CORPORATE STRATEGY NOTES: 18 MBA 208 Dr.

Joysingha Mishra
MOD-1:
A corporate strategy entails a clearly defined, long-term vision that
organizations set, seeking to create corporate value and motivate the workforce
to implement the proper actions to achieve customer satisfaction. In addition,
corporate strategy is a continuous process that requires a constant effort to
engage investors in trusting the company with their money, thereby increasing
the company’s equity. Organizations that manage to deliver customer value
unfailingly are those that revisit their corporate strategy regularly to improve
areas that may not deliver the aimed results.
Corporate strategies may pertain to different aspects of a firm, yet the strategies
that most organizations use are cost leadership and product differentiation.
Cost leadership is a strategy that organizations implement by providing their
products and services as low as consumers are willing to pay, thereby being
competitive and realizing a volume of sales that allows them to be the leaders
in the industry. Typical examples of cost leaders are Wal-Mart in the retail
industry, McDonalds in the restaurant industry, and Ikea, the furniture retailer
that offers low-priced, yet good quality home equipment by sourcing its
products in emerging markets, thereby having a high-profit margin.

Product differentiation refers to the effort of organizations to offer a unique

value proposition to consumers. Typically, companies that manage to
differentiate their products from the competition are gaining a competitive
edge, thereby realizing higher profits. Often, competitors employ cost
leadership to directly compete with these companies; yet, customer satisfaction
and customer loyalty are the factors that eventually make or break a strategy.

Corporate strategy means a company’s vision and tactics to outperform its

competition.
Corporate strategy takes a portfolio approach to strategic decision making by
looking across all of a firm’s businesses to determine how to create the most
value. In order to develop a corporate strategy, firms must look at how the
various business they own fit together, how they impact each other, and how
the parent company is structured, in order to optimize human capital,
processes, and governance. Corporate strategy builds on top of business
strategy, which is concerned with the strategic decision making for an individual
business.
The Components of Corporate Strategy:
There are several important components of corporate strategy that leaders of
organisations focus on. The main tasks of corporate strategies are-
1. Allocation of resources
2. Organisational design
3. Portfolio management
4. Strategic trade offs

These are the 4 pillars of corporate strategy.

External environment Current strategy Internal Environment

Goals & failures Assess current

performances strategies and
Environment

Strategic alternative
evaluation

Recommendation
Allocation of Resources:
The allocation of resources at a firm focuses mostly on two resources:
People-
Identifying core competencies and ensuring they are well distributed across the
firm
Moving leaders to the places they are needed most and add the most value
(changes over the time, based on priorities)
Ensuring an appropriate supply of talent is available to all businesses.
Capital-
Allocating capital across businesses so it earns the highest risk-adjusted return
Analysing external opportunities (merger and acquisition) and allocating capital
In an effort to maximize the value of the entire firm, leaders must determine
how to allocate these resources to the various businesses or business units to
make the whole greater than the sum of the parts.
Identifying core competencies and ensuring the manpower are well distributed
across the firm rightly.
Moving leaders to the places where they are needed most and add the value
most (changes over time, based on priorities).
Ensuring an appropriate supply of talent is available to all businesses.
Analysing external opportunities (mergers and acquisitions) and allocating
capital between internal (projects) and external opportunities.
Types of Corporate Level Strategy – 4 Major Types:
Stability Strategy:
Expansion Strategy:
Retrenchment Strategy
Combination Strategy
Stability Strategy:
Stability Strategy is a corporate strategy where a company concentrates on
maintaining its current market position. A company that adopts such an
approach focuses on its existing product and market.
Expansion strategy:

The Expansion Strategy is adopted by an organization when it attempts to

achieve high growth as compared to its past achievements. It is adopted by
those firms that have managers with a high degree of achievement and
recognition.

Retrenchment strategy
A retrenchment strategy is the process of aggressively cutting costs in ways that
have impact to firm’s operations and revenue. This is usually done in the context
of a turnaround whereby management take drastic steps to prevent an
organization from failing.

Combination strategy
A combination strategy is the pursuit of two or more of the previous strategies
simultaneously. For example, one business in the company may be pursuing
growth while another in the same company is contracting.

Therefore, the corporate with their present position wish to capitalize on the
superior knowledge of local conditions and choose a very narrow segment of
market.

The corporate level generic strategies pertain to identify the businesses

the company shall be engaged in.

For any business to grow and prosper, managers of the business must be able
to anticipate, recognise and deal with change in the internal and external
environment. Change is definite, and for that reason business managers must
actively engage in a process that identifies change and modifies business activity
to take best advantage of change. That process is strategic planning.
Forward & Backward integration,

Identification of External and Internal Environment:

Corporate Strategic planning:

Step 1: Develop a plan / timetable

At the outset, the management committee (or organisation management) need

to devise a plan for strategic planning. The plan should identify who will be
involved and include a schedule of dates for key events. Strategic planning needs
the involvement of a lot of people and therefore there is a need for
coordination. Developing and the communicating a schedule of dates upon
which important planning events occur is necessary to get people on board.
Some thought should be given to obtaining the services of an independent
facilitator, preferably with experience in strategic planning.

Step 2: Survey customers/members

Feedback from customers is an important input into the strategic planning

process. Valuable information can be learned about the organisation's
programs, services and events. A survey can draw out the views of customers as
to where issues need to be fixed, and it provides an opportunity to test the
popularity of proposed changes to programs and services. Important factors in
conducting a survey are

(1) Defining the questions correctly

and

(2) utilising technology to analyse the survey data.

Step 3: Review the previous plan

Review the previous strategic plan, if one exists. The review should attempt to
identify progress towards any goals and what strategies have been successful
and unsuccessful. This information will be useful in strategic planning meetings.
It is a good idea to create a single page summary of the previous plan's
successes/failures and to provide the document to those who will be involved in
the planning process.

Step 4: Conduct SWOT meeting

In this model of a strategic planning process, there are 2 strategic planning

meetings. The first meeting is the “SWOT” meeting in which persons gathered
attempt to identify the organisation's strengths, weaknesses, opportunities and
threats. Here the impartiality of an independent facilitator is most useful. The
meeting duration will be approximately 3 hours with a 20minute break with
refreshments served.

The issues and ideas raised by meeting participants need to be documented

using a laptop by someone who can type reasonably fast. This record of the
meeting can then be sent to those who attended, and any others who may be
attending the next meeting. The facilitator can be very useful in two ways.
Firstly, they can prompt and assist the meeting documenter/note taker on what
to record and secondly, they can assist the meeting work towards defining goals.

Step 5: Prepare for Strategic Planning Meeting

Using the record of the SWOT meeting, the independent facilitator prepares an
additional document that will assist in the process of formulating the goals,
objectives and strategies in the next meeting. This document should list many
possible strategies, which in the view of the facilitator, could achieve progress
towards fixing an identified issue or achieving and identified goal.
The objective of this meeting is to find consensus on

(a) 6-8 goals

and

(b) the strategies to be adopted to pursue those 6-8 goals. It is not

recommended to set too many goals as this makes the strategic plan harder to
achieve.

This meeting will have a duration of 3 hours with a 20 minute break for the
serving of refreshments. This meeting will be a little more difficult than the
SWOT meeting. It is in this meeting that the strategic plan is mostly set. Using
the document prepared in Sep 5, the meeting participants undertake the
following:

1. Look at the main issues that were raised in the SWOT meeting
2. Agree on goals (the independent facilitator may have drafted in some
goals already but there may be many blanks)
3. Agree on strategies to be implemented to pursue the agree goals.

The facilitator needs to inform all persons present that it usually takes the
implementation of many strategies to achieve a single goal. Therefore if 6-8
goals are set, then the likely total number of strategies set will be 15-20. Some
strategies may cost significant amounts of money (e.g. employment of a person)
whereas other strategies have negligible costs involved.

Step 6: Prepare first draft of the Strategic Plan

Following the second meeting the independent facilitator should prepare and
provide the first draft of the strategic plan to the management committee.
Ideally the management committee will circulate the draft to all persons who
participated in meetings and invite further comments. It is possible that the first
draft may have missed important elements or there are errors in the wording.
Furthermore, there may be people who want to contribute but were not able to
attend either of the two meetings.

Step 7: Prepare second draft of the Strategic Plan

After an interval of one month from the circulation of the first draft, a second
draft may be published that incorporates further comments and corrections.
This draft could be published on the organisation's web site with an invitation to
comment. A deadline should be set for feedback.

The circulation of this second draft ensures that opportunity for the widest
possible consultation. Strategic planning is as much about being seen to do the
right thing. It is important to avoid criticism that the strategic planning process
lacked due consultation.

Step 8: Implement the Plan

It is not necessary that the plan be implemented immediately after publication

but may be implemented on a defined date. The strategies contained within the
plan are put into operation. Work is carried out according to the plan and the
organisation begins to move in the direction of the desired change.

The implementation of the plan continues until either all goals and objectives
have been achieved or until the organisation sets a new plan. Typically, a
strategic plan has a duration of 3 to 5 years. However strategic plans of greater
or smaller duration may be warranted from time to time.

Step 9: Monitoring of Plan Progress

It is necessary to continually gather and monitor data in accordance with set Key
Performance Indicators (KPI). Keeping a membership database and continually
monitoring the number of members is an example.

Data on whether the organisation is making progress to Key Performance

Indicators should be reported at management committee meetings.

The continual monitoring of this data, over the lifetime of the plan, enables
management to determine whether the strategic plan is being properly
implemented, the level of success being achieved and whether the plan requires
modification.

STRATEGIC ADVANTAGE PROFILE:

The strategic advantage profile is a tool for making a systematic evaluation of

the enterprises internal factors which are significant for the company in its
environment. The SAP shows the strengths and weakness of an organization in
different functional areas.
Strategists must be aware of the strategic advantages or strengths of the firm to
be able to choose the best opportunity for the firm. On the other hand, they
must regularly analyse their strategic disadvantages or weaknesses in order to
face environmental threats effectively

The basic areas that SAP covers:

• Basic research capabilities within the firm.

• Development capability for product engineering.
• Excellence in product design.
• Excellence in process design and improvements.
• Superior packaging developments being created.
• Improvements in the use of old or new materials.

ETOP (Environmental Threat and Opportunity Profile):

ETOP analysis (environmental threat and opportunity profile) is the process by
which organizations monitor their relevant environment to
identify opportunities and threats affecting their business for the purpose of
taking strategic decisions.
Importance of ETOP:
1. Provide clear picture to the strategist about the sectors & factors in these
sectors which may have favourable impact on the organization.
2.It help an organization in formulating an appropriate strategy to take
advantage of opportunity & threats to the business.

