STRATEGIC

MANAGEMENT

NOTES

By HAMZA SIDDIQUI

RIZVI INSTITUTE OF MANAGEMENT STUDIES & RESEARCH

 MODULE 1

INTRODUCTION TO STRATEGIC MANAGEMENT

Definitions of Strategy

● "The process of deliberately choosing a different set of activities to deliver a

unique mix of value."

- Michael E. Porter (An American academic, Professor at Harvard

Business School)

● "Strategy in general and realized strategy in particular, will be defined as a

pattern in a stream of decisions. When a sequence of decisions in some area
exhibits a consistency over time, a strategy will be considered to have formed."

- Henry Mintzberg (A Canadian academic and author on Business and

Management)

● “Determination of the basic long-term goals and objectives of an enterprise, and

the adoption of courses of action and the allocation of resources necessary for
carrying out these goals.”

- Alfred Chandler (A Professor of Business History at Harvard

Business School)

● “Strategy is a unified, comprehensive, and integrated plan designed to ensure

that the basic objectives of the enterprise are achieved.”

- William Glueck (Author of books such as Business Policy and Strategic

Management.)

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● "Corporate strategy is the pattern of decisions in a company that determines and
reveals its objectives, purposes, or goals, produces the principal policies and
plans for achieving those goals, and defines the range of business the company
is to pursue, the kind of economic and human organization it is or intends to be,
and the nature of the economic and non-economic contribution it intends to make
to its shareholders, employees, customers, and communities."

- Kenneth Andrews (An American academic known for popularizing the

concept of business strategy)

● "Strategic Management is the systematic approach to a major and increasingly

important responsibility of general management to position and relate the firm to
its environment in a way that will assure its continued success and make it
secure from surprises."

- Igor Ansoff (Known as one of the fathers of Strategic Management)

● "Strategic Management is the formulation and implementation of plans and

carrying out of activities relating to the matters, which are of vital pervasive or
continuing importance, to the total organization."

- Sharplin (Author Mcgraw Hill Series In Management)

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What is Strategic Management?

● Strategic management is the art and science of formulating, implementing, and

evaluating cross-functional decisions that enable an organization to achieve its
objectives.
● It involves defining an organization's direction and making decisions on allocating
its resources to pursue this direction, while taking into consideration both internal
and external factors that may impact success.
● The goal of strategic management is to create a sustainable competitive
advantage and ensure long-term success.

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Importance of Strategic Management

Defines direction

It provides a clear direction and focus for the organization, helping to align resources
and efforts towards common goals.

Creates competitive advantage

By analyzing the internal and external environment, strategic management enables

organizations to identify opportunities and threats and make decisions to create a
competitive advantage.

Increases efficiency

By setting clear objectives and allocating resources effectively, strategic management

can help organizations operate more efficiently and effectively.

Enhances decision-making

It provides a systematic and rational approach to decision-making, helping

organizations make informed choices about resource allocation and direction.

Facilitates adaptation

Strategic management helps organizations anticipate and respond to changes in the

external environment, ensuring their ability to adapt and succeed over time.

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Improves performance

By continuously evaluating progress and making necessary adjustments, strategic

management can lead to improved performance and long-term success for the
organization.

Process of Strategic Management

The process of strategic management can be broken down into four main stages:

1. Establishment of Strategic Intent

This stage involves setting the organization's long-term vision, mission, and
goals. It requires a deep understanding of the organization's strengths,
weaknesses, opportunities, and threats. This stage sets the foundation for the
rest of the strategic management process.

2. Formulation of Strategy

In this stage, strategies are developed to achieve the goals set in the previous
stage. This involves analyzing the internal and external environment, choosing

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 the most appropriate course of action, and defining the specific steps needed to
achieve the desired outcomes.

3. Implementation of Strategy

In this stage, the strategy is put into action. This includes allocating resources,
making organizational changes, and communicating the strategy to stakeholders.
Implementation is often the most challenging stage of the strategic management
process, as it requires significant effort from all levels of the organization.

4. Strategic Evaluation & Control

This final stage involves continuously monitoring the organization's performance,

comparing actual results to the desired outcomes, and making any necessary
adjustments to the strategy. Regular reviews and evaluations ensure that the
organization stays on track and is able to adapt to changes in the internal and
external environment.

In summary, the process of strategic management involves setting a clear direction,

developing a plan to achieve it, putting the plan into action, and monitoring progress to
ensure success.

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FORMULATION OF STRATEGY

● Strategy formulation is the process of establishing goals and determining the

proper plan of action to achieve those goals.
● An organization uses strategy formulation to plan for success and make
improvements to workplace strategies as needed.
● Strategy formulation is essential for achieving and measuring the attainability of
goals. After creating strategies, an organization typically educates its employees
so they know the organization's purpose, workplace objectives and goals.
● Formulation ends with a series of goals or objectives and measures for the
organization to pursue.

Importance of Strategy Formulation

Strategy formulation is important because it:

● Provides clarity of purpose and goals for the organization

● Helps create a competitive advantage
● Improves decision making through evaluation of alternatives
● Guides resource allocation for maximum efficiency
● Increases organizational agility through continuous assessment
● Leads to improved organizational performance

Therefore, strategy formulation is a crucial step in the strategic management process

that sets the foundation for successful strategy implementation and achieving the
desired outcomes.

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Levels of Strategy Formulation

There are three levels of strategy formulation in organizations:

Corporate Level Strategy

This is the highest level of strategy formulation, and it involves making decisions about
the overall direction of the organization. It defines the company's portfolio of businesses
and the allocation of resources across them.

Business Level Strategy

This level of strategy formulation focuses on the individual businesses or units within the
organization. It defines how a specific business will compete in its market, the products
or services it will offer, and the target customers it will serve.

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Functional or Operational Level Strategy

This is the lowest level of strategy formulation, and it involves making decisions about
how specific functions or departments within the organization will support the business
level strategy. This includes decisions about production processes, marketing tactics,
and other operational issues.

Each level of strategy formulation is interdependent, and the strategies at each level
must align with and support one another. Effective strategy formulation requires a
comprehensive and integrated approach that considers the organization as a whole, as
well as the specific needs of each business and functional unit.

Process of Formulating a Strategy

1. Situation Analysis

This step involves conducting a thorough analysis of the internal and external
environment. This includes a review of the organization's strengths, weaknesses,
opportunities, and threats (SWOT analysis). Other tools such as a PESTEL
analysis (Political, Economic, Sociocultural, Technological, Environmental, Legal)
and a competitive analysis can also be used to gather information on the external
environment.

2. Formulation of Objectives

Based on the results of the situation analysis, the organization sets specific,
measurable, and attainable objectives. These objectives should align with the
organization's vision and mission and take into account the internal and external
factors identified in the situation analysis.

3. Generation of Alternative Strategies

This step involves generating a range of potential strategies to achieve the

objectives. These strategies may include expanding into new markets,

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 developing new products or services, acquiring other organizations, or making
organizational changes.

4. Evaluation of Alternatives

The next step is to evaluate each alternative strategy based on its potential to
achieve the objectives, its feasibility, and the risks involved. This evaluation
should be based on the data and information gathered in the situation analysis,
as well as any additional research or analysis.

5. Selection of Best Strategy for Implementation

The organization then selects the best strategy based on the evaluation of
alternatives. This decision should be based on a comprehensive and systematic
approach that considers the organization's strengths, weaknesses, opportunities,
and threats, as well as its goals and resources. This final step is focused on
developing a comprehensive plan for implementation.

The strategy formulation process requires collaboration, effective communication, and a

deep understanding of the organization's internal and external environments. It also
requires a systematic approach to evaluating alternatives, making decisions, and
implementing the chosen strategy.

IMPLEMENTATION OF STRATEGY

● Implementation of strategy refers to the process of putting a chosen strategy into

action, including the allocation of resources, development of plans and
processes, and making any necessary changes to ensure success.
● It is the realization of the strategy through coordinated actions and efforts from all
levels of the organization.
● Effective implementation requires a clear understanding of the strategy,
alignment of all elements of the organization, and ongoing monitoring and
adjustment as needed.

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 ● The success of a strategy ultimately depends on its successful implementation,
as even the best strategy will fail if not properly executed.

Importance of Strategy Implementation

Strategy implementation is important because it:

● Ensures the realization of organizational goals

● Improves alignment across the organization
● Increases efficiency through effective resource utilization
● Provides insights for informed decision making
● Increases organizational agility through ongoing monitoring and adjustment
● Leads to improved organizational performance
● Increases employee engagement and motivation

Therefore, effective strategy implementation is critical for the success of an

organization's chosen strategy and achieving its desired outcomes.

Process of Implementing a Strategy

1. Building an organization that puts strategies into action

Before strategic implementation can succeed, organizations need to have

implemented a proper structure. This implies that different parts of the
organization are linked together. Relationships between different positions, roles,
and departments are transparent. A part of this step also requires the formulation
of a proper organizational climate. This assumes the cooperation and
development of personnel. Employees and leaders need to be committed,
determined, and efficient to convert purpose into results.

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2. Supplying resources to strategy-essential activities

Some strategies rely on software or products to effectively translate into the

day-to-day. Organizations should also allocate resources to training and
development for their staff. Strategies rely on the resources being available to
implement new systems.

3. Developing policies which encourage strategy

Policies must go hand in hand with the new strategy as it is being implemented.
Leaders need to provide their teams with specific sets of rules and guidelines.
Everyone knows what behavior is expected of them in light of the new strategy.
This could be as simple as encouraging employees to ask for feedback at the
end of customer service interactions. This policy might be part of an improved
customer-experience strategy.

4. Employing policies and programs that aid continuous improvement

Programs and policies should be implemented as and when the need arises.
This requires agile thinking from team leaders, as well as continuous feedback
and analysis. Communication is crucial to ensuring strategies can be evaluated
and improved.

5. Use reward structures to achieve the best results

Implementation can be significantly aided by setting up a reward system. This

can encourage the right behaviours. Rewards can be implemented in the form of
recognition or benefits within the organization. The positive impact of a new
strategy should also be continuously broadcast to all members of the
organization.

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 6. Periodically reviewing the strategy

At regular intervals, the strategy should be reviewed. This allows leaders to

identify if the implemented strategy remains relevant to the organization. As firms
operate in more dynamic environments, changes may occur at any time. It is
essential to review and change policies that no longer serve a distinct purpose.
Strategies can become misaligned with the brand’s objectives.

EVALUATION OF STRATEGY

● Strategy Evaluation refers to the process of reviewing an organization's strategy

and performance to determine its effectiveness and success in achieving its
goals.
● This process involves assessing the results of the strategy against specific
criteria and making recommendations for improvements or changes to ensure
the strategy remains aligned with the organization's objectives.
● Strategy evaluation helps organizations identify what is working well and what
needs to be improved in their strategy, and provides valuable insights that can
inform future decision making and strategy development.
● The process of strategy evaluation should be continuous and integrated into the
overall strategic management process to ensure that strategies remain relevant
and effective over time.

Importance of Strategy Evaluation

Strategy evaluation is important because it:

● Assesses the effectiveness of the current strategy in achieving desired outcomes

● Provides insights for informed decision making and future strategy development
● Identifies areas for improvement and drives ongoing strategy refinement
● Increases accountability and transparency in the strategic management process
● Promotes continuous improvement and organizational learning

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Therefore, strategy evaluation is a critical aspect of effective strategic management,
helping organizations to continuously improve and remain competitive in a rapidly
changing business environment.

Process of Evaluating a Strategy

The strategy evaluation is carried out in order to determine whether the strategy is
helping the organization achieve its objectives. It compares the actual performance of
the organization with the desired results and provides the necessary insight into the
corrective action that needs to be taken to improve the performance of the organization.
Following are the steps in the process of evaluating strategy:

1. Fixing benchmark of performance

In order to determine the benchmark performance to be set, it is essential to

discover the special requirements for performing the main task. The performance
indicator that best identifies and expresses the special requirements might then
be determined to be used for evaluation.

2. Measurement of Performance

The standard performance is a benchmark with which the actual performance is

to be compared. The reporting and communication system help in measuring the
performance.

3. Analyzing Variance

While measuring the actual performance and comparing it with standard

performance there may be variances which must be analyzed. The strategists
must mention the degree of tolerance limits between which the variance between
actual and standard performance may be accepted.

4. Taking Corrective actions

If the performance is consistently lower than the desired performance, the

strategists must carry out a detailed analysis of the factors responsible for such a

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 performance. Another corrective action is reformulating the strategy, which
requires going back to the process of strategic management.

MINTZBERG’S 5Ps OF STRATEGY

The 5Ps of Strategy is a framework developed

by Henry Mintzberg, a renowned management
theorist, to help organizations better
understand the nature of strategic planning
and management. The 5Ps stand for:

PLAN

A premeditated approach to achieving a

specific goal or set of goals. It involves setting
objectives, determining the resources and
capabilities required, and defining action plans
to achieve the objectives.

PLOY

Specific, tactical moves made by an organization to outmaneuver its competitors, such

as pricing strategies, product differentiation, or marketing campaigns.

PATTERN

A pattern of decisions and actions taken by an organization over time that reflects its
strategy. The pattern can be observed in the allocation of resources, the types of
products and services offered, and the nature of organizational relationships.

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POSITION

The location or place an organization occupies in the market relative to its competitors
is determined by its offerings, target customers, and capabilities.

PERSPECTIVE

The overall way an organization views and approaches its strategic challenges and
opportunities, including its values, culture, and biases.

Mintzberg's 5Ps of Strategy provide a comprehensive framework for understanding the

complex nature of strategy and how it is developed, implemented, and evaluated. The
framework emphasizes that strategy is not just about planning and decision making, but
also about the pattern of behavior and decisions that an organization exhibits over time,
its position in the market, and the perspectives and biases that influence its approach to
strategic challenges.

MINTZBERG’S 10 SCHOOLS OF STRATEGIC THOUGHT

● Mintzberg's 10 Schools of Strategic Thought is a framework that categorizes

different approaches to strategy formulation and implementation.
● Each school emphasizes different factors in strategy formulation and
implementation, such as top-down planning, individual intuition, power struggles,
cultural norms, and the fit between organizational elements.
● The 10 schools provide a comprehensive overview of the different perspectives
on strategy and help organizations understand their own approach to strategy
formulation and implementation.
● By understanding the different schools, organizations can better appreciate the
complexity of strategy and adopt a more nuanced and holistic approach to
strategy formulation and implementation.

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THE DESIGN SCHOOL

● The Design School emphasizes the importance of planning and consciously

designing an organization's strategy, with a focus on finding the optimal solution
to a given problem.
● In this school, strategy is seen as a deliberate, conscious process of
problem-solving and decision-making, with a strong emphasis on finding the best
solution to a given problem.
● It is based on the idea that organizations can be managed like machines, and
that strategy can be formulated through a top-down, rational process of analysis
and decision-making.
● The Design School is rooted in the classical management tradition and is often
associated with traditional strategic planning and the use of formal planning tools,
such as SWOT analysis and strategic planning models.
● In practice, the Design School provides a useful starting point for organizations to
understand the importance of planning and deliberate decision-making in

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 strategy formation. However, it should be combined with other schools of thought
to provide a more comprehensive and flexible approach to strategy.

Shortcomings of The Design School

1. Strategies can only be implemented once they are fully formulated

2. Formulated strategies are inflexible to change; both external changes in the
environment and internal changes in the organization cannot be taken into
account until a new round of strategy formulation begins
3. Separation of strategy formulation from strategy execution lessens the ability to
learn from one’s own mistakes

Example of The Design School

Microsoft’s share has been falling in the recent past. The reason
can be attributed to a lack of long term contracts with OEM
(Original Equipment Manufacturers) and a good design team,
which can influence customers to a large extent. In order to
bridge this gap, Microsoft entered into a strategic alliance with Nokia, thereby acquiring
the capability internally.

THE PLANNING SCHOOL

● The Planning School emphasizes the importance of formal planning processes,

such as strategic planning and budgeting, in strategy formulation.
● In this school, strategy is seen as a formal, top-down process that starts with a
clear definition of an organization's objectives and ends with a detailed plan for
achieving those objectives.
● The Planning School is rooted in the classical management tradition and is often
associated with the use of formal planning tools, such as SWOT analysis,
strategic planning models, and budgeting.
● In practice, the Planning School provides a useful starting point for organizations
to understand the importance of setting clear objectives and planning how to
achieve them.

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 ● In practice, the Planning School should be combined with other schools of
thought to provide a more comprehensive and flexible approach to strategy
formulation and implementation.
● The use of formal planning processes should be combined with a more adaptive
and flexible approach to strategy, which takes into account the changing
environment and the role of intuition, experimentation, and learning in strategy
formulation and implementation.

Shortcomings of The Planning School

1. Criticality arises when something happens out of plan - when plans are made
years in advance and changes take place either in the industry or in organization,
the process goes for a toss.
2. Proper prediction is essential when using this school of thought.

Example of The Planning School

In the last quarter, the results of INFOSYS were slightly on

the lower side of the market. Now, in the process of
improving these numbers, it needs to analyze the following:

● Internal factors: Attrition rate , Number of new

clients added
● External Factors: How European markets are
performing, General GDP outlook, etc.

THE POSITIONING SCHOOL

● The Positioning School emphasizes the importance of a clear understanding of

an organization's external environment, the role of perception and image, and the
need to create a distinctive and sustainable position in the market.
● In this school, strategy is seen as a process of identifying a unique and
sustainable position in the market and developing an organization's capabilities
and offerings to support that position.

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 ● The Positioning School is rooted in the resource-based view of the firm, which
argues that an organization's resources and capabilities are the key drivers of its
success in the market.
● In practice, the Positioning School provides a useful starting point for
organizations to understand the importance of creating a clear and distinctive
position in the market and developing the resources and capabilities to support
that position.
● In practice, the Positioning School should be combined with other schools of
thought to provide a more comprehensive and flexible approach to strategy
formulation and implementation.
● The focus on creating a clear and distinctive position in the market should be
combined with a more adaptive and flexible approach to strategy that takes into
account the changing environment, the role of intuition, experimentation, and
learning, and the impact of external factors on strategy.

Shortcomings of The Positioning School

1. This school of strategy assumes that the market will remain as it is, and it does
not take into consideration new entrants or any change in business environment.
2. Narrow focus on specific strategic variables such as market share can bias
strategies into particular directions without taking into account the bigger picture.
3. Relatively static view of strategy that does not take into account dynamic aspects
of transformation.

Example of The Positioning School

Toyota is perceived as an affordable car

manufacturer all around the world. When
Toyota came out with Lexus, its luxury Sedan,
it felt that its perception as an affordable car
manufacturer would hurt the sales of Lexus.
Henceforth, it decided to hive off Lexus as its
sub brand and launch it as a different brand.

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THE ENTREPRENEURIAL SCHOOL

● The Entrepreneurial School emphasizes the importance of innovation,

experimentation, and risk-taking in strategy formulation and implementation.
● In this school, strategy is seen as a process of continuous innovation and
adaptation to changing circumstances, with a focus on identifying and exploiting
new opportunities.
● The Entrepreneurial School is rooted in the view that strategy is not a formal,
top-down process but rather an emergent, bottom-up process, shaped by the
actions and initiatives of entrepreneurs and other actors within an organization.
● In practice, the Entrepreneurial School provides a useful starting point for
organizations to understand the importance of continuous innovation and
adaptation in strategy formulation and implementation. However, it has been
criticized for its tendency to overlook the importance of formal planning
processes, the role of senior management in strategy formulation, and the need
for a clear understanding of an organization's external environment and
resources.
● In practice, the Entrepreneurial School should be combined with other schools of
thought to provide a more comprehensive and flexible approach to strategy
formulation and implementation.
● The focus on innovation and experimentation should be combined with a more
structured and systematic approach to strategy, which takes into account the
importance of formal planning processes, the role of senior management, and
the need for a clear understanding of an organization's external environment and
resources.

Shortcomings of The Entrepreneurial School

1. The problem with this management school of thought is only one question: to find
a mature, experienced, talented and honest leader
2. Leaders can go wrong

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Example of The Entrepreneurial School

GE is a very good example in this context which claims to have

produced more CEOs than Harvard.

THE COGNITIVE SCHOOL

● The Cognitive School of Strategic Thought is a perspective that focuses on the

mental processes of decision-makers and how they influence the strategy
formulation and execution process.
● This school emphasizes the importance of understanding the psychological and
cognitive biases that can impact the decision-making process.
● According to the Cognitive School, strategy formulation is not a rational and
objective process, but rather subjective and influenced by personal biases and
perceptions.
● This school argues that decision-makers are influenced by their past
experiences, emotions, and cognitive biases, which can impact their
decision-making and lead to strategic missteps.
● The Cognitive School also highlights the importance of effective communication
and collaboration among decision-makers to ensure that the strategy is based on
accurate information and a shared understanding of the organization's goals and
objectives.
● In summary, the Cognitive School of Strategic Thought emphasizes the
importance of understanding and managing the psychological and cognitive
factors that influence strategy formulation and execution. Organizations can use
this perspective to improve their decision-making and to increase the chances of
successful strategy implementation.

Shortcomings of The Cognitive School

1. The problem with the cognitive model is that it is not practical beyond a certain
point

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 2. A top company cannot rely on surveys and marketing research reports alone to
find new ideas or to make connections with their customers
3. Every day, a new product get introduced in the market and keeping a tab on each
movement in market is not possible
4. Cognitive reasoning cannot be done at a mass scale.

Example of The Cognitive School

LinkedIn has learned over time that there is a need for social
networking at the professional level. They could foresee a need
for such a network and came up with the site. Now it’s a huge
success.

THE LEARNING SCHOOL

● The Learning School of Strategic Thought is an approach to strategy formulation

and implementation that views organizations as complex adaptive systems that
learn and evolve over time.
● This school emphasizes the importance of organizational learning and the
development of new knowledge and capabilities in shaping strategy.
● According to the Learning School, strategy is not a one-time event, but a
continuous process of learning and adaptation.
● Organizations must be able to learn from their experiences, both successes and
failures, in order to continuously improve and refine their strategies. This requires
a culture of experimentation, continuous improvement, and an ability to learn
from both internal and external sources of information.
● The Learning School also highlights the importance of building a dynamic and
adaptive organizational structure that can support continuous learning and
adaptation. This includes creating processes and systems that allow for rapid
experimentation and feedback, and developing a culture that values continuous
improvement and learning.

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Shortcomings of The Learning School

1. This school of strategy assumes that the market will remain as it is, and does not
take into consideration new entrants or any change in the business environment.
2. Narrow focus on specific strategic variables such as market share can bias
strategies into particular directions without taking into account the bigger picture
3. Relatively static view of strategy that does not take into account dynamic aspects
of transformation

Example of The Learning School

Aravind Eye Care Hospital has the objective of providing

affordable eye care to poor people. The skill was
obtained when a large number of operations were
performed, which helped the organization in identifying
the bottlenecks and removing them, which was possible
because of continuous learning.

THE POWER SCHOOL

● The Power School of Strategic Thought is a perspective that emphasizes the role
of power and politics in the strategy formulation and implementation process.
● According to this school, organizations are political systems in which different
groups and individuals compete for power, influence, and resources.
● The Power School argues that the allocation of resources, decision-making
authority, and the distribution of power within organizations are the key
determinants of strategy.
● This perspective highlights the importance of understanding the political
dynamics of the organization, including the distribution of power among different
groups, the influence of key stakeholders, and the relationships between different
decision-makers.
● The Power School also recognizes that political power can be used to advance
personal interests or agendas, and that it is essential to understand and manage

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 power relationships in order to ensure that strategy aligns with the organization's
goals and objectives.

Types of Power

● Micro power sees strategy making as the interplay of stakeholders through

persuasion, bargaining, and sometimes direct confrontation, in the form of
political games, among interests and shifting coalitions
● Macro power sees the organization as promoting its own welfare by controlling
or cooperating with other organizations through the use of strategic maneuvering
as well as collective strategies in various kinds of networks and alliances

Shortcomings of The Power School

1. The problem with the power school happens when the powerful people stop
listening to feedback or stop implementing measures of improvement, and only
focus on minor improvements.
2. At such times, the power needs to change hands so that the company keeps
moving forward.

Example of The Power School

Vedanta used its relationships with higher ups in

politics to get the rights for mining. Even though
it got into trouble later on, the political relations
worked out.

THE CULTURAL SCHOOL

● The Cultural School of Strategic Thought is a perspective that focuses on the role
of culture in shaping strategy and organizational behavior.
● According to this school, culture is a powerful force that influences the values,
beliefs, and behaviors of individuals within the organization, and that these

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 cultural elements have a significant impact on strategy formulation and
implementation.
● The Cultural School argues that organizations have unique cultures, shaped by
their history, values, beliefs, and traditions, and that these cultural elements are
critical to understanding and managing strategy.
● This perspective emphasizes the importance of aligning the organization's culture
with its goals and objectives, and recognizes that culture can be a barrier to
change and a source of resistance to new strategic initiatives.
● The Cultural School also highlights the importance of developing a strong and
positive organizational culture that supports the goals and objectives of the
organization.
● This requires leaders to understand and manage the cultural elements that
influence the behavior of individuals within the organization, and to create a
culture that supports collaboration, innovation, and continuous learning.

Shortcomings of The Cultural School

1. During any changes taking place in an organization, people resist it because they
get used to a typical culture.
2. Politics in organizations plays an important role.
3. Culture and especially varying ideologies do not encourage strategic change.
4. Potentially the cultural school focuses too much on internal capabilities while
disregarding external conditions.

Example of The Cultural School

Some of the strategies are based on the social forces of

the culture. A survey was conducted to know the reason
why the attrition rate of women aged 25 years was lower at
Infosys, the reason found to be the campuses being big
and well maintained in such a way that they make them
forget their family problems once they are inside the
campus, i.e., they are positively influenced by the campus
culture.

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THE ENVIRONMENTAL SCHOOL

● The Environmental School of Strategic Thought is a perspective that focuses on

the impact of the external environment on strategy formulation and
implementation.
● According to this school, organizations are constantly shaped and influenced by
their external environment, including factors such as economic conditions,
technology, competition, and regulatory changes.
● The Environmental School argues that organizations must be proactive in their
approach to strategy, continuously monitoring and adapting to changes in the
external environment.
● This perspective emphasizes the importance of understanding the forces that
drive change in the external environment, and recognizing the opportunities and
threats that these changes present to the organization.
● The Environmental School also recognizes that organizations cannot control the
external environment, but must be flexible and adaptable in their response to
change. This requires organizations to have the capability to sense and respond
to changes in the external environment, and to be agile in their approach to
strategy formulation and implementation.

Shortcomings of The Environmental School

1. It depends on the environment which changes constantly

2. It is difficult for organizations to keep changing their strategies constantly based
on environmental conditions
3. Becomes challenging to explain why companies in similar environments perform
very differently as a result of their unique competitive positioning

Examples of The Environmental School

● When Toyota felt that there were

issues with the cars it manufactured
and that the environment was turning
hostile, it recalled the cars in huge

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 numbers, even though the environment was turning against them.
● Another example: In the paper industry, wood plays a major role. If wood is
scarce, the strategy formulation will have to be done on the basis of wherever
wood is available.

THE CONFIGURATION SCHOOL

● The Configuration School of Strategic Thought is a perspective that focuses on

the role of structure and design in shaping strategy and organizational behavior.
● According to this school, organizations are complex systems that are shaped by
their structures, processes, and designs, and that these elements have a
significant impact on strategy formulation and implementation.
● The Configuration School argues that organizations must be designed and
structured to support their strategies, and that the fit between structure and
strategy is critical to success.
● This perspective emphasizes the importance of aligning the organization's
structure, processes, and designs with its goals and objectives, and recognizes
that structure can be a barrier to change and a source of resistance to new
strategic initiatives.
● The Configuration School also highlights the importance of continuous
improvement and innovation in the design and structure of organizations. This
requires leaders to understand the impact of structure and design on behavior,
and to continuously evolve and improve the organization's structure to support its
goals and objectives.

Shortcomings of The Configuration School

4. This school of thought tries to attain stability via various ways, and keeps
transforming as long as needed
5. The configuration school is criticized as being too rigid in its distinction between
phases of stability and transition phases
6. Lack of explanation of how firms manage transition

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Example of The Configuration School

Google is one of the market leaders in today’s hyper-competitive environment. It adapts

itself to the environment. For example, in response to Twitter, it came up with Buzz. In
response to Facebook, it came up with Google Plus. It also entered the operating
system industry. It is also in the business of mailing services and, last but not least, data
maintenance. In data collection and maintenance, it is the leader. It is posing stiff
competition to all other service providers in the mailing services market.

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 MODULE 2

GLOBALIZATION IN A VUCA ENVIRONMENT

GLOBALIZATION

● According to WHO, globalization can be defined as: “the increased

interconnectedness and interdependence of peoples and countries. It is generally
understood to include two interrelated elements: the opening of international
borders to increasingly fast flows of goods, services, finance, people, and ideas;

30
 and the changes in institutions and policies at national and international levels
that facilitate or promote such flows.”

● It refers to the increasing interconnectedness and interdependence of the world's

economies, societies, and cultures due to advancements in communication,
transportation, and technology. It results in the exchange of goods, ideas, and
culture across international borders.

● The term globalization can also refer to the increasing influence of Western
ideas, institutions, and cultures on the rest of the world, or to the growing
interdependence of countries and the impact of this interdependence on local
cultures and economies.

● Globalization is a social, cultural, political, and legal phenomenon.

○ Socially, it leads to greater interaction among various populations.
○ Culturally, globalization represents the exchange of ideas, values, and
artistic expression among cultures.
○ Globalization also represents a trend toward the development of a single
world culture.
○ Politically, globalization has shifted attention to intergovernmental
organizations like the United Nations (UN) and the World Trade
Organization (WTO).
○ Legally, globalization has altered how international law is created and
enforced

Types of Globalization

ECONOMIC GLOBALIZATION

Economic globalization refers to the integration of national economies through trade,

investment, and the flow of goods, services, and capital. It involves the growth of

31
cross-border trade and investment, and the increasing interdependence of economies
around the world.

POLITICAL GLOBALIZATION

Political globalization refers to the increasing influence of international organizations

and institutions on national governments and the growing importance of international
relations in shaping global political events. It encompasses the creation of international
laws, treaties, and norms that govern the relationships between countries.

CULTURAL GLOBALIZATION

Cultural globalization refers to the spread of cultural values, beliefs, and practices
around the world. It encompasses the exchange of ideas, music, fashion, and cuisine,
as well as the growing influence of global media and communications technologies.

TECHNOLOGICAL GLOBALIZATION

Technological globalization refers to the spread of technology and the integration of

technological systems around the world. It encompasses the development of new
technologies and the growth of digital networks, which have transformed the way we
communicate, work, and live.

SOCIAL GLOBALIZATION

Social globalization refers to the spread of social and cultural values, norms, and
institutions across borders. It encompasses the growth of global civil society,
international migration, and the exchange of ideas and information through social media
and other online networks.

Each of these types of globalization is interlinked and interacts with the others, shaping
the dynamics of global change and the future of our world. Understanding the different

32
dimensions of globalization is important for understanding its impact and implications
and for shaping policies that respond to its challenges and opportunities.

Drivers of Globalization / Factors influencing rapid Globalization

1. Technological advancements

Technological advancements, such as the internet, have enabled businesses and

individuals to communicate, transact, and exchange goods and services across
borders with greater ease and efficiency.

2. Increased trade liberalization

The reduction of trade barriers and the signing of free trade agreements have led
to increased trade and investment flows across borders. This has facilitated the
integration of national economies and led to greater economic interdependence.

3. Transportation and infrastructure

Improved transportation and infrastructure, including the expansion of air travel

and the development of new shipping routes, have enabled businesses to move
goods and services more efficiently and cost-effectively across borders.

4. Deregulation and privatization

The deregulation and privatization of markets, particularly in the developing

world, have created new investment opportunities and facilitated the growth of
cross-border trade and investment.

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 5. Growing economic power of emerging markets

The growing economic power of emerging markets, such as China, India and
Brazil, has led to increased economic integration and the emergence of new
global economic powers.

6. Globalization of financial markets

The globalization of financial markets has enabled capital to flow freely across
borders, facilitating cross-border investment and the integration of global financial
systems.

7. Multinational corporations

Multinational corporations have played a significant role in driving globalization

by expanding their operations across borders and investing in overseas markets.

8. Changes in consumer preferences

Changes in consumer preferences, such as the increasing demand for diverse

and exotic products, have led to the growth of cross-border trade and investment.

Each of these drivers of globalization has contributed to the increasing

interconnectedness of the world, and the growing integration of national economies.
Understanding the drivers of globalization is important for understanding its impact and
implications, and for shaping policies that respond to its challenges and opportunities.

Effects of Globalization

The effects of globalization can be felt locally and globally, touching the lives of
individuals as well as the broader society in the following ways:

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 1. Individuals

Here, a variety of international influences affect ordinary people. Globalization

affects their access to goods, the prices they pay and their ability to travel to or
even move to other countries.

2. Communities

This level encompasses the impact of globalization on local or regional

organizations, businesses, and economies. It affects who lives in communities,
where they work, who they work for, their ability to move out of their community
and into one in another country, among other things. Globalization also changes
the way local cultures develop within communities.

3. Institutions

Multinational corporations, national governments, and other organizations such

as colleges and universities are all affected by their country's approach to and
acceptance of globalization. Globalization affects the ability of companies to grow
and expand, a university's ability to diversify and grow its student body, and a
government's ability to pursue specific economic policies.

While the effects of globalization can be observed, analyzing the net impact is more
complex. Proponents often see specific results as positive, and critics of globalization
view the same results as negative. A relationship that benefits one entity may damage
another, and whether globalization benefits the world at large remains a point of
contention.

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Advantages of Globalization

1. Increased trade and economic growth

Globalization has led to increased trade and investment flows, which have
boosted economic growth and reduced poverty levels in many countries. It has
opened up new markets for businesses and created opportunities for
cross-border trade and investment.

2. Spread of technology and ideas

Globalization has facilitated the spread of technology and information, promoting

innovation and improving access to knowledge and skills. This has helped to
raise living standards and improve health outcomes in many parts of the world.

3. Cultural exchange

Globalization has led to greater cultural exchange and diversity, promoting

understanding and tolerance between different communities and countries. It has
also helped to preserve and promote cultural heritage, by making it more widely
available and accessible.

4. Improved access to goods and services

Globalization has made it possible for people to access a wider range of goods
and services, increasing choice and reducing costs. It has helped to reduce the
costs of goods and services and improve quality through increased competition.

5. Increased competition

Globalization has increased competition in many industries, leading to increased

efficiency and lower prices for consumers. It has also encouraged firms to
improve the quality of their products and services in order to stay competitive.

36
 6. Creation of newer job opportunities

Globalization has created new job opportunities in industries that are expanding
due to increased trade and investment. It has also led to the transfer of skills and
technology, which has helped improve productivity and create better jobs in many
parts of the world.

Disadvantages of Globalization

1. Job loss and wage stagnation

Globalization has led to the outsourcing of jobs to countries with lower labor
costs, resulting in job losses and wage stagnation in developed countries. This
has contributed to increased income inequality and a decline in the standard of
living for many workers.

2. Environmental degradation

Globalization has led to increased production and consumption, which has put
pressure on the world's natural resources and led to environmental degradation.
It has also made it more difficult to regulate environmental standards and enforce
environmental protection laws.

3. Cultural homogenization

Globalization has led to the spread of a single dominant culture, often at the
expense of local and regional cultures. This has resulted in the loss of cultural
diversity and heritage, and has diminished the ability of communities to preserve
their cultural traditions.

