Submitted To,Prof. Dipika Singh

Assignment on Strategic Management

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Submitted By,

Aniket Gawali

Puja Chaurasiya

Shiny Mathewes

Swati Sangai

HKIMSR| 2011

Chapter:

Introduction to the subject (Strategic Management)

Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments. It entails specifying the organization's mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. A balanced scorecard is often used to evaluate the overall performance of the business and its progress towards objectives. Recent studies and leading management theorists have advocated that strategy needs to start with stakeholders expectations and use a modified balanced scorecard which includes all stakeholders.

Strategic management is a level of managerial activity under setting goals and over Tactics. Strategic management provides overall direction to the enterprise and is closely related to the field of Organization Studies. In the field of business administration it is useful to talk about "strategic alignment" between the organization and its environment or "strategic consistency." According to Arieu (2007), "there is strategic consistency when the actions of an organization are consistent with the expectations of management, and these in turn are with the market and the context." Strategic management includes not only the management team but can also include the Board of Directors and other stakeholders of the organization. It depends on the organizational structure.

“Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment.”

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Basic knowledge of SM:-

Strategic management is a technique you can use to create a favorable future and help your organization to prosper. To create this favorable future, you must involve your organization's stakeholders (i.e., anyone with a vested interest in achieving your organization's goals) in envisioning the most desirable future and then in working together to make this vision a reality. The key to strategic management is to understand that people communicating and working together will create this future, not some words written down on paper.

Strategic management does not replace traditional management activities such as budgeting, planning, monitoring, marketing, reporting, and controlling. Rather, it integrates them into a broader context, taking into account the external environment, internal organizational capabilities, and your organization's overall purpose and direction.

Strategic management is congruent with the quality movement's emphasis on continuous improvement. Indeed, the emphasis on anticipating the needs of stakeholders is a critical component of external analysis. Certainly organizations that adopt a total quality management philosophy will be better prepared to meet the challenge of competing in the global economic marketplace.

Each organization's experience with strategic management is unique, reflecting the organization's distinct culture, environment, resources, structure, management style, and other organizational features. However, our experience in working with leaders and managers in a variety of organizations indicates that similar questions and concerns develop as organizations implement strategic management. Leaders who have addressed these questions and concerns have developed a common basis of experience that is valuable for those just beginning a strategic management process. This section summarizes some of the things we have learned in working with a variety of organizations. First, let's contrast strategic planning with strategic management.

Strategic planning marks the transition from operational planning to choosing a direction for the organization. Organizations that use a strategic planning model do so because they are sensitive to volatility in the external environment. With strategic planning, the planning focus goes beyond forecasting population shifts and concentrates on understanding changing stakeholder needs, technological developments, competitive position, and competitor initiatives. Decisions, then, are better attuned to the external world. Managers use strategic planning as a

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management function to allocate resources to programmed activities calculated to achieve a set of goals in a dynamic, competitive environment.

Strategic planning was pioneered by General Electric in the 1960s, widely adopted in the corporate world in the 1970s, and introduced to educational organizations in the early 80s. In the 1970s, however, when strategic planning was being widely applied, external events were still viewed as relatively stable, and planning was typically retrospective, or, at best, present oriented. Times were still good for businesses and other organizations. There was often a tendency for staff to prepare strategic plans--and for management to put them on the shelf. Strategy did not pervade day-to-day operations.

In contrast, strategic management not only creates plans attuned to assumptions about the future, but also focuses on using these plans as a blueprint for daily activities. The chief executive of a strategically managed organization must be able to imbue the organization with a strategic vision so that the organization's members are able to think big (institutionalized strategic thinking) and act big (institutionalized courage). The chief executive must be able to deal with the uncertainty of contemporary events and turn these events to the organization's advantage. Managers must be superb at continually adjusting competitive strategy, organizational structure, and modus operandi as the marketplace demands. In a strategically managed organization, top managers accept change as a permanent condition.

Definition of SM

Strategic management is the art and science of formulating, implementing and evaluating cross function decisions that enable to business to achieve its objectives. Strategic management can also be defined as the formal process for defining company vision & mission, assess internal & external environment. Formulate strategies under resource constraints, implement strategies and evaluate the strategies.

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Role of SM

A well-formulated strategy has an important role to play in present as well as in future of the organization.

Strategic management takes into account the future and anticipates for it. A strategy is made on rational and logical manner, thus its efficiency and its success are ensured.Strategic management reduces frustration because it has been planned in such a way that it follows a procedure.It brings growth in the organization because it seeks opportunities.With strategic management organizations can avoid helter & skelter and they can work directionally.Strategic management also adds to the reputation of the organization because of consistency that results from organizations success.Often companies draw to a close because of lack of proper strategy to run it. With strategic management companies can foresee the events in future and that’s why they can remain stable in the market.Strategic management looks at the threats present in the external environment and thus companies can either work to get rid of them or else neutralizes the threats in such a way that they become an opportunity for their success. Strategic management focuses on proactive approach which enables organization to grasp every opportunity that is available in the market.

 

Challenges in Strategic Management

Three particular challenges or decisions that face all strategists today are (1) deciding whether the process should be more an art or a science, (2) deciding whether  strategies should be visible or hidden form stakeholders, and (3) deciding whether the process should be more top-town or bottom-up in their firm.

The Art or Science IssueThis site is consistent with most of the strategy literature in advocating that strategic management e viewed more as a science than an art. This perspective contends that firm need to systematically assess their external and internal environments, conduct research; carefully evaluated the pros and cons of various alternatives, perform analyses, and then decide upon a particular course of action. In contrast, Mintzberg’s notion of “crafting” strategies embodies the artistic mode, which suggests that strategic decision making be based primarily on holistic

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thinking, intuition, creativity, and imagination. Mintzberg and his followers reject strategies that result from objective analysis, preferring instead subjective imagination. “Strategy scientists” reflect strategies that emerge form emotion, hunch, creativity, and politics. Proponents of the artistic view often consider strategic planning exercises to be time poorly spent. The Mintzberg philosophy insists on informality, whereas strategy scientists and in this site insists on more formality. Mintzberg refers to strategic planning as an “emergent” process where as strategy scientists use the term “deliberate” process.

The answer to the art versus science question is one that strategists must decide for themselves, and certainly the tow approaches are not mutually exclusive. In deciding which approach is more effective, however, consider that the business world today has become increasingly complex and more intensely competitive. There is less room for error in strategic planning. We also discussed in over view category posts that the importance of intuition and experience and subjectivity in strategic planning, and even the weights  and ratings discussed in preceding posts that  certainly, in smaller firms there can be more informality in the process comrade to larger firms, but even for smaller firms, a wealth of competitive information is available on the Internet and elsewhere and should be collected, assimilated, and evaluated before deciding on a course of action upon which survival of the firm may hinge. The livelihood of countless employees and shareholders may hinge on the effectiveness of strategies selected. Too much is at stake to be less than thorough in formulating strategies. It is not wise for strategies to rely too heavily on gut feeling and opinion instead of research data, competitive intelligence, and analysis in formulating strategies.

The Visible or Hidden Issue

There are certainly good reasons to keep the strategy process and strategies themselves visible and open rather that hidden and secret. There are also good reasons to keep strategies hidden from all but top-level executives. Strategists must decide for themselves what is best for their firms. This site comes down largely on the side of being visible and open but certainly this may not be best for all strategists and all firms. As pointed out in our first category Sun Tzu argued that all war is based on deception and that the best maneuvers are those not easily predicted by rivals. Business is analog ours to war.

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Some reason to be completely open with the strategy process and resultant decision are these;

Managers, employees, and other stakeholders can actively contribute to the process. Hey often have excellent ideas. Secrecy would forgo many excellent ideas.Investors, creditors, and other stakeholders have greater basis for supporting a firm when they know what the firm is dong and where the firms is going.Visibility promotes democracy, whereas secrecy promotes autocracy. Domestic firms and most foreign firms prefer democracy over autocracy as a management style.Participation and openness enhance understanding, commitment, and communication within the firm.

Reasons why some firms prefer to conduct strategic planning in secret and keep strategies hidden form all but the highest-level executives are as follows.

Free dissemination of a firm’s strategies may easily translate into competitive intelligence for rival firms who could exploit the firm given that information.Secrecy limits criticism, second guessing, and hindsight.Participants in a visible strategy process become more attractive to rival firms who may lure them away.Secrecy limits rival firms form imitating or duplicating the firms’ strategies and undermining the firms.

 The obvious benefits of the visible versus hidden extremes suggest that a working balance must be sought between the apparent contradictions. Parnell says that in a perfect world all key individuals both inside and outside the firm should be involved in strategic planning, but in practice particularly sensitive and confidential information should always remain strictly confidential to top managers. His balancing act is difficult but essential for survival of the firm.

The Top-Down or Bottom-Up ApproachProponents of the top-down approach contend that top executives are the only persons in the form with the collective experience, acumen, and fiduciary responsibility to make key strategy decisions. In contrast, bottom-up advocates argue that lower- and middle-level managers and employees who will be implementing the strategies need to be actively involved in the process of formulating the strategies to ensure their support and commitment. Recent strategy research and this site emphasize the bottom-up approach, but earlier work by

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Schendel and Hofer stressed the need for their firms at a particular time, while cognizant of the fact that current research supports the bottom-up approach, at least among U.S. firms. Increased education and diversity of the workforce at all levels are reasons why middle-and lower-level managers and even non mangers should be invited to participate into the firm’s strategic planning process, at least to the extent that they are willing and able to contribute.

Other reasons

The field of strategic management has grown significantly as organizations find new and better ways to gather information about operational and financial performance. Two decades ago, strategic management was limited to rudimentary analysis which was often backed by qualitative data. Today, quality management systems have created a strategic framework based on a statistical tools driven by business software applications and process improvement methodologies. The challenge is finding a point of common ground.

Too Much Data

Statistical management tools are used across industries, from government and nonprofit agencies to corporations and banks. The challenge with most management information systems is one of data, and identifying consistent ways to apply that data to strategic planning efforts.

Bridging the Gap

Quality management systems (QMS) like Six Sigma and LEAN manufacturing are two commonly used business management solutions which are helping organizations to build a common language for interpreting data and reporting results. While these management systems are effective, they are often incompatible with business systems. As a result managers must find ways to bridge the gap between quality assessment tools and the data provided by business information systems.

Customized Tools

One way to bridge the gap between management information systems and QMS is to build customized tools which are specific to the organization or business unit. While this is by far the most efficient solution, organic models created from database and spreadsheet applications (like MS Access and Excel) can make it difficult to pass on roles and business processes from one employee to the next. This reduces productivity levels. A more effective solution is to ask users of business information data to provide insight into the

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common uses of data. Programmers can then customize a solution to the business operating system (OS) used, i.e., SAP. Operating systems which speak directly to your QMS will save your organization both time and money.