SWOC (Strengths, Weaknesses, Opportunities, and Challenges):

SWOC analysis is a strategic planning method used to research external and

internal factors which affect company success and growth. Firms use SWOC
analysis to determine the strengths, weaknesses, opportunities, and challenges
of their firm, products, and competition. SWOC analysis is relevant to SWOT
analysis.

A SWOC analysis is a strategic planning tool that can be used during the
curriculum assessment and review process to make informed decisions based
upon collective input from multiple stakeholders.
Conceptual Framework:

It is a theoretical and empirical analysis of the pattern of the strategic

management field and the progress in the field of strategic management has
been made. It is to reveal in which sub-areas strategic theories and researches
are carried out and the direction of research carried out in the business field.
The basic concept of strategic management consists of a continuous process of
planning, monitoring, analysing and assessing everything that is necessary for
an organization to meet its goals and objectives. It is a management technique
used to prepare the organization for the unforeseeable future.
The Concept of strategy:
Strategy is an action that managers take to attain one or more of the
organization's goals. Strategy can also be defined as “A general direction set for
the company and its various components to achieve a desired state in the future.
Strategy results from the detailed strategic planning process”.
The Strategic Management Process:
Strategic management process is a continuous culture of appraisal that a
business adopts to outdo the competitors. Simple as it may sound, this is a
complex process that also covers formulating the organization's overall vision
for present and future objectives. The four phases of strategic management
are formulation, implementation, evaluation and modification.
Role of Stakeholders in Business:
A stakeholder's primary role is to help a company meet its strategic objectives
by contributing their experience and perspective to a project. They can also
provide necessary materials and resources. Key stakeholders to be involved in
strategic planning are those having a vested interest in the success of the
organization. They include employees, unions, customers, vendors,
shareholders, regulatory agencies, owners, supply chain partners, community
members, and others who depend on and/or serve the organization.
Vision:
Strategic leaders need to ensure that their organizations have three types of
aims. A vision states what the organization aspires to become in the future. A
mission reflects the organization's past and present by stating why the
organization exists and what role it plays in society. A vision is an intense mental
image of what you want your business to be at some point in the future, based
on business goals and aspirations. Having a vision will give the business a clear
focus, and can stop heading in the wrong direction.
Mission:
An organization's mission is viewed as an overall goal of the organization. It
provides a sense of direction to all employees. It is formulated in the form of a
statement. It is, therefore, often called a strategic management mission
statement. A mission statement is a concise explanation of the organization's
reason for existence. It describes the organization's purpose and its overall
intention. The mission statement supports the vision and serves to
communicate purpose and direction to employees, customers, vendors and
other stakeholders.
Purpose:
The purpose of strategic management is to help the business to meet its
objectives. Basically, it outlines the actions and decisions that allow an
organization to achieve its goals.
Objectives:
Objectives of Business – Profitability, Growth, Stability, Efficiency and Survival.
Business means busy in some activities. Business means conducting activities
such as – sale, purchase and manufacturing etc for profit and growth. Strategic
objectives are the big-picture goals for the company: they describe what the
company will do to try to fulfil its mission. Strategic objectives are usually some
sort of performance goal—for example, to launch a new product, increase
profitability, or grow market share for the company's product.

Goals:
Business strategy is the identification and creation of plans that will help achieve
macro goals such as increased profitability, expansion, diversification, debt
reduction, risk management, increased employee retention or a reduction in
taxes. Strategic management involves setting objectives, analyzing the
competitive environment, analyzing the internal organization, evaluating
strategies, and ensuring that management rolls out the strategies across the
organization.
Strategic intent
Strategic intent is the term used to describe the aspirational plans, overarching
purpose or intended direction of travel needed to reach an organisational vision.
Beneficial change results from the strategic intent, ambitions and needs of an
organisation. A vision for an organization's future. This is a far target that serves
as an inspiration and long- term direction. For example, an energy company with
a vision of serving global energy needs with zero environmental impact. The
Strategic Intent Elements (Strategic intent vision, mission and objectives) serve
to unify the ideas and resources towards a certain direction. These elements are
not only beginning points but also the milestones at various levels. These
elements act as a foundation for planning and directing activities. There are
three major attributes of Strategic Intent, namely Sense of Direction, Sense of
Discovery and Sense of Destiny.

Strategic Intent:
In the field of management and organizational development, strategic intent is
defined as a compelling statement about where an organisation is going that
succinctly conveys a sense of what that organization wants to achieve in the long
term. Strategic intent answers the question: “What exactly the management is
trying to accomplish”

• Strategic intent can provide a sense of direction, a particular point of

view about the long-term market or competitive position the
organization hopes to develop and occupy.
 • Strategic intent can provide a sense of discovery in that it holds out
to the organization’s members the promise of learning about other
organizations that operate in the same market, adopting their best
practices and avoiding pitfalls.
• Strategic intent can provide a sense of destiny, a worthwhile goal
around which energies can be focused across the organization.

HIERARCHY OF STRATEGY:

The hierarchy of strategies describes a layout and relations of

corporate strategy and sub-strategies of the organization.

Individual strategies are arranged hierarchically and logically consistent at the

level of vision, mission, goals, and metrics.

The four fundamental corporate strategies are:

Concentration:

A concentration strategy involves trying to compete successfully within a single

industry. Market penetration, market development, and product development
are three methods to grow within an industry.

Ansof Strategy matrix:

Ansoff Matrix, also called the Product/Market Expansion Grid, is a tool used by
firms to analyse and plan their strategies for growth. Often referred to as G, the
sustainable growth rate can be calculated by multiplying a company's earnings
retention rate by its return on equity. The product marketing strategy was a
joint work of four growth areas: market penetration, market development,
product development, and diversification. When displayed visually,
these four areas create the Ansoff Growth Matrix.

Vertical integration:

Vertical integration is a strategy whereby a company owns or controls its

suppliers, distributors, or retail locations to control its value or supply
chain. Vertical integration benefits companies by allowing them to control
processes, reduce costs and improve efficiencies.

Concentric diversification

and
Conglomerate diversification

The strategy hierarchy is often taught in business and marketing schools today,
stating that a strategy can be formulated at three different levels: corporate
level, strategic business unit level (SBU), and functional (or departmental) level.

SBU:

In business, a Strategic Business Unit (SBU) is a profit centre which focuses on

product offering and market segment. SBUs typically have a discrete marketing
plan, analysis of competition, and marketing campaign, even though they may
be part of a larger business entity.
An SBU may be a business unit within a larger corporation, or it may be a
business into itself or a branch. Corporations may be composed of multiple
SBUs, each of which is responsible for its own profitability. General Electric is an
example of a company with this sort of business organization. SBUs are able to
affect most factors which influence their performance. Managed as separate
businesses, they are responsible to a parent corporation.
A strategic business unit, popularly known as SBU, is a fully-functional unit of
a business that has its own vision and direction. The best example of SBU are
companies like ITC, Proctor and Gamble, LG, Bajaj etc. These companies have
different product categories under one umbrella.

The main features of strategic business units are:

• They are present in the organizational structure,
• They are organizational units without separate legal personality,
• They utilize "product-market" strategy,
• Type of activity performed by them is of crucial and decisive importance
for the whole company.

The main advantages are:

SBU supports cooperation between the departments of the company which has
a similar range of activities, improvement of strategic management,
improvement of accounting operations and easier planning of activities.
BCG Matrix:
The Boston Consulting Group's product portfolio matrix (BCG matrix) is designed
to help with long-term strategic planning, to help a business firm.

STAR:
Stars are units with a high market share in a fast-growing industry. They are
proceeded to Question marks with a market or niche-leading route of business.
Stars require high funding to fight competitors and maintain their growth rate.
When industry growth slows, if they remain a niche leader or are amongst the
market leaders, stars become cash cows; otherwise, they become dogs due to
low relative market share.

QUESTION MARKS:
Question marks (also known as a Problem child or Wild dogs) are businesses
operating with a low market share in a high-growth market. They are a starting
point for most businesses. Question marks have a potential to gain market share
and become stars, and eventually cash cows when 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 market growth
declines. When shift from question mark to star is unlikely, the BCG matrix
suggests divesting the question mark and repositioning its resources more
effectively in the remainder of the corporate portfolio. Question marks must be
analysed carefully in order to determine whether they are worth the investment
required to grow market share.

CASH COW:

Cash Cow is where a company has 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 serious and tedious, in a "mature"
market, yet corporations value owning them due to their cash-generating
qualities. They are to be "profited" continuously with as little investment as
possible, since such investment would be wasted in an industry with low growth.
Cash "drained" is used to fund stars and question marks, that are expected to
become cash cows some-time in the future.

DOG:

Dogs, more generously 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 cash for the company. They depress a profitable
company's return on assets ratio, used by many investors to judge how well a
company is being managed. Dogs, it is thought, should be sold off once short-
time harvesting has been maximized.

GE MATRIX:
The GE-McKinsey Matrix (a.k.a. GE Matrix, General Electric Matrix, Nine-box
matrix) is just like the BCG Matrix a portfolio analysis tool used in corporate
strategy to analyse strategic business units or product lines based on two
variables: industry attractiveness and the competitive strength of a business
unit. GE multifactorial analysis is a technique used in brand marketing and
product management to help a company decide what products to add to its
portfolio and which opportunities in the market they should continue to invest
in. It is conceptually similar to BCG analysis, but somewhat more complicated.
GE Nine (9) Cell Matrix:
GE nine-box matrix is a strategy tool that offers a systematic approach for the
multi business enterprises to prioritize their investments among the various
business units. It is a framework that evaluates business portfolio and provides
further strategic implications. The GE/ McKinsey Matrix or GE-McKinsey nine-
box matrix is a business portfolio analysis that provides a structured way to
evaluate business units on two key dimensions:
the attractiveness of the market involved
and
the strength of the firm's position in that market.
The GE McKinsey Matrix is fundamentally a portfolio analysis. That is, it
compares groups of products with their competitive power and market
attractiveness.

The portfolios themselves are comprised of the full suite of products or services
that a business offers to the market. In the context of General Electric, the
matrix was created so that the company could analyse the composition of each
of its 150 portfolios – otherwise known as strategic business units (SBU).

Ultimately, the GE McKinsey Matrix allows a large, decentralized company to

determine where best to invest its cash. It does this by allowing the company to
judge each SBU on its own merits according to metrics which determine future
viability.

The matrix comprises two axes. The competitive strength of the individual SBUs
is represented on the x-axis, while market attractiveness is represented on the
y-axis.
Both competitive strength and market attractiveness are determined by a
weighted score calculated from the relevant factors that apply to each. Each
parameter is further divided into three categories – low, medium, and high. This
creates a matrix with a total of nine cells.

The nine cells are then divided by a diagonal line, running from the bottom left
to the top right of the matrix. When a product is placed on the matrix, its
position relative to the diagonal line determines the strategy that should be
used.

