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Strategic Management
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2nd Edition, January 2016
3rd Edition, June 2019
4th Edition, October 2023
2 Copyright © Welingkar
CONTENTS
1. Fundamentals Of Strategic Management 4-42
2. Analysis Of Industry And Competition 43-62
3. External Environment 63-92
4. Mission, Objectives And Goals 93-118
5. Corporate Level Strategy 119-152
6. Business Unit Level Strategy 153-174
7. Functional Unit Level Strategy 175-198
8. Strategy Formulation 199-222
9. Strategy Implementation 223-256
10. Strategy Evaluation And Control 257-280
11. Globalisation Strategy 281-300
12. Strategic Leadership 301-328
13. Corporate Governance 329-344
1
Chapter
FUNDAMENTALS OF STRATEGIC
MANAGEMENT
Objectives:
This chapter focuses on the fundamentals of Strategic Management. By the end of the
chapter, you will be able to understand the following:
• Definition of Strategic Management
• Importance and Relevance of Strategic Management
• Strategic Planning and Strategic Decisions
• Levels of Strategy
• Strategic Management Process
• Role of Different Stakeholders
Structure:.1 LOCAL AREA NETWORK

1.1 Introduction
1.2 Global Economic Scenario
1.3 Strategic Management Definition
1.4 Concepts and Approaches of Strategic Management
1.5 Importance and Relevance of Strategic Management
1.6 Limitations of Strategic Management
1.7 What is Strategy?
1.8 Strategic Positioning
1.9 Strategic Decisions
1.10 Levels of Strategy
1.11 Structure and Role of Stakeholders
1.12 Strategic Management Process
1.13 Strategic Management-Indian Context
1.14 Summary
1.15 Self-Assessment Questions
1.1 INTRODUCTION
Strategic Management is an important cornerstone of today's business world. Strategic

Management over the years has evolved into a matured process in many organizations.
The very purpose of Strategic Management is to align the organization vision with the
external world and create long term value for stakeholders by unlocking the
organization’s potential, resources, and its people's wisdom and compassion. Thus,
Chapter 1
Strategic Management process brings about a balanced execution between the internal
and external environments.
With the key ingredients of the business strategy changing very fast, like adoption of
digital and social business strategy or other forms of technologies like social media,
mobility, analytics, and cloud (shortly called as SMAC), it is also important to note that the
strategies that worked in the past may not work for the future. Today's organization
needs to build newer capabilities to stay ahead of the value curve and differentiate itself
from the rest of the market players.
The challenges arising out of formulation and implementation of Strategies to sustain a

company's success have placed greater pressure on the leadership team of an
organization to respond to these challenges quickly and decisively, yet responsibly in a
fast changing world that is characterized by hyper competition. A good or bad strategy
could make or break the company's fortunes drastically. It is also to be noted that the
difference in a company's success lies in its ability to execute the strategy as per the
strategic management process laid down by the company and stay focused, by
constantly reviewing it. Having a successful strategic management process is the most
important aspect of remaining successful in business.
Hence, Strategic Management becomes a critical business process for any organization
which has a long term vision to be a leader in its business. This book brings clarity on the
concepts of strategic management and presents the various stages involved in
strategically analyzing, formulating, implementing, reviewing, and controlling the strategic
management process.
As the environment changes, the organization’s may change their vision and objectives
to address the changing market requirements [1]. Thus, the organization constantly
refines its strategies, structure, products and services, markets, and competitive
advantage.
The course pack broadly provides insights into the following important
components of successful Strategic Management Process:
1. Fundamentals of Strategy and Strategic Management
2. Industry and Competition Analysis
3. Internal and External Environment Analysis
4. Different Levels of Strategy
5. Strategy Formulation
6. Strategy Implementation
7. Strategy Review and Control
Fundamentals of Strategic Management
8. Strategic Leadership
9. Corporate Governance
Strategic Management is a four step process starting with the environment analysis,
pertaining to both the external and internal scenarios that an organization must consider
before making a strategy - this comprehensive exercise is called the PEST analysis.
Then it moves to the strategy formulation stage by doing the SWOT analysis, evaluating
various strategic options and alternatives and by making a choice on the appropriate
ones that help unlock the organization potential and realize the vision.
The next step is the Execution Stage, where the process must ensure meticulous
implementation of the strategies agreed during the Formulation Stage, by enabling and
empowering the entire organization. Finally, what is of utmost importance is to evaluate
and control the strategy in order to stay focused on the execution as well as make
necessary changes and course correction in tune with changes happening in the
environments from time to time. This process is a continuum and hence the process
repeats itself in order to evolve into a successful strategic management process for the
company.
1.2 GLOBAL ECONOMIC SCENARIO
Reliance Communication of Anil Ambani Group, and Essar Steel declaring

insolvency in 2019). During Covid 19, world realized their over dependency on China for
production and its severe impact on their business. Due to multiple rounds of Covid 19
waves across China, entire production was crippled and there was no alternative
available but to wait and watch. Besides these, post-covid 19 new normal, world is
pushed into crisis emerging due to increasing aggression on China over Taiwan and the
war between Russia and Ukraine, completely derailing fragile growth momentum.
On one hand organizations have to deal with the slowdown and sluggish recovery,
handle volatile and fragile nature of the markets, and on the other hand they have to build
capabilities to compete in a fast changing environment, to grow revenues and profits,
optimize their costs and build healthy balance sheets. Globally, enterprises have learnt to
manage their businesses well, have developed abilities to plan contingencies to ward off
potential threats to business. Particularly, Indian Corporates have become more mature
as a result of Recession and have built abilities to mitigate risks arising out of
uncertainties.
Since the great recession, most of the governments across the world markets have been
trying to fix their finances, like deficits (India's current account deficit narrowed to 0.2
per cent of gross domestic product (GDP) in the fourth quarter of fiscal 2022-2023,
from 2 per cent in the preceding quarter. India's CAD decreased to USD 1.3 billion
(0.2 per cent of GDP) in Q4:2022-23 from USD 16.8 billion (2.0 per cent of GDP) in
Q3:2022-231, and USD 13.4 billion (1.6 per cent of GDP) a year ago.This is in
comparison with 2.5 percent of the GDP in the last three months of 2018 or 2.1
Chapter 1
percent of the GDP a year earlier) and debts, and at the same time devise policies to
support GDP growth of their countries(The Gross Domestic Product (GDP) in India
was worth $3.75 trillion(est 2023, RBI) The GDP value of India rose to 7.1 percent in
2021 vis-à-vis 4.19 percent of the world economy earlier. GDP in India averaged
741.43 USD Billion from 1960 until 2022, reaching an all-time high of 3385.09 USD
Billion in 2022 and a record low of 37.03 USD Billion in 1960). Central Banks have
been trying to bring in stability to the currency markets and capital markets. There were
synchronized actions from the Governments and Central Banks of the G20 countries to
calm the nerves of the global investors and the financial markets. Besides G20, there are
other forums like the World Economic Forum (WEF) that debate and agree on concerted
actions to stabilize the financial markets.
With the world now filled with new socio-economic challenges and new order, Enterprises
are all scrambling to sustain their businesses and be innovative in their strategies to stay
ahead. As said, coordinated actions among the various governments, regulatory bodies
and important stakeholders are still work in progress, yet to give comfort that the worst for
the World Economy is over.
Most Organizations have learnt to evolve their strategies in tune with the market
environment and try to stay ahead so as to sustain their performance and deliver value to
stakeholders. The companies, which have stayed on the high growth path, are striving to
come out with innovative ideas to introduce new products and services to take their
companies to the next growth trajectory. One must believe that the strategies that worked
earlier for an organization may not work the same way going forward. Therefore, it is all
the more important for organizations to demonstrate high discipline in formulating and
implementing a robust strategic management Process to ensure they stay focused on
their mission.
The world is shrinking with the introduction and availability of Innovative Technologies.
The world had never been better connected than now. Technology is helping companies
to innovate. On one hand the Technological Innovation is helping organizations to
develop and execute their strategies more effectively than in the past, to steer their
companies on the path to become star performers, on the other hand there have been a
marked increase in Corporate Governance issues, allegations of Top Management
wrongdoings including violation of insider trading policies, scandals, corruption charges,
and sexual harassment and integrity issues that hamper the confidence of different
stakeholders like investors, customers, employees, partners and most importantly the
business environment at large.
These challenges have exerted greater pressure and onus on the leaders to respond to
strategic problems quickly and effectively. Once the organization’s reputation is
damaged, it is almost impossible, or it takes a very long time to regain the brand name
and its reputation.
With this backdrop, it is important that the Strategic Management Process has become
an integral process and an important business tool to navigate the execution of strategy.
This has become a vital element of an organization, should a company aspire to achieve
its business success and purpose. This course book introduces the fundamentals of
Strategic Management, its relevance, importance and benefits in the organizational
context and the process of managing a company's long term strategy.
1.3 STRATEGIC MANAGEMENT DEFINITION
It is important to note that Strategy plays a very critical role to the organization’s success
in the marketplace. Strategic Management is even more important than strategy and is
a broader term as compared to Strategy. While Strategy refers to top management's
plans to develop and sustain competitive advantage so that the organization’s mission is
fulfilled, Strategic Management is a process that includes top management's analysis of
the overall environment in which the organization operates leading to formulation of
strategy, as well as the plan for implementation, evaluation, and control of the strategy
[2]. Strategic Management also assesses whether or not the Strategy was successful.
"Strategic Management was once originally called "Business Policy" few decades back.
Strategic Management today has evolved into a dynamic tool drawing upon a variety of
frameworks namely Industry Organization theory, Resource based theory and
Contingency theory [3].
1. Industry Organization Theory
2. Resource based Theory
3. Contingency Theory
Strategic Management analyses the major initiatives taken by a company's top

management on behalf of owners, involving resources and performance both with
respect to internal and external environments. It entails specifying the organization's
vision, mission, and objectives, developing policies and plans, often in terms of strategic
programs, which are designed to achieve these objectives, and then allocating resources
to implement the policies and plans, projects, and programs.
The difference between Strategy and Strategic Management is that the latter includes the
analysis that must be done before a strategy should be formulated through assessing
whether or not the strategy would be successful.
A Balanced Scorecard Approach is often used to evaluate the overall performance

of the business by creating a set of leading indicators, and monitoring and measuring
the progress towards the set benchmarks and objectives. Recent studies and leading
management theorists have advocated that strategy needs to start with stakeholders’
expectations and then use a modified Balanced Scorecard which includes all the
stakeholders.
Chapter 1
The Simple Balance Score Card:
This book reinforces the fact that Strategic Management is a critical success factor for
an organization and is an on-going dynamic process that evaluates and controls the long
term business performance of the company by formulating and implementing a set of
strategies. Strategic Planning happens every year for the next three year period with the
individual business units and functional units submitting their Strategic Plans (STRAPs)
in line with corporate policies and guidelines.
This course discusses in detail and assesses the environment, its competitors, sets goals
and creates strategies to meet all existing and potential competitors; then reassesses
each strategy (at Corporate, Business and Functional levels) annually or quarterly i.e.
regularly to determine how strategy has been implemented and whether it has succeeded
or needs replacement by a new strategy to meet the changed circumstances, new
technology, new competitors, a new economic environment, or a new social and political
environment, through a set of managerial decisions and actions that'll determine the long
term performance of an enterprise.
1.4 CONCEPTS AND APPROACHES OF STRATEGIC MANAGEMENT
As one can clearly understand, the Strategic Management Approach depends upon the
size of a firm, and the proclivity to change of its business environment. These points are
highlighted below:
A large Enterprise or a Global (MNC) Organization may employ a more structured

Strategic Management Model, due to its size, scope of operations, and need to
encompass stakeholder views and requirements.
An SME (Small and Medium Enterprise) may employ an Entrepreneurial Approach.

This is due to its comparatively smaller size and scope of operations, as well as
possessing fewer resources. An SME's CEO (or general Top Management) may
simply outline a mission and pursue all activities under that mission.
Whittington (2001) highlighted four approaches to Strategic Management.

These are Classical, Processual, Evolutionary and Systemic approaches [3].
Mintzberg stated there are Prescriptive (what should be) and Descriptive (what is)
Approaches. Prescriptive schools are "one size fits all" approaches that designate
"best practices", while Descriptive schools describe how strategy is implemented in
specific or customized contexts.
We will be seeing these approaches in the later chapter in detail. No single strategic
managerial method dominates, and it remains a subjective and context-dependent
process.
1.5 IMPORTANCE AND RELEVANCE OF STRATEGIC MANAGEMENT
As said earlier, Strategic Management is a vital process in an organization. The

performance of a company will be best managed if it has a robust strategic management
process in place. In other words, the performances of the companies that have a proven
Strategic Management Profile are reflected in their sustainable business models, financial
results, and profitable business growth. They continually achieve excellence in execution
of strategy. It is to be noted that execution of strategy is the most important aspect for
remaining successful in business.
In today's economic scenario, there is significant amount of uncertainty that causes

investors to look for opportunities of investment that carry less risk. The risks associated
with a particular business cannot be completely avoided, but what really matters is the
ability of the company to manage and mitigate the risks through creation of a prudent
strategy, governance mechanism to manage its strategy, through meticulous analysis of
the external and internal environments, industry and competition landscape,
implementation of the strategy and most importantly the review and control of the
strategy. This in itself will ensure that the perceived risks are captured proactively as part
of the process and the management has formulated a clear plan to mitigate those risks
during the strategy implementation. Hence, Strategic Management is of foremost
importance to the success of any organization which aspires to become a leader in its
space.
The following are the important benefits of Strategic Management in an

organization[4]:
1. Strategic Management is a process that helps an organization to build a vision for its
future, formulate a mission and strategy to achieve the vision. Mission and Objectives
Chapter 1
are the first step in the Strategic Management Process, which leads strategy
formulation aligning it with the Mission and Objectives. In India, in the pre-
liberalization era, most companies did not have a credible Vision or Mission, it is only
post-liberalization in 1991 that many companies started to realize the importance of
having a Vision and Mission for their companies. A clear mission and strategy steer
the company towards its purpose.
2. The Strategic Management Process helps the people to understand its vision and
what the organization stands for, what are its strategy and the road map for
development and business growth.
3. It educates the people to understand the structure of the organization they are
working for and what are the different levels of strategies at the Corporate level, SBU
level and Functional level, thereby the individual employees are aligned with the
goals of the Corporation, SBU and Functions, respectively. With the envisioning
process, it is expected that people speak in one voice and are excited to create
actions that deliver business results.
4. Once the process is internalized, it facilitates better delegation, coordination,

monitoring, performance evaluation and overall control at all strategic levels.
5. The identification of strengths and weaknesses may help an organization to take

measures to leverage the strengths and overcome the weaknesses. This will also
help reinforce build inclusiveness and more strength across the organization.
6. The Strategic Management Process also brings out a SWOT Analysis that helps the
company to adopt suitable strategies to address the market opportunities and ward
off the threats posed by the external environment.
7. An organization with Strategic Management will be constantly evaluating both

external and internal environments and making course corrections in its strategies to
make it more realistic, feasible and effective.
8. Strategic Management empowers an organization to handle the competition more

effectively.
9. Strategic Management makes the Leadership Team more dynamic and defines
strategies relevant to the marketplace.
10. Market-to-Market Strategies help the company to meet the customer expectations
and stay ahead, and not fall behind the curve.
It is also to be noted that the companies that have a high discipline of compliance and
governance of its Strategic Management process will be in a better position to manage
risks well, minimize the impact and will be in a position to sustain its performance over
the long term. In short, Strategic Management may not eliminate risks completely as
there could be many unknown factors arising out of uncertainty in the Global Economy
but helps to identify many of them as part of the Strategic Planning, creates a plan to
mitigate them, and minimize the impact on the organization.
1.6 LIMITATIONS OF STRATEGIC MANAGEMENT
While Strategic Management is a vital process of an organization, it comes with its own
limitations. Many large organizations succeed, and few others fail despite following the
Strategic Management Process. At the same time there are many small to medium size
companies that succeed without having a Strategic Management Process. In large
organizations, Strategic Management should be an integral part of the Strategy Making
Process.
The organization should not be over ambitious and in the process, unrealistic strategies
would lead to failures and frustrations. Strategic Management does not ensure
unconditional success, but it is an evolved framework if followed properly, does ensure
the risks to the organization are minimized to a large extent.
The four step strategic management process is widely believed to provide a common
framework to the organization to charter a strategy. It is based on certain analyses and
premises. The analysis should use authentic data, must come out of due diligence and
the strategic plans need to be realistic and time bound. The long term vision of the
organization should be broken down into easily achievable Mission and Objectives. The
time frame should be broken down with clearly measurable milestones and expected
results from such Action Plans.
All the Strategic Options and Alternatives must be evaluated thoroughly before making
the relevant and appropriate choices are made. Also, feedbacks and inputs from different
levels of people within the organization must be sought and genuinely considered before
making a choice on strategy. From an execution standpoint, however good the strategy
is, if the implementation is not effective, then it will not produce the desired results.
Top management's commitment, leadership, and willingness to allocate resources, and

review and control are important to the execution of strategies. Their expertise to give
direction and empowering the people are crucial in building credibility, trust, and
inspiration of its people. Frequent changes in management or frequent change in mission
and strategies will discourage people to get motivated. Uncertainty on the communication
of strategy can lead to the people following their own ways of implementing strategy.
Change Management, Conflict Management and understanding of the Strategic Planning

Process are critical points that exert resistance or indifference to the progress of the
Strategic Management. The people of the organization need to be taken into confidence
and Strategic Management needs to be integral part of the Organization Culture through
a continual learning initiative. Many organizations have institutionalized the learning and
development as part of the Organization Development Program.
Chapter 1
As Michael Porter points out [5], there is no strategy that can be stretched beyond the
boundaries of a particular business. One of the great mistakes made by companies in the
past is that they attempt to apply a universal strategy. This thinking leads companies into
a trap, for example, like the feeling that to win in the market, the company should have
the largest market share for their products or improve the time to market. However, there
are companies that have premium products with high lead times are also successful in
their own space. They need not hold the highest market share in the marketplace.
1.7 WHAT IS STRATEGY ?
According to Michael Porter [6], there are three key underlying principles that define
Strategy:
1.Strategy is the creation of unique and valuable position for the organization, involving
different set of activities
2. Strategy requires the organization to make trade-off's i.e. to choose what not to do
rather than just defining what to do
3. Strategy involves creating "fit" among an organization’s activities
As said earlier, Strategy is a long term plan an organization is willing to pursue in order to
get its mission and purpose fulfilled, by meticulously following the above definition by and
large. Mostly the strategy is built based on the company's competitive advantage,
traditionally within the boundaries of the marketplace. It is assumed that the organization
has a long term plan and has a fair knowledge about its competitive advantage and that
the whole organization understands the purpose of its existence. However there were
challenges associated with defining a clear strategy.
There are, broadly, three categories or generations of companies in existence in

today's world, namely: the Old Economy, Traditional Economy, and New World
Economy companies. New terminology namely New Normal Era companies post Covid
19 phase. In every economy, companies build strategies to seize every growth and profit
opportunities in the marketplace. The first is the Old Economy Companies which are
part of the core industries that drive the primary engines of the economy. In this
category, the primary products have become commodities and these companies are high
volume growth companies. We can give examples as the companies that represent the
core industries like steel, coal, mining, oil & gas, electricity generation, fertilizers, cement,
petrochemicals, minerals etc. Banking and Financial Services also form the core sector
driving the economy. They are, in fact, the growth engines of the economy.
Most companies in this economy have a strategy to consolidate their operations,

expansion, and diversification of their businesses across other core industries. They
pursue large mergers and acquisitions to lead the industry growth and, in their aspiration,
to expand their geographical footprint beyond a country or a continent to become a global
company. Examples in this category are Arcelor Mittal(recent acquisition of Essar
Steel in India at Rs. 42,000 crores, besides past acquisitions across 18 countries),
Tata Corus, Tata Motors (acquiring Jaguar and Land Rover), Mahindra-Pininfarina
of Italy, and Reliance Industries acquiring Shale Gas assets in the U.S in pursuit of
new exploration to find new reserves of oil and gas. we can refer to many examples
heresuch as Adani Group acquiring 27.26% stake in NDTV, Paytm taking 3% stake in
Alibaba Corp.
The second one is the Industries that have played a very important role to make an
impact on our Traditional Lifestyle make-up: industries like the automobiles,
aviation, consumer electronics, consumer durables, entertainment, retail, real
estate, healthcare etc. Here, with the advent of new technologies and new consumer
preferences, they have been able to quickly respond to the changing tastes of consumers
and introduce new features and new offerings to enable lifestyle convenience to the
customers. These companies work within the traditional economy and always have hyper
competition but are still able to create a new market space with new products and
services in their quest for staying ahead, by expanding the boundaries of the
marketplace. It has also emerged that the strategy formulation has gone beyond
competing, but also aspiring to really create a socio-economic impact to human lives,
which brings us to the third category of the market.
The third category is the New World Economy where everything is powered by IT
and Internet. This Industry has created a virtual world around everyone. To start with
Indian IT Services, BPO and ITES Services companies are good examples where
offshore and virtual services have been made possible to its customers. Indian IT
and BPO Industry have been a success story and instrumental in garnering exports
revenues worth $100 bn, most of these happened in the last couple of decades or so.
The other companies include Social Media, Mobile, Online Music and Movies, e-
Commerce, e-Retail, etc. These companies mostly emerged in the last decade, have
changed the face of the world and the way the world functions. There has been a marked
difference in an organization’s ability to create a new marketplace beyond the boundaries
of the traditional marketplace through innovative ideas and unique strategies. As a result
what we see is that the companies who have the unique ability to execute innovative
ideas and strategies and have actually grown faster than their traditional old world rivals.
One more industry needs mention here is the automobile industry. To remain in the
forefront of their consumer preference, automobile industry has used perhaps all tools of
IT and digitalization to their advantage – be it interactive website, vehicle customization
on the web, live product demonstrations, 3600 vehicle view, service APPs, fully
digitalized show room with minimal human interventions (ARENA by Maruti Suzuki), bring
the show room home service using Virtual Reality (VR) kit and more.
Anything as Service:
Chapter 1
Thinking wildly, the next big thing one can anticipate and the one that would take the
strategy to the next level could be an organization’s ability to offer anything as a service
to customers without actually having to own it but pay for only the actual usage. With
most of the services already connected on the virtual world we are already
experiencing the pay-as you-use-services.
This strategy works well in the areas like entertainment, music, digital movies,
mobility applications, cloud applications, social media, big data analytics etc.
There will be many new emerging service providers who will be challengers with the
ability to disrupt the market with innovative products and services and become leaders in
their space. The opportunities are in the areas of innovative solutions and services that
can be offered to both B2C and B2B customers to address the personal and business
requirements of the customers, respectively.
1.8 STRATEGIC POSITIONING
Strategic Positioning is the effort of an organization to achieve sustainable competitive

advantage by continually preserving what is distinctive about the company. It may also
mean benchmarking different activities from the marketplace as well as introducing best
practices in performing different activities in different ways. The key to success is not to
get distracted by the short term opportunistic goals that would hamper the company's
plans to achieve its purpose, but to continuously focus on achieving the long term
objectives of the company.
Is Strategy Cost focused or Value focused?
Both the strategies work for organizations which intend to take their own unique path.
The strategic management process brings out facts by analyzing the underlying
economic structure of the external environment, choosing a strategic position of low cost
focus or value differentiation focus, to benchmarking the competition vis-à-vis the
resources the company is able to create.
Many companies adopt innovation or creative ideas to differentiate their product or

services offering. In the process, the organization creates uniqueness that the activities
are not easily replicable by the competition. For example, Southwest Airlines has a
unique strategy to offer low cost and no frills airlines services which when Continental
Lite tried to match their activities, the results were far from satisfactory as they could not
replicate the whole ecosystem of airlines operations.
It does not matter whether the product or the service is value based or volume based,
each organization should create its unique positioning in its market segment. We can
give number of examples with contrasting characteristics. Singapore Airlines Vs
Southwest Airlines, Starbucks Vs Local Coffee shop, Premium Wines Vs Yellow tail
etc. The Strategic Positioning of a company makes it difficult for its competitors to
imitate its products or services offerings. Here the strategy is all about going beyond
the boundaries of the traditional marketplace and create a market which makes
competition irrelevant.
Consider the strategic management process of an automobile company trying to address

a specific market segment, like for example the Tata Nano. The first step is environment
analysis, customer preference and assessment, industry analysis and competition
analysis.
1.9 STRATEGIC DECISIONS
Developing a Winning Strategy is not an easy task, but not an impossible one. How does
an organization think strategically and build a Winning Strategy? What are the
characteristics of Strategic Decisions? Here are the key characteristics of Strategic
Decisions:
1. It should be long term and future oriented, leveraging the company's wisdom &
compassion
2. It should consider factors both internal and external influencing the organization
3. It should evaluate choices that could make a winning proposition for the organization
4. It should be resilient enough to take advantage of favourable situations by being

discretely opportunistic
Strategic Decisions could vary from choosing the right market segment, to developing
the right products and services, to building high level skills to differentiate the offerings, to
generating cost effective financial resources, to capex investments, to creating a partner
ecosystem. It deals with multiple dimensions and dynamics of the Business Environment.
The top decision makers in an organization must understand the complex relationship
between the various factors across the business spectrum to take timely decisions and
create actions to see forward momentum in the company's progress. Not taking timely
decisions can serve as bottlenecks to realize sustained progress.
There could be situations wherein the decision makers would have to take decisions that
could impact the company's profitability in the short term but will bring in significant
revenues and profits in the medium to long term if the strategy is implemented properly.
For example, if the mission of the organization is to develop a service that needs highly
skilled employees to perform the service, the decision might increase the employee
wages significantly, but it is expected that highly skilled employees deliver higher
productivity and higher revenue realization, thereby offsetting the increase in employee
cost in the long run. If the mission of the organization is to develop a high quality product
with enhanced product features, then the company would have to invest in state-of-the-
art technology equipment (that implies additional capex costs) to enhance the quality of
the product, but a higher quality product will attract more customers thereby increasing
the sales and revenues to the company over a long term.
Chapter 1
Keeping these complexities and sensitivities involved in mind, Strategic Decisions are
generally reserved for the top management team which is expected to understand both
the short term and long term implications of certain decisions. Hence, for all practical
purposes, the CEO, the SBU Head and the Functional Head are collectively
responsible for the organization’s Strategic Management. It is for these reasons
that every organization has an Executive Council (EC), or Management Council
(MC) represented by the top management executives who strategically manage the
organization. It is generally believed that the quality of Strategic Decisions improves
dramatically when more than one capable executive participates in the process.
The quality of strategic inputs and the degree of involvement of top and middle
management leaders depend on the size of the organization. Large Organizations
generally take a Structured approach to the strategic management process and have
clearly defined guidelines for the decision making process. They even have a Delegation
Of Authority (DoA) Matrix to enable faster decision making to support the business and
its stakeholders. There is greater awareness at different levels of the organization
structure about the importance of decision making and as to at what levels certain
decisions are made. It makes it easier to set expectations and turnaround time among
various stakeholders when such informed decisions are made.
The Corporate Level Leaders also engage Outside Consultants to help the top
management in the strategic management process. Once the strategic guidelines are
formulated at the Corporate Level, then the individual SBU CEOs and its functional
leaders like marketing, production, sales, marketing, human resources, and finance
spend quality time together to contribute strategic inputs and ideas to take decisions
within the corporate framework. The degree of involvement of senior and middle
managers in the strategic management process will depend upon the corporate
philosophy and how far the process has matured over a period of time.
As part of the strategic management process, the top management seeks inputs from the
Senior leadership and Middle level leadership team members directly and from other key
employees indirectly. This process can be quite beneficial as these inputs are
incorporated in the strategic decision making during the strategic management process.
Mostly, the market facing employees contribute good ideas in new product development
or new service conceptualization as these frontline employees understand the customers'
problems, requirements, preference and what the competition is offering or doing in the
marketplace. These inputs are presented to the top management through their reporting
managers. It is finally upto the Management Council to decide whether to incorporate the
ideas into the on-going strategic planning process. This clearly explains how individual
employees play a role in the strategic management process.
Socio-Economic Concerns also play a critical role in the decision making process.
For example, any strategic decision to start a production facility on a farmland or in a
place where environmental clearances are required would have an impact on a broader
perspective. Similarly, the Risk and Reward trade-off analysis is essential to take that
strategic decision, as it involves regulatory clearances, relocation, compensation, and it

takes a long time for return on investments. Similarly, closing a facility and moving it to a
lower cost base will have impact on jobs and other economic concerns.
1.10 LEVELS OF STRATEGY
In a large business conglomerate or an enterprise having multiple lines of business

interests, there would be several Strategic Business Units (SBUs) taking care of each
line of strategic business and would also have different functional units that drive the
Organizational Strategy in tandem with the Corporate Strategy. In a typical strategic
management process, it is very important to involve the SBU stakeholders and functional
stakeholders to arrive at the best road map for the organization’s growth.
These levels of Strategy are [8]:
1. Corporate Strategy
2. SBU Strategy
3. Functional Strategy
1. CORPORATE STRATEGY:
Corporate Strategy is the long term strategy encompassing the entire organization.
Corporate Strategy addresses the fundamental questions such as what the purpose
of the enterprise is, the vision, what businesses it wants to pursue, and what is the
Chapter 1
expansion and diversification strategy of each business’s mergers & acquisitions,

define the Business Guidelines and Corporate Governance to be followed by the
SBUs and the Functional Units.
Organizational Compliance is very important to achieve the stated goals. In other
words, corporate level strategic management is management of activities which
define the overall character and mission of the organization, the products and service
segments it will pursue or exit, the allocation of resources and management of
synergy among its SBUs and functions. The Corporate Strategy is formulated by
the top level corporate management comprising of the Chairman, the Board of
Directors, and the CEO. At the corporate level, it is important that the firm
communicates with all important and relevant stakeholders about the various
initiatives and events that impact the organization’s performance both positively and
negatively in order to gain trust and confidence.
2. SBU STRATEGY:
Every large corporate organization has interest in multiple lines of businesses. Each
business is of strategic importance to the achievement of the corporate vision. Each
Strategic Business will be responsible for: the creation of strategy for the products
and services, critical decisions pertaining to the product mix, defining the market
segments, developing competitive advantage for the SBU.
While Corporate Strategy decides the Business Portfolio, the SBU level
strategy decides the competitive advantage it needs to create to succeed in the
chosen business line(s). The SBU Strategy has to conform to the guidelines and
governance mechanisms and the corporate philosophy and strategy. The different
SBUs in different lines of business segments work in tandem with the Corporate to
contribute to the overall organization success.
3. FUNCTIONAL STRATEGY:
Functional Level Strategies are strategies that work in synchronization with corporate
strategy and SBU strategy for different functional areas like production, sales and
marketing, finance, human resources, customer service etc. In other words,
Functional Strategic Management are meant to create expertise, competence,
competitive advantage, efficiency, and productivity which are vital to the achievement
of the business goals.
Principles of a good Strategy:
According to Jack Welch, Strategy is an organization's ability to learn and translate that
learning into action rapidly for the ultimate competitive advantage. A Good Strategy is a
relative term depending on the stage in which an organization is currently in and its
evolution in the value chain.
The essence of strategy lies in creating tomorrow's competitive advantages faster than
competitors mimic the ones you possess today, as clearly articulated by Gary Hamel &
C. K. Prahalad.
As explained in the beginning of this chapter, there are three categories of organizations
from an industry evolution perspective; they are old economy, traditional economy, and
new economy industries. A good strategy for a new economy organization may be
different from the old/traditional economy organizations. Thus, it is relative to the
structural evolution of the industry. There is no one size fits all.
For example, the companies that operate in the traditional marketplace, a good strategy
is to create competitive products to beat the hyper competition, while some companies
are still able to create new market space by introducing new products and services in
their quest for staying ahead, by expanding the boundaries of the marketplace.
The true purpose of an organization is that it has to evolve a strategy that goes beyond
the competitive advantage, but also to really create a socio-economic impact to human
lives. This applies to all the categories of Industries.
In the new world economy, a good strategy focuses on creating a unique position and a
unique value proposition either by staying unique or by creating a new industry in itself.
For e.g. Google, Facebook, LinkedIn, and Twitter have created a unique space and
leadership in the social media industry, and they are able to demonstrate their leadership
by going beyond the competitive boundary and are well respected within their market
space.
It is not just enough to be unique; a company has to evolve innovative strategies to stay
ahead in their industry. Like Steve Jobs said, "Innovation distinguishes between a leader
and a follower" ("The Innovation Secrets of Steve Jobs," 2001). A good strategy is a thing
that disallows the competition to easily imitate or replicate its products and services
("Blue Ocean Strategy" by W.Chan Kim, Renee Mauborgne).
1.11 STRUCTURE AND ROLE OF STAKEHOLDERS
Mission of an organization decides the strategy and the strategy decides the
structure of the organization. Structure is a carefully organized system of different
stakeholders at different levels, who have different levels of authority to execute the
strategy. The investors and shareholders in the company participate in the profits of the
company, without directly taking responsibility for the operations [9]. The management
runs the company professionally to achieve the strategy. The Organization Structure
consists of the following:
1. The Board of Directors
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2. The Top Management consisting of the CEO, the SBU heads and the Functional
heads,
3. Finally, the Operations Team, comprising of the General Managers and the
employees who are involved in the execution of the strategy.
Corporate Structure is a mechanism established to allow different stakeholders to

contribute to the business like raising capital, building expertise, and developing
resources to deliver the corporate mission.
The Board of Directors:
The investors or shareholders share the profits of the organization, without directly taking
responsibility in the operations. However, their involvement does include their right to
elect / nominate the Directors and create the Board of Directors, which is the supreme
body of any corporate organization, which has a legal duty to represent the shareholders
and protect their interests, and hence play an important role in the corporate strategy
making. As representatives of the shareholders, the Board of Directors have both the
authority and responsibility to establish basic corporate policies and guidelines, oversee
governance, setting vision and direction of the company and providing approvals to all
critical decisions which might impact the performance of the company in the long run. In
other words, the Board of Directors govern and oversee the top management and
ensures that the vision is translated into an executable strategy, with review by the Board
on regular intervals.
The Board does not formulate the strategy, but plays an important role in setting the
policies, corporate vision/ plans and guidelines that lead to the strategy making. The
Board also plays a critical role in the planning, evaluation, validation, review of the
strategic management process and its implementation at periodic intervals. The Board
has the power to appoint or remove the Chief Executive Officer based on his ability to
lead the top management and performance in consistence with the board mandates. The
Board effectively supervises these key components, in order to ensure the top
management follows them to deliver sustainable results:
1. Governance
2. Compliance
3. Risk Management
Corporate Governance:
The term Corporate Governance refers to the management of relationship between the
three stakeholders in a Corporate Organization namely: 1) Shareholders 2) Board of
directors and 3) Top management.
We have seen many instances of scandals and corruption charges happening at the
corporation level with examples such as Enron, WorldCom, Global Crossing, Tyco,
Qwest, Satyam Computer Services etc. It is because of this, over the past decade,
many shareholders and interest groups have seriously questioned the role of directors in
corporations [10] and disclosures to the shareholders. Their concerns include whether
the Fulltime Directors and Independent Directors possess sufficient knowledge,
involvement in the company and enthusiasm to adequately provide guidance to the top
management.
There are instances wherein the Board is merely interested in keeping a CEO happy for
delivering performance at the cost of Corporate Governance, overlooking Standard Best
Practices, and exposing organizations to financial and regulatory risks over a period of
time. This includes Strategic Investment Decisions that are not evaluated properly
leading to risks or boosting performance of the organization by artificially managing
books and most preposterously paying high salaries and incentives for such practices,
which is a breach of trust with all stakeholders keeping short term gains in mind. The
shareholders have off late become more aware of such malpractices happening at the
top management level and they force the Board to remove such errant CEOs.
--------------------------------------------------------------------------------------------------------------------
As part of corporate governance and compliance and as per the Stock Market guidelines,
it is important that the companies make regular disclosures to the market about the
various initiatives and events that impact the organization’s performance both positively
and negatively in order to gain trust with the important stakeholders i.e., shareholders,
investors, customers, employees, partners etc. Bad decisions like an unfit acquisition can
also erode the market value of the company over time. The Board has to be the
watchdog of corporate governance, compliance, and risk management on a continual
basis.
There are two types of Board Directors: 1) Inside Board Director who are fulltime
executives and also hold a management position like a CEO or an Executive Director in
an organization. 2) Outside Board Director who are industry experts and are
Independent Directors and hold no management position. Independent Directors provide
independent perspective about the evaluation, review, and the direction of the company
strategy. There could be conflicts between the fulltime directors and independent
directors at the Board Level.
In a nutshell, the following are the primary responsibilities of the Board [11]:
1. Setting the Corporate strategy, overall direction, vision, or mission.
2. Hiring, firing of the CEO and top management, succession planning and continuity
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3. Evaluation, controlling, monitoring, supervising of the top management
4. Reviewing and approving the use of resources and protecting them as well
5. Involvement in major financial decisions and prudent actions regarding corporate

objectives'
6. Caring for shareholders' interests and ensure the company is managed in

accordance with the laws and regulatory policies
7. Above all, foster a culture of Corporate Social Responsibility in the organization,

beyond profitability as the only objective
Role of the Board in Strategic Management:
The Board is entrusted with three basic tasks to ensure Strategic Management is
governed as per the Vision:
1. Monitor: By acting through its committees, a Board can keep abreast of

development of what is happening in the organization. It can bring to the top
management's attention certain developments it might have overlooked.
2. Evaluate and influence: A Board can examine the management's proposals,

decisions, and actions: agree or disagree with them: give advice and direction and
suggest alternatives. Most active boards actually are good influencers in the top
management operations that is reflected on its performance.
3. Initiate and determine: A Board can delineate a corporation's mission and specify
strategic options to its management to ensure effective execution of the strategy.
There is a common perception that some of the Indian companies lack transparency and
are not highly effective as there are Corporate Governance issues that have been
reported every now and then. There are instances when Corporate Frauds happen,
like in very unusual, unbelievable, and unprecedented case of Satyam Computer
Services when its Chairman confessed to having committed accounting fraud in
the company (after which the stock price of the company went down to Rs. 7 per
share from over Rs 200 in a matter of just 2 days in January 2009). The Regulatory
bodies and the Government intervened to take over the Board and installed an Interim
Board till the time the open offers were floated to find the right suitor to run the company.
Other popular frauds in India like Shradha Chit Fund scam in West Bengal, Speak Asia
indicates laxity on the part of various stakeholders or patronage of political party and
overlooking by apex governing body.
There have been many companies which have been involved with wrong doings in
accounting to boost up their performance and to artificially boost the share value to
attract valuation. This doesn't sustain too long before such frauds are exposed even if the
Board has been passively watching what is happening in the company. There have been
conflicts within the Board as to following the path of governance and compliance.
However, other corporate dynamics prevail as promoters who hold majority stake in the
company and influence decisions at the Board Level.
Therefore, it is important to change the functioning and composition of the Board by

allowing changes in the Non-Executive Director nominations (by allowing Directors to
retire within a specified period of time and elect new Directors who bring in new expertise
and perspectives) and replace the very old Executive Directors with younger ones with
experience in marketing, finance etc.[12].
It is very essential that any company's Board should have some independent,
professionally qualified Non-Executive Directors. At the same time, there should be a
regular retirement policy for Non-Executive Directors with a clear understanding of the
period for which they are appointed so there is no misunderstanding when the time
comes for them to step down. This is an essential part of Corporate Governance.
The next important thing in board composition is the quality of the Board. It is not easy to
effect a change in the Board arbitrarily but if an organization has to be rejuvenated, the
first place to start is at the Board level. It is to be noted that the quality of leadership at
the Board level will have the single largest impact on the performance of the organization.
If there is any event that rocks the ship, it will be the Board that will come under the
scrutiny of the Government and Regulatory Agencies, hence quality and integrity of the
Board must be unquestionable.
Top Management:
The role of the Top Management in Strategic Management is clear from the fact that
Strategic Management is a general management function. The Top Management
function consists of CEO, COO, Presidents of SBUs, Vice Presidents/ General
Managers of different vertical businesses and Functional Heads who are
responsible for the formulating the organization strategy in line with the Board's
Vision. They are also responsible for the execution of the strategies for the success of
the enterprise as well.
Specific Top Management tasks vary from organization to organization and are
developed from the analysis of vision, mission, objectives, strategies, and key mandates
of the corporation. However, the following are in general, the Top Management's
responsibilities in an Organization:
1. Provide Executive Leadership to the organization
2. Translate the Vision into Mission, Objectives and Strategy
3. Manage the Strategic Planning process
4. Evaluate and Control the Implementation process
Chapter 1
The stakeholders in the Top Management are General Managers who are strategic
thinkers and map out strategy, develop an organization plan to implement the strategy
and guide the employees to accomplish the objectives using their vast experience and
wisdom.
The typical characteristic of a General Manager is that he is an entrepreneur (has a

vision and sets goals), a strategist (builds plans), organization developer (builds teams),
a great leader (leads and mentors/ coaches the teams below them) and chief
implementer (reviews and controls). The task is to lead the company or the SBU through
unchartered territory and takes on all the challenges on the way and find long lasting
solutions to achieve the organization’s mission.
The highest profile of a GM is the CEO who heads the organization or the SBU. The
other General Managers assume responsibilities at the Business Unit or line of
Business level or Functional level. Together the entire top management is called
the Management Council (MC) or Executive Council (EC) of the organization, is
next only to the company's Board. This Executive Leadership of the organization
directs all activities relevant and important to the accomplishment of the corporate
mission, objectives and sets the tone for the entire organization.
As strategic vision is a description of what the company is capable of becoming and what
the purpose of the organization is. It is translated into the mission, objectives, and
strategy of the organization. The top management should communicate this strategic
vision to the general employees so that everyone in the organization understands the
vision and has a sense of what the mission is. In short, "a leader's job is to define the
overall direction of the organization and motivate the employees to get there", the
importance of executive leadership as illustrated by Steve Reinemund, CEO of
PepsiCo.
Keeping tune with the fast changing economic conditions, it is better the top management
gives away it's so called monopoly on strategic leadership. This might lead to other
capable leaders in the organization to become just followers or laggards. The top
management should empower authority and accountability to leaders at all levels to
participate in the strategic leadership to make an inclusive organization.
For an organization to succeed in the times of fast changes, every employee at every
level must be empowered to demonstrate leadership and collaborate in the organizational
growth process. In a Knowledge based economy as in the current environment, the
workforce will no longer respond to the Old style of leadership.
The heads of the organization that have a clear strategic vision are often perceived
to be dynamic and charismatic leaders. We have many examples to this. Mr. Ratan
Tata of Tata group, Mr. NRN Murthy of Infosys Technologies, Mr. Shiv Nadar of
HCL group, Mr. Azim Premji of Wipro, Mr. Sunil Bharti Mittal Chairman of Bharti
Enterprises, Mr. Deepak Parekh of HDFC group, Bill Gates of Microsoft, Steve Jobs
of Apple Computers to name a few, who have envisioned and energized their
respective organizations. This list is long with many renowned names of industry
captains.
These leaders have been able to inspire, command respect, and clearly define vision for
their companies and the corporate group and to influence strategy formulation and
implementation consistently and continually to take their organizations from one level to
another level.
There are three key characteristics a CEO brings to the Organization[13].
1. The CEO articulates a Strategic Vision and Mission for his/her organization:
The CEO envisions the company not as it currently is, but as what it can become.
The CEO's leadership and vision puts activities on higher momentum and resolves
conflicts of different perspectives to find resolution. It gives renewed meaning to
everyone's activities and empowers employees to see beyond the details of their own
jobs to the holistic functioning of the organization. Mahindra RISE is a philosophy of
entire Mahindra Group – much above vision and mission of a specific SBU of
Mahindra such as automobile, financial services.
2. The CEO presents a role for others to identify with and to follow: The CEO sets
an example in terms of organization behaviour. He inspires the people of the
organization with the values and culture in line with the long term goal of the
organization. He is able to communicate the organization’s purpose, objectives, and
actions, both words and deeds, to the people of the organization in a simple and
understandable manner.Organization often releases their Corporate Values,
generally nick-named e.g.: Corporate Mantra, Corporate Kompass etc.
3. The CEO not only communicates and demonstrates high performance

standards, but also shows confidence in the people's abilities to meet these
standards. No leader ever improved performance by setting easily attainable goals
that provided no challenges. Most importantly, the CEO must be willing to follow
through by coaching people. Bharti Group’s presence span across different industries
(other than Airtel mobile) and across different continents. This is possible because of
empowerment and culture driven by performance and trust in their people. Birla
Group is another relevant example.
In a world that is changing at the speed of light, the leadership of the CEO should bring in
enormous value to the organization consistently and continually. The CEO should refresh
himself on a regular basis in terms of his personality, skills, knowledge, building
relationships and most importantly looking outwards with an open mind to seek ideas as
well as criticism, thus bringing external perspectives.
Otherwise, in the present times when the tenure of CEOs is shrinking, he becomes a
victim of leadership obsolescence as Boards view them critically, as warned by Mr. Ram
Charan, CEO Coach and Author of many leading books on Leadership (ET
Corporate Dossier Dec 20, 2013). He also adds that one lousy leader can change
Chapter 1
everything for the worse. Leadership in turbulent times is the need of the hour in today's
world economic environment.
Corporate Planning and Strategic Planning Process:
Strategic Planning initiatives now form a part of any organization which likes to stay in
business for the long term. Hence, large organizations have a Corporate Planning
Division or Cell to manage the planning process effectively from the inception stage
through the strategic management program implementation phase and handover to the
operations team when the steady state is achieved. Unless the top management
encourages and supports the planning process, strategic management is not likely to
deliver results.
In most organizations the top management must initiate and evaluate the strategic
planning process. It might first ask the business units and functional units to submit their
strategic plans for themselves, by drafting the guidelines that explain the overall
corporate plan within which the individual units can build their own plans.
The Planning Cell typically consists of 6-8 people headed by a senior General
Manager level person who heads the Strategic Planning Process. The following are
the functions and responsibilities of the Corporate Planning Division [14]:
1. To keep track of the latest developments in the strategic management process and
disseminating the information to important stakeholders and strategists. Also
understand strategic issues.
2. To supply data points and analytical support needed for the strategic management
process.
3. Environment (both Internal and External) Analysis
4. Identifying new business opportunities
5. Helping to establish a Planning System
6. Formulating guidelines for preparing the plans
7. Coordinating Divisional Plans
8. Assisting to evaluate and control strategies
Strategic Management Consultants:
Some organizations, specifically those who do not have a Corporate or Group Planning
Cell, make use of the services of an External Consultant who is specialized in the
strategic management process. Several Indian companies have sought the services of
KPMG, Ernst & Young, PWC, McKinseyetc. to work on the corporate planning
objectives as mentioned above.
1.12 STRATEGIC MANAGEMENT PROCESS:
The Strategic Management Process is a comprehensive activity an organization takes up

to ensure the vision of the organization is translated into reality, implemented on ground
and financial results are achieved in line with expectations. It consists of four stages:
1. Environment Analysis
2. Strategy Formulation
3. Implementation
4. Review and Control
A typical strategic management process has been depicted in Fig 1.1. As indicated it is a
continuous process that happens as a result of any change happening in any of the
forces that influence the strategic making process.
In 1985, Ellen-Earle Chaffee summarized what she thought were the main elements
of Strategic Management Theory. (Chaffee, E. "Three models of strategy", Academy of
Management Review)
Strategic Management involves adapting the organization to its business

environment.
Strategic Management is fluid and complex. Change creates novel combinations of

circumstances requiring unstructured non-repetitive responses.
Strategic Management affects the entire organization by providing direction.
Strategic Management involves both Strategy Formulation (she called it content) and
also Strategy Implementation (she called it process).
Strategic Management is partially planned and partially unplanned.
Strategic Management is done at several levels: Overall corporate strategy, and

Individual business strategies.
Strategic Management involves both conceptual and analytical thought processes.
Fig. 1.1: Strategic Management Process
Chapter 1
1. Environment Analysis:
The environment within which the organization operates should be considered as it will
have impact on the many factors responsible for the success of the company. There are
factors external to the organization and some are Internal to the organization. Industry
and competition are two major factors external to the firm that affect the company's
performance and hence it assumes highest priority in the formulation of strategy. This is
discussed in detail in a separate chapter later. Then, there are forces that are outside the
Industry and Competition - called the Macro-Environment - should necessarily be
considered as it is important to study how they impact the industry as a whole as well as
the company in particular in pursuit towards its vision.
Every Organization exists within the complex network of political, regulatory, economic,
social, and technological forces. Together these elements comprise the organization’s
macro-environment. The analysis of the Macro-Environment factors may be referred to
as the PEST analysis. The constant changes in these forces present numerous
challenges and opportunities to strategic managers when they define their organization’s
strategy. The impact of macro-environmental forces on the company's strategy must be
well analyzed and understood before the strategic options or alternatives are evaluated.
We will talk about it in detail about both the external environment and internal
environment later in an exclusive chapter.
2. Strategy Formulation:
After a thorough analysis of the environment and once the strategic managers have
collated all the necessary inputs, the strategic managers then move into the Strategic
Formulation stage which involves four important steps as below:
a) Determination of Mission and Objectives
b) Analysis of Strengths, Weaknesses, Opportunities and Threats (SWOT)
c) Consideration of Strategic Options and Alternatives
d) Evaluation and choice of an Appropriate Strategy
a) Determination of Mission and Objectives:
It is the top management's responsibility to define the mission of the organization in line
with the vision set by the company's Board of Directors. While vision of an organization
defines the socio-economic purpose and reason for its existence, mission deals with the
objectives and the scope of the organization’s primary activities and actions to achieve
the purpose.
The mission, in other words, should guide the actions of the organization, spell out its
overall goals, provide a path, and guide decision-making. It provides "the framework or
context within which the company's strategies are formulated." It's like a goal for what the
company wants to achieve in the long term (which is vision).
Strategic Management is an art and science, and Strategy is a means to achieve the
mission, thus ultimately achieving the vision. Hence, it is important that determining the
mission and defining the objectives is the first step towards Strategy Formulation.
For example, the vision of a company is to become a trusted partner to its customers in
the Information Technology Industry and mutually achieve business results. The objective
of a mission is to translate the vision into actionable components like what the company
intends to do towards its customers, products and services, employees, partners, and
shareholders, by aligning those actions with the purpose of its vision. Mission is a
detailed description of the actionable components of Vision.
The Mission of an organization is built around a set of specific objectives, also called Key
Result Areas (KRAs), that provide direction and thus helps the organization to achieve
the desired results. The objectives or the KRAs, as defined by the mission, can be the
financial performance, customer experience, process and operational excellence, and
people & culture.
The mission for customers could be "to remain committed to deliver excellence in
providing services first time and every time". The mission for employees could be "to
provide them a dynamic and creative environment to allow them to realize their full
potential". The mission for partners could be "to provide leadership in the area of alliance
and bring win-win proposition in the area of marketing and operation. The mission for
shareholders could be "to deliver profitable growth consistently".
All these objectives taken together actually form the Mission, aligned with the Vision of
the organization. The objectives get broken down into SMART goals (Simple,
Measurable, Achievable, Realistic and Time bound) and it is the top leadership to
ensure that they foster a responsible environment to inspire people to achieve their
individual goals. Goals will have to be measurable and achievable and should have
distinctive milestones as defined by clear timelines for accomplishment.
While objectives are general key result areas pertaining to the mission, the goals set
specific targets to be achieved within a stipulated time frame. These goals may also be
called Key Performance Indicators (KPIs) and distributed across the employees at all
levels of the organization. The Key Performance Indicators guide the behaviour of the
Chapter 1
organization at all levels to bring in synergy within the organization to deliver the desired
results. There is a separate chapter each on Vision, Mission, Objectives, and Goals later
in this book.
b) SWOT Analysis:
In Strategic Management, it is prudent to analyze the company's position in the

marketplace with respect to its Strength and Weakness, and also understand the
Opportunities available there along with perceived Threats. This will decide what kind of
strategies it should pursue to deliver the Mission.
In today's economic scenario where the only constant is change, an organization should
keep track of the changes happening in the marketplace and prepare itself for adjusting
itself proactively and to handle the future changes. When the operating environment
changes, the question is how the company should respond to them? What are the
inherent strengths of the organization and its resources? What are the opportunities in
the environment which can be exploited leveraging the company's strengths? What are
the threats and how does the company combat them decisively? What are the
weaknesses and how the company can build additional competence to overcome the
weaknesses? How does the company build a roadmap with innovative products and
services so that it remains ahead of the competition all the time?
For example, the economic emancipation in India, post liberalization in 1991, has opened
doors to innumerable opportunities for Indian companies to expand and diversify their
businesses. Many companies have moved from traditional businesses to new age
businesses. Reliance Industries, known as a large petrochemicals & refinery company,
diversified its business into oil and gas exploration, Retail and Telecom services etc. Tata
group has been expanding and diversifying its businesses from salt to software
industries, to acquiring Corus Steel, Jaguar, and Land Rover etc. In the whole process,
many other companies entered into new ventures and also made an exit from some of
the new ventures after some time as they did not have the relevant strength to be
successful or resources to sustain the business in the long run.
On the contrary, King Fisher Airlines, once leading full service airlines, closed down its
operations because of huge debt and financial performance issues. It left thousands of
employees jobless and the banks and financial institutions classified the KFA account
into a Non-Performing Asset.
The SWOT analysis of a company is dealt with in detail in a separate chapter later.
c) Strategic Options and Alternatives:
Given the Mission and Objectives and having analyzed the Strengths and Weaknesses of
the company and the environmental Threats and Opportunities, the strategic managers
move to identifying the Strategic Options to finalize the overall strategy.
There may be different alternative strategies that could be considered for

accomplishing a particular objective, like Marketing Strategy, Customer acquisition
strategy, Cost optimization strategy, etc. For example, in a Marketing Strategy, the
growth in business could be achieved either by increasing the share of wallet in the
existing customers or by entering new customer segments or by both. Also, the same can
be achieved by enhancing the existing products and services portfolio or introducing new
products and services in the marketplace.
Alternatively, the Growth Strategy could be through organic means by putting up

greenfield plants or through an inorganic route by an M&A strategy. A new business
could be started afresh or created by a JV with a technology partner or opt for an
acquisition. There are competitive strategic alternatives a company can think of as well.
Thus, there are number of strategic options, and it is necessary to consider all the
possible options to finalize the relevant strategy in the strategic management process.
This is explained in detail in a separate chapter on strategy formulation.
d) Evaluation and Choice:
Once the Strategic Options and Alternatives are identified, the right decision on the
choice must be made. The purpose of considering different Strategic Alternatives is to
adopt the most appropriate strategy that will enable the organization to achieve its
objectives and the mission. This implies the need for a thorough evaluation of all the
Strategic Options with reference to a certain criteria defined in the Mission.
The general framework for such criteria is: 1) Suitability 2) Feasibility and 3) Acceptability.
These three criteria are used to evaluate all the Strategic Options [15].
1. Suitability: For assessing the suitability of the strategy, the following

questions may be asked.
Is the strategy aligned with the corporate philosophy?
Does the strategy envisage actions to accomplish vision and mission of the
company?
Does the strategy leverage the organization strengths and market opportunities?
Does the strategy equip the firm to combat market threats?
Does the strategy empower the company and its people to overcome its
weaknesses?
Is the strategy consistent with the corporate goals and policies?
Chapter 1
2. Feasibility:
Is the strategy realistic and workable to achieve the mission?
Can the required resources like investment, people and technology be made
available?
Does it estimate the business forecast and profits for sustainability?
3. Acceptability:
What is the impact of the strategy on profitability and cash flow?
What is the justification on return on investment criteria?
How does the strategy affect the capital structure and shareholding pattern?
How does it affect the relationship with stakeholders like promoters, employees, and
customers?
How does it impact the brand and corporate image?
3. Implementation:
Implementation is the most important step in operationalizing the strategy. The top
management must ensure the strategy is internalized at different levels of the
organization. It needs clear communication, formulation and assigning of Key
Performance Indicators for performance (KPIs), employee empowerment through
mobilization and allocation of resources, defining a clear Delegation Of Authority (DOA),
assigning responsibility and accountability (creating a responsibility matrix) and
establishing workflows and policies for effective implementation.
Implementation of Strategy involves a number of administrative and operational decisions

on a real time basis; hence the Delegation of Authority Matrix must be clearly defined. It
also needs smooth and seamless functioning of different cross functions under the main
SBU, hence there should be cross functional teams that facilitate conflict resolutions and
information flow between the functions. Implementation is dealt with in detail in a
separate chapter.
4. Review and Control :
Review and Control is the last phase of the strategic management process. Under this
stage, the top management examines and reviews whether the strategy is implemented
in meeting the mission of the organization or any corrective measures are to be taken to
steer the process to yield the desired outcome. The top management or the Management
Council must have periodic reviews of the strategic management process to provide
feedback to the SBU and Functional Teams to improve the overall performance of the
organization.
As the strategic management process is an ongoing process, it is also suggested that

continuous monitoring of both the internal and external environments is essential.
Implementation of strategic management is a continuous process, and the review and
control process actually connects again to the environment analysis phase for continuous
improvement. The details of this is discussed in a separate chapter.
1.13 STRATEGIC MANAGEMENT - INDIAN CONTEXT
India's political, regulatory, social, economic, and technological landscapes have

changed dramatically over the last couple of decades, some influenced by inherent
factors due to demographic and cultural changes, and many of them influenced by global
factors.
In this journey, Indian companies have clearly evolved in its maturity to take on the global
challenges. They have learnt to match global standards when it comes to adoption of
strategic management as part of their success stories. Many companies have matured to
become India based multi-nationals. Most of them have already embraced strategic
management. The strategic practices adopted by them are no less than their
counterparts in other parts of the world. India's top companies have Group or
Corporate structures which drive the Organization or SBU or Functional strategies
across the group.
The big groups like Tata Group, Birla Group, Mahindra Group, HDFC group, Bharti
Group, Sterlite Group, Essar Group etc. have businesses interests in multiple
countries and they all have successfully formulated vision, mission, strategy, and
objectives for their individual organizations. The large market capital companies like,
TCS, Infosys, Wipro, ICICI Bank, Tata Motors, Mahindra &Mahindra, Bharti Airtel,
HCL Technologies have proven practices when it comes to strategic management and
strategy implementation. In fact most of these companies are listed in stock exchanges in
other countries like the US and the UK, and they strictly comply with financial reporting
standards like IFRS, US GAAP, other compliance, and governance requirements.
In the last decade, many Indian corporates have set ambitious goals and strategies to
grow globally, pursuing their management vision. In the process, most of these
companies have acquired companies in their industries to augment capacities and
capabilities, diversify into complimentary products and services, and to expand into new
geographies.
Examples would be Tata Steel acquiring Corus Steel in UK, Tata Motors acquiring
Jaguar and Land Rover in UK, Adani Group acquiring stake in NDTV, Paytm taking
stake in Alibaba Corp, Reliance Industries acquiring Shale Gas assets in the US,
HCL Technologies acquiring Axon consulting, and Infosys acquiring Lodestone
AG in Europe to name a few.
All of these mergers and acquisitions would not have been possible without the Indian
companies following a robust strategic management process which has actually helped
Chapter 1
them pursue their vision of becoming a global company. Expanding opportunities in the
new markets and growing competition at home have been instrumental for them to devise
competitive strategies to stay ahead in their respective industries.
Mahindra & Mahindra is emerging as India’s most globally ambitious organization. What
started 1945 as a Jeep manufacturing company, today it is a US $20.7 billion global
federation of companies with presence in 11 sectors, operating 22 industries, spread
across 6 continents and 100+ countries. Mahindra & Mahindra has acquired (2013)
SsangYong Car of South Korea, recently acquired (2018) Pininfarina of Italy. In 2018,
Mahindra & Mahindra has also invested US$ 230 million to set up a new car making plant
at Detroit, USA. Mahindra has later divested from SsangYong Car of South Korea.
Mahindra Group’s latest acquisitions are Carnot (Mar 2022), Sampo-Rosenlew (Sep
2020), Meru (Aug 2019) and Erkunt Traktr Sanayii (2017)
As India has increasingly become part of the global environment due to free economic
policies and open market conditions, there have been changes that have compelled
Indian corporates to adopt strategic management more seriously to build their capabilities
and credentials in order to compete in the global marketplace. The gradual economic
liberalization initiatives implemented by the Indian Government post 1991 have raised the
bar for Indian corporates to follow Global standards in the governance, compliance, and
risk management areas. This has tremendously improved the competitiveness of Indian
products and services in the global market.
With more liberal economic policies and opening up of foreign direct investments (FDI) in
the country, Indian companies have encashed upon the opportunity of making large
investments in new technologies, new plants by entering into joint ventures with foreign
partners, which otherwise was not possible. These strategies of joint partnerships with
foreign partners were clearly visible in sectors like automobiles, pharmaceuticals,
telecom, infrastructure, capital goods, foods and beverages, healthcare, banking,
financial services, and insurance sectors.
In the recent times, this trend is already pervading into other sectors like, civil aviation,
retail, pension fund, etc., for which the government is taking efforts to open up the sectors
or increase the FDI limits in these sectors.
Foreign companies have increasingly liked their Indian counterparts for their products,
services, and most importantly they do not want to be left out in the Indian growth story.
Foreign partnerships for technology and investments, access to foreign capital markets to
raise equity and debt, and liberalization in other countries have also helped Indian
companies to bring in global best practices and competitive advantages for their products
and services not just in India but also in international markets, both in terms of scale and
value proposition.
With the inclusiveness of the global economy, Indian companies have already put in a
robust strategic management process to steer their companies to market leadership in
India and even at global leadership levels. Today, every organization in India has
aspiration to become a global company and keeps its strategies and structures resilient
enough to respond to global challenges on its way to become one. This is a welcome
change and will go a long way in transforming India into a developed economy sooner
than later.
1.14 SUMMARY
Strategic Management has become a critical success factor in any organization that
aspires to be a long term player both nationally and internationally. It is important
understand the fundamentals of strategic management and the strategic management
process to design and implement a sustainable business strategy for an organization. In
this chapter, we also learnt about the four components of strategic management process
viz, environment analysis, strategy formulation, implementation and, review and control.
This chapter also brought out the importance and limitations of strategic management
process. There are three levels of strategy in organizations namely corporate strategy,
SBU Strategy, and functional strategy. This chapter also explains how strategic
management plays an important role in Indian companies.
1.15 SELF-ASSESSMENT QUESTIONS:
1. Which of the following is not pertaining to the definition of Strategy in an

organization?
a) To create a unique and valuable position for the organization,
b) To make trade-offs to choose what not to do rather than just defining what to do
c) To create "fit" among an organization’s activities
d) To create orientation towards present conditions
2. What are the key components of the Strategic Management Process?

a) Environment analysis, strategy formulation, and review
b) Strategy decision, corporate strategy, business strategy, functional strategy
c) Strategy planning, operation management and review
d) Environment analysis, strategy formulation, implementation, evaluation, and
control
3. Mr. Anand Krishna, a Senior Marketing professional in the consumer goods industry
has been recently inducted on the Board of Directors of Avion Retail Limited. His role
includes the following listed items. He needs your help to identify which of the role is
generally not a role of Board of Directors?
a) Formulate the business strategy of the company
b) Review the business strategy periodically with the management team for its
validity
c) Share insights with the management with respect to strategy risks and mitigating
the risks
Chapter 1
d) Ensure the management has an adequate contingency plan and succession plan
for the management
4. You are part of the Strategy Formulation Team in ABC Automobiles Ltd. You have to
understand the Strategy Making Process and present to your team the sequence of
the steps involved in it from below.
a) SWOT Analysis, define mission and objectives, choose the most appropriate
strategy
b) Define mission and objectives, make SWOT Analysis, formulate strategic
options, choose the most appropriate strategy
c) Define mission and objectives, formulate strategic options, choose the
appropriate strategy
d) Formulate Strategy, define Mission and Objectives, choose the appropriate
strategy
5. What is the general framework used for evaluation of Strategic Alternatives and
Choices?
a) Simplicity, manageability, and process
b) Suitability, feasibility, and acceptability
c) Manageability, profitability, accessibility
d) Complexity, changeability, manageability
6. Ram a is fresher in your company Zen Corporation, a mobile devices company. He

is often confused between Strategic Planning and Tactical Planning. He needs help
because he is required to engage with the senior leadership. Please help him to
identify which of the following plan is strategic in nature?
a) Identification of the locations for setting up mobile towers in the identified district
b) Diversification into Mobile VAS services segment to meet the growing market
demand
c) Selection of vendor for one of the key operational process
d) Implementation of Six Sigma project to gain efficiencies
Answers: 1.(b), 2.(d), 3.(a), 4.(b), 5.(b), 6.(b)
References:
1. Francis Cherunilam, Strategic Management (Prin. L.N. Welingkar Institute of
Management), P 2
2. John A Parnell, Strategic Management, Theory and Practice (Biztantra 2003), P 3
3. John A Parnell, Strategic Management, Theory and Practice (Biztantra 2003),

P 5-6

Management), P 32
5. Michael Porter, Creating Tomorrow's Advantages, in Rowan Gibson, Rethinking

Future (London Nicholoas Brealey Publishing), 1998, P 6-10
6. Michael Porter, What is Strategy, Harvard Business Review
7. W.Chan Kim, Renee Mauborgne, Blue Ocean Strategy

Management), P 13-15
9. J.David Hunger, Thomas L Wheelen, Essentials of Strategic Management (4 Ed)

(Prentice Hall India), P 18-19

(Prentice Hall India), P 18

(Prentice Hall India), P 19-20



Management), P 27

Management), P 27

ANNEXURE
Approach to strategic management at Apple Inc.
Apple's approach to strategic management is characterized by several key elements that

have contributed to its success as a leading technology company. Here are some
aspects of Apple's strategic management approach:
Chapter 1
Customer Focus: Apple places a strong emphasis on understanding and meeting

customer needs and desires. The company conducts extensive market research and
user testing to gain insights into consumer preferences and behaviors. This customer-
centric approach drives Apple's product development and design decisions.
Innovation and Design Excellence: Apple is renowned for its focus on innovation and
delivering products with exceptional design and user experience. The company
consistently invests in research and development to develop groundbreaking
technologies and designs that set it apart from competitors. Apple's design-driven culture
ensures that aesthetics and user-friendly interfaces are incorporated into its products.
Vertical Integration: Apple adopts a vertically integrated business model, where it

controls various stages of the value chain. From designing its own hardware and
operating systems to developing key software and services, Apple maintains tight control
over the entire product ecosystem. This integration enables Apple to optimize the user
experience and maintain a high level of quality and compatibility across its products.
Ecosystem Synergy: Apple leverages the synergies between its diverse product
portfolio, including iPhones, iPads, Macs, wearables, and services like iCloud, Apple
Music, and the App Store. The seamless integration between hardware, software, and
services fosters customer loyalty, encourages cross-product usage, and creates a unique
ecosystem that is difficult for competitors to replicate.
Focus on Simplicity: Apple prioritizes simplicity in its products and services. The
company strives to create intuitive interfaces and streamlined experiences that eliminate
complexity and make technology accessible to a broad range of users. Apple's
commitment to simplicity is evident in its minimalist product designs, user-friendly
software, and seamless integration between devices.
Marketing and Branding: Apple is known for its distinctive marketing campaigns that
focus on emotions, aspirational lifestyles, and the benefits of its products. The company
invests significantly in building and maintaining a strong brand image, creating a
perception of exclusivity, innovation, and quality. Apple's branding efforts have helped
create a loyal customer base and maintain a competitive edge.
Secrecy and Product Launches: Apple has a reputation for maintaining strict secrecy
around its product development and launches. The company carefully manages its
supply chain and collaborates with a select group of suppliers and manufacturing
partners. This approach helps build anticipation and excitement around new product
releases and protects Apple's intellectual property.
Continuous Improvement: Apple is committed to continuous improvement and

refinement of its products and services. The company releases regular software updates,
addressing bugs, introducing new features, and enhancing security. Apple's approach to
ongoing improvement ensures that its products remain competitive and relevant in the
fast-paced technology landscape.
It's important to note that Apple's strategic management approach evolves over time as
market conditions change and new opportunities arise. The company's ability to adapt
and innovate has been instrumental in its success in the technology industry.
Chapter 1
REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video1
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2
Chapter
ANALYSIS OF INDUSTRY AND
COMPETITION
Objectives:
This chapter focuses on identifying the Industry an organization is operating in and the
Competition scenario for its products and services. At the end of the chapter, you will be
able to understand the following:
• Define the Industry and Competition
• Evolution of Industry and Industry Lifecycle
• Analysis of Industry and Competition, SWOT
• Government Policies for Industry
• Entry and Exit Barrier
• Bargaining Power of Customers

2.1 Introduction
2.2 Evolution of Industry
2.3 Analysis of Industry
2.4 Competition Analysis
2.5 Competition SWOT Analysis
2.6 Government Policies for Industry
2.7 Entry of new Competitors
2.8 Bargaining Power of Customers
2.9 Constraints of Porter's Model
2.10 Summary
2.1 INTRODUCTION
An Industry is defined as a group of companies that produce similar products and

services, but compete with each other to gain social, economic, and competitive
advantage through its offerings. Each organization operates in a distinct industry which
the company should clearly be able to define. Each Industry has its own set of rules and
regulations, governed by variables like product quality, pricing models, place, promotion,
people, process, and physical evidence etc.
Chapter 2
In the earlier chapter we have already seen three broad categories of Industries viz 1)
Old Economy Industries, 2) Traditional Economy Industries 3) New Economy Industries.
Within each category, there are distinct Industries to which a company belongs to.
1. Old Economy Industries: Core Industries like Steel, Mining, Coal, Electricity, Oil &
Gas, Power, Cement, Fertilisers, and Petrochemicals, Infrastructure etc. all come
under the Old economy industries. Banking and financial Services also form the core
sector driving the economy. They are in fact the growth engines of an economy.
2. Traditional Economy Industries: The industries like hotels, automobiles, aviation,

consumer electronics, consumer durables, entertainment, retail, real estate,
healthcare etc. all come under Traditional economy industries.
3. New Economy Industries: The third category is the New world economy where
everything is powered by IT and the Internet. This Industry has created a virtual world
around everyone. The new industries like IT Services, Internet services, eCommerce,
eRetail, online companies, Social media companies etc.
4. New Normal Economy Industries: The fourth category emerged during Covid 19
pandemic faced by the world. This New Normal Economy industries, are
characterized by flexible working options made available to employees, integration of
digital tools from lead generation to ordering and till making payments and beyond
covering delivery and satisfaction, showcases agility in their marketing initiatives
especially when customers are becoming less brand loyal. They are not driven by set
industry conventions of doing business, but they set new norms of doing business.
They now focus on retaining their flexibility of operations and therefore either
outsource most activities and tasks, which allows them to scale up or scale down
based on the market conditions.
It is important for strategic managers to understand the structure of the industry in which
the company is operating in and the competitive scenarios before deciding on an
appropriate strategy to position itself in the marketplace. Each category and the industry
within that category have distinct characteristics and those attributes need to be
considered as part of the strategic management process. Industry Analysis is the first
step in the Strategic Analysis of an organization.
In a perfect world, it is quite expected that each company should operate in a clearly
defined and distinct industry. However, some companies with multiple Strategic Business
Units (SBUs) might compete in multiple industries. Hence it is important to note the
differences pertaining to each industry and strategic analysis of the industry needs to be
carried out. For example, a large IT services company would have different SBUs
which operate in different Industries like the core IT services, hardware business, internet
commerce, BPO / ITES services, etc. Within the Food industry, there are different sub-
industries like Fast food industry, Special cuisine industry, traditional restaurant chains,
etc. Each SBU or sub-industry needs to consider the distinct information related to
Analysis of Industry And Competition
each of the industry when they evaluate a particular industry (or sub-industry) and related
competition information while performing the analysis.
It might be useful to consider the concept of Primary Industry and Secondary Industry
while defining the industry strategy. The distinction between Primary and Secondary
Industry may be based on objective criteria such as price, specific product offerings,
product quality, location, customer segments, revenue mix etc.
If the organization is able to clearly define its industry and determine where to draw its
industry lines, it will help identify its competitors and evaluate their strategies as well. The
strategic managers should assess all sources of information and perform rigorous,
systematic, and periodic analysis of the competition information to draw up a successful
competitive strategy. Hence, identification of the industry and its competitors are keys to
base-lining the Company strategy.
Just to explain this further, can the retail Industry in India be classified as a
department store or a grocery shop? Or is it a multi-brand retail store where you can
think of buying anything you want, from grocery to consumer electronic goods to bakery
products, fruits, and vegetables to ready-made garments to branded furniture etc. Then,
who are the competition for such a multi-brand retail store? The competition is not
standalone grocery shops or standalone consumer electronic goods distributor. The
comparison must be drawn on the equivalent of the multi-brand retail companies in order
to have a fair analysis of inputs required for creating a strategy. Examples here are
Future Retail, Bharti Retail, Walmart, Tesco etc.
There is another sub-industry under the retail industry that is eRetail which
predominantly conducts business through online channels. Examples are eBay.com,
amazon.com, flipkart.com, futurebazaar.com, Snapdeal.com, Myntra.com etc.
These companies work in a relatively new industry which leverages the sudden growth in
Internet and Technology based retail business platforms and solutions available.
2.2 EVOLUTION OF INDUSTRY
A deep knowledge and understanding about an industry and the competition landscape is
very crucial to build a good strategy for an organization. Industries evolve and change
over time and so are competitors in an industry. There have been new industries evolving
at constant pace in this world. Shifts in demographic forces, cultural changes, social
lifestyle changes, economic changes, technological advancements bring about change in
consumer tastes, requirements, buying power and patterns. As the industry evolves, the
company that operates in it needs to adapt itself to survive and grow in a new challenging
environment; otherwise it has to exit the industry it belonged to.
The nature and structure of the Industry might also change as it matures, and the
markets become clearly defined. An Industry's developmental stage influences the nature
of competition and the potential profitability among the players who compete in that
industry. Theoretically, each Industry passes through five distinct stages of an
Chapter 2
Industry life cycle [1]. Traditionally, these stages are introduction, growth,
shakeout, maturity, and decline (see Fig 2.1)
In today's world, there are many instances of an industry transition wherein one particular
industry transforms into another related industry by introducing new products and
services to meet the changing demands of the marketplace. Such a transition is
influenced by the changes in trends happening in the industry and innovation in multiple
technology areas. The industry players sense the change in trends and devise new
strategies to transform themselves and recreate the industry before it hits the decline
stage. Such industries revive and reinvent their evolution into a new avatar, influenced by
change in technological trends happening around the world.
This can be illustrated with many examples. A decade back, people used to go to normal
movie theatres to watch cinema. With competition from digital channels like new age
TV, Direct to Home (DTH), Internet based on-demand services, and change in customer
expectations about the movie going experience, nowadays there are multiplexes that
have multiple screens showing different movies to suit the tastes of different audience
with highly enhanced ambience of a shopping mall turning the whole movie watching into
a true experience. Thus, the industry has transitioned from a traditional cinema theatre to
a full-fledged entertainment services experience for customers.
Another example that we can relate here is the decline of the pager industry and
the evolution of mobile industry which have contrasting life-cycle characteristics.
One must have heard of the pager industry that existed in India between 1994 and 1998.
The pager industry just preceded the mobile industry, then overlapped with the mobile
services launch, and served as a cost-effective communication for end-users, when the
mobile tariffs were prohibitively as high as Rs.18 per minute and normal customers
couldn't afford mobile services at that point of time.
In the initial years, the pager industry experienced a sharp growth in subscriber numbers.
However, the industry experienced heavy losses and the subsequent fall in the mobile
tariffs made them lose the industry value proposition as it had limitations of functionalities
as compared to a mobile service and in the process started losing its customers.
Eventually, from the year 1998, the industry started witnessing decline and lost its place
in the mobile industry.
As we talk about the mobile industry, an industry which started as mobile voice services
(based on 2G service) since its launch in 1996, it has transformed into a full-fledged
value added services industry with the advent of advanced technologies like 3G, 4G etc.
The Industry from its introduction in 1996, has evolved into a converged
Communication Services Provider Industry as of today combining the power of
voice, data and video capabilities and offering anytime anywhere any application
value proposition.
Industry evolution is a continuous process and seldom any industry can hope to isolate it
from the risk associated with the change in the industry dynamics. DTH service provider
may be enjoying their dominance today but slowly and steadily, they are losing
viewership to web-based content providers like NETFLIX.
Fig. 2.1: Five Distinct Stages of an Industry life cycle
Introduction Stage:
An industry in its nascent stage that is beginning to form is considered to be in the