4. Widening income gap

Globalization has increased income inequality, both within and between

countries. It has favored the wealthy and powerful, while leaving behind the poor

37
 and marginalized. This has contributed to growing economic and political
instability, and has created a sense of frustration and disillusionment among
many people.

5. Loss of national sovereignty

Globalization has led to a loss of national sovereignty in many areas, as

decisions about trade, finance, and economic policy are increasingly made by
international organizations and supranational bodies. This has limited the ability
of governments to respond to the needs and demands of their citizens, and has
contributed to a growing sense of powerlessness and disengagement.

6. Exploitation of workers

Globalization has led to the exploitation of workers in many parts of the world,
particularly in developing countries. Workers in these countries are often paid low
wages, work long hours, and are subjected to hazardous working conditions, with
little or no legal protection.

Examples of Globalization

1. Automotive Industry

The automotive industry has been heavily impacted by globalization, with

multinational corporations such as Toyota, Volkswagen, and General Motors
operating production facilities in multiple countries. This has allowed companies
to take advantage of lower-cost labor and access new markets.

2. Information Technology (IT) Industry

The information technology industry has been at the forefront of globalization,

with multinational corporations such as Apple, Microsoft, and Google operating
research and development facilities and sales offices in multiple countries. This
has allowed companies to access new talent, customers, and markets.

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 3. Retail Industry

The retail industry has been heavily impacted by globalization, with multinational
corporations such as Walmart, Amazon, and Alibaba operating retail operations
in multiple countries. This has allowed companies to access new markets and
take advantage of lower-cost sourcing opportunities.

4. Pharmaceuticals Industry

The pharmaceuticals industry has been heavily impacted by globalization, with

multinational corporations such as Pfizer, Novartis, and Merck operating research
and development facilities, production plants, and sales offices in multiple
countries. This has allowed companies to access new talent, customers, and
markets, and to take advantage of lower-cost production opportunities.

5. Energy Industry

The energy industry has been heavily impacted by globalization, with

multinational corporations such as ExxonMobil, BP, and Chevron operating
production and distribution facilities in multiple countries. This has allowed
companies to access new markets, resources, and technologies, and to take
advantage of lower-cost production opportunities.

These are just a few examples of how globalization has impacted different industries.
Each industry has its own unique set of challenges and opportunities that arise from the
forces of globalization. Understanding the implications of globalization for each industry
is important for shaping policies that respond to its challenges and opportunities, and for
guiding the development of new technologies, products, and business models.

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VUCA Environment

History of the term “VUCA”

● VUCA (Volatility, Uncertainty, Complexity, and Ambiguity) is a term that originated

in the military and was first used to describe the changing nature of conflict and
decision-making in the post-cold war era. The term was introduced in the 1990s
by the United States Army War College and became popular in the early 21st
century.
● The VUCA concept was created to reflect the complexities and challenges facing
military leaders in a rapidly changing global environment. It highlights the need
for leaders to be flexible, agile, and able to navigate rapidly changing
circumstances, often in unpredictable and complex environments.
● In the years since its introduction, the VUCA concept has been adopted by
business and organizational management, where it is used to describe the
challenges faced by organizations in an increasingly complex and rapidly
changing global environment. The concept has been popularized by business
leaders and management consultants, who argue that the traditional approaches
to decision-making and management are no longer sufficient in a VUCA world.

Meaning of the term “VUCA”

● VUCA is an acronym that stands for Volatility, Uncertainty, Complexity, and

Ambiguity. This term is used to describe the rapidly changing and unpredictable
global business environment that organizations and individuals face today.
● The term is used to describe the rapidly changing and unpredictable world,
characterized by a high degree of volatility (quick and dramatic changes),
uncertainty (lack of predictability and definiteness), complexity
(interconnectedness of multiple factors) and ambiguity (uncertainty of meaning or
multiple interpretations).
● The VUCA environment can have significant impacts on organizations and
individuals, including increased risk, decreased predictability, and the need for
greater agility and adaptability. Navigating this environment requires a
combination of strong leadership, effective decision-making, and a willingness to
embrace change and uncertainty.

40
 ● Understanding VUCA and its implications is becoming increasingly important for
success in today's rapidly changing world.

Volatility (V)

Volatility in the context of VUCA refers to the rapid and unpredictable changes in a
situation, environment, or system. This can refer to fluctuations in market conditions,
economic trends, political stability, social norms, etc. In a VUCA world, events and
circumstances can change quickly and dramatically, making it difficult to anticipate and
respond to them. Volatility creates an environment of instability, and unpredictability,
which can have far-reaching implications for businesses, organizations and individuals.

For example, in the financial world, "volatility" can refer to rapid fluctuations in stock
prices, changes in exchange rates, or sudden shifts in investment strategies. These
fluctuations can happen quickly and unpredictably, making it difficult for investors to
keep up and respond appropriately. In the business world, volatility can be seen in the
fast pace of technological innovation and the disruptive impact of new technologies.
Companies must be prepared to adapt and evolve quickly in order to stay relevant and
competitive.

41
In a VUCA world, volatility also affects individuals and communities. For example, the
global COVID-19 pandemic has resulted in a rapidly changing and unpredictable
environment, with governments and individuals having to respond quickly to new
information and developments. Political instability and social upheaval can also create a
volatile environment, with sudden changes in leadership or social norms having
far-reaching impacts.

Uncertainty (U)

Uncertainty in the context of VUCA refers to the lack of predictability and definiteness in
a situation, environment or system. This uncertainty can result from a variety of factors,
including fluctuations in market conditions, political instability, technological innovation,
and changing social norms. In a VUCA world, it can be difficult to anticipate what will
happen next and to make informed decisions in the face of conflicting information or
multiple possible outcomes.

For example, in the business world, uncertainty can be seen in the rapid pace of
technological change, with new innovations and disruptive technologies emerging all the
time. Companies must navigate this uncertainty in order to stay competitive and
relevant, often having to make decisions with limited information and a high degree of
risk. In the political world, uncertainty can result from changes in leadership, shifting
political ideologies, or unexpected events such as natural disasters or terrorist attacks.

In the global economy, uncertainty can also result from geopolitical tensions, changes in
trade policies, and fluctuations in currency exchange rates. For example, the ongoing
trade tensions between the US and China have created uncertainty for businesses and
investors, as it is unclear what the long-term consequences will be and how they will
affect the global economy.

Complexity (C)

Complexity in the context of VUCA refers to the interconnectedness of multiple factors

and systems, making it difficult to understand and predict the behavior of a situation,
environment, or system. This complexity can result from a variety of factors, including
technological innovation, globalization, and the integration of diverse communities and

42
cultures. In a VUCA world, it can be challenging to identify cause-and-effect
relationships and to understand the interplay of multiple factors that contribute to a
particular outcome.

For example, in the business world, complexity can be seen in the interconnectedness
of global supply chains and the need for companies to navigate complex regulations
and standards in multiple countries. Companies must navigate this complexity in order
to remain competitive and successful, often requiring specialized knowledge and
expertise.

In the global economy, complexity can result from the interconnectedness of different
financial markets and the impact of events in one market on others. For example, the
2008 financial crisis demonstrated the complexity of the global financial system and how
events in one market can have far-reaching consequences for the entire world.

In the political world, complexity can result from the interaction of different political
ideologies, interest groups, and global power dynamics. For example, the ongoing
conflict in the Middle East highlights the complexity of the region, with multiple political,
religious, and ethnic factions vying for influence and power.

Ambiguity (A)

Ambiguity in the context of VUCA refers to the existence of multiple and often conflicting
interpretations of a situation, environment, or system. This ambiguity can result from a
lack of clarity or information, conflicting viewpoints, or multiple possible outcomes. In a
VUCA world, it can be difficult to determine the correct course of action and to make
informed decisions in the face of conflicting information or multiple possible outcomes.

For example, in the business world, ambiguity can be seen in the rapidly changing and
unpredictable nature of market trends and consumer behavior. Companies must
navigate this ambiguity in order to stay competitive and relevant, often having to make
decisions with limited information and a high degree of risk.

In the political world, ambiguity can result from conflicting interests, shifting political
ideologies, and the interplay of different power dynamics. For example, the ongoing
conflict in Syria highlights the ambiguity of the situation, with multiple political and
military factions vying for power and control, and multiple international interests at play.

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In the global economy, ambiguity can result from fluctuations in currency exchange
rates, changes in trade policies, and geopolitical tensions. For example, the ongoing
trade tensions between the US and China have created ambiguity for businesses and
investors, as it is unclear what the long-term consequences will be and how it will affect
the global economy.

These elements present the context in which organizations view their current and future
states. They present boundaries for planning and policy management. They come
together in ways that either confound decisions or sharpen the capacity to look ahead,
plan ahead, and move ahead. VUCA sets the stage for managing and leading.

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Importance of VUCA

VUCA is important because it reflects the rapidly changing, complex, and uncertain
business environment organizations face today. In a VUCA world, traditional
management approaches may no longer be effective, and organizations must be able to
respond quickly to changing circumstances. The term VUCA is important for the
following reasons:

45
 ● Prepares organizations for unexpected events and challenges
● Promotes innovation and adaptability
● Supports decision-making in complex and uncertain situations
● Encourages continuous learning and development
● Helps organizations remain competitive in a rapidly evolving marketplace
● Develops a culture of resilience and agility
● Enhances organizational flexibility and responsiveness to change.

Skills for Leading through VUCA

Adaptability

The ability to quickly adjust to changing circumstances and pivot when necessary. This
requires leaders to be flexible, open-minded, and willing to try new approaches.

Strategic agility

The ability to think critically and strategically, and make quick, informed decisions in
complex and rapidly changing environments. This requires leaders to have strong
problem-solving skills and the ability to synthesize information from multiple sources.

Emotional intelligence

The ability to manage one's own emotions and those of others, and to build strong
relationships with team members and stakeholders. This requires leaders to be
self-aware, empathetic, and able to communicate effectively.

Communication skills

The ability to articulate a clear vision, goals, and expectations, and provide guidance
and direction to team members. This requires leaders to be articulate, persuasive, and
able to connect with others.

46
Cultural competence

The ability to understand and appreciate different perspectives, backgrounds, and

cultures, and to work effectively with a diverse range of individuals. This requires
leaders to be culturally sensitive, inclusive, and open-minded.

Resilience

The ability to bounce back from setbacks and failures, and maintain a positive attitude
even in the face of challenges. This requires leaders to have a growth mindset, a strong
sense of purpose, and the ability to maintain perspective.

Creativity

The ability to think creatively and find new solutions to complex problems. This requires
leaders to have a curious, innovative mindset, and the ability to challenge conventional
thinking.

Ethical decision-making

The ability to make decisions that are not only effective but also morally and ethically
sound. This requires leaders to have strong values, principles, and a commitment to
doing the right thing.

Developing these skills requires a combination of training, practice, and experience.

Effective leaders must continually work to improve their skills and adapt to new
challenges as they arise. By building these skills, leaders can effectively lead their
organizations through VUCA conditions and drive positive outcomes for their teams and
stakeholders.

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Impact of VUCA

On Individuals

For individuals, VUCA sows confusion and fear, leading to feelings of insecurity, loss of
motivation, decline of creativity, and erosion of trust. We feel powerless when we can’t
understand a situation, know how to influence it, or predict the future. It’s a natural
reaction - our brains are hard-wired to try to predict the future.

On Organizations

For organizations, VUCA can paralyze decision-making and lead to short-term thinking.
Conventional management practices that are based on stability, quantifiable risks, and a
“best practices” environment can’t keep up, and traditional decision-making frameworks
are no longer adequate. Instead, as described by McKinsey & Company, agility needs
to be the dominant organizational paradigm

On Boards

For boards, VUCA means that staying inside the narrow confines of compliance,
oversight, and traditional approaches to good governance just won’t do. VUCA
demands that directors view the organization differently - not as a machine with a
top-down hierarchy and a rigid bureaucracy, but as a living organism without traditional
"boxes and lines."

Dealing with / Managing in a VUCA World

Managing in a VUCA (Volatility, Uncertainty, Complexity, and Ambiguity) world requires

a strategic and proactive approach to navigate these challenging conditions. Here is a
more detailed explanation of the key principles for managing in a VUCA world:

48
Countering Volatility with Vision

Volatility refers to the rapid pace of change and unpredictability of events. To manage
volatility, leaders must have a clear and long-term vision for their organization. This
requires an understanding of the forces that are driving change and the ability to
anticipate future trends and developments. Leaders must also be proactive in
developing contingency plans and strategies to respond to unexpected events. Thus the
following actions must be taken:

1. Accept and embrace change as a constant, unpredictable feature of your

working environment. Don't resist it.
2. Create a strong, compelling statement of team objectives and values, and
develop a clear, shared vision of the future. Make sure that you set your team
members flexible goals that you can amend when necessary. This allows them to
navigate unsettled, unfamiliar situations, and react quickly to changes.

Meeting Uncertainty with Understanding

Uncertainty refers to the lack of predictability and the unknown in decision-making. To

manage uncertainty, leaders must develop a deep understanding of their industry,
market, and customers. This requires continuous learning and a willingness to
experiment and take calculated risks. Leaders must also seek out diverse perspectives
and collaborate with others to make informed decisions in the face of uncertainty. Thus
the following actions must be taken:

1. Pause to listen and look around. This can help you understand and develop new
ways of thinking and acting in response to VUCA's elements.
2. Make investing in, analyzing and interpreting business and competitive
intelligence a priority, so that you don't fall behind. Stay up to date with industry
news, and listen carefully to your customers to find out what they want.
3. Review and evaluate your performance. Consider what you did well, what came
as a surprise, and what you could do differently next time.
4. Simulate and experiment with situations, so that you can explore how they might
play out, and how you might react to them in the future. Aim to anticipate
possible future threats and devise likely responses. Gaming, scenario

49
 planning, crisis planning, and role playing are useful tools for generating
foresight and preparing your responses.

Reacting to Complexity with Clarity

Complexity refers to the interconnectedness and interdependence of systems and

processes. To manage complexity, leaders must simplify their operations, processes,
and decision-making. This requires breaking down complex information into
manageable chunks and using data-driven decision-making to understand the
relationships and interconnections between different factors. Leaders must also foster a
culture of transparency and communication to ensure that all stakeholders understand
the decisions and processes involved. Thus the following actions must be taken:

1. Communicate clearly with your people. In complex situations, clearly

expressed communications help them to understand your team's or
organization's direction.
2. Develop teams and promote collaboration. VUCA situations are often too
complicated for one person to handle. So, build teams that can work effectively
in a fast-paced, unpredictable environment.

Fighting Ambiguity with Agility

Ambiguity refers to the lack of clear definition or resolution in decision-making. To

manage ambiguity, leaders must be agile and able to quickly adapt to new
circumstances. This requires being flexible, open-minded, and willing to pivot when
necessary. Leaders must also foster a culture of innovation and creativity, encouraging
employees to identify and pursue new opportunities in the face of ambiguity. Thus the
following actions must be taken:

1. Promote flexibility, adaptability, and agility. Plan ahead, but build in contingency
time and be prepared to alter your plans as events unfold.
2. Hire, develop and promote people who thrive in VUCA environments. These
people are likely collaborative, comfortable with ambiguity and change, and have
complex thinking skills.

50
3. Encourage your people to think and work outside of their usual functional areas,
to increase their knowledge and experience. Job rotation and cross training can
be excellent ways to improve team agility.
4. Lead your team members but don't dictate to or control them. Develop a
collaborative environment, and work hard to build consensus. Encourage
debate, dissent and participation from everyone.
5. Embrace an "ideas culture." Kevin Roberts, of advertising agency Saatchi and
Saatchi, coined this alternative VUCA definition: "Vibrant, unreal, crazy, and
astounding." This describes the kind of energetic culture that can give teams
and organizations a creative, agile edge in uncertain times.
6. Reward team members who demonstrate vision, understanding, clarity, and
agility. Let your people see what kind of behaviour you value by highlighting
innovations and calculated risk-taking moves.

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 MODULE 3

ENVIRONMENTAL SCANNING USING PESTLE &

SWOT ANALYSIS

Definition of Environmental Scanning

● Environmental scanning in strategic management refers to the systematic

process of collecting and analyzing information about the external environment in
order to identify trends, opportunities, and threats that may impact an
organization's operations, competitiveness, and future success.
● This process helps organizations understand the broader context in which they
operate, including economic, political, technological, and cultural trends, as well
as shifts in customer preferences, competitor actions, and regulatory changes.
● The information gathered through environmental scanning is used to inform
strategy development, decision making, and risk management, enabling
organizations to adapt to changing conditions and pursue opportunities for
growth and success.
● A corporation uses this tool to avoid strategic surprise and to ensure its long-term
health.

Importance of Environmental Scanning

Environmental scanning is important in strategic management because it:

1. Provides information on external factors that can impact the organization

2. Helps identify opportunities and threats
3. Supports informed decision making
4. Facilitates proactive responses to changes
5. Enhances overall competitiveness and adaptability.

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Types of Environments

INTERNAL ENVIRONMENT

Internal environment refers to the factors and conditions within an organization that
shape its ability to achieve its goals and objectives. This includes the organization's
culture, leadership, employees, systems and processes, financial resources, and
physical assets. The internal environment determines how well the organization is able
to execute its strategy, respond to changing market conditions, and create value for its
stakeholders. The various types of internal environments include:

1. Value System

Value system can be defined as a set of rules and the logical and consistent
values adopted by the firm, as a standard guide, so as to regulate the conduct in
any type of circumstances.

2. Vision, Mission and Objectives

Vision refers to the overall picture of what the enterprise wants to attain, whereas
mission talks about the organization and its business, and the reason for its
existence. Lastly, objectives refer to the basic milestones, which are set to be
achieved within the specific period of time, with the available resources.

3. Management structure and Internal Power Relationship

Management structure implies the organizational hierarchy, the way in which

tasks are delegated and how they relate, a span of management, relationship
amidst various functional areas, the composition of the board of directors,
shareholding pattern and so forth.On the other hand, internal power relationship
describes the relationship and cordiality between the CEO and board of directors.
Further, the degree of support and contribution received from the employees and
other members of the organization strengthens the organization’s decision
making power and its organization-wide implementation.

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 4. Human Resource

Human resources are the most important asset of the organization, as they play
a critical role in making or breaking the organization. The skills, competencies,
attitude, dedication, morale and commitment, amounts to the company’s
strengths or weaknesses.

5. Tangible and Intangible Assets

The tangible assets refers to the physical assets which are owned by the
company such as land, building, machinery, stock etc. Intangible assets amount
to the research and development, technological capabilities, marketing and
financial resources etc.

EXTERNAL ENVIRONMENT

External Business environment comprises all the extrinsic factors, influences, events,
entities and conditions, often existing outside the company’s boundaries but they have a
significant influence on the operation, performance, profitability and survival of the
business enterprise. For the purpose of continuous and uninterrupted functioning of the
business, the enterprise has to act, react or adjust according to these factors. These
factors are not under the control of the enterprise. The elements of the external
environment are divided into two categories:

MICRO Environment

Otherwise called a task environment, these factors directly influence the company’s
operations, as it covers the immediate environment that surrounds the company. The
factors are somewhat controllable in nature. It includes:

● Competitors: Competitors are the business rivals, which operate in the same
industry, offering the same product and services, and cater to the same
audience.

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 ● Suppliers: To carry out the production process, the raw material is required
which is provided by the suppliers. The behaviour of the supplier has a direct
impact on a company’s business operations.
● Customers: Customers are the target audience, i.e. the one who purchases and
consumes the product. The customers are given the most important place in
every business, because the products are created and promoted for customers
only.
● Intermediaries: There are a number of individuals or firms that help the business
enterprise in the promotion, selling, distribution and delivery of the product to the
end buyer, which are called as marketing intermediaries. It includes agents,
distributors, dealers, wholesalers, retailers, delivery boys, etc.
● Shareholders: Shareholders are the actual owners of the company, as they
invest their money in the company. They get their share in the profits also, in the
form of a dividend. In fact, they have the right to vote at the company’s general
meeting.
● Employees: Employees refers to the company’s staff, who are hired to work for
the company to help the company reach its mission. Therefore, it is very
important for the firm to employ the right people, retain and keep them motivated
so as to get the best out of them.
● Media: Media plays an important role in the life of every company because it has
the capability to make the company’s product popular overnight or it can also
defame them, in just one go. This is due to the fact that the reach of media is
very large and so every content which is going to air on any form of media can
affect the company positively or adversely depending on what kind of information
it contains.

MACRO Environment

Otherwise called the "general environment," the macro environment affects the entire
industry and not the firm specifically. That is why these factors are completely
uncontrollable in nature. The firm needs to adapt itself according to the changes in the
macro-environment, so as to survive and grow. It includes:

● Economic Environment: The economic conditions of the region and the country
as a whole has a significant bearing on the company’s profitability. This is

55
 because the purchasing power, saving habits, per capita income, credit facilities
etc. depends greatly on the country’s economic conditions, which regulates the
demand for the company’s products.
● Political and Legal Environment: The political and legal environment consists
of the laws, rules, regulations and policies which the company needs to adhere
to. The changes in these laws and government may affect the company’s
decisions, open doors of new opportunities for the business or pose a threat to
the business.
● Technological Environment: Technology is ever-changing, as everyday a new
and improved version of something is launched which is created with
state-of-the-art technology. This can be a plus point if the company is the first
mover in the race, subject to the success of the product. However, if it turns out
as a failure, it will prove to be a waste of time, money and effort. Further, every
company has to keep itself updated with the changing technology.
● Socio-Cultural Environment: Socio-cultural environment consists of those
factors which are concerned with human relationships such as customs,
traditions, beliefs, values, morals, tastes and preferences of the society at large.
The company must consider these factors on various matters such as the hiring
of employees, advertising the product and service, decision making etc.
● Demographic Environment: As the name suggests, the demographic
environment covers the size, type, structure, education level, and distribution of
population in a geographical area. The knowledge of this environment will help
the firm in deciding the optimal marketing mix for the target population.
● Global Environment: Due to liberalization domestic companies can offer their
products and services for sale to other countries. In fact, there are many
companies which are operating in a number of nations worldwide. Hence, such
companies have to follow the laws prevalent in these countries as well as they
have to adhere to international laws and guidelines. Further, the responses and
the company’s norms must be in alignment with the global environment.

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Internal Environment vs. External Environment

INTERNAL ENVIRONMENT EXTERNAL ENVIRONMENT

MEANING

All those factors that are present within All those factors that are present outside
the organization and have a direct impact the organization and which do not directly
on its operations influence its operations

CONTROL

Internal factors can be controlled by the External factors cannot be controlled by

organization the organization

COMPRISES OF

Strengths & Weaknesses Opportunities & Threats

EFFECT OF CHANGES

Specific to the organization Industry-specific

IMPACT ON THE ORGANIZATION

Affects the operations, decisions and Affects growth, survival and profitability of
objectives of the organization the organization

INCLUDES

Physical, financial, human and Micro and macro environment

technological resources i.e. Internal
resources of an organization

Approaches used for Environmental Scanning

SYSTEMATIC APPROACH

● Under this approach, information for environmental scanning is collected

systematically. Information related to markets and customers, changes in
legislation and regulations that have a direct impact on an organization’s

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 activities, government policy statements pertaining the organization’s business
and industry, etc. could be collected.
● Continuous updating such information is necessary not only for strategic
management but also for operational activities.
● Involves In-depth data collection and analyses by dedicated staff

ADVANTAGE OF THIS APPROACH DISADVANTAGE OF THIS APPROACH

Plans adjusted and adopted proactively Requires ongoing commitments of

resources

AD-HOC APPROACH

● Using this approach, an organization may conduct special surveys and studies to
deal with specific environmental issues from time to time. Such studies may be
conducted, for instance, when an organization has to undertake special projects,
evaluate existing strategies or devise new strategies. Changes and unforeseen
developments may be investigated with regard to their impact on the
organization.
● Usually performed in response to crisis

ADVANTAGE OF THIS APPROACH DISADVANTAGE OF THIS APPROACH

Allows quicker turnaround of scan results Address immediate issues, but less
generalizable

PROCESSED-FORM APPROACH

● For adopting this approach, the organization uses information in a processed

form available from different sources both inside and outside the organization.
When an organization uses information supplied by government agencies or
private institutions, it uses secondary sources of data and the information is
available in processed form.
● Tied to planning cycle (e.g. every 3 years)

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 ADVANTAGE OF THIS APPROACH DISADVANTAGE OF THIS APPROACH

Predictable frequency allows budget Planning a response is reactive

planning

PESTLE ANALYSIS

Meaning

● A PESTLE analysis is a tool or strategic framework commonly used to identify

potential macro (external) factors that impact a business/industry and its
operations.
● It illustrates an organization's working state and the external factors affecting it.
Marketers can plan out strategies to make their business more successful with it,
and it also helps them understand the problems in the business structure.
● It is a widely accepted framework used by senior managers, marketing experts,
and professionals. The analysis gives an idea of macro-environmental factors
that impacts the functioning of a particular business.
● The framework is also used to identify potential threats and weaknesses which
are used in a SWOT Analysis when identifying any strengths, weaknesses,
opportunities and threats to a business.
● It is a mnemonic which stands for:

P - Political

E - Economic

S - Social or Sociocultural

T - Technological

L - Legal, &

E - Environmental

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 ● The analysis considers these factors in relation to the business and assesses
their potential impact on its operations, objectives, and growth. The aim is to
identify and understand the key drivers of change and how they may impact the
business, both positively and negatively.

Components of PESTLE

POLITICAL FACTORS (P)

"Political" factors in PESTLE analysis refer to the influence of government and political
institutions on a business or organization. Various political factors that can impact a
business in many ways include:

1. Government stability: A stable government can provide a more predictable

business environment, while political instability or changes in government can
cause uncertainty.
2. Tax policies: Changes in tax policies, such as tax increases or reductions, can
have a significant impact on a business's bottom line.
3. Trade agreements: The negotiation and signing of trade agreements can open
up new markets for a business, while changes to existing agreements can impact
existing business relationships.
4. Regulations: Changes in regulations, such as environmental and labor laws,
can impact a business's operational costs and ability to do business.
5. Political risk: Some countries may be more politically stable than others, and
businesses operating in these countries may be exposed to greater political risk.
6. Corruption: Corruption can impact a business by increasing operating costs,
lowering the quality of goods and services, and reducing the predictability of the
business environment.

It is important for businesses to stay informed of political developments and changes,

and to assess their potential impact on their operations and bottom line.

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Political Factors Example

An example of a "Political" factor in PESTLE analysis is the recent change in

government policy towards renewable energy.

A business that operates in the renewable energy sector may be positively impacted by
the new policy, as it may provide increased subsidies and tax incentives for the
production and use of renewable energy. On the other hand, a business that operates in
the fossil fuel sector may be negatively impacted, as the new policy may result in
increased regulations and taxes on their operations.

In this scenario, the business operating in the renewable energy sector may see an
increase in demand for their products and services, while the business operating in the
fossil fuel sector may need to find new markets or shift their operations to remain
competitive.

ECONOMIC FACTORS (E)

"Economic" factors in PESTLE analysis refer to the factors that impact the economy and
affect businesses and organizations. Various economic factors that can impact a
business in many ways include:

1. Economic growth: Changes in the rate of economic growth can impact the
demand for goods and services, as well as the availability of investment capital.
2. Inflation: Changes in inflation rates can impact the cost of goods and services,
as well as the availability of investment capital.
3. Interest rates: Changes in interest rates can impact the cost of borrowing and
the availability of investment capital.
4. Unemployment: Changes in unemployment rates can impact the demand for
goods and services, as well as the availability of labor.
5. Exchange rates: Changes in exchange rates can impact the cost of imported
goods and services, as well as the competitiveness of exports.

It is important for businesses to be aware of economic factors and their potential impact
on their operations, objectives, and growth. To address these factors, businesses may

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need to adopt strategies to reduce their operating costs, increase their competitiveness,
and attract investment capital.

Economic Factors Example

An example of an "Economic" factor in PESTLE analysis is the rise in interest rates.

A business that relies on borrowing to finance its operations and growth may be
negatively impacted by the rise in interest rates. The increased cost of borrowing may
result in higher operating costs for the business, reducing its competitiveness in the
market.

On the other hand, a business with a large cash reserve may benefit from the rise in
interest rates, as it can earn higher returns on its investments.

In this scenario, the business that relies on borrowing may need to find alternative
sources of financing or find ways to reduce its operating costs, while the business with a
large cash reserve may see an increase in its returns on investment.

SOCIAL FACTORS (S)

"Social" factors in PESTLE analysis refer to the cultural and demographic factors that
impact a business or organization. Various social factors that can impact a business in
many ways include:

1. Demographic changes: Changes in the population's age, income, education,

and cultural background can impact the demand for goods and services, as well
as the availability of labor.
2. Consumer behavior: Changes in consumer behavior, such as preferences for
eco-friendly products or changes in spending patterns, can impact the demand
for goods and services.
3. Lifestyle changes: Changes in lifestyle patterns, such as changes in work
hours, can impact the demand for goods and services.
4. Attitudes towards work: Changes in attitudes towards work, such as the
preference for flexible working hours, can impact the availability of labor.

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 5. Social trends: Changes in social trends, such as the increasing popularity of
healthy lifestyles, can impact the demand for goods and services.

It is important for businesses to be aware of social factors and their potential impact on
their operations, objectives, and growth. To address these factors, businesses may
need to adapt their products, services, and marketing strategies to align with changes in
consumer behavior and social trends.

Social Factors Example

An example of a "Social" factor in PESTLE analysis is the increasing concern over

healthy lifestyles.

A business that produces processed foods with high levels of sugar and fat may be
negatively impacted by the growing concern over healthy lifestyles. This may result in
decreased demand for these products, reducing the business's bottom line.

On the other hand, a business that produces healthier food options, such as organic or
plant-based products, may benefit from the increasing concern over healthy lifestyles.
This may result in increased demand for these products, boosting the business's growth
prospects.

In this scenario, the business producing processed foods may need to find alternative
markets or shift its operations to remain competitive, while the business producing
healthier food options may see an increase in demand for its products.

TECHNOLOGICAL FACTORS (T)

"Technological" factors in PESTLE analysis refer to the advances in technology and

their impact on businesses and organizations. These factors can include:

1. Technological advancements: The introduction of new technologies, such as

artificial intelligence and robotics, can impact the efficiency and productivity of
businesses, as well as their ability to compete in the market.

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 2. Access to technology: The availability and accessibility of technology can
impact the ability of businesses to adopt new technologies and remain
competitive in the market.
3. Technological obsolescence: The rapid pace of technological change can
make certain technologies obsolete, impacting the competitiveness of
businesses that rely on these technologies.
4. Technological innovation: Technological innovation can lead to the
development of new products, services, and business models, providing new
opportunities for growth.

It is important for businesses to be aware of technological factors and their potential

impact on their operations, objectives, and growth. To address these factors,
businesses may need to invest in new technologies and training programs to ensure
their competitiveness in the market.

Technological Factors Example

An example of a "Technological" factor in PESTLE analysis is the rapid pace of

technological change in the retail industry.

A traditional brick-and-mortar retail business may be negatively impacted by the

increasing popularity of e-commerce and the shift towards online shopping. This may
result in declining sales, reduced foot traffic, and lower profitability for the business.

On the other hand, a business that has adopted an omnichannel approach, combining
online and offline sales, may benefit from the shift towards online shopping. This
business may be better positioned to compete in the market and attract customers who
are looking for a seamless shopping experience.

In this scenario, the traditional retail business may need to invest in e-commerce
technology and adopt an omnichannel approach to remain competitive, while the
business that has already adopted an omnichannel approach may see an increase in
sales and profitability.

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LEGAL FACTORS (L)

"Legal" factors in PESTLE analysis refer to the laws, regulations, and policies that
impact businesses and organizations. These factors can include:

1. Compliance: Businesses must comply with a range of laws and regulations,

such as employment laws, health and safety regulations, environmental
regulations, and intellectual property laws. Non-compliance can result in fines,
legal action, and reputational damage.
2. Liability: Businesses must consider the potential legal liabilities associated with
their products, services, and operations. This can include product liability,
intellectual property infringement, and environmental damage.
3. Contracts: Businesses must carefully consider the terms and conditions of
contracts, including supplier contracts, employment contracts, and partnerships.
Contracts must be legally binding and enforceable, and businesses must be
prepared to defend their rights in court if necessary.
4. Litigation: Businesses must be prepared to defend their rights in court if
necessary. Litigation can be time-consuming, costly, and disruptive to operations,
and businesses must take steps to minimize the risk of litigation.

It is important for businesses to be aware of legal factors and their potential impact on
their operations, objectives, and growth. To address these factors, businesses may
need to invest in legal support and compliance programs to ensure they are operating
within the law.

Legal Factors Example

Another example of a "Legal" factor in PESTLE analysis is the change in labor laws,
such as the minimum wage or the introduction of paid leave.

A business operating in a jurisdiction where the minimum wage is increased may need
to adjust its staffing levels or increase its prices to accommodate the increased labor
costs. This may result in reduced profitability and competitiveness.

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A business that is required to provide paid leave to its employees may need to adjust its
operations and budget to accommodate the additional costs. This may result in reduced
efficiency and competitiveness.

In this scenario, the business may need to consider the impact of the change in labor
laws on its operations and budget, and adjust its strategies and operations accordingly.
For example, the business may need to invest in technology and automation to reduce
its labor costs and improve efficiency.

ENVIRONMENTAL FACTORS (E)

"Environmental" factors in PESTLE analysis refer to the natural and physical factors that
impact a business or organization. Various environmental factors that can impact a
business in many ways include:

1. Climate change: Changes in weather patterns and natural disasters can impact
a business's operations and supply chain.
2. Natural resources: The availability and sustainability of natural resources, such
as water and raw materials, can impact a business's operational costs and ability
to do business.
3. Environmental regulations: Changes in environmental regulations, such as
emissions standards, can impact a business's operational costs and ability to do
business.
4. Public concern: Public concern over environmental issues, such as climate
change and waste management, can impact a business's reputation and ability to
attract customers.
5. Waste management: The disposal and management of waste can impact a
business's operational costs and ability to do business, as well as its reputation.

It is important for businesses to be aware of environmental factors and their potential

impact on their operations, objectives, and growth. To address these factors,
businesses may need to adopt environmentally friendly practices, such as reducing
waste and emissions and promoting sustainability.

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Environmental Factors Example

An example of an "Environmental" factor in PESTLE analysis is the increasing concern

over plastic waste.

A business that produces single-use plastic products, such as plastic bags and water
bottles, may be negatively impacted by the growing concern over plastic waste. This
may result in increased regulations and taxes on the production and use of plastic
products, reducing the demand for these products and impacting the business's bottom
line.

On the other hand, a business that produces alternative products, such as reusable
bags and water bottles, may benefit from the increasing concern over plastic waste.
This may result in increased demand for environmentally friendly products, boosting the
business's growth prospects.

In this scenario, the business producing single-use plastic products may need to find
alternative markets or shift its operations to remain competitive, while the business
producing alternative products may see an increase in demand for its products.

Steps involved in conducting a PESTLE Analysis

The following are the steps involved in conducting a PESTLE analysis:

1. Identify the factors

Start by identifying the six key factors (political, economic, social, technological,
legal, and environmental) that can influence the business or organization.

2. Gather information

Research the current state of each factor and gather information about how it
may change in the future. This information can be gathered from news articles,
government reports, and industry data.

3. Analyze each factor

Evaluate each factor and its potential impact on the business or organization.
Consider both positive and negative impacts and how likely they are to occur.