MOD 2:
Industry Analysis:
Analysing or assessing a particular industry can be quite crucial while preparing
for a business plan. A company needs to know about the external forces present
in the industry that can have prominent influence on its business operations.

The way one pursued hobbies as a part of management, making a thorough

industry analysis should be one of hobbies to flourishing more in life.

In order to analyse an industry, the most commonly used theoretical framework

is the Porter’s five Force model. This model analyses an industry, by five
different parameters, which are bargaining power of buyers, bargaining power
of suppliers, the threat of new entrants, the threat of substitutes and rivalry
among firms.

PORTER’s FIVE FORCE MODEL:

An industry analysis is significant business function which is performed by
business proprietors and other management experts to evaluate the present
business environment. This is considered as effective market assessment tool
designed to provide a business with an idea of the intricacy of a particular
industry. Industry analysis reviews the economic, political and market factors
that influence the way the industry develops. Major factors can include the
power manipulated by suppliers and buyers, the condition of competitors, and
the possibility of new market entrants.

Threat of New entrants:

New entrants in an industry bring new capacity and the desire to gain market
share. The seriousness of the threat depends on the barriers to enter a certain
industry. The higher these barriers to entry, the smaller the threat for existing
players. Examples of barriers to entry are the need for economies of scale, high
customer loyalty for existing brands, large capital requirements (e.g. large
investments in marketing or R&D), the need for cumulative experience,
government policies, and limited access to distribution channels. More barriers
can be found in the table below.

Bargain power of suppliers:

This force analyses how much power and control a company’s supplier (the
market of inputs) has over the potential to raise its prices or to reduce the
quality of purchased goods or services, which in turn would lower an industry’s
profitability potential. The concentration of suppliers and the availability of
substitute suppliers are important factors in determining supplier power. The
fewer there are, the more power they have. Businesses are in a better position
when there are a multitude of suppliers. Sources of supplier power also include
the switching costs of companies in the industry, the presence of available
substitutes, the strength of their distribution channels and the uniqueness or
level of differentiation in the product or service the supplier is delivering.

The bargain power of buyers:

The bargaining power of buyers is described as the market of outputs. This force
analyses to what extent the customers are able to put the company under
pressure, which also affects the customer’s sensitivity to price changes. The
customers have a lot of power when there aren’t many of them and when the
customers have many alternatives to buy from. Moreover, it should be easy for
them to switch from one company to another. Buying power is low however
when customers purchase products in small amounts, act independently and
when the seller’s product is very different from any of its competitors. The
internet has allowed customers to become more informed and therefore more
empowered. Customers can easily compare prices online, get information about
a wide variety of products and get access to offers from other companies
instantly. Companies can take measures to reduce buyer power.

Threat of substitute products:

The existence of products outside of the realm of the common product

boundaries increases the propensity of customers to switch to alternatives. In
order to discover these alternatives, one should look beyond similar products
that are branded differently by competitors. Instead, every product that serves
a similar need for customers should be taken into account.
Energy drink like Redbull for instance is usually not considered a competitor of
coffee brands such as Nespresso or Starbucks. However, since both coffee and
energy drink fulfil a similar need (staying awake/getting energy), customers
might be willing to switch from one to another if they feel that prices increase
too much in either coffee or energy drinks. This will ultimately affect an
industry’s profitability and should therefore also be taken into account when
evaluating the industry’s attractiveness.

Rivalry among the existing competitors:

This last force of the Porter’s Five Forces examines how intense the current
competition is in the marketplace, which is determined by the number of
existing competitors and what each competitor is capable of doing. Rivalry is
high when there are a lot of competitors that are roughly equal in size and
power, when the industry is growing slowly and when consumers can easily
switch to a competitor’s offering for little cost. A good indicator of competitive
rivalry is the concentration ratio of an industry. The lower this ration, the more
intense rivalry will probably be. When rivalry is high, competitors are likely to
actively engage in advertising and price wars, which can hurt a business’s
bottom line. In addition, rivalry will be more intense when barriers to exit are
high, forcing companies to remain in the industry even though profit margins
are declining. These barriers to exit can for example be long-term loan
agreements and high fixed costs.

Strategic group:
A strategic group is a concept used in strategic management that group of
companies within an industry that have similar business models or similar
combinations of strategies. The number of groups within an industry and their
composition depends on the dimensions used to define the groups.

Competitive changes during Industry Evolution:

Industry lifecycle comprises four stages including fragmentation, growth,
maturity and decline. An understanding of the industry lifecycle can help
competing companies survive during periods of transition. The industry life cycle
refers to the evolution of an industry or business through four stages based on
the business characteristics commonly displayed in each phase. The four phases
of an industry life cycle are the introduction, growth, maturity, and decline
stages. The factors might influence the length of technology cycles
included market fashion trend, customer demand, cost, marketing model and
so forth.
Globalisation and Industry Structure:
In conventional economic system, national markets are separate entities
separated by trade barriers and barriers of distance, time and culture. With
globalization, markets are moving towards a huge global market place. Industry
structure means structural attributes i.e. the enduring features that give an
industry its different character. Definition (2): “An explanation of the operations
and relationships within a given industrial sector (such as mining or paper
products).” Firms sell output in more markets than ever, while supply chains
have become increasingly fragmented across multiple locations. This has led
to increased competition, changes in the market structure in which firms
operate and altered pricing strategies.
Capabilities and competencies:
Core competencies are the resources and capabilities that comprise the
strategic advantages of a business. A modern management theory argues that a
business must define, cultivate, and exploit its core competencies in order to
succeed against the competition. “Capability” is the condition of having the
capacity to do something. Within this condition there is a potential for
improvement of skills. On the other hand, “competence” is the improved
version of “capability,” and means the degree of skill in the task's performance.
Core competency:

A core competency is a concept in management theory introduced by C. K.

Prahalad and Gary Hamel. It can be defined as "a harmonized combination of
multiple resources and skills that distinguish a firm in the marketplace". Core
competencies are the defining characteristics that make a business or an
individual stand out from the competition. Company's people, physical assets,
patents, brand equity, and capital can all make a contribution to a company's
core competencies.
In general, core competencies fulfil three criteria:
• Provides access to a wide variety of markets.
• Makes a significant contribution to the perceived customer benefits of the
end product.
• Makes competitive imitation difficult.
The Core Competencies are 3 sets of
• intellectual,
• personal,
and
• social and emotional proficiencies
The National Association of Colleges and Employers (NACE) recently released a
fact sheet defining 7 core competencies that form career readiness:
• Critical Thinking/Problem Solving.
• Oral/Written Communications.
• Teamwork/Collaboration.
• Information Technology Application.
• Leadership.
• Professionalism/Work Ethic.
• Career Management.

Core competency is an organization's defining strength, providing the

foundation from which the business will grow, seize upon new opportunities and
deliver value to customers. A company's core competency is not easily
replicated by other organizations, whether existing competitors or new entries
into its market.

A company can have more than one core competency. Core competencies,
which are sometimes called core capabilities or distinctive competencies, helps
to create a sustained competitive advantage for organizations. The concept of
identifying and nurturing core competencies to drive competitive advantages
and future growth applies to companies across industries.
Some of the important core competencies include – decision making, teamwork,
work standards, reliability, motivation, adaptability, problem-solving, integrity,
communication, planning and organization, stress tolerance, and initiative.

The Core Competence Model focuses on a combination of specific,

collaborative, integrated and applied knowledge, skills and attitude. According
to Hamel and Prahalad the strategic objectives should not focus on fighting off
the competition, but on creating a new competitive space. A core competency
is a concept in management theory introduced by C. K. Prahalad and Gary
Hamel.
CORE COMPETENCE MODEL:

1. Mega opportunities strategies (developing new core competencies for new

markets) involve establishing strategic partnerships with or acquiring businesses
that already possess desired competencies. High payoffs associated with this
strategy are coupled with high risks due to inexperience with competency and
market. However, the risks inherent in mega opportunities are often overlooked
due to the long-term benefits that can be realised through competency and
market expansion.
2. White spaces strategies (existing core competencies applied to new markets)
represent situations in which a company recognises an opportunity for
deploying existing competencies in new markets.
3. Premier plus ten strategies (new core competencies deployed in existing
markets) involve a simultaneous leveraging of market knowledge and
exploration of opportunities that might exist through new core competence
development.
4. Fill in the blanks strategies (existing core competencies in existing markets)
realize that by mapping the competencies support the end-product markets, a
company can identify opportunities to strengthen its position in a particular
product market by importing competencies that may reside elsewhere in other
competitor companies.

LOW- COST STRATEGY:

A pricing strategy in which a company offers a relatively low price to stimulate
demand and gain market share. A company pursuing a Cost Leadership strategy
aims to establish a competitive advantage by achieving the lowest operational
costs in their sector. In a low- cost strategy, the true winner is the company with
the actual lowest cost in the market place. For example, if two companies make
essentially identical products that sell at the same price in the market place, the
one with the lower costs has the advantage of a higher level of profit per sale.
Some cost leadership examples include McDonald's, Walmart.

How to create low- cost strategy:

Steps:
1. Analyse existing operations.
2. Research competitors.
3. Identify strategies to reduce costs.
4. Keep track of progress.
Cost leadership occurs when a company is the category leader for low pricing.
To successfully achieve this without drastically cutting revenue, a business must
reduce costs in all other areas of the business, such as marketing, distribution
and packaging. A cost leadership strategy is a company’s plan to become a cost
leader in its category or market. There are many benefits to being a cost leader.
Cost leaders can charge the lowest amount for a product while remaining
profitable. Other companies may have to sell their products at a loss to compete
with a cost leader’s prices. Cost leaders can also withstand recessions better
than competitors because they are experienced in appealing to consumers with
budgets in mind. A company with very low operational costs could go longer
without achieving sales goals than a company with high costs. The cost leaders
can be more flexible. Since their costs are low, they can discount prices more
often or potentially try out other product offerings that other companies might
not be able to. Companies with flexibility are likely to attract a larger customer
base.

Cost leadership means having the lowest operational cost in an industry and
market. Price leadership means having the lowest price. Very frequently, a
company that is a cost leader is also the price leader. Sometimes, a price-leading
company chooses to have the lowest prices at all costs and may be less
profitable as a result. For example, large online companies sometimes sell items
at a loss or a small profit margin to maintain the lowest prices on some of its
products and gain a larger market share. These companies would be price
leaders but not cost leaders.