Introduction Stage. During this stage, the demand for the industry's products is generally
low as the product or service awareness is still developing. All customers are actually
first-time buyers, and tend to be risk taking, to experiment with new products.
Technology based industry falls into this category. The industry generally seeks
ways to improve the product and bring in distribution efficiencies as they learn more
about the market.
Growth Stage:
Once the product or the service is accepted by a large customer base, and key
technological issues are addressed, the industry enters the Growth Stage. The market
demand for the product and service increases and more new customers are acquired.
Most of the companies are profitable, and the profits are invested back into new
technologies and facilities to create product enhancements as well as for expansion and
diversification of business. During this stage, more and more competitors come up
with similar products/ business models.
Shake-out Stage:
When industry growth is no longer rapid enough to support more competitors or when the
market demand gets saturated, the industry goes through a shake-out stage. Some of
the weaker competitors go out of business at this stage as they can no longer invest back
Chapter 2
in the business and slowly, they lose out on their competitive positioning because of the
high growth rate within the industry. Only a small number of stronger players emerge
as leaders and marginal competitors are forced out of the industry.
Maturity Stage:
This is the Consolidation stage when the market demand is completely saturated and the
industry itself goes through adjustment. Here, the stronger players might buy out small,
good companies with value proposition, and weaker players completely exit from the
industry. Eventually, the leaders of the industry pursue product innovation, seek to
expand into new markets, diversify into new business areas and some of them even
look out for global expansion.
Decline Stage:
This stage occurs when demand for an industry's product and services decreases, and
consumers begin to turn to more advanced or higher quality product offerings from new
industries. Some companies may divest their business units at this stage, whereas
others reinvent themselves and pursue new innovative products and services to
sustain in the business.
Indian Context:
The Lifecycle model of an industry is useful for strategic analysis, not all industries
necessarily follow these stages nor can any predictable period for an evolution be clearly
defined. For example the Indian infrastructure Industry is one such example, it has
not fully reached a maturity stage but have been going through challenging times since
the year 2008 after witnessing rapid growth between 2002-2008, due to uncertain macro-
economic conditions prevailing in the country. In fact, focus on building infrastructure
given by the new government post coming to the power 2014, this industry has once
again seen the growth phase. Similar situations being faced by mobile telephone
industry, automobile industry and few more.
Innovating Strategies in the Infrastructure Industry space have advantage for a

country like India. It is heartening to note India has emerged as the largest market
in the world in Public Private Partnerships (PPP) in Public Infrastructure
development as an industry. The PPP model has become one of the largest industries
in India, having investments in roads, airports, healthcare, water supply, ports, telecom,
urban and rural development etc.
Sometimes positive changes in Macro-economic Environment may revitalize an

industry. For example, the Travel industry flourishes when the economy is going
strong, but when the economic growth stagnates or declines the industry might face slow
down and then during the next economic uptrend the industry bounces back from its
lows. Another example, the Bicycle Industry fell into decline some years ago when the
automobile industry gained popularity but has now been rejuvenated due to awareness
about health and physical fitness in society.
India is not far behind any of the western countries when it comes to development of
technology driven industries like IT, ITES, BPO, Media, Telecom, Online business etc.
Indian IT Services companies like TCS, Infosys, Wipro, HCL Technologies, CTS,
Tech Mahindra etc. all have multi-year IT Outsourcing contracts and serve their
global customers with an Innovative Global Services Delivery model that delivers value
and cost optimization to its clients.
In fact most of the large IT companies in the West like IBM, HP, Microsoft, Google,
Yahoo, Cisco, etc. have all set up their R&D and Engineering centers across India
notably in Bangalore, Hyderabad, Gurgaon etc. to leverage the knowledge and
expertise of India's young engineering talent. It clearly shows that Indian value as an
Industry is attracting them to set up operations in India and export services globally.
Post introduction of GST, which removes multi-layered taxation, many international

organization has considered India as one of their base to develop as their logistics hub,
wherein they can set up a very large warehouse set up in one part of the country and
transport the same across anywhere in India under single GST tax regime. Thus, it will
give a thrust to the transport and logistics industry. Other new-age companies entered
India are - Cargill USA’s Capability center CBS India at Bengaluru, BlackLine USA’s India
Development Center (IDC) at Bengaluru, besides FOXCONN manufacturing facilities at
India, MOU between Chip manufacturing company Micron Semiconductor and Gujarat
Government to set-up plant at Gujarat.
2.3 ANALYSIS OF INDUSTRY
As we have just understood the different types of industries and the lifecycle of an
industry, it is quite obvious to say that there are many industry factors that play a critical
role in the performance of a company. In any industry, there are leaders, challengers,
niche players and visionaries who take their deserving position in the lifecycle of
an industry. This can be used as a strategic tool to analyze the industry and bench mark
any organization both from the abilities to envision and execute.
Leaders led all the way with their vision, clear strategy, and execution capability to stay
ahead in the value curve and hence keep moving up the value chain. Leaders keep
transitioning into new levels of the industry evolution and their products/ services always
have an edge over the other competitors.
Challengers give equal fight to stay in the reckoning and match up to follow the industry
leaders. Niche players are ones who create a unique marketplace for their products and
services which meet specialized or customized requirements of a market segment.
Visionaries are ones who always stay ahead and come up with new innovative ideas but
may lack execution capabilities. Laggards are the players who lack vision and strong
execution capabilities.
Gartner's Magic Quadrant [2]
Chapter 2
Analysis Example: Gartner, a leading industry analyst and consulting firm, advocates
a report every year for the IT industry and its sub-sectors, called "Gartner's Magic
Quadrant" that brings out a map of different companies in a particular industry within the
broad IT industry and spells out the completeness of vision and ability to execute the
vision by the company. The degree of a company's abilities to build a complete vision
and execute the vision varies in a particular industry and such an exercise provides
insights into the strategic position it wants to take as compared to its competitors.
This is a very important strategic tool for IT players to analyze and formulate their
industry strategies. In fact, this tool can be easily extrapolated for other industries as
well by applying the definition and the framework. In the following diagram (Fig 2.2), this
tool maps the position of various players in Gartner's Magic Quadrant in the Business
Intelligence platform industry.
Fig. 2.2
Fig. 2.3
IDC Market Landscape
Similarly, IDC also developed a report called the IDC Market Landscape for different
industries(Fig. 2.3:Telecom Industry, much in the lines of Gartner's Magic
Quadrant, to map the industry players with respect to their strategies and capabilities
and group them under leaders, major players, contenders, and participants categories.
Hence, an analysis of the industry and its competitors is very important to understand
these factors before actually deciding on the company's strategy. Strategic managers
must use relevant analytical tools as appropriate for their industry to draw important
strategic decisions for their organization.
Porter's Five Forces Model
Michael Porter, a leading authority on Strategy and Industry Analysis, proposed a

systematic means of analyzing an industry's potential profitability known as the "Five
Forces Model.[3]
According to Porter, an industry's overall profitability depends on the five basic

competitive forces; the relative weights of each may vary from industry to industry.
1. The intensity of rivalry among incumbent firms
2. The threat of new competitors entering the industry
3. The threat of substitute products and services
Chapter 2
4. The bargaining power of the buyers
5. The bargaining power of the suppliers
These five factors combine to form the industry structure and suggest the profitability
prospects of the companies that operate in the industry. The above five forces also define
the Competition strategy of an organization.
2.4 COMPETITION ANALYSIS
There is no industry where there is no competition. There is hardly any industry which
can boast of a monopoly. However the intensity of competition depends upon the
concentration of companies in that industry. More the intensity, the more the rivalry and
each will fight for its dominance, the less the number of companies the industry will be
less competitive.
The competitors of a company in an industry include not only the other players who sell
the same or similar products, but also from other related industry players who all compete
for the discretionary income of the consumers. Every industry player wants to sell to the
same set of customers. The same customer is targeted by a TV manufacturing company
& its competitors but also targeted by automobile, air conditioners, refrigerators washing
machines etc. companies.
The competition among these products may be described as desired competition as the
primary task here is to influence the end consumer with their respective products. Such
desire competition is generally very high in countries like India, characterized by limited
disposable income and many unsatisfied desires among the consumers.
The Mobile Industry is a classic example in India. The mobile tariffs in India are
unarguably the cheapest in the world, placed in the range of 35-50 paise per minute for a
voice call. The ARPUs, the Average Revenue Per User of the Telecom companies have
been falling since the industry inception because of falling tariffs over the last many years
due to very high competition, are less than Rs.100 (with negative change over previous
same period) per month for many mobile companies. The mobile companies in this
industry had started waging a price war since 2008 to gain a customer market share, a
prolonged rate war actually hurt the industry in a significant manner and the profitability of
these companies were eroded as a result of this tariff war. Ultimately the business
models became unsustainable.
The companies operating in this industry needed to have Innovative Business Models to
survive among the Hyper-competition that the Mobile Industry witnessed in the period
2008 to 2012 when new mobile operators who launched their services slashed the tariff
to unforeseen levels, which forced the incumbent operators also to cut the tariff steeply.
However, the aggressive and predatory pricing strategy hurt the profitability of the
industry and only the strong players with innovative business models could stay in the
business, rest marginal players actually exited the industry due to high fixed costs like
telecom license fee, spectrum costs as well as high operating costs and debts servicing
costs.
Then, the entry of new players also impacted the market and the competition
landscape. If we analyze the Automobile Industry, till mid 1990s there were only a
couple of large automobile companies operating in the Indian market. Maruti Suzuki was
clearly a market leader which had just three models of cars like M800 in the low end, Zen
in the mid-market segment, and Esteem in the high end segment. And, Hindustan
Motors Ltd (HML) was another market leader that had the marquee Ambassador series
of cars for the middle class and government services. However later, with the
liberalization of the Automobile Industry in the '90s, there came Ford, Hyundai, Honda,
Toyota, General Motors, Fiat, Volkswagen etc., either through joint venture with Indian
partners or on their own. It changed the landscape of the Indian Automobiles Industry
and competition landscape.
This also led to the diversity of competitors with an Indian background and also with a
foreign background having a different culture, different business goals and means of
competition and marketing strategy. The number of companies in the industry influences
the industry's intensity of rivalry. Each player comes with different power levels of
expertise and the relative size of their operations could cause a shift in Market
Positioning.
The industry players also strategized to ensure their customers stayed with them for a
long duration of the relationship. The customer churn was very significant and evident in
services industries like credit cards, mobile services, internet services, financial services,
airlines services etc. As a result, the competitors resorted to acquiring customers at
cheaper prices rather than positioning themselves for competitive advantage. When
switching costs, the one-time costs that the customers incur are low as the companies
come under considerable price pressure for their products and services, eroding their
profitability. It is very difficult to satisfy the customers who can easily switch to
competitors. It is obvious that when the products and services are less differentiated,
purchase decisions are based on price considerations resulting in hyper competition, as
witnessed in the Indian mobile industry.
This made the leading market players devise a strategy by which the customers are
engaged with them either through a Value Proposition or through Customer Loyalty
Programs. Interestingly, more often companies seek to increase switching costs and
encourage customer loyalty. Like the home loan companies used to have loan switch
costs in the range of 1.5% to 2% of the principal loan amount outstanding. However, later
the RBI ruled this as not a competitive practice and asked all the Indian banks to remove
this surcharge of switching costs.
Automobile industry in 2019, once again at the juncture of extreme competitive forces –
multi-variant portfolio may not yield desired volume and market share, entry of two large
automobile manufacturers (Kia Motors and MG Motors) will build competition, EV vehicle
Chapter 2
related policy and infra anxieties clubbed with switch over to mandatory BS-VI
environment emission norms will create unforeseen and dynamic competitive tug-of-war,
never seen before by any automobile manufacturers. As a result, you also hear
consolidation strategies (Mahindra & Mahindra with FORD Motors and likewise).
Other industries like Credit card companies introduced Reward Points which can be
en-cashed later for gifts or cash credits, the aviation industry came up with Frequent
Flyer Programs which enabled customers to accumulate their mileage points which can
be later converted into award tickets. Each industry came up with its own innovative
ideas like promotion codes, cash back schemes to attract and retain their customers.
Certain companies in an industry create exit barriers from an economic, strategic, or

emotional standpoint that keep them from leaving the industry even though they are not
profitable. Examples of Exit Barriers include fixed assets that have no alternative
uses (Airline industry) or about agreements that cannot be terminated or strategic
partnerships within businesses of the company (MSEB-TATA Power-BEST),
management's unwillingness to exit the industry because of pride or government
pressure to continue operations to avoid an adverse impact on geography (Power
plants). This impacts the profitability of the company and the industry.
2.5 COMPETITION SWOT ANALYSIS
Once the industry and the competition are defined clearly, the next step as part of the
strategic management process would be to prudently have a structured approach to
evaluate the relevant competition players about their strengths, weaknesses,
opportunities, and threats. Gartner's Magic Quadrant type of tools also spells out the
strengths and weaknesses of the competition companies in an industry. It is
suggested to draw a clear SWOT analysis about each competitor and compare the
position of the company against each competitor in a specific industry or sub industry.
The Marketing Mix variables like product, promotion, place, price, people, process,
and physical evidence can be used to draw the comparison.
It is also advisable to subscribe to industry reports that provide statistics on the market
size, the market share, the compounded annual growth rate, and the market forecast
about various products and services of the related industry. This provides a good
visibility of business planning and the risks associated with fighting competition. Prudent
decisions on whether the strategy is based on price competitiveness or value proposition
are to be made as part of the competition strategy. This will help the organization to
conserve its resources and not get tempted to explore unchartered territory and end up
underperforming versus the set objectives.
2.6 GOVERNMENT POLICIES FOR INDUSTRIES
The Government's Policies, Regulatory Organization’s guidelines, Industry body - all of

these impact a company's strategy. In India, each Industry is mostly regulated by a
regulator and each of them has an industry apex body to hear their challenges and,
represent and seek remedies from the Government and Regulators for maintaining the
health and growth of a sector.
The following table shows details of the Regulator and the corresponding Industry body
of that sector.
In new industries like renewable energy, for example Solar energy and wind energy,
which is an upcoming industry, the Government has offered incentives like central tax
credits worth 30% of its value. Such incentives help motivate new companies to make
new investments in the energy sector and help improve energy security in our country. A
similar thing happened way back in the last decade, the Government gave tax breaks for
IT services exports, STPIs, EOUs etc. to help local companies to export their products
and services to the global market.
Thrust of the government (2014-2019) was also on ‘’Make in India’’ for which all our
efforts were made in terms of improving ease of doing the business through one-window
clearance, easing legal hurdles, offering tax incentives and more. Companies who could
tap this opportunity would be getting specific competitive advantage within the country or
region.
The Government and Regulatory policy changes can impact the industry or a particular
Organization positively or negatively. The strategy management process should consider
these aspects and should be able to foresee the policy, analyze the regulatory challenges
and their impact on an organization, factor in contingencies and clearly spell out the
measures to mitigate any risks associated with any unfavourable change in the policies
or guidelines.
Chapter 2
Keeping this in mind, the companies must be vigilant to capture the statements and
commentary made by various officials of the Government Ministries and Regulatory
Bodies on the forthcoming changes in Government policies and regulatory changes to
ensure that these inputs are taken into the strategic management process for a detailed
analysis and impact on the organization.
2.7 ENTRY OF NEW COMPETITORS
During the high growth phase of the lifecycle of an industry, new competitors enter the
market. The new entrants intensify the market competition while fighting for a market
share, lowering prices, and ultimately impacting the industry profitability. Large
established players have a definite strategy to retaliate against the new entrants or begin
to promote their products aggressively to retain their market share.
With the emancipation of economy in India in the last couple of decades, there have been
new players from both domestic as well as international markets (Kia Motors, MG
Automobile, Amazon, Wal-Mart and more)who wanted to participate in the India growth
story across industry sectors. India being a consumption story with a large, diversified
population of over 1.2 billion, everyone is vying for participating in the market even if the
market is concentrated, they think there is enough space for more players. However, this
strategy may not work if the firm that enters the market is trying to market its products
purely on the basis of an aggressive pricing strategy without any long term strategy and
value proposition.
Entry Barrier: [4]
Entry Barriers are generally created by existing strong competitors who have a large
presence and a decent success story. Barriers to entry for a company to entering a
particular industry include:
1. Economies of Scale
2. Brand Identity
3. Product Differentiation
4. Capital Requirements
5. Switching Costs
6. Access to Distribution Channels
7. Cost Disadvantages
8. Government Policy.
One or many of these factors play a role in planning a viable business model to enter a
highly competitive market [4]. Also in the industry, there is always pressure for substitute
products that can satisfy the customer needs from functionality, features, and pricing
perspectives. The strategic management process should take into consideration these
factors impacting the successful entry of an organization into the marketplace.
2.8 BARGAINING POWER OF CUSTOMERS
The Bargaining Power of Customers is an evolved concept which is a well understood

market force for any industry that decides the company's Strategy to be in a particular
business and gain or lose market share. The customers generally pay a price for a
product's value. In a high competition scenario, the customer gains bargaining power by
selecting or rejecting a product or service on the merit of its quality and value perception.
The buyers can lower an industry's profitability by bargaining for higher quality or more
services and by playing one company against another.
In today's well connected world, the customers have complete information. They are
quite knowledgeable. They acquire knowledge by studying different products available in
the marketplace through the information available on the internet.
It just takes the buyer to do a google search to find out the details of any product or
service by comparing the product models, features, promotion schemes, price for product
variations across multiple vendors. The continuum of internet and the revolution of online
business opportunities have made the marketplace more transparent these days and
customers have multiple choices to decide on the products or services that suit their
specific needs and requirements.
This phenomenal change applies to the travel industry, hotel industry, airlines
industry, retail portals like eBay, amazon, flipkart, who promote a wide range of
products under compelling discount schemes which makes the buyer take decisions on
the fly and gain from promotion, offers available online. Used Car market has grown
phenomenally compelling even automobile manufacturers to join the market. However,
with widespread availability of information, buyers today are able to determine the best
deal from him, even before venturing out in the market. The Dynamics of Pricing takes
into account the customer behaviour during their visit to such websites, product
acceptability, price comparisons of other competitors, customer buying patterns, volume
of sales forecasted, volume of sales closed etc. These companies, keeping the
bargaining power of the buyers in mind, have to have a competitive pricing strategy to
acquire and retain customers.
The product companies have to work on the costs of their Supply Chain to cater to the
market requirements. The ability of the industry to right price a product or service will
decide the existence or extinction of the industry in the marketplace. It also depends on
the ability to offer standard and differentiated products and services, so the customers
are able to make a choice depending on their requirements.
Chapter 2
2.9 CONSTRAINTS OF PORTER'S FIVE FORCES MODEL [5]
The Porter's Five Forces Model is based on the assumptions of the industry organization
perspective on strategy as opposed to a resource based perspective. While the model
can be used as a strategic tool for analytical purposes, it does have some limitations.
Generally, it is difficult to recognize an industry with a clear definition; hence an
assumption of existence of a clear industry definition is a challenge in most of the
industries. As the complexity of an industry increases, the ability to draw analytical
inferences from the model decreases.
Secondly, the Porter's model addresses the behaviour of the organizations in an industry
and does not account for the role of Partnerships or Alliances, which is a growing
phenomenon today in many industries. When firms work together(Mahindra & Mahindra
with FORD Motors, Maruti Suzuki-Toyota tie up Jet Airways-ETIHAD), they create
complex relationships that are not easily incorporated into industry models. Besides,
today with the creation of new industries and new niche segments within an industry,
there are new challenges to create new value propositions in line with technological
changes and customer expectations due to faster socio-economic changes.
Thirdly, the model does not take into account the fact that some enterprises, especially
the large ones, can often take steps to change the structure of the industry or industry
landscape, thereby increasing their prospects for revenues and profits. For example,
South West Airlines in the U.S,JIO Mobiles in India, created a new industry structure
by its own unique proposition of the market requirements.
Fourthly, the Porter's model assumes that industry factors, not the firm's resources,
constitute the primary determinants of the company's profits. This limitation reflects the
ongoing debate on an industry organization based approach which emphasizes industry
specific structures, and resources based approach which emphasizes company specific
characteristics besides industry specific characteristics.
Finally, an organization competes in the global markets across many countries and
hence it must be concerned about multiple industry structures. The nature of Industry
Competition in the international space differs among nations and may present challenges
that may not be present in the home country.
While these challenges are there, it is critical to perform a thorough analysis of the
industry by using the Five Forces Model in developing an understanding of competitive
behaviour within an industry. Generally, Porter's Five Forces Model provides the
necessary insights into profit opportunities as well as potential challenges within an
industry.
2.10 SUMMARY
In this chapter, we focused on identifying the industry an organization is operating in and

the competition scenario for its products and services. We also tried to define the industry
and relevant competition for that industry. It involves an understanding of the evolution of
industry and industry lifecycle. We also did an analysis of industry and its competition
through useful tools. This chapter also discusses Government policies for industry and
how they impact the strategy making process. Lastly, we discussed about the entry and
exit barrier and also about the bargaining power of customers.
2.11 SELF-ASSESSMENT QUESTIONS
1. What are the different stages of an Industry Life cycle:

a) Introduction, evolution, growth, and decline
b) Introduction, growth, maturity, and decline
c) Introduction, growth, shake-out, maturity and decline
d) Introduction, growth, maturity and shake-out
2. According to Porter's theory, the forces that combine to form the Industry structure
and impact the profitability prospects of the companies that operate in the Industry
are:
a) The intensity of rivalry among incumbent firms
b) The threat of new competitors entering the industry
c) The threat of substitute products and services
d) The bargaining power of the customers and suppliers
e) All of the above
3. ABC Bank has a challenge of customer churn in the Credit card business. As a
Strategic Manager what would be your various suggestions to retain customers and
create a Strategy for exit barriers?
a) Switch costs, discounts, and customer service
b) Relationship management and customer service
c) Relationship management, service excellence, loyalty program, reward points,
cash-credits
d) Service excellence, retention program, discounts
4. Extrapolating the Garter's magic quadrant, what is your understanding of two

companies, one of which is a challenger and the other is a leader in a particular
industry?
a) Challenger is low on vision and high on execution. Leader is high on both vision
and execution
b) Challenger is high on vision & low on execution. Leader is high on both vision &
execution
c) Challenger is both high on vision & execution. Leader is high on vision and low
on execution
Chapter 2
d) Challenger is both low on vision and execution. Leader is high on both vision and
execution
5. What are the factors generally created by existing strong competitors who have a
large presence, towards entry barriers to Competition?
a) Economies of scale and distribution
b) Brand identity
c) Product differentiation
d) Capital requirements
e) All of the above
Answers: 1.(c), 2.(d), 3.(c), 4.(a), 5.(e)
References :
2. Gartner's Magic quadrant for market position analysis, Gartner Inc, and IDC
marktescape map

P 24-27

P 28-29
ANNEXURE
Analysis for Porter's five forces model's use in shared workspace industry by ‘WE
WORKS’ organization.
Porter's Five Forces model is a framework used for industry analysis, and it can be
applied to the shared workspace industry to understand the competitive dynamics and
attractiveness of the market. Let's analyze each force in relation to the shared workspace
industry:
Threat of New Entrants:

The threat of new entrants to the shared workspace industry has been relatively high.
WeWork, as one of the leading players in the market, has faced increased competition
from both established players and new startups. The low barrier to entry, ease of
replicating the shared workspace model, and the growing demand for flexible workspaces
have attracted new entrants. WeWork needs to leverage its brand recognition, global
network, and economies of scale to maintain a competitive edge and discourage new
entrants from capturing market share.
Bargaining Power of Buyers:

WeWork's customers, such as freelancers, startups, and small businesses, have a
certain degree of bargaining power due to the availability of alternative shared workspace
providers. They can switch to other providers if they perceive better value or if WeWork's
pricing or services do not meet their needs. To retain customers and mitigate the
bargaining power of buyers, WeWork must continue to offer attractive amenities, flexible
leasing options, community-building initiatives, and exceptional customer service.
Bargaining Power of Suppliers:

WeWork's key suppliers include real estate developers, furniture manufacturers,
technology providers, and service vendors. The bargaining power of suppliers can vary
Chapter 2
depending on factors such as the availability of suitable properties, the cost of leasing or
purchasing spaces, and the availability of necessary infrastructure. WeWork's scale and
global reach may provide some leverage in negotiating favorable deals with suppliers, but
they still need to maintain strong relationships and explore partnerships to ensure the
availability of quality resources at competitive prices.
Threat of Substitute Products or Services:

WeWork faces the threat of substitute products or services in the shared workspace
industry. Traditional office spaces, remote work options, and virtual offices can serve as
substitutes for certain customer segments. WeWork has historically focused on creating a
unique experience and offering value-added services like networking events, business
support, and a sense of community to differentiate itself from substitutes. Constant
innovation and customization of offerings to address specific customer needs are
essential for WeWork to remain competitive and prevent customers from switching to
substitutes.
Intensity of Competitive Rivalry:

Competition in the shared workspace industry, including against other prominent players,
has been intense. WeWork faces competition from companies like Regus, Knotel,
Industrious, and local providers. The competitive landscape is driven by factors such as
pricing, location, amenities, service quality, and brand reputation. WeWork has
traditionally differentiated itself through its extensive global network, trendy workspaces,
and community-focused approach. To maintain a strong position in the market, WeWork
needs to continually innovate, expand its services, enhance its brand, and provide unique
value propositions to attract and retain customers.
Overall, the shared workspace industry presents both opportunities and challenges.
While the low barrier to entry and intense competition pose risks, there is still room for
differentiation and growth. Successful providers will need to carefully manage each of the
five forces, adapt to changing market dynamics, and continually provide value to their
customers to thrive in the shared workspace industry.
This analysis is based on general knowledge of the shared workspace industry available
in open worldwide web and therefore it is not based on internal info pertaining to
WeWorks.
REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
3
Chapter
EXTERNAL ENVIRONMENT
Objectives:
The previous chapter discussed the Industry and Competition Environment within the
Industry that an organization must define and analyze for successful strategy formulation.
After the Industry has been clearly defined, the macro-environment, the forces outside
the industry, should be considered. This chapter covers the macro-environment forces in
detail. At the end of the chapter, you will be able to understand the following:
Analysis of the Macro-Environment
Political and Regulatory Forces
Economic Forces
Social Forces
Technological Forces
Demographic Forces
Environmental Scanning
Forecasting the Environment

3.1 Introduction
3.2 Analysis of the Macro Environment
3.3 Political and Legal Forces
3.4 Regulatory Forces
3.5 Economic Forces
3.6 Social Forces
3.7 Technological Forces
3.8 Demographic Forces
3.9 Natural Environment
3.10 Environment Forecasting
3.11 Summary
3.1 INTRODUCTION
For any industry there are forces outside the industry that affect the performance of the
industry and the constituent companies significantly. It is important that the strategic
management process must analyze the environment external to the industry and to
Chapter 3
understand how the broad factors in the macro-environment impact the industry as a
whole.
It is important to be aware [1] that every organization exists within a complex

network of political, regulatory, economic, social, technological, and demographic
forces. These elements together form an organization’s Macro-Environment. The
analysis of the Macro Environment and its forces may be referenced as PEST (PESTEL)
Analysis, an acronym formed from the first letters of these different forces. The constant
changes in these forces present numerous challenges and opportunities for strategic
managers. The impacts, both positive and negative, of macro-environmental forces on
the industry and company must be well understood before all strategic options and risk
management initiatives are evaluated.
3.2 ANALYSIS OF THE MACRO ENVIRONMENT
PEST (PESTEL) analysis is a structured way of capturing the different dynamics

that play into an industry. In today's context such macro forces go beyond the country
in which the company is operating. The industries and the markets across the world,
today, are seamlessly connected with increasing free trade agreements entered between
different countries which have trade relationships with each other to run their economies
effectively and help each other for trade balance.
There is a saying in the financial markets that if America sneezes, other emerging
markets like India catch cold. Such is the interdependence that American government
actions and regulatory policies have a far reaching impact on many emerging markets
and hence its industries. It impacts financial markets and currency markets on a real time
basis. It also impacts political developments in most vulnerable countries like
Afghanistan, Iraq, and Syria etc. Similarly, technological improvements have seamless
ramifications on different countries' economies, thus impacting the social lifestyles as
well. Legal and regulatory policies of one country can impact the other, for
instance, the US Immigration bill, if passed, will impact the Indian IT Industry in a
big way. We will see this in detail later in this chapter.
The following are the categories of Macro Environmental Forces:
1. Political and Legal Forces
2. Regulatory Forces
3. Economic Forces
4. Social Forces
5. Technological Forces
6. Demographic Forces
Some challenges of the industry or a country may be classified into one category,
whereas others may be related to two or more issues. More often, it is not possible to
External Environment
expect favourable actions happening across these categories to have a synchronized

positive impact on the industry. The actions happening at each category at different
points in time will have a delayed or cascading impact on the overall industry and the
company in that industry. The dissemination of the effect will be seen as the industry
evolves and matures.
For example, The Automobile Industry has political (governments policy on foreign
direct investments, excise and custom duty guidelines, investments in infrastructure such
as Electric charging stations etc.), regulatory (polices stipulating the safety standards to
be met– BS-VI Environment norms from April 2020), economic (how the business
impacts the country's economy in terms of job creation, GDP growth, income to the
government's revenues, RBI’s REPO rate and its impact on car loan interest %, surplus
disposable income etc.), social (consumers look for new lifestyle features and expect
safety standards to improve – Sun-roof, 7 air-bags and more), technological
(innovations to improve overall performance and safety features– Anti-Breaking System)
and demographic dimensions (new products and services to suit the different sections
of the demography, for eg: Jio 1500 Mobile phone @ Rs 1500 with 2.4-inch Display,
512MB RAM, 4GB inner storage, Extended SD card bolster, 2-megapixel rear camera,
VGA front camera, Wi-Fi, GPS, and NFC all built in social networking APPS and
supported by 4G VoLTE bolster for better connectivity launched at Rs. 1500 refundable
deposit. This has made reaching of smartphone possible in the hands of common man of
India.
Some industries are more influenced by Government interference. Government

Subsidy dependent industries like sugar, fertilizers, agriculture related industries,
oil, gas, and other natural resources, where Government fixes the prices of the
resources need Government approvals to fix procurement and selling prices, because of
huge subsidies incurred by the government to keep the procurement prices and selling
prices at affordable levels to support people living under the poverty line or the
underprivileged sections of the society. These industries face challenges in commanding
higher prices even if the demand goes beyond supply.
Thus, one needs to understand how the various macro environmental forces combine to
influence the industry's behaviour and performance. The demand for a particular product
will be influenced by the Government's initiatives to provide the right infrastructures like
broader roads, bigger airports, more train services, tax concessions, government
subsidies, clearing approvals for extracting natural resources and regulatory clearances
to set up new businesses to meet new demands getting created as a result of increasing
disposable incomes available with different strata of society etc.
Although large organizations and industry associations often attempt to influence

changes in the macro-environment, these macro forces are not usually under the direct
control of business organizations. In India, many leaders and industry captains are
part of the Prime Ministers Economic Advisory Council (PMEAC) and hold Director
Positions in several regulatory bodies; it may be expected that they may be able to
Chapter 3
exert some degree of influence over the different challenges facing the industry and the
economy.
The Strategic Managers typically seek to enable an organization to operate effectively

within largely uncontrollable environmental constraints while capitalizing on the
opportunities presented by the environment. Hence, they must first identify and analyze
both the domestic and global macro-environmental forces as explained above and
understand how each force impacts the industry in which they operate in, before
addressing the challenges and strategy concerns related to the internal environment of
the organization. These issues need to be considered as opportunities and threats while
formulating the strategic management process.
3.3 POLITICAL AND LEGAL FORCES
India being a large democratic country, the Parliamentary System is the supreme
authority of enacting and legalising the government policies and reforms in the
economy. Over the last couple of decades, the major political parties (either the
Congress or the BJP) have been able to come to power only with the support of smaller
parties or the regional parties due to fragmented election results. The major forces under
this category that would impact the industry are the outcome of elections, new
legislations, judicial / court decisions, economic reforms as well as the decisions
recommended by the various commissions and agencies at different levels of the
governments.
Due to alliance-led political formation in our country, there have always been
compulsions on the ruling government to accommodate the interests of various political
parties in the alliance before enacting key legislations to support the industries and the
economy as a whole. As we have seen, there have been many scams that have
impacted the government's credibility and ability to take even good decisions to support
the industry, like giving clearance to making natural resources available to the industry
like coal, iron ore etc. Such events might at times lead to paralysis of the government's
policy making, which is essential to keep the economy growing at its potential.
For example, when the UPA government passed legislation in Parliament for
allowing FDI in multi-brand retail in September 2012, there were major opposition
from all other parties including some of the ruling alliance parties as well as opposition
alliance parties. As a result, the Foreign Direct Investment in multi-brand retail. No major
foreign investors have shown keen interest in making strategic investments into
India except Tesco from the UK, which tied with Tata Enterprise Company Trent.
Post its clearance in 2017-18, Wal-Mart grabbed the opportunity and took over Flipkart.
Case Study [2] on the Political implications of FDI in multiband Retail
The opposition parties have said "no" to the majority of Foreign Direct Investment in
Retail markets. The rationale is obvious: the main opposition party has always been the
party of small traders, and so is backing these traders. The other smaller parties also
have given priority to traders and middlemen over the interest of consumers because,
they claim this will affect employment. Supermarkets have indeed killed small shops in
rich countries like the US. But in fast-growing developing countries like China and
Indonesia, supermarkets and small shops have flourished together. Why should India be
any different?
India already has dozens of large Indian-owned retail chains like Future retail,
More, Hypercity, Shoppers Stop etc. These are struggling to compete against small
shops and have suffered big losses. Walmart in India lost hundreds of crores in its joint
venture with the Bharti group, without killing small shops. Why, then, raise the bogey of
job losses?
Prosperity is created by rising productivity, which by definition means producing more

from less labour and capital. Rising productivity surely causes some job losses in some
areas but creates jobs in other growing sectors. The Indian IT Industry is a great
example of creating jobs which no other industry has created before. Even we have
heard of opposition to computerization in public sector bans in India in the 1990s when
the Information technology automation was opened up in public sector enterprises.
To understand this fully, consider the following. To protect jobs, should we ban
computers, which have displaced millions of clerical jobs? Why not ban cellphones which
have killed the camera industry? Why not ban washing machines, which have hugely
reduced jobs in washing? Why not abolish vacuum cleaners which substitute poor
sweepers? Why not abolish luggage with wheels, which deprives coolies of jobs? Why
not abolish tractors and harvest combines, which take jobs away from agricultural
workers, the poorest of the poor? Why not abolish cars and motorcycles, which have
displaced labour-intensive horse carts and bullock carts?
Answer: Indian workers were not better off in the old days without machines or tractors,
they were much poorer. Why did jobs-killing machines and mega-companies (like Indian
IT or automobile companies) create prosperity rather than poverty? Because their
development steadily replaced low-wage jobs with higher-wage jobs and improved the
living standards of people.
All technological and managerial progress kills old jobs and creates new ones. To
focus only on the lost jobs is a recipe for staying poor, something demonstrated by the
Luddites in the 19th century. The creation of textile machinery in Britain caused
massive job losses in traditional handlooms. So, the Luddites smashed textile factories in
an idealistic effort to protect jobs. They didn't realize that by stalling the Industrial
Revolution - which ultimately raised living standards tenfold - they were actually keeping
people poor.
Chapter 3
Economist Joseph Schumpeter demonstrated that Capitalism succeeds because

of creative destruction. It constantly destroys old jobs and creates new ones. This
constantly replaces lower-productivity jobs with higher-productivity jobs, and so the entire
economy becomes more productive. The US loses over three million jobs every month
but creates another three million new ones, and this churning has made it the world's top
economy.
The US has safety nets for those who get displaced. India needs safety nets too (need
political will and change). But it must also encourage every mechanism that improves
productivity, seeing it as a blessing and not a curse. Myopic idealists like the Luddites
could only see the immediate job losses of technological change, not the huge
productivity gains. Political parties need to avoid Luddite illusions in banning any activity,
including foreign-majority retail chains. These can succeed only by reducing prices for the
common people.
Let us suppose that by cutting out middlemen and reaping some new technological gains,
foreign-owned chains can reduce prices by 20%. This will certainly mean some job
losses in competing with small shops. But it also means that consumers will have an
additional 20% in their pockets, which they will spend on additional goods and services.
This will create a multitude of jobs in producing those additional goods and services.
Rising productivity and being competitive is always a good thing.
To truly serve the common man, the political parties must encourage investment and
competition of all sorts (including that from foreign companies). Fast economic growth is
by far the most important factor that raises living standards. This needs to be
supplemented by the government provision of high-quality public goods including roads,
schools, health clinics, safety nets and retraining facilities. India's biggest problem today
is the lousy quality of public goods. Major parties choose cynically to oppose FDI in retail.
If they really listen to small shopkeepers, they will find that their biggest problem by far is
the lack of bank credit, not competition from hypermarkets. Why not focus on that?
_______________________________________________________________________
The other Political forces that impact strategy, also include shifts in foreign
policies, critical decisions like engaging in wars and response to domestic
violence (like Kargil war, Maoists encounters, border disturbances, etc.) can affect the
government's focus on the industry and economy. Globally, such scenarios can impact
India as well. The Gulf war in early 1990s affected the oil prices and brought about
supply constraints, and so was the Iraq war in 2003.
Geo-political tensions and disturbances, threats like nuclear warfare by North

Korea, alleged chemical weapons possessions with Syria are all forces that fall
under this category. While these are international forces, they have far reached
ramifications to Indian industries in certain segments like oil and gas, goods and services
and industries sensitive to exports and imports.
In order to improve trade with other countries, the Indian Government has entered
into Free Trade Agreements (FTA) with many countries establishing bilateral trade
relationships. The policies around export and import from time to time can also impact
specific industries. Decisions on new taxation like customs duty, excise duty, double
taxation treaty can have implications on specific industries. Any change in industrial
policy, fiscal policy, tariff policy may have profound impact on the businesses. Some
policy developments create opportunities for one industry as well as threats to another
industry.
The legislations in other countries sometimes affect the Indian domestic economy.
The US Immigration Bill (this bill is believed to protect American jobs in the US), if
enacted by the US Government is feared to affect the Indian an IT workers working
in the US and restrict the number of visa clearances that will eventually affect the Indian
IT industry's business model and its cost structures. Another example is, in the 1980s
the US convinced the Japanese manufacturers like Toyota, Honda to voluntarily
restrict exports of cars to the US in lieu of a tariff. Because of this particular tariff, the
Japanese automobile manufacturers established a large number of production facilities to
manufacture cars in the US thereby indigenizing the foreign cars.
Such restrictive policies and protectionist measures by certain governments hurt the
economies of other countries which have trade relationships with them. Hence there is a
need for building consensus among the global economies by negotiating with various
member countries within the acceptable trade framework. On the other hand, there are
certain countries like Iran, Syria, North Korea etc. have trade sanctions by the
United Nations for violations of norms on global security, geopolitical events, civil
wars, human rights violation, nuclear/ chemical war threats or anything that poses threat
to the Global Peace Process initiatives.
The World Trade Organization (WTO) is the only global international organization
dealing with the rules of trade between nations. At its heart are the WTO
agreements, negotiated and signed by the bulk of the world's trading nations and
ratified in their parliaments. The goal is to help producers of goods and services,
exporters, and importers conduct their business.
There are a number of ways of looking at the World Trade Organization. It is an

organization for trade opening and for formulating international trade framework which
would be followed by the member countries. It is a forum for governments to negotiate
trade agreements. It is a place for them to settle trade disputes. It operates a system of
trade rules.
Essentially, the WTO is a place where member governments try to sort out the trade
problems, they face with each other. There have been negotiations on multiple areas
WTO is currently working on that will help the member countries in the long run. And it is
the individual country's government's responsibility to take care of its consumer's
interests and industry interests while negotiating at the WTO Forums. The strategic
Chapter 3
management process of an organization must consider these aspects relevant to the

business the company wishes to pursue.
In India, there are many government bodies that are responsible for approvals
related to launching new businesses. They include Cabinet Committee on
Investments, Foreign Investment Promotion Board (FIPB), Cabinet Committee on
Economic Affairs (CCEA), Competition Commission of India (CCI), Board of
Industrial and Financial Restructuring (BIFR) etc. Their role is to evaluate the
investment proposals and recommend or approve or disapprove them on the merit of
their businesses.
3.4 REGULATORY FORCES
There are many regulatory organizations within a country which contribute to the
economy as a whole by regulating the industry from time to time to ensure that the
industry grows healthily. These organizations, in India, include the Reserve Bank of
India (RBI), Insurance Regulatory Development Authority (IRDA), Pension Fund
Regulatory Development Authority (PFRDA), Securities and Exchange Board of
India (SEBI), TRAI (Telecom Regulatory Authority of India), etc. Each industry has a
regulator that ensures the industry players conform to the policies and regulations in
effect from time to time.
The primary function of a regulator in an industry is to formulate policies to provide new

licenses in a particular industry after a detailed process of evaluation of the bidders as
well as operationally to ensure that the policies and the legal framework an Industry
needs to follow are complied with in spirit and action. It also stipulates governance
standards for the industry, which are of high quality.
In 2013, RBI was evaluating the aspirants who have applied for new Bank Licenses
in India, post RBI notification inviting participation for setting up new banks under
private sector. Allowing new private full-fledged banks and Payment Banks, RBI
initiated the next round of reforms in the Banking sector. The Government and the
RBI have been enforcing thrust on rural banking and financial inclusion by ensuring the
unbanked or under-banked population in the country are covered under the Banking
system. RBI is also promoting Non-Banking Finance Corporation (NBFC).
In 2021, about 78 percent of Indians above 15 years owned an account at a bank. This
was a significant change from only 44 percent in 2011.This growth suggests a move
towards financial inclusion of marginalized groups within the country - from women to the
out-of-labor force, less educated and the poor. In developed countries like the US, only
one-third of the population is unbanked. There is a dichotomy between the developed
nations and an emerging country like India. Hence, the Government and the RBI had
initiated the Financial Inclusion Programme (FIP) a few years back.
Under RBI's Financial Inclusion Programme (FIP), banks are mandated to offer financial
services to the unbanked population and each village is to be covered by a banking
outlet. Under Pradhan-Mantri Jan-Dhan Yojana, 46.25 Crore beneficiaries banked so far,
collectively accounting for Rs 1,73,954 crores. This demonstrates the government’s
resolve for the financial inclusions of poor in the banking system.
The banks are required to open a sufficient number of rural branches in such a manner
that there is one branch within a distance of 3-4 km to support about 8-10 banking
correspondents (BCs).
Under FIP, banks need to adopt a planned & structured approach with the clear objective
of providing banking outlets in every village in the next 3 years through a mix of branches
and branchless modes. About 34,000 branches have been opened post 2014.
Similarly, the Telecom sector is a high growth sector. The regulator TRAI has been
formulating policies to ensure the industry becomes one of the key engines of the
economy. The evolution process ensured that the Telecom coverage in the country has
now reached more than 80% of the human inhabited areas, the telecom tariffs have been
substantially brought down by bringing in more competitors in the industry and most
importantly supporting the sector to venture into new service offerings by providing the
3G spectrum and 4G licenses. Reliance’s JIO Mobile has given a different flip to
the growth of mobile users across India by offering very economical voice and
data transfer together with cheap smart phones. Jio’s subscriber base has crossed
300 million by March 2019. However, Jio has triggered unprecedented price war.
Again, the price war in the Indian Telecom industry actually hurt the industry very
badly due to Hyper-competition and the industry is currently in a self-correction
mode.
India has also now introduced 5G network. India plans to cover 100% of its
population by 5G coverage by end of 2024.
3.5 ECONOMIC FORCES
India and China (part of BRICS nations) have been the fastest growing emerging
markets in the Asia region over the last decade. Both countries have distinct
economic fabrics that drives the engines of their economies. However, since the great
recession that started in the fall of 2008 after Lehman Brothers collapse that led to
financial crisis in the US, the growth rates in the emerging economies have fallen
significantly from their peaks, though the growth rates are still higher than the developed
nations like the US or countries in the Euro zone or Japan. Prior to 2008, India had been
clocking around 8-9% GDP growth rates and China was recording above the magic
double digit mark of 10% GDP growth rates.
Let us analyze why and how these growth rates have fallen despite liberalization of
economies, economic development policies and an open market approach. In a fast
growing emerging economy, there are various economic forces that affect the industry
and its business operations significantly. There could be growth or decline in the gross
domestic product, increase, or decrease in inflation, interest rates or currency exchange
Chapter 3
rates. The Fiscal and Current account deficits also play a critical role in the country's
economic growth or decline. These changes can present both opportunities and threats
to strategic managers who formulate strategies for their companies, depending on the
industry.
The economic conditions of a country, for example - the nature of the economy,
government policies, the stage of development of the economy, economic resources, the
levels of income, the distribution of income, savings rate, asset, and wealth creation - are
among the very important determinants of business strategies. There are many macro
factors like Gross Domestic Product, Inflation, Interest rates, Currency rates, Fiscal
deficit, Current Account deficit etc. that play a critical role in the economic
development of the nation. We will see each one of these factors in detail.
GROSS DOMESTIC PRODUCT
Gross Domestic Product or GDP refers to the value of a country's total production
of goods and services. A consistent GDP growth is fuelled by an increase in consumer
spending in the domestic market as well as healthy exports to international markets. In
contrast, a GDP decline is an indication of lower consumer spending and decreased
consumer demand for goods and services. Also, a high degree of volatility and
unpredictability of the economy is not a good thing for any country. India has been going
through a range bound volatile and fragile period from 2008 till 2013 due to a number of
domestic and global economic factors. India did see improvement in GDP under new
government (2014-2016) but later (2017-2018) worldwide volatility has tapered the gain.
However, India still remains highest GDP growing country. As per the recent report
released by Government of India (GOI), mentioned that India’s GDP growth is 7.2%, one
of the highest vis-à-vis most developed nation including China and USA under 2.5% only.
It is the responsibility of the Government and Regulatory agencies to intervene

appropriately to ensure stability in the economy over a period of time and protect the
interests of the consumers and the industry as a whole. The Government has to come up
with policy interventions from time to time.
A rapidly growing economy is not all the time beneficial to the country. During the fast
paced growth of an economy, where the demand reaches a level beyond the inherent
supply, it stokes inflationary pressures leading to price rise across products and services.
This invariably prompts the Central Banks to take actions and tighten the monetary
policies, which will slow down the demand cycle in anticipation that the inflationary
pressures will ease out. High inflation and high interest rates can slow down the
economy as the cost of operations of the firms increase and profitability takes a
hit.
When the GDP of a country contracts for two consecutive quarters, the country's
economy is generally considered to be in a Recession. During this time competitive
pressures can lower profits for companies and make them default on their financial
commitments, thus resulting in business failure.
For example, during slow down, new car manufacturers tend to have a challenging
time in attracting prospective customers to their showrooms as the industry goes through
sluggishness, thus exerting pressure on costs and the profitability of business.
Automobile industry has overcome threat during GST implementation, BS VI

implementation scare but Covid 19 pandemic really hit the industry hard. This prolonged
slowdown has hurt industry and the economy as a whole. However, this industry has
again shown phenomenal growth and that speak for all-round economic growth of India.
Hence, it is important to ensure that the slowdown in the economy does not threaten the
various industries and it is incumbent upon the Government to devise new policies and
fiscal measures to revive the economy and the Central Banks to resort to benign
monetary policy measures to support the industry. All these actions will have profound
impact on the industrial growth and GDP growth.
During the high growth phase, the income levels also increase considerably, resulting in
increased disposable income. The sale of a product for which the demand is income-
elastic naturally increases with an increase in the income. During the slowdown period of
an economy, the rate of increase in income levels also slow down. Generally, with slow
down, the demand also declines resulting in over supply and a reduction in prices.
Recessions can also create opportunities for businesses on the supply side and it is for
the industries to think creatively and innovatively to come up with new compelling
products and services before the next cycle of economic growth.
Essentially, the following factors influence the growth drivers for a country:
1. Economic reforms by the Government
Chapter 3
2. Falling Interest rates
3. Falling Inflation
4. Low Fiscal deficit
5. Low Current Account deficit, preferably surplus
In an emerging economy like India where more than 60% of the population lives in the
rural areas, the per capita income is very low and hence there is no surplus to spend on
other consumer discretionary products than the basic needs to keep life going. India is a
domestic consumption driven economy, and the bottom of the pyramid concept has been
working well for many Indian companies as well as multinational companies to do
business in India.
INFLATION
Inflation is a key force that impacts economic growth in a significant manner. In

most of the markets, the inflation-growth dynamics play out cyclically from time to time
and have varied impact on the economy. There is a tight correlation between inflation and
growth, which we will see in detail in this chapter. India has been seeing elevated
inflation levels since the year 2009 till 2013 (Annual inflation = Consumer Price
Index i.e. CPI was between 9.13% to 14.97% Inflation Rate in India averaged 6.02
percent from 2012 until 2023, reaching an all-time high of 12.17 percent in
November of 2013 and a record low of 1.54 percent in June of 2017. There are
typically four scenarios on how the combination of growth cycles and inflation cycles play
out in an economy. We will discuss these in detail.
a) High Growth and low or moderate Inflation
When the economy grows at a fast pace, it increases the income levels, which in turn
enhances the buying power of consumers due to an increase in disposable incomes.
This phenomenon, over time, gradually increases the demand for goods and services.
When the demand cycle overtakes the supply cycle and is persistent with widening gap
between demand and supply, the prices of goods and services go up. This stokes
inflationary pressures on the economy. Inflation moves up from low to moderate levels
and then goes to elevated levels if the demand supply gap continues for an extended
period of time and is not corrected with additional supply or augmented capacity by the
industry.
Fig. 3.1: FLOW DIAGRAM
b) High Growth and high Inflation
When inflation increases and goes to elevated levels, the Central Bank (The Reserve
Bank of India) starts tightening its monetary policy in anticipation of inflationary
expectations. They start increasing the interest rates (interest rates like repo rate and
cash reserve ratio are monetary tools that they use generally) to bring the inflation under
control and to contain it. The banks will pass on high interest rates to their customers,
both corporates and individuals.
High inflation rates have an adverse effect on most of the businesses in the economy
resulting in high cost of doing business due to increase in interest rates and costlier raw
materials due to the demand supply gap. Since the growth is high during this period, the
Central Bank has much better space to administer the increase in policy rates suitably
and a continued rate of high interest rates can hurt the growth of the economy.
An economic slowdown, on the other hand, can lead to favourable effects on industry due
to the start of a lower demand cycle vis-a-vis supply, and hence fall in prices, resulting in
inflation coming down. This leads to the Central Bank (RBI) loosening its monetary
policies and thus the banks start reducing the interest rates for their customers. Thus,
slowdowns are accompanied by Central Bank interest rate cuts, which reduces the bank
costs so that get passed on to consumers to revive the economy. The Reserve Bank's
mandate is to foster sustainable growth through a balanced approach towards financial
sector reforms and through monetary/ price stability - by bringing down inflation to
acceptable levels to aid growth over a reasonable period of time.
c) Low Growth and high Inflation
In the period between 2011 and 2013, India faced a peculiar situation in the economy,
wherein the growth started slowing down from 8-9% in FY 10-11 to 4.4% in Q1 and 4.8%
in Q2 FY 13-14. However, inflation was at elevated levels during most part of this period
in discussion. As per analysts, this was the result of the Government's Fiscal Stimulus
Program and RBI keeping easy monetary policies, post the 2008 financial crisis for an
extended period of time which in turn developed inflationary pressures within the
economy between 2009 and 2010.
Chapter 3
Hence, the inflation had become deep rooted before the Government rolled back the
Fiscal Stimulus and RBI started increasing the policy rates to control Inflation. The RBI
was forced to increase the interest rates high during the most part of 2012 and 2013, due
to almost double digit inflation witnessed in the economy. This is a complex situation
where the GDP growth has fallen to 4.4% (as against our earlier growth of 8-9%), but the
inflation was at elevated levels at almost 9-10%.
In a low growth and high inflation scenario, there will be inherent disinflationary pressures
acting on the economy as the high prices have already hurt the economic growth. This
tends to reduce pressure on inflation and the prices should start coming down over the
medium term, reviving the chances for softening of interest rates and thus the GDP
growth.
d) Low Growth and low Inflation
Similarly, when the economy is faced with low growth and low inflation for a long period
of time, as in the case of most of the developed economies like the US, UK, Europe,
Japan etc., their Central Banks have unleashed easy monetary policies to stimulate the
demand, thereby supporting growth to pick up in their economies. Post the 2008 Global
Recession, the Central / Federal Banks of these developed world economies have been
keeping their interest rates very low (near zero) and extending monetary stimulus (also
called the Quantitative Easing QE in the US) by bond purchase programs and
releasing money into the financial system to stimulate growth.
INTEREST RATES:
As explained above, we have seen the various scenarios of administrating interest rates.
We have just seen the composite effect of inflation rates and interest rates on an
economy. There are both short term and long term interest rates that affect the
consumers’ spending pattern and the growth of the economy.
Long term Interest rates are for especially high value products that are financed over an
extended period of time such as home loans, car loans, capital expenditure loans etc.
Short term Interest Rates are for overnight borrowing, credit cards, short term deposits
etc. Some companies offer very attractive short term interest rates for a duration of 6
months or 12 months to stimulate sales in the consumer durables and other discretionary
spending by offering EMI schemes through the customer's credit cards. This is aimed at
encouraging consumer spending.
At the corporate level, interest rates also influence strategic decisions related to short
term and long term financing of the capital investments and business operations. High
interest rates, for instance, tend to dampen business plans to expand (capex
investments) or replace ageing facilities. Lower interest rates, however, are more likely to
encourage capital expenditure for expansion, new business investments and other
business development initiatives by the company.
EXCHANGE RATES:
In simple terms, exchange rate is defined as the value of one currency for the purpose of
conversion to another (the exchange rate of the Indian Rupee against US Dollar).
Exchange rates are the amount of one currency you can exchange for another. E.g.: 1
US$ = Rs. 82 INR means to get one US $, you need to give Rs. 82/- (In 2021 it was Rs
60!). In a more meaningful way, if 1 US $ = Rs. 80 INR means Indian rupee is stronger as
less rupee needs to be given to get one US $. If 1 US $ = Rs. 84 INR, it means Indian
rupee has become weaker as more rupees needs to be given to get one US $.
The currency exchange rates are influenced by the global economic conditions, domestic
and international bond yields, and central banks' monetary policies. It also depends on
the coordinated economic policies of various governments.
Today the US dollar is the largest exchange currency used as a common

denomination by many countries for trade. Strengthening of the US dollar
invariably puts pressure on the currencies of the emerging markets. During this
time, the US companies would find themselves at a competitive disadvantage to do
business internationally as the prices of their goods and services rise in the foreign
markets, especially it hurts imports of their goods and services in the emerging markets.
Also, during this time, the American consumers may be inclined to buy products
produced aboard which are less expensive and competitive than the goods and services
produced in the US.
Let us discuss about Indian currency situation. India's Rupee had been weakening
on the back of strong US dollars (1USD = Rs. 82 Rs. 84 / Rs. 80). The reasons
attributed were numerous, but India's high Current Account Deficit (CAD) is
believed to be a key reason for higher inflation in the country, as the cost of
imported goods became dearer with a higher exchange rate for USD, as explained in the
previous paragraph. Secondly, the US had been having an easy monetary policy since
the financial crisis in 2008 and due to the US Federal Reserve's (the US Central Bank)
Quantitative Easing (QE) programme to stimulate the slowing US economy since then.
However, In India, a weaker or depreciating Rupee helps higher exports as Indian goods
and services become more competitive in the international market. For example, when
the Indian currency was depreciating during most part of 2013, the Indian IT services
industry and other Export oriented industries like pharmaceuticals, textiles, leather, auto-
components etc. performed well during this period and the Indian exports started growing
healthily.
CURRENT ACCOUNT DEFICIT:
Chapter 3
The Current Account Deficit (CAD) is the difference between the capital inflows
into and the capital outflows from the country, as measured as a percentage of
GDP. It is also referred to as the Balance of Payments (BoP) for a country. A high
CAD symbolizes that money availability is scarce, draining also foreign exchange
reserves of the country and thus it generally triggers higher inflation hurting economic
growth. A lower CAD symbolizes that more money is available , thus it will help build a
healthy foreign exchange reserve for the country. It generally moderates or reduces
inflation. A Current Account surplus situation leads the country to unleash more reforms
and attract more investments.
Trade Deficit is one component of the Current Account Deficit. Trade Deficit is
calculated as the difference between the imports and exports a country is making
in a financial year. India's main imports are crude oil, gems & gold and capital
equipment and engineering goods, organic chemicals etc. The Indian export industries
range from IT services, textiles, leather, garments, jewellery, automobiles etc.
India recorded a current account deficit of $1.3 billion in the first three months of 2023,
equivalent to 0.2% of the GDP, falling short of market expectations of a $3.3 billion
surplus. However, it is the lowest gap in nearly two years, mainly due to a narrower trade
deficit on the back of lower commodity prices and an increase in services exports. The
goods deficit narrowed to $52.6 billion from $54.5 billion a year earlier and the services
surplus widened to $39.1 billion from $28.3 billion. Net earnings from computer services
increased and private transfer receipts, mainly remittances, were up 20.8% to US$ 28.6
billion. The secondary income surplus rose to $24.8 billion from $21.2 billion. On the
other hand, the primary income deficit widened to $12.6 billion from a $8.4 billion.
As one can understand, the Current Account Deficit has implications beyond just imports
and exports, into impacting the country's inflation and growth parameters. A well
contained CAD protects the country from external risks like currency fluctuations and US
dollar flows.
FISCAL DEFICIT:
Fiscal Deficit is the difference between the Government's revenue incomes and
expenditure, both planned and non-planned. Fiscal Deficit is measured as a % of
the GDP. India's Fiscal Deficit was 4.9% of GDP in the financial year 2012-13. It was
then projected to be contained at 4.6% of GDP in the coming years. The higher the fiscal
deficit, higher will be the chances of it bringing inflationary pressures on the economy as
a result of forcing the Government to borrow beyond its means to meet the expenditure.
This situation will have a spiraling effect on the GDP growth as a higher inflationary
situation will make the Central Bank to raise the policy rates to contain the inflation. This
will have an adverse effect on the Industrial Production (IIP) and Rupee depreciation
leading to costlier imports of essential commodities and lower GDP growth.
Good news is that India has met the fiscal deficit target of 3.4% (actually achieved 2.5%)
percent of gross domestic product in 2018-19 fiscal year ended March 31, by cuts in state
spending and higher borrowings from small savings funds. Later India’s fiscal deficit
stood at Rs 17.33 lakh crore, the fiscal deficit for FY23 amounts to 6.4 percent of the
GDP. As a result, inflation is among the higher and therefore RBI is not reducing reduced
REPO Rates substantially. It is therefore not possible to further reduce loan interest rate
and thus individuals and commercial enterprises currently (Jun 2023) is under pressure
to manage loans for themselves.
Fiscal Deficits result from Governments’ populist initiatives like Higher subsidies
and Higher non-planned expenditures. The Subsidy Programs include food
subsidy (like food security), fertilizer subsidy (cheap fertilizers), oil subsidy (like
petrol, diesel, cooking gas, kerosene etc.), farm loan waivers etc. Another area that
impacts the Fiscal Deficit comes from non-planned expenditures of various ministries
when there are no resources or no means of higher government revenues to substantiate
higher spending.
Higher Fiscal Deficit is not good for the economy. The Global rating agencies, like
S&P, Moody's and Fitch are likely to downgrade India's rating to below investment
grade if the fiscal profligacy continues. This will severely impact the foreign investors'
sentiment and investment flows into the country and on the contrary many investors start
pulling out their investments from the country triggering more outflows and hence
widening the Current Account Deficit as well. This situation is counter-productive to the
economic growth of the country. Thus a higher fiscal deficit has major counter effects and
cascading impacts on other macro-economic factors like growth, inflation, interest rates,
investments, current account deficit, currency exchange rates etc.
3.6 SOCIAL FORCES
Society is the center piece of the economy and for the industry because that is where the
consumers belong to. They are a critical component of success for any industry. The
customer is king, as they say. Thus, Social Forces include factors such as
purchasing power, disposable incomes, customer behaviour and acceptability,
societal values, culture, traditions, religious practices, and beliefs of the members
of the society.
Cultural Values like individual freedom, fairness, secularism, free markets, and equality
of opportunity all play a role in consumer behaviour, employment opportunities, and
disposable incomes that impact the industry in one way or the other. These values foster
entrepreneurial spirit and translate into people's ability to aspire for a higher quality life.
In India, with a wide strata of society, the income levels vary from the superrich to
the underprivileged. A 2013 UN Report stated that a third of the world's poorest
people live in India. Poverty in India is widespread, with the nation estimated to
have a third of the world's poor currently. A World Bank Report (2013) says that 30%
of the total Indian population (800 million nos) falls below the International poverty line of
US$ 1.90 per day (in PPP terms).
Chapter 3
In fact, these figures have improved significantly over the last decade as India's economy
has been growing at a higher pace. According to ‘’World Poverty Clock data released by
the World Bank in 2018, India is no longer the country with the greatest number of living
poor living below the poverty line. It is estimated that the number of Indians living on less
than $1.90 (considered ‘’extreme poor’’ by the UN’s Sustainable Development Agenda)
has fallen from 306 million in 2011 some 70 million today. India's poverty rate is projected
to drop below 3% in 2022 from 32.7% in 2010.The report also indicates that in Southern
Asia, however, only India, where the poverty rate is projected to fall from 51% in 1990 to
below 3% in 2015 is on track to significantly reduce poverty. In a "historical change" for
India, 415 million people exited multidimensional poverty in the country in 15 years
between 2005-06 and 2019-21, the United Nations (UN) said on Monday. This is
heartening news for the Indian Government and Indian Corporates.
While it is painful to see the people under poverty line suffer on a day-to-day basis,
India's Economic Liberalization since 1991has helped the country progress much faster
than the other emerging world countries. Over the last 10 years, the Government has
come out with various schemes to alleviate poverty as well as create more Rural
Financial Inclusion Programs and create employment opportunities for underprivileged
people through MNREGA, Direct transfer schemes etc.
What it means is that as the bottom of the pyramid population moves up the value chain,
it will have a cascading impact on the economy and stimulate demand for products and
services for the industry. The Indian economy presents a huge potential and
opportunities to entrepreneurs, Indian companies as well as global enterprises to build
capacities, create new offerings, participate in key social sectors like infrastructure,
education, healthcare, employment, women, and childcare welfare etc.
Social Trends present various opportunities and threats to businesses. With

increasing awareness around health and fitness in the last decade, there emerged
growth in a number of companies entering into making fitness equipment, building gyms
and fitness centers, creating new offerings in healthy foods and drinks etc. This
opportunity presented the creation of new industries as well as sub-industries offering
new products and services. Cola companies introduced low calorie cokes; food
producers introduced healthy snacks and low fat offerings. Tea and coffee companies
offer multiple variations within the same product as Chinese green tea, flavoured coffee
etc. in order to woo the discerning customers. Today, a visit to the supermarket presents
a wide choice to the consumers to pick and choose what they want.
The Indian market is bipolar in nature. For a business to be successful, its strategy
should be appropriate for the socio-cultural environment to meet the varying tastes and
aspirational needs of the different sections of society viz high, middle, and low. The
Marketing Mix will have to be so designed as best suited to the environmental
characteristic of the particular geography or particular section of society. For instance,
the rural markets in India in the not so recent past were not consumers of the products
what the urban India was consuming. Toothpowder, toothpaste, and shampoos were
introduced in smaller packages and sachets to attract the rural populace. They
were made affordable enough to encourage them for daily use. These initiatives were
spearheaded by FMCG companies like HUL, Colgate, and carried forward by the food
and beverage companies like ready-to-use meals.
Even internationally also, people of different cultures use the same product in different
modes of consumption and with different product attributes to suit the characteristics of
different cultures. For e.g. the two most important foreign markets for Indian shrimp
are Japan and the US. The consumers of the US market look at attributes like
weight, presentation, and bacteriological factors while consumers of Japan look at
colour, freshness, uniformity of size or the arrangement of the shrimp.
The Government's social initiatives like Women Empowerment Schemes have

created many opportunities for employment and also by creating self-help groups,
fostering entrepreneurial spirit among women. In November 2013, the government
launched the first Bhartiya Mahila Bank for women only, run by women and for
women. This is just one of the steps towards Women Empowerment. These social
changes have made significant impact on women power and the economy as well. Today
we see there has been a gradual increase in women participation in senior leadership
roles, including CEO positions in many organizations as well as women representing at
the Board of Director levels in many companies, as part of the corporate governance
guidelines.
3.7 TECHNOLOGICAL FORCES
If one thinks of innovation, creativity, and dynamism, then the first thing that comes to
mind is the technology space. In today's world, there is an all-around transformation
happening in the way products are produced, their capabilities are enhanced.
Technological advancements in various industries have actually improved the lifestyles of
people across various strata of society.
Many economists think that Technological Innovation is the most important driver
of long-term economic growth. The Government and policy makers need to support
such innovation, but long-term growth in the economy is unlikely in the absence of
Technological Innovation. It is good that many new technologies are emerging in the
areas of social media, mobility, data analytics, cloud services to support growth and has
created many possibilities and opportunities to enhance the lifestyle of people.
All these things have been triggered by the fast paced change happening with the advent
of new technologies in different industry sectors helping them to stay ahead.
Technological Forces include scientific improvements and innovations that create
opportunities as well as present threats for businesses. The rate of technological
changes varies considerably from one industry to another and can affect a firm's
operations.
Chapter 3
Many industries deploy Information Technology services to empower their businesses.

