and decision-making. Strategic planning takes place at the highest levels; other managers are involved with operational planning. The first step in operational planning is defining objectives the result expected by the end of the budget cycle.The objectives must be:

focused on a result, not on activity consistent specific measurable related to time attainable

Perhaps the very important step in strategy formation is setting objectives and goals. These objectives and goals are guided by mission and purpose. Factors that influenced the settings of objectives are as follows:

resources of the organisation past objectives environmental factors thinking and value system of the top management internal power system in the organisation

These objectives are considered while forming the objectives. The objectives and goals must neither be too rigid nor too flexible.

At various levels of an organisation, nature of goals and objectives may take different forms. At the bottom level, the objective of manager or any other workers will be narrow and is confined to only his/ her task of production or sales or whatever task one performs.Once the objectives are set, they need not remain for ever. They may change:

when the objectives do not agree with actual achievement the desires and aspirations of the top management may cause change in objectives at a later stage of organisationwhen the top management changes goal orientations when an organisation faces crisis, the objectives change the life cycle of the product or services can also influence the organisation to change the objectives

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when expansion and diversification take place, or when a collaboration is made, the goals and objectives change

In the initial stages objectives may be informal and they will be formalised and priorities are given when the organisation grows.These objectives help the organisation to take further step in strategy formulation by conducting SWOT analysis.

6.4 SWOT AnalysisSWOT analysis is a very vital activity in strategy planning. It is concerned with scanning the environment both internal and external in terms of SWOT i.e. strengths, weaknesses, opportunities and threats. The organisation should know its strengths and weaknesses and also the threats and opportunities it has. SWOT analysis helps the firm to formulate a workable strategy. Strengths are positively used for smooth implementation of the plan. When threats are analysed, solutions are found to overcome such threats from the competitors. Weaknesses are identified and strategy will be worked out to convert weakness into strength. Opportunities are visualised and seized for the good of the organisation. With this analysis, entire business environment of the firm will be scanned which will help formulating successful strategies.

However, SWOT analysis gives a clear picture to formulate sound strategy, and it calls for matching capabilities and opportunities. SWOT analysis helps the strategic planner to ascertain what the organisation is capable of doing in the light of its strengths, and what is ought to be done in the context of the external environment in which it operates.SWOT analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities and threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and indentifying the internal and external factors that are favourable and unfavourable to achieving that objective.If SWOT analysis does not start with defining a desired end state or objective, it runs the risk of being useless. A SWOT analysis may be incorporated into the strategic planning model. If a clear objective has been identified, SWOT analysis can be used to help in the pursuit of that objective. In this case, SWOTs are:

Strengths Attributes of the organisation that are helpful to achieve the objective. Weaknesses Attributes of the organisation that are harmful to achieve the objective. Opportunities External conditions that are helpful to achieve the objective. Threats External conditions that are harmful to achieve the objective.

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective are to be derived from the SWOTs.

6.4.1 Internal and External FactorsFollowing are the inetrnal and external factors:

The aim of any SWOT analysis is to identify the key interval and external factors that are important to achieve the objective. SWOT analysis groups key pieces of information into two main categories:

Internal factors The strengths and weaknesses internal to the organisation. External factors The opportunities and threats presented by the external environment.

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organisations objectives.What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include personnel, finance and manufacturing capabilities and so on.

The external factors may include macroeconomics matters, technological change, legislation and socio-cultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix.

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6.4.2 Avoiding ErrorsFollowing are points to be considered for avoiding errors:

Conducting a SWOT analysis before defining and agreeing upon an objective. SWOTs should not exist in the abstract. They can exist only with reference to an objective. If the desired end state is not openly defined and agreed upon, the participation may have different end states in mind and the results will be ineffective.Opportunities external to the company are often confused with strengths internal to the company. They should be kept separate.SWOTs are sometimes confused with possible strategies. SWOTs are descriptions of conditions, while possible strategies define actions. This error is made especially with reference to opportunity analysis. To avoid this error, it may be useful to think of opportunities as auspicious conditions.

Use of SWOT analysisThe usefulness of SWOT analysis is not limited to profit-seeking organisations. SWOT analysis may be used in any decision-making situation when a desired end-state has been defined. SWOT analysis may also be used in pre-crisis planning and preventive crisis management.

Strengths and weaknesses

Resources: financial, intellectual, location

Cost advantages from proprietary know-how

Exclusive access to high grade natural resources

Favourable access to distribution network

Table 6.1 Strengths and weaknesses of SWOT analysis

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Opportunities and threatsTakeovers Market trends Economic condition Mergers Joint ventures

Strategic alliances Expectations of stakeholders Technology Public expectations Competitors and competitive actions Bad PR Criticism Global markets Environmental conditions

Table 6.2 Opportunities and threats of SWOT analysis

Corporate PlanningFollowing are the steps in corporate planning:

Set objectives Defining what the organisation is intending to do.

Internal appraisals of the organisations SWOT - This needs to include an assessment of the present situation as well as a portfolio of products/services and an analysis of the product/service life cycle.Analysis of existing strategies This should determine relevance from the results of an internal/external appraisal. This may include gap analysis which will look at environmental factors.Strategic issues defined Key factors in the development of a corporate plan which needs to be addressed by the organisation.Develop new/revised strategies Revised analysis of strategic issues may mean the objectives need to change.Establish critical success factors The achievement of objectives and strategy implementation. Preparation of operational, resource, projects plan for strategy implementation. Monitoring results Mapping against plans, taking corrective action which may mean amending objectives/ strategies.Environmental scanning

Human ResourcesIn SWOT, strengths and weaknesses are internal factors.

Strength could be: A new, innovative product or services Quality processes and procedures Patents Strong brand names Good reputation among customers Cost advantages from proprietary know-how Exclusive access to high grade natural resources Favourable access to distribution networks

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Weakness could be: Lack of marketing expertise Undifferentiated products or services Poor quality goods or services Damaged reputation Lack of patent protection A weak brand name Poor reputation among customers High cost structure Lack of access to the best natural resources Lack of access to key distribution channels

In SWOT, opportunities and threats are external factors.Opportunities could be:

Developing market such as the internet Mergers, joint ventures or strategic alliances Moving into new market segments that offer improved profits A new international market A market vacated by an ineffective competitor An unfulfilled customer need Arrival of new technologies Loosening of regulations Removal of international trade barriers

A threat could be: A new competitor in your home market Price wars with competitors A competitor has a new, innovative product or service Competitors have superior access to channels of distribution Taxation is introduced on your product or services Shifts in consumer tastes away from the organisations products Emergence of substitute products New regulations Increased trade barriers

6.5 The SWOT MatrixAn organisation should not necessarily pursue the more lucrative opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the organisations strengths and upcoming opportunities. In some cases, the organisation can overcome a weakness in order to prepare itself to pursue a compelling opportunity. To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed. The SWOT matrix is also known as TOWS matrix.

