Strategic mgmt-II

Strategic Management-II (BBA-8th Semester)
Chapter-1
Review of Strategy formulation

Strategy:
The word strategy has entered into the field of management most recently. At first,
the word was used in terms of Military Science. In military science, it means all activities of
an officer do to offset the actual or potential actions of enemies. According to Oxford
Dictionary, military strategy is the art of moving or disposing the instruments of warfare
(troops, ships, aircrafts, missiles, etc.) as to impose upon the enemy, the place, time and
conditions for fighting by oneself.
In management, the concept of strategy is taken in slightly in different form as
compared to its usage in military form. It is taken more broadly. However various experts do
not agree about the precise meaning & scope of strategy. There is considerable confusion in
management literature regarding the various terms used in strategic management. A recent
survey by the American Management Association revealed that respondents found it
difficult to define strategy, policy and objectives.
Definitions
The determination of the basic long-term goals, objectives of an enterprise, the
adoption of the courses of action and the allocation of resources necessary for carrying out
these goals.-Alfred D. Chandler
A strategy is unified, comprehensive and integrated plan designed to assure that the
basic objectives of the enterprise are achieved. Janch & Glueck.
Strategy is the direction and the scope of an organization over long-term, which
achieves advantages for the organization through its configuration of resources within a
changing environment and to fulfil stakeholders expectations.- Johnson & Scholes.
Strategy consists of the combination of competitive moves and business approaches
that managers employ to please customers, compete successfully and achieve organizational
objectives-Thompson and Stickland
A companys strategy is the game plan that management uses to stake out the
market position, conduct its operations, attract and please its customers, compete
successfully and achieve organizational objectives. Thus a strategy entails managerial
choices among alternatives and direct organizational commitment to specific markets,
competitive approaches and ways of operating. When an existing corporation faces new
opportunities and challenges from external environment, e.g. Emergence of new
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competitors, changes in government regulations, changes in wants, needs and preferences

of existing customers, it has to rethink the courses of actions it had been following to
counter such challenges. Similarly, some new opportunities may emerge in the business
environment. In order to grasp such opportunities, the company has to reassess the
approach it had been following and change the courses of actions. These courses of actions
may we call strategies.
Strategic management:
From the above discussion, we have a clear concept of strategy. Strategic
management is the set of managerial decisions and actions that determines the long-run
performance, competitive advantages & competences of the corporations. It includes
environment scanning (both internal and external), strategy formulation, implementation
and evaluation & control. The study of strategic management therefore emphasizes the
monitoring and evaluating of external opportunities and challenges in light of companys
strengths and weakness.
Strategic management is the stream of decisions and actions which leads to the
development of effective strategies to help achieve corporate objectives.-Jauch & Glueck
Strategic management is the set of decisions and actions that result in the
formulation and implementation of plans designed to achieve a corporations objectivesPearce & Robinson
Strategic management is the comprehensive and ongoing process aimed at
formulating, implementing and evaluating the effective strategy.- Thompson & Stickland.
We observed that different authors have defined strategic management differently.
Yet there are several common similarities. Strategic management is considered as either
decision making and planning or a set of activities related to formulation and
implementation of strategy to achieve organizational objectives.
Modern business world is facing significant challenges. Environmental changes are
taking place due to globalization, advanced information technology, political & economical
grouping, and socio-cultural shifts and so on. Such changes have brought tremendous
growth opportunities as well as serious threats & challenges to business organizations. The
strategic management helps to formulate & implement the appropriate strategies to match
resources & strength of organization with changing forces of business environment. It
represents management game plan for achieving organizational objectives in the dynamic,
uncertain and multifaceted business environment.
Initially, the concepts and techniques dealing with strategic management have been
developed and used successfully by giant business corporations such as General electric and
Boston consulting group. Overtime, small business houses and academic researchers have
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expanded and refined these concepts. Increasing risk of error, costly mistakes and even
economic ruin are causing todays professional managers of all organizations to take
strategic management seriously in order to keep their company competitive, efficient &
effective in an increasingly volatile environment.
Strategic management process:
We had already explained and described the historical evolution of business strategy
and said that strategic management is carried out through a process of strategic
management. So, we will find organisations devise various methods for strategy
formulation. The strategic formulation and implementation methods vary with product
profile, company profile, environment within and outside the organisation, and various
other factors. Large organisations which use sophisticated planning using detailed strategic
management models whereas smaller organisations where formality is low tend to use
simpler models. Small businesses concentrate on planning stage compared to larger
companies in the same industry. While large firms have diverse products, operations,
markets, and technologies and hence they have to essentially use complex systems. In spite
of the fact that companies have different structures, systems, product profiles, various
components of models are used for analysis of strategic management.
There are five essential phases of strategic management process. In different
companies these phases may have different and the phases may have different sequences,
however, the basic content remains same. The five phases can be listed as below.
1. Defining the vision, business mission, purpose, and broad objectives.
2. Environment scanning
3. Formulation of strategies.
4. Implementation of strategies.
5. Evaluation of strategies.
Model of strategic management process
In today's highly competitive business environment, budget-oriented planning or
forecast-based planning methods are insufficient for a large corporation to survive and
prosper. The firm must engage in strategic planning that clearly defines objectives and
assesses both the internal and external situation to formulate strategy, implement the
strategy, evaluate the progress, and make adjustments as necessary to stay on track.
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From the above figure you will see the dynamic, interrelated nature of the elements
of the strategic management process and provides an outline of where the different
elements of the process are covered is given below. Feedback linkages among the three
primary elements indicate the dynamic nature of the strategic management process.
Vision & mission statement:
A companys mission and vision statement is typically focused on its present
business scope, who we are and what we do. It broadly describes an organization. A
strategic vision and mission statement thus reflects the managements aspiration for the
organization and its business, providing a panoramic view of where we are going and
specifies its business plans.
The mission statement describes the company's business vision, including the
unchanging values and purpose of the firm and forward-looking visionary goals that guide
the pursuit of future opportunities. Guided by the business vision, the firm's leaders can
define measurable financial and strategic objectives. Financial objectives involve measures
such as sales targets and earnings growth. Strategic objectives are related to the firm's
business position, and may include measures such as market share and reputation.
Environment scanning:
Monitoring, evaluating and disseminating the information gained by closely
observing the internal and the external environment. It is used to develop the companys
strategic intent and strategic mission. SWOT analysis, competitive analysis, situation
analysis, PESTL analysis can be done to scan the environment. The environmental scan
includes the following components:
Internal analysis of the firm
Analysis of the firm's industry (task environment)
External macro environment (PEST analysis)
Strategy Formulation: Set of process involved in creating or determining the
strategies of an organization. It is guided by the companys strategic intent and
strategic mission. The strategy formulation concerns how to:
Achieve desired financial and strategic objectives
Out-compete rivals and win competitive advantage
Respond to changing industry and competitive conditions
Defend against threats to firm
Grow the business
Given the information from the environmental scan, the firm should match its
strengths to the opportunities that it has identified, while addressing its weaknesses and
external threats.
To attain superior profitability, the firm seeks to develop a competitive advantage over its
rivals. A competitive advantage can be based on cost or differentiation. Michael Porter
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identified three industry-independent generic strategies from which the firm can choose
Strategy Implementation:
strategy implementation is an internal, operations-driven activity involving
organizing, budgeting, motivating, culture building, supervising and leading to make the
strategy work as intended. It is the sum of activities by which strategies are executed within
the organization to achieve the goals. It is the process of putting the strategies into actions.
The selected strategy is implemented by means of programs, budgets, and
procedures. Implementation involves organization of the firm's resources and motivation of
the staff to achieve objectives. The way in which the strategy is implemented can have a
significant impact on whether it will be successful. In a large company, those who
implement the strategy likely will be different people from those who formulated it. For this
reason, care must be taken to communicate the strategy and the reasoning behind it.
Otherwise, the implementation might not succeed if the strategy is misunderstood or if
lower-level managers resist its implementation because they do not understand why the
particular strategy was selected.
Strategy Evaluation & Control:
A process in which corporate activities and performance results are monitored and
evaluated in terms of desired or expected performance. It links the elements of the strategic
management process together and helps companies continuously adjust or revise strategic
inputs and strategic actions in order to achieve desired strategic outcome. The
implementation of the strategy must be monitored and adjustments made as needed.
Evaluation and control consists of the following steps:
Define parameters to be measured
Define target values for those parameters
Perform measurements
Compare measured results to the pre-defined standard
Make necessary changes
Environmental analysis
An organisation, being a social system operates in some contexts which lie outside it
and is called as external environment or simply environment. Thus, environment consists of
all the conditions, circumstances, and influences surrounding and affecting an organisation
in its totality or any of its subsystems. The environmental factors are quite broad. It consists
of political-legal, economical, socio-cultural, technological factors which affect the
organizations strategic decision making.
A careful analysis of the environment can identify major opportunities and threats.
Thus analysis of global environment provides business organization with important
information for strategic decision making. A successful firm always tends to follow
environmental trends and continuously asses the changes that affect their industry and
organization. It is often said that the success of the business depends to a large extent not
only its micro environment or internal policies but also how quickly and effectively it can
adjust itself within national, international and global environment. A manager who keeps
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himself/herself up to date with the economic, political-legal, socio-cultural and

technological affairs might be successful. For the company to be succeeding, its
management must carefully analyze whether its corporate policies will fit a desirable
political, legal and economical policy.
Pest analysis
A scan of the external macro-environment in which the firm operates can be
expressed in terms of the following factors:
Political-legal
Economic
Social
Technological
1) . Political-legal environment:
Political environment refers to all the factors related to government, its functions, its
formation and philosophy. Political environment factors often considered as one of the
most important dimension amongst global environment factors. It influences the business
organization from multi-angels such as promoting, encouraging, directing and regulating.
Thus it is believed that the success and growth of the business depends upon the stable
government, political stability, honest politicians and business friendly political policies and
political system. The political environment includes policies and characteristics of political
parties, nature of the constitution, government system, threat of politicians, interest groups
etc.
Political factors influence organisations in many ways. Political factors can create
advantages and opportunities for organisations. Conversely they can place obligations and
duties on organisations. Political environment include the following components:

Political stability
Government
Political parties
Constitution
Power of opposition
Special interest groups
Political system
International treaties
Political ideology
Closely related to the political environment, legal environment is another dimension

of global business environment that influences the business. It concerned with government
rules, regulations, procedures, act, code of conduct and laws. The managers must be aware
of the legal system of the country where they operate their business activities. Legal system,
policies related to trade and industry may vary from country to country. So the managers
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should be aware of the legal policies host country before initiate the business. The legal
environment includes the following components:

National policies
Trade and industrial regulations
Code of conducts
Bilateral & multilateral Treaties
International laws
Intellectual property right
Legal system
Foreign policies
2) Economic environment:
Economic environment probably is the greatest concern to international business
organization. It is considered as one of the most dynamic and complex dimension of global
business environment. Economic factors such as economic growth rate, per capita income,
inflation budget highly affect the managerial decision. Therefore economic uncertainty and
changes must be carefully monitored and analyzed by the managers before take the
decisions.
All businesses are affected by national and global economic factors. National and
global interest rate and fiscal policy will be set around economic conditions. The climate of
the economy dictates how consumers, suppliers and other organisational stakeholders such
as suppliers and creditors behave within society.
The economic environmental factors include:

Economic growth
GDP/GNP
Per capita income
Availability of resources
Economic policies
Economic infrastructure
Economic system
Monetary and fiscal policies
Member of international economic association
3) Socio-cultural environment:
Socio-cultural environment includes social, cultural and demographic characteristics
of the society where business organizations perform their business activities. Socio-cultural
characteristics of the society significantly affect to the strategies. Managers should carefully
analyse these characteristics while building and implementing the business strategies.
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Culture is the specific learned norms based on attitudes, Values, and beliefs that
exist in every nation and is an integral part of external environments. International business
includes people from different cultures, every business function managing a workforce,
marketing output, purchasing supplies; dealing with regulators, securing funds is subject to
potential cultural problems. An international company must be sensitive to these cultural
differences in order to predict and control its relationships and operations.
Culture is an inclusive term, can be explained in many different ways. It can be
defined as a system of values and norms that are shared among a group of people and they
together constitute a design of leaving. In another word, culture is asset of traditions,
beliefs, and norms, values that are transmitted and shared in a given society. A culture
provides a similar behaviour, way of life, thinking and perception among people in a given
society. Generally cultural values are transmitted by various patterns such as parents to
child, teacher to pupil, social leader to follower and one generation to next. Culture may
differ from one country to another. Thus, differences in culture provide opportunities as
well as challenge to the business organizations.
Thus, social and cultural environment, in its broad sense, includes many - aspects of
society and its various constituents. From business organisations point of view, it may
include:
Religion
Language(written and spoken)
Social structure
o Caste
o Ethnicity
o Family
o kinship
Education
Aesthetics
Tradition
Norms, values, beliefs & attitudes
4) Technological environment:
Technological environment refers to the level and availability of technology for
converting resources into product and services. Technological environment consists of
inventions, techniques and way of doing things. It heavily affects the operation,
performance, objectives and strategies of the business organizations. A frequent change in
technological environment brings challenges to existing product, process, skills and
practices. Technological advancement in information technology, transportation,
communication has brought revolutionary changes in the operation of business activities. It
has brought lots of opportunities as well as challenges to the business enterprises.
The technological environment consists of following factors:
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Level of technology
Pace of technological change
Technology transfer
R & D budget.
Patent protection
Availability of technology
Availability of skilled workforce
Technology transfer
Resources available for invention & innovation
Transportation and telecommunication infrastructure
SWOT analysis
A scan of the internal and external environment is an important part of the strategic
planning process. Environmental factors internal to the firm usually can be classified as
strengths (S) or weaknesses (W), and those external to the firm can be classified as
opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to
as a SWOT analysis. The SWOT analysis provides information that is helpful in matching the
firm's resources and capabilities to the competitive environment in which it operates. As
such, it is instrumental in strategy formulation and selection. The following diagram shows
how a SWOT analysis fits into an environmental scan.
Strengths: A firm's strengths are its resources and capabilities that can be used as a
basis for developing a competitive advantage. Examples of such strengths include:
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
Weaknesses: The absence of certain strengths may be viewed as a weakness. For

example, each of the following may be considered weaknesses:
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 some cases, a weakness may be the flip side of strength. Take the case in which a
firm has a large amount of manufacturing capacity. While this capacity may be considered a
strength that competitors do not share, it also may be a considered a weakness if the large
investment in manufacturing capacity prevents the firm from reacting quickly to changes in
the strategic environment.
Opportunities: The external environmental analysis may reveal certain new
opportunities for profit and growth. Some examples of such opportunities include:
an unfulfilled customer need
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arrival of new technologies

loosening of regulations
removal of international trade barriers
Threats: Changes in the external environmental also may present threats to the firm.
Some examples of such threats include:
shifts in consumer tastes away from the firm's products
emergence of substitute products
new regulations
increased trade barriers
Industry and competitive analysis
An industry is a group of firms producing a similar type of products or services. All
the organizations are operated in both macro (external) and micro (internal) environment.
Macro environment includes all relevant forces outside the company that provides
opportunities and threats to the company. These forces highly influence in strategic decision
making. Macro environment consists of broadly general (PESTL) and task environment that
includes competitors, regulators, customers, suppliers etc. Task environment can be
analysed through industry and competitive analysis designed by Michael porter.
An industry and competitive analysis, the term commonly used to refer to assessing
the most strategically relevant aspects of a companys competitive environment. Industries
differ widely in their economic characteristics, competitive situation and future profit
prospects. An industry and competitive analysis provides tool kit of concepts and techniques
to get a clear picture of key industry traits, intensity of competition, drivers of industry
change, market position, strategies of rivals, key to competitive success and industry profit
outlook. The analysis provides a way of thinking strategically about any industrys overall
situation and draws conclusion about whether the industry provides opportunities of
threats. Michael porter, a professor of Harvard business school has convincingly
demonstrated the state of competition in an industry is a composite of five competitive
forces. There are many factors in the market that determine the competitive intensity.
Porters five forces model establishes a methodology to determine both the horizontal &
vertical competitive influences in the market place that will impact the business
organization.
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1) Threats of potential new entrants: A new entrant into an industry represents a

competitive threat to existing firms. It brings new capacity; desire to gain market
share and substantial resources which were not previously required for the success
in the industry. As the more company enter in to the industry, the more difficult for
existing companies to hold their market share & profitability. The threats of new
entry depend on the barriers to entry that are present with the reaction from
existing competitors. High entry barriers discourage the potential new entrant and
vice versa. Some of the possible barriers to entry are:
2) Bargaining power of suppliers: Bargaining power of suppliers is another force of
competition. Suppliers can affect an industry through their ability to rise in price of
supplies or reduce the quality of purchased goods or services. Suppliers bargaining
power is determined by following factors:

The supplier industry is dominated by few companies.