Enterprises and medium companies invest heavily in advanced computers, enterprise
resource applications, satellite and terrestrial communication, mobile technologies etc. to
automate their 'people intensive processes' with an aim to lower their operating
expenses and to deliver higher customer satisfaction. Enterprise Resource Planning
applications (ERP) have large and medium size companies to really automate their
internal processes like manufacturing, finance, accounting, HR, marketing, customer
relationship etc. under one unified business application. This has tremendously improved
the organizational efficacy.
IT services has become a large industry in India that caters to Global customers'
business needs. Leading Indian IT companies like TCS, Infosys, Wipro, HCL Tech,
CTS, and Tech Mahindra provide Innovative Technology solutions to their clients
in the US and Europe, thereby bringing in considerable forex revenues to India.
Industrial automation players like GE, Siemens, Rockwell Automation, etc. have
really made breakthroughs in various Industrial Technologies to increase the
productivity, output, and efficiency of many organizations across industries like aviation,
plant automation, medical equipment, infrastructure, capital goods etc.
The widespread penetration of Internet and Mobile services over the past decade is
the most pervasive technological force positively impacting the business
organizations next only to the advent of personal computers and laptops. Today, online
booking of flight tickets, rail tickets, hotels, movie shows, holidays, online banking, online
bill settlement, e-commerce portals like flipkart, future bazaar, myntra etc. have all
leveraged the internet presence to provide competitive choice and convenience to
customers, besides improving the company's revenues and profitability by reducing
operating costs.
Technology has spawned major changes in the Customer services area as well. Many
contact centers, BPOs, real or virtual agents answer customer calls, use speech
recognition technology to either resolve a customer query or provide product
information to enhance the Customer services. This has improved the customer
response time by more than 50% and per capita productivity by over 40%. Customer
Relationship application enables companies to keep all customer related information,
data and perform analytics to provide real time information as and when the customer
calls the organization for buying new products or getting services for the existing
products.
Technology also affects Global Business Operations. For years companies in

developed nations had operations in developing countries with low labour costs and raw
material costs. Now with Information Technology advancements, the organizations in the
US and Europe have started outsourcing their manufacturing and services operations to
global players in emerging countries like Brazil, Mexico, China, and India. For example,
China is known globally for outsourcing in manufacturing and India is well known
for its innovation in offshoring of IT Services.
---------------------------------------------------------------------------------------------------------------------
EXAMPLES OF EMERGING TECHNOLOGICAL TRENDS THAT IMPACT BUSINESS
Manufacturing: Internet of Things
Internet of things, or M2M, is jargon for a network of machines. It is actually a set of

sensors and motors connected to each other, one for feeding information and the other to
act upon this information. Often a hyped technology, Internet of Things will begin to
become real shortly. Its impact will be felt most in the manufacturing sector, as it
improves productivity by bringing an exquisite sense of timing to Global Supply Chains.
Internet of Things is sometimes called Industry 4.0.
1. Energy efficient Transport: Electric Car
Energy efficient transport is going to drive consumer preferences going forward. Like the
trend seen with Tesla Model S, electric cars which had a good launch in 2012in the US
and business expansion into other countries, the other automobile companies too-
Honda, BMW, GM, Volkswagen-are expected to launch new models to stay ahead. In
India, Mahindra & Mahindra is a pioneer of manufacturing electric vehicles. Today they
have multiple product ranges which includes 2 seater electric car, family 4 seater electric
sedan car, electric LCV. To consolidate their presence in the India’s electric car market,
they took over erstwhile REVA Electric company in Bangalore making e2O 2 seater
electric car. Their acquitted Italian company Pininfarina has recently introduced at the
Geneva Motor show 2019 world’s fasted electric car namely ‘’Batistta’’ in the hyper-luxury
car segment with expected price tag of about US$ 2 million. Electric cars are predicted to
grow steadily till 2030 and dominate after that. Currently all-out efforts are being made to
create charging infrastructure across the nation. The government is incentivizing the use
of electric vehicles in public transport (buses and rickshaws) and thus started offering
subsidies. Lithium ion battery technology advancement will help to make batteries with
lower cost, higher interval between two charging, better run per charge and more.
2. Life Sciences and Healthcare: Wearable Devices
Personal Health monitoring is growing in developed markets and even in India, as

people monitor their sleep, exercise impact, heart health, and progress of pregnancy. The
penetration of these devices will make a significant advance as these devices begin to be
connected to hospitals. A Wearable Devices Network can be considered an Internet of
Things, and will be influenced by SMAC (Social Media, Mobility, Analytics and Cloud)
and is thus a good illustration of how cutting-edge technologies reinforce each other.
3. Wearable Devices are not just for Health Monitoring:
Chapter 3
There are strong possibilities of Cognitive Computing. Cognitive Computing is a

process by which computers learn as they do their tasks- and engage with humans
like humans. This term was coined by IBM to distinguish it from the more popular term
'artificial intelligence', and to stress the fact that there is nothing artificial about
Cognitive Computing. IBM's Watson is the most advanced cognitive computing
platform, but a few others are also being developed, mostly by start-ups.
These are some of the examples of new technology trends happening across industries.
3.8 DEMOGRAPHIC FORCES [3]
Markets like India and China with a growing population, large young talent pool and
growing income are high growth markets, have attracted foreign investors into these
countries. These developing countries have tremendous hidden potential because of their
Demographic Diversity.
The Demographic Factors like population growth rate, age, sex, family size,
habitat, life expectancy, employment pattern, social status, young population,
talent and skills, economic stratification of the population, education, language,
caste, and religion all affect the demand for goods and services. These are all
factors that impact the strategy of a business. The following trends have really changed
the way the economy is growing in India:
1) The disintegration of the joint family and the spurt in double income families have
given rise to new demands for services like childcare services, home care services,
personalized services etc.
2) India's young talent pool have been recognized internationally for their skills and
competencies with increasing investments coming into the country
3) New sunrise sectors like IT, BPO, retail, online business services, media have
presented new employment opportunities.
4) The penetration of internet and personal computers has spawned a host of online
services
5) With India being a diverse country with a large population, it presents challenges as
well as opportunities.
6) India's young talent pool is a real blessing to many industries to specialize in certain
services functions like offshore services deliver in our IT services industry, back office
handling as in the BPO Services Industry, Medical and legal transcription services,
Engineering centers, Research and Development centers.
7) India is already reaping the demographic dividends like increasing disposable

income, higher life expectancy with advancement in healthcare etc.
8) The Government has been encouraging the development of services oriented

industries like the IT sector and other exports and services sectors where the young
talent pool could be employed.
9) Affordable labour and a fast growing market have encouraged many multinationals
like Microsoft, IBM, Cisco, Google, GE to invest heavily in India considering the
future potential.
10) Social Trends have triggered demographic changes that can dramatically change the
consumption patterns benefitting most of the industries and has created new
business opportunities.
More awareness about healthcare and fitness has created a new industry in the
last decade with Gyms and Fitness centers springing up all across the country. For
example, Talwalkar’s, a public listed pan-India leading company in the fitness
industry, have opened many branches of their gyms in highly residential areas to attract
the local residents to sign-up for Fitness Programs. Now a days real estate developers
are building gyms, fitness centers swimming pools as part of their standard amenities
while developing housing societies.
As India evolves into a developed nation, it opens up more and more high end products
and services which are introduced by international fashion brands like Zara, Tommy
Hilfiger, Marks & Spencer, Benetton, Louis Vuitton etc., as the upper middle class
and rich people opt to improve their personal branding, outlook, social status etc. through
the display of such fashion brands. Even the middle class with higher disposable incomes
also opt for buying some of these luxury brands.
In one analysis by ‘’ASSOCHAM’’ on Indian Fashion Industry, it is mentioned that Indian

fashion industry accounts for barely 0.2% of the international industry’s net worth.
Currently the market for designer wear is worth about US$ 50 billion(2022-23) and
growing at the CAGR 0f 11-12% every year. India’s fashion industry’s current net worth
of Rs. 200 crores can grow to Rs. 1000 crores in the next 5 years. Current size of the
Indian fashion industry is worth INR1000 crore, while the market size is approximated to
be INR 20,000 crore. However, Indian fashion accounts for a meagre 0.2% in the world
market.
Brands like Benetton, Zodiac, Z3, Zara, Vero Moda, Calvin Klein, Diesel, and Tommy
Hilfiger have experienced good sales growth in the country, while names like Zara,
Armani, Forever21 or Uniqlo appeal to the Indian audiences, attracting higher per square
foot sales compared to the departmental or hypermarket stores.
On the other hand, Indian companies like the Arvind group, Madura Fashion and
Lifestyle, Raymond Apparel, Trent Retail, Reliance Retail and Future Group has
launched their own fashion labels.
3.9 NATURAL ENVIRONMENT [4]
Chapter 3
Environmental issues have been affecting business fortunes and strategies for quite
some time now. Large projects and investments have not taken off the ground due to
clearances from the Government Agencies due to bureaucratic delays.
Geographical and Ecological Factors like natural resources, weather, climatic

conditions, topographical factors, location aspects from a global context, port
facilities are all relevant for the smooth conduct of business. Changes in
geographical conditions between different markets may sometimes call for changes in the
Marketing Mix.
Geographical and Ecological Factors also influence the location of certain industries. For
e.g., Industries with a high raw material index need to be located near the raw material
source. Climate and weather conditions affect the location of certain industries like
cotton and textile industries. Topographical factors may affect the demand pattern. For
example in hilly areas with difficult terrain, utility vehicles may be in greater demand than
normal cars.
Ecological and Environmental Factors like deforestation have recently assumed

greater importance. The depletion of the Natural resources on one hand and
deforestation and relocation of people in pursuit of new sources of raw materials on the
other hand, have created disturbances in certain geographies.With growing
Industrialization, ecological imbalance has become a great concern.
The Government has been from time to time working on policies around preservation of
environment, balanced approach towards deforestation and afforestation to allow mining
of natural resources, conservation of non-renewable resources etc. Any change in
policies will result in problems for expansion of existing business and starting of new
businesses and some of these policies will increase the cost of production and marketing.
3.10 ENVIRONMENTAL CHANGE AND FORECASTING
We have seen the various factors that affect the business environment. It can be easily
seen that the Environmental Forces are dynamic in nature. While the Political changes
happen once in five years after each General Election, Technological changes happen
frequently. Economic Changes happen cyclically once in 3-5 years depending on the
country and its economic policies. The consumer tastes, buying patterns and preferences
keep changing. The competitive situations change. Demographic Factors like
population and age mix change over time. Socio-economic Factors like income, buying
power change continuously. Government policies and regulations also change with
the changes in the domestic and global environments.
Organizations must have a systematic approach of capturing these changes and the new
trends happening across the multiple environment factors. Not only the organization
should collect, but also analyze the information relevant to the macro environmental
trends. Such changes in these factors indicate that an organization’s business strategy
must be dynamic enough to successfully adapt to the changing macro environment.
The success of a business depends upon its ability and agility to forecast these changes
and diligently modify the business strategy to reflect both the internal and external
environmental changes. This is an ongoing process of the strategic management
process.
The Environmental Scanning
The Environmental Scanning activities must include increased awareness of

environmental changes, better strategic planning and decision making, greater interface
and effectiveness in government matters, proper diversification, and resource allocation
decisions. The organization should be having a periodic and systematic way of capturing
the inputs from various sources in the environment.
Sometimes, strategic managers have difficulty in maintaining objectivity when they

evaluate information because they selectively perceive the environment from their own
experience perspective, thus leading to subjectivity in organizational strategy. The
Environmental Scanning activity also must include changes in the political alliance
formation, government policies, regulatory policies, financial markets, and competitors.
Predicting the Environment
Predicting the future of events is a challenge. However, an organization must be able to

have a reasonably reliable forecast on the macro-economic environment in order to ward
off any potential threats coming along the way and risks to its business strategy in the
long run. The organization must subscribe to various analysts' reports like Gartner, IDC,
Frost and Sullivan, Bloomberg, Reuters toanalyze industry inputs and trends
happening in the industry. For e.g. if relevant consumer-related data are available, it is
possible to forecast the demand environment for the particular product or the service.
There are a number of Forecasting Techniques available to Strategic Managers to

forecast future trends and changes [5]
1. Time Series Analysis : It is an empirical forecasting procedure in which certain

historical trends are used to predict variables like a firm's sales and market share.
Times Series Analysis relates factors such as seasonal fluctuation, weather
conditions, and other effects of economic cycles on the Organization's sales and
profits.
2. Delphi Technique : This technique is often employed when specialized expertise is

required to forecast the future. In this forecasting procedure, experts are
independently and repeatedly questioned about the probability of some event's
occurrence until a consensus is reached regarding a particular forecast.
3. Judgmental Forecasting : When relationships between variables are complex and

difficult to identify or quantify, then this forecasting model is used. This forecasting
procedure uses a variety of sources including customers, employees, suppliers,
Chapter 3
trade associations and global partners to provide qualitative information about

future trends. For e.g., sales representatives and customers can be asked to
forecast their requirements from their knowledge of customer expansion plans. All
such data is then compiled to form a composite forecast.
4. Multiple Scenario Forecasting: In this forecasting procedure, strategic managers

formulate several competing descriptions of future events and trends. In the
process, they identify the key forces in the macro environment; assess their
influence on future events by asking "what if" questions for each scenario.
Contingency Plans can then be developed for various outcomes from these
multiple scenarios.
Each organization might adopt any of the forecasting methods as part of their macro
environment analysis to ensure that the exercise contributes healthily to the strategic
management process.
3.11 SUMMARY
This chapter provided the details of the various macro environmental forces that affect
the economy, industry, and a company in particular. We studied about the expanded
version of the PEST analysis starting from Political, Legal, Regulatory, Economic, Social,
Technological, Demographic and Ecological environment factors and the trends seen in
both the global and domestic economy due to the changes happening across these
environments. This chapter also briefly covered the environmental changes, environment
scanning and predicting the environment.
1. What are the Macro Environment Forces that impact an organization?

a) Regulatory, Economic, Social and Demographic forces
b) Political, Regulatory, Economic, Social, Demographic and Technological forces
c) Political, Environmental, Social and Technological forces
d) Growth, Inflation, Interest rates, Fiscal deficit, and current account deficit
2. What are the various Macro-Economic Factors that influence the economy of a
country?
a) Low interest rates, high inflation, low fiscal deficit, and high current account
deficit
b) High interest rates, low inflation, high fiscal deficit, and low current account deficit
c) Economic reforms, falling inflation, falling Interest rates, low fiscal current
account deficits
d) Political, environmental, social, and technological factors
3. Which are the Social Forces that impact a company's prospects of staying
competitive in the marketplace?
a) Low interest rates, high inflation, low fiscal deficit, and high current account
deficit
b) High interest rates, low inflation, high fiscal deficit, and low current account deficit
c) Economic reforms, falling inflation, falling Interest rates, low fiscal current
account deficits
d) Purchasing power, disposable incomes, customer behaviour, societal values,
culture, and traditions
4. Etihad Airlines would like to enter into the Civil Aviation space in India by acquiring a
majority stake in Jet Airways. Before formulating an appropriate entry strategy the
company would like to understand the common Entry Barriers. You are hired as a
consultant to advise the company. Which of the following do you think could most
likely become a challenge to Etihad Airlines?
a) Government policies for foreign airlines and political objections
b) Increasing competition in the local civil aviation market
c) Shift in the market trend towards low cost airline services
d) Increase in aviation fuel prices and cost of operations
5. What is called an Empirical Forecasting Procedure in which certain historical trends

are used to predict variables like a firm's sales and market share?
a) Time Series Analysis
b) Judgmental Forecasting
c) Multiple scenario Forecasting
d) Delphi Technique
6. Which of the following is not a characteristic of a Strategic Decision?

a) Consideration of present conditions
b) Consideration of future and uncertainty
c) Value orientation
d) Competitive orientation
Answers: 1.(b), 2.(c), 3.(d), 4.(a), 5.(a), 6.(a)
References:
1. John A. Parnel, Strategic Management, Theory and Practice, P 34-35
2. FDI in multi-brand retail, Economic Times, by Swaminathan A Aiyar dated 19/1/2014
Chapter 3

Management), P 104

Management), P 105
5. John A. Parnel, Strategic Management, Theory and Practice) P 47-48
ANNEXURE
External environment based influences on decision making under strategic

management, post Covid 19 pandemic
After the Covid-19 pandemic, strategic decision-making in organizations has been

significantly influenced by the changes in the external environment. Several key factors
have emerged that are shaping strategic management decisions post-pandemic:
Economic Uncertainty: The pandemic caused severe economic disruptions, leading to

recessions and economic uncertainty. Organizations now have to be more cautious and
consider the potential risks and volatility in their decision-making process. This includes
reevaluating investment plans, optimizing cost structures, and being prepared for future
economic shocks.
Supply Chain Resilience: The pandemic exposed vulnerabilities in global supply chains.
Organizations are now rethinking their supply chain strategies to enhance resilience. This
includes diversifying suppliers, localizing production, and adopting digital technologies to
monitor and manage supply chain disruptions effectively.
Digital Transformation: The pandemic accelerated the adoption of digital technologies

across industries. Strategic decisions are now focused on digital transformation
initiatives, such as e-commerce expansion, remote work arrangements, and digital
customer engagement. Embracing these technologies is crucial for organizations to
remain competitive in a post-pandemic world.
Shift in Consumer Behavior: Consumer behavior has changed significantly during the
pandemic. Organizations need to understand these changes and adapt their strategies to
meet new consumer demands and preferences. For example, there is an increased focus
on health and safety, contactless services, and online shopping experiences.
Government Regulations and Policies: Governments worldwide implemented various

regulations and policies to manage the pandemic. These may continue to impact
business operations, trade relationships, and industry-specific rules. Organizations need
to stay informed and align their strategies accordingly to comply with evolving regulatory
environments.
Remote Work and Workforce Management: The widespread adoption of remote work
during the pandemic has prompted organizations to reevaluate their workforce
management strategies. Decisions related to talent acquisition, employee well-being, and
digital tools to support remote work have become critical in the post-pandemic era.
Environmental, Social, and Governance (ESG) Considerations: The pandemic

highlighted the importance of ESG factors in decision-making. Organizations are now
more attentive to their environmental impact, social responsibilities, and governance
practices. Sustainable strategies and responsible business practices are gaining more
prominence.
Healthcare and Safety Priorities: The pandemic highlighted the importance of

employee health and safety. Organizations are prioritizing workplace safety measures
and integrating health protocols into their strategies to ensure a safe working
environment.
Geopolitical Shifts: The pandemic has influenced geopolitical dynamics, affecting

international trade, foreign investments, and business operations. Organizations must be
aware of geopolitical risks and consider them when making strategic decisions related to
global expansion and partnerships.
Customer Loyalty and Retention: Organizations are focusing on customer retention

and loyalty in the post-pandemic era. Building strong customer relationships and
providing exceptional customer experiences are vital for sustainable growth.
In summary, post-Covid-19, strategic decision-making is characterized by increased

emphasis on economic uncertainty, supply chain resilience, digital transformation,
changing consumer behavior, government regulations, remote work, ESG considerations,
healthcare priorities, geopolitical shifts, and customer loyalty. Organizations that can
adapt to these external influences effectively are more likely to thrive in the new business
landscape.
Chapter 3
REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
Video2
4
Chapter
MISSION, OBJECTIVES
AND GOALS
Objectives:
This chapter focuses on an organization’s vision, mission, goals, and objectives. At the
end of the chapter, you will be able to understand the following:
Define the mission of the organization
Importance and Relevance of Strategic Management
Strategic Planning and Strategic decisions
Levels of Strategy
Strategic Management Process
Role of Stakeholders

4.1 Introduction
4.2 Vision and Mission
4.3 What is Mission?
4.4 Mission Statement criteria
4.5 Formulation of the Mission
4.6 Mission and Strategy
4.7 Objectives
4.8 Goals
4.9 Levels of Objectives
4.10 Global influences
4.11 Indian Scenario
4.12 Summery
4.1 INTRODUCTION
The ultimate purpose of an organization is to create value for all its stakeholders. Each
organization seeks to do so through different means of Vision, Strategy and Execution. If
the Strategy of an organization is not aligned with the purpose (vision) of the organization
and its resources, it will be challenging to implement the same.
It is the responsibility of the organization’s top executives to establish and communicate

its Vision to the entire organization and its people. The Vision of a company should
integrate the views of the various stakeholders.
Chapter 4
The Vision is the statement of purpose of an organization’s existence. The Vision

is always in the long term in nature to create social-economic value, not only to its
shareholders but also to create a social and economic impact for a country. In a
modern corporate context, although both Vision and Mission are sometimes
interchangeably used to refer to the organization’s purpose, sometimes a distinction must
be made that Mission evolves from the Vision which is defined at the Board level.
Mission identifies the scope of an organization’s operations and its offerings to the
various stakeholders. Various stakeholders include individuals or groups, who are
affected by or influenced by an organization’s operations and will have different
perspectives on the purpose of the firm.
Objectives may be defined as those ends which the organization seeks to achieve
by its existence and operations. In other words, Objectives are long term results an
organization seeks to achieve in pursuing its basic Mission [1].
A Goal is defined as an intermediate result to be achieved within a certain time as part of

the overall Strategic Plan or an Objective. A Plan or an Objective therefore can have
many Goals. Goals are generally short term milestones or benchmarks that an
organization must achieve in order for long term objectives to be reached. The goals of
an organization should be defined as Specific, Measurable, Achievable, Realistic and
Time-bound, popularly called by the acronym SMART goals.
The Vision of an organization translates into Strategy which has multiple objectives to
achieve the purpose. The Objectives in turn lead to Goals which are quantitative in nature
and are designed to achieve the objectives. Goals lead to targets which are assigned
against each goal to achieve the set goals.
The following diagram illustrates how Mission, Strategy, Objectives, Goals and
Targets work in sequence formulation and achievement.
This chapter discusses the role that an organization’s unique mission and resources play
in the strategic management process.
Mission, Objectives And Goals
4.2 VISION AND MISSION
Vision is a value statement that reflects the principle and purpose of an

organization and is the pivot around which the corporate strategy revolves. A
Mission Statement reflects the long term vision of an organization in terms of what
it wants to be and whom it wants to serve. It describes an organization’s purpose, its
customers, products, services, markets, philosophy, and values.
For example, the Vision of a company could be to become the most loved consumer
services brand enriching the life of its customers and employees. The Mission might be to
produce products and services that not only meet the customers' needs but also
enhances their lifestyle and provides world-class employment to its employees. The
Objectives can be to introduce new technologies and innovative features to make the
product different than the competitors. And most importantly, the Mission indicates its
ability to be resilient enough to change the business if the market so demands.
Peter Drucker observes that "that business purpose and business mission are so rarely
given adequate thought is perhaps the most important single cause of business
frustration and business failure". He also reinforces that "defining the purpose and
mission of the business is difficult, painful and risky but it alone enables a business to set
objectives, to develop strategies, to concentrate its resources and to go to work. It alone
enables a business to be managed by performance” [2].
In today's challenging business environment, most of the organizations have a well-

developed vision and mission for their businesses. It is clearly understood and
recognized at the Board level that the company needs a clear vision to set the direction of
the company for many years to come and manage the business through a framework
driven strategic management process. There is enough evidence that a clear vision is
able to enable many Indian companies to grow or improve the company's performance
phenomenally and also to have aspiration to become global companies.
The Vision Statement defines the organization’s purpose in terms of the organization's
values rather than bottom line measures. Organization Values are guiding beliefs about
how things should be done, leading to the creation of a unique culture for that
organization.
The vision statement communicates both the purpose and values of the organization. For
employees, it gives direction about how they are expected to behave and inspires them
to give their best. Shared with customers and partners, it shapes the customers'
understanding of why they should work with the organization.
4.3 WHAT IS MISSION ?
"A Mission is an enduring statement of purpose that distinguishes one business from
other similar firms. A Mission Statement identifies the scope of the company's operations
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in product and market terms" (John A Pearce II, "The Company mission as a Strategic
Tool", Sloan Management Review)
A Mission Statement reveals the long term vision of an organization in terms of

what it wants to be and whom it wants to serve. It describes an organization’s
purpose, customers, products, services, markets, philosophy, and value. What is
the business the organization is into? A comprehensive answer to this question makes
the strategy formulation, strategy implementation and strategy evaluation activities
easier.
Vision statements and mission statements are mostly inspiring words chosen by
successful leaders to convey the direction of the organization clearly and concisely. By
crafting a clear vision statement and mission statement, the company can powerfully
communicate its intentions and motivate the team and the organization to realize an
attractive and inspiring vision for the future.
A Mission Statement defines the organization's purpose and primary objectives. Its prime
function is internal - to define the key measures of the organization's success - and its
prime audience is the leadership team and stockholders.
According to Mc Ginnis, a Mission Statement should have the following important

attributes and have differentiating criteria in line with its purpose: [2]
1. Should define what the organization is and what the organization aspires to be
2. Should be limited enough to exclude some ventures and broad enough to include
creative growth
3. Should distinguish a given organization from all others
4. Should serve as a framework for evaluating both the current and prospective
activities and
5. Should be stated in sufficiently clear terms so as to be widely understood by all

stakeholders throughout the organization.
A Mission Statement is often expressed at high levels of abstraction because they are not
designed to express concrete ends, but to provide motivation, general direction, an
image, tone, value, and a philosophy to guide the enterprise. Precision might stifle
creativity in the formulation of mission or purpose. A true Mission Statement should foster
creativity and inspiration, while concreteness of vision might create rigidity in an
organization and resist change.
The Mission Statement drives the strategy development, and the strategic management
process of the organization ensures that the strategic options are evaluated, choices are
made, and they are implemented, and dynamically reviewed for course correction and
improvement for long term sustained performance of the company.
4.4 MISSION STATEMENT CRITERIA
Creating a Mission Statement starts with asking the question what the purpose is
and why the company needs to have that purpose. The question why, helps an
organization reveal its underlying belief, value, and the purpose. The success of global
companies like Apple, Google, Facebook, or IBM clearly shows that these companies
have been able to identify their belief, value, and the purpose. They have evolved their
vision to become great companies.
To create the mission statement, the organization need to first identify its purpose and a
winning idea that helps it realize the purpose. This is the idea or approach that will make
the organization stand out from its competitors and is the reason that customers will
come to them, and they have an opportunity to make a positive impact. Next the
company needs to identify the key measures that will lead to the mission's success. It is
very important to choose the most important measures that are well focused on achieving
the mission. Then, combine the winning idea and success measures into tangible and
measurable goals.
It is advisable to refine the words and arrive at a concise and precise statement of the
mission, which expresses the ideas, measures, and desired result. The key elements of
creating a Mission Statement are the following: [3]
1. It should be clearly articulated
2. It should be relevant to the organization’s culture and shared values
3. It should be current and should reflect internal and external environment changes
4. It should be written in a positive and inspiring tone
5. It should be able to establish the individuality and uniqueness
6. It should be enduring and adapted to the target audience
Thus, mission statements embrace several elements. Ideally the mission statement
should define, as pointed out earlier, its customers, employees, society, products or
services, philosophy, and values. However, some mission statements may not be
comprehensive. While there are differences of opinion regarding what a mission should
reflect, the above elements are the desirable parameters for an organization that may go
about creating a mission.
4.5 FORMULATION OF THE MISSION
In large enterprises, the Board of Directors establish the vision and mission of the
organization. Sometimes, external consultants are engaged, either through a
consultative or participative process, for drawing up the mission and by holding
brainstorming sessions with the CEO and the senior leadership team to develop the
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mission. Answering the following questions will help the company formulate the
Mission:
• What is the basic purpose of the organization and how to envision the future of the
company?
• What is unique about the organization, and how does it create its unique value
proposition in the marketplace?
• What is the impact it wants to create on various stakeholders like customers,
employees, shareholders, society, and country?
• What should be the organization's principal economic concern?
• What are the basic beliefs, values, and philosophical priorities of the company?
Let's analyze the example of Reliance JIO’s Vision which was formulated in the
year 2016-17:“Radically transform the lives of 1.2 billion Indians by broadband and digital
services by facilitating it to be no longer a luxury item and thereby acquire 300 million
users by 2020”. This Vision Statement envisions as to what the company aspires to
transform in the next 3 years, and what it clearly wants to achieve. It brings out the
opportunity it wants to tap in broadband and digital service front by transforming the lives
of Indian by offering economical access to telephony and data streaming services with
speed.
The core of this vision statement is to make life of common Indian – DIGITAL LIFE.
It thus clearly indicates that for making the life digital, complete package is covered
including economical smart phone, speed capable to enable video streaming in the
remotest part of India and economical subscription to take their life one notch above –
static life to the digital life.
Where do they stand on their MISSION ACCOMPLISHMENT?
Started operating in the year 2016 as a telecommunication provider, it gained more than
50 million subscribers in exactly 83 days of launch.The company has a subscriber base
of 398.31 million as per the most recent report issued by TRAI (Telecom Regulatory
Authority of India, 2023 Q1. It establishes that the company has achieved its mission,
bearing in mind disruption due to Covid 19 pandemic, which has halted significant
infrastructure additions needed to expand the network.
CASE ANALYSIS OF TITAN INDUSTRIES:[4]
What makes Tata group different is that its societal work is key part of its total mission.
Societal mission is broader than that of an organization with a social cause. Tata
organizations identify the societal needs of the region where the company operates. They
identify what rests underneath the society each individual company operates within and
how it can create hope and value to the society as well as generating economic value or
wealth to its shareholders and other stakeholders like employees, customers, partners,
and the like.
Tata group today is a well-established international organization. When we explore the

Tata mission and focus on the actual working of the company, we see that while
their purpose is truly societal, this purpose is also instrumental to serve the
economic interests of the organization’s stakeholders. This is the differentiating
part of the Tata group. In most western countries the larger part of an organization is to
create economic progress and most companies work on the basis that the 'business of
business is business'. This is too narrow an approach and such companies should
come to terms with the idea that societal work is an integral part of their total mission.
Tata group has demonstrated how they can develop the local society as well as develop
the local talent pool. An example of how Tata established its mission and strategy by
implementing their commitment to this idea can be found in a southern Indian city
called Hosur in Tamil Nadu. Here, in 1987, the Tata Group formed a joint venture with
the Government of the region and opened the first factory of the watchmaker Titan
Industries Ltd.
Tata Management had to make an immediate decision in terms of where the personnel
for the factory would be sourced from. One choice is to hire professional engineers from
the city of Bangalore or Chennai to staff the factory. This went against the belief and
value that Tata stood for. Despite the area around Hosur being very poor, Agriculture
almost the only industry and no skilled labour available locally, the company knew that
the local region and its people were their responsibility. Despite the poverty, the local
primary education system was sound and produced plenty of well-educated boys and
girls.
Four hundred young people were recruited and brought to Hosur. Titan immediately
provided the necessary support. Many had never seen a city or lived in anything but a
simple hut. Accommodation was built and foster parents lived with the young people
teaching them the life skills necessary for living in a city and working in a factory. Titan
also provided sports and cultural activities, and the facilities to help its workers study for
degrees and even take postgraduate courses after the factory hours. At the factory,
trainers and engineers taught the young workers how to use precision machinery.
Titan is now a highly successful enterprise employing thousands of people in

Tamil Nadu and has three factories in Hosur alone, with nearly all the workers
coming from the surrounding villages. It provides employment indirectly to thousands
more in firms making watch straps, casings, and other components. In the past, several
times, Titan was voted the most admired brand and proved it was a truly societal
organization.
Thus, Tata group has resolved and proved all the time that having a societal purpose
does not in any way reduce its intensity to compete and win in the business they are in.
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In fact all its companies, including Titan, have demonstrated significant financial and
market performance. The company in this case analysis Titan Industries, in fact, has
created multi-fold economic wealth to its stakeholders through excellent financial
performance and stock market performance.
4.6 MISSION AND STRATEGY
As explained above, Mission sets the direction for the strategy development of an
organization. As Peter Drucker says in his book[5], "Managing the Future", 'the
Mission makes the organization focus on action. It defines the specific strategies needed
to attain the crucial goals. It creates a disciplined organization. It alone can prevent the
most common degenerative disease of organizations, especially large ones, splintering
their limited resources on things that are interesting or look profitable rather than
concentrating them on a very small number of productive efforts'.
Corporate Mission Statements must be operational, ethical, and financial guiding

lights of companies. They are not just fancy slogans. They articulate the purpose,
value, goals, dreams, behaviour, culture, and strategies of the companies.
Once the mission is clearly defined and articulated by the top management (as the top
management is held accountable for the Mission), Strategy is the next important step in
the Strategy Management Process. Strategy has been studied for years by business
leaders and by business theorists. Yet, there is no definitive answer about what strategy
really is. One reason for this is that people think about strategy in different ways.
For instance, some believe that the organization must analyze the present carefully,
anticipate changes in its market or industry, and, from this, plan how it will succeed in the
future. Meanwhile, others think that the future is just too difficult to predict, and they
prefer to evolve their strategies organically.
Gerry Johnson and Kevan Scholes, authors of "Exploring Corporate Strategy," say
that strategy determines the direction and scope of an organization over the long term,
and they say that it should determine how resources should be configured to meet the
needs of markets and stakeholders.
Michael Porter, a Strategy Expert, and professor at Harvard Business School,

emphasizes the need for strategy to define and communicate an organization's unique
position, and says that it should determine how organizational resources, skills, and
competencies should be combined to create competitive advantage.
While there will always be some evolved element of strategy, it is believed that planning
for success in the marketplace is important; and that, to take full advantage of the
opportunities open to them, organizations need to anticipate and prepare for the future at
all levels.

Many successful and productive organizations have a corporate strategy to guide the big
picture. Each business unit within the organization then has a business unit strategy and
functional strategy, which its leaders use to determine how they will compete in their
individual markets.
In turn, each team should have its own strategy to ensure that its day-to-day activities
help move the organization in the right direction. At each level, though, a simple definition
of strategy can be: "Determining how we are going to win in the period ahead." That is
the most critical element of formulating a strategy.
As said in the chapter 1, there are different levels of strategy, Corporate, Business Unit
and Functional level strategies. We will study these strategies in detail in separate
chapters later.
Tata Group is India's Brand: [6]
India's most respected and trusted corporate group the Tata begins with value and ends
with value. There is much more to the brand Tata than just being one of the truly
professionally managed firms in India. It focuses on creating value to the society,
fostering philanthropy, contributing immensely to the economy and being India's pride by
representing the country globally.
Being a successful corporate brand, Tata focuses on three critical factors viz strategic
vision, organizational culture, and stakeholders' value. Once these three elements are
aligned, stakeholders will perceive the group companies' vision and culture and identify
with it. Moreover, the strategic vision focuses on three particular values that foster
the stakeholder’s perception, namely trust, reliability and commitment to
community.
A strong culture will encourage the development of a strategic vision, and a clear
strategic vision will allow the company to identify with the interests of its stakeholders,
thus creating a virtuous circle (Tata The evolution of a corporate brand, Morgan Witzel).
TCS and Infosys:
TCS and Infosys are Indian multinational IT outsourcing companies. They have
demonstrated leadership in the Indian IT industry and have set an example for the
highest standards in business practices. They have consistently delivered profitable
growth through very focused and innovative strategies around offshore delivery of IT
Services for their global clients for the last three decades. These two companies have
been the darling of the stock market. Their high standards and strategic leadership and
values are keys to their sustained growth and performance.
While TCS inherits its corporate value and mandate from Tata & Sons the holding
company of Tata group companies and has a focused Vision and Strategy to be the
number 1 leader in the Indian IT Services space, Infosys carved its own unique

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position of professional ethics and leadership, and differentiation under the

mentorship of its Chairman N.R. Narayana Murthy to become the second largest IT
Service provider in terms of profitability. These companies have withered the global
economic turmoil many times in the last couple of decades and have demonstrated their
leadership in financial management, operational management, change management,
talent management and socio-economic responsibility over many years.
IBM's Business Model:
Let us look at how IBM transformed from a pure hardware based company selling
computers to an innovation based company in the IT Services space and established its
leadership globally. Its Mission is simple - "Let's build a smarter planet". This Mission
is about creating smarter businesses, smarter workforce, smarter communities, smarter
cities, smarter transportation, smarter finance etc. Everything they do is to optimize
energy and resources to make the planet a better place to live.
IBM was a company with hardware and related technology focused business strategy till
a decade back. In an industry characterized by a relentless cycle of Innovation and
Commoditization, one model for success is that of the commodity player-winning through
low price, efficiency, and economies of scale. The other model is creating value: the path
of innovation, reinvention, and shift to higher value. These are choices for the company to
create their strategies.
IBM chose to shift to higher value: They developed a strategy to do so in their portfolio of
services, in their organic R&D investment, and through targeted acquisitions and
divestitures.
They remix the Research and Development: Two decades ago, 70 percent of IBM's
researchers were working in materials science, hardware, and related technology as their
focus. Even the one-in-ten working in software were focused on operating systems and
compilers. Today, 60 percent are in fields that support key growth initiatives, such as the
400 mathematicians developing algorithms for business analytics, as well as a diverse
group of specialists that include medical doctors, computational biologists, experts in
natural language processing, and weather and climate forecasters. Since the beginning
of 2010, IBM has spent $51.48 billion on R&D, and in 2018 IBM earned the most U.S.
patents for the 26th straight year, with a record total of 9,100 for the year and collectively,
IBM has registered 1,22,110 patents as on 2022.
IBM acquired newer capabilities. Organizations run into trouble when they look to fulfil a
new strategy or provide the basis for transformation through acquisitions. IBM practices
a disciplined approach that asks three questions:Does it build on or extend a
capability IBM already has? Does the company have scalable intellectual property? Can
it take advantage of its reach into 170 countries? IBM's balanced formula has built a
strong track record since 2000, with more than 140 acquisitions.

It is also IBM's strategy to divest non-strategic assets in line with its mission: Always
moving to the future isn't just about what you invent. It also involves choices about when
to move on. Over the past decade there has been a cumulative divestment of almost $15
billion of annual revenue-businesses that no longer fit its strategy. If they had not done
so, they would be a larger company today, but with lower margins and capabilities less
essential to the clients [7].
Hence the question, "what is our business, why do we need to be in that business and
what is the purpose?" may lead to debates that help identify the right strategies and will
help realize its mission. The most important time to ask this seriously is when a company
has been doing well and keep the strategies evolving proactively so as to avoid crisis
when the environment keeps changing fast as we experience in today's economy. The
Mission and Strategy must indicate the company's ability and resilience power to
change its business if the market so demands. IBM is a classic example of such a
transformation.
A look at other similar companies likeIBM, Apple, Google, or Facebook shows that all
of them have a very clear mission and purpose and have been thriving on innovation as
the key strategy and been successful for many years in their industries.
4.7 OBJECTIVES
Once the mission and strategy are developed, the organization needs to come up with a
set of objectives that could translate the strategy into results and enable the company to
realize its mission. Objectives form the basis for the functioning of the organization and
help define the organization in its environment.
Objectives may be defined as those ends which the organization seeks to achieve
by its existence, operations and business results while pursuing its Mission. In
other words, most organizations need to justify their existence, and business to be
accountable to various stakeholders like the investors, shareholders, the government,
customers, employees, partners, and society at large.
Once the strategy is defined, the company should come up with key priorities and
initiatives which can be translated into actionable goals. Objectives cover long term aims
of the company breaking down the strategy into different and specific initiatives that the
company should perform in order to achieve specific SBU and functional strategies, and
thus the organization strategy.
Often, objectives of a particular nature indicate specific initiatives the company must
perform for its existence, operation, and business results. Broadly, there are four or five
categories of Objectives, under which the organization can form several relevant
initiatives, and prioritize them depending on the importance and the time horizon
available, as part of the overall strategy. They are:
1. What initiatives the company should focus on to improve its financial performance?

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2. What initiatives the company should undertake to enhance customer experience?
3. What initiatives the company should create to improve operational excellence?
4. What initiatives the company should take to create employee satisfaction?
5. What initiatives the company should take to create a unique brand and organizational
culture?
The Objectives may be Tangible or Intangible.Tangible Objectives include the

achievement of financial targets, customer satisfaction index, operational parameters etc.
Intangible Objectives include brand or company image, employee morale etc.
Objectives should not be static; they should be dynamic so that changes in environments,
both internal and external to the organization, get reflected as the strategy keeps
evolving. Objectives should be clearly established at the corporate, SBU, and functional
levels in a large organization
Various stakeholders in a company have different objectives to achieve. Each

stakeholder, like the Board of Directors, CEO, SBU heads, Functional heads, General
Managers, employees, suppliers, creditors, customers, and partners view the firm from a
different perspective. Although rationality suggests that each stakeholder has an
established objective from their perspective, it is obvious that the objectives might have
conflicts with each other. For example, shareholders of a company are generally
interested in maximum profitability, whereas financial institutions are more concerned
with the long-term serviceability of their loan.
The top management faces the difficult task of reconciling these differences while
pursuing its own set of objectives to achieve the mission and strategy. Hence, balancing
the various objectives of different stakeholders can be a challenging task and the top
management should carefully manage the balancing act. As stated earlier, essential
objectives help define the organization in its environment.
4.8 GOALS
A Goal is defined as an intermediate result to be achieved by a certain time as part

of the overall Objective or Business Plan. An Objective or a Plan, therefore, can
have many Goals. Specific Goals are sometimes referred to as Targets (like sales
target, revenue target, customer satisfaction target, marketing campaign target etc.)
Goals are short-term milestones or actions that the organization must achieve so as to
reach the long term objectives. Goals should be Specific, Measurable, Achievable,
Realistic and Time-bound. Simply put in an acronym, the goals should be SMART.
Like Objectives, Goals also should be established at the corporate, SBU, and functional
levels in a large organization. Goals should be clearly stated in terms of the various
teams namely management, marketing, finance, production, and research and

development. There should be a set of goals for each objective for each of these
functional teams.
Goals are specifically important in strategy implementation whereas objectives are

important for strategy formulation. Goals represent the basis for allocating resources for
each function and department. A set of goals under each objective should be
quantifiable in nature like sales quotas, revenue target, margins, marketing budget,
market share, employee attrition etc.
NEW IMAGE AS FOLLOW
While objectives are general key result areas pertaining to the mission, the goals set
specific targets to be achieved within a stipulated time frame. These goals may also be
called Key Performance Indicators (KPIs). The Key Performance Indicators guide the
behaviour of the organization at all levels to bring in synergy within the organization.
4.9 LEVELS OF OBJECTIVES
Organizations have different levels of stakeholders who lead the mission, strategy, and
objectives. There are corporate objectives, SBU objectives, functional objectives, and
individual objectives.
The Corporate Objectives are to be formulated and pursued by the Board of Directors
and the executive management team of the company. Then, it is the SBU Objectives
which are formulated and owned by the SBU leadership team. In a multi-SBU
Organization, there will be a separate set of objectives that will be pursued by the
respective SBUs. For example, if a company has two SBUs namely B2B business and
B2C business, there will be two distinct set of strategies and objectives driven by the
respective SBU leadership teams.

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Then comes the Functional and Departmental Objectives which are formulated for
functions like sales, marketing, production, finance, HR, services, R&D etc. A Function
might have different geographical divisions like north zone, east zone, west zone and
south zone or several Product Divisions like personal care division, home care division,
food care division etc. (in an FMCG company).
Each such division will have its own marketing objectives and initiatives which will
contribute to the achievement of the overall marketing function's objectives. Each division
or group then have their people with their respective objectives which are specific in
nature, like sales targets, marketing campaign targets, revenue targets etc.
Thus, the organization has a hierarchy of objectives for different levels of leadership
across the organization. And the objectives of different levels are designed to help
achieve the overall objectives of the organization. These objectives are then translated
into measurable goals or KPIs as explained above in the goals section.
Socio-Economic Objectives
In any business there are important Socio-Economic Objectives that define the
Organization Value and Culture. Every organization has to have a balanced approach
towards both Economic Objectives and Social Objectives. In fact, some of the social and
economic objectives are so intertwined that it is difficult to separate them from the
Organization’s vision and objectives. It is only more appropriate to describe them as
socio-economic objectives.
The Economic Objectives of an Organization are survival of the organization, return

on investment, profitable growth, market share and innovation. The promoters and the
investors in an organization were generally considered to be profit motivated. These
objectives no longer reflect the organization’s value creation of investors' wealth, without
creating a positive impact on the society it serves.
As we can see in a modern economy, there is an evolving trend wherein most

organizations have a stated vision and objective which addresses both the economic and
social obligations of the company. For e.g., IBM's vision of creating a smarter planet,
Bharti Airtel's vision of enriching the lives of millions, or Tata group companies'
mission and belief of returning wealth to the society in which they serve.
These visions and objectives clearly reflect what these companies stand for and their
commitment to social objectives and responsibility, not just merely thriving upon their
economic objectives. WE have seen that in the case analysis studied earlier in this
chapter.

The Social Objectives of a Business are to protect customers' interests, the interests of
workers and employees and most importantly the interests of the society. The Social
Interests include job creation for the people belonging to bottom of the pyramid, free
education to children, underprivileged in the rural areas, women empowerment, health
care for the socially backward classes and rural population etc.
Thus, Indian corporates have evolved into matured socio-economic power houses that
drive the economy with a view to social inclusion and economic prosperity, besides
creating economic value for its stakeholders. They also take on the responsibility for the
quality of life and upliftment of the society, in addition to its traditional responsibility for
economic performance of the company. This is the best way to bridge the economic
divide that separates the haves and have-nots in our country. For this reason, Corporate
Social Responsibility has been made mandatory for the public listed organizations in
India, as per the new government guidelines.
4.10 GLOBAL INFLUENCES
There is an inter-link between an organization’s mission and its international involvement.

These two elements are connected through an economic concept called Comparative
Advantage [8]. This concept explains that certain products may be produced more
cheaply or of a higher quality in particular countries due to advantages in labour
costs or availability of technological expertise. India is known for its IT Services
exports to developed global markets, with India having demographic advantage of young
people, technology skills and global offshore service delivery expertise. On the other
hand, Chinese manufacturers, for example, have enjoyed some of the lowest global
labour rates for unskilled or semis-killed production in recent years.
As job skills are on the rise in rapidly emerging economies like India, China, some
companies have succeeded in extending comparative advantage to a number of
technical skill areas as well. International involvement may also provide advantages to
the company not directly related to costs.

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For Political reasons, the company often needs to establish operations in other countries,
especially if a substantial portion of income is derived from abroad. While doing so, the
companies can provide their managers with a critical understanding of the local markets.
For example, Ford Motors operates automobile manufacturing in India (near Chennai),
which has helped the company customize the various models to suite Indian
requirements and so are many other international players like Hyundai, Honda,
Volkswagen, General Motors etc.
4.11 INDIAN SCENARIO
As said earlier, the Indian businesses are evolving for their contribution to the society.
Increasingly more and more organizations are committing themselves to Corporate
Social Responsibility. Each Business Group has their own Non-Profit Organizations
that contribute to the social causes, like Tata Trust, Azim Premji Foundation
(Wipro), Bharti Foundation, these organizations are engaged in investing in Social
sector programs like child education, healthcare, women empowerment etc.
"I believe the Tata model of business is a more sustainable one - simply because we
really do care. If industry is numb to the concerns of civil society, if it considers itself
beyond the pale of public good, or even if it needs government diktat and monitoring to
do the right thing, then I don't see how such an industry can survive for long. Tata
companies are different in this respect because they have always done what is required
by the letter and the spirit of the laws of the land, and often times much more. India is still
a developing country, one burdened with enormous inequities. It's our duty to play
whatever role we can, in whichever way we can, to diminish those disparities. This is the
guiding principle for all of us at Tata. We are not in it for propaganda or visibility. Rather,
we are in it for the satisfaction gained from knowing that we have achieved something
meaningful, that we have put our shoulder to the wheel of nation building, that we are
serving the country that provides us sustenance. The Tata ethos demands no less", said
Ratan N Tata, Chairman, Tata Trusts.
It is heartening to note that Indian companies are increasingly getting involved with
the development of the society besides creating economic wealth to its stakeholders.
These CSR initiatives will put India on par with other developed nations and help the
country soon become an economic powerhouse as has been forecasted by many global
organizations.
4.12 SUMMARY
This chapter has covered the definitions of vision, mission, objectives, and goals, and
given different perspectives through different case analyses. A mission statement is an
enduring statement of purpose that distinguishes one business from the other similar
firms. The mission statement also identifies the scope of an organization’s operations in
the chosen product and market terms.

The mission statement should be clearly articulated, relevant, current, and unique. To
achieve the mission, the organization has to set its objectives and goals/ targets for the
short term, medium term, and long term. Objectives are long range a company aims and
are combined with more specific department or functional goals.
An organization should look beyond its financial performance or market performance to

create shareholders' wealth but should also have the purpose of sharing its wealth with
the society and creating socio-economic value for the country.
This chapter provides a few case studies to understand the definitions and implications of
vision, mission, objectives, and goals.
1. What is your understanding of a Mission Statement?

a) A Mission is a statement that sets the business targets for the company
b) A Mission statement provides the company necessary resources to achieve its
strategy
c) A Mission statement is a comprehensive statement about a company's
operations
d) A Mission is an enduring statement of purpose that distinguishes one business
from other similar firms & identifies the scope of the company's operations in
product & market terms
2. INS Limited, a company in the Insurance industry, is formulating a Mission

Statement. The CEO is seeking your assistance to know what the key elements of a
Mission Statement should be. Which of the following elements do you will not
recommend for consideration?
a) Need a clear purpose and articulation
b) Alignment with the competitor's mission
c) Relevance to the culture of INS Ltd
d) Continue to guide, motivate, and inspire
3. The Mission of HXL Ltd, an FMCG company, is to become the most loved brand
enriching the lives of millions of consumers. What impact do you think this company
must make to achieve the Mission?
a) The company needs to create employment opportunities
b) The company needs to deliver financial performance
c) The company needs to focus on corporate social responsibility
d) The company needs to create economic impact by contributing through
economic growth, employment, and corporate social responsibility.
4. Which are the Social Forces that impact a company's prospects of staying
competitive in the marketplace?

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a) A Mission is a statement that sets the business targets for the company
b) A Mission statement provides the company necessary resources to achieve its
strategy
c) A Mission statement is a comprehensive statement about a company's
operations
d) A Mission is an enduring statement of purpose that distinguishes one business
from other similar firms & identifies the scope of the company's operations in its
business
5. What is Corporate Social Responsibility (CSR) and why is the Tata group different
from the other companies?
a) Their financial performance is far superior to other companies
b) Tata organizations identify the societal needs of the region where the company
operates, and their companies' performance is far beyond just the financial
performance
c) They are number one in the respective market segments
d) They have a great brand name, and it is recognized by the society
Answers: 1.(d), 2.(a), 3.(d), 4.(c), 5.(b)
References:


2. Vern McGinni, "The mission statement: A key step in strategic planning of
Business"1981, P 41
Management), P 49
4. Morgen Witzel, Tata, The Evolution of a Corporate Brand, Portfolio/Penguin,
(P x-xi)
5. Peter Drucker, Managing the Future, on mission statement
6. Morgan Witzel, Tata, The evolution of a corporate brand, P 13 and 16
7. Reference from IBM Chairman Virginia M. Rometty, letter to investors/ shareholders,
March 2013
8. John A. Parnel, Strategic Management, Theory and Practice, P 56
CASE STUDY ON TESCO ON VISION, MISSION, VALUES AND STRATEGY
Tesco was founded in 1919 by Jack Cohen from a market stall in London's East
End. Today it is one of the largest retailers in the world. Tesco's core business is
retailing in the UK, which provides 60% of all sales and profits. Tesco has the widest
range of food of any retailer in the UK. Its two main food brands are its Finest and
Everyday Value ranges, each sell over £1 billion per year.
The position of Tesco as a leading global brand is clearly illustrated by its expansion of
operations into 12 countries including China, Czech Republic, India, Malaysia, Ireland,
Hungary, and Poland. In 2013 Tesco employed in excess of 530,000 people. This level of
success does not happen by chance. Tesco's leaders have always set high standards
and clear goals, never settling for anything less than the best.
Tesco's 'Every Little Helps' philosophy puts customers, communities, and employees at
the heart of everything it does. It prides itself on providing a great shopping experience
for every customer it serves, whether in stores, online or in its many other service
provisions.
Core Values
Tesco's Core Values include a commitment to using its scale for good by being a
responsible retailer. In 2010, it opened the world's first zero-carbon supermarket in
Ramsey, Cambridge shire and was awarded Green Retailer of the Year at the Annual
Grocer Gold Awards 2012. Tesco aims to be a zero-carbon business by 2050.
Tesco's continuing success depends on it reassessing and formulating clear business

strategies. Tesco aims to improve customer loyalty and its core UK business in order to
help it develop the shopping experience for its customers. It committed £1 billion to an
investment programme to achieve this. Strategies to improve competitiveness were then
developed. The driving forces behind these strategies are price, quality, range, and

Chapter 4
innovation as well as delivering great multichannel customer service, for example,

through its 'Click & Collect' service.
This case study examines Tesco strategies, the reasons behind each component and
how vision, aims and cultural value interrelate to make the strategies successful.
Vision and Mission
Companies, like Tesco, that enjoy long-term success, are focused businesses. They
have a core vision that remains constant while the business strategies and practices
continuously adapt to a changing world. In an increasingly competitive global
environment, without a clear vision a business will lack direction and may not survive.
Tesco has a seven part business strategy to help it achieve its vision.
A vision is an aspirational view of where the business wants to be over a long term. It
provides a benchmark for what the business hopes to achieve. Tesco is a company built
around customers and colleagues. Its vision guides the direction of the organization and
the strategic decisions it makes. Tesco's vision is: 'To be the most highly valued business
by the customers we serve, the communities in which we operate, our loyal and
committed colleagues and of course, our shareholders'.
Tesco's Vision has five elements
Tesco's Vision has five elements which describes the sort of company it aspires to be.
These are to be:
wanted and needed around the world
a growing business, full of opportunities
modern, innovative, and full of ideas
winners locally whilst applying our skills globally
Inspiring, earning trust and loyalty from customers, our colleagues, and communities.
The Vision, Mission Statement and Goals are interrelated and state 'what' an
organization is seeking to achieve whereas the strategies and tactics show 'how' it will
achieve them. Tesco's core purpose (mission) is simple: 'We make what matters better,
together.'
Once aims are established, functional areas within a business then devise department-
based strategies to ensure goals are achieved. The vision drives the business, and the
values are embedded throughout the strategic planning process.
Whilst a vision outlines the aspirations of senior managers, a mission statement is a

general expression of the overall purpose of the business. It communicates the goals of a
company to all stakeholders. The vision should inspire all stakeholders and motivate

employees towards achieving its stated objectives. If well prepared, it should convince
customers, suppliers and external stakeholders of its sincerity and commitment to them.
Tesco's management recognize the key role that its mission, vision and strategies play in
its success and use a range of key performance indicators (KPIs) to monitor and evaluate
its performance. These are explored in detail later in the case.
Values
Whilst a Vision is important and outlines the company's aspiration, without value a
business such as Tesco would struggle to remain competitive. Tesco's Values are:
No one tries harder for customers.
We treat everyone how we like to be treated.
We use our scale for good.
Tesco's values are vital to its success, as shown in the quote below from Group Chief
Executive Officer (CEO) Philip Clarke:
'The Tesco values are embedded in the way we do business at every level. Our values
let our people know what kind of business they are working for and let our customers
know what they can expect from us.'
Tesco is a community-focused global business. Corporate Social Responsibility (CSR) is

at the heart of its operations. This commitment is referred to as 'Tesco in Society'. In the
competitive retailing world Tesco's success relies on its values. They are not just a list of
'good attitudes' but the means to on-going success.
Tesco's approach to working with communities helps it stand out from its rivals. Its
commitment to using its scale for good is demonstrated by Tesco's 'Three Big
Ambitions':
To create new opportunities for millions of young people around the world.
To improve health and through this help tackle the global obesity crisis.
To lead in reducing food waste globally.
These are underpinned by what Tesco calls 'The Essentials':
We trade responsibly.
We are reducing our impact on the environment.
We are a great employer.
We support our local communities.

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The CEO summarizes Tesco's commitment to 'living' these values in the following
statement:
'Tesco is an environment based on trust and respect...If customers like what we offer,
they are more likely to come back and shop with us again. If the Tesco team find what we
do rewarding, they are more likely to go that extra mile to help our customers. By living
the values we create a good place to work where great service is delivered.'
These values drive everything Tesco does at every level and help make it different from
its competitors.
Strategy
A Strategy is a plan which sets out how a business deploys its resources to achieve its
goals. The company's values set the tone for the decision-making process. In May 2011,
Tesco committed £1 billion capital and revenue investment to improve the shopping trip
for customers.
It set out a seven part strategy designed to achieve its goals of being highly valued by
customers and enjoying strong long-term growth. The table shows the main elements of
this strategy.

Monitoring and Evaluating Performance
Strategy, Vision, Values, Aims and Objectives are meaningless if their impact is not
monitored and evaluated. Tesco uses a range of methods to collect data and evaluate
progress against targets. It uses its Clubcard Scheme, along with telephone based
research and an online panel of customers, to determine what customers want and how
satisfied they are with Tesco's performance.
Its Executive Committee assess the progress of large-scale strategies. All of its business
units have 'stretching targets' which are aspirational targets for certain KPIs. The
performance of all business units is monitored continually and reported monthly to the
board of directors. The following table shows how Tesco monitored its performance
against targets using KPIs for the 2012/13 period.
These KPIs are used to assess current performance, make comparisons with previous
performance, and help managers respond when targets are not being met. For instance,

Chapter 4
following investigation, an explanation for narrowly missing the staff training target was
given:
'Although narrowly missing this target, Tesco have also heavily invested in our
colleagues in the UK this year through our 'Building a Better Tesco' plan. More than
250,000 colleagues in-store have received customer service training, with additional
technical training for 36,000 colleagues.'
Monitoring healthy options for customers and colleagues supports Tesco's commitment
to helping employees and customers make healthy choices and lead healthier lives. In a
revolutionary scheme, using data from its Tesco Clubcard, it has developed a 'healthy
little differences' tracker. This measures the health profile of a 'typical' shop by measuring
the nutritional value of what customers buy. This will be used to set targets to improve
customers' health by comparing how the profiles vary across different groups in society
and how healthy initiatives impact on customers' shopping over time.
Conclusion
Tesco is one of the largest retailers in the world. This success has not come about by
chance but is the result of effective leadership and management. The setting of a clear
vision is central to Tesco's success, supported by a commitment to establishing and
monitoring specific objectives and devising strategies to ensure these are achieved. All
aspects of the business are regularly monitored and, when necessary, plans are adapted
to ensure targets are ultimately met.
At the heart of all Tesco does is a commitment to being a responsible retailer. This is
demonstrated through its focus on its 'Three Big Ambitions' and 'The Essentials' to show
how it is using its scale for good. Every decision taken considers these areas to ensure
customers, communities, suppliers, and staff are treated fairly and with respect. Tesco's
values underpin all that Tesco does and, in turn, keeps customers satisfied with their
shopping experience and loyal to the brand.
Source Reference: http://businesscasestudies.co.uk/tesco/vision-values-and-business

strategies.


Chapter 4

REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
5
Chapter
CORPORATE LEVEL
STRATEGY
Objectives:
This chapter focuses on the key strategic decisions to be made at the corporate level, to
identify the Corporate Profile and determine whether the company will operate in a single
business or more than one related business or venture into other unrelated businesses.
At the end of the chapter, you will be able to understand the following:
Define and identify the Corporate Profile
Making a decision on single business or multi business
Growth Strategy
Stability Strategy
Retrenchment Strategy
BCG Growth Share Matrix
Global Corporate Strategy

5.1 Introduction
5.2 The Corporate Profile
5.3 Growth Strategy
5.4 Stability Strategy
5.5 Corporate Restructuring Strategy
5.6 Turnaround Strategy
5.7 Divestment Strategy
5.8 BCG Growth Share Matrix
5.9 Corporate involvement in SBU
5.10 Global Corporate Strategy
5.11 Summary
5.1 INTRODUCTION
With the scale and complexity of modern businesses increasingly becoming volatile and
global in nature, there is a necessity to have a sound strategic management process in
any corporate organization. The markets expect continuous innovation and
unprecedented changes happening in macro-economic factors that the corporates have
to play with and reflect back in their overall strategy. Thus, corporate strategy assumes

Chapter 5
highest importance in creating strategy and defining leadership in the industry both locally
as well as globally.
While, the analysis of industry, competition, macro environment and corporate mission
are keys to building a strong foundation to the strategy formulation process, the next
critical step in strategic management process is to review the Organization’s current
strategy and direction. As we discussed briefly in chapter 1, there are three levels of
strategies viz corporate level, SBU level and functional level in any organization. This
chapter discusses what kind of strategy a corporation should pursue to nurture and grow
their various businesses. The various strategic options and choices are being discussed.
This chapter focuses on corporate level strategy in particular.
Corporate Strategy is the long term strategy encompassing the entire organization.
It is the strategy that the top management formulates for the overall corporation.
Corporate Strategy is an overarching strategy, which precedes the business unit level
and functional level strategies and sets new direction for the entire organization.
Corporate Strategy addresses the fundamental questions such as what the purpose of
the enterprise is, the vision, what businesses it wants to pursue, and what is the
expansion and diversification strategy of each business, mergers, and acquisitions,
define the business guidelines and corporate governance to be followed by the SBUs and
the individual Functions.
Corporate Strategy must ensure organizational compliance to achieve the stated goals.
In other words, corporate level strategic management is management of activities which
define the overall character and mission of the organization, the products and service
segments it will pursue or exit, the allocation of resources and management of synergy
among its SBUs and Functions. Corporate Strategy is formulated by the top level
corporate management comprising of the Chairman, the Board of Directors, and
the CEO.
5.2 THE CORPORATE PROFILE
The top management is entrusted with clearly defining the Corporate Profile of the
organization by identifying the type or types of businesses which the company should be
in as guided by the Board's vision. Like the profile of a leader, the Corporate Profile is a
function of the company's vision and mission, culture and values, strategy and direction,
strengths and weaknesses, opportunities, and threats to stay ahead on the face of
challenges posed by the industry, competition, and the macro environment.

Corporate Level Strategy
As a result of the top management deliberations, the company may choose to

operate in any of the three types of businesses:
1. To operate in a single industry
2. To operate in multiple related industries
3. To operate in multiple unrelated industries
Most of the large corporates in India started their operations as single business
companies, and later expanded and diversified into multiple related industries as well as
unrelated industries as their aspirations grew. The companies operating in a single
industry are more susceptible to cyclical downturns and any adverse change in the macro
environmental forces, thus impacting the industry as a whole. For this reason, most forms
eventually diversify and compete in more than one industry. India being a fast developing
economy, Indian corporates have diversified business interests both in India as well as in
the international markets. In the process India has produced many multi-national
companies which have become truly global in nature.
The motivation of a company to diversify comes from the fact that it complements its core
business and helps the organization mitigate uncertainty and risks associated with the
operations of a single industry business. The other motivation comes from the success of
the core business that inspires the promoters and investors to consider business
expansion and diversification into related fields and sometimes even to unrelated fields.
Diversification enables a company to grow its revenues, profits, potentially use its
resources more effectively and build new products, new services, and new markets.
Tata Group is a classic example of diversification into multiple related as well as

unrelated industries. Famously known as the 'salt to software conglomerate' with
revenue turnover in excess of $ 110.7 bn (FY 2018), the Tata group has practically
diversified into almost all industry verticals as many as 28 sectors. The industries vary
from chemicals, steel, automobiles, software, telecom, coffee, tea, retail, power,
hospitality, etc. It is impossible to understand the corporate profile and the Tata brand,
without understanding the symbiotic relationship that the brand has with the various
group company profiles and its products and services. There is a saying the Tata group
talks not of conquering markets but of serving people [1].
Tata group has been aggressively charting outgrowth strategy through expansion of
related businesses through M&A strategies and diversification into unrelated industries
through JV and alliance partnerships. For example, let us talk about Tata group's
foray into the civil aviation sector. The Tata group pioneered civil aviation in this
country with the establishment of Tata Airlines in 1932. In fact Tata’s were the ones
who started the first civil aviation company in the country, Air India post-
independence and later sold it to the Government of India. Tata group has been
vying for re-entering this sector for quite some time with failed attempts couple of times in
the late 90's and early last decade. In the year 2013, Tata Sons the holding company of

Chapter 5
Tata Group companies decided to forge two JVs in the civil aviation sector. The first one
was a JV with Air Asia to launch a no-frills airlines in the country and the second
one was a JV with Singapore Airlines to launch a full service carrier to meet the
growing demands of the market post the fall of Kingfisher Airlines early in 2012.
These two JVs were supposedly aimed to clearly address two complementing segments
of the marketplace without competing with each other.
On January 31, 2007, Tata Steel Limited (Tata Steel), one of the leading steel producers
in India, acquired the Anglo Dutch steel producer Corus Group Plc (Corus) for US$ 12.11
billion (€ 8.5 billion).
This acquisition was the biggest overseas acquisition by an Indian company. Tata Steel
emerged as the fifth largest steel producer in the world after the acquisition. The
acquisition gave Tata Steel access to Corus' strong distribution network in Europe.
Corus' expertise in making the grades of steel used in automobiles and in aerospace
could be used to boost Tata Steel's supplies to the Indian automobile market. Corus in
turn was expected to benefit from Tata Steel's expertise in low cost manufacturing of
steel. However, analysts always wondered and asked about the deal really bringing any
substantial benefits to Tata Steel. Post take over, operations were affected adversely,
world-wide recession and downturn in the automobile industry impacted automobile
industry across the world. It is not yet very clear whether Tata is able to extract any
substantial benefit from this acquisition.
The key to becoming successful while diversifying into related industries depends on the
synergy the companies or business units within the group are able to establish. While
participating in related industry brings more value and unlocks the companies hidden
potential, more often diversifying into unrelated industries may result in other unknown
factors impacting the business which results in the company losing focus on its core
business. When the corporates realize their inability to run the unrelated businesses
successfully, they hive off their business and start looking for partners to sell the non-core
businesses to stay healthy in their core business.
Early last decade, many corporates diversified into new upcoming industries which were
flourishing, such as infrastructure services(Lanco Infratech), telecom services(Essar
Telecom), civil aviation(Kingfisher Airlines), retail services (Myntra) etc. However, when
the competition became very high and there were delays in government approvals etc.,
these companies started feeling the challenges of their profitability getting eroded and
there was an economic slowdown post the financial market meltdown in 2008. They had
to either sell off the non-core business or they had to scale down and exit the unrelated
businesses.
The strategy to become successful is to analyze the entire market landscape and identify
the right fit that complements the core business and that has the potential to increase the
combined value of the organization, either from a Backward Integration standpoint or

Forward Integration standpoint or even that helps complete the value chain in terms of
offerings to the customers. Thus, the Strategy should enable the company to create a
compelling value proposition to stay profitable in both the core business as well as the
diversified business. The strategy should ensure that the diversified business does not
eat into the resources and profitability of the core business, thereby making the whole
business plan unsustainable.
The company should ensure it builds the overall competence that is difficult to
imitate. Generally, it is challenging to accomplish integration between different business
units when they do not share common cultural values. The strategic managers have to
work collaboratively to ensure such cultural differences are smoothened out and they do
not impact the overall value proposition of the different related business units.
The Corporate Level Strategies include the following: [2]
1. Growth Strategy
a. Organic Growth
b. Inorganic Growth
i. Horizontal Integration
ii. Vertical Integration
iii. Conglomerate Diversification
iv. Mergers and Acquisitions
c. Strategic Alliances
2. Stability Strategy
3. Retrenchment Strategy
4. Turnaround Strategy
5. Divestment Strategy
6. Liquidation Strategy
5.3 GROWTH STRATEGY
The Growth Strategy of a corporate is designed to increase revenues, profits, market

share and build a larger brand value. The primary objective of the Growth Strategy is to
create more value for the organization, its stakeholders and the society. An organization
should pursue a Growth Strategy only if that growth is expected to result in an increase in
its value. It is all about creating value and not destroying value. There are several ways to

Chapter 5
pursue growth. Generally, the two important growth strategies that an organization could
pursue are achieved either by organic means or by inorganic means.
a) Organic Growth
Growth can be attained either by Organically expanding the existing business by

increasing the production capacity, sales revenues, or its manpower or by Inorganically
diversifying into new businesses by acquiring related or even unrelated firms. The
Organic Growth enables the company to leverage its expertise and preserve its
corporate culture and image as it grows. During Organic Growth, the expansion of
business happens at a controlled pace, by growing the existing business or creating new
business which the organization is capable of. Most of the corporate groups in India have
grown organically over time and have built a strong foundation in their core businesses
and then later diversified into other related and even unrelated industries. They have built
their own culture and values and have established themselves as industry leaders in their
respective primary (core) industries.
b) Inorganic Growth
Inorganic Growth enables the company to grow more rapidly, and the size of the
organization can multiply depend on the size of the company being acquired. In
Inorganic Growth, the organizations might have diversified organization culture
and value, expertise, and the integration of which would be challenging. The
success in integration of such inorganic expansion lies in choosing the right fit and
identifying the right strategy to suggest whether or not the integration should be carried
out. In some corporate groups, certain acquisitions happen for strategic reasons, mostly
in unrelated areas, and the acquired company may continue to operate independently
without any integration into the core industry.
In the last decade when the Indian economy witnessed high GDP growth in the range of
8-9%, Indian corporates raised their aspirations to become global companies. They
developed corporate strategies to diversify into newer business areas both related and
unrelated industries and started looking at large mergers and acquisitions to lead the
industry growth, both nationally and globally.
Most of the large corporates thus pursued their aspiration to expand their geographical
footprint beyond a country or a continent or to expand their product portfolio, to truly
become a global organization.
Two big merger deals in 2017 needs to be mentioned here — both from the Aditya
Birla Group. In August 2016, the conglomerate announced the merger of Grasim
and Aditya Birla Nuvo, creating a Rs 60,000 crore mega-corporation. Another
merger deal is a $27 billion merger of Idea Cellular and Vodafone India was
announced, which will create the largest Indian telecom company. Neither was
technically a takeover or a buyout. However, both mergers were done with an eye
on growth. The Grasim-Nuvo merger was designed to provide Nuvo’s growth

business, the financial services subsidiary, “a stronger parentage” of Grasim’s

balance sheet. The Idea-Vodafone deal, too, sacrificed control — Vodafone holding
45.1% of the merged entity and the Aditya Birla group 26% — and prepped it up for
growth and competition, namely Reliance Jio.
While above examples are pertaining to mergers, on acquisition front also many
examples are worth mentioning namely – IndusInd Bank acquiring IL&FS Security
Services, Havells India acquiring Lloyd Electric’s Consumer Business for $235
million, Flipkart acquired eBay India and Cadila Healthcare buying 6 brands of MSD
Pharmaceuticals and Bharti Airtel acquiring Zain Telecom in Africa.
While organizations acquire other companies either in the same line of business or
unrelated line of business, there are challenges in terms of integration of the new
companies with the core business. Let us see some of such scenarios in detail in this
chapter.
i) Horizontal Integration (Expansion)
The company that acquires a company in the same line of business is engaged in a
process called Horizontal Integration. This process enables the company, operating in
a single industry, to grow rapidly without having to expand organically. The primary focus
of such a strategy is to multiply the market share of the combined entity, expand into new
geographic markets and customers, thus creating economies of scale, increase pricing
power, leverage its position to negotiate with suppliers to reduce costs, increase margins
and eventually enable the firm to market its products and services to a larger and wider
section of customers more efficiently and effectively.
Examples would be Facebook-Instagram ($ - 1 Billion), Disney-Pixer Animation

Studio ($ - 7.4 Billion), Exxon-Mobil ($ - 75.3 Billion). In India Flipkart merged
Myntra in its fold. The acquisition of similar assets helped them expand the business
contiguously into other complementing geographies to grow revenues and profitability.
Horizontal Integration (Diversification)
The purpose of Horizontal Strategy (Diversification) of a company is to create synergy

by transferring the capabilities and credentials of the target company with the core
business, thus adding compelling value in its Go to market Strategy. The purpose is also
for strategic reasons. The Acquisition Strategy in this scenario is to identify businesses
that complement its core capabilities but in the same related industry. Infosys acquired
Lodestone AG in Europe to acquire capabilities in the Consulting Services business
that complements its core IT Applications Services business. Another example is Gillette
diversifying into shaving kit business. Gillette acquisition by Procter & Gamble (P&G).
While P&G was well known in women care products, Gillette was known to be
popular among men. Inclusion would help in many ways by expanding the product
mix. Today, Gillette’s razor for delicate skin of women is also popular.

Chapter 5
The key objectives driving such a strategy would be to acquire complementing

capabilities, new skills, new customers, and long term profitability, thus increasing the
overall value proposition of the organization. In this case, the core business ideally
should provide access to wider geographies already, like in the case of Infosys, which is
already a global IT Services company, but the end customer proposition gets more
compelling in the process by adding newer capabilities and customer offerings. Here, the
purpose was that certain key competencies were lacking in one or two areas to complete
its overall business strategy.
When such an acquisition happens, post integration the combined entity will be in a
position to demonstrate the complementary core competencies in the marketplace, thus
placing itself to be able to acquire more customers and deliver more quality products and
services. The resultant synergy of the two combined organizations provides higher
effectiveness and efficiency and empowers the company to participate in more market
opportunities to increase revenues and profitability.
ii) Conglomerate Diversification
When a company acquires a business in an unrelated industry to reduce cyclical

fluctuations in its revenues or cash flows, the scenario is called Conglomerate
Diversification. Examples of conglomerate diversification include General Electric,
Virgin Group Ltd., and The Walt Disney Company. Initially a lighting business,
General Electric diversified into medical devices and household appliances. Virgin
expanded from a record label to transport and healthcare, while Disney’s
operations range from film studios to entertainment parks. As seen above, while
diversifying into related business is more for strategic reasons, diversifying into unrelated
industries is mostly for tactical, ambition led or financial reasons. Conglomerate
Diversification allows a company to continue to grow even when its core business has
matured, and revenues are saturated. Here, the challenge would be that the core
organization would lack the expertise to manage an unrelated business until it develops
it's known how to run the new business unit effectively. The corporate has to rely on the
management of the acquired firm to deliver business results until it develops its expertise
to provide strategic direction. This is definitely a pitfall often encountered in such
diversifications.
iii) Vertical Integration
Vertical Integration refers to an organizational expansion by acquiring a company in

the Distribution Channel. The Vertical Integration varies from industry to industry.
As indicated earlier, a full Vertical Integration is achieved when an organization is able to
perform all activities in the complete value chain of its business operations, ranging from
the procurement of raw materials to the production of final outputs, to the distribution of
the products to the end customers in all markets, whereas firms that engage in some but
not all of these activities, are only partially integrated.

When a company acquires its suppliers, it engages in Backward Integration,

whereas if it acquires Distribution Channels or Buyers, it engages in Forward
Integration. A solar power company that produces photovoltaic products and also
manufactures the cells used to create those products is another example of a
vertically integrated business. In this case, the company moved along the supply
chain to assume the manufacturing duties, conducting a backward integration.
Another legendary example of backward integration is Reliance Industries Ltd., -
from polymer trading to making to finally setting up the complete refinery. Amazon
has recently acquired organic grocery chain ‘’Whole Foods’’, which is a brick &
mortar set up. It conveys Amazon’s interest in bringing goods close to the doors of
consumers who do not prefer to use online medium as well as offer combined
benefits to their existing customers. Vertically integrated companies have many
advantages. It can optimize sourcing costs, transportation costs, distribution costs,
production costs etc. The company is able to differentiate products because of increased
control over its operations right from input costs to output costs including distribution
because of scale. It greatly reduces transaction costs between suppliers and buyers and
lots of intellectual property information gets secured to gain a market advantage.
Vertical integration also has its own disadvantages. It reduces operational flexibility as
the organization is heavily invested in both upstream and downstream integrations. It can
raise costs if the critical mass of volume in production is not realized, impacting the
overall profitability of the company. Overhead Costs may also increase as a result and
the company may experience low productivity. Such Integrations are high risk projects
and can impact the overall corporate's success.
The success in integration of such an inorganic expansion lies in choosing the right fit
and identifying the right strategy to suggest whether or not the integration should be
carried out. Keeping this in mind, in some corporate groups, certain acquisitions happen
for strategic reasons, mostly in an unrelated area, and the acquired company may
continue to operate independently without any integration into the core industry.
iv) Mergers and Acquisitions
Merger is a corporate level growth strategy in which a firm combines with another firm
through an exchange of stock, whereas Acquisition is a form of merger whereby one
firm acquires another often with a combination of cash and stock. Globally as well as in
India, we have seen many mergers and acquisitions. Generally, large enterprises often
acquire smaller competitors in order to expand their products and services lines by
complementary capabilities or same lines of products and services to increase their
market share.
The main advantage of mergers and acquisitions is that the combined entity will possess
all the strengths of the individual companies, to make more offerings to customers and at
the same time will be able to optimize costs and increase value proposition and
profitability. However, there are a few disadvantages as well. Since the acquisition of a

Chapter 5
company is for a specific strategic reason, like newer capabilities (of course
complementary) and credentials which the acquiring company is going to benefit from,
the target company commands a premium in its valuation.
In most M&As, the Acquiring company has to pay higher price than the current
share price of the Target company. Then, there could be challenges in cultural
synergy during integration, management restructuring, possible retrenchment to
increase productivity, top talent leaving the organization etc. These risks must be
forecasted and possible actions to mitigate such risks must be put in place to protect the
value creation the M&A brings to the overall organization.
c) Strategic Alliances or Partnerships
In today's fast changing world, economically and technologically, it is always challenging

to keep the competitive advantage an organization tries to create. Every organization
talks about faster time to market for its products and services. Collaboration is the new
mantra of success, be it new innovative products or services or even winning new
markets. If the philosophy of a corporation is not to build every capability in-house, then
the best way to address the growth strategy is through forging Strategic Alliances, also
called Strategic Partnerships.
When two or more companies partner to collaborate to form a Partnership to do business

and agree to share the risks and rewards associated with pursuing the new business
strategy, it leverages each other's strengths to create a synergy to maximize the outcome
of such a Partnership. Such arrangements include joint ventures, franchises, license
agreements, long term supplier agreements, marketing agreements, consortiums
etc. Certain Partnerships agree to co-create new products and services leveraging
each other's domain expertise.
Strategic Alliances are of two types. One is short term based, purely entered for a
particular project duration and the alliance gets disbanded after the project is finished.
The other is long term based and there is continuous engagement between the partners
over an extended period of time based on the Growth strategy agreed at the beginning of
the agreement.
Strategic alliances may be pursued for economic or technological reasons, as part of the
Expansion or Diversification of the organization’s Growth Strategy. In such a scenario,
the organizations work closely with each other to pursue various business opportunities
instead of attempting to purchase the firms outright. Tata Group's strategic partnership
with Air Asia and Singapore Airlines are very good examples of creating unique
market segments in the same industry through the Diversification Strategy.
The primary reason, as explained above, for forging an alliance is to co-create value for
all stakeholders - customers, employees, shareholders etc. and thus generate Synergy.
In some scenarios, Partnerships or JVs are formed in order to share the resources of
individual organizations so that no single company is burdened financially. In another

scenario, the project may require complex technology expertise of which no single
company possesses such an expertise. Thus, one company with complementary
technology expertise and the other company with financial and management capabilities
may combine forces to increase the value of such partnership to challenge the
competition.
There are many examples of such partnerships. PwC India and Microsoft India have
formed a strategic alliance that will help industry harness some of the core
competencies of both firms. This strategic partnership between Microsoft and PwC
will empower the digital transformation of large and mid-sized organizations in
India by leveraging Microsoft’s technology expertise and PwC’s strategy
capabilities across sectors and competencies, including taxation, smart cities, and
digital India programs.
PwC has also joined Microsoft’s Cloud Solution Provider (CSP) Program which will
enable them to provide their advisory and other solutions at scale, securely to all
their customers. Another example is that of Spotify and Uber strategic alliance-The
power to enter a hired car, welcomed by your favorite playlist provides extra value,
significant competitive advantage, and exclusivity for Uber cars. For Spotify, it
offers an incentive for users to upgrade to the premium level.
India is witnessing unprecedented strategic alliances among automobile

manufacturers. Toyota is the world’s second largest carmaker and Suzuki is
ranked No. 10. India seems to be the centerpiece of their global partnership that
will bring together Toyota’s global leadership in technology and manufacturing
with Suzuki’s strength in small cars and in India.Suzuki and Toyota both will
benefit. The Toyota-Suzuki alliance) will help Suzuki bring technology that is
relevant for the Indian market. And to Toyota it will offer scale not available
anywhere.
Strategic Alliances work well when a company’s growth strategy is based on finding the
best partner to grow its business. Also, each company can share the risks and rewards
without bearing the risks on itself. The benefits can be easily multiplied if the synergy is
maximized. The strategic alliance must clearly stipulate the roles and responsibilities of
each partner and have a clear reward sharing agreement proportionately, and it should
be based on progressive partnership spirit.
5.4 STABILITY STRATEGY
Growth Strategy is an important aspect of organization sustenance over a long horizon of

time. However, a company may not be able to adopt a Growth Strategy always to be an

Chapter 5
effective strategy as there are many dependent factors and risks that might impact the
company's ability to successfully execute the same. Moreover Growth Strategy is a
high risk strategy, not the right strategy all the time. Hence, after a long period of
growth, Stability Strategy is preferred always to stabilize the business by focusing
internally.
The Stability Strategy is a strategy in which a company maintains its current fields of
business operations. Firstly, Stability enables the company to focus its managerial
efforts to enhance the existing business units, by fostering productivity and innovation.
Secondly, during tough times, the cost of adding new businesses may exceed the
potential benefits.
It is during slowdown times that a company mostly adopts a stability strategy and shifts to
growth strategy when the economic conditions improve. Stability can be an effective
strategy for a high performing organization, but it is not always a risk-free strategy. In
Stability Strategy the organization introspects ways and means to manage a particularly
challenging situation in the market, either there is a cyclical downturn due to high
inflation, low economic growth, or high operating costs etc.
In Stability Strategy, the organization might want to maintain the same operations,
by doing more with less. Such businesses prefer Stability over Growth. Growth is
not the primary concern, but it might occur naturally, limited to the level of industry
growth. During such times, the organization would need to undertake certain hard
decisions and measures. The measures include eliminating wastes, pruning assets,
reducing the workforce, cutting down other costs like sales and distribution and it might
even want to rethink on its strategy of its products and other unprofitable business
portfolios.
There are a few reasons why an organization adopts Stability Strategy. They are:
1. The country's economy is slowing down and the demand for the company's products
and services is on the decline. During such times, the company wants to acquire
business with less risk.
2. During tough times, the costs associated with growth may exceed the potential
business benefits. Certain acquisitions fall through because the cost of acquiring a
business does not make sense and the other shareholders do not provide their
consent for these reasons. E.g.: Apollo Tyres India's decision of acquiring
Cooper Tyres US fell through as the cost of acquisition of $2.5 bn was far higher
than the value perceived by the shareholders for such an acquisition.
3. The organization has constraints on its resources to adopt growth strategy for valid
reasons. The strategic managers are understandably hesitant to adopt growth
strategies, because of their business model and constraints on quality and customer
service.

4. Certain large company has grown to be a high market share player in its industry
already and the Government and Regulatory bodies will not allow any further
increase in market share as a result of an acquisition of a competitor as the
combined market share will threaten competitiveness, even if the company is
financially capable of making such M&A investments. In such cases, the organization
will have to pursue a stability strategy as even internal growth can be challenging at
times.
5.5 CORPORATE RESTRUCTURING STRATEGY
When the performance of an organization continuously declines, then it is time to take a

hard look at the strategy and organization structure again. Sometimes, when growth
slows down due to the performance of the organization, it may be due to the fact that the
structure no longer supports the changes that have happened over time in the company's
business strategy. Hence the company is compelled to redraw the Organization
Structure. This reorganization process is called Corporate Restructuring. This
includes actions such as realigning the lines of businesses and business units,
altering the management structure, retrenchment of people by taking a bottom-up
approach, redefining the Delegation of Authority (DoA), or divesting the business
units which are not profitable.
Corporate Restructuring generally happens once in three years depending on any
change in the business model and market conditions, or any change in the
external environmental forces. It is always better to have the restructuring done
proactively at regular intervals in order to ensure that complacency does not set into the
organization culture or people’s behaviour no longer adds any value to the organization’s
growth. The purpose of Corporate Restructuring is to define new strategies and business
objectives that present newer challenges to the management team and its employees.
Companies that do Voluntary Restructuring as necessary do not face the threat of hostile
takeover due to poor performance and cheap valuation. Otherwise, the company
becomes a target for hostile takeover bids. In some cases, there could be a conflict of
interest in control over the company when two promoters who hold majority stakes in the
company try to acquire shares from the open market to increase their stakes and take
over the company.
Even established and leading companies need to restructure their organization at regular
intervals as the company's progress through various product lifecycles changes and
economic cycles change. In India, most of the large corporates do corporate and
business unit level restructuring at regular intervals in order to sustain their growth
strategy and to keep their costs under control. This has paid rich dividends over time. The
restructuring needs are more accentuated in companies whose industries are subject to
fast changing internal and external environments, like changes in the domestic or global
economy, new technological trends, competition behaviour, new political changes, or

Chapter 5
social changes. These companies need to redefine their strategies to reach their ultimate
purpose.
5.6 TURNAROUND STRATEGY
When an organization continues to perform below its potential or below the market
growth, it requires a Turnaround Strategy to bring it back to health. In other words,
Turnaround Strategy transforms the company into a leaner, meaner and effective
organization. During such tough times, the organization would need to undertake certain
hard decisions and measures. The measures include eliminating wastes, pruning assets,
reducing the workforce, cutting down the budgets and other costs like sales and
distribution and it might even have to rethink on its strategy of its current product
portfolios and other unprofitable business portfolios.
Turnarounds are often accompanied by changes in the macro environment, industry
order, competition behaviour etc. In most organizations both Turnaround and
Restructuring happen at the same time. The Turnaround Strategy of an organization
depends on the actual problems it has been going through. The reasons could be many,
from performance to governance issues.
Besides performance issues, the other reasons for a company to become a potential
candidate for Turnaround Strategy is that there have been instances of corporate
governance issues, allegations of top management wrongdoings, scandals,
corruption charges, and management integrity issues that hamper the confidence
of different stakeholders like investors, customers, employees, partners and most
importantly the business environment at large. These challenges exert greater
pressure and onus on the top management and the company board to respond to such
issues effectively and quickly come up with a Turnaround Strategy for the organization.
Once the organization’s reputation is damaged, it is almost impossible, or it takes a very
long time to turnaround the brand name and its reputation.
When companies have been caught in severe under performance for a long time,
turnarounds often involve employee layoffs, which is a sensitive issue and companies
must be prepared to address the impacts of such layoffs on both departing employees
and the survivors. As part of the turnaround and restructuring strategy, the organization
must have proper communication with all employees, customers, partners, and other
stakeholders.
Employees must be given opportunities to voluntarily retire or leave the organization to

make the layoff process as congenial as possible. More often, when layoffs are
announced, the employee morale across all levels is likely to suffer considerably. In the
process, even good employees will start leaving the organization which will be left with a
less productive workforce. It is always very challenging to implement a turnaround
strategy than planned.