Strategy to become a cost leader

Most cost leaders rely on a variety of these methods at the same time to keep
their operational costs extremely low and maintain their cost leadership status.
Ways to become a cost leader include:

1. Increasing the production scale: Scaling a business can have a significant

impact on its ability to become a cost leader. Scaling occurs when a company
reduces costs by increasing the volume of materials. For instance, if a company
purchases a large amount of fabric instead of only the amount it requires, the
company can reduce the cost of goods with a lower per-yard price. Scaling the
business helps to secure larger orders of raw materials and supplies, which can
further reduce the cost of goods. It also gives a company more power over
suppliers, since the company’s orders will make a larger share of the supplier’s
business operations. A business also insulates it against the competition. Cost
leaders that scale tend to have more negotiating power, more flexibility with
pricing and the ability to withstand competition more effectively. If a company
is in an industry with intense competition, scaling gives it the ability to offer
prices that competitors cannot. That company also gains the ability to offer
inventory on a much larger scale, so it can capture a bigger segment of the
market without worrying about running out of inventory.

2. Implementing advanced technology: Creating or investing in innovative

technology can help companies become cost leaders. Sometimes, a company
can lowering costs by creating a technology that can manufacture more
products per hour, limit the number of employees needed for production or
provide some other benefit to the process’s efficiency. Patenting a unique
technology will also ensure that other companies, including competitors, can’t
use it for their own benefit. A company could also sell its patented technology
later on to generate more revenue.

3. Sourcing raw materials: Buying raw materials for the manufacturing process
can be expensive because the supplier also marks up their prices to make a
profit. If possible, sourcing raw materials and reducing the reliance on third-
party products can lower operational costs. Sourcing materials directly also
gives a company the ability to supply other companies. If a business’s raw
material supply greatly exceeds its needs, it can resell it to other manufacturers
at a market price as another source of income.

4. Improving efficiency: Increased efficiency can often translate into operational

cost savings for companies. One example of this is to use software to reduce the
number of people required to work on the process, which would reduce salary
payments. However, reducing employees is not the only way to improve
efficiency and reduce costs. Quicker manufacturing times for custom orders
means that a company might be able to charge more for speedy service even
though a company doesn’t have to pay as much for the electricity and related
expenses for making a product. Better efficiency can help companies without
custom products.

5. Limiting products and services: By having fewer products to manufacture and

sell, that company can focus more of its efforts on a few highly profitable products or
services. This makes it easier and more likely that that company will be able to scale
its operations and get the lowest costs on raw materials and other supplies.
Generic building blocks of competitive advantage:
The four building blocks of competitive advantage are superior efficiency,
quality, innovation, and customer responsiveness (Hill & Jones, 2009; Hill et al.,
2016). These building blocks allow a company to differentiate its product
offerings to provide more utility to customers and/or lower its cost structure.
Building Blocks have generic characteristics as follows: A Building Block is a
package of functionality defined to meet the business needs across an
organization. A Building Block has published interfaces to access the
functionality. A Building Block may interoperate with other, interdependent,
Building Blocks.

Differentiation Strategy:
A differentiation strategy is an approach for businesses develop by providing
customers with something unique, different and distinct from items their
competitors may offer in the marketplace. The main objective of implementing
a differentiation strategy is to increase competitive advantage.
A business will usually accomplish this by analysing its strengths and weaknesses, the
needs of its customers and the overall value it can provide.
There are two main types of differentiation strategies that a business may carry out:
a broad differentiation strategy and a focused differentiation strategy.

A broad differentiation strategy consists of building a brand or business that is

different in some way from its competition. It is applied to the industry and will
appeal to a vast range of consumers.

A focused differentiation strategy requires the business to offer unique features to a

product or service, and it must fulfil the requirements of a niche or narrow market.

Differentiation strategies have several advantages that may help to develop a

unique niche within industry. Here are the possible benefits of creating a
differentiation strategy:

1. Reduced price competition

Differentiation strategy allows a company to compete in the market with

something other than lower prices. For example, a candy company may
differentiate their candy by improving the taste or using healthier ingredients.
Although its competitors have cheaper candy, they can’t provide the taste that
consumers may want from that specific candy company.

2. Unique products

This benefit of a differentiation strategy is that it builds on the unique qualities

of a product. A company may create a list of characteristics in its products
contain that the competitors lack. Those characteristics will differentiate the
company’s product, and may communicate this through effective marketing and
advertising.

3. Better profit margins

When products are differentiated and turned into higher-quality products, it

offers more opportunity for larger profit margins. For example, if target market
is willing to pay a higher price for top quality or better value, it may generate
more revenue with fewer sales.

4. Consumer brand loyalty

Effective differentiation may create brand loyalty in customers if a business

maintains the perceived quality of your products. For example, if the company
have a brand that is marketed by a sports figure, it will likely increase brand
loyalty because it enhances the value of brand.

5. No perceived substitutes

A strategy that successfully differentiates may present the idea that there is no
other product available on the market to substitute it with. A business may gain
an advantage in the market even when there are similar products available
because customers will not be willing to replace your product with another one.
Companies try to differentiate themselves by providing consumers with unique
products that are frequently revolutionized.
How to create a differentiation strategy:

Businesses looking to build a broad or focused differentiation strategy will need

to produce or design extremely unique or distinctive products or services that
create increased value for the consumer. There are several ways an organization
can create a differentiation-based competitive advantage for a single product or
the company as a whole. Here are some steps to create a differentiation
strategy:

1. Decide what the brand want to be known for

The company must have an idea of expertise in business. The company will need
to evaluate what is important to business and the areas that organization
succeeds in. This way, the company will be able to provide a narrow
differentiator to customers.

2. Research target audience

Research will help to align business’ offerings with the wants and needs of
current and potential customers. This will also inform the selection of
differentiators to make expertise more appealing. For instance, the brand may
decide to send a survey to those who purchase products or use services and
gather data to gain an accurate idea of what they are looking for.

3. Develop differentiators

This step is important so that management can find things that make brand or
products different. Each differentiator may be broad at first, so the company
may try writing down differentiators and then create smaller subsections that
narrow them down. Here are some common differentiations:

• Price
• Image or reputation
• Relationship
• Service
• Product
• Distribution

4. Telling story

When tell story, say business’s unique story, it may automatically assist with
differentiation strategy since competitors likely won’t have a story like. Evaluate
mission, vision and values, and the company will be able to craft an overall story
about what sets apart, which turns target audience into customers.

Telling story to target audience is best executed with a bio section on the
company website. The firm can also use social media channels to have a running
dialogue with targeted customers on a more personal level.

5. Create a brand image

Implement strategy and create a brand image by ensuring better quality. Try to
be creative and rebrand, if necessary, to capture new clients and customers
within target audience.

Generic Building Blocks of Competitive Advantage:

The four generic building blocks of competitive advantage are efficiency, quality,
innovation, and responsiveness to customers. Superior efficiency enables a
company to lower its costs; superior quality allows it to charge a higher price
and lower its costs; and superior customer service lets it charge a higher price.
These building blocks allow a company to differentiate its product offerings to
provide more utility to customers and/or lower its cost structure.
A Building Block is a package of functionality defined to meet the business needs
across an organization. A Building Block has published interfaces to access the
functionality. A Building Block may interoperate with other.
5 areas to drive competitive advantage
• MARKETING.
• FINANCE.
• HUMAN RESOURCES.
• LEGAL
• CUSTOMER SERVICE

The six factors of competitive advantage are: Price, location, quality, selection,
speed, turn around and service.

There are three different types of competitive advantages that companies can
actually use. They are cost, product/service differentiation, and niche strategies.
There are 6 sources of competitive advantage.
• People. People are the driving force behind most competitive advantage.
 • Organizational Culture & Structure.
• Processes & Practices.
• Products & Intellectual Property.
• Capital & Natural Resources.
• Technology.

Distinctive competencies:
Distinctive competence refers to a superior characteristic, strength, or quality
that distinguishes a company from its competitors. This unique aspect of the
company, product, or service is difficult to imitate by the competition and
creates a strong competitive advantage.

Distinctive competence refers to a superior characteristic, strength, or quality

that distinguishes a company from its competitors. This distinctive quality can
be just about anything—innovation, a skill, design, technology, name
recognition, marketing, workforce, customer satisfaction, or even being first to
market. Via distinctive competency, a company can provide a premier value to
customers. This unique aspect of the company, product, or service is difficult to
imitate by the competition and creates a strong competitive advantage.

Difference between core competency and distinctive competency:

“A distinctive competency is any capability that distinguishes a company from

its competitors. While a distinctive competency can be any competency, core or
otherwise, it is typically a core competency that truly distinguishes a company
from the rest of the competition.”

Core competence refers to anything that a company does well and is critical to
a company’s value-generating activities and overall business performance. This
characteristic isn’t necessarily distinctive, however. Likely all competitors in that
particular market share the same core competence. It does not set any of the
companies in that space apart.

Distinctive competencies enable companies to:

• Increase competitive advantage

• Improve customer delight and loyalty
• Stand apart from competitors
• Be difficult to imitate
• Strengthen strategy
Distinctive competence isn’t set in stone, however. Changes and trends in the
market will inevitably impact competencies. As a result, companies that build
and reconfigure distinctive competencies are poised for long-term success in an
ever-changing market place. A distinctive competency is an organization's
strengths or qualities including skills, technologies, or resources that distinguish
it from competitors to provide superior and unique customer value and,
hopefully, is difficult to imitate.

Resources and capabilities durability of Competitive Advantage:

Durability of competitive advantage determines how long the competitive

advantage can be sustained and is considered in terms of the ability of
competitors to imitate through gaining access to the resources on which the
competitive advantage is built. Competitive advantage is created by using
resources and capabilities to achieve either a lower cost structure or a
differentiated product. A firm position itself in its industry through its choice of
low cost or differentiation. This decision is a central component of the firm's
competitive strategy. The ability to achieve new forms of competitive advantage
is referred to as dynamic capabilities. The two terms dynamic and capabilities
by itself require in depth understanding while analysing competitive advantage.

Five steps to build durable capabilities:

1. Understand the market and its segments. Look for those niches that
aren’t well serviced by competitors and can be profitably targeted and
sold to.
2. Develop an understanding of what customers really want and establish a
value proposition that grabs their attention.
3. Work out the key things that you need to do really well to support and
deliver the value proposition. For example, service levels, quality,
branding, pricing, etc.
4. Understand what your strengths and core competencies are and how you
can use these in innovative ways to provide value to your chosen market.
5. Design your business model to support and deliver the value proposition.
Sustainable competitive advantage is the key to business success. It is the force
that enables a business to have greater focus, more sales, better profit margins,
and higher customer profile and staff retention than competitors. At its most
basic level, there are three key types of sustainable competitive advantage. In
most industries there are only four competitive advantages that meet the four
definitional criteria, and they are:
innovation,
culture,
customer affinity
and
predictive analytics.

