Strategic Management 408 v2 PDF

Strategic Management
Developed By
AS Pillai, PCC (ICF)
On behalf of
Prin. L.N.Welingkar Institute of Management Development & Research
Advisory Board
Chairman
Prof. Dr. V.S. Prasad
Former Director (NAAC)
Former Vice-Chancellor
(Dr. B.R. Ambedkar Open University)
Board Members
1. Prof. Dr. Uday Salunkhe  2. Dr. B.P. Sabale  3. Prof. Dr. Vijay Khole  4. Prof. Anuradha Deshmukh 
Group Director  Chancellor, D.Y. Patil University, Former Vice-Chancellor  Former Director 
Welingkar Institute of Navi Mumbai  (Mumbai University) (YCMOU)
Management Ex Vice-Chancellor (YCMOU)
Program Design and Advisory Team
Prof. B.N. Chatterjee Mr. Manish Pitke

Dean – Marketing Faculty – Travel and Tourism
Welingkar Institute of Management, Mumbai Management Consultant
Prof. Kanu Doshi Prof. B.N. Chatterjee

Dean – Finance Dean – Marketing
Welingkar Institute of Management, Mumbai Welingkar Institute of Management, Mumbai
Prof. Dr. V.H. Iyer Mr. Smitesh Bhosale

Dean – Management Development Programs Faculty – Media and Advertising
Welingkar Institute of Management, Mumbai Founder of EVALUENZ
Prof. B.N. Chatterjee Prof. Vineel Bhurke

Dean – Marketing Faculty – Rural Management
Prof. Venkat lyer Dr. Pravin Kumar Agrawal

Director – Intraspect Development Faculty – Healthcare Management
Manager Medical – Air India Ltd.
Prof. Dr. Pradeep Pendse Mrs. Margaret Vas

Dean – IT/Business Design Faculty – Hospitality
Welingkar Institute of Management, Mumbai Former Manager-Catering Services – Air India Ltd.
Prof. Sandeep Kelkar Mr. Anuj Pandey

Faculty – IT Publisher
Welingkar Institute of Management, Mumbai Management Books Publishing, Mumbai
Prof. Dr. Swapna Pradhan Course Editor

Faculty – Retail Prof. Dr. P.S. Rao
Welingkar Institute of Management, Mumbai Dean – Quality Systems
Welingkar Institute of Management, Mumbai
Prof. Bijoy B. Bhattacharyya Prof. B.N. Chatterjee

Dean – Banking Dean – Marketing
Mr. P.M. Bendre Course Coordinators

Faculty – Operations Prof. Dr. Rajesh Aparnath
Former Quality Chief – Bosch Ltd. Head – PGDM (HB)
Welingkar Institute of Management, Mumbai
Mr. Ajay Prabhu Ms. Kirti Sampat

Faculty – International Business Assistant Manager – PGDM (HB)
Corporate Consultant Welingkar Institute of Management, Mumbai
Mr. A.S. Pillai Mr. Kishor Tamhankar