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 4. Assess the risks

Assess the level of risk associated with each factor and prioritize them based on
their potential impact.

5. Evaluate the opportunities

Identify any opportunities that may arise from changes in the external
environment, such as new markets or technological advancements.

6. Develop a strategy

Based on the information gathered and analyzed in the PESTLE analysis,

develop a strategy to minimize risks and take advantage of opportunities.

7. Review and update

Regularly review and update the PESTLE analysis to ensure that it reflects the
current state of the external environment and the business or organization.

Advantages of PESTLE Analysis

1. Provides a comprehensive overview of the external environment affecting an

organization.
2. Identifies potential opportunities and threats for the organization.
3. Helps in informed decision-making by taking into account various
macroeconomic and other factors.
4. Facilitates the development of contingency plans to deal with potential
challenges.

Disadvantages of PESTLE Analysis

1. May overlook important internal factors affecting the organization.

2. Can be time-consuming and resource-intensive to carry out.
3. May not provide actionable insights or recommendations.
4. May not be able to predict future events or developments accurately.

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SWOT ANALYSIS

Meaning

● SWOT analysis is a strategic planning tool used to evaluate the Strengths,

Weaknesses, Opportunities, and Threats (SWOT) in a business, organization, or
individual.
● It assesses internal and external factors as well as the current and future
potential of a business or organization.
● It is designed to facilitate a realistic, fact-based, data-driven look at the strengths
and weaknesses of an organization as well as potential threats or opportunities
associated with it.
● It is an acronym which stands for:

S - Strengths

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 W - Weaknesses

O - Opportunities

T - Threats

● The goal of a SWOT analysis is to help organizations and individuals identify

their strengths and weaknesses, as well as the opportunities and threats they
face. This information can then be used to make informed decisions about the
future direction of the business or organization.
● It is a technique used for assessing the performance, competition, risk and
potential of a business/industry as well as part of a business such as a product
line, division, an industry or an entity.

● Strengths (S) & Weaknesses (W) refer to internal factors. Some of the
commonly considered internal factors include:
1. Financial resources (funding, sources of income, etc.)
2. Physical resources (location, facilities, equipment, etc.)
3. Human resources (employees, volunteers, target audiences, etc.)
4. Access to natural resources, trademarks, patents and copyrights

● Opportunities (O) & Threats (T) refer to external factors. Some of the commonly
considered external factors include:
1. Market trends (new products, technological advancements, shifts in consumer
behaviour, etc.)
2. Economic trends (local, national and international financial trends)
3. Fundings (Donations, and other sources)
4. Demographics
5. Political, environment & economic regulations

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Components of SWOT

STRENGTHS (S)

Strengths in SWOT Analysis refer to the internal attributes or characteristics of an

organization that give it an advantage over its competitors. These strengths are the
building blocks of an organization's success and provide it with a competitive edge. It is
important for organizations to understand their strengths and utilize them effectively to
achieve their goals.

A company's strengths can take various forms, such as its unique products or services,
a strong brand reputation, financial stability, a skilled workforce, technological
capabilities, access to resources, and strong relationships with key stakeholders.

Overall, identifying and leveraging strengths is an important aspect of SWOT analysis,

as it helps organizations understand their competitive advantages and capitalize on
them to achieve their goals.

WEAKNESSES (W)

Weaknesses in SWOT Analysis refer to the internal limitations or shortcomings of an

organization that can hinder its ability to compete effectively. These weaknesses can
arise from various factors within the organization and can negatively impact its
performance and competitiveness. Understanding and addressing these weaknesses is
a critical aspect of SWOT analysis, as it can help organizations improve their overall
performance and achieve their goals.

A company's weaknesses can take various forms, such as lack of financial resources,
lack of skilled or experienced workforce, lack of innovative products or services, poor
operational processes, inadequate infrastructure, poor brand reputation, etc.

Weaknesses in SWOT analysis are important aspects to consider, as they highlight the
internal limitations and shortcomings of an organization that can hinder its ability to
achieve its goals. Understanding and addressing these weaknesses can help
organizations improve their overall performance and competitiveness in the market.

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OPPORTUNITIES (O)

Opportunities in SWOT Analysis refer to external factors that can benefit an

organization and provide it with a competitive advantage. These opportunities can arise
from various sources, including changes in technology, market trends, and regulations.
By identifying and taking advantage of these opportunities, organizations can achieve
their goals and achieve success.

A company's opportunities can take various forms, such as changes in technology,

market trends, expansion into new markets, opportunities in existing markets, etc.

Opportunities in SWOT analysis provide organizations with a valuable opportunity to

understand and take advantage of external factors that can benefit their business. By
identifying and leveraging these opportunities, organizations can achieve their goals
and achieve success in the market.

THREATS (T)

Threats in SWOT Analysis refer to external factors that can negatively impact an
organization and hinder its ability to achieve its goals. These threats can come from
various sources, including economic conditions, competitors, and changes in
regulations. By identifying and understanding these threats, organizations can develop
strategies to mitigate them and improve their overall performance and competitiveness.

A company's threats can take various forms, such as worsening of economic conditions,
competition from other organizations or industries, changes in laws and regulations,
frequent technological advancements, etc.

Threats in SWOT analysis are external and internal factors that can negatively impact
an organization's performance and competitiveness. By identifying and mitigating these
threats, organizations can improve their overall performance and achieve their goals.

Steps involved in conducting a SWOT Analysis

The following are the steps involved in conducting a SWOT analysis:

1. Identifying the internal strengths and weaknesses of an organization or project.

2. Identifying external opportunities and threats.

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 3. Creating a matrix that organizes the information gathered.
4. Evaluating the results of the SWOT analysis to determine the organization's or
project's potential for success.
5. Developing a plan of action based on the results of the SWOT analysis to
address identified strengths, weaknesses, opportunities, and threats.

Advantages of conducting a SWOT Analysis

1. Helps organizations and individuals identify their internal strengths and

weaknesses, as well as external opportunities and threats.
2. Provides a comprehensive overview of the organization or project, allowing for
more informed decision-making.
3. Can help identify new business opportunities.
4. Encourages teamwork and collaboration.
5. Can be used in both short and long-term planning.

Disadvantages of conducting a SWOT Analysis

1. Can be time-consuming and require significant resources to gather information.

2. Excessive lists of strengths, weaknesses, opportunities and threats;
3. No prioritization of factors;
4. Factors are described too broadly;
5. Factors are often opinions not facts;
6. No recognized method to distinguish between strengths and weaknesses,
opportunities and threats.

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Examples of SWOT Analysis

Zara's SWOT Analysis

COCA-COLA’s SWOT Analysis

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 MODULE 4

BCG MATRIX, GE-MCKINSEY MATRIX &

MCKINSEY’S 7S MODEL AS TOOLS FOR
STRATEGY FORMULATION

BCG MATRIX as a tool for Strategy Formulation

Meaning

● The BCG matrix, also known as the Boston Consulting Group matrix (or the
Growth-Share matrix), is a strategic tool used in business to assess a company's
portfolio of products and services, and to determine their future potential. In other
words, it helps companies decide how to prioritize their different businesses by
their degree of profitability.

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 ● The matrix plots a company’s offerings in a four-square matrix, with the y-axis
representing the rate of market growth and the x-axis representing market share.
It was introduced by the Boston Consulting Group in 1970.
● It categorizes each product or business unit into one of four categories: Stars,
Cash Cows, Dogs, and Question Marks, based on its relative market share and
market growth rate.
● This helps organizations allocate resources to maximize the return on investment
and make informed decisions on which products to continue to invest in, which to
divest, and which to grow.
● Managers use the BCG matrix to see which products have the highest potential
to increase a company's profitability and which are gradually becoming a
company’s liabilities.

Components of the BCG Matrix

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The components of a BCG matrix include:

Relative Market Share

● "Relative market share" refers to the market share of a product or business unit
compared to the largest competitor in the market.
● It is expressed as a ratio of a company's market share to the market share of its
largest competitor.
● In the BCG matrix, relative market share is used as an indicator of a company's
competitive position in the market.
● A product or business unit with a high relative market share is considered to have
a strong competitive position, as it is outperforming the largest competitor in the
market. On the other hand, a product or business unit with a low relative market
share is considered to have a weak competitive position, as it is not performing
as well as the largest competitor in the market.
● By using relative market share as a criterion in the BCG matrix, companies can
get a more accurate picture of their competitive position in the market, as it takes
into account the size and strength of their competitors.

Market Growth Rate

● "Market growth rate" in the BCG matrix refers to the rate of growth in the market
in which a particular product or business unit operates.
● It is expressed as a percentage and represents the increase in the total market
share over a certain period of time.
● The market growth rate is an important factor in determining the potential for a
product or business unit to generate revenue and profit in the future.
● A market with a high growth rate is considered attractive because there is
potential for sales and market share to increase. On the other hand, a market
with a low growth rate is considered less attractive because there is limited
potential for growth.
● It is important to note that market growth rate can vary greatly between different
markets, and that the rate of growth in a particular market can also change over
time. Companies need to continually monitor market growth rates and adjust their

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 strategies accordingly in order to maximize the potential for growth and
profitability.

Based on the aforementioned parameters, each product or business unit is categorized

into one of the following four components:

STARS (High Market Growth Rate, High Relative Market Share)

● "Stars" in the BCG matrix refer to products or business units that have a high
market share in a rapidly growing market. These products or business units are
considered attractive because they have the potential to generate significant
revenue and profit.
● Stars typically require significant investment in order to maintain their high market
share and keep pace with the growth in the market. This investment may include
product development, marketing, and research and development, among others.
However, the potential rewards of investing in a Star are high, as the market
growth provides opportunities for sales and market share growth.
● In the BCG matrix, Stars are often seen as the engines of growth for a company
and are given priority in terms of resource allocation.
● Examples: iPhone of Apple, Vitamin Water of Coca-Cola, LED lamp from Philips

CASH COWS (Low Market Growth Rate, High Relative Market Share)

● "Cash Cows" in the BCG matrix refer to products or business units that have a
high market share in a slow-growing market. These products or business units
generate significant amounts of cash for the company, but require little
investment to maintain their position.
● Cash Cows are considered stable and predictable sources of revenue and profit
for a company. They typically have a well-established market position, and the
slow growth rate in the market reduces the risk of investment. As a result,
companies can use the cash generated by Cash Cows to invest in other areas of
the business, such as research and development, marketing, or product
development.

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 ● In the BCG matrix, Cash Cows are seen as a source of stability and a way to
fund growth in other areas of the business. Companies aim to maintain the
position of their Cash Cows, but may also consider divesting them if they are no
longer seen as a source of growth or if market conditions change.
● Examples: Macbook of Apple, Coca-Cola Classic of Coca-Cola, Philips
energy-saving lamp, Procter and Gamble which manufactures Pampers nappies
to Lynx deodorants.

QUESTION MARKS (High Market Growth Rate, Low Relative Market Share)

● "Question Marks" in the BCG matrix refer to products or business units that have
a low market share in a rapidly growing market. These products or business units
have the potential for significant growth, but also carry a high level of risk.
● Question Marks require significant investment in order to build market share and
grow sales. However, the high level of risk associated with these products or
business units makes it uncertain whether the investment will generate a positive
return.
● In the BCG matrix, Question Marks are seen as opportunities for growth, but also
as potential sources of drain on a company's resources. Companies need to
carefully evaluate their Question Marks and make informed decisions on
investment and resource allocation.
● Examples: i-Watch by Apple, FUZE Healthy Infusions of Coca-Cola, tablet from
Philips.

DOGS (Low Market Growth Rate, Low Relative Market Share)

● "Dogs" in the BCG matrix refer to products or business units that have a low
market share in a slow-growing or declining market. These products or business
units require a significant amount of investment to maintain their position, but
generate little or no profit and do not have the potential for growth.
● Dogs are considered to be a drain on a company's resources, as they require
investment without providing a significant return. They are often seen as a
liability, and companies may choose to divest them or allocate minimal resources
to them.

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 ● In the BCG matrix, Dogs are seen as a source of risk, as they may require
significant investment to maintain their position in a declining market. Companies
aim to either turn their Question Marks into Stars or divest their Dogs.
● Examples: iPod by Apple, New Coke of Coca-Cola, Plasma TV from Philips.

Advantages of the BCG Matrix

1. Is a simple and easy-to-use tool that can be applied to a wide range of industries
and business models.
2. Provides a comprehensive view of a company's product portfolio and helps
identify areas for growth and improvement.
3. Provides a visual representation of a company's product portfolio, making it
easier to understand and communicate.
4. Helps companies allocate resources effectively by prioritizing investment in areas
with high potential for growth and profitability.
5. Helps companies avoid over-investing in areas with low potential for growth and
profitability.
6. Provides valuable insights into a company's product portfolio and supports
informed strategic decision-making.

Limitations of the BCG Matrix

1. It relies heavily on financial metrics, such as market growth rate and relative
market share, which may not provide a complete picture of a company's product
portfolio.
2. May oversimplify complex business situations and lead to incorrect conclusions.
3. Assumes that market conditions remain static, which may not always be the case
in real-world scenarios.
4. Does not take into account external factors that can impact market growth rate
and relative market share, such as economic conditions, industry trends, and
technological advancements.
5. Can be misinterpreted and misapplied if not used in conjunction with other
strategic tools and analysis.

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 6. May not be suitable for emerging markets or new businesses, as they may not
have established market shares or a clear understanding of market growth rates.

BCG Matrix Example

IndiGo as a Brand

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Unilever

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GE-MCKINSEY MATRIX as a tool for Strategy Formulation

● The GE-McKinsey Matrix is a strategic

tool used to evaluate the potential of a
company's business units or products. It
provides a framework for assessing both
the market attractiveness and the internal
resources and capabilities of each unit.
● It was developed in the 1970s after
General Electric asked its consultant
McKinsey to develop a portfolio
management model. In the context of
General Electric, the matrix was created
so that the company could analyze the
composition of each of its 150 portfolios –
otherwise known as strategic business
units (SBUs).
● It allows a large, decentralized company
to determine where best to invest its cash. It does this by allowing the company
to judge each SBU according to whether it will do well in the future i.e., the
attractiveness of the industry and the SBU’s competitive strength in that industry.
● The matrix plots each unit or product on a grid with market attractiveness on one
axis and internal strength on the other, resulting in nine cells that represent
different types of businesses or products.

Components of the GE-MCKINSEY Matrix

Business Unit Strength / Competitive Strength

● In the GE-McKinsey matrix, "business unit strength" refers to the overall market
position and competitiveness of a particular business unit or product line.
● It is used to determine the relative attractiveness of a unit for investment
purposes and can help guide strategic decision-making.
● It is an assessment of the unit's ability to generate profits and growth, and can be
evaluated based on various factors such as:

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 1. Market Share: What is the product’s market share compared to its rivals?
2. Average Profitability: How profitable is the segment?
3. Size of Product Mix: If Samsung’s Galaxy model is more successful, the
company can focus on releasing a series in this product line. This is one product
line. Likewise, it can have other product lines. Looking visually at product mixes
can help determine the competitive strength.
4. Brand’s Strength: How do consumers see the brand, and how loyal are the
customers towards the brand?
5. Product Flexibility: How easily the product can adapt to changes in the market
conditions?

Industry Attractiveness

● Industry attractiveness indicates how hard or easy it is for a business to compete

in the market and earn profits.
● Industry attractiveness is used to determine the relative appeal of a particular
industry for investment purposes and can help guide strategic decision-making.
● A high industry attractiveness score indicates a market with strong potential for
growth and profitability, while a low score indicates a less attractive market.
● Various factors involved in the assessment of industry attractiveness include:
1. Growth Rate: The business’s current growth rate and how it is expected to
perform in the long run.
2. Competition: More competitors mean more challenges.
3. Entry Barriers: Higher entry barriers are better if the business is established. It
will take time for new entrants to become established.
4. Profitability: How profitable the product is and if the market has substitutes.
5. Industry Structure: Evaluated using the structure-conduct-performance (SCP)
model.
6. Product Life Cycle Changes: How often products are updated or new products
are launched. Newer, more successful products push older products out of the
market.
7. Changes in Demand: For example, if animal meat is replaced with plant-based
protein.
8. Price trends: If prices are volatile and dependent on external factors.
9. Seasonality: Checks if there is a demand only in a specific season.

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 10. Availability of Manpower: Checks the workforce availability in the future.
11. Market Segmentation: How the market is segmented. For example, most
sunglasses are owned by Luxottica and are sold under different names –
Ray-Ban, Oakley, Vogue, Armani.

Strategic Implications

The three degrees (High, Medium, and Low) of Industry Attractiveness and Business
Unit Strength provide 3 different strategies for a business. The strategic actions to
choose from are:

GROW/INVEST STRATEGY

● This is the best-case scenario for a business unit. Industry attractiveness and
Competitive strength are moderate to high, indicating a well-positioned entity.
● There is a scope of growth potential for the business unit either to capture more
market share or increase profitability by reaching economies of scale or
increasing marketing efforts.
● A company can reach this scenario if it is operating in a moderate to highly
attractive industry while having a moderate to highly competitive position within
that industry. In such a situation there is a massive potential for growth. However,
to grow, a company needs resources such as assets, capital, technology, and
manpower. These investments are necessary to increase capacity, to reach new
customers through more advertisements or to improve products through
Research & Development.
● A business entity can grow either through organic growth where the resources
are invested in Research and Development, marketing products, and increasing
brand awareness. The most notable challenge for companies in these sections
are resource constraints that block them from growing bigger and
becoming/maintaining market leadership. The same can also be accomplished
externally via Mergers and Acquisitions (M&A) as a strategy of inorganic growth.
Again, it will require investments to execute M&A activities.

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HOLD/PROTECT/SELECTIVITY STRATEGY

● This strategy is also known as Selectivity / Earnings strategy.

● The business unit falling under this category has an ambiguous position. The
business is either in a low to moderate competitive position in an attractive
industry or in an extremely highly competitive position in a less attractive industry.
The future growth potential may remain underwhelming.
● Deciding on whether to invest or not to invest largely depends on the outlook that
is expected of either the improvement in competitive position or the potential to
shift to more interesting industries. In other words, this requires managerial
judgment whether they want to grow the business units or not. The Grow
category business unit takes precedence in case if the managers decide on
investing in the units in the Hold category.
● Nevertheless, these decisions have to be made very carefully, since one may
want to use most of the investments available to the companies in the
Invest/Grow section. The left-over investments should be used for the companies
in the Selectivity/Earnings section with the highest potential for improvements,
while being monitored closely to measure its progress on the way.

HARVEST/DIVEST STRATEGY

● This strategy is appropriate for business units when they have a low competitive
advantage, are active in an unattractive industry or a combination of both. There
is low or no scope of industry growth. These companies have no promising
outlooks anymore and should not be invested in. These business units are not
accruing a return on capital in comparison to other units. Managers have two
options here:
1. Divest the business units by selling it to an interested buyer for a
reasonable price. This is also known as carve-out. Selling the business
unit to another player in the industry that has a better competitive position
is not a strange idea at all. The buyer might have better competences to
make it a success or they can create value by combining activities
(synergies). The cash that results from selling the business unit can
consequently be used in Invest/Grow business units elsewhere in the
portfolio.

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 2. Choose a harvest strategy. This basically means that the business unit
gets just enough investments or none at all to just sustain the business,
while reaping (skimming) the remaining rewards that may be left. This is a
very short-term perspective action that allows managers to extract as
much value as possible. However, this strategy eventually results in the
liquidation of the business unit.

Advantages of the GE-McKinsey Matrix

1. Helps to prioritize the limited resources in order to achieve the best returns.
2. Managers become more aware of how their products or business units perform
3. Is visually easy to understand and provides more options to place a product as
compared to the BCG Matrix, due to the inclusion of the “low” level on both axes.
4. Can be utilized to identify industry attractiveness not only for the products offered
by the company but for the different business units such as whole product lines,
services offered and even brands.
5. It's a more sophisticated business portfolio framework than the BCG matrix.
6. Identifies the strategic steps the company needs to make to improve the
performance of its business portfolio.

Disadvantages of the GE-McKinsey Matrix

1. Has several interconnected factors which need to be established as accurately

as possible. Therefore, the matrix requires highly experienced consultants or
subject matter experts to identify each factor and relative grade it on the matrix
accurately
2. Unlike BCG matrix, this matrix requires a lot of data, be it primary research or
secondary research thus, it requires a lot of human effort, time and is costly to
perform for smaller business units
3. Costly to conduct
4. The matrix ignores the interdependency between different business units and
can sometimes result in decision regarding one business unit that may or may
not affect the results of an intertwined business unit

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 5. The scoring criteria of the various factors accounted for the matrix is relative to
the person and can result in biases according to the consultant’s prioritization of
the various factors

GE-McKinsey Matrix Example: Apple

Applications of the GE-McKinsey Matrix

GE-McKinsey nine box matrix finds application to firms having a variety of business
units, different brands, product lines, and personalized products. Companies such as
Unilever, ITC Limited, etc. use the matrix to find the correct product mix to bring in more
customer acquisitions, thereby, increasing their revenues significantly.

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BCG Matrix vs. GE-McKinsey Matrix

BASIS FOR BCG MATRIX GE-MCKINSEY MATRIX

COMPARISON

MEANING Multifactor portfolio

Growth share model, matrix, that assists firms
representing the growth of in making strategic
business and the market choices for product
share enjoyed by the firm. multifactor lines based on
their position in the grid.

NUMBER OF CELLS Four Nine

FACTORS Market share and Market Industry attractiveness

growth and Business strengths

OBJECTIVE To help companies deploy To prioritize investment

their resources among among various business
various business units. units.

CLASSIFICATION Classified into four

Classified into three
categories: Stars, Cash
strategies: Invest, Protect
Cows, Question Marks &
& Harvest
Dogs.

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MCKINSEY’S 7S MODEL as a tool for Strategy Formulation

● The McKinsey 7S model is a strategic framework that helps organizations assess

and improve their overall effectiveness. The 7S model consists of seven
interdependent elements:

strategy, structure, systems, shared values, skills, staff, and style.

● The model suggests that these seven elements must be aligned and mutually
reinforcing in order for an organization to be successful. For example, a strong
strategy can be undermined by a weak structure or a lack of shared values
among employees.

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 ● The 7S model provides a comprehensive view of the organization and helps
leaders identify areas that need improvement. By considering all seven elements
together, organizations can increase their chances of successfully implementing
change and achieving their goals.
● The focus of the McKinsey 7s Model lies in the interconnectedness of the
elements that are categorized by “Soft Ss” and “Hard Ss” – implying that a
domino effect exists when changing one element in order to maintain an effective
balance. Placing “Shared Values” as the “center” reflects the crucial nature of the
impact of changes in founder values on all other elements.

The framework consists of the following components:

HARD ELEMENTS (HARD Ss)

Hard elements are those that are easily identifiable and influenced by leadership and
management. These further involve:

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Strategy

● "Strategy" in McKinsey's 7S Model refers to the approach a company takes to

achieve its goals and objectives. It encompasses the decisions a company
makes regarding its markets, competitive position, and overall direction. In other
words, strategy determines how a company will compete in the marketplace and
what it aims to achieve in the long term.
● Various key considerations included in the “Strategy” element include: market
positioning, competitive advantage, business model, resource allocation,
strategic decision, strategic priorities, etc.
● The "strategy" element of McKinsey's 7S Model is a crucial component of the
framework as it sets the direction and focus for the rest of the organization. A
clear and well-defined strategy helps to align the other elements of the 7S Model
and ensures that the company is working towards its objectives in a cohesive
and focused way.

Structure

● "Structure" in McKinsey's 7S Model refers to the formal and informal

arrangements and processes that enable an organization to carry out its work
effectively. It encompasses the way in which the company is organized and how
its various functions and departments interact with each other. In other words,
structure determines the organizational design of the company and the
processes and procedures it uses to manage its activities.
● Various key considerations included in the “structure” element include:
organizational design, processes and procedures, resource allocation, roles and
responsibilities, organizational culture, etc.
● The "Structure" element of McKinsey's 7S Model is critical to the overall success
of the company, as it determines how the various functions and departments of
the organization work together and interact with each other. By having a clear
and effective structure in place, a company can ensure that it operates efficiently
and effectively and that its efforts are aligned with its goals and objectives.

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Systems

● "Systems" in McKinsey's 7S Model refers to the various processes, technologies,

and tools that an organization uses to support its operations and achieve its
goals. These systems include everything from information systems, financial
systems, and human resources systems to production processes, supply chain
systems, and marketing systems.
● Various key considerations included in the “systems” element include:
Information systems, financial systems, human resource systems, production
processes, supply chain systems, marketing systems, etc.
● The "Systems" element of McKinsey's 7S Model is critical to the overall success
of the company, as it determines how the various processes and technologies
are used to support its operations and achieve its goals. By having effective
systems in place, a company can ensure that its activities are carried out
efficiently and effectively and that it has the tools and resources it needs to
compete effectively in the market.

SOFT ELEMENTS (SOFT Ss)

Soft elements are those that are intangible and culture-driven. These further involve:

Style

● "Style" in McKinsey's 7S Model refers to the leadership style and

decision-making approach used by an organization. This aspect of the model
considers how an organization's leaders manage and motivate employees, as
well as the methods used to make decisions and organize work within the
organization.
● The "Style" element of the 7S Model includes the following key considerations:
Leadership, Decision-making, Organizational structure, etc.
● "Style" in McKinsey's 7S Model is a crucial aspect of an organization's culture
and performance. By considering the leadership style and decision-making
approach, as well as the organizational structure, organizations can ensure that
they are operating effectively and efficiently, and that all employees are working

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 towards a common goal. This can help to increase employee engagement and
motivation, and improve the overall success of the organization.

Staff

● "Staff" in McKinsey's 7S Model refers to the people who work within an

organization and carry out its operations. This element of the 7S Model is critical
to the overall performance and success of an organization, as the skills,
knowledge, and attitudes of its staff can greatly influence its ability to achieve its
goals and respond to changes in the market.
● Various key considerations included in the “Staff” element include: skills,
attitudes, staffing levels, staff development, etc.
● Having a workforce that has the right skills, knowledge, and attitudes is critical to
the success of an organization. By having employees who are aligned with the
organization's culture and values, and who have the necessary skills to carry out
their roles effectively, organizations can ensure that they are operating efficiently
and effectively.

Skills

● "Skills" in McKinsey's 7S Model refers to the specific abilities, knowledge, and

competencies that employees bring to their jobs within an organization. This
aspect of the 7S Model is critical to an organization's ability to perform effectively
and achieve its goals, as having a workforce with the right skills can greatly
influence the efficiency and productivity of the organization.
● Various key considerations included in the “Skills” element include: relevance to
the organization’s goals, level of expertise, etc.
● Having employees with the right skills is critical to an organization's ability to
perform effectively and achieve its goals. By ensuring that employees have the
skills and knowledge necessary to carry out their roles, organizations can
improve their overall performance and increase their competitiveness in the
market.

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Shared Values

● "Shared Values" in McKinsey's 7S Model refers to the beliefs, attitudes, and

principles that are shared by all members of an organization. These values are
the foundation of the organization's culture and shape how the organization
operates and interacts with its stakeholders. They provide a common purpose
and direction for the company, and help to unite employees and foster a sense of
belonging.
● The "Shared Values" element of the 7S Model includes the following key
considerations: Beliefs, Attitudes & Principles.
● "Shared Values" in McKinsey's 7S Model are an important aspect of the
company's culture and overall success. By having a strong set of shared values,
an organization can ensure that all employees are aligned with the company's
purpose and direction, and that they are working together to achieve its goals.
This helps to build a positive and supportive culture, increase employee
engagement and motivation, and improve the company's overall performance.

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 its creators. As the values change, so do all the other elements.

Conditions under which McKinsey’s 7S Model is applied

The McKinsey 7S model can be applied in various situations where an organization is

looking to analyze its internal situation and ensure that all aspects of the company are
aligned and working towards its goals. Some of the conditions under which the 7S
model is commonly applied include:

1. Organizational change: The 7S model can be used to help organizations

assess the impact of change initiatives, such as mergers and acquisitions,
reorganizations, or the implementation of new technologies.

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 2. Performance improvement: The 7S model can be used to identify areas for
improvement within an organization and to ensure that all aspects of the
organization are aligned and working effectively towards common goals.
3. Strategy development: The 7S model can be used to help organizations
develop their strategies by ensuring that all aspects of the organization are
aligned with the organization's goals and objectives.
4. Turnaround situations: The 7S model can be used in situations where an
organization is underperforming and in need of significant change. The model
can be used to identify areas for improvement and to help the organization get
back on track.
5. New ventures: The 7S model can be used to help organizations assess the
internal alignment of a new venture and to ensure that all aspects of the
organization are aligned and working effectively towards common goals.

It's important to note that the 7S model is not a one-size-fits-all solution and may not be
suitable for all organizations or in all situations. However, it can be a useful tool for
organizations looking to understand their internal situation and make improvements.

Advantages of McKinsey’s 7S Model

1. The McKinsey 7S model provides a comprehensive and holistic view of an

organization, considering all aspects of the organization, including strategy,
structure, systems, skills, style, staff, and shared values.
2. The 7S model is easy to understand and communicate, making it accessible to a
wide range of stakeholders within an organization.
3. The 7S model is flexible and can be applied to organizations of different sizes, in
different industries, and facing different challenges, making it a versatile tool for
organizations looking to improve their performance.
4. By considering all aspects of the organization, the 7S model helps organizations
identify areas for improvement, and align all aspects of the organization to work
effectively towards common goals.
5. The 7S model helps organizations align their strategy, structure, systems, skills,
style, staff, and shared values, ensuring that all aspects of the organization are
working together towards common goals.

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 6. The 7S model can enhance communication within an organization by providing a
common language and framework for discussing organizational issues and
opportunities for improvement.

Limitations of McKinsey’s 7S Model

1. The McKinsey 7S model over-simplifies complex organizational issues into seven

broad categories, which may not accurately reflect the intricacies of an
organization's internal situation.
2. Some organizations may rely too heavily on the 7S model, without considering
other relevant factors that may affect the organization's internal situation.
3. The 7S model is a structured framework, which may not be suitable for
organizations with complex structures, or for organizations facing unique
challenges.
4. The 7S model primarily focuses on internal factors and does not take into
account external factors, such as market trends, competition, and regulatory
environment, which can impact an organization's performance.
5. The 7S model provides a framework for understanding an organization's internal
situation but does not provide specific guidance on how to implement changes to
improve performance.
6. The 7S model is dependent on subjective data, such as perceptions and opinions
of individuals within the organization, which can limit its accuracy and reliability.
This can also make it difficult to compare results across different organizations.

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McKinsey’s 7S Model Example: Nokia

From initially being a mobile phone industry pioneer, to drastically losing market share,
and finally getting acquired by Microsoft, Nokia’s journey of change failure can be
explained using the 7-S framework.

STRATEGY Nokia faced a dilemma and had to optimize costs and

volume, enhance performance, and maximize security.
Nokia opted for a cost-leadership approach and failed
miserably on its innovation and performance fronts.

STRUCTURE Nokia had a top-down hierarchy where employees worked

in silos with limited communication. To compete with the
likes of Apple, Nokia should have opted for an agile and
decentralized structure, along with a collaborative
approach.

SYSTEMS Nokia considered agility and being nimble to be its key

competitive advantages. With a skilled workforce, Nokia
was in a position to innovate its products and increase
operational efficiency.

SKILLS Nokia had a pool of highly-skilled engineers and initially

designed highly efficient mobile phones. There wasn’t any
skill gap weighing them down.

STAFF During 2007-2010, Nokia surprisingly removed the CTO

position from top management, leading to extremely high
attrition rates. New hires weren’t properly skilled, to begin
with, causing the downfall of Nokia as a cutting-edge brand.

STYLE Due to the low technical competence of leaders, employee

morale was low. Instead of bringing in people with the right
backgrounds to further company innovation and growth,
Nokia needed transformational change leadership to help
with technological advancement and cutting-edge designs.

SHARED VALUES The core values of the company that enabled business
performance were Respect, Achievement, Renewal, and
Challenge.

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 MODULE 5

ANSOFF MATRIX & GRAND STRATEGY

AS TOOLS FOR STRATEGY FORMULATION

ANSOFF MATRIX as a tool for Strategy Formulation

● The Ansoff Matrix is a strategic planning tool that helps organizations determine
their product and market growth strategy. It provides a framework for analyzing a
company's potential for growth based on current and new products, and existing
or new markets.

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 ● An Ansoff Matrix (sometimes referred to as Ansoff Growth Matrix or Ansoff's
Matrix) has its roots in a paper written in 1957 by Igor Ansoff.
● Due to its grid format, the Ansoff Matrix helps marketers identify opportunities to
grow revenue for a business through developing new products and services or
"tapping into" new markets. So it's sometimes known as the ‘Product-Market
Matrix’ instead of the ‘Ansoff Matrix’.
● The matrix consists of four strategies: Market Penetration, Market Development,
Product Development & Product Diversification.
● Each strategy has its own level of risk, and the Ansoff Matrix helps organizations
weigh the risks and benefits of each strategy. The goal is to choose a strategy
that aligns with the organization's overall growth objectives while mitigating risks.

Importance of the Ansoff Matrix / Why use the Ansoff Matrix?

1. Provides a framework for growth strategy: The matrix provides a structured

approach to identifying growth opportunities and choosing the best strategy to
pursue. This can help organizations make informed decisions and avoid
haphazard or ill-conceived growth initiatives.
2. Helps assess risk: Each strategy in the matrix has a different level of risk
associated with it, and the matrix provides a way to assess the risks and benefits
of each strategy. This can help organizations make informed decisions about
growth and avoid excessive risk-taking.
3. Supports long-term planning: The matrix can help organizations plan for
long-term growth by identifying the most promising avenues for expansion. This
can help organizations allocate resources effectively and build a sustainable
growth plan.
4. Encourages creative thinking: The matrix provides a comprehensive view of
the organization's growth opportunities and can encourage creative thinking
about new products and markets. This can lead to innovative growth initiatives
and a more dynamic and adaptive growth strategy.
5. Facilitates communication: The Ansoff Matrix can help organizations clearly
communicate their growth strategy to stakeholders, including employees,
shareholders, and customers. This can help build support and buy-in for growth
initiatives and improve overall alignment and execution.

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Components of the Ansoff Matrix

MARKET PENETRATION (Existing Products, Existing Markets)

● Market Penetration is a growth strategy in the Ansoff Matrix that focuses on

increasing sales of current products in existing markets. The goal is to increase
market share by appealing to existing customers or by attracting new customers
within the same market. This strategy is often considered the least risky option in
the matrix as the organization is already operating in the market and has an
established customer base.
● Marketing Penetration strategies may include:
1. Price adjustments: Lowering prices to increase demand, or increasing
prices to increase profitability.
2. Promotion: Launching advertising campaigns, offering discounts, and
using other marketing techniques to increase awareness and sales.
3. Product improvement: Improving the quality or features of existing
products to make them more attractive to customers.
4. Distribution: Expanding distribution channels to reach more customers,
or improving existing distribution channels to make them more efficient.
5. Customer retention: Focusing on retaining existing customers by
improving customer service, offering loyalty programs, and other customer
retention strategies.
● Market penetration is often seen as the least risky growth strategy, as it involves
selling existing products to existing customers. However, it can be challenging to
increase market share in a crowded or competitive market. Market penetration
can also lead to market saturation, where there is limited potential for further
growth.
● Overall, market penetration can be a useful strategy for organizations looking to
grow without taking on significant risk. However, it's important to consider the
market conditions and competitive landscape before pursuing this strategy.
● Example: Fast food restaurants operate in the same market, and hence, their
target customers are the same. Let us assume restaurant A has more customers
than B. The former can have a unique menu or discounted price, or maybe it
keeps open 24/7, which the latter does not do to attract new customers. This
way, restaurant A would have a larger market share for their existing products
and services.