Innovation is the process of converting a novel idea into a unique product,

service or experience that delivers value. A Sustainable Competitive Advantage
is the backbone of most businesses that are thriving today. Businesses that have
understood this and followed a Sustainable Competitive Advantage strategy
have remained the market leaders in their industry for a long time.

The idea here is that if a firm is to maintain sustainable competitive advantage,

it must control a set of exploitable resources that have four critical
characteristics. These resources must be

(1) Valuable,
(2) Rare,
(3) Imperfectly imitable (tough to imitate), and
(4) Non substitutable.
The four primary methods of gaining a competitive advantage are

• cost leadership,
• differentiation,
• defensive strategies

and

• strategic alliances.
 Sustainable Competitive Advantage:

MOD III:
Strategic alternatives are long term plans that business develop to set their
direction. When setting the organizational direction, the human and organizational
resource availability will be considered and the goals will be set based on the
resource availability.

Types of Corporate Level Strategy – 4 Major Types:

Stability Strategy:

Stability Strategy is a corporate strategy where a company concentrates on

maintaining its current market position. A company that adopts such an approach
focuses on its existing product and market.

Usually, a company that is satisfied with its current market share or position uses
such a strategy. Under the stability strategy, the company usually makes up a
plan to move forward either by selling the non-performing segments or by
investing in research and development.
• If a firm plans to consolidate its position in the industry in which it
is operating.
• In case a country in which the company operates is facing recession
or slowdown, and the company wants to save cash rather than
spend it for expansion purposes.
• If a company has significant debt or loans, then also it may pursue
such a strategy than going for expansion. Following such an
approach would ensure that a company has the cash to pay the
interest and principal amount as well.
• The industry in which the firm functions have hit maturity, and
there is no more scope for growth.
• Another scenario is when the cost of expansion is less than the
gains from it.
• If the management is happy with the current market position and
the level of profit achieved.
• Risk-averse management may also favour such a strategy.
• A company can also choose this strategy post-merger. In such a
case, this strategy allows a smooth transition of the new entity
before the company starts making significant changes.
• This strategy could help a company take rest following a fast growth
in the past few years. Such a tactic allows the company to
consolidate the results and resources and plan its next moves.
• Family-owned businesses may decide to slow down in adverse
market condition.

Types of Stability Strategy:

(i) No-Change Strategy:
(ii) Profit Strategy:
(iii) Proceed-With Caution Strategy:

Expansion strategy:

The Expansion Strategy is adopted by an organization when it attempts to

achieve high growth as compared to its past achievements.
The expansion strategy is adopted by those firms that have managers with a
high degree of achievement and recognition.
Types of Expansion strategies:
• Expansion through Concentration
• Expansion through integration
• Expansion through diversification
• Expansion through co-operation
• Expansion through Internationalisation
• Expansion through digitalisation.

Diversification Expansion Strategy:

Diversification is defined as the entry of a firm into new lines of activity, through
internal or external modes. Diversification is the process of entry into a business
which is new to an organisation either market-wise or technology-wise or both.

A retrenchment strategy is the process of aggressively cutting costs in ways that

have impact to firm’s operations and revenue. This is usually done in the context
of a turnaround whereby management take drastic steps to prevent an
organization from failing.
Types of Retrenchment strategy:
1. Turnaround:
The term ‘turnaround’ refers to the measures which reverse the negative trends
in the performance indicators of the company. It refers to the management
measures which turn a sick company back to a healthy one or those measures
which reverse the deteriorating trends of performance indicators such as falling
market share, falling sales, decreasing profitability, increase in costs, worsening
debt equity ratio, getting negative cash flow, severe working capital problems
etc. The strategies adopted to come out of crisis vary from case to case and from
company to company.

2. In divestitures, the company who has acquired assets and divisions will make
an examination to determine whether the assets or divisions fit into overall
corporate strategy in value maximization. If it does not serve the purpose, such
assets or divisions are hived-off.
Selling a division or part of an organization is called ‘divestiture’. It is often used
to raise capital for further strategic acquisitions or investments. It is also used
rid business units that are unprofitable.
3. Divestment’ means pulling out of market. This strategy is followed when
activity still continues although at a reduced scale. A company can maximize its
net investment recovery from a business by selling it early before the industry
enters into a steep decline. Divestment could be selling off a part of a firm’s
operations or pulling out of certain product from market areas.
A company may like to resort to this strategic option when it desires to release
its liquid resources. Divestment may be considered attractive when present
worth of expected earnings is less than its present worth. The success of this
strategy depends on the ability of the company to spot an industry decline
before it becomes serious and sells out while the company’s assets are still
valued by others.

4. Liquidation:
A business may go into decline when losses are made over several years. The
losses are setoff against past profits retained in the business (reserves), but
clearly the situation cannot continue for very long. In such case liquidation may
be imminent.
In case of technological obsolescence, lack of market for the company’s
products, financial losses, cash shortages, lack of managerial skills, the owners
may decide to liquidate the business to stop further aggravation of losses. With
a strategic motive also, a business unit may be liquidated. This strategic option
is exercised in a situation where the firm finds the business as unattractive to
revive the firm.

5. Captive Company:
A firm which retrenches via backward vertical integration is known as ‘captive
company’. A firm becomes a captive of another firm when it subjects itself to
the decisions of the other firm in return for a guarantee that a certain amount
of the captive’s product will be purchased by the other firm.
A captive company strategy is followed when:
(a) A firm sells more than 75% of its products or services to a single customer;
and
(b) The customer performs many of the functions normally performed by the
independent firm.
This strategy may be chosen because of:
(a) The inability or unwillingness to strengthen the marketing or other functions.
(b) The prescription that this strategy is the best means for achieving financial
strength.
6. Harvest:
In this strategy, the firm reap maximum out of the existing firm without any
additional investment being made. It is asset reduction strategy in which a
company limits or decreases its investment in a business and extracts as much
investment as possible. Company exits the industry once it has harvested the
maximum possible returns it can.
Company halts all new investments in capital equipment, advertising, R&D etc.
in order to maximize short to medium term cash flow from the unit before
liquidating it. The company resorts to this strategy if the product/market
segments demonstrate weak, declining but still positive profitability.
The aim of the business is for a lower market share, which will give the company
its best short-run return with a longer term of eventually pulling out of the
market. This strategy can be used to gather in funds which can be divested into
other fruitful investment.

7. Transformation:
A transformation occurs when a firm makes a major change in its outlook and
operations, usually including moving from one kind of business to another.
Changes in strategy are usually quite substantial. Such strategies are difficult to
implement because they require a great deal of flexibility on the part of the
entire organization.

8. Leadership: The objective of this strategy is to establish a firm in a dominant

position so that it will essentially have the declining market to itself. This
strategy is used by firms in declining industries that involves outstaying all other
firms in the industry and becoming a dominant player in the industry. This
strategy requires lowering the ‘exit barriers’ that might keep competitors out in
the market.
The firm pursuing the leadership position can often help its competitors
overcome their exit barriers and thereby move to ensure its emergence as the
last survivor.

9. Niche: ‘Niche ‘means concentrating around a product and market. It is a

strategy involving very low degree of risk and represents the typical behaviour
of the small companies. Such organizations are, in general, scared of growing
big, as it could entail them into legal, labour and management problems.
STRATEGIC CONTROL:

Strategic controls are intended to steer the company towards its long-term strategic
direction. After a strategy is selected, it is implemented over time so as to guide a
firm within a rapidly changing environment. Strategies are forward-looking, and
based on management assumptions about numerous events that have not yet
occurred.

Traditional approaches to control seek to compare actual results against a standard.

The work is done, the manager evaluates the work and uses the evaluation as input
to control future efforts. While this approach is not useless, it is inappropriate as a
means to control a strategy.

Waiting until a strategy has been fully executed often involves five or more years,
during which many changes occur, that have major ramifications for the ultimate
success of the strategy. Consequently, traditional control concepts must be replaced
in favour of strategic controls that recognise the unique control needs of long-term
strategies.

Strategic control is concerned with tracking the strategy as it is being implemented,

detecting problems or changes in the premises and making necessary adjustments.
In contrast to post- action control, strategic control is concerned with controlling
and guiding efforts on behalf of the strategy as action is taking place.

Definition:
Strategic control is related to that aspect of strategic management through which
an organization ensures whether it is achieving its objectives contemplated in the
strategic action. If not, what corrective actions are required for strategic
effectiveness.

Julian and Scifres have defined strategic control as follows:

“Strategic control involves the monitoring and evaluation of plans, activities, and
results with a view towards future action, providing a warning signal through
diagnosis of data, and triggering appropriate interventions, be they either tactical
adjustment or strategic reorientation.”
Thus, there are two aspects in strategic control—evaluation of a strategic action and
its results and taking necessary corrective actions in the light of this evaluation.
Sometimes, control phase of strategic management is divided into two distinct
parts—strategic evaluation and strategic control.
However, because of on-going nature of strategic evaluation and strategic control,
both these are intertwined. In practice, therefore, the term strategic control is used
which includes evaluative aspect too because unless the results of an action are
known, corrective actions cannot be taken.
It is worthwhile to make a comparison of strategic and operational control because
the emphasis in both differs though an integrated control system contains both.

Strategic control- 4 major types: Premise, Implementation, Strategic Surveillance

and Special Alert Control Experts on strategic management process have identified
certain types of strategic controls. According to them, there are four types of
strategic controls.
These are:

Type 1. Premise Control:

Every strategy is founded on certain assumptions relating to environmental and
organisational forces. Certainly some of these forces or factors are very sharp
and any change in them is sure to affect the strategy to a great extent. Hence,
premise control is a must to identify the key postulations and keep track of any
change in them in order to assess their impact on strategy and, therefore, its
implementation.
For example, these presumption may relate to changing government policies,
market competition. Change in composition due to sudden killing virus or
widespread war conditions or natural calamities and organisational factors such
as improvising production technology, VRS scheme to get high tech employees,
market innovation strategies.
Here, premise control serves to test continuously these assumptions to
determine whether they are still valid or not. This facilitates the strategists to
take necessary corrective action at the right time than just pulling on with the
strategy based on vitiated or invalid postulations.
The responsibility for premise control is generally assigned to the corporate
planning department that identifies the key assumptions and keep a regular
check on their validity.