Faculty – Services Excellence Manager (Diploma Division)
Ex Senior V.P. (Sify) Welingkar Institute of Management, Mumbai
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1st Edition(Jan-2014) 2nd Edition(Jan-2016)
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Contents
1.! Fundamentals of Strategic Management
2.! Analysis of the Industry and Competition
3.! External Environment Analysis
4.! Vision, Mission, Strategy and Objectives
5.! Corporate Level Strategy
6.! Business Unit Level Strategy
7.! Functional Level Strategy
8.! Strategy Formulation
9.! Strategy Implementation
10.! Strategy Evaluation and Control
11.! Globalisation of Strategy
12.! Strategic Leadership
13.! Corporate Governance
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FUNDAMENTALS OF STRATEGIC
MANAGEMENT
Objectives:
This chapter focuses on the fundamentals of strategic management. At the end of
the chapter, you will be able to understand the following:
•! Definition of Strategic Management
•! Importance and Relevance of Strategic Management
•! Strategic Planning and Strategic decisions
•! Levels of Strategy
•! Strategic Management Process
•! Role of Different Stakeholders
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FUNDAMENTALS OF STRATEGIC MANAGEMENT
Structure:
1.1! ! Introduction
1.2! ! Global Economic Scenario
1.3! ! Strategic Management Definition
1.4! ! Concepts and Approaches of Strategic Management
1.5! ! Importance and Relevance of Strategic Management
1.6! ! Limitations of Strategic Management
1.7! ! What is Strategy?
1.8! ! Strategic Positioning
1.9! ! Strategic Decisions
1.10! Levels of Strategy
1.11!! Structure and Role of Stakeholders
1.12! Strategic Management Process
1.13! Strategic Management-Indian Context
1.14! Summary
1.15! Self-Assessment Questions
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1.1 Introduction:
Strategic Management is an important cornerstone of today’s business
world. Strategic management over the years has evolved into a matured
process in many organisations. The very purpose of strategic management
is to align the organisation vision with the external world and create long
term value for stakeholders by unlocking the organisation’s potential,
resources, and its people’s wisdom and compassion. Thus, strategic
management process brings about a balanced execution between the
internal and external environments.
With the key ingredients of the business strategy changing very fast, like
adoption of digital and social business strategy or other forms of
technologies like social media, mobility, analytics and cloud (shortly called as
SMAC), it is also important to note that the strategies that worked in the past
may not work for the future. Today’s organisation needs to build newer
capabilities to stay ahead of the value curve and differentiate itself from the
rest of the market players.
The challenges arising out of formulation and implementation of strategies to
sustain a company’s success have placed greater pressure on the
leadership team of an organisation to respond to these challenges quickly
and decisively, yet responsibly in a fast changing world that is characterised
by hyper competition. A good or bad strategy could make or break the
company’s fortunes drastically. It is also to be noted that the difference in a
company’s success lies in its ability to execute the strategy as per the
strategic management process laid down by the company and stay focused,
by constantly reviewing it. Having a successful strategic management
process is the most important aspect of remaining successful in business.
Hence, Strategic Management becomes a critical business process for any
organisation which has a long term vision to be a leader in its business. This
book brings clarity on the concepts of strategic management and presents
the various stages involved in strategically analysing, formulating,
implementing, reviewing and controlling the strategic management process.
As the environment changes, the organisations may change their vision and
objectives to address the changing market requirements. Thus, the
organisation constantly refines its strategies, structure, products and
services, markets and competitive advantage.
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The course pack broadly provides insights into the following important
components of successful Strategic Management Process:
1.! Fundamentals of Strategy and Strategic Management
2.! Industry and Competition Analysis
3.! Internal and External Environment Analysis
4.! Different Levels of Strategy
5.! Strategy Formulation
6.! Strategy Implementation
7.! Strategy Review and Control
8.! Strategic Leadership
9.! Corporate Governance
Strategic Management is a four step process starting with the environment

analysis, pertaining to both the external and internal scenarios that an
organisation must consider before making a strategy – this comprehensive
exercise is called the PEST analysis. Then it moves to the strategy
formulation stage by doing the SWOT analysis, evaluating various strategic
options and alternatives and by making a choice on the appropriate ones
that help unlock the organisation potential and realise the vision.
The next step is the execution stage, where the process must ensure
meticulous implementation of the strategies agreed during the formulation
stage, by enabling and empowering the entire organisation. Finally, what is
of utmost importance is to evaluate and control the strategy in order to stay
focused on the execution as well as, make necessary changes and course
correction in tune with changes happening in the environments from time to
time. This process is a continuum and hence the process repeats itself in
order to evolve into a successful strategic management process for the
company.
1.2 Global Economic Scenario