When layoffs are necessary, the top management should communicate honestly and
effectively with all employees, explaining why the downsizing was necessary to the
survival of the organization, How the layoff employees were selected and how the exit
process would be handled. It must also be made aware how the organization intends to
support the departing employees, including the survivors. Although these measures may
not completely eliminate the harsh feelings associated with layoffs, the process might
ensure that the impact is reduced.
Similarly, communication with customers and partners is very important to articulate

clearly what is the company's strategy to overcome the current challenges. In the case of
Satyam Computers, the new management met every customer to convince them to stay
with the company and also had to contest a few class action lawsuits in the US. We will
discuss the case study in detail now.
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CASE STUDY OF SATYAM COMPUTER SERVICES WITH TECH MAHINDRA: [3]
Satyam Computers Services is a classic example of a combination of corporate

restructuring, turnaround strategy and M&A strategy. It was first an acquisition, then a
restructuring and turnaround, and finally a merger with its new corporate parent Tech
Mahindra. In the world of M&As, four years is a long haul-from April 2009 to June 2013-it
took that long for Tech Mahindra to start the merger of Satyam Computer Services in its
fold after it acquired Satyam Computers in April 2009.
Erstwhile Satyam founder and chairman Mr. Ramalinga Raju confessed to having
perpetrated a huge accounting fraud in its books of accounts to the tune of $1.47 billion
and stepped down in January 2009. This revelation of corporate fraud heavily damaged
the company's credibility, brand name and its standing in the industry. The stock price of
the company went down by more than 90% in just 2 days in January 2009.
Something drastic needed to be done. Prior to acquiring the company, Mahindra &
Mahindra Chairman and Managing Director Mr. Anand Mahindra had claimed that
Satyam presented him three things that he was looking for despite the huge risks as an
acquisition candidate. These factors were scale, size, and export orientation as most of
Tech M businesses as of April 2009, were domestic in nature. The corporate philosophy
and purpose of this acquisition was aimed at creating a marriage of equals, as per the
Mahindra group's top management.
It is understandable that Satyam was completely crippled by the time Tech Mahindra took
over the company. Alongside losing key accounts, like Coca-Cola, BP and State Farm
Insurance, Satyam faced a major legal class action lawsuit and its actual business
crumbled from $1,600 million as it lost some of its marquee clients. In effect, Tech
Mahindra bought over approximately $1000 million worth company, which when its
former chairman had claimed was $2,200 million in revenue terms.

Chapter 5
The top management of Mahindra group wanted a certain level of profitability for Satyam
before it could be fair to the shareholders of that company, who had lost a great deal
owing to the way the previous owners ran it. Back then, Satyam employees felt a
potpourri of emotions ranging from anguish, disbelief, hurt and surprise. But when a
Mahindra group company stepped in, the looming uncertainty seemed to fade away. The
government of the day, too, did a commendable job prior to the acquisition by acting
swiftly on the case, for a change. It reconstituted a 6-member board of top business
minds that included the likes of Deepak Parekh, Kiran Karnik, Tarun Das, and S
Damodaran, who triggered the two Cs of rejuvenating, - communicating and cleansing.
While there were turnaround challenges, the acquisition was considered to be synergistic
as the skills were complementary, the customer overlap was zero and the geographic
overlap was beautifully laid out. While Tech M was a Europe centric company, Satyam's
clients were chiefly in the American market. Also, from a vertical standpoint, Tech M
largely covered the telecom space, British Telecom being a major client, and so looked
vulnerable and would have found it difficult to sustain and grow.
Apart from teeth, the merger gave Tech M a more balanced portfolio of clients from
different industry verticals (manufacturing, retail, healthcare, life sciences, tech media,
and entertainment), with A-grade enterprise capability that Satyam had, and the
combined entity became the 5th largest Indian IT services player (ex-Cognizant).
However, Satyam founder's largesse had already burnt a hole in the organization.
From a customer base of 400, Tech M inherited 290 clients when it acquired Satyam.
The spirit of the employees, or associates as they are called in IT, was severely
compromised. From 45,000 people during its hey days, Tech M had to take hard
decisions and rationalize the employee strength to 28,000. The rationalization as part of
the turnaround strategy was done "in a nice fashion" by inviting the competition over to
hire directly from Satyam. Nevertheless, Team Tech M was looked upon as barbarians at
the gate, as they were completely focused on earnings and cost control, which had
eluded the erstwhile Satyam because of corporate governance mismanagement.
So on June 20, 2009, Mr. Nayyar, Vice Chairman Tech Mahindra and Mr Gurnani, the
Mahindra Satyam's CEO mustered enough courage to announce that he was reducing
the 13 layers of management to six at Satyam over the next three years. To oversee the
transition, the corporation set up a 10 people team from M&M in Satyam's leadership
team.
Tech M brought in some youngsters from our global leadership cadre and ensured they
didn't come with any baggage, as emphasized by Mr Gurnani. Alongside, 5-6 leaders of
Satyam were let go, particularly in the legal and finance functions, where the toxicity was
maximum, as top-level transfusion became the need of the hour.
"In some areas, we were very clear that it has to be a Tech M representative running it
because from a good governance perspective, from shareholder value protection, it was

important people saw a face that was more aligned to Tech M than the erstwhile
management of Satyam," confides Mr. Gurnani. Between them, Mr. Nayyar and Mr.
Gurnani divided responsibilities. While Mr. Nayyar was to look at legal and investor
issues, Mr. Gurnani would be focused on the customers and employees.
Yet another step toward "a marriage of equals" was taken in 2011 when Tech Mahindra
took 130 leaders to Thailand with an idea to get people from the erstwhile Satyam and
Tech Mahindra to sit together and thrash out a new vision. At the end of the exercise,
mission 2015 came up, which meant doubling up revenues by 2015. "The aim was to
bring up a new culture which is not Tech Mahindra culture or Satyam culture but a New
Tech Mahindra culture," says Gurnani, creating a new code for 84,000 people.
It was as clear as during the formative stages of the acquisition when Nayyar and
Gurnani met up with heavyweight clients like AT&T, who would snidely comment on
Satyam and how Raju pulled the curtains. That was the first year-and-a-half. "After that,
there was a change in the meaning of Satyam, which was synonymous with fraud and
forgery. As per them, it gives the greatest feeling that they have changed the meaning of
Satyam from being synonymous with fraud to rejuvenation.
While this merger was 'Rest In Peace' for the erstwhile Satyam, it was 'Recovery in
Progress' for the Tech Mahindra management. And going by the latest quarterly results
(Jun-Sep, 2013), the marriage seems to have worked fine, with revenues up about 5%
sequentially at $758 mn (QoQ). The results were liked by the market. Mahindra Satyam
finally got merged into Tech Mahindra in June 2013 with the approval of the shareholders
of both the companies and necessary regulatory and legal approvals, with the combined
entity to become the sixth largest IT Services Company in India.
CASE STUDY OF CHENNAI’S MEENAKSHI MULTISPECIALTY HOSPITAL LTD.
Case is an example of – Management action driven turnaround
Period of Loss: 2009-2012
Period of turnaround: 2012-2014
Introduction of a company
Chennai Meenakshi Multispecialty Hospitality was incorporated in 1990 with 100 beds
formerly known as Devaki Hospital. Currently, the hospital has an infrastructure
comprising of 105 beds, including an Intensive Care Unit facility. The company provides
multiple medical services, including complex surgeries and procedures.
These services are provided by experienced, talented and specialist doctors and
experienced support staff. The hospital is currently well equipped withthe latest medical
technology and equipment. The hospital currently employs 249 employees.
Reason for Decline:

Chapter 5
1. Foreign direct investment in health care cause immense threat for local player
2. Government introduced various healthcare schemes for below the poverty line people,
which directly impacts profitability
3. Lack of poor medical infrastructure and obsolete medical equipment
4. Insufficient skilled human resources support
It was observed that the company was making losses from AY 2009. However, the
management undertook some correcting action to improve profitability. The company
reached the breakeven point in AY 2012.
Turnaround strategy and implementation
Comprehensive turnaround strategies for Chennai Meenakshi Multispecialty Hospitality

were worked as follows:
1. Change in management
The management of the company has been taken over by Mr. A. N. Radhakrishnan from
April 2008.
2. Sales push
New management focused on aggressive promotion and branding. The company

conducted multiple health awareness events jointly with Health Insurance Companies.
b) To enhance the turnover, the company tied up with health insurance companies. The
company started paying brokerage and commission to health insurance agents from AY
2010 onward.
c) The hospital also focused on Medical tourism. The company concentrated on medical
tourism from AY 2009.
d) The Company revamped the hospital by replacing the old equipment’s with latest one.
The Company has paid approximately on average 2.75 million Rs. for AY 2010-2015 on
new equipment and focused on repair and maintenance from AY 2010.
e) The Company taken help of external consultant to enhance financial health of the
company- from Annexure 1 researcher observed that company paid around 6.75 million
rupees as professional and legal fees.
3. Expansion – The Company introduced new services and specialists, which provided
an edge over the competition. The company opened a lot of diagnostic center in potential
areas.
4. Human Resources- Since health care requires a lot of expertise and technical
knowledge, human resources plays a major role in the success story of an organization.

Researcher analyzed that employee cost increased from approximately 15.86 million in
2009 to 27.65 million AY 2010. Similarly administration costs increased from 3.33 million
to 6.33 million in the same period. So researchers observed that during turnaround
period, the company focused on recruiting more specialist doctor, surgeons, technicians,
and administrative resources.
Performance of Turnaround strategy –
Performance of profit /lost with respect to revenue for company is as follow;
Year 2009 2010 2011 2012 2013 2014

Revenue (B) 29.58 104.48 126.45 148.94 160.93 178.93
Profit/Loss (A) -31.46 -52.1 -8.01 0.70 6.87 4.46
A/B (%) -106.35 -49.86 -6.33 0.46 4.20 2.49
From the above data it is obvious that the turnaround was complete as there were at
least two years of profitable operations beyond the last loss year of AY 2011. However, in
AY 2009 The Company faced significant losses of 106.35 percent. AY 2012 was the
breakeven year. In AY
2013 profitability was 4.2 percent, so this was taken as the top turnaround performance
year. The difference between the profitability of the turnaround performance year 2013
and the worst loss year 2009 was 110.55 percentage points. This difference was labeled
as turnaround rally. The number of years the turnaround took was five years (2009-
2013). Thus, the annualized turnaround performance or rate of rally was 22.11
percentage points. This indicates that the company planned and implemented strategy
well.
Learning from case:
The turnaround was triggered by the change in management. Focused on marketing

activities and tie up with key stakeholders helped the company to enhance revenue. The
company also concentrated on improving human capital by recruiting qualified
professionals. This helped the company to focus on medical tourism and take benefits of
rising healthcare awareness. All the above strategies resulted in profitable revenue
growth for the company.
Conclusion:
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 sound
business core. Over the last few years on account of the volatile business environment

Chapter 5
there has been continuous pressure for growth. Most companies have both expanded
their product lines significantly and indulged in what appears to be ever-promotional
activity in an effort to stimulate customer interest and gain share. Other companies are
dabbling in technology or similar big-ticket expenditures for ensuring smooth and revenue
generating operations. All this has resulted in enhanced pressure on companies in
maintaining Profitable business operations. In this volatile world, we must identify and
implement turnaround strategies that is crucial for companies.
(Re-produced from the conference paper presented by Maithili Prashant Dhuri of Indian Education Society - Turnaround
Strategies of Indian Companies-Case study of a Chennai Meenakshi Multispecialty Hospital Ltd. Review of literature on
Turnaround strategy).
5.7 DIVESTMENT STRATEGY

When the industry is on the decline when a business unit is draining the resources
from other more profitable businesses and is not performing well on its own, then
the Divestment Strategy may be pursued. Divestment Strategy is also used to pay-
off corporate debt by a strategic stake sale. Over a period of time, some businesses
may become irrelevant to its corporate growth strategy and lack synergy to the evolved
vision of the corporation then the company may seriously consider monetizing its less
productive assets or businesses by divesting the business fully or partly through a Stake
Sale, by taking a strategic partner on board.
The Divestment strategy can aim at either to completely spin-off the business and
liquidate or to revive the business by taking a partner who has the expertise to rejuvenate
the business and then sell it off when the business growth picks up. The liquidation or
sell-off proceeds are utilized to pay off the long term debt of the company.
The Liquidation Strategy is a last resort for the corporation to sell off the entire business
unit and the assets. In effect liquidation represents the divestment of the non-performing
business and should be considered only under extreme conditions. Shareholders and
creditors might face financial losses, the top management and employees lose their jobs,
the society experiences an increase in unemployment and the government gets less tax
revenues. For this reason, Liquidation should be pursued only when other strategies of
revival are not working.
5.8 BCG GROWTH SHARE MATRIX
The Growth Share Matrix (also known as the Corporate Portfolio Framework or
BCG-Matrix, Corporate Portfolio Diagram) is a chart that was created by Bruce D.
Henderson for the Boston Consulting Group in 1970 to help corporations to
analyze their business units and their product lines. This framework was developed
to provide guidelines for corporate strategists to compare the various businesses to
market growth.
This helps the company to allocate resources appropriately and the framework is used as
an analytical tool in strategic management in the areas of Brand Marketing and Portfolio
Analysis. Analysis of market performance by firms using its principles has called for its

usefulness into question, however, it is understood that company specific conditions may
require exceptions to these guidelines, and it is recognized that these frameworks
provide an excellent starting point to consider strategy in large corporations having
multiple business interests. The Boston Consulting Group (BCG)'s original
framework is the most used approach.
Fig. 5.1: The BCG Growth Share Matrix
To use the chart, analysts plot a scatter graph to rank the business units (or products) on
the basis of their relative market shares and growth rates.
Cash Cowis where the company has a high market share in a slow-growing industry.
These units typically generate cash in excess of the amount of cash needed to
maintain the business. They are regarded as staid and boring, in a mature market,
and every corporation would be thrilled to own as many as possible. They are to be
milked and harvested continuously with as little investment as possible, since such
investment would be wasted in an industry with low growth.
Dogs, more charitably called pets, are units with low market share in a mature, slow-
growing industry. These units typically "break even", generating barely enough
cash to maintain the business's market share. Though owning a break-even unit
provides the social benefit of providing jobs and possible synergies that assist other
business units, from an accounting point of view such a unit is worthless, not
generating enough cash for the company. They depress a profitable company's
Return on Assets (RoA) ratio, used by many investors to judge how well a company
is being managed. Dogs, it is thought, should be sold off.
Question Marks (also known as Problem Children) are a business operating in a

high market growth but having a low market share. They are a starting point for
most businesses which are start-ups or new businesses. Question Marks have a
potential to gain a market share and become Stars in the future, and eventually Cash

Chapter 5
Cows when the market growth slows. If Question Marks do not succeed in becoming
a market leader, then after perhaps years of cash consumption, they will degenerate
into Dogs when the market growth declines. Question Marks must be analyzed
carefully in order to determine whether they are worth the investment required to
increase a market share.
Stars are units with a high market share in a fast-growing industry. They are
successful Question Marks and have become a market leader in a high growth
sector. The hope is that stars become the next Cash Cows. Stars require high
funding to fight competitions, create marketing visibility and maintain a growth
rate. When growth slows, if they have been able to maintain their category leadership
Stars become Cash Cows, else they become Dogs due to a low relative market
share.
As a particular industry matures and its growth slows, all business units shall become
either Cash Cows or Dogs. The natural cycle for most business units is that they
start as Question Marks, then turn into Stars. Eventually the market stops growing
thus the business unit becomes a Cash Cow. At the end of the cycle the Cash Cow
turns into a Dog.
The overall goal of this ranking was to help corporate analysts decide which of their
business units to fund, and how much; and which units to sell. Managers were supposed
to gain perspective from this analysis that allowed them to plan with confidence to use
money generated by the Cash Cows to fund the Stars and, possibly, the Question Marks.
Only a diversified company with a balanced portfolio of businesses can use its strengths
and potential to truly capitalize on its growth opportunities. The balanced Corporate
Portfolio has:
Stars whose high share and high growth assure the future
Cash Cows that supply funds for that future growth and
Question Marks to be converted into Stars with the added funds
Relative Market Share
This indicates the likely cash generation, because the higher the share the more cash will
be generated. As a result of 'economies of scale' (a basic assumption of the BCG
Matrix), it is assumed that these earnings will grow faster the higher the share. The exact
measure is the brand's share relative to its largest competitor.
Thus, if the brand had a share of 20 percent, and the largest competitor had the same,
the ratio would be 1:1. If the largest competitor had a share of 60 percent; however, the
ratio would be 1:3, implying that the organization's brand was in a relatively weak
position.

If the largest competitor only had a share of 5 percent, the ratio would be 4:1, implying
that the brand owned was in a relatively strong position, which might be reflected in
profits and cash flows. If this technique is used in practice, this scale is logarithmic, not
linear.
On the other hand, exactly what is a high relative share is a matter of some debate. The
best evidence is that the most stable position (at least in the fast-moving Consumer
Goods markets) is for the brand leader to have a share double that of the second brand,
and triple that of the third. Brand leaders in this position tend to be very stable and
profitable.
The reason for choosing relative market share, rather than just profits, is that it carries
more information than just cash flow. It shows where the brand is positioned against its
main competitors and indicates where it might be likely to go in the future. It can also
show what type of marketing activities might be expected to be effective.
Market Growth Rate
Rapidly growing in rapidly growing markets are what organizations strive for; but, as we
have seen, the penalty is that they are usually net cash users - they require investment.
The reason for this is often because the growth is being 'bought' by the high investment,
in the reasonable expectation that a high market share will eventually turn into a sound
investment in future profits. The theory behind the Matrix assumes, therefore, that a
higher growth rate is indicative of accompanying demands on investment.
The cut-off point is usually chosen as 10 per cent per annum. Determining this cut-
off point, the rate above which the growth is deemed to be significant (and likely to lead to
extra demands on cash) is a critical requirement of the technique; and one that, again,
makes the use of the growth-share matrix problematical in some product areas. What is
more, the evidence from Fast-Moving Consumer Goods markets at least is that the most
typical pattern is of very low growth, less than 1 per cent per annum. This is outside the
range normally considered in the BCG Matrix work, which may make application of this
form of analysis unworkable in many markets.
Where it can be applied, however, the Market Growth Rate says more about the
brand position than just its cash flow. It is a good indicator of that market's strength, of
its future potential (of its 'maturity' in terms of the market life cycle), and also of its
attractiveness to future competitors. It can also be used in growth analysis.
Balanced Strategy
A well-balanced business strategy ideally should have mostly Stars and Cash Cows,
some Question Marks, and a few Dogs. To attain this ideal scenario, there could be four
options of Corporate Strategies:

Chapter 5
1. Strategic managers can have a strategy to build a market share with stars and
question marks. The question marks have the potential to become the future star of
the corporation. So the corporate strategy should be to identify and support the
promising question marks so that they can be transformed into stars. It may involve
increasing the scale of volume or aggressively price the products and services, which
may impact the overall profitability of the business in the short term.
2. The corporate strategy can be to hold a market share with the cash cows, thereby
generating more cash flows from operations than building a market share. The
corporate can use the cash flows contributed by the cash cows to support the stars
and potential question marks to grow their market share.
3. In this, the corporate strategy is to harvest more or milk as much short term cash
from the business as possible while allowing its market share to decline or remain
steady. It is a trade-off between cash flow and profitability, and the market
share. The cash generated from this strategy can also be used to support the stars
and promising question marks. In this strategy, the businesses harvested usually
include dogs, weak cash flows and question marks with less business potential.
4. The strategy is to divest the business unit partially or completely to provide cash back
to the corporation and arrest the outflow of cash that would have otherwise been
spent on the business in future. In this strategy, generally, the dogs and the less
promising question marks are divested, and the corporation re-allocates to the stars
and more promising question marks.
A Corporate Strategy should be dynamic enough to maintain a balance between

multiple business units, some of which generate cash, and some require funds for
growth, for a healthy corporate profitability. So, the corporate strategy is to analyze,
identify and draw a line between the high- growth, high cash-generating businesses
within the group, from the ones that are using the resources for its growth or sustenance.
The balance of businesses on both the lines can be a critical factor in decisions to
acquire new businesses or divest the old ones.
The BCG Matrix gives importance to market share leadership as a barometer for
profitability which may not be the right corporate strategy to take decisions related
to corporate investments and divestments. In this framework, some question marks
are cultivated to become leaders, but less promising question marks and dogs are
usually targeted for harvesting or divestment.
Limitations and Critical Evaluation
While theoretically useful, and widely used, several academic studies have called into
question whether using the Growth-Share Matrix actually helps businesses succeed. One
study (Slater and Zwirlein, 1992) which looked at 129 firms found that those who follow
Portfolio Planning Models like the BCG Matrix had lower shareholder returns.

The matrix ranks only the market share and industry growth rate, and only implies actual
profitability, the purpose of any business. (It is certainly possible that a particular dog can
be profitable without cash infusions required, and therefore should be retained and not
divested.) The matrix also overlooks other elements of the industry.
With this or any other such analytical tool, ranking business units has a subjective
element involving guesswork about the future, particularly with respect to growth rates.
Unless the rankings are approached with rigor and skepticism, optimistic evaluations can
lead to a dot com mentality in which even the most dubious businesses are classified as
"question marks" with good prospects; enthusiastic managers may claim that cash
must be thrown at these businesses immediately in order to turn them into stars, before
growth rates slow and it's too late. Poor definition of a business's market will lead to some
dogs being misclassified as cash cows.
Alternative Marketing Techniques
As with most marketing techniques, there are a number of alternative offerings vying with
the growth-share matrix although this appears to be the most widely used. The next most
widely reported technique is that developed by McKinsey and General Electric, which
is a three-cell by three-cell matrix using the dimensions of `industry attractiveness'
and `business strengths.
This approaches some of the same issues as the growth-share matrix but from a different
direction and in a more complex way (which may be why it is used less or is at least less
widely taught). A more practical approach is that of the Boston Consulting Group's
Advantage Matrix, which the consultancy reportedly used itself though it is little known
amongst the wider population.
5.9 CORPORATE INVOLVEMENT IN SBU [4]
Most corporates define the vision and stipulate policy guidelines to control the business
unit level operations strategically. The extent to which the corporates are involved with
each business varies from one company to another. Such participation is generally
aimed at steering and grooming the business in a healthy manner, and it is mostly
welcomed by the top executives in the business units. However, in some companies,
there is a perception that the corporate involvement is considered as interference or
stifling its progress.
But, either way, Corporate Involvement becomes necessary to take right decisions
at the right time related to the strategic matters, company performance, decisions
related to investment and divestment, in the interest of creating value for the stake
holders. In the process, some corporates follow a Decentralization Strategy, and some
others follow a Centralization Strategy. And many corporations operate in between these
two extremes by finding a balance, which supports healthy performance.
In Decentralization, the organizational decision making process in which most strategic

and operating decisions within the operating unit are made by the top executives at the

Chapter 5
business unit level itself. This is administered through a clear definition of policy
guidelines and delegation of authority. With the most optimal delegation, the
decentralization strategy greatly improves the efficiency and speed of the decision
making process. This can be helpful in companies where the business units are highly
performance driven and are mostly stars or cash cows. In this strategy, there will be
fewer corporate staff required as most of the planning and execution are delegated to the
business unit managers.
In Centralization, the organizational decision making process in which most strategic

and operating decisions are made by strategic managers at the top of the organization
structure at the corporate headquarters. This can affect the decision making process and
the efficiency. Such organizations are perceived to be bureaucratic.
Here, the decisions for day-to-day operations at the Functional level like production,
finance, marketing, procurement, human resources, its R&D etc. have to be referred to
the corporate headquarters every time. The corporate organization attempts to control
the activities of a diverse array of business units which eventually creates delays in the
decision making process and the business unit becomes less agile. Also, as the
organization grows, there will be a greater number of corporate staff required to analyze
the strategic requirements and make decisions, thereby creating a major disconnect
between the corporate management and the business unit.
In today's corporate world, most of the organizations operate in between these two
extremes by clearly defining the Organizational Authority Matrix, a strategy which
allows the corporate to focus on its long term vision and step in only on a calibrated
manner with the individual business unit management. However, the Corporate
Involvement actually depends on the changes in the macro-economic environment like
high growth or slowdown or other external factors like political, regulatory changes
happening in its environment.
5.10 GLOBAL CORPORATE STRATEGY
Global MNCs who set up their presence in other countries including emerging markets
like India, China, Brazil etc. bring in their global strategy, expertise, and best practices in
areas like marketing, production, research, and development etc. Their product
innovation and marketing strengths combined with the local people's skills and cost
advantages serve them to capture the market by customizing their product ideas to suit
the country's culture. This idea or strategy, famously known as 'think global and act
local', has worked well for many global companies including Indian MNCs.
Many Indian corporates have forayed into global markets, with great success stories to
show case India as a potential domestic market for investment as well as a potential
market with aspirational corporates willing to pursue a Global Business Strategy. This
has led to expansion and diversification, the ability to build economies of scale and a
relatively high market share.

The corporates which venture outside the domestic market have many options in order to
pursue their global aspirations. The first option is wherein some companies choose to be
involved on an international basis by operating in various countries but limiting their
involvement to importing, exporting, licensing, or by making strategic alliances.
Exports can significantly benefit a company to start their international business

foray. Some companies import their raw materials or semi-finished goods from sources
from international countries, which offer competitive pricing and other government tax
benefits for certain critical industries. However, International Joint Ventures, a form of
strategic alliance involving cooperative agreements, may be desirable even when
resources for direct investment are available.
Strategic Alliances provide a number of opportunities to an organization. They

provide entry into a global market, access to the partner's knowledge about the
market, and sharing risk with the partner. The alliance partnership works well, when
both the partners can learn from each other, and they need each other to complement
their strengths and share common strategic objectives. Strategic alliances are preferred
over direct investments as they present less risk than the latter.
Some corporates, which have aggressive strategies, with global aspirations may decide
to invest directly in facilities abroad to expand their global involvement. We have seen
many global automobile companies like Hyundai, Ford, GM, and Toyota have made
investments in their factories and facilities in India with a long term view to do business in
India and expand their footprint into the country with the second largest world population.
Similarly, many global companies in various other industries like single brand
retail, pharma, telecom companies have invested significantly in India as well.
Globally as well, Indian corporates have also made huge investments abroad in their
quest to expand and diversify their businesses into Europe, US, Africa, Latin America etc.
Examples would be Mother Son Sumi System, one of India’s leading automobile
component manufacturing company acquired Visiocorp and Peguform to further
expand its presence. It now has offices and manufacturing units in 24 international
and 11 Indian location. Tata Communications acquired Canada-based Teleglobe
and India’s DishnetDSL, whereby they are connected with 200 countries offering
different telecommunication services. Dr Reddy’s Laboratories took the acquisition
route for growth. Among its biggest acquisitions was Betapharm for which the
company paid 480 million euros. Today it has manufacturing plants and research
centers around the globe including markets such as US, UK, and Mexico.Indian
companies have often understood the challenges in other markets by learning about the
domestic market potential, regulatory conditions, and consumer preferences, political and
social factors. Indian companies have withstood the long period of economic slowdown
both in the west as well as in India over the past five years (2008-2013). Indian
companies were able to thwart the recessionary pressure by diversifying into other
markets and by leveraging the differential risks related to macro-economic factors in
various markets.

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The other conservative strategies available to a corporate company which seeks

international presence are through international licensing and international franchising.
International Licensing is an arrangement whereby a foreign licensee purchases the
rights to produce a company's products or use its technology in the licensee's country for
a negotiated fee structure. For example, this arrangement is very common in the
Pharmaceuticals Industry. Drug producers in one country typically allow producers in
the other country to produce and market their products abroad under a license
agreement.
International Franchising is a form of Licensing in which a local franchisee pays a

franchiser in another country for the right to use the franchiser's brand names,
promotions, materials, and processes. Franchising is more commonly employed in
services industries like fast food restaurants.
Global Orientation
Global Orientation is a necessity for companies to remain in business for a longer time
and deliver innovative products and services in line with international market trends.
There are many reasons for a company to change its strategy from Domestic Orientation
to Global Orientation:
1. Pursuing global markets can reduce per capita production costs by achieving
economies of scale.
2. A global strategy helps extend the product life cycle whose domestic markets may be
declining.
3. Setting up facilities abroad can help the company benefit from comparative
advantage, i.e the difference in local resources among nations that provide cost
advantage and labour arbitrage.
4. A global orientation can also help reduce risks because the demand and competitive
factors tend to vary among nations.
5. The company can leverage the technology expertise of the partner in another country
to produce products that otherwise would have taken many years to implement.
Emerging economies like China, India, South Africa, Mexico are attractive investment
opportunities in many respects, however there are other challenges as well like poor
infrastructure, cumbersome government regulations, local political system etc. There is
significant foreign capital flowing into these countries with global companies expanding
into various industry sectors. Indian corporates are growing their business by pursuing
expansion in other emerging economies as well, as those nations warrant economic
development. However, the advantages and disadvantages of growth through global
expansion must be considered carefully before pursuing a strategy for expansion into an
emerging market.

5.11 SUMMARY
This chapter has dealt with the key strategic decisions to be made at the corporate level.
Firstly, the corporate management must identify the corporate profile and determine
whether the company will operate in a single business or more than one related business
or venture into other unrelated businesses.
There are benefits and challenges in each of these options. Secondly, the corporation
must make a choice of business strategy as per their laid down vision viz: growth,
stability, or retrenchment. This chapter also has presented the various growth and
retrenchment strategies that help in addressing the corporate strategy requirements.
Corporate portfolio frameworks like the BCG matrix may help the strategic managers to
manage the various business units in relation to their revenues, market share and cash
flows. While engaging with various businesses, the corporation must clearly decide on
the extent to which it should involve itself in the business operations of the various units.
While expanding into global markets, various options have been evaluated here.
International concerns represent a key consideration to a company's corporate strategy.
There are various options, both aggressive and conservative choices, available each with
advantages and disadvantages, depending on the level of aspiration a corporate has to
expand into the international markets.
1. In Horizontal Integration with the aim of Diversification, what is the purpose of the
Corporate Strategy with regards to the acquisition of a company?
a) The purpose is to increase the market share of the business
b) The purpose is to provide a bigger brand name for the combined entity
c) The purpose is to grow the existing business
d) The purpose was that certain key competencies were lacking in one or two areas
of its business, in order to complete and complement its overall business strategy
2. What is the first step in formulating the Corporate Strategy?

a) To identify the corporate profile
b) To formulate a growth strategy
c) To define the merger and acquisition strategy
d) To implement the BCG framework
3. You are entrusted with the job of defining the Corporate Profile and relevant strategy
of your organization. What is your understanding of a Corporate Profile and what
would be your strategy?
a) To understand the macro environment and decide the strategy to suit the
organization businesses
b) Corporate profile is a function of the company's mission, culture and values,
strategy and direction, strengths and weaknesses, opportunities, and threats to

Chapter 5
stay ahead on the face of challenges posed by the industry, competition, and the
macro environment
c) To create strategy for all the business units and make a centralised strategy for
all businesses
d) To create a global business strategy and define a plan for mergers and
acquisitions to grow the businesses of various SBUs
4. What are the benefits of the BCG Growth Share Matrix with respect to Corporate
Strategy Formulation?
a) It helps the company to allocate resources appropriately and the framework is
used as an analytical decision making tool in corporate strategic management in
the areas of brand marketing and portfolio analysis of its various businesses.
b) It helps in creating a company's market share and defining the market growth
rate
c) It helps in diversifying into various businesses to grow the corporate business
5. What is the difference between Stars and Cash Cows in an Industry?

a) Star is a company with a high market share in a fast-growing industry and Cash
cow is a company has high market share in a slow-growing industry
b) Star is a company with high revenue share in a slow growing industry and Cash
cow is a high revenue share in a fast growing industry
c) Star is a company with high profits in a fast growing industry and Cash cow is
one with low profits in a slow growing industry
d) Star is a high performer in the market and cash cow is a low performer in the
industry
6. __________________ is the analysis of a company as a collection of different

businesses with a view to identifying status and potentials of the various business
with regard to resource use and resource generation.
a) Transaction Analysis
b) Portfolio Analysis
c) SWOT Analysis
d) Event Analysis
Answers: 1.(a), 2.(a), 3.(b), 4.(a), 5.(a),6.(b)
References:
1. Morgen Witzel, Tata - The Evolution of a Corporate Brand, P xvi
2. John A Parnel, Strategic Management, Theory and Practice, P 70-76
3. Corporate Dossier, Economic Times, 22/11/2013
4. John A Parnel, Strategic Management, Theory and Practice, P 78-79

ANNEXURE
Corporate Level Strategy of Mahindra & Mahindra Ltd.
Mahindra Group is an Indian multinational conglomerate, headquartered in Mumbai. The

group has operations in over 100 countries. The corporate level strategy of Mahindra &
Mahindra encompasses several strategic initiatives for growth of the organization, and
same
Diversification: Mahindra & Mahindra has pursued a strategy of diversification,

expanding its presence into multiple industries and sectors. This diversification helps the
company mitigate risks associated with fluctuations in specific markets and allows it to
leverage synergies across different businesses.
M&M Ltd. has its presence in aerospace, agribusiness, aftermarket automotive

components, construction equipment, defense, energy, farm equipment, finance and
insurance, industrial equipment, information technology, leisure and hospitality, logistics,
real estate, retail, and education.
Global Expansion: M&M has been actively pursuing global expansion to establish a
strong international presence. The company has made strategic acquisitions and
collaborations to enter new markets, especially in emerging economies and key
developed markets.
Mahindra & Mahindra has entered various international markets by exporting its vehicles
and farm equipment to different countries. The company's automotive and tractor
divisions have made significant inroads into markets in Africa, the Middle East, Southeast
Asia, Latin America, and beyond.
Mahindra & Mahindra has set up manufacturing facilities in several countries namely the
United States, Brazil, South Africa, and Italy.
M&M's farm equipment division has expanded into international markets, particularly in
regions where agriculture plays a vital role. The company has established a significant
presence in markets like the United States, where it offers a range of tractors and
agricultural machinery.
In 2011, Mahindra & Mahindra acquired a majority stake in the South Korean automaker
SsangYong Motor Company.M&M Ltd. later divested their holding in this company.
Sustainable and Green Initiatives: The company has shown a commitment to

sustainability and green initiatives by investing in electric and hybrid vehicle technologies.
M&M aims to develop cleaner and more eco-friendly mobility solutions to align with global
efforts to reduce carbon emissions.

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Innovation and R&D: To stay competitive in the rapidly evolving automotive and
technology sectors, Mahindra & Mahindra emphasizes research and development (R&D)
and invests in innovation. The company focuses on creating cutting-edge products and
solutions to meet customer demands and stay ahead of the competition. Mahindra has
acquired Italian car design company Pininfarina.
Strategic Partnerships and Alliances: The company has formed strategic partnerships
and alliances with various global players to gain access to new technologies, markets,
and expertise. Such collaborations also facilitate knowledge exchange and enable M&M
to remain at the forefront of industry trends. Some of the strategic partnerships and
alliances in the past are with FORD Motors Company (later discontinued), Renault S.A.
to manufacture and market their leading sedan car LOGAN (Later discontinued),
Mitsubishi Agricultural Machinery Co. Ltd., in the field of farm equipment, Israel
Aerospace Industries (IAI)to manufacture and supply structural assemblies and
aerostructures for various aircraft platforms. In the recent past, Mahindra & Mahindra
invested in Meru Cabs, a ride-hailing service in India, to foster the development of electric
vehicle-based urban mobility solutions.
Inorganic Growth: In addition to organic growth, M&M has pursued inorganic growth
strategies through mergers and acquisitions. These acquisitions have enabled the
company to expand its product portfolio, enter new markets, and gain a competitive
advantage.
This case is a sufficient read for the students to comprehend and accept that various
strategic models and frameworks discussed are actually applied also by leading
organizations for their business growth.


Chapter 5

REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
Video2
6
Chapter
BUSINESS UNIT LEVEL
STRATEGY
Objectives:
This chapter focuses on the key strategic decisions to be made at the business unit level,
to identify the appropriate strategy to compete in the market. It explains the Porter's
Generic Strategy Framework that helps define the right business strategy, cost
leadership model or differentiation leadership model. It also introduces an alternative
called Miles and Snow's Strategy Framework for discussion. At the end of the chapter,
you will be able to understand the following:
Understand Porter's Generic Strategy Framework
Cost Leadership Strategy
Differentiation Strategy
Miles and Snow's Strategy Framework
Choosing the right Generic Strategy for business
Social Business Strategy
Competitive Advantage

6.1 Introduction
6.2 Porter's Generic Strategy Framework
6.3 Cost Leadership Strategy
6.4 Differentiation Strategy
6.5 Focus or Leadership Strategy
6.6 Recent Developments
6.7 Criticism of Generic Strategies
6.8 Choosing the Right Generic Strategy
6.9 The Miles and Snow's Strategy Framework
6.10 Social Business Strategy
6.11 The Competitive Advantage
6.12 Business Size and Competition Assessment
6.13 Global Scenario
6.14 Summary

Chapter 6
6.1 INTRODUCTION
After the corporate level strategy has been decided, the strategic managers will need to
focus on the business unit level strategy. In a diversified business where the organization
is engaged in multiple businesses, there is a need for unique strategies for individual
businesses. The generic strategies they need to focus on are the SBU's mission, the
competitive landscape, competitive advantage, and the strategic objectives to achieve
the mission. While the Corporate Strategy drives the overall organization strategy
and thrust, the Business Unit Strategy addresses the competitive aspect in the
marketplace. These include how to develop the business, which are the target markets,
and who are the target customers, what strategy is required to deliver the products and
services and how to develop core competencies required for the business, and what
positioning the organization needs to take, so that the customers are able to identify the
business for their needs.
A Business Unit is an independent business entity with its own vision, industry, and set
of competitors. A single firm that operates within one single industry is also considered as
a business unit. Each business unit will have a unique strategy. The SBU level strategy,
also called Business Strategyor Competitive Strategy, is concerned with decisions
pertaining to the product mix, the marketing mix, and defining and implementing
competitive advantage for the SBU. While corporate strategy decides the business
portfolio, the business unit strategy decides on the specific strategies required to become
successful in the chosen business. The SBU strategy has to obviously conform to the
corporate philosophy and the strategy.
The Business Unit Strategies can be classified into a limited number of Generic
Strategies based on their similarities within the industry. Generic Strategies emphasize
on the commonalities among different business strategies, not their differences. After the
corporate level strategy, the responsibility for SBU Strategy is with the top executives of
the SBU who the second tier executives in the Corporate Hierarchy are normally. In
single SBU organizations, the senior executives of the firm have both corporate and SBU
level responsibilities.
Strategic managers within the SBU devise the competitive strategies for each business
unit to create a sustainable competitive advantage thereby the competitors cannot easily
duplicate its unique strategies. In most industries, a number of competitive approaches
can be successful, depending on the business unit's resources.
Let us take Airlines industry as an example where there are competitive strategies
to attract a specific segment of customers - on one side you have customers who are
price sensitive and on the other side you have experience sensitive customers who are
keen on getting fulfilling experience, while consuming the services. Both the approaches
are competitive in nature, and both are still successful. You have Indigo Airlines with
low frills: the low cost strategy is successful and so is Jet Airways, who cater to high

Business Unit Level Strategy
value customers who seek on-board experience. Both are equally competitive in their
customer segments and yet successful in the airline industry.
There are challenges while formulating and implementing a Generic Strategy as it is

impacted by various internal and external factors. Selection of the generic approach is
only the first step in formulating a Business Strategy. It is always necessary to fine tune
the strategy with respect to the organization’s unique set of strengths. In this regard,
Porter's Generic Framework is a good starting point for developing a business strategy.
6.2 PORTER'S GENERIC STRATEGY FRAMEWORK
Fig. 6.1 : Michael Porter’s Generic Strategy Framework
A competitive strategy is about being different. It means deliberately choosing to perform

activities differently or to perform different activities than rivals to deliver a unique mix of
values - Michael Porter. Michael Porter, a leading authority on corporate strategy and
competitiveness of companies across geographical regions, has developed a Generic
Strategy Framework which is commonly used by many organizations to achieve and
sustain competitive advantage. These generic strategies are based on two basic
Competitive dimensions:
a) Strategic Scope: It is a demand side dimension and looks at the size and
composition of the market the companies intend to target. There are two kinds of
market it can address: broad market scope or narrow market scope
b) Strategic Strength or Advantage: It is supplying side dimensions and looks at

the core strength or core competency of the firm to differentiate its offerings in the
marketplace. It is either cost competency or unique differentiation competency.
He identified two important competencies that he felt were most relevant for a
company's mission and strategy: product differentiation and product cost. Pl refer to
the figure 6.1 above.

Chapter 6
Firstly, the strategic managers of a business unit must determine whether it should focus
its efforts on an identified subset of the industry in which it operates or it should seek to
serve the entire marketplace as a whole. Specialty food restaurants, Mainland China
that focuses on a unique concept and concentrate their efforts on specialized foods in
their menu seek to attract a niche segment of customers. Here the customers get a
unique experience of dining. In contrast, there are many large restaurants that appeal to
the general public to serve the mass market with a wide variety of menus to satisfy a
broad segmentation of customers.
Secondly, the strategic managers should also determine whether the business unit
should compete primarily by a low cost strategy (relative to its competitors) or by
focusing on offering unique products and services through the Differentiation
Strategy. These two alternatives in general are mutually exclusive because the
differentiation strategy need not always be cost effective and vice versa.
However, there could be a strategy that brings both cost leadership as well as
differentiation together to the marketplace. Also, some businesses bring low-cost-
differentiation as a viable alternative. Combining these two strategies is difficult, but it can
be a great strategy to create a new market space.
In his 1980 classic Competitive Strategy [1]: Techniques for Analyzing Industries
and Competitors, Porter simplifies the scheme by reducing it down to the three
best strategies. They are:
1. Cost Leadership
2. Differentiation
3. Market Segmentation (or focus)
Market Segmentation is narrow in scope while both Cost Leadership and

Differentiation are relatively broad in market scope. An empirical study on the profit
impact of Business Strategy indicated that firms with a high market share were often
quite profitable, but so were many firms with a low market share. The least profitable
firms were those with a moderate market share. This was sometimes referred to as the
hole in the middle problem.
Porter's explanation of this is that firms with a high market share were successful
because they pursued a Cost Leadership Strategy and firms with a low market share
were successful because they used Market Segmentation to focus on a niche but
profitable market strategy. Firms in the middle were less profitable because they did not
have a viable generic strategy.
Porter suggested that combining multiple strategies is successful in only one case.
Combining a market segmentation strategy with a product differentiation strategy was
seen as an effective way of matching a firm's product strategy (supply side) to the
characteristics of the company's target market segments (demand side). But

combinations like cost leadership with product differentiation were seen as hard (but
possible) to implement due to the potential for conflict between cost minimization and the
additional cost of Value-added differentiation.
Since that time, empirical research has indicated companies pursuing both
Differentiation and Low-cost strategies may be more successful than companies
pursuing only one strategy.
Some commentators have made a distinction between cost leadership, that is, low cost
strategy and best cost strategies. They claim that a Low cost strategy can rarely provide
a sustainable competitive advantage. In most cases firms end up in price wars. Instead,
they claim that a Best cost strategy is always preferred. This involves providing the best
value for a relatively low price.
6.3 COST LEADERSHIP STRATEGY
Large businesses compete in a mass market which is composed of low cost products or
services. This strategy involves the firm winning a market share by appealing to cost-
conscious or price-sensitive customers. The customers are generally willing to pay only
low to average prices for basic products and services, and it is essential that businesses
using this strategy keep their overall costs as low as possible. This is achieved by having
the lowest prices in the target market segment, or at least the lowest price to value ratio
(price compared to what value customers receive).
To succeed at offering the lowest price while still being able to achieve profitability
and a high return on investment, the firm must be able to operate at a lower cost
than its rivals. There are three main ways to achieve this.
The First approach is achieving a high asset turnover. This means, in service
industries, for example, a restaurant that turns tables around very quickly, or an airline
that turns around flights very fast like the Southwest Airlines. In manufacturing, it will
involve production of high volumes of output. Advance booking in airlines to capture
customers during high demand seasons like summer or new-year vacations.
This approach means fixed costs are spread over a larger number of units of the product
or service, resulting in a lower unit cost, i.e. the firm hopes to take advantage of
economies of scale and experience curve effects. For industrial firms, mass production
becomes both a strategy and an end in itself. Higher levels of output both require and
result in a high market share, and create an entry barrier to potential competitors, who
may be unable to achieve the scale necessary to match the firm's low costs and prices.
The Second dimension is achieving low direct and indirect operating costs. This is
achieved by producing and offering high volumes of standardized products, offering basic
no-frills products, and limiting customization and personalization of service. Production
Costs are kept low by using fewer components, using standard components, and limiting
the number of models produced to ensure larger production runs. Overheads are kept

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low by paying low wages, locating premises in low rent areas, fostering, and establishing
a cost-conscious culture, etc.
In this approach, we can quote Southwest Airlines' strategy to produce high

volume, no frills airline seats as an example of standardizing the services with
higher turn-around of flights. Maintaining this strategy requires a continuous search for
cost reductions across all operational parameters and in all aspects of the business. This
will include outsourcing, controlling production costs, increasing asset capacity utilization,
operations turnover and minimizing other costs including distribution, R&D, and
advertising. The associated Distribution Strategy is to obtain the most extensive
distribution possible. Promotional strategy often involves trying to make a virtue out of low
cost product features.
The third dimension is control over the supply/procurement chain to ensure low
costs. This could be achieved by bulk buying to enjoy quantity discounts, squeezing
suppliers on price, instituting competitive bidding for contracts, working with vendors to
keep inventories low using methods such as Just-in-Time purchasing or Vendor-
Managed Inventory to reduce costs of inventory, interests, and operating capital.
For example, Wal-Mart is famous for squeezing its suppliers to ensure low prices for its
goods. Dell Computers initially achieved a market share by a unique low cost direct
marketing strategy, keeping inventories low and only building computers to order. Other
procurement advantages could come from preferential access to raw materials, or
backward integration.
Some small and medium companies believe that cost leadership strategies are only
viable for large firms with the opportunity to enjoy economies of scale and large
production volumes. However, this takes a limited industrial view of strategy. Small
businesses can also be cost leaders if they enjoy any advantages conducive to low costs.
For example, a local restaurant in a low rent location can attract price-sensitive
customers if it offers a limited menu, rapid table turnover and employs staff on minimum
wages.
Innovation of products or processes may also enable a start-up or small company to offer
a cheaper product or service where incumbents' costs and prices have become too high.
An example is the success of low-cost budget airlines who despite having fewer planes
than the major airlines, are able to achieve market share growth by offering cheap, no-
frills services at prices much cheaper than those of the larger incumbents. Example:
Southwest Airlines.
A cost leadership strategy may have the disadvantage of lower customer loyalty, as
price-sensitive customers will switch once a lower-priced substitute is available. A
reputation as a cost leader may also result in a reputation for low quality, which may
make it difficult for a firm to rebrand itself or its products if it chooses to shift to a
Differentiation Strategy in future. The REALME mobile phone is a classic example.

When they entered India, they were considered as mobile for lower middle-class
but over a period, they have offered certain hi-enf feature rich products due to
which it has acquired an acceptance among higher middle class as well.
There is a concern in low cost strategy, as the competitors can easily duplicate the
product if there is no proprietary feature(s) for its protection. Low cost businesses are
also usually vulnerable to obsolescence. The companies that do not respond to new
features and new market demands / opportunities will eventually find their products to
have become obsolete.
6.4 DIFFERENTIATION STRATEGY
The approach here is to differentiate the products in some way in order to compete
successfully. Examples of the successful use of a differentiation strategy are Hero
Honda, Asian Paints, HUL, Nike athletic shoes, BMW Group Automobiles, Apple
Computer, Mercedes-Benz automobiles,.
A Differentiation Strategy is appropriate where the target customer segment is not

price-sensitive, the market is competitive or saturated, customers have very specific
needs which are possibly under-served, and the firm has unique capabilities and
resources which enable it to satisfy these needs in ways that are difficult to copy. These
could include Patents or other Intellectual Property (IP), Unique technical expertise
(e.g. Apple's design skills or Pixar's animation prowess), Talented personnel (e.g. a
sports team's star players or a brokerage firm's star traders), or Innovative
processes.
Successful Brand Management also results in perceived uniqueness even when the
physical product is the same as the competitors. This way, Chiquita (Chiquita Brands
International Inc. is an American producer and distributor of bananas and other
produce, under a variety of subsidiary brand names, collectively known as Chiquita) was
able to brand bananas, Starbucks (Starbucks Corporation is an American global coffee
company and coffeehouse chain based in Seattle, Washington and has presence across
the globe) could brand coffee, and Nike could brand sneakers and Apple for its
computers, iphones, ipads and ipods. Fashion Brands rely heavily on this form of
image differentiation. We can quote many examples of companies that follow
differentiation strategy with sustained innovation in their products and services strategy.
Variants on the Differentiation Strategy
The Shareholder Value Model holds that the timing of the use of specialized knowledge
can create a differentiation advantage as long as the knowledge remains unique [2] and
makes it impossible for the competition to copy it. This model suggests that customers
buy products or services from an organization to have access to its unique knowledge.
The advantage is static, rather than dynamic, because the purchase is a one-time event.

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The Unlimited Resources Model utilizes a large base of resources that allows an
organization to outlast competitors by practicing a differentiation strategy. An organization
with greater resources can manage risk and sustain profits more easily than one with
fewer resources. This provides a short-term advantage only. If a firm lacks the capacity
for continual innovation, it will not sustain its competitive position over time.
6.5 FOCUS OR LEADERSHIP STRATEGY
This dimension is not a separate strategy per se but describes the scope over which the
company should compete based on cost leadership or differentiation. The firm can
choose to compete in the mass market segment (like Wal-Mart) with a broad scope, or in
a defined, focused market segment with a narrow scope. In either case, the basis of
competition will still be either cost leadership or differentiation.
In this strategy, while adopting a narrow focus, the company ideally focuses on a few
target markets (also called a Segmentation Strategy or Niche Strategy). These should
be distinct groups with specialized needs. The choice of offering low prices or
differentiated products/services should depend on the needs of the selected segment and
the resources and capabilities of the firm. It is hoped that by focusing the firm's marketing
efforts on one or two narrow market segments and tailoring the marketing mix to these
specialized markets, the company can better meet the needs of that target market.
In this case, the firm typically looks to gain a competitive advantage through
Product Innovation and/or Brand Marketing rather than Efficiency. It is most suitable
for relatively small firms but can be used by any company. A Focused Strategy should
target market segments that are less vulnerable and are not susceptible to substitutes or
where a competition is weakest to earn above-average return on investment.
Examples of a firm using a Focus Strategy include Southwest Airlines, which

provides short-haul point-to-point flights in contrast to the hub-and-spoke model of
mainstream carriers.
In adopting a broad focus scope, the principle remains the same: the firm must ascertain
the needs, wants of the mass market, and compete either on price (low cost) or
differentiation (quality, brand, and customization) depending on its resources and
capabilities. Wal-Mart has a broad scope and adopts a cost leadership strategy in the
mass market. Pixar also targets the mass market with its movies, but adopts a
differentiation strategy, using its unique capabilities in story-telling and animation to
produce signature animated movies that are hard to copy, and for which customers are
willing to pay to see and own. Apple also targets the mass market with its iPhone and
iPod products but combines this broad scope with a Differentiation strategy based on
design, branding and user experience that enables it to charge a price premium due to
the perceived unavailability of close substitutes.

6.6 RECENT DEVELOPMENTS
Michael Treacy and Fred Wiersema (1993) in their book The Discipline of Market
Leaders have modified Porter's three strategies to describe three basic "value
disciplines" that can create customer value and provide a competitive advantage. They
are Operational excellence, Product leadership, and Customer intimacy.
A popular post-Porter model was presented by W. Chan Kim and Renée

Mauborgne in their 1999 Harvard Business Review article "Creating New Market
Space". In this article they described a "value innovation" model in which companies
must look outside their present paradigms to find new value propositions. Their approach
complements most of Porter's thinking, especially the concept of differentiation. They
later went on to publish their ideas in the book Blue Ocean Strategy [3] . Thus, it is
difficult, but possible to create an uncontested marketplace or even to topple a firm that
has established a dominant standard in its industry or marketplace.
6.7 CRITICISMS OF GENERIC STRATEGIES
Several commentators have questioned the use of Generic Strategies claiming they lack
specificity, lack flexibility, and are limiting in its scope and possibilities, which in today's
world presents many challenges as well as opportunities.
Porter stressed the idea that only one strategy should be adopted by a firm and
failure to do so will result in a “stuck in the middle" scenario. He discussed the idea
that practicing more than one strategy will lose the entire focus of the organization; hence
clear direction of the future trajectory could not be established. The argument is based on
the fundamental that differentiation will incur costs to the firm which clearly contradicts
with the basis of low cost strategy and on the other hand relatively standardized products
with features acceptable to many customers will not carry any differentiation hence, cost
leadership and differentiation strategy will be mutually exclusive.
The two focal objectives of low cost leadership and differentiation may clash with each
other resulting in no proper direction for a firm. However, there is a viable middle ground
between strategies. Many companies, for example, have entered a market as a niche
player and gradually expanded. According to Baden-Fuller and Stopford (1992) the
most successful companies are the ones that can resolve what they call "the dilemma of
opposites".
However, contrary to the rationalization of Porter, contemporary research has shown

evidence of successful firms practicing such a "hybrid strategy", by which firms
employing the Hybrid business strategy (low cost and differentiation strategy) outperform
the ones adopting one generic strategy. Many challenge Porter's concept regarding
mutual exclusivity of low cost and differentiation strategy and further argued that
successful combination of those two strategies will result in a sustainable competitive
advantage.

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In today's fast changing world, multiple business strategies may be required to

respond effectively to any challenging environment condition. In the mid to late
1980s where the environments were relatively stable there was no requirement for
flexibility in business strategies but survival in the rapidly changing, highly volatile and
unpredictable present global market contexts will require flexibility to face any
contingency.
Though Porter had a fundamental rationalization in his concept about the invalidity of a
hybrid business strategy, the highly volatile and turbulent market conditions will not
permit survival of rigid business strategies since long term establishments will depend on
the agility and the quick responsiveness towards market and environmental conditions.
Market and environmental turbulence will make drastic implications on the root
establishment of a firm. If a firm's business strategy could not cope with the
environmental and market contingencies, long term survival becomes unrealistic. To
diverge the strategy into different avenues with the view to exploit opportunities and avoid
threats created by market conditions will be a pragmatic approach for a firm.
Critical analysis done separately for cost leadership strategy and differentiation strategy
identifies elementary value in both strategies in creating and sustaining a competitive
advantage. Consistent and superior performance than the competition could be reached
with stronger foundations in the event a "hybrid strategy" is adopted. Depending on the
market and competitive conditions the hybrid strategy should be adjusted regarding the
extent to which each generic strategy (cost leadership or differentiation) should be given
priority in practice.
6.8 CHOOSING THE RIGHT GENERIC STRATEGY
Large businesses usually employ multiple strategies or more than one strategy to create
a sustainable business model. An organization’s choice of which generic strategy to
pursue underpins every other strategic decision it makes, so it's worth spending time to
get it right. The companies need to make a decision based on their capabilities,
competencies, resources, and risk appetite. However, Porter stressed the idea that only
one strategy should be adopted by a firm and failure to do so will result in a “stuck in the
middle" scenario and specifically warns against trying to "hedge your bets" by following
more than one strategy. One of the most important reasons why this is wise advice is that
the things you need to do to make each type of strategy work appeal to different types of
people. Cost Leadership requires a very detailed internal focus on processes.
Differentiation, on the other hand, demands an outward-facing, highly creative
approach.
Multiple Strategies involve execution of two or more different generic strategies, each
tailored to the needs of an identified distinct market or class of customer. For example,
Airlines use Multiple Strategies whey they offer both no-frills or limited-frills service
(low or average priced) or highly differentiated service (high priced). Hotels also use

Multiple Strategies when they offer basic rooms to most guests but offer reserve suites
to other class of customers.
Porter's generic strategy offers a great starting point for Strategic Decision Making for
organizations. Hence, when the company makes a choice which of the Generic
Strategies is right for the organization, it is vital that the strategic managers take the
organization's competencies and strengths into account by carrying out a comprehensive
SWOT Analysis for the organization. We will discuss this in detail in the chapter strategy
formulation later.
6.9 THE MILES AND SNOW STRATEGY FRAMEWORK
Besides Porter's generic business strategies, there are other strategy frameworks as
well. The most commonly used framework, followed next only by Porter's Generic
Strategy, is introduced by Miles and Snow which considers four types of strategies:
prospectors, defenders, analysers, and reactors. The Miles and Snow Framework
is an alternative to Porter's approach to Generic Strategy [4].
PROSPECTOR
Raymond Miles and Charles Snow suggest that Business Level Strategies
generally fall into one of four categories: Prospector, Defender, Analyser, and
Reactor. An organization that follows a Prospector Strategy is a highly innovative firm
that is constantly seeking out new markets and new opportunities and is oriented towards
growth and risk taking. They perceive a dynamic and uncertain environment and maintain
flexibility to combat environmental challenges and changes. Thus they tend to possess a
loose structure, a low division of labour, and low formalization and low centralization.
They encourage entrepreneurship and new ventures that come up with new business
ideas. They accept the risks associated with new ideas. Prospectors must develop
expertise in innovation and evaluate risk scenarios effectively to ensure competitors are
not able to easily catch with their business. Prospectors typically seek a first mover
advantage, being first to introduce the product or service in the market.
For example, 3M is an excellent firm that uses Prospector Strategies. Over the
years, it has prided itself on being one of the most innovative major corporations in the
world. Employees at 3M are constantly encouraged to develop new products and ideas in
a creative and entrepreneurial way. This focus on innovation has led 3M to develop a
wide range of products and markets, including invisible tape and fabric treatments.
Another example: Johnson & Johnson links Decentralization with a Prospector

Strategy. Each of the firm's different businesses is organized into a separate business
unit, and the managers of these business units hold full decision-making responsibility
and authority, developing entrepreneurship. Often, these businesses develop new
products for new markets. As the new products develop, and sales grow, Johnson &
Johnson reorganizes so that each new product is managed in a separate unit.

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DEFENDER
Rather than seeking new growth opportunities and innovation, an organization that
follows a Defender Strategy concentrates on protecting its current markets, maintaining
stable growth, and serving its current customers. Defenders are almost opposite of
Prospectors. They perceive the environment to be stable and control in their operations
to achieve maximum efficiency. Defenders incorporate an extensive division of labour,
high formalization, and high centralization. They concentrate on only one segment of the
market.
BIC Corporation used Defender strategies, despite its history as an Innovative

firm(the original BIC "crystal" and the BIC "biro" pen were significant innovations in the
writing instruments industry). Since the late 1970's, with the maturity of the market for
writing instruments, BIC has adopted a less aggressive, less entrepreneurial style of
management and has chosen to defend its substantial market share in the industry. It has
done this by emphasizing efficient manufacturing and customer satisfaction.
Another example: Often a firm implementing a prospector strategy will gradually switch to
a Defender Strategy. This happens when the firm successfully creates a new market or
business and then attempts to protect its market from competition. Mrs. Fields Inc. was
one of the first firms to introduce high quality, high-priced cookies. Mrs. Fields
sold its product in special cookie stores and grew very rapidly. This success,
however, encouraged numerous other companies to enter the market. Increased
competition, plus reduced demand for high-priced cookies, has threatened Mrs. Fields's
market position. To maintain its profitability, the firm has slowed its growth and is now
focusing on making its current cookie operation more profitable.
This is the reason why prospectors must develop expertise in innovation, continuous
improvement and evaluate risk scenarios effectively to ensure competitors are not able to
easily catch with their business.
ANALYSER
Analysers look for stability and flexibility and attempt to capitalize on the best of
the Prospector and Defender Strategy types. They exert tight control over existing
operations and lose control of new businesses. Analysers have the strength and ability to
respond to prospectors while maintaining efficiency in operations. An organization that
follows an Analyser Strategy both maintains a market share and seeks to be innovative,
although usually not as innovative as an organization that uses a prospector strategy.
Analyser seeks a second mover advantage and leverages market learnings and
experience from the prospector and defender strategies.
Most large companies fall into this third category, because they want both to
protect their base of operations and to create new market opportunities. IBM uses
Analyser Strategies. Thousands of customers have purchased IBM computers over the
last several decades. It is in IBM's interest to keep these customers satisfied and to
introduce new products and services that update their computer facilities. Whenever IBM

introduces a new computer system, for example, it develops procedures that help its
customers to move from the older system to the new system. In this way IBM maintains
its customer base. However, IBM also tries to create new markets. Its line of Personal
Computers represents an effort to expand beyond its traditional base of mainframe
computers.* IBM has also invested in Biotechnology, Superconductivity Technology, and
other projects which are very innovative.
Another example: As a major food products company, Proctor & Gamble (P&G)
has established numerous name brand products, such as Crest toothpaste, Tide
laundry detergent, and Sure deodorant. It is important for P&G to continue to invest in
its successful products, in order to maintain financial performance. But P&G also needs
to encourage the development of new products and brand names. In this way, it can
continue to expand its market presence and have new products to replace those whose
market falls off. Through these efforts P&G can continue to grow.
REACTOR
According to Miles and Snow, an organization that follows a Reactor Strategy has no
consistent strategic approach and no strategic choice; it drifts with environmental events,
reacting to but failing to anticipate or influence those events. Not surprisingly, these
Organizations usually do not perform as well as organizations that implement prospector,

defender, or analyser strategies. A Reactor Organization lacks an appropriate set of
response mechanisms with which to confront any environment change. There is no
strength in the Reactor Strategic type. Most organizations would probably deny using
reactor strategies.
If we study the Porter's typology and Miles & Snow's typology closely, there are
similarities. Miles and Snow's prospector business strategy is likely to emphasize
differentiation, whereas the defender business strategy typically emphasizes low costs.
There are fundamental differences as well. Porter's approach is based on economic

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principles associated with the cost differentiation dichotomy whereas Miles and Snow's
approach describes the philosophical approach of the business to its environment.
6.10 SOCIAL BUSINESS STRATEGY
In today's well connected world, social media possibilities are immense; however a
credible Social Business Strategy is still evolving. Social Media Innovation has been
the key to Social Business Strategy. There's a difference between a Social media
strategy and Social Business Strategy. Social media are the channels where information
and people are connected via two-way platforms. Social media are platforms to unlock
the wisdom and compassion of the participants.
While a Social Media Strategy defines programs specific to networks and the
corresponding activity within and around each social media network, whereas a Social
Business Strategy is one that aligns the Social media strategy with the strategic
business goals of an organization and has alignment and support throughout the
organization. Social business strategy requires having a healthy ecosystem to support
adoption and execution of the key business initiatives.
Strategic Business Objectives
• Financial Performance Strategy

• Customer Experience Strategy
• Operational Excellence Strategy
• People and Culture Strategy
6.11 THE COMPETITIVE ADVANTAGE
People are assets of an organization. An 'employees-first' attitude of the organization

will foster a culture of 'customer-first' behaviour in their minds and actions, thus enabling
a sustained business performance. When an organization looks at their employees as
investments, they tend to maximize the value by managing them strategically and to keep

investing in their Learning and Development. On the contrary when the organization
perceives its employees as expenses, they tend to minimize the costs. Strategic
Managers have started to assess the value of human capital, i.e. the sigma of the
capabilities of the individuals in an organization, as a source of competitive advantage.
Many organizations have a process called Knowledge Management and Talent

Management. It is increasingly felt that people's skills and competencies are key to any
organization’s development and cannot be easily reproduced. People's capabilities
become a source of competitive advantage for companies, especially for Services
Oriented Companies. High performing organizations must leverage their human capital
if they are to remain successful over the long term. Organization Talent Assessment and
Learning and Development (L&D) have become a critical success factor to sustained
Organization Development (OD).
In recent times, the Human Resources department has gradually become a business and
customer facing function, moving away from being just an administrative function in the
earlier days. Regardless of the choice of generic strategy, the acquisition and
development of human resources and knowledge can be a source of competitive
advantage. There are five operating principles for utilizing knowledge as part of the
Competitive Strategy in an organization [5]:
1. Knowledge based strategies begin with strategy, not knowledge. Knowledge can
support the traditional mechanisms for serving customers and delivering value, but
not replace them.
2. Knowledge based strategies must be linked to traditional measures of performance,

like the KPIs. Quantifying the value of knowledge as a resource or an investment is
difficult. However, Performance can be evaluated only with quantifiable and objective
measures.
3. Executing a Knowledge based strategy is about nurturing people with knowledge, not
managing knowledge per se. Companies must develop internal cultures conducive
for learning, sharing, and personal growth. Otherwise its collective knowledge, of all
its people, will remain unutilized.
4. Organizations leverage knowledge through networks of people who collaborate.

Social media has become a powerful platform for organizations to develop
knowledge based collaboration and transform human knowledge into a market viable
innovation.
5. The growth engine for knowledge development comes from workers’ aspiration and
need for help in resolving complex business problems. The Company's efforts to
disseminate knowledge to its employees must ensure that there is no information
overload.
ORGANIZATIONAL DEVELOPMENT

Chapter 6
Organization Development is a key competitive advantage to ensure that the

business strategy is focused on long term results. Very often organizations invest
heavily in transformational change programmes or organizational development
interventions that fail to deliver performance in a sustainable way. Organization
Development believes that every part of an organization is integral to a system that relies
on and impacts other elements of the internal and external environment in which the
organization operates.
OD helps organizations deliver sustainable performance improvement through people.

Those who practice OD usually have a strong humanistic and democratic approach to
organizational change. People and Collaboration are key features of any OD
intervention.
To deliver a sustainable environment for performance there are a number of

organizational development and design elements that may be relevant to delivering the
performance outcomes required. The OD practitioner will get involved in any number
of interventions including; organization diagnostic, evaluation, strategic thinking,
culture change, change management, coaching, mentoring, leadership development,
team building, organizational design, evaluation, performance management, talent
management, HR processes, learning and development, sales effectiveness, and
customer services as part of a holistic OD intervention.
6.12 BUSINESS SIZE AND ASSESSING THE COMPETITORS
The size of the business has implications on a company's ability to adjust itself to
the market forces like competition and environmental changes. There have been
some studies carried out to examine the relationship between the size of a business unit
and its performance, in relation to that of its competitors. It would be interesting to note
that the mid-sized business units underperform in comparison with small and large
competitors, because they generally do not possess the advantages of being flexible like
their small rivals or possessing strong resources like their large rivals.
Small businesses have the flexibility to change their ability to meet specific market
demands and to respond quickly to environmental changes. Also, small businesses, by
virtue of their comparatively smaller investments may be able to make both tactical and
strategic moves quickly to pursue revenue opportunities that may not be profitable for
mid-size or large businesses. Similarly, as large businesses has the advantage of
economies of scale of lower costs per unit, they may be able to bargain with suppliers for
the input materials and with customers for better premiums, to win price wars in the
market.
Mid-size businesses, as they lack the advantages of being a small or large business,
generally seek to expand their business to achieve economies of scale to take advantage
of lower price per unit or scale down their operations by taking a Retrenchment Strategy
to fit them into the shoes of a small business, to take advantages of flexibility of a small

business. These options may be challenging for mid-size businesses due to various
external market forces. Not all mid-size businesses perform poorly and should attempt to
increase or decrease the size of their business. It is up to the strategic managers to
understand the relationship between size and performance and evaluate the specific
needs and opportunities of their business units.
Formulating an effective competitive strategy may not be ideally achieved without a clear
knowledge of the primary competitors of its business as well as their specific strategies. It
is very important to understand the specific strategies of each rival, what they are trying
to achieve, how they view the industry, what are their strengths and weaknesses relative
to other competitors in the industry. Developing such an understanding not only helps the
strategic managers in formulating the positioning strategy of theirbusiness but can also
help them predict and respond to any competitive challenges that the competitors might
pose to the business. This will also help create mitigation plans to counter any threat
posed by the competition.
Collaboration with Competitors
In today's world, Competition is a relative word, and the area of Competition depends on
business to business. Two companies view each other as competition in certain areas of
business and yet collaborate in some other areas of business where they see some
value. There are no permanent enemies in business considering the challenges and
opportunities present in the marketplace. This perspective on the market helps an
organization to respond to the challenges by optimizing internal cost structures and go to
market strategies to increase the market reach, by identifying partners with whom it can
collaborate effectively through long term or short term contracts. For example, in the
Airlines Industry, the code sharing agreement enables an Airline Company to
diversify its operations into sectors where it did not have any service, but the core
sector are serviced by its own network which is the most cost effective way of serving the
overall market. Each industry has its own Collaborative Alliances.
Another example is the Sony-Samsung case. Sony Corp. entered into a joint
venture (JV) with its fierce competitor Samsung Electronics to develop and
produce LCD panels for flat-screen TVs. Collaborating with the competitor, Sony
was able to launch a new product popularly known as “Bravia" while Samsung
developed “Bordeaux". Teaming with rivals produced two innovations, toppled
other competitors from their positions and more than doubled the combined
market share of these two companies.
In one of the leading Indian publications, it is recently reported that a consortium

of automakers including Ford, Toyota, and Suzuki, developing standards for in-
vehicle car telematics as an alternative to Google’s Android Auto and Apple’s
CarPlay. In high technology industries, the need for co-opetition is felt more due to
rapidly changing technologies, shorter life-cycle products and high research and
development (R&D) costs. The bottom line is that the cost of introducing disruptive

Chapter 6
technologies can be prohibitive for a single firm. However, by joining hands,

insurmountable challenges become achievable.
6.13 GLOBAL SCENARIO
Most of the Indian companies operate global businesses, and identifying a competitive
strategy for the global markets can be challenging and a complex task. Each market has
unique characteristics of domestic environmental factors and marketing mix. It is not a
simple formula for developing and implementing successful business strategies across
multiple countries and multiple businesses. There are different strategies required for
emerging markets and developed markets. For e.g., Suzuki has a strategy of high-
end models in developed markets like Japan and U.S., whereas for emerging markets
like India and Africa, it has a wide range of attractively priced low and mid-segment cars
to enter and gain a market share.
Many corporates take an approach and strategy of "think globally, but act locally"
for their businesses, meaning develop and customize products and services for the
local market. This also means the organization would create a synergy by serving
multiple global markets but formulate a unique competitive strategy for each specific
market that is customized to the unique requirements of the people there.
It is also important that the strategy has to have consistency in terms of quality, which is
critical for the sustenance of the business strategy. For e.g., Global fast food
restaurant chains McDonalds, KFC, Pizza Hut have customized products for the
Indian market, meeting the varying taste requirements of Indian customers. Apart
from the product strategy, the pricing strategy has also been made compelling. The
Brand Recognition and the Business Models have been successful in almost all
geographies in India. The product strategy, the pricing strategy, and the quality and
consistency have helped these fast food chains to comply with their vision of globalizing
their brand as well as localizing their product to gain a market share.
Customizing a business strategy to meet the unique demands of different markets

requires that the strategic managers understand the similarities and differences between
the markets from both the industry and cultural perspectives. For e.g., Japanese,
Korean, and American manufacturers like Honda, Hyundai, Ford etc. all have
brought in their automobile technology to car building with sensitivity to the Indian
customers culture and values. In fact, these Multinational Companies operate their own
facilities in various parts of India to produce a wide range of customized models suited for
the Indian roads. Indian customers are highly cost conscious and sensitive to higher
mileage giving cars. Car models are also redesigned for Indian roads and the widely
fluctuating weather conditions from Kashmir to Kanyakumari.
These global companies face intense competition in most markets with the local
producers of goods and services who offer their products at much cheaper rates. In India,
for instance, these global brands have to compete with established brands like Tata
Motors, Mahindra, and Mahindra, and Maruti Suzuki, who have gained the trust and

goodwill of the customers over the decades. The strategy should take into consideration
of a competition strategy in the local markets.
Hence, the strategic managers must remain abreast of opportunities and challenges that
may exist in new markets, especially the emerging markets like China, India, Brazil,
Africa, Mexico, Russia etc. The emerging market dynamics may be entirely different from
the developed markets. And so, they need to pursue strategies relevant to each market
considering the stiff competition from the local players.
In today's economic scenario, global companies are scrambling to enter new markets
and gain market shares for their businesses, while the growth in developed markets have
plateaued for a long time. The emerging market strategy is to derisk their overall
corporate level strategy to expand and diversify into new markets with new innovative
products and services. Emerging markets present huge potential with a prospective long
term outlook. The fast demographic changes happening in emerging markets present
great opportunity to many global companies to expand their footprints into those markets
and tap the growth opportunities.
6.14 SUMMARY
From a business level strategy perspective, the strategic managers must determine how
the business unit needs to compete effectively in the marketplace. As per Porter's
framework, the strategic managers must decide whether to focus on a segment of the
market or whether to emphasize on cost leadership or differentiation. Each approach has
its own advantages and disadvantages. Sometimes, the business units may choose to
combine the low cost and differentiation strategies to find their market space, though this
approach may be difficult to implement.
In Miles and Snow's framework, the strategic managers may select either of these
strategies: a prospector or an analyser, or defender or reactor strategies. While each
approach may be effective for different businesses, the reactor strategy is a sub-optimal
choice.
One needs to examine each major business unit of an organization carefully and identify
which generic strategy that best describes the strategy of each business unit. Both
strategy typologies, Porter's and Miles and Snow's, should be applied appropriately. Each
business has its own unique strategy based on its own combination of resources. Hence,
this chapter reinforces the importance of discussing how the organization’s business unit
level strategy differs from others in the industry. Companies must ensure that they do
consider this phase of the strategic management process crucial and do not neglect a
quality time being spent on their business unit strategies.
1. What is your understanding of Porter's Generic Strategy?

a) The business unit should try to gain a market share by cutting down on prices

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b) The business unit should try to gain a market share by creating differentiation
c) The business unit should compete primarily by a low cost strategy (relative to its
competitors) or by focusing on to offer unique products and services through
differentiation strategy, by addressing a broad market scope or narrow market
scope
d) The business unit should try to gain a market share through a focused market
approach
2. Velocity Technologies Limited is in the process of creating a software Supply chain

sector. There are a number of players in the same business segment. The CEO is
keen to differentiate the organization in the industry. What requirements will you not
recommend the CEO of Velocity to achieve this objective?
a) Enhance innovative marketing capabilities
b) Develop brand and reputation for technological capabilities
c) Adopt best practices of the competition
d) Invest in Research and Development activities
3. What are the three basic "value disciplines" that can create Customer Value and
provide competitive advantage to the organization?
a) Price, quality, and service
b) Price, differentiation, and quality
c) Price, Product and Service
d) Operational excellence, product leadership, and customer intimacy
4. Mc Ronald is a Global Food Retail Company. You've joined the company recently as
a Management Consultant. What strategy would you recommend to their
management for their India strategy?
a) Introduce their global food products in India and create a low cost strategy
b) Formulate a unique competitive strategy for India's specific market that is
customized to the unique requirements of the people here in India
c) Create a narrow market scope strategy
d) Create a broad market scope strategy
5. What are the four Strategic Business Objectives for an organization?

a) Revenues, Profitability, Market share, Share price
b) Customers, Employees, Partners, Shareholders
c) Financial Performance, Customer Experience, Operational Excellence, People
and Culture
d) Growth, Profitability, Brand, Market share
6. SBA Finance, a Corporate Strategy Consulting Firm, has recently hired Gaurav from
a leading Management School. He has been assigned the taskof conducting a review
of one of its financial services clients and assisting the client in the selection of the
right business strategy. Being a fresher he needs your guidance to sequence the
steps correctly so that he can provide services to the client.

a) Choose the most appropriate strategy b) SWOT Analysis c) Formulation of

alternative strategies and d) Determination of mission and objectives
1. (b), (d), (a) and (c)
2. (d), (b), (c) and (a)
3. (a), (b), (d) and (c)
4. (a), (c), (b) and (d)
Answers: 1.(b), 2.(b), 3.(d), 4.(b), 5.(c), 6.(1)
References:
1) Reference: "Porters Generic Strategies" for developing business unit strategies
2) Excerpted from Barney, J.B. & Griffin, R.G. "The management of organizations:
Strategy, structure, behavior." Houghton Mifflin, 1992
3) W. Chan Kim and Renée Mauborgne in their 1999 Harvard Business Review article
"Creating New Market Space"
4) John A. Parnel, Strategic Management, Theory and Practice), Business Unit Strategy
P 95
5) John A. Parnel, Strategic Management, Theory and Practice), Business Unit

Strategy P 97
ANNEXURE
Business Unit Level Strategy of ‘Home and Personal Care' strategic business unit
at Hindustan Unilever
The "Home and Personal Care" strategic business unit (SBU) at Hindustan Unilever likely
focuses on products for personal care, home care, and hygiene. From the available open
sources, possible business unit level strategies for this SBU might include:
Product Innovation and Portfolio Expansion: The SBU could focus on continuous
product innovation to meet evolving customer needs and preferences. This might involve
launching new variants of existing products, introducing new product lines, or entering
emerging product categories in the home and personal care space.
HUL brands like Lux, Dove, Lifebuoy, Clinic, and others continuously strive to introduce
new variants under their existing brands or create new product lines to expand their
existing product mix.