High switching costs
No availability of substitute suppliers & supplies
Differentiation of inputs
Concentration of suppliers
No threats of vertical integration
3) Bargaining power of buyers: Bargaining power of buyers can exert by forcing prices
down, by reducing the amount of goods they purchase from industry or demanding
better quality at same price. The following factors determine the buyers bargaining
power.

Buyers concentration
Ability to backward integration
Widely availability of substitute products
Low switching cost
Volume of buyers
4) Threats of substitute products: Substitute products are those that appear to be

different but can satisfy the same needs and demand as another product. The
presence of readily available substitute at attractive price creates competitive
pressure. It invites customers to compare in price, quality, attributes and other
features. For example, eye glass vs. contact lens, sugar vs. artificial sweeteners. So
existence of close substitutes imposes strong competitive threats. Some
determinants of threats of substitutes are as follows:

Relative price & performance of substitutes

Low switching cost to substitute
Buyers propensity to substitute
Replacement of innovations
5) Competitive rivalry: In most industry, corporations are mutually dependent. A

competitive move by one firm can be expected to have a noticeable effect on its
competitors and thus may cause counter efforts. According to porter, rivalry is
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related to the presence of several factors. Mainly, the following factors cause rivalry
stronger:

Number of competitors, equal in size & capability

Rate of industrial growth
Amount of fixed costs
Low entry and high exit barriers
Switching cost incurred by customers is low
Costs more to get out from the industry than stay in
Demand for the product growing slowly
Weapons for competitive rivalry:

Product
-product innovation
Price
-dealers network
Quality
-advertisement & sales promotion
Customer service -warranties & guaranty
Strategic analysis and choices

Strategic analysis and choices is the third stage of the strategic management process.
During the strategy formulation stage, business managers craft the different alternative
strategic options. They analyse these strategic options with reference to the companys
internal and external business environment. They examine and choose the best alternative
strategy that follows their business to maintain and create a sustainable competitive
advantage over its rivals.
Strategic analysis:
Strategic analysis is concerned with understanding the strategic position of business
organization. What changes are going on in the environment and how will they affect the
organization and its activities? What are the resources and competencies of an organization
and can they provide special competitive advantages or yield new opportunities? What are
the expectation of managers, shareholders, employees and other stakeholder of the
organization?
The aim of strategic analysis is then, to examine the key influences on the present
and future performance of the organization, what opportunities are offered by the
environment and what kind of competences are there in the organization.
Basically strategic analysis focuses on
1. Stakeholders expectations & organizational purposes.
Identifying stakeholders
Assessing the power
Corporate mission
Corporate objectives
2. Analysing Business Environment
Assess the nature of environment
Audit environmental influences
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Pest analysis
Five forces analysis
SWOT analysis
Porters diamond
Identify key competitive forces
Identify competitive position
Identify key opportunities and threats
3. Resources & competences of the organization
Resource audit
Physical
Human
Financial
Intangible
Analysing competences
Value chain analysis
Analysing cost efficiency: economies of scale, experience curve, supply
cost, product & process design
Analysing effectiveness: product features, service expectations, price
sensitivity
Comparison analysis: historical analysis, benchmarking, financial analysis
Together, a consideration of environment, strategic capability & competences and
expectation & purposes of organization provides a basis for the strategic analysis.
Strategic choice:
Strategic choice is the core of strategic management. It is concerned with the
decisions about an organizations future and the way in which it needs to respond to the
many pressures and influences indentified in strategic analysis. The aim of strategic choice
is to select the best strategic option among the alternative options. The strategic choices
include various activities including
Identifying the bases of strategic choice
Generation of strategic options
evaluation and selection of strategic options
Assessing suitability: life cycle analysis, portfolio analysis, value chain
analysis
Analysing acceptability: analysing return, analysing risk analysing
shareholders reactions
Analysing feasibility: funds flow analysis, breakeven analysis, resource
deployment analysis,
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Chapter-2
Global Business Environment:
It is true that we are the part of global village and we have a global economy where
no business organization can go away from the effect of foreign trade competition. Most of
the companies are reshaping themselves for international competition and discovering new
ways to exploit market in every corner of the world. Those who fail to take a global
perspective will be the biggest mistakes that she/ he ever make.
A careful analysis of the global environment can identify major opportunities and
threats. Thus analysis of global environment provides business organization with important
information for strategic decision making. A successful firm always tends to follow global
environmental trends and continuously asses the changes that affect their industry and
organization. It is often said that the success of the business depends to a large extent not
only its micro environment or internal policies but also how quickly and effectively it can
adjust itself within national, international and global environment. A manager who keeps
himself/herself up to date with the economic, political-legal, socio-cultural and
technological affairs might be successful. For the company to be succeeding, its
management must carefully analyze whether its corporate policies will fit a desirable
political, legal and economical policy.
Definitions:
Business environment is the aggregate of all the conditions, events and influences that
surround and affect the operation of business activities.
Business environment is the sun total of the environmental factors that provides an
opportunities and threats to the business.
Global business environment includes factors outside the company that can lead to an
opportunity or threats to the company.
International business organization that operates its activities in global market must
carefully analyze the interaction between corporate policies with political, legal, economical
and socio-cultural environments in order to maximize its success.
Political environment:

Political stability
Government
Political parties
Constitution
Power of opposition
Special interest groups
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Political system
International treaties
Political ideology
Economic environment:

Economic growth
GDP/GNP
Per capita income
Availability of resources
Economic policies
Economic infrastructure
Economic system
Monetary and fiscal policies
Member of international economic association
Legal environment:

National policies
Trade and industrial regulations
Code of conducts
Bilateral & multilateral Treaties
International laws
Intellectual property right
Legal system
Foreign policies
Socio-cultural environment:
Religion
Language(written and spoken)
Social structure
o Caste
o Ethnicity
o Family
o kinship
Education
Aesthetics
Tradition
Norms, values, beliefs & attitudes
Foreign market analysis & Entry strategy:
The world economy is globalising at an accelerating pace as countries have adopted
liberalised economic policies. Most of the countries around the world have opened their
markets for foreign company. As the trade barriers have been declining, an ambitious and
growth-oriented companies have started race to stake out competitive positions in the
foreign markets. Foreign market refers to the market for foreign companies. Foreign trade is
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possible when countries are not equally efficient in the production of all the goods and
services within a country. The reasons for this situation may be unequal distribution of
natural resources.
Drivers of entering into foreign market
1) Proactive reasons
To acquire resources
To increase sales & profit
To gain economies of scale
To gain location economies
Power & prestige
To minimize competitive risk
To utilize excess capacity
2) Reactive reasons
Declining trade barriers
Global competition
Liberalisation of cross border movement
Establishment of supporting institutions
Development of regional trading blocs
A company that is contemplating to enter a foreign market or already a
multinational but wants to monitor world markets systematically should have to make a
complete market analysis and assessment. It needs to analyse potential challenges and
opportunities in foreign market. Before entering into foreign market, international business
manager should analyse the market characteristics to determine their market potential in
each foreign market. They have to match their marketing mix with the characteristics of
foreign market. Basically international managers should have to analyse the political, legal,
economical, socio-cultural and competitive environment of foreign market.
Thus, the foreign market analysis is the systematic process of gathering relevant
information about environmental forces of foreign market. Analysis includes market
research, pest analysis, swot analysis, five forces analysis etc. The majorities of companies
use the same tools & techniques to determine market opportunities and threats in foreign
markets that they use in their domestic market. Mostly they used to analyse the following
variables while entering into foreign market:
A) Which market to enter

There are more than 200 countries in the world. Each country does not hold the
same profit potential, costs and risks of doing a business. The choice of which market to
enter should be driven by an assessment of relative long run growth, profit potential, costs
and risks associated with doing a business in different countries. A companys decision to
enter in to particular foreign market largely depends on the following factors;
a) Companys vision and objectives
b) Companys strength and competitive position
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c) Long run profit potential

Size of the market
Economic growth
Per capita income
d) Political-economical Environmental factors

Economic & political system

Political stability
Government attitudes toward foreign company
Trade and industry policies
Fiscal and monetary policies
e) Nature of competition
availability of substitute products
price of competitive products
numbers of competitors
f) suitability of the products
needs, wants, tastes & preferences of target customers
norms, values and belief of target market
B) Timing of entry:
Once attractive markets have been identified, it is important to consider the timing
of entry. It is said, to become successful in business, right business should be done at right
time. Mainly there are two types of entry into foreign market regarding the entry timing.
They are early entry and late entry.
1) Early entry:
Entry is early when an international company enters into particular foreign market
before others foreign companies enter. Such kind of company is called pioneer company.
The advantages associated with early entry are commonly known as first- mover
advantages. Basically, pioneer company gains following major first- mover advantages and
disadvantages:
Advantages:
a)
b)
c)
d)
Ability to capture demand and market share by establishing strong brand name
Ability to realize experience curve effects ahead of its rivals
Ability to discourage new entrants through cost advantages
Ability to win customers satisfaction and brand loyalty that creates a switching costs
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Disadvantages:
a) Have to bear pioneer costs:
Cost of R & D
Customer awareness and educating costs
Advertising and promotion costs
b) Chances of market failures
2) Late entry:
Entry is late when a company enters in to particular foreign market after the others
companies already serve to that market. Advantages and disadvantages associated with late
entry are as follows:
Advantages:
a) Do not have to bear pioneering costs
b) Low environmental risks
c) Learn by observing the mistakes made by early entrant
Disadvantages:
a) Difficult to capture market share and sales growth
b) Difficult to compete in price
c) Difficult to win customers satisfaction
C) Scale of entry:
Another issue that an international business company needs to consider when entering into
foreign market is scale of entry. Generally, an international business company can enter into
foreign market either in large scale or small scale.
1) Large scale entry:
When a business company enters in to a foreign market very aggressively and rapidly
covering large market, it is called large scale entry. In addition, a company tends to serve
larger area of foreign market at the initial stage of entry, which is called large scale of entry.
The advantages and disadvantages associated with large scale entry are:
Advantages:
First mover advantages
Realising experience curve effects
Attract distributors and middleman
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Disadvantage:
Need large amount of resources
High potential risks
2) Small scale entry:
When an international business company enters in to a foreign market by initially serving a
small market segment, it is called small scale entry. Majority of international company
prefer small scale entry while entering in to foreign market. It allows a company to learn
about a foreign market. It is a way to gather information about a particular foreign market
before deciding how best to enter. Advantages and disadvantages associated with small
scale entry are as follows:
Advantages:
Reduces the risk of potential loss
Helps to become familiar with the market
Small amount of resources needed
Disadvantages:

Difficult to build market share

Do not gain first mover advantages
Limits the future potential growth
No realisation of economies of scale and experience curve effects.
Choices of entry strategy

International business organizations use four basic strategies to enter and compete
in international market that includes international, global, multidomestic and transnational
strategy. Each strategy has advantages and disadvantages. The appropriateness of each
strategy varies with the extent of pressures for cost reduction and pressures for local
responsiveness.
Global strategy
Transnational strategy
Pressure for cost
reduction
Intl strategy
Low
Multi-domestic strategy
high
(Pressure for local responsiveness)
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1) International strategy
A strategy in which accompany utilizes its core competencies or firms specific
advantage it developed at home as its main competitive weapons in the foreign markets
that it enters. In other word, the firm takes what it does exceptionally well in its home
market and attempts to duplicate it in the foreign markets. Firm that pursue an
international strategy tries to create value by transferring valuable skills and products to
foreign markets where other firms lack these skills and products.
They tend to centralized product development functions such as R &D at home.
However they also tend to establish manufacturing and marketing functions in each major
country in which they do business. Company that adopts international strategy offers
standardized products; very limited products and marketing strategy tend to be customized
as per local needs. In most international firm, head office retain full control over marketing
and product strategy over its foreign market.

An international strategy makes sense if,

A firm faces low pressure for cost reduction and local responsiveness
It offers mostly standardized products.
When foreign subsidiaries are capable enough to develop marketing and distribution
strategy as per local needs.
Advantages:
a) Low pressure for cost reduction
b) Low pressure for local responsiveness
c) Competitive advantage in international market due to its core competencies
transferred from headquarters.
d) Transferring core competencies to foreign subsidiaries
e) Appropriate for those industry where cost pressure and local responsiveness is
minimal
Disadvantages:
a)
b)
c)
d)
e)
Centralised decision making

High price of the products
No location economies
No multi market flexibility
Inappropriate for the industry where cost reduction pressure and local
responsiveness is high
2) Multidomestic strategy
A strategy in which a company manages itself as a collection of relatively

independent operating subsidiaries, each subsidiary focuses on a specific domestic market.
Page 20
In addition , each of these subsidiaries are free to customize its products, marketing strategy
and tools and operating procedures to best meet the needs of its local customers.
A Multidomestic strategy makes sense,
When there are high pressure for customize its products according to the local needs
When there is relatively low pressure for cost reduction.
When there are clearly differences among needs and wants of foreign customers.
When it has to serve differentiated products and customize their marketing strategy
to match different national conditions.
Multidomestic companies have developed as an independent and autonomous
company. Decisions are decentralized into foreign subsidiaries. For example, fast food chain
McDonalds and MTV has adopted Multidomestic strategy in their international business.
McDonalds has customized its offerings (menu) to account the national differences in tastes
and preferences. It has been serving hamburger in American and European subsidiaries and
vegetable-burger, Maharaja Mac in mutton & fish flavour in Indian subsidiaries. Similarly,
MTV found that it needs to respond to local tastes and preferences, customizing its
programs and content accordingly.
Advantages:
a)
b)
c)
d)
e)
Low pressure for cost reduction

Multi market flexibility
Global learning
Decentralised decision making
Appropriate for the industry where local responsiveness is intense
Disadvantages:
a)
b)
c)
d)
e)
f)
High cost structure

Failure to transfer core competencies
No realisation of location economies
No realization of experience curve effects
High pressure for local responsiveness
Inappropriate for the industry where there is a high pressure for cost reduction.
3) Global strategy
A strategy in which a company views the world as a single market place and its
primary goal is to create standardized goods and services that will address the needs of
customers worldwide. This strategy is exactly opposite to Multidomestic strategy. A firm
adopting this strategy assumes that customers tastes and preferences are fundamentally
the same regardless of nationality. The global corporations do not tend to customize their
products offering and marketing strategy to local markets needs. The strategy makes sense,
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When there is a strong pressure for cost reductions

When there is not significant pressure for local responsiveness.
When firm has to realise location economies.
When firms offer industrial goods.
When the customers taste & preferences are homogeneous
For example, coke, Pepsi, Nokia, Motorola and Personal Computer manufacturing
companies pursue global strategy. Customers around the world of these products seem to
be homogeneous.
Advantages:
a)
b)
c)
d)
e)
f)
Low pressure for local responsiveness