Theories of SM:-

Overview of Strategic Management TheoryStrategic management is the process and approach of specifying an organization’s objectives, developing policies and plans to achieve and attain these objectives, and allocating resources so as to implement the policies and plans. In other words, strategic management can be seen as a combination of strategy formulation, implementation and evaluation .strategic management theories stem mainly from the systems perspective, contingency approach and information technology approach. Common strategic management theories noted and applicable are the profit-maximizing and competition-based theory, the resource-based theory, the survival-based theory, the human resource based theory, the agency theory and the contingency theory.

The profit-maximizing and competition-based theory, which was based on the notion that business organization main objective is to maximize long term profit and developing sustainable competitive advantage over competitive rivals in the external market place. The industrial-organization (I/O) perspective is the basis of this theory as it views the organization external market positioning as the critical factor for attaining and sustaining competitive advantage, or in other words, the traditional I/O perspective offered strategic management a systematic model for assessing competition within an Industry (Porter, 1981). On the other hand, the resource-based theory which stems from the principle that the source of firms competitive advantage lies in their internal resources, as opposed to their positioning in the external environment. That is rather than simply evaluating environmental opportunities and threats in conducting business, competitive advantage depends on the unique resources and capabilities that a firm possesses (Barney, 1995). The resource-based view of the firm predicts that certain types of resources owned and controlled by firms have the potential and promise togenerate competitive advantage and eventually superior firm performance.

The survival-based theory centers on the concept that organization need to continuously adapt to its competitive environment in order to survive. This differs

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to the human resource-based theory, which emphasizes the importance of the human element in the strategy development of organizations. In addition, the agency theory stresses the underlying important relationship between the shareholders or owners and the agents or managers in ensuring the success of the organizations. Finally, the contingency theory draws the idea that there is no one or single best way or approach to manage organizations. Organizations should then develop managerial strategy based on the situation and condition they are experiencing. In short, during the process of strategy formulation, implementation and evaluation, these main strategic management theories will be applicable to management of organization as tools to assist them in making strategic and guided managerial decision.

Mission of SM:-

An organizational mission is an organization's reason for existence. It often reflects the values and beliefs of top managers in an organization. A mission statement is the broad definition of the organizational mission. It is sometimes referred to as a creed, purpose, or statement of corporate philosophy and values. A good mission statement inspires employees and provides a focus and direction for setting lower level objectives. It should guide employees in making decisions and establish what the organization does. Mission statements are crucial for organizations to prosper and grow. While studies suggest that they have a positive impact on profitability and can increase shareholder equity, they also support that almost 40 percent of employees do not know or understand their company's mission.

Not only large corporations benefit from creating mission statements but small businesses as well. Entrepreneurial businesses are driven by vision and high aspirations. Developing a mission statement will help the small business realize their vision. Its primary purpose is to guide the entrepreneur and assist in refining the planning process. By developing a strategic plan that incorporates the mission statement, entrepreneurs are more likely to be successful and stay focused on what is important. The mission statement encourages managers and small business owners alike to consider the nature and scope of the business. Business Week attributes 30 percent higher return on several key financial measure for companies with well-crafted mission statements.

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COMMON ELEMENTS

While mission statements vary from organization to organization and represent the distinctness of each one, they all share similar components. Most statements include descriptions of the organization's target market, the geographic domain, their concern for survival, growth and profitability, the company philosophy, and the organization's desired public image. For example:

Our mission is to become the favorite family dining restaurant in every neighborhood in which we operate. This will be accomplished by serving a variety of delicious tasting and generously portioned foods at moderate prices. Our restaurants will be clean, fun, and casual. Our guests will be served by friendly, knowledgeable people that are dedicated to providing excellent customer service.

This mission statement describes the target market, which are families and the geographic domain of neighborhoods. It clearly states how it expects to be profitable by offering excellent customer service by friendly, knowledgeable people. When defining the mission statement it is important to take into account external influences such as the competition, labor conditions, economic conditions, and possible government regulation. It is important to remember however, that mission statements that try to be everything to everybody end up being nothing to anybody.

Companies should have mission statements that clearly define expected shareholder returns and they should regularly measure performance in terms of those expected returns. If the major reason for a business's existence is to make a profit then it stands to reason that expectations of profit should be included in the organization's mission. This means that management should reach a consensus about which aspects of the company's profit performance should be measured. These might include margin growth, product quality, market share changes, competitive cost position, and capital structure efficiency.

A mission statement sets the boundaries for how resources should be allocated and what strategic and operational goals should be set. The mission statement should acknowledge the company's strengths and then inform employees where to direct their efforts in order to take advantage of those strengths. Before writing a mission statement organizations should take a look at how they are different from the competition, whether it is in technology, image and name brand, or employees. It can often be thought of as a recipe for success because it not only defines the

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organization's accomplishments but it also provides employees with directions to help them develop plans and look for opportunities for improvement.

The organization defines what is acceptable behavior through the mission statement. Values and beliefs are the core of a strong mission statement. For example:

Quality and values will secure our success. We will live by our values, have fun, and take pride in what we do. Our values are to maintain a work environment where people enjoy coming to work, to serve our guests and exceed their expectations, and to be profitable and result oriented.

This mission statement is simple and straightforward. It does not, however, specify the products or target market. The mission statement also provides meaning to the organization by stating not only what goals the company wants to achieve but also why it wants to achieve these goals. It is not effective unless it is challenging and forces workers to establish goals and means to measure the achievement of those goals. A mission statement should inspire employees and get them involved in the organization. It has been called the glue that holds the organization together through shared values and standards of behavior. A mission statement should be relevant to the history, culture, and values of the company.

Many statements refer to the social responsibility of the organization. For example, a company can show their concern for the community in the following:

To be involved as good corporate citizens wherever we are around the world. We will treat customers and distributors with honesty, courtesy, and respect. We will respect and preserve the environment. Through all of this we will prove to be the worldwide leader in industry trade.

One important issue in organizations today is the concern with diversity. While it is not a traditional point included in mission statements, more and more companies are including it because of the globalization of the economy and the increased diversity of the workforce.

Before writing a mission statement, leaders in the organization must have an idea of what is in store for the future. This vision is the foundation for the mission statement. The vision provides a strategic direction, which is the springboard for the mission and its related goals. A vision statement differs from a mission

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statement. Vision statements are a view of what an organization is striving to become. For example:

To bring back to neighborhoods all over America the importance of family unity. We will view ourselves as a family so these attributes will be carried over into our service.

They guide an organization into the future while mission statements are a reflection of the present. Because vision statements are a glimpse into the future, they are often not realized for several years. Organizations go through many changes and can face times of confusion and uncertainty. Changes are not always expected or easy, so a well thought out vision statement will help everyone stay focused and meet the organization's goals.

Some examples of well-known companies' mission statements:

Wal-Mart: "To give ordinary folk the chance to buy the same thing as rich people."

3M: "To solve unsolved problems innovatively."Walt Disney: "To make people happy."

Historically, these may have seemed arrogant. But consider the outcome of the following mission statements from each company's early days:

Ford Motor Company: "Ford will democratize the automobile."Sony: "Become the company most know for changing the world-wide poor-quality image of Japanese products."Wal-Mart: "Become a $125 billion company by the year 2000."

“A mission describes the organization’s basic function in society, in terms of the products and services it produces for its customers”.

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A clear business mission should have each of the following elements:

Taking each element of the above diagram in turn, what should a good mission contain?

(1) A Purpose

Why does the business exist? Is it to create wealth for shareholders? Does it exist to satisfy the needs of all stakeholders (including employees, and society at large?)

(2) A Strategy and Strategic Scope

A mission statement provides the commercial logic for the business and so defines two things:

- The products or services it offers (and therefore its competitive position)- The competences through which it tries to succeed and its method of competing

A business’ strategic scope defines the boundaries of its operations. These are set by management.

For example, these boundaries may be set in terms of geography, market, business method, product etc. The decisions management make about strategic scope define the nature of the business.

(3) Policies and Standards of Behaviour

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A mission needs to be translated into everyday actions. For example, if the business mission includes delivering “outstanding customer service”, then policies and standards should be created and monitored that test delivery.

These might include monitoring the speed with which telephone calls are answered in the sales call centre, the number of complaints received from customers, or the extent of positive customer feedback via questionnaires.

(4) Values and Culture

The values of a business are the basic, often un-stated, beliefs of the people who work in the business. These would include:

Business principles (e.g. social policy, commitments to customers) Loyalty and commitment (e.g. are employees inspired to sacrifice their personal goals for the good of the business as a whole? And does the business demonstrate a high level of commitment and loyalty to its staff?) Guidance on expected behaviour – a strong sense of mission helps create a work environment where there is a common purpose

What role does the mission statement play in marketing planning?

In practice, a strong mission statement can help in three main ways:

It provides an outline of how the marketing plan should seek to fulfill the mission.It provides a means of evaluating and screening the marketing plan; are marketing decisions consistent with the mission?It provides an incentive to implement the marketing plan.

Vision:-Your vision is your dream of what you want the organization to be. Your strategy is the large-scale plan you will follow to make the dream happen. Your tactics are the specific actions you will take to follow the plan. Start with the vision and work down to the tactics as you plan for your organization.

Vision: What you want the organization to be; your dream. Strategy: What you are going to do to achieve your vision. Tactics: How you will achieve your strategy and when.

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Concepts Are the Same

Whether you are planning for the entire company or just for your department the concepts are the same. Only the scale is different. You start with the vision statement (sometimes called a mission statement). When you know what the vision is you can develop a strategy to get you to the vision. When you have decided on a strategy, you can develop tactics to meet the strategy.

Vision

A vision is an over-riding idea of what the organization should be. Often it reflects the dream of the founder or leader. Your company's vision could be, for example, to be "the largest retailer of automobiles in the US", "the maker of the finest chocolate candies in London", or "the management consultant of choice for non-profit organizations in the Southwest." A vision must be sufficiently clear and concise that everyone in the organization understands it and can buy into it with passion.

Strategy

Your strategy is one or more plans that you will use to achieve your vision. To be "the largest retailer of automobiles in the US" you might have to decide whether it is better strategy for you to buy other retailers, try to grow a single retailer, or a combination of both. A strategy looks inward at the organization, but it also looks outward at the competition and at the environment and business climate.

To be "the management consultant of choice for non-profit organizations in the Southwest" your strategy would need to evaluate what other companies offer management consulting services in the Southwest, which of those target non-profits, and which companies could in the future begin to offer competing services. Your strategy also must determine how you will become "the consultant of choice". What will you do so that your targeted customers choose you over everyone else? Are you going to offer the lowest fees? Will you offer a guarantee? Will you hire the very best people and build a reputation for delivering the most innovative solutions?

If you decide to compete on lowest billing rates, what will you do if a competing consulting firm drops their rates below yours? If you decide to hire the best people, how will you attract them? Will you pay the highest salaries in a four-state area,

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give each employee an ownership position in the company, or pay annual retention bonuses? Your strategy must consider all these issues and find a solution that works AND that is true to your vision.

Levels Of Strategies:-

Corporate Level Strategy

Corporate level strategy occupies the highest level of strategic decision-making and covers actions dealing with the objective of the firm, acquisition and allocation of resources and coordination of strategies of various SBUs for optimal performance. Top management of the organization makes such decisions. The nature of strategic decisions tends to be value-oriented, conceptual and less concrete than decisions at the business or functional level.