Type 2. Implementation Control:

In order to implement a chosen strategy, there is need for preparing quite good
number of plans, programs and projects. Again resources are allocated for
implementing these plans, programs and projects. The purpose of
implementation control is to evaluate as to whether these plans, programs and
projects are actually guiding the organisation towards its pre-determined goals
or not.
In case it is felt, at any time, the commitment of resources to a plan, program or
project is not yielding the fruits as expected, there is need for matching revision.
That is implementation control is nothing but rethinking or strategic rethinking
to avoid wastes of all kinds.
One way of using implementation control may to identify and monitor the
strategic beat points or throb points such as an assessment of marketing success
of a new product after pretesting or checking the feasibility of a diversification
programme after preliminary attempts at seeking technological collaboration.
In the first case, the company is to evaluate whether the new product launch
will really benefit or it should be forgone in favour of another programme. In
second case, implementation control helps to ascertain whether a
diversification move is going to succeed or not.
Another tool of implementation control is the milestone reviews through which
critical points in strategy implementation are identified in terms of events, major
resource allocation, or even time.
This is almost similar to identification of events and activities in Programme
Evaluation Review Technique (PERT)/Critical Path Method (CPM) networks.
Once the milestones are identified, a comprehensive review of implementation
is made to reassess its continued relevance to attain the objectives.

Type 3. Strategic Surveillance:

If premise and implementation strategic controls are more specific by nature,
strategic surveillance, is more generalised and overriding control which is
designed to monitor a broad range of events both inside and outside the
organisation which are likely to threaten the very course of a firm’s strategy.
Such strategic surveillance can be done through a broad- based, general
monitoring based on selected information sources to uncover events that are
likely to affect the strategy of an organisation.
Professor David A. Aker, in his book “Developing Business Strategies—Published
by John Wiley and Sons of N.Y in 1984 P. 128, suggests a “formal yet simple
strategic information scanning system which can enhance the effectiveness of
the scanning effort and preserve much of the information now lost within the
organisation.”

Type 4. Special Alert Control:

This special alert control is based on a trigger mechanism for a rapid response
and immediate reassessment of a given strategy in the light of a sudden and
unexpected event. Special alert control can be exercised via the formulation of
contingency strategies and assigning the responsibility of handling unforeseen
events to crisis management teams.
The instances of such sudden and unexpected events can be say, sudden fall of
government at centre or even state, terrorist attacks, industrial disaster or any
natural calamity of earthquake, floods, fire and so on.

The purpose of strategic control is to identify whether the organization should

continue with its present strategy or modify it is the light of changed
circumstances. Operational control should assist the organization to be both
efficient and effective, and in this way help the chosen strategy to work
successfully.
The basic forms of control are concerned with physical systems, so that for
example a wall thermostat may be control the central healing system of a house.
If the room temperature fall below the desired temperature set on the
thermostat, the boiler in started so that water in the radiators is heated and the
temperature rises to desired level.
Many of the quality control processes within companies are physical control
mechanisms/designed to indicate whether or not a particular physical process
is operating at a desired level of efficiency. At the end of a manufacturing
process, for example, a commodity can be checked to see if it operates art it
should.
If it is rejected, it can be scraped reworked. It is obviously better to discover any
faults at an earlier stage, and the usual method is to sample units of the product
in order to check that they confirm to the agreed specifications! Modern Control
techniques are based on an ‘ever free’ or ‘zero-defect’ approach and ‘doing it
right first time’. At a strategic level, quality can be built into the planning of the
product or service, so that it confirms to design specifications and processes are
introduced to get it right time.
These process controls are also applied to people in attempting to assess those
parts of their work which can be measured. For example, salesmen are subject
to sales targets which may be in terms of the number of sales or their value.
Doubled lazing sales are often based on this system, so that the people
employed to make the initial approach to households may be rewarded
according to the number of sales interviews they arrange.
The salesmen are then paid according to the value of the sales they make. In a
similar way, the work of people in telesales can be monitored by a central
control system so that the number of calls per hour or per day and the number
of successes can be measured precisely.
More general control methods used in organization to encourage on high level
of efficiency and effectiveness in employees in include Quality Assurance (QA)
and QUEST (Quality in Every Single Task). QA supports teams of employees with
systems and resources to help them understand the quality characteristics of
their products and services and to undertake quality controls.
QUEST is based on the idea that every individual or group in an organization is
both a customer and a supplier to other people in the organization; and
considers how best they can meet the needs of their ‘customer’ and ‘suppliers’
Key Result Area (KRA) is a technique aimed at focusing on realistic outcomes for
each team or individual by identifying a range of quality characteristics for the
team which are consistent with the company’s strategy, and the agreeing
realistic standards for each of these quality characteristics and devising a system
which can be measured and monitored.
Total Quality Management (TQM) is based on the idea that managers are so
some of their objectives, within a broad version, that all employees in the
organization have both-a clear focus on their aims and goals and an
understanding of the context in which they are working as well as taking
responsibility for work over which they have control.
Quality improvement and accountability then become a question of peer
pressure within the ‘internal customer’ framework and quality improvement is
a responsibility in which everyone actively participates “strategic control can be
described as the continuous critical evaluation of plans, inputs, processes and
outputs to provide information for future action” controls are concerned with
what has happened but are also aimed at anticipating what may happen.
The control of manufacturing processes by sampling and testing the products
occurs after the processes have taken place. Control applied through the
company culture and by quality assurance systems are attempts to provide a
situation where problems are anticipated.
For example, public relations is both about the quality of the relationships with
customers and others, and is also about the way of achieving favorable
relationships Publicity and public relations attempts to maintain the reputation
of an organization and to enhance it, so that it is not just concerned with reacting
to problems but also with encouraging an environment that enables the
organization to work through problems without losing its good reputation.
For example some toilets soaps have strong reputation for being reliable and
when a particular brand soap proves to be unreliable this is the ‘example that
proves the rule’ in the sense that it is seen to be very unusual and therefore does
not dent the reputation of the company.
In order to exercise Strategic control, managers have to take four steps.
These steps are:
1. Setting performance standards,
2. Measuring actual performance,
3. Analysing variance, and
4. Taking corrective actions.

1. Setting Performance Standards:

Every function in the organizations begins with plans which specify objectives or
targets to be achieved. In the light of these, standards are established which are
criteria against which actual results are measured. For setting standards for
control purposes, it is important to identify clearly and precisely the results
which are desired. Precision in the statement of these standards is important.
After setting the standards, it is also important to decide about the level of
achievement or performance which will be regarded as good or satisfactory. The
desired level of performance should be reasonable and feasible. The level should
have some amount of flexibility also, and should be stated in terms of range—
maximum and minimum.

2. Measuring Actual Performance:

The second major step in control process is the measurement of performance.
The step involves measuring the performance in respect of a work in terms of
control standards. The presence of standards implies a corresponding ability to
observe and comprehend the nature of existing conditions and to ascertain the
degree of control being achieved.
The measurement of performance against standards should be on a continuous
basis, so that deviations may be detected in advance of their actual occurrence
and avoided by appropriate actions. Appraisal of actual or expected
performance becomes an easy task, if standards are properly determined and
methods of measuring performance can be expressed explicitly.

3. Analysing Variance:
The third major step in control process is the comparison of actual and standard
performance. It involves two steps – (i) finding out the extent of variations, and
(ii) identifying the causes of such variations. When adequate standards are
developed and actual performance is measured accurately, any variation will be
clearly revealed. When the standards are achieved, no further managerial action
is necessary and control process is complete.
However, standards may not be achieved in all cases and the extent of variations
may differ from case to case. When the variation between standard and actual
performance is beyond the prescribed limit, an analysis is made of the causes of
such a variation. For controlling and planning purposes, ascertaining the causes
of variations along with computation of variations is important because such
analysis helps management in taking up proper corrective actions.

4. Taking Corrective Actions:

This is the last step in the control process which requires that actions should be
taken to maintain the desired degree of control in the system or operation. An
organization is not a self-regulating system such as thermostat which operates
in a state of equilibrium put there by engineering design. In a business
organization, this type of automatic control cannot be established because the
state of affairs that exists is the result of so many factors in the total
environment. Thus, some additional actions are required to maintain the
control.

Such actions may be on the following lines:

a. Improvement in the performance by taking suitable actions if the
performance is not up to the mark; or
b. Resetting the performance standards if these are too high and unrealistic; or
c. Change the objectives, strategies, and plans if these are not workable.

In an organization, control may be exercised at three stages of an action – (i)

evaluation of inputs and taking corrective actions before a particular sequence
of operation of an action is completed, known as feed forward control; (ii)
evaluation of the action and taking corrective actions during the operation of
the action, known as concurrent, real-time, or steering control; and (iii)
evaluation of results of the action taking corrective actions after the action is
completed so that the same type of action produces desired results in future,
known as feedback control.
Traditionally, control has been based on feedback control, known as operational
or management control. However, many management experts have questioned
the efficacy of feedback control in the dynamic environment in which businesses
operate.
In order to overcome this problem, they have suggested strategic control which
operates on the principle of feed forward and concurrent control taking into
account the changing assumptions, both external and internal, on which a
strategy is based, continually evaluating the strategy as it is being implemented,
and taking the corrective actions to adjust the strategy according to changing
conditions or taking necessary actions to realign strategy implementation.
For strategic control, the following questions are relevant:
1. Are the premises made during the strategy formulation process proving to be
correct?
2. Is the strategy being implemented properly?
3. Is there any need for change in the strategy? If yes, what is the type of change
required to ensure strategic effectiveness?
Operational control focuses on the results of strategic action and is aimed at
evaluating the performance of the organization as whole, different SBUs, and
other units.
The relevant questions for operational control are:
1. How is the organization performing?
2. Are the organizational resources being utilised properly?
3. What are the actions required to ensure the proper utilisation of resources in
order to meet organizational objectives?
Strategic control and operational control both differ from each other in terms of
their aim, main concern, focus, time horizon, and techniques used.

Strategic control, though very important phase of strategic management is often

overlooked by strategists on the premise that once they have formulated a
strategy and implemented it, their role in strategic management is over. They
remain mired with daily control reports which can be taken even at lower levels.
This approach may be alright when there is not high stake involved in a strategy
but fatal when the stake is high. Without strategic control, strategists have no
means to measure whether the chosen strategy is working properly or not.
When strategic control is undertaken properly, it contributes in three specific
areas:
1. Measurement of organizational progress,
2. Feedback for future actions, and
3. Linking performance and rewards.
1. Measurement of Organizational Progress:
Strategic control measures organizational progress towards achievement of its
objectives. When a strategy is chosen, it specifies the likely outcomes which are
relevant for achieving organizational objectives. The strategy is not an end in
itself; it is a means for achieving something valuable to organizational success.
Therefore, measuring this success as a result of strategy implementation is a
prime concern for every strategist. This measurement should be undertaken
during the process of strategy implementation as well as after implementation
to ensure the progress as quickly as possible so that remedial actions are taken
at appropriate time.
2. Feedback for Future Actions:
Strategic management being a continuous process with no apparent beginning
and end, control provides clues for recycling various actions which are relevant
for achieving organizational objectives. This is possible only when strategic
planning and control are well integrated.
Thus, control activities are undertaken in the light of criteria set by a strategic
plan. But at the same time, control provides inputs either for adjusting the same
strategic plan or taking future strategic plans. This is the way organizations
progress over the period of time. They take a strategic action, implement it, and
find its results. If the results are in tune with what were intended, the similar
types of strategic actions are taken in future. Thus, there is a chain of strategic
plan, actions, and control.
3. Linking Performance and Rewards:
This is the most crucial aspect of strategic control but many organizations fail in
linking performance and rewards. This happens not only at the level of different
organizations but even for a country as a whole. For example, Abegglen has
observed that “the dispension of part of the rewards by the organizations
without regard to performances is more common in the less modern parts of
the country than in the more advanced ones, and in less developed than in more
developed countries. It is one of the reasons why organizational control is less
effective in less developed countries.”
Thus, linking performance and rewards is a big issue. If taken objectively, control
provides inputs for relating performance and rewards. This linking is vital for
motivating organizational personnel more so in an era when there is not only
fight for market share but for human talent too. A performance-based
motivation system works better than the one which considers factors other than
performance.