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MARKET DEVELOPMENT (Existing Products, New Markets)

● Market Development is one of the strategies in the Ansoff Matrix that focuses on
expanding the market for existing products. The goal of market development is to
increase sales by selling existing products to new customers or new
geographical markets.
● Some common tactics used in market development include:
1. Market segmentation: Identifying new customer segments with unmet
needs and tailoring marketing and sales efforts to meet those needs.
2. New distribution channels: Developing new distribution channels, such
as online sales or partnerships with retailers, to reach new customers.
3. New product features: Adding new features or functionality to existing
products to appeal to new customers or market segments.
4. Expansion into new geographical markets: Entering new geographical
markets with existing products and distribution channels.
● Market development is often seen as a higher risk strategy than market
penetration, as it involves entering new markets or customer segments with
existing products. However, it can also be a highly rewarding strategy, as it can
lead to significant growth opportunities and a diversification of the customer
base.
● Overall, market development can be a useful strategy for organizations looking to
diversify their customer base and reduce dependence on existing markets.
However, it's important to thoroughly research new markets and assess the risks
and potential rewards before pursuing this strategy.
● Example: The e-commerce firm Amazon, Inc. decided to set up a
brick-and-mortar store in the United States. However, even though the brand has
built a reputation for itself in the online shopping sector, its struggles could be
observed given the physically operating competitors in the market. Hence, for
Amazon, establishing itself in the new market with products existing in its online
store might take time.

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PRODUCT DEVELOPMENT (New Products, Existing Markets)

● Product Development is one of the strategies in the Ansoff Matrix that focuses on
developing new products for existing markets. The goal of product development
is to increase sales by offering new and improved products to existing customers.
● Some common tactics used in product development include:
1. Product innovation: Developing new products that meet the needs of
existing customers, or improving existing products to increase their
appeal.
2. Market research: Conducting research to identify customer needs and
preferences, and developing products that meet those needs.
3. New product launches: Launching new products in existing markets,
with a focus on building brand awareness and attracting new customers.
4. Product diversification: Expanding the product portfolio to offer a wider
range of products and increase customer appeal.
● Product development is often seen as a higher risk strategy than market
penetration, as it involves developing new products and introducing them to
existing markets. However, it can also be a highly rewarding strategy, as it can
lead to significant growth opportunities and a diversification of the product
portfolio.
● Overall, product development can be a useful strategy for organizations looking
to diversify their product portfolio and increase their appeal to existing customers.
However, it's important to thoroughly research new products and assess the risks
and potential rewards before pursuing this strategy.
● Example: An electric vehicle manufacturer announces to roll out hybrid
automobiles in a city. It is also in line with the local government’s initiative to
ensure effective transportation electrification at a lenient cost. Furthermore, this
announcement marks the introduction of a new product into the already existing
automobile market to make transportation eco-friendly in the city.

DIVERSIFICATION (New Products, New Markets)

● Diversification is a strategy in the Ansoff Matrix that involves developing new

products for new markets, or entering new markets with new products. The goal

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 of diversification is to increase sales and reduce dependence on existing markets
and products.
● Diversification can be achieved through two main strategies in the Ansoff Matrix:
Product Diversification and Market Diversification.
1. Product Diversification: This involves developing new products for new
markets, with the goal of increasing sales by offering new products to new
customer segments or new geographical markets.
2. Market Diversification: This involves entering new markets with existing
products, or entering new markets with new products, with the goal of
increasing sales by selling existing or new products to new customers or
new geographical markets.
● Furthermore, Diversification can also be classified into:
1. Related Diversification: (NEW Market, NEW Product): This involves the
production of a new category of goods that complements the existing
portfolio, in order to penetrate a new but related market. In 2007,
Coca-Cola spent $4.1 billion to acquire Glaceau, including its health drink
brand Vitaminwater. With a year-on-year decline in sales of carbonated
soft drinks like Coca-Cola, the brand anticipates the drinks market may be
heading for a less-sugary future – so has jumped on board the growing
health drink sector.
2. Unrelated Diversification: (NEW Market, NEW Product): Finally,
unrelated diversification entails entry into a new industry that lacks
important similarities with the company’s existing markets. Coca-Cola
generally avoids risky adventures into unknown territories and can instead
utilize its brand strength to continue growing within the drinks industry.
That said, Coca-Cola offers official merchandise from pens and glasses to
fridges, therefore exploiting its strong brand advocacy through this
strategy.
● Diversification is often seen as the highest risk strategy in the Ansoff Matrix, as it
involves entering new markets and developing new products. However, it can
also be a highly rewarding strategy, as it can lead to significant growth
opportunities and a diversification of the customer base and product portfolio.
● Overall, diversification can be a useful strategy for organizations looking to
reduce dependence on existing markets and products, and to explore new
growth opportunities. However, it's important to thoroughly research new markets

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 and products and assess the risks and potential rewards before pursuing this
strategy.
● Example: Maria is in the food industry, and her outlets are doing great. However,
she plans to start a textile business with an entirely new market segment to
target. Doing so may involve a high degree of risk as Maria is completely new
concerning the products she will be dealing with and the market she is planning
to enter.

Advantages of the Ansoff Matrix

1. The Ansoff Matrix is a simple and straightforward tool that is easy to understand
and use, making it accessible to a wide range of users.
2. The Ansoff Matrix provides a clear and concise framework for analyzing and
evaluating growth strategies, making it easier to make informed decisions about
the organization's growth plans.
3. The Ansoff Matrix helps organizations assess the level of risk associated with
each strategy, and determine which strategies are most suitable given the
organization's risk tolerance.
4. The Ansoff Matrix can help organizations identify potential growth opportunities
and determine which strategies are best suited for achieving those opportunities.
5. The Ansoff Matrix can help organizations develop a cohesive growth strategy
that takes into account both the market opportunities and the organization's
capabilities and strengths.
6. The Ansoff Matrix can be used to communicate the organization's growth
strategy to stakeholders, including employees, shareholders, and customers,
helping to build support and commitment to the strategy.

Disadvantages of the Ansoff Matrix

1. The Ansoff Matrix provides a limited framework for evaluating growth strategies,
and may not be suitable for organizations with more complex or diverse growth
objectives.
2. The Ansoff Matrix takes a simplistic approach to growth strategies, and may not
fully capture the complexity and nuances of real-world business situations.

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 3. The Ansoff Matrix is a prescriptive tool, and may not provide enough flexibility to
accommodate the unique needs and constraints of different organizations.
4. The Ansoff Matrix relies on qualitative assessments of growth strategies, and
does not provide any quantitative data to support decision-making
5. The Ansoff Matrix relies on subjective assessments of risk and market
opportunities, and may not provide consistent or objective results.

Ansoff Matrix Example: Coca-Cola

GRAND STRATEGIES as a tool for Strategy Formulation

Grand strategies refer to the overall plans that organizations, governments, and other
entities adopt to achieve their long-term goals and objectives. These strategies are seen
as the basis for coordinated and sustained efforts directed towards achieving long term
business objectives.

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These strategies can be broadly classified into four categories: stability, expansion,
retrenchment, and combination.

STABILITY STRATEGY

● The stability strategy is a grand strategy that involves maintaining the status quo
and focusing on the organization's core business activities. This strategy is
typically adopted when the organization is facing a stable and predictable
environment or when it needs to consolidate its gains before pursuing further
growth.
● One of the key goals of a stability strategy is to preserve existing resources and
minimize risk. This is achieved by focusing on the organization's core business
activities and avoiding significant changes or expansion. An organization may
invest in its existing operations to improve efficiency and effectiveness, but it
does not engage in major new initiatives or projects.
● A stability strategy is appropriate for organizations that are in a strong financial
position, have a well-established market position, and face a stable and
predictable environment. For example, an organization that has a strong brand
and a loyal customer base may adopt a stability strategy to maintain its position
and avoid the risk of disrupting its business by pursuing new opportunities.
● However, while a stability strategy can help preserve the organization's resources
and minimize risk, it can also limit its growth potential and leave it vulnerable to

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 changes in the external environment. As such, organizations that adopt a stability
strategy must be prepared to adapt and adjust their strategy if the external
environment changes.

When & Why do organizations follow the Stability Strategy?

● Organizations follow the stability strategy when they prioritize maintaining the
status quo and preserving their existing operations, products, and services.
Some specific circumstances that may prompt organizations to pursue a stability
strategy include:
1. Maturity: If the organization has reached a mature stage in its life cycle,
with established products and markets, it may prioritize stability and focus
on maintaining its existing operations and customer base.
2. Uncertainty: If the organization is facing significant uncertainty in the
market, such as changes in regulations, competition, or customer
behavior, it may pursue a stability strategy to reduce risk and ensure the
survival of its operations.
3. Limited resources: If the organization has limited resources, such as
capital, manpower, or expertise, it may pursue a stability strategy to
prioritize its existing operations and avoid overextending itself.
4. Risk aversion: If the organization is risk-averse and wants to minimize
exposure to new products, services, or markets, it may pursue a stability
strategy to maintain its existing operations and minimize risk.
5. Stable financial performance: If the organization is achieving stable
financial performance and is satisfied with its current level of profitability
and market position, it may pursue a stability strategy to maintain its
existing operations and avoid unnecessary changes.
● In summary, organizations follow the stability strategy when they prioritize
maintaining the status quo and preserving their existing operations, products,
and services. The decision to pursue a stability strategy should be based on a
careful analysis of the organization's financial position, market conditions, and
risk tolerance.

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EXPANSION / GROWTH STRATEGY

● The expansion strategy is a grand strategy that involves expanding the

organization's operations, products, and services, or entering new markets. The
goal of an expansion strategy is to take advantage of new opportunities and
increase the organization's size, reach, and influence.
● An expansion strategy can be either internal, such as developing new products,
or external, such as acquiring other companies or entering new markets. In some
cases, organizations may pursue both internal and external expansion strategies.
For example, an organization may develop new products while also acquiring
companies that complement its existing business.
● Organizations adopt an expansion strategy when they are in a growth phase or
when they see new opportunities in the market. This strategy can help
organizations increase their market share, improve their competitiveness, and
achieve long-term growth.
● However, expansion strategies can also be risky, as they often require significant
investments in new products, markets, or technologies. Organizations that
pursue expansion strategies must be prepared to allocate the necessary
resources and manage the associated risks. Additionally, organizations that
expand too quickly or without adequate preparation can encounter problems
such as poor integration of acquired companies or inadequate support for new
products.

When & Why do organizations follow the Expansion Strategy?

● Organizations follow the expansion strategy when they see opportunities for
growth in the market, such as untapped customer segments or growth in a
particular industry. Some specific circumstances that may prompt organizations
to pursue an expansion strategy include:
1. Strong financial position: Organizations that are in a strong financial
position, with high revenue and profits, may be well positioned to pursue
an expansion strategy.
2. Market demand: If the organization sees increasing demand for its
products or services, or for similar products or services in the market, it
may pursue an expansion strategy to take advantage of this demand.

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 3. Competitive advantage: If the organization has a unique value
proposition or a strong competitive advantage, it may pursue an
expansion strategy to further strengthen its position in the market.
4. Access to capital: If the organization has access to capital, such as
through loans, investments, or profits, it may pursue an expansion
strategy to invest in new products, services, or markets.
5. Positive industry trends: If the organization sees positive trends in its
industry, such as increased investment or regulatory changes that create
opportunities, it may pursue an expansion strategy to take advantage of
these trends.
● In summary, organizations follow the expansion strategy when they see
opportunities for growth in the market and have the resources and competitive
advantage to pursue these opportunities. The decision to pursue an expansion
strategy should be based on a careful analysis of market conditions, the
organization's financial position, and its ability to allocate the necessary
resources to support growth.

RETRENCHMENT STRATEGY

● The retrenchment strategy is a defensive grand strategy that involves reducing

the size or scope of an organization's operations. The goal of a retrenchment
strategy is to improve the organization's financial position, increase efficiency,
and focus on its core business activities.
● Retrenchment strategies are often adopted in response to changing market
conditions or economic downturns. For example, if the organization is facing
declining sales, increased competition, or reduced demand, it may choose to
retrench to reduce its costs, improve its profitability, and regain its
competitiveness.
● Retrenchment strategies can take many forms, including reducing the number of
employees, divesting non-core businesses, closing unprofitable operations, or
reducing the organization's overall spending. In some cases, the organization
may also seek to streamline its operations and improve its efficiency by
consolidating its operations or reorganizing its business activities.
● However, retrenchment strategies can also be risky, as they often involve
significant changes to the organization's operations, structure, and culture.

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 Additionally, retrenchment strategies can also lead to decreased morale among
employees, reduced innovation, and decreased competitiveness.

When & Why do organizations follow the Retrenchment Strategy?

● Organizations follow the retrenchment strategy when they need to reduce the
size or scope of their operations to improve their financial position, increase
efficiency, or refocus on their core business activities. Some specific
circumstances that may prompt organizations to pursue a retrenchment strategy
include:
1. Financial distress: If the organization is facing financial difficulties, such
as declining sales, reduced profits, or high levels of debt, it may pursue a
retrenchment strategy to reduce costs and improve its financial position.
2. Competitive pressure: If the organization is facing increased competition
or changing market conditions that threaten its profitability, it may pursue a
retrenchment strategy to reduce costs, increase efficiency, and regain
competitiveness.
3. Unprofitable operations: If the organization has unprofitable operations
or businesses, it may pursue a retrenchment strategy to divest these
operations and focus on its core business activities.
4. Overcapacity: If the organization has excess capacity or resources that
are not being effectively utilized, it may pursue a retrenchment strategy to
streamline its operations and reduce costs.
5. Strategic shift: If the organization wants to shift its focus to new products,
services, or markets, it may pursue a retrenchment strategy to divest
non-core businesses and allocate resources to its new focus.
● In summary, organizations follow the retrenchment strategy when they need to
reduce the size or scope of their operations to improve their financial position,
increase efficiency, or refocus on their core business activities. The decision to
pursue a retrenchment strategy should be based on a careful analysis of the
organization's financial performance, market conditions, and resource allocation.

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COMBINATION STRATEGY

● The combination strategy in grand strategies refers to the integration of different

strategies into a cohesive plan to achieve a specific set of goals. A combination
strategy can involve elements of stability, expansion, and retrenchment, as well
as other strategies, such as diversification or specialization.
● Organizations that follow a combination strategy can leverage their existing
operations and resources while also pursuing new growth opportunities and
addressing any challenges they may face. This approach allows organizations to
maintain a stable base of operations while also pursuing new growth
opportunities, reducing costs where necessary, and refocusing on their core
business activities.
● A combination strategy can provide organizations with greater flexibility and
adaptability in responding to changes in the market and in their internal
operations. It can also help organizations balance the risk and reward of pursuing
growth opportunities with the need to maintain stability and address any
challenges they may face.
● The decision to pursue a combination strategy should be based on a careful
analysis of the organization's goals, market conditions, financial performance,
and resource availability. Organizations that follow a combination strategy must
have strong leadership, clear planning, and effective execution to ensure that
they can successfully integrate different strategies into a cohesive plan.

When & Why do organizations follow the Combination Strategy?

Organizations follow the combination strategy when they need to balance multiple goals
and respond to a variety of internal and external factors. A combination strategy allows
organizations to integrate different strategies, such as stability, expansion, and
retrenchment, into a cohesive plan to achieve a specific set of goals.

Some specific circumstances that may prompt organizations to pursue a combination

strategy include:

1. Market volatility: If the organization operates in a market that is characterized

by rapid changes and uncertainty, a combination strategy can help it maintain
stability while also pursuing growth opportunities.

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 2. Diverse operations: If the organization has a portfolio of businesses with
diverse operational needs and goals, a combination strategy can help it balance
the needs of each business and allocate resources effectively.
3. Balancing risk and reward: If the organization wants to pursue growth
opportunities while also minimizing risk, a combination strategy can help it
balance the risk and reward of different initiatives.
4. Shifting priorities: If the organization's goals and priorities are changing, a
combination strategy can help it adapt to new circumstances while also
maintaining its existing operations and resources.

In summary, organizations follow the combination strategy when they need to balance
multiple goals and respond to a variety of internal and external factors. A combination
strategy allows organizations to integrate different strategies into a cohesive plan to
achieve a specific set of goals, and it provides greater flexibility and adaptability in
responding to changes in the market and in their internal operations.

THE GRAND STRATEGY MATRIX

A Grand Strategy Matrix is an instrument used for creating alternative and different
strategies for an organization. All companies and divisions can be positioned in one of
the Grand Strategy Matrix’s four strategy quadrants.

The Matrix charts two dimensions – the market growth and the organization's
competitive position. Each of the four quadrants has a number of strategic options, and
the framework is designed to help evaluate the potential direction to move in as a
business.

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Quadrant I (strong competitive position/rapid market growth)

● Quadrant 1 of the Grand Strategy Matrix is meant for those firms which are in a
strong competitive position and flourishing with rapid market growth.
● Firms located in this quadrant are in an excellent strategic position and they need
to concentrate on current markets and products.
● Concentration on current markets reveals the adoption of strategies such as
market penetration and market development and likewise concentration on
current products calls for adoption of product development strategy.
● These firms or divisions should continue to ponder upon current competitive
advantage and must avoid losing the focus from the competitive advantage
gained over the time.
● In case quadrant one firms have excessive resources, then, it would be wise to
adopt the expansion program and indulge in backward, forward, or horizontal

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 integration. But a careful thought process needs to be done before assuming
such integrations so that any meditation from the current competitive advantage
can be avoided.
● The quadrant one firm also requires identifying the risk associated mainly if it is
committed to a single product line. The best strategy to espouse in this case is
related diversification because it can be helpful in reducing the risk associated
with the slender product line.
● One of the main advantages to the quadrant one firms is that they can afford to
exploit the external opportunities and magnify the wealth in numerous areas of
dealings.

Quadrant II (weak competitive position/rapid market growth)

● Firms and divisions falling in quadrant 2 of the Grand Strategy Matrix are
characterized with a weak competitive position in a fast growing market.
● The present market position of these firms must click in the minds of the
management and they need to weigh up the firms’ present market place critically.
● The opportunity lagging here is that such firms are operating in a growing
industry but the problem area is that they are competing ineffectively.
● An in-depth analysis is necessary to identify the gray areas of incompetence and
the reasons behind such ineffectiveness. Moreover, adoption of counteractive
measures is also indispensable so that the ability to compete effectively is
strengthened and firms can find their space in the more competitive environment.
● Since quadrant two firms are in a rapid market growth industry, therefore, an
intensive strategy, more appropriately, can be classified as the first option to
adopt. The dilemma in espousing the intensive strategy arises when the firm is
lacking distinctive competence or competitive advantage. In this scenario the
most enviable substitute is horizontal integration.
● In case the quadrant II firm does not find any suitable strategy to adopt then
divestiture of some divisions can be considered as another option. Such an
arrangement may avail the desired funding to buy back the shares or to invest in
the current venture in other divisions to strengthen the competitive position.
Moreover, as a last resort, liquidation should be considered so that another
business can be acquired.

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Quadrant III (weak competitive position/slow market growth)

● The quadrant 3 firms are operating in a slow growth industry with a weak
competitive position.
● These firms are prone to further decline which may result possibly in liquidation.
● To avoid such situations quadrant three firms need to introduce drastic changes
in almost all the areas of managing the company. The management has to
change its philosophy and should necessarily adopt new approaches to
governing the firm. The management should be willing to incur some extensive
costs in the overall revamp of the organization.
○ Strategic retrenchment (assets reduction) would be the best option to be
considered first.
○ Secondly diversifying the overall business through shifting the resources
should be evaluated as another choice (related or unrelated
diversification).
○ The final option is again divestiture or liquidation.

Quadrant IV (strong competitive position/slow market growth)

● The firms falling in quadrant 4 are characterized as having a strong competitive

position but are operating in a slow growth industry.
● These firms have to quest for the promising growth areas and to exploit the
opportunities in the growing markets as they possess the strengths to instigate
diversified programs in growing industries.
● Ideally quadrant four firms have limited requirements of funds for internal growth
whereas they enjoy the high cash flows due to the competitive position they are
characterized for.
● Therefore, these firms can often hunt for related or unrelated diversification
fruitfully. Due to availability of excessive funds quadrant IV firms can also pursue
joint ventures.

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 MODULE 6

PORTER’S 5 FORCES, PORTER’S GENERIC

STRATEGIES AND VALUE CHAIN

Porter’s 5 Forces Model

Meaning

● Porter’s Five Forces analysis is a framework that helps analyze the level of
competition within a certain industry. It was developed by Michael Porter, a
renowned Harvard Business School professor, in 1979. The model consists of
five forces that determine the intensity of competition in an industry and the
potential for earning attractive profits.
● It is especially useful when starting a new business or when entering a new
industry sector.
● According to this framework, competitiveness does not only come from
competitors. Rather, the state of competition in an industry depends on five basic
forces: threat of new entrants, bargaining power of suppliers, bargaining power of
buyers, threat of substitute products or services, and existing industry rivalry.
● The collective strength of these forces determines the profit potential of an
industry and thus its attractiveness.
● If the five forces are intense (e.g. airline industry), almost no company in the
industry earns attractive returns on investments. If the forces are mild however
(e.g. soft drink industry), there is room for higher returns. Each force will be
elaborated on below with the aid of examples from the airline industry to illustrate
the usage.

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History of the Model

The tool was created by Harvard Business School professor Michael Porter. Since its
publication in 1979, it has become one of the most popular and highly regarded
business strategy tools.

Porter recognized that organizations like to keep a close watch on their rivals, but, in his
Harvard Business Review article, 'How Competitive Forces Shape Strategy,' he
encouraged business leaders to look beyond the actions of their competitors and
examine the forces at work in their wider business environment.

Components of the Model

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 Porter’s 5 Forces Model - Factors

1. THREAT OF NEW ENTRANTS

This force represents the ease with which new firms can enter the industry and
compete against established players. The threat of new entrants is a key
determinant of the intensity of competition in an industry and the potential for
earning attractive profits.

There are several factors that influence the threat of new entrants in an industry,
including:

a) Economies of scale: Firms that have a larger scale of operations often

have lower production costs than smaller firms, which can make it difficult
for new entrants to compete on price.
b) Capital requirements: High capital requirements can act as a barrier to
entry, as new entrants may not have the financial resources to invest in
the necessary equipment, facilities, and technology.

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 c) Access to distribution channels: Established firms often have
established relationships with distributors, making it difficult for new
entrants to gain access to customers.
d) Government regulations: Government regulations can act as a barrier to
entry by setting standards that new entrants must meet in order to enter
the industry.
e) Brand recognition: Established firms often have a well-established brand
that is recognized by customers, making it difficult for new entrants to gain
customer loyalty.

The threat of new entrants in an industry has significant implications for

established firms. If the threat of new entrants is high, established firms can
expect intense competition and reduced profitability. On the other hand, if the
threat of new entrants is low, established firms can expect to earn higher profits
due to reduced competition.

In conclusion, the threat of new entrants is an important factor to consider when

analyzing the competitiveness of an industry. Understanding the factors that
influence the threat of new entrants and the implications for established firms can
help firms make informed decisions about their strategies and improve their
competitive position in the industry.

Example for “Threat of New Entrants”

An example of the "Threat of New Entrants" in Porter's Five Forces Model can be
seen in the retail industry. In the retail industry, the threat of new entrants is
considered to be moderate due to the significant capital requirements and
economies of scale needed to compete with established players. For example,
established retail chains like Walmart and Target have established relationships
with suppliers, a well-established brand, and a large customer base, making it
difficult for new entrants to gain a foothold in the market. However, with the
growth of e-commerce and technology, new entrants have the opportunity to
enter the market by offering unique and innovative products or by leveraging
technology to offer a better customer experience. This increases the threat of
new entrants in the retail industry and keeps established players on their toes.

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1. THREAT OF NEW ENTRANTS
2. BARGAINING POWER OF SUPPLIERS

Bargaining power of suppliers refers to the ability of suppliers to influence the

prices, quality, and availability of the inputs or raw materials that are used to
produce a product or service. This force has a significant impact on the
profitability of firms in an industry, as it can affect the cost of inputs and the
availability of raw materials.

There are several factors that determine the bargaining power of suppliers in an
industry:

a) Number of suppliers: The fewer the number of suppliers in an industry,

the more bargaining power they have. This is because if there are only a
few suppliers, firms in the industry will have limited options and will be
more reliant on them.
b) Importance of inputs to the industry: If inputs are critical to the
production of a product or service, suppliers will have more bargaining
power as they have a greater impact on the industry.
c) Switching costs: The higher the switching costs for firms in the industry,
the more bargaining power suppliers have. This is because it will be more
difficult for firms to switch to alternative suppliers, even if prices are
unfavorable.
d) Integration: If suppliers have integrated into the production process of
firms in the industry, they will have more bargaining power as they are a
more essential part of the production process.
e) Threat of forward integration: If suppliers have the ability to integrate
into the industry and compete with firms in the industry, they will have
more bargaining power.

In conclusion, the bargaining power of suppliers can have a significant impact on

the profitability of firms in an industry. Firms in an industry with high bargaining
power among suppliers will need to negotiate favorable prices and terms with
suppliers to maintain profitability. On the other hand, suppliers with high
bargaining power can use their leverage to negotiate higher prices or better
terms, which can have a significant impact on the profitability of firms in the
industry.

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 Example for “Bargaining Power of Suppliers”

An example of the "Bargaining Power of Suppliers" in the context of the Porter's

Five Forces Model could be the automotive industry. In this industry, suppliers of
raw materials such as steel and aluminum have a high bargaining power. This is
because there are a limited number of suppliers for these materials, and the
automotive industry is dependent on these materials for production. As a result,
the suppliers of raw materials have the ability to dictate the prices they charge,
which can have a significant impact on the profitability of firms in the automotive
industry. In this scenario, firms in the automotive industry will need to negotiate
favorable pricing with their suppliers to maintain profitability, or seek out
alternative suppliers with lower bargaining power.

3. BARGAINING POWER OF BUYERS

The bargaining power of buyers refers to the ability of buyers to influence the
prices, quality, and availability of products or services offered by firms in an
industry. This force has a significant impact on the profitability of firms in an
industry, as it can affect the prices that firms can charge for their products or
services.

There are several factors that determine the bargaining power of buyers in an
industry:

a) Number of buyers: The fewer the number of buyers in an industry, the

more bargaining power they have. This is because if there are only a few
buyers, firms in the industry will have limited options and will be more
reliant on them.
b) Importance of the product or service to buyers: If the product or
service is critical to the operations of buyers, they will have more
bargaining power as they have a greater impact on the industry.
c) Switching costs: The higher the switching costs for buyers, the more
bargaining power they have. This is because it will be more difficult for
buyers to switch to alternative suppliers, even if prices are unfavorable.

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 d) Integration: If buyers have integrated the product or service into their
operations, they will have more bargaining power as they are a more
essential part of their operations.
e) Threat of backward integration: If buyers have the ability to integrate
into the industry and compete with firms in the industry, they will have
more bargaining power.

In conclusion, the bargaining power of buyers can have a significant impact on

the profitability of firms in an industry. Firms in an industry with high bargaining
power of buyers will need to negotiate favorable prices and terms with buyers to
maintain profitability. On the other hand, buyers with high bargaining power can
use their leverage to negotiate lower prices or better terms, which can have a
significant impact on the profitability of firms in the industry.

Example for “Bargaining Power of Buyers”

An example of the "Bargaining Power of Buyers" in the context of the Porter's

Five Forces Model could be the consumer electronics industry. In this industry,
buyers such as large retail chains have a high bargaining power. This is because
they have the ability to purchase large quantities of consumer electronics
products, and they have the power to dictate the prices they are willing to pay. As
a result, consumer electronics firms will need to offer products at prices that are
attractive to these large buyers in order to remain competitive and maintain
profitability. In this scenario, consumer electronics firms will have limited ability to
set prices and will need to focus on offering unique features and high-quality
products in order to differentiate themselves from competitors and maintain
profitability.

4. COMPETITIVE RIVALRY

Competitive rivalry refers to the intensity of competition between firms in an

industry. This force has a significant impact on the profitability of firms in an
industry, as it affects the prices that firms can charge for their products or
services, the level of innovation, and the ability to attract and retain customers.

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There are several factors that determine the level of competitive rivalry in an
industry:

a) Number of competitors: The more competitors in an industry, the greater

the level of competitive rivalry. This is because firms are competing for a
limited pool of customers and market share.
b) Market growth rate: The slower the market growth rate, the greater the
level of competitive rivalry. This is because firms will be competing for a
smaller pool of customers and market share.
c) Market size: The smaller the market size, the greater the level of
competitive rivalry. This is because firms are competing for a limited pool
of customers and market share.
d) Exit barriers: The higher the exit barriers, the greater the level of
competitive rivalry. This is because firms are less likely to exit the industry,
leading to a larger number of competitors.
e) Differentiation: The lower the differentiation between products or
services, the greater the level of competitive rivalry. This is because firms
are competing on price and there is less differentiation to attract
customers.

In conclusion, the level of competitive rivalry can have a significant impact on the
profitability of firms in an industry. Firms in an industry with high levels of
competitive rivalry will need to compete on price, quality, and innovation to attract
and retain customers and maintain profitability. On the other hand, firms in an
industry with low levels of competitive rivalry will have more flexibility in setting
prices and will have a more favorable market position.

Example for “Competitive Rivalry”

An example of "Competitive Rivalry" in the context of the Porter's Five Forces

Model could be the airline industry. In this industry, there is intense competition
between major airline carriers, such as American Airlines, Delta, and United.
These companies compete for customers by offering flights to the same
destinations, and they are also constantly seeking ways to differentiate
themselves from one another through factors such as flight schedules, pricing,

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 and amenities. The intense competition in the airline industry results in frequent
price wars, as each company tries to attract customers by offering lower prices
than their competitors. In this scenario, the competitiveness of the airline industry
is a significant force that shapes the behavior of the firms within the industry, and
impacts their ability to maintain profitability.

5. THREAT OF SUBSTITUTES

The threat of substitutes refers to the availability of alternative products or

services that can be used in place of the products or services offered by firms in
an industry. This force has a significant impact on the profitability of firms in an
industry, as it affects the prices that firms can charge for their products or
services and the level of demand for the products or services offered.

There are several factors that determine the threat of substitutes in an industry:

a) Availability of substitute products or services: The greater the

availability of substitute products or services, the greater the threat of
substitutes.
b) Price of substitute products or services: The lower the price of
substitute products or services, the greater the threat of substitutes.
c) Performance of substitute products or services: The better the
performance of substitute products or services, the greater the threat of
substitutes.
d) Switching costs: The lower the switching costs, the greater the threat of
substitutes. This is because it will be easier for customers to switch to
substitute products or services, even if the price is slightly higher.
e) Customer preferences: If customers have a preference for substitute
products or services, the threat of substitutes will be greater.

In conclusion, the threat of substitutes can have a significant impact on the

profitability of firms in an industry. Firms in an industry with a high threat of
substitutes will need to compete on price, quality, and innovation to attract and
retain customers and maintain profitability. On the other hand, firms in an industry
with a low threat of substitutes will have more flexibility in setting prices and will
have a more favorable market position.

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Example for “Threat of Substitutes”

An example of the "Threat of Substitutes" in the context of the Porter's Five

Forces Model could be the coffee industry. In this industry, there is a significant
threat of substitutes, as consumers have many alternative options for obtaining
caffeine such as tea, energy drinks, and soda. As a result, coffee companies
must constantly innovate and differentiate themselves in order to remain
competitive. This could be through offering unique blends, single origin coffees,
or eco-friendly packaging. Additionally, coffee companies must also ensure that
their prices are competitive with other alternatives, in order to maintain
profitability. In this scenario, the threat of substitutes is a significant force that
shapes the behavior of the firms within the coffee industry, and impacts their
ability to maintain profitability.

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Porter’s Generic Strategies

Porter's generic strategies are a framework developed by Michael Porter, a renowned

Harvard Business School professor, to help businesses determine the most effective
way to achieve a competitive advantage in their industry. The framework outlines three
primary strategies that businesses can use to gain a competitive advantage: cost
leadership, differentiation, and focus.

Cost Leadership Strategy

This generic strategy calls for being the low cost producer in an industry for a given
level of quality. The firm sells its products either at average industry prices to earn a
profit higher than that of rivals, below average industry prices to earn a profit higher than
that of rivals, or below average industry prices to gain market share. In the event of a
price war, the firm can maintain some profitability while the competition suffers losses.
Even without a price war, as the industry matures and prices decline, the firms that can

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produce more cheaply will remain profitable for a longer period of time. The cost
leadership strategy usually targets a broad market.

Some of the ways that firms acquire a cost advantage are by improving process
efficiencies, gaining unique access to a large source of lower cost materials, making
optimal outsourcing and vertical integration decisions, or avoiding some costs
altogether. If competing firms are unable to lower their costs by a similar amount, the
firm may be able to sustain a competitive advantage based on cost leadership.

Firms that succeed in cost leadership often have the following internal strengths:

● Access to the capital required to make a significant investment in production

assets; this investment represents a barrier to entry that many firms may not
overcome.
● Skill in designing products for efficient manufacturing, for example, having a
small component count to shorten the assembly process.
● High level of expertise in manufacturing process engineering.
● Efficient distribution channels.

The risks of a low-cost strategy include the following:

1. Other firms may be able to lower their costs as well, increasing competition
2. As technology improves, the competition may be able to leapfrog their production
capabilities, thus eliminating competitive advantage

Examples of companies with cost leadership positions include: Southwest Airlines,

Wal-Mart, McDonald’s, EasyJet, Costco, and Amazon.

Differentiation Strategy

A differentiation strategy calls for the development of a product or service that offers
unique attributes that are valued by customers and that customers perceive as being
better than or different from the products of the competition. The value added by the
uniqueness of the product may allow the firm to charge a premium price for it. The firm
hopes that the higher price will more than cover the extra costs incurred in offering the
unique product. Because of the product’s unique attributes, if suppliers increase their
prices, the firm may be able to pass along the costs to its customers, who cannot find
substitute products easily.

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Firms that succeed in a differentiation strategy often have the following internal
strengths:

● Access to leading scientific research

● Highly skilled and creative product development team
● Strong sales team with the ability to successfully communicate the perceived
strengths of the product
● Corporate reputation for quality and innovation

The risks associated with a differentiation strategy include the following:

1. Imitation by competitors possible

2. Changes in customer tastes and preferences possible
3. Various firms pursuing this strategy may be able to achieve even greater
differentiation in their market segments

Examples of companies with differentiated products and services are: Apple,

Harley-Davidson, Nespresso, LEGO, Nike, and Starbucks.

Focus/Niche Strategy

The focus strategy concentrates on a narrow segment, and within that segment,
attempts to achieve either a cost advantage or differentiation. The premise is that the
needs of the group can be better served by focusing entirely on them. A firm using a
focus strategy often enjoys a high degree of customer loyalty, and this entrenched
loyalty discourages other firms from directly competing.

The focus strategy has two variants.

a) In cost focus a firm seeks a cost advantage in its target segment,

b) In differentiation focus a firm seeks differentiation in its target segment.

Both variants of the focus strategy rest on differences between a focuser's target
segment and other segments in the industry.

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Because of their narrow market focus, firms pursuing a focus strategy have lower
volumes and therefore less bargaining power with their suppliers. However, firms
pursuing a differentiation-focused strategy may be able to pass higher costs on to
customers since close substitute products do not exist.