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Brand Building and Marketing: HUL's Home and Personal Care SBU is likely to invest
heavily in brand building and marketing initiatives to maintain and grow its market share.
This might include targeted advertising, promotions, and social media campaigns to
create brand awareness and reinforce brand loyalty.
Customer Engagement and Experience: The SBU may prioritize customer

engagement and enhance the overall consumer experience. This could involve providing
exceptional customer service, leveraging digital platforms for customer interaction, and
gathering consumer feedback for continuous improvement.
Sustainability and Corporate Social Responsibility (CSR): HUL is known for its
commitment to sustainability and CSR. The Home and Personal Care SBU might
integrate sustainable practices into its product development, packaging, and supply chain
to align with the company's broader sustainability goals.
HUL runs a program ‘Start A little Good’ to make sustainable living commonplace.
Various innovative ideas based initiatives are triggered to get public focus, involvement
and making a difference by people adopting good practices.
Distribution and Retail Network: The SBU may focus on expanding and optimizing its
distribution and retail network to ensure widespread availability of its products. This could
include strengthening relationships with retailers, exploring e-commerce channels, and
improving logistics efficiency.
Market Penetration and Geographic Expansion: The SBU might work on increasing its
market penetration in existing regions and explore opportunities for geographic
expansion into new markets, both within India and internationally.
Cost Efficiency and Supply Chain Optimization: To maintain a competitive edge, the
SBU could implement cost optimization measures and streamline its supply chain to
improve operational efficiency and reduce expenses.

REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
7
Chapter
FUNCTIONAL UNIT LEVEL
STRATEGY
Objectives:
This chapter focuses on the key Strategic Decisions to be made at the Functional Level,
to identify the appropriate strategy to compete in the marketplace. It explains the
importance of Cross Functional Collaboration and Synergy required from different
functions in order to achieve the Business Unit's strategy. It provides the attributes of
each function and responsibilities of Strategic Managers to work on interrelationships as
the same business objective needs involvement of different functions for the execution of
the business goals. It deals with different functions in detail: Marketing, Finance, Human
Resource, Production, Quality Management, Research and Development, Supply Chain
Management, Information Systems etc. At the end of the chapter, you will be able to
understand the following:
Understand the importance of Functional Synergy
Cross Functional Collaboration
Understand the different Functions and responsibilities
Strategic Management Process
Role of Stakeholders

7.1 Introduction
7.2 Marketing
7.3 Finance
7.4 Human Resources
7.5 Production
7.6 Quality Management
7.7 Research and Development
7.8 Supply Chain Management
7.9 Information Systems
7.10 Summary
7.1 INTRODUCTION
Once the corporate and business unit level strategies are identified and developed, then
the strategic managers should formulate the functional strategy of the business unit.
Functional strategies should support the implementation of the corporate and business

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unit level strategies. Each functional area of the organization should integrate its activities
with other functional groups in order to seamlessly facilitate the overall performance of
the organization. In short, the ultimate execution of the corporate and business unit level
strategies should happen at different functional levels in a coordinated manner.
As seen briefly in Chapter 1, the functional level strategies are strategies that work in
synchronization with corporate strategy and business unit strategy for different functional
areas like marketing, sales, production, finance, human resources, supply chain,
customer service, information systems etc. In other words, Functional Strategic
Management are meant to create organizational expertise, competence,
competitive advantage, efficiency and productivity which are vital to the
achievement of the business goals.
Functional Strategy for various areas must be developed in alignment with the
Corporate and Business Unit strategies. In fact, the extent to which all of the business
unit's functional strategies integrate would determine the effectiveness of the business
unit as well as corporate level strategies. Hence, it is important that building capabilities
of the various functional areas is necessary when the corporate and business strategic
options are being considered.
The strategic managers in each functional area often may not understand the
interrelationships among the functions [1]. For example, marketers who do not
understand production may promise customers some product features that the
production department cannot readily or economically integrate into the product's design.
In contrast, production managers who do not understand marketing may not actually
understand the changes in market trends and customers' actual needs.
For this reason, managers in all functional areas need to understand how the various
functional areas integrate and they should work together to formulate functional
strategies that eventually support the business and corporate level strategies. It is for this
reason that many organizations have a central team called Cross Functional Team
(CFT) which is represented by key members of the various functions in order to facilitate
the flow of information, joint meetings, decision making, communication, change
management and conflict management within the functions.
In this chapter, we will see in detail how functional strategies work in various areas like
marketing, finance, production, supply chain, human resources, information systems etc.
Many of the issues in these departments are cross functional in nature and therefore
concern more than one functional area. For example, product features and product
warranty are key concerns of both the production and marketing departments and so are
many other issues. Thus, this chapter discusses the functional strategies of different
departments, the cross functional issues and synergy that need to be developed, that are
appropriate for formulating a functional strategy and how functional strategy translates
the corporate mission into reality.
7.2 MARKETING

Functional Unit Level Strategy
Marketing is a key function that serves as the interface between the market and the
business unit and its functions. From a competitive standpoint, Marketing is the most
critical area of the functional strategy and should be considered early in the development
of the overall Business strategy.
A Marketing Strategy is defined as a process that allows an organization to concentrate

its resources on the optimal opportunities with the objective of increasing sales and at the
same time achieving a sustainable competitive advantage for the organization. Marketing
strategies include all basic and long-term activities in the field of marketing that deal with
the analysis of the strategic situation of a firm and the formulation, evaluation, and
selection of Market-oriented strategies, and therefore contribute to the goals of the
business unit as well as the corporate marketing objectives.
Marketing Strategies serve as the fundamental underpinning of Marketing Plans

designed to identify and fill the market needs proactively and to reach the
marketing objectives. Plans and objectives are generally tested for measurable results.
Commonly, marketing strategies are developed as multi-year plans, with a tactical plan
detailing specific actions to be accomplished in the current year. Time horizons covered
by the marketing plan vary by company, by industry and the markets, however, time
horizons are becoming shorter as the speed of change in the environment increases.
Marketing Strategies are dynamic and interactive. They are partially planned and partially
unplanned. The Marketing strategy needs to take a long term view, and tools such as
Customer Lifetime Value Models can be very powerful in helping to simulate the effects
of strategy on customer acquisition, revenue per customer and churn rate.
A Marketing strategy involves careful and precise scanning of the internal and external
environments. Internal Environmental factors include the marketing mix and marketing
mix modelling, plus performance analysis and strategic constraints that pose challenges.
External Environmental Factors include customer analysis, competitor analysis, target
market analysis, as well as evaluation of any elements of the political/ legal, economic,
technological, and socio-cultural environments likely to impact success as discussed in
detail in the earlier chapter on external environment. A key component of marketing
strategy is often to keep marketing in line with a company's overarching Mission
Statement.
Once a thorough environmental scan is complete, a strategic plan can be constructed to

identify business alternatives, establish challenging goals, determine the optimal
marketing mix to attain these goals, and detail implementation. A final step in developing
a marketing strategy is to create a plan to monitor progress and a set of contingencies if
problems arise in the implementation of the plan.
Marketing strategies may differ depending on the unique situation of the individual
business. However, there are a number of ways of categorizing some generic strategies.
A brief description of the most common categorizing schemes is presented below:

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Strategies based on Market Dominance - In this scheme, firms are classified based on
their market share or dominance of an industry. Typically there are four types of
Market Dominance Strategies:
Leader - Clearly an industry leader in the given product and services segment, both
from ability to lead the industry with a vision and the ability to execute the vision,
characterized by high innovation (Refer Gartner's Magic quadrant in Chapter 5)
Challenger - Has ability to challenge the leader and has high potential to become a
leader with the ability to introduce new products and services and the company is
already on the fast growth trajectory
Follower -Innovation distinguishes between a leader and a follower, as said by

Steve Jobs. These companies generally replicate the products and services of the
leaders. This strategy should be generally avoided or used with careful consideration
and caution. There are many cases of failures to achieve success by imitating or
catching up with the leader
Nicher -Focuses on a unique concept and concentrate their efforts on specialized

products or services and seek to attract a niche segment of customers
According to Shaw, Eric (2012), Marketing Strategy, from the origin of the concept
to the development of a conceptual framework, there are four Marketing Strategies:
Market Introduction Strategies
At Market Introduction, the Marketing Strategist has two principal strategies to choose
from: penetration or niche.
Market Growth Strategies
In the Early Growth Stage, the Marketing Manager may choose from two additional
strategic alternatives: segment expansion (Smith, Ansoff) or brand expansion (Borden,
Ansoff, Kerin and Peterson, 1978).
Market Maturity Strategies
In Maturity, sales growth slows, stabilizes, and starts to decline. In early maturity, it is
common to employ a maintenance strategy (BCG), where the firm maintains or holds a
stable marketing mix.
Market Decline Strategies
At some point the decline in sales approaches and then it begins to exceed costs. And
not just accounting costs, there are hidden costs as well; as Kotler (1965, p. 109)

observed: 'No financial accounting can adequately convey all the hidden costs.' At some
point, with declining sales and rising costs, a harvesting strategy becomes unprofitable
and a divesting strategy necessary".
Marketing Mix Modelling
Marketing Mix Modelling is often used to help determine the optimal marketing budget
and how to allocate it across the resources to achieve these strategic goals. Moreover,
such models can help allocate spending across a portfolio of brands and manage brands
to create value.
Thus, Marketing Mix broadly consists of seven dimensions most commonly

referred to as the seven Ps, viz Product, Price, Promotion, Place (channels),
People, Process and Physical evidence. While the first "four Ps" are critically
considered for Product Marketing Strategy, all the "seven Ps" are considered for
Services Marketing Strategy, as Services Marketing is unique and always
characterized by attributes like intangibility, perishability, inseparability, and
heterogeneity. The particular generic strategy adopted by the business unit influences
how these various dimensions are planned and executed, and how the firm grows its
business successfully in a given marketplace.
The Marketing function has to be truly cross functional as it needs to deal with the
product design function, production function, finance function etc. in order to ensure that
the marketing strategy is effectively formulated and implemented. The Cross Functional
synergy is the most critical component for a Marketing Strategy to be successful.
In many organizations, the marketing function takes leadership in influencing key
decisions and builds interrelationships by seeking support from other functions.
PRICING STRATEGY
Many businesses compete with the low cost generic strategy and thrive on high volumes
and low prices to garner a maximum market share. Some companies follow a marketing
strategy to offer low prices work in products that are undifferentiated and consumed on a
large scale, in a highly competitive market. Wal-Mart is a known example of its highly
effective large volume and low cost strategy. Another example is the ecommerce
companies like amazon.com, e-Bay.com in the US or flipkart.com, Myntra,
Snapdeal in India also follow a similar strategy by offering special discounted prices in
an effort to gain economies of scale through high volumes.
Businesses that use low-cost differentiation strategy must market quality products and
services that are distinguishable from the competition. For example, Dell Computers, a
late entrant in the computer market, consciously built on a low-cost differentiation mix
strategy. They chose online assembly route, and removing middle channel of distribution,
started offering custom built desktop/laptops besides their standard range of products.
This model helped them to gain cost economies and scale of operation to contain the
cost. They created differentiation by way of friendly computer hardware selection, quality

Chapter 7
of finished product, and speed of delivery. They were able to leverage by creating
euphoria among techie to get custom built computers, common customer can choose
from their range of standardized products which are also low-cost with assured dell
quality. As the online revolution swept the market, Dell was ready and thus gained
considerably. Later on DELL also introduced laptop namely Studio to match the
equivalence of Apple and other creative filed customers. Dell also adapted to forward
integration by opening stores using franchisee model.
Business units that have a focus strategy either with differentiation or low cost
differentiation tend to emphasize other factors in their marketing strategy.These
businesses offer unique high quality products and services to meet the specialized needs
of the market.
PROMOTIONAL STRATEGY
The next key marketing strategy after pricing strategy is the promotional strategy.
Promotion Strategy is used to communicate the information about the products and
services to the target market audience. This involves promoting the product or the
service, building the brand value, and ensuring that the customers associate their
needs with the company brand.
Today, there are a number of ways to promote a company's product or service besides
traditional advertising. These include various digital marketing initiatives like social
media marketing, e-Commerce platforms etc. This largely depends on the
demographic profile of the customers like age, sex, income etc. that are being
targeted as explained in the PEST analysis in earlier chapters. This functional area
needs to constantly scan the market, gather data, identify the purchasing patterns of the
customer, and match the promotion strategy with these assessment findings. This helps
in designing the promotional strategy for the business.
PRODUCT STRATEGY
Product concept is critical and the product design should include compelling features that
improves the product's ability to meet the customers' needs and expectations, and deliver
performance. A well-designed product addresses both the functional and aesthetic
requirements of the consumers including other factors like how the product works, how it
feels to own the product, how easily the product can be used, assembled, or fixed, and
how it provides a competitive advantage for the consumer.
Wildcraft backpacks were popular among trekkers as they made scientifically

designed backpacks to help the users. Growing young working population of India,
often looking for style and uniqueness of their possessions, gave an opportunity to
Wildcraft to develop products suitable for them – regular backpack, laptop carry
backpack, amateur hiking enthusiast backpack and more. It’s the same customer group
who also started weekend trekking to get rid of stressful work environment started

preferring Wildcraft, referring wildcraft and thus sale and market share both significantly
increased.
The product strategy is highly dynamic and an interactive one, with market trends
changing at a fast pace, with the key differentiation being innovation and creativity to
launch new products with a faster time to market.
For example, in the early days of messaging on mobile phones, it was a challenging job
to sell the push mail concept to enterprise customers and consumers. Bharti Airtel, the
number one mobile services company, pioneered this market in the Black Berry
Mail Services by providing Black Berry mobile devices to their sales personnel and
demonstrated how the push mail concept actually contributed to the enterprise
productivity of the mobile workforce.
PLACE STRATEGY
Place Strategy is all about building channels and a distribution strategy for the products
and services that create the target market for a business. While low-cost businesses
typically seek to meet the basic needs of the target market and minimize costs, the
businesses with differentiation often select the most appropriate means of distribution
strategy regardless of the cost. In some cases, differentiated business uses the means of
distribution as a way of differentiating their business. For example, fast food restaurant
Domino's Pizza uses the delivery time of 20 minutes for a pizza order by having an
effective distribution and delivery system in place as a differentiation strategy. Now, in
fact, most of the fast food restaurants have started following this strategy.
SERVICES STRATEGY
Service is a product that refers to certain activities that a company offers to perform,
which results in satisfaction of a need of a target customer or an experience that the
target customer goes through. Because of its intangibility, perishability, heterogeneity,
and inseparability, it has an expanded Marketing Mix as compared to tangible goods like
products. As seen earlier, while products have a 4 Ps marketing mix strategy, the
services have a 7 Ps marketing mix strategy.
In Services Marketing Strategy, the emphasis is on the factors like people,

process, and physical evidence. In Services, people constitute the most vital role in the
service encounter with customers. This includes the company's employees and other
partners in the Services Value Chain. The attitudes and actions of the employees can
certainly affect the success of the service engagement with the customer. It is also likely
that the response of the customers will have a cascading impact on the service
experience of the other customers. It is imperative that the employees are trained, and
they have adequate skills and empowerment to deliver services to customers. The
employees should have commitment, attitude, and the ability to use discretion while
dealing with customers.

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The important objective of Service Marketing is to identify and fulfil the needs of
the customer. This requires the marketing function to design a service process to ensure
how the service is delivered. It reflects how all the Marketing Mix elements are
coordinated to provide consistent and quality service to the customer. Thus, the process
will ensure that the service encounter delivers a positive customer experience, and a
consistent service quality is maintained. The service a process should also be
responsible for quality control in the service’s delivery.
The intangible nature of service, unlike physical products, means that potential customers
are unable to judge a service before it is consumed, thus increasing the risk involved in
the purchase decision. In a competitive environment, services can make or break
customer relationships, and hence cannot be taken for granted. Therefore, an important
element of the service marketing mix strategy is to mitigate this risk by offering tangible
evidence of the nature of the service. A good or excellent customer experience while
consuming the services becomes the one key deciding factor for the customer to
return to buy more services from the organization.
The physical evidence can be in different forms. The service environment where the
service is delivered becomes the foremost important factor to show tangible evidence. A
clean and hygienic environment in a restaurant can help to reassure potential customers
regarding their decision to visit the restaurant for dinner. A tidily dressed employee
suggests responsibility and professionalism.
Some companies adopt a neatly designed brochure that describes important elements of
the service scope and testimonials from important customers endorsing the quality of
service. These are some of the elements among many that provide credible evidence
about the nature and quality of the service.
7.3 FINANCE
In modern business, the Finance and HR functions are considered to be the two
eyes of the CEO as both deal with strategies related to the most critical resources
of the organization namely, money and people. The Financial Strategy of a business
needs to address factors related to managing the cash flow, raising capital, and making
investments. Some businesses generate cash internally through business operations to
support its growth strategy, while others resort to securing fresh capital / financial
resources by raising equity from the public, or avail loans from banks and other financial
institutions. The different means of raising funds will depend on the priorities and
objectives of the corporate and business strategies selected.
The businesses that pursue a low cost strategy pursue financial strategies that are
intended to minimize their cost. They emphasize on keeping costs within the limits of the
funds they are able to generate from business operations. When borrowing becomes
necessary, they usually try to tie up funds where the credit costs are low or try to defer
the expansion plans till the credit environment becomes benign. In contrast, differentiated
businesses pursue financial strategies that fund initiatives like quality improvements and

research and development even when the cost of securing funds is relatively higher. The
key business strategy here is to maintain quality and enhance product differentiation and
not just looking at minimizing the cost of funds.
The Finance Function Strategy is characterized by clearly measurable metrics and

financial ratios that are constantly reviewed and improved to deliver the financial
performance of the company.It is also important to compare the metrics with those of
key competitors or the industry averages. The key financial ratios that can support the
strategic managers while evaluating the financial position of the organization are current
assets versus current liabilities, gross profit margins and EBITDA profit margins, total
debt versus total equity, total debts versus total assets, day's sales outstanding, net
profit etc.
Students' work
What is the financial position of an organization? Kindly do a study and research and
present your findings to your class.
7.4 HUMAN RESOURCES
In a Knowledge economy, many modern businesses consider "employees first,

customer second" strategy for a successful business performance. The underlying
essence of the strategy is to develop its human resource by unlocking their wisdom and
compassion by ensuring that employees are well empowered to serve their customers
and deliver high performance.
The Human Resource Function includes activities such as planning, recruitment,

compensation and benefits, performance appraisal, assessment of employee
satisfaction, learning and development, and talent management. HR also has the
responsibility to create a brand for future human resource needs of the organization. A
company is truly only as great as the people who embody the mission of the organization;
employees are those who go above and beyond to see the company succeeds and to
make the customers happy.
The Strategic HR function seeks to build an employee work force that enables the
organization to achieve its goals. The HR also creates an environment for employees to
produce innovative ideas to make the organization a creative workplace of work. Many
companies seek to become "the best place to work" in order to attract high caliber
employees. Today, many employees no longer anticipate or desire to have a life-long
employment with a single firm. Employees look for new challenges to unlock their
potential. So, the HR strategy should be to clearly understand and identify the high
performing employees' aspirations, design a career succession planning, and develop
leadership qualities in them.
The HR department also fosters a work culture which adds value to the overall
organization brand value. At the same time, all organizations are challenged to develop

Chapter 7
employee commitment to the company and to the job. Fostering commitment and
developing a strong, competitive work force requires the creation of an attractive working
environment that may include providing customized benefits like health care, child day
care, maternity and paternity leave, flexible working hours as well as strategic needs of
the organization like training and development, job rotation, career progression and
international travel opportunities.
Some companies have several HR programmes, which are institutionalized, to develop

people's leadership competencies as an ongoing practice. Coaching is a powerful
intervention that improves the employees' performance considerably. When and where
do the companies use Coaching and for what? Here are some obvious opportunities
to applying Coaching at work: motivating staff, delegating, problem solving, conflict
resolution, relationship issues, team building, appraisals & assessments, task
performance, planning & reviewing, employee leadership development and team
working. The list is endless, and the opportunities can be tackled by using a highly
structured approach, the formal coaching session or the coach/manager can equally
choose to retain a degree of structure but be less formal - discussions might sound like a
normal conversation and the term coaching might not be used.
As the companies expand their businesses into the global markets, in a modern
workforce, there are other strategic dimensions evolving like code of conduct, gender
equality, compliance, increased employee security (post 9/11 and 26/11 terrorist attacks),
cultural diversity etc. The other concerns like sexual harassment at workplace have
assumed greater significance and most of the corporates have laid down very clear,
strict, and transparent rules governing this aspect as there have been many instance of
such assaults.
Over the last decade or so, there have been many mergers and acquisitions done by
Indian corporates which involves massive restructuring of the businesses and hence HR
had to play a very crucial role in the organization restructuring, layoffs, retrenchment, and
optimization of the HR function itself. These are sensitive issues which the HR functional
strategy had to deal with.
Most importantly, the HR strategic managers must learn to help employees of

diverse backgrounds, perceptions and facilitate functional areas work effectively
as Cross Functional Teams. The success of such collaborative endeavours as Cross
Functional Teams, Quality Circle, and other functional activities, require unity of actions
that can be achieved only through mutual understanding, respect, and team spirit among
employees.
Today, many organizations seek to deliver more value to their customers. This effort
needs high caliber and high potential employees. Such organizations really feel the need
to attract the best talent, as the prerequisite for enhancing its differentiation. High
performing employees enhance efficiency and differentiation by increased productivity,
innovative ideas and demonstrate excellence in job performance.

A business unit's generic strategy can influence specific components of its human
resource program. For example, the business unit's Rewards and Recognition
Program should be tied to employee behaviour that helps achieve its business
goals. Hence low-cost business units should reward its employees who help reduce
operating costs, create differentiation in products or services that help encourage output
improvements and innovations, and most importantly help deliver the highest level of
customer experience.
7.5 PRODUCTION
Functional Strategy for the Production Department, also called Operations

Management, is vital for a manufacturing company. There is a wide range of production
strategies that help organizations grow their business. The primary mission of
Production Strategies is planning the Production Schedule within budgetary
limitations and time constraints. Companies do this by analyzing the plant's personnel
and capital resources to select the best way of meeting the production quota.
Production strategies determine (often using mathematical formulae) what capital

expenditure would be required, whether new machines need to be purchased, whether
overtime or extra shifts of personnel and planning of raw material or resources are
necessary, and what the sequence and scheduling of production will be. They monitor
the production run to make sure that it stays on schedule and correct any problems that
may arise.
Because the work of many functions is interrelated, production managers have to work
closely with heads of other departments such as sales and marketing, procurement, and
logistics to plan and implement company goals, policies, and procedures. For example,
the Production Manager works with the Procurement Department to ensure that
the plant inventories are maintained at their optimal level. This is vital to a firm's
operation because maintaining the right inventory of materials necessary for production
ties up the firm's financial resources, yet insufficient quantities cause delays in
production.
Therefore a major component of a Production Strategy is Inventory Management

and Control. Similarly production managers also have to work with logistics teams
closely to make timely and effective distribution of the goods produced to the market,
without letting inventories to pile up.
The production function is one of the key concepts of mainstream business, used to
define a marginal product and to distinguish allocative efficiency, the defining focus of
economics. The primary purpose of the production function is to address allocative
efficiency in the use of factor inputs in production and the resulting distribution of income
to those factors, while abstracting away from the technological problems of achieving
technical efficiency, as an Engineer or Professional Manager might understand it.

Chapter 7
As an organization grows, the range of production strategies that it can think of also
increases. Specifically large business units can capitalize on a number of factors that
accompany their large size. Each of these factors is associated with the experience
curve, i.e. the reduction in per-unit costs that the organization is able to achieve as it
gains experience producing a product or service.
Each time, as the production of a company's output doubles the production costs decline
by a specific percentage depending on the industry. Many companies leverage
economies of scale to gain a market share as well as reduce production costs and
distribution costs thereby increasing their profitability. The Experience Curve has been
observed in a wide range of manufacturing and service industries, including
automobiles, personal computers, and airlines industries. The Original Equipment
Manufacturers (OEMs) will be in a better position to negotiate higher discounts with their
ecosystem of sub-component makers, using the economies of scale.
The Experience Curve, which helps manufacturing companies to improve their per-
unit costs with experience, involves three underlying concepts: learning,
economies of scale and capital labour substitution possibilities. The organization
gains learning experience over time and its employees become more efficient as they the
gain expertise in doing the various tasks over and again. This applies to all employees in
the organization, the staff, managerial, non-managerial across corporate, business unit
and functional levels. Moreover, most companies are able to create and institutionalize
the production process that results in better productivity in terms of product output.
The next important reasoning is economy of scale i.e. reduction in per-unit costs as the
volume increases, especially where the volumes are in big numbers like the two-wheeler
industry or mobile services industry. Then, capital labour substitution refers to an
organization’s ability to substitute labour for capital or vice versa as volume increases
depending on which combination minimizes the overall costs and / or maximizes
productivity and output effectiveness. For example, many companies shift their
manufacturing operations to another country where labour costs or interest costs are
much lower.
The recent advancements in technology in the production area have changed the capital
labour dichotomy. Industrial Automation and Business Process Reengineering have
significantly improved the way products are manufactured with less or no
manpower in the production facilities. The role of workers in these facilities is limited
to other administrative and distribution related responsibilities.
Low cost businesses with large market shares tend to benefit the most from the
experience curve. Differentiated businesses often attempt to gain a similar advantage by
charging higher than average prices, seeking to gain a market share and eventually
reduce costs by offering higher quality products. However, differentiators do not always
capitalize on the opportunities presented by low costs whereas Strategic Managers of
businesses that compete low-cost-differentiation do.

The Production strategy assumes very high importance to leverage the experience curve
and a lack of any such strategy could be risky. If a company in low cost business seeks
to increase in volume, it often involves substantial investments in plants and equipment
and a commitment to the latest technology of the strategy has to succeed. The strategy
should also consider capital requirements arising as a result of the technological changes
and obsolescence over time, to upgrade or refresh the plant equipment. Such a
balancing strategy to utilize the current and future technological changes will prompt such
companies to plan for investments in flexible manufacturing systems that can be retooled
quickly to respond to changes in the market trends.
Business Process Reengineering (BPR)
Business Process Re-engineering is a business management strategy, originally

pioneered in the early 1990s, focusing on the analysis and design of workflows and
processes within an organization. BPR aimed to help organizations fundamentally
rethink how they do their work in order to dramatically improve customer service,
cut operational costs, and become world-class organizations. In the mid-1990s, as
many as 60% of the Fortune 500 companies claimed to either have initiated
reengineering efforts, or to have plans to do so [2].
BPR seeks to help companies radically restructure their organizations by focusing

on the ground-up design of their business processes. According to Davenport
(1990) a Business Process is a set of logically related tasks performed to achieve a
defined business outcome. Re-engineering emphasized a holistic focus on business
objectives and how processes related to them, encouraging full-scale recreation of
processes rather than iterative optimization of sub-processes.
The BPR is also the application of technology and creativity involved in an effort to
eliminate unnecessary operations or drastically improve the those that are not performing
well to the standards. In order to improve speed to market, companies seek to eliminate
any process that does not add any value to the organization’s goods and services. For
example, many consumer foods manufacturers have brought in changes in their
packaging operations, by eliminating the costly cumbersome packaging to cost
effective shrink wrapping.
An organization’s ability in its speed to develop, manufacture, market and distribute

products and services can be the source of a significant competitive advantage. The
companies that can deliver quality products and services in a timely manner become
problem solvers for their customers and are more likely to succeed in their overall
business strategy. Speed is a critical success factor in the success of an organization.
Services Production
In today's modern economy, services constitute nearly 60% of the country's GDP growth,
which has grown from sub 30% in1950-51and still has a huge potential for growth. The
Services Function is an important function in the organization’s business strategy.

Chapter 7
Service is a product that refers to certain activities that a company offers to perform,
which results in satisfaction of a need of a target customer or a real time experience that
the target customer goes through.
A Service has different unique characteristics. Because of its intangibility,

perishability, heterogeneity, and inseparability, it has an expanded marketing mix
as compared to tangible goods like products. As seen earlier, while products have 4
Ps i.e. product, price, promotion and place as the marketing mix, the services have a 7
Ps as marketing mix strategy that includes people, process, and physical evidence.
Services Marketing and Services Production are two unique functions that Indian
companies have started to gaining expertise on. Today companies like TCS,
Infosys, HCL, Wipro, CTS, Tech Mahindra etc. have developed different services
production and delivery models, pioneering in the Global IT outsourcing industry.
These companies have a unique offshore services delivery model by which they are able
to provide compelling business models to their end clients in the US, Europe, and other
parts of the world. Using this model, services production happens in India and delivery
and consumption happens at the clients' place in the US or Europe.
India has been established as a hub for IT innovation and professional services, focusing
on IT engineering services, remote infrastructure services delivery, research and
development services, strategic outsourcing services etc. The Indian IT companies'
strategy is also to deepen the IT-Business Process Management industry's footprint in its
core markets and beyond, by building strategic partnerships with their customers and
facilitate growth and maintain India's leadership position as a trusted and safe place to do
business in the IT Services space.
Overall it is nowadays difficult for any organization to remain product centric.

Organizations must adapt itself to provide their product also using service production
(marketing) concept – Restaurants started offering home deliveries, Non-kitchen based
Food APPS started delivering food from any part of your city at your door steps, car
manufacturers are demonstrating their cars at your home using VR technology,
Insurance companies and banks offer you net-based service support, cash withdrawals
and other banking transactions using ATM kiosk. Digitalization and over the mobile data
sharing is going to open many more frontiers for service production.
7.6 QUALITY MANAGEMENT
Quality Management consists of organization-wide efforts to install and make

permanent a climate in which an organization continuously improves its ability to
deliver high-quality products and services to customers. Any organization’s
reputation and brand image is dependent on the quality of products and services it
delivers to its customers. Many companies position Quality as a marketing strategy to
differentiate their products and services when all things are being equal with competition.

In fact quality can be demonstrated as physical evidence in the product or service

marketing strategy.
Historically, quality has been viewed largely as a controlling activity at the core of the
production process and used as a measurement of post-production success. It used to
be called Quality Control Function. However, this practice of measuring quality after an
output is produced has changed and quality is now seen as an essential ingredient of the
product or service being provided and an integral part of any production process. It has
become all pervasive across the company concerning all members and stakeholders of
the organization.
Today every organization adopts quality management, also called Operation Excellence,
and have made it as the de facto standard that help them improve the overall quality,
performance, and efficiency. The Strategic Managers followed the concept known as
Quality Circles from Japanese companies that helped in implementing production
changes which led to improving the quality and efficiency. Total Quality Management
(TQM) is a broad based program designed to improve the product and service quality
and to increase customer satisfaction by incorporating a holistic commitment to quality as
perceived by the end customers.
In other words, TQM refers to the characteristics of a product or service that depend on
its ability to satisfy the customer's needs. From a product standpoint, producing a quality
product drastically reduces the defects and minimizes rework time, thereby increasing
productivity and efficiency. In addition, it eliminates the need for customary inspection of
the products produced postproduction.
Six Sigma [3]
One of the extensions of TQM philosophy is Six Sigma in Quality Management. Six
Sigma seeks to improve the quality of process outputs by identifying and
removing the causes of defects (errors) and minimizing the variability in the
manufacturing and business processes. Six Sigma is used widely in many
companies and is a set of Quality Management methods, including statistical
methods, and creates a special infrastructure of people within the organization
("Champions", "Black Belts", "Green Belts", "Yellow Belts", etc.) who are experts in the
methods. Each Six Sigma project carried out within an organization follows a defined
sequence of steps and has quantified value targets, for example: reduce process cycle
time, reduce pollution, reduce costs, increase customer satisfaction, and increase profits.
The term Six Sigma originated from terminology associated with manufacturing,
specifically terms associated with statistical modelling of the manufacturing processes.
The maturity of a manufacturing process can be described by sigma rating indicating its
yield or the percentage of defect-free products it creates. The fundamental objective of
the Six Sigma methodology is the implementation of a measurement-based strategy that
focuses on process improvement and variation reduction through the application of Six
Sigma improvement projects.

Chapter 7
A six sigma process is one in which 99.99966% of the products manufactured are
statistically expected to be free of defects (3.4 defective parts/million), although, as
discussed below, this defect level corresponds to only a 4.5 sigma level. Motorola set a
goal of "six sigma" for all of its manufacturing operations, and this goal became a
byword for the management and engineering practices used to achieve it.
One key innovation of Six Sigma involves the absolute "professionalizing" of

Quality Management functions. Prior to Six Sigma, quality management in practice was
largely relegated to the production floor and to statisticians in a separate quality
department. Formal Six Sigma programs adopt a kind of elite ranking terminology (similar
to some martial arts systems, like Kung-Fu and Judo) to define a hierarchy (and special
career path) that kicks across all business functions and levels.
Six Sigma identifies several key roles for its successful implementation.
Executive Leadership includes the CEO and other members of top management.
They are responsible for setting up a vision for Six Sigma implementation. They also
empower the other role holders with the freedom and resources to explore new ideas
for breakthrough improvements.
Champions take responsibility for Six Sigma implementation across the organization
in an integrated manner. The Executive Leadership draws them from upper
management. Champions also act as mentors to Black Belts.
Master Black Belts, identified by champions, act as in-house coaches on Six Sigma.
They devote 100% of their time to Six Sigma. They assist Champions and guide
Black Belts and Green Belts. Apart from statistical tasks, they spend their time on
ensuring consistent application of Six Sigma across various functions and
departments.
Black Belts operate under Master Black Belts to apply Six Sigma methodology to
specific projects. They devote 100% of their valued time to Six Sigma. They primarily
focus on Six Sigma project execution and special leadership with special tasks,
whereas Champions and Master Black Belts focus on identifying projects/functions
for Six Sigma.
Green Belts are the employees who take up Six Sigma implementation along with
their other job responsibilities, operating under the guidance of Black Belts.
Some organizations use additional belt colours, such as Yellow Belts, for employees
that have basic training in Six Sigma tools and generally participate in projects and
"White belts" for those locally trained in the concepts but do not participate in the project
team. "Orange belts" are also mentioned to be used for special cases.
Thus it is very critical that any change in the competitive environment can trigger quality
decisions among competitors in a given industry and the companies must turn challenges

into opportunities to emphasize quality as the success mantra of the organization and
seek to develop long term competitive advantage in the marketplace.
7.7 RESEARCH AND DEVELOPMENT
For any progressive organization, the key strategy is to invest in the most important
function, which is close to the production function, called Research and Development
(R&D). The investment in this direction is to foster innovation and leadership in products
and the services that an organization is planning to provide in the marketplace for the
present and future.
Product and Service R&D seeks to develop efforts towards improvements or

innovation in the quality and uniqueness of a company's product or service.
Process R&D seeks to reduce operational costs and make the production
processes more efficient. In the fast changing world, the organizations are always on
their feet to bring continual changes in their offerings to remain competitive. While low
cost business units seek to emphasize on process R&D to reduce or optimize their
operations costs, the differentiators tend to emphasize on product or service R&D to
bring out improved and innovative offerings to their customers.
Organizations might face risk in product and services innovation as the new products or
services that were envisaged may not generate a level of demand sufficient to justify the
R&D investment. Some of the R&D decisions are strategic, long term and well debated
decisions taken at the Board or Executive Management level. Today, in order to mitigate
risks arising out of R&D investment, many companies work jointly with partners to
develop new product designs and share the risks and rewards.
7.8 SUPPLY CHAIN MANAGEMENT
In modern businesses, as companies battle to achieve the objectives like reducing costs,
improving time to market, and enhancing the distribution system, one important function
that contributes to business success is the supply chain management function. In earlier
days, organizations used to have disparate departments like purchasing that focused on
procuring raw materials (input components) and dispatch that focused on distribution of
finished products (output components). These two departments work as an adjunct to the
most important function, which is the production department. However, these were silos
and were not equipped to handle the entire go-to- market process from sourcing to
distribution in an effective and smooth manner so as to realize the objectives set forth by
the organization.
In Manufacturing industries, the Purchasing Department procures the raw materials

and input components so that the production department process them into finished
products. The Dispatch Department schedules the shipment of the finished products
from the production department to the customers. This process had multiple handovers
and the functions were silos which resulted in delays and challenges in the smooth
functioning of the three functions. To build synergy between the functions on the

Chapter 7
overall production value chain, today's organizations have integrated these two
departments into a unified function called Supply Chain Management (SCM).
The primary function of the SCM department is to identify the potential suppliers,
evaluate them techno-commercially and contractually, solicit bids and price quotes,
negotiate prices and terms &conditions, place orders, manage the order process, inspect
the incoming shipments, inventory management, and pay the suppliers. In addition, the
SCM also looks after seamlessly the distribution of the finished products to the target
customers and channel partners. Thus the SCM's functional strategy is integrated into
the business units to have a competitive strategy. Low cost Businesses seek to purchase
materials and supplies of basic quality at the lowest costs possible. Large Organizations
are able to lower the costs further through their ability to demand volume discounts. In
addition, buyers who are larger than their suppliers and whose purchases represent a
significant percentage of their supplier's revenue may possess considerable negotiation
powers.
However, smaller companies often have a different strategy to achieve their low cost
business model, through other means like working with smaller suppliers in the same
industry and having long term contracts etc. It is important to note that low costs are not
the only consideration in SCM activities. There are other parameters that must be
considered in the overall supply chain engagement. These include, quality standards of
the components or supplies, turn-around time to manage inventory costs, consistent
quality, and pricing models (like there should not be major variations in pricing due to
other factors like inflation, fuel costs, electricity costs etc. from time to time) etc.
Organizations must prefer the best costs rather than low costs to have a sustained
commitment from loyal suppliers and partners.
Differentiators tend to emphasize on quality products to ensure they are able to deliver a
customer experience which the customers are willing to pay. In such cases, the quality of
the components and the end product takes precedence over cost considerations,
although cost minimization is also one of the desirables and part of their strategy. In
differentiators it is also advisable to have a long term partner to design and customize
products to meet the changing market requirements from time to time and there could be
sensitive intellectual property exchange between the company and partners under a
Confidentiality Agreement.
Material Management from the beginning till the end is a fundamental process of
the Supply Chain Management function. However, there are more important factors
that carry more strategic importance to an organization’s ability to improve the profitability
of the business. That is the control and management of the inventory both on the input
side as well as the output side. An effective method of managing inventory is called Just
in time Inventory. The Just in time Inventory demonstrates managing the
interrelationships.

In fact, the Japanese companies have pioneered and popularized this concept in order to
reduce the materials management costs in the entire supply chain process. This
technique helps the organization to hold inventory, storage, and warehousing costs to a
minimum just enough to meet the assembly or production requirements of a product as
per the forecasts of the marketing department.
Maruti Suzuki is a classic example of managing the Just-in-time Inventory concept

for many years and that has helped the company sustain its profits even during the
toughest economic times. In fact, many manufacturing organizations have started
following this concept and have benefited from reduced costs of managing the entire
supply chain process.
7.9 INFORMATION SYSTEMS
In the age of internet, cloud, social media, mobility and customer data analytics,
organizations are increasingly investing in Information Technology and Systems in order
to improve the way every function works in the organization. An effective Information
System should benefit all the functional areas of a business unit. Today, the IT
department has been viewed as a strategically important function enabling the
organization’s business. IT systems reduce costs, improve the organization’s ability to
differentiate its products and services, and enable faster time to market.
Each function in an organization can be mapped and integrated by various IT systems to

support the automation and function of that department. For example, most organizations
have deployed Enterprise Resource Planning (ERP) systems to integrate the various
functions and smoothly handle the various transactions happening across the
organization.
ERP is Business Management software-usually a suite of integrated applications-

that a company can use to store and manage data from every stage of business,
including:
Product planning, costing and development
Manufacturing and Production
Marketing and Salesforce Automation
Inventory Management
Supply Chain Management
Customer Relationship Management
Human Resource Management
Mobile value added Applications

Chapter 7
ERP provides an integrated real-time view of core business processes, using common
databases maintained by a Database Management System. ERP Systems track
business resources-cash, raw materials, production capacity-and the status of business
commitments: customer data, orders, purchase orders, and employee data, payroll etc.
The applications that make up the system share data across the various departments
(manufacturing, purchasing, sales, accounting, etc.) that entered the data. ERP facilitates
information flow between all business functions and the management, and also manages
connections to authorized persons within and outside the organization. These include
employees, customers, partners, suppliers etc.
Enterprise System Software is a multi-billion dollar industry that produces

components that support a variety of business functions. IT investments have
become the largest category of capital expenditure in the United States-based
businesses over the past decade. Though early ERP systems focused on large
enterprises, smaller enterprises also have started increasingly to use ERP systems.
Organizations consider the ERP system as a vital organizational tool because it

integrates varied organizational systems and facilitates error-free transactions and
production. However, ERP system development is different from the traditional systems
development. ERP systems run on a variety of computer hardware and network
configurations, typically using a database as an Information Repository.
Whether the IT function is handled by the company or outsourced to any IT service

provider, the strategy is to help the business unit achieve its strategy. While the company
invests heavily in hardware and software systems, the objective is to enable the
organization’s ability to improve its market presence, production, inventory, sales,
profitability, and customer experience.
With advancements in internet technologies, most of the companies have invested in e-

Commerce portals to enable customers to transact business on a self-service mode
without having to having to go through manual interactions. Today, Social Media
Business Strategy is one of the cornerstones of any organization which aim to become
social friendly to attract more customers for its products and services. Similarly Mobile
Value Added Applications (VAS) have changed the marketplace strategy to engage with
customers who would like to do business on the go, besides big data analytics
application help an organization to analyze the customer data on a real time basis.
7.10 SUMMARY
This chapter has provided a detailed insight of the various strategies across different
functions within a business unit of a corporate organization. It talks about how strategic
managers must align their activities in the functional areas to ensure that the various
departments are well coordinated and collaborate together for the organization’s success.
The functions like marketing, finance, production, supply chain management, human
resources and information systems are increasingly looking at an integrated strategy to

exploit the advent of new technologies like internet, e-commerce, social media, mobility
etc. to implement their business initiatives.
1. What is a Cross Functional team and the purpose of a Cross Functional Team
(CFT)?
a) It helps in solving business problems
b) It convenes meeting between different functions
c) It takes care of operational excellence of the strategy management
d) A CFT is represented by key members of the various functions in order to
facilitate the flow of information, joint meetings, decision making, communication,
change management and conflict management within the functions
2. What are the typical characteristics in a Services Marketing Strategy?

a) Attributes like intangibility, perishability, inseparability, and heterogeneity
b) Services cannot be stored in inventory
c) Service Providers have to deliver services to consumers proactively
d) Focus on a product marketing mix to improve the services experience
3. HXL is one of the large FMCG Companies and would like to focus on its core
competence of FMCG products. They have a huge IT Operations Team, and the
costs are increasing year on year. As a Management Consultant, do you have to
advise the company to reduce costs and provide strategic options?
a) Reduce IT costs by reducing the IT personnel in the operations team
b) Suggest a cut in the capex budgets of the company for the coming financial year
c) Suggest evaluating multiple IT outsourcing vendors, outsource IT operations and
reduce costs by 25%, as the company wants to focus on its core business i.e.
FMCG
d) Restructure the internal IT operations team.
4. An organization, which is profitable, is planning to venture into a new geography. As
a Strategic Management Consultant what would you not advise the management as
an immediate strategy?
a) To understand the local market and customer needs of the industry
b) To understand the macro environment factors of the country
c) To Start a strategic alliance with a reliance partner to use a go-to-market strategy
d) To build a factory to manufacture the products from there
5. In today's modern world, which are the two functions of a company that are very
important to a CEO?
a) Finance and Human Resources
b) Marketing and Production
c) Commercial and Supply Chain
d) Marketing and Quality

Chapter 7
Answers: 1.(d), 2.(a), 3.(c), 4.(d), 5.(a)
References:
1. John A. Parnel, Strategic Management, Theory and Practice), Business Unit Strategy
P 97
2. Business Process Reengineering
3. Sig Sigma Process Excellence
ANNEXURE
New functional departments in new age organizations
As organizations evolve and adapt to new challenges and opportunities in the modern
business landscape, they often create functional departments that may not have been
prevalent in traditional organizational structures. These departments cater to emerging
trends, technology, and changing work dynamics. Here are some uncommon functional
departments you might find in new-age organizations:
Data Analytics and Insights: With the increasing importance of data-driven decision-
making, many organizations have established dedicated departments focused on
gathering, analyzing, and interpreting data to derive valuable insights. These
departments help optimize business processes, enhance customer experiences, and
identify new opportunities.
Innovation and Research: Organizations that prioritize continuous innovation often

create specialized departments responsible for researching emerging technologies,
market trends, and competitive landscapes. These departments facilitate experimentation
and the development of cutting-edge solutions.
Employee Experience (EX) Department: Employee experience is becoming a critical

factor in attracting and retaining talent. This department focuses on creating a positive
work environment, promoting employee well-being, and enhancing overall job
satisfaction.
Corporate Social Responsibility (CSR) and Sustainability: As businesses become

more socially and environmentally conscious, CSR and sustainability departments are

emerging to ensure that the organization aligns with responsible practices and
contributes positively to society and the environment.
Remote Work Support: With the rise of remote work, some organizations have
established departments dedicated to providing remote employees with the necessary
resources, technology, and support to ensure smooth and efficient work processes.
Customer Success: Customer success departments go beyond traditional customer

service and focus on proactively engaging customers to ensure they achieve their
desired outcomes. They work to build long-term relationships, enhance customer loyalty,
and promote customer advocacy.
Digital Transformation: In the era of digitalization, some companies create specific

departments to oversee and drive digital transformation efforts, including adopting new
technologies, optimizing processes, and improving the overall digital experience.
Cybersecurity and Information Protection: In response to the growing threat of

cyberattac ks and data breaches, organizations are establishing specialized departments
to safeguard their digital assets, protect customer information, and ensure compliance
with data protection regulations.
Corporate Culture and Diversity & Inclusion (D&I): These departments focus on
fostering an inclusive and diverse workplace culture, promoting diversity in hiring
practices, and creating an environment where all employees feel valued and respected.
Learning and Development (L&D): As companies recognize the importance of

continuous learning and upskilling, they establish L&D departments to design training
programs, provide educational resources, and support employee growth.
Digital Marketing and Social Media: These departments concentrate on leveraging

digital platforms and social media channels to reach target audiences, increase brand
awareness, and drive engagement and conversions.
E-commerce and Marketplace Management: With the growth of online sales channels,
organizations may create departments dedicated to managing their e-commerce
platforms and participating in various online marketplaces.
The specific functional departments in an organization can vary based on its size,
industry, and strategic priorities. New-age organizations often adapt and create unique
departments to stay competitive and address the evolving needs of their employees,
customers, and stakeholders.

REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
8
Chapter
STRATEGY
FORMULATION
Objectives:
This chapter focuses on the SWOT Analysis and Strategy Formulation. After defining the
Corporate, Business Unit and Functional strategies, it is appropriate to formulate the
Strategy with reference to the organization strengths, weaknesses, opportunities, and
threats. Strengths and Weaknesses are based on Internal Environment and capabilities,
whereas Opportunities and Threats are related to the External Environment. SWOT
Analysis is the prime step in the Strategy Formulation process and positioning of the
organization in order to compete in the marketplace. At the end of the chapter, you will be
able to understand the following:
Understand the SWOT Analysis
The Resources that impact the Strategic Options
Understand the Opportunities and Threats
Choosing the best Strategic Alternatives
Organization Culture and its impacts on Strategy Formulation
Corporate Ethics and Social Responsibility

8.1 Introduction
8.2 SWOT Analysis
8.3 SWOT Analysis diagram
8.4 How to use SWOT Analysis
8.5 Human Resources
8.6 Organizational Resources
8.7 Physical Resources
8.8 Opportunities and Threats
8.9 SW / OT Matrix
8.10 Choosing the Best Strategic Alternatives
8.11 Organization Culture
8.12 Corporate Ethics
8.13 Corporate Social Responsibility
8.14 Summary
8.1 INTRODUCTION

Chapter 8
Competitive strategy is about being different. It means deliberately choosing to perform

activities differently or to perform different activities than rivals to deliver a unique mix of
values, as advocated by Michael E. Porter. Therefore, organizations must identify and
analyses the different alternatives and possibilities available to formulate a winning
strategy appropriate for them.
Strategy Formulation, as some organizations call it the Strategy Development, is

an important stage in the Strategic Management Process. In the strategic
management process, once the industry and competition evaluation, external and internal
environment analysis have been carried out, it is time to map the organization’s internal
capabilities with the external environment and ensure that the organizational vision and
goals are compatible with the internal characteristics and its external environment and
challenges. Reviewing the current strategic initiatives is the next step in deciding what the
strategic roadmap of the organization should be, considering its vision and goals.
Thus, strategic management involves an analysis of the organizational characteristics like

the strengths and weaknesses and the environmental factors such as the opportunities
and threats for the business. This important stage involves an analysis commonly
known as the SWOT Analysis. This analysis enables the organization to position itself
to take advantage of specific opportunities in the environment while mitigating or
minimizing certain environmental threats. In this process, the firm attempts to identify and
leverage its strengths and develop areas that were lacking (weaknesses).
The SWOT Analysis is also useful in unlocking certain hidden strengths that have not yet
been fully utilized and also in identifying weaknesses that can be corrected as they go
forward. The purpose of this analysis is to match the analysis of the market environment
with the organization’s capabilities, thereby enabling the strategic management to
formulate realistic and effective strategic options to attain the mission and goals.
8.2 SWOT ANALYSIS
SWOT Analysis is a valuable tool for analyzing an organization’s internal environment,

characterized by its strengths and weaknesses (areas for development) and draws an
understanding on how those capabilities can be translated into a sustainable competitive
advantage for the organization. The tool also maps the capabilities and constraints with
the external environment from opportunities and threats perspectives, so that the
organization is well prepared to execute the strategy.
Originated by Albert S Humphrey in the 1960s, SWOT Analysis is as useful now as

it was then. The SWOT Analysis, along with PEST Analysis describes the activities
that comprise of economic performance and capabilities of the company. SWOT
Analysis is also the primary step in the strategy formulation of the strategic management
process. This analysis can be used in two ways - as a simple teamwork the helping the
strategic managers get together to "kick off" the strategy formulation workshop, or in a
more sophisticated way as a serious strategy tool.

Strategy Formulation
The strength or weakness of an organization is defined as its internal competencies

specifically in comparison with that of the competitors. Strengths and weaknesses may
include the company image, brand, products and services, market share, specific
expertise in different functions like marketing, finance, human resources,
production, customer services, R&D etc. The organization should have greatest
awareness about its capabilities and credentials as well as its perceived weaknesses
clearly before stepping into the strategy formulation process.
The SWOT Analysis, which must be done religiously for individual functions of an
organization, identifies the primary activities and secondary activities that create value for
customers as well as the organization. The Primary activities are those directly related
to the company's product or service, and the Secondary activities are those that
support the implementation of the primary activities.
Strategic managers have to consider all of the firm's resources and processes within
each function to identify the strengths and weaknesses in order to match them with the
environmental opportunities and challenges. The firm's resources include factors in
three basic categories:[1]
1. Human Resources: The experience, capability, knowledge, skills, any intellectual

property rights.
2. Organizational Resources: These include systems and processes, strategy at

various levels, structure, and organizational culture.
3. Physical Resources: Plant capacity, equipment, geographic presence, access to

raw materials, distribution network and technology.
These three types of resources must work together to create a sustained competitive
advantage for the organization. A firm must invest in and utilize resources that are long-
lasting and are not easily replicated by the competition through imitation or transfer. If the
firm's success is dependent on resources that can be easily acquired by competitors,
then the company cannot sustain its performance in the long run. A SWOT Analysis is an
important means of objectively assessing the organization's resource base across these
three categories.
8.3 SWOT ANALYSIS DIAGRAM

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The above diagram (Fig 8.1) represents a typical generic SWOT Analysis that could be
considered for any company. This analysis captures the important areas a strategic
manager might have to possibly consider while building the SWOT table for his
organization. It must be noted that there could be other factors specific to his
organization. We will discuss this in detail in the following sub chapters.
8.4 HOW TO USE SWOT ANALYSIS
As seen from the above diagram (Fig 8.1), while Strengths and Weaknesses are often
internal to an organization, the Opportunities and Threats generally relate to external
factors. For this reason, the SWOT Analysis is sometimes called Internal-External
(IE) Analysis and the SWOT Matrix is sometimes called an IE Matrix.

We will discuss the subject of ‘How to use SWOT analysis’ a little later. But it is essential
to briefly understand FOUR LEVERS managers have to maximize the utility of SWAOT
analysis.
Let us refer to the following figure and understand it in brief.
Post bringing out various points under SWOT grid, managers have following four options;
• LEVERAGE the strengths

• IMPROVE their weaknesses
• EXPLORE available opportunities
• DEFEND against visualized threats
We will not understand the above with specific details as follows.
STRENGTHS:
The following are some of the questions the strategic managers must ask to analyze the
Strengths of an organization.
• What competitive advantages does the organization have?

• What does the organization do better than the competitor?
• What unique or lowest-cost resources can it draw upon that others can't?
• What do people in the market see as the company's strengths?
• What factors mean that the company can get the sale?
• What is the organization's Unique Selling Proposition (USP)?
The strategic managers must consider the company's strengths from both an internal
perspective, and from the point of view of the customers and people in the marketplace.
While looking at the strengths, the analysis must be done in relation to the competitors.
For example, if all the competitors of the company provide high quality products, then a

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high quality production process would not be a strength in the organization's market, it's a
necessity.
Therefore, the company must innovate and bring out new ideas to create a distinction
and differentiation to gain a competitive advantage, otherwise it cannot command the
price point it wants, as the product might be viewed as a commodity which can be
sourced from any company.
WEAKNESSES:
Weaknesses are often considered as areas where the company needs a critical look and
improve to add relevant competencies to compete effectively in the marketplace. The
following questions may be asked to identify the key areas that it lacks and initiate
actions to fill those gaps in the long run.
• What are the capabilities the company lacks and how could those capabilities be
improved?
• What should the company avoid in its product or go-to-market strategy?
• What are the factors that impact the company's sales?
• Who are the people in the market likely to see as weaknesses?
Again, consider this from an internal and external basis: Does the market seem to
perceive weaknesses that the company doesn't see? Are the competitors doing any
better than the company? It's best to be realistic now, and create awareness and actions,
or face any unpleasant truths later.
OPPORTUNITIES:
The following questions help find answers to Opportunities the company should identify in
the marketplace.
• What are the good opportunities the company can spot?

• What are interesting trends in the marketplace that the company needs to track
and be aware of?
• What are the market segments and product segments that the competitors are not
addressing currently?
Useful Opportunities can come from things such as changes in technology and markets
on both a broad and narrow scale. Changes in the Government policy related to the
industry or field and changes in social patterns, population profiles, lifestyle changes, and
so on.
A useful approach when looking at opportunities is to look at the company's strengths

and explore whether these open up any new opportunities for the company. Alternatively,
look at the weaknesses and explore whether the company could open up opportunities
by eliminating them.

THREATS:
• What are the obstacles the company is facing? What are the competitors doing?
• Are quality standards or specifications for the products or services changing?
• Is changing technology threatening the company's position?
• Does the company have bad debt or cash-flow problems?
• Could any of the company's weaknesses seriously threaten the business?
• Are the government and regulator's policy guidelines changing that will impact the
business?
When looking at Opportunities and Threats, the PEST Analysis can help to ensure that
one doesn't overlook external factors, such as new government regulations, or
technological changes in the industry.
8.5 HUMAN RESOURCES
Human Resources present a huge potential for creating differentiation and strength for
the organization. This analysis must be done meticulously. The Human Resource
Function must be analyzed at three levels: the Board of Directors, Top
Management and Middle Management.
The Board of Directors
The Board is considered to be the highest level of corporate authority involved in giving
direction to the company. They can influence the company's effectiveness based on the
collective strength of the board. The following strengths and weaknesses must be
examined and considered in the strategy formulation.
1. Contribution of Board Members: They need to possess knowledge, experience,

and industry and regulatory connections
2. Tenure and Experience: Long term stability of Board Members enables the
organization to gain knowledge, but new members must be inducted to bring in fresh
perspectives to strategic issues
3. Ability to represent various stakeholders: The Board must consist of diverse

stakeholders like top managers, minority stakeholders, strategic customers, financial
institutions, or local community etc. Such a diversity will bring in different
perspectives and ideas to the Executive Management
4. Level of Investment in the Company: Balanced Stockholding and Bondholding

gives strength to both on the board's responsiveness as well as its concern about
credit worthiness on strategic issues.

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Executive Management
The following issues should be considered in the SWOT Analysis relative to the strengths
and weaknesses of the Executive Leadership/ Management of a company.
1. Background and capabilities of top managers: Experience, leadership style,

decision making ability, personality and presence, team empowerment, etc. are some
of the key strengths expected from the top management. Executives from diverse
industries and complementary backgrounds may help create innovative ideas for the
organization, which will be a critical strength as well.
2. Tenure on the top management: While a lengthy tenure may help in stable and
consistent strategy development and implementation, a short tenure may increase
the turnover of the leadership team leaving with inefficacy, complacency, and failure
to identify new opportunities. The CEO and top management turnover is desirable
only when the company's performance is not up to the targets.
3. Individual Top Managers: Some executives may be good at strategy formulation

but weak in implementation. The company needs to identify the key strengths and
weaknesses of the members of the top management in order to have the right job
responsibilities for the right executive. Some may be good in internal operations, and
some may focus on external markets. The executive leadership team should possess
complementary skills to function efficiently as a team. Some organizations have
Long Term Incentive Plans (LTIPs) to retain top executives who have expertise
very critical to the firm's success.
Line Managers and Employees
The middle management and employees are very crucial in the strategy execution. Even
the best formulated strategy would fail if the right skilled employees are not available to
implement them at the right time. The key strengths at this level include knowledge, skills,
and commitment. Individual and team performance are key to the overall Strategic
Management of the organization. The following factors must be examined and
considered in the SWOT Analysis.
1. A comprehensive Resource Planning Program: The company should have a well-

defined organization structure, job requirements, and forecast for the right people
with right skills at the right place at the right time is very important as part of the
strategic plan.
2. Talent Management and Retention Program: Ongoing talent review, key talent
program to retain high quality individuals, career progression, Long Term Incentive
Plans (LTIPs)
3. Training and Development: This is a strategic area for any organization, while this
could be a weakness for many organizations, which they should correct. With fast
changing market environment and technology, it is absolutely essential to have a

skills assessment and training calendar planned for all the employees. Training must
be considered not as a short term necessity, but a long term investment and not as
an expense.
4. Attrition: High attrition relative to the industry reflects inherent problems in HR

function of the organization. Like poor employee engagement, poor management,
low compensation and benefits and low motivation because of low job satisfaction.
5. Effective Performance Appraisal: Emphasis on performance appraisals and

interventions to improve an individual's performance are key to success. There
should be a professional feedback system between managers and employees,
linking rewards to actual performance and providing a challenging work environment
and equal employment opportunity for employees. The company must ensure to
appraise high performers, rewards them, and retain them for the long term.
8.6 ORGANIZATIONAL RESOURCES [2]

Organizational Resources include systems and processes, strategy at various levels,
structure, and organizational culture. It is important to establish an alignment between the
organizational resources and such a business strategy is crucial for long term success of
the organization. The organization should be in a position to build dynamic capabilities in
terms of specific processes i.e. new product development processes and strategic
decision making process etc. The following issues need to be carefully examined and
considered for building long term strengths for the organization.
1. Consistency in corporate, business, and functional level strategies: Strategic
managers should ensure to facilitate strategy integration among these three levels
right from the strategy planning stage, and influence strategy formulation at the other
levels as well.
2. Consistency in organizational strategy and mission: The mission, goals and
strategies must be compatible and integrated to reflect a clear sense of identity and
purpose for the organization.
3. Consistency between organization strategy and its culture: The organization
should foster an appropriate culture and environment which emphasizes on values
and behaviour of the people. This is essential for the organizational strategy to be
effective.
4. Consistency between organization strategy and its structure: It is important to
align the structure with the strategy and any major change in the strategy should be
supported by appropriate change in the structure to support the organization growth.
5. Position in the industry: With all external factors being equal, a firm that has a
strong market position is in a better position to implement strategic changes than
those in weak positions. For companies operating globally this assessment must be
made for different countries of operation.

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6. Product and service quality: It is important that the quality of the products and
services either compares or is better with those of the competition firms.
7. Reputation of a firm: The customers should be able to associate attributes like
product quality and customer service, thereby helping to establish the reputation of
the company. Otherwise, it can be detrimental to the company's image and brand
in the long run.
8.7 PHYSICAL RESOURCES
Physical Resources refer to the company's capital assets, use of technology, production
capacity, distribution network, access to raw materials, and locations of operations. This
differs from industry to industry, and organization to organization. For instance, these
parameters for a software industry would be different from that of a manufacturing
industry. However, the following issues pertaining to the strengths and weaknesses must
be examined and considered in strategy formulation.
1. Currency of Technology: Technology being a fast changing parameter, the

competitive advantage would be to stay current with superior technology. This
requires constant up gradation and refreshing of the outdated technology from time
to time. This applies to companies with a global presence and should be appropriate
for the country of operation.
2. Distribution Network: The organization must ensure the quality and sophistication
of the distribution network for its products and services with a faster turnaround time
to have a competitive advantage.
3. Production Capacity: The Production Capacity must be dynamic and flexible

enough to take care of the changing demands of the market. The continued backlog
of orders may indicate that the demand for the product is growing in the market, or it
may indicate insufficient capacity to produce more, which is not a good indicator
either. The capacity must be managed optimally to stay competitive and exceed the
delivery expectations.
4. Access to Cost Effective Supplies: The organization should ensure cost effective
and reliable sourcing for its input components. The supplier should have quality
products supplied at competitive costs.
5. Locations: The company should identify locations in favourable places where skilled
labour, suppliers and customers are readily available.
Thus, the strengths, capabilities and credentials across human resources, organizational
resources and physical resources form the unique value proposition for an organization
and should be emphasized while formulating the strategy. Within the existing resources
and new resources acquired by the company from time to time will emerge synergies to
maximize the potential for performance. Each organization will have a unique
combination of these resources that would differ from others. The top management

should ensure that these synergies are leveraged to create sustained competitive
advantage for the organization.
8.8 OPPORTUNITIES AND THREATS
In the chapter 3 on external environment, we discussed in detail how an organization is

impacted by the external environment, also called the macro environment. It is important
to be aware that every organization exists within a complex network of political,
regulatory, economic, social, technological, and demographic forces. We have also
studied about the analysis of the macro environment and its forces (referred to as the
PEST Analysis) in the same chapter.
The constant changes in these forces present numerous opportunities and threats to the
strategic management process. The strategic managers should be able to draw the
difference between the strengths and weaknesses, and opportunities and threats. While
strengths and weaknesses are internal factors such as brand image, marketing strategy,
financial position, employee expertise, whereas all the external factors such as regulatory
changes, demographic or social changes, technology evolution will be classified as
opportunities and threats.
For example, any change in the Government or Regulatory Policy on specific

industries with respect to tax concession, M&A reforms, Foreign Direct Investment
(FDI) relaxation etc. would result in many Opportunities for the companies
operating in that industry. At the same time, to increase transparency the
Government might stipulate certain tough conditions which might be viewed as a
Threat to the firm.
It is important to distinguish between opportunities and alternatives as it may seem to be

of minor difference. In strategy management, opportunities represent the application of
macro environmental factors to a specific organization. Alternatives emanate from the
SW / OT matrix and represent specific courses of action that the organization might
choose to undertake. The two are related but must be differentiated.
For example, an organization has huge cash from internal accruals on its balance sheet
along with high credit rating (which are treated as strengths), and there is an opportunity
to grow the market share in the given industry, then the strategy would be to acquire a
suitable firm or establish a greenfield unit to increase the production to meet the high
demand. We will study this in detail in the following sub-chapter.
8.9 SW AND OT MATRIX [3]

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It is a tool used for generating alternative courses of actions by identifying relevant

combinations of internal characteristics like strengths and weaknesses and external
forces like opportunities and threats. Once the SWOT Analysis has been completed
successfully, the SW/OT matrix is used to generate alternative courses on actions
or the company's strategy. A Matrix is created as shown in Fig 8.2 as below.
For example, an organization with strengths of balance sheet, large internal accruals, and
high credit rating by creditors, in a market where there are opportunities for expanding
the various businesses under its strategy, can seek to acquire a competitor with
complementing product lines which will help in addressing the market growth
opportunities and attempt to increase the market share. Similarly, if there is a growing
demand for the products from international markets, the strategy should be to explore a
strategic alliance or a joint venture with suitable foreign firm(s) with excellent marketing
capabilities to launch the product in the respective countries. These alternatives are
worth considering during the strategy formulation Stage.
We can quote the examples of Mc Donald's or any other fast food restaurant
having strategic partnerships with Indian partners to launch their fast food chain in
India. Similarly, companies like Bajaj Auto or Maruti produce automobiles in India
and have strategic alliances with foreign partners in other countries to distribute
their products to the customers in those countries. Guest Houser, a network of
holiday homes, today announced its partnership with Indigo. The tie-up makes
Guest Houser the exclusive supplier of holiday homes in Indigo. As Indigo
continues to expand its operations in tier II and III cities of India; its travelers will
now be able to choose and book accommodation from GuestHouser's inventory of

over 135,000 holiday homes across 2,200 destinations in India. The association will
enable travelers to plan vacations or holidays in all parts of India by booking
flights and holiday homes together.
Ultimately the strategy is that the strengths of these companies in their core business,
whether fast foods or automobiles, are clearly leveraged to address the opportunities
identified in other markets thereby expanding their business. The SW / OT matrix is a
systematic means of developing strategic alternatives available to the organization. This
requires brainstorming and creative discussions among the strategic managers.
SW / OT matrix analysis
The SW / OT matrix helps top managers to position a company in its environment so that
it leverages its strengths and develops new strengths which were hitherto weak areas for
the company, thereby it tries to minimize the detrimental effects due to these
weaknesses. Firstly, alternatives are the company’s courses of action that are worth
considering as they present potentially alternate options and positive benefits for the
company's strategy. Secondly, these alternatives are within the realms of possibilities for
the organization.
As explained in the above table, generally there are different alternatives that emerge
from this exercise, each representing a combination of one or more strengths or
weaknesses with one or more opportunities or threats. It is not suggested that the same
number of alternatives should be developed in each category. Actually it is left to the
Strategic Managers to be creative in identifying the different alternatives, as many as they
can discover in different categories.
Typically, as seen from the figure 8.2, several different combinations of internal factors
(strengths and weaknesses) and external factors (opportunities and threats) can produce
the different alternatives. Mostly individual internal or external factors may not produce
viable alternatives. In the process, some combination may be eliminated for further
consideration for obvious reasons as they may not be suitable for the company's vision,
but the other ones that are relevant to the vision must be considered for the strategy
formulation and for further analysis. The success of the organization will depend on the
ability of the strategic managers to be creative in this brainstorming exercise.
It is worthwhile to note that the company may choose to continue and implement its
current strategy in the present form, as referred to as no change option; however this
could be one of the alternatives that may be considered as well. It is necessary to
analyze all the possibilities of alternatives as critically as possible, before selecting the no
change alternative. Resisting change, by choosing the no change option, may expose the
firm to greater threats from external factors than embracing the change. The strategic
managers must keep this in mind.
In most organizations which aspire for growth strategy, especially in today's fast changing
economic environment, to continue with the present strategy is not an option. Every

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organization has to look for changes and desirable alternatives to keep their strategies
dynamic to meet the investor expectations.
Additional alternatives must be identified from the SW / OT Matrix. Firstly, the

organization should look to fully utilizing its strengths to take advantage of existing
opportunities and mitigate the threats effectively if not already doing so. For example, if
the organization has excess production capacity and there are new markets which are
not currently served, then making presence in these markets will be a viable alternative.
Secondly, the company should take action to develop new capabilities by improving on its
weaknesses identified earlier, to pursue new opportunities and minimize the threats as
well. It is very important to not include alternatives which are not feasible or not within the
realms of the organization’s financial or technological capabilities.
Student work:
Consider an organization of your choice in any industry and discuss the different strategic
alternatives available to the organization using the SW / OT matrix, and the pros and
cons of these alternatives.
8.10 CHOOSING THE BEST STRATEGIC ALTERNATIVES
There are many challenges that affect the strategy formulation process. These factors
include the organization’s prevailing culture, leadership team's quality and commitment,
aspiration, ethical practice, financial performance, brand equity etc.
Decision making during the strategy formulation process is a difficult subject, worthy of a
chapter considering its various complexity. This section can only offer a few suggestions.
There are many issues surrounding the strategy formulation. Here are some factors to
consider when choosing among alternative strategies:
1. It is important to get as clear as possible about the company's current challenges,

aspirations, objectives and "decision criteria" which make a decision appropriate for
the company's strategy
2. The primary answer to the previous question, and therefore a vital criterion, is that
the chosen strategies must be effective in addressing the "critical issues" the
company faces currently as well as taking into consideration its future aspirations
3. They must be consistent with the mission and other strategies of the organization
4. The organization culture and value systems must be of high order. It is important to
foster ethics and code of conduct at all levels and the top leadership should be made
accountable for the organizational ethics.
5. Communication strategy is a very important element in the overall strategy making

process

6. They need to be consistent with the external environment factors, including realistic
assessments of the competitive environment and trends
7. They fit the company's product life cycle position and market attractiveness
/competitive strength situation
8. They must be capable of being implemented effectively and efficiently, including

being realistic with respect to the company's resources
9. The risks must be acceptable and in line with the potential rewards
10. It is important to match strategy to the other aspects of the situation, including: (a)
size, stage, and growth rate of the industry; (b) industry characteristics, including
fragmentation, importance of technology, product orientation and innovation,
international features; and (c) company's position in the market (dominant leader,
leader, aggressive challenger, follower, weak, "stuck in the middle")
11. Consider stakeholder analysis and other people-related factors (e.g., internal, and
external pressures, risk propensity, and needs and desires of important decision-
makers)
12. Sometimes it is helpful to do scenario construction, e.g., cases with optimistic, most
likely, and pessimistic assumptions.
8.11 ORGANIZATION CULTURE
It is important to understand the culture of the organization and how it impacts any
strategic decision taken by the top management. The strategic decisions must be
consistent with the organization culture and be able to foster a progressive working
environment for the employees. Organization Culture is generally defined as the shared
values and beliefs, and the behaviour that are accepted and practiced by the employees
of an organization [4]. Each organization develops its own unique culture irrespective of
the same or different industry and will exhibit distinctly different ways of functioning. The
organizational culture enables a firm to adapt to environmental changes and help
coordinate and integrate internal operations.
The culture of an organization is defined by clearly articulated values that are easily
understood by all the employees and percolate from the top management. The values
must be reinforced from time to time. The culture, besides values and beliefs, also
includes the organization visions, norms, working language, systems, symbols, habits
and behaviours. It is also the pattern of such collective behaviours and assumptions that
are taught to new organizational members as a way of perceiving, and even thinking and
feeling. Organizational culture affects the way people and groups interact with each
other, with clients, and with stakeholders. An organization's culture has both negative and
positive aspects internally and externally.