Today’s global economic environment is filled with uncertainties and
challenges that we have never seen before. Since the great recession that
started during the year 2008 after Lehman Brothers collapse that triggered
global financial crisis (also known as the US sub-prime crisis), Corporates
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have been facing many challenges in terms of predictability of their

businesses. On the one hand they have to deal with the slowdown and
sluggish recovery, handle volatile and fragile nature of the markets, and on
the other hand they have to build capabilities to compete in fast changing
environment, to grow revenues and profits, optimise their costs and build
healthy balance sheets. Globally, enterprises have learnt to manage their
businesses well, have developed abilities to plan contingencies to ward off
potential threats to business. Particularly, Indian corporates have become
more mature as a result of recession and have built abilities to mitigate risks
arising out of uncertainties.
Since the great recession, most of the governments across the world
markets have been trying to fix their finances, like deficits and debts, and at
the same time devise policies to support GDP growth of their countries.
Central Banks have been trying to bring in stability to the currency markets
and capital markets. There were synchronised actions from the governments
and central banks of the G20 countries to calm the nerves of the global
investors and the financial markets. Besides G20, there are other forums like
World Economic Forum (WEF) that debate and agree on concerted actions
to stabilise the financial markets.
With the world now filled with new socio-economic challenges and new
order, Enterprises are all scrambling to sustain their businesses and be
innovative in their strategies to stay ahead. As said, coordinated actions
among the various governments, regulatory bodies and important
stakeholders are still work in progress, yet to give comfort that the worst for
the world economy is over.
Most Organisations have learnt to evolve their strategies in tune with market
environment and try to stay ahead so as to sustain their performance and
deliver value to stakeholders. The companies, which have stayed on high
growth path, are striving to come out with innovative ideas to introduce new
products and services to take their companies to the next growth trajectory.
One must believe that the strategies that worked earlier for an organisation
may not work the same way going forward. Therefore, it is all the more
important for organisations to demonstrate high discipline in formulating and
implementing a robust strategic management process to ensure they stay
focused on their mission.
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The world is shrinking with the introduction and availability of innovative

technologies. The world had never been better connected than now.
Technology is helping companies to innovate. On the one hand the
technological innovation is helping organisations to develop and execute
their strategies more effectively than in the past, to steer their companies on
the path to become star performers, on the other hand there have been a
marked increase in corporate governance issues, allegations of top
management wrongdoings including violation of insider trading policies,
scandals, corruption charges, and sexual harassment and integrity issues
that hamper the confidence of different stakeholders like investors,
customers, employees, partners and most importantly the business
environment at large.
These challenges have exerted greater pressure and onus on the leaders to
respond to strategic problems quickly and effectively. Once the organisation
reputation is damaged, it is almost impossible or it takes a very long time to
regain the brand name and its reputation.
With this backdrop, it is important that the strategic management process
has become an integral process and an important business tool to navigate
the execution of strategy. This has become a vital element of an
organisation, should a company aspire to achieve its business success and
purpose. This course book introduces the fundamentals of strategic
management, its relevance, importance and benefits in the organizational
context and the process of managing a company’s long term strategy.
1.3 Strategic Management Definition

It is important to note that Strategy plays a very critical role to the
organisation’s success in the market place. Strategic Management is even
more important than strategy and is a broader term as compared to strategy.
While Strategy refers to top management’s plans to develop and sustain
competitive advantage so that organisation’s mission is fulfilled, Strategic
management is a process that includes top management’s analysis of the
overall environment in which the organisation operates leading to formulation
of strategy, as well as the plan for implementation, evaluation and control of
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the strategy. Strategic Management also assesses whether or not the

strategy was successful.
“Strategic Management was once originally called “business Policy” few
decades back. Strategic management today has evolved into a dynamic tool
drawing upon a variety of frameworks namely Industry Organisation theory,
Resource based theory and Contingency theory.
1.! Industry Organisation theory
2.! Resource based theory
3.! Contingency theory
 
Strategic Management analyses the major initiatives taken by a company's
top management on behalf of owners, involving resources and performance
both with respect to internal and external environments. It entails specifying
the organization's vision, mission and objectives, developing policies and
plans, often in terms of strategic programs, which are designed to achieve
these objectives, and then allocating resources to implement the policies and
plans, projects and programs.
The difference between strategy and strategic management is that the latter
includes the analysis that must be done before a strategy should be
formulated through assessing whether or not the strategy would be
successful.
A balanced scorecard approach is often used to evaluate the overall
performance of the business by creating a set of leading indicators, and
monitoring and measuring the progress towards the set benchmarks and
objectives. Recent studies and leading management theorists have
advocated that strategy needs to start with stakeholders expectations and
use a modified balanced scorecard which includes all stakeholders.
This book reinforces the fact that Strategic management is a critical success
factor for an organisation and is an on-going dynamic process that evaluates
and controls the long term business performance of the company by
formulating and implementing a set of strategies. Strategic planning happens
every year for the next three year period with the individual business units
and functional units submitting their strategic plans (STRAPs) in line with
corporate policies and guidelines.
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This course discusses in detail and assesses the environment, its