Firms that succeed in a focus strategy are able to tailor a broad range of product
development strategies to a relatively narrow market segment that they know very well.

The risks of a focus/niche strategy include the following:

1. Imitation and changes in the target segments may take place

2. It may be fairly easy for a broad-market cost leader to adapt its product in order
to compete directly
3. Other focusers may be able to carve out sub-segments that they can serve better

Examples of companies with a differentiation focus strategy are: Rolls Royce, Omega,
Prada, and Razer.

Examples of companies with a cost focus strategy are: Claire’s, Home Depot, and
Smart.

“Stuck–in-the-Middle strategy”: A Combination of Generic Strategies

The aforementioned generic strategies may not necessarily be compatible with one
another.

If a firm attempts to achieve an advantage on all strategic fronts, it is possible that it

may achieve no advantage at all.

For example, if a firm differentiates itself by supplying very high quality products, it risks
undermining that quality if it seeks to become a cost leader. Even if quality is not
sacrificed, the firm would risk projecting a confusing image to customers.

For this reason, Michael Porter argued that to be successful over the long-term, a firm
must select only one of these three generic strategies. Otherwise, the company would
be “stuck-in-the-middle” and fail to achieve a competitive advantage.

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Porter further argued that firms that are able to succeed at adopting multiple strategies
often do so by creating separate business units for each strategy. By separating the
strategies into different units with different policies and even different cultures, a
company is less likely to become “stuck-in-the-middle”.

However, there also exists the viewpoint that a single generic strategy is not always
ideal because, within the same product, customers often seek multi-dimensional
fulfillments such as a combination of quality, style, convenience, and price.

One example of a company that has been accused of being "stuck in the middle" is
Sears, a former retail giant in the United States. Sears was a department store chain
that tried to offer both low prices and high-quality products and services, but it failed to
excel in either area. Sears attempted to differentiate itself by offering a wide range of
products, including appliances, electronics, clothing, and home goods. However, it
struggled to compete with specialized retailers that offered a better selection of products
in specific categories, such as Best Buy for electronics or Macy's for clothing. At the
same time, Sears attempted to offer low prices by cutting costs and reducing its
workforce, but it was unable to match the prices offered by discount retailers such as
Walmart and Target. The result was that Sears became "stuck in the middle" between
these two strategies, with a declining customer base and financial performance. In
2018, Sears filed for bankruptcy and was forced to close hundreds of stores across the
United States.

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Porter’s Value Chain

Meaning of the term “Value Chain”

A value chain is a combination of the systems a company or organization uses to make

money. That is, a value chain is made up of various subsystems that are used to create
products or services. This includes the process from start to finish.

Michael Porter’s Value Chain

A company is, in essence, a collection of activities that are performed to design,

produce, market, deliver, and support its product (or service). Its goal is to produce the
products in such a way that they have greater value (to customers) than the original
cost of creating them. The added value can be considered profits and is often indicated
as ‘margin’. A systematic way of examining all of these internal activities and how they
interact is necessary when analyzing the sources of competitive advantage. A company
gains a competitive advantage by performing strategically important activities more

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cheaply or better than its competitors. Michael Porter’s value chain helps disaggregate
a company into its strategically relevant activities, thereby creating a clear overview of
the internal organization. Based on this overview, managers are better able to assess
where true value is created and where improvements can be made.

Michael Porter's Value Chain Model is a framework that describes the various activities
that a company performs to create value for its customers. The model consists of two
main categories of activities: primary activities and support activities.

PRIMARY ACTIVITIES

Primary activities are directly involved in the production and selling of the actual
product. They cover the physical creation of the product, its sales, transfer to the buyer
as well as after sale assistance. They consist of the following:

1. Inbound Logistics: Inbound logistics include the receiving, warehousing, and

inventory control of a company's raw materials. This also covers all relationships
with suppliers. For example, for an e-commerce company, inbound logistics
would be the receiving and storing of products from a manufacturer that it plans
to sell.
2. Operations: Operations include procedures for converting raw materials into a
finished product or service. This includes changing all inputs to ready them as
outputs. In the above e-commerce example, this would include adding labels or
branding or packaging several products as a bundle to add value to the product.
3. Outbound Logistics: All activities to distribute a final product to a consumer are
considered outbound logistics. This includes delivery of the product but also
includes storage and distribution systems and can be external or internal. For the
e-commerce company above, this includes storing products for shipping and the
actual shipping of said products.
4. Marketing & Sales: Strategies to enhance visibility and target appropriate
customers—such as advertising, promotion, and pricing—are included in
marketing and sales. Basically, these are all activities that help convince a
consumer to purchase a company’s product or service. Continuing with the
above example, an e-commerce company may run ads on Instagram or build an
email list for email marketing.

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 5. Service: This includes activities to maintain products and enhance consumer
experience—customer service, maintenance, repair, refund, and exchange. For
an e-commerce company, this could include repairs or replacements, or a
warranty.

Each of the categories may be vital to competitive advantage depending on the industry.
For a distributor, inbound and outbound logistics are the most critical. For a service firm
providing the service on its premises such as a restaurant or retailer, outbound logistics
may be largely nonexistent and operations the vital category. For a bank engaged in
corporate lending, marketing and sales are a key to competitive advantage through the
effectiveness of the calling officers and the way in which loans are packaged and priced.
For a high-speed copier manufacturer, service represents a key source of competitive
advantage. In any firm, however, all the categories of primary activities will be present to
some degree and play some role in competitive advantage.

SECONDARY ACTIVITIES

Secondary activities are carried out to enhance the efficiency of primary activities. They
go across the primary activities and aim to coordinate and support their functions as
well as possible with each other by providing purchased inputs, technology, human
resources, and various firm-wide managing functions. The dotted lines reflect the fact
that procurement, technology development, and human resource management can be
associated with specific primary activities as well as support the entire value chain.
They consist of the following:

1. Firm Infrastructure: Infrastructure covers a company's support systems and the

functions that allow it to maintain operations. This includes all accounting, legal,
and administrative functions. A solid infrastructure is necessary for all primary
functions.
2. Human Resource Management: Hiring and retaining employees who will fulfill
business strategy, as well as help design, market, and sell the product. Overall,
managing employees is useful for all primary activities, where employees and
effective hiring are needed for marketing, logistics, and operations, among
others.
3. Technological Development: Technological development is used during
research and development and can include designing and developing

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 manufacturing techniques and automating processes. This includes equipment,
hardware, software, procedures, and technical knowledge. Overall, a business
working to reduce technology costs, such as shifting from a hardware storage
system to the cloud, is technological development.
4. Procurement: Procurement is the acquisition of inputs, or resources, for the firm.
This is how a company obtains raw materials, thus, it includes finding and
negotiating prices with suppliers and vendors. This relates heavily to the inbound
logistics primary activity, where an e-commerce company would look to procure
materials or goods for resale.

Steps involved in conducting a Value Chain Analysis

Conducting a value chain analysis involves a series of steps that help businesses
understand their internal operations, identify areas for improvement, and create a
competitive advantage. The following are the general steps involved in conducting a
value chain analysis:

1. Identify the business's primary and support activities: Identify all the
activities involved in the production, marketing, and delivery of the product or
service. The primary activities involve the creation, delivery, and after-sales
support of the product or service. The support activities include the procurement
of raw materials, technology development, and human resource management.
2. Analyze each activity: Analyze each activity to identify its contribution to the
product's overall value, cost, and differentiation from competitors. Determine
which activities add the most value to the product, which ones are costly, and
which ones can be improved.
3. Evaluate costs and benefits: Determine the cost of each activity and compare it
with the value it adds to the product. Evaluate which activities provide a
competitive advantage and which ones should be eliminated or reduced.
4. Identify areas for improvement: Identify the areas where improvements can be
made, and costs can be reduced. This could include streamlining the production
process, optimizing the supply chain, or adopting new technologies.
5. Develop a strategy: Based on the analysis, develop a strategy to improve the
value chain. The strategy should focus on areas that provide the most significant
value to the product and reduce costs.

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 6. Implement the strategy: Once the strategy is developed, implement it in the
organization. This may involve changes to the production process, supply chain,
or technology.
7. Monitor and evaluate the results: Continuously monitor and evaluate the
results of the strategy to determine its effectiveness. This includes tracking
improvements in the value chain, cost reductions, and overall competitiveness of
the product or service.

Advantages of a Value Chain Analysis

1. A value chain analysis helps businesses identify the activities that create the
most value for the customer, which can help the business differentiate itself from
competitors.
2. By analyzing the individual activities involved in the production, marketing, and
delivery of a product or service, businesses can gain a better understanding of
their internal operations and processes.
3. A value chain analysis helps businesses identify areas where they can improve
their operations, reduce costs, and improve the overall efficiency of the
organization.
4. By analyzing the procurement process, businesses can identify ways to optimize
the supply chain and reduce costs.
5. A value chain analysis can provide businesses with the information they need to
make informed decisions about resource allocation, process improvements, and
product development.
6. By identifying the activities that create the most value for the customer,
businesses can focus on improving those activities, which can lead to higher
customer satisfaction.

Disadvantages of a Value Chain Analysis

1. Conducting a value chain analysis can be a time-consuming process, especially

for larger organizations with complex operations. This can be a disadvantage for
businesses that need to make decisions quickly.

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 2. Conducting a value chain analysis requires a significant amount of resources,
including personnel, time, and financial resources.
3. A value chain analysis only looks at the internal operations of a business and
does not take into account external factors that may impact the business, such
as market trends, regulations, or economic conditions.
4. The results of a value chain analysis can be influenced by the biases and
perspectives of those conducting the analysis, which can limit its objectivity.
5. Analyzing the data collected during a value chain analysis can be complex, and it
may require specialized knowledge and tools.
6. It may be challenging to quantify the results of a value chain analysis, which can
make it difficult to measure the effectiveness of any changes made based on the
analysis.

Example of Value Chain Analysis: Starbucks Corporation

PRIMARY ACTIVITIES OF STARBUCKS CORPORATION

1. Inbound Logistics: The inbound logistics for Starbucks refers to selecting the
finest quality of coffee beans by the company appointed coffee buyers from
coffee producers in Latin America, Africa and Asia. In the case of Starbucks, the
green or unroasted beans are procured directly from the farms by the Starbucks
buyers. These are transported to the storage sites after which the beans are
roasted and packaged. These are now ready to be sent to the distribution
centers, few of which are company owned and some are operated by other
logistic companies. The company does not outsource its procurement to ensure
high quality standards right from the point of selection of coffee beans.

2. Operations: Starbucks has a well-established and consistent process for

preparing and serving coffee and other beverages, ensuring that each drink
meets the company's standards for quality and taste. It operates in 65 countries
either in the form of direct stores operated by the company or as licensed stores.
Starbucks has more than 21,000 stores internationally which includes Starbucks
Coffee, Teavana, Seattle’s Best Coffee and Evolution Fresh retail locations.
According to its annual report, the company generated 79% of the total revenue

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 during fiscal year 2013 from its company operated stores while the licensed
stores accounted for 9% of the revenue.

3. Outbound Logistics: There is very little or no presence of intermediaries in

product selling. Majority of the products are sold in their own or licensed stores
only. As a new venture, the company has launched a new range of single-origin
coffees which will be sold through some leading retailers in the U.S.; these are
Guatemala Laguna de Ayarza, Rwanda Rift Valley and Timor Mount Ramelau.

4. Marketing and Sales: Starbucks invests in superior quality products and a

higher level of customer services than aggressive marketing. However, need
based marketing activities are carried out by the company during new product
launches in the form of sampling in areas around the stores.

5. Service: Starbucks aims at building customer loyalty through a high level of

customer service at its stores. The retail objective of Starbucks is, as it says in its
annual report, “to be the leading retailer and brand of coffee in each of our target
markets by selling the finest quality coffee and related products, and by providing
each customer a unique Starbucks Experience.”

SECONDARY ACTIVITIES OF STARBUCKS CORPORATION

1. Firm Infrastructure: This includes all departments like management, finance,

legal, etc. which are required to keep the company’s stores operational.
Starbucks well designed and pleasing stores are complemented with good
customer service provided by the dedicated team of employees in green aprons.

2. Human Resource Management: The company’s committed workforce is

considered a key attribute in the company’s success and growth over the years.
Starbucks employees are motivated through generous benefits and incentives.
The company is known for taking care of its workforce and this is perhaps the

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 reason for a low turnover of employees, which indicates great resource
management. There are many training programs conducted for employees in a
setting of a work culture which keeps its staff motivated and efficient.

3. Technology Development: Starbucks is very well known for use of technology

not only for coffee related processes (to ensure consistency in taste and quality
along with cost savings) but to connect to its customers. Many customers use
Starbucks stores as a make-shift office or meeting place because of the free and
unlimited Wi-Fi availability. The company in the year 2008 also launched
mystarbucksidea.force.com as a platform where customers can ask questions,
give suggestions and openly express opinions and share experiences. The
company has implemented some of the suggestions given via this forum.
Starbucks also uses Apple’s iBeacon System wherein customers can order their
drink through the Starbucks phone app and get a notification when they walk in
the store.

4. Procurement: This involves procuring the raw material for the final product. The
company agents travel to Asia, Latin America and Africa for the procurement of
high grade raw material to bring the finest coffee to its customers. The agents
establish a strategic relationship and partnership with a supplier which is built up
after reconnaissance and communication about the company standards. High
quality standards are maintained with direct involvement of the company right
from the base level of selecting the finest raw material which is coffee beans in
case of Starbucks.

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 MODULE 7

INTERNAL COMPETENCIES & RESOURCES;

DISTINCTIVE, STRATEGIC & THRESHOLD
COMPETENCE; COMPETENCE VS. CAPABILITY;
RESOURCE ANALYSIS; VALUE CHAIN ANALYSIS;
STRATEGIC OUTSOURCING; CORE
COMPETENCY & SYNERGY; DISTINCTIVE
COMPETENCY; VRIO ANALYSIS

MEANING OF TERM “COMPETENCY”

In the context of a company, competency refers to the collective knowledge, skills, and
abilities that the organization as a whole possesses and can apply to achieve its goals
and objectives. This includes the competencies of the company's leadership,
employees, and teams.

A company's competencies may be based on a variety of factors, such as the industry

in which it operates, the products or services it offers, and the market it serves. For
example, a software development company may have competencies in programming
languages, software architecture, and project management. A retail company may have
competencies in inventory management, customer service, and marketing.

The competency of a company is important because it determines the company's ability

to effectively meet the demands of its customers, compete in its industry, and achieve
its strategic objectives. A company's competencies can also play a key role in attracting
and retaining talent, as employees are often attracted to organizations that can offer
opportunities for career development and growth based on their strengths and abilities.

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INTERNAL COMPETENCY

Internal competency refers to the knowledge, skills, and abilities that exist within an
organization or company. This includes the collective expertise of the organization's
leadership, employees, and teams. It is the only way to identify an organization's
strengths and weaknesses. It is needed for making good strategic decisions.

Internal competency can be developed and strengthened through various means, such
as training programs, on-the-job learning, and knowledge sharing among employees.
By developing and nurturing internal competencies, organizations can improve their
competitive advantage, enhance their ability to innovate, and increase their capacity to
adapt to changing market conditions.

Importance of Internal Competency

Internal competency is important because it enables an organization to effectively

perform its functions, stay competitive, foster innovation, adapt to changing market
conditions, and attract and retain top talent. Organizations that invest in developing and
nurturing their internal competencies are more likely to achieve their goals and
objectives, have a competitive advantage in their industry, and succeed in the long term.

CORE, DISTINCTIVE & THRESHOLD COMPETENCY

Core Competencies

Core competency refers to a unique capability or strength that sets an organization

apart from its competitors and creates value for its customers.

Core competencies are the collective knowledge, skills, and abilities that an
organization possesses, which allow it to provide a distinct and superior level of
performance in a particular area.

Core competencies can be thought of as the key strategic capabilities that an

organization possesses, and they are often seen as the foundation of the organization's

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competitive advantage. Core competencies can include a range of capabilities such as
product innovation, supply chain management, marketing, or customer service.

Core competency is a relatively new management theory that originated in a 1990

Harvard Business Review article, “The Core Competence of the Corporation.” In the
article, C.K. Prahalad and Gary Hamel review three conditions a business activity must
meet in order to be a core competency:

1. The activity must provide superior value or benefits to the consumer.

2. It should be difficult for a competitor to replicate or imitate it.
3. It should be rare.

A business can choose to be operationally excellent in a number of different ways.

Below are common core competencies found in business:

1. Greatest Quality Products: This core competency means the company's

products are most durable, long-lasting, and most reliable. The company will
likely have invested in the strongest quality control measures, technically
proficient workers, and high-quality raw materials.
2. Most Innovative Technology: This core competency means the company is an
industry leader in its sector. The company will likely have invested heavy
amounts of capital into research & development, holds many patents, and hires
experts in respective fields.
3. Best Customer Service: This core competency means customers have the
greatest experience during (and after) their purchase. The company will likely
have invested in training for staff, large numbers of customer service
representatives, and processes to manage exceptions or issues as they arise.
4. Strongest Company Culture: This core competency promotes the internal
atmosphere of the business. The company aims to attract the best talent by
investing heavily in employee recognition, development, or collaborative, fun
events.
5. Fastest Production or Delivery: This core competency means the company is
able to make or ship items the fastest. The company will likely have invested in
connected software systems as well as production processes and distribution
relationships.

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 6. Lowest Cost Provider: This core competency means the company charges the
lowest price among comparable goods. The company will likely have invested in
the most efficient processes to reduce labor or material input.

Advantages of Core Competencies

1. Are not easily replicable since they take long or large investments
2. Is often difficult for competitors to overcome once a core competency has been
achieved
3. May be able to be translated to different products, sectors, or business
opportunities
4. Enhances the company's brand image and may make marketing endeavors more
easily understood

Disadvantages of Core Competencies

1. May result in a company being tied to an outdated, no-longer-used core

competency
2. May reduce the overall flexibility of a company
3. May require large time or capital requirements
4. May result in a company focusing too heavily on core competencies instead of a
single cohesive strategy

Examples of Core Competencies

APPLE: Product Design & Innovation

Apple's core competencies include product design and innovation, which have helped
the company to create innovative products like the iPhone, iPad, and Apple Watch.
Apple's focus on design and innovation has helped it to stand out in a crowded
marketplace and create a strong competitive advantage.

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AMAZON: Supply Chain Management & Logistics

Amazon's core competencies include supply chain management and logistics, which
have allowed the company to create a highly efficient and cost-effective delivery
network. Amazon's focus on supply chain management and logistics has helped it to
become a dominant force in the retail industry and offer a high level of customer service
to its customers.

TOYOTA: Manufacturing & Operational Efficiency

Toyota's core competencies include manufacturing and operational efficiency, which

have allowed the company to develop a lean manufacturing system and improve its
processes over time. Toyota's focus on manufacturing and operational efficiency has
helped it to become a leader in the automotive industry and offer high-quality products
at a competitive price.

GOOGLE: Data Analytics & Technology Development

Google's core competencies include data analytics and technology development, which
have helped the company create innovative products and services like Google Search,
Gmail, and Google Maps. Google's focus on data analytics and technology
development has helped it become a leader in the tech industry and offer a high level of
value to its users.

Distinctive Competencies

Distinctive competencies are a set of capabilities that are unique to a given firm which
make it possible for the firm to gain an edge in the market over their competitors. In
simple terms, distinctive competencies are the traits that distinguish a company from
competitors. This is a superior characteristic or quality that enables a firm to clearly
distinguish itself from other firms.

Distinctive competencies are important because they enable a company to create and
sustain a competitive advantage, which is crucial for long-term success. These

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competencies help a company provide superior value to customers, achieve higher
profitability, and secure a stronger market position.

Examples of Distinctive Competencies

NIKE: Branding & Marketing

Nike's distinctive competencies include branding and marketing. Nike has a powerful
brand image that resonates with consumers around the world. The company's
marketing campaigns are highly effective, and its advertisements are often considered
some of the best in the industry. Nike's focus on branding and marketing has helped it
become a leading athletic footwear and apparel company and a household name.

TESLA: Research, Development & Technology Innovation

Tesla's distinctive competencies include research and development and technology

innovation. Tesla is known for its cutting-edge electric vehicle technology and its focus
on sustainable energy solutions. The company's research and development capabilities
have allowed it to create unique and valuable products that are difficult for competitors
to replicate. Tesla's focus on research and development and technology innovation has
helped it become a leading player in the automotive industry and a pioneer in
sustainable energy.

SOUTHWEST AIRLINES: Customer Service & Employee Engagement

Southwest Airlines' distinctive competencies include customer service and employee

engagement. Southwest Airlines is known for its friendly and attentive customer service,
which has helped it create a loyal customer base. The company's focus on employee
engagement has also helped it to create a unique company culture that values its
employees and fosters a positive work environment. Southwest Airlines' focus on
customer service and employee engagement has helped it become a leading player in
the airline industry and a favorite of many travelers.

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Threshold Competencies

Threshold competencies are the basic skills, capabilities, and resources that are
required for a company to operate in a specific industry or market. These competencies
are essential for a company to remain competitive, but they do not necessarily provide a
competitive advantage or differentiate the company from its competitors. Threshold
competencies are the minimum standards that a company must meet to be considered
a viable player in the industry or market.

Threshold competencies are important because they represent the basic requirements
that a company must meet in order to survive and compete in a particular industry or
market. Failing to meet these minimum requirements can result in the company being
unable to compete effectively, losing customers, and ultimately failing. Therefore,
companies must ensure that they possess the threshold competencies that are
necessary to succeed in their industry or market. Once these threshold competencies
are established, companies can then focus on developing distinctive competencies that
can provide a competitive advantage and differentiate them from their competitors.

Examples of Threshold Competencies

AMAZON

The e-commerce giant Amazon has several threshold competencies, such as a

user-friendly website, efficient and fast shipping and delivery processes, a vast and
diverse product selection, and a strong customer service system. These competencies
are necessary for the company to attract and retain customers in the highly competitive
e-commerce industry.

MCDONALDS

The fast food chain McDonald's has several threshold competencies, such as efficient
and standardized operational processes, a recognizable and consistent brand image,
and a strong supply chain management system that ensures the timely delivery of food
and supplies to its restaurants. These competencies are necessary for the company to
remain competitive in the highly competitive fast food industry.

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PROCTER & GAMBLE

The consumer goods company Procter & Gamble has several threshold competencies,
such as the ability to develop and produce high-quality products, efficient supply chain
management, strong marketing and advertising capabilities, and a strong customer
service system. These competencies are necessary for the company to remain
competitive in the highly competitive consumer goods industry.

COMPETENCE VS. CAPABILITY

COMPETENCE CAPABILITY

Competence is the condition or calibre of Capability refers to the quality of a person

a person’s job. If a person and their work that enables them to develop the strength
is judged to be “acceptable” but not and capacity to learn and do tasks within
“exceptional”, then they are considered their zone of competence.
competent.

Adopts a regular way of thinking while Develops professional judgement by

following standard rules and regulations. adopting analytical and evaluative
thinking.

Produces easily assessed measurable Produces measurable cognitive-based

skills or knowledge-based outputs. outputs or tactical understanding.

Focuses on specific procedures and Focuses on critical practice.

roles.

It is more in line with fixed thinking; is It is more inclined to adopt a proactive

incapable of changing or adapting. and objective point of view; is flexible and
adaptable

CORE COMPETENCE VS. DISTINCTIVE COMPETENCE

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 CORE COMPETENCE DISTINCTIVE COMPETENCE

Core competence is a defining strength Distinctive competence is a specific core

that is central to a company's competency that is superior to the
value-generating activities. It has two key competition in the market. Additionally, a
components. First, it is a skill or capability, distinctive competence must be visible to
not an owned resource. Second, it plays a the target customers for it to be termed as
prominent role in helping a company “distinctive”. Finally, it must be difficult to
achieve its purpose. imitate to ensure sustenance.

Example: Target’s excellent research and Example: Emma Green’s (A tennis player
development is responsible for consistent specialized in “The Tennis Elbow”) focus
innovation that drives revenue growth. on treatment for one very specific injury.

To better understand this difference, consider the example of two companies A and B,
which are in the same industry, say selling water bottles. Here, if A has a next to zero
rate of defect or a better brand name, then it becomes a distinctive competency for A
compared to B, unless it relies on this low rate of defects. If it does rely on the low rate
of defects as a selling point, and is in the market as a reliable supplier of defect-free
water bottles, then company A uses this as its core competency.

RESOURCES & RESOURCE ANALYSIS

Meaning of the term “Resources”

Resources refer to the assets and capabilities that a company possesses and can
leverage to achieve its strategic goals and objectives. Resources can take many forms,
including physical assets such as property and equipment, financial resources such as
cash reserves and investments, human resources such as employees and their skills,
and intangible assets such as patents, trademarks, and other intellectual property.

Types of Resources

● INTERNAL RESOURCES: Internal resources refer to the resources and

capabilities that a company possesses within its own organization. These
resources can include physical assets such as property and equipment, financial

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 resources such as cash reserves and investments, human resources such as
employees and their skills, and intangible assets such as patents, trademarks,
and other intellectual property. Internal resources are under the direct control of
the company and can be leveraged to achieve its strategic goals and objectives.
● EXTERNAL RESOURCES: External resources, on the other hand, refer to the
resources and capabilities that a company accesses from outside of its
organization. These resources can include suppliers, customers, partners,
investors, and other stakeholders. External resources are not under the direct
control of the company and may be subject to external factors such as market
conditions and regulations.

In addition, resources can be categorized as specific or non-specific.

● SPECIFIC RESOURCES: Specific resources refer to resources that are unique

or specialized to a particular company or industry. These resources provide a
company with a competitive advantage over its competitors because they cannot
be easily duplicated or acquired by others. Specific resources can include unique
intellectual property, proprietary technologies, exclusive distribution networks, or
highly skilled employees with specialized knowledge or expertise.
● NON-SPECIFIC RESOURCES: Non-specific resources, on the other hand, refer
to resources that are more widely available and can be obtained by many
companies within an industry. These resources may not provide a significant
competitive advantage because they are not unique or difficult to acquire.
Non-specific resources can include generic technologies, basic physical assets,
or common business practices.

Also, resources can be broadly classified as tangible and intangible.

● TANGIBLE RESOURCES: Tangible resources refer to the physical assets and

resources of a company that have a physical form and can be touched, seen,
and measured. These resources include things such as buildings, equipment,
raw materials, inventory, cash, and other tangible assets that are used in the
operations of the company. Tangible resources are easy to quantify and can be
valued using standard accounting methods.

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 ● INTANGIBLE RESOURCES: Intangible resources, on the other hand, refer to
assets that do not have a physical form and are more difficult to measure and
value. These resources include things such as intellectual property, brand
reputation, company culture, relationships with customers, and other intangible
assets that contribute to the overall value and success of a company. Intangible
resources are critical to a company's success because they can provide a
competitive advantage, but they are often more difficult to quantify and measure
than tangible resources.

Meaning of the term “Resource Analysis”

Resource analysis is a process that involves assessing the resources and capabilities of
a company to determine its strengths and weaknesses. It is a strategic tool used by
businesses to evaluate their internal resources, such as people, technology, finances,
and other assets, to understand how well they are positioned to achieve their goals and
objectives.

Resource analysis is a critical part of strategic planning as it helps companies to identify

their competitive advantages and areas for improvement. It also helps to inform
decisions about how to allocate resources, develop new capabilities, and enter new
markets. The goal of resource analysis is to help companies achieve a sustainable
competitive advantage by leveraging their strengths and addressing their weaknesses.

Objectives of Resource Analysis

1. To outline the role that a company’s resources and capabilities play in the
formulation of its strategy and to pinpoint their crucial importance in establishing
competitive advantage.
2. To show how the firm can identify, classify, and explore the characteristics of its
base of resources and capabilities
3. To develop a set of criteria to analyze the potential of the firm’s resources and
capabilities to yield long term profits/returns
4. To identify weaknesses in resources in the context of the external environment
and strategy formulated and to show how strategy is concerned not only with

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 deploying the firm’s resources to yield returns over the long term but also with
augmenting and strengthening the firm’s resources and capabilities
5. To develop a framework for resource Analysis that integrates the above themes
into a practical guide for the formulation of strategies that build competitive
advantage

STRATEGIC OUTSOURCING

Meaning

Strategic outsourcing is a business strategy in which a company hires an external

third-party service provider to perform specific business functions or processes that are
essential to its operations. This outsourcing arrangement is different from regular
outsourcing, which involves hiring external service providers to perform routine,
non-core tasks, such as data entry or customer service.

Strategic outsourcing typically involves complex business processes that are critical to
the success of the company, such as research and development, manufacturing,
logistics, or finance. The decision to outsource these processes is often driven by
several factors, such as cost savings, access to specialized expertise, increased
efficiency, and flexibility.

Before engaging in strategic outsourcing, a company typically conducts a thorough

analysis of its business processes and identifies which ones can be outsourced. It then
selects a service provider that has the necessary skills, experience, and resources to
perform the outsourced tasks efficiently. The outsourcing agreement typically includes a
detailed service level agreement (SLA) that specifies the quality, timing, and cost of the
outsourced services.

Advantages of strategic outsourcing

1. Cost savings: Outsourcing can often be more cost-effective than performing the
tasks in-house, as the service provider may have economies of scale or access
to cheaper resources.

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 2. Access to specialized expertise: Outsourcing can provide a company with
access to specialized skills and knowledge that may be difficult or expensive to
develop in-house.
3. Increased efficiency: Outsourcing can often result in increased efficiency, as the
service provider may have more efficient processes or technology than the
company.
4. Flexibility: Outsourcing can provide a company with greater flexibility to adapt to
changing business needs or market conditions, as it can easily adjust the level or
scope of outsourced services.

Disadvantages of strategic outsourcing

1. Loss of control: Outsourcing can result in a loss of control over the outsourced
processes, which can affect the quality and consistency of the services.
2. Communication challenges: Outsourcing can result in communication
challenges, as the service provider may be located in a different geographic
location or have a different culture and language.
3. Security risks: Outsourcing can result in security risks, as the service provider
may have access to sensitive business information or data.
4. Dependence on the service provider: Outsourcing can result in a dependence
on the service provider, which can affect the company's ability to respond to
changes in the market or business environment.

VRIO ANALYSIS

VRIO analysis is a framework used to assess a company's resources and capabilities to

determine its competitive advantage.

The tool was initially developed by Barney, J. B. (1991) in his work ‘Firm Resources and
Sustained Competitive Advantage’. It was developed as a way of evaluating the
resources of an organization (company’s micro-environment) which are as follows:

● Financial resources
● Human resources
● Material resources

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 ● Non-material resources (information, knowledge)

VRIO analysis is an acronym that stands for four questions that ask whether a resource
is: valuable? Rare? Is it expensive to imitate? Is a company structured to capture the
value of its resources?. A resource or capacity that fits all four conditions can provide
the organization with a long-term competitive advantage.

Components of the VRIO Framework

VALUABLE

This element assesses whether a company's resources and capabilities are valuable in
creating a competitive advantage. To be valuable, a resource or capability should
enable a company to either reduce costs or increase revenue. For example, a
company's patented technology could be valuable in reducing production costs, or its
skilled workforce could be valuable in improving the quality of products or services. If a
resource or capability is not valuable, it does not provide any competitive advantage to
the company.

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RARITY

This element evaluates whether a company's resources and capabilities are rare in the
industry. If a resource or capability is unique to a company, it can create a competitive
advantage by differentiating the company from its competitors. For instance, if a
company has a unique distribution network, it can provide better access to its products
than its competitors, which could help increase sales. If a resource or capability is not
rare, it can be easily copied by competitors, and it does not provide a sustainable
competitive advantage.

IMITABILITY

This element examines whether a company's resources and capabilities are easy to
imitate. If a company's resources or capabilities can be easily replicated by its
competitors, they do not provide a sustainable competitive advantage. For example, if a
company's marketing campaign is successful, its competitors may try to copy it.
However, if a company has a patent on a technology or a unique business process that
is difficult to replicate, it provides a sustainable competitive advantage.

ORGANIZATION

This element assesses whether a company's resources and capabilities are organized
in a way that enables it to create a competitive advantage. If a company's resources
and capabilities are not organized effectively, they may not provide the expected
competitive advantage. For instance, if a company has a skilled workforce, but they are
not organized and coordinated, they may not be able to provide the desired level of
performance. Therefore, it is essential to have the right organizational structure,
systems, and processes in place to leverage resources and capabilities effectively.

Importance of VRIO Analysis

1. Helps to identify a company's strengths and weaknesses: The VRIO

analysis helps a company to identify its key strengths and weaknesses in terms
of the resources and capabilities it possesses. This analysis can help a company

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 to determine which of its resources and capabilities are valuable, rare, and
difficult to imitate, and which ones are not. By understanding its strengths and
weaknesses, a company can develop strategies to improve its competitive
advantage.
2. Helps to develop effective strategies: By identifying its key resources and
capabilities, a company can use the VRIO analysis to develop effective strategies
that leverage these resources and capabilities. For example, if a company has a
unique technology that is difficult to imitate, it can develop a strategy to protect
this technology and use it to create a sustainable competitive advantage.
3. Enables effective resource allocation: The VRIO analysis can help a company
to allocate its resources more effectively. By focusing on its key resources and
capabilities, a company can allocate its resources to activities that provide the
greatest value and help to build and maintain its competitive advantage.
4. Provides a framework for decision making: The VRIO analysis provides a
framework for decision making that can help a company to make better decisions
about resource allocation, strategic planning, and other important business
activities. By using this framework, a company can evaluate different options and
determine which ones are likely to provide the greatest competitive advantage.

Pros of VRIO Analysis

1. VRIO framework helps figure out the unique value of an organization.

2. It also identifies internal strengths and advantages.
3. VRIO also boosts the ability of an organization to stay on top of the competition.
4. It provides scope for internal assessment of an organization.

Cons of VRIO Analysis

1. VRIO cannot predict the future of an organization’s values and uniqueness.

2. Small businesses tend to struggle while figuring out the four main aspects of the
VRIO framework.
3. As it focuses more on the internal aspects of the organization, it fails to identify
the external side of the business.

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How to use VRIO Analysis?

VRIO analysis is a complement to a PESTEL analysis (which assesses

macro-environment). VRIO is used to assess the situation inside the organization
(enterprise) - its resources, their competitive implications, and possible potential for
improvement in the given area or for a given resource. Such an assessment is then
used, for example, in the strategic management of development in various areas or for
decision making about the advantages of an external or internal process and the
securing of a service (e.g., an outsourcing decision).

If the resource is not valuable it should be outsourced because it brings no value to

us

If the resource is valuable but not rare, the company is in competitive conformity. It
means we are not worse than our competition,

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If the resource is valuable and rare but not expensive to imitate, we have a
temporary competitive advantage. Other companies will try to imitate it in the near
future, and then we will lose our competitive advantage.

If the resource is valuable, rare and is expensive to imitate it but we are not able
to organize our company, the resource become expensive for us (unused incurred
costs)

if we can manage the advantage and we are able to organize our company and
temporary competitive advantage, it becomes as permanent competitive advantage

In practice, the VRIO analysis is also used in combination with other analytical
techniques to help organizational management evaluate business resources in a more
detailed view.

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 MODULE 8

BLUE, RED & PURPLE OCEAN STRATEGY

BLUE OCEAN STRATEGY

Blue Ocean Strategy is the simultaneous pursuit of differentiation and low cost to open
up a new market space and create new demand. It is about creating and capturing
uncontested market space, thereby making the competition irrelevant. It is based on the
view that market boundaries and industry structure are not a given and can be
reconstructed by the actions and beliefs of industry players.