Realising economies of scale and learning effects
Standardised products offerings
Realization of location economies
Cost advantages
Appropriate for the industry where there is no pressure for responding local market
conditions.
Disadvantages:
a)
b)
c)
d)
e)
high pressure for cost reduction

no global learning
centralised decision making
no multi market flexibility
Inappropriate for the industry where a company has a high pressure for responding
locally.
4) Transnational strategy
Strategy in which a company attempts to combine the benefit of global scale of

economies and the advantages of local responsiveness. A transnational corporation may
choose to centralise certain management functions and decision making such as R&D and
financial operation at corporate headquarters, other functions: production, HRM, marketing
may be decentralised allowing managers of local subsidiaries to customize their business
activities to better respond the local culture and environment.
In todays competitive environment are so intense that to survive in the global
marketplace, firms must exploit experience-based cost economies and location economies,
they must transfer core competencies within the firm, and they must do all of this while
paying attention to pressures for local responsiveness. They note that in the modem
multinational enterprise, core competencies do not just reside in the home country.
Valuable skills can develop in any of the firms worldwide operations. The flow of skills and
product offerings should not be all one way, from home firm to foreign subsidiary as in the
case of firms pursuing an international strategy. Rather the flow should also be from foreign
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subsidiary to home country and from foreign subsidiary to foreign subsidiary - a process
they refer to as global learning. Firms that pursed this strategy are trying to simultaneously
create value in these different ways as a transnational strategy.
A transnational strategy makes sense when,
Faces high pressures for cost reductions,
High pressures for local responsiveness,
Where there are significant opportunities for leveraging valuable skills within a
multinationals global network of operations.
When company tries to imultaneoussly achieve cost and differentiation advantages.
They are trying to simultaneously lower Cost and increase Value.
Unilever, once a classic Multidomestic firm, has had to shift toward more of a transnational
strategy: A rise in low-cost competition, which increased cost pressures, forced Unilever to
look for ways of rationalizing its detergent business. During the 198OS, Unilever had 17
largely self-contained detergent operations in Europe alone. The duplication of assets and
marketing was enormous. Because Unilever was so fragmented, it could take as long as four
years for the firm to introduce a new product across Europe. Now Unilever has integrated
its European operation into a single entity, with detergents being manufactured in a handful
of cost-efficient plants and standard packaging & advertising being used across Europe.
According to the firm, the result was an annual cost saving of more than $200 million. At the
same time, however due to national differences in distribution channels and brand
awareness, Unilever recognizes that it must still remain locally responsive, even while it tries
to realize economies from consolidating production and marketing at the optimal locations.
Advantages:
a)
b)
c)
d)
Global learning
Multimarket flexibility
Transfer of skills to foreign subsidiaries
Appropriate for the industry where there is high pressure for cost reduction and
local responsiveness
Disadvantages:
a)
b)
c)
d)
e)
High pressure for cost reduction

High pressure for local responsiveness
High cost structure due to local responsiveness
Not easy to implement
Very conflicting
Strategy options/modes for entering into foreign market:

One of the most important strategic decisions in international business is choosing
Page 23
the best entry strategy into foreign market. Entering into a foreign market is not a easy job
as compare to operating in domestic market. Manager needs to take right decision at right
time while entering into foreign market. So he needs to analyse the characteristics of
foreign market thoroughly. Some of the major alternative strategic options are available to
enter into foreign market.
1) Exporting
Exporting is a mode of entry into foreign market in which a company exports its products
from home country to foreign market without establishing its own production facilities. In
addition, a producer sales and markets its products by contracting with foreign distributor
or agent of a host country, it is called indirect exporting and if a producer sales and
distributes its products into foreign market through its own distributor, this form of
exporting is called direct exporting. Most of the manufacturing company begins their global
expansion through this mode and later switch to another mode to serve a foreign market.
Exporting is the most traditional and easiest mode of entering in to the foreign market. For
instance, auto Manufacturer Company such as Bajaj, Yamaha, Honda, TATA have been
adopting this mode of entry into Nepalese market. Exporting is the appropriate strategy
when the following conditions prevail.
The volume of foreign business is not large enough to justify production in the
foreign market.
Cost of production in the foreign market is high.
The foreign market is characterised by production bottlenecks like infrastructural
problems, problems with materials supplies etc.
There are political or other risks of investment in the foreign country.
The company has no permanent interest in the foreign market.
No guarantee of the market available for a long period.
Foreign investment is not favoured by the foreign country concerned.
Licensing or contract manufacturing is not a better alternative. .
Exporting is more attractive than other modes particularly when underutilized
capacity exists.
Although exporting may turn out to be the best alternative under a given set of
conditions or environmental factors, then are several sets of conditions which make
exporting less attractive than one or more of other alternatives. Policies of some foreign
governments discriminate against imports; in some cases import is even banned. The
exporting mode of entry has following advantages and disadvantages:
Advantages:
a) Low initial capital investment, so it is suitable for medium and small firm which has
not strong international approach.
b) Economies of scale and learning effects can gain by the manufacturer by producing
in home country only.
c) Manufacturer can Control over the quality of the products by producing in its own
plant.
d) Exporting minimizes the potential environmental risks of doing business in foreign
country.
e) It gives manufacturer instant access into foreign market.
Disadvantages:
a) Exporting products from home country to foreign market, high transportation costs
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may cause high price of the products.

b) Trade barriers (tariffs and non-tariffs) imposed by the foreign country can make
exporting uneconomical and complicated.
c) The manufacturer cannot control over sales and marketing of its own products in
foreign market.
d) The success will be limited because the manufacturer has to depend on the
performance of the foreign countrys distributors and sellers.
e) Manufacturer cannot gather the information about foreign market and needs, wants
and preferences of foreign customers
1) Licensing
Licensing is an agreement whereby a licensor (international company) grants the
rights to use its intellectual property to licensees (local national company) for a specific
period of time and in return licensor receives royalty fees from the licensee. In many
countries, such fees or royalties are regulated by the government; it does not exceed five
per cent of the sales in many developing countries. For instance, coca cola, Pepsi has
adopted licensing to enter the Nepalese market. Coca cola has licensing agreement with
bottlers Nepal and Pepsi has licensing agreement with Varun beverage. The licensor may
give the licensee one or more of the following intellectual property rights:
Patent
Trademark
Copyright
Technological knowhow
Trade formula/secret
In return licensees usually promise to:
Produce licensors products
Market these products to assigned territory
Pay some amount based on sales volume or profit
This mode of entry is effective when following conditions prevails:
When a company is not financially strong enough to set up its own subsidiaries.
High political and other environmental risks in establishing foreign investment.
High trade barriers exist in foreign trade
High shipping and transportation costs
Company has well known trade mark and brand name.
The company has no permanent interest in the foreign market concerned or there is
no guarantee of the market available for a long period.
Advantages:
1) It requires neither capital investment nor knowledge and marketing strength in
foreign markets.
2) By earning royalty income, it provides an opportunity to exploit research and
development.
3) Licensing reduces risk of exposure to government intervention.
4) Foreign markets can be tested without major involvement of capital and
management time.
5) Licensing has been used by many companies also to harvest their outdated products.
6) It may be employed as a defensive strategy against competitors by combing the
foreign markets before the competitors could enter.
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7) Transportation costs and trade barriers do not affect the price of the products
8) Realisation of location economies by utilizing cheap labour and raw materials
Disadvantages:
1) Licensee would become a major competitor after the expiry of the licensing
agreement.
2) The licensor cannot control over the quality of the products
3) The licensor can misuse licensing agreement or the intellectual property of licensor
4) The licensor cannot control over the production, distribution and marketing factions
of the products
5) Success and growth will be limited
6) High chance of the leakage of trade secret of licensor.
2) Franchising
Franchising is a special form of licensing in which a parent company (the franchiser)
grants the right to do business in a prescribed manner to another independent entity (the
franchisee) of foreign countries. Franchiser not only sells its intellectual property but also
franchisee agrees to follow the rules and business strategy of franchiser while doing
business. This right includes the selling of Franchisers products, using its name, production
and marketing techniques, standard policies & procedures or general business approach.
The franchiser will also assist the franchisee to run the business on regular basis. In return,
franchiser receives royalty based on revenues or sales volume. Franchising is employed
primarily by service firms.
McDonalds is the good examples of a company that expands its market in foreign
country by using franchising strategy. McDonalds tends to pose strict rules to its foreign
franchisees to operate the restaurant. It controls over the menu, cooking method, staffing
policies and the layout of the restaurant. It also provides assistance in employees training
and management development.
Advantages:
a) It requires neither capital investment nor knowledge and marketing strength in
foreign markets.
b) By earning royalty income, it provides an opportunity to exploit research and
development.
c) It reduces risk of exposure to government intervention because franchisee is
typically a local investor that can provide leverage against government action.
d) Realization of location economies by hiring cheap local human resources.
e) It excludes Trade barriers and shipping costs
Disadvantages:
a) It is difficult to control the international franchisees.
b) It reduces the market opportunities and growth of the franchisor.
c) The problem of the leakage of trade secret
d) The franchisees can be the major competitor after the agreement expires.
e) Franchisor loses full control over the quality of the products.
3) Joint Ventures
Joint venture is a very common strategy of entering the foreign market. Joint
venture is a process by which domestic and foreign firm collaborate to create new firm and
Page 26
shares ownership and management. In most joint venture, each party holds a certain
percentage of ownership and contributes a team of managers to share operating control.
Joint venture can be between a private firm with both private and public enterprises. In
countries where fully foreign owned firms are not allowed or favoured, joint venture is the
alternative if the international marketer is interested in establishing an enterprise in the
foreign market. Many foreign companies entered the communist, socialist and other
developing countries by joint venturing. For example, Nepalese company cosmic and
Chinese company has been joint venturing to produce cosmic motor bike in Nepalese
market.
Advantages:
a) Limited resources is required to enter in foreign markets
b) Minimizes the potential environmental risk
c) Transfer of skill, technology and management expertise to local firm
d) Easy to expand market share due to the local partners marketing knowledge
necessary to compete in local market.
e) Consolidation of two companies provides synergy and competitive capabilities.
Disadvantages:
a) Dominant partner can exercise greater control over minor partner
b) Shared ownership arrangement may lead to the conflict
c) Decision making may be delayed.
d) The partners become competitors after braking the joint venturing.
e) Joint ventures require greater investment for entering into foreign market.
4) foreign branching
A foreign branching is an extension of a company to foreign market as a separately
located strategic business unit directly responsible for fulfilling operational duties assigned
by the corporate office. The operational duties include sales, customer service and physical
distribution of goods and services. Corporate headquarter hires local personnel for middle
and lower level position. For instance, standard chartered bank Nepal limited is a foreign
branch of standard chartered bank.
Advantages:
a) corporate has partial control over its foreign branches
b) it can gain location economies by hiring local personnel
c) it can transfer of core competencies and skills to foreign branch
d) it has high growth potential
Disadvantages
a) initial investment required to establish own foreign branch
b) high potential political risk of host countrys government
c) no economies of scale due to high pressure for local responsiveness
d) it should operate in a multiple environment
5) Wholly owned subsidiaries:
In wholly owned subsidiaries, the firm holds the 100% ownership over its foreign
subsidiaries. A foreign firm can invest in foreign market to establish its own subsidiaries. The
Decision about local product line, marketing strategy, pricing and other policies remains
with corporate head office. The wholly owned subsidiary can be started either by two ways:
Page 27
By developing its own facilities from ground up

By acquisition of established or existing firm in foreign country.
Acquisition of existing firm in foreign country is a quicker way to get into foreign
market than building its own facilities. In certain circumstances, international firm cannot
find suitable firm in foreign market, so it has to set up its own plant. The Company should
examine thoroughly to the environmental factors before establishing a wholly owned
subsidiaries.
Advantages:
a) The international company has high control over its production and marketing
function.
b) The international firm can gain location economies by utilizing local resources
c) The company receive whole profit from the business
d) The firm can enjoy freedom in decision making.
e) The firm can transfer its core competencies to its foreign subsidiaries.
Disadvantages:
a) It requires high initial investment in terms of money, labour and skill to enter into
foreign market.
b) It involves high risk of nationalization of foreign property by host government.
c) It requires high degree of knowledge about political, economical, socio-cultural and
legal issues of host country.
A company can established its wholly owned subsidiaries in foreign market by
building subsidiaries from the ground up, called green-field venture and by acquiring an
enterprise in the target market.
Green-field venture:
In green-field venture, a company establishes its subsidiaries by building its own
manufacturing and distribution system rather than purchasing existing firm. This is usually a
far more complicated and expensive operation than acquisition. The advantages and
disadvantages of establishing green-field venture are as follows:
Advantages:
a) It allows a company more freedom in designing the plant, choosing suppliers
and hiring work force.
b) It is much easier to develop own organizational culture than it is to change
the culture of an acquired firm.
c) It is much easier to establish a set of organizational routines in a new
subsidiary than it is to convert it from an acquired firm.
d) It helps to transfer core competencies, skills and knowhow from corporate to
new subsidiaries.
Disadvantages:
a) It takes more time to establish a firm in foreign country.
b) It is more complicated and expensive operation than acquisition.
c) It has high potential risk and uncertainty.
d) Difficult to expand market share.
Acquisition:
A relatively quick way to enter into foreign market is through acquisition. Acquisition
is an entry mode to foreign market in which an international firm purchases an existing local
firm in target market. Synergistic benefit can be gained if the company acquires a firm with
strong product lines and distribution network. The advantages and disadvantages of
Page 28
acquisition are as follows:

Advantages:
a)
b)
c)
d)
It makes quick access to enter into foreign market.

It helps to build rapid growth of the market.
It is less risky than green-field ventures.
It helps to gain local brand name and managers skill & knowledge of local business
environment.
e) It helps to gain synergy by combining the resources of two different firms.
Disadvantages:
a) Often company overpay for the assets of the acquired firm
b) Conflict between the organizational culture of acquiring firm and acquired firm may
arise.
c) Differences in management philosophy and culture can slow down and roadblocks to
the integration of operation.
d) Inadequate screening of acquisition can be more harmful.
6) Strategic Alliance
A strategic alliance is a partnership between two or more company to achieve
strategically significant objectives that are mutually beneficial. In addition, it is a cooperative
agreement between potential and actual competitors. Strategic alliance has been becoming
more and more popular in international business. This strategy seeks to enhance the long
term competitive advantage of the firm by forming alliance with its competitors, existing or
potential in critical areas, instead of competing with each other. The goals are to leverage
critical capabilities, increase the flow of innovation and increase flexibility in responding to
market and technological changes.
Strategic alliance is also sometimes used as a market entry strategy. For example, a
firm may enter a foreign market by forming an alliance with a firm in the foreign market for
marketing or distributing the firms products. Intel, manufacturer of micro processor has
been using this strategy to sell its micro processors in international market by forming
alliances with personal manufacturing companies such as HP, Apple, Acer, etc.
Companies may form strategic alliance for a number of reasons including:
a) To obtain technology and manufacturing capabilities.
b) To quick access to international market
c) To reduce financial cost
d) To reduce political risk
e) To achieve synergy and competitive advantages
There are different types of alliances according to purpose or structure.
1) Research & development alliances like research, engineering agreements, and
licensing or joint development agreements. A recent example is an alliance between
Sony and Philips in developing digital videodiscs.
2) Marketing, sales and distribution alliances in which a company makes use of the
marketing infrastructure etc., of another company in the foreign market for its
products. This may help easy penetration of the foreign market and pre-emption of
potential competitors.
3) Manufacturing alliances enable the partners to fill unused or idle capacity while
Page 29
avoiding an investment in a new plant and equipment.