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Strengths WeaknessesOpportunities S-O strategies W-O strategiesThreats S-T strategies W-T strategies

S-O strategies pursue opportunities that are a good fit to the companys strengths.

W-O strategies overcome weaknesses to pursue opportunities. S-T strategies identify ways that the company can use its strengths to reduce its vulnerability to external threats.W-T strategies establish a defensive plan to prevent the companys weaknesses from making it highly susceptible to external threats.

Simple rules for successful SWOT analysis are as follows:Be realistic about the strengths and weaknesses of the organisation when conducting SWOT analysis. SWOT analysis should distinguish between where the organisation is today, and where it could be in the future.SWOT should always be specific. Avoid grey areas.

Always apply SWOT in relation to competition i.e. better than or worse than the competition. Keep your SWOT short and simple. Avoid complexity and over analysis. SWOT is subjective.

SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment.

6.5.1 Formulating Strategic AlternativesAn adoptable strategic plan can be developed only when alternative strategies are prepared.Reasonable number of strategic alternatives matching the opportunity profile and the environmental threats in the context of strategic advantages are to be designed. And then the best strategy amongst the alternatives is to be selected. While formulating alternatives strategies, company mission, purpose, objectives and goals and environmental forces have to be considered. The strategies should also know the business conducted by the organisation, what type of business should it be over coming years, whether the same business should be continued or diversified, what technology should be adopted, know the type of market the organisation has, the consumers of the organisation, etc. Considering these factors strategic alternatives have to be evolved and the type strategy has to be decided.Five types of strategies are identified as follows.

Functional strategiesThese strategies are related to functional areas like marketing, finance, production, human resource management, accounting, etc.

Stability and contingency strategiesSticking to the same product or services substantially for a long period. It is a defensive strategy. There may not be progress but reduces risk. Contingency strategy refers to the strategy which will be adopted when the firm faces unforeseen circumstances.The management may foresee and anticipate contingency situations which may arise during a given period.

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Major and minor strategiesStrategies relating to major objectives like product-strategy, change of business definition, change of mission and purpose and market strategies.Low growth or forced growth strategies are minor strategies. In the period of depression existing activities are monitored, fine-tuned for minor defeats and the operations move on a low key to save investment, but still they will be effective and managed for maximum cash flows.

Defensive strategies are designed to meet contingency and it is called minor strategy. Much of the business which leads to dangerous situations will be withdrawn and limited operations are done and kept under absolute control.They focus on limited special opportunity.

Strategy in tune with policyCompanies adopt strategies within the framework of their policies, programmes, purpose, mission, etc. Policies of the corporate enterprises provide the direction in which the strategies are to be formulated. Strategies formulated in accordance with the policy will have a common language which communicates the policies to the lower level of management; convince the managers about the relevance of mission, vision and purpose of the enterprise to implement the strategy and to obtain strategic commitment from all concerned.Strategies formulated in accordance with policies should be consistent with overall strategies implemented for various purposes, like meeting competition in the market, create a favourable image for the enterprise in the market, to tackle extreme competition situation, etc.

Turn-around strategiesTurn-around means changing the whole scenario for the good of the organisation. In this situation every activity will be restructured for achieving positive results. This will put the company on a proper track.The organisations which have turned to loses will be brought back to its successful path, by adopting certain strategies. This is called turn-around strategy.There are different types of strategies in this category.

Strategies adopted for sick units to turn them into viable units. Fire fighting strategy is adopted to infuse new spirit or vigour into the corporate culture or morale or to improve the image of the company.Restoration strategy is one that is adopted to restore the original position. In times of contingency, the organisations drift from original activities and resort to operations which are approved by the market. After sometime, they feel that they have to get back to the original activity and they adopt strategy to restore the position. This is called restoration strategies.Consolidation strategy which is adopted to consolidate a strategy after conducting periodical performance appraisal of that particular strategy.

6.5.2 Selecting the Best StrategyAfter developing the alternatives, selection of a best alternative is the formidable task of the strategies.While selecting strategy of the alternatives, strategist must look into the possibilities of gaining in the process of implementation of strategy, at least possible cost. He should give an insight into the problem and find out, which alternative strategy suits well to the problem. Therefore, selecting a best strategy involves,

Cost effectiveness Assessing gains from the proposed strategy Difficulties that may cree p in when implementedHow smoothly the strategy manoeuvres the tough situation, etc.?

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The points to be considered for strategic choice are:Strategy should be clearly identified and be explicit in practice or words

Strategy should be capable of exploiting environmental opportunities

It should sustain threats of environmentIt should be consistent with corporate competence and resources. The risk involved in the strategy should be sustained by the company It should provide stimulus to the effort and commitment of the organisation and people Strategy should generate early response from the market and concerned people.

Any strategic choice which considers these factors will be able to project itself to effective operations and identify priority areas for operation. Choosing a strategy is a very tough job. It is not a subtle activity.

6.5.3 Preparing an Operational PlanOperational plan is one which provides the details as to how the strategic plan should be implemented. This plan converts strategy formulations into actions and decisions. Strategic plan is an overall plan prepared in a wider perspective giving a guideline to overcome several critical situations that may be faced by the organisation.

Organisational plan focuses on current operations. This is a part of long term strategy of the corporate enterprise. However, strategic planning and operational planning should go hand in hand. There should be harmonious relationship between the two. Operational plans are the plans formulated by managers at all levels. In well-managed organisations there will be direct relationship between strategic planning and operational plan. The distinguishing features of strategic plan and operational plan are as follows:

The strategic plan will have a focus on growth, development and competitive situation of the organisation, whereas the operational plan will have its focus on operating problems and survival.Time strategic plan is a long-range plan. But operational plan is a short-range plan. Strategic plan concentrates on constant growth, future profit and comparative strategy. Whereas operational plan works for operation success, current profit and short term success.

The strategic plan is adaptive, whereas the operational plan is a contingency plan, real time plan and a shorter one.As far as strategy is concerned strategy plan is a stable and a major one. Operational plan adopts contingency strategy and a minor one.Strategic planning works for getting reward in the form of potentiality development and constant good corporate citizenship. Operational plan seeks reward in the form of efficiency, profitability and good corporate image.

Management level: strategy planning is prepared by top executives whereas operational planning is prepared by operational managers like middle level and lower-level managers.Decisions are analysed in strategic management. But in operational plan it is immediate and intuitive. As far as scope is concerned strategic planning concentrates on future opportunities and operational plan works on current business.Strategic planning is dynamic and flexible, whereas operational plan is static and functional.