Business-Level Strategy

Business-level strategy is – applicable in those organizations, which have different businesses-and each business is treated as strategic business unit (SBU). The fundamental concept in SBU is to identify the discrete independent product/market segments served by an organization. Since each product/market segment has a distinct environment, a SBU is created for each such segment. For example, Reliance Industries Limited operates in textile fabrics, yarns, fibers, and a variety of petrochemical products. For each product group, the nature of market in terms of customers, competition, and marketing channel differs.

There-fore, it requires different strategies for its different product groups. Thus, where SBU concept is applied, each SBU sets its own strategies to make the best use of its resources (its strategic advantages) given the environment it faces. At such a level, strategy is a comprehensive plan providing objectives for SBUs, allocation of re-sources among functional areas and coordination between them for making optimal contribution to the achievement of corporate-level objectives. Such strategies operate within the overall strategies of the organization. The corporate strategy sets the long-term objectives of the firm and the broad constraints and policies within which a SBU operates. The corporate level will help

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the SBU define its scope of operations and also limit or enhance the SBUs operations by the resources the corporate level assigns to it. There is a difference between corporate-level and business-level strategies.

For example, Andrews says that in an organization of any size or diversity, corporate strategy usually applies to the whole enterprise, while business strategy, less comprehensive, defines the choice of product or service and market of individual business within the firm. In other words, business strategy relates to the ‘how’ and corporate strategy to the ‘what’. Corporate strategy defines the business in which a company will compete preferably in a way that focuses resources to convert distinctive competence into competitive advantage.’

Corporate strategy is not the sum total of business strategies of the corporation but it deals with different subject matter. While the corporation is concerned with and has impact on business strategy, the former is concerned with the shape and balancing of growth and renewal rather than in market execution.

Functional-Level Strategy

Functional strategy, as is suggested by the title, relates to a single functional operation and the activities involved therein. Decisions at this level within the organization are often described as tactical. Such decisions are guided and constrained by some overall strategic considerations. Functional strategy deals with relatively restricted plan providing objectives for specific function, allocation of resources among different operations within that functional area and coordi-nation between them for optimal contribution to the achievement of the SBU and corporate-level objectives. Below the functional-level strategy, there may be operations level strategies as each function may be divided into several sub functions. For example, marketing strategy, a functional strategy, can be subdivided into promotion, sales, distribution, pricing strategies with each sub function strategy contributing to functional strategy.

The Strategic Management Model:-

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The building blocks for a comprehensive strategic management model are shown in Figure -external analysis, internal assessment, strategic direction, strategic plans, implementation, and performance evaluation.

Figure 1

External Analysis

A key premise of strategic management is that plans must be made on the basis of what has happened, is happening, and will happen in the world outside the organization with a focus on the threats and opportunities these external changes present to the organization. The external environment includes social, technological, economic, environmental, and political trends and developments.

There are two major reasons for beginning with an external analysis. First, this analysis will have implications for organizational change and development. Second, by having leaders from all functional areas of the organization involved in the analysis, it should be easier to obtain their cooperation in making adjustments in response to the external analysis.

Internal Assessment

We must understand why the organization has succeeded in the past, what it will take to succeed in the future, and how it must change to acquire the necessary capabilities to succeed in the future. To do this, we must:

evaluate the organization's capacities--its management, program operations

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evaluate the organization's resources--people, money, facilities, technology, and information. review the organization's current capacities and future needs. compile a list of the strengths and weaknesses that will have the greatest influence on the organization's ability to capitalize on opportunities.

Strategic Direction

The organization has a mission, or reason for being. In this component we make explicit the strategic vision for the organization's future--an idea of where the organization is going and what it is to accomplish.

We use the information developed in the first two components, external analysis and internal assessment, to review the organization's mission, set goals, develop strategic vision, and determine the most critical issues the organization must address if it is going to achieve this vision. Mission review is the foundation and authority for taking specific actions. Goals are broad statements of what the senior leadership wants the organization to achieve. Strategic issues are the internal or external developments that could affect the organization's ability to achieve stated goals.

We use the following criteria to identify crucial strategic issues: (a) The impact they could have on the organization, (b) the likelihood that they will materialize, and (c) the time frame over which they could develop. We limit the list of issues to a manageable number (three to nine) to enhance the chances of securing the commitment and resources necessary to effectively act on them.

The objective of the strategic direction component is to help ensure that the organization's vision and goals:

are compatible with the organization's capabilities and complement its culture foster commitment and cooperation among key constituencies maximize the benefits inherent in environmental opportunities and minimize the liabilities inherent in environmental threats enhance the organization's position relative to critical success factors (i.e., those organizational elements that distinguish success from failure) and its ability to achieve stated goals.

Strategic Plans

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Once we agree on the direction the organization should take and the issues we must address to get there, we must derive strategies of how to get there. Developing strategies is the fourth step in the strategic planning process. We call this step strategic plans.

Strategic plans are the documented, specific courses of action that define how to deal with critical issues. They result from the development and evaluation of the alternatives available to the organization. If the critical strategic issues are truly important, and if the mission statement reflects the organization's fundamental priorities, the strategic plan should last for three to five years.

In this component we develop plans that reflect the following characteristics:

creative, reflecting input from all the organization's important constituencies, both internal and external consistent with the organization's direction as expressed in its mission and goals position the organization so it can capitalize on its greatest strengths and opportunities and mitigate the effects of the most serious threats and weaknesses action-oriented and flexible.

Implementation

Strategic management is more than just developing strategic plans. It involves managing the organization strategically. From day to day, leaders must manage the organization so that its strategic plans are implemented.

Implementing strategic plans calls for development of the right organizational structure, systems, and culture, as well as the allocation of sufficient resources in the right places. Implementation--the execution of selected courses of action--is a crucial step in the strategic management process. It is essential to involve, from the very beginning of the process, individuals and groups who will help to carry out the strategic plan.

Implementation also requires ongoing motivation. This means showing individuals and groups how their work has helped achieve the organization's objectives. The plan must remain a highly visible driving force within the organization. Implementation of the plan must become an integral part of day-to-day operations.

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It is not something extra to do; it is the thing to do. As such, it is the impetus for motivation, recognition, and reward.

Performance Evaluation

One important system needed to support the strategic plan is a performance evaluation system. We need this to know if the plan is being carried out and if it is achieving the anticipated results.

Performance evaluation is the comparison between actual results and desired results. It keeps the planning and implementation phases of the management system on target by helping the organization adjust strategies, resources, and timing, as circumstances warrant.

In this step, we establish a system to monitor how well the organization is using its resources, whether or not it is achieving desired results, and whether or not it is on schedule. The monitoring and reporting system is continuous, with periodic output reviewed by teams, while major evaluations are conducted on an annual basis. A dual benefit of performance evaluation is that it subjects the strategic plan to discussion and testing in the context of the real world.

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Chapter:Porter’s 5 forces Model

The five forces mentioned above are very significant from point of view of strategy formulation. The potential of these forces differs from industry to industry. These forces jointly determine the profitability of industry because they shape the prices which can be charged, the costs which can be borne, and the investment required to compete in the industry. Before making strategic decisions, the managers should use the five forces framework to determine the competitive structure of industry.

Let’s discuss the five factors of Porter’s model in detail:

1. Risk of entry by potential competitors: Potential competitors refer to the firms which are not currently competing in the industry but have the potential to do so if given a choice. Entry of new players increases the industry capacity, begins a competition for market share and lowers the current costs. The threat of entry by potential competitors is partially a function of extent of barriers to entry. The various barriers to entry are

Economies of scale Brand loyalty Government Regulation Customer Switching Costs Absolute Cost Advantage Ease in distribution Strong Capital base

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2. Rivalry among current competitors: Rivalry refers to the competitive struggle for market share between firms in an industry. Extreme rivalry among established firms poses a strong threat to profitability. The strength of rivalry among established firms within an industry is a function of following factors:

Extent of exit barriers Amount of fixed cost Competitive structure of industry Presence of global customers Absence of switching costs Growth Rate of industry Demand conditions

3. Bargaining Power of Buyers: Buyers refer to the customers who finally consume the product or the firms who distribute the industry’s product to the final consumers. Bargaining power of buyers refer to the potential of buyers to bargain down the prices charged by the firms in the industry or to increase the firms cost in the industry by demanding better quality and service of product. Strong buyers can extract profits out of an industry by lowering the prices and increasing the costs. They purchase in large quantities. They have full information about the product and the market. They emphasize upon quality products. They pose credible threat of backward integration. In this way, they are regarded as a threat.

4. Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the industry. Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of inputs( labour, raw materials, services, etc) or the costs of industry in other ways. Strong suppliers can extract profits out of an industry by increasing costs of firms in the industry. Suppliers products have a few substitutes. Strong suppliers’ products are unique. They have high switching cost. Their product is an important input to buyer’s product. They pose credible threat of forward integration. Buyers are not significant to strong suppliers. In this way, they are regarded as a threat.

5. Threat of Substitute products: Substitute products refer to the products having ability of satisfying customers’ needs effectively. Substitutes pose a ceiling (upper limit) on the potential returns of an industry by putting a setting a limit on the price that firms can charge for their product in an industry. Lesser the number of close substitutes a product has, greater is the

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opportunity for the firms in industry to raise their product prices and earn greater profits (other things being equal).

The power of Porter’s five forces varies from industry to industry. Whatever be the industry, these five forces influence the profitability as they affect the prices, the costs, and the capital investment essential for survival and competition in industry. This five forces model also help in making strategic decisions as it is used by the managers to determine industry’s competitive structure.

Porter ignored, however, a sixth significant factor- complementary. This term refers to the reliance that develops between the companies whose products work is in combination with each other. Strong complements might have a strong positive effect on the industry. Also, the five forces model overlooks the role of innovation as well as the significance of individual firm differences. It presents a stagnant view of competition.

Strategic Management Process

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1. Selection of the mission and goals (it is the first and most important part to continue the whole process. Without mission and goals, it will be like you are passing through huge jungles and no destination to exit.

2. Analysis of the organization's external competitive environment to identify opportunities and threats. Remember that external environment can beat you down or block your way before you go on.

3. It's always important to analyze organization's internal operational process to identify strengths and weaknesses. There is no way to success without knowing internal sources.

4. Select the ways or strategies to build on the organization's strengths and correct the weaknesses in order to take advantage of external opportunities and counter external threats (Called "Strategic Formulation")

5. The last point is to implement those selected ways and strategies to reach your mission and goals. At the same time, do not forget to control the process what the organization has implemented and analyze the result.

Above 5 components will make the success of strategic management process in any business industry companies.

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Chapter:

Internal environment –SWOT analysis

SWOT analysis is a strategic management tool that evaluates environmental business factors. SWOT stands for strengths, weaknesses, opportunities and threats. SWOT analysis can help management make strategic decisions on what direction to take a business or how to improve existing business functions. It is particularly helpful in matching market opportunities with a business's resources and capacities.