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Some organizations’ culture is innovative and encouraging with openness to new

initiatives, whereas some may be conservative and closed. The most important influencer
in an organization’s culture is its founders and promoters who can bring in a special set of
values to the organization like entrepreneurship, quality, innovation, inclusiveness,
resilience, bold and risk taking etc.
If one looks at Apple, innovation is a key value the company breathes every day.
Perhaps that is what the company is known to stand for. It is closely associated with what
Apple's founder Mr. Steve Jobs believed in what he said, "Innovation distinguishes
between a leader and a follower." India's largest telecom company Bharti Airtel is
characterized by its entrepreneurship, inclusiveness, bold and risk taking values. These
values have been nurtured by its promoter Mr. Sunil Bharti Mittal over a long period of
time.
Innovative organizations are likely to respond to the market with new product
introductions whereas companies who are known for their low priced products may
respond with lower costs even further. Bold, risk taking, and aggressive companies
pursue growth through acquisitions and expansions in different countries. Conservative
companies with less risk appetite take a pure organic approach and grow steadily over a
long time.
Organizational culture is a set of shared mental assumptions and beliefs that guide
interpretation and action in organizations by defining appropriate behaviour for various
situations. They actually foster an organization’s distinctive competence that
differentiates its offerings to the market. At the same time although a company may have
their "own unique culture", in larger organizations, there is a diverse and sometimes
conflicting culture that co-exist due to the different characteristics of the management
team and different diverse businesses.
International companies have a cultural diversity as they operate in many countries with
different cultural backgrounds. Hofstede (1980) looked for differences between over
160,000 IBM employees in 50 different countries and three regions of the world, in an
attempt to find aspects of culture that might influence business behaviour. He suggested
things about cultural differences existing in regions and nations, and the importance of
international awareness and multiculturalism for the own cultural introspection. Cultural
differences reflect differences in thinking and social action, and even in "mental
programs", a term Hofstede uses for predictable behaviour. Hofstede relates culture to
ethnic and regional groups, but also organizations, profession, family, to society and
subcultural groups, national political systems, and legislation, etc. Hofstede suggests the
need for changing "mental programs" with changing behaviour first, which will lead to
value changes.
When the external environment changes fast, the organization also should be in a
position to modify its culture over time, with a proactive sense of need for change.
Otherwise the organization culture might become obsolete and even dysfunctional. It is

quite essential that new elements of culture get added whereas the old elements get
discarded, so as to stay relevant to the environment. It may be that conservative firms do
not become aggressive entrepreneurial firms because they have formulated new goals
and plans in line with their conservative strategy, and they might need substantial effort to
modify the culture and the way things are done in their organizations. Changing strategy
is easier and does not mean changing of culture, which is the most challenging task for
any organization. The new strategy to drive change may not be implemented successfully
as it might require changes in assumptions, values, and way of thinking as well as
working. Hence, for an organization to be successful both changes in strategy and
change in culture are absolutely necessary.
Studies have shown that organizational culture can facilitate or hinder a firm's strategic
actions. Companies with strategically appropriate cultures, such as PepsiCo and Wal-
Mart, tend to outperform other companies whose cultures do not fit as well with their
strategies. Successful companies develop cultures that lay emphasis ontheir important
groups of stakeholders: customers, employees, and shareholders. The culture must be
appropriate to the company's strategy and must create value for the stakeholders and
help the firm adapt to environmental challenges. The point is not that these companies
have strong cultures, but there must be an appropriate culture to suit the firm's strategy
and it should contain necessary values that can help adapt to the environmental
changes.[5]
Shaping the culture
Organizations become vulnerable to market competition if their culture is not in tune with
the fast changing world. Key values like entrepreneurship, quality, innovation,
inclusiveness, resilience, bold and risk-taking are considered to be the facilitating factors
as compared to being conservative, business-as-usual attitude which are considered to
be hindering to the progress. Fostering the right culture starts from the top management
and the culture should evolve as the organization grows.
The Evolution of culture has to keep in tandem with the company's progress. Top
leadership can influence and shape anorganization’s culture in many different ways. Not
by command but by inspiring, collaborating and fostering a sense of ownership among
employees to act on the values to be demonstrated in their behaviour. The following are
some of the suggestions that could help the organization achieve to constantly
evolve the culture relevant to its business:
1. The top management should systematically focus on areas of businesses that are
key to the strategy's success. These specific areas should be identified as critical to
the firm's long term performance and there should be inclusiveness at all levels of
leadership.
2. The top management's response to certain critical events or crises that potentially
impact the company's performance like declining sales, workforce strike,

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technological obsolescence etc. For example, if quality is the assurance the company
makes in its mission statement, then the company should respond to every challenge
and create an opportunity to demonstrate that value.
3. The top management should become a role model for the rest of the organization. It
fosters the behaviour across the organization to adopt. The message about
"employees first" from the CEO makes a lot of difference to the morale of the
employees. They will go to any extent to ensure the performance of the organization
on a sustainable basis.
4. The top management should have a clearly defined transparent process of rewards
and recognition, in line with the performance of the business, function and individual
employees. In fact, the rewards and recognition process brings the right behaviour
and sends a message to everyone in the company to take performance seriously and
eventually get it ingrained into the fabric of the company.
5. The top management should create HR processes that are well defined about
various employee engagement programmes within the company, from recruitment to
exit processes of employees.
An organization’s culture comes broadly from its employees, in the way how the company
is able to institutionalize the process of hiring the right talent, career progression, and
succession planning by encouraging and promoting individuals whose values are
similar to those of the organization, and whose beliefs and behaviours are
appropriate for the organization’s changing value system.
There are many global challenges that might impact the culture of an organization. In an
international organization, the individual national culture becomes the subset of the
overall organization’s culture. It can pose challenges on leadership and other dynamics of
culture prevailing in that country. Some country's leadership may be aggressive in
innovation and risk-taking etc., while some others may be very conservative to such
changes. Such companies reflect the culture of individual countries and present a unique
cultural diversity for other countries to learn and adapt certain good values and best
practices thereby enriching the overall cultural value of the organization.
When M&As happen in organizations, it is often believed that the leadership styles and
organizational cultures of the acquiring company may not all the time be compatible with
the culture of the acquired company. It takes a long time to absorb such cultures into the
mainstream of the parent company. Some corporations take decisions to keep operations
of such an acquisition as a separate company till leadership and other employees
infusion happens over a period time, and then take a decision to merge the acquired
company.
Practically, many organizations have failed to merge the company successfully because
of a cultural mismatch as any efforts to customize the values and culture may pose
special challenges when companies from different countries or other strategic

acquisitions from related industries need to merge. Such mergers are long drawn
processes from a culture perspective, and it might take many months to a few years for a
successful transition.
8.12 CORPORATE ETHICS
In today's organizations, Corporate Ethics Policy, as part of the company's strategy, is

designed to promote employee awareness of the company's commitment to conduct
business in compliance with the highest ethical standards, adhering to the Code of Ethics
and Business Conduct and pertinent laws and regulations. Every employee has to make
business decisions that are legal, honest, moral, fair and of the highest integrity.
With more organizations getting exposed with matters/issue related to their bad
governance and performance affected by bad business ethics, there has been significant
fall out as a result of the questionable strategic decisions taken by the management in its
business strategy. The organization’s reputation is critical to all business relationships
and is a vital asset which every company must be committed to protecting, preserving,
and enhancing. Such a policy should be included in the overall strategy making process.
Some of the Ethical Standards include:
1) Integrity - Individuals should be honest in all dealings and stand for what is right
2) Respect - To show respect for one another by treating everyone with dignity and
fairness
3) Accountability - To be accountable for actions and honour commitments
4) Responsibility - To conduct business as responsible citizens in accordance with

the applicable laws and regulations in each country where the company operates
The organization’s business purpose is not just to meet the financial interests and
profitability motive of the shareholders. In today's economic world, the expectation is also
to serve the society and other stakeholders in all fairness. The performance of the
organization can be directly linked to the direct result of the ethical or unethical decisions
taken by the various strategic managers at different points of time. These organizations
which are considered to be delinquent would soon get exposed through various
manifestations of such actions like scandals, corruption, etc.
Generally, corporate ethical behaviour can be looked at in a number of ways how the
organization behaves during various challenges. If an individual in the organization
pursues his or her own economic self-interest in organizational activities it will impact the
organization’s interest in the long run and will be against the interest of the organization,
and such violations will be dealt with as per the code of ethics of the company, to be
complied by all the employees of the organization.
8.13 CORPORATE SOCIAL RESPONSIBILITY

Chapter 8
Corporate Social Responsibility is generally the expectation that the corporate

organization should serve both the societal needs and the financial interests of the
shareholders in a fair manner. A firm's position towards social responsibility can be a
critical factor in making strategic decisions. If social responsibility is not considered,
decisions of the firm may be aimed only at profit or other narrow motives without a
concern for the social objectives.
Corporate Social Responsibility (CSR), also called Corporate Conscience or Social

Performance, or Sustainable Business/Responsible Business, is a form of corporate
self-regulation integrated into a business model. CSR policy functions as a built-in, self-
regulating mechanism whereby a business monitors and ensures its active compliance
with the spirit of the law, ethical standards, and international norms. In some models, a
firm's implementation of CSR goes beyond compliance and engages in "actions that
appear to perform social good, beyond the interests of the firm and that which is required
by law."
CSR is a process with the aim to embrace responsibility for the company's actions and
encourage a positive impact through its activities on the society, environment,
consumers, employees, communities, stakeholders, and all other members of the public
sphere who may also be considered as stakeholders. This, however, is beyond the
general economic expectation that businesses have always been expected to provide
employment to people and to meet customer needs.
The term "corporate social responsibility" became popular in the 1960s and has remained
a term used indiscriminately by many to cover legal and moral responsibility more
narrowly construed.
Proponents argue that corporations make more long term profits by operating with a
perspective, while critics argue that CSR distracts from the economic role of businesses.
McWilliams and Siegel's article (2000) published in their Strategic Management
Journal [6], cited by over 1000 academics, compared existing econometric studies of the
relationship between social and financial performance. They concluded that the
contradictory results of previous studies reporting positive, negative, and neutral financial
impact were due to flawed empirical analysis. McWilliams and Siegel demonstrated that
when the model is properly specified; that is, when you control for investment in
Research and Development, an important determinant of financial performance, CSR has
a neutral impact on financial outcomes.
Some argue that CSR is merely window-dressing, or an attempt to pre-empt the role of
governments as a watchdog over powerful multinational corporations. Political
sociologists became interested in CSR in the context of theories of globalization, neo-
liberalism, and late capitalism. Adopting a critical approach, sociologists emphasize CSR
as a form of capitalist legitimacy and in particular point out that what has begun as a
social movement against uninhibited corporate power has been co-opted by and

transformed by corporations into a 'business model' and a 'risk management' device,

often with questionable results.
CSR is titled to aid an organization's mission as well as a guide to what the company
stands for and will uphold to its consumers. Development business ethics is one of the
forms of applied ethics that examines ethical principles and moral or ethical problems that
can arise in a business environment. ISO 26000 is the recognized international
standard for CSR. Public sector organizations (the United Nations for example) adhere
to the triple bottom line (TBL). It is widely accepted that CSR adheres to similar principles
but with no formal act of legislation.
In India, as per the new companies' law, all public listed companies should contribute 2%
of their net profit for the CSR programs and social development. Most corporate
organizations are engaged in CSR initiatives. As seen in an earlier chapter, Tata group
believes being a societal organization rather than an organization with a social cause.
Many organizations and business leaders across industries devote their wealth to the
development of socially underprivileged in the areas of child education, women
empowerment, healthcare, rural jobs creation namely Mahindra & Mahindra Group,
WIPRO, Infosys etc. This is a welcome change to make the economic development an
inclusive development.
8.14 SUMMARY
In this chapter we studied the importance of SWOT analysis and how it forms the basis
for the formulation of strategies at all levels. The SWOT analysis also takes care of the
organization’s internal (strengths and weaknesses) and external (opportunities and
threats) attributes which must be well analyzed and mapped to the various important
elements of the organization viz human, organizational, and physical resources. The
SW/OT matrix generates strategic alternatives or options by combining the internal and
external factors analyzed in the SWOT analysis.
Social Responsibility and Ethics should be integral parts of the strategic decision making
process. In addition, an organization’s culture can facilitate or hinder the firm's strategic
actions. Successful strategy implementation requires a strategically appropriate culture,
the one that is appropriate and supportive of the organization’s long term strategy.
1. According to Michael Porter, what is Strategy Formulation?

a) Creating a plan for the future of the organization
b) It means deliberately choosing to perform activities differently or to perform
different activities than rivals to deliver a unique mix of value to all stakeholders

Chapter 8
c) Perform analysis about the strengths and weakness of an organization

d) Create an action plan to achieve its vision
2. The following process is designed to monitor a broad range of events inside and
outside the company that are likely to threaten the course of the firm's strategy.
a) Operation monitoring
b) Strategic planning
c) Strategic surveillance
d) None of the above
3. The main advantage of Strategic Planning is that it will assist the management in
eliminating the business risk. True or False?
a) True
b) False
4. The Strategic Option for a company which has strengths on good financial
performance, internal cash accruals with weakness on a complementing product mix,
and a good market opportunity is :
a) To form a strategic alliance
b) Acquire a company with complementing products
c) Acquire modern technology and expand
d) Change the product mix to the company's core strength
5. Which is the right way to choose the best Strategic Alternative in Strategy
Formulation?
a) Consider the organization’s importance to achieve the profitable growth
b) Create a plan for the future of the organization
c) To get as clear as possible about the company's current challenges, aspirations,
objectives and "decision criteria" which make a decision appropriate for the
company's strategy
d) Analyze the various opportunities available for the organization
6. What are the key standards or behaviours that define Management Ethics in an
organization?
a) The financial interests and profitability motive of the shareholders
b) Respect, Integrity, Accountability and Responsibility
c) Actions to improve reputation of the organization
d) Work towards improving Organizational Culture
Answers: 1.(c), 2.(d), 3.(b), 4.(b), 5.(c), 6.(b)

References:
P 125
P 127

P 132
4. C D Pringle and D F Jennings, Managing organization functions and behaviours, P
594
5. M. Driver, "Learning and Leadership in Organization:", Management Learning (2002):
96-126
6. McWilliams and Siegel's article (2000) published in Strategic Management Journal
ANNEXURE
Actual example of SWOT analysis of one mobile phone manufacturing company

XIAOMI
SWOT Analysis of XIAOMI:
Strengths:
a. Strong Research and Development: XIAOMI has a dedicated team of engineers and
designers, consistently innovating and developing cutting-edge smartphone
technologies. This enables them to stay ahead in the competitive market.
b. Brand Reputation: Over the years, XIAOMI has built a strong brand reputation for
producing reliable, high-quality smartphones, which leads to a loyal customer base.
c. Efficient Supply Chain: The company has established efficient supply chain
management, which allows them to control costs, maintain product availability, and
respond quickly to market demands.
d. Diverse Product Portfolio: XIAOMI offers a diverse range of smartphones, catering to
various market segments and customer preferences.
Weaknesses:
a. Limited Global Presence: Despite being successful in certain regions, XIAOMI
struggles to gain a significant market share in some international markets due to stiff
competition and limited distribution channels.
b. Dependency on Specific Suppliers: The company relies heavily on a few key
suppliers for crucial components, making them vulnerable to supply chain disruptions
or price fluctuations.
c. Relatively High Price Point: Some of XIAOMI' premium smartphones are priced
higher than their competitors, potentially limiting their market reach, especially in
price-sensitive regions.
Opportunities:
a. Emerging Markets: XIAOMI can explore untapped markets in developing countries,
where there is an increasing demand for smartphones and a growing middle class
with higher disposable income.

Chapter 8
b. New Technological Trends: The company can capitalize on emerging technologies

such as 5G, augmented reality, and artificial intelligence to enhance their
smartphones' features and capabilities.
c. Strategic Partnerships: XIAOMI can forge partnerships with mobile carriers and
retailers to expand its distribution network and increase visibility in new markets.
Threats:
a. Intense Competition: The smartphone market is highly competitive, with several
established players and new entrants constantly vying for market share. XIAOMI
faces the risk of losing customers to competitors with better pricing or features.
b. Rapid Technological Advancements: The fast-paced nature of the tech industry
poses a threat as newer, more advanced smartphones can quickly make existing
models obsolete.
c. Economic Factors: Economic downturns or fluctuations in consumer spending can
impact the demand for smartphones, affecting XIAOMI's sales and revenue.
After you draw SWOT, you need to conclude what you need to be doing. Same is
explained as follows.
Example Conclusion:
XIAOMI is a reputable smartphone manufacturer with strong R&D capabilities and a
diverse product portfolio. However, it faces challenges in expanding its global presence
and might need to work on diversifying its supplier base to reduce risks. Exploring
emerging markets and staying on top of technological trends presents excellent growth
opportunities. Nevertheless, the company must be vigilant about the competitive
landscape and economic conditions to maintain its market position successfully. Strategic
decisions, such as forming partnerships and competitive pricing, can help mitigate
potential threats and enhance overall success.
(Use of XIAOMI is only for representation. The above facts covered may not really be applicable to
the company. It is represented for helping students to gain better comprehension of the concept).

REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
Video2
9
Chapter
STRATEGY
IMPLEMENTATION
Objectives:
This chapter focuses on Strategy Implementation which is the next logical step once the
strategy formulation exercise has been completed. This chapter talks about a number of
challenges and issues that need to be considered well in advance by the strategic
managers during the execution of strategy.
Understand different approaches to Strategy Implementation
The formulation of Organization Structure
Understand the Communication Strategy
Choosing right organization structure
Organization Culture, Leadership and Change Management
Top changes in Strategy Implementation

9.1 Introduction
9.2 Approaches to Successful Strategy Execution
9.3 Formulation of Organization Structure
9.4 Leadership Implementation
9.5 Communicating the Strategy
9.6 Annual Operating Plans (AOP)
9.7 Different Types of Organization Structures
9.8 Policies and Guidelines
9.9 Rewards and Recognition System
9.10 Strategy Implementation Approaches
9.11 Strategy Implementation and Stakeholders
9.12 Executive Leadership and Change Management
9.13 Top Challenges in Strategy Implementation
9.14 Summary

Chapter 9
9.1 INTRODUCTION
"I'd rather have a first-rate execution and second-rate strategy any time than a brilliant
idea and a mediocre management", said Mr. Jamie Dimon current CEO and chairman
of JPMorgan Chase & Co. This shows that execution is the most important and vital part
of success for an organization’s strategy. In other words, it is implied that even the best
conceived strategic plans often fail from lack of the leadership's ability to implement them
successfully. While strategy formulation is mostly an intellectual process, strategy
implementation is all about actions and relentless execution.
During Strategy Implementation, the strategic managers will face a number of challenges
and issues that need to be considered well in advance. The most important aspect for
implementation to be successful is to consider how the organization should be structured
and how its current leadership practices can facilitate or hinder the implementation
process.
A brilliant strategy, blockbuster product, or breakthrough technology can put the

organization on the competitive map, but only a solid execution can keep it there
sustainably. Execution is the result of thousands of decisions made every day by the top
management and employees acting according to the information they have and the
direction they have to take to reach the goals. There are many moving parts which need
to be monitored and controlled on a real-time basis during implementation. Hence, in
practice, strategy execution is a difficult task for many reasons.
Many leaders don't know what strategy execution is or how they should approach it,
especially when there is change management which is part of the strategy plan. The
organization may not have a well-developed or an institutionalized process of managing
change. There will always be resistance to change. The strategic managers must
recognize this as they build their strategy plan and specific strategies should be
formulated to overcome these challenges. Also, it must be taken into account that certain
home-grown approaches may be incomplete if they fail to incorporate some of the basic
activities which are critical to the strategy execution.
There are several concerns in implementation which could be quite challenging. As the
environment changes rapidly, progressive organizations take steps to capitalize on new
opportunities and minimize any adverse impact on the organization. Strategic changes
can be brought about in factors such as the need to address hyper competition, create
product innovation, and improve the quality of service, the need to optimize costs, align
with the technology partners and learn their best practices. These improvements would
be required as part of the strategy when the organization transitions from their 'current
state' to the 'desired state' and will eventually lead to a transformation process. This
happens when the organization changes its product lines, acquire new markets, or
design a new distribution strategy. This leads to strategic interventions which must be
carried out in order to operationalize the transformation strategy and create a sustainable
inclusive growth.

Strategy Implementation
The first part of Strategy Implementation is creating the appropriate organization structure
that supports the implementation of the strategy. This could involve overhauling of the
current structure to make it desirable for the strategy. Such changes are not easy in
nature. Sometimes shifting the strategic intent or any structural changes should be
accompanied by communication with all important stakeholders like customers,
employees, partners etc.
The structural changes may involve major investments from the organization upfront, but
the results might or may not be seen later depending on how well the strategy execution
happens across the organization. The incremental costs arising out of any change
program must be justified as a business case and its benefits articulated as part of the
strategy plan.
This chapter deals with the steps and the process involved in strategy implementation
and also tries to address the challenges faced during the execution. It must be
recognized that strategic change of a large magnitude could be daunting and difficult to
implement. Most importantly any change that involves the most sensitive human element
of the organization must be handled very carefully. Employees resist every change for a
variety of reasons including personal factors like lack of information about change or poor
design of the implementation or lack of any support system.
9.2 APPROACHES TO SUCCESSFUL STRATEGY EXECUTION
As discussed, in reality, Strategy Execution is difficult, sometimes complex, for many

reasons. Many organizations often fail as they lack knowledge about what strategy
implementation is or how they should approach it, especially when there is a major
organizational restructuring required and change management required to propel the
organization to a transition and transformation path. Let us see the various approaches
that could be used practically towards successful implementation of strategy.
1. Formulation of the Strategy and Structure
As discussed in the previous chapters, it is essential to design the corporate level,

business unit level, and functional strategies. The first step is to design an appropriate
organizational structure in tune with the strategy envisaged. One of the key challenges
in strategy implementation is the ability of organizational stakeholders to understand
what the strategy is. An effective way to improve this understanding is to visualize the
strategy via an illustration that shows the important elements of the strategy, how each
element relates to the others, each manager and each employee's responsibilities and
their actions and impact on the organization.
2. Measure the Strategy
Key elements of the strategy should be assigned and easily understood performance
measures or a Key Performance Indicator (KPI). The full set of strategic performance
measures can be organized into a dashboard, called a Balanced Scorecard, or some

Chapter 9
other framework so the top management can review and determine that progress is
being made toward completion of the strategy.
3. Report Progress
In the same way that a budget is reviewed monthly to ensure financial commitments
are being kept, the strategy should be reviewed regularly, but with more of an eye
toward determining if the strategy is producing results, versus controlling performance.
4. Make Decisions
Strategy execution is much like setting the direction towards a planned destination with
clear milestones of achievement and timelines defined in the beginning. A defined
course and a full complement of navigational charts will never eliminate the need to
remain vigilant, to assess the environment, and to make corrections as conditions
change. As part of the regular reporting process leaders must make on-going strategic
decisions to keep the strategy current, dynamically aligned to changes and on course
always.
5. Identify Strategic Projects
Companies roll out many strategic interventions to complement and strengthen the
ongoing strategy. Hence, there are many ongoing projects at any point, but they rarely
have a firm grasp on the type and range of these projects. The first step in improving
project-oriented strategy execution is to capture and organize strategy projects in
particular, that are underway throughout an organization.
6. Align Strategic Projects
Once the projects are identified they must be aligned to the strategies or goals of the
organization. This step entails comparing each project, either proposed or ongoing, to
the strategic goals to determine if alignment exists. Only those projects that directly
impact the strategy should be resourced and continued.
7. Manage Projects
Organizations must develop a capability in project management if they are to execute

the strategy effectively. In some settings, projects receive very little management and
fail to deliver the desired results. In others, projects persist well beyond their scheduled
completion. The full list of projects in any organization should be coordinated and
controlled by a central project management office or officer with the responsibility for
monitoring both progress and performance.
8. Communication Strategy
It is difficult to execute strategy when the strategy itself is not well understood or
articulated about its value, or when performance relative to the strategy is not

communicated from time to time. Leaders must communicate their visualized strategy
to the workforce in a way that will help them understand not only what needs to be
done, but why.
9. Align Individual Roles
Employees want to know they are making a meaningful contribution to their

organization's success. It is up to strategic managers and senior leaders to ensure that
employees at all levels can articulate and evaluate their personal roles with clearly
defined KPIs towards the achievement of specific strategic goals. This is perhaps one
of the most critical aspects of the execution process.
10. Reward and Recognition of Performance
In strategy execution, as in any other area of management, what gets measured gets
done. Taking this one step further, what gets measured and rewarded gets done faster.
After explaining the strategy and aligning the workforce to it, senior managers institute
the incentives and rewards that drive employees' behaviours consistent with the
strategy.
Rewards and Recognition (generally called the R&R program) are important
practices that help in effective implementation of the strategy. A successful execution
depends on the motivation of employees who are ultimately responsible for delivering
the results. Therefore, it is necessary to have a system to recognize superior
performance and reward the star performers, thereby motivating the other employees
to perform better next time.
9.3 FORMULATION OF ORGANIZATION STRUCTURE [1]
A good strategy in itself does not ensure successful implementation. The

operationalization of strategy requires various critical elements that support the
implementation process. These are organization structure, delegation of authority,
mobilization and allocation of resources, responsibility matrix, tasks, information and
communication flows, policies and guidelines, and evaluation and control. Formulation of
the appropriate Organization Structure is perhaps the first step in the implementation
process, immediately after the strategy formulation.
Typically for small organizations with an owner and a few employees, it may not be
necessary to have a formal organizational structure or a clear assignment of
responsibilities to employees. However, when an organization grows its business to a
large scale or expanding and diversifying its business profile, it becomes necessary to
have a proper organizational structure, assignment of roles and responsibilities,
delegation of authority at every level of leadership.
The organizational structure has to be aligned to the strategy to deliver the mission of the
organization. The division of responsibilities should ensure that the various leadership

Chapter 9
levels from the top management to the middle management and the employees are
clearly defined with respect to their functions. It is the responsibility of the top
management to evolve the system of creating the tasks and goals to facilitate
implementation of the company's strategy. The top management must also evaluate the
effectiveness of the implementation process at periodic intervals through a monitoring
and evaluation process, which is discussed in detail in chapter 10.
An organizational structure is a formal means by which the various tasks are assigned,
coordinated, and aligned to the organization strategy. In other words, the structure
provides correction, control, and co-ordination for the top management. The structure
also defines the number of levels in hierarchy and designates formal reporting
relationships (refer fig 9.1).
Fig 9.1 Organization Structure
The various tasks are organized across various business lines and coordinated with
functional lines so that the employees can work in their respective areas of specialty, by
products or services, and collaborate with other functions and geographical regions in an
integrated manner. An organization structure generally has three dimensions, viz by
products, by function, and by divisions or geography. The structure should also
ensure the products division, the functional unit, work with various geographical regions
to ensure that the business decisions are customized to the unique needs of the
geographical regions. It is reasonable to assume that there is no single best structure and
the one selected by an organization will have its own set of benefits and challenges. In
fact, many large organizations change the structures frequently to reflect the changes in
the external environment.
Strategy implementation is described as the action phase of the strategic management

process. It covers strategy activation, evaluation, and control. Strategy Activation
includes communicating strategy and motivation, setting goals and tasks, formulating
policies and functional strategies, leadership implementation and resource allocation.

9.4 LEADERSHIP IMPLEMENTATION [2]
An organization has multiple leadership levels. The CEO is the topmost leader in the
organization. The first dimension of leadership implementation is to ensure that the right
people are assigned for the right roles responsible for implementation of the strategy. The
ability, integrity and commitment of the CEO and the top leadership team are very critical
to the successful implementation of the strategy.
The CEO must be a leader who can provide a clear direction, drive the organization,
energize its operations, and inspire its people to demonstrate high motivation to
accomplish the goals. He must personify the organization’s purpose through his
leadership and influencing power to implement changes. He has to have a unique
personal leadership style as well as strong interpersonal skills to develop an organization
culture that understands the importance of strategy implementation. He reflects the
organization values, character, and purpose, inspires commitment in people for achieving
the goals and is able to take bold decisions to steer the company forward. It is often said
that in strategic management, the nature of the CEO's role is both symbolic as well
as substantive.
The symbolic role represents the CEO's ability to bring about a cultural change and
values to the organization. The objective is to eliminate inefficiency, wastage,
extravagance, governance, and compliance related to delinquency. Ideally, he needs to
stand for his integrity, simplicity, and austerity to guide the organization through the
transition phase into a profitable growth trajectory. He needs to lead by example and
empower the organization by unlocking the wisdom and compassion of the people
working there and revitalize the environment to be truly prepared for the strategy
implementation. The image of the CEO and the top management will have a lot of impact
on the organization and on the external world.
The substantive role represents how the CEO spends substantial amount of his time and
energy towards building and implementing the strategy for his organization. The CEO
brings his thought leadership and needs to be assertive to make the necessary strategic
changes in the organization in order to achieve the business goals as well as societal
goals. He has to bring about substantial improvement in the company's top-line and
bottom-line growth. Besides the CEO, the top leadership team plays a crucial role in the
strategy implementation. Hence, it is imperative that the top leadership team consists of
the right people with the right caliber and highest credentials to make sustainable impact
to the organization in the long run.
9.5 COMMUNICATING THE STRATEGY
A formal and proper communication process is a prerequisite for successful

implementation of the strategy. When the strategy formulation exercise happens at the
top leadership team, only some of the strategic managers from different lines of
businesses and functions participate in the exercise. However, when the strategy

Chapter 9
implementation process happens across the board in the organization, it involves a large
number of people being part of the process at different levels to make it a success. Many
of them might not have taken part in the strategy formulation exercise. This naturally
creates a divide between the 'thinkers' and the 'doers'. This gap must be bridged by
following the right strategy implementation approach, discussed later in this chapter and
an effective communication strategy.
Thus, it is necessary that all the employees who are expected to implement the strategy
must be informed about the strategy and the future plans of the organization. What the
strategy means to the organization must be clearly understood by the employees. The
key elements of strategy like the company mission, values, strategic objectives, what and
why changes are being made, how it will affect the organization, what are the broad roles
and responsibilities of the key people and the expected results from the strategy that the
company wishes to implement.
The communication process is an essential component of the strategy implementation

phase. It is very important to instill a feeling of belongingness and inclusiveness in the
people in the organization. The absence of such a communication would cause the
employees to lack understanding about the strategy and create a feeling of being left out
in the process. This could lead to disengagement of the employees with their leaders and
dampen the morale and motivation, which could affect their willingness to change and
adopt the strategy implementation.
It is important that through the communication process, the CEO interacts and engages
with the various internal and external stakeholders of the corporation, like the employees,
customers, shareholders, partners, suppliers, consultants, advisors, legal teams etc.
Moreover, the CEO uses communication to formulate and disseminate his/ her vision for
the future of the enterprise. A clear understanding of the strategy gives purpose to the
activities of each member of the organization. It enables the individual employees to
relate his tasks and KPIs (Key Performance Indicators) to the overall organizational goals
and strategic direction. It also provides them with guidance to make appropriate decisions
and enables them to direct their efforts to the achievement of goals.
It, however, does not mean that all strategies or all the details of the strategy should be
communicated to the employees. Certain "classified information" like competition strategy
or discrete information on any new innovation or product development which are
proprietary in nature, unfinished and confidential M&A discussions, etc. may be withheld
and made available only to a limited number of people in the organization. The company
may decide to communicate such information to the employees later at the appropriate
time.
9.6 ANNUAL OPERATING PLAN (AOP)
The strategic plan and the long term objectives of the organization must be translated
into an executable Annual Operating Plan (AOP). The annual operating objectives are

designed to deliver the yearly strategic plan of the organization, which contains the
targets to be achieved by different people within a specific time frame so that long term
objectives will be achieved, and the business performance comes from all stakeholders in
the organization.
While long term objectives are broadly stated, the annual operating plan specifically lays
down the annual goals and targets for the business, functional and subunits. Annual
goals should be clear, measurable, consistent, reasonable, challenging and time bound,
accompanied by commensurate rewards and recognitions of the performers.
The annual goals are formulated for all the lines of businesses, all the functional areas,
and all the employees across different levels of hierarchy of the organization. The AOP
collectively translates the annual objectives of the organization into individual goals, tasks
and KPIs. The AOP has an impact on the company's annual revenue and profitability
performance and hence has a high priority impact on the company's strategic success.
The AOP exercises in most organizations are a combined activity of both the top
down and bottom up approaches:
1. Systematic development of the AOP brings focus among the managers and
employees in agreeing to the common template that captures the targets related to
sales, margins, cash-flow etc. The exercise should be carried out in both the top
down as well as bottom up approach in order to have a clear understanding of the
strategy, clarity of purpose and to match it with the market potential. The exercise
brings out commitment of the employees towards taking ownership of the targets,
which they should believe that they will deliver.
2. The clarity of purpose and understanding of the AOP will be an influencing factor in
effectively mobilizing resources and allocation of budgets required for the business.
3. The AOP becomes the framework for monitoring and reviewing the progress towards
achieving the annual goals which lead to the achievement of long term objectives of
the organization.
4. When annual objectives are developed in collaboration with the managers who are
responsible for the achievement, they will be in a position to address the challenges
and conflicts that might crop up during the implementation.
5. Effective annual objectives become the essential link between the strategic intentions
and operational realities of the business environment.
9.7 DIFFERENT TYPE OF ORGANIZATION STRUCTURES [3]
When the organization grows, it expands its structure both vertically and horizontally.
Vertical growth refers to expansion in the hierarchy of the organization, i.e. the increase
in the levels of management. The number of employees reporting to each manager
represents that manager's span of control.

Chapter 9
A highly hierarchical organization is composed of many layers of leadership levels and

narrow spans of control, a structure often called a tall organization. Here, the managers
exercise a relatively high degree of control over their subordinates and the authority
tends to be relatively centralized at the top levels. The decision making process is a long
drawn process.
On the contrary, a less hierarchical organization has only a few levels of leadership and a
wide span of control from top to bottom, a structure often called a flat organization.
Converse to tall organizations, flat organizations tend to offer more decentralized
authority (with a defined delegation of authority), broad spans of control and therefore
more flexibility to their employees and decisions are more likely to happen at various
levels enabling more organizational resilience.
In reality, most organizations fall in between the two extremes and more often depends
on the size of their businesses. According to John Child, the average number of
hierarchical levels for an organization with 3,000 employees is around seven [4] (J Child,
Organization, a guide for Managers and Administrators, NY: Harper and Row, 1977).
One might consider such an organization with fewer than seven hierarchical levels to be
relatively flat and bring more effectiveness to the strategy execution. It is advisable for
employees to have a more generalist orientation.
Both types of organizations have their own advantages and are strategically important to
their business models and size of business. Centralized organizations are able to have
an effective process for communication with employees about the organization’s mission,
objectives, and goals to all employees. Strategic planning and execution can be handled
relatively more easily because all employees are directed centrally by the top
management. Hence, it was believed that tall organizational structures may be best
suited for companies that are relatively stable and predictable. Most experts believe that
tall structures do not yield the results in the present business context.
In flat structures, organization costs tend to be less than that of tall organizations.
Moreover, because of fewer hierarchical levels and decentralized decision making, the
managers are more empowered with a clearly defined delegation of authority and
distributed decision making powers, which help in increasing employee satisfaction and
motivation, rather than they have to wait for approvals from the top management for
every business decision. Improved decision making also fosters more creativity and
innovation across the people in the organization.
In today's corporate world, which is faced with a highly challenging economic

environment and uncertainties in business growth, it is relevant to have a nimbler footed
and resilient organization structure that addresses the challenges of a dynamic business
environment, especially a fast growing organization or a company operating in a fast
growing industry like retail, telecom, media, information technology, internet ecommerce,
etc. The organization culture tends to be innovative and creative. A faster decision

making environment fosters a culture that is well aligned to the strategy execution as
there is more awareness, action and accountability among the managers and employees.
Functional Structures
In enterprises, Functional Structures are created to focus on the development of more

specialized capabilities to support the organization strategy. Functional Structure is a
form of structure wherein each sub-unit of the organization engages in specialized
activities in different functions like marketing, finance, human resources, production,
customer service, quality, research development, and supports the various business units
in the go-to-market strategy implementation and across the organization.
The employees are categorized according to their functional expertise and the resources
they use in their jobs. The functional structure brings in a number of strategic benefits to
the organization. First of all, it brings focus to develop specialized skills, improve
efficiency and productivity of the people who perform the functional tasks. Under each
function, the specialists and subject matter experts are organized to collaborate and
evolve improvements in products and services, and nurture innovation to address the
market trends and customer expectations. In addition, the functional structure can also
foster economies of scale by centralizing all the functional activities of the strategy.
Fig. 9.2 : Functional Structure
A functional organizational structure also addresses key activities such as coordination,

supervision, and task allocation. While the organizational structure determines how the
organization performs or operates, the term functional structure refers to how the people
in an organization are grouped by their functional expertise and to whom they report. This
organization of specialization leads to operational efficiencies where employees become
specialists within their own realm of expertise.
The most typical problem with a functional organizational structure is however that
communication within the company can be rather rigid, making the organization slow and
inflexible. Therefore, lateral communication between functions becomes very important,
so that information is disseminated, not only vertically, but also horizontally within the
organization across functions.

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The employees within the functional divisions of an organization tend to perform a

specialized set of tasks, for instance the software engineering function within a company
would be organized only with software engineers and a project management function
would be staffed with project managers. This leads to operational efficiencies within that
group.
However, for delivering a project the software engineers will have to work with the project
managers to deliver the project services scope within the key measurable parameters like
quality, timelines, and project costs. Hence, cross functional collaboration comes into
play to make an effective performance between the functions.
As a whole, a functional organization is best suited as a producer of standardized goods

and services at large volume and low cost. Coordination and specialization of tasks are
centralized in a functional structure, which makes producing a limited number of products
or services efficient and predictable. Moreover, efficiencies can further be realized as
functional organizations integrate their activities vertically so that products are sold and
distributed quickly and at low cost. For instance, a small business could make
components used in production of its products instead of buying them.
Communication in organizations with functional organizational structures can be rigid

because of the standardized ways of operation and the high degree of formalization. This
can further make the decision-making process slow and inflexible. Therefore, lateral
communication between functions becomes very important, so that information is
disseminated, not only vertically, but also horizontally within the organization across
functions.
Even though functional units often perform with a high level of efficiency, their level of
cooperation with each other is sometimes compromised. Such groups may have difficulty
working well with each other as they may be territorial and unwilling to cooperate. The
occurrence of infighting among units may cause delays, reduced commitment due to
competing interests, and wasted time, making projects fall behind schedule. This
ultimately can bring down production levels overall and thus impact customer service as
well, and the company-wide employee commitment toward meeting the organizational
goals.
Strategic Business Unit or Divisional Structure
The Strategic Business Unit (SBU) or Divisional Structure is a configuration of an

organization, which breaks down the company into business units or divisions that are
self-contained. A business unit or a division is self-contained and consists of all relevant
functions which work to produce, distribute, and sell products segmented to address a
particular market. It also builds a business plan to compete and operate as a separate
strategic business unit or profit and loss (P&L) center. According to many experts, the
SBU structure or divisional structure is seen as the most common structure for large
organizations today.

The employees who are responsible for certain market services or types of products are
placed in the SBU / divisional structure in order to increase their flexibility. The process
can be further broken down into distinct business divisions (for example in the banking
industry there are various business units like retail banking, corporate banking,
investment banking, internet banking etc.) or geographic business divisions (for example
U.S division, EU division or Asia division etc.). Kindly refer to the structures represented
in Fig 9.3 and Fig 9.4.
Fig 9.3 Divisional Structure
Some companies organize products and services categorized into different target
consumers like B2B or B2C (corporates or households). Another example of divisional
structure would be an automobile company which utilizes a divisional structure. The
company would have one division for trucks and tractors, another for SUVs, and another

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for cars. Example: Mahindra and Mahindra in India. The divisions may also have their
own functions such as marketing, sales, production, and engineering.
Each SBU or division for each business works with the P&L responsibility. The advantage
of the divisional structure is that it uses delegated authority so the performance can be
directly measured with each group. This results in managers and teams performing better
and with high employee morale. Another advantage of using the divisional structure is
that it is more efficient in coordinating work between different business divisions, and
there is more flexibility to respond when there is a change in the market. Also, the
company will have a simpler process if they need to change the size of the business by
either adding or removing divisions through M&A activities.
When the divisional structure is utilized, more specialization can occur within the groups.
When divisional structure is organized by product, the customer has their own
advantages especially when only a few services or products are offered which differ
greatly. When using divisional structures that are organized by either markets or
geographic areas, they generally have a similar function and are located in different
regions or markets. It allows business decisions and activities to be coordinated locally.
The disadvantages of the divisional structure are that it might support unhealthy rivalries
among divisions. This type of structure may increase costs by requiring more qualified
managers for each division. Also, there is usually an over-emphasis and importance on
divisional priorities more than organizational goals which results in duplication of
resources and efforts like staff services, facilities, personnel, training, and development.
Matrix Structure
Modern corporate organizations use the Matrix Structure to suit the needs of challenges
associated with the fast changing business environment. The matrix structure groups
employees by both function and business unit or product unit. This structure can combine
the best of both separate structures. A Matrix Organization frequently uses different
teams of employees to accomplish work, in order to take advantage of the strengths, as
well as make up for the weaknesses, of the functional and decentralized forms.
An example would be a company that produces two products, "product A" and "product
B". Using the matrix structure, this company would organize functions within the company
as follows: "product A" sales department, "product A" customer service department,
"product A" accounting, "product B" sales department, "product B" customer service
department, "product B" accounting department. Matrix structure is amongst the purest of
organizational structures, a simple lattice emulating order and regularity demonstrated in
nature.

Weak/Functional Matrix: A project manager with only limited authority is assigned to

oversee the cross functional aspects of the project. The functional managers maintain
control and authority over their resources and project areas.
Balanced/Functional Matrix: A project manager is assigned to oversee the project.

Power is shared equally between the project manager and the functional managers. It
brings the best aspects of the functional and project organizations. However, this is the
most difficult system to maintain as the sharing of power is a delicate proposition.
Strong/Project Matrix: A project manager is primarily responsible for the project

execution. Functional managers provide technical expertise and assign resources as
needed.
Matrix Structure is only one of three major structures such as Functional and Divisional
structures. Matrix Management is more dynamic than Functional Management in that it
is a combination of all the other structures and allows team members to share information
more readily across task boundaries. It also allows for specialization that can increase
depth of knowledge in a specific sector or segment.
There are both advantages and disadvantages of the matrix structure; some of the
disadvantages are an increase in the complexity of the chain of command. This occurs
because of the differentiation between functional managers and project managers, which
can be confusing for employees to understand who is next in the chain of command. An
additional disadvantage of the matrix structure is the higher 'manager to worker' ratio that
results in conflicting loyalties of employees.
However, the matrix structure also has significant advantages that make it valuable for
companies to use. The matrix structure improves upon the "silo" critique of functional
management in that it diminishes the vertical structure of functional and creates a more

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horizontal structure which allows the spread of information across task boundaries to
happen much quicker. Moreover matrix structure allows for specialization that can
increase the depth of knowledge & allows individuals to be chosen according to the
project needs. This correlation between individuals and the project needs is what
produces the concept of maximizing strengths and minimizing weaknesses.
Review of Organization Structure
Today's organization structure combines the best of various structures like SBU,
divisional, functional, and matrix structures optimally to create a unique structure tailored
to the strategic needs of the organization. Mostly, they use the SBU structure and
functional structure with the matrix structure alignment to suit the specific needs of the
strategy implementation. Some organizations use geography divisions in addition to the
SBU and functional structures. Most organizations do a periodic review of their
organization structure to make necessary adjustments to suit changes in their strategy to
reflect the changes in the market environment.
Strategic managers need to consider the following issues to help finalize an appropriate
organization structure suited for the proposed strategic direction:
• Alignment of the organization profile with the corporate profile and corporate
strategy
• Relevant hierarchical levels required for the organization and need for relevant
structures
• The extent by which the organization permits appropriate grouping of activities
• The extent by which structure promotes effective co-ordination and improves
organization efficiency
• The extent to which the structure allows for appropriate centralization or
decentralization of authority
• To clearly define DoA, mobilization and allocation of resources, responsibility
matrix, tasks, information and communication flows, evaluation and control, and
policies and guidelines.
Resource Allocation
Timely Resource Allocation appropriate with the strategy is one of the important factors
that impact the strategy implementation. For an effective implementation, the top
management's commitment, and objectivity to achieving the strategy is required in the
process of resource allocation. The resources must be allocated as per the financial
budgets and goals agreed for the different SBUs and Functional units.
The resources allocation process starts with financial plans and assessment of resource
requirements across different lines of businesses, divisions, and functional units. It must
include financial, human resources, technological, capital expenditure on the facilities and

materials. This translates into operations budget, capital budgets and financial plans for
the business to achieve the set financial goals.
Evaluation and Control
To implement the strategy effectively, it is important to have an appropriate system of

evaluation and control. The objective is to review whether the strategy is being
implemented as per the organization charter and it is meeting the objectives set by the
organization at the beginning. If the review process throws up gaps in the implementation
process, then corrective actions must be initiated immediately. Evaluation and control is
discussed in a separate chapter later.
9.8 POLICIES AND GUIDELINES
The different entities in the organization namely, corporate level, business level and
functional level entities, are generally guided by a set of policies designed by an
organization, so that the strategy implementation happens smoothly without any conflicts
or confusion among the different stakeholders. The policies serve to channelize and
guide the organization’s energy and efforts towards the successful implementation of the
strategies and eliminate discretionary misuse by certain employees under certain
circumstances.
The Policies and Guidelines capture various scenarios of conducting business from time
to time and clearly stipulate the expectations on how the business should be conducted,
including the governance, compliance, and risk management practices by the
organization. Therefore, it is important that every stakeholder follows the policy uniformly.
Policies and Guidelines bring clarity to different stakeholders on their respective roles and
responsibilities, thus making coordination and control of the implementation process
smooth. They also help in harnessing the efforts of the strategic managers and
employees to focus on what they need to pursue and on what they should not focus.
It also clearly defines the delegation of authority and clarity on certain critical processes
so that implementation activities are carried out between different functions and
businesses. Clear policies help to avoid any delays in decision making, help minimize
conflicting practices, and set standards and consistent patterns of actions among various
stakeholders.
The Policies and Guidelines also include the 'code of conduct' to be signed by all the
employees at the corporate, business and function levels. This also includes workplace
harassment rules to protect the interests of women, underprivileged or certain
communities etc.

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9.9 REWARDS AND RECOGNITION SYSTEM
Rewards and Recognition are important practices that help in effective implementation of
the strategy. A successful execution depends on the motivation of employees who are
ultimately responsible for delivering the results. Therefore, it is necessary to have a
system to recognize superior performance and reward the star performers, thereby
motivating the other employees to perform better next time. The Reward system
generally consists of monetary rewards like sales incentives, bonuses, promotions,
commissions, compensation increase etc. It also includes non-monetary rewards like a
letter of appreciation, special acknowledgement, endorsements etc.
The Human Resources function works with the business stakeholders and other
functional stakeholders to design an appropriate rewards system within the purview of the
organizational cost structure and such a system forms part of the organization strategy to
ensure that the outstanding results performance are duly acknowledged, the people
concerned are recognized and rewarded on time.
As strategy implementation involves people belonging to different SBUs, divisions and

functions, there should be a proper Performance Management System (PMS)
implemented to monitor, measure and evaluate at regular periods (monthly, quarterly,
half-yearly & annually) to assess the performance of the individuals and advocate
improvements and course corrections to ensure that the financial and business budgets
are achieved from time to time, as part of the strategy implementation process.
The results of a long term strategy will be spread over a long time period, and it must be
also recognized that it might take a longer time for effective implementation of the
strategy. It must also include long-time retention of key talent in the organization. These
rewards are generally referred to as Long Term Incentive Policy (LTIP).
9.10 STRATEGY IMPLEMENTATION APPROACHES
An effective implementation of strategy needs a clear and appropriate approach that is

based on factors such as assessment of objectives, change required, supporting
structure and organization culture. [5] David Brodwin and L. J. BourgeoisIII have
identified five distinct basic approaches to strategy implementation and strategic change,
on the basis of their research on management practices at a number of companies.
These five approaches are:
1. Commander Approach
2. OrganizationalChange Approach
3. Collaborative Approach
4. Cultural Approach
5. Crescive Approach

These approaches vary from simply commanding the employees to implement the
strategy formulated by the top management, to empowering the employees to formulate
and implement the strategy on their own. We discuss about these approaches in the
following subsection.
Commander Approach
As discussed in the chapter on strategy formulation, the strategic manager concentrates

on formulating the strategy by applying rigorous logic and analysis. The strategic
manager either develops the strategy himself or supervises a team of strategic planners
charged with determining the optimal course of action for the organization. He typically
employs tools such as experience curves, growth/share matrices and industry and
competitive analysis.
This approach addresses the traditional strategy management development in support of

the long term objective of the organization and its business. Once the best strategy is
decided, the top management passes it on to the subordinates who are instructed to
execute the strategy. In the approach, the top management does not take an active role
in the implementation of the strategy but oversee it. The strategic manager plays the role
of a thinker or planner rather than an implementer of the strategy.
The Commander Approach has a very important limitation as it does not empower the
employees enough to take decisions on a day-to-day basis for the strategy
implementation and fails to tap the organizational synergy. The employees may not have
the emotional commitment to ensure the strategy is successfully implemented, as they
are not involved in the strategy development process.
In order to make the approach succeed, the strategic manager must wield enough power
to command implementation; or the strategy must pose little threat to the current
management, otherwise implementation will be resisted. Accurate and timely information
must be made available, and the environment must be reasonably stable to allow it to be
assimilated. The strategic manager should be insulated from personal biases and political
influences that might affect the content of the plan.
An important disadvantage of this approach is that it can lead to employee demotivation.

Secondly, this approach only considers the economic factors of the company and ignores
the social, political, and behavioural (psychological) dimensions of the strategy
development and implementation. It works better in small organizations or the strategy
development is confidential and implementation is only a fulfilment and requires not much
of change.
Organizational Change Approach
In the Organizational Change Approach, the strategy formulation is similar to that of the
Commander APPROACH BUT differs considerably during the implementation of the
strategy. The strategic leaders formulate the strategy and decide that major changes of

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the strategy will be under the top management control. As the name indicates, many
strategies of an organization require substantial change in the organization structure,
people, systems, and processes if the strategy is to be implemented effectively.
The most obvious change is to restructure the organization and its people in order to lead
the firm in the desired direction. The role of the strategic manager is that of an architect
who designs administrative systems for effective strategy implementation. The
organizational change approach is generally more effective than the commander
approach and can be used to implement more difficult strategies because of several
behavioural science techniques in the change management involved.
The techniques for introducing change in an organization include key behaviours in the
way things are done using demonstrations rather than words to communicate the desired
change activities; focusing early efforts on the needs that are already recognized as
important by the organization; and having solutions presented by leaders who have high
credibility in the organization.
However, the important drawback of the organizational change approach is that it doesn't
help managers to stay updated on rapid changes happening in the environment. It might
work adversely in uncertain or rapidly changing conditions. Finally, as this method takes
a 'top down' approach, it has the same employee motivational challenges as in the case
of the commander approach.
Collaborative Approach
The Collaborative Approach takes a collective participation by considering the views of

the senior managers in the organization. The strategic leader has interactive discussions
with his key managers like business unit heads, divisional heads, functional heads, with a
view to formulating the strategic changes. In the approach, the top management employs
group dynamics and brainstorming techniques to get the managers with different
perspectives to contribute to the strategic planning process. This approach allows a fair
amount of collaboration between various key stakeholders in the strategy formulation and
such an approach helps in improving the chances of better implementation.
The collaborative approach actually overcomes the two key limitations of the previous
two approaches. By collaborating with the managers closer to operations and the
marketplace, and by offering a forum for expressions of their many viewpoints, it can
increase the quality and correctness of the information incorporated into the strategy. It
also enhances the senior manager's commitment to the strategy and significantly
improves the chances of efficient implementation.
However, the collaborative approach has few limitations. This approach may gain more
commitment than the foregoing approaches; it may also result in a poorer strategy, and it
is also time consuming. If the views of some of the managers are not taken into the
strategy, they might emotionally get detached from the strategy. The negotiated aspect of
this approach brings with it several risks that the strategy can be more conservative and

less visionary. And the negotiation process can take so much time that an organization
misses opportunities and fails to react enough to the changing environments.
A more fundamental criticism of the collaborative approach is that it is not really collective
decisions making from an organizational viewpoint because the top management
managers often retain centralized control. In effect, this approach preserves the artificial
distinction between thinkers and doers and fails to draw on the full human potential
throughout the organization.
Cultural Approach
This approach extends the collaborative approach to lower levels in the organization as
an answer to the strategic management question on how to inspire the whole
organization to get committed to its goals and strategies. This requires a major shift in the
culture that requires transformation.
This approach begins to break down the barriers between the thinkers and doers, a
common divide in many organizations. The strategic manager concentrates on
establishing and communicating a clear mission and purpose for the organization and
then allowing employees to design their own work activities with this mission. He plays
the role of a coach or mentor in giving general direction but encourages individual
decision-making to determine the operating details of executing the plan.
The implementation tools used in building a strong corporate culture range from such
simple notions as publishing a company credo and singing a company song to many
complex techniques. These techniques involve implementing strategy by employing the
concept of "third-order control."
First-order control is direct supervision; second-order control involves using rules,

procedures, and organizational structure to guide behaviour. Third-order control is more
subtle and potentially more powerful. It consists of influencing behaviour through shaping
the norms, values, symbols, and beliefs that managers and employees use in making
day-to-day decisions.
The Cultural Approach has a number of advantages which establish an organization-wide

unity of purpose. It appears that the cultural approach works best where the organization
has sufficient resources to absorb the cost of building and maintaining the value system
over time.
However, this approach also has several limitations. First, it only works with informed and
intelligent people. Second, it consumes enormous amounts of time to implement. Third, it
can foster such a strong sense of organizational identity among employees that it
becomes a handicap; for example, bringing an outsider to a top management level can
be difficult because other executives do not accept them.

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The strongest criticism of this approach is that it has such an overwhelming doctrinal air
about it, and fosters homogeneity and inbreeding.
Crescive Approach
This approach addresses the question "How can I encourage my managers to develop,
champion, and implement sound strategies?" (Crescive means "increasing" or "growing").
The strategic manager is not interested in strategizing alone, or even in leading others
through a protracted planning process. He encourages subordinates to develop,
champion, and implement sound strategies on their own.
The Crescive Approach differs from the others in several ways:
• First, instead of the strategy being delivered downward by the top management or
a strategy planning department, it moves upward from the "doers" (sales team,
engineers, production) and, lower and middle-level managers.
• Second, "strategy" becomes the sum of all the individual proposals that surface
throughout the year.
• Third, the top management team shapes the employees' premises, their notions of
what would constitute supportable strategic projects.
• Fourth, the CEO functions more as a judge, evaluating the proposals that reach his
desk, rather than as a master strategist.
Brodwin and Bourgeois suggest use of the Crescive approach primarily for managers
of large, complex, diversified organizations. In these organizations the strategic
managers cannot know and understand all the strategic and operating situations facing
each division.
If strategies are to be formulated and implemented effectively, the leader must give up
some control to spur opportunism, achievement, and a competitive environment within
the company. Therefore, the Crescive approach for strategic management suggests
some generalizations concerning how the chief executive of a large firm with multiple
business units should help the organization generate and implement sound strategies.
The recommendation consists of the following elements:
1. Maintain the openness of the organization to new and discrepant information.
2. Articulate a general strategy to guide the firm's growth.
3. Manipulate systems and structures to encourage bottom-up strategy formulation.
The Crescive approach has several advantages. For example, it encourages middle-level
managers to formulate effective strategies and gives them the opportunity to carry out the
implementation of their own plans. Moreover, strategies developed, as these are, by
employees and managers closer to the strategic opportunity are likely to be operationally
sound and readily implemented. However, this approach requires that the funds be
available for individuals to develop good ideas unencumbered by bureaucratic approval

cycles and that the tolerance be extended in the inevitable cases where failure occurs
despite a worthy effort having been made.
First, one of the most important and potentially elusive of these methods is the process of
shaping the managers' decision-making premises. The strategic manager can emphasize
a particular theme or strategic thrust to direct strategic thinking. Second, the planning
methodology endorsed by the top management can be communicated to affect the way
managers view the business. Third, the organizational structure can indicate the
dimensions on which strategies should focus.
The choice of approach should depend on the size of the company, the degree of
diversification, the degree of geographical dispersion, the stability of the business
environment and finally, the managerial style currently embodied in the company's
culture.
Brodwin and Bourgeois's research suggests that the Commander, Change, and
Collaborative approaches can be effective for smaller companies and firms in stable
industries. The Cultural and Crescive alternatives are used by more complex
corporations.
Implementing Strategy and Evaluating Results
Thomas V. Bonoma suggests that successful implementation of strategies requires four

basic types of execution skills:
1. Interacting skills are expressed in managing one's own and others' behaviour to
achieve objectives.
2. Allocating skills are brought to bear in the managers' abilities to schedule tasks and
budget time, money, and other resources efficiently.
3. Monitoring skills involve the efficient use of information to correct any problems that
arise in the process of implementation.
4. Organizing skills are exhibited in the ability to create a new informal organization or
network to match each problem that occurs.
9.11 STRATEGY IMPLEMENTATION AND STAKEHOLDERS
The role of the management and the board of the directors sometimes have been
narrowly interpreted to mean maximization of financial returns to the stockholder in the
form of dividends and capital gains. Moreover, the articles of incorporation of most
corporations place a legal responsibility on the board of directors to represent the
interests of the stockholders, whose capital made it possible for the organization in the
first place.

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Many organizational theorists, however, take a broader view of the role of the board (and
management). This role includes many dimensions of corporate social responsibility such
as responsibility to employees, the community, and the environment.
R. Edward Freeman, author of a book on Stakeholder Management, shows how the

process of managing relations with groups not traditionally considered within the strategic
planning frameworks should be part of strategic management.
These stakeholders include a firm's owners or stockholders, members of the board of

directors, managers and operating employees, suppliers, creditors, customers, and other
interest groups. At the broadest level, stakeholders include the general public.
Stakeholders have expectations about how the firm should behave and what the firm
should provide in terms of economic, social, and psychological benefits.
Thus, stakeholder analysis is a consistent way of identifying, analyzing, and responding

to these critical interdependencies. It represents an active, integrated approach to
achieving the corporate purpose. Each group or individual who either affects or is
affected by the achievement of the firm's mission has a stake in the corporate decisions
and actions.
Therefore, managers are increasingly expected to consider a growing number of

stakeholders when formulating and implementing strategy. An important outcome from
this analysis is the determination of the timing and the degree of participation of
stakeholders in decision making in the firm.
However, stakeholders' expectations of a business present opportunities and constraints.

In a more limited sense, stakeholder groups may hold conflicting expectations of the
business performance. Factors influencing the potential power of stakeholders are
outlined separately.
The following questions are relevant when determining the influence of

stakeholder interests:
• Which stakeholders' interests are most important?

• To which stakeholder should the management give its loyalty?
• Will the proposed decisions hurt any stakeholder?
• Should the strategy be changed to meet stakeholder expectations?
• It is possible to negotiate a compromise.
• Should a certain stakeholder be replaced?
On the other hand, stakeholders are affected by the activities of the companies.

9.12 EXECUTIVE LEADERSHIP AND CHANGE MANAGEMENT
"Weak leadership can wreck the soundest strategy; forceful execution of even a poor
plan can often bring victory" as aptly quoted by Sun Tzu, in 514 BC in his book Art of
War). Executive Leadership team or the top management team is the strategy decision
makers in the organization. The top management team has several means of influencing
and encouraging the managers and other employees to implement the strategy. The first
and foremost is fostering a leadership culture where the employees are self-motivated
and self-directed through various empowerment programs in the company that is able to
translate strategy into actions.
The CEO is valued as the organization’s top most executive, leading the strategy and
change management, which sets the pace for various actions leading to execution,
because strategic change is generally viewed as less inspirational. Hence, the CEO has
to be an inspirational leader taking the charge of the implementation process. A manager
becomes a leader when he is able to influence others in his team to collaborate and
accomplish the strategic goals of the organization.
Strategic Leadership is the executive leadership team's ability to influence others to make
decisions, create actions for execution of the strategy and enhance the prospects of the
long term success of the organization. At the same time, it is important to keep the short
term economic stability of the company as well. The executive leadership team should be
able to determine the organization’s strategic direction, create a high performing culture,
business modelling, communicating, and adhering to high ethical standards and
corporate governance standards, and effectively implementing the change management
required for the strategy execution, as necessary.
Strategic Leadership should establish a consistent and transparent communication

process within the company to inform the employees about the vision of the company,
strategic direction, and inspire them to create actions to move in that direction. This is a
key enabler in the strategy implementation process. Anybody who is in the strategic
leadership should be able to balance both the long term objectives and short term goals
or day-today activities of the organization in the right proposition to maintain sustainability
as well as profitable growth.
Leadership Style
The Leadership Style of the top management is considered to be an important factor

influencing the strategy implementation and performance of a company. The senior
management team spends time and resources developing and promoting a visionary
strategy, but their leadership style does not inspire the employees of the organization,
this will only lead to let down in its execution.
Leadership is the capacity of a top manager to secure the cooperation of the people in
the organization in accomplishing organizational goals and to demonstrate as a role
model for others to get inspired and participate in the strategy execution process.

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Leadership style is the consistent behaviour of a leader which he exhibits in the process
of leading an organization, of governance and decision making to keep the forward
momentum in the strategy adopted.
Every leader has a unique style of leadership. Some leaders are conservative, and others
aggressive while some others flamboyant or reserved. Some leaders are autocratic and
take decisions on their own with very little consultation with their team, while some good
leaders build consensus by seeking broad based participation of others while making
decisions and empowering them to be leaders.
Participation of employees in the decision making indeed facilitates employee

commitment to the company's strategy and goals and is generally seen as a positive
approach to decision making.
There are many versions of best leadership, as every leader has a unique and distinctive
leadership style, so there is no single best leadership. However, there are broadly two
basic categories that can be seen in today's corporate world. First is where leaders
employ a transactional leadership style and use the authority of their office to
exchange rewards and incentives in reciprocity of the employee's contribution to the
company's performance steadily, but not dramatically. In contrast, some leaders employ
a transformational leadership style to inspire participation of employees in mission, by
setting a dream or vision thereby seeking more dramatic changes in the organizational
performance.
In effect, the transformational leader motivates followers to more than they originally
expected to do by stretching their abilities to think beyond the obvious and enhancing
their self-confidence. Transformational leaders also tend to influence innovation and
entrepreneurship throughout the organization.
A leader is categorized as transactional or transformational based on his overall pattern

of behaviour. The transformational leader may not always be dynamic, vibrant
charismatic in his personality type. A number of CEOs have transformed their
organizations during challenging and turbulent times without being a strong
transformational leader, however being transformational is an asset to any organization,
but it is not a prerequisite to success. It is also very evident that effective leaders bring in
an integrated leadership style, combining the components of both the transactional and
transformational leadership styles.
For example, Jack Welch, as a leader, knows how to win. He was chairman and CEO of
General Electric Co. between 1981 and 2001. He led the company to year-after-year
success around the globe in multiple markets and against brutal competition. His honest,
straight forward, aggressive, and be-the-best leadership style and management approach
has become the gold standard in business with his relentless focus on people, teamwork,
and profits. He is also described as an optimistic, no-excuses, get-it-done mindset leader

and a turn-around and transformational specialist who made GE one of the most
respected companies in the world.
During his tenure at GE, the company's value rose 4000%. Through the 1980s, Welch
sought to streamline GE. In 1981 he made a speech in New York City called "Growing
fast in a slow-growth economy". Welch worked to eradicate perceived inefficiency by
trimming inventories and dismantling the bureaucracy that had almost led him to leave
GE in the past. He closed factories, reduced payrolls, and cut lackluster old-line units.
Welch's public philosophy was that a company should be either No. 1 or No. 2 in a
particular industry, or else leave it completely. Welch's strategy was later adopted by
other CEOs across corporate America. More can be learnt about Jack Welch and his
leadership style in his book "Winning", which he wrote with his wife Suzy Welch.
Emotional Intelligence
The probability of success in strategy implementation will be high if the leader is able to
exude Emotional Intelligence to effect a change management in the organization’s
culture. In today's fast changing economy, a leader's success is tied to emotional
intelligence which is the ability to inspire the psychological attributes like motivation,
empathy, self-awareness, confidence, and social skills etc.
Executives who possess a passion for their work are emotionally and socially oriented
and understand their own needs as well as those of their employees are more likely to
gain the trust, confidence and support necessary to lead the organization.
9.13 TOP CHALLENGES IN STRATEGY IMPLEMENTATION
Strategy is formulated on certain assumptions, but the environment may have changed at
some point in time during implementation. The assumptions too would need periodic
revisits and need changes to reflect changes in the internal and external environment.
Vision, Value Statements and Trust are emphasized during formulation of the strategy
but during implementation it tends to get forgotten or diluted considerably. An 'end
justifies the means' approach results in a compromise of values and eroding 'trust and
shared values'. The answer lies in transparency and communication and admitting
mistakes.
Complacency and overconfidence in leaders can lead to a loss of momentum. The

leaders and organizational members generally believe their brand is more powerful than
the competitors leading to complacency in implementation. Forecasts are based on what
may happen in the future and are often based on optimistic estimates of uncertainties. As
such the strategic managers must be careful and realistic when making such forecasts.
Organizational Trap is an excessive focus on efficiency with no flexibility to adapt to

changes. A no mistake-syndrome prevails with the top management not being open to
questioning or challenging the current strategy.

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The strategic managers might work with the status quo bias with risk aversion. It is the
entrepreneurial spirit that helps overcome challenges and to take a calibrated risk. This
has to be built into the organization culture by constant encouragement.
Strategy before people: Strategy not aligned to the organizational culture will meet with
resistance and opposition. Meaningful communication is the key. Another thing that
inhibits the execution of strategy is that the structure of the organization is not in
synchronization with the strategy and structure, e.g., a diversification strategy may have a
better fit with a divisional structure.
Effective leadership: Failure occurs due to weak empowerment and lack of

perseverance. Focus on knowing rather than doing. Things might get worse before they
get better so inspiring the team with the vision and mission is important.
High emotional intelligence in leaders: This will help eliminate negative emotions from
breeding in the workplace. What are needed are positive energy and a calm mind to deal
with the fluid situation.
The sunk cost effect: A familiar problem with investments is called the sunk-cost effect,
otherwise known as "throwing good money after bad." When large projects overrun their
schedules and budgets, the original economic case no longer holds, but companies still
keep investing to complete them rather than change.
9.14 SUMMARY
From this chapter, it is clearly understood that the structure of an organization is the
single most important component of strategy implementation. The structure of an
organization can greatly influence the likelihood of success in the strategy execution
process. Strategic managers need to focus on evolving the right structure around the
organization functions, business units, divisional units, products, and geography etc.
Some organizations choose a matrix structure depending on the type and size of their
business. It is also discussed that each structure has its own advantages and
disadvantages.
In order to increase the probability of success in strategy execution, the leadership style
of management and at every level of leadership to inspire and influence employee
behaviour and actions to move towards achieving the goals. Leadership style and
emotional intelligence is closely linked to a firm's ability to implement a given strategy.
Each leader has a unique leadership style, some transactional, some transformational
and a few exhibiting a combination of both the leadership styles. Effective leaders use
both styles to the appropriate extent. Finally, it is the effective leadership that ensures to
implement a major strategic change in any organization, amidst challenging and turbulent
times.

1. What is the first part of Strategy Implementation?

a) To create an appropriate organization structure that supports the implementation
of the strategy and an overhauling of the current structure to make it desirable for
the strategy
b) To build a team of resources that will be required for implementation
c) To do a SWOT Analysis
d) To implement the business unit strategy
2. A _________ communication process is a prerequisite for successful implementation

of the strategy.
a) A regular
b) Formal and proper
c) Straight forward
d) Consistent
3. The formal means by which work is coordinated in an organization is called the

a) Organization Structure
b) Organization Culture
c) Organization dynamic
4. An increase in the breadth of control of an organization structure is known as

a) Centralization
b) Decentralization
c) Horizontal growth
d) Vertical Growth
5. The notion of a profit center is consistent with which form of an organizational

structure?
a) Functional Structure
b) Product divisional structure
c) Geographical divisional structure
d) Matrix structure
6. One's collection of psychological attributes such as motivation, empathy, self-

awareness, and social skills is known as:
a) Emotional intelligence
b) Leadership traits
c) Leadership style
Answers: 1.(a), 2.(b), 3.(a), 4.(d), 5.(b), 6.(a)

Chapter 9
References:
P 145
2. Francis Cherunilam, Strategic Management (L.N. Welingkar Institute of

Management), P 140
P 147
4. J Child, Organization, a guide for Managers and Administrators, NY: Harper and
Row, 1977
5. David Brodwin and L. J. Bourgeois III
-------------------------------------------------------------------------------------------------------------------
ANNEXURE
A case study on ‘Turnaround’ strategy implementation led organizational success
Abstract:
This organizational case study examines the successful implementation of a turnaround

strategy at NILKAMAL PLASTICS INDIA LTD., a company pioneers of plastic chairs and
furniture. The organization faced severe financial challenges and declining performance.
The study delves into the strategic decisions, leadership, and operational changes that
contributed to the company's remarkable transformation, leading to organizational
success and sustained growth.
Introduction:
Nilkamal Plastics, a once-thriving company in the specific industry, experienced a

significant decline in its market position, profitability, and overall performance due to
internal mismanagement and external market pressures. In response to these
challenges, the company's leadership initiated a comprehensive turnaround strategy
aimed at reviving the organization and positioning it for long-term success.
Diagnosis of the Situation:
The initial phase of the turnaround strategy involved conducting a thorough diagnosis of
the company's problems. This included identifying key issues, analyzing financial
statements, assessing market trends, evaluating competitors, and conducting internal
assessments to understand the root causes of the decline.

Strategic Decisions:
Based on the diagnosis, Nilkamal Plastic’s leadership made critical strategic decisions to
redefine the company's direction and regain its competitive edge. Key strategic decisions
included:
a) Portfolio Optimization: The company divested non-core and underperforming assets

to focus on core competencies and high-growth markets.
b) Cost Reduction and Efficiency Measures: To improve profitability, various cost-

cutting measures were implemented across the organization, without compromising
quality and customer satisfaction.
c) Innovation and R&D Focus: Emphasis was placed on fostering a culture of

innovation and investing in research and development to bring new, market-leading
products and services to market.
d) Customer-Centric Approach: The company shifted its focus towards understanding

and meeting customer needs, providing exceptional customer service, and building
strong customer relationships.
Leadership and Cultural Transformation:
A successful turnaround heavily relied on strong leadership and a transformative

organizational culture. The company's top management played a crucial role in instilling a
sense of urgency, communicating the vision, and aligning the entire workforce with the
strategic goals. Additionally, leadership implemented performance-driven incentive
structures to motivate employees and reward exceptional performance.
Operational Changes:
The implementation of the turnaround strategy required significant operational changes

throughout the organization. Nilkamal Plastics undertook various operational
improvements, including:
a) Streamlined Processes: Outdated and inefficient processes were reevaluated and

streamlined to increase productivity and reduce operational bottlenecks.
b) Talent Management and Skill Development: The company invested in talent

acquisition and skill development programs to ensure it had the right people with the right
expertise in key roles.
c) Agile Methodologies: Agile project management methodologies were adopted to

enhance flexibility and adaptability in responding to changing market demands.

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Communication and Transparency:
To gain the trust and support of employees, customers, and investors, Nilkamal Plastics
implemented transparent communication channels. Regular updates on progress,
challenges, and milestones were shared throughout the organization, fostering a sense of
ownership and commitment among employees.
Results and Organizational Success:
The successful implementation of the turnaround strategy resulted in significant

improvements across various key performance indicators. Nilkamal Plastics witnessed a
steady increase in revenue, profitability, and market share. Employee morale improved,
leading to reduced turnover rates and increased productivity. The renewed focus on
innovation and customer-centricity helped the company regain the trust of its customers
and strengthened its position in the market.
Sustaining Success:
To ensure the sustainability of its success, Nilkamal Plastics continued to embrace a

culture of continuous improvement, learning, and innovation. The leadership team
remained vigilant in monitoring market trends and potential risks, allowing the
organization to adapt swiftly to changing market conditions.
Conclusion:
The case study of Nilkamal Plastics illustrates how a well-executed turnaround strategy,
supported by effective leadership, strategic decision-making, operational changes, and a
cultural transformation, can lead an organization from the brink of failure to sustained
success. By learning from this example, other companies facing similar challenges can
draw valuable insights and develop their own turnaround strategies to achieve long-term
organizational prosperity.
A brilliant strategy, blockbuster product, or breakthrough technology can put a company

on the competitive map, but only solid execution can keep the company there. Execution
is the result of thousands of decisions made every day by employees acting according to
the information they have and their own self-interest. You have to be able to deliver on
your intent. Unfortunately, as per an online research the employees at three out of every
five companies rated their organization weak at execution when asked if they agreed with
the statement "Important strategic and operational decisions are quickly translated into
action," the majority answered no.
Execution is the result of thousands of decisions made every day by employees acting
according to the information they have and their own self-interest. In this online research
conducted in more than 1000 companies it has been identified that there are four
fundamental building blocks executives can use to influence those actions-clarifying

decision rights, designing information flows, aligning motivators, and making changes to
the structure. (referred as decision rights, information, motivators, and structure.)
In efforts to improve performance, most organizations go right to the structural measures

because moving lines around the organization chart seems the most obvious solution
and the changes are visible and concrete. Such steps generally reap some short-term
efficiency quickly, but in so doing address only the symptoms of dysfunction, not its root
causes. Several years later, companies usually end up in the same place they started.
Structural change can and should be part of the path to improved execution, but it's best
to think of it as the capstone, not the cornerstone, of any organizational transformation. In
fact, this research shows that actions having to do with decision rights and information
are far more important-about twice as effective-as the improvements made to the other
two building blocks.
What Matters Most to Strategy Execution
Take, for example, the case of a global consumer packaged-goods company that lurched
down the re-organization path in the early 1990s. Disappointed with the performance, the
top management did what most companies were doing at that time: They restructured.
They eliminated some layers of management and broadened the spans of control.
Management-staffing costs quickly fell by 18%. Eight years later, however, the layers had
crept back in, and spans of control had once again narrowed. In addressing only
structure, management had attacked the visible symptoms of poor performance but not
the underlying root cause-how people made decisions and how they were held
accountable.
This time, management looked beyond lines and boxes to the mechanics of how work got
done. Instead of searching for ways to strip out costs, they focused on improving
execution and in the process discovered the true reasons for the performance shortfall.
Managers didn't have a clear sense of their respective roles and responsibilities. They did
not intuitively understand which decisions theirs were to make.
Moreover, the link between performance and rewards was weak. This was a company
long on micromanaging and second-guessing, and short on accountability. Middle
managers spent 40% of their time justifying and reporting upward or questioning the
tactical decisions of their direct reports.
Armed with this understanding, the company designed a new management model that
established who was accountable for what and made the connection between
performance and reward. For instance, earlier the norm at this company, not unusual in
the industry, had been to promote people quickly, within 18 months to two years, before
they had a chance to see their initiatives through. As a result, managers at every level
kept doing their old jobs even after they had been promoted, peering over the shoulders
of direct reports who were now in charge of their projects and all too frequently, taking it
over.

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Today, people stay in their positions longer so they can follow through on their own
initiatives, and they're still around when the fruits of their labours start to kick in. What's
more, results from those initiatives continue to count in their performance reviews for
some time after they've been promoted, forcing managers to live with the expectations
they'd set in their previous jobs. As a consequence, forecasting has become more
accurate and dependable. These actions did yield a structure with fewer layers and
greater spans of control, but that was a side effect, not the primary focus, of the changes.
The Elements of Strong Execution
After decades of practical application and intensive research, which envisaged gathering
empirical data to identify the actions that were most effective in enabling an organization
to implement a strategy.
What particular ways of restructuring, motivating, improving information flows, and

clarifying decision rights mattered the most? It was found that traits like the free flow of
information across organizational boundaries or the degree to which senior leaders
refrain from getting involved in operational decision making mattered the most. The
following are the key factors for Strategy Execution:
• Everyone has a good idea of the decisions and actions for which he or she is
responsible.
• Important information about the competitive environment gets to the headquarters
quickly.
• Once made, decisions are rarely second-guessed.
• Information flows freely across organizational boundaries.
• Field and line employees usually have the information they need to understand the
bottom-line impact of their day-to-day choices.
Creating a Transformation Program
Execution is a perennial challenge. Even at the companies that are best at what we call
resilient organizations, only two-thirds of employees agree that the important strategic
and operational decisions are quickly translated into action. As long as companies
continue to attack their execution problems primarily with structural or motivational
initiatives, they will continue to fail. As we've seen, they may enjoy short-term results, but
they will inevitably slip back into old habits because they won't have addressed the root
causes of failure. Such failures can almost always be fixed by ensuring that people truly
understand what they are responsible for and who makes which decisions-and then
giving them the information they need to fulfill their responsibilities.

REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
Video2
10 Chapter
STRATEGY EVALUATION
AND CONTROL
Objectives:
This chapter focuses on Strategy Control and Evaluation. The approach is to compare
the actual performance of an organization with the established standards and
benchmarks, and also to monitor and review the implementation process. This is the next
logical step during and after the strategy implementation process. This chapter talks
about a number of challenges and issues that need to be considered well in advance by
the strategic managers during the execution of the strategy management process.
Understand the Strategic Control Process
Clearly define what needs to be controlled
Setting Strategic Control Standards
Choosing Standards and compare Performance to Standards
Measure the deviation and take Corrective Action
Strategic Control Audits and Budgetary Controls
Understand the Contingency and Crisis Management

10.1 Introduction
10.2 Strategic Control Process
10.3 Define What to Control
10.4 Setting Strategic Control Standards
10.5 Measure Performance
10.6 Compare Performance to Standards
10.7 Taking Corrective Action
10.8 Strategic Control Audits
10.9 Budgetary Control
10.10 Contingency Planning and Crisis Management
10.11 Disaster Recovery and Business Continuity Planning
10.12 Summary
10.1 INTRODUCTION
According to R.T.Lenz, "organizations become most vulnerable when they are at the
peak of their success". Complacency sets in the top management, and it may overlook

Chapter 10
the obvious mistakes and gaps in the strategy execution. Wrong strategies can have
severe and negative impact on the organization’s performance in the long run. The
objective is to learn how to mitigate such impacts through strategic evaluation and
control.
Thus, the final and most critical stage in the strategic management process is Strategy
Evaluation and Control. Strategic Control consists of evaluating the extent to which the
organization’s strategies have been implemented successfully to attain the goals and
objectives. The implementation process is reviewed periodically, and adjustments are
made as necessary to the strategy. It is during the process of strategic control that the
gaps between the intended and realized strategies are identified and addressed. Even
though strategic control is the final step in the strategic management process, it should
be an ongoing process.
In any organization, all strategies are subject to future modification because internal and
external factors keep changing constantly. In the strategy evaluation and control process
managers determine whether the chosen strategy is achieving the organization's
objectives. The fundamental strategy evaluation and control activities are:
To review internal and external factors that are the underlying base for the current
strategies
To measure performance that conforms to the plans (evaluating the expected versus
actual results)
To do a performance gap analysis and
To suggest and take corrective actions
The traditional approach to control is to compare the actual performance with the
standards established and take corrective measures if there are any deviations. This
reactive measure is not sufficient to control a strategy that takes a long period for
implementation and to deliver results. The uncertain future environment makes
continuous planning and evaluation of the assumptions and underlying bases in order to
steer the strategy implementation in the right direction.
The purpose and need for Strategic Control and Evaluation required in
organizations is twofold:
1) The need for stakeholders to know how well the organization is performing. Without
the strategic control, there are no clear benchmarks and ultimately no reliable
measurements of how the company is doing. Hence the purpose is to create those
benchmarks comparable to the industry.
2) The need for mitigating the risks associated with organizational and environmental
uncertainty. The strategic managers are not always able to accurately forecast the

Strategy Evaluation And Control
future, and hence strategic control serves as a means to necessary changes during
the implementation process.
The process of strategic control is to ensure all the levers of the strategic management
process are used appropriately to steer the organization in its set course of direction to
achieve its mission and goals. This includes modifications or changes necessary in the
strategy to reflect the changes in the external environment. The idea of strategic control
brings in a dimension of 'continuous improvement' in which the strategic managers try to
improve the effectiveness of all the factors contributing to the successful implementation
of the strategy.
Generally, the strategic management process is controlled at the board of directors and
the CEO level, and sometimes reviewed by the business unit or functional unit leaders.
The roles played by the investors, the board and the top management in strategic control
differ from organization to organization. However, the ongoing strategic control is largely
a function performed by the top management team.
10.2 STRATEGIC CONTROL PROCESS [1]

While it is understood that the strategic control process must be tailored to specific
situations, such systems generally follow a basic process. However, irrespective of the
types or levels of control systems an organization needs, strategic control may be
described in a broad framework of six-step feedback model, as explained in Fig 10.1, and
explained below:
1. Determine and focus on what to control: The top management must focus on
identifying the internal as well as external factors that will serve as the effective
measures for the success of a strategy, and those factors that are likely to inhibit
progress during the strategy implementation. Also the management must establish
the objectives that the organization intends to accomplish
2. Establish control standards: It is necessary to establish standards, by clearly
defining the targets, industry or global benchmarks, and tolerance levels of the actual
performance of the organization
3. Measure performance: Managing the performance both quantitatively and

qualitatively, against the established standards
4. Compare performance to the established standards: How well does the actual
performance match the plan? The deviations must be captured for further analysis.
5. Determine the reasons for the deviations: Are the deviations due to internal
shortcomings or due to external changes beyond the control of the organization?
6. The most important step is to take corrective action. Are corrections needed in
internal activities to correct the organizational shortcomings, or are changes needed
in the objectives due to external events?

Chapter 10
Fig. 10.1 : The Six-Step Feedback Model of the Strategic Control process
10.3 DEFINE WHAT TO CONTROL
The key to strategy implementation success is to determine what kind of strategic control
the organization should focus on. This is the first step in the strategic control process.
The strategic managers usually base their major controls on the organizational mission,
goals and objectives developed during the planning process, however the top
management's role is to align the internal operations of the company with its external
environment, hence both the internal and external factors must be considered. Although
companies have little or no influence over the external environment, the macro
environment, industry, and competition forces must be continuously monitored as
continuous shifts in the macro environment can have strategic implications for the firm.
Thus strategic control serves to maintain proper alignment between the internal and
external environments.
The purpose of evaluating the external environment continuously is to check whether the
strategic assumptions made at the time of strategy planning are still valid. The strategic
control process enables the organizations to modify the operations to more effectively
mitigate the external risks that may arise or were earlier unknown.
Managers must make choices because it is expensive and virtually impossible to control
every aspect of the organization's activities. In deciding what to control, the organization
must communicate through the actions of its executives that strategic control is an
essential activity. Without the top management's commitment to controlling activities, the
control system may not deliver results.

Keeping the company's operations in mind the top management should assess the
strategy effectiveness in achieving the firm's mission and goals. For example, in case the
organization is aiming to gain a market share by 2% from 10% to 12%, through a low-
cost strategy, the top management must focus on key objectives like cost efficiency or
production efficiency with that of the competition and determine the extent of its
achievement towards this goal. Firstly, from a qualitative perspective, the top
management must assess the strategy's effectiveness to achieve this said objective. This
assessment will help to determine to what extent the organization is able to achieve the
incremental 2% gain in the market share. Secondly, from a qualitative perspective, the
organization must set its objectives on the product quality parameters and service quality
parameters to command leadership in that particular segment of the market.
The top management must also compare the company's performance, i.e. the current
quarter operating results with those of the previous quarter (quarter-on-quarter
performance) as well as the previous year’s same quarter (year-on-year performance).
The company's performance may be evaluated based on many other quantitative
parameters that affect the overall strategy of the organization in the long run. These
measures may include Return On Investment (ROI), Return On Equity (ROE), Return On
Assets (ROA), Return On Sales (ROS), revenue and profit growths, and free cash flow.
10.4 SETTING STRATEGIC CONTROL STANDARDS [2]
Setting benchmarks for various operational metrics is essential for exerting strategic
control on the performance of the organization. A Control Standard is a target against
which the subsequent performance of the company will be compared. There are a
number of financial measures that can be monitored in the strategic control process.
Profitability is the most commonly used performance measure and is therefore a popular
means of controlling performance.
Once the internal factors for strategic control are identified as mentioned in the previous
step, it is important to establish standards or benchmarks for each of the operational
metrics. Often, strategic control standards are based on competitive, industry or global
benchmarking, a process of measuring a company's performance against that of top
performers in the same industry. After determining the appropriate benchmarks, the
strategic manager should set goals to achieve those benchmarks. The organization
should follow best practices, processes or activities that have been found successful in
other companies and these practices may be adopted as a means of improving
performance. There are a number of sources on competitive benchmark standards
available through the reports published by various industry analysts, consultants, and
industry forums.
The standards are the criteria that enable managers to evaluate the future, current, or
past actions. They are measured in a variety of ways, including the physical, quantitative,
and qualitative terms. The five aspects of the performance that can be managed and
controlled are: quantity, quality, time, cost, and behavior. Each aspect of control may

Chapter 10
need additional categorizing. An organization must identify the targets, determine the
tolerances for those targets, and specify the timing of consistency with the organization's
goals defined in the first step of determining what to control. For example, standards
might indicate how well a product is made or how effectively a service is to be delivered.
The performance or benchmark standards may also reflect specific activities or behaviors
that are necessary to achieve the organizational goals. Goals are translated into
performance standards by making them measurable. An organizational goal to increase
the market share, for example, may be translated into a top-management performance
standard to increase the market share from 10 percent to 12 percent within a twelve-
month period. Helpful measures of strategic performance include sales (total sales, and
by division, by product category, and by region), sales growth, net profits, return on sales,
assets, equity, and investment cost of sales, cash flow, market share, product quality,
valued added, and employee’s productivity.
Quantification of the objective standard is sometimes difficult. For example, let us

consider the goal of product leadership. An organization compares its product with those
of its competitors and determines the extent to which it pioneers in the introduction of the
basis product and product improvements. Such standards may exist even though they
are not formally and explicitly stated. Setting the timing associated with the standards is
also a problem for many organizations. It is not unusual for short-term objectives to be
met at the expense of long-term objectives.
The Management must develop standards in all the performance areas holistically
covered by the established organizational goals. The various forms of standards are
dependent on what is being measured and on the respective managerial level
responsible for taking corrective action.
Commonly used as an example, the following eight types of standards have been
set by General Electric Company (GE). [3]
Profitability standards: These standards indicate how much profit General Electric
would like to make in a given time period.
Market position standards: These standards indicate the percentage of the total
product market that the company would like to win from its competitors.
Productivity standards: These production-oriented standards indicate various

acceptable rates at which the final products should be generated within the
organization.
Product leadership standards: Product leadership standards indicate what levels of

product innovation would make people view General Electric products as leaders in
the market.

Personnel development standards: Personnel development standards list the

acceptable levels of progress in this area.
Employee attitude standards: These standards indicate attitudes that General

Electric employees should adopt.
Public responsibility standards: All organizations have certain obligations to the

society. General Electric's standards in this area indicate acceptable levels of activity
within the organization directed toward living up to the social responsibilities.
Standards reflecting the balance between short-range and long-range goals:

Standards in this area indicate what the acceptable long- and short - range goals are
and the relationship among them.
10.5 MEASURE PERFORMANCE [4]
Once standards are determined, the next step is measuring performance. Exerting
strategic control requires that the actual performance must be compared to the
standards. In some workplaces, this phase may require only visual observation. In other
situations, more precise determinations are needed. Many types of measurements taken
for control purposes are based on some form of historical standards. These
measurements must be both qualitatively as well as quantitatively evaluated on
parameters such as market share, product, and service quality etc.
These standards can be based on data derived from the PIMS (Profit Impact of Market
Strategy) program, published database that contains quantitative and qualitative
information of thousands of firms and more than 5000 business units, which has publicly
available ratings of product and service quality, innovation rates, new products and
services, and relative market shares standings.
PIMS was developed by Professor Sidney Shoeffler of Harvard University in the

1960s, as a result of General Electric's efforts to determine which factors drive profitability
in a business unit. GE's top managers and the corporate team started using this
database to assess their business units' performance in a formal and systematic manner.
In 1975, other companies were invited to join the program and thus the Strategic
Planning Institute was founded to manage the effort. These data include the market
share, product and service quality, new products and services developed, new product
sales, relative prices of products and services, marketing expenses as a percentage of
sales, and research and development as a percentage of sales.
The data uses the profitability measures to benchmark; these are net operating profit
before taxes as a percentage of sales (ROS), net profit before taxes as a percentage of
total investment (ROI) or as a percentage of total assets (ROA). Participant organizations
get access to these data in aggregate form as an industry average and non-participants
can only access limited data. The PIMS studies have found that the market perceived
quality relative to that of competitors was the single best predictor of market share and

Chapter 10
profitability. The proliferation of computers with internetworks has made it possible for
managers to obtain up-to-minute status reports on a variety of quantitative performance
measures.
The PIMS variables have implications on strategic control. Example, top managers may
discover that a business with low quality measures may also be spending less on
research, thereby the company can make efforts towards R&D investment to enhance to
address the deficiency. Strategic managers should be careful to observe and measure it
accurately before taking corrective action.
Strategic Control through Competitive Benchmarking
Strategic Control Standards are based on the practice of Competitive Benchmarking - the
process of measuring a firm's performance against that of the top performance in its
industry peers or global peers. Keeping this in mind, realistic performance targets or
benchmarks should be established for managers throughout the organization. They
should be measurable and controllable. At the company level or SBU level or functional
level, the criteria such as sales, profitability, market share and revenue growth must be
selected. The most appropriate performance benchmarks are those associated with the
strategy's success and those over which the organization has control over it.
The Benchmarks selected should be specific as well. For example, if the market share at
the product SBU or Organizational level, is a parameter which is identified as a key
indicator of success or failure of growth strategy, then a specific market share should be
identified, based on past performance and industry benchmarks. Without specificity, it will
be challenging to assess the effectiveness of a strategy after it is implemented and if
clear targets are not identified proactively.
Functional level control also needs to be benchmarked and assessed. These may include
factors like quality or defects in production or marketing lead conversion rate or rating on
customer satisfaction surveys. Like SBU level benchmarks, the functional level targets
should also be specific and easily measurable, like Customer Satisfaction Index (CSI) as
90%. The next step is to compare the standards with actual performance and identify the
deviations in performance against the set standards. This helps strategic managers to
consider corrective measures in the strategy implementation.
Strategic Control through Performance
Relentless Performance is a key leverage that helps an organization exerts strategic

control, by focusing on or comparing the parameters namely profitability or market share
growth with others in the marketplace. As the individual measure of performance
provides only a limited view on the overall performance of the organization, many
companies have started using a method called Balanced Scorecard to measure
performance in a systematic manner.

In this approach, it is a method of evaluating performance that emphasizes on factors

that can create a long term economic value such as business process, innovation, and
customer orientation, rather than only the traditional financial measures. In this approach,
measurement is not on a single parameter but on an array of parameters or KPIs being
evaluated both qualitatively as we as quantitatively, such as return on assets, market
share, customer loyalty, customer experience, service quality, innovation, business
process effectiveness etc. These parameters ultimately lead to the overall business
performance and results which are comprehensive in nature. The areas for improvement
are clearly identified from the beginning and enough corrective action plans with
ownerships are assigned and reviewed periodically to ensure that each KPI is continually
improved over a period of time.
The key to employing a balanced scorecard is to select a combination of performance

measures, tailored specifically to a firm in line with its overall strategy. This approach has
helped a number of large organizations understand the performance related issues and
challenges, the gaps in their capabilities and to implement the strategy in a better way
and more effectively. This strategic control is a practical and holistic approach that makes
sustainable progress in the strategy implementation process
As discussed earlier, the PIMS program provides a wide range of benchmarks against
which a company's performance can be compared. The strategic managers may also
monitor the stock price of the company as relative price fluctuations suggest how the
investors value the overall performance of the company. The stock price erosion makes
the company become an attractive takeover target, whereas a sudden increase in price
may improve the investor sentiment in the company.
Strategic Control through Formal or Informal Organizations
In formal organizations, strategic control happens through the official structure of

relationships and procedures to manage organizational activity. This can facilitate or
inhibit a company's success in strategy execution. The organization structure has to be
appropriate for its mission and stated objectives so that the strategy implementation
becomes easier. When the organization structure is not appropriate for its mission, then
the strategic control process should initiate a change management so that the structural
changes aligning with the mission and strategy can take place. The appropriate
organization structure whether functional or a product business structure or matrix
structure, must be chosen and the strategic managers must understand the
complications associated with changing structures during the course of strategic
management.
In informal organizations, where there is no formal hierarchy of organization structure, the

interpersonal norms, behaviors, and expectations evolve when individual employees and
groups start coming in to contact with one another. The informal organization is dynamic,
flexible and does not require formal policies to make changes in the norms. Informal
relationships can promote or impede strategy implementation and can play a greater role

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than formal organizations. However, management must recognize its limitations

concerning the informal organization.
Management can influence but cannot control the informal organization. The most
effective means of influencing and controlling in the informal organization is to develop
and promote a formal organization that is consistent with the mission and the core values
of the firm.
10.6 COMPARE PERFORMANCE TO STANDARDS
Exerting strategic control requires that performance be measured and compared with
previously established standards and followed by corrective actions. The comparing step
determines the degree of variation between actual performance and the standard. If the
first two phases have been done well, the third phase of the controlling process -
comparing performance with standards - should be straightforward. However, sometimes
it is difficult to make the required comparisons i.e. behavioral standards.
Some deviations from the standard may be justified because of changes in the
environmental conditions, or others must be justified with reasons.
Determine the Reasons for the Deviations
This step of the control process involves finding out: "why performance has deviated from
the standards?" The causes of deviation can range from a wrong strategy being selected
to not achieving the organizational objectives. Particularly, the organization needs to ask
if the deviations are due to internal shortcomings or external changes beyond the control
of the organization.
The following questions can be helpful in determining the reasons for the deviation in
actual performance against the set standards:
Are the standards appropriate for the stated objective and strategies?
Are the objectives and corresponding still appropriate in light of the current
environmental situation?
Are the strategies for achieving the objectives still appropriate in light of the current
environmental situation?
Are the firm's organizational structure, systems (e.g., information), and resource
support adequate for successfully implementing the strategies and therefore
achieving the objectives?
Are the activities being executed appropriate for achieving the standard?
The locus of cause, either internal or external, has different implications for the kinds of
corrective actions required in the strategic control process.

10.7 TAKING CORRECTIVE ACTION
The above deviation analysis on performance standards will reveal the reasons for the
gaps existing in the strategy execution and will help decide on the corrective action.
Corrective measures will depend on such reasons for deviation, the extent of the
deviation, and in some cases, a complete reassessment of the SWOT analysis.
Depending on the nature and characteristics of the performance deviation, corrective

measures may include appropriate actions like modification of objectives, strategy,
standards, for more effective implementation of the strategy. Continuous scanning or
monitoring of the environment is essential during the implementation of the strategy.
The final step in the control process is determining the need for corrective action. The
Strategic Managers can choose among three courses of action:
1. they can do nothing or maintain status quo
2. they can correct the actual performance; or
3. they can revise the standard.
Maintaining the status quo is preferable when performance essentially matches the
standards. When standards are not met, managers must carefully assess the reasons
why and take corrective action. Moreover, it is essential that the standards and
benchmarks are checked periodically to ensure that the standards and the associated
performance measures are still relevant for the future.
The final phase of controlling process occurs when managers must decide and take
actions to correct performance whenever deviations occur. Corrective action depends on
the discovery of deviations and the ability to take necessary action. Often the real cause
of deviation must be found before corrective action can be taken. Causes of deviations
can range from unrealistic objectives to the wrong strategy being selected to achieve
organizational objectives.
Each cause requires a different corrective action. Not all deviations from external
environmental threats or opportunities have progressed to the point where a particular
outcome is likely, hence corrective action may be necessary.
There are three choices of Corrective Action:
Normal mode - follow a routine, no crisis approach; this might take more time
An ad hoc crash mode - saves time by speeding up the response process, geared
to the problem at hand.
Proactive crisis mode - specifies a planned response in advance; this approach

lowers the response time and increases the capacity for handling strategic surprises.

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The below checklist suggest the following five general areas for Corrective
Actions:
Revise the Standards. It is entirely possible that the standards are not in line with
the objectives and strategies selected. Changing an established standard usually is
necessary if the standards were set too high or too low are the outset. In such cases
it is the standard that needs corrective attention not the performance.
Revise the Objective. Some deviations from the standard may be justified because
of changes in environmental conditions, or other reasons. In these circumstances,
adjusting the objectives can be much more logical and sensible than adjusting
performance.
Revise the Strategies. Deciding on internal changes and taking corrective action
may involve changes in strategy. A strategy that was originally appropriate can
become inappropriate during a period because of environmental shifts.
Revise the Structure, System or Support. The performance deviation may be

caused by an inadequate organizational structure, systems, or resource support.
Each of these factors is discussed elsewhere in this chapter, or other parts of this
thesis.
Revise the Activity. The most common adjustment involves additional coaching by
management, additional training, more positive incentives, more negative incentives,
improved scheduling, compensation practices, training programs, the redesign of
jobs or the replacement of personnel.
Managers can also attempt to influence events or trends external to themselves through
advertising or other public awareness programs. In such a case, the changes should be
made only after the most intense scrutiny.
Management must remember that adjustments in any of the above areas may require
adjustments in one or more of the other factors. For example, adjusting the objectives is
likely to require different strategies, standards, resources, activities, and perhaps
organizational structure and systems.
10.8 STRATEGIC CONTROL AUDITS
In order to better understand what strategic control performance measures are and how a
manager can take such measurements, there is a need to understand about strategic
audit. A Strategic Audit is an examination and evaluation of areas affected by the
operation of a strategic management process within an organization. A strategy audit
may be needed under the following conditions:
Performance indicators show that a strategy is not working or is producing negative side
effects. It also analyses which high-priority items in the strategic plan are not being

accomplished and understand the shifts or change that occurs in the external
environment.
Fig. 10.2
The following steps have to be taken (project example):
1. An analysis of the current strategy (analysis of the company and the market, market
trends, competitors, customers, products - marketing and sales approaches)
2. SWOT analysis to map out the current position and the profile of the company and
brand
3. Identification of the directions that can be taken to raise the brand profile and
generally achieve greater market exploitation by professionalizing Marketing and
Sales
4. Establishment of controlling ratios to ensure sustained throughput in Marketing and

Sales, as well as implementation of a strategic planning process to improve
international decision making
5. General improvement of the understanding of the work of the people involved and
sensitization for intercultural exchange
Management wishes: (1) to fine-tune a successful strategy and (2) to ensure that a
strategy that has worked in the past continues to be in tune with subtle internal or
external changes that may have occurred.

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Effective Evaluation and Control System [5]
In order to have an effective evaluation and control system, there are some essential
requirements, as described in the following parameters:
1. Objective based: The purpose of evaluation and the objectives must be clear to
choose the appropriate evaluation system. Such an objective-based system will
provide useful and timely information or effective control.
2. Objectivity: The standards and targets selected must reflect internal and external
realities. Thus, the evaluation system is not driven by subjectivity. For example, a
recession or boom or changes in the competitive environment must allow due
consideration for revising the standards and targets.
3. Economic: The strategy evaluation system must be economical, that is, the cost
must be justified with its utility. It is believed that too much information can be just as
bad as too little information. Also, too many controls can also do more harm than
good. It must be ensured that the concern about the cost of an evaluation system
does not affect the objective of the evaluation system.
4. Pervasiveness: The strategy evaluation must be pervasive in the sense that the
need for it is appreciated throughout the organization, the business and functional
stakeholders and people directly associated with it directly. Hence, communication is
essential to have inclusiveness. Most importantly, the strategy evaluation system
should not dominate decisions, but it should foster mutual understanding, trust, and
common sense. No department should fail to cooperate with another in evaluating
strategies.
5. Simplicity: The extent of simplicity or complexity of the strategy evaluation system

depends upon a number of factors like the purpose of evaluation, the variables to be
monitored and measured, and the size of the organization and diversity of activities
involved. However, the underlying principle is that the evaluation system should be
as simple as possible. A complex strategy evaluation system often confuses the
stakeholders and does not yield the desired results. The test of an evaluation system
is in its usefulness and not in its complexity.
6. Communication: We stressed the importance of communication earlier in the

chapter. It is necessary to take people into confidence to ensure their positive and
active involvement at the mental, emotional, and physical levels. The stakeholders
must be made aware of the factors contributing to the success or failure in achieving
the strategic objectives. It is important to note that the key to an effective strategy
evaluation system is the leadership's ability to convince the participants that failure to
accomplish the key strategic objectives within a prescribed time is essential to long
term success of the organization.

7. Congruence: As per Peter Ducker, measurements have to be congruent with the

events to be measured. The scope, range, magnitude, and accuracy of measurement
should be related to the objective and usefulness.
8. Operational: The controls must be focused on actions. Action rather than information
is their purpose. The findings of the control must reach the people responsible for
taking the corrective actions on time.
10.9 BUDGETARY CONTROL
Budgets, a forward planning exercise, are considered to be the standards for

performance evaluation and control, which can be used for taking corrective actions. A
Business Budget can be described as a predetermined and detailed plan of action,
developed, and distributed to different stakeholders as a guide to run the operations. It is
also a basis for subsequent evaluation of performance and achievement of objectives in
the business strategy. The term Budgetary Control refers to the management measures
taken to ensure that the standards and norms laid down are maintained and the planned
results are achieved.
In any strategic management process, budgets and budgetary controls are key indicators
in the strategy planning and execution. An organization may have a master budget that
governs the important functional areas and strategic business plans for the whole
organization. The master budget is further subdivided into business unit and functional
unit budgets. The importance of budgets is that they provide a clear direction for
performance to the business and functional units. It helps them to plan in advance the
resource requirements and their allocation at the beginning of the financial year.
Formulation of a realistic budget is a challenging task in any organization. A budget is

often based on certain assumptions and is valid as long as the assumptions are valid. For
example, a sales or financial budget is based on certain estimates and assumptions of
the market demand conditions, competition activity and government policies. Any change
in these factors will impact the achievement of the budget adversely or favorably. Thus
strategic evaluation and control becomes an integral part of budgets to reflect the actions
required for achieving the objectives within the specified timeframe.
10.10 CONTINGENCY PLANNING AND CRISIS MANAGEMENT
In today's world of uncertainties and complex business environment, the one thing that
an organization must be prepared for as part of its strategy is to deal with contingencies
in order to ward off potential threats that may come up during implementation. The
Contingency Planning, or Business Continuity Planning, is a critical component of
strategy planning to effectively handle unforeseen situations or any other critical
developments that might impact the organization and its strategy. The impact may well
be compared with the likes of major changes in external environment, competition,
government and regulatory policy changes, strikes, boycotts, war, natural calamities etc.
A contingency plan, therefore, is a plan to cope up with these critical developments which

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trigger major deviations in the strategy execution from the original strategy planning done
by the strategic managers.
Let us discuss some of the critical issues that may impact the strategy
implementation plan hence an organization must build a contingency plan as part
of the strategy. (7 Main)
1. If a company is being taken over by another important company, what strategy

should the company employ to deal with the new situation?
2. If the government changes policies like export or import or tax related policies
unexpectedly, then how will the company be ready to handle the competitive
challenges caused by these changes?
3. What contingencies are to be planned to take care of technological obsolescence?
4. If there is a global recession that impacts the local economy and continues beyond
the anticipated period, what strategy the company would employ to optimize costs
and sustain profitability?
5. If the government brings new reforms that provide new expansion opportunities, how
will the company exploit it?
6. What if the government and regulatory approvals take longer than the expected time
frame or not getting approved at all, how will the company handle the capex and
financial commitments?
7. If a natural calamity or war between nations or workers strike or transporter's

agitation happens, what will the company do to mitigate the impact of these forces
beyond its management control?
8. What if the inflation and interest rates continue to exert pressure on operations, what
would the company do to make its products and services competitive and still make
the business profitable?
9. How will the company take advantage of breakthroughs in technologies to create

innovation in its products and services in order to stay ahead of the curve?
10. What, if the demand spikes suddenly, then what would the company do to increase
its output in order to take advantage of the market opportunity?
These are some of the situations that one can think of, there could be many. The
advantage of contingency planning is that it is a structured or systematic process of
identifying the unknown situation of the future and start building some scenarios around
the overall business strategy. It is all about capitalizing on the situations and opportunities
how the organization is able to implement the contingency plans quickly and resiliently,
without having to react, as and when the situations arise. It helps in quick response to

change and prevents panic in crisis situations, and most importantly it enables managers
to be more adaptable by encouraging them to appreciate how uncertain the future could
be.
There are several ways to put in place a contingency planning or business continuity
planning and it involves some of the following steps to create a process by which the
organization is able to respond to unforeseen changes in the environment and prevent
the organization from falling into panic or crisis situations.
1. The strategic managers should be able to foresee and identify both the favorable and
unfavorable events that could possibly impact the organization strategy during
implementation
2. Specify threshold levels and trigger points. Also the strategy managers should be
able to calculate with a fair degree of foresight on when these events are likely to
occur and how they would impact.
3. An assessment of these events is necessary and the probability of them happening

and their impact.
4. Develop contingency plans for each of these events or situations. The strategy
managers must ensure that the contingency plans are in line with the overall strategy
and are economically viable.
5. Also, assess the counter impact of each contingency plan. It must be estimated how
each contingency plan will capitalize on or negate the unfavorable event. This
quantifies the value of each contingency plan and the resources allocation
associated with them.
6. Prepare a system to determine early warning signals for each key contingency event
and monitor them regularly. Also develop advance action plans to take advantage of
the available lead time.
Crisis Management [6]
In organizations, forecasting methods are generally used to project market conditions and
evaluate performance levels that are somewhat predictable. Unfortunately, in today's
economic environment, organizations are mostly faced with unpredictable and
uncontrollable negative circumstances that can threaten their very existence. Crisis
Management refers to the process of planning for and implementing the response to the
negative events, described above, that could severely impact the organization.
Terrorism is a potential event that could impact the economy as well as organizations
operating in it to a major way. Terrorist attacks like 9/11 (US twin tower attacks) and
26/11 (Mumbai terror attacks) have highlighted the need for organizations to anticipate,
prepare for and respond to the crisis in an effective manner. For example, post these
unfortunate terror attacks, most organizations have put in place a clear process for safety

Chapter 10
and security measures within their originations, to help avert such events in their
premises. Such events have resulted in the tragic loss of a substantial number of
employees, but also the loss of key facilities and corporate data.
It is helpful to handle crisis management as a three step process. Before a crisis,

organizations should develop a crisis management team to build a plan for worst case
scenarios and define the standard operating procedures that should be implemented
prior to any crisis event. This is a proactive step.
For example, an organization anticipating a workers strike at the company facility may
hire additional security personnel to provide additional security. Proactive organizations
keep assessing their vulnerabilities and threats and develop crisis management plans
that are adequately and proactively equipped to handle such crises when they occur.
Prior information and constant assessment of the internal and external environments is
needed to properly prepare for the crisis events. When managers understand which crisis
events are more likely to occur, they plan for the event more effectively and foster a
culture within the organization that is ready to meet the challenge when the crisis occurs.
Secondly, during the crisis, the organization must communicate effectively with the
internal employees and the external public to minimize the effect of the crisis. During the
major deluge in Mumbai in 2005 (happened on 26/7/2005), many people lost lives
because of the flash floods and employees in most organization could not reach home for
two days and had to stay put in the office for almost two nights. The organization used
communication to caution employees not to leave the office and also informed the family
members about the crisis in order to ensure safety of everyone until the floods receded
and people were safe to travel outside. The organizations even organized food to be
served to their employees during their stay at the offices.
Thirdly, after the crisis, continuous updates should be provided to all stakeholders and
the cause of the crisis should be uncovered. Understanding of the cause can help the
management to take preventive steps and help improve adequate preparation if at all the
crisis happens again.
10.11 DISASTER RECOVERY AND BUSINESS CONTINUITY PLANNING
During such disaster times like the Mumbai deluge, organizations need to have a proper
system to avert disruption in the business operations besides ensuring safety and
security. Disaster recovery and business continuity planning are processes that help
organizations prepare for disruptive events-whether an event might be a hurricane, or
flash floods or simply a power outage caused by a grid failure. Management's
involvement in this process can range from overseeing the plan, to providing input and
support, to putting the plan into action during an emergency.
Disaster Recovery is the process by which an organization resumes business after a

disruptive event. The event might be something like an earthquake in Bhuj or the terrorist

attacks on the World Trade Centre or technical failure in the primary Datacenter suddenly
bringing business to a standstill.
Given the human tendency to look on the bright side, many business executives are
prone to ignoring "disaster recovery" because disaster seems an unlikely event.
"Business continuity planning" suggests a more comprehensive approach to making sure
the organization can keep doing business. Often, the two terms are married under the
acronym BCP/DR. At any rate, DR and/or BCP determine how a company will keep
functioning after a disruptive event until its normal facilities are restored.
All BCP/DR plans need to encompass how the organization and employees will
communicate, where they will go and how they will keep doing their jobs. The details can
vary greatly, depending on the size and scope of a company and the way it does
business. For some businesses, issues such as supply chain logistics are most crucial
and are the focus of the plan. For others, information technology may play a more pivotal
role, and the BCP/DR plan may have more of a focus on systems recovery. For example,
the plan at one global manufacturing company would restore critical computer systems
with vital data at a backup site within four to six days of a disruptive event or set up a
temporary call center for 100 agents at a nearby training facility to take care of customer
services.
However, the critical point is that neither element can be ignored, and the physical, IT
and human resources or financial plans cannot be developed in isolation from each other.
At its heart, BCP/DR is about constant communication. Business leaders and IT leaders
should work together to determine what kind of plan is necessary and which systems and
business units are most crucial to the company. Together, they should decide which
people are responsible for declaring a disruptive event and mitigating its effects. Most
importantly, the plan should establish a process for locating and communicating with
employees after such an event. In a catastrophic event (Hurricane Katrina being an
example), the plan will also need to take into account that many of those employees will
have more pressing concerns than getting back to work.
The first step is Business Impact Analysis (BIA). It identifies the business's most crucial
systems and processes and the impact an outage would have on the business. The
greater the potential impact, the more money a company should spend to restore the
systems or processes quickly. For instance, a stock trading company may decide to pay
for completely redundant IT systems that would allow it to immediately start operations
from another location or datacenter. On the other hand, a manufacturing company may
decide that it can wait 24 hours to resume shipping. Thus BIA helps companies set a
restoration process, which is relevant to their business, to determine which parts of the
business should be restored first.

Chapter 10
Here are 10 absolute basics an organization should focus on:
1. Develop and practice a contingency plan that includes a succession plan for a CEO
during disaster times. (Accidental or suicidal or natural death of the CEO or
Chairman)
2. Train backup employees to perform emergency tasks. The team slated to lead in an
emergency will not always be available. Have a contingency plan within the team.
3. Determine offsite crisis meeting places for top executives.
4. Make sure that all employees-as well as executives-are involved in the exercises so
that they get practice in responding to an emergency.
5. Make the exercises realistic enough to tap into employees' emotions so that you can
see how they'll react when the situation gets stressful.
6. Practice crisis communication with employees, customers, and the outside world
stakeholders.
7. Invest in an alternate means of communication in case the phone networks go down.
8. Form partnerships with local emergency response groups-firefighters, police and

EMTs-to establish a good working relationship. Let them become familiar with the
company and site.
9. Evaluate the company's performance during each test, and work towards constant
improvement. Continuity exercises should reveal weaknesses.
10. Test the continuity plan regularly to reveal and accommodate changes. Technology,
personnel, and facilities are in a constant state of flux at any company.
The organization should be prepared to handle the following pitfalls.
1. Inadequate planning: The organization should have identified all the critical systems
that need to be covered under the disaster recovery plan and have detailed plans to
recover them to the current day.
2. Failure to bring the business into the planning and testing of the recovery efforts.
3. Failure to gain support from senior-level managers.
10.12 SUMMARY
As discussed in this chapter, the strategic evaluation and control process helps in
determining the extent to which the company's strategies are successful in attaining its
strategic goals. This process is accomplished through six steps. The top management
must identify the critical factors that need to be measured for the strategy's success and
therefore they need to be controlled. Once that is done, they need to establish the

standards of performance, by setting some industry or global benchmarks available for

these parameters. The management then must measure and compare the actual
performance against these benchmarks / standards both qualitatively and quantitatively.
After the measurement, the deviations between the actual performance and standards
are analyzed and corrective actions are taken to resolve any gaps where performance
needs to be improved.
We have also discussed about the essential requirements of an effective evaluation and
strategic control in an organization. Besides, contingency planning and crisis
management are two critical cornerstones for any strategy's success and refer to the
process of proactive planning and keeping a response ready for any wide range of
adverse events that could severely impact an organization’s strategy implementation.
Strategic evaluation, strategic control, contingency planning, and crisis management are
an ongoing process in any organization, as part of the broader strategic management
process. Finally, disaster recovery and business continuity planning are processes that
help organizations prepare for disruptive events - every organization should have a clear
plan in their overall business strategy.
1. Strategic Evaluation and Control in an organization is important because:

a) It is difficult to know how well the firm is performing well without it
b) The organization’s environment is uncertain and always changing / challenging
c) The managers need an effective means of providing feedback to the
management
d) a & b only
2. Crisis Management involves a series of steps that an organization should take before
a crisis occurs while it is occurring and after it has passed.
a) True b) False
3. Crisis Management refers to efforts made to eliminate the possibility that the
organization can be negatively impacted by unforeseen events.
a) True b) False
4. The Strategic Control Process begins by:

a) Identifying appropriate performance measures
b) Establishing the standards of performance
c) Measuring performance
d) Taking corrective action as needed
5. The process of measuring a firm's performance against that of top performers is

known as:
a) Competitive Positioning
b) Performance Measurement
c) Benchmarking

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d) PIMS Analysis
6. Benchmarks should be:

a) Broad and not specific
b) Associated with the strategy's success
c) Outside the firm's control
d) All of the above
Answers: 1.(a), 2.(a), 3.(b), 4.(a), 5.(c), 6.(b)
References:
1. Strategic Management and Business Policy | Essentials of Strategic Management.
Thomas L. Wheelen and J. David Hunger (Prentice Hall 2004)
P 163
3. Eight types of standards have been set by General Electric Company (GE)
4. Strategic Management: Formulation and Implementation by Ryszard Barnat, LLM,
DBA, PHD
5. John A. Parnel, Strategic Management, Theory and Practice), Business Unit
Strategy P 164
ANNEXURE
Explaining Balanced Scorecard and demonstrating its use at Amazon company to

measure performance in a systematic manner.
The Balanced Scorecard (BSC) is a strategic performance management tool that

provides a balanced view of an organization's performance across multiple dimensions. It
was developed by Robert S. Kaplan and David P. Norton in the early 1990s as a way to
address the limitations of relying solely on financial metrics to measure an organization's
success. The BSC incorporates both financial and non-financial performance indicators,
allowing organizations to assess their performance from various perspectives and align
their actions with their strategic objectives.
The Balanced Scorecard typically consists of four key perspectives:
Financial Perspective: This perspective focuses on traditional financial metrics, such as

revenue, profit margins, return on investment (ROI), and cash flow. These indicators
assess the organization's financial health and its ability to generate value for
shareholders.

Customer Perspective: This perspective measures how well the organization is

satisfying its customers' needs and expectations. Metrics in this category may include
customer satisfaction scores, customer retention rates, and market share.
Internal Process Perspective: This perspective examines the efficiency and

effectiveness of the organization's internal processes. It identifies critical processes that
directly impact customer satisfaction and financial success. Metrics in this category could
be the time taken to fulfill customer orders, production cycle times, or defect rates.
Learning and Growth Perspective: This perspective evaluates the organization's

capacity for learning, innovation, and employee development. Metrics might include
employee training hours, employee satisfaction, or the number of new product ideas
generated.
The above four aspects need not be considered as rigid aspects. It can change based on
organization, its size and competitiveness in the market. By incorporating these four
perspectives, the Balanced Scorecard helps organizations achieve a more
comprehensive understanding of their performance and the relationships between
different areas of the business. It allows organizations to identify cause-and-effect
relationships and to prioritize their actions based on their strategic objectives.
Now, let's look at how the Balanced Scorecard might be used to measure performance in
Amazon, a well-known e-commerce and technology company.
Example: Balanced Scorecard for Amazon
Financial Perspective:
Revenue Growth: Measures the percentage increase in Amazon's annual revenue
compared to the previous year.
Profit Margins: Evaluates the profitability of Amazon's various business segments and
identifies areas for improvement.
Customer Perspective:
Customer Satisfaction Index: Monitors customer satisfaction levels through surveys
and feedback mechanisms.
On-time Delivery Rate: Tracks the percentage of orders delivered on time to ensure a
positive customer experience.
Internal Process Perspective:

Order Fulfillment Cycle Time: Measures the time taken from order placement to
product delivery.
Inventory Turnover Ratio: Evaluates how efficiently Amazon manages its inventory to
meet customer demand.

Chapter 10
Learning and Growth Perspective:

Employee Training Hours: Monitors the number of hours employees spend on training
and development activities.
Innovation Index: Measures the number of new products or services launched by
Amazon each year.
In this example, Amazon's Balanced Scorecard reflects the company's commitment to

meeting customer demands, streamlining internal processes, and fostering employee
development and innovation. By regularly reviewing these metrics, Amazon can make
informed decisions to enhance its overall performance and align its actions with its
strategic objectives.
Remember, the specific metrics and targets on a Balanced Scorecard will vary depending
on the company's industry, size, and strategic goals. The key is to ensure that the chosen
metrics are aligned with the organization's long-term vision and that they provide a
balanced view of its performance.

REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
11 Chapter
GLOBALIZATION
STRATEGY
Objectives:
This chapter focuses on Globalization of Strategy. Based on the Corporate Profile, an
organization or a corporate group may choose to be involved only in the domestic market
or it may choose to aggressively design a strategy to compete in the global markets
depending on its risk profile. This chapter talks about a number of challenges and issues
that need to be considered well in advance by the strategic managers while creating a
compelling Global Strategy.
The Globalization and global market pace
Dimensions of Global Strategy
Understand the stages of Globalization
The challenges and enablers of Globalization
Globalization Culture
Case Study

11.1 Introduction
11.2 Global Industry
11.3 Dimensions of Global Strategy
11.4 Stages of Globalization
11.5 Enablers of Globalization
11.6 Globalization Strategies
11.7 Globalization Culture
11.8 Case Study - Tata Steel Globalization
11.9 Summary
11.1 INTRODUCTION
Based on its corporate profile and vision, an organization or a corporate group may
choose to be involved only in the domestic market or it may aggressively design a
strategy to compete in the global markets depending on its risk profile. Indian companies
are increasingly getting globalized and so are the other global companies aspiring to
invest in India to grow their businesses. India, next to China, presents a great

Chapter 11
demographic advantage with its 1.2 billion populations and potential for the next several
decades as a fast growing economy.
Organizations set up their production, research and development, engineering,

marketing, and other relevant functions globally to become more competitive and create
more value for all their stakeholders. Globalization, in its true sense, is a way of
corporate growth facilitated and nourished by the trans-nationalization of the world
economy by executing compelling corporate strategies. Globalization is an attitude of
mind, a mind-set which views the entire world as a single market so that a corporate
strategy is based on the dynamics of the global business environment. International
marketing or international investment alone does not amount to globalization unless it
results in economic value and global orientation.
Global Strategy [1], as defined in business terms, is an organization's strategic guide to

globalization. A sound global strategy should address these questions: what must be
(versus what is) the extent of market presence in the world's major markets? How to build
the necessary global presence? What must be (versus what is) the optimal locations
around the world for the various value chain activities? How to run a global presence into
a global competitive advantage?
Academic research [2] on global strategy came of age during the 1980s, including the
work done by Michael Porter and Christopher Bartlett & Sumantra Ghoshal. Among
the forces perceived to bring about the globalization of competition were convergences in
economic systems and technological change, especially in information technology, which
facilitated and required the coordination of a multinational firm's strategy on a worldwide
scale.
A global strategy may be appropriate in industries where firms are faced with strong
pressures for cost reduction but with weak pressures for local responsiveness in terms of
demand for the products and services. Therefore, it allows these firms to sell
standardized products worldwide thus creating scale of economies. However, fixed costs
(capital equipment) are substantial. Nevertheless, these firms are able to take advantage
of scale of economies and experience curve effects because it is able to mass-produce a
standard product which can be exported (provided that the demand is greater than the
costs involved).
Global strategies require firms to tightly coordinate their product and pricing strategies
across international markets and locations, and therefore firms that pursue a global
strategy are typically highly centralized and at the same time bring in cultural diversity
and creativity as well as best practices. Thus, firms change from domestic oriented
strategies to a global orientation for numerous reasons. Pursuing global markets can
reduce the per-unit production cost by increasing volume. A global strategy can extend
the life cycle of products whose domestic markets are declining.

GlobalizationStrategy
There are still challenges that persist when companies pursue global aspirations. These
factors include complex government approval processes, high costs, sourcing of huge
investments, poor infrastructure, poor image of the countries, sourcing problems, cultural
problems etc.
At the same time, there are factors that enable globalization, like young population,
demographics, vast talent pool, growing entrepreneurship, high savings rate for
investments, innovation, and skills - these factors definitely help in facilitating the
globalization process.
Establishing facilities abroad can also help a firm benefit from comparative advantage
(Aditya Birla Group’s Case study is being discussed later in this chapter), the
difference in resources among nations that provide cost advantages or the production of
some but not all goods in a given country. For example, athletic shoes can be produced
more efficiently in parts of Asia where rubber as the main raw material is plentifully
available and cheaper, and also the labor is less costly.
11.2 GLOBAL INDUSTRY
A global orientation for an organization can lessen the risk of its business profile because
demand and competitive factors tend to vary among nations. A Global Industry can be
defined as:
An industry in which firms must compete in all world markets of that product in order
to survive
An industry in which a firm's competitive advantage depends on economies of scale

and economies of scope gained across markets
Global markets are international markets where products are largely standardized.
Michael Porter argued that industries are either multi-domestic or global.
Multi-domestic industries: firms compete in each national market independently of other

national markets.
Global industries: competition is global. The same firms compete with each other
everywhere.
In general businesses adopt a global strategy in global markets and a multi-local strategy
in multi domestic markets.

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Global Strategy
Companies such as Sony and Panasonic pursue a global strategy which involves:
Competing everywhere
Appreciating that success demands a presence in almost every part of the world in
order to compete effectively
Making the product the same for each market
Centralized control
Taking advantage of customer needs and wants across international borders
Locating their value adding activities where they can achieve the greatest competitive
advantage
Integrating and coordinating activities across borders
A global strategy is effective when differences between countries are small, and
competition is global.
It has advantages in terms of economies of scale, lower costs, co-ordination of

activities and faster product development
Multi-Domestic Strategy
A multi-domestic strategy involves products tailored to individual countries.

Innovation comes from local R&D
There is decentralization of decision making within the organization
One result of decentralization is local sourcing
Responding to local needs is desirable but there are disadvantages: for example high
costs due to tailored products and duplication across countries
Comparison of the two strategies
Four drivers determine the extent and nature of globalization in an industry:
(1) Market drivers
• Degree of homogeneity of customer needs

• Existence global distribution networks
• Transferable marketing
(2) Cost drivers

• Potential for economies of scale

• Transportation cost
• Product development costs
• Economies of scope
(3) Government drivers
• Favor trade policies e.g. market liberalization, taxation

• Foreign direct investment policies
• Compatible technical standards and common marketing regulations
• Privatization
(4) Competitive drivers
• The greater the strength of competitive drivers the greater the tendency for
globalization
11.3 DIMENSIONS OF GLOBAL STRATEGY [4]
A truly global company views the entire world as a single market. There is nothing like
local market and foreign market, but there is only one market called the global market.
However, they have customized or appropriate strategies to suit for different geographic
regions depending on the consumer needs, sensitivity, and local cultures. Companies
which adopt a global strategy generally stop thinking of themselves as national marketers
who venture abroad and start thinking of themselves as global marketers. They look for
ideas and best practices from global industry peers and try to innovate new business
ideas on their own to create a unique marketplace in the global market.
Most of the Indian companies operate global businesses, and identifying a competitive
strategy for the global markets can be challenging and a complex task. Each market has
unique characteristics of domestic environmental factors and marketing mix. It is not a
simple formula for developing and implementing successful business strategies across
multiple countries and multiple businesses. There are different strategies required for
emerging markets and developed markets. For e.g., Suzuki has a strategy of high-end
models in developed markets like Japan and U.S., whereas for emerging markets like
India and Africa, it has a wide range of attractively priced low and mid-segment cars to
enter and gain a market share.
Many corporates take an approach and strategy of "think globally, but act locally" for their
businesses, which means developing and customizing products and services for the local
market. This also means the organization would create a synergy by serving multiple
global markets but formulate a unique competitive strategy for each specific market that
is customized to the unique requirements of the people there.
The strategic managers are involved in the global strategy and making policies related to
the global manufacturing facilities, marketing, finance, HR, logistical processes that help

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in the execution of the strategies. The global business units, the operations units report
directly to the CEO, or the Executive Council of the organization. Executives are trained
in worldwide operations and management is recruited from many countries and
resources are sourced from least cost locations and financial investments are availed
from international financial institutions or investors.
In short, Globalization encompasses the following attributes:
• Strategy and Planning to expand business globally

• Developing a global outlook for the business and have a clear vision
• Identify global production facilities considering the global dynamics rather than
national considerations. This will help in optimizing both costs and margins
• Base-lining product development and production planning on global best practices
and market considerations. Tap into those global markets where price realization for
the products is higher.
• Global sourcing of raw materials, technology, raise finance, recruit best people etc. to
maximize the cost and productivity efficiency of business operations
• Global orientation of organizational structure and management culture to manage
diversity.
• Forge global strategic alliances to complete the value chain of products and services
As discussed earlier, a global orientation can also lessen the risk of a company's
businesses because demand and competitive factors tend to vary among nations. There
are a number of parameters to be considered, let us see some of them. [5]
• Are customer needs abroad similar to those in the firm's domestic market? If so, the
firm may be able to develop economies of scale (discussed in detail in the Chapter
Business Unit strategies) by producing a higher volume of the same goods or
services for both the markets.
• Are differences in transportation and labor costs abroad favorable and conducive to
producing goods and services abroad? Are these differences favorable and
conducive to exporting and importing goods from one country to another?
• Are the firm's customers or partners already involved in the global business? If so,
the firm may need to become equally involved.
• Will distributing goods and services abroad be difficult? If competitors already control
distribution channels in another country, expansion into the country will be difficult.
• Will government trade policies facilitate or hinder the global expansion? Is the
taxation regime favorable for foreign companies to do business in the country?
• Will managers in one country be able to earn from managers in the other countries?
If so, global expansion may improve efficiency and effectiveness, both abroad and in
the host country.
Corporate growth is often pursued through expansion into fast growing emerging markets
and through those nations that have achieved enough development to warrant further

expansion but whose markets are not yet fully served. The advantages and
disadvantages of growth through global expansion should be considered carefully before
pursuing expansion into an emerging market which lack basic infrastructure or has
complex government policies and tax regimes or a hard regulatory regime.
11.4 STAGES OF GLOBALIZATION
A company goes through different stages of development before it becomes a truly global
organization. An export to another country is generally considered as the first step
towards starting to do international business. Later, it may create strategic alliances and
partnerships to distribute or manufacture its products. Then it moves on to establish joint
ventures and subsidiaries abroad to set up production facilities to manufacture its
products. Thus, a company from being an international firm develops into a multi-national
firm and then finally becomes a global organization.
Kenichi Ohmae [6] identifies five different stages of development a firm goes
through to become a global organization.
• The arm's length service activity of an essentially domestic company which moves
into new markets internationally by forging tie-ups with local dealers and distributors.
• The company takes over these marketing and distribution activities on its own by
making a small presence in those countries of operations
• The company begins to carry out its own manufacturing, marketing, and sales in key
foreign markets.
• The company starts full-fledged operations in these markets, supported by complete
business systems including R&D, Engineering besides production facilities replicating
the home market. It extends the reach of all centralized functions like HR, Finance
etc. to new markets.
• Finally, the company moves towards a genuinely global mode of operations. In this
context, Ohmae points out that the company's ability to serve local customers in new
markets around the globe depends on its truly responsive way of addressing their
true needs, as well as its ability to demonstrate the global character of its industry.
The company must have the ability to strike a balance between these two
organizational and market compulsions, also called Global Localization. The
company should create a new orientation that is simultaneously aligned in its strategy
towards both the directions.
To become a truly global organization, an organization should be ready to venture into

new ground altogether. Ohmaeargues that to make an organization transition in this
globalization journey, it must denationalize their operations and create a system of values
shared by corporate managers in global organizations around the world.
Today's global corporations are made of cultural diversity and have learned to serve the
global customers' interests to differentiate themselves and create a unique marketplace
for their products and services. As discussed in earlier chapters, the Indian IT Industry

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is a classic example of globalization of a particular industry, not just a single company.

These companies make significant investments in business development, new product
development, employee training, research, and development, build necessary
infrastructure to expand operations, build relationships with local governments and
regulatory bodies and create partner ecosystems to deliver the best value to their
customers in all the countries where they do business.
IBM, for instance, in India provides an employment in excess of 112,000 (2012) people,
is considered as one of the largest employers in the Indian IT Sector. Similarly, as
discussed in earlier chapters many Indian firms have already gone global across
industries like information technology, steel, automobiles, pharmaceuticals, cement, oil
and gas, mining, etc. and many others have aspirations to expand their businesses
globally as well.
11.5 ENABLERS OF GLOBALIZATION
Any company that aspires to go global will have to depend on many factors that are
essential on the part of domestic economy as well as the foreign country for successful
globalization of its business. There are factors that facilitate the globalization process and
at the same time there are factors that impact the progress of globalization.
There are still challenges that persist when companies pursue global aspirations. These
factors include complex government approval processes, high costs, sourcing of huge
investments, poor infrastructure, poor image of the countries, sourcing problems, cultural
problems etc.
At the same time, there are factors that enable globalization, like young population,
demographics, vast talent pool, growing entrepreneurship, high savings rate for
investments, innovation, and skills - these factors definitely help in facilitating the
globalization process. Let us see some of these factors:
(i) Business Climate: The economic climate should be conducive enough to facilitate
the entry of global companies to set up business operations. There should not be
unfavorable conditions like import restrictions, restrictions on sourcing of raw materials,
restrictions on foreign direct investments or restrictive labour laws. They should have
liberal trade laws to facilitate new industry creation and employment creation. Economic
liberalization is regarded as the first step towards globalization.
(ii) Infrastructure: The country should have state-of-the-art infrastructure facilities like
ports, airports, transport networks, commercial developments so that the enterprise can
develop its business operations locally. An emerging economy like China has very good
infrastructure, India is catching up on that front.
(iii) Government support: The government interference should be minimal; in fact, the
government should support and encourage globalization. Government support may take
the form of policy making, financial market reforms and procedural reforms, development

of public facilities like world class infrastructure, policy guidelines for public private
partnership, environment clearance, and land acquisition reforms for setting up a
production facility, creating employment and up-liftmen of society.
(iv) Resources: It is one of the important factors that decide the ability of a firm to grow
globally. Resourceful companies generally find it easier to implement their global strategy
across different markets. Resources include human capital, finance, technology, research
and development capabilities, leadership expertise, company brand image, profitability
etc. It should, however, be noted that many small firms have been very successful in
international business because of their unique value proposition for their business, like
agility and resilience.
(v) Competitive Advantage: The competitive advantage of a company is a key factor

that determines the success of the company in global business. A firm may derive
competitive advantage from many factors such as low cost, product quality, product
differentiation, technological superiority, customer service, marketing strength, and brand
value etc. Small firms may have other specific advantages like nimble footedness,
resilience, faster time to market etc. Large companies can emulate these good attributes
of small companies to increase their competitive advantage with their peers.
(vi) Competition: The growing competition, both from within the country and other
countries, may make companies to consider other markets seriously to improve
competitive positioning and increase their business share. Sometimes, companies enter
international markets to create credentials to fight competition back home and build more
competitive strength.
vii) Integration of World Economy: Integration of different countries’ economy into the
world economy is a key factor in globalization of markets. Trade barriers have been
significantly reduced, thanks to World Trade Organization (WTO) and its member
countries, and global trade agreements (WTA) have improved trans-nationalization of
different economies, as there has been a growing interdependence on countries with
increasing globalization of markets.
viii) Resistance to Change: There are several factors that act as resistance to change
and come in the way of globalization. Socio-political factors and cultural factors are some
of the factors that act as a resistance to change. Organizations should take note of these
factors and start addressing them through effective strategies.
ix) Country's Image: Factors such as stringent government policies, a complex

approval process, political and bureaucratic corruption, poor infrastructure, too much of
protectionist policies can dissuade companies from making investments in their
globalization strategies.
11.6 GLOBALIZATION STRATEGIES

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From Indian industry perspective, many corporate have expanded their businesses into
many global markets. They have adopted different strategies such as developing exports
markets, foreign investments including joint ventures, mergers and acquisitions, strategic
alliance, franchising, and licensing etc. We have discussed these strategies in the
chapter 5 on corporate level strategy in detail.
Growth Strategy
a. Exports
b. Foreign Direct Investments
c. Joint Ventures
d. Mergers and Acquisitions
e. Strategic Alliances
f. Franchising
g. Licensing
11.7 GLOBALIZING CULTURE
The new economy of globalization means a more stable and longer growth, with more
jobs, lower inflation and interest rates, explosion of free markets worldwide, the
unparalleled access to knowledge through the internet, social media technologies and
new type of organizations which affects organizational change.
Organizational Change is the adoption of an organizational environment for the sake of

survival on an ongoing basis; thereby the organization is able to transform itself to the
needs of global changes taking place. Namely, the old principles no longer work in the
age of Globalization. Businesses have reached the old model's limits with respect to
complexity and speed. At the same time, the challenge which the new economy brings to
businesses managers is the use of a new business approach and the strong will for
organizational changes and adaptation to global market demands.
There are several types of organizational changes that can occur such as strategic
changes, organizational cultural changes; involve organizational structural change, a
redesign of work tasks and technological changes. In line with these changes, there is a
strong expectation of employees to permanently improve their knowledge and become an
integral part of a successful business formula in order to respond to the challenges
brought by the global economy.
It means a request for learning organization which is characterized as an organization

creating, gaining, and transferring the knowledge, and thus constantly modifying the
organizational behavior.

This will refine the understanding of globalization in three domains: organizational culture,
behavior, and gender.
11.8 CASE STUDY –ADITYA BIRLA GROUP [7]
The Aditya Birla Group is a US $60.00 billion (2022)corporation, and present in the
League of Fortune 500. The group employs an extraordinary force of over 120,000
employees, represented by 42 nationalities. The Aditya Birla Group is active in 14
industry sectors and has achieved global and national leadership in several businesses.
The group owns over 40 brands in different industry sectors. The group operates in 36
countries across 6 continents, having over 130 state-of-the-art manufacturing units.
With over seven decades of responsible business practices, group businesses has grown
into global powerhouses in a wide range of sectors – metals, textiles, carbon black,
telecom, and cement. Today, over 50% of Group revenues flow from overseas operations
that span 36 countries in North and South America, Africa, and Asia.
Globally, the Aditya Birla Group is no 1 in aluminum rolling, viscose staple fiber, and
carbon black industry. Group is no 2 in telecom, no 3 in cement (excluding China) and no
4 in Insulators business.
In India, the Group leads in several sectors namely – branded apparels, cement &
concrete, mobile telephony, life insurance and asset management, viscose filament yarn
The Group's roots can be traced back over 150 years to the 19th century. The flagship
company Grasim, established in post-independence India in 1947, was one of the first
Indian businesses to set up international operations. Globalization dream was nurtured
and realized by legendry industrialist of independent India, late Shri Aditya Vikram Birla.
“Great businesses are never built on the quick sands of opportunism. I reiterate that, if
living by our values means, perhaps growing at a pace slower than we would otherwise
have liked, so be it. For us, leadership lies at the heart of knowing what we stand for.” -
Mr. Kumar Mangle Birla, Chairman, Aditya Birla Group.
Why?
To remain in the forefront of India’s industrialization journey, organization must remain as

key value provider. Thus, Aditya Birla Group believed in creating presence in the product
value chain and be in the business of what other industries will need or what common
man will need E.g.: You produce carbon black to support rubber based finished product
manufacturing industries like Tyres etc. You produce aluminum for industries needing it
like aluminum cold-hot rolling industries like window frames. In textile, a group is present
across the entire value chain from pulp to apparel - You manufacture filament yarn used
by other textile producers and you also lead the fashion and branded apparels market.
The group is also the largest iron ore mining company and largest contractual coal mining
company.

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What?
To retain their edge, it is essential to be strategically unmatched position and tactically in

a relevant location. Thus, Aditya Birla Group has used all the principles of strategy
management and resorted to acquisitions, mergers, entering new business and more.
Where?
As visionaries say, ‘’you got to be where you ought to be.’ Thus, Aditya Birla Group has
always looked at the entire globe as their opportunity landscape.
When it comes to aluminum production, the group has 50 manufacturing units across 11
countries. Cement production covers five countries—India, UAE, Bahrain, Bangladesh,
and Sri Lanka. It led the mobile telephony revolution in India by being one of the pioneer
service provider in India – world’s largest and fastest growing telecommunication market.
In Viscose Staple Fiber, group has 7 manufacturing locations with world class
manufacturing facilities in India, Indonesia, China, Thailand and pulp plants in Canada,
Sweden & India. In apparel industry, Deep partnerships with global brands: Ted Baker,
Forever 21 and Simon Carter as well as developed Indian brands. Apparel business is
powered by nine state-of-the-art production and design facilities, all fed by an Indigenous
and global supply chain. In carbon black business it’s no 1 position is achieved through
manufacturing presence across Asia, Europe, Africa & Americas having 17
manufacturing plants and 9 offices across 12 countries. It also has state-of-the-art
technology centers at Marietta, Georgia, USA & Taloja, Maharashtra, India, and well
equipped regional satellite laboratories.
How?
Following timeline specific information will give a complete perspective about the birth of
truly globalized Indian company.
1930-1970
Shaping of a Conglomerate
• Set-up Grasim, Hindrance, Eastern Sp
1970-1995
The making of India’s first MNC
• Presence in Thailand, Indonesia, Malaysia, and Egypt
1995-2000
Entry into Services

• Financial Services, Telecom, Copper. Cement business of Indian Rayon demerged to

Grasim
2000-2005
Building Scale through Acquisitions
• In India: Tindal – Aluminum, L&T – Cement and Formation of Ultra Tech, Madura
Garments, PSI - IT Services, Annapurna Foils
• Globally: Dashiqiao Ronghua Chemical Company Limited, China - Carbon Black,
Birla Nifty Pty, Birla Mount Gordon Pty, Australia - Copper mines, Tembec Inc.,
Canada - Pulp mill, Acrylic Fiber in Egypt – Greenfield Plant
2005-2010
Growth and Consolidation

• Formation of Aditya Birla Nuvo: a premium conglomerate with diversified businesses
• Increase in copper smelter capacity – Birla Copper
• Cement and aluminum – capacity addition
• Carbon Black – capacity expansion at Patalganga
• Entry into Retail – acquired Trinethra
• Acquisition of Novelis and Transworks
• Acquired Pulp Mill in Canada – AV Nackawic Inc.
2011-2018
Cementing Leadership Positions in Relevant Sectors
In India:
• Future Group’s “Pantaloons Format” business

• Financial investment in Living Media India Ltd. (India Today Group), through its
private investment company
• Chloro Chemicals Division of Kanoria Chemicals
• Chlor-Alkali & Phosphoric Acid Division of Solaris Chemtech Industries Limited
• Gujarat and Satna Cement Units of Jayvee Cement / Jaiprakash Associates Ltd
• MF Assets of ING Investment
• Chlor-Alkali Division of Jayshree Chemicals Ltd
• Total Superstore Business (“Total Undertaking”), the Retail Division of Jubilant Agri &
Consumer Products Ltd
• Exclusive online and offline rights to market the global brand – ‘Forever 21’ & its
existing store network, in the fast-fashion segment
• Vodafone Idea
• Binani Cement Limited
2019-2022

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• The group acquired Century Cement andcontinuedits expansion in the cement

industry.
• Group company ABFRL announced strategic partnership with designer brand
Shantanu and Nikhil.
• Grasim, a part of the Aditya Birla Group, entered the paints business, marking the
group's entry into a new industry.
• Group company ABFRL announced strategic partnerships with designer brands
Tarun Tahiliani and Sabyasachi.
• The group's revenue reached USD $60 billion.
• The group also launched TMRW, a D2C retail platform - its new ‘House of Brands’
entity in the building materials segment.
• ABFRL announced a partnership with designer Masaba Gupta to build a lifestyle
portfolio under brand Masaba.
Globally:
• Columbian Chemicals – Carbon Black

• Domsjo Fabriker – Pulp
• Terrace Bay Pulp Mill
• Equity stake in Chemicals & Technologies for Polymer and Chemicals &
Technologies for Polymers Advanced Materials, Germany – Epoxy
• The group made a significant acquisition in the aluminum industry with the purchase
of Aleris
Massive Capacity Expansions at:
• Hindalco, Novelis, UltraTech, Pulp &Fiber (Vilayat)
Student work: Write a case study on any leading Indian corporate company which has
globalized its business and also expanded their business successfully through a merger
and acquisition.
11.9 SUMMARY
Substantial liberalization of international trade and investments over time have

strengthened the forces of globalization. Most countries have made economic reforms
and liberalized their economies to allow international trade to happen freely. It helps the
countries to expand the possibilities of economic cooperation.
Any company that truly aspires to become a global leader in their industry can look
forward to different ways of entering the global markets. First and foremost is that it
should look at the whole world for its markets as well as for sourcing and processing its
factors of production. They should develop capabilities to think globally and act locally to
realize their aspiration.

There are five stages of development with which an organization can move into true
globalization gradually and in a planned manner. It ranges from exports to foreign direct
investment to mergers and acquisition to strategic alliances to franchising. We have
discussed the details of these stages in this chapter.
We also discussed about the factors that facilitate the globalization process and at the
same time impact on the progress of globalization. There are still challenges that persist
when companies pursue global aspirations. These factors include complex government
approval processes, high costs, sourcing of huge investments, poor infrastructure, poor
image of the countries, sourcing problems, cultural problems etc. At the same time, there
are enablers like young population, demographics, vast talent pool, growing
entrepreneurship, high savings rate for investments, innovation, and skills - these factors
definitely help in facilitating the globalization process.
From Indian industry perspective, many corporates have expanded their businesses into
many global markets. They have adopted different strategies such as developing exports
markets, foreign investments including joint ventures, mergers and acquisitions, strategic
alliance, franchising, and licensingetc.
1. Name a few Globalization Strategies?

a) Exports and Foreign direct investments
b) Joint ventures and M&As
c) Strategic alliances and licensing
d) All of the above
2. Which of the following is not an advantage of InternationalJoint Ventures?

a) Access to knowledge about the foreign market
b) Ability to eliminate risks associated with global expansion
c) Firms can learn from each other
d) Entry into the foreign market is secured
3. Firms operating on an international basis limit their activities to:

a) Importing and exporting
b) Licensing
c) Strategic alliances
d) All of the above
4. According to Michael Porter what are the different types of industries?

a) Multi-domestic or Global
b) International and Domestic

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c) Vertical and Horizontal

d) Forward and Backward Integration
Answers: 1.(d), 2.(b), 3.(d), 4.(a)
References:

1. Vijay Govindarajan and Anil K. Gupta 'The Quest for Global Dominance:
Transforming Global Presence into Global Competitive Advantage' Jossey Bass.
(2008). p. 20-21
2. Michael Porter (ed.) 'Competition in Global Industries' Harvard Business School

Press. (1986)
3. Christopher A. Bartlett and Sumantra Ghoshal 'Managing across Borders: The

Transnational Solution' Harvard Business School Press. (1989)

Management), P 292
P 81
6. Kenchi Ohmae, The Borderless World (London: Fontana, 1991)
7. Tata Steel case study from Tata Steel website

Management), P 296
ANNEXURE
New emerging business formats of globalization
Globalization has been evolving rapidly, and new business formats continue to emerge
as technology advances and market demands change. By 2023, several emerging
business formats in the context of globalization have gained prominence. Here are some
potential examples:
Remote Work Solutions:
With the acceleration of remote work trends due to the COVID-19 pandemic, businesses
focused on providing comprehensive remote work solutions have emerged. These
companies may offer virtual collaboration platforms, remote team-building activities, and
advanced cyber security solutions to meet the challenges posed by a distributed
workforce.
Virtual Events and Conferences:
Virtual events and conferences have seen significant growth in recent years. Businesses
specializing in virtual event management, online exhibition spaces, and interactive
networking tools have become important players in the global events industry. This

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format allows participants from all over the world to attend events without the need for
physical travel.
Sustainable and Ethical Supply Chains:
Consumers are becoming more conscious of sustainability and ethics in the products
they buy. Businesses that prioritize sustainable and ethical practices in their supply
chains have gained prominence. These companies may use blockchain technology to
trace product origins, reduce carbon footprints, and ensure fair treatment of workers.
Digital Health and Telemedicine:
Advancements in technology have paved the way for innovative healthcare solutions,
especially in the form of telemedicine and digital health platforms. Companies offering
virtual consultations, remote patient monitoring, and personalized health apps have
expanded globally to provide accessible and convenient healthcare services.
E-commerce Aggregators:
To cater to the increasing demand for online shopping, e-commerce aggregators have
emerged. These platforms bring together products from multiple online retailers,
providing consumers with a one-stop-shop experience. They may offer personalized
product recommendations and streamlined checkout processes, enhancing the
customer's online shopping journey.
Artificial Intelligence and Automation Services:
As businesses seek to optimize processes and improve efficiency, AI and automation

services have gained traction. Companies specializing in AI-powered data analytics,
chatbots, robotic process automation, and other smart technologies have found a
growing market for their solutions.
Green Energy and Clean Technology:
With a growing focus on environmental sustainability and reducing carbon emissions,

businesses in the green energy and clean technology sectors have flourished.
Companies working on renewable energy solutions, electric vehicles, energy-efficient
products, and carbon offset projects have attracted significant investments and global
interest.
Personalized Online Education Platforms:
The e-learning industry has seen tremendous growth, and personalized online education
platforms have emerged to cater to diverse learning needs. These platforms use AI
algorithms to tailor courses and content to individual students, enabling a more effective
and engaging learning experience.

It's essential to note that the business landscape is continually evolving, and new formats
may emerge beyond the examples mentioned here. The actual state of globalization and
emerging business formats in 2024 may differ.
Six Mistakes Companies Make When Going Global
For businesses looking for new sources of growth, especially when domestic markets are
cooling, the temptation to look overseas is strong. And in fact expanding globally can be
a major new source of revenue. But even those organizations that succeed overseas
typically do so only after surviving a number of initial costly mistakes, and many never
recover from them.
Any leader can add the line, "Expand internationally" to his or her company's strategic
plan. Converting that intention to profit is an entirely different matter.
I'm speaking from experience here. My own organization was one of those that initially
floundered in trying to build a global business, before figuring it out. So let me share
some of the key mistakes that many leaders make when trying to establish a strong
foothold overseas for their organizations.
1) Chasing hot markets.
In spite of the world allegedly being flat, its many economies do not all move in lockstep,
and some areas may grow faster than others. Experts fall over themselves to explain why
that growth will continue. But be wary of these predictions-witness the sudden and
unexpected cooling off in many formerly red-hot emerging markets over the past year. If
your overseas growth plans depend on certain economies continuing to boom, you could
be in serious trouble if and when the boom fizzles.
2) Misjudging risk.
Doing business in other countries isn't inherently riskier unless you fail to do your
homework in understanding the real risks and recognize that they can be quite different
from those you're used to. If you've only been doing business in the United States, for
example, you may be clueless about the risks associated with unstable governments,
corruption, sudden shifts in regulation, erratic investment markets, and much more. In
many cases these sorts of risk can be safely managed-but only if you know about them.
3) Cloning your business approach.
Exactly what sort of business strategy and tactics will work for you in an overseas market
is highly case dependent. But I can tell you right now what approach definitely won't
work: Whatever it is you've been doing in your home territory. Everything is different in
other countries-customers, competitors, the regulatory environment, logistics, even
accounting practices. Go in with your eyes wide open to the fact that you'll need to figure
out these differences and adjust your strategies, tactics, and processes accordingly.