Since strategic control is a part of strategic management process, all those

persons who participate in strategy formulation and implementation should also
participate in strategic control, except those who act in advisory capacity. Board
of directors, chief executive, other managers, corporate planning staff, and
consultants participate in strategic management process. Out of these,
corporate planning staff and consultants act either advisors or facilitators.
Thus, three groups of personnel are actively involved in strategic control though
their areas of control differ. In some cases, outside agencies like financial
institutions or government, mostly in the case of public sector enterprises, also
participate in strategic control either through their participation in board of
directors or having power to interfere with management practices. However,
the role of financial institutions in strategic control is quite limited except
through their nominees on board of directors.
In the case of public sector enterprises, the role of government in strategic
control is performed through nomination of board members and through
controlling ministries of particular enterprises. In some specific situations,
authorities may be constituted at above the board level to evaluate the
performance of group companies.
For example, Tata Group has set up Group Executive Office (GEO) and Business
Review Committees (BRCs) to review the performance of group companies
numbering about one hundred. If we exclude these cases, the role of board of
directors, chief executive, and other managers in strategic control is quite
significant.
1. Role of Board of Directors:
Board of directors of a company, being the trustee of shareholders’ property, is
directly answerable to them. Thus, board should be directly involved in strategic
control. However, since board does not participate in day-to-day management
process, it evaluates the performance of the company concerned after certain
intervals in its meetings. Therefore, the role of board of directors is limited to
controlling those aspects of the organizational functioning which have long-term
implications.
Such aspects are overall financial performance, overall social concern and
performance, and certain key management practices having significant impact
on organization’s long-term survival. Generally, the control information used by
the board is concise but comprehensive as compared to control reports used at
lower levels.
2. Role of Chief Executive:
The chief executive of an organization is responsible for overall performance.
Therefore, his role is quite crucial in strategic control. Though he is not involved
in evaluation of routine performance which is left to other managers, he focuses
his attention on critical variations between planned and actual. Generally, he
applies the principle of management by exception which is a system of
identification and communication of that signal which is critical and needs the
attention of a high-level manager.
Depending on the size of the organization, the chief executive’s role varies in the
context of control on day-to-day basis. In a smaller organization, the chief
executive may, perhaps, be interested in daily production and cost figures, but
in a large organization, these become unimportant for him from his control point
of view. Thus, in a large organization, the chief executive is more involved on
controlling through return on investment, value added, and other indicators
which measure performance of overall organization.
3. Role of Other Managers:
Besides board of directors and chief executive, other managers are also involved
in strategic control. These are finance managers, SBU managers, and middle-
level managers.
Their role in strategic control is as follows:
i. Finance managers are primarily concerned with finding out deviations
between planned and actual performance expressed in monetary terms. These
are done through financial analysis, budgeting, etc.
ii. SBU manners are responsible for overall control of their respective strategic
business units. In fact, they are the chief executives of their own SBUs except
that they report to the chief executive of the organization from whom they seek
directions.
iii. Middle-level managers, mostly functional managers and sub-unit managers,
are responsible for control of their respective functions and sub-units. These
managers are more concerned with day-to-day operational control and prepare
reports to be used by higher-level managers. For example, a production
manager is more interested in controlling production volume, production cost,
product quality, etc.

Strategic control operates in the context of various organizational systems. An

organization develops various systems which help in integrating various parts of
the organization. The major organizational systems are – information system,
planning system, development system, appraisal system, and motivation
system. All these systems play their role in strategic control. Some of these
systems are closely and directly related and some are indirectly related to
control.
For example, information system is closely linked to evaluation as it provides
clue as to how the organization is progressing. Development system, on the
other hand, is not closely linked to evaluation system but undertaken as a post-
control action. In the light of this, let us see how various organizational systems
play their role in strategic control.
1. Information System:
Control action is guided by adequate information from the beginning to the end.
Management information and management control systems are closely
interrelated; the information system is designed on the basis of control system.
Every manager in the organization must have adequate information about his
performance, standards, and how he is contributing to the achievement of
organizational objectives. There must be a system of information tailored to the
specific management needs at every level, both in terms of adequacy and
timeliness.
Information system ensures that every manager gets adequate information. The
criterion for adequacy of information to a manager is his responsibility and
authority, that is, in the context of his responsibility and authority, what type of
information the manager needs. This can be determined on the basis of careful
analysis of the manager’s functions. If the manager is not using any information
for taking certain action, the information may be meant for informing him only
and not falling within his information requirement.
Thus, an effective control system ensures the flow of the information that is
required by an executive, nothing more or less. There is another aspect of
information for control and other functions, that is, the timeliness of
information. Ideally speaking, the manager should be supplied the information
when he needs it for taking action. For correcting the deviation, timely action is
required by the manager concerned.
For this purpose, he must have the information at proper time and covering the
functioning of a period which is subject to control. The control system functions
effectively on the basis of the information which is supplied in the organization.
However, the information is used as a guide and on this basis, a manager
identifies what action can be taken.
2. Planning System:
Planning is the basis for control in the sense that it provides the entire spectrum
on which control function is based. In fact, these two terms are often used
together in the designation of the department which carries production
planning, scheduling, and routing. It emphasises that there is a plan which
directs the behaviour and activities in the organization. Control measures these
behaviour and activities and suggests measures to remove deviation, if any.
Control further implies the existence of certain goals and standards. These goals
are provided by the planning process. Control is the result of particular plans,
goals, or policies. Thus, planning offers and affects control. Not only that, the
planning is also affected by control in the sense that many of the information
provided by control is used for planning and re-planning. Thus, there is a
reciprocal relationship between planning and control.
Since planning and control systems are closely interlinked, there should be
proper integration of the two. This integration can be achieved by developing
consistency of strategic objectives and performance measures. Prescribing
performance measures which are strategically important is quite significant
because often it is said “what you measure is what you get.” In developing
performance measures, two considerations must be taken into account.
First, the performance measures should focus on whether short-term
profitability, or growth and technological ascendancy, or logistic efficiency, or
some other objectives should be of primary concern. Second, the measures
should relate to the managerial domain of each of the managers as each of them
is responsible to exercise control in his own domain.

3. Development System:
Development system is concerned with developing personnel to perform better
in their present positions and likely future positions that they are expected to
occupy. Thus, development system aims at increasing organizational capability
through people to achieve better results. These results, then, become the basis
for control.

4. Appraisal System:
Appraisal or performance appraisal system involves systematic evaluation of the
individual with regard to his performance on the job and his potential for
development. While evaluating an individual, not only his performance is taken
into consideration but also his abilities and potential for better performance.
Thus, appraisal system provides feedback for control system about how
individuals are performing.

5. Motivation System:
Motivation system is not only related to control system but to the entire
organizational processes. Lack of motivation on the part of managers is a
significant barrier in the process of control. Since the basic objective of control
is to ensure that organizational objectives are achieved, motivation plays a
central role in this process. It energises managers and other employees in the
organization to perform better which is the key for organizational success.

In putting the control process in operation, two basic issues are involved- what
to control and how to control. The first issue is related to the identification of
those factors on the basis of which degree of business success is determined.
The second issue involves the use of various control techniques. The first issue
is taken here while the second issue will be taken later.

The success of any organization, whether business or non-business, is measured

in terms of its objective achievement. Since an organization may pursue a
number of objectives simultaneously, and these may be expressed in different
forms, there are a number of criteria which are used for control.
These criteria are grouped into three categories:
1. Causal factors
2. Intervening criteria and
3. End-result criteria.

1. Causal Factors:
Causal factors are those that influence the course of development in an
organization. These are independent variables and affect intervening criteria
and through these, end-result criteria. For example, strategy formulation and its
implementation affect various product, customer, and personnel related
criteria. These, in turn, affect different end-result criteria which are used,
generally, to measure business performance.

2. Intervening Criteria:
Intervening criteria are those factors which are reflected as the internal state of
the organization. These are caused by causal factors and, therefore, cannot be
changed independently except by changing causal factors; in this case, type of
strategy and its implementation.
For example, personnel attitudes and morale, an intervening criterion, cannot
be changed unless there is a suitable change in organizational design, systems,
and leadership— all being elements of strategy implementation. Intervening
criteria are, generally, grouped into three categories- product, customer, and
personnel related.
An illustrative list of intervening criteria is given below:
i. Product-Related Criteria:
a. Product quality and performance
b. Product cost and price
c. New products introduced
ii. Customer-Related Criteria:
a. Customer service
b. Customer satisfaction
c. Customer loyalty
iii. Personnel-Related Criteria:
a. Attracting and retaining human talent
b. Personnel ability and skills
c. Personnel motivation and attitudes to work

3. End-Result Criteria:
End-result criteria are those factors which are caused by causal and intervening
factors and are often in terms of the criteria in which organizational success is
measured. These factors are highly dependent and, therefore, cannot be
changed except by changing the factors responsible for these. End-result criteria
are grouped into two broad categories- financial performance and social
performance.

Given below is the illustrative list of these criteria:

i. Financial Performance:
a. Rate of growth –
(a) Sales growth
(b) Asset growth
(c) Market share
b. Profitability
(a) Profit-sales relationship
(b) Return on investment
c. Shareholder value

ii. Social performance:

Degree of satisfaction of various stakeholders.
After identifying various control criteria, let us see what criteria are adopted in
practice. First, we shall see what criteria a business publication uses for
measuring performance of various companies. This will be followed by criteria
used by two leading companies.
Financial Express, a daily financial newspaper, uses the criteria for selecting the
best company of the year.
i. Psychological barriers and
ii. Lack of direct relationship between performance and rewards.

i. Psychological Barriers:
Managers are seldom motivated to evaluate their strategies because of the
psychological barriers of accepting their mistakes. The strategy is formulated by
top management which is very conscious about its sense of achievement. It
hardly appreciates any mistake it may commit at the level of strategy
formulation. Even if something goes wrong at the level of strategy formulation,
it may put the blame on the operating management and tries to find out the
faults at the level of strategy implementation.