Strengths

Strengths is an internal environmental measure. It looks within your business at its resources and capabilities. You are observing what differentiates your business and gives it an advantage over competition. Examples of strengths could be patents, brands, and unique operating processes, access to cheap inputs or strong reputation. Strength can be anything internal that gives your business a competitive advantage.

Weaknesses

Weaknesses are also an internal measure that looks at your resources and capabilities. With weaknesses, you are observing where your business has strategic disadvantages against competitors. You can think of a weakness as the lack of strength. Some examples would include no patent protection, poor branding, expensive inputs or poor reputation. Weaknesses can often coexist with strengths. For example, you may have access to cheap inputs but as a result are overly reliant on one supplier.

Opportunities and Threats

Opportunities and threats are external environmental measures. They look at factors in the market in which your business operates. Opportunities and threats are typically beyond your business's control. Opportunities could include new technology, favorable political conditions, a new market or market gaps. Threats could be tightening regulations, new competition, substitute products or shifting consumer preferences.

Putting it together

Once you have evaluated your company's strengths, weaknesses, opportunities and threats, you can put your SWOT analysis to use in four primary ways. First, your business can create strategies to take advantage of opportunities using its strengths.

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You can overcome weaknesses to pursue opportunities. You can use strengths to stave off external threats. Lastly, you can strategize to protect your weaknesses from threats. These four strategic areas make the SWOT analysis invaluable to strategic management.

SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis. It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans. SWOT (sometimes referred to as TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats. The SWOT framework was described in the late 1960's by Edmund P. Learned, C. Roland Christiansen, Kenneth Andrews, and William D. Guth in Business Policy, Text and Cases (Homewood, IL: Irwin, 1969). The General Electric Growth Council used this form of analysis in the 1980's. Because it concentrates on the issues that potentially have the most impact, the SWOT analysis is useful when a very limited amount of time is available to address a complex strategic situation.

The following diagram shows how a SWOT analysis fits into a strategic situation analysis.

Situation Analysis

Internal Analysis External Analysis

Strengths Weaknesses Opportunities Threats

SWOT Profile

The internal and external situation analysis can produce a large amount of information, much of which may not be highly relevant. The SWOT analysis can serve as an interpretative filter to reduce the information to a manageable quantity of key issues. The SWOT analysis classifies the internal aspects of the company as strengths or weaknesses and the external situational factors as opportunities or threats. Strengths can serve as a foundation for building a competitive advantage, and weaknesses may hinder it. By understanding these four aspects of its situation, a firm can better leverage its strengths, correct its Weaknesses, capitalize on golden opportunities, and deter potentially devastating threats.

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Global Competition:-

Internationalization

Reasons for internationalization Businesses are increasingly operating on a global scale. This may be in response to opportunities overseas or to threats in the home market.

Reasons for overseas expansion include the following.

Increased sales and profits by absorbing extra capacity and thus reducing unit costs and spreading economic risks over a wider number of markets.

Competitive advantages by seeking low cost production in locations close to raw materials and/or cheap labor, obtaining wider distribution channels and access to new technologies.

Exploiting overseas markets at an earlier stage in the product lifecycle than in the home country.

Exploitation of cheap local labour or other resources.

Economies of scale, particularly with regard to high-ticket items such as motor cars etc.

The following are some effects of operating in an international environment.

More difficult communications (although technology such as e-mail is reducing this problem).

Restrictions of host governments.

Diverse range of cultures.

Exchange rate exposure.

Difficulty of deciding how much local autonomy to grant.

Competitive advantage of nations

In global industries the competitive advantage in one country is influenced by its position in others.

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Some of the advantages of this global approach include:-

Economies of scale - which arise by offering standard products across many markets.

Experience - and resources may be shared across countries giving rise to advantages.

Location - the global company can choose the most advantageous eg, produce components in one country, assemble them in another and carry out R&D in a third.

Differentiation - allows for organization on a global scale to service multinational buyers. Porter’s determinants of national competitive advantage

Michael Porter tries to isolate the national attributes that further competitive advantage in an industry. His study argues that, for a country’s industry to be successful, it needs to have the attributes and relationships shown in the diagram below. He calls this the ‘diamond’.

Favorable factor conditions:-

Demand conditions

Relating and supporting industries

Firm strategy structure and rivalry

Political environment

The problem facing strategic planners is how to plan for changes in the political environment. The planner needs to consider what type of political change could affect the enterprise.

Legislation and regulations - this is a complicated area covering the Companies Acts, employment legislation (determining the basic employment rights), health and safety regulations, consumer legislation (credit regulations, etc) and so on.

Single markets and trading blocs - the modern world economy is divided into three distinctive regions - the European Union, the Pacific Rim and the Americas.

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In most cases, each group tries to reduce trade barriers within the bloc, while erecting barriers to those outside it.

The development of the global business:-

Developments

One of the most significant developments to occur in business over the past quarter of a century has been its increasing internationalization.

This is evidenced by a number of factors.

The standardization and integration of operations between subsidiaries in different countries.

The growth and power of multinationals - some of the largest economic units in the world.

The interdependence of the world economy.

The characteristics which most multinationals possess include:

Overseas subsidiaries that are complete industrial and/or commercial organizations covering research and development, manufacturing, selling and after-sales activities.

Involvement in many countries - at different stages of economic and political development.

Formulation of a universally accepted and understood corporate policy for the guidance and direction of the overseas subsidiaries in pursuit of declared aims and objectives.

Motives of multinationals: The reasons why MNCs possess this distinctive advantage are reasonably clear.

Effectiveness in mobilizing, directing and controlling the resources at their disposal.

Better opportunities for achieving economies of scale because of their larger production base and market horizons.

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Able to draw on a wealth of corporate experience in strategic planning, forecasting, market research, finance, production and marketing.

Ability to keep in close touch with their overseas subsidiaries by the use of high capacity cable, distributed database systems, satellite communications, and efficient airline systems.

Glo bal competition :-

It is necessary to distinguish between global competition, global businesses and global companies.

Global competition occurs when company’s cross-subsidies national market share battles in pursuit of global brand and distribution positions.

Global businesses - are those for which the minimum volume required for cost efficiency is not available in the company’s home market.

Global companies - are those which have distribution systems in key foreign markets that enable cross-subsidization, international retaliation and world scale volume.

Global strategies:-

Market entry strategies

Choosing the most effective market supply strategy is one of the most complex decisions facing the international firm. The most appropriate strategy will involve trade-offs between objectives.

Three different approaches have been applied to the entry and development mode decision:-

Economic entry - emphasizes rational behavior, comparing the costs and benefits of different opportunities.

Stages of development - emphasizes the internationalization of the firm over time.

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Business strategy - emphasizes the pragmatic nature of decision-making in most organizations, which arises from uncertainty and the need for consensus.

The standard range of entry methods includes:-

Exporting - transfer of goods across national boundaries via direct or indirect methods.

Licensing - the licensor provides licensees abroad with access to technologies or knowhow in return for financial compensation.

Franchising - the franchisor provides the franchisee with a ‘package’ including not only trademarks and know-how but a range of management and other services in return for a fee.

Management contract - control is provided by a separate enterprise in return for a fee.

Turnkey contract - a contractor has responsibility for a complete project up to commissioning for a fee.

Contract - a company in one country places an order for manufacturing with a firm in another country. Usually limited to production.

Joint ventures - contractual arrangements formed for a project of limited duration.

Equity joint ventures - involve the sharing of assets, risks and profits and participation in ownership of a particular enterprise or investment product by more than one firm. The concept of market entry:

The firm must develop a set of products, assets, and management activities for the new markets it is entering. The success of the venture depends on how the firm: uses information about opportunities for profitable market entry.

Accesses productive resources.

Accesses markets.

Overcomes market entry barriers.

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There are two generic market strategies:

A market penetration strategy, concentrating on a few select markets.

A market skimming strategy, spreading effort over a large number of markets.

Standardization versus customization

A key issue in the development of a global strategy is the extent to which the strategy, particularly the marketing strategy, will be standardized across countries.

Standardization provides Customization provides Scale economies in the development of advertising, packaging, promotion etc.

Names, associations and advertising that can be:

Developed locally.

Tailored to local market.

Selected without the constraints of standardization.

Exploitation of media overlaps exposure to customers who travel.

Reduced risk from ‘buy local’ sentiments.

Associations of a global presence of the ‘home’ country.

Managing a global company :-

Factors determining choice of overseas market

According to Rowe the choice of an overseas market will depend on the preferred method of entry together with an assessment of the following five risk factors.

Political stability Attitudes regarding foreign investors, cost of social benefits, possibility of repatriation, preferential treatment of nationals.

Monetary considerations

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Inflation and devaluation, balance of payments, currency convertibility, exchange rates.

Infrastructure Possibility of bureaucratic delays, support available in professional services and construction, communication and transportation facilities.

Managerial considerations

Ability to enforce contracts, labour cost and productivity, level of sophistication of equipment, quality of local management talent, availability of skilled labour and raw materials.

Economic & tax considerations

Rate of long term capital and venture capital, tax benefits, economic growth, availability of short term credit. Stages of multinational development Perlmutter recognised three stages in the development of multinationals.

Ethnocentric - the company carries out its overseas operations for the benefit of the home or source country, and the ways of working in the home culture are imposed on the foreign subsidiaries.

Polycentric - operations in the host country are left to local management, who are more affected by the host government and culture, but also absorbing the corporation’s culture.

Geocentric - positions in the global organization can be reached by anyone regardless of nationality, according to merit. A corporation culture emerges and managers do not carry any constraints, including national cultural constraints, from one country to another.

Management strategy options:

Existing market/present products - to achieve growth, it is usual to try to gain market share.

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Existing market/improved products - the strategy for gaining share is to incorporate new product features or to make improvements to the product.

Existing market/new products - this strategy makes use of present distribution channels but adds or replaces products currently sold to customers.

Expanded market/present products - this strategy aims to increase sales market share.

Expanded market/improved products - this strategy differs from the second strategy as it introduces a new product as an addition rather than substituting it for the existing product.

Expanded market/new products - the difference between this strategy and the third strategy is that the new products are intended for new customers.

New market/present products - under this strategy, a company attempts to grow by selling its products in an ever-widening sphere. Foreign sales may be an evolutionary process after the company has expanded from a local to a regional or national market.

New market/improved products - this strategy differs from the preceding one in that a company makes variations of its products in order to sell them in new geographic areas.

New market/new products - companies may stabilize sales and earnings by selling products which move counter-cyclically.

Grand Strategy

Identification of various alternatives strategies is important aspects of strategic management as it provide the alternatives which can be considered and selected for implementation in order to arrive at certain result. At this stage, the managers are able to complete their environmental analysis and appraisal of their strengths and they are in a position to identify what alternatives strategies are available for them in the light of their organizational mission.

In this there are four main strategies:-

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Stability StrategyGrowth/Expansion StrategyRetrenchment StrategyCombination Strategy

1) Stability Strategy:

Basic approach in the stability strategy is ‘maintain present course: steady as it goes.’