Chapter 11
4) Overestimating the availability of infrastructure and personnel.
You probably won't appreciate all the resources you have access to in your home
territory until you set up operations overseas and realize they're absent. Infrastructure
can be relatively lacking in any number of areas, including transportation, financing,
health care and the law. But the one that's most likely to bite you is an absence of skilled,
experienced personnel in your particular business. You can import your own people, but
good luck with that-many home employees won't want to make the switch for long or at
all. You'll need a plan for recruiting and training overseas.
5) Being insensitive to culture.
As obvious an error as it may sound, business leaders typically fail to adequately

appreciate just how important it is to learn about what people in other cultures consider
respectful, and what offends them. In the United States, having the right product or
service at the right price usually trumps all. Not so in other countries, where you can kill
deals by, depending on the region, bringing up business too quickly, handling a business
card too casually, crossing your legs the wrong way, shaking someone's hand, or politely
refusing a second drink. That sort of sensitivity has to be developed and applied to
everything your company does. (And yes, everyone speaks English everywhere today,
but a few hours spent learning a handful of poorly pronounced phrases in your host's
language is usually considered a nice gesture.)
6) Intolerance of ambiguity and uncertainty.
There is no way you'll be able to march into another country and set up shop without
encountering all sorts of confusing and unpredictable situations. You're simply not going
to understand a lot of what's going on around you or be able to know what the
consequences of all your decisions will be. Some leaders are so used to being on
familiar, controllable territory that they find the ambiguity disorienting to the point of
defeat. But if you accept those limitations going in, and are prepared to work through
them, you'll probably do fine. All of the mysteries of doing business overseas are solvable
with time and effort. But there are no shortcuts, so don't bet your success overseas on
finding them.
(The author is Steven J. Thompson, leadership, and management guru

REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
12 Chapter
STRATEGIC
LEADERSHIP
Objectives:
This chapter focuses on the importance of Strategic Leadership and Corporate
Governance for effective implementation of strategy. The quality of Strategic Leadership
at the top management level is key to the effective implementation of strategy.
An organization needs to be a learning organization.
Strategic Leadership is critical for any business that needs to sustain its existence. This
chapter talks about a number of challenges and issues that need to be considered well in
advance by the strategic managers while developing strategic leadership.
Understand the importance of Leadership and Corporate Governance
How to build a Learning organization as part of strategy
Understand the importance of Emotional Intelligence
Leadership vision, values, and culture
Organization and Corporate Governance
Corporate Ethics and Social Responsibility

12.1 Introduction
12.2 Leadership and Management
12.3 The Learning Organization
12.4 Leadership Skills
12.5 Emotional Intelligence
12.6 Leadership Vision and Values
12.7 Leadership and Culture
12.8 Leading Culture Change
12.9 The Impact of Chaos in Leadership
12.10 Summary
12.1 INTRODUCTION
Jack Welch once said in his book Winning, 'before you become a leader, success is all
about growing yourself, but when you become a leader, success is all about growing
others and the organization'. The quality of leadership [1] at the top management level is

Chapter 12
key to the effective implementation of strategy. It is all about providing strategic

leadership to the people and the organization. Even the best formulated strategy would
fail if it were not implemented properly. In this context, employee communication is highly
important so that the strategy gets adopted at all levels of leadership and employees in
the organization. The ability of leaders to communicate the organizational goals and
clearly chart out a focused plan and guide their attention to achieving the goals is crucial
to success.
It must be recognized that without effective leadership at the top of the organization, the
individual employees are less likely to be empowered and therefore less likely to develop
their own leadership skills. The leader of an organization is ultimately responsible for the
successful implementation of the organization strategy and therefore he should create an
organizational culture that empowers the employees to respond to challenges and
opportunities on the way to the execution of strategy.
There are many ways to empower the employees like training and development,
appropriate rewards and recognition, leadership development, systems, and processes to
guide employees to demonstrate appropriate behaviour, milestones achievement of
strategic goals etc. We might reinforce that systems and processes, and policies may
help in the implementation of strategy, but it must be remembered that ultimately it is the
individual employee who actually implements the strategy. Hence, it is the individuals,
groups and teams in an organization who must be ready to accept the change that the
strategy seeks out from them.
In this chapter, we will discuss in detail about the roles and responsibilities of the top
leadership team that plays an important role in the implementation of strategy. In fact, we
will discuss the differences between leadership and management. How leadership
facilitates the direction of change with right behaviour and institutionalizing a culture that
fosters change. We also discussed the role of leaders in creating a learning organization.
There are many challenges a leader faces while creating an organization in which people
continually learn. We also evaluate the impact of emotional intelligence on effective
leadership and the link between emotional intelligence and an organization's
performance.
We also discussed the role of leaders in developing a shared vision and creating values
that an organization stands for, in the industry. The values actually help guide the
behaviour of the employees and hence constitute the organization culture. Generally, the
effects of national culture on people's beliefs and hence behaviour play an important role
in shaping the organization culture. We will also study the different leadership
approaches to this effect.
Any organization that aspires for high growth and globalization of vision, there are always
complexities and uncertainties, it is always the great leadership that mitigates these risks
and plays a critical role in directing the strategic change management process and guide

Strategic Leadership
the organization into the future. This chapter also takes a look at some of the leadership
skills and competencies necessary to achieve change. Also discuss the impact of
innovation in the strategic management implementation across the organization. There
will be a case study to understand the importance of innovation in the modern
marketplace to continually reinvent the organizational success for the long term.
The reason is that leaders are generally not judged on their personal output. What would
be the point of evaluating them as individual contributors? Rather, most leaders are
judged on how well they have hired, coached, and motivated their people, individually
and collectively-all of which show up in the results. That's why it is highly important to
sign up the right / top performers and unlock their energy to see sustained performance
in the organization.
12.2 LEADERSHIP AND MANAGEMENT
According to John Kotter, management is all about coping with complexity to produce
orderly and consistent results, whereas leadership is concerned about dealing with
change and creating a shared vision which the organization is trying to reach and
formulating sustainable strategies to bring about the changes needed to achieve this
vision.
Management's practices [2] and procedures, according to John Kotter's Change

leadership, are largely responses to one of the most significant developments of the
twentieth century i.e. the emergence of large organizations. Without good management,
complex enterprises tend to become chaotic in ways that threaten their very existence.
Good management brings a degree of order and consistency to key dimensions like the
quality and profitability of products and services.
Leadership, by contrast, is about coping with change. Part of the reason it has become
so important in recent years is that the business world has become more competitive and
more volatile. Faster technological change, greater international competition, the
deregulation of markets, overcapacity in capital-intensive industries, an unstable oil
cartel, raiders with junk bonds, and the changing demographics of the workforce are
among the many factors that have contributed to this shift.
The strategies that worked in the past may not work for the future. The net result is that
doing what was done yesterday, or doing it 5% better, is no longer a formula for success.
They need changes continually to reflect the changes in the internal and external
environments. Major changes are more and more necessary to survive and compete
effectively in this new environment. More change always demands more leadership.
What is the difference between Management and Leadership?
Management makes the systems of people and technology work well day after day, week
after week, year after year. Management controls the entire organization to meet the
ends giving less relevance to the means to the ends, not necessarily through employee

Chapter 12
empowerment. It reflects in its ability to constantly change and bring about a sustainable
transformation.
Coping with organizational complexity
Planning and Budgeting
Operational Control
Implementing Strategy
Organizing and Staffing to achieve the strategy
Controlling and Problem Solving to ensure the strategy is implemented in a timely

manner
Taking Complex Systems of people and technology and making them run
efficiently and effectively, hour after hour, day after day
Leadership creates the systems that managers manage and changes them in
fundamental ways to take advantage of opportunities and to avoid hazards. It focuses on
the means as well as the ends. It truly empowers the employees to take self-directed
decisions and actions to perform the execution of strategy. It deals with preparing the
organization to face changes and new challenges.
Creating vision and setting a direction for the organization
Formulating strategy
Communicating with stakeholders to align them with the set vision
Dealing with change
Motivating and inspiring actions
Recognizing and rewarding people
The vision need not be complex but should be clear and readily understood by all within
the organization. Creating systems and processes that managers can manage and
transform when needed to allow for growth, evolution, opportunities, innovation, and
hazard avoidance.
What happens when organizations have different amounts of management and

leadership?
When organizations have high competencies in management and leadership, they're

able to meet the challenges of today as well as tomorrow. However, most organizations
are usually lacking one or the other. When management exists without leadership, the
company is often unable to change. And when leadership exists without management,

the company is only as strong as its charismatic leader. Most of the time, organizations
are overstaffed with managers, but lacks enough leadership to help them deal with
constant change.
How do organizations change over time?
When they are formed, organizations are often long on leadership and short on
management. The savviest organizations gradually add management capabilities over
time while still preserving that spark of leadership that led them to rapid growth in the first
place. But inevitably, over time, the most passionate leaders move on to do something
else, while layers of management build up in their place. Organizations gradually
transition to a complacent mentality, where management reigns supreme and leadership
is in short supply.
One of the critical things about Leadership is Change Management. Change

requires an adjustment in people's behavior. Unlike in management where control
mechanisms are used to implement strategy, leadership motivates and inspires people
by empowering them with needs required for achievement, by fostering a sense of
belongingness, and by recognizing and rewarding the performers. An effective leader will
ensure that the organization’s vision is in line with its employees' own value system and
culture. As such employees will derive intrinsic satisfaction by working towards
achievement. This satisfaction is likely to increase where individuals are involved in
discussions on how the strategy can be implemented and vision can be achieved, and in
the process, they get rewarded for this effort and contribution.
As discussed, whereas management involves dealing with organizational complexity and

managing various tasks, leadership involves dealing with change. Change management
includes dealing with change in regulatory and policy environment, faster technological
change, change or shift in demographics, shifting social trends etc.
The role of leadership is to create a shared vision which the organization is trying to
achieve and to formulate relevant strategies to bring about the changes needed to
achieve the set vision. Effective leaders encourage leadership at a level of management
and throughout the organization at every employee level, by empowering participants to
make decisions without fear of reprisals. The dissemination of leadership allows an
organization to deal effectively with increasing change in its competitive environment.
The challenge is to blend the distinct characteristics and actions of leadership and
management to their advantage so that they complement each other within the
organization in their efforts to achieve the vision.
There is general agreement that management and leadership involve different functions.
Generally, most people in leadership positions are better characterized as managers
rather than leaders. However, the leaders perform three broad functions:

Chapter 12
1. An Organizational Function
2. An Interpersonal Function
3. A Decision making Function
The Organizational Function involves the leader inspiring people in the organization to
behave in a way that is desirable to achieve the vision. A leader can do this by
influencing the process of setting goals in an organization and creating a recognition and
rewards system, so that people are quite aware of their roles and responsibilities and
their individual goals. This is required to achieve the vision finally. The leader is actively
involved in creating the vision, setting the direction and in creating the goal structure. The
second function, Interpersonal Function, involves the leader in ensuring that the morale
of the participants is maintained. This is more of an empathetic role which the leader is
supposed to perform and address the concerns of the people in the organization. This
helps him to connect with them at the emotional intelligence level. The third function,
Decision making function, involves the leader in taking assertive and timely decisions and
allow the organization to achieve its goals.
An organization is made up of a collection of individuals. It is the people who actually

make up the organization and help in implementing the strategy and achieving the vision,
regardless of the aspiration vision the organization sets for itself. It is ultimately the
leaders who inspire and ensure that the participants in the organization behave in a
desirable manner to achieve the vision.
Leaders accomplish this by influencing the attention of the employees, helping them to
stay their attention focused on the goals and inspiring them to create actions to achieve
the goals. The attention of individuals may be drawn in many different ways.
Organizations operate in dynamic environments. A Leader has to deal with changes
constantly happening in the environment so there will be changes in vision too. Hence,
he must ensure that the changes are communicated well, an individual's attention and
their behaviour is also modified to reflect these changes. Similarly, the leader should
ensure that the entire organization is focused on the single goal structure and speak in
one voice and in such a way that any conflicts between different stakeholders are quickly
and amicably resolved. This ensures that everyone in the organization works towards the
common goals and the same outcome.
In every organization, the leaders seek to improve the performance of the organization. In
today’s dynamic external environment, there is always a need to change the
organization’s structure to keep aligning with the changes in strategy to reflect the
changes in the environment both internal and external, from time to time. This will have
an impact on the attention and focus of the employees. Any change in the organization
structure should be undertaken with a view to its impact on the attention focus of the
participants. Fostering 'attention focus is central to the organizational function of
leadership' and predictable and consistent performance.

Similarly, at the Interpersonal Function level, the style adopted by a leader in his
interaction with the employees of the organization is also important. Generally, the
leadership style should be open, warm, friendly, and empathetic, however it should seek
and allow the members to focus their attention on the issues that the leader feels are
important.
The third function of leadership is about the Decision making function. A leader takes
decisions with a view to making the priorities and guiding and modifying the individual's
behavior by focusing on areas which individuals apply their attention on. The decisions
taken by leaders and individuals should ensure that the bottlenecks to the progress are
removed and supportive in achieving the organizational goals. This is considered to be
the most critical function of leadership as it fosters forward momentum in the
organization. By empowerment, leaders enable every employee to look at the broad
contours of the workplace demands and take decisions at their levels to ensure the
forward momentum is sustained at all levels.
12.3 THE LEARNING ORGANIZATION
Learning is a key success factor in organizational development. An organization will be

considered progressive if it has the ability to learn continually and apply it in business
performance. The speed of learning becomes a competitive advantage, and these
organizations create great leaders.
The traditional hierarchical structures that ensure the command and control of individuals
are no longer conducive to competing in more dynamic environments for creating a
learning environment for an organization. A Learning Organization, according to Senge
(1990), comprises of both Adaptive learning and Generative learning. Adaptive learning is
about the ability to cope with changes in one's environment, while Generative learning is
about creating change and being prepared to question the way the organization works.
For example, a transition from adaptive learning to generative learning can be seen in the
Total Quality Management (TQM), as originated in Japan. Initially the focus was on
producing consumer products that were fit for the purpose. In other words, the product
would perform according to its specifications. This then evolved into understanding the
customer's needs and reliably creating products that meet those requirements. In the
modern economy, the focus has shifted to creating what the customers want but may not
have realized yet. This requires organizations to look at the competitive environment
differently.
This is evidenced in the success of Japanese carmakers such as Toyota and Honda
who had the ability to view issues in manufacturing in a systematic way. They adopt a
way of thinking that does not focus on one aspect of manufacturing, but look at the issues
as part of an integrated ecosystem, which is a clear evidence of not being stuck in
adaptive learning but transitioning into generative learning.
Building a Learning Organization

Chapter 12
In any organization, the role of a leader is to develop a shared vision of where the
organization wishes to get to. In the process, the leader has to communicate explicitly to
the people of the organization and challenge the assumptions on which decisions are
made. In other words, a leader has to challenge the mental models of how the world is
viewed, and to encourage the people into a more systemic pattern of thinking.
The leadership role in a learning organization is one of a designer, teacher, and steward.
The leader's role is to facilitate learning in the organization. This requires the leader to
develop a vision for the organization and juxtapose this with the current reality of where
the organization actually is.
The difference between the "as-is" and "to be" presents the need for a creative change in
an organization. This creates a need for learning, to translate this learning into reality,
thereby preparing the organization to achieve the vision. With creative change, the
motivation for change is intrinsic and not extrinsic. Hence, the issue with this approach is
that as soon as the change requirement is addressed, the momentum for further change
decelerates. However, once a particular level of transformation is reached, then it follows
with another set of environmental changes that lead to another set of changes required
for the organization to undertake.
Leadership roles
There are three distinct leadership roles in an organization. These are the leader as a
designer, the leader as a teacher, and the leader as a steward.
The leader as a designer: The leader is generally regarded as the leader of an

organization, be it designing the design strategy and structure or the core values,
purpose, and culture of the organization. The leader is also who empowers the
organization to achieve the goals and helps in facilitating business decisions. The
efforts of leadership will have an enduring impact on the organization for the future.
He should be a man who has the knack of seeing the "big picture" as well as delving
into the details of execution.
The leader as a teacher: Creating awareness is the most important thing in strategy
execution. The leader generally creates awareness by constantly communicating with
the employees about the vision, strategy and goals, and the assumptions on which
these are based. This awareness allows people to continually challenge their views
of reality so that they can see beyond the superficial issues and build ability to
discern the underlying causes of problems and take appropriate remedial actions.
This, in turn, fosters empowerment in the employees and take decisions and be
accountable for actions. Leaders in learning organizations influence the employee's
perception of reality at three levels: events, patterns of behaviors and systemic
structure.
Events are primarily short term in structure, sometimes dramatic. For example, an
increase in interest rates has an increase in inflation. Patterns of behavior bring about

changes because of events which might bring about a trend analysis. The systemic
structure deals with the explanations for the underlying causes of behavior, therefore, the
leader's focus is predominantly on systemic change. The leader should always set an
example which is followed by the organizational members.
The leader as a steward: The leader assumes the role of stewardship for all the
people in the organization that he leads. This also involves not just the people, but
also the purpose of the organization and the core values and culture of the
organization. A leader in a learning organization actively seeks to change how the
competitive environment works in favor of creating a more successful organization
with more satisfied employees than would be achieved in a traditional organization.
12.4 LEADERSHIP SKILLS
Besides the above three leadership roles, it is important to develop leadership skills at
different levels of the organization. We will discuss some of the very important skills the
leaders and the employees of an organization must possess to steer the organization to
success and achieve its purpose.
Building a Shared Vision:
Creating a shared vision is an ongoing process which involves the leader conceptualizing
and sharing the vision with the members of the organization. This process ensures that it
aligns the people of the organization to harness all their efforts and energies towards the
common vision. In this way, the shared vision is more likely to be adopted by everyone.
Strong leaders can create a vision which allows themselves and others in the
organization to clearly take steps to build newer capabilities to move from their current
position to the future position as per the vision charter. This process fosters a
collaborative culture within the organization. Hence, it is important to recognize that
developing a vision is a continuous and a collaborative process.
Overcome Challenges:
The leaders should be able to identify and overcome obstacles using their personal
leadership. They should develop strategies and plans to enhance the team's leadership
skills and completely new assignments. As managers take on new roles and
responsibilities, the risks and consequences of failure become much greater. They
should develop skills in identifying and overcoming the obstacles and pitfalls they may
face at different stages of their careers. They should have a personal Leadership
Development Plan (LDP) to guide them through leadership transitions and make them
more effective managers and leaders of their organizations. They should also develop
strategies for helping their team of direct reports grow and change when faced with new
assignments.
Creating Mental Models:

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The leader has to attract new and innovative ideas, a skill which needs to be
disseminated throughout the organization. The leader needs to ensure that members of
the organization can differentiate between generalizations and the observable facts on
which they are based. In challenging the mental models, he needs to inspire and create
awareness among employees on what is being generalized and what is actually based
on facts, thus building the discerning capability in them.
Systemic Thinking:
To engage in systems thinking, leaders need to move beyond a blame culture and should
be able to discern the interrelationships between actions. They should recognize that
small well-focused efforts or actions can have magnified results for the organization. A
visionary leader who deals only with events or patterns of behavior will disseminate a
reactive culture rather than a generative one.
Effective Decision Making:
In today's fast-paced, competitive business climate, executives need to be prepared to

make swift and smart decisions quickly and decisively. Making calculated strategic
business decisions involves weighing and minimizing risks, considering long term
implications for the organization. The leader should make a formal decision making
process and learn to make smart choices with the limited time and resources. The
employees should also learn how to apply formal decision-making processes in order to
reduce risk, maximize benefit, and learn best practices and techniques for gathering data
and making critical decisions with limited time and resources, which are constraints that
impede the progress.
Managing Change:
With emerging technologies and expanding global marketplaces, it is imperative that

organizations become highly proficient in driving their change agenda to benefit their
business and all its stakeholders. Whether diversifying, downsizing, merging, reorienting,
or restructuring the business, or developing new management structures, organizations
must be able to effectively carry out change initiatives to remain productive and
competitive in a dynamic environment. The leader should have the personal ability and
charisma to facilitate any strategic change.
The leader should be able to assess organizational readiness, and his own ability to
facilitate change. Working with a comprehensive organizational change scenario, he
should foster a culture of change in the entire organization and learn by doing and
assessing its own effectiveness in facilitating change.
The gap between the "as-is" and "to be" states of an organization presents the need for a
creative change in an organization. The status quo needs to be always challenged. This
creates a need for learning, to translate this learning into reality, thereby preparing the

organization to achieve the vision. With creative change, the motivation for change is
intrinsic and not extrinsic.
Coaching for engaging and developing others:
Being a proactive coach is a fundamental component to being a good leader in the

workplace. Coaching implies that leaders not only supervise but develop the capacities
and skills of all employees. A Coaching mind-set implies that leaders approach
employees not simply as subordinates, but protégés, resources to be developed,
expanded, and challenged. Coaching actually unlocks the hidden potential of the
employees, in order to unleash a fresh flow of positive energy and actions to the
advantage of the organization and its people. It fosters enthusiasm and motivation.
Coaching is critical to good workplace leadership. It must be recognized that not all styles
of coaching are suitable for the workplace, being in the best practices for most
appropriate coaching for organizational leaders. This also emphasizes the importance of
supplementing the traditional supervisory mind-set with the coaching mind-set.
It is believed that corporate executives and managers who are good coaches could easily
inspire and challenge their teams and other employees in their organizations to grow and
develop their leadership capabilities. Ultimately, such employees/ managers are capable
of achieving stronger business results for their organizations than those less supportive
and less collaborative.
Hence, coaching is a powerful business tool for executives / managers to become

empowered and be more effective, while transforming into successful business leaders in
the future and be able to collaborate with other leaders in the organization. The leaders
should be able to have a coaching dialogue with effective techniques for listening, asking
questions, and providing feedback. He should also provide tools and processes, including
instruction on how to recognize and use the language of coaching.
Through coaching, leaders are able to support and encourage their team members to
learn skills and acquire knowledge that helps improve job performance. Coaching works
laterally too, in that a leader can apply coaching techniques when working with
colleagues. The organization as a whole benefits from a solid coaching culture.
Without the right coaching principles in place, employees may not reach their full
proactive capacity and potential, rendering the organization less able to execute its goals.
The Coaching approach maximizes the proactive capacity of employees by showing
leaders how to integrate the coaching mind-set into their leadership style.
Unlock Leadership Potential:
Leaders are not born; they are developed. Managers must identify and enhance, early
on, the particular leadership style that matches their personal strengths. By providing
participants with a range of assessment tools, including an online 360-degree evaluation,

Chapter 12
the organization should build critical leadership competencies essential to career

development and advancement, by doing a 360-degree evaluation designed to identify
the participant's management strengths and weaknesses. Participants will create a
Leadership Development Plan (LDP) designed to guide their career development. This
process is called Organization Talent Review (OTR) and becomes an integral part of
Performance Management System process (PMS).
Performance Management:
Strategy and Performance Reporting introduces managers to the basics of measuring

and reporting on the performance of an organization, whether it's a for-profit business,
not-for profit, or governmental or a corporate organization. There are different types of
Reporting systems an organization can use, with a focus on performance reporting
systems.
The systems that lay out an organization's strategy and report on how well that strategy
is being executed are part of the performance evaluation system. There are many
important tools for performance reporting, the Balanced Scorecard, which we discussed
in an earlier chapter.
Motivating through Vision and Culture:
Leaders need to provide the vision, exercise political agility, and establish the
organizational culture necessary to keep their initiatives vital, motivate the employees
and keep them moving forward. Proactive leaders must have the skills to keep the "soul"
of their coalition alive and relevant to the needs of the organization.
Leaders must create and manage the organizational culture to sustain momentum and
become politically agile in ensuring continued support for their agenda and manage their
coalition-and their agenda-for the long-term. As discussed above, the coaching culture is
one of the most proven ways to enthuse the employees and challenges their potential so
as to be unlocked.
12.5 EMOTIONAL INTELLIGENCE
The thrust of Emotional Intelligence can be summed up in the following:
Through the application of intelligence to emotion, we can improve employees' lives

immeasurably
Emotions are habits, and like any habit can undermine our best intentions
By unlearning some emotions and developing others, we gain control of our lives
If this were all there was to it, it would not be a very interesting book, but Emotional
Intelligence is one of most successful self-help tomes of the last 20 years and has
reached well beyond what would normally be considered a traditional self-help reading

audience. Researchers had been expanding our idea of what intelligence is for some
time, but it took Goldman's book to catapult the idea of emotional intelligence into the
mainstream. In saying that IQ is not a particularly good predictor of achievement, that it is
only one of many 'intelligences', and that emotional skills are statistically more important
in life success, Emotional Intelligence was bound to be well-received.
Daniel Goldman's five components of Emotional Intelligence [3]
Emotional Intelligence, as a psychological theory, was developed by Peter Salovey

and John Mayer.
"Emotional Intelligence is the ability to perceive emotions, to access and generate

emotions so as to assist thought, to understand the emotions and emotional knowledge,
and to reflectively regulate emotions so as to promote emotional and intellectual growth."
- Mayer & Salovey, 1997
The following steps describe the five components of emotional intelligence at work, as
developed by Daniel Goldman. Goldman is a science journalist who brought "emotional
intelligence" on the bestseller list and has authored a number of books on the subject,
including "Emotional Intelligence," "Working With Emotional Intelligence," and, lately, of
"Social Intelligence: The New Science of Human Relationships."
The Five Components of Emotional Intelligence
Self-awareness is the ability to recognize and understand personal moods and emotions
and drives, as well as their effect on others. Hallmarks include self-awareness, self-
confidence, realistic self-assessment, and a self-deprecating sense of humour. Self-
awareness depends on one's ability to monitor one's own emotional state and to correctly
identify and name one's emotions.
[*A hallmark is a sure sign: since self-awareness is necessary for, say, realistic self-
assessment, that is, without self-awareness no realistic self-assessment, the presence of
realistic self-assessment is a sure sign (sufficient to conclude that there is) self-
awareness.]
Self-Regulation: It is the ability to control or redirect disruptive impulses and moods, and
the propensity to suspend judgment and to think before acting. Hallmarks include
trustworthiness and integrity; comfort with ambiguity; and openness to change.
Internal Motivation: It refers to the passion exhibited by an employee to work for internal
reasons that go beyond money and status -which are external rewards, - such as an
inner vision and purpose of what is important in life, a joy in doing something, curiosity in
learning, a flow that comes with being immersed in an activity. It is also the propensity to
pursue goals with energy and persistence. Hallmarks include a strong drive to achieve,
optimism even in the face of failure, and organizational commitment.

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Empathy: It is the ability to understand the emotional makeup of other people and is the
skill in treating people according to their emotional reactions. Hallmarks include expertise
in building and retaining talent, cross-cultural sensitivity, and service to clients and
customers. (In an educational context, empathy is often thought to include, or lead to,
sympathy, which implies concern, or care or a wish to soften negative emotions or
experiences in others.)
It is important to note that empathy does not necessarily imply compassion. Empathy can
be 'used' for compassionate or cruel behaviour.
Social Skills: It refers to the proficiency in managing relationships and building networks,
and an ability to find common ground and build rapport. Hallmarks of social skills include
effectiveness in leading change, persuasiveness, and expertise building and leading
teams.
12.6 LEADERSHIP VISION AND VALUES
Besides the capability and personality traits that define the characteristics of an effective
leader, there is a need to address the role of leaders in relation to an organization's vision
and values. Studies show that the characteristics of a visionary organization demonstrate
its ability to manage change and continuity simultaneously in order to deliver sustained
performance. As discussed in Chapter 4 on mission, values and objectives of corporate
strategy, visionary companies have core values and purpose. The core values are
generally the principles based on which the firm was founded, and an organization's
purpose is the reason why it exists.
The core values of an organization generally do not change drastically over time but will
facilitate the actualization of its vision. Such organizations pursue their purpose and

vision knowing that it is a continuous process, and that the journey will never be fully
achieved. Core values and purpose are important cornerstones of a visionary
organization because they help guide business continuity and provide stimulus or
change.
For example, "we are here to put a dent in the universe. Otherwise, why else even be
here?" and "Innovation distinguishes a leader from a follower" - these famous quotes by
Steve Jobs aptly sum up the purpose and value system of Apple Computers Inc. Apple
became a leader in its industry with its innovative products with a clear focus on
differentiating itself from the rest of its competitors.
12.6.1 CASE STUDY ON INNOVATION [4]
Let us study the innovative takeaways of Apple Computers Inc. The company is built on a
philosophy of leadership, vision and values as described below. Apple leverages a
combination of both the top down and bottom-up approach innovation strategy to create
new opportunities. The strategy is management driven and overall organization driven
having a well-structured and process oriented approach. The company is also focused on
delivering a unique experience to the customers, with a deep understanding of customer
needs and expectations.
The following are the objectives of the company:
Build Products that are cool, intuitive, simple to use and provide the most amazing
experience
Take calculated risks and boldly enter new markets / products. E.g. iPod, iPhone
Change the playing field by creating new business models. E.g. iTunes
Capture the changing landscape and ecosystem of the markets and customers
Grow the market share with buyers as they grow and their needs grow
Target kids, teenagers, young adults, adults, parents....
The strategy is also to provide multiple products and touch points to buyers so they can
buy and subscribe to more products all glued through iTunes. This includes the creation
of an innovation culture.
Creativity begins with asking questions…
Innovation happens when you find answers…
No questions, no answer
More questions, better answer

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Apple's innovation culture is closely coupled with that of its leadership. It is all about
doing what they love and creating an impact on the society and the universe. The culture
also fosters an environment, to challenge the intellect (they call it as kick starting the
brain) and sell dreams and not products. Say no to unproductive things and create
insanely different experiences. The leadership understands innovation and they gamble
on our vision that delivers leading edge products than making 'me-too' products."
"Creativity is just connecting things and strong belief in saying that innovation comes from
saying no to 1,000 things to make sure we don't get on the wrong track or try to do too
much."
"Part of what made the Macintosh great was that the people working on it were
musicians, and poets, and artists, and zoologists, and historians who also happened to
be the best computer scientists in the world."
"A lot of companies have chosen to downsize, and maybe that was the right thing for
them. We chose a different path. Our belief was that if we kept putting great products in
front of customers, they would continue to open their wallets."
The bottom line is that at Apple the philosophy is "We are absolutely consumed by trying
to develop a solution that is very simple, because as physical beings we understand
clarity".
12.7 LEADERSHIP AND CULTURE
An organization is made of a unique culture which is a combination of values, beliefs, and

behavior of individuals within the organization. An understanding of different national
cultures and their impact on behaviors is important for leaders to guide the organization
successfully. The culture is made of different dimensions.
A company's Leadership Culture is a distinct and powerful part of its Organizational

Culture. Specifically, Leadership Culture is the system of often unspoken norms and
assumptions that guide how managers take leadership (or fail to take leadership) in a
particular organization. To enjoy sustained success, an organization needs to operate at
a level of agility that matches the degree of complexity and the pace of change in its
business environment. Leadership culture plays a pivotal role in determining whether the
organization is agile enough to meet this challenge.
An unbiased assessment of an organization's current leadership culture can be an

extremely helpful step in developing a culture that powerfully supports agile
organizational functioning. Among other things, this assessment identifies the current and
the desired "levels of agility" in the leadership culture.
Levels of Agility in Leadership Cultures [5]
As with individual leaders, leadership cultures are capable of evolving through distinct
levels of agility. So far, the most common configuration we've found in client

organizations is an Achiever-level culture at the executive levels and an Expert-level

culture at the middle levels. Yet, in most instances, sustained high performance in today's
increasingly complex, fast-paced business environment requires a Catalyst-level culture
at the top levels and an Achiever-level culture at the middle levels:
In Expert Leadership Cultures managers operate within silos with little emphasis on
cross-functional teamwork. Organizational improvements are mainly tactical and
incremental. Managers are overly involved in their subordinate’s work, fighting fires,
and interacting with direct reports one-on-one. As a result, managers have little time
to approach their own role strategically.
In Achiever Leadership Cultures managers articulate strategic objectives and

make sure they have the right people and processes in place to achieve these
objectives. Managers work to develop effective teams, orchestrating them to achieve
important outcomes. This is a culture that encourages and rewards customer-focused
cross-functional teamwork. Change initiatives typically reflect an analysis of the larger
environment, and consultation with key stakeholders is a cultural norm.
Catalyst Leadership Cultures are animated by a compelling vision that includes

high levels of participation, empowerment, and teamwork. Collaboration,
decisiveness, and candid, constructive conversation are norms. Senior teams
become living laboratories that create this kind of culture within the team and work
together to promote and encourage this culture in the organizations they lead.
Leaders not only coach their people; they also actively solicit informal feedback and
work to change their behaviour in ways that are beneficial to the organization and to
them.
Case Study [6]
Breaking Down Barriers and Speeding Time to Market in a Financial Software Division
The Problem
The Financial Software Division, a key business unit of about 300 people within a $100
million computer services company, was generating good revenue from its core business,
however,
Because its software managers and marketing managers are not working together
effectively, its new software products were always very late, and customers (financial
institutions) were constantly complaining.
The division's top managers usually maintained a veneer of politeness, but they did
not work effectively cross-functionally, and, under the surface, there was actually a
good deal of distrust.
The VP of the division frequently learned of problems at the lower levels of the
organization in a delayed manner, often when there was little that could be done

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about them. The division did not have a good process for communicating effectively
up and down the hierarchy.
The division's managers needed to manage cross-functional projects more

effectively.
Because of its difficulties delivering new products on time, the parent company had
begun to treat the division like a "cash cow" that couldn't handle new strategic
challenges.
The Project
The initial idea of the division's head was to do some team building to help front-line
software and marketing groups call a truce long enough to get the three new products out
the door as quickly as possible. But as they talked with him, he realized this would only
address the symptoms, not the underlying root causes of the problem. To his credit, he
realized that the way he and his management group worked together was a major cause
of the division's repeated project delays. After discussion with the group, they decided to
create a more agile organization, by developing a more agile leadership culture. It had to
start with them.
They began their work with the division by conducting a diagnostic process that provided:
An objective assessment of the division's current agility level and the dynamics
underlying its business difficulties, along with recommended changes.
A facilitated forum where the top management group could come to its own
conclusions about what its issues were and how to tackle them. The result was a
strong alignment between and commitment from all members of the group.
Meeting with them to discuss our report, the top management group confirmed that the
unit was caught in a vicious cycle of non-collaborative individual behaviour, dysfunctional
group dynamics, and problematic procedures. From an "agility level" perspective, the top
group, whose members had Achiever-level capacities, was operating primarily at the
(previous) Expert level, as was the rest of the division. To be successful, they needed to
transform to the Achiever level and, if possible, the (next) Catalyst level.
This assessment helped them stop the finger-pointing to others, take collective
responsibility for their problems, and decide on the leadership initiatives needed to solve
them. They took action in several areas simultaneously:
Under the SVP's leadership, they facilitated several meetings where his group made
important structural changes that increased the division's agility and performance.
These changes included new cross-functional teams of marketing and software
design managers.

The top management group was engaged in a Team Development Process that
included selective facilitation of key business meetings.
Provided Executive Coaching to the VP and the members of his management group,
focusing on their lateral relationships and on their leadership of their own units.
The top management group also participated in training and coaching process, where
they learned more collaborative ways to think, problem-solve and take action.
The Results
Positive changes came immediately and began to build. The top group overcame its
chronic in-fighting and evolved into a very cohesive leadership team, able to discuss and
resolve difficult strategic and organizational issues. An extraordinary level of teamwork
continued even when the majority of members were promoted. Subsequently, when the
VP took a 3-month executive training sabbatical, the team was able to self-manage
effectively in his absence. Eventually, they became a highly productive Catalyst level
leadership team.
Through the leadership team's work, the division experienced a real turn-around. They
developed a strong organizational culture based on teamwork, communication, and
mutual trust, operating at the Achiever-level and beyond. Even people who had not
attended Pivotal Conversations workshops were behaving in new ways. As a result, both
morale and business performance improved significantly. Not only were new products
being installed on time, the quality and innovativeness of their products increased as well.
The Bottom Line
As the intensive phase of our consulting work with the division concluded, the SVP
described the results of the improvement process as follows: "We've now moved to a
stage where collaboration has become a part of the division's culture. The bottom line is
that now we're more agile, extremely profitable, and we have more control over our own
destiny. Communication and trust have increased dramatically within my team and the
division as a whole. Employee morale has improved significantly. We have achieved a
level of success that otherwise simply would not have been possible without this
intervention.
12.8 LEADING STRATEGIC CHANGE

In this chapter, we will discuss the specific role of business leaders in leading strategic
change. For that, we need to understand the correlation between the organization's
existing culture and its readiness to accept new ideas for change in line with its new
strategy. We will also look at some of the leadership skills as discussed above that are
necessary to implement change effectively and identify the barriers that need to be
overcome. The values of an organization will invariably manifest itself in its core and
peripheral culture. The culture may have been long ingrained in the organization; hence it
will take time and sustained effort to change the course of direction.

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It must be recognized that the organization's culture is a powerful instrument for

facilitating or inhibiting change that a leader wants to implement. Even good ideas, if in
conflict with the existing culture may be difficult to implement. Good ideas may fail unless
they are aligned with the organization's business strategy, its people, and the prevailing
culture. For an organization to be effective, an alignment must occur between strategy,
leadership, and culture.
It is important to baseline the organization culture and to understand the reasons for
people's readiness and willingness to adopt change. According to Schneider (2000),
there are four reasons why good management ideas may not be adopted in an
organization.
All organizations are living social organisms.
Each organization is formed as communities of people with multi-cultural diversity and

brings in different characteristics. They are not to be considered as machines.
They grow and develop their capabilities inside-out. They start from their core and
develop outwards. We can draw a parallel between biological systems and organizations.
Similarly, people, organization and society exist in relation to each other. They have their
unique patterns which are non-linear, and development occurs from core to the
periphery. The point is, for any idea to work, it must be based on the non-linear nature of
the organization.
Culture is more powerful than anything else in an organization.
An organization can have a brilliant strategy, but if it does not align with the organization
culture, it often fails. Hence, for any idea of change to succeed, it must align with one of
the four different types of cultures. These are control, collaboration, competence, and
cultivation. There should be an effort to baseline the current culture and the change
perceived as necessary for the given business strategy. Hence, regardless of the validity
of any given idea, it must align with the particular type of culture prevalent in an
organization if it is to succeed.
System-focused interventions work, while component-focused interventions do

not
As we have seen earlier, the best practice in any leadership is to take a system-based
approach that emphasizes alignment between different parts of the organization rather
than taking a piecemeal approach. A system-focused approach is more likely to succeed
in implementing change. It must be recognized that one-size-fits-all does not apply.
Interventions that are clearly linked to an organization's business strategy, work
We have seen earlier that a good strategy creates value for an organization. Therefore,
all new ideas have to be clearly aligned with organization strategy; otherwise, there is a
danger of digressing from the path of the strategic goals. Thus, the alignment of new

ideas with strategy enables the change process and creates stakeholders value for the
organization.
The challenge in strategic change is that every organization competes in fast changing
environments, but the individuals who make up these organizations are resistant to
change. There are many external factors like competitors, customers, and partners who
put pressure on the organization while there are other internal factors such as high
employee turnover, poor leadership, lack of investments etc. that add to these pressures
in order to adopt change across the organization. These factors may eventually begin to
bring about an urgency to do something different to sustain the performance of the
organization. In organizations, often the need for change becomes increasingly apparent
whenever the employee resistance to change becomes greatest.
The first challenge for any leader is to manage employee resistance and expectations.
The leadership of an organization should have the power and authority to drive change
and initiatives. A leader will be considered a change agent only if he is able to combine
his architectural role with his charismatic qualities to inspire the entire organization and
bring about the desired change.
For example, Mr. NR Mahayana Murthy’s return to Infosys as Executive Chairman in

June 2013, saw major changes in the strategy and structure of the organization as he
brought back both wisdom, power, and authority to effect the necessary changes to bring
back confidence about the performance of the company with all the stakeholders viz
investors, customers, employees, partners etc. This case study of Infosys turnaround is
progressing well and there has been optimism and positive sentiment returning on the
company's ability to become the bellwether of the Indian IT Industry once again.
12.9 THE IMPACT OF CHAOS ON LEADERSHIP
The most difficult task, perhaps any leader will face, is leading complex, large-scale
transformational change successfully. The stakes are high in transformation, with both
tremendous potential for ROI, and a huge cost of failure. However, research shows that
most transformational changes fail to return their desired ROI and the good news is that
superb change leadership skills can greatly elevate the probability of success.
Leading transformation requires more advanced "people and process" skills. It is

messy, often chaotic, and has serious human impact. In transformation, what the leader
is attempting to create is radically different than your current state of operation, and your
outcomes are often unclear when you begin. Therefore, numerous course corrections are
required as you discover where you need to go and how to get there. This process is
non-linear and full of challenges.
The psychological and cultural dynamics of transformation increase its messiness.

Transformation always impacts people significantly, requiring a shift of mind-set,
behavior, and culture to implement the new direction. Handling the people dynamics is
essential for maximum ROI. For example, supply chain optimization requires people to

Chapter 12
collaborate across boundaries far more than they are accustomed to. Restructuring from
autonomous regions to a centralized system requires people to give up some degree of
power and view their world more holistically and less myopically.
Without these shifts in the hearts and minds of the people, the organization and its
leadership will not realize its intended outcomes and sustained business performance.
If the external environment is rational and predictable [7] with known patterns of events
happening, then the strategic management process is little easy to implement. However,
if the world is non-rational, accompanied by volatility and random periods of stability
alongside periods of instability, then this may require leaders to adopt a different model
while developing the strategic management process. As explained above, when we see
an organization as part of a larger dynamic system, we are concerned with how it
changes over time and complex patterns of changes that develop during the process of
implementation. The challenge is to differentiate the patterns whether they are stable or
unstable and predictable or unpredictable.
Generally, Chaos is an irregular pattern of behavior created by certain non-linear

feedback rules commonly found in nature and human society. As systems move away
from their equilibrium state, they are prone to significant changes in their environment
which can cause major changes in the behavior of the system itself.
In the business world, a leader may accord greater importance to changes in customer
requirements and thus develop highly differentiated products and services. Under the
influence of chaos, the long term future of an organization is assumed to be unknowable.
If the leaders cannot know what the future holds, then chaos theory impacts the long term
plans, goals, and the vision itself. Hence, it is highly essential to understand the patterns
of such chaotic events and make sense of addressing those unknowns during the
strategy implementation process, it becomes a paramount importance.
This may be slightly overstating the case since the future may be unpredictable at a
specific level but at a general level there are recognizable patterns. It is the ability to
recognize the patterns at a general level that allows a leader to cope up with chaos. In
fact, this ability may be highly developed in some than in others.
[8] For example, although Bill Gates and Steve Jobs were unable to state the specifics,
they did envision in the early 1980s that a time would come when we would have
computers at home. It is these boundaries around these events that allow us to make
sense of the world. The use of reasoning, intuition, and experience helps the leader to
cope with change and therefore improves their ability to handle chaos effectively.
The Chaos theory sees that a traditional planning approach of the strategic
management process benefits the organization over the short term. Over the long term
however, the lack of link between organizational actions and outputs means that the role
of leadership should be to create an environment characterized by spontaneity and self-

organization. The Chaos theory does not make the traditional approach of strategic
management obsolete, but rather it places it in a much more constraint of time horizon.
There are some best practices that deal with chaos, in leading the transformation in an
organization. Here are four key ones to reduce the chaos and support an organization’s
efforts towards success:
1. Build a change integration plan to increase speed and efficiency and lower the costs
of change.
2. Set realistic timelines for change based on the organization’s true capacity.
3. Develop an understanding of the human and cultural dynamics of change.
4. Build a critical mass of support by really engaging stakeholders.
12.10 SUMMARY
In this chapter, we discussed in detail about the roles and responsibilities of the top
leadership team that plays an important role in the implementation of strategy. We also
discussed the differences between leadership and management. How leadership
facilitates the direction of change with right behavior and institutionalizing a culture that
fosters change. We also discussed about the role of leaders in creating a learning
organization and about many challenges a leader faces while creating an organization in
which people continually learn. And we analyzed the impact of emotional intelligence on
effective leadership and the link between emotional intelligence and the organization's
performance.
We also discussed the role of leaders in developing a shared vision and creating values
that an organization stands for, in the industry. The values actually help guide the
behaviour of the employees and hence constitute the organization culture.
Any organization that aspires for high growth and globalization of vision, there are always
complexities and uncertainties, it is always the great leadership that mitigates these risks
and plays a critical role in directing the strategic change management process and guide
the organization into the future. This chapter also looked at some of the leadership skills
and competencies necessary to achieve change. Also discuss the impact of innovation in
the strategic management implementation across the organization. We discussed a case
study to understand the importance of innovation in the modern marketplace to
continually reinvent the organizational success for the long term.
1. The distinct leadership roles in an organization include the leader as:

a) a Designer
b) a Steward
c) a Teacher
d) All of the above

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2. 'Emotional Intelligence' as a psychological theory, was developed by:

a) Daniel Goleman
b) Peter Salovey
c) Schneider
d) All of the above
3. Collaboration, decisiveness and candid, constructive conversation are norms of

which Leadership Culture style from the following options?
a) The Expert Leadership Culture
b) The Achiever Leadership Culture
c) The Catalyst Leadership Culture
d) The Agile Leadership Culture
4. State whether the following statement is True or False:

A transition from Adaptive Learning to Generative Learning can be seen in the Total
Quality Management (TQM) approach that originated in Japan.
5. Write a short note on the four reasons why good management ideas may not be
adopted in an organization as stated/described by Schneider.
Answers: 1.(d), 2.(a), 3.(c), 4. True
References:
1. Anthony E Henry, Understanding Strategic Management, P 353

2. John Kotter International Change leadership
3. Daniel Goleman's emotional Intelligence
4. EBTIC, Etisalat BT Innovation Center, in partnership with Halifa University
5. Bill Joiner's article, "Creating a Culture of Agile Leaders"
6. A case study from ChangeWise
7. Anthony E Henry, Understanding Strategic Management, Second Edition, P 384
8. Anthony E Henry, Understanding Strategic Management, Second Edition, P 385
ANNEXURE
The concept of 'Leading by Example'

The concept of 'Leading by Example' is a fundamental principle of leadership that

emphasizes the importance of a leader's actions and behavior in influencing the behavior
of their followers or team members. Instead of merely giving instructions or commands, a
leader who leads by example demonstrates the values, work ethic, and standards they
expect from others. In essence, they practice what they preach, which enhances their
credibility and fosters trust among their team.
When a leader leads by example, they inspire their followers to emulate their positive
traits and adopt the desired behaviors, leading to a more cohesive and motivated team.
This approach can also create a positive organizational culture and influence the overall
performance and success of the company.
Let's take an example of an industrialist who exemplified the concept of 'Leading by

Example':
Jamshedji Tata (1839-1904) was an Indian industrialist and the founder of the Tata
Group, one of India's largest and most respected conglomerates. He is often referred to
as the "Father of Indian Industry." Throughout his career, Jamshedji Tata embodied the
principles of leading by example, leaving a lasting impact on his business and the
communities he served.
1. Ethical Business Practices: Tata was known for his unwavering commitment to
ethics and integrity. He conducted business with honesty and transparency, and he
expected the same from his employees. This approach influenced the organizational
culture within the Tata Group, where ethical practices are still highly valued today.
2. Employee Welfare: Tata recognized the importance of taking care of his employees.
He provided them with better working conditions, fair wages, and employee benefits,
which were uncommon during that era. By doing so, he set a precedent for responsible
and compassionate treatment of workers, setting a standard for other companies to
follow.
3. Vision and Innovation: As a visionary leader, Tata encouraged innovation and

embraced cutting-edge technologies. His most significant achievement was the
establishment of the Tata Iron and Steel Company (now Tata Steel), India's first
integrated iron and steel plant, which revolutionized India's industrial landscape.
4. Nation Building: Tata was deeply committed to the progress and development of
India. He invested in various industries, including steel, power, and education, to
contribute to the country's growth. He believed in the potential of India to become a
leading industrial nation.

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5. Philanthropy: Beyond his business pursuits, Tata was actively involved in

philanthropy. He donated generously to charitable causes, including the establishment of
educational and research institutions. His philanthropic endeavors have continued
through the generations of the Tata family.
Jamshedji Tata's exemplary leadership left a legacy that extended far beyond business
success. His commitment to ethical practices, employee welfare, innovation, nation-
building, and philanthropy set a precedent for future leaders and has shaped the Tata
Group's culture and values for over a century. He serves as a role model for leaders who
aspire to make a positive impact on their organizations and society as a whole.
‘SERVANT LEADERSHIP’ style
Servant leadership is a leadership style and philosophy that focuses on the leader's
primary role as a servant to others, putting the needs and interests of the team and
followers above their own. The concept was popularized by Robert K. Greenleaf in the
1970s, though its roots can be traced back to ancient philosophies and religious
teachings.
The core principles of servant leadership revolve around the idea that leaders
should serve and support their team members, empowering them to reach their full
potential and achieve their goals. This style emphasizes collaboration, empathy, and a
commitment to the well-being of others. Here are some key characteristics and principles
of servant leadership:
Putting others first: Servant leaders prioritize the needs of their team members, seeking
to understand their perspectives, concerns, and aspirations. They actively listen and
empathize with others, fostering a sense of trust and psychological safety within the
group.
Empowering and developing others: A servant leader is dedicated to helping their

team members grow both personally and professionally. They provide guidance, support,
and resources to help individuals develop their skills and reach their potential.
Servant leaders are humble: Humility is a central trait of servant leadership. These
leaders don't seek personal glory or recognition but are content with the
accomplishments of their team.
Fostering a collaborative culture: Servant leaders promote a culture of collaboration,

where team members feel valued and encouraged to contribute their ideas and opinions.
This style emphasizes teamwork and collective decision-making.

Leading by example: Servant leaders set the standard for behavior and work ethic
through their actions. They don't ask their team to do anything they wouldn't do
themselves.
Ethical and responsible: Servant leaders uphold high ethical standards and act
responsibly in their decision-making, considering the impact on the team, stakeholders,
and the broader community.
Service to the greater community: Beyond the immediate team, servant leaders often
extend their focus to serve the needs of the larger community and society.
Building trust and loyalty: By genuinely caring for their team and stakeholders, servant
leaders build strong bonds of trust and loyalty, which contribute to a positive and
productive work environment.
It's important to note that servant leadership doesn't imply weakness or passivity. On the
contrary, this style can be quite powerful and effective in motivating and inspiring teams.
By putting the needs of others first, servant leaders can create a more engaged and
committed workforce, leading to improved performance and overall success for the
organization.

Chapter 12

REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
13 Chapter
CORPORATE
GOVERNANCE
Objectives:
This chapter focuses on the importance of Corporate Governance for effective
implementation of strategy. The quality of corporate governance at the top management
level is key to the effective implementation of strategy. An organization needs to be a
compliant organization in order to gain a reputation as a leader in corporate governance
and gain investor confidence.
Corporate Governance is the lifeline of any business that needs to sustain its existence.
This chapter talks about a number of challenges and issues that need to be considered
well in advance by the strategic managers while complying with corporate governance.
Understand the importance of Corporate Governance
Understand the definition of Corporate Governance
Understand the purpose of Corporation
Organization and Corporate Governance
Corporate ethics and Corporate Social Responsibility

13.1 Introduction and Importance of Corporate Governance
13.2 Definition of Corporate Governance
13.3 Modern Corporation
13.4 Principles of Corporate Governance
13.5 Regulation, Codes and Guidelines
13.6 Corporate Governance in India
13.7 Purpose of a Corporation
13.8 Corporate Social Responsibility (CSR)
13.9 Summary
13.1 INTRODUCTION
Governance, in general, is over and beyond law and regulation in the domain of
corporate affairs. It helps to foster transparency and trust amongst organizational
stakeholders. Any good corporate performance must be the outcome of good corporate
governance. In the earlier chapters, we discussed about the various elements of the

Chapter 13
strategic management process, and also discussed the evaluation and control of the
same. In this chapter, as an extension of strategic leadership, we shall talk about
corporate governance, various approaches towards good corporate governance.
Corporate Governance is reflected in how a business is defined, conducted, and the
business ethics that are followed.
If the purpose of a business is defined as maximizing the benefit and profitability for the
owners or shareholders of the business, then the role of corporate governance will be
relatively narrow and will have a restricted approach. However, if the purpose of the
business is defined as creating long term value for its stakeholders such as customers,
the employees, partners, and at large, the society, then the role of corporate governance
will be wider and will have an inclusive approach.
Corporate Governance is a function of various business decisions which are strategic in

nature, and therefore affects all aspects of the strategic management process. As
discussed in the earlier chapter on strategic leadership, corporate governance requires
change in the attitude of the leaders, both at the boardroom level, and also at the
executive management level. As we evaluate corporate governance in this chapter, we
will explore the best practices to make it an integral part of the strategic management
process in organizations.
Corporate Governance is tightly tied with the purpose of the organization and how the
firm defines its business. While there are different definitions of corporate governance,
we look at them in the context of the purpose of the corporation and how the business is
defined. We discuss the origins of corporate governance and explain the reasons for
following a disciplined approach to adopting them while executing a business strategy.
In modern corporations, we observe an increasing trend in the separation of

organizational ownership and executive management. This is not just keeping profitable
growth as the only measure of success while executing the business strategy. This divide
clearly underlines the importance that exists between those who adopt a shareholder
approach, and those who adopt a stakeholder approach towards corporate governance.
We evaluate the different perspectives that exist on the role of corporations in
institutionalizing corporate governance in their organizations.
There are a number of cases where major corporations have collapsed because of bad
corporate governance and because the organizations have put corporate governance as
just the boardroom agenda. Examples include Enron, WorldCom, Arthur Anderson,
Satyam computers. We discuss such collapse of corporate governance and how mighty
organizations have failed and how subsequently corporate governance was restored to
revive the corporations.
There are corporate governance codes like the Sarbanes-Oxley Act that have helped
lessen the likelihood of such failures. The composition of a board with executive, and
non-executive or independent directors plays a crucial role in ensuring corporate

Corporate Governance
governance. We also discuss a case study on the collapse of an organization and assess
the role of independent directors in upholding the corporate governance standards. The
governance standards and issues also include review of excessive executive
compensation, as a multiple of an average worker salary. We also discuss the reforms of
corporate governance in the context of modern management.
13.2 DEFINITION OF CORPORATE GOVERNANCE
Corporate Governance is defined as the way by which a corporation is directed and

controlled or a process by which a corporation is made responsive to the rights and
wishes of its stakeholders by being transparent and making disclosures regularly.
Corporate Governance has also been defined as "a system of law and sound approaches
by which corporations are directed and controlled focusing on the internal and external
corporate structures with the intention of monitoring the actions of management and
directors and thereby mitigating agency risks which may stem from the misdeeds of
corporate officers.
Corporate Governance has been in existence for many years, but the use of the term
Corporate Governance gained prominence in the UK following the publication of the
Report Committee on the Financial Aspects of Corporate Governance in 1992, commonly
referred to as the Cadbury Report (Cadbury 1992) (1 - Anthony E Henry, Understanding
Strategic Management, Second Edition P 392)
For example, in Jan 2009 Satyam Computer Services', a leading IT Services company
then, whose stock price plummeted more than 90% in a matter of few weeks following
the admission of wrongdoing by its Founder Chairman Ramalinga Raju in the book of
accounts of the company. The annual report of accounts, signed off by external auditors,
showed almost no signs of its true financial state, thereby the revelation came as a rude
shock to its shareholders. The Chairman confessed to having perpetrated a huge
accounting fraud in its books to the tune of $1.47 billion and he stepped down in January
2009. This revelation of corporate fraud heavily damaged the company's credibility, brand
name and its standing in the industry.
There have been substantial failures of global corporations such as Enron, WorldCom,
Lehman etc. which have threatened the stability of world financial and stock markets.
Corporate governance is all about authority and accountability. They involve all where
power lies in the corporate system and what degree of accountability there is for the
leadership to exhibit and exercise. In other words, corporate governance is concerned
with ensuring that the investors receive value back from the managers to whom they
entrust their investments (i.e. assuring them a return on their investment). Companies like
Infosys Technologies, Tata group are leading examples of the highest level of
corporate governance in the Indian Industry.
As per Organization of Economic Cooperation and Development (OECD), there is a set

of guidelines that govern the principles of corporate governance. It defines that Corporate

Chapter 13
Governance involves a set of relationships between a company management, board,

shareholders and other important stakeholders like employees, partners, society etc. It
also describes that corporate governance should provide proper incentives to the board
and management to pursue the objectives that are in the interests of the company and
different stakeholders.
Thus, corporate governance provides a structure through which an organization is able to

set its objectives and monitor its performance on a regular basis. OECD sees the main
governance problems as arising from the separation of ownership and control. However,
it does recognize that a corporation should be aware of the interests of communities in
which it competes in order to build its reputation and long term success.
Accountability is of paramount importance in corporate governance. Accountability

means management's commitment to the various stakeholders of the organization.
Corporate governance is a process by which corporations are made responsible for the
rights and wishes of the stakeholders (Cadbury 2002). The fundamental basis of
corporate governance and responsibility results in creating a value system and culture for
the organization. Some argue that corporate governance is necessary to counteract any
tendency by a corporation to be selfish and myopic. They suggest that the role of
corporate governance is to guide organizations to achieve corporate results and at the
same time demonstrate societal responsibilities. There are some others who disagree
with this principle also.
The Cadbury Committee states that a country's economy depends on the vision and
efficiency of its companies. Besides efficiency, the boards must discharge their
responsibilities in an effective manner in order to put the country in a competitive position
across the world. The board of directors must be free to drive their companies forward
but must exercise their freedom within the framework of corporate governance and
effective accountability. The public limited companies which are a country's main engines
of growth should carry with them great responsibility for the people who are affected by
the company's business, actions, and corporate governance standards. While companies
like Infosys and TCS who have employed over 200,000 IT professionals have created a
great responsibility towards social upliftment of the country's people and demonstrated
the highest level of corporate governance standards beyond its financial performance. On
the other hand, Satyam Computers Ltd discredited the country and betrayed its
employees, customers, and shareholders because of the accounting scandal (the
company was later acquired by Tech Mahindra and merged within itself. Tech Mahindra
is a part of Mahindra and Mahindra group which is known for its highest corporate
governance standards).
There are questions such as does corporate governance enhance corporate performance
or add burden on corporations and stifle its growth prospects and growth initiatives. The
benefit of corporate governance lies in its contribution to both to business prosperity and
at the same time exercise accountability. A good corporate governance should not imply
an either/or scenario. There should be a balanced approach to both these dimensions of

business. In fact, following the best practice accountability should enhance an

organization's ability to attract investment and deliver higher performance year after year.
In short, good governance means a proper balance between enterprise business and
accountability.
There are two fundamentals to Corporate Governance. The first is that the
shareholders of an organization have a relationship with all the other stakeholders
because it is their money at stake. The second fundamental is based on the premise that
corporate governance is a way in which companies are directed and controlled. There
are many definitions of corporate governance, and all of them may not be acceptable to
all the stakeholders of a company. Following the collapse of Enron in 2001, policy makers
around the globe continue to debate on corporate governance and how to ensure that
those in positions of trust behave responsibly and morally. Terms such as ethics, code of
conduct, morals, and right and wrong have found their place in corporate boardrooms as
part of the corporate governance business practices.
13.3 MODERN CORPORATION
In contemporary business corporations, the main external stakeholder groups are

shareholders, debt holders, trade creditors, suppliers, customers, and communities
affected by the corporation's activities. Internal stakeholders are the board of directors,
executives, and other employees.
Much of the contemporary interest in corporate governance is concerned with mitigation

of the conflicts of interests between stakeholders. Ways of mitigating or preventing these
conflicts of interests include the processes, customs, policies, laws, and institutions which
have an impact on the way a company is controlled. An important theme of governance is
the nature and extent of corporate accountability.
A related but separate thread of discussions focuses on the impact of a corporate

governance system on economic efficiency, with a strong emphasis on shareholders'
welfare. In large firms where there is a separation of ownership and management and no
controlling shareholder, the principal-agent issue arises between upper-management (the
"agent") which may have very different interests, and by definition considerably more
information, than shareholders (the "principals"). The danger arises that rather than
overseeing management on behalf of shareholders, the board of directors may become
insulated from shareholders and beholden to management. This aspect is particularly
present in contemporary public debates and developments in regulatory policy.
Economic analysis has resulted in a literature on the subject. One source defines
corporate governance as "the set of conditions that shapes the ex post bargaining over
the quasi-rents generated by a firm." The firm itself is modelled as a governance structure
acting through the mechanisms of contract. Here corporate governance may include its
relation to corporate finance.
13.4 PRINCIPLES OF CORPORATE GOVERNANCE

Chapter 13
Contemporary discussions of corporate governance tend to refer to principles raised in

three documents released since 1990: The Cadbury Report (UK, 1992), the Principles of
Corporate Governance (OECD, 1998 and 2004), and the Sarbanes-Oxley Act of 2002
(US, 2002). The Cadbury and OECD reports present general principles around which
businesses are expected to operate to assure proper governance. The Sarbanes-Oxley
Act, informally referred to as Sar box or Sox, is an attempt by the federal
government in the United States to legislate several of the principles
recommended in the Cadbury and OECD reports.
Rights and equitable treatment of shareholders: Organizations should respect the

rights of shareholders and help shareholders to exercise those rights. They can help
shareholders exercise their rights by openly and effectively communicating
information and by encouraging shareholders to participate in general meetings.
Interests of other stakeholders: Organizations should recognize that they have

legal, contractual, social, and market driven obligations to non-shareholder
stakeholders, including employees, investors, creditors, suppliers, local communities,
customers, and policy makers.
Role and responsibilities of the board: The board needs sufficient relevant skills
and understanding to review and challenge management performance. It also needs
adequate size and appropriate levels of independence and commitment.
Integrity and ethical behaviour: Integrity should be a fundamental requirement in

choosing corporate officers and board members. Organizations should develop a
code of conduct for their directors and executives that promotes ethical and
responsible decision making.
Disclosure and transparency: Organizations should clarify and make publicly

known the roles and responsibilities of the board and management to provide
stakeholders with a level of accountability. They should also implement procedures to
independently verify and safeguard the integrity of the company's financial reporting.
Disclosure of material matters concerning the organization should be timely and
balanced to ensure that all investors have access to clear, factual information.
13.5 REGULATION, CODES AND GUIDELINES
Corporate governance principles and codes have been developed in different countries
and issued from stock exchanges, corporations, institutional investors, or associations
(institutes) of directors and managers with the support of governments and international
organizations. We will see some of these regulations, codes, and guidelines.
The Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 was enacted in the wake of a series of high profile
corporate scandals in the corporate world. It established a series of requirements that

affect corporate governance in the U.S. and influenced similar laws in many other
countries. The law required, along with many other elements, that:
The Public Company Accounting Oversight Board (PCAOB) be established to

regulate the auditing profession, which had been self-regulated prior to the law.
Auditors are responsible for reviewing the financial statements of corporations and
issuing an opinion as to their reliability.
The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) attest to the
financial statements. Prior to the law, CEOs had claimed in court they hadn't
reviewed the information as part of their defense.
Board Audit Committees have members that are independent and disclose whether
or not at least one is a financial expert, or reasons why no such expert is on the audit
committee.
External Audit Firms cannot provide certain types of consulting services and must
rotate their lead partner every 5 years. Further, an audit firm cannot audit a company
if those in specified senior management roles worked for the auditor in the past year.
Prior to the law, there was a real or perceived conflict of interest between providing
an independent opinion on the accuracy and reliability of financial statements when
the same firm was also providing lucrative consulting services.
The OECD principles
One of the most influential guidelines has been the OECD Principles of Corporate
Governance-published in 1999 and revised in 2004. The OECD guidelines are often
referenced by countries developing local codes or guidelines. Building on the work of the
OECD, other international organizations, private sector associations and more than 20
national corporate governance codes formed the United Nations Intergovernmental
Working Group of Experts on International Standards of Accounting and Reporting
(ISAR) to produce their Guidance on Good Practices in Corporate Governance
Disclosure. This internationally agreed benchmark consists of more than fifty distinct
disclosure items across five broad categories:
Auditing
Board and management structure and process
Corporate responsibility and compliance in organization
Financial transparency and information disclosure
Ownership structure and exercise of control rights
Stock Exchange Listing Standards

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Companies listed on the New York Stock Exchange (NYSE) and other stock exchanges
are required to meet certain governance standards. For example, the NYSE Listed
Company Manual requires, among many other elements:
Independent directors: "Listed companies must have a majority of independent

directors. Effective boards of directors’ exercise independent judgment in carrying out
their responsibilities. Requiring a majority of independent directors will increase the
quality of board oversight and lessen the possibility of damaging conflicts of interest."
(Section 303A.01) An independent director is not part of management and has no
"material financial relationship" with the company.
Board meetings that exclude management: "To empower non-management directors

to serve as a more effective check on management, the non-management directors
of each listed company must meet at regularly scheduled executive sessions without
management." (Section 303A.03)
Boards organize their members into committees with specific responsibilities per
defined charters. "Listed companies must have a nominating/corporate governance
committee composed entirely of independent directors." This committee is
responsible for nominating new members for the board of directors. The
Compensation and Audit Committees are also specified, with the latter subject to a
variety of listing standards as well as outside regulations. (Section 303A.04 and
others)
Other Guidelines
The investor-led organization International Corporate Governance Network (ICGN) was

set up by individuals centered on the ten largest pension funds in the world in 1995. The
aim is to promote global corporate governance standards. The network is led by investors
that manage 18 trillion dollars and members are located in fifty different countries. ICGN
has developed a suite of global guidelines ranging from shareholder rights to business
ethics.
The World Business Council for Sustainable Development (WBCSD) has done work on
corporate governance, particularly on accountability and reporting, and in 2004 released
Issue Management Tool: Strategic challenges for business in the use of corporate
responsibility codes, standards, and frameworks. This document offers general
information and a perspective from a business association/think-tank on a few key codes,
standards, and frameworks relevant to the sustainability agenda.
In 2009, the International Finance Corporation and the UN Global Compact released a
report, Corporate Governance - the Foundation for Corporate Citizenship and
Sustainable Business, linking the environmental, social and governance responsibilities
of a company to its financial performance and long-term sustainability.

Most codes are largely voluntary. An issue raised in the U.S. since the 2005 Disney
decision is the degree to which companies manage their governance responsibilities; in
other words, do they merely try to supersede the legal threshold, or should they create
governance guidelines that ascend to the level of best practice. For example, the
guidelines issued by associations of directors, corporate managers and individual
companies tend to be wholly voluntary, but such documents may have a wider effect by
prompting other companies to adopt similar practices.
13.6 CORPORATE GOVERNANCE IN INDIA
Sebi tightens Corporate Governance norms:
In India, Market regulator Sebi (Securities and Exchange Board of India) has
approved a series of decisions to increase transparency in corporate governance, a
move that will have far-reaching implications for top honchos of India Inc. Sebi mandated
that there should be more disclosures about the remuneration of senior executives and
also asked companies to put in place a system to evaluate the performance of
independent directors and other board members.
The market regulator also reiterated that there should be at least one woman director on
the board of every company, something already mandated under the Companies Act
1956. The regulator removed some of the contradictions in the Sebi rules and the New
Companies Act and, in some cases, the new provisions are even stricter for listed
entities.
The Sebi board also has approved the proposal for a compulsory whistle-blower
mechanism in every company and to expand the role of the audit committee. It has also
prohibited offering stock options to independent directors, and asked companies to have
separate meetings of independent directors and put in place a stakeholders' relationship
committee.
Sebi stipulates that a person can be an independent director in seven companies at the
most and three in case he or she is already a whole-time member in a listed company. It
also capped the total tenure of an independent director to two terms of five years each.
"However, if a person who has already served as an independent director for five years
or more in a listed company as on the date on which (this amendment) becomes
effective, he shall be eligible for appointment for one more term of five years only,"
according to a Sebi note.

Chapter 13
In addition, Sebi made regulations for related-party transactions stricter. It said that
companies should seek prior approval of the audit committee for all material related-party
transactions. Besides, they should also seek the nod of shareholders for all material
related-party transactions through a vote on a special resolution in which all the related
parties should not participate.
Sebi also mandated that all companies should have nomination and remuneration
committees, with the chiefs of such committees being independent directors on the board
of the companies.
"The amendments propose to align the provisions of Listing Agreement with the
provisions of the newly enacted Companies Act, 2013 and also provide additional
requirements to strengthen the corporate governance framework for listed companies in
India," Sebi said.
"There were some contradictions with the earlier Sebi rules and the new Companies Act.
The amendments by Sebi will now take care of those. In some cases, Sebi even raised
the bar higher for listed companies,"
The Sebi board also increased the minimum net worth of mutual funds to Rs 50 crore. It
also asked all the fund houses to invest at least 1% of the amount raised in each open-
ended scheme from their own corpus. As of now, of the 42 fund houses only a select few
invest their own money in each of the funds they manage. Sebi also made it compulsory
for fund houses to disclose separately the breakup of Assets Under Management (AUM)
for various categories of schemes such as equity, debt, etc.
13.7 PURPOSE OF A CORPORATION
As discussed earlier, the purpose of a corporation is not just to meet the financial
interests and profitability motive of the shareholders. In today's economic world, the
expectation is also to serve the society and other stakeholders in all fairness.

The performance of the organization can be directly linked to the direct result of the
ethical or unethical decisions taken by the various strategic managers at different points
of time.
Generally, corporate ethical behavior can be looked at in a number of ways how the
organization behaves during various challenges.
13.8 CORPORATE SOCIAL RESPONSIBILITY (CSR)
Societal mission is broader than that of an organization with a social cause. As seen in
the earlier chapters 4 and 8, for example, Tata organizations identify the societal needs
of the region where the company operates. They identify what rests underneath the
society each individual company operates within and how it can create hope and value to
the society as well as generating economic value or wealth to its shareholders and other
stakeholders like employees, customers, partners, and the like.
Corporate Social Responsibility is generally the expectation that the corporate

organization should serve both the societal needs and the financial interests of the
shareholders in a fair manner. A firm's position towards social responsibility can be a
critical factor in making strategic decisions. If social responsibility is not considered,
decisions of the firm may be aimed only at profit or other narrow motives without a
concern for the social objectives.
Corporate Social Responsibility (CSR), also called Corporate Conscience or Social

Performance, or Sustainable Business/ Responsible Business, is a form of corporate
self-regulation integrated into a business model. CSR policy functions as a built-in, self-
regulating mechanism whereby a business monitors and ensures its active compliance
with the spirit of the law, ethical standards, and international norms. In some models, a
firm's implementation of CSR goes beyond compliance and engages in "actions that
appear to perform social good, beyond the interests of the firm and that which is required
by law."
CSR is a process with the aim to embrace responsibility for the company's actions and
encourage a positive impact through its activities on the society, environment,
consumers, employees, communities, stakeholders, and all other members of the public
sphere who may also be considered as stakeholders. This, however, is beyond the
general economic expectation that businesses have always been expected to provide
employment to people and to meet customer needs.
The term "corporate social responsibility" became popular in the 1960s and has remained
a term used indiscriminately by many to cover legal and moral responsibility more
narrowly construed.
Proponents argue that corporations make more long term profits by operating with a
perspective, while critics argue that CSR distracts from the economic role of businesses.
McWilliams and Siegel's article (2000) published in their Strategic Management

Chapter 13
Journal, cited by over 1000 academics, compared existing econometric studies of the
relationship between social and financial performance. They concluded that the
contradictory results of previous studies reporting positive, negative, and neutral financial
impact were due to flawed empirical analysis. McWilliams and Siegel demonstrated that
when the model is properly specified; that is, when you control for investment in
Research and Development, an important determinant of financial performance, CSR has
a neutral impact on financial outcomes.
Some argue that CSR is merely window-dressing, or an attempt to pre-empt the role of
governments as a watchdog over powerful multinational corporations. Political
sociologists became interested in CSR in the context of theories of globalization, neo-
liberalism, and late capitalism. Adopting a critical approach, sociologists emphasize CSR
as a form of capitalist legitimacy and in particular point out that what has begun as a
social movement against uninhibited corporate power has been co-opted by and
transformed by corporations into a 'business model' and a 'risk management' device,
often with questionable results.
CSR is titled to aid an organization's mission as well as serve as a guide to what the
company stands for and will uphold to its consumers. Development business ethics is
one of the forms of applied ethics that examines ethical principles and moral or ethical
problems that can arise in a business environment. ISO 26000 is the recognized
international standard for CSR. Public sector organizations (the United Nations for
example) adhere to the Triple Bottom Line (TBL). It is widely accepted that CSR adheres
to similar principles but with no formal act of legislation.
In India, as per the new companies' law, all public listed companies should contribute 2%
of their net profit for the CSR programs and social development. Most corporate
organizations are engaged in CSR initiatives. As seen in an earlier chapter, Tata group
believes in being a societal organization rather than an organization with a social cause.
Many organizations and business leaders across industries devote their wealth to the
development of socially underprivileged in the areas of child education, women
empowerment, healthcare, rural jobs creation etc. This is a welcome change to make the
economic development an inclusive development.
13.9 SUMMARY
In this chapter we have studied the various aspects of corporate governance and its
impact on the company's long term sustenance strategy. Corporate governance is
defined as the way by which a corporation is directed and controlled or a process by
which a corporation is made responsive to the rights and wishes of its stakeholders by
being transparent and making disclosures regularly.
Corporate governance has also been defined as "a system of law and sound approaches
by which corporations are directed and controlled focusing on the internal and external
corporate structures with the intention of monitoring the actions of management and

directors and thereby mitigating agency risks which may stem from the misdeeds of
corporate officers.
We have also seen the importance of corporate governance and about the various
regulations, rules, and guidelines. We have also seen how it applies to Indian corporate
governance as guided by Sebi. We also studied the importance of corporate social
responsibility that defines the company's purpose and vision over a long period of time by
becoming a societal organization beyond just the profitability motives.

Companies like the Tata Group and Infosys Technologies are great examples of the
highest level of Corporate Governance in the Indian Industry.
2. Satyam Computers Ltd. was acquired by which company after its accounting scandal
in Jan2009 by its founder Chairman, Ramalinga Raju?
a) Infosys
b) Tech Mahindra
c) Tata Group
d) Lehman Brothers
3. The principles of Corporate Governance as recommended in the Cadbury & OECD

Reports, informally referred to as the Sarbox includes:
a) Integrity and ethical behavior
b) Disclosure and transparency
c) Interests of other stakeholders
d) All of the above
4. Which market regulator in India has approved a series of decisions to increase

transparency in Corporate Governance?
a) The OECD
b) The RBI
c) The SEBI
d) The ICGN

ISO26000 is the recognized international standard for CSR, whereas public sector
organizations like the United Nations adhere to the Triple Bottom Line (TBL).
Answers: 1. True, 2.(b), 3.(d), 4.(c), 5. True

Chapter 13
ANNEXURE
Some shining examples of 'Corporate Governance' by any leading Indian

organization
There were several shining examples of corporate governance practices in leading Indian
organizations. Please note that the status of these organizations may have changed
since then, so it's advisable to verify their current practices.
Tata Group:
Tata Group, one of India's oldest and most respected conglomerates, has been known
for its robust corporate governance practices. It has a well-defined structure with a strong
board of directors that includes a good mix of independent directors. The company has
been transparent in its financial reporting and has consistently adhered to ethical
business practices. Ratan Tata, the former Chairman of Tata Sons, played a crucial role
in emphasizing corporate governance principles across the group.
Infosys:
Infosys, a leading IT services company, has a strong reputation for corporate
governance. It was one of the first Indian companies to voluntarily adopt the International
Financial Reporting Standards (IFRS) for its financial statements, enhancing
transparency and comparability. Infosys has a well-established audit committee, a robust
code of conduct, and a clear whistleblower policy, which encourages employees to report
any concerns regarding unethical practices.
HDFC Bank:
HDFC Bank, one of India's largest private sector banks, has been recognized for its
corporate governance practices. The bank has a stable and competent board of
directors, including independent directors, who actively participate in decision-making
processes. The bank's commitment to maintaining high standards of corporate
governance has contributed to its strong reputation and consistent growth over the years.
Wipro:
Wipro, an IT services company, has a strong emphasis on corporate governance. The
company has adopted various initiatives to ensure transparency and accountability in its
operations. Wipro has a comprehensive code of conduct that applies to all employees,
and it actively engages with stakeholders to understand their expectations and concerns.
Mahindra & Mahindra:

Mahindra & Mahindra, a prominent automobile manufacturer, has been recognized for its
corporate governance practices. The company has a diverse board with a mix of
executive and independent directors. Mahindra & Mahindra is committed to sustainability
and has integrated environmental and social considerations into its business strategy.

Broadly, Indian organizations are judged about their corporate governance based on
following considerations;
1) Board Structure and Independence - a well-structured board of directors with a mix of

executive and independent directors.
2) Code of Conduct and Ethics - Code of Conduct and Ethics that sets out the ethical
standards and behavior expected from all its employees, directors, and officers. The
code covers areas such as integrity, transparency, respect for others, compliance
with laws and regulations, and responsible business practices.
3) Whistleblower Policy - Policy that provides a platform for employees and
stakeholders to report any concerns related to unethical behavior, fraud, or violation
of company policies. The policy ensures confidentiality and protection for
whistleblowers against any retaliation.
4) Risk Management – How well-defined is an organization's risk management
framework to identify, assess, and mitigate various risks, including business risks,
financial risks, and operational risks.
5) Sustainability and CSR – How focused the company is on environmental
sustainability, employee welfare, community development, education, and social
initiatives through its Mahindra Foundation and other CSR programs.
6) Related-Party Transactions – Organization has clear policies and procedures in place
to govern related-party transactions. The company ensures that all transactions with
related parties are conducted at arm's length and in compliance with applicable laws
and regulations.
7) Investor Relations – Ig about how an or ganizati on maintains transparent and regular
communication with its shareholders and investors. The company provides updates
on its financial performance, strategic initiatives, and material developments through
investor presentations and periodic filings.
8) Board Committees – It is about having various board committees that oversee
specific areas of governance and ensure independent scrutiny. These committees
include the Audit Committee, Nomination and Remuneration Committee, Risk
Management Committee, and Corporate Social Responsibility Committee.
These organizations are just a few examples of Indian companies that have
demonstrated a commitment to corporate governance. It's important to acknowledge that
corporate governance is an ongoing process, and companies must continually adapt and
improve their practices to meet evolving standards and expectations.

Chapter 13

REFERENCE MATERIAL
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Strategic Management

Sub. Code 408

NOT FOR SALE. FOR PRIVATE CIRCULATION ONLY

1. Fundamentals Of Strategic Management 4-42

2. Analysis Of Industry And Competition 43-62

3. External Environment 63-92

4. Mission, Objectives And Goals 93-118

5. Corporate Level Strategy 119-152

6. Business Unit Level Strategy 153-174

7. Functional Unit Level Strategy 175-198

8. Strategy Formulation 199-222

9. Strategy Implementation 223-256

10. Strategy Evaluation And Control 257-280

11. Globalisation Strategy 281-300

12. Strategic Leadership 301-328

13. Corporate Governance 329-344

Structure:.1 LOCAL AREA NETWORK

Strategic Management is an important cornerstone of today's business world. Strategic

The challenges arising out of formulation and implementation of Strategies to sustain a

1. Fundamentals of Strategy and Strategic Management

2. Industry and Competition Analysis

3. Internal and External Environment Analysis

4. Different Levels of Strategy

7. Strategy Review and Control

1.2 GLOBAL ECONOMIC SCENARIO

Reliance Communication of Anil Ambani Group, and Essar Steel declaring

1.3 STRATEGIC MANAGEMENT DEFINITION

1. Industry Organization Theory

2. Resource based Theory

Strategic Management analyses the major initiatives taken by a company's top

A Balanced Scorecard Approach is often used to evaluate the overall performance

The Simple Balance Score Card:

1.4 CONCEPTS AND APPROACHES OF STRATEGIC MANAGEMENT

A large Enterprise or a Global (MNC) Organization may employ a more structured

An SME (Small and Medium Enterprise) may employ an Entrepreneurial Approach.

Whittington (2001) highlighted four approaches to Strategic Management.

1.5 IMPORTANCE AND RELEVANCE OF STRATEGIC MANAGEMENT

As said earlier, Strategic Management is a vital process in an organization. The

In today's economic scenario, there is significant amount of uncertainty that causes

The following are the important benefits of Strategic Management in an

4. Once the process is internalized, it facilitates better delegation, coordination,

5. The identification of strengths and weaknesses may help an organization to take

7. An organization with Strategic Management will be constantly evaluating both

8. Strategic Management empowers an organization to handle the competition more

1.6 LIMITATIONS OF STRATEGIC MANAGEMENT

Top management's commitment, leadership, and willingness to allocate resources, and

Change Management, Conflict Management and understanding of the Strategic Planning

1.7 WHAT IS STRATEGY ?

3. Strategy involves creating "fit" among an organization’s activities

There are, broadly, three categories or generations of companies in existence in

Most companies in this economy have a strategy to consolidate their operations,

1.8 STRATEGIC POSITIONING

Strategic Positioning is the effort of an organization to achieve sustainable competitive

Is Strategy Cost focused or Value focused?

Many companies adopt innovation or creative ideas to differentiate their product or

Consider the strategic management process of an automobile company trying to address

1.9 STRATEGIC DECISIONS

4. It should be resilient enough to take advantage of favourable situations by being

strategic decision, as it involves regulatory clearances, relocation, compensation, and it