Operational plan is prepared and implemented within the framework of strategic plan. At the operational level two types of plans are adopted namely, Single-use plan and standard plan. Single-use plans are operated once and not repeated. It is a specific plan used only once. Standard plans are used for repeat operation and guided by procedures and rules.

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6.5.4 Resource AllocationResources refer to both monetary and non-monetary resources. When strategies are designed, money, technology and other infrastructure are required for development and implementation. Scarce resources have to be allocated according to the priorities and needs. While making resource allocation the type of strategy will be considered.Major and fast-growth strategies need more resources. A major growth oriented strategy requires more funds for implementation. It also demands more of non-monetary resources. The management cannot overlook the resource demand of this strategy because it is a strategy which brings more profit and contributes for the growth of market share.

In case of minor strategies, the resources requirement will be less. Therefore, strategy classification is made. There are strategic business units which have a high share of low-growth market. These organisations bring in more cash but need little resources for operation.

The operations are of routine type and do not require growth. But still they are essential products and bring resources to the organisation. There are also business units with low share of high growth market. In such cases, the management has to spend money to adopt strategic plan. The business units with share of a low growth market need no allocation of resources as they will be contemplating to close down the activities. Therefore, resources allocation is a difficult task in strategy formulation. The type of strategy decides the size of resources required for developing a strategy.

6.5.5 Co-ordinating Internal FactorsFollowng are the internal factors:

The success of strategy depends upon how it works with the people inside the organisation. People concerned in the organisation should understand the strategy and work for its success. Every activity of the strategy should effectively take place. So that there will not be any disturbing element which thwarts the strategy.Co-ordination at every level of activity will help the strategy to be successfully implemented. Work flow should be smooth and effective. There should not be obstacle in the flow work.

Every employee and every operation should be properly linked and co-ordinated. This facilitates smoothen implementation of strategy.Co-ordination of various functional areas is also needed. Marketing department should work in the close co-operation with production and finance.

Inter-departmental co-ordination is very essential. Managers at each level in each functional area co-ordinate their work with each other. A well organised organisational structure helps in effectively co-ordinating the various activities and strategies.Operational plans can be very well integrated for the success of strategic planning.

6.5.6 Integrating Strategy and Operational PlanBoth strategy and operation plans are prepared within the framework of objectives. Objectives are the directive principles to formulate strategy and prepare operating plans. Strategic and operational plans although work independently, harmony must be achieved between them. Every activity should have objective orientation. To attain harmony between strategy and operational plan certain operations are to be integrated.

Operational plan should have compatibility with overall strategy of the firm. Therefore, strategies are to be closely linked to operational plans for their success. Operational plans have current and temporary objectives and to be performed according to the tasks. Strategic plan is a long-range plan formulated mostly to achieve the objectives of the organisation. Therefore, these two plans are to be integrated for the success of the organisation. Harmonious integration of both generates a genuine emotional consensus among the managers as to what they want to do and how they want to go about achieving success. In the process of integration, continued examination of goals should take place.

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Continuous discussions relating to strategy and operations at all levels should be done until they are mutually understood and accepted by the key members of the management and then transmitted to the entire organisation continuously so that organisations objectives and strategies are imbibed in operational plans. This is the real integration. When once the integration takes place, execution of the strategy and operational plan becomes easy.After integrating these two, the controls are to be adopted and implemented.

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SummaryStrategic planning consists of a set of decisions which leads to the development of an effective strategy. Strategic planning can be defined as the continuous process of making present entrepreneurial decisions systematically and with the greatest knowledge of their futurity; organising systematically the efforts needed to carry out these decisions; and measuring the results of these decisions against the expectations through organised systemic feedback.

Strategic planning is a systematic and disciplined exercise to formulate strategy. Strategic planning is an organisations process of defining its strategy or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people.Formulation of a strategy needs complete analysis of the situation. Strategic plan is a long range plan of action in which plan and strategy are integrated. Mission statement tells the current position of the organisation. It informs you about the desired level of performance needed for the organisation.Vision statement outlines what a company wants to be. It concentrates on the future. It is a source of inspiration. It provides clear decision-making criteria and process.Values main values protected by the organisation during the progression, reflecting the organisations culture and priorities.Corporate vision is a short, concise and inspiring statement of what the organisation intends to become and to achieve at some point in the future and is often stated in competitive terms. Vision is the image that a business must have about its goals before it sets out to reach them. A mission statement is an organisations vision translated into written form. It makes the leaders view of the direction and purpose of the organisation concrete. A mission statement defines the purpose or broader goal for being in existence or in the business. It serves as an ongoing guide without time frame.Vision is more specific in terms of objective and future and future state. Vision is related to some form of achievement if successful.When wording the mission statement, consider the organisations products, services, markets, values and concern for public images, and maybe priorities of activities for survival.When refining the mission, a useful exercise is to add or delete a word from the mission to realise the change in scope of the mission statement and assess how concise is its wording.Strategic planning takes place at the highest levels; other managers are involved with operational planning. SWOT analysis is a very vital activity in strategy planning. SWOT analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities and threats involved in a project or in a business venture.Conducting a SWOT analysis before defining and agreeing upon an objective. SWOTs should not exist in the abstract. They can exist only with reference to an objective. If the desired end state is not openly defined and agreed upon, the participation may have different end states in mind and the results will be ineffective.The strategies should also know the business conducted by the organisation, what type of business should it be over coming years, whether the same business should be continued or diversified, what technology should be adopted, know the type of market the organisation has, the consumers of the organisation, etc. Strategies formulated in accordance with the policy will have a common language which communicates the policies to the lower level of management; convince the managers about the relevance of mission, vision and purpose of the enterprise to implement the strategy and to obtain strategic commitment from all concerned.Strategies formulated in accordance with policies should be consistent with overall strategies implemented for various purposes, like meeting competition in the market, create a favourable image for the enterprise in the market, to tackle extreme competition situation, etc.

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The business units with share of a low growth market need no allocation of resources as they will be contemplating to close down the activities.Every employee and every operation should be properly linked and co-ordinated. This facilitates smooth implementation of strategy. Continuous discussions relating to strategy and operations at all levels should be done until they are mutually understood and accepted by the key members of the management and then transmitted to the entire organisation continuously so that organisations objectives and strategies are imbibed in operational plans. This is the real integration.

ReferencesS.W.O.T.Analysis , [Pdf] Available at: [Accessed 17 May 2013].Mamoria, 2001. Business Planning and Policy. Himalaya Publishing House.Steiner, G. A., 2010. Strategic Planning. Kindle edition. Free Press.2012. What is Strategic Planning, Really?, [Video online] Available at: [Accessed 17 May 2013].