In an effective stability strategy, companies will concentrate their resource where the company presently has or can rapidly develop a meaning full competitive advantage in the narrowest possible product market scope consistent with the firm’s resource and market requirements.

Many companies in different industries have been forced to adopt stability strategy because of over capacity in the industries concerned.

For Example:

Steel Authority of India has adopted stability strategy because of over capacity in steel sector. Instead it has concentrated on increasing operational efficiency of its various plants rather than going for expansion. Others industries are ‘heavy commercial vehicle’, ‘coal industry’.

Growth/Expansion:

Growth strategy is much talked in the present Indian environments, if we look at the corporate performance in the recent years. We find out that various organizations have grown both in terms of sales and profit as well as assets. Some organizations have grown so fast.

For Example:

Nirma ltd., Reliance Industry Ltd., infact, in the life of any organization, growth strategy is necessary at some point of time. James has identified those five stages emergence, growth maturity and decline.

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TISCO establish in 1907 is still the leader in steel sector. It suggests that the strategies fooled by organizations will determine the application of various stages.

“A strategy is one that an enterprise pursue when it increase its level of objectives upwards in significant increment, much higher than an exploration of its past achievement level. The most frequent increase indicating a growth strategy is to raise the market share and or sales objectives upwards significantly.”

Retrenchment Strategy:

A Retrenchment grand strategy is followed when an organization aims at a contraction of its activities through substantial reduction or the elimination of the scope of one or more its businesses, in terms of their respective customer groups, customer functions or alternatives technologies either singly or jointly on order to improve its overall performance.

Retrenchment involves a total or partial withdrawal from either a customer group or customer functions, or the use of an alternatives technology in one or more of firms businesses, as can be seen from the situation as given below:

Types of Retrenchment Strategies:

Turnaround StrategyDivestment StrategyLiquidation Strategy

For Example:

A pharmaceutical firm pulls out from retail selling to concentrate on institutional selling in order to reduce the size of its sales force and increase marketing efficiency.

A corporate hospital decides to focus only on specialty treatment and realize higher revenues by reducing its commitment to general cases which are typically less profitable to deal with.

Combination Strategy:

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Combination Strategies are a mixture of stability, expansion or retrenchment strategies applied either simultaneously (at the same time in different businesses) or sequentially (at different times in the same business).

It would be difficult to find any organization that has survived and grown by adopting a single ‘pure’ strategy. The complexity of doing business demands that different strategies be adopted to suit the situational demands made upon the organization.

For Example:

The Tube Investments of India (TI), a Murugappa group company, has created strategic alliances in its three major businesses: tubes, cycles, and strips. In cycles, it has entered into regional outsourcing arrangements with the UP-based Avon (which we could term as co-competition, as Avon is TI’s competitor in the cycle industry) and Hamilton Cycles in the western region. In steel strips, TI has entered into a manufacturing contract with Steel Tubes of India, Steel Authority of India, and the Jindals.

Chapter:

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BCG’s approach to sm

The BCG matrix model is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970's.

According to this technique, Strategic Business Units or products are classified as low or high performers depending upon their market growth rate and relative market share.

Market Share: Market Share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms.

Relative Market Share

RMS= Business unit sales current year Leading rival sales current yearThe higher your market share, the higher proportion of the market you control.

Market Growth:

Market Growth is used as a measure of a market’s attractiveness.

MGR= Individual Sales Current Year – Individual Sales Last Year Individual Sales Last YearMarkets experiencing high growth are ones where the total market share available is expanding, and there’s plenty of opportunity for everyone to make money.

The analysis requires that both measures be calculated for each SBU. The dimension of business strength, relative market share, will measure comparative advantage indicated by market dominance. The key theory underlying this is existence of an experience curve and that market share is achieved due to overall cost leadership.

BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical axis denoting market growth rate. The mid-point of relative market share is set at 1.0. if all the SBU’s are in same industry, the average growth rate of the industry is used. While, if all the SBU’s are located in different industries, then the mid-point is set at the growth rate for the economy.

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Resources are allocated to the business units according to their situation on the grid. The four cells of this matrix have been called as stars, cash cows, question marks and dogs. Each of these cells represents a particular type of business.

Stars- Stars represent business units having large market share in a fast growing industry. They may generate cash but because of fast growing market, stars require huge investments to maintain their lead. Net cash flow is usually modest. SBU’s located in this cell are attractive as they are located in a robust industry and these business units are highly competitive in the industry. If successful, a star will become a cash cow when the industry matures.Cash Cows- Cash Cows represents business units having a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be utilized for investment in other business units. These SBU’s are the corporation’s key source of cash, and are specifically the core business. They are the base of an organization. These businesses usually follow stability strategies. When cash cows loose their appeal and move towards deterioration, then a retrenchment policy may be pursued.

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Question Marks- Question marks represent business units having low relative market share and located in a high growth industry. They require huge amount of cash to maintain or gain market share. They require attention to determine if the venture can be viable. Question marks are generally new goods and services which have a good commercial prospective. There is no specific strategy which can be adopted. If the firm thinks it has dominant market share, then it can adopt expansion strategy, else retrenchment strategy can be adopted. Most businesses start as question marks as the company tries to enter a high growth market in which there is already a market-share. If ignored, then question marks may become dogs, while if huge investment is made, then they have potential of becoming stars.Dogs- Dogs represent businesses having weak market shares in low-growth markets. They neither generate cash nor require huge amount of cash. Due to low market share, these business units face cost disadvantages. Generally retrenchment strategies are adopted because these firms can gain market share only at the expense of competitor’s/rival firms. These business firms have weak market share because of high costs, poor quality, ineffective marketing, etc. Unless a dog has some other strategic aim, it should be liquidated if there is fewer prospects for it to gain market share. Number of dogs should be avoided and minimized in an organization.

Limitations of BCG Matrix

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The BCG Matrix produces a framework for allocating resources among different business units and makes it possible to compare many business units at a glance. But BCG Matrix is not free from limitations, such as-BCG matrix classifies businesses as low and high, but generally businesses can be medium also. Thus, the true nature of business may not be reflected.Market is not clearly defined in this model.High market share does not always leads to high profits. There are high costs also involved with high market share.Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability.At times, dogs may help other businesses in gaining competitive advantage. They can earn even more than cash cows sometimes.This four-celled approach is considered as to be too simplistic.

Chapter:

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Strategy formulation

Strategy formulation is the development of long range plans for the effective management of environmental opportunities and threats in light of corporate strengths and weaknesses. It includes defining the corporate mission, specifying achievable objectives, developing strategies and setting policy guidelines. It begins with situational analysis. The simplest way is to analyze through is SWOT analysis. This is the method to analyze the strengths and weakness in order to utilize the threat and to overcome the threat. SWOT is the acronym for Strength, Weakness, Opportunities and Threats. The TOWS matrix illustrates how the external opportunities and threats facing a particular corporation can be matched with that company’s internal strengths and weaknesses to result in four sets of possible strategic alternatives.

Mission:

An organization’s mission is the purpose or the reason for the organization existence. A well-conceived mission statement defines the fundamental, unique purpose that sets a company apart from other firms of its type and identifies the scope of the company's operation in terms of the products offered and markets served. A mission statement may be defined narrowly or broadly in scope. A broadly defined mission statement keeps the company from restricting itself to one field or product line, but it fails to clearly identify what it makes or which product/market it plans to emphasize. A narrow mission very clearly states the organizations primary business, but it may limit the scope of the firm's activities in terms of product or service offered, the technology used and the market served.

Objectives:

Objectives are the end result of planned activity. They state what is to be accomplished by when and should be quantified if possible. The achievement of corporate objective should result in the fulfillment of a corporate mission. In contrast to an objective, a goal is an open ended statement of what one wants to accomplish with no quantification of what is to be achieved and no time criterion for completion. The areas in which a company might establish its goals and objective are profitability, growth, shareholder's wealth, utilization of resources etc.

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Strategies:

A strategy of a corporation forms a comprehensive master plan stating how the corporation will achieve its mission and objectives. It maximizes competitive advantage and minimizes competitive disadvantage. Types of strategy:

The typical business firm considers three types of strategy:

Corporate strategy:

It describes a company's overall direction in terms of its general attitude towards growth and management of its various business and product lines.

Corporate strategy deals with three key issues facing the corporation as a whole.

1. Directional strategy – the firm’s overall orientation towards growth, stability and retrenchment. The two basic growth strategies are concentration and diversification. The growth of a company could be achieved through merger, acquisition, takeover, joint ventures and strategic alliances. Turnaround, divestment and liquidation are the various types of retrenchment strategy.

2. Portfolio analysis – The industries or markets in which the firm competes through its products and business units. In portfolio analysis, top management views its product lines and business units as a series of portfolio investment and constantly keep analyzing for a profitable return. Two of the most popular strategies are the BCG Growth Share matrix and GE business screen

3. Parenting strategy – the manner in which the management coordinates activities and transfers resources and cultivate capabilities among product lines and business units.

Business strategy:

It usually occurs at the business unit or product level and it emphasizes improvement of the competitive position of a corporation's products or services in the specific industry or marketing segment served by that business unit. It may fit

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within two overall categories of competitive or corporate strategies. Competitive strategy is the strategy battle against all competitors for advantage. Michael Porter developed three competitive strategies called Generic strategies. They are cost leadership, differentiation and focus. Cooperative strategy is to work with one or more competitors to gain advantage against other competitors.

Hierarchy of strategy

Functional strategy:

It is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity. It is concerned with developing nurturing a distinctive competence to provide a company or business unit with a competitive advantage.

A hierarchy of strategy is the grouping of strategy types by levels in the organization. This hierarchy of strategy is a nesting of one strategy within another so that they complement and support one another. Functional strategies support business strategies that in turn support the corporate strategy.

Policy:

A policy is a broad guideline for decision making that links the formulation of strategy with its implementation. Companies use policies to make sure that

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Business strategy

Functional strategy

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employees throughout the firm make decisions and take actions that support the corporation’s mission, objectives and strategies.

Strategic choice:

Strategy choice is the evaluation of alternate strategies and selection of best alternative.

Strategy Implementation:

Strategy implementation is the process by which strategies and policies are put in to action through the development of programs. This might involve changes within the overall culture, structure and/ or management system of the entire organization. Strategies are implemented through a set of programs, budgets and procedures.

Strategy Evaluation and control:

Evaluation and control is the process in which corporate activities and performance can be compared with desired performance. Managers at all levels use the clear, prompt, unbiased information from the people below the corporation's hierarchy to take corrective action and resolve problems. It can also pinpoint weaknesses in previously implemented strategic plans and this stimulates the control of performance. The evaluation and the control of performance complete the strategic management model. Based on the performance results, management may need to make adjustments in its strategy formulation or implementation or both.

Thus, a strategic decision making process involves the following seven steps:

1. Evaluate current performance results in terms of return on investment, profitability in the light of current mission, objectives and policies.

2. Scan and assess the external environment to determine the strategic factors that pose opportunities and threats.

3. Scan and assess the internal corporate environment to determine the strategic factors that are strengths and weaknesses.