competitors, sets goals and creates strategies to meet all existing and
potential competitors; then reassesses each strategy (at Corporate,
Business and Functional levels) annually or quarterly i.e. regularly to
determine how strategy has been implemented and whether it has
succeeded or needs replacement by a new strategy to meet the changed
circumstances, new technology, new competitors, a new economic
environment, or a new social and political environment, through a set of
managerial decisions and actions that’ll determine the long term
performance of an enterprise.
1.4 Concepts and Approaches of Strategic Management:

As one can clearly understand, Strategic management approach depends
upon the size of a firm, and the proclivity to change of its business
environment. These points are highlighted below:
• A large Enterprise or a global (MNC) organization may employ a more

structured strategic management model, due to its size, scope of
operations, and need to encompass stakeholder views and requirements.
• An SME (Small and Medium Enterprise) may employ

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

These are Classical, Processual, Evolutionary and Systemic approaches.
• Mintzberg stated there are prescriptive (what should be) and descriptive
(what is) approaches. Prescriptive schools are "one size fits all"
approaches that designate "best practices", while descriptive schools
describe how strategy is implemented in specific or customised contexts.
We will be seeing these approaches in the later chapter in detail. No single
strategic managerial method dominates, and it remains a subjective and
context-dependent process.
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1.5 Importance and Relevance of Strategic Management

As said earlier, Strategic Management is a vital process in an organisation.
The performance of a company will be best managed if it has a robust
strategic management process in place. In other words, the performances of
the companies that have proven strategic management profile are reflected
in their sustainable business models, financial results and profitable business
growth. They continually achieve excellence in execution of strategy. It is to
be noted that execution of strategy is the most important aspect for
remaining successful in business.
In today’s economic scenario, there is significant amount of uncertainty that
causes investors to look for opportunities of investment that carry less risk.
The risks associated with a particular business cannot be completely
avoided, but what really matters is the ability of the company to manage and
mitigate the risks through creation of a prudent strategy, governance
mechanism to manage its strategy, through meticulous analysis of the
external and internal environments, industry and competition landscape,
implementation of the strategy and most importantly the review and control
of the strategy. This in itself will ensure that the perceived risks are captured
proactively as part of the process and the management has formulated a
clear plan to mitigate those risks during the strategy implementation. Hence,
Strategic Management is of foremost importance to the success of any
organisation which aspires to become a leader in its space
The following are the important benefits of strategic management in an
organisation:
1. Strategic Management is a process that helps an organisation to build a
vision for its future, formulate a mission and strategy to achieve the
vision. Mission and objectives are the first step in the strategic
management process, which leads strategy formulation aligning it with
the mission and objectives. In India, in the pre-liberalisation era, most
companies did not have a credible vision or mission, it is only post-
liberalisation in 1991 that many companies started to realise the
importance of having a vision and mission for their companies. A clear
mission and strategy steer the company towards its purpose.
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2. The strategic management process helps the people to understand its

vision and what the organisation stands for, what are its strategy and the
road map for development and business growth.
3. It educates the people to understand the structure of the organisation
they are working for and what are the different levels of strategies at
Corporate level, SBU level and Functional level, thereby the individual
employees are aligned with the goals of the Corporation, SBU and
Functions respectively. With the envisioning process, it is expected that
people speak in one voice and are excited to create actions that deliver
business results.
4. Once the process is internalised, it facilitates better delegation,
coordination, monitoring, performance evaluation and overall control at all
strategic levels.
5. The identification of strengths and weaknesses may help an organisation
to take measures to leverage the strengths and overcome the
weaknesses. This will also help reinforce build inclusiveness and more
strength across the organisation.
6. The strategic management process also brings out a SWOT analysis that
helps the company to adopt suitable strategies to address the market
opportunities and ward off the threats posed by the external environment.
7. An organisation with strategic management will be constantly evaluating
both external and internal environments and making course corrections in
its strategies to make it more realistic, feasible and effective.
8. Strategic Management empowers an organisation to handle the
competition more effectively
9. Strategic Management makes the leadership team more dynamic and
defines strategies relevant to the market place
10.Mark-to-market strategies help the company to meet the customer
expectations and stay ahead, and not fall behind the curve
It is also to be noted that the companies that have a high discipline of
compliance and governance of its Strategic Management process will be in a
better position to manage risks well, minimise the impact and will be in a
position to sustain its performance over the long term. In short, strategic
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management may not eliminate risks completely as there could be many