2012. Overviewof theStrategicPlanningProcess, [Video online] Available at: [Accessed 17 May 2013].

SWOTanalysis-anintroduction , [Pdf] Available at: [Accessed 17 May 2013].

Recommended ReadingSmith, R. D., 2004. Strategic Planning. 2nd ed.,. Routledge. Abell, D. F., 1980. DefiningtheBusiness:TheStartingPointofStrategicPlanning. Prentice Hall.Thompson, J. L., 1997. StrategicManagement:Awareness andChange. 2nd ed., International Thompson Business Press, London.

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Self Assessment

Which of the following statements is false?1. Strategic planning is a forward-looking exercise which determines the future posture of the enterprise. a. Strategic plans helps in enhancing and sustaining the organisational competitive advantage based on external b. and internal variables. Strategic planning is a well organised effort aiming at fulfilling business objectives in a systematic c. manner. Strategic management is a well organised effort aiming at fulfilling business objectives in a systematic d. manner.

__________ is a long range plan of action in which plan and strategy are integrated.2. Strategic managementa. Strategic planb. Business strategyc. Business policyd.

_________ tells the current position of the organisation. It informs you about the desired level of performance 3. needed for the organisation.

Mission statementa. Value statementb. Vision statementc. Business statementsd.

Which of the following statements is true?4. Corporate mission is a short, concise and inspiring statement of what the organisation intends to become a. and to achieve at some point in the future and is often stated in competitive terms. Corporate value is a short, concise and inspiring statement of what the organisation intends to become and b. to achieve at some point in the future and is often stated in competitive terms. Corporate vision is a short, concise and inspiring statement of what the organisation intends to become and c. to achieve at some point in the future and is often stated in competitive terms. Corporate strategy is a short, concise and inspiring statement of what the organisation intends to become d. and to achieve at some point in the future and is often stated in competitive terms.

Which of the following statements is false?5. The most effective visions are those that inspire, usually asking employees for the best, the most or the a. greatest.A mission statement should be a short and concise statement of goals and priorities.b. Vision is more specific in terms of objective and future and future state.c. Value is more specific in terms of objective and future and future state.d.

What describes the overall purpose of the organisation?6. Mission statementa. Value statementb. Vision statementc. Business statementsd.

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What helps the firm to formulate a workable strategy?7. Strategic planninga. Strategic managementb. SWOT analysisc. Mission statementd.

_________ is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities and threats 8. involved in a project or in a business venture.

Strategic planninga. SWOT analysisb. Mission statementc. Strategic managementd.

_________ of the corporate enterprises provide the direction in which the strategies are to be formulated.9. Policiesa. Strategiesb. Planningc. Corporate planningd.

Which of the following statements is true?10. While selecting policy of the alternatives, strategist must look into the possibilities of gaining in the process a. of implementation of strategy, at least possible cost. While selecting strategy of the alternatives, strategist must look into the possibilities of gaining in the process b. of implementation of strategy, at least possible cost. While selecting strategy of the alternatives, strategist must look into the possibilities of losing in the process c. of implementation of strategy, at least possible cost. While selecting strategy of the alternatives, strategist must look into the possibilities of gaining in the process d. of implementation of policy, at least possible cost.

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Chapter VII

Implementation of Strategy

Aim

The aim of this chapter is to:

explain strategy implementation

explicate BCG matrix

elucidate various aspects of implementation

Objectives

The objectives of this chapter are:

explain issues in strategy implementation

enlist aspects of strategy implementation

elucidate the steps in implementation of strategy

Learning outcome

At the end of this chapter, you will be able to:

explain strategy implementation in detail

describe BCG matrix

identify issues and aspects of strategy implementation

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7.1 Activating StrategyAfter designing strategies to be adopted in plans and finalising them, the top management should take necessary steps for implementing the designed strategy. The best policies and plans do not produce results until they are translated into action. Many strategies fail to produce desired results because of the failure of the proper implementation of the selected strategy. The management should have the will to adopt itself to changes. All the designed policies and strategies should be effectively communicated in measurable lower levels. Necessary resources, both monetary and non-monetary, are to be provided to the concerned departments for implementations.

7.2 Strategy Formulation vs. Strategy ImplementationFollowing points illustrates the difference between strategy formulation and strtaegy implementation:

Strategy formulation and implementation are intertwined. They are not separate activities. Business organisation is not static. It constantly interacts with the external environment and its own internal environmental changes. According to the situation, organisation should modify the existing strategy or formulate new competitive strategy and implement them at the right time and in the right direction.Strategy formulation is concerned with the development of long-term plans for effective management of environmental opportunities and threats, in the light of the organisational strengths and weaknesses. It defines corporate mission, specify achievable objects, developing strategies and formulating policies.

Strategy implementation is the process by which strategies and policies are out to action through the development of programs, budgets and procedures.Implementation requires changes in the culture, structure and management system to the entire organisation. Strategy formulation is the thinking process implementation is the doing process. Primary function of an organisation is to formulate workable and competitive strategy for the overall growth of the organisation, after considering both internal and external factors. Strategy implementation is the secondary function of the organisation. This is based on the strategy formulated.Implementation is an administration task which ensures that the strategy formulated is executed in the right direction to achieve objectives stated at the strategy formulation stage.Necessary adjustments may have to be made to execute the strategy. Success of an organisation is dependent on how the strategy is implemented rather than how the policy is formulated.Implementation of strategy requires arrangement and allocation of resources. While implementing strategy, organisation may either adopt forward linking approach or backward linking approach.

Forward linking Under this approach, organisation conducts internal and external analysis. Analysis may need the organisation to modify strategies, organisation structure, modification of behavior, etc. this helps the organisation to decide what changes are needed to be made in the future while implementing the new strategies.Backward linking Instead of modifying the existing facilities entirely, organisation can think of concentrating on the existing one and making an additional effort to explain opportunities and comfort threat. This advocates organisation to go for incremental changes instead of changing right from the root. Organisation can adopt these changes that can be implemented using the present resources with an additional effort.

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7.3 Aspects of Strategy ImplementationStrategy implementation includes the following:

Strategies Policies Procedures Programs Rules Methods Budgets

7.4 Steps in Implementation of a StrategyFollowing are the steps in implementation of a strategy:Resource allocationThe organisation should provide both monetary and non-monetary resources.

Fixing key tasks and prioritiesThe top management, when finalises the operational plan should incorporate in each operational plan the task to be performed by the manager and the work to be carried out according to priority.

Assigning the tasksAs per the operational plan, the tasks have to be assigned to concerned managers and their work force for successful implementation.

Authority delegationFor the smooth running of each strategic operational plan, the concerned managers and the key workforce like managers, have to be delegated with certain authority and power. This is required for smooth execution of the plans. It will be still good, if they are properly defined in the operational plan itself.