4. Analyze strategic factors to pinpoint a) Problem areas and b) Review and revise the corporate missions and objectives as necessary.

5. Generate, evaluate and select the best alternate strategy in light of the analysis conducted in step 4.

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6. Implement selected strategies via programs, budgets, and procedures.7. Evaluate implemented strategies via feedback systems and the control of

activities to ensure their minimum deviation from plans.

Chapter:

Strategy implementation

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Strategy Implementation defines as “A process by which strategies and policies are put into action through the development of programs, budgets, and procedures.”

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Organization structure refers to the formalized patterns of interactions that link the task, technologies, and people of a firm.

Structures are designed to ensure that resources are used effectively towards accomplishing an organization’s mission.

A structure provides manages with a means of balancing two conflicting forces:

A need for the division of tasks into meaningful groupings, and need to integrate such groupings for ensuring efficiency and effectiveness.

A firm’s strategy and structure changes as it increases in size, diversifies into product markets, and expands its geographies.

Simple structureFunctional structureProduct Divisional structure.

Simple Structure:-

A simple structure is one where there is an owner and, usually, a few employees and where the arrangement of tasks, responsibilities, and communication is highly informal and accomplished through direct supervision. All strategic decisions are made by the owner, or small owner-partner team. Most businesses in this country and around the globe are of this type only.

Many survive for a period of time, and then go out of business because of financial, owner, or market conditions. Some grow, having been built on an idea that taps a great need for what the company does. As they grow, the need to “get organized” is heard among the owners and growing number of employees. That fortunate circumstance usually leads to the need for a “Functional Organizational Structure”.

Functional Structure:-

Once you reach 15 – 20 people in your organization, you will experience the need to have some people handle sales, some operations, a financial accountant that is

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you will need different people on different “functions” within the business to become better organized and efficient.

Functional structure provides for high level of centralization that helps to ensure integration and control over the related product market activities in the value chain. These structures are generally found in organizations in which there is a single or closely related products or services, high production volume, and some vertical integration. Such firms require well defined skills and areas of specialization to build competitive advantages in providing these firms to concentrate.

The strategic challenge presented by the functional structure is effective coordination of the functional units. The narrow technical expertise achieved through specialization lead to limited perspective and to differences in the priorities of the functional units. The potential conflict among functional units makes the coordinating role of the Chief executive critical. Integrating devices, such as; project teams or planning committees, are frequently used in functionally organized firms to enhance coordination.

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Chief Executive Officer / President

Manager Production

Manager Engineering

Manager Marketing

Manager Finance

Manager R&D

Accounting Legal

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Product Divisional Structure:-

Sometimes called the ‘multi-divisional structure’ or M-Form is organized around products, projects, or markets. Each of the division in turn, includes its own functional specialists who are typically organized into departments. A divisional structure encompasses a set of relatively autonomous units governed by a central corporate office.

A divisional structure allows corporate management to delegate authority for strategic management of distinct management entities- the division. This expedite decision making in response to varied competitive environment and enables corporate management to concentrate on ‘corporate-level strategis’.The division usually is given profit responsibility, which facilitates accurate assessment of profit and loss.

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CEO/ President

Legal Affairs

Product Division

Corporate Finance

Product Division

Corporate Marketing

Product Division

Corporate Human

Resources

Product Division

n

Strategic Planning

Product Division

Government Affairs

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Matrix Structure:

One approach that tries to overcome the inadequacies inherent in the other structures is the Matrix Structure. This is a combination of the functional and divisional structures. Here, functional departments are combined with the product groups on a project basis.

The individuals who work in a matrix organization become responsible to two managers:

The project manager

The manager of their functional area.

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CEO/ President

Specialists

Finance

Specialists

Marketing

Specialists

Human Resources

Specialists

Business Project

R&D

Business Project

SpecialistsSpecialists

SpecialistsSpecialists

Specialists

Specialists

Specialists

Specialists

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Network Structure:

Group of firms combine resources to achieve together what they can’t achieve alone.

Advantages

Firm’s emphasize their own core competenciesRapid response timeVery flexibleReduce capital intensity

Disadvantages

Asymmetric informationTechnology expropriationTrust worthiness of partnersAsset hold-up

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Focal Firm

Partner Partner

Partner Partner

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Chapter:

Decision making & problem solving

Although the terms "problem-solving" and "decision-making" are sometimes used interchangeably, management literature makes a clear distinction between the two. Problem-solving is a larger process that starts with the identification of a problem and ends with an evaluation of the effectiveness of the chosen solution. Decision-making is a subset of the problem-solving process and refers only to the process of identifying alternative solutions and choosing from among them.

Decision-making is the process of identifying and selecting from among possible solutions to a problem according to the demands of the situation. For example, decision-making in the area of vendor contracting might address how to deliver a service, which bidder gets a contract, how to ensure that a contractor meets its obligations, or whether to pay the contractor in large or small bills.

A problem is the difference between the actual condition and the desired condition. For example: "We don't earn enough interest on our short-term investments" or "Kids don't feel hopeful about the future."

Problem-solving is a continuous, conscious process which seeks to reduce or correct the difference between the actual and desired conditions. Decision making is one of the steps in the larger process of problem-solving.

Types of Problems and Decisions:-

Structured problems

A structured problem is a problem which can be broken down into a series of well-defined steps. Any problem which has been faced earlier or a problem for which the existing and desired state are clearly identified is structured problem. E.g. Student dropping course

Unstructured Problems

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Unstructured problem is a problem that requires the use of intuition, reasoning, and memory. An unstructured problem is that which is faced first time no one knows how to solve it. In unstructured problem experts often disagree about the best solution. Un-structured problems are those who are unique with an ambiguous situation. E.g. Searching location for a new plant.

Programmed decision

Programmed decisions are made in routine, repetitive, well-structured situations with predetermined decision rules. These may be based on habit, or established policies, rules and procedures and stem from prior experience or technical knowledge about what works or does not work in a given situation.

For example, organizations often have standardized routines for handling customer complaints or employee discipline. Decisions are programmed to the extent that they are repetitive and routine and that a definite approach has been worked out for handling them. Because the problem is well-structured, the manager does not have to go to the trouble and expense of working through an involved decision making process.

Types of Programmed Decisions:

– Policy: A general guideline for making a decision about a structured problem.

– Procedure: A series of interrelated steps that a manager can use to respond (applying a policy) to a structured problem.

– Rule: An explicit statement that limits what a manager or employee can or cannot do.

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Non-programmed decisionsNon-programmed decisions are unique decisions that require a 'custom made' solution. This is when a manager is confronted with an ill-structured or novel problem and there is no 'cut and dried solution'. The creation of a marketing strategy for a new service represents an example of a non-programmed decision. IBM Australia's introduction of a personal computer in the 1980s was unlike any other decision the company had previously made.

Decision Making Process

What is the decision-making process and why is it important? Here, I would request you to think for a moment. When you are required to take a 'decision' about something at work or something at home, or about something happening in your own life, you are usually in a dilemma. You do understand the importance of decision-making process, but are still confused about what to say. This is why you need a decision-making process. This process will help you to go through each aspect in a thorough fashion, so that you get rid of the dilemma. Get rid of any biases that you may have, and arrive at your decision. Let us discuss this process in detail.

Process of Decision-Making

As mentioned earlier, the process of decision-making will help arrive at decision after carefully evaluating all the aspects of problem. In order to evaluate these, need to follow some simple steps in decision-making.

These 6 steps to decision-making process are mentioned below.

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Define Problem: Making decisions can be a very flustering experience. It is not an issue with small decisions, but in case of bigger issues, decision-making can take a lot of time as no one wants any negative consequences to arise. Hence, this first step of defining the problem is essential. Do not get carried away with any other related problems. It is necessary to think about only that problem for which the decision needs to make. Once all the other problems isolate, thinking about the important one becomes easy. This is an important step in ethical decision-making process.

Fact Collection: The next is collection of all the relevant facts and data. This process becomes easy, as the main problem is already isolated. Considering the issue for which the decision needs to take, collect all relevant data to help arrive at

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Define Problem

Fact Collection

Solution Finding

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decision. This is an important step in the decision-making process and should not be overlooked, especially, since there are different types of decision-making that you might face. Decision-making becomes simpler with the help of the collected facts.

Solution Finding: Finding solution becomes easier now that all the facts and data at hand. Think of various solutions to the problem along with their pros and cons. These will help eliminate ones that are not good. A simple way for elimination will be writing the solutions on paper with their pros and cons and scratching out the ones that are not great. This step will help in narrowing down the solutions to sort problems.

Select Solution: Select the best solution after an elimination process which is the correct way to take proper decisions. This is where the decision takes, so to speak. If the preceding step was followed correctly, this step becomes easier too. Make the right decision based on the pros and cons of all the solutions and find the best out of them. An important thing to note here is that there is no room for vagueness and ambiguity in decision.

Implement Solution: Once arrived at the decision, the next step is the implementation of the same. Be firm in decision and communicate it to others, so that the solution is implemented. This is the most important of all the decision-making process steps.

Monitor Solution: when the decisions make, there will be some who do not approve and may not follow instructions. Hence, it is vital that monitor the situation and ensure that decision is followed to the core by all those who are involved. Never skip this step. Another advantage that get from monitoring is that the individual can see themselves if their decision was correct. If any changes need to be made, make them at this stage. You could also ask for feedback from others.

Example of Decision-Making Process

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To explain my point further, let me site an example. Let us consider an example where you need to buy a new TV. The decision-making process, in this situation, will be as follows.

Define Problem: The problem here is which TV to buy. There will be many suggestions from your family members. There may be someone in your family who states that buying a new DVD player should be the priority. Here, you need to stick to the TV and not think about the DVD player.

Fact Collection: Collect all data related to the different TVs from different showrooms. You can compare the prices and the models online too.

Solution Finding: Based on the above data and facts collected, narrow down the TV options. Consider your budget and your needs and make a short list of the TVs that you can choose from.

Select Solution: From this small list, narrow down your choice to select any one. Think of an alternative too, in case what you want is not available.

Implement Solution: Once you have decided on the TV, go ahead and buy it. If that TV is not available, then you have another alternative to fall back on.

Monitor Solution: See if the TV that you purchased is working for you. Check if all the features that you selected work for you or no. You could take the feedback from your family members, if you want.

Group Decision Making:

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Feature of Decision Making:

Decision making implies that there are various alternatives and the more desirable alternatives is chosen to solve the problem.Existence of alternatives suggests that the decision maker has freedom to choose an alternative of his liking.It may not be completely rational but may be judgemental and emotional.It is like any other management process, is goal directed.

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There are several instances in professional as well as personal life when decision-making requires opinions and inputs from more than one or two people. This is where group decisions come into the picture. Group decision-making is a complex process, which can be achieved by several methods. Here are some of the ways of taking group decisions as well as advantages and disadvantages of group decisions.