The term "blue ocean" was coined by INSEAD business school professors Chan Kim
and Renee Mauborgne in their book Blue Ocean Strategy: How to Create Uncontested
Market Space and Make the Competition Irrelevant (2005). The authors define blue
oceans as those markets associated with high potential profits.

The Blue Ocean Strategy is about finding new, untapped markets or creating new
product or service categories that do not yet exist. This approach creates a "blue ocean"
of opportunity, where businesses can grow without competing directly with other
companies. By doing so, businesses can create new demand and make competition
irrelevant.

Steps involved in creating a “blue” ocean / How to create “blue” oceans?

1. Focus on the big picture: Businesses need to focus on the bigger picture,
rather than getting lost in the details of their industry. This involves stepping back
and looking at the larger market, identifying trends, and considering what could
be possible.
2. Identify the factors of competition: Companies need to identify the factors that
customers value most in their industry and what factors are currently being

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 offered by competitors. This helps them identify areas where they can create new
value for customers.
3. Create a new value proposition: Once a business identifies areas where they
can create new value for customers, they need to develop a new value
proposition that addresses those areas. This involves developing a unique selling
point that differentiates the business from competitors.
4. Execute the strategy: Finally, businesses need to execute their strategy by
implementing their value proposition and delivering it to customers. This involves
creating a new market or category and promoting the business through targeted
marketing campaigns and strategic partnerships.

By creating a blue ocean, businesses can achieve sustainable growth, as they are not
competing directly with other businesses. This approach can lead to higher profits,
increased customer loyalty, and long-term success.

Characteristics of Blue Ocean Strategy

1. Creation of uncontested market space

2. Value innovation: creating new, unique value for customers
3. Focus on customer needs and preferences
4. Aiming to make competition irrelevant
5. Redefining industry boundaries and existing market spaces
6. Focusing on creating new demand instead of fighting for a share of existing
demand
7. Emphasis on long-term sustainable growth
8. Open to new ideas and embracing change
9. Creating new markets or industries, rather than just competing in existing ones
10. Differentiation through innovation, not just cost-cutting or minor improvements
11. Investment in research and development to create new products and services
12. Collaboration and strategic partnerships with other businesses to create value for
customers.

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Advantages of Blue Ocean Strategy

1. New growth opportunities: By creating new markets or categories, businesses

can tap into new sources of growth and revenue.
2. Competitive advantage: A Blue Ocean Strategy can help businesses
differentiate themselves from competitors, making competition irrelevant.
3. Unique value proposition: By creating new, unique value for customers,
businesses can attract new customers and retain existing ones.
4. Higher profit margins: By creating a new market or category, businesses can
avoid price wars and charge premium prices, leading to higher profit margins.
5. Brand differentiation: A successful Blue Ocean Strategy can help businesses
build a strong, unique brand that is associated with innovation and value.
6. Improved customer loyalty: By providing new, unique value for customers,
businesses can improve customer satisfaction and loyalty, leading to repeat
business and positive word-of-mouth.
7. Long-term sustainable growth: A Blue Ocean Strategy can lead to sustainable
growth over the long term, as businesses continue to create new markets and
innovate to stay ahead of competitors.
8. Lower competition: By creating new markets, businesses can avoid direct
competition with existing players, reducing the risk of price wars and other
competitive pressures.

Challenges / Risks associated with Blue Ocean Strategy

1. Market acceptance: A new market or category created through a Blue Ocean

Strategy may not be immediately accepted by customers. It may take time and
resources to convince customers to adopt a new product or service.
2. Lack of existing demand: A Blue Ocean Strategy involves creating new
demand, rather than competing for existing demand. This can be challenging as
it requires educating customers about a new product or service and its benefits.
3. High development costs: Creating a new market or category requires
significant investment in research and development, which can be costly and
time-consuming.
4. High risk: A Blue Ocean Strategy involves taking a risk in creating a new market
or category that may not be successful. The investment in research and

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 development may not lead to a successful product or service, which can be a
significant financial risk.
5. Imitation: Competitors may imitate a successful Blue Ocean Strategy, reducing
the advantage of being the first mover in a new market or category.
6. Lack of expertise: Entering a new market or category may require a different set
of skills and expertise that the business may not possess. This can be a
significant challenge and may require new talent to be brought in.
7. Limited resources: Small businesses may find it difficult to compete with larger,
established players in a new market or category due to limited resources and
budget constraints.

Examples of Blue Ocean Strategy

NINTENDO Wii

The first example of blue ocean strategy comes from computer games giant, Nintendo,
in the form of the Nintendo Wii.

The Nintendo Wii launched in 2006 and at its heart is the concept of value innovation.
This is a key principle of blue ocean strategy which sees low cost and differentiation
being pursued simultaneously.

To reduce costs, Nintendo did away with the hard disk and DVD functionality found in
most game consoles and reduced the processing quality and graphics. At the same
time, Nintendo introduced a wireless motion control stick to differentiate itself against
the market offering. This allowed the company to offer a range of new features and
benefits that hadn’t been seen in the world of gaming previously such as the ability to
use a games console to get fit or to play in a larger social group.

By pursuing value innovation, Nintendo could go beyond competing against the likes of
PlayStation and X-Box in a crowded and fiercely competitive red ocean. Instead, it was
able to open up a new market entirely. The Nintendo Wii, with its innovative, new
features and affordable price point, appealed to an entirely new and expansive market –
a blue ocean – spanning non-gamers, the elderly and parents with young children.

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UBER CABS

Uber Cabs is a brainchild of the Blue Ocean Strategy and has dramatically transformed
the picture of the transportation industry by displacing the nuisance of booking cabs,
denial of services, meter issues, and unwanted arguments.

It is a ridesharing service that enables customers to book their rides with the ease of
swipes and taps. It also permits users to trace a driver’s progress towards the pickup
point in real-time through the medium of a smartphone application called the Uber App.

Uber devised a new market by the amalgamation of advanced technology and modern
devices. It tried to differentiate itself from the regular cab companies and, in turn,
developed a low-cost business model that offers flexible payments, pricing strategies
and generates good revenues for both the drivers and the company.

In the initial stages, Uber was successful in capturing the uncontested market space but
was eventually flooded by competitors. In spite of that, it continues to command the
market and is speedily expanding across the world. As of 2019, Uber approximately has
110 million riders worldwide and holds 69% of the market share in the United States.

FORD MOTOR CO.

In 1908, Ford Motor Co. introduced the Model T as the car for the masses. It only came
in one color and one model, but it was reliable, durable, and affordable.

At the time, the automobile industry was still in its infancy, with approximately 500
automakers producing custom-made cars that were more expensive and less reliable.
Ford created a new manufacturing process for mass-producing standardized cars at a
fraction of the price of its competitors.

The Model T's market share jumped from 9% in 1908 to 61% in 1921, officially replacing
the horse-drawn carriage as the principal mode of transportation.

NETFLIX

Another example of a blue ocean firm is Netflix, a company that reinvented the
entertainment industry in the 2000s. Rather than enter the competitive marketplace of

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video rental stores, Netflix created new models of entertainment: first by introducing
mail-order video rentals, and later by pioneering the first streaming video platform paid
for by user subscriptions.

Following their success, many other companies have followed in Netflix's footsteps. As
a result, any new company trying to launch a video subscription model will find itself
facing a red ocean rather than a blue one.

RED OCEAN STRATEGY

Red Ocean Strategy is a business concept that refers to a market environment where
competition is fierce and boundaries between products and services are well-defined.
This term was coined by W. Chan Kim and Renée Mauborgne in their book "Blue Ocean
Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant."

In a red ocean market, companies compete for a limited customer base, and often
engage in price wars, aggressive marketing campaigns, and product differentiation
tactics to gain a competitive edge. This approach leads to a "bloody" competition, where
profits and growth potential are limited.

Red Oceans are all the industries in existence today – the known market space. In red
oceans, industry boundaries are defined and accepted, and the competitive rules of the
game are known. Here, companies try to outperform their rivals to grab a greater share
of existing demand. As the market space gets crowded, profits and growth are reduced.
Products become commodities, leading to cutthroat or ‘bloody’ competition. Hence the
term red oceans.

Characteristics of Red Ocean Strategy

1. Focused on competing in existing market space

2. Emphasis on beating the competition by outperforming them
3. Heavy emphasis on market share and existing demand
4. Operating in a crowded, saturated market
5. Limited opportunities for growth due to competition
6. Pressure to constantly cut costs and lower prices to stay competitive

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 7. Focus on incremental improvements or cost-cutting, rather than innovation
8. Often involves copying successful strategies of other businesses
9. Limited differentiation between competitors in the same market space
10. Short-term focus on immediate gains and profits, rather than long-term
sustainability
11. Heavy emphasis on traditional marketing and advertising techniques to attract
customers
12. Limited collaboration or strategic partnerships with other businesses in the same
industry.

Strategies / Tactics involved in Red Ocean Strategy to gain competitive

advantage

1. Cost-cutting: Businesses can cut costs by outsourcing, streamlining their

operations, and eliminating non-essential expenses. This can help them offer
products or services at lower prices, which can attract price-sensitive customers.
2. Product differentiation: Companies can differentiate their products or services
by focusing on unique features, better quality, or customer service. This can help
create brand loyalty and attract customers who value these factors.
3. Marketing: Businesses can create effective marketing campaigns to target
specific customer segments and increase brand awareness. This can be done
through advertising, social media, influencer marketing, and other channels.
4. Strategic alliances: Companies can form strategic alliances with other
businesses to expand their reach and gain access to new markets. This can help
them gain a competitive edge and increase their market share.
5. Innovation: Companies can invest in research and development to create new
products or improve existing ones. This can help them stay ahead of the
competition and offer customers more value.

Advantages of Red Ocean Strategy

1. Established demand: Red Ocean Strategy allows businesses to tap into an

existing market with established demand. Businesses don't need to create new
demand or educate customers about the benefits of their products or services.

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 2. Established competition: While competition can be a challenge for businesses,
it also creates a benchmark to measure themselves against. By studying their
competitors, businesses can learn from their successes and failures, and work to
improve their own offerings.
3. Familiarity with the industry: By operating in an existing market space,
businesses have a better understanding of the industry they're in, including
customer preferences, market trends, and industry regulations.
4. Reduced risk: While the Blue Ocean Strategy offers the potential for high
rewards, it also carries a higher risk. The Red Ocean Strategy offers a more
predictable environment, with established competitors and known customer
preferences.
5. Established customer base: With an existing market space, businesses have
an established customer base that they can target with their marketing efforts.

Challenges / Risks associated with Red Ocean Strategy

1. Intense competition: In a crowded market, competition can be fierce. This can

lead to price wars and reduced profit margins. Businesses may struggle to
differentiate themselves from their competitors, which can make it difficult to
attract and retain customers.
2. Limited growth opportunities: With an established market space, there may be
limited opportunities for growth. Businesses may need to focus on taking market
share away from their competitors, rather than creating new demand or
expanding into new markets.
3. Innovation limitations: In a Red Ocean, the focus is on incremental
improvements and cost-cutting, rather than true innovation. This can limit a
business's ability to differentiate itself from competitors, and may lead to a lack of
product or service innovation.
4. Complacency: With an established market space, businesses may become
complacent and fail to innovate or adapt to changing market conditions. This can
make them vulnerable to new entrants or disruptors who are able to offer
something new and different to customers.
5. Dependence on customer demand: In a Red Ocean, businesses are
dependent on existing customer demand. If customer preferences change, or a

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 new technology or trend emerges, businesses may struggle to adapt and could
lose market share.
6. Limited collaboration: In a crowded market, there may be limited opportunities
for collaboration or strategic partnerships with other businesses in the same
industry. This can limit a business's ability to create new value for customers or to
innovate.

Examples of Red Ocean Strategy

COCA-COLA

Coca-Cola is a classic example of a company that has employed a Red Ocean

Strategy. The soft drink industry is highly competitive, with Coca-Cola facing intense
competition from PepsiCo and other soft drink manufacturers. In order to compete,
Coca-Cola has focused on brand recognition, traditional advertising, and developing a
loyal customer base.

WALMART

Walmart is another company that has employed a Red Ocean Strategy. The retail
industry is highly competitive, with Walmart facing competition from other retailers like
Target and Amazon. Walmart has focused on offering low prices and a wide variety of
products to customers, which has helped it to become one of the largest retailers in the
world.

SAMSUNG

Samsung is a company that has employed a Red Ocean Strategy in the consumer
electronics industry. The industry is highly competitive, with Samsung facing competition
from other electronics manufacturers like Apple and Sony. Samsung has focused on
offering a wide range of products at various price points, as well as investing heavily in
research and development to stay ahead of the competition.

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MCDONALD’S

McDonald's is a fast-food company that has employed a Red Ocean Strategy. The
fast-food industry is highly competitive, with McDonald's facing competition from other
fast-food chains like Burger King and KFC. To compete, McDonald's has focused on
offering consistent, affordable food in a convenient location, while also investing in
marketing and brand recognition.

PROCTER & GAMBLE

Procter & Gamble is a company that has employed a Red Ocean Strategy in the
consumer goods industry. The industry is highly competitive, with Procter & Gamble
facing competition from other consumer goods manufacturers like Unilever and
Colgate-Palmolive. To compete, Procter & Gamble has focused on offering well-known
brands with a loyal customer base, as well as investing in advertising and marketing to
maintain brand recognition.

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RED OCEAN STRATEGY vs. BLUE OCEAN STRATEGY

RED OCEAN STRATEGY BLUE OCEAN STRATEGY

Business is done in the existing market A new, uncontested market space is

space. created to conduct business.

Primary focus is on beating the Primary focus is on making the

competition. competition irrelevant.

Exploits the existing demand. Creates and captures new demand.

A company following the red ocean A company following the blue ocean
strategy pursues both cost and strategy chooses between cost and
differentiation. differentiation.

Involves making the value-cost trade-off. Involves breaking the value-cost trade-off.

Market is already established. Market needs to be created anew.

Examples include: Samsung, Examples include: Nintendo, Ford Motor

McDonald’s, Walmart, Coca-Cola, etc. Co., Uber Cabs, Netflix, etc.

PURPLE OCEAN STRATEGY

The concept of a "Purple Ocean Strategy" is not as widely known as the Blue or Red
Ocean Strategies, and some experts even consider it to be a variation of the Blue
Ocean Strategy. However, the idea behind a Purple Ocean Strategy is to combine
elements of both Red and Blue Ocean Strategies to create a new, hybrid approach to
business strategy.

The Purple Ocean Strategy involves finding a balance between creating new,
uncontested market space (Blue Ocean Strategy) and competing in existing market
space (Red Ocean Strategy). This approach involves identifying opportunities to create
new demand while still building on established market spaces.

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Key elements of a Purple Ocean Strategy

1. Innovation: Like the Blue Ocean Strategy, innovation is a key component of a

Purple Ocean Strategy. Businesses need to be able to identify new, unmet
customer needs and create products and services that meet those needs.
2. Customer focus: A Purple Ocean Strategy also emphasizes a customer-centric
approach to business. Businesses need to understand the needs and
preferences of their customers, and create products and services that meet those
needs.
3. Competition: While the Purple Ocean Strategy seeks to create new,
uncontested market space, it also recognizes the importance of competition.
Businesses need to be aware of their competition and find ways to differentiate
themselves from their competitors.
4. Brand recognition: A Purple Ocean Strategy emphasizes the importance of
building a strong brand and establishing brand recognition. This can help
businesses to stand out in a crowded market space and attract new customers.
5. Strategic partnerships: A Purple Ocean Strategy also emphasizes the
importance of strategic partnerships with other businesses. This can help
businesses to create new value for customers and gain a competitive advantage.
6. Flexibility: Finally, a Purple Ocean Strategy requires a degree of flexibility and
adaptability. Businesses need to be able to pivot and adjust their strategy as
market conditions change and new opportunities arise.

Overall, the Purple Ocean Strategy involves finding a balance between creating new
demand and competing in existing market spaces. By combining elements of the Blue
and Red Ocean Strategies, businesses can create a unique approach to business
strategy that helps them stay competitive and grow over the long term.

Example of Purple Ocean Strategy

Dyson is UK based company specializing in Vaccum Cleaners

Sir James Dyson developed a new version of vaccum cleaner called the dual cyclone
vaccum cleaner

Dyson was not the first company to invent vaccum cleaner

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Today, it’s products are sold in over 65 countries including India

Dyson invented an upgraded version of vaccum cleaner to fight the competition as it

was a late entrant in the market. This vaccum cleaner provided customers with more
value than others present in the market. It was able to leverage on this differentiating
factor for sometime till others could copy and introduce similar technology in the market

RED OCEAN PURPLE OCEAN BLUE OCEAN

STRATEGY STRATEGY STRATEGY

Compete in existing Competing in existing Create uncontested market

market space market, but stand out by space
giving little unexpected
extras

Beat the competition Differentiate oneself from Make the competition

the competition irrelevant

Exploit the existing Exploit current customer Create and capture new
demand base to reduce attrition, demand
drive loyalty and promote
word-of-mouth

Make the value-cost Break the transactional Break the value-cost

tradeoff market economy mindset, tradeoff
add value to exceed
expectations

Align the whole system of Align the whole system of a Align the whole system of
a company’s activities company’s activities in a company’s activities in
with its strategic choice of pursuit of differentiation pursuit of differentiation
differentiation or low cost through added value and low cost

Examples include: Example: Dyson Examples include:

Samsung, McDonald’s, Nintendo, Ford Motor Co.,
Walmart, Coca-Cola, etc. Uber Cabs, Netflix, etc.

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 MODULE 9

COMPETING IN GLOBAL & EMERGING MARKETS

Reasons for Entering Global/International Markets

PULL FACTORS

Basically, the pull factors are proactive factors and tend to pull organizations towards
global markets. Organizations are attracted towards global markets due to massive
profitability and opportunities to grow. The significant pull factors are as follows:

Growth

After the saturation of growth opportunities in the domestic markets, organizations look
to tap the market potential in the international market. The Indian domestic market being
so huge gives enough growth opportunities to the organizations. Hence, only a few
organizations opt for going international in search of growth opportunities.

Profitability

Though domestic markets are more profitable, international markets can raise gross
profits. This has been proved through numerous cases where organizations have
reaped more than 100 per cent gains in the international markets in the event of regular
losses in domestic markets. Hence, this profitability alone with the differences in prices
in markets are important factors inducing organizations to internationalize.

Achieving Economies of Scale

Organizations sell their surplus produce in international markets in case of very large
scale production. This helps them in achieving economies of scale. Internationalization

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takes place when the organizations have reaped the most out of domestic markets.
Most countries motivate industries to go for large-scale production.

Risk Spread

When organizations operate in both domestic as well as international markets, their risk
is split and they are not dependent on a single market. An organization is more prone to
risks if it operates only in domestic markets.

Emergence of WTO

In 1994, the World Trade Organisation (WTO) replaced the General Agreement on
Tariffs and Trade (GATT). It has a total of 159 members. The aim of the WTO is to
develop and promote multilateral trade. It has regulated and helped countries to enter
into trade agreements across their national boundaries.

Unifying Effect and Peace

Peace as well as prosperity prevails when there is trust and strong relationship between
Countries and economies This also promotes economic growth and development.

PUSH FACTORS

Being reactive in nature, push factors are basically the pressures pertaining to domestic
markets that influence organizations to tap foreign markets. Some of the significant
push factors are as follows:

Uniqueness of Product or Service

A unique product or service faces a fairly lesser degree of competition in international

markets. It also has more opportunities than any other product. India has an added
advantage over other nations and hence finds it easier to internationalize. This is

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because of unique products and services like handicrafts, spices, BPO services, and
cheaper software development. medicinal and herbal plants, etc.

Resource Utilization

There is a huge reduction in transportation costs when an industry is established at a

place where resources are abundant. Mineral based industries are an apt example of
this.

Competition and Costs

After the liberalization of the economy in 1991, there was a rise in the level of
international as well as domestic organizations. Organizations in India have started to
internationalize and adopt counter-competition strategies to tackle competition. Under
this strategy, organizations target the home market of an overseas competitor to lessen
its competitive power and save their own domestic market from the competitor's
invasion.

Quality Improvement

When organizations go global, they earn more profits and expand their markets. These
increased profits are invested in improving quality and adopting more qualitative
systems. Improvement in quality, equipment, and systems help companies expand
further which in turn increases profits.

Government Policies and Regulations

The trade laws and regulations of governments in different countries are also a big push
factor for organizations to internationalize. While few countries promote exports through
incentives and flexible laws, others focus on imports and overseas investments.

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DIFFERENCES IN CULTURAL, DEMOGRAPHIC & MARKET
CONDITIONS

Differences in Cultural Conditions

The cultural environment is one of the critical components of the global market
environment and one of the most difficult to understand. This is because the cultural
environment is essentially unseen; it has been described as a shared, commonly held
body of general beliefs and values that determine what is right for one group. National
culture is described as the body of general beliefs and values that are shared by a
nation. Beliefs and values are generally seen as being formed by factors such as
history, language, religion, geography, government, and education; thus firms began a
cultural analysis by seeking to understand these factors.

Before entering a foreign market, marketers should study all aspects of that nation's
culture, including language, education, religious attitudes, and social values. The
French love to debate and are comfortable with frequent eye-contact. In China, humility
is a prized virtue, colours have special significance, and it is insulting to be late. The
Swedes value consensus and do not use humour in negotiations.

Differences in Demographic Conditions

The demographic environment encompasses the application of demographic concepts,

data, and techniques to the practical concerns of business decision-makers. This
loosely organized field includes - but is not limited to - site selection, sales forecasting,
financial planning, market assessment, consumer profiles, target marketing, litigation
support, and labor force analysis. "Demographic environment" is a set of demographic
factors such as gender or ethnicity. Companies use demographic environments to
identify target markets for specific products or services. This practice has both
advantages and disadvantages. Marketers have to take both sides of the demographic
environment into consideration when deciding what strategy to apply.

The number of different ages of people, such as the number of children, teenagers,
youths, and old people, should be kept in mind when doing international marketing
because a product cannot be certified for every age of customer. Moreover, at a time of
increasing population, the growth of demand for products should be noticed; otherwise,

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the marketing process would not be effective at all. On the contrary, at the time of the
decrease of population the demand falls. This is the reason, when doing international
marketing, population or demographic analysis must be done.

Differences in Market Conditions

Market growth varies from country to country. In emerging markets, market growth
potential is far higher than in more mature economies. One of the biggest concerns of
companies competing in foreign markets is whether to customize their offerings in each
different country's market to match the tastes and preferences of local buyers or
whether to offer a mostly standardized product worldwide.

A nation’s size, per-capita income, and stage of economic development determine its
prospects as a host for international business expansion. Nations with low per-capita
incomes may be poor markets for expensive industrial machinery but good ones for
agricultural hand tools. These nations cannot afford the technological equipment that
powers an industrialized society. Wealthier countries may offer prime markets for many
industries, particularly those producing consumer goods and services and advanced
industrial products.

STRATEGIC OPTIONS FOR ENTERING AND COMPETING IN GLOBAL

MARKETS

Direct & Indirect Exporting

● The act of selling goods and services produced domestically in other countries is
known as exporting.
● It is the simplest way to get started in foreign business. As a result, most
businesses begin their global expansion in this manner.
● Exports are classified into two forms:
○ Direct exports are transactions in which a company sells its products
directly to a buyer in another country. At this company, you will gain
firsthand market knowledge. For example, Baskin Robbins initially
exported its ice cream to Russia in 1990 and later opened 74 outlets with

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 Russian partners. Finally, in 1995, it established its ice cream business
plant in Moscow.
○ Indirect exports includes exporting products either in their original form or
in the modified form to a foreign country through another domestic
company. For example, various publishers in India including Himalaya
Publishing House sell their products i.e. books to various exporters in
India, which in turn export these books to various foreign countries.

Exporting is appropriate in case of:

● Low trade barriers

● Home location has cost advantage
● Customization not crucial

Advantages of Exporting

● Low initial investment

● Quicker customer reach / market access
● Complete control over production
● Benefit of learning for future expansion
● Permits gradual market entry
● Under direct export the exporter has control over selection of market

Disadvantages of Exporting

● High start-up costs in case of direct exporting

● The exporter has little to no control over distribution of products
● Lack of information about external environment or unknown market
● Exporting through export intermediaries increases the cost of product
● Vulnerable to Tariffs and Non-tariff barriers
● Logistical complexities
● Potential conflicts with distributors

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Licensing

● In this mode of entry, the domestic manufacturer leases the right to use its
intellectual property i.e. technology, work methods, patents, copyrights, brand
names, trademarks, etc., to a manufacturer in a foreign country for a fee.
● Here the manufacturer in the domestic country is called “licensor” and the
manufacturer in the foreign country is called “licensee”.
● In other words, an international licensing agreement allows a foreign company
(the licensee) to sell the products of a producer (the licensor) or to use its
intellectual property (such as patents, trademarks, copyrights) in exchange for
royalty fees.
● For example: Arvind Mills got licenses from reputed International brands such as
Arrow, Lee Cooper, Wrangler, etc. for the Indian market.
● The process of licensing is shown in the figure below:

● A license can be exclusive, non-exclusive or cross.

● In an exclusive license, this arrangement provides exclusive rights to
produce and market the product in a specified region.

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 ● On the contrary, a non-exclusive license does not grant a firm sole access
to the market. a licensor can grant more companies the right to use the
Intellectual Property Right (IPR) in the same region.
● A cross license is reciprocal where intangible property is transferred
between two firms. For example, in the 90's there was cross licensing
between Fujitsu of Japan and Texas Instruments of the US..

Licensing is appropriate in case of:

● Well codified knowledge

● Strong property rights regime
● Location advantage

Advantages of Licensing

● Low investment on the part of the licensor

● Low financial risk to the licensor
● Licensee can escape from the risk of product failure
● Low-cost way to assess market potential
● Avoids trade barriers
● Potential for utilizing location economies
● Access to local knowledge
● Easier to respond to customer needs

Disadvantages of Licensing

● One party’s dishonesty can affect the other

● Chances of trade secrets leakage of the licensor
● Reduce market opportunities for both: the licensor and licensee
● Lack of control over operations
● Difficulty in transferring tacit knowledge
● Potential for creating a future competitor
● Limited market opportunities/profits
● Dependence on licensee

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 ● Potential conflicts with licensee
● Decline in product quality may harm the reputation of licensor

Franchising

● Franchising is a form of licensing but the franchisor can exercise more control
over the franchisee as compared to that in licensing.
● Under this, an independent organization called the franchisee operates the
business under the name of another company called the franchisor. Under this
agreement, the franchisee pays a fee to the franchisor.
● In other words, under an international franchise agreement, a company (the
franchiser) grants a foreign company (the franchisee) the right to use its brand
name and to sell its products or services.
● The franchisee is responsible for all operations but agrees to operate according
to a business model established by the franchiser. In turn, the franchiser usually
provides advertising, training, and new-product assistance.
● The process of franchising is shown in the figure below:

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 ● Franchising is a natural form of global expansion for companies that operate
domestically according to a franchise model, including restaurant chains, such as
McDonald’s and Kentucky Fried Chicken, and hotel chains, such as Holiday Inn
and Best Western.
● Businesses for which franchising is said to work best have the following
characteristics:
a. Businesses with a good track record of profitability.
b. Businesses built around a unique or unusual concept.
c. Businesses with broad geographic appeal.
d. Businesses which are relatively easy to operate.
e. Businesses which are relatively inexpensive to operate.
f. Businesses which are easily duplicated.

Advantages of Franchising

● Low investment
● Low financial risk
● Franchisor understands market culture, customs and environment of the host
country
● Franchisor learns more from the experience of the franchisees
● Franchisee gets the R&D and brand name with low cost
● Franchisee has no risk of product failure
● Franchisee provides knowledge of local market
● Maintains more control than with licensing

Disadvantages of Franchising

● Can be complicated at times

● Difficult to control
● Reduced market opportunities for both franchisee and franchisor
● Responsibilities of managing product quality and product promotion for both
● Leakage of trade secrets
● Potential misunderstandings and conflicts with franchisee
● Possibility of creating future competitor

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Contract Manufacturing

● Because of high domestic labor costs, many companies manufacture their

products in countries where labor costs are lower. This arrangement is called
international contract manufacturing or outsourcing.
● A U.S. company might contract with a local company in a foreign country to
manufacture one of its products. It will, however, retain control of product design
and development and put its own label on the finished product.
● Contract manufacturing is quite common in the U.S. apparel business, with most
American brands being made in a number of Asian countries, including China,
Vietnam, Indonesia, and India.
● For example, Nike has contracted with a number of factories in South-East Asia
to produce its athletic footwear, and it focuses on marketing. Bata also contracted
with a number of cobblers in India to produce its footwear and concentrate on
marketing. Mega Toys - a Los Angeles based company contracts with Chinese
plants to produce toys, while Mega Toys concentrates on marketing.

Turnkey Projects

● A turnkey project is a contract under which a firm agrees to fully design, construct
and equip a manufacturing/business/service and turn the project over to the
purchaser when it is ready for operation, in exchange of a remuneration fee.
● Under this system, a foreign company is given the contract to set up the
entire plant or a project including the training of operating personnel. After
the completion of the contract, the foreign client is handed the “key” to
the plant that is ready for operation.
● The forms of remuneration includes:
○ A fixed price (firm plans to implement the project below this price)
○ Payment on a cost plus basis (i.e., total cost incurred plus profit)
● Under this system, a foreign company is given the contract to set up the
entire plant or a project including the training of operating personnel. After
the completion of the contract, the foreign client is handed the “key” to
the plant that is ready for operation.

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 ● Turnkey projects are common in fertilizer, chemical, pharmaceutical,
petroleum refining, cement industries in which complicated processes and
huge investments are required.
● Companies normally approach the host country’s Governments or International
Finance Corporations, Export-Import Banks, etc. for financial assistance as
turnkey projects require huge financial resources.
● Turnkey projects may be of various types such as:
○ BOT: Built, Operate & Transfer
○ BOOT: Built, Owned, Operate & Transfer
○ BOLT: Built, Owned, Leased & Transferred

Joint Ventures

● A joint venture (JV) is a business arrangement in which two or more parties

agree to pool their resources for the purpose of accomplishing a specific task.
This task can be a new project or any other business activity.
● Each of the participants in a JV is responsible for profits, losses, and costs
associated with it. However, the venture is its own entity, separate from the
participants’ other business interests.
● Here are the four main reasons why companies form JVs:
1. To Leverage Resources: A JV can take advantage of the combined
resources of both companies to achieve the goal of the venture. One
company might have a well-established manufacturing process, while the
other company might have superior distribution channels.
2. To Reduce Costs: By using economies of scale, both companies in the
JV can leverage their production at a lower per-unit cost than they would
separately. This is particularly appropriate with technological advances
that are costly to implement. Other cost savings as a result of a JV can
include sharing advertising or labor costs.
3. To Combine Expertise: Two companies or parties forming a JV might
each have different backgrounds, skill sets, or expertise. When these are
combined through a JV, each company can benefit from the other’s talent.
4. To Enter Foreign Markets: Another common use of JVs is to partner with
a local business to enter a foreign market. A company that wants to
expand its distribution network to new countries can enter into a JV

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 agreement to supply products to a local business, thus benefiting from an
already existing distribution network. Some countries have restrictions on
foreigners entering their market, making a JV with a local entity almost the
only way to do business in the country.
● A joint venture (JV) is a business arrangement in which two or more parties
agree to pool their resources for the purpose of accomplishing a specific task.
This task can be a new project or any other business activity.
● A JV has three principal forms:
○ Minority JV
○ 50/50 JV
○ MAJORITY JV
● For example, Sony-Ericsson is a joint venture by the Japanese company Sony
Corporation and the Swedish telecommunications company Ericsson to make
mobile phones.

Mergers & Acquisitions

MERGERS

● A merger is the combination of two or more distinct entities into one, with the
desired effect being the accumulation of assets and liabilities of the distinct
entities and several other benefits such as economies of scale, tax benefits,
quicker growth, synergy, diversification, etc.
● It is a combination of two companies into one larger company. This action
involves stock swap or cash payment to the target.
● In a merger, the acquiring company takes over the assets and liabilities of the
merged company.
● All the combining companies are dissolved, and only the new entity continues to
operate.
● Merger commonly take two forms:
○ In the first form amalgamation, two entities combine together and form a
new entity, extinguishing both the existing entities.

Hence. A + B = C, where C is an entirely new company is

AMALGAMATION or CONSOLIDATION. For example, Citigroup was
created after the consolidation of Citicorp and Travellers Insurance Group

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 ○ In the second form, absorption, one entity gets absorbed into another. The
latter does not lose its entity. Thus, in any type of merger, at least one
entity loses its entity.

Hence, A + B = A, where company B is merged into company A is

ABSORPTION. TOMCO Ltd. with HLL is a classic example of absorption.

ACQUISITIONS

● Acquisition is a more general term, enveloping in itself a range of acquisition

transactions. It could be the acquisition of control, leading to takeover of a
company. It could be acquisition of tangible assets, intangible assets, rights and
other kinds of obligations. They could be independent transactions, and may not
lead to any kind of takeovers or mergers.
● When one company takes over another and clearly establishes itself as the new
owner, the purchase is called an acquisition.
● Acquisitions are often made as part of a company's growth strategy when it is
more beneficial to take over an existing firm's operations than it is to expand on
its own.
● Hence, Company A + Company B = Company A is a form of acquisition.
● Acquisition may be in the form of:
○ A Minority
○ A Majority
○ Full Outright Stake (Brown-field Investment)
● Tata Motors acquired Jaguar and Land Rover is an example of acquisition.

STRATEGIC ALLIANCE

● A strategic alliance is a business arrangement in which two or more

organizations agree to work together to achieve a common goal. Such an
alliance can take various forms, including joint ventures, partnerships, and
collaborations. Typically, strategic alliances are formed between organizations
that operate in different industries or geographic regions and that have
complementary capabilities or resources.

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 ● Strategic alliances can offer several benefits to the organizations involved. For
example, they can help to reduce costs by sharing resources or expertise, enable
the organizations to enter new markets or to expand their product lines, and
allow for the transfer of knowledge and technology. Additionally, strategic
alliances can provide a way for companies to gain access to new customers or
distribution channels, or to build brand awareness through co-marketing efforts.
● However, strategic alliances can also present challenges. For example, there
may be differences in culture, goals, or communication styles between the
organizations that can create conflicts. Additionally, there may be issues related
to intellectual property, liability, or ownership that need to be resolved. Therefore,
it is important for organizations to establish clear expectations, roles, and
responsibilities in the alliance, and to communicate effectively with each other.

Strategies for Competing in Emerging Markets

Enter Low and Middle End Segments of the Market

It has been found that many multinationals find their sweet spot in emerging markets
when they cater to the lower and middle ends of the market segments. In other words,
contrary to popular perception, multinationals find that selling to these segments is
much better than focusing on the top segment alone. The experience of Japanese
companies that focused on the top segment in many emerging markets and found that
they were not succeeding is a case in point. This led the Japanese automakers to target
the lower and middle end of the market segments in many Asian countries, including
India, where they have targeted these segments with good results.

Take the Merger and Acquisition Route

Western multinationals are put off by the rigid bureaucracy and political interference in
many emerging markets, which makes them reluctant to expand their operations. In this
case, they can tie up with the local companies and enter into mergers or acquire local
businesses. This makes sense because the senior management from the local
companies would be conversant with the local bureaucracy and hence, their familiarity
and knowledge can be tapped to deal with policy paralysis and the logjam that many

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emerging markets are going through in recent years. Another advantage of this strategy
is that the multinationals can grow inorganically when organic growth is no longer
possible or feasible.