This will facilitate the workforce to work uninterruptedly within the framework of company objectives. Formulating methods

The co-ordination between various operations within the same task is very essential for smooth discharging of the task. Every operation should be cohesive and work flow from one operation to another should be smooth.

There should not be back tracking. The task should be completed within the time period. The co-ordination takes place through the scientific operational methods to be formulated.

Each operation should have uninterrupted system, methods and procedure. Policies, goals, MIS and feedback

After designing the methods and procedure for implementing the strategic plan, what task the concerned manager has to perform, what goal he has to achieve, etc. have to be informed to him for successful methods to provide necessary information to the manager for successful implementation of the plan.The manager has to be supported by proper data to perform his/her task. The management has to develop management information system including feedback methods to provide necessary information to the manager and to get a feed back about the operations.Each manager assigned with the task of implementing a strategic task should get relevant information to take decisions.

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There is a necessity of decision support system. The quality of decision depends on understanding the circumstances surrounding an issue and knowing the available alternatives and states of nature.Management Information System (MIS) reduces risk and uncertainty in decision-making. Arrangements has to be made to provide relevant and just required information which converts raw data into information that strategist can actually use. This is what Decision Support System (DSS) does.DSS shapes the information to management needs which is provided by MIS. MIS should be a two way system. This means that while top management provides information to the strategist, another system should provide feedback to the top management regarding operations.Thus, feedback should be the part of MIS which helps in completing the circuit of operation i.e. assigning the task by the top management, performance of the task and feedback to the top about results of the task performed.

Rewards and incentivesStrategies also include the rewards and incentives as a part of the operational plan. Those who succeed in successfully implementing the strategic plan should get the reward. This is a motivational factor. To motivate the people at work, certain incentives and rewards are to be instituted. It should be a part of the strategic plan and should be awarded when particular tasks are fully performed. This reinforces the behavior of workers to new systems.

Training the trainers

Another important aspect of strategic implementation is that the trainers and the workforce should be updates and maintained through workshops, seminars, inbuilt continuing training programmes.This is another vital aspect to be looked after, while implementing the strategic plan. Thus, managerial talents are developed and managers are educated in values and styles of the organisation.

ImplementationAfter undergoing all the steps discussed earlier, the plan will be systematically implemented. Every operation will be monitored. Results are analysed and compared with the strategies formulated for the success of the operation. It is not sure that strategies and plans do match with the actual results There will be little difference between the actual and planned programmes. This has to be closely observed and the deviations have to be informed to the top management through a sound feedback system.There should be an inbuilt evaluation system, incorporated in the strategy implementation.

Restructuring the strategyOn analysing the operations, the manager notices the changes in result, if any, compared to original operational plan, reports to the top management regarding such deviations. The management then takes a decision to restructure the policies and strategies to make the operational plan perfect and achieve the desired result. In this process action is taken for removing the defects in the strategy formulation noticed at the time of implementation, changing the workplace who implements the strategy, re-allocation of resources, etc. are to be carefully done.

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7.5 Issues in StrategyImplementationSuccessful implementation of a strategy depends on how efficient the organisation is in allocating resources, designing suitable structure, formulating functional strategies, etc. It should be noted that the objectives give rise to issues; issues lead to plans and plans result in different projects and programmes. It may include modernisation of existing facilities or installation or new or additional plants, etc. Important issues relating to strategy implementation are as follows:

Project implementation Procedure implementation Resource allocation

7.5.1 Project ImplementationProject implementation involves decision regarding the project to be undertaken in future and to see that they are properly executed. Following are the different phases pertaining to project implementation:

Conceptual stageEnvironmental scanning reveals various potential opportunities to the organisation. These opportunities are to be categorised into various projects.The organisation may not be in a good position to take up all these activities simultaneously. Therefore, assigning priorities to these projects is vital in project implementation.Priority helps organisation to choose an appropriate alternative for further development.

Analysing stage

After a project is identified, detailed analysis has to be made regarding possibility and feasibility.

Examination of technical, financial, marketing, ecological, economical and legal aspects are to be made.

Project feasibility report has to be prepared to decide whether the project can be taken up or not for further action.

Planning stage

Once it is decided that the project idea is feasible and workable, the organisation should begin planning and organising the project.Plan should mention in detail about the infrastructure, finance, manpower, etc. needed for the accomplishment of the proposed project.

Implementation stageActivities needed to accomplish the project are put to action at this stage. Test trials are undertaken to ensure that the project is ready for the final take-off.

Launching stage

Implementation stage ensures that the project is ready for the operation. At the launching stage, project is handed over for the actual execution to those involved in its operation.

7.5.2 Procedure implementationProcedure is a regularity framework within which the management is supposed to implement its plans, projects and policies as per government approval. These government regulations affect strategy formulation and implementation in the company. Following are the various government regulations

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Licensing proceduresLicensing procedure indicates the permission to be obtained from the government. Industries Development and Regulation Act, 1951 (IDRA) provides licensing system for the industries.According to the Act, industries are divided into three categories. Industries which are under the direct control of the government are included under the first category.

Second category includes those industries promoted by government and supported by private sector. All industries under private sector are covered under third category. Secretary of Industrial Approval scrutinises the application for license and issue a license only if the stipulated conditions are complied with.

SEBI requirementsSEBI Act was passed in the year 1992 to replace Capital Issues Control Act, 1956 (CICA). SEBI has three objectives, which are as follows:

protection of the interests of investors in securities to develop security market to regulate securities market

SEBI issues guidelines from time to time to supervise matters under its control. These guidelines influence those companies to collect their required funds from the capital market.

Foreign collaboration policy Foreign collaboration, in a way, is a partnership between home and foreign industrialist for the establishment of joint venture in the home country.It is an agreement under which industrially leading country provides machinery, technical assistance, financial assistance, etc.Expansion and diversification may need sophisticated equipment technology, huge amount of capital investment and know-how.Foreign collaboration certainly needs government approval. Government allows foreign investment and collaboration selectively.

FEMA requirementsForeign Exchange Management Act (FEMA) was introduced in the year 2000 to replace FERA. Several rules are formulated to facilitate foreign exchange by increasing Indian exports. The objective of exchange control is to regulate the demand for foreign exchange within the limits set by the available supply.

MRTP requirementsMonopolies and Restrictive Trade Practices (MRTP) Act, 1969 aims at preventing monopolistic, unfair, restrictive trade practices and concentration of economic power in the hands of big industrialists.The Act aims at curbing price discrimination, selling goods below cost to beat completion, restricting a dealer to sell products in selected areas, restricting a dealer to sell companys product only, etc.While formulating strategies, company must be careful enough to see whether the decisions taken lead unfair or restrictive trade practices.