4) Multiple activity alliance which involves the combining of two or more types of
alliances. While marketing alliances are often single country alliances, as
international firms take on different allies in each country, technology development
and operations alliances are usually multi-country since these kinds of activities can
be employed over several countries.
Advantages:
a) It facilitates the entry into foreign market
b) It also allows firm to share fixed costs and associated risk of developing new
products.
c) It helps firms to boost up their competitive advantages
d) It is a way to bring together complementary skills and assets that a company cannot
develop itself.
e) It helps firms to establish high technological standard.
Disadvantages:
a) High risk of giving away technological knowhow and market access to partners in
return for very little benefit.
b) Strategic partners became the major rivals after the alliance ends.
c) Organizational cultural differences between partners may lead to the conflict.
d) Decision making process will be slow due to the differences between the
management ideologies.
e) Improper selection of partner can be more harmful.
Cross country differences:
When a domestic company enters into the international market, it has to face cross country
differences between the countries. Significant cross country differences can be found in
culture, demography and market conditions while entering in foreign markets. These
differences pose tough challenges to make strategic decisions for the international
managers.
a) Cultural differences: cultural norms, values, benefits and tradition vary from one
place to another. Consumers needs, demands, taste and preferences are highly
influenced by the culture of the society and country. Consumers from the Europe do
not have the same taste, lifestyle and consumption habit as consumers in Asia.
Product design, its features and advertising & sales promotional activities suitable
for one country are not appropriate for another. Examples, majority of people from
Nepal eat rice whereas Indian prefers bread in lunch. Chinese, Korean like red colour,
Japanese like white and green is popular in Arabian countries.
b) Demographic differences: demography contains population, its size, nature, climate,
geographical structure etc. India, china & Brazil has large population but their
purchasing capacity is relatively lower than people of Europe and America. In Japan
& Singapore, population of elder people has been growing than youth. The average
height & physical structure is quite smaller than American & European. Thus the
demographic differences among countries have forced marketers and managers of
international companies to customize with their products according to the cross
country differences in demographic variables.
c) Market conditions differences: mainly, market condition refers to the consumers
Page 30
purchasing capacity, habit and consumption tendency. As per capita income is

differing among countries, consumers purchasing capacities also vary. Consumer
from developing & underdeveloped countries are found to be highly price sensitive
and prefer low cost products. American & European likes branded and standardised
product. A car is need of American but it will be the demand of south Asian. North
American wants large refrigerators because they tend to shop once in a week.
Southern European can get smaller refrigerator because they tend to shop daily.
In this way, cross country differences in culture, demography and market conditions
complicate the task of competing in world market. The managers should be responsive to
such kind of local differences and appropriate decision should be taken. They have to
formulate different strategy in product, price, distribution and promotion according to
country needs.
Networking strategy:
Networking is using communications, information technology and other means to
link all the subsidiaries, branches and business units and allow them to work together on
common objectives. Organizations are so closely linked with internet that one organization
can find out what others are doing at the same time. Sustainable competitive advantage is
likely to be gained by organizations which are able to manage linkages between the
separate activities within the organization and importantly into supply and distribution
chains with suppliers and distributors.
An organization can control all the activities within an organization and activities
between subsidiaries, branches, suppliers and clients through network. Recent dramatic
developments in telecommunication and coverage with computer technology have opened
up possibilities for many organizations to improve their management of these linkages.
Page 31
Chapter-3
Strategic analysis and choices in multi Business Company
Concept and nature of multi business
Business is an economic activity undertaken for earning profit through production,
distribution and exchange of goods and services. Organization is a mechanism enabling
persons to work together effectively to achieve the organizational goals. Business is the act
of bringing into effective cooperation of available resources for production, distribution and
exchange of goods with the view to earn profit.
Basically, two types of Business Company can be found according to their scope of
businesses and their offerings (goods and services). First is single business company and
second, multi business company. Single Business Company that offers single product or
various products of same product line, whereas Multi business Company is the collection of
different individual business units. These business units may be related or unrelated.
Initially, each business is started with the single business unit as the business grows;
a company tends to diversify its businesses into related and unrelated industry. In a single
business company, management has to focus on only one industry environment. But in a
multi-business or diversified company, management must deal with different industry
environment.
Nature of multi Business Company:

Joint procurement of purchased inputs,

Shared manufacturing and assembly facilities
Shared inbound and out bound shipping & materials handling
Share product and process technology
Common distribution channel
Transferring skills and capabilities from one business to another
Spread risks across diverse business
Operate in a multi-industry environment
Adopts multiple strategy
Synergetic effects
Diversification:
Diversification strategy is used to expand firms operations by adding markets,
products, services or stages of production to the existing business. The purpose of
diversification is to allow company to enter in to various lines of businesses that are
different from current business. When the new business venture is strategically related to
existing lines of business, it is called concentric diversification. Conglomerate diversification
occurs when there is no common thread of strategic fit or relationship between the new
and old lines of business. For instance, unilever has diversified products.
Page 32
When an industry becomes mature, most of the surviving companies reached to the
limits of vertical and horizontal growth. Until a company able to expand into an
international market, it may have better to diversify its business into different industries if it
wants to continue growing. Diversification largely depends on firms competitive position
and market attractiveness of a particular industry. The main objective diversification is to
build shareholders value. A company can diversified into another industry though any of
following method:
Internal diversification
Entering into existing market with new products
Entering into new market with existing products
External diversification
Merger
Acquisition
Related /concentric diversification:
Concentric diversification occurs when a firm adds related products or markets to
existing business. The main purpose of such diversification is to achieve strategic fit
.strategic fit allows companies to achieve synergy. Synergy may be gained by combining
firms with complementary marketing, financial, operational or management effort.
Businesses are said to be related when there are completely valuable relationship
among the activities comprising their respective value chain. Diversification is related when
firm has several product lines although they have some kind of strategic fit. Related
diversification may be an appropriate corporate growth strategy when a firm has a strong
competitive position but industry attractiveness is relatively low. The firm can secure
strategic fit in its product knowledge, manufacturing capabilities and sales & marketing skills
that it already effectively used in previous industry.
Most companies favour related diversification strategies because it provides
potential of cross-business synergies. It is a strategy-driven approach to creating
shareholders value.
Advantages of related diversification
Transfer of key skills, technological knowhow, managerial expertise from one
business to another
Control of supplies: quantity, quality and price
Combining the related activities of separate business into a single operation to
achieve lower cost
Learning /experience curve effect
Combining resources to create new competitive strength and capabilities
Access to information
Resources utilization
Unrelated/conglomerate diversification:
Page 33
Conglomerate diversification occurs when a firm diversifies into areas that are
unrelated to its current line of business. The main reason for pursuing a conglomerate
diversification strategy is that opportunities in a firms current business are limited. Finding
an attractive investment opportunity requires the firm to consider alternatives in other
types of business. It is effective when new area has growth opportunities greater than that
of available in existing line of business.
Businesses are said to be unrelated when the activities comprising their respective
value chains are so dissimilar that does not exist potential to transfer skills and technology
from one business to another. Diversification is unrelated when company chooses to enter
into new market with new products or into another industry. If the company has strong
competitive position and resourceful, though the current industry is unattractive, it may
better to choose unrelated diversification. A company with good financial position chooses
unrelated diversification when it has relatively few opportunities to grow in an existing
industry. It is a finance-driven approach to creating shareholders value.
Advantages of unrelated diversification:

Spread risk across diverse businesses

Stability of profit
Maximum utilization resources
New competences can be developed
New opportunities can be created
Exploitation of underutilised resources
Integration:
When a company replaces their former suppliers and customers by taking over the
function previously provided by them, it is known as integration. A company can stops
buying supplies from other companies and begins to provide own supplies by establishing
own manufacture plant, merger with other firm and acquisition of former suppliers.
Similarly, a company can market and sales its output itself rather than giving it to another
firms. Integration strategy has two types:
Vertical integration: when a company undertakes the function previously performed by its
suppliers and customers, it is known as vertical integration. A company expands its business
by making its own supplies and distributes its outputs (finished products) itself. When a
company performs suppliers function, it is called backward vertical integration and when it
performs distributors or its clients functions, it is called forward vertical integration.
Horizontal integration: when a company expands its products into other geographical
market and increases the range of products in current market, it is called horizontal
integration. Company that expands its business through horizontal integration either
acquires similar business or operates business in multiple geographical locations. A company
can adopt horizontal integration through licensing, franchising, joint venturing and strategic
alliances.
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Reasons of diversification & integration

The risk of remaining concentrated on a single business, is putting all of a firms eggs
in one industry basket. If the market become saturated, competitively unattractive, or is
eroded by the appearance of new technologies or new products, fast shifting buyers
preferences, then the companys prospects can be relatively slow. There is no formula for
determining when a company should diversify. Judgement about where, how and how to
diversify have to be made on the basis of a companys own situation. Generally speaking, a
company would better to diversify when it has:

Diminishing growth prospects in its present business.

To add value to its customers
To Gain competitive advantage by broadening its present business
To grasp the opportunities to transfer its existing competences and capabilities to
new business arena
Financial and organizational resources available to support a diversification effort
To Full utilization of excess capacity
Behavioural consideration affecting strategic choice:

Corporate management develops various alternative strategies, analyse these
strategies and choose the best one among the alternatives. If the analysis clearly identifies
the best or superior strategy, then the decision of choosing is quite easier. But in most
cases, managers have to face lots of behavioural considerations that may affect in the
choice of strategic options. They are as follows:
a) Role of the current strategies: most often past strategies strongly influence the
current strategic choice. The successful strategy is hardly replaced by new one.
Research in several companies found that lower-level managers mostly suggest for
the continuity of current strategy. So, the successful strategy highly affects the
future strategic choice.
b) Degree of the firms external dependence: external dependence means how much a
firm depends upon another firm or how much it depends upon one or more
environmental elements. The greater the external dependence, lower the flexibility
in strategic choice and vice versa. If a company highly depends on company
(supplier, customer), its choices for alternative strategies will be highly influenced by
those company.
For instance, most of the computer manufacturers and internet based companies
are depend on Microsofts operating system.
c) Attitudes toward risk: if the attitude of management towards risk is positive, the
range of strategic choice expands and highly risk strategies are supposed to be
selected. Conversely, if management is not optimistic toward risk bearing, it limits
the strategic choices. Similarly, industrys volatility also influences the attitudes of
top management towards. Top management of highly volatile industries may accept
the greater amount of risk. Conversely, management of stable industry may not be
positive toward risk.
Industry life cycle is another determinant of managerial attitudes toward risk. In the
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early stage of industry life cycle, managers may have to face greater risk and
uncertainty and they may tolerate high risk.
d) Managerial priority is different from shareholders interest:
Corporate managers are hired to act as agents of shareholders and to make
decisions that are in shareholders best interest. Some research proved that
managers frequently place their own interests above those of their shareholders. In
most of the company, shareholders and corporate managers interest tend to
conflict. For e.g. Shareholders value may be maximized be maximized by merging
the firm with other company, but the managers may suspicious in losing the job.
e) Internal political consideration: political factors also influence the strategic choices in
the organization. Formal & informal coalitions can be seen within an organization.
These coalitions are formed to fulfil particular objectives. They tend to raise their
voice so that their interests are addressed in the decision making process. These
internal politics highly affect the strategic choices of a company. Management
should try to maintain its internal politics and conflict at optimum level.
f) Competitors reaction:
While selecting the strategies, top management should consider the probable impact
of the strategy to the competitors. For e.g.: if a company chooses an aggressive
strategy directly challenges a key competitors that competitors may also react
aggressively by implementing counter strategy. Hence, top management must
consider the impact of such reaction on the success of the chosen strategy. For
example, if a company chooses to cut in the price of its products to become cost
leader, meanwhile, its competitors can choose counter strategy to offset that
strategy.
Building shareholders value:
Shareholders value can be defined as the present value of the anticipated future
stream of cash flows from the business. Shareholders value can be enhanced through
diversification of the business into various industries. To build shareholders value, a
diversified company must spread its business risk across various industries. Diversification is
justifiable only if it builds shareholder value. To enhance shareholder value, the company
must undertake assessments of whether a particular diversification move is capable of
increasing shareholder value by using three tests:
The industry attractiveness test: the industry chosen for diversification must be
attractive enough to yield consistently good return on investment. Industry
attractiveness depends on the presence of favourable competitive conditions and
market environment conducive to long term profitability. Such factors can be:
Market size
Economic growth rate
Political stability
Competitive rivalry
Availability of substitute products
Companys competitive market position
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The cost of entry test: the cost of diversify in to target industry must not be so high
as to erode the potential for good profitability. Generally, the more attractive the
industry, the more expensive it can be to get into. The entry barriers for new start up
companies are nearly always high in such industry. The industry where an entry
barrier is relatively low, new entrants would erode the potential for high
profitability.
The better-off test: diversifying into new business must offer potential for the
companys existing businesses and the new business to perform better together than
apart. The best chance of 1+=3 outcome occurs when a company diversifies into
businesses that have completely important value chain matchup with existing
business. That match up reduces the cost, transfer skills & technology from one
business to another, create valuable new competencies & capabilities and leverage
existing resources.
Diversification move that satisfy all three tests have greatest potential to build
shareholder value over long term. Diversification moves that do not satisfy these three tests
cannot build shareholders value.
Strategic analysis & evaluation of diversified/ multi business company
Once a company diversifies and has operations in a number of different industries,
the various issues arise to decision makers. Before diversified into a particular industry,
decision makers have to undertake market attractiveness of the industry and competitive
strength of the company for the particular industry.
Industry attractiveness analysis:
The main objective of industry attractiveness analysis is to identify the long-term
profit potential of particular industry where company is intended to diversify. The following
environmental forces determine the market attractiveness & competitive position:
Determinants of market attractiveness
Market size & projected growth rate
Intensity of competition
Emerging opportunities & threats
Resource requirements
The presence of cross-industry strategic fit
Political, economical & socio-cultural factors
Competitive strength analysis
The main objective of competitive strength analysis is to identify the competitive
strength & position of the company with compare with its rivals in a particular industry.
Determinants of competitive strength
Relative market share
Costs relative to competitors
Ability to beat rivals in key product attributes
Ability to exercise bargaining leverage with key suppliers or buyers
Ability to get benefit from strategic fit with sister business units
Technology & innovation capability
Chapter-4
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Operationalizing strategy
Strategy implementation:
Strategy implementation is concerned with the translation of strategy into action.
strategy implementation is an internal, operations-driven activity involving organizing,
budgeting, motivating, culture building, supervising and leading to make the strategy work
as intended. It is the sum of activities by which strategies are executed within the
organization to achieve the goals. It is the process of putting the strategies into actions. The
strategy implementation is the forth and major stage of strategic management process. It is
concerned with the managerial exercise of putting a fresh strategy into action. It concerned
with the managerial exercise of supervision of ongoing strategy, making it work, improving
the competence with which it is executed and showing measurable progress in achieving
the target result.
Strategy implementation is fundamentally an action-oriented process. Their key
tasks are developing competencies and capabilities of organizational resources. Strategy
implementation is the process by which strategies are put into action through the
development of programmes, budgets, policies and procedures.
Basically strategy implementation deals with the following questions.
Who is to be responsible for carrying through the strategies?
What changes in organizational structure and design are needed to carry through
the strategy?
What will different departments are held responsible for?
What sorts of information system are needed to monitor progress?
What changes need to be made in resource mix of the organization?
Is there a need for new people or the retraining of the workforce?
Nature of strategy implementation
It is an ongoing process
It is an action-oriented plan
Strategys success and failure is largely depend on implementation
Implementation may took longer time than originally planned
A firm has to formulate short term & long term objectives, policies and functional
tactics for operationalise the strategy effectively. Similarly, It has to allocate organizational
resources, manage conflict and empower the employees to make the strategy meaningful.
Objectives:
Generally, objectives are desired outcomes or end results to be achieved by the
overall strategic plan over a specified period of time. It is a desired result that the
organization wishes to attain through its existence and operation. It is a managerial
commitment to achieving specific performance target within a specified timeframe which is
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directly connected to the strategic vision and mission. Objectives are directly connected
with the companys vision and mission. Objectives convert the strategic vision into specific
performance target.
The purpose of setting objectives is to convert managerial statements of strategic
vision and mission into specific performance targets of results & outcomes the organization
wants to achieve. It functions as yardstick for tracking an organizations performance and
progress. The performance target pushes an organization to be more inventive, to exhibit
some urgency in improving in financial performance & business position and to be more
focused in its actions.
Organizations need to establish both long term and short-term objectives. These
objectives provide proper guidelines for the organizational members.
Objectives serve two purposes:
guide decision-making for what to accomplish
provides benchmark for judging performance
Long term objectives:
After setting the companys corporate mission & vision, the next step focuses on
companys long term objectives. Long term objectives are the statement of the results, a
firm seeks to achieve over specified period of time. A business firm may have following long
term objectives:
a) Profitability: earning profit is the major objective of any firm. Each organization tries
to achieve an acceptable level of profit. It can be expressed in earning per share,
return on equity, return on investment etc.
b) Productivity: strategic managers constantly try to increase the productivity.
Productivity refers to numbers/volume of output produced by using one unit of
input. Higher level of productivity of an origination means high efficiently and
effectively. High level of productivity reduces the cost of the production.
c) Strengthening competitive position: Gaining strong competitive position over its
rivals is another long term objective that every company seeks. Basically, they try to
gain competitive position in market share, technology, sales, human resources etc.
d) Employee empowerment: human resource is one of the most important
organizational resources. It provides core competences to the organization. Human
resources should be highly motivated, skilled and qualified to achieve the
organizational objectives. So, organization should have to conduct training and
workshop to enhance their competence level.
e) Technological leadership: a firm must decide whether to lead or follow in the market
place. Either approach is to be successful leader; firm should adopt innovative
technology in its various functions to strengthen their value chain. Adaptation of
new technology provides competitive advantage over its rivals.
f) Public responsibility: the firm not only try to maximize profit but also establish
themselves as a responsible corporate citizen. It has to bear social responsibility and
accountability to win the stakeholders support. So firm should be responsible
towards society and country. It can organize charity, minority training, and
community welfare and contribute to education, health and safety.
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Qualities of long-term objectives:

(SMART)
Specific
Measurable
Achievable
Reliable
Time horizon
Short term objectives:
Once the corporate managers agreed upon the long-term objectives setting, the
strategic management process moves toward translating these long term objectives into
action by making and implementing short-term action plan. The short term objectives
provide much more specific guidance for what is to be done, what actions to be needed and
finally help to translate mission/vision into action. The short-term objectives assist strategy
implementation by identifying measurable outcomes of action plans of functional activities.
The short-term objectives operationalise the long-term objectives. For instance, if a
firm commits 20% gain in revenue over five years, to achieve this long-term objective, it has
to make short-term actions plan and specific targets to generate revenue during current
year, month and day. These short term action plans/objectives are implemented in various
functional areas such as marketing, production & operation, distribution etc separately.
The short-term objectives focus on:
What exactly is to be done?
When the effort will begin and when its results will be accomplished?
Who is responsible for each action in the plan?
Policies
Strategy formulation is the development of long range plans for managing
environment opportunities and threats in light of corporate strength and weaknesses. It
includes defining the corporate mission, specifying achievable objectives, developing
strategy and setting policy guidelines. A policy is a broad guideline for decision making that
links the formulation of strategy with its implementation. Basically, policies are made to
implement the corporate, business and functional level strategy effectively and efficiently.
Thus policies are made at corporate level, business level and functional level. Companies
make policy to make sure that employees throughout the firm make decisions and take
actions that support the corporate mission, objectives and strategies.
Policy provides the broad guidelines for the effective implementation of strategies
into action. The study on decision making report shows that half of the decisions made in
organization fail because of the poor policies. A policy is a specific operating plan detailing
how a strategy is able to be implemented in term of when and where it is to be put into
action. By nature, policies are narrower in their scope and shorter in their time horizon than
strategies.
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Importance of policies in strategy implementation:

Business policies are formulated by the top management to carryout future decisions,
actions and behaviour of people within organization to achieve the organizational goal
effectively & efficiently. Policies play the major role for the implementation of strategy. Its
importance can be presented as:

Policy establishes indirect control over independent actions

Policy ensures quick decision making
Policy reduces uncertainty and enhances predictability in decision making
Policy provides predetermined answers to routine problems
Policy provides proper guidelines to managers & subordinates for deciding the
courses of action
Policy is generally expressed in qualitative, conditional and general way.
Functional Tactics
A tactic is a specific operating plan detailing how a strategy is to be implemented in
terms of when and where it is to be put into action. Tactics therefore works as a link
between the strategy formulation and implementation. Basically, tactics are designed to
achieve short-term objectives in various functional areas such as marketing, finance,
production & operation, HRM etc. The execution of functional tactics in each functional area
in every value chain activities help to accomplish the strategic objectives. Thus, functional
tactics are essential to implement business strategy.
Functional tactics are the specific, routine and short term activities undertaken in each value
creation activities. It is implemented on day to day operation. It is an art of implementing
the activities to achieve immediate or short term goals.
Nature of functional tactics
Specific: functional tactics are more specific than strategy and objectives. Functional
tactics identify the specific activities that are to be taken in each functional area. It
focuses on the specific issues and activities within various functional areas.
Short time horizon: functional tactics refers to the actions to be undertaken right
now. It focuses the attention of functional managers on what needs to be done
now to make the business strategy work.
Participants: business level strategy is the responsibility of managers of business unit
and these managers delegates the authority & responsibility of various operating
areas to their subordinates. Subordinates develop different functional tactics to
implement the strategy & objectives of various business units.
Resource allocation:
Environment creates both challenges and opportunities for organizations strategic
development to implement the strategy successfully, it also depend on the organizations
strategic capability to perform at the level which is required for success. The strategic
capability is related with the three major factors: resources available to the organization,
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the competence with which the activities of the organizations are undertaken and the
balance of resources, activities and business units in the organization. It is strength if it
provides a company with competitive advantage. It is something the firm does or has the
potential to do particularly well relative to the abilities of existing of potential competitors.
The strengths and weakness of the resources will determine the future of the company.
Company can identify its resource strength and capability by analysing companies past
performance, companys key competitors strengths & capability and the industry as a
whole.
Resource allocation is the act of deciding how to use resources such as financial,
human, physical, technological and intellectual resources in different division, functional
units and SBUs to achieve the organizational objectives. Mangers need to give special
attention to how corporate resources can be used to enhance the competitive advantage of
particular business units.
Organizational resources are:
a) Physical resources: it includes machines and production capacity. The nature of
these resources such as the age, condition, capability and location will determine
usefulness of resources in gaining competitive advantage.
b) Human resources: it includes people with different skill, Knowledge, experience and
qualification.
c) Financial resources: it includes the sources, uses and availability of funds. Firms
borrowing capacity, ability to generate funds internally etc.
d) Intangible resources: it includes corporate image, brand name, brand value, goodwill
etc.
Resource allocation is concerned with both the identification of resource
requirement and how those resources will be deployed to create the competences needed
to implement particular strategy. An organization need to take following steps in allocating
the resources to gain competitive advantage:
a) Identifying and classifying resources: organization should identify key critical
resources with the organization that provides competitive capability and strength to
the firm over its rivals.
b) Protecting unique resources: a strategy is largely dependent on the uniqueness of a
particular resource. So its uniqueness should be protected through legal and
regulatory framework (such as patenting).
c) Fitting the resources together: the organization must be able to bring together an
appropriate mix of resources to create competences. It is the ability to link resources
together effectively and quickly which determines the success or failure of the
strategy and could be a source of real competitive advantage.
d) Business process re-engineering: when the strategic changes are introduced in the
organization, it has to analyse how existing resources and competences of the
organization can be adopted to fit new strategies. This process of reconfiguring
activities to create a dramatic improvement in performance is generally referred as
business process re-engineering (BPR).
e) Exploiting experience: it is an important way in which organizations improve their
competences through the experience of undertaking activities repeatedly and
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learning how to do them better. This is the Japanese philosophy of Kaizen and is
fundamentally the idea of gaining competitive advantage by learning & experience.
f) Sustaining competitive advantage: organization has to look at the range of the ways
in which organization might create the resources and competences for successful
implementation of strategy. It has to sustain its competitive advantage over its rival
for prolong period. Resources can provide sustainable competitive advantage when
it has following features:
Competitive superiority: it refers to the resources that helps to fulfil a
customers need better than those of the competitors
Resources uniqueness: resources should be unique and its uniqueness should
be protected to gain sustainable competitive advantage.
Evaluating criteria for resource allocation

Industry attractiveness
Competitive strength & position
Market growth rate
Resources fit
Profit potentiality
Compatibility with corporate mission, mission & strategy
Ability to enhance shareholders value
Employee empowerment
Empowerment is the process of enabling employees to set their own work goals,
make decisions and solve problems with full responsibility and authority. In another word,
empower means, giving employees the authority to make decision without consulting the
boss & responsibility to accept the consequences of his/her actions. To empowering the
employees, managers will set up an autonomous team that will work together to
accomplish the predetermined objectives. The managers role will be an advisor, facilitators
and team leader. It allows employees to participate in decision making. The concept of
empower is like a seed requiring favourable growing conditions. So to apply the
empowerment concept, it requires a favourable organizational environment.
The empowerment is a broader concept which promotes participation in a wide
variety of areas including planning, organising, directing and controlling. It eliminates the
layers of hierarchy and makes organization more decentralised. The authority &
responsibility are delegated as far down as possible. To implement the strategy effectively
& efficiently, an organization should maintain high level of motivation to use maximum
utilization of peoples skill, knowledge and qualification. Manager should empower their
employees so that they can dedicate their time and effort for the better execution of the
strategy.
There are several approaches of employees empowerment. Some of them are:
a) Structural approach: as per this approach, employees are empowered by granting of
the power and decision making authority. It is given to the lower level employees
from upper level in the hierarchy to enable them to be in charge of their work &
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responsibility
b) Motivational approach: according to this approach, employees are empowered
through motivation. This approach focuses on motivation part of getting things
done. Basically employees are motivated by intrinsic motivation tools.
c) Leadership approach: this approach gives high value to the energising and inspiring
aspects of empowerment. It inspires subordinates to participate in process of
transferring the organization. Subordinates are given ample space to take the role of
leaders.
Managing conflict
When people work together in an organization, things will not always go smoothly.
Conflict may occur during strategy formulation and implementation process. Generally,
conflict is a disagreement among two or more individuals, groups of organization. This
agreement may be short lived or exist for months or even years. Similarly, it may be work
related or very personal. Mostly, conflict arises for getting the domination over power and
resources.
Most people view conflict as a major problem. They thought that it has to be avoided
because it increases the unhealthy environment within an organization. But certain conflict
may be beneficial. For instance, when two members of a site selection committee disagree
over the best location for a new plant, each has to study more thoroughly on suitability,
feasibility and acceptability of his/her preferred alternative. As long as conflict is being
handled in a constructive manner, it certainly provides creativity, competitiveness and
productivity within an organization. Thus the managers need to find out and maintain the
optimum level of conflict within an organization for implementing the strategic objectives.
Types of conflict
a) Intra personal conflict: it arises inside an individual. There is no other person
involved. It is internal to a person and is probably the most difficult type of conflict
to analyse. Such type of conflict reduces the productivity of an individual. To
minimize such conflict, one needs proper counselling.
b) Inter personal conflict: inter personal conflict occurs due to the variety in perception,
goals, attitudes and interests. It is known as personality clash when two people
distrust each others motives and dislikes each other. For example, marketing and
production manager may disagree over the resource allocation.
c) Inter group conflict: conflict between two or more formal and informal group is also
common in organization. Formal group may the part of organizational structure and
informal group can be created by the members for their own interest or purposes.
For instance, marketing group may disagree with the production group over quality
and delivery of the product.
d) Inter organizational conflict: such types of conflicts arise when there are differences
of opinion over certain issues between different organizations. Conflict between two
organizations resulting from business competition over market, market share and
resources is very common. But sometimes, it becomes extreme. Such types of
conflicts are resolved through bargaining process between organizations.
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Sources of conflict

Incompatible goal differences

Different values and beliefs
Scarce resources
Task interdependence
Ambiguous rules
Communication gaps
Strategy for conflict management
Accommodating
Collaborating
Avoiding
Competing
Low
high
Assertiveness
a) Collaborating: in the process of collaboration, people will try to find a mutually
beneficial solution for both conflicting parties through sharing of information. It is a
win-win strategy
b) Avoiding: using this strategy for conflict management, no party will get anything out
of its negotiation. Its a lose-lose strategy.
c) Competing: when both conflicting party try to achieve its desire by dominating
others desire, competition strategy will be fruitful in this situation. One party loses
and other wins. So, it is a win-lose strategy.
d) Accommodating: accommodating strategy is used when a party shows its high level
of cooperation to the next party and respond very positively to their views.
e) Compromising: this strategy is used when both conflicting party is ready to give up
something. So its a no gain- no lose strategy.
Chapter-5
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Institutionalising strategy
Organizational structure
Perhaps the most important resource of an organization is its people, so how people
are organised is crucial to the effectiveness of the strategy. A traditional view about strategy
making is top down approach. Strategy is formed at the top and rest of the organization is
seen as a means of implementation, so organization design becomes a means of top down
control. Such types are known as bureaucratic organizational structure.
Organizational structure is the set of overall set of structural elements and the relationship
among those elements used to manage the total organization. Thus, organization structure
is mean to implement strategies and plans to achieve the organizational goals. Since the
objectives and strategies of an organization change overtime, the firms structure might also
need to change accordingly in order to achieve those objectives effectively and efficiently.
The some major purposes of designing effective organizational structure are:

To have the right people taking the right decision at right time
To establish who is responsible and accountable for what and who reports to whom
To facilitate the easy flow of information through the organization
To provide a working environment that enhances the efficiency
To integrate and coordinate the activities within organization.
Structural types
Simple structure: it is the type of structure common in many small organizations.
There may be an owner who undertakes most of the responsibility of management.
However, there is little division of management responsibility and probably little
definition of who is responsible for what if there are more people involved.
The organization can operate effectively only up to a certain size. This structure will
depend on the nature and volume of businesses. For instance, an insurance broker
may personally handle a very large turnover, whereas a similarly sized manufacturing
& selling goods may be much more diverse in its operations and therefore more
difficult to control personally because of wider range of competences needed within
the organization.
The functional structure: a functional structure is based on the primary tasks that
have to be carried out, such as production, finance, accounting, marketing and HRM.
This structure is found in smaller companies or those with a multidivisional structure.
It allows greater operational control at senior level in an organization. However,
organization becomes larger or more diverse, senior managers may be burdened
with everyday operational issues.
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Chief executive
Production
department
Sales & marketing

department
Account & finance

department
Multi divisional structure: The main feature of a multidivisional structure is that

organization is subdivided into various divisions. These divisions may be formed on
the basis of products, services, geographical areas etc. Its main advantage is that
each division is able to concentrate on the problems and opportunities of its
particular businesses.
Head office
Division A
Division B
Division C
The holding company structure: holding company consists of varieties of separate

business operations over which the corporate centre exercises little detailed control.
Although the part of a parent company, these business units operate independently
and probably retain their original companys name.
Parent company
Company A
Company B
Company C
Matrix structure: matrix structure is the combination of structures. It often takes the
form of product and geographical divisions of functional & divisional structures.
Matrix structure is built when a company has diversified products and business units.
The matrix structure of a campus be as follows:
Principal
XYZ College
Management
Post graduate
Graduate
Under graduate
coordinator
coordinator
coordinator
Science
Humanities
coordinator
coordinator
coordinator
coordinator
coordinator
coordinator
Structuring an effective organizational structure:

There is no single ideal structure that universally appropriate to all the organization.
A type of structure that is successful in one organization may not be suitable for another
Page 47
organization. Because of differences in mission, objectives, strategies, objectives and

resource capabilities, structures may differ from one organization to another.
The selection of an effective organizational structure is greatly influenced by various factors
within an organization and outside the organization. While implementing the strategy, the
managers should select the appropriate structure as per strategy. Basically, the managers
should consider following factors while building the organizational structure:

The nature & size of the business

Number of product lines & its market coverage
Availability & capability of resources
Skill, experience, qualification & motivation level of employee
Organizational leadership
Leadership means creating a vision for others to follow, establishing corporate
values and ethics and transferring the way organization does the business in order to
improve its effectiveness and efficiency. Good leaders motivate workers and create the
environment for them to motivate themselves. Thus, leadership is the effort to influence or
change the behaviour of others in order to achieve organizational, individual or personal
goals. It is the art of influencing people so that they will make effort willingly and
enthusiastically for the achievement of group goals. Leadership involves influencing people
to put in their best for the achievement of task or for changing their behaviour.
Organizational leadership is essential to effective implementation of the strategy.
The CEO plays a critical role in leadership. He/she has to create a sound working
environment so that employees can use their abilities and skills most effectively to achieve
strategic objectives.
Basically, leadership involves,
Communicate vision, strategy & objectives

rally others around that vision, strategy & objectives
Establish corporate values
Promote corporate ethics
Embrace change
Provide management skill to cope with the change
Leadership style
1) Autocratic leadership: it involves making managerial decisions without consulting
with others. Such leadership is effective in emergencies and when absolute
followership is needed. Similarly, it is effective when relatively new, small and
relatively unskilled workers who need clear direction and guidance.
2) Democratic (participative) leadership: it consists of managers and workers working
together to make decisions. Research has found that employees participation in
decision making may not always increase effectiveness but it usually increases job
satisfaction. Most of the large & successful organization has been adopting this style.
3) Laissez-faire leadership: it involves managers setting objectives and employees being
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relatively free to do whatever it takes to accomplish those objectives. This leadership

style creates warmth, friendliness and understanding among organizational
members.
Leadership skills
At workplace, as leader is responsible for making things happen. Simply, leadership
style may be classified as transactional leader, one who get things done and
transformational leader, one who is a visionary path maker with a strong ability to
motivate and empower people. No matter which type of leadership style, there are some
skills that a leader needs to apply on day to day basis at work place,

Build an environment which is conducive for learning and self-motivating

Be positive for continues change
View every organizational members as a source of valuable ideas
Share their expertise as well as mistakes freely with others
Demonstrate a high level of patience and tolerance for complexity and uncertainty
Be willing to share important organizational information all levels
Encourage in relation and network building
Have high personal and professional standard
Respond to both spoken and unspoken needs of others in organization.
Organizational culture
Organizational culture is the set of the values, beliefs and symbols that help to
control and guide the behaviour of people within an organization. In other word, it is the set
of assumptions that members of an organization share in common. An organizational
culture provides meaning, direction and proper guidelines for the members of the
organization. People come to join an organization from different socio-cultural background.
Their values, norms and beliefs may differ due to their different socio-cultural differences.
After joining an organization, they must be aware of organizational culture and they should
adjust themselves in organizational culture.
Organizational culture plays significant role in implementing corporate strategy.
Managers must aware of the relationship between firms culture and critical factors on
which the success of the strategy depends. Firstly, they must recognise key components of
the firm such as structure, staff, system; behaviour style in which an implementation of new
strategy is largely depends.
Managing the strategy-culture relationship
When implementing the new strategy or embracing the change, manager should be
aware of how the organizational culture compatible with the changes or new strategy. They
should analyse whether the changes fit with existing culture or not. If the changes are not
compatible with the existing organizational culture, it requires changes in organizational
culture or changes in strategy.
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1) Link to mission
4) Reformulate the
strategy/culture
2) Maximize synergy
3) Manage around the culture
High
low
(Compatibility of changes with existing organizational culture)
1) Cell-1: a firm in cell-1 is faced with the situation in which implementing a new
strategy within an organization, it requires several changes in organizational
structure, procedures, systems and other fundamental aspects of the firm. However,
most of the changes will compatible with the existing culture. Thus, firm in this
situation, usually have an effective performance and in a very promising position.
They can pursue a new strategy through applying major changes within
organizational structure, system, procedures and other fundamental elements.
Those changes should be linked with companys mission, strategy and objectives.
2) Cell-2: a firm in cell-2 needs only a few changes to implement its new strategy and
those changes are quite compatible with its current culture. A firm in this situation
should emphasize on maximizing the synergetic effect by reinforcing the few
changes in existing culture. This situation is the most effective for implementing the
new strategy. Adaptation of few changes may maximize the effectiveness and
efficiency in organization.
3) Cell-3: manage around the strategy: a firm in cell-3 should make few changes to
organizational setting to implement the new strategy, but these changes are
incompatible with the companys current culture. The critical question for the firm in
this situation is whether it makes the changes with low chances of success or let the
situation as it is? In this critical situation, company would better to let the situation
as it is for short-run.
4) Cell-4: a firm in cell-4 faces the most difficult challenges in managing the strategyculture relationship. Such firms must make lots of changes in organizational
structure, system and procedures to implement the new strategy. The changes that
the firm has to undertaken will be incompatible with the existing culture. In this
situation, company would better to reformulate the strategy or choose another
alternative strategy.
Building resource strength and organizational capability

Once company decides to choose a strategy, it has to put into action. The strategy
implantation depends upon various activities within an organization, mostly on competent
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human resource, competitive capabilities and internal resource strength. Organization has
to build its internal resource strength and organizational capability to implement the
strategy effectively. The resource strength can be build by the following key tasks:
Selecting the people for key position:
Developing core competencies & competitive capability
Crafting strategy supportive organizational structure
1) Selecting the people for key position: company needs to attract capable managers
and other human resources for executing the strategy effectively. It includes putting
together a strong management team, recruiting and retaining employees with
needed experience, technical skills and intellectual capability. The task involves:
Analysing what kind of core management team is needed for carryout the
strategy
Analysing whether existing management team is suitable or outsource skilled
management team.
Finding right people for filling the right job
Selecting people with mix of background, experience, skill, knowledge and
personalities
Putting together a strong management team with right person chemistry
and mix of skills
2) Building core competencies and competitive capabilities: to implement the strategy,
firm has to build resource strength, core competencies, and competitive capabilities
that rivals cannot imitate and will be the sound foundation for sustainable
competitive advantage. Companys core competences and competitive capabilities
can as follows;
Greater proficiency in product development
Better manufacturing knowhow
Superior cost cutting skills
Better marketing & merchandising skills
Capability to provide better after sales service
Ability to change quickly to change in customers needs
3) Structuring the organization & work effort: there is no hard & fast rule for
structuring the organization. First, organization needs to indentify critical activities of
value chain and then provides crossfunctional coordination and collaboration to
build internal strength and capabilities. The structure of the organization should be
supportive and compatible with the strategy.
Pinpoint key primary and supportive activities critical to the success of the
strategy implementation
Establish a proper coordination and cooperation among functions
Determine degree of authority to each unit to carry out its assignment
effectively
Determine whether non critical activities are more effective to outsource or
perform internally
Indentify what functions to be performed extra well or on time to achieve
sustainable competitive advantage
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Managing the internal organization to promote better strategic execution:

The job of strategy execution is to convert strategic plans into actions and to achieve
good performance result. Every manager has an active role in the process of executing
firms strategy. Not just a few senior managers but also all the employees from different
business divisions, functional department and key operating units participate in strategy
execution process.
Core competences and resource capabilities play an important role in
implementation of the strategy. However they are not the sufficient and ultimate factors for
the success. Organizations need to manage its internal activities such as budget, policies,
procedures etc very well to get successful strategy execution. Managers need to manage
following tasks to better execution of strategy.
1) Linking budget to strategy:
Budget is the backbone of the strategy implementation. Implementing strategy
forces managers to consider how the firms resources are being allocated. Organizational
units need sufficient budgets and resources to carry out their strategic plan effectively and
efficiently. There has to be ample funds to strengthen existing competencies and
capabilities. New strategy usually needs significant budget allocation. How well a budget
allocation is linked with the need of the strategy can promote the implementation process.
Strategy implementers need to see whether strategy critical units have enough resources.
2) Establishing strategy supportive policies
Managers need to create strategy supportive policies within the organization to
better executing the strategy. When some changes in work practices & operation are
undertaken to execute the new strategy, people can exhibit some degree of work stress and
anxiety. The changes highly affect the performance of the employees. These changes forced
them to alter their established work practices & procedures. Similarly, it requires new skill
and knowledge. Thus mangers have to introduce new policies, procedures and practices.
They have to communicate these policies to people before implementing the new strategy.
The policies should able to channel the actions & behaviours of people towards the better
execution of the strategy.
3) Instituting best practices & a commitment to continues improvement:
Each value chain activities need to perform as effectively & efficiently as possible.
Each organizational units need to be benchmarked with the best practices. Adopting the
best practices and strong commitment for searching out best practices will lead organization
towards the successful implementation of the strategy. Identifying best practices is a
journey, not the destination. It means, a best practice doesnt have limitation. It needs a
continuous improvement. The best practices should be institutionalised. Organization needs
to restructure or reengineer the organization, implement Kaizen & TQM and adopt GMP
(Good Manufacturing Practices) within organization.
Installing the best practices & continuous improvement progamme leads to
defect free manufacture
reduces costs
enhances efficiency & effectiveness
superior product quality
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superior customer service

Total customer satisfaction.
4) Installing support system:
Companys strategy cannot be implemented or executed effectively & efficiently
without installing the proper supportive system in business operation. Innovative and state
of art support system can be a basis for gaining competitive advantage over its rival. These
support systems enable employees to carry out their strategic role very effectively &
efficiently.
Company should install advanced technology in manufacturing such as
PLC(programmable logic system), computer software for logistic & supply chain
management, management information system(MIS) for taking right decision at right time,
marketing information system(MKIS) for gathering relevant information about product,
market, customers and competitors and office automation for smooth operation of day to
day work. These support systems not only facilitate better strategy execution but also can
provide competitive advantage over rivals.
5) Designing strategy-support motivating system:
Strategy supportive motivational practices & reward system are the powerful
management tools for achieving performance target. Managers need to reinforce
organization wide commitment to carry out the strategic plan by motivating & rewarding
people for their good performance. Managers need to design and implement various
monetary & non monetary tools & techniques and various reward system for getting high
organizational commitment from people within the organization.
Managers can introduce following reward systems for motivating employees:
Pay raises
Bonuses & allowances
Promotions
Praise & recognition
Constructive criticism
More responsibility
Similarly, managers can use various support systems for better execution of strategy such
as:
Inspiring & challenging employees to do their best
Increase peoples participation in decision making
Making jobs interesting & satisfying
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Chapter-6
Strategic control and evaluation
Strategic control
Strategies are designed to accomplish certain objectives over the period of years.
Once it is formulated, implemented, it has to be evaluated and controlled through certain
mechanism. Strategy evaluation and control is the final stage of strategic management
process. The evaluation and control process ensures that the company is achieving what it
set out be accomplished. It compares performance with the result and provides the
feedback necessary for management to evaluate result and take corrective actions, as
needed.
The implementation of strategy must be controlled and evaluated if the strategy is to be
successfully implemented. Strategic control is concerned with tracking a strategy as it is
being implemented, detecting problems or makes necessary adjustments. In other word,
strategic control is concerned with guiding the actions in behalf of the strategy. It allows
organization to respond more proactively and timely to rapid developments in various areas
that influence a business success. Basically strategic control focuses on two questions:
Is the strategy being implemented as planned?
Is it producing the intended results?
Therefore, monitoring strategic process, evaluating deviation and taking corrective
actions is the key task of strategic control and evaluation. Strategic control can be done
through following five stages. They are:
Determine what to measure
Establishing standard of performance
Measures of actual performance
Compare actual performance with standard
Take corrective actions
a) Determine what to measure: top management need to specify what is going to be
monitored and evaluated. The focus should be on the most significant elements in a
process that accounts the greater number of problems.
b) Establishing standard of performance: standards used to measure the performance
are the detailed expression of strategic objectives. Each standard includes a
tolerance range which defines acceptable deviation. Standards are the measures of
acceptable performance result.
c) Measures of actual performance: performance should be measured with the
predetermined or desired standard. Every performance is measured whether it has
fulfilled or met the standard or not.
d) Compare actual performance with standard: first actual performances are measured
and then these performances are compared with the standard. After comparing the
actual with standard, certain deviation will be found.
e) Take corrective actions: if the actual results fallout the desired tolerance range,
action must be taken to correct the deviations.
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Method of strategic control:
Low
Perceived need for change

high
Control through
planning
Performance target
Direct supervision
Market mechanism
There are four broad types of control

1) Control through planning system: this is the administrative control where
implementation is achieved through polices, guidelines, rules, regulations and code
of conducts which control the performance and monitors the actual utilization of
plan. It is particularly useful where the degree of change is low and organization has
top down approach by giving low degree of decentralization.
2) Control through direct supervision: direct control is common form of performance
control in small organization. It can also exist in large organization where large
change is occurring and if the complexity of business is not too great. The autocratic
organization where low degree of decentralization exists, the direct supervision for
control is appropriate.
3) Control through performance target: it is increasingly useful for the organization
where the high degree of changes exists. Similarly it is sued in the organization
where organization is more decentralized.
4) Control through market mechanism: it is useful for the organization with high
degree of decentralization and needs substantial changes.
Quality control
Today, the quality has become a major determinant of business success and failure.
But achieving higher quality is not an easy job. Once organization makes a decision to
enhance the quality of its products and services, it must then decide how to implement this
decision.
According to American society for quality control, quality as the totality of features and
characteristics of a product and services that bear on its ability to satisfy stated or implied
needs. Quality is a relative concept, because it is measured in terms of comparison. There
are eight attributes or dimensions that determine the quality of the products. They are:
1) Performance: it is the products primary operating characteristics. For e.g. the quality
of the car is determined by its acceleration, quality of TV is determined by its picture
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quality etc.
2) Features: it is the supplements to a products basic functioning characteristics. e.g.
disk breaks in motorbike, additional speakers in TV, etc
3) Reliability: it is a probability of not malfunctioning during a specified period of time.
4) Conformance: it is the degree to which a products design and operating
characteristics meet established standard.
5) Durability: a measures of product life
6) Serviceability: the speed and ease of repairing
7) Aesthetics: how a product looks, feels, tastes and smells
8) Perceived quality: customers perception toward products
Quality control is the measurement of products and services against set standards.
Earlier, quality control was often done at the end of the production line by quality control
department. Today, things have changed. Quality means satisfying customers by building
and ensuring quality from products planning to production, purchasing, sales and service.
So, quality is everyones concern. The major purpose of quality control is to make the
customer happy, retain them and gain competitive advantage over its rivals. Thus quality
control is a scientific technique of improving industrial efficiency of goods and services on
better standard of quality. It covers all the factors and processes of production which may
be broadly classified as:
Quality of materials
Quality of manpower
Quality of machines
Quality of management
Objectives of quality control:
To assess the quality of raw materials, semi-finished goods and finished goods at
various stages of production process
To see whether the product conforms to the predetermined standards and
specifications and whether it satisfies the needs of the customers
To suggest suitable improvements in the quality or standard of goods produced in
the same cost of production
To reduce the wastage of raw materials, men & machines during production process.
Approaches/ techniques of quality control

a) Zero defects: zero defects philosophy believes in total perfection or to do the job
right the first time. This idea was first originated in 1961 in Martin Company in USA
which manufactures missiles system. It assumes that the poor quality is the errors
caused by two factors: lack of knowledge & lack of attention. The lack of knowledge
can be measured while the lack of attention is just of state of mind or attitudinal
problem. The former one can be controlled by gaining knowledge and later one can
be minimised by motivation.
b) ISO 9000: the international organization for standardization is an international
organization whose purpose is to promote worldwide standards that will improve
operating efficiency, improve productivity and reduce costs. ISO 9000 is a series
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c)
d)
e)
f)
g)
standard that outlines the requirements for quality management system. There are
essentially five standards associated with the ISO 9000 series.
ISO 9000: it is a set of guidelines for the selection and use of standards
ISO 9001: it is related to product design & development
ISO 9002: it covers production, installation & servicing
ISO 9003: it covers test and final inspection
ISO 9004: it is the set of guidelines for the application of the elements of the quality
management system
Just in Time: JIT is a significant approach of production management. Henry ford
used JIT philosophy in USA in early 1900s. Later Tai-Chi of Toyota motors used it. JIT
is both a philosophy and set of methods for manufacturing. It is an integrated set of
activities designed to achieve high volume production using minimum inventories of
raw materials. JIT is based on logic that nothing will be produced until it is needed
because anything over the minimum need is viewed as waste.
Quality circle: QC is originally developed in Japan in 1962. It is a new approach to
motivation & participation of employees for quality improvement. QC is a small
group of employees who tend to meet regularly in order to identify & analyse
problems & suggestion for solution.
Total quality control (TQC): TQC was originated in Japan by Edwards Deming, an
American consultant in 1950s. TQC approach for quality focuses on every aspects of
business. In Japan, poor quality is considered as wasteful. So, TQC stresses
continuous improvement to quality control through attention to manufacturing
process.
Kaizen: Kaizen is the combination of two Japanese words: KAI and ZEN. Kai means
change and Zen means goodness. Therefore, kaizen means the changes for
betterment of goodness. It is process of quality improvement by continuous
improvement at workplace.
Statistical quality control: SQC is the set of specific statistical techniques that can be
used to monitor quality. It includes acceptance sampling and in process sampling.
The acceptance sampling involves sampling finished goods to ensure quality
standard. In-process sampling involves evaluating products during production
process so that needed changes can be made. Mean, standard deviation, range,
variance, correlation, regression can be used to measure & control the quality.
Strategic Information System (SIS)