Display Commitment and Send Senior Talent

Often it is the case that many multinationals do not take the emerging markets as
seriously as they would take the developed countries. This means that they do not send
high executives and senior executives to head their operations in these countries. The
net result is that they face a lack of talent to steer their operations in these countries. Of
course, the fact that working and living in emerging markets like India, Brazil, and
Russia is difficult for many expatriates from the West. However, this should not deter
them from displaying commitment. Talking about commitment, many multinationals lose
interest in emerging markets within a couple of years, especially when the returns are
not up to their expectations. With political risk and societal barriers impeding their
growth, many western multinationals pull out or sell their stakes. The key aspect here is
that since the western multinationals have deep pockets, it makes sense to stay the
course for at least five years, and hence the commitment, apart from sending top-notch
talent, has to be actualized.

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 MODULE 10

MERGERS & ACQUISITIONS, STRATEGIC

ALLIANCES, JOINT VENTURES, VERTICAL
INTEGRATION, OFFENSIVE & DEFENSIVE
STRATEGIES

MERGERS

What is a Merger?

● A merger is the combination of two or more distinct entities into one, with the
desired effect being the accumulation of assets and liabilities of the distinct
entities and several other benefits such as economies of scale, tax benefits,
quicker growth, synergy, diversification, etc.
● It is a combination of two companies into one larger company. This action
involves stock swap or cash payment to the target.
● In a merger, the acquiring company takes over the assets and liabilities of the
merged company.
● All the combining companies are dissolved, and only the new entity continues to
operate.
● Merger commonly take two forms:
○ In the first form amalgamation, two entities combine together and form a
new entity, extinguishing both the existing entities.

Hence. A + B = C, where C is an entirely new company is

AMALGAMATION or CONSOLIDATION. For example, Citigroup was
created after the consolidation of Citicorp and Travellers Insurance Group

○ In the second form, absorption, one entity gets absorbed into another. The
latter does not lose its entity. Thus, in any type of merger, at least one
entity loses its entity.

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 Hence, A + B = A, where company B is merged into company A is
ABSORPTION. TOMCO Ltd. with HLL is a classic example of absorption.

TYPES OF MERGERS

Horizontal Mergers

Horizontal mergers take place when two companies produce similar products in the
same industry. In other words, a horizontal merger occurs when two competitors
combine. Horizontal mergers take place with a motive to attain market power. This
business strategy is used by a firm that seeks growth through acquisitions. Most
mergers take place in highly concentrated industries where fewer firms compete, and
the synergies are favorable. Because the two firms compete on the same stage of the
supply chain they are able to develop economies of scale by combining operations.

In the long-run, they are able to increase their market share and lower their marginal
costs. Furthermore, they can offer a wider range of products to their customers without
having to invest in new resources.

Examples of Horizontal Mergers:

● Brook Bond and Lipton

● Bank of Mathura with ICICI
● Associated Cement Companies Ltd with Damodar Cement
● Flipkart & Myntra

Vertical Mergers

A vertical merger refers to a firm acquiring a supplier or distributor of one or more of its
goods or services. These are combinations of companies that have a buyer- seller
relationship. Vertical mergers occur when two firms, each working at different stages in
the production of the same product, combine. Vertical mergers are a strategic way for
companies to increase their business and have more control over supporting steps of a
supply chain. In a supply chain a supplier provides raw materials to a manufacturer who
creates a product which is then distributed to retailers who sell the product to the end

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customer. After completing a vertical merger, companies are often able to develop
synergies that lead to more efficient operations, reduced costs and increased business.

Examples of Vertical Mergers:

● A car manufacturing company with tyre company

● A textile company acquires a cotton yarn manufacturer
● Pepsi‘s merger with restaurant chains that it supplies with beverages.
● Pixar and Disney

CONGLOMERATE MERGER

This is a merger between two or more companies engaged in unrelated business

activities. The firms may operate in different industries or in different geographical
regions. A pure conglomerate involves two firms that have nothing in common. A mixed
conglomerate, on the other hand, takes place between organizations that, while
operating in unrelated business activities, are actually trying to gain product or market
extensions through the merger.

Companies with no overlapping factors will only merge if it makes sense from a
shareholder wealth perspective, that is, if the companies can create synergy, which
includes enhancing value, performance, and cost savings. A conglomerate merger was
formed when The Walt Disney Company merged with the American Broadcasting
Company (ABC) in 1995.

CONGENERIC MERGER

A congeneric merger is also known as a Product Extension merger. In this type, it is a

combining of two or more companies that operate in the same market or sector with
overlapping factors, such as technology, marketing, production processes, and research
and development (R&D). A product extension merger is achieved when a new product
line from one company is added to an existing product line of the other company. When
two companies become one under a product extension, they are able to gain access to
a larger group of consumers and, thus, a larger market share. An example of a

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congeneric merger is Citigroup's 1998 union with Travelers Insurance, two companies
with complementing products.

MARKET EXTENSION MERGER

This type of merger occurs between companies that sell the same products but
compete in different markets. Companies that engage in a market extension merger
seek to gain access to a bigger market and, thus, a bigger client base. To extend their
markets, Eagle Bancshares and RBC Centura merged in 2002.

ACQUISITIONS

What is an Acquisition?

● Acquisition is a more general term, enveloping in itself a range of acquisition

transactions. It could be the acquisition of control, leading to takeover of a
company. It could be acquisition of tangible assets, intangible assets, rights and
other kinds of obligations. They could be independent transactions, and may not
lead to any kind of takeovers or mergers.
● When one company takes over another and clearly establishes itself as the new
owner, the purchase is called an acquisition.
● Acquisitions are often made as part of a company's growth strategy when it is
more beneficial to take over an existing firm's operations than it is to expand on
its own.
● Hence, Company A + Company B = Company A is a form of acquisition.
● Acquisition may be in the form of:
○ A Minority
○ A Majority
○ Full Outright Stake (Brown-field Investment)
● Tata Motors acquired Jaguar and Land Rover is an example of acquisition.

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Types of Acquisitions

FRIENDLY ACQUISITION

Friendly acquisitions occur when the target firm agrees to be acquired; its board of
directors (B of D, or board) approves of the acquisition. Friendly acquisitions often work
toward the mutual benefit of the acquiring and target companies. Both companies
develop strategies to ensure that the acquiring company purchases the appropriate
assets, and they review the financial statements and other valuations for any obligations
that may come with the assets. Once both parties agree to the terms and meet any
legal stipulations, the purchase proceeds.

Example: In 2019, The Walt Disney Company announced its acquisition of 21st
Century Fox in a friendly deal worth $71.3 billion. The two companies had been in
negotiations for several months, and the deal was approved by both companies' boards
of directors. The acquisition allowed Disney to expand its media and entertainment
offerings by acquiring 21st Century Fox's television and movie studios, cable networks,
and international operations.

The acquisition was seen as beneficial for both companies, as 21st Century Fox's
media assets complemented Disney's existing businesses, and the deal allowed 21st
Century Fox to focus on its news and sports operations, which were not part of the
acquisition.

The friendly nature of the deal allowed for a smooth transition and integration of the two
companies' operations, without the need for a contentious battle for control. The
acquisition ultimately created a more diversified and competitive media and
entertainment company, with the potential for greater profitability and growth.

HOSTILE ACQUISITION (TAKEOVERS)

Unfriendly acquisitions, commonly known as "hostile takeovers," occur when the target
company does not consent to the acquisition. Hostile acquisitions don't have the same
agreement from the target firm, and so the acquiring firm must actively purchase large
stakes of the target company to gain a controlling interest, which forces the acquisition.

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Example: In 2017, the pharmaceutical company Pfizer made a hostile bid to acquire the
Irish biotech company Allergan, in a deal worth $160 billion. Allergan had previously
moved its headquarters to Ireland to take advantage of lower tax rates, which made it
an attractive target for acquisition.

Pfizer's bid was unsolicited, and Allergan's management and board of directors rejected
the offer, stating that it undervalued the company and was not in the best interests of
shareholders. However, Pfizer continued to pursue the acquisition and threatened to
take the bid directly to Allergan's shareholders if the company did not engage in
negotiations.

Ultimately, the deal fell through after the US Treasury introduced new regulations aimed
at preventing companies from using "tax inversions" to avoid paying US taxes. The new
regulations made the tax benefits of the acquisition less attractive, and Pfizer and
Allergan announced the termination of the deal.

The attempted acquisition of Allergan by Pfizer is an example of a hostile takeover, as

Pfizer bypassed the management and board of directors of Allergan and tried to take
control of the company directly through its shareholders.

STRATEGIC ALLIANCES

When companies want to quickly gain a new area of expertise or access to new
technology or markets, they usually have two options: buy a smaller company with
those assets or form a strategic alliance with another company that would benefit
equally from the partnership. These agreements often have a limited scope and
function, such as trading access to a strong brand for access to an emerging
technology.

Advantages of Strategic Alliances

1. Access to new markets: Strategic alliances provide firms with access to new
markets that they may not have been able to enter on their own. This is
particularly beneficial for firms that lack the resources or local knowledge to enter
new markets.

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 2. Sharing of risks and costs: By sharing the costs and risks associated with a
new venture, firms can reduce their financial exposure and increase the
likelihood of success. This is particularly important for firms that are entering
uncertain or high-risk markets.
3. Access to complementary resources and capabilities: By partnering with
firms that have complementary resources and capabilities, firms can leverage
these resources to create synergies that lead to greater competitiveness and
innovation.
4. Increased efficiency: Strategic alliances can help firms to increase their
efficiency by sharing resources and reducing duplication of effort. For example,
firms can share production facilities or distribution networks, which can lead to
cost savings and improved operations.
5. Increased innovation: By pooling their resources and expertise, firms can
create new technologies or products that they could not have developed on their
own. This can lead to increased innovation and competitiveness.
6. Improved learning: Strategic alliances provide firms with the opportunity to learn
from their partners, which can help to improve their own capabilities and
knowledge. For example, firms can learn about new manufacturing processes or
marketing techniques from their partners.

Limitations of Strategic Alliances

1. Risk of partner opportunism: One of the biggest risks associated with strategic
alliances is partner opportunism. This occurs when one partner takes advantage
of the other by appropriating intellectual property, breaking contractual
obligations, or pursuing their own interests at the expense of the partnership.
2. Loss of control: When firms enter into a strategic alliance, they often have to
give up some control over their resources and operations. This can be a
disadvantage for firms that are used to maintaining control over their own
operations and assets.
3. Difficulty in managing the partnership: Strategic alliances can be complex and
difficult to manage, particularly when partners have different goals and cultures.
This can lead to conflict and miscommunication, which can undermine the
success of the partnership.

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 4. Cultural differences: Cultural differences between partners can lead to
misunderstandings and miscommunications, which can make it difficult to
establish effective collaboration and trust.
5. Limited scope: Strategic alliances are often limited in scope and duration, which
can limit the long-term benefits of the partnership.
6. Exit costs: Exiting a strategic alliance can be costly, particularly if there are
contractual obligations or investments that need to be unwound.

Example of a Strategic Alliance

An example of a strategic alliance is the partnership between Nike and Apple. Under
this partnership, Nike developed a line of sports shoes and clothing with sensors that
can communicate with Apple's iPod and iPhone devices. This allowed users to track
their workouts and fitness progress using the Nike+ app and other related apps on their
Apple devices.

The partnership has been successful for both companies, with Nike benefiting from
Apple's technology and marketing power, and Apple gaining access to a new market in
the sports and fitness industry. The partnership has also allowed both companies to
create new products that combine their strengths and expertise.

Nike has been able to leverage Apple's technology and marketing power to expand its
reach and appeal to a broader audience. The partnership has also allowed Nike to
create new products that appeal to tech-savvy customers who are looking for innovative
ways to track their fitness and health.

Apple, on the other hand, has been able to expand its product offerings by adding a
new line of fitness products that integrate with its devices. This has allowed Apple to tap
into the growing market for health and wellness products, and to create new revenue
streams outside of its core products.

The strategic alliance has continued for over a decade and has led to the development
of several new products, including the Apple Watch and the Nike+ Run Club app. This
example demonstrates how a strategic alliance can benefit both companies by allowing
them to leverage each other's technology and expertise to create innovative new
products that appeal to a broad range of customers.

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JOINT VENTURES

What is meant by a Joint Venture?

● A joint venture (JV) is a business arrangement in which two or more parties

agree to pool their resources for the purpose of accomplishing a specific task.
This task can be a new project or any other business activity.
● Each of the participants in a JV is responsible for profits, losses, and costs
associated with it. However, the venture is its own entity, separate from the
participants’ other business interests.
● Here are the four main reasons why companies form JVs:
1. To Leverage Resources: A JV can take advantage of the combined
resources of both companies to achieve the goal of the venture. One
company might have a well-established manufacturing process, while the
other company might have superior distribution channels.
2. To Reduce Costs: By using economies of scale, both companies in the
JV can leverage their production at a lower per-unit cost than they would
separately. This is particularly appropriate with technological advances
that are costly to implement. Other cost savings as a result of a JV can
include sharing advertising or labor costs.
3. To Combine Expertise: Two companies or parties forming a JV might
each have different backgrounds, skill sets, or expertise. When these are
combined through a JV, each company can benefit from the other’s talent.
4. To Enter Foreign Markets: Another common use of JVs is to partner with
a local business to enter a foreign market. A company that wants to
expand its distribution network to new countries can enter into a JV
agreement to supply products to a local business, thus benefiting from an
already existing distribution network. Some countries have restrictions on
foreigners entering their market, making a JV with a local entity almost the
only way to do business in the country.
● A joint venture (JV) is a business arrangement in which two or more parties
agree to pool their resources for the purpose of accomplishing a specific task.
This task can be a new project or any other business activity.
● A JV has three principal forms:
○ Minority JV
○ 50/50 JV

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 ○ MAJORITY JV
● For example, Sony-Ericsson is a joint venture by the Japanese company Sony
Corporation and the Swedish telecommunications company Ericsson to make
mobile phones.

Importance/Advantages of Joint Ventures

Joint ventures can be important for a variety of reasons, including:

1. Access to new markets: Joint ventures can provide companies with access to
new markets or geographic regions. By partnering with a company that has an
established presence in a particular market, a company can quickly gain access
to that market and leverage the partner's expertise to navigate the regulatory and
cultural complexities of doing business in that region.
2. Sharing of expertise and resources: Joint ventures allow companies to
combine their expertise and resources, which can lead to increased efficiency
and innovation. For example, a company with strong manufacturing capabilities
may partner with a company that has a strong sales and marketing team,
creating a joint venture that is better positioned to bring products to market.
3. Risk sharing: Joint ventures can also help companies mitigate risk. By sharing
the costs and risks of a project with a partner, a company can reduce its
exposure and avoid the need to commit significant resources to a new venture on
its own.
4. Cost savings: Joint ventures can provide cost savings through economies of
scale. By pooling resources and sharing infrastructure, companies can reduce
their costs and increase their profitability.
5. Access to new technology: Joint ventures can also provide companies with
access to new technology. By partnering with a company that has developed new
technology, a company can gain access to that technology without having to
invest in its own research and development.

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Disadvantages of Joint Ventures

● Loss of control: When entering into a joint venture, companies must be willing
to give up some degree of control over their operations. This can be a difficult
adjustment for companies used to making all of their own decisions.
● Differences in management style: Joint ventures can be challenging when
companies have different management styles and cultural backgrounds.
Differences in decision-making processes, communication styles, and other
factors can create friction and make it difficult to achieve the desired outcomes.
● Potential for conflicts of interest: Joint ventures can create conflicts of interest
between the partners. For example, one partner may prioritize short-term profits
over long-term growth, while the other partner may have a different perspective.
These differences can create tension and make it difficult to make decisions that
are in the best interests of the joint venture.
● Sharing of profits: Joint ventures require partners to share profits, which can be
a disadvantage if one partner is contributing significantly more to the venture
than the other. Disagreements over the allocation of profits can strain the
relationship between the partners.
● Complexity: Joint ventures can be complex to set up and manage, requiring
significant time and resources. Companies must carefully consider the legal and
financial implications of the venture, and establish clear lines of communication
and decision-making processes to ensure the venture is successful.

Success factors in a Joint Venture

1. Good communication and coordination among the company will led to obtain the
objectives
2. The goal set must be common among the partners
3. Profit shared among partners
4. It should work towards benefit of all partners

Factors hindering success in a Joint Venture

1. Lack of coordination among the partners

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 2. Lower profits among the partners
3. Difficulty due to location of the partners
4. Difficulty in management styles of partners

Difference between Strategic Alliance and Joint Venture

● When an independent entity is formed by two or more other entities, the business
venture is known as a joint venture. On the other extreme, a strategic alliance is
an arrangement between two or more companies from various nations, working
together to collaborate in any activities of the value chain system.
● The entities which undergo to form the joint venture, do not operate as
independent entities. Conversely, the firms undergoing strategic alliance, operate
as independent entities.
● The contractual agreement must exist in the case of joint venture whereas the
strategic alliance may be expressly declared or implied between the concerned
entities.
● The joint venture is the most complicated type of strategic alliance. As against, a
strategic alliance is a form of collaboration or corporate partnering.
● The joint venture is a separate legal entity, created by the conjoining firms. On
the contrary, a strategic alliance is not a separate legal entity.
● Joint Venture is aimed at reducing risk, while strategic alliance focuses on reward
maximization.

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VERTICAL INTEGRATION

Meaning of Vertical Integration

Vertical integration is a strategy that allows a company to streamline its operations by

taking direct ownership of various stages of its production process rather than relying on
external contractors or suppliers.

A company may achieve vertical integration by acquiring or establishing its own

suppliers, manufacturers, distributors, or retail locations rather than outsourcing them.
However, vertical integration may be considered risky potential disadvantages due to
the significant initial capital investment required.

Vertical integration occurs when a company attempts to broaden its footprint across the
supply chain or manufacturing process. Instead of sticking to a single point along the
process, a company engages in vertical integration to become more self-reliant on other
aspects of the process. For example, a manufacturing company may want to directly
source its own raw materials or sell directly to consumers.

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Types of Vertical Integration

There are a number of ways that a company can achieve vertical integration. Two of the
most common are backward and forward integration.

Forward Integration:

Forward integration refers to a business strategy in which a company expands its

operations into downstream activities in the supply chain by acquiring or merging with
businesses that are closer to the end consumer. The goal is to gain more control over
the distribution and marketing of its products or services, which can increase efficiency,
reduce costs, and improve profits.

A real-life example of forward integration can be seen in the case of the technology
giant Apple Inc. Apple has pursued a forward integration strategy by opening its own
chain of retail stores, known as Apple Stores. By doing so, Apple has gained more
control over the distribution and marketing of its products, as it can directly interact with
its customers, showcase its products, and provide customer service and support.
Apple's retail stores allow the company to offer a unique and consistent customer
experience, which helps to build brand loyalty and differentiate itself from its
competitors. In addition, by owning its own retail stores, Apple has reduced its reliance
on third-party retailers, which can be beneficial in terms of reducing costs and
increasing profit margins. Overall, Apple's forward integration strategy has been
successful in enabling the company to maintain control over the distribution and
marketing of its products, while also improving its profitability and customer experience.

Backward Integration:

Backward integration is a business strategy in which a company expands its operations

into upstream activities in the supply chain by acquiring or merging with businesses that
are closer to the source of raw materials or production inputs. The goal is to gain more
control over the supply of critical inputs, improve quality, reduce costs, and increase
efficiency.

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A real-life example of backward integration can be seen in the case of the fast-fashion
retailer Zara, which is owned by the Spanish company Inditex. Zara has pursued a
backward integration strategy by vertically integrating its supply chain to control and
improve the quality, speed, and cost of its production process. Zara sources raw
materials, such as fabrics and yarns, from various suppliers globally and has
established close relationships with them to ensure timely delivery and consistent
quality. However, instead of relying on third-party manufacturers for its production, Zara
has built an in-house network of production facilities and manufacturing teams that allow
it to control the entire production process. By doing so, Zara has gained more control
over the production process and can quickly respond to changing consumer trends and
demands. It can also reduce lead times and production costs, which is essential in the
fast-fashion industry, where speed and affordability are key competitive advantages.
Overall, Zara's backward integration strategy has been successful in allowing it to
control the quality, speed, and cost of its production process, which is critical in the
fast-fashion industry. By vertically integrating its supply chain, Zara has been able to
reduce production costs, increase efficiency, and improve its competitiveness in the
global fashion market.

Advantages of Vertical Integration:

1. Control over the supply chain: Vertical integration allows a company to have
better control over the supply chain and ensure the quality, cost, and timely
delivery of inputs, as well as the distribution and marketing of its products or
services.
2. Cost savings: By integrating upstream or downstream operations, a company
can reduce transaction costs and eliminate intermediaries, which can lower costs
and increase efficiency.
3. Competitive advantage: Vertical integration can provide a company with a
competitive advantage by enabling it to differentiate its products or services,
improve customer experience, and reduce lead times.
4. Improved coordination: Vertical integration can help to improve coordination
and communication between different departments or business units, leading to
greater operational efficiency and better decision-making.

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Disadvantages of Vertical Integration:

1. High capital requirements: Vertical integration can require significant capital

investment, which can strain a company's resources and limit its flexibility.
2. Increased risk: Integrating operations upstream or downstream can expose a
company to risks associated with different stages of the supply chain, such as
price volatility, raw material shortages, or supply chain disruptions.
3. Lack of expertise: A company may lack the expertise and knowledge required
to operate in a new area of the supply chain, leading to inefficiencies, quality
issues, and higher costs.
4. Reduced flexibility: Vertical integration can reduce a company's flexibility in
adapting to changes in the market or technological advancements, as the
company is locked into a particular production process.

OFFENSIVE & DEFENSIVE STRATEGY

OFFENSIVE STRATEGY

An offensive marketing strategy seeks to attack the market by targeting the weaknesses
of the competition and emphasizing the company's strengths in comparison. Offensive
marketing does not seek to challenge an industry leader's strengths since that would

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only play to the leader's defensive marketing capabilities. This strategy attacks the
industry leader where the company is most vulnerable. For example, a company using
an offensive marketing strategy may seek to target an established industry leader's
shaky product safety record by emphasizing the safety of its own products.

Advantages of an Offensive Strategy

1. Increased market share: An offensive strategy can help a company increase its
market share by capturing customers from competitors. This can be achieved by
offering a better product, providing better service, or by offering a better value
proposition.
2. Building brand awareness: Offensive strategies can help build brand
awareness by promoting a company's product or service through advertising,
public relations, or other marketing tactics. This can help attract new customers
and retain existing ones.
3. Increased revenue and profitability: By capturing new customers and
increasing market share, an offensive strategy can lead to increased revenue
and profitability.
4. Encourages innovation: Offensive strategies can encourage innovation and
new product development to differentiate the company's product or service from
its competitors.

Disadvantages of an Offensive Strategy

1. High risk: Offensive strategies can be risky as they often require significant
investment and may not provide a return on investment.
2. Negative reactions from competitors: Competitors may respond negatively to
an offensive strategy, which can lead to increased competition and price wars.
3. High cost: Offensive marketing strategies can be expensive, requiring significant
investment in advertising, research, and development.
4. Short-term focus: An offensive strategy may focus on short-term goals, such as
increasing market share, rather than long-term sustainability and profitability.

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Tactics used in implementing an Offensive Strategy

1. Product differentiation: Companies can differentiate their products by adding

features, improving quality, or offering unique benefits that set them apart from
competitors. This can help attract customers who are looking for a better product.
2. Price competition: Offering lower prices than competitors can help companies
capture market share by attracting price-sensitive customers. However, this can
be a risky strategy, as it can lead to a price war that can harm profitability.
3. Marketing campaigns: Offensive marketing campaigns can help build brand
awareness, promote new products, and target specific customer segments. This
can help companies increase market share and attract new customers.
4. Distribution channels: Companies can gain a competitive advantage by
improving their distribution channels, making their products more accessible to
customers. This can include expanding into new markets or partnering with
retailers to increase visibility.
5. Partnerships and alliances: Partnerships and alliances with other companies
can help expand a company's reach and provide new opportunities for growth.
6. New product development: Developing new products or services can help a
company differentiate itself from its competitors and attract new customers. This
can involve investing in research and development to create innovative products
or services.
7. Acquisitions: Acquiring other companies can help companies gain access to
new markets, products, and technologies. This can help increase market share
and build a competitive advantage.

Types of attacks in an Offensive Strategy with examples

1. Frontal Attack: In strategic management, a frontal attack is a direct approach

that a company takes to challenge a competitor's strengths in the market. It
involves directly attacking the competitor's core product or service, with the aim
of taking market share and becoming the market leader. A frontal attack is
typically used when a company has a significant advantage over its competitor,
such as superior technology, a better distribution network, or a stronger brand
reputation. By directly targeting a competitor's strengths, the attacking company

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 hopes to create a perception of superiority in the minds of customers and
stakeholders.

A notable example of a frontal attack in the business world is PepsiCo's "Pepsi

Challenge" campaign in the 1970s, which directly challenged Coca-Cola's
dominant position in the soft drink market. The campaign involved a blind taste
test that allowed people to compare the taste of Coca-Cola and Pepsi-Cola, with
the aim of highlighting Pepsi's superior taste. The campaign was a huge success,
and it helped PepsiCo to gain market share and challenge Coca-Cola's
dominance in the soft drink industry.

2. Flank Attack: In strategic management, a flank attack is a tactic where a

company seeks to gain market share by targeting a competitor's weakness in a
specific market or region (blind/weak spots). Instead of attacking a competitor
head-on, a flank attack aims to bypass the competitor's strength by focusing on a
specific segment of the market. A flank attack is often used when a competitor
has a dominant position in a specific market or region, but is weak in other areas.
By targeting these weak areas, the attacking company can gain a foothold in the
market and eventually expand its presence.

An example of a flank attack in the business world is Southwest Airlines' entry

into the airline industry in the 1970s, where it targeted a specific market segment
that was underserved by the major airlines. At the time, major airlines focused on
offering premium services to business travelers, while neglecting price-sensitive
leisure travelers. Southwest Airlines recognized this weakness and developed a
strategy that offered low-cost, no-frills flights to leisure travelers. By targeting this
underserved market segment, Southwest Airlines was able to gain a foothold in
the airline industry and eventually expand its operations. The company's strategy
of offering low fares and no-frills service allowed it to differentiate itself from the
major airlines and create a sustainable competitive advantage.

3. Encirclement Attack: In strategic management, an encirclement attack is a

tactic where a company seeks to gain market share by attacking a competitor on
multiple fronts, often by offering a broad range of products or services that

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 compete with the competitor's offerings. The goal of an encirclement attack is to
create a perception of superiority in the minds of customers by providing a wide
range of products or services that are more diverse and appealing than those of
the competitor. By attacking on multiple fronts, the attacking company can
weaken the competitor's position and create a barrier to entry for new
competitors.

A notable example of an encirclement attack in the business world is how

Amazon has targeted Walmart's traditional brick-and-mortar retail dominance by
offering a wide range of products and services that compete with Walmart's
offerings. Amazon has created a diverse ecosystem of products and services that
includes online shopping, streaming services, cloud computing, and more. By
attacking on multiple fronts, Amazon has weakened Walmart's position in the
retail market and created a barrier to entry for new competitors. While Walmart
has also made efforts to expand its online presence and compete with Amazon,
Amazon's encirclement attack has allowed it to gain a significant advantage in
the retail industry.

4. Bypass Attack: In strategic management, a bypass attack is a tactic where a

company seeks to gain market share by circumventing its competitors through
innovation or by creating a new market segment. Rather than trying to compete
directly with a competitor in an established market, a bypass attack aims to
create a new market or change the rules of the game in an existing market. The
goal of a bypass attack is to create a new value proposition that is superior to the
value proposition offered by the competitors. This can be achieved by creating a
new technology, developing a new business model, or by offering a unique
product or service.

A prime example of a bypass attack is how Uber and Lyft have disrupted the
traditional taxi industry. By leveraging mobile technology and the sharing
economy, they created a new market segment for transportation services that did
not exist before. The two companies offer a unique value proposition to
customers by providing on-demand transportation that is cheaper and more
convenient than traditional taxis. They have also circumvented the regulatory and
licensing hurdles that traditional taxi companies face, allowing them to gain a

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 significant market share quickly. The bypass attack strategy employed by Uber
and Lyft has not only disrupted the traditional taxi industry, but has also created a
new ecosystem of ride-sharing services and influenced the development of the
gig economy as a whole.

5. Guerilla Attack: In strategic management, a guerrilla attack is a tactic where a

company seeks to gain market share by using unconventional means, such as
stealth, speed, and surprise, to take the competitor off guard. The goal of a
guerrilla attack is to gain an advantage quickly, and with minimal resources, by
exploiting the competitor's weaknesses. A guerrilla attack can take various forms,
such as launching a surprise promotional campaign, targeting a specific market
segment that the competitor is neglecting, or leveraging social media to generate
buzz. This type of attack is often used by small companies with limited resources,
as it allows them to gain a foothold in the market without competing head-on with
larger, more established competitors.

A classic example of a guerrilla attack is how Pepsi challenged Coca-Cola's

dominance in the cola market in the 1970s. At the time, Coca-Cola had a
near-monopoly on the market, but Pepsi used a guerrilla attack strategy to gain
market share quickly. Pepsi launched a surprise promotional campaign called the
"Pepsi Challenge," where it invited consumers to blind taste tests between Pepsi
and Coca-Cola. The campaign highlighted the taste difference between the two
colas and positioned Pepsi as the better-tasting alternative. The campaign was a
huge success, and Pepsi's market share increased significantly, challenging
Coca-Cola's dominance in the cola market. The guerrilla attack strategy used by
Pepsi allowed it to gain a foothold in the market and establish itself as a major
player in the industry.

DEFENSIVE STRATEGY

In strategic management, a defensive strategy is a tactic that companies use to protect

their market share, minimize the risk of loss, and maintain their competitive position in
the market. A defensive strategy is often used when a company is facing a threat from a

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competitor, such as an aggressive marketing campaign, a new product introduction, or a
pricing strategy that could take away the company's market share.

The main objective of a defensive strategy is to reduce the impact of a threat and
protect the company's position in the market. A defensive strategy can be proactive or
reactive, depending on the situation. Proactive defensive strategies are put in place
before a threat occurs, while reactive defensive strategies are implemented after a
threat has emerged.

Reasons for adopting a defensive strategy

1. Protecting market share: A defensive strategy is often used when a company's

market share is under threat from a competitor. The company may use a
defensive strategy to prevent the competitor from taking away market share and
protecting its own position in the market.
2. Minimizing risk: A defensive strategy can help a company minimize the risk of
losses in the market. By being proactive and anticipating threats, a company can
develop a defensive strategy that reduces the impact of potential risks and
threats.
3. Preserving brand reputation: A defensive strategy can be used to protect a
company's brand reputation. If a competitor launches a negative campaign or
makes false claims about a company's products, a defensive strategy can be
used to set the record straight and protect the company's reputation.
4. Responding to changing market conditions: A defensive strategy can be
used to respond to changing market conditions, such as economic downturns or
shifts in consumer preferences. By developing a defensive strategy, a company
can position itself to weather the storm and emerge stronger when market
conditions improve.
5. Avoiding direct competition: A defensive strategy can be used to avoid direct
competition with a competitor. Instead of going head-to-head with the competitor,
the company can adopt a defensive strategy that allows it to operate in a different
market segment or with a different product line.

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Advantages of a Defensive Strategy

1. Protects market share: A defensive marketing strategy can help a company

protect its market share from competitors. By anticipating and preparing for
potential threats, a company can minimize the risk of losing market share to
competitors.
2. Minimizes risk: A defensive marketing strategy can help a company minimize
the risk of losses in the market. By being proactive and anticipating threats, a
company can develop a defensive strategy that reduces the impact of potential
risks and threats.
3. Preserves brand reputation: A defensive marketing strategy can be used to
protect a company's brand reputation. If a competitor launches a negative
campaign or makes false claims about a company's products, a defensive
marketing strategy can be used to set the record straight and protect the
company's reputation.
4. Reduces marketing costs: A defensive marketing strategy can be less costly
than offensive marketing strategies. Instead of investing in aggressive marketing
campaigns to gain market share, a company can focus on defending its existing
market share and minimizing the risk of losses.

Disadvantages of a Defensive Strategy

1. Limited growth opportunities: A defensive marketing strategy can be too

focused on protecting existing market share, which can limit the company's
growth opportunities. The company may miss out on potential new markets or fail
to capitalize on emerging trends.
2. Reactive approach: A defensive marketing strategy is often a reactive approach
to market conditions. This can limit a company's ability to innovate and take risks
that may lead to long-term growth and success.
3. Decreased brand exposure: A defensive marketing strategy can lead to
decreased brand exposure, as the company may be less aggressive in its
marketing efforts. This can make it more difficult for the company to attract new
customers and expand its market share.
4. Vulnerability to new entrants: A defensive marketing strategy can make a
company more vulnerable to new entrants in the market. If a competitor is able to

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 enter the market with a better product or marketing campaign, the defensive
strategy may not be enough to protect the company's market share.

Types of defenses in a Defensive Strategy with examples

1. Position Defense: Position defense is a type of defense strategy used in

strategic management to protect a company's market position by emphasizing
the strength of its current products or services. The goal of a position defense is
to highlight the unique benefits and features that the company's products offer, as
well as emphasize the quality and reliability of its offerings. By emphasizing these
strengths, the company aims to differentiate itself from competitors and maintain
its market share. A position defense may involve investing in research and
development to enhance the quality and functionality of existing products, as well
as advertising and marketing efforts to promote the benefits of the company's
products or services.

One example of position defense in action is Apple's focus on design and user
experience. Apple has consistently emphasized the sleek design and
user-friendly interface of its products, such as the iPhone and MacBook, which
has helped the company differentiate itself from competitors. Apple has also
invested heavily in research and development to maintain its competitive edge in
design and user experience, continually releasing new and updated products
with innovative features. By focusing on design and user experience, Apple has
been able to position itself as a premium brand and maintain a loyal customer
base willing to pay a premium for its products.

2. Mobile Defense: Mobile defense is a type of defense strategy used in strategic

management to protect a company's market position by being flexible and
adaptable in response to changes in the market or competitive landscape. The
goal of a mobile defense is to be willing to make changes to product offerings,
pricing, and other strategic factors as needed to maintain a competitive edge.
This type of defense strategy involves keeping a close eye on market trends and
competitors' actions and responding quickly and efficiently to any threats or
opportunities. Companies can use a mobile defense by investing in research and

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 development to develop new products and services, improving customer service,
and making strategic acquisitions to strengthen their competitive position. The
key is to remain nimble and responsive to changes in the market, allowing the
company to adapt and stay ahead of competitors.

An example of a company using mobile defense is Amazon. Amazon has

expanded into various markets such as cloud computing, digital content
streaming, and healthcare. These markets are diverse and are not connected,
making it difficult for competitors to predict Amazon's next moves. By expanding
into these markets, Amazon has not only increased its revenue streams but has
also made it difficult for competitors to attack its core business model of
e-commerce. Amazon's approach to mobile defense has helped it remain
competitive and relevant in an ever-changing market.

3. Flanking Defense: Flanking defense is a type of defense strategy used in

strategic management to protect a company's market position by focusing on
market segments that are not currently being targeted by competitors. The goal
of a flanking defense is to identify gaps in the market and develop products or
services that can address these needs. This type of defense strategy involves
identifying market segments that are underserved or neglected by competitors
and developing specialized products or services to meet their unique needs. By
doing so, a company can differentiate itself from competitors and capture a loyal
customer base. A flanking defense may involve investing in research and
development to create new products or services, as well as marketing efforts to
raise awareness of the company's offerings among target audiences.