Business IncentivesThe central and state governments offer incentives for the promotion of industries in the country. Strategies cannot ignore such incentives while formulating strategies. Some of the incentives offered by the government are infrastructural incentives, promotional incentives, small- scale industries, incentives, backward area incentives, etc.

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Import and export requirementsCommon tendency of modern business unit is to go global. This necessitates modernisation, diversification or expansion strategies.If an organisation is engaged in international trade, import and export activities become a regular phenomenon.Import may involve import of capital goods, raw materials, etc. There may be restrictions on such imports. In the same manner, government may restrict export of certain scarce products from the country. Therefore, it is essential that the strategy makers understand the prevailing export and import requirement while formulating relevant strategies.

Labour legislationLabour constitutes a vital resource for a company. Government formulates policies to safeguard the interests of the labour. These legislative rules certainly influence strategy formulation.There are several laws related to labour working in different industries. Therefore, strategists must be aware of the labour legalisation applicable to his/her industry and company.

Patenting requirementsOrganisation will always be on the look out of continuous development and innovations. They wish to patent their products and ideas.There are formulations to be followed while patenting their products or ideas. Strategies must know the procedure and practice involved in getting patent right to the organisation.It has been a proven fact that the organisation with a string patent right can gain competitive advantage more quickly than its competitors.

7.5.3 Resources AllocationFollowing are the points illustrated in resource alloctaion:

To accomplish stated objectives, organisation requires various resources like physical, financial and human resources.Organisation must utilise scarce resources for the maximum benefit of the organisation. Therefore, resource allocation is the process of investment decision based on cost benefit theory.

Resource allocation process is continuous and complex. Success of the project largely depends on the timely availability of resources. Strategists should prioritise activities for the optimum utilisation of available resources. It is advised to take co-operation of departmental and operational heads at the time of resources allocation to avoid conflict later.

Basically, three important resources are identified for the success of the organisation namely, men, material and money.Of all resources, money plays a vital role. Proper arrangement of this resource enables the organisation to acquire all the short-term funds. Identification of proper sources of supple is also crucial.

Based on the requirement suitable source must be identified.

To the extent possible, organisation must use internal financial resources created by way of retained earning.

There are three different approaches adopted for resource allocation mentioned as follows: Tip-down approach Bottom-up approach Mixed approach

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Under top-down approach, discretion regarding resource allocation lies with the top management. They start allocating available resources from top level to the lowest level of operation. In such allocation, some operation departments may or may not receive expected amount of resources. If any of the operational areas suffer, the whole strategic process gets affected.Under bottom-up approach, allocation of resource starts from the operating departments. It is due to the fact that the success of the organisation is based on the performance of these operational areas. Flow of allocation of resource allocation more viable and flexible.

Under the mixed approach, allocation is made with mutual consent between different levels of management. This approach makes resource allocation more viable and flexible.

7.6 Importance of Organisational StructureFollowing points illustrates the importance of organisational Structure

It determines the nature of work to be done by different people in the organisation. It establishes relationship between various activities in the organisation. It establishes an effective communication system in the organisation. It ensures proper delegation of authority and responsibility. It ensures smooth functioning of the organisation. It ensures co-ordination among workers. It helps in effective use of human resource of the organisation. It encourages creativity. It helps in measuring performance of people in the organisation.

7.6.1 Structural ConsiderationsOrganisation structure is not a mere graphical representation of activities and people responsible for various activities. It covers various activities like:

Identification of different activities needed to accomplish the strategy under consideration

Group the activities based on the skill required Establish proper authority and responsibility Establish effective information system and administration of the same Designing and administration of motivation Designing and administration of appraisal system

For the success of structure of an organisation, following principles are to be borne in mind:Principle of activity Structure must be formulated to suit the basic objective of the organisation. The structure should not contradict the basic objective.Principle of span of control Span of control refers to the number of persons an individual can effectively control. Span of control is based on several factors like ability, the nature of job, etc. these factors must be carefully considered before deciding the structure.Principle of exception Only exceptional matters should be referred to the executives and the routine matters should be decided by the subordinates themselves.Principle of specialisation Fundamental division of activities should take place and tasks must be assigned to an individual based on his/her specialisation.The scalar principle In order to make management effective, there must be clear line of authority from top to bottom.

The principle of unity of command According to this, each subordinate should have only one supervisor and dual subordination should be avoided.Principle of delegation Organisation structure should provide for delegation of authority at every level.

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Principle of responsibility According to this principle superiors are not allowed to avoid responsibility by delegating responsibilities to their subordinates. Superiors are held responsible for the acts of their subordinates.Principle of flexibility The organisation structure must be flexible so that it can be adaptable to the changing circumstances. If the structure is rigid, modification is not possible and expansion becomes difficult.

Principle of simplicity Organisation structure must be simple both in its expressions and constitution. It should have minimum number of levels. People must be in a position to understand the system clearly. Principle of continuity An organisation has got perpetual existence. So long the organisation exists, organisation structure exists. Structure must be dynamic and should be adoptive to the changing circumstances.Principle of unity of direction The group acting towards the same objective must have one plan and direction. If different plans are given to different people in the group, co-ordination cannot be achieved.Principle of efficiency Structure must facilitate effective functioning of the organisation with minimum cost and effort.Principle of balance Human, technical and financial factors must be properly balanced towards the accomplishment of the objectives.

7.7 Other Important StrategiesProduct life trategy

All products and services have certain life cycles. The life cycle refers to the period from the products first launch into the market until its withdrawal.The life cycle is split up into different phases. During this period significant changes are made in the way that the product is behaving in the market.Since an increase in profits is the major goal of a company that introduces a product into a market, the products life cycle management is very important. Some companies use strategic planning and others follow the basic rules of the different life cycle phase that are analysed later.The understanding of a products life cycle can help a company to understand and realise when it is time to introduce and withdraw a product from a market, its position in the market compared to competitors, and the products success or failure.

7.8 BCG MatrixThe BCG matrix method is the most well-known portfolio management tool. The BCG method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit. Companies that are large enough to be organised into strategic business units, face the challenge of allocating resources among those units. To ensure long-term value creation, a company should have a portfolio of products that contains both high growth products in need of cash inputs and low growth products that generate a lot of cash. There are two dimensions, market share and market growth.

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Relative Market Share

High Low

Mar

ket G

row

th R

ate High ?

Low

Fig. 7.1 BCG matrix

The basic purpose of using matrix is that the higher the market share a product has, the higher the growth rate and the faster the market for that product grows. The BCG growth share displays the various business units on a graph of the market growth rate vs. market share relative to competitors.

7.8.1 Market GrowthExecutives develop and organise the companys strategic infrastructure, the corporate configuration that produces the companys distinctive or core competencies and provide the resources necessary to satisfy customer wants. This often means dividing the business into functional units and determining which core competencies to develop.