Information has been always an integral part of organization. Strategic information
system is a computerised programmed information system that are designed and used to
gather, sort, disseminate and interpret the strategically relevant information. The main
objective SIS is to provide accurate, complete, timely & strategically relevant data, facts,
figure & information to decision makers for the purpose of formulation & implementation of
effective strategic decisions.
The SIS plays the significant role for the formulation, implementation & evaluation of
strategic decisions: mission, vision, objectives, strategies, policy, procedures & functional
tactics. MIS, DSS, ESS, MKIS etc are the used as the strategic information system.
Characteristics of information:
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Accurate: accuracy means that the information must provide a valid and reliable
reflection of the reality.
Timely: information also needs to be available in time for appropriate managerial
decision making.
Complete: information must tell a complete story so that it could be useful for
managers to take the decisions. Incomplete information means in accurate &
distracted picture of the reality.
Relevant: information must be relevant for the particular circumstances.
Role of information system:
Relevant, accurate & timely information plays an important role in strategic
management process. Such information plays a crucial role for the formulation,
implementation & evaluation of strategic decisions. So, the major roles of SIS in strategic
management can be pint out as follows:
It helps to gather, sort & disseminate the information of business
environment,
It helps to identify strategically key opportunities & threats of business
environment,
It helps to know the internal resource strengths & weakness for the
formulation of strategic decisions
It helps to identify key performance indicators, helps to diagnose the
problems & report the strategically critical information,
It helps to track & control the performance of individuals & groups through
the systematically during strategic implementation process,
It helps to reduce the costs of processes, helps to improve the quality of
goods & services and increase the efficiency & effectiveness,
It provides proper guidance & direction to individual, group & organization to
act within a specified limits,
Measure of corporate performance:

Traditionally most of the organizations tend to measure its performance through the
financial measures such as ROI and EPS. Analyst now recommended a broad range of
methods to evaluate the success or failure of a strategy. Some of these methods are
stakeholder measures, shareholders value and balanced score card approach. The current
trend is clearly toward increasing use of non-financial measures of a corporate
performance.
1) Financial measures: the most commonly used measures of corporate performance
through financial measures are return on investment (ROI), and earnings per share
(EPS).
ROI is simply the result of dividing net income before tax by total assets. It can be
calculated as:
ROI= net income before tax/total assets
Similarly, EPS is another most commonly used measures of corporate performance.
EPS is the result of dividing net earnings by the numbers of shares. It can be
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calculated as:
EPS=net income/number of shares
2) Stakeholder measures: each stakeholder has its own set of criteria to determine how
well corporate is performing. A companys stakeholder includes customers,
suppliers, employees, shareholders, government and other interest groups. They
directly or indirectly involve with companys activities.
A corporate performance can be measure through customers satisfaction,
customers turnover and number of new customers that company able to attain.
Similarly growth rate of raw materials costs, delivery time, availability of raw
materials etc determine the suppliers satisfaction toward the companys
performance.
Productivity, labour turnover, absenteeism etc determine the corporate
performance relation to employees.
3) Shareholder value: most of the corporations use shareholders value as a measure of
corporate performance and strategic management effectiveness. Shareholders
value can be defined as the present value of the anticipated future stream of cash
flows from the business. Shareholder value analysis concentrates on the cash flow as
the key measure of performance. It can be measured by two method:
a) Economic value added (EVA): it is an extremely popular shareholder value
analysis method of measuring corporate performance. EVA measures the
difference between pre strategy and post strategy value of the business.
EVA= after tax operating income (investment in assets x weighted average of
cost of capital)
b) Market value added (MVA): it is the difference between market value of a
corporation and the capital invested by the shareholders and lenders. It
measures the markets estimate of the net present value of a firm and expected
capital investment project. MVA is the future value of EVA. If the companys
market value is greater than the invested capital, company has a positive MVA. It
means management has created wealth.
4) Balanced scorecard approach: it is the combination of financial and nonfinancial
measures. It combines financial measures. Financial measures include cash flow, ROI,
EPS, DPS which measures the companys financial position. Non financial measures
include market share, sales growth, customer acceptance, competitive position,
customers satisfaction etc. In balanced scorecard method, financial and non
financial measures are put in a scorecard and given score in each measurement.
Measures of functional & divisional performance:
Companies use varieties of tools and techniques to evaluate and control
performance in functional and divisional level. If a company has diversified SBUs and
divisions, it applies various performance measures tools to each SBU, division and functional
unit. For example, market share, sales per employee, advertising cost per unit etc for
marketing division, per unit cost of production, wastage, percentage of defects etc for
production& operation, employee turnover, absenteeism etc for HRM.
Basically, performance of function and division can be measured by creating
responsibility centres and benchmarking.
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1) Responsibility centres:
Responsibility centres are used to isolate a functional unit so that it can be evaluated
separately from the rest of the function. Each responsibility centres has its own budgets and
resources. It is evaluated on the basis of inputs and outputs ratio. There are five major types
of responsibility centres:
a) Standard cost centres: it is primarily used in manufacturing facilities. Standard costs
are computed for each operation on the basis of historical data. Standard cost for
each operational units are assigned on the basis of historical data. These costs are
actually the expected costs for each operational unit. Standard costs are multiplied
by production units and compared with the actual cost.
b) Revenue centres: it measures the outputs either in value or volume. Usually sales
revenues are measured in terms of unit sold without considering the resource cost
(salaries). So, the revenue centres are established to judge effectiveness rather than
efficiency. The effectiveness of sales region, for example is determined by comparing
its actual sales to its projected or previous sales.
c) Expense centres: it measures the effectiveness and efficiency of resources used in
production of goods and services. Typically expense centres are related with expense
of administration, R&D, service etc. they are compared with previous years
expenses or estimated expenses. These costs do not directly contribute to revenue.
d) Profit centres: profit measures in terms of differences between revenues and
expenses. A profit centres are established whenever an organization has control over
resources and production. By having such centres, a company can be organised into
divisions of separate product lines. A manager of each division is given autonomy to
keep the profit t satisfactory level.
e) Investment centres: an investment centres performance is measured in terms of
the differences between its resources or assets and its outputs. For example, two
plants in a company made identical profits, but plant-1 owns $3 million plant
whereas plant-2 owns $1 million plant. Both make the same profit but plant-1 is
obviously more efficient. The most widely used measure of investment centre
performance is ROI.
2) Benchmarking:
Another popular method of measuring a companys functional and divisional
performance is via creating benchmarking. Benchmarking is the continual process of
measuring products, services and practices against the toughest competitors or industry
leader. It involves openly learning how others do something better than ones own company
so that one not only can imitate but even improves on its current process.
Managers seek to systematically benchmark the cost and result of the value chain
activities or different division against relevant standard. The ultimate objective of
benchmarking is to identify the best practices in performing an activity. The benchmarking
process usually involves the following processes:
Identify the area or process to be examined
Find out the measurement of the output of the area or process
Select the best division or practice against which to benchmark
Calculate the differences among functional /divisional in terms of best and
determine why differences exist?
Develop tactical programmes to reduce the gaps between best
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function/division and rest function/division

Implement the programmes and compare new performance again with those
of the best
Problems in measuring performance:
The measurement of performance is a crucial part of evaluation and control. The lack
of performance standards and inability of information system to provide timely and valid
information are two major problems in measurement of performance. Without
performance standard and timely and relevant information, it would be extremely difficult
to make decision. It is found that in most of the MNCs, financial tools such as ROI can cause
problems when it is applied to international operation. Because of foreign currencies,
inflation rate, different tax rate and use of transfer pricing may cause measurement
unreliable. So, it is suggested to MNCs top management to emphasize on non financial
measures such as market shares, productivity, public image, brand image, employee morale,
public relation etc.
Monitoring and measuring performance can cause side effects that interfere with
overall corporate performance. Among the most frequent negative effects are a short-term
orientation and goal displacement.
a) Short term orientation: many performance measuring and monitoring activities are
often conducted for short term. They neither analyse the long term implication nor
its impact on corporate vision. Long run evaluations are often not conducted
because executives do not realise their importance, they believe that short run
consideration is more important than long run, and they dont have enough time to
make a long run analysis.
b) Goal displacement: if monitoring and measuring performance is not carefully done,
can result in the decline in overall performance. Goal displacement is the confusion
of end goal. Sometimes more emphasis on monitoring and measuring performance
may cause negative impact on peoples behaviour toward corporate goals. Excessive
use of performance measurement tools can make people uneasy to perform their
task. There may be two types of goal displacement such as behaviour substitution &
sub-optimization.
Behaviour substitution: it refers to a phenomenon when people substitute
activities that do not lead to goal accomplishment for activities that lead to
goal. Most people tend to focus more of their attention on those behaviour
that are clearly measurable than those that are not. They tend to substitute
their behaviour that are recognised and awarded.
Sub-optimization: it refers to the phenomenon when each function optimizes
its goal accomplishment, it can harm the organization as a whole. As each
division or functional unit views itself as separate entity to maximize their
performance, it will reduce cooperation among them. One division attempts
to optimize the accomplishment of its goals can cause other divisions to fall
behind and this will affect negative to overall performance.
For example, when a marketing department approves a high volume of sales
order, it forces manufacturing department into overtime production to meet
this order. Production costs are raised due to overtime which reduces the
manufacturing efficiency. As a result although marketing achieves its goal,
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the corporate fails to achieve its expected profitability as a whole.
Guidelines for proper control

Control system should follow strategic mission and vision. If the control system is
not made properly, it will lead to various side effects. For designing a better and effective
control system, the following guidelines are recommended:
Control should be in optimum level: too many controls create confusion.
Monitors those activities that determine the majority of performance results.
So control should be in optimum level and numbers. High control may lead to
various side effects such as raise conflicts, reduces cooperation etc.
Control should monitors only meaningful activities: regardless of
measurement difficulty, control should be focused on meaningful and result
oriented activities. Activities that do not impact on overall corporate
performance better not to monitors. Avoiding these activities provides more
focus on key activities.
Control should be timely: control should be performed timely so that
corrective actions should be taken before it is too late.
Long term & short term control should be used: control should be
multifaceted according to the nature of the activities. Basically it should be
long term and shorter orientation.
Emphasize reward for meeting the standard: company should emphasize on
reward for those activities that meet the standard. It does not mean it has to
punish the activities which do not meet the predetermined standard. Heavy
punishments typically result in goal displacement.
Strategic audit
The strategic audit provides a checklist of questions by areas and issues that enables a
systematic analysis of various corporate functions and activities. It is a type of management
audit and is extremely useful as a diagnostic tool to pinpoint corporate wide problem areas
and to highlight organizational strengths and weaknesses. The strategic audit can help to
determine why certain area is creating problems for corporation and it also helps to
generate solutions to the problems. So, it is a management tool used to identify the areas
and issues that are creating the problems for accomplishing the organizational objectives
and finding the ultimate solutions to reduce & remove these problems in organization.
Strategic audit presents many critical questions needed for a detailed strategic analysis of
any business corporations. It diagnosis all the areas of the business value creation activities.
It identifies the areas where company has strength & competitive advantages over its
competitors. It also identifies the weaknesses and provides the best solution as well.
Strategic audit contains a series of questions covering all the areas and issues of the
business through which a corporation can finds its real picture. Thus, it is a very effective
management weapon to evaluate and control the performance of corporation. The strategic
audit summarizes the following area & issues of strategic management:
Evaluate current situation: under this topic, it contains a checklist of questions
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regarding current position & performance of business, its mission, vision, objectives,
strategies and policies. For instance,
What about corporation performance in terms of ROI, market share,
profitability etc?
Do the current mission, vision, objectives, strategies & policies reflect in
companys performance?
Review of corporate governance: under this heading, it contains a series of
questions related to board of directors & top management. Majorities of questions
targets to draw the conclusion about number, size, nature & types of share holders,
board of directors and top management.
Scan & assess the external environment: it includes the analysis of environmental
forces that are currently affecting both the company and the industry in which it
competes. The analysis helps to identify the major industry opportunities & threats
to the corporation.
Analysis of internal environment: it includes the checklist of questions that enables
to indentify companys strength and weaknesses. It covers the areas such as
corporate culture, policy, structure, resources etc.
Formulation & evaluation of strategic alternatives: it covers the areas & issues
related to formulation & implementation of strategic alternatives in light of
companys strength and weaknesses. The analysis helps to develop the possible
strategies and helps to choose the best one based on various evaluation criteria.
Implementing strategy: it includes the series of questions related to the policies,
programs, procedure, budget &functional tactics needed for executing the strategies
in to action.
Evaluate & control: it consists of checklist of questions regarding the areas, units,
functions where performance result is pinpointed, developing of appropriate
standard of measure to evaluate and control the performance and incentive &
reward system implemented by the organization to recognize & reward the good
performance.
Thus, management audit contains the detail questions that aim to diagnosis all the areas,
issues & functions of business. It can be an effective and useful management tool to identify
strength & weaknesses of the company. By performing the strategic audit, company can get
the best course of action to gain competitive advantage, to develop core competencies and
to enhance efficiency & effectiveness in business.
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Chapter-7
Contemporary strategic issues
a) Internet era:
Internet is an integrated network of users connected with computers, digital
switches, routers and telecommunication equipments. It involves millions of interconnected
computer networks that include billions of host computers. Internet is an information
system that offers information on business, science, government and others. It provides
communication flows among millions of separate networks around the world.
Originally, pentagon began the network in 1969 during the war time as a
communication tools. Now it has gained popularity because it is efficient tool for
information retrieval which makes available information related to various discipline. It
transmits information quickly and at lower cost than other communication means such as
telephone, fax, postal and currier service. Today internet becomes a necessary part for
everyone because it helps to store, gather, retrieve, format and display information quickly
and efficiently. The users of internet are students, businesses, academicians, researchers,
scientists etc.
Demand for internet services:
There are an estimated 400 million people worldwide using the internet in 2000.abut
167million in North America, 105million in Europe, 122 million in Asia-pacific, 2 million in
Latin America and about 7 million in rest of the world. The internet users have been growing
rapidly day by day. But their uses may be for various purposes. Basically people use internet
for communication, information gathering, shopping, entertainment etc. Today majority of
internet users are students, academician, researchers, businessmen, scientists, government
& its agency etc.
Suppliers of internet technology & services:
The use of internet is rowing. To respond the increasing demand of internet,
numbers of enterprises have been establishing to support the demand. The major suppliers
of internet technology & services are as follows:
a) Makers of the specialised internet-related communication components and
equipments: to connect the internet, it requires various components and
equipments such as digital switches, routers, cables, etc. Cisco system is the worlds
leading provider of internet related equipments. Lots of other companies have
already entered into this market.
b) The providers of internet communication services: internet communication service
provider companies develop and install the communication networks that enable
connectivity and traffic flow. They are also known as ISP (internet service providers).
This industry includes local telephone company, cable company, wireless
communication providers etc. basically they provide dialup, cable and wireless
internet. British telecom, broadband, WorldCom etc are the leading internet service
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provider. In Nepal, mercantile, world link, Nepal telecom, Ncell, UTL have been
providing internet service to individuals & organizations.
c) Suppliers of computer, its components and computer hardware: there are thousands
of companies engage in manufacturing& assembling of computers, servers, data
storage & peripheral devices. Major companies includes Intel, IBM, dell, Sony, Apple,
hp, Toshiba, Acer etc.
d) Developers of specialised software: software developers create the programmes
that enable commercial transaction on the internet. Different types of software are
developed and created to fulfil the needs of individuals and organizational users.
Computer software makes peoples day to day works simple, quick, accurate,
effective and efficiency. Microsoft, IBM, oracle, Novell, macromedia, Linux, java etc
are the leading software developers in the world.
e) Ecommerce enterprises: ecommerce is the process of buying, selling, distributing,
exchanging goods and services by using internet and computer software. Various
local & international business companies have been involving in ecommerce.
Basically commercial enterprises are categorise as:
Business to business merchants: These enterprises tend to have mostly
corporate customers. Cisco, Intel, oracle conduct their business corporate
customers online.
Business to consumer merchants: these enterprises involve in online business
with final consumers. eBay, Amazon etc deal online with ultimate customers.
Media enterprises: Disney, Sony, EA sports etc provides online entertainment
Content providers: Yahoo, MSN, Google AOL etc provides various content
online
Strategic challenge of competing technology:
Last decade, the suppliers of internet technology and equipments have enjoyed the
booming demand. As the lots of opportunities have been increasing, they also have been
facing lots of challenges as well. They have been facing tough competition among
alternative technologies for building various components of internet infrastructure and
creating global market. They have to establish a globally connected internet infrastructure,
building telecommunication system, install millions of servers, develop necessary software,
and provide internet connection to individuals and business houses at cheaper price to gain
competitive advantage in this industry.
To cope with the various challenges and win the battle of the technological
innovation, it needs to consider the following points:
a) Investing aggressively in R & D to win innovation race against rivals
b) Forming strategic alliances with suppliers, potential customers and complementary
technology builders
c) Differentiating the companys products by investing sufficient resources to best fit
the needs of the customers
d) Acquiring other companies with complementary technological expertise to broaden
and penetrate the companies technological base
e) Broadening the area or scope of the company so that the company can shift its
capability & core competencies to another technological approach
f) Standardising the products to realise economies of scale and learning effects
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g) Shifting production facility at optimum location to realise location economies
Impact of internet on competitive environment