This over-conscious approach of top management may prevent the objective

evaluation of whether correct strategy has been chosen and implemented. This
may result in delay in taking correct alternative action and bringing the
organization back at satisfactory level. This happens more in the case of
retrenchment strategy, particularly divestment strategy where a particular
business has failed because of strategic mistake and in order to save the
organization from further damage, the business has to be sold.

ii. Lack of Direct Relationship between Performance and Rewards:

Another problem in motivation to evaluate strategy is the lack of direct
relationship between performance achievement and incentives. It is true that
performance achievement itself is a source of motivation but this cannot always
happen. Such a situation hardly motivates the managers to evaluate their
strategy correctly. This happens more in the case of family-managed businesses
where professional managers are treated as outsiders and top positions,
particularly at the board level, are reserved for insiders.

Naturally, very bright managers are not motivated to evaluate correctness or

otherwise of their strategy. The family managers of such organizations are even
more prone to psychological problem of not evaluating their strategy and admit
their mistakes.

Thus, what is required for motivating managers to evaluate their performance

and strategy is the right type of motivational climate in the organization. This
climate can be set by linking performance and rewards as closely as possible.
This linking is required not only for the top level but for the lower down in the
organization too. Many forward-looking companies, though few in number,
have taken this step when they have adopted the policy of taking board
members from outside their families and friend groups.

These companies have taken this step not only to satisfy the requirements of
financial institutions of broad basing the directorship but they have taken this
step to motivate their top-level managers. Naturally, top managers in such
companies can take any step to fulfil the organizational requirements including
the evaluation of their strategy.

2. Operational Problems:
Even if managers agree to evaluate the strategy, the problem of strategic
evaluation is not over, though a beginning has been made. This is so because
strategic evaluation is a nebulous process; many factors are not as clear as the
managers would like these to be. These factors are in the areas of determination
of evaluative criteria, performance measurement, and taking suitable corrective
actions. All these are involved in strategic control. However, nebulousness
nature is not unique to strategic control only but it is unique to the entire
strategic management process.

Power of Conflict Techniques of strategic evaluation & control-case study

Without a go-to conflict resolution technique for your workplace, two very
different individuals may have a hard time communicating while under stress.
That's why it's essential for managers and employees alike to understand each
team member's typical way of handling conflicts, as well as how to implement
conflict resolution techniques. But is there a right way to address conflict in the
workplace? As it happens, there are five different "personalities" or techniques
people use when faced with conflict: avoidance, competition, accommodation,
compromise and collaboration. The way you handle conflict may feel totally
normal to you but foreign to another person, so there's only one ideal solution:
collaboration.

As a manager, you manage not only projects but also personalities. Sometimes,
strong personalities can lead to tension that ultimately affects the success of the
project. It's in everyone's best interest to successfully handle conflict at work.
Read on to learn about the difference between these two conflict resolution
techniques, why collaboration is ideal and how to implement conflict-resolution
strategies in the workplace for the best outcomes.
The Relative Nature of Conflict and Its Resolution
Personality and upbringing influence the way we handle conflict. Think about it
this way. In some households, it's completely normal to walk away from conflict
and never bring it up again. In other families, problems are discussed rationally
until a compromise is reached, while some families resolve their problems with
dramatic flair.

Imagine having three team members who were each raised in a different one of
these environments. One is going to walk away, another is going to attempt to
have a conversation and the third might raise her voice and become emotional.
Each one thinks they're handling conflict in a normal way and views the behavior
of the other two co-workers as odd. Conflict management's definition is an
attempt to bring everyone on the same page with a process for addressing
difficult scenarios. However, for these techniques to be successful, each
employee must be trained in the process to give everyone common ground.
Understanding Your Team's Makeup
The first conflict resolution strategy involves getting into a team huddle to
discuss conflict management before a problem occurs. While workplace
conflicts can happen between employees and upper management or employees
and customers, most conflicts occur between employees who spend most of
their time together. Ask everyone to think about how they are most comfortable
handling conflict in their daily lives. Common ground might exist already.
Five common conflict resolution behaviors are:
▪ Avoidance
▪ Competition
▪ Accommodation
▪ Compromise
▪ Collaboration

Avoiding the Conflict

Avoidance involves walking away and ignoring the conflict entirely, doing
nothing that might be perceived as rocking the boat. This feels safe to the
individual but does not solve the problem. The problem might even worsen if
it's left unaddressed.

In a team setting, one person may pick up the slack of a co-worker who avoids
conflict, which can lead to frustration and resentment. If everyone on the team
has an avoidance strategy, productivity is low when a problem arises because
no one wants to step up to the plate.

It's easy for someone who leans toward this conflict resolution style to
accommodate another person's wishes because they'd rather agree with
someone to resolve the conflict. However, their needs don't get met this way,
which can cause problems down the road.
Competing to Win Conflicts
Some people view conflict as a chance to win. They have no interest in
compromising, collaborating or avoiding the conflict. They want to get their way
and aren't afraid to assert their opinions.

In a team environment, a competitive attitude toward conflict can easily slide

into bullying. It can also cause frustration among co-workers who don't feel like
their points of view are taken seriously. As frustration builds, co-workers can
end up taking a competitive approach to conflict resolution, and the problem
escalates.

Compromise represents the only option that allows someone with this mindset
to win, although settling on a compromise can still involve a power struggle.
Accommodating the Other Person
Team members who aren't necessarily afraid to talk through conflict may
nonetheless never have any demands of their own. Instead, they bend over
backward to accommodate the other person's demands and iron out the
conflict.

An accommodating conflict resolution technique does not allow all viewpoints

or information to be brought to the table. Accommodating people inevitably
hold back their frustration or downplay their feelings. Over time, this can cause
frustration to build and leads to an expectation among the assertive co-workers
that they'll always get their way.
Ideally, accommodating people can be encouraged to state their needs during
conflict management sessions to move toward collaboration.

Compromising During Conflicts

A compromising conflict resolution strategy aims to settle on a solution that's
deemed fair. Everyone works together, so no one completely gets their way.
Instead, each team member makes a sacrifice to ensure everyone has a small
consolation prize.

Compromise sounds excellent at the outset, but a solution that's fair is not
always a solution that's effective. This conflict resolution strategy is still too
focused on competition and misses a major point: What does each person need?
That's where collaboration comes into play.
Collaborating to Find a Solution
Collaboration maximizes the assertiveness and cooperation capabilities of each
team member. Everyone speaks up to state their needs, and after the full picture
has been painted, the team cooperates to do what's necessary to meet
everyone's needs to the greatest extent possible. Everyone leaves happy. Of
course, collaboration may not always be possible, but it's worth striving for. Too
often, conflicts arise due to misunderstandings and poor communication. If
everyone on the team is willing to state their needs and help meet the needs of
others, a truly collaborative environment is born.
Coaching Your Team Toward Collaboration
After you have your team together and understand the kind of conflict
resolution technique each person typically falls back on, you can give them
personalized guidance in what they need to do to collaborate at work. Some
team members may need to be more assertive, and others may need to be more
cooperative. You can act as a mediator in the early stages and help individuals
through the process.

In theory, each person involved in the conflict states their needs. After that, they
brainstorm a resolution that meets those needs. When both parties agree on
the resolution, it's time to implement it. As time goes on, your team will become
comfortable enough with the process to handle it themselves, seeking your
guidance only when they feel stuck.

However, the process is not straightforward in practice. Real-life is messy, and

real people are emotional. You should set some ground rules to make sure
conflict management sessions remain focused and don't spiral into finger-
pointing behavior.
Ground Rules for Conflict Resolution Techniques
Give your team some autonomy in this process by allowing them to give input
on the ground rules. The list doesn't need to be long, but it needs to cover what
co-workers expect from each other when there's a problem. Set this up ahead
of time, before anyone loses their cool due to a conflict.
For example, "I" language is recommended for conflict management instead of
"you" or "they," which typically precedes a statement of blame. Instead, if team
members focus on saying "I," they take ownership of the situation and narrow
in on what they can do to solve it. Another ground rule might be to only focus
on the issue at hand and not to bring up past examples of similar problems. This
allows the conversation to remain solution-oriented.

After all, the goal of conflict resolution in the workplace is to help everyone do
their job. There's no point in turning a conflict into a personal vendetta. Not
every decision is a personal strike against someone. For successful conflict
resolution, focus on the job and what's needed to accomplish it.
The Manager's Role in Conflict Resolution
Although you should train your employees to handle conflict according to the
guidelines established as a company or team, you play a pivotal role as a
manager in curtailing conflict and resolving it. Have you ever considered that
you may inadvertently create conflict within your team? Success starts with
giving clear instructions and ensuring your team understands your expectations.
Be as specific as you can when assigning tasks and covering the who, what,
when, where, why and how. Be sure not to trespass into micromanagement
territory when you do.
Learn how to be an active listener. Listen with the intent to understand, not to
reply, and use your body language to show the speaker that you are attentive
and following along. Remain professional and unbiased in all of your interactions
to earn and maintain the respect of your team. Avoid meeting with people
individually. Group meetings ensure there are no doubts about special
treatment behind closed doors.

If there's a chance that someone might misconstrue your message or tone in an

email, pick up the phone. If you're setting unreasonable deadlines and creating
a bottleneck somewhere, fix it. You might not realize that you contributed to a
problem until you're mediating a conflict resolution session, in which case you
should speak up and state your own needs and become an active participant in
the collaboration session. Bring in someone else to act as the mediator if
needed, as this will showcase your integrity and earn your team's respect.
Know When to Take a Break
Sometimes everyone needs to take a break before they can come together,
follow the ground rules and collaborate to get things done. If you feel like
emotions are running higher than normal, suggest that everyone take a 10-
minute break to let off some steam before beginning the conflict resolution
session. A brisk walk outside, some alone time listening to music or deep
breathing techniques can calm nerves.

It can also be helpful to encourage people to take their time responding during
the moment. Give everyone a turn to speak during which they are not
interrupted. This gives them some time to gather their thoughts and truly
respond, not knee-jerk react, to what has been said. It also prevents a strong
personality from dominating the session.

Finally, if you notice that you're spending an inordinate amount of time resolving
conflicts, especially those involving the same people, you may need to ask for
help. Someone higher up in the company may have more conflict resolution
experience and can guide you, or you can consult with a conflict management
coach. However, as much as you try to solve conflicts, sometimes, you may end
up trying to fit a square peg in a round hole. A position on a different team in
the company might work out better for an employee who can't get along with a
current team member.