Methods of Group Decision-making

No two groups will ever function in the same way while involved in the process of decision-making. Some are proactive groups while there are other groups, which need a driving force or a facilitator to facilitate the process. There are several methods of group decision-making. Here are some of the common methods employed in the process of decision-making:

Authoritarian Style

The authoritarian style is like a dictatorship, in which the decision ultimately rests in the hands of one person. This style of decision-making is applicable in the presence of a powerful person who dictates the entire process of decision-making and has the final authority on the outcome. This style, although in use at various places, tends to have more disadvantages than advantages because the people whose opinions are disregarded might have negative feelings about the entire process. A variation of this method is the minority control method wherein the group discusses the issues but the power of decision-making rests not in the hands of one but a small group of people within the group.

Brainstorming

This group decision-making method is best when the decision-making has to be started from scratch, which means creating the various options and then weighing them. This is an excellent method for group decisions, which is very popular owing to the complete creative freedom it offers to all the participants. There can be a facilitator to facilitate the entire discussion just to ensure that the people don't digress. The facilitator can merely help to start off the conversation, provide subtle hints and nudges when the participants get stuck and thus help to make effective and creative group decisions. The positive

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aspect of this method is that it values the opinion of every individual member and the final decision is reached by consensus.

Voting Based Method

This is a group decision-making process, which is convenient to use when the group has certain set of defined options before it and needs to pick out the optimum solution. A voting system allows every participant to cast his/her vote for the option that he/she thinks is the best. The option that gathers the maximum number of votes is selected. This method however does not value the individual opinion of each and every participant in the group. A variation of this method is the majority method wherein a majority of people within the group has the power to pass the final decision.

Advantages and Disadvantages of Group Decisions

Like any other process, the process of taking group decisions has its own sets of advantages and disadvantages. Here are the advantages and disadvantages of group decisions:

Advantages of Group Decisions:

– A group decision help to combine individual strengths of the group members and hence has a set of varied skill sets applied in the decision-making process.

– Individual opinions can be biased or affected with pre-conceives notions are restricted perspectives, group decision help to get a broader perspective owing to differences of perception between individual in the group.

– A group decision always means enhanced collective understanding of the course of action to be taken after the decision is taken.

– A group decision gains greater group commitment since everyone has his/her share in the decision-making.

– Group decisions imbibe a strong sense of team spirit amongst the group members and help the group to think together in terms of success as well as failure.

Disadvantages of Group Decisions:

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– One of the major disadvantages of group decision-making is that it is more time-consuming than the process of individual decision-making.

– Group decisions take longer to be finalized since there are many opinions to be considered and valued.

– In case of authoritarian or minority group decision-making, the people whose opinions are not considered tend to be left out from the decision-making process and hence the team spirit ceases to grow.

– The responsibility and accountability of the decisions are not equally shared in some cases which leads to a split in the group and hence hamper the overall efficiency of the group.

– While involved in a group decision-making process it is always better to study the advantages and disadvantages of group decisions and hence formulate a group-decision-making process that suits your group and gives you the optimum results.

Chapter:

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Leadership & Culture, Manager v/s Leader

Leadership Styles, Role of a Leader.

Leaders and Managers can be compared on the following basis:

Basis Manager Leader

OriginA person becomes a manager by virtue of his position.

A person becomes a leader on basis of his personal qualities.

Formal RightsManager has got formal rights in an organization because of his status.

Rights are not available to a leader.

FollowersThe subordinates are the followers of managers.

The groups of employees whom the leaders lead are his followers.

FunctionsA manager performs all five functions of management.

Leader influences people to work willingly for group objectives.

NecessityA manager is very essential to a concern.

A leader is required to create cordial relation between person working in and for organization.

Stability It is more stable. Leadership is temporary.

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Mutual Relationship

All managers are leaders. All leaders are not managers.

AccountabilityManager is accountable for self and subordinates behaviour and performance.

Leaders have no well defined accountability.

ConcernA manager’s concern is organizational goals.

A leader’s concern is group goals and member’s satisfaction.

FollowersPeople follow manager by virtue of job description.

People follow them on voluntary basis.

Role continuation

A manager can continue in office till he performs his duties satisfactorily in congruence with organizational goals.

A leader can maintain his position only through day to day wishes of followers.

SanctionsManager has command over allocation and distribution of sanctions.

A leader has command over different sanctions and related task records. These sanctions are essentially of informal nature.

Leadership styles:-

The styles used to provide leadership often affect the productivity of those being led.

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TRANSFORMATIONAL LEADERSHIP is the most effective leadership style.

Their style entails motivating followers to exceed the expectations others have of them, to continuously enrich their capabilities & to place the interests of their organization above their own.

Transformational leaders develop and communicate a vision for the organization abd formulate a strategy to achieve the vision.

They make followers aware of the need to achieve valued organizational outcomes

They encourage followers to continuously strive for higher levels of achievement and

They have emotional Intelligence.

Emotionally Intelligent Leaders understand themselves well, have strong motivation, are empathetic with others, and have effective inter-personal skills.

These types of Leaders have a high degree of integrity and character.

Examples: Roy Kroc, founder of McDonalds was a strategic leader, valued for his high degree of integrity and character.

Doug Conant, CEO of Campbell Soup Co. is a transformational leader. He has established a vision and mission for the firm and is committed to supporting firm’s employees-a resource that he believes is critical to his firm’s continuing success.

Role of Leader

Following are the main roles of a leader in an organization :

Required at all levels- Leadership is a function which is important at all levels of management. In the top level, it is important for getting co-operation in formulation of plans and policies. In the middle and lower level, it is required for interpretation and execution of plans and programs framed by the top management. Leadership can be exercised through guidance and counseling of the subordinates at the time of execution of plans.

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Representative of the organization- A leader, i.e., a manager is said to be the representative of the enterprise. He has to represent the concern at seminars, conferences, general meetings, etc. His role is to communicate the rationale of the enterprise to outside public. He is also representative of the own department which he leads.Integrates and reconciles the personal goals with organizational goals- A leader through leadership traits helps in reconciling/ integrating the personal goals of the employees with the organizational goals. He is trying to co-ordinate the efforts of people towards a common purpose and thereby achieves objectives. This can be done only if he can influence and get willing co-operation and urge to accomplish the objectives.He solicits support- A leader is a manager and besides that he is a person who entertains and invites support and co- operation of subordinates. This he can do by his personality, intelligence, maturity and experience which can provide him positive result. In this regard, a leader has to invite suggestions and if possible implement them into plans and programmes of enterprise. This way, he can solicit full support of employees which results in willingness to work and thereby effectiveness in running of a concern.As a friend, philosopher and guide- A leader must possess the three dimensional traits in him. He can be a friend by sharing the feelings, opinions and desires with the employees. He can be a philosopher by utilizing his intelligence and experience and thereby guiding the employees as and when time requires. He can be a guide by supervising and communicating the employees the plans and policies of top management and secure their co-operation to achieve the goals of a concern. At times he can also play the role of a counselor by counseling and a problem-solving approach. He can listen to the problems of the employees and try to solve them.

Leadership & Culture:-Strategic Leaders are people located in different parts of the firm using strategic management process to help the firm reach its vision and mission. Regardless of their location in the firm, successful strategic leaders are decisive and committed to

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nurturing those around them and are committed to helping the firm create value and returns for shareholders and other stakeholders.

Organizational culture also affects strategic leaders and their work. In turn, strategic leaders’ decisions and actions shape a firm’s culture. Organizational culture refers to the complex set of ideologies, symbols, and core values that are shared throughout the firm and that influence how the firm conducts business, it is the social energy that drives or fails to drive the organization. For example, highly successful Southwest Airlines is known for having a unique and valuable culture. Its culture encourages employees to work hard but also to have fun while doing so. Moreover its culture entails respect for others-employees and customers alike. The firm also places a premium or service, as suggested by its commitment to provide POS(Positively Outrageous Service) to each customer. Wal-Mart claims that its continuing success is largely attributable to its culture.

Some organizational cultures are a source of disadvantages. It is important for strategic leaders to understand, however, that whether the firm’s culture is functional or dysfunctional, their work takes place within the context of that culture. The relationship between organizational culture and strategic leaders’ work continues to be reciprocal in that the culture shapes how they work while their work helps shape an ever-evolving organizational culture.

Chapter:

Innovation- Changed circumstances in SM

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Peter Drucker suggested that innovation is “the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.”

In established organizations, most innovation comes from efforts in research & development (R&D) often leads to firms filing for patents to protect their innovative work. Increasingly successful R&D results from integrating the skills available in the global workforce. Firms are seeking INTERNAL INNOVATIONS through their R&D.

Motorola was awarded the National Medal of Technology because of its significant innovation efforts. Its Razr cell phone sold more units than any cell phone in history.It has R&D operations all over the world.

Firms produce 2 types of internal innovations: Incremental & Radical Innovations when using their R&D activities.

Incremental:

1. Such innovations are built on existing knowledge bases and provide small improvements in the current product lines.

2. They involve extension of products that are already in the market. 3. They are evolutionary and linear in nature.4. The markets for such innovations are well-defined, product characteristics

are well understood, lower profit margins, efficient production technologies & price-based competition.GPS systems in cars are an example of an incremental innovation

Radical:

1. Such innovations usually provide significant technological breakthroughs and create new knowledge.

2. These are revolutionary and linear in nature typically use new technologies serve newly created markets.Examples: amazon.com, digital photography etc.

Creating value from Internal Innovation:Firms innovate by using- Cooperative strategies & by acquiring companies.

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Acquiring innovation- larger companies wisely bring innovation into their firm while mitigating the risk/reward trade-off in the process.Joint ventures- with other firms that have an interest in the possible innovation share.

Example: Rolls- Royce & Daimler, Boeing & Tata Industries etc.

Management Control:-Management controls or organizational controls are basic to a capitalistic system and have long been viewed as an important part of strategy implementation processes. Controls are necessary to help ensure that firms achieve their desired outcomes. Defined as the formal, information-based procedures used by the managers to maintain or alter patterns in organizational activities, controls help strategic leaders build credibility, demonstrate the value of strategies to the firm’s stakeholders, and promote and support strategic change. Most critically, controls provide the parameters for implementing strategies as well as the corrective actions to be taken when implementation-related adjustments are required.

We focus on two organizational controls-strategic and financial. Organizational controls here emphasizesstrategic and financial controls because strategic leaders, especially those at the top of the organization, are responsible for their development and effective use.

Financial control focuses on short-term financial outcomes. In contrast, strategic control focuses on the content of strategic actions rather than their outcomes.

Some strategic actions can be correct but still result in poor financial outcomes because of external conditions such as a recession in the economy, unexpected domestic or foreign government actions, or natural disasters. Therefore emphasizing financial controls often produces more short-term and risk- averse managerial decisions, because financial outcomes may be caused by events beyond mangers’ direct control. Alternatively, strategic control encourages low level managers to make decisions that incorporate moderate and acceptable levels of risk because outcomes are shared between the business level executives making strategic proposals and the corporate level executives evaluating them.

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The challenge strategic leaders face is to verify that their firm is emphasizing financial and strategic control so that firm performance improves. The Balance Scorecard is a tool that helps strategic leaders assess the effectiveness of the control.