unknown factors arising out of uncertainty in the global economy, but helps
to identify many of them as part of the strategic planning, creates a plan to
mitigate them, and minimise the impact on the organisation.
1.6 Limitation of Strategic Management:

While Strategic management is a vital process of an organisation, it comes
with its own limitations. Many large organisations succeed and few others fail
despite following strategic management process. At the same time there are
many small to medium size companies that succeed without having a
strategic management process. In large organisations, strategic
management should be an integral part of the strategy making process.
The organisation should not be over ambitious and in the process, unrealistic
strategies would lead to failures and frustrations. Strategic management
does not ensure unconditional success, but it is an evolved framework if
followed properly, does ensure the risks to the organisation are minimised to
a large extent.
The four step strategic management process is widely believed to provide a
common framework to the organisation to charter a strategy. It is based on
certain analyses and premises. The analysis should use authentic data, must
come out of due diligence and the strategic plans need to be realistic and
time-bound. The long term vision of the organisation should be broken down
into easily achievable mission and objectives. The time frame should be
broken down with clearly measurable milestones and expected results from
such action plans.
All the strategic options and alternatives must be evaluated thoroughly
before making the relevant and appropriate choices are made. Also,
feedbacks and inputs from different levels of people within the organisation
must be sought and genuinely considered before making a choice on
strategy. From an execution standpoint, however good the strategy is if the
implementation is not effective, then it will not produce the desired results.
Top management’s commitment, leadership and willingness to allocate
resources, and review and control are important to the execution of
strategies. Their expertise to give direction and empowering the people are
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crucial in building credibility, trust and inspiration of its people. Frequent

changes in management or frequent change in mission and strategies will
discourage people to get motivated. Uncertainty on the communication of
strategy can lead to the people following their own ways of implementing
strategy.
Change management, conflict management and understanding of the
strategic planning process are critical points that exert resistance or
indifference to the progress of the strategic management. The people of the
organisation need to be taken into confidence and strategic management
needs to be integral part of the organisation culture through a continual
learning initiative. Many organisations have institutionalised the learning and
development as part of the organisation development program.
As Michael Porter points out, there is no strategy that can be stretched
beyond the boundaries of a particular business. One of the great mistakes
made by companies in the past is that they attempt to apply a universal
strategy. This thinking leads companies into a trap, for example, like the
feeling that to win in the market, the company should have the largest market
share for their products or improve the time to market. However, there are
companies that have premium products with high lead times are also
successful in their own space. They need not hold highest market share in
the market place.
1.7 What is Strategy?

According to Michael Porter, there are three key underlying principles that
define strategy:
1. Strategy is the creation of unique and valuable position for the
organisation, involving different set of activities
2. Strategy requires the organisation to make trade-off’s i.e to choose what
not to do rather than just defining what to do
3. Strategy involves creating “fit” among an organisation’s activities
As said earlier, Strategy is a long term plan an organisation is willing to
pursue in order to get its mission and purpose fulfilled, by meticulously
following the above definition by and large. Mostly the strategy is built based
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on the company’s competitive advantage, traditionally within the boundaries