The idea is to provide the products, services and talents necessary to satisfy customer needs and create customer value. One of the tools used in analysing market scenario and strategic decisions concerning product mix is the portfolio analysis. Portfolio techniques help marketing managers evaluate alternative strategies and allocate resources across a number of business and markets. There are two major portfolio analysis that are used in marketing planning. They are as follows:

The Boston Consulting Group Approach (BCG) The General Electric Approach (BG)

7.8.2 The Growth Share Model and Cash PositionFollowing are the features of the Growth share model and cash position:

The theory behind the growth-share model makes specific assumptions about market growth rate and relative market share.Market growth rate is assumed to indicate market maturity. High market growth indicated emerging markets with a promising future, low market growth indicates mature markets with limited future potential and negative growth indicates declining markets.Relative market share are considered strong competitors, and business with low relative market share are considered weak competitors.The theory behind the growth-share model also assumes that an organisation must generate cash flows from business with a strong competitive position in mature markets and invest these funds in business with high future potential.Stars are highly desirable business because they have a high market growth rate and high relative market share. But because they are in high competitive industries, they require large investments to sustain their position, and they consequently produce low profit.

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Dogs are low market share, low growth business that drain capital and produce little or zero profit. The organisation should consider liquidating or divesting such business.Cash cows are dominant business in low growth industries that require little investment to maintain their market share and consequently produce substantial profits. Because they are no longer growing, these businesses should be milked for funds to invest in stars and question marks.Question marks are business in industries that are doing well, but where the specific business unit is not doing as good as the industry. They are called question marks because they are an unknown for management.In general the theory suggests that, given the proper investment in product development, plant capacity, and marketing, the business can gain market share and become stars, but without proper investment the business eventually go into decline and become dogs.The level of proper investment for each business, however, is industry and business specific, and the growth share model is not helpful at that level of decision making.

Cash CowA business unit that has a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be used to invest in other business units. Keep investments low, while keeping profits high. Profits and cash generation should be higher because of low growth. (high market share, low growth) StarA business unit that has a large market share in a fast growing industry. Stars may generate cash, but because the market is growing rapidly they require investment to maintain their lead. If successful, a star will become a cash cow when its industry matures. Invest further in these- they incur high costs, but they are market leaders and should also generate lots of cash. (high market share, high growth)

Question Mark (or Problem Child)A business unit that has a small market share in a high growth market. These business units require resources to grow market share, but whether they will succeed and become stars in unknown. These have poor cash inflow, but have high demands and low returns due to low market share. Efforts should be made to change market share. If this is not possible, this will likely turn into a dog as growth slows down. (low market share, but high growth)

DogA business unit that has a small market share in a mature industry. A dog may not require substantial cash, but it ties up capital that could better be deployed elsewhere. Unless a dog has some other strategic purpose, it should be liquidated if there is little prospect for it to gain share. Avoid and reduce the number of dogs. (low market share, low growth) 7.8.3 Uses and Benefits of the BCG Matrix

Following are the uses and benefits of the BCG matrix:

BCG model is helpful for managers to evaluate balance in the firms current portfolio of Stars, Cash Cow, Question Marks and Dogs.BCG method is applicable to large companies that seek volume and experience efforts. The model is simple and easy to understand. It provides a base for management to decide and prepare for future actions.

7.8.4 Limitations of the BCG MatrixFollowing are the limitations of BCG matrix:

It neglects the effects of synergy between business units. High market share is not the only success factor. Market growth is not the only indicator for attractiveness of a market. Sometimes Dogs can earn even more cash as Cash Cows.

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The problems of getting data on the market share and market growth. There is no clear definition of what constitutes a market.

A high market share does not necessarily lead to profitability all the time.

The model uses only two dimensions market share and growth rate. This may temp management to emphasise a particular product, or to divest prematurely.A business with low market share can be profitable too.

The model neglects small competitors that have fast growing market shares.

7.9 G. E. Multi Factorial AnalysisThe GE matrix is a technique used in brand marketing and product management to help a company decide what products to add to its product portfolio, and which market opportunities are worthy of continued investment. The business portfolio is the collection of businesses and products that make up the company. The optimal business portfolio is one that fits perfectly to the companys strengths and helps to exploit the most attractive industries or markets. The best business portfolio is one that fits the companys strengths and helps exploit the most attractive opportunities.

7.10 Factors Affecting Market AttractivenessFollowing are the factors affecting market attractiveness

Market Attractiveness Business StrengthsMarket size Market share Market growth Customer & Market knowledge Market profitability Customer satisfaction Competitive pressure Cost efficiency Government regulations Technology Environmental factors Product quality Prices levels Financial strength Social factors Promotional activities Overall risk of returns in the industry Brand image Opportunity to differentiate products and services Distribution channels R&D Managerial skill Material supplies Segmentation

Table 7.1 Business attractiveness and business strengths

7.11 PEST AnalysisThe acronym PEST is used to describe a framework for the analysis of the macro-environmental factors. A PEST analysis fits into an overall environmental scan. PEST analysis helps scanning the external macro environment in which the firm operates.

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Social forces

Economic forces

Tech

nolo

gica

l for

ces

Political forces

Your business

Fig. 7.2 PEST analysis

Political factorsPolitical factor includes government regulations and legal issues and define both formal and informal rules under which the firm must operate.

Economic factorsEconomic factors affect the purchasing power of potential customers and the firms cost of capital. Social factorsSocial factors include the demographic and cultural aspects of the external micro-environment. These factors affect customer needs and the size of potential markets. Technological factors

Technological factors can lower barriers to entry. Reduce minimum efficient production levels, and influence outsourcing decisions.The PEST analysis is a useful tool for understanding market growth or decline, and as such the position, potential and direction for a business.A PEST analysis is a business measurement tool. PEST is an acronym for political, economical, social and technological factors, which are used to assess the market for a business or organisational unit.PEST analysis is similar to SWOT analysis, it is simple, quick and uses four key perspectives. As PEST factors are essentially external, completing a PEST analysis is helpful prior to completing a SWOT analysis.