The internet highly influences the competitive environmental forces. It helps to alter
the strength and balance of competitive rivalry, barriers to entry, bargaining power of
buyers and suppliers.
a) Impact on competitive rivalry:
Internet has made the world very cosy place. Growing use of internet and ecommerce by
businesses and individuals widen the geographic market and intensifies rivalry among
competing business houses. An individual customer can get a lot of alternative choices from
domestic and foreign producers via internet. So a domestic producer has to compete with
international producers. Hence, it increases the competitive rivalry. For instance, a customer
can purchase digital camera, mobile phone, watch from eBay, Amazon.com, Buy.com rather
than local retailers.
Similarly producers can approach to worldwide customers directly via internet. It replaces
the involvement of middlemen and reduces the cost. They also use internet to promote
their products at cheaper cost. So, aggressive use of internet can make price completion
among sellers rather than price, quality & other features.
b) Impact on barriers to entry:
Entry barriers into ecommerce are relatively low. It is relatively easy to establish & expand
geographical market in E-business. Specialised services and knowhow can be easily
outsourced. The software required for ecommerce is readily and widely available. Similarly
it does not require large invest to set up ecommerce. There are many companies that
specialised in designing and maintaining website. Thus relatively low entry barriers push
companies in intensive rivalry.
c) The impact on buyers bargaining power:
Internet makes it easy and convenient for buyers to gather extensive information about
competing and substitute products and brands. Customers can use internet to search
products, its features, quality, price and specification of products. Similarly, wholesalers and
retailers can approach with domestic and foreign producers. They can put on pressures to
existing producers to meet their demands. Buyers can get many alternative choices via
internet. Widely availability of products, brands and suppliers provides greater choices &
strong bargaining power to customers and middlemen. Hence, the bargaining power of
buyers is enhanced by the excessive use of internet.
d) Impact on suppliers bargaining power:
Internet makes it feasible for companies to reach beyond their boarder to find out the best
suppliers, purchase the components in best prices and collaborate closely with them to
achieve efficiency. Internet allows companies to identify and then integrate foreign
suppliers into their supply chain. Local or domestic companies also get access to global
market via internet for searching the best suppliers. In this way a single supplier cannot
dominate over the buyers because buyers can get many alternative suppliers via internet.
So, internet reduces the bargaining power of suppliers.
e) Impact on threats of substitute products:
Internet has made the world a global village. The domestic firm can easily enter into a
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foreign market and foreign company also get free access to host country. Customer can get
necessary information about various alternative products via internet. The choices of
customers became wide. A company may face many substitute products of domestic &
foreign producers due to excessive use of internet. Thus the threats of substitute products
rise due to internet and ecommerce.
b) Entrepreneurial ventures & small business

Entrepreneurial venture is any business whose primary goals are profitability &
growth that can be achieved by innovative strategic practices. Small business is an
independently owned and operated, is not a dominant in its field of operation and meets
certain standard of size in terms of employees, capital investment and annual profits.
Entrepreneurship is the process of planning, organizing, operating and assuming the risk of a
business venture. An entrepreneur is someone who engages in entrepreneurship.
Entrepreneurs establish his/her entrepreneurial ventures or business.
Importance of entrepreneurial ventures & small business
Entrepreneurship is becoming increasingly important throughout the world. A poll of
new graduates shows that 51% men and 31% women like to start their own businesses than
to join the corporate houses. Research indicates that there are more than 22 million
businesses around the world. Over 85% jobs are created by the small business and
entrepreneurial ventures. Wholesaling, retailing, transportation, service etc are the example
of small business.
Importance of small business and entrepreneurial ventures are increasing rapidly. I
plays major roles in the economic development of the country. The importance of small
business can be explained as follows:
a) Job creation: small and new business ventures are the major source of job creation.
The study found that small business creates eight of every ten new jobs in the world.
Similarly, 85% of all new jobs in the USA are created by small business firms.
b) Innovation: study has shown that major innovations are come from small businesses.
Research found that new small firms produce 24 times more innovation per research
than larger firms. Similarly, small businesses supply 55% of all innovations introduced
in USA.
c) Support to large business: most of the products made by big manufacturers are
purchased by small businesses. Small businesses involve in dealership, retailing, and
distributing the products of large business corporations. More ever, they supply raw
materials, components, various services and other supplies to Big Business
Corporation. Big corporate houses outsource much of its function such as packaging,
delivery or distribution from small business.
d) Economic development: small business and entrepreneurial ventures play major
roles in the economics of the country. It creates jobs, generates GDP and boost up
per capita income. Rapid growth of small business ventures provides necessary
goods and services for domestic customers which help to minimize imports and
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promotes exports.
Use of strategic planning & strategic management in small business ventures
Strategic planning is the process of determining the basic objectives of an
organization and deciding the strategies & policies to achieve these objectives. It is the
formulation of future direction. It is concerned with environment scanning, indentifying the
best strategy, implementing these strategies effectively and efficiently. It provides proper
guidance to managers as to what they should do & what decisions they should take in order
to achieve companys objectives & mission.
Strategic management is concerned with making strategic decisions about an
organizations future direction and implementation of these strategic decisions. It is the set
of managerial decisions & actions that determines long run performance of an organization.
It includes establishing vision/mission, environment analysis, formulating, implementing and
evaluating strategies.
The study and use of strategic planning & strategic management emphasizes the
monitoring & evaluating external opportunities and threats in light of companys strength &
weakness. It helps to build long term policies, programmes, procedures to achieve
organizational objectives. The benefits of the use of strategic planning & strategic
management to small business can be presented as follows:

It makes managers & owners alert to new opportunities & challenges

It helps to monitor the business strengths & capabilities
It helps small business owners to best utilization of resources and competencies
It makes owners & managers more proactive
It helps them to systematic operation of business activities
It helps small business entrepreneurs to be more competent and success
It helps to increase efficiency & effectiveness within the business operation
It provides proper guidance to entire business.
Issues in strategic management in small from the perspective of small business

Strategic planning & management in small business is much less sophisticated than it
is in large corporation. The business may be too small to justify hiring someone to do only
strategic planning. Top managers, especially if they are the founders, tend to believe that
they know the business & can follow it better than anymore else. A study of 220 small rapid
growth business revealed that majority of CEOs was actively and personally involved in all
phases of strategic management process. The major issues in strategic management in small
business ventures can be presented as follows:
a) No enough time: the mangers/owner of small business firms have no time to make
strategic planning. They hardly get time from their day to day business manages and
operation. So, lack of enough time, they could not pursue strategic planning model
in their entrepreneurial ventures.
b) Unfamiliar with strategic planning & management model: the small business owners
may be unaware of strategic planning & management model. They may also view it
as irrelevant to small business. So, they fail to use strategic planning in their business
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ventures.
c) Lack of skill: small business owners often lack necessary skills to use strategic
planning model in their business. They also do not intend to outsource trained
human resource to develop strategic planning in their business.
d) Lack of trust & openness: majority of small business owners are very sensitive
regarding key information and trade secret about the business. They do not want to
share strategic planning with employees and other stakeholders.
c) Not for profit organization

Concept and nature:
A not for profit organization is an organization whose primary goal does not include
profit making. Society desires certain goods and services that profit making firms cannot and
will not provide. These goods and services are referred as public goods and services. Paved
road, police protection, museums, schools, hospitals library as well as governmental services
provided by the government agencies are the examples of public goods. Typically, not for
profit organizations are established by both private and public sectors. Private not for profit
organizations are basically established in the field of health & education. Their main
objective is to earn profit by serving people and society as a whole. Public not for profit
organization includes government agencies, public hospitals, colleges, university, prisons
etc. Their main objective is to provide necessary goods and services at reasonable cost.
Nature of not for profit organization:
a) Offers public goods & services: society desire certain goods and services that cannot
be provided by the private profit making organization. These goods include road,
police protection, Administrative functions, university, colleges etc. Even though
such goods can be provided by the profit making organization, all the people cannot
consume these goods & services.
b) Government ownership: most of the not for profit organization are either fully
owned by government or majority of shares are held by the government. State
owned university, colleges, hospitals, museum, schools etc are solely established by
government.
c) Government control & management: As most of the not for profit making
organization are owned by the government, it is managed & control by the
government and its agencies through its bureaucracy.
d) Public accountability: not for profit making organization have tend to high degree of
public responsibility and accountability. They are responsible and accountable to the
needs of the society. They have to provide necessary goods and services at
reasonable cost.
e) Service motive: the not for profit organizations are established primarily with the
service motive. These organizations are established to provide services to those
people who cannot afford the service from private profit making organizations.
f) Financial resources: as the service is the primary motive of these organizations, they
charge minimum fees to people. They hardly able to bear operating expenses from
fees. So, the majority of financial resources are obtained from the government and
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donation from national & international business organization & individuals.

Government allocates annual budgets to these organizations.
Revenue sources for not for profit organization
Financial resources are the lifeblood for every organization whether it is profit
making of not for profit making. Profit making organization may gather financial resources
from the sales of goods and services. In contrast, not for profit making organization has to
depend heavily on governments budget and grants. There are major three sources of
revenue for not for profit organization.
a) Government grants: government and its agency are the major sources of revenue for
not for profit organizations. Government allocates certain amount of budget to
those organizations in its annual budget. The study found that almost 40% of total
revenues are accumulated by government grants.
b) Donations: the donation is another major source of revenue for not for profit
organizations. The study found that almost 35% of revenue is obtained from
donation from national and international business organization & individuals.
c) Fees: the not for profit organization charges minimum fees in the form of
membership fee, service charge, registration fee etc. These fees accumulated almost
25% of total revenues.
Usefulness of strategic management concepts and techniques for not for profit
organization:
Some strategic management concepts can be equally applied to profit making
business and not for profit organization. Industry analysis, competitors analysis, pest
analysis etc are relevant to not for profit organization to obtain revenue from fees and give
maximum satisfaction to clients. Similarly, SWOT analysis, mission/vision statements,
stakeholder analysis are applicable in these organizations. Some concepts and techniques
may not be applicable to these organizations as well.
The usefulness and importance of strategic management concepts & techniques to
not for profit organization can be point out as follows:
Use of strategic management concepts helps to clearly define mission & objectives
of the organization
It helps to provide proper guidance to employees
It helps to identify various sources of revenues
It helps to identify optimum level of charges, fees etc
It provides to proper guidelines to get maximum satisfaction of clients
It helps to raise fund by attracting national & international donors.
It provides various tools & techniques to full utilization of resources
d) Managing information technology & innovation:

Due to increased competition, accelerating product development and innovation is
becoming very crucial to corporate success. The research found that most important driver
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of corporate value growth for companies is innovation. Properly managing technology and
innovation play vital role in a fast moving interconnected world. The recent survey of
business executives reveals that a significant majority are concerned that their companies
are losing growth opportunities because they are not able to manage new technology.
Innovation must be emphasized by the corporate for long term success and business
growth. The top management must focus on R & D and allocate significant amount of
budget to introduce new technology & innovation.
Technology sourcing
R & D has traditionally been an important source of technological knowhow for the
companies. Firms can also tap the R&D capability of competitors, suppliers, strategic
partners through contractual agreement such as licensing, R&D agreements, strategic
partnership, joint ventures etc. Technology sourcing typically makes or buys decision in a
firms R&D strategy. It is the decision regarding whether innovation and technological
capability should be developed through internal R&D or outsource technology from other
companies through R&D alliances.
When a technology cycle is longer, a company is more likely to choose an
independent R&D strategy because it gives a firm a longer lead time before competitors
copy it. In current business scenario, technological cycle is found to be short, majority of
companies have been choosing technology outsourcing from other organization. The
technology outsourcing is appropriate when:
The technology is of low significance to competitive advantage
The supplier has proprietary technology
The suppliers technology is better, cheaper and reasonably easy to integrate into
the current system
The companys strategy is based on system design, marketing, distribution & service
not manufacturing
The technology development requires special expert, large capital and take longer
time.
Product portfolio
Developed by Hofer and Schendel, product portfolio is based on product life cycle. It has 15
cells and analysis based on major two variables:
Stages of product life cycles: development, growth, shakeout, maturity and
decline.
Competitive position: strong, average and weak
Products are plotted in terms of their competitive position and their stages of
product/market development. The size of the circles represents the size of the industries
and the pie wedges represent the market size of the firms product lines. The analysis
involves comparing the following criteria:
Relative market share
Size of the industry
Competitive position
Ability to compete in price & quality
Technology & innovation capabilities
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How much companies competencies match with industrys KSFs

Profitability relative to competitors
Other measures of competitive strength
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Strategic Management-II (BBA-8th Semester)

Review of Strategy formulation

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Strategic Management-II (BBA-8th Semester)

competitors, changes in government regulations, changes in wants, needs and preferences

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Strategic Management-II (BBA-8th Semester)

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Strategic Management-II (BBA-8th Semester)

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Strategic Management-II (BBA-8th Semester)

himself/herself up to date with the economic, political-legal, socio-cultural and

Closely related to the political environment, legal environment is another dimension

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Weaknesses: The absence of certain strengths may be viewed as a weakness. For

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arrival of new technologies

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1) Threats of potential new entrants: A new entrant into an industry represents a

The supplier industry is dominated by few companies.

4) Threats of substitute products: Substitute products are those that appear to be

Relative price & performance of substitutes

5) Competitive rivalry: In most industry, corporations are mutually dependent. A

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Strategic Management-II (BBA-8th Semester)

Number of competitors, equal in size & capability

Weapons for competitive rivalry:

Strategic analysis and choices

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Strategic Management-II (BBA-8th Semester)

A) Which market to enter

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c) Long run profit potential

Economic & political system

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Difficult to build market share

Choices of entry strategy

(Pressure for local responsiveness)

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An international strategy makes sense if,

Centralised decision making

A strategy in which a company manages itself as a collection of relatively