Components of MIS:-

Components of a marketing information system

A marketing information system (MIS) is intended to bring together disparate items of data into a coherent body of information. An MIS is, as will shortly be seen, more than raw data or information suitable for the purposes of decision making. An MIS also provides methods for interpreting the information the MIS provides. Moreover, as Kotler's1 definition says, an MIS is more than a system of data collection or a set of information technologies:

"A marketing information system is a continuing and interacting structure of people, equipment and procedures to gather, sort, analyse, evaluate, and distribute pertinent, timely and accurate information for use by marketing decision makers to improve their marketing planning, implementation, and control".

Figure 9.1 illustrates the major components of an MIS, the environmental factors monitored by the system and the types of marketing decision which the MIS seeks to underpin.

Figure 9.1 The marketing information systems and its subsystems

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The explanation of this model of an MIS begins with a description of each of its four main constituent parts: the internal reporting systems, marketing research system, marketing intelligence system and marketing models. It is suggested that whilst the MIS varies in its degree of sophistication - with many in the industrialised countries being computerised and few in the developing countries being so - a fully fledged MIS should have these components, the methods (and technologies) of collection, storing, retrieving and processing data notwithstanding.

1. Internal reporting systems: All enterprises which have been in operation for any period of time nave a wealth of information. However, this information often remains under-utilized because it is compartmentalized, either in the form of an individual entrepreneur or in the functional departments of larger businesses. That is, information is usually categorized according to its nature so that there are, for example, financial, production, manpower, marketing, stockholding and logistical data. Often the entrepreneurs, or various personnel working in the functional departments holding these pieces of data, do not see how it could help decision makers in other functional areas. Similarly, decision makers can fail to appreciate how information from other functional areas might help them and therefore do not request it.

The internal records that are of immediate value to marketing decisions are: orders received, stockholdings and sales invoices. These are but a few of the internal records that can be used by marketing managers, but even this small set of records is capable of generating a great deal of information. Below, is a list of some of the information that can be derived from sales invoices.

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Product type, size and pack type by territoryProduct type, size and pack type by type of accountProduct type, size and pack type by industryProduct type, size and pack type by customerAverage value and/or volume of sale by territoryAverage value and/or volume of sale by type of accountAverage value and/or volume of sale by industryAverage value and/or volume of sale by sales person

By comparing orders received with invoices an enterprise can establish the extent to which it is providing an acceptable level of customer service. In the same way, comparing stockholding records with orders received helps an enterprise ascertain whether its stocks are in line with current demand patterns.

2. Marketing research systems: The general topic of marketing research has been the prime ' subject of the textbook and only a little more needs to be added here. Marketing research is a proactive search for information. That is, the enterprise which commissions these studies does so to solve a perceived marketing problem. In many cases, data is collected in a purposeful way to address a well-defined problem (or a problem which can be defined and solved within the course of the study). The other form of marketing research centres not around a specific marketing problem but is an attempt to continuously monitor the marketing environment. These monitoring or tracking exercises are continuous marketing research studies, often involving panels of farmers, consumers or distributors from which the same data is collected at regular intervals. Whilst the ad hoc study and continuous marketing research differs in the orientation, yet they are both proactive.

3. Marketing intelligence systems: Whereas marketing research is focused, market intelligence is not. A marketing intelligence system is a set of procedures and data sources used by marketing managers to sift information from the environment that they can use in their decision making. This scanning of the economic and business environment can be undertaken in a variety of ways, including2

Unfocused scanning

The manager, by virtue of what he/she reads, hears and watches exposes him/herself to information that may prove useful. Whilst the

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behaviour is unfocused and the manager has no specific purpose in mind, it is not unintentional

Semi-focused scanning

Again, the manager is not in search of particular pieces of information that he/she is actively searching but does narrow the range of media that is scanned. For instance, the manager may focus more on economic and business publications, broadcasts etc. and pay less attention to political, scientific or technological media.

Informal search

This describes the situation where a fairly limited and unstructured attempt is made to obtain information for a specific purpose. For example, the marketing manager of a firm considering entering the business of importing frozen fish from a neighbouring country may make informal inquiries as to prices and demand levels of frozen and fresh fish. There would be little structure to this search with the manager making inquiries with traders he/she happens to encounter as well as with other ad hoc contacts in ministries, international aid agencies, with trade associations, importers/exporters etc.

Formal search

This is a purposeful search after information in some systematic way. The information will be required to address a specific issue. Whilst this sort of activity may seem to share the characteristics of marketing research it is carried out by the manager him/herself rather than a professional researcher. Moreover, the scope of the search is likely to be narrow in scope and far less intensive than marketing research

Marketing intelligence is the province of entrepreneurs and senior managers within an agribusiness. It involves them in scanning newspaper trade magazines, business journals and reports, economic forecasts and other media. In addition it involves management in talking to producers, suppliers and customers, as well as to competitors. Nonetheless, it is a largely informal process of observing and conversing.

Some enterprises will approach marketing intelligence gathering in a more deliberate fashion and will train its sales force, after-sales personnel and district/area managers to take cognisance of competitors' actions, customer complaints and requests and distributor problems. Enterprises with vision will also encourage intermediaries, such as collectors, retailers, traders and other middlemen to be proactive in conveying market intelligence back to them.

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4. Marketing models: Within the MIS there has to be the means of interpreting information in order to give direction to decision. These models may be computerised or may not. Typical tools are:

Time series sales modesBrand switching modelsLinear programmingElasticity models (price, incomes, demand, supply, etc.)Regression and correlation modelsAnalysis of Variance (ANOVA) modelsSensitivity analysisDiscounted cash flowSpreadsheet 'what if models

These and similar mathematical, statistical, econometric and financial models are the analytical subsystem of the MIS. A relatively modest investment in a desktop computer is enough to allow an enterprise to automate the analysis of its data. Some of the models used are stochastic, i.e. those containing a probabilistic element whereas others are deterministic models where chance plays no part. Brand switching models are stochastic since these express brand choices in probabilities whereas linear programming is deterministic in that the relationships between variables are expressed in exact mathematical terms.

Chapter:The McKinsey 7S Framework

Ensuring that all parts of your organization work in harmony

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How do you go about analyzing how well your organization is positioned to achieve its intended objective? This is a question that has been asked for many years, and there are many different answers. Some approaches look at internal factors, others look at external ones, some combine these perspectives, and others look for congruence between various aspects of the organization being studied. Ultimately, the issue comes down to which factors to study.

While some models of organizational effectiveness go in and out of fashion, one that has persisted is the McKinsey 7S framework. Developed in the early 1980s by Tom Peters and Robert Waterman, two consultants working at the McKinsey & Company consulting firm, the basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful.

The 7S model can be used in a wide variety of situations where an alignment perspective is useful, for example to help you:

Improve the performance of a company.Examine the likely effects of future changes within a company.Align departments and processes during a merger or acquisition.Determine how best to implement a proposed strategy.

The McKinsey 7S model can be applied to elements of a team or a project as well. The alignment issues apply, regardless of how you decide to define the scope of the areas you study.

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The Seven Elements

The McKinsey 7S model involves seven interdependent factors which are categorized as either "hard" or "soft" elements:

Hard Elements Soft ElementsStrategy

Structure

Systems

Shared Values

Skills

Style

Staff

"Hard" elements are easier to define or identify and management can directly influence them: These are strategy statements; organization charts and reporting lines; and formal processes and IT systems.

"Soft" elements, on the other hand, can be more difficult to describe, and are less tangible and more influenced by culture. However, these soft elements are as important as the hard elements if the organization is going to be successful.

The way the model is presented in Figure 1 below depicts the interdependency of the elements and indicates how a change in one affects all the others.

 

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Let's look at each of the elements specifically:

Strategy: the plan devised to maintain and build competitive advantage over the competition.

Structure: the way the organization is structured and who reports to whom.

Systems: the daily activities and procedures that staff members engage in to get the job done.

Shared Values: called "superordinate goals" when the model was first developed, these are the core values of the company that are evidenced in the corporate culture and the general work ethic.

Style: the style of leadership adopted.

Staff: the employees and their general capabilities.

Skills: the actual skills and competencies of the employees working for the company.

Placing Shared Values in the middle of the model emphasizes that these values are central to the development of all the other critical elements. The company's structure, strategy, systems, style, staff and skills all stem from why the organization was originally created, and what it stands for. The original vision of the company was formed from the values of the creators. As the values change, so do all the other elements.

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How to Use the Model

Now you know what the model covers, how can you use it?

The model is based on the theory that, for an organization to perform well, these seven elements need to be aligned and mutually reinforcing. So, the model can be used to help identify what needs to be realigned to improve performance, or to maintain alignment (and performance) during other types of change.

Whatever the type of change – restructuring, new processes, organizational merger, new systems, change of leadership, and so on – the model can be used to understand how the organizational elements are interrelated, and so ensure that the wider impact of changes made in one area is taken into consideration.

You can use the 7S model to help analyze the current situation (Point A), a proposed future situation (Point B) and to identify gaps and inconsistencies between them. It's then a question of adjusting and tuning the elements of the 7S model to ensure that your organization works effectively and well once you reach the desired endpoint.

Sounds simple? Well, of course not: Changing your organization probably will not be simple at all! Whole books and methodologies are dedicated to analyzing organizational strategy, improving performance and managing change. The 7S model is a good framework to help you ask the right questions – but it won't give you all the answers. For that you'll need to bring together the right knowledge, skills and experience.

When it comes to asking the right questions, we've developed a Mind Tools checklist and a matrix to keep track of how the seven elements align with each other. Supplement these with your own questions, based on your organization's specific circumstances and accumulated wisdom.

7S Checklist Questions

Here are some of the questions that you'll need to explore to help you understand your situation in terms of the 7S framework. Use them to analyze your current (Point A) situation first, and then repeat the exercise for your proposed situation (Point B).

Strategy:

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What is our strategy?

How do we intend to achieve our objectives?

How do we deal with competitive pressure?

How are changes in customer demands dealt with?

How is strategy adjusted for environmental issues?

Structure:

How is the company/team divided?

What is the hierarchy?

How do the various departments coordinate activities?

How do the team members organize and align themselves?

Is decision making and controlling centralized or decentralized? Is this as it should be, given what we're doing?

Where are the lines of communication? Explicit and implicit?

Systems:

What are the main systems that run the organization? Consider financial and HR systems as well as communications and document storage.

Where are the controls and how are they monitored and evaluated?

What internal rules and processes does the team use to keep on track?

Shared Values:

What are the core values?

What is the corporate/team culture?

How strong are the values?

What are the fundamental values that the company/team was built on?

Style:

How participative is the management/leadership style?

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How effective is that leadership?

Do employees/team members tend to be competitive or cooperative?

Are there real teams functioning within the organization or are they just nominal groups?

Staff:

What positions or specializations are represented within the team?What positions need to be filled?Are there gaps in required competencies?

Skills:

What are the strongest skills represented within the company/team?

Are there any skills gaps?

What is the company/team known for doing well?

Do the current employees/team members have the ability to do the job?

How are skills monitored and assessed?

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Thank you