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SummaryAfter designing strategies to be adopted in plans and finalising them, the top management should take necessary steps for implementing the designed strategy. Necessary resources, both monetary and non-monetary, are to be provided to the concerned departments for implementations. Strategy formulation and implementation are intertwined. They are not separate activities. Strategy formulation is concerned with the development of long-term plans for effective management of environmental opportunities and threats, in the light of the organisational strengths and weaknesses. Strategy implementation is the process by which strategies and policies are out to action through the development of programs, budgets and procedures.For the smooth running of each strategic operational plan, the concerned managers and the key workforce like managers, have to be delegated with certain authority and power. This is required for smooth execution of the plans. The co-ordination between various operations within the same task is very essential for smooth discharging of the task. There is a necessity of decision support system. The quality of decision depends on understanding the circumstances surrounding an issue and knowing the available alternatives and states of nature.Management Information System (MIS) reduces risk and uncertainty in decision-making. There will be little difference between the actual and planned programmes. This has to be closely observed and the deviations have to be informed to the top management through a sound feedback system.Successful implementation of a strategy depends on how efficient the organisation is in allocating resources, designing suitable structure, formulating functional strategies, etc.Environmental scanning reveals various potential opportunities to the organisation. These opportunities are to be categorised into various projects. Implementation stage ensures that the project is ready for the operation. Licensing procedure indicates the permission to be obtained from the government. Industries Development and Regulation Act, 1951 (IDRA) provides licensing system for the industries.SEBI issues guidelines from time to time to supervise matters under its control. Foreign collaboration, in a way, is a partnership between home and foreign industrialist for the establishment of joint venture in the home country.The objective of exchange control is to regulate the demand for foreign exchange within the limits set by the available supply.Government formulates policies to safeguard the interests of the labour. These legislative rules certainly influence strategy formulation.Customers are the central focus of any activity of an organisation. Strategists should prioritise activities for the optimum utilisation of available resources. Organisation structure is not a mere graphical representation of activities and people responsible for various activities. All products and services have certain life cycles. The life cycle refers to the period from the products first launch into the market until its withdrawal.

The BCG method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business unit.Market growth rate is assumed to indicate market maturity. Cash cows are dominant business in low growth industries that require little investment to maintain their market share and consequently produce substantial profits.

Question marks are business in industries that are doing well, but where the specific business unit is not doing as good as the industry.

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BCG model is helpful for managers to evaluate balance in the firms current portfolio of Stars, Cash Cow, Question Marks and Dogs.The GE matrix is a technique used in brand marketing and product management to help a company decides what products to add to its product portfolio, and which market opportunities are worthy of continued investment.The acronym PEST is used to describe a framework for the analysis of the macro-environmental factors. Technological factors can lower barriers to entry. Reduce minimum efficient production levels, and influence outsourcing decisions.

ReferencesTheBCGGrowth-ShareMatrix , [Online] Avaialble at: [Accessed 17 May 2013].PEST Analysis [Pdf] Available at: [Accessed 17 May 2013].Jeffs, C., 2008. Strategic Management, SAGE.Katsioloudes, M., 2006. Strategic Management, 2nd ed., Routledge.2012. BCGMATRIX, [Video online] Available at: [Accessed 17 May 2013].2013. BCG MATRIX, [Video online] Available at: [Accessed 17 May 2013].

Recommended ReadingGhosh, P. K., 1996. Business policy strategic planning and Management. 2nd ed., Sultan Chand & Sons.Litman, J., 2008. Driven:BusinessStrategy,HumanActions,andtheCreationofWealth. 1st ed., Strategy & Execution, LLC.Saloner, G., Shepard, A. & Podolny, J., 2008. Strategic Management, 2nd ed., John Wiley & Sons.

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Self Assessment

___________ and implementation are intertwined.1. Strategy formulationa. Strategic managementb. Strategic planningc. Strategic implementationd.

Which of the following statements is false?2. Business organisation is not static. It constantly interacts with the external environment and its own internal a. environmental changes. Strategy implementation is concerned with the development of long-term plans for effective management b. of environmental opportunities and threats, in the light of the organisational strengths and weaknesses. Strategy formulation is concerned with the development of long-term plans for effective management of c. environmental opportunities and threats, in the light of the organisational strengths and weaknesses. Strategy implementation is the process by which strategies and policies are out to action through the d. development of programs, budgets and procedures.

What is the secondary function of the organisation, based on the strategy formulated?3. Strategy formulationa. Strategic management b. Strategic planning c. Strategy implementationd.

What reduces risk and uncertainty in decision-making?4. Management Information System (MIS)a. Decision Support System (DSS)b. Industries Development and Regulation Act(IDRA)c. Capital Issues Control Act, 1956 (CICA)d.

_______ shapes the information to management needs which is provided by MIS.5. MISa. IDRAb. DSSc. CICAd.

Which of the following statements is false?6. Successful implementation of a strategy depends on how efficient the organisation is in allocating resources, a. designing suitable structure, formulating functional strategies, etc.Environmental scanning does not reveal potential opportunities to the organisation. b. Priority helps organisation to choose an appropriate alternative for further development.c. Environmental scanning reveals various potential opportunities to the organisation. These opportunities are d. to be categorised into various projects.

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Which of the following statements is true?7. SEBI requirement indicates the permission to be obtained from the government.a. Foreign collaboration indicates the permission to be obtained from the government.b. Licensing procedure indicates the permission to be obtained from the government.c. Business incentives indicate the permission to be obtained from the government.d.

_________, in a way, is a partnership between home and foreign industrialist for the establishment of joint 8. venture in the home country.

Foreign collaborationa. Business incentivesb. Licensing procedurec. SEBI requirementd.

What must be formulated to suit the basic objective of the organisation?9. Principle of span of control a. Principle of activity structureb. Principle of specialisationc. Principle of exceptiond.

In ____________, human, technical and financial factors must be properly balanced towards the accomplishment 10. of the objectives.

principle of efficiency a. principle of unity of direction b. principle of continuity c. principle of balanced.

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Chapter VIII

Social Responsibility

Aim

The aim of this chapter is to:

introduce the concept of social responsibility

explain various responsibilities of an organisation towards society

elucidate social audit

Objectives

The objectives of this chapter are:

enlist the characteristics of social responsibility

explain the components and areas of social responsibility

elucidate the importance of business ethics

Learning outcome

At the end of this chapter, you will be able to:

explain social responsibility in detail

describe social audit

explain components of social responsibility

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8.1 IntroductionThe social responsibility of a business refers to such decisions and activities of a business firm which provide for the welfare of the society as a whole along with the earning of profit for the firm. The business firm functions and acts in such a way that it will accomplish social gains along with the traditional economic gains in which the business firm is interested. The concept of social responsibility is based on the idea that a business functions in the society and uses the physical and human resources of the society for its operations and hence it is under the obligation to serve the society. The concept of social responsibility is also based on the idea that anything good done by a business firm for the society is good for the business itself in the long run.

8.2 Characteristics of Social ResponsibilityFollowing are the characteristics of social responsibility:

The concept of social responsibility of a business applies to all business organisations both in private and public sectors which have been established for earning profits.

Social responsibility of a business is continuous process as business is a regular and an on-going activity. The concept of social responsibility of business lays emphasis on the all-round development of all the sectors of the business.The concept of social responsibility of business is the b