A good example of flanking defense is how Uber has responded to Lyft's entry
into the ridesharing market. When Lyft first entered the market, it focused on
offering cheaper rides as compared to Uber. Instead of trying to match Lyft's
pricing, Uber focused on creating a premium service called UberBLACK that
offered higher-end vehicles and professional drivers. By doing this, Uber was
able to differentiate itself from Lyft and attract a different customer segment that
valued a premium experience. Uber was also able to expand into new markets
and launch new services, such as UberEATS, to offset any losses in the

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 ridesharing market. By using a flanking defense, Uber was able to respond to
competitive threats and maintain its market position.

4. Counter-Offensive Defense: Counter-offensive defense is a type of defense

strategy used in strategic management to protect a company's market position by
aggressively responding to competitive threats. The goal of a counter-offensive
defense is to retaliate against aggressive competitors and minimize the impact of
their attacks. This type of defense strategy involves analyzing the competitor's
strengths and weaknesses and identifying opportunities to counter their moves. A
counter-offensive defense may involve launching a marketing or advertising
campaign to highlight the strengths of the company's products or services,
reducing prices or offering promotions to attract customers away from
competitors, or even taking legal action to prevent competitors from engaging in
anti-competitive practices. The key is to respond quickly and effectively to
competitive threats and send a clear message that the company will not be easily
intimidated.

One example of counter-offensive defense is how Coca-Cola responded to

Pepsi's "Pepsi Challenge" campaign in the 1970s. The Pepsi Challenge involved
blind taste tests where participants were asked to choose between Coke and
Pepsi, with Pepsi often coming out on top. In response, Coca-Cola launched a
counter-offensive by reformulating their flagship product, Coca-Cola Classic, and
launching a massive marketing campaign around it. This counter-offensive
helped Coca-Cola regain market share and retain its position as the market
leader. Coca-Cola also continued to innovate by introducing new products such
as Diet Coke and Cherry Coke, further solidifying its position in the soft drink
market. By launching a counter-offensive, Coca-Cola was able to respond to the
competitive threat posed by Pepsi and maintain its market leadership.

5. Contraction Defense: Contraction defense is a type of defense strategy used in

strategic management to protect a company's market position by reducing or
eliminating unprofitable or low-performing products or services. The goal of a
contraction defense is to focus on the company's core strengths and eliminate
distractions or inefficiencies that are draining resources. This type of defense

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strategy involves analyzing the company's product or service portfolio and
identifying areas that are not generating sufficient revenue or profits. A
contraction defense may involve divesting or discontinuing products or services
that are not profitable, reducing the number of offerings to focus on core
strengths, or even downsizing or restructuring the company to improve efficiency.
The key is to streamline operations and focus on the areas of the business that
are most likely to generate long-term success.

A great example of contraction defense is Yahoo's decision to close down

several of its services in 2013. At the time, Yahoo had more than 60 different
products and services, many of which were underperforming and draining
resources. To address this, Yahoo implemented a contraction defense strategy,
closing down several services, including its messenger service, its social
bookmarking service, and its web directory. By doing so, Yahoo was able to focus
its resources on its core products, such as Yahoo Mail and Yahoo Finance, which
were more profitable and had a larger user base. This contraction defense
strategy helped Yahoo cut costs and improve its overall performance, ultimately
leading to its acquisition by Verizon in 2017.

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 MODULE 11

STRATEGY EVALUATION & CONTROL

STRATEGY EVALUATION

● Strategy Evaluation refers to the process of reviewing an organization's strategy

and performance to determine its effectiveness and success in achieving its
goals.
● This process involves assessing the results of the strategy against specific
criteria and making recommendations for improvements or changes to ensure
the strategy remains aligned with the organization's objectives.
● Strategy evaluation helps organizations identify what is working well and what
needs to be improved in their strategy, and provides valuable insights that can
inform future decision making and strategy development.
● The process of strategy evaluation should be continuous and integrated into the
overall strategic management process to ensure that strategies remain relevant
and effective over time.

Importance of Strategy Evaluation

Strategy evaluation is important because it:

● Assesses the effectiveness of the current strategy in achieving desired outcomes

● Provides insights for informed decision making and future strategy development
● Identifies areas for improvement and drives ongoing strategy refinement
● Increases accountability and transparency in the strategic management process
● Promotes continuous improvement and organizational learning

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Therefore, strategy evaluation is a critical aspect of effective strategic management,
helping organizations to continuously improve and remain competitive in a rapidly
changing business environment.

Process of Evaluating a Strategy

The strategy evaluation is carried out in order to determine whether the strategy is
helping the organization achieve its objectives. It compares the actual performance of
the organization with the desired results and provides the necessary insight into the
corrective action that needs to be taken to improve the performance of the organization.
Following are the steps in the process of evaluating strategy:

1. Fixing benchmark of performance:

● Establishing performance standards is the initial step in the strategic
evaluation process. Standards are the benchmarks by which real
performance is judged. They are basically divided into two types:
○ Quantitative Criteria: The quantitative criteria includes net profit,
dividend rate, sales growth, market share, employee turnover,
absenteeism and job satisfaction, share price, production cost and
efficiency and distribution cost and efficiency.
○ Qualitative Criteria: Setting standards also needs qualitative
criteria. Low staff satisfaction or poor manufacturing quality can be
underlying causes of poor job performance. To measure
performance, quality standards must be defined.

2. Measurement of Performance: The measurement of performance is the seconf

step in the strategic evaluation process. In this, the actual performance is
compared to the established standards. Performance standards serve as a
benchmark by which actual performance is measured. Measuring tools like
accounting, reporting, and communication systems are used for measurement.

3. Analyzing Variance: Identifying variances and analyzing them is the third step in
strategy evaluation. Variance is defined as the difference between actual and

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 budgeted (standard) performance. An analysis of variance is produced by
measuring actual performance and comparing it to standard or budgeted
performance. In general, the following three solutions are possible:
a. Actual performance corresponds to standard performance
b. Actual performance outperforms standard performance
c. Actual performance falls short of standard performance

4. Taking Corrective actions: Taking corrective action is the final step of strategy
evaluation. Corrective actions can be taken using one of the following
techniques:
a. Checking performance: Inadequate resource allocation, poorly structured
systems, flawed programs, policies, motivational schemes, inefficient
leadership style, etc. can have a negative impact on performance.
Corrective actions may thus include changes in strategy, processes,
structure, remuneration policies, training programs, job redesign, people
replacement, re-establishment of standards and so on.
b. Checking standards: After checking performance and finding no flaws, a
strategist must then examine standards of performance. When the criteria
set is unreasonably low or high, a strategic manager must revise them.
Higher expectations breed discontent and frustration. Employees are
unproductive when standards are low.
c. Reformulating Strategies, Plans & Objectives: Reformulating a strategy
results in a new strategy being developed. A redesign in the plan may
require newer resource allocation or modification in the steps of strategy
implementation.

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STRATEGIC CONTROL

Strategic control refers to the process of monitoring and evaluating an organization's

performance against its strategic objectives and taking corrective actions to ensure that
those objectives are achieved. It involves measuring and adjusting an organization's
activities, resources, and performance to align with its overall strategy.

A strategy is usually implemented over a significant period of time, during which two
major questions are answered during the process of a “strategic control”:

1. Is strategy implementation taking place as planned?

2. Taking the observed results into consideration, does the strategy require changes
or adjustments?

The aforementioned statement refers to the traditional review and feedback stages,
which constitute the last step in the strategic management process. Normative models
of the strategic management process have depicted it as including three primary stages:
strategy formulation, strategy implementation, and strategy evaluation (control).

Types of Strategic Control

PREMISE CONTROL

Premise control is a type of strategic control that is concerned with evaluating the
underlying assumptions and beliefs that support an organization's strategy. It involves
assessing whether the fundamental premises on which the strategy is based are still
valid and, if not, making the necessary changes to the strategy.

The purpose of premise control is to ensure that an organization's strategy remains

relevant and effective in light of changes in the environment or the organization's
internal conditions. It helps to identify and address any shifts in assumptions that may
require a change in strategy. This is important because a strategy that is based on
outdated or inaccurate assumptions is unlikely to achieve the desired results.

Planning premises/assumptions are established early in the strategic planning process

and act as a basis for formulating strategies.

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It involves checking environmental conditions. Premises are primarily concerned with
two types of factors:

1. Environmental factors (for example, inflation, technology, interest rates,

regulation, and demographic/social changes).
2. Industry factors (for example, competitors, suppliers, substitutes, and barriers to
entry).

STRATEGIC SURVEILLANCE

Strategic surveillance is a type of strategic control that involves continuously monitoring

the external environment to identify potential opportunities and threats to an
organization's strategy. It is a proactive approach to identifying changes in the
environment that could impact the organization's strategic objectives and making
necessary adjustments to the strategy.

The purpose of strategic surveillance is to enable an organization to stay ahead of the

curve and take advantage of emerging opportunities, while also minimizing the risks
associated with external threats. By continuously scanning the external environment, an
organization can identify changes in market trends, customer behavior, industry
developments, and other factors that could impact its strategy.

Compared to premise control and implementation control, strategic surveillance is

designed to be a relatively unfocused, open, and broad search activity.Strategic
surveillance appears to be similar in some way to “environmental scanning.” The
rationale, however, is different. Environmental scanning usually is seen as part of the
chronological planning cycle devoted to generating information for the new plan.

By way of contrast, strategic surveillance is designed to safeguard the established

strategy on a continuous basis.

IMPLEMENTATION CONTROL

Implementation control is a type of strategic control that focuses on ensuring that the
plans and programs developed to achieve an organization's strategic objectives are

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implemented effectively. It involves monitoring and measuring the progress of individual
activities, as well as the overall program, and taking corrective action as needed.

The purpose of implementation control is to ensure that the organization's resources are
being used efficiently and effectively to achieve the desired results. It helps to ensure
that the organization's strategy is being executed as planned, and that any deviations
from the plan are identified and addressed in a timely manner.

Strategic implementation control does not replace operational control. Unlike operations
control, strategic implementation control continuously questions the basic direction of
the strategy. The two basic types of implementation control are:

1. Monitoring strategic thrusts (new or key strategic programs): Two

approaches are useful in enacting implementation controls focused on monitoring
strategic thrusts:
a. one way is to agree early in the planning process on which thrusts are
critical factors in the success of the strategy or of that thrust;
b. the second approach is to use stop/go assessments linked to a series of
meaningful thresholds (time, costs, research and development, success,
etc.) associated with particular thrusts
2. Milestone Reviews: Milestones are significant points in the development of a
programme, such as points where large commitments of resources must be
made. A milestone review usually involves a full-scale reassessment of the
strategy and the advisability of continuing or refocusing the direction of the
company. In order to control the current strategy, it must be provided in strategic
plans.

SPECIAL ALERT CONTROL

Special alert control is a type of strategic control that is designed to address unexpected
events or emergencies that require immediate attention. This type of control is activated
when an organization experiences a crisis or unexpected change that threatens its
strategic objectives.

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The purpose of special alert control is to enable the organization to respond quickly and
effectively to the crisis or emergency, in order to minimize the damage and protect its
strategic objectives. It may involve activating emergency procedures, mobilizing
resources, and coordinating the response across different parts of the organization.

To implement special alert control, an organization must have a clear understanding of

the types of crises or emergencies that it may face, and the procedures and protocols
that need to be followed in those situations.

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PARTICIPANTS IN STRATEGY EVALUATION & CONTROL

In one sense, all the stakeholders of a company are participants in the evaluation
process because all of them are directly or indirectly involved in the performance of the
company and all significant performance are strategic. Internal stakeholders have
greater involvement because they are more directly associated with the strategic
process.

Indirect Participants

These are those who are indirectly involved in the performance of the company.

1. Shareholders: Every company is responsible or accountable to its shareholders

for its performance and results. Therefore, the shareholders, particularly the
majority holders, keep a close eye on the implementation of major strategies or
projects because their stakes are high in the outcome or results. They convey
their reaction by expressing their concern through AGMs, special or
special/extraordinary general body meetings, the board of directors, or the CEO.
2. Financial institutions: Financial institutions may also do the same.
3. Government: Government does not involve directly in performance of a
company, but may get affected when the company cuts the salary of employees
for the purpose of maximizing profit.It monitors progress and exercises control
over an enterprise through the administrative ministry concerned which is always
represented on the board of directors.
4. Board of Directors: Board of Directors does not directly involve itself in
evaluation and control of the strategy implementation process but it conducts
periodic reviews of the company’s performance and result and if any major
strategy is under implementation whether for growth or diversification or internal
reconstruction it will come under review of the board.

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Direct participants

These are directly involved in the performance of the company.

1. The CEO: CEO is finally responsible for implementation, evaluation, control of

and any midterm changes in strategy or revision of objectives or targets. He may
get directly involved in the process or participate primarily through the top
management who may represent different functional areas.
2. Top management: Top management job is to assist the CEO in his plans and
endeavours to guide the strategy implementation process.
3. The CFO/financial controller: Financial controller and his team are primarily
focused on financial implementation, evaluation and control based budgeting and
financial analysis. Evaluation is done with respect to the financial targets in
terms of investment or expenditure vis-à-vis financial achievements or shortfalls.
4. SBU or profit center head: In large multi-business organizations, SBU or profit
center heads play a critical role in the strategy evaluation and control process.
Many implementations actually take place at the SBU level in terms of functions
and operations. SBU facilitates evaluation by the CEO or top management.
5. Strategic planning group: Strategic planning group has a major role to play in
the evaluation and control process because they are initiators of strategy. As a
centralized group or department, they see through the implementation process to
ensure that their concepts, thoughts and plans are properly put into action.
6. Other managers/Special Committee/Task Force: Managers in different
functional and operational areas may participate in the strategy evaluation and
control process in different ways. Task force or special committee is formed to
see through the entire implementation process.

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 MODULE 12

CHANGE MANAGEMENT & TURNAROUND

STRATEGIES

CHANGE MANAGEMENT

Meaning of Change

● "Change is the only constant"

Heraclitus

This is an ancient saying that highlights the fact that change is an inevitable part
of life and is constantly happening.

● "Change is the process by which the future invades our lives"

Alvin Toffler

This definition suggests that change is not always easy or comfortable, but it is a
necessary part of progress and development.

● "Change is a double-edged sword. Its relentless pace these days runs us off our
feet. Yet, when things are unsettled, we can find new ways to move ahead and to
create breakthroughs not possible in stagnant societies"

Gary Hamel

This definition emphasizes the potential benefits and challenges of change,

suggesting that it can lead to both progress and disruption.

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 ● "Change is the law of life. And those who look only to the past or present are
certain to miss the future."

John F. Kennedy

This definition emphasizes the inevitability of change and the need to be

forward-looking to adapt to the future.

When conducting strategic change, organizations plan and implement changes to boost
their competitive advantage or achieve another significant objective. For example, they
may make changes to the business's policies, structure, or processes. Often, these
changes serve as a response to market opportunities or threats. The responsibility to
guide strategic change typically falls to upper management or executive staff members.
Once leaders identify their desired goals or missions, they must perform the change
management process in a structured manner.

Causes of Change

There are many different factors that can cause change in an organization, including:

● External factors: Changes in the external environment, such as changes in

technology, market conditions, or regulatory requirements, can require
organizations to change the way they operate in order to stay competitive and
meet customer needs.
● Internal factors: Changes within the organization, such as mergers and
acquisitions, changes in leadership, or shifts in strategy, can also require
changes in how the organization operates.
● Growth and expansion: As organizations grow and expand, they may need to
change their processes and systems in order to accommodate the increased size
and complexity of the organization.
● Innovation: Organizations that prioritize innovation may need to make changes
to their products, services, or processes in order to stay ahead of the competition
and meet changing customer needs.

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 ● Crisis or disruption: Unexpected events, such as natural disasters, economic
downturns, or cybersecurity breaches, can require organizations to make
significant changes in order to recover and continue operating.
● Employee turnover: Changes in personnel, such as retirements or resignations,
can create gaps in the organization that may require changes in processes,
roles, and responsibilities.

Meaning of Change Management

● "Change management is the discipline of leading, supporting and managing

individuals, teams and organizations through organizational change"

Prosci

This definition focuses on the importance of a structured and intentional

approach to managing change, including support for individuals and teams.

● "Change management is the application of a set of tools, processes, skills and

principles for managing the people side of change to achieve the required
outcomes of a change project or initiative"

APMG International

This definition emphasizes the specific tools and processes that can be used to
manage change, highlighting the need to focus on the people's side of change.

Change management is the process of planning, implementing, and monitoring changes

in an organization to ensure that they are carried out effectively and efficiently, while
minimizing the negative impact on the people, processes, and systems within the
organization. The goal of change management is to help organizations navigate through
complex changes by managing the human, cultural, and technical aspects of the
change process.

Effective change management requires a structured and disciplined approach, as well

as a strong focus on the people involved in the change process. This may involve

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providing training and support to employees, engaging with stakeholders, and creating a
culture of openness and collaboration. It is also important to establish clear metrics for
measuring the success of the change, and to monitor and adapt the change
management process as needed to ensure that it is effective.

Importance of Change Management

Change management is critically important for organizations for several reasons,

including:

● Maximizing the benefits of change: Change management helps to ensure

that the benefits of a change are realized by the organization. By effectively
planning, implementing, and monitoring changes, organizations can minimize
the risks and negative impacts of change, while maximizing the positive
outcomes.
● Reducing resistance to change: Change can be disruptive and unsettling for
employees, who may resist the change or struggle to adapt to new processes
and systems. Change management can help to minimize resistance to
change by providing employees with information, support, and training, as
well as involving them in the change process.
● Improving efficiency and productivity: Change management can help
organizations to identify and implement changes that improve efficiency and
productivity, by streamlining processes, eliminating waste, and leveraging
new technologies.
● Enhancing organizational agility: Change management helps organizations
to be more agile and adaptable in the face of rapid and constant change. By
developing the skills, processes, and systems needed to manage change
effectively, organizations can respond quickly to new opportunities and
challenges.
● Ensuring compliance: Change management is essential for organizations
that operate in regulated industries, where changes must be carefully
managed to ensure compliance with legal and regulatory requirements.

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Principles of Change Management

There are several principles of change management that are widely recognized as
being important for effectively managing change within an organization. These
principles include:

1. Active and visible executive sponsorship: Employees look to senior leaders

for messages (both spoken and unspoken) about the project’s importance and
the organization’s commitment to the change. They want to hear the big-picture
impact messages from the CEO or business executive. That is why it is important
that executive sponsors communicate directly with employees about the reasons
for change. They should not only announce the change and then walk away, but
also participate actively and visibly throughout the change process. They have to
demonstrate support for the change project in words and actions, build a
powerful guiding coalition and manage resistance.

2. Structured change management approach: A structured change management

approach is advisable to avoid shortcutting the change process. In our business
transformation trajectories we use the “ADKAR” methodology of Prosci. ADKAR,
stands for Awareness, Desire, Knowledge, Ability and Reinforcement

3. Engagement and integration with project management: In managing change

we tend to focus more on the ‘technical’ side (designing, developing and
delivering change solutions) than the ‘people’ side (embracing, adopting and
utilizing change solutions) of change. In doing so, we seem to underestimate that
both elements complement each other and should go hand in hand to increase
the probability of success. Change management is most effective when it is
launched at the beginning of a project and integrated into the project activities.
See our whitepaper ‘leading business transformation’ for more information on
how to integrate your change management activities with project management.

4. Employee engagement, participation and resistance management: People

go through an emotion curve with alternating positive and negative emotions or

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 reactions. They show varied behaviour in each phase of the change. People
need to say goodbye to the old situation and become comfortable with the new
situation. Your success rate will largely increase when individuals are given
guidance throughout this curve. You have to realize that individuals are at
different points of the emotion curve at a certain moment of your change
initiatives. So it is advisable to adjust your management style and communication
accordingly. Managing resistance often is seen as difficult to deal with, because it
can be tough and confronting. Resistance can also be seen as a sign of
commitment and passion. You should embrace resistance, because it provides
an opportunity to start a dialogue and to identify the obstacles that prevent
change from happening. You can also minimize resistance by actively involving
employees in the change process. Participation creates passion and commitment
to change.

5. Frequent and open communication about the change and the need for
change: A good communication plan, covering all stakeholders and timing of
messages, is needed to support the change process. When communicating the
why and impact of change, you can use multiple communication channels such
as e-mails, newsletters, presentations and face-to-face communication.
Face-to-face communication is preferable to other forms of communication,
especially when the change is large and impactful. Research shows that it is
good to share information early and often and to involve employees in the
change process.

6. Engagement with and support from middle management: Accountability for

managing the people's side of change should rest not only with executive
sponsors but also with middle managers. Middle managers can often make or
break successful change. They can be the most difficult to convince of the need
for change and can be a ‘layer of loam’ instead of a fertile ground for change.
That’s why it is vital for the change management team to get executives and
middle managers on board early on in the change process. As shown in the
picture below, executives and middle managers are able to positively influence
the “ADKAR scores” when they fulfill their change management roles. For

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 example, when they effectively communicate, they will positively influence the
awareness of the need for change. The role of the change management team is
to engage with and support executives and middle managers in effectively
leading change initiatives.

7. Dedicated change management resources and funding: Projects with

dedicated change management resources and funding are more likely to finish
on schedule and to be completed on budget. It is therefore wise to invest in
appropriate funding and resources for executing change management plans.
External change agents/specialists can lead, train and support executives,
middle managers and internal change teams in the tools and techniques to
manage the people's side of change.

Barriers to Change Management

Implementing change can be a complex and challenging process, and there are several
common barriers that can make it difficult for organizations to effectively manage
change. Some of the key barriers to change management include:

1. Resistance to change: Resistance to change is one of the most common

barriers to change management. People often resist change because they are
uncertain about the impact it will have on their role or because they fear losing
their job. Overcoming resistance to change requires effective communication,
involvement of stakeholders, and providing support to those impacted by the
change.
2. Lack of leadership support: Change management requires strong leadership
support to be successful. Without the support of senior leaders, it can be difficult
to overcome resistance to change, allocate resources effectively, and maintain
momentum.
3. Inadequate planning and preparation: A lack of planning and preparation can
be a significant barrier to change management. Change plans need to be
well-thought-out and based on a clear understanding of the current state of the
organization, the desired future state, and the steps required to get there.

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 Without adequate planning and preparation, change initiatives are more likely to
fail.
4. Insufficient resources: Change management initiatives require resources,
including time, money, and expertise. If resources are inadequate, it can be
difficult to effectively manage change, particularly in complex or large-scale
initiatives.
5. Lack of employee engagement: Employee engagement is critical to the
success of change management initiatives. When employees are not engaged in
the process or do not understand the reasons for the change, they may not fully
support the initiative, which can lead to resistance, confusion, and failure.
6. Ineffective communication: Communication is essential to successful change
management. Without effective communication, stakeholders may not
understand the purpose of the change, the steps required to implement it, or the
impact it will have on their role. This can lead to confusion, resistance, and
failure.
7. Lack of follow-up and evaluation: Change management initiatives require
ongoing follow-up and evaluation to ensure that they are on track and achieving
the desired outcomes. Without ongoing follow-up and evaluation, it can be
difficult to identify and address issues and to make adjustments as needed.

KURT LEWIN’S 3-STEP CHANGE MANAGEMENT MODEL

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Kurt Lewin developed a change model involving three steps: unfreezing, changing, and
refreezing. The model represents a very simple and practical model for understanding
the change process. For Lewin, the process of change entails creating the perception
that a change is needed, then moving toward the new, desired level of behavior, and
finally, solidifying that new behavior as the norm. The model is still widely used and
serves as the basis for many modern change models.

1. UNFREEZE

This is the first stage of transition and one of the most critical stages in the entire
process of change management. It involves improving the readiness as well as
the willingness of people to change by fostering a realization for moving from the
existing comfort zone to a transformed situation. It involves making people aware
of the need for change and improving their motivation for accepting the new ways
of working for better results. During this stage, effective communication plays a
vital role in getting the support and involvement of the people in the change
process.

2. CHANGE

This stage can also be regarded as the stage of Transition or the stage of actual
implementation of change. It involves the acceptance of new ways of doing
things. This is the stage at which the people are unfrozen, and the actual change
is implemented. During this stage, careful planning, effective communication, and
encouraging the involvement of individuals in endorsing the change are
necessary. It is believed that this stage of transition is not easy due to the
uncertainties or because people are fearful of the consequences of adopting a
change process.

3. REFREEZE

During this stage, the people move from the stage of transition (change) to a
much more stable state, which we can regard as the state of equilibrium. The

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 stage of Refreezing is the ultimate stage in which people accept or internalize the
new ways of working or change, accept it as a part of their life and establish new
relationships. For strengthening and reinforcing the new behaviour or changes in
the way of working, the employees should be rewarded, recognized,, and
provided with positive reinforcements, supporting policies or structures can help
reinforce the transformed ways of working.

ADKAR MODEL

This powerful model is based on the understanding that organizational change can only
happen when individuals change. The ADKAR Model focuses on individual
change—guiding individuals through a particular change and addressing any
roadblocks or barrier points along the way.

This model allows leaders and change management teams to focus their activities on
what will drive individual change and therefore achieve organizational results. ADKAR

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model or theory of change is a goal-oriented tool or model which makes it possible for
the various change management teams to focus on those steps or activities that are
directly related to the goals it wants to reach. The goals, as well as the results derived
and defined using this model, are cumulative and in a sequence. This means that while
using this model, an individual must get each of the outcomes or results in a certain
orderly fashion so that the change can be sustained and implemented. The model can
be used by managers of change to find out the various holes or gaps in the process of
change management so that effective training can be offered to the employees. The
following are some of the things for which this model can be used:

● To provide help and support to employees to go through the process of change

or transitioning while the change management is taking place.
● To diagnose and treat the resistance shown by employees towards change.
● To come up with a successful and efficient plan for the professional as well as
personal improvements of employees during the change.

Various benefits of the ADKAR model include:

● It focuses on outcomes rather than tasks. Most change management models

focus on what needs to be done but ADKAR focuses on achieving outcomes.
● It provides a clear checklist of things that need to be done to manage change.
● The model offers the capability of Identification and evaluation of the reasons
why changes made are not working and why desired results are not being
obtained.
● The model makes it possible for one to break the changes into different parts and
then figure out the point where change may not be as effective as planned.
● It offers both a business dimension of change as well as people dimension of
change.

JOHN KOTTER’S 8-STEP CHANGE MODEL

Kotter's 8-step change model is a widely used framework for managing change in
organizations. It was developed by John Kotter, a Harvard Business School professor,
and author of several books on leadership and change management. The model
outlines a systematic approach to managing change, and it is based on his extensive
research on successful and unsuccessful change initiatives.

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The various steps in the model include:

1. CREATING A SENSE OF URGENCY

The first step in Kotter's 8-step model is to establish a sense of urgency. This
involves creating a compelling reason for change and communicating it to
stakeholders. The goal is to get people to understand the need for change and to
become motivated to take action. This step is critical because without a sense of
urgency, people are unlikely to be receptive to change.

2. FORMING A POWERFUL COALITION

The second step is to form a powerful coalition of people who support the change
initiative. The coalition should include people from different levels of the
organization and different departments. The goal is to build a team of people who
can work together to drive the change initiative forward. This step is important
because it helps to build support for the change and ensures that the change is
supported by key decision-makers.

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3. CREATING A VISION FOR CHANGE

The third step is to create a clear and compelling vision for the change. The
vision should be easy to understand, communicate, and remember. The vision
should also be aligned with the organization's values and strategy. The goal is to
get people to understand what the change is about and why it is important.

4. COMMUNICATING THE VISION

The fourth step is to communicate the vision to stakeholders. This involves using
a variety of communication channels, such as town hall meetings, emails, and
memos. The goal is to ensure that everyone understands the vision and is
committed to achieving it. This step is critical because it helps to build support for
the change and ensures that everyone is working towards the same goal.

5. EMPOWERING OTHERS TO ACT ON THE VISION

The fifth step is to empower others to act on the vision. This involves giving
people the tools, resources, and authority they need to make the change happen.
The goal is to create a culture of innovation and entrepreneurship, where people
feel empowered to take risks and try new things. This step is important because
it helps build momentum for the change and ensures that everyone is working
towards the same goal.

6. CREATING SHORT-TERM WINS

The sixth step is to create short-term wins that demonstrate progress towards the
vision. This involves setting achievable goals and celebrating when they are
achieved. The goal is to create momentum for the change by showing people
that progress is being made. This step is critical because it helps to build
confidence in the change initiative and ensures that people are motivated to
continue working towards the vision.

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 7. BUILDING ON THE CHANGE

The seventh step is to consolidate the gains that have been made and produce
more change. This involves using the momentum from the short-term wins to
tackle more complex issues. The goal is to create a sense of continuity and
ensure that the change becomes embedded in the organization's culture. This
step is important because it helps to ensure that the change is sustainable and
that the organization continues to improve.

8. MAKING THE CHANGE STICK

The eighth and final step is to anchor the new approaches in the organization's
culture. This involves embedding the change into the organization's values,
norms, and systems. The goal is to ensure that the change becomes a
permanent part of the organization's culture. This step is critical because it helps
to ensure that the change is sustainable and that the organization continues to
improve over time.

TURNAROUND STRATEGIES

Meaning of Turnaround Strategy

A turnaround strategy is a set of actions and initiatives aimed at reviving a struggling or

underperforming business. It is often employed when a company is facing financial
distress, declining sales, or competitive pressures that threaten its viability. The goal of
a turnaround strategy is to reverse the negative trends and put the business on a path
to sustainable growth and profitability.

Turnaround is a restructuring process that converts a loss-making company into a

profitable one. It brings the industrial unit back into its original position and stabilizes its
performance.

Implementation plays an important role in turnaround management. The success of the

turnaround strategy depends on the commitment of the top level management.

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A turnaround is essential to the survival of a failing business. Turnaround is a sustained
positive change in the performance of a business to obtain desired results. A successful
turnaround is a complex procedure that requires a strong management team and a
sound business core.

Indicators which make it mandatory for a firm to adopt Turnaround Strategy

● Declining sales
● Loss of market share
● Poor financial performance
● Loss of key customers or suppliers
● Low employee morale
● Overreliance on a single product or service
● Ineffective management

Need for Turnaround Strategy / Causes that warrant the adoption of

Turnaround Strategy

A firm may need to adopt a turnaround strategy due to a combination of internal and
external factors. Here are some examples of internal and external causes that may
warrant the adoption of a turnaround strategy:

INTERNAL CAUSES

● Poor financial management: If a company is not managing its finances

effectively, it may find itself in a difficult financial situation. Poor financial
management can include failing to monitor cash flow, not managing debt
effectively, and overspending.
● Lack of innovation: A firm that has become complacent and is not investing in
innovation may lose its competitive edge. A lack of innovation can result in a
decline in sales and profits.

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 ● Ineffective leadership: If a firm's leadership is ineffective, it can lead to poor
decision-making, lack of direction, and poor communication. This can result in a
decline in employee morale and a decline in the firm's performance.
● Inefficient operations: If a firm's operations are not efficient, it can result in
increased costs, poor quality, and slow delivery times. This can result in
dissatisfied customers and a decline in sales.

EXTERNAL CAUSES

● Economic downturn: A recession or economic downturn can have a significant

impact on a firm's sales and profitability. It can result in a decline in consumer
spending, increased competition, and reduced demand for the firm's products or
services.
● Changes in consumer behavior: Changes in consumer behavior, such as a
shift in preferences or buying patterns, can have a significant impact on a firm's
sales and profitability.
● Increased competition: Increased competition can result in a decline in the
firm's market share and sales. It can also result in a decline in prices and
reduced profitability.
● Technological advances: Technological advances can render a firm's products
or services obsolete. This can result in a decline in sales and profitability.

Steps involved in a Turnaround Strategy

1. Assessment of the Situation: The first step in a turnaround strategy is to

assess the current situation of the firm. This includes a thorough analysis of
the internal and external factors that led to the decline in performance. The
company must identify the root cause of the problem and develop a
comprehensive understanding of the situation.
2. Developing a Turnaround Plan: Once the assessment is complete, the
company must develop a turnaround plan. This plan should be designed to
address the root cause of the problem and identify the specific actions the
company needs to take to turn around its performance. The plan should be
comprehensive, realistic, and actionable.

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 3. Implementation of the Turnaround Plan: Once the turnaround plan is
developed, the company must implement it. This includes the execution of the
specific actions identified in the plan. The company must also monitor the
progress of the turnaround plan and make adjustments if necessary.
4. Cost Reduction: To achieve a successful turnaround, a company must be
able to reduce costs. This may involve reducing the workforce, renegotiating
contracts, or closing unprofitable business units. The objective is to improve
the company's bottom line and restore profitability.
5. Strategic Repositioning: Strategic repositioning is a critical step in a
successful turnaround strategy. The company must identify new growth
opportunities and reposition itself in the market. This may involve developing
new products or services, entering new markets, or forming strategic
partnerships.
6. Focus on Cash Flow: Cash flow is essential for any company, especially one
that is experiencing a decline in performance. The company must focus on
generating positive cash flow and improving its working capital. This may
involve reducing inventory, negotiating favorable payment terms with
suppliers, and collecting accounts receivable in a timely manner.
7. Communication and Transparency: During a turnaround, it is essential to
maintain open and transparent communication with stakeholders. The
company must keep its employees, customers, and investors informed about
the progress of the turnaround plan. This builds trust and confidence in the
company's ability to turn around its performance.
8. Continual Monitoring and Adjustments: The final step in a turnaround
strategy is to continually monitor the company's performance and make
adjustments if necessary. The company must be flexible and willing to make
changes to the turnaround plan as needed. This ensures that the company
remains on track to achieve its objectives.

Examples of Turnaround Strategy

DELL

Dell declared that it would implement the cost-cutting strategy in 2006, and the
company did by removing the middlemen and directly selling its products to the

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customers. The company had faced huge losses. In 2007, the company followed the
turnaround strategy and started selling its computers through retailers and middlemen,
and became the world’s largest computer retail brand.

EVERNOTE

Evernote is a software application that allows users to create lists, organize, and make
notes. Stepan Pachikov laid the foundation of the company in 2008, and he decided to
shut down the company after one year. Just before closing down, investors pledged to
invest 500,000 dollars in the company in order to give it a chance. It turned out a
success and the company attracted 20 million users.

APPLE

The CEO of Apple, Steve Jobs left the company in 1985 due to the declining company
position. The tech company kept on declining for the next 12 years and reached the
level of bankruptcy. However, Steve Jobs rejoined the company in 1997 with a new
strategy and enthusiasm, and it became the world’s leading Tech Company later.

FEDEX

Frederick Smith established FedEx in 1971 with 4 million dollars of his inheritance
money, and he borrowed 80 million dollars in loans. He started the company based on
his Yale University idea, and the company went into huge debt and was close to
bankruptcy, in its initial two years of business.

When funds were draining out, he had 5,000 dollars left in his pocket. He decided to
gamble the last 5K in Las Vegas on the verge of bankruptcy. He went there and
gambled 5K and converted it into 27,000 dollars. However, it was able to save the
company and raised 11 million dollars. FedEx delivered its first profit of 3.6 million
dollars in 1976.

The revenue of FedEx reached 1 billion dollars seven years later. It was the first US
company to touch the $1 billion figure within its first decade as a startup. The company
has been growing and thriving since then.

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