of the market place. It is assumed that the organisation has a long term plan
and has a fair knowledge about its competitive advantage and that the whole
organisation understands the purpose of its existence. However there were
challenges associated with defining a clear strategy.
There are, broadly, three categories or generations of companies in
existence in today’s world, namely: the old economy, traditional economy
and new world economy companies. In every economy, companies build
strategies to seize every growth and profit opportunities in the marketplace.
The first is the old economy companies which are part of the core industries
that drive the primary engines of the economy. In this category, the primary
products have become commodities and these companies are high volume
growth companies. We can give examples as the companies that represent
the core industries like steel, coal, mining, oil & gas, electricity generation,
fertilisers, cement, petrochemicals, minerals etc. Banking and financial
Services also form the core sector driving the economy. They are, in fact, the
growth engines of the economy.
Most companies in this economy have a strategy to consolidate their
operations, expansion and diversification of their businesses across other
core industries. They pursue large mergers and acquisitions to lead the
industry growth and in their aspiration to expand their geographical footprint
beyond a country or a continent to become a global company. Examples in
this category are Arcelor Mittal, Tata Corus, Reliance Industries acquiring
Shale Gas assets in the U.S based companies in pursuit of new exploration
to find new reserves of oil and gas – we can refer many examples here.
The second one is the Industries that have played a very important role to
make an impact on our traditional life style make-up: industries like the
automobiles, aviation, consumer electronics, consumer durables,
entertainment, retail, real estate, healthcare etc. Here, with the advent of
new technologies and new consumer preferences, they have been able to
quickly respond to the changing tastes of consumers, and introduce new
features and new offerings to enable lifestyle convenience to the customers.
These companies work within the traditional economy and always have
hyper competition, but are still able to create a new market space with new
products and services in their quest for staying ahead, by expanding the
boundaries of the market place. It has also emerged that the strategy
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formulation has gone beyond competing, but also aspiring to really create a
socio-economic impact to human lives, that brings us to the third category of
the market.
The third category is the new world economy where everything is powered
by IT and Internet. This Industry has created a virtual world around everyone.
To start with Indian IT Services, BPO and ITES Services companies are
good examples where off-shore and virtual services have been made
possible to its customers. Indian IT and BPO Industry have been a success
story and instrumental in garnering exports revenues worth $100 bn, most of
these happened in the last couple of decades or so.
The other companies include Social Media, Mobile, Online Music and
Movies, e-Commerce, e-Retail, etc. These companies mostly emerged in the
last decade, have changed the face of the world and the way the world
functions. There has been a marked difference in an organisation’s ability to
create a new market place beyond the boundaries of the traditional market
place through innovative ideas and unique strategies. As a result what we
see is that the companies who have the unique ability to execute innovative
ideas and strategies, and have actually grown faster than their traditional old
world rivals.
Anything as Service:
Thinking wildly, the next big thing one can anticipate and the one that would
take the strategy to the next level could be an organisation’s ability to offer
anything as a service to customers without actually having to own it but pay
for only the actual usage. With most of the services already connected on
the virtual world we are already experiencing the pay-as you-use-services.
This strategy works well in the areas like entertainment, music, digital
movies, mobility applications, cloud applications, social media, big data
analytics etc. There will be many new emerging service providers who will be
challengers with ability to disrupt the market with innovative products and
services, and become leaders in their space. The opportunities are in the
areas of innovative solutions and services that can be offered to both B2C
and B2B customers to address the personal and business requirements of
the customers respectively.
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1.8 Strategic Positioning:

Strategic positioning is the effort of an organisation to achieve sustainable
competitive advantage by continually preserving what is distinctive about the
company. It may also mean benchmarking different activities from the market
place as well as introducing best practices in performing different activities in
different ways. The key to success is not to get distracted by the short term
opportunistic goals that would hamper the company’s plans to achieve its
purpose, but to continuously focus on achieving the long term objectives of
the company.
Is strategy cost focused or value focused? Both the strategies work for
organisations which intend to take their own unique path. The strategic
management process brings out facts by analysing the underlying economic
structure of the external environment, choosing a strategic position of low
cost focus or value differentiation focus, to benchmarking the competition
vis-à-vis the resources the company is able to create.
Many companies adopt innovation or creative ideas to differentiate their
product or services offering. In the process, the organisation creates
uniqueness that the activities are not easily replicable by the competition. For
example, Southwest Airlines has a unique strategy to offer low cost and no
frills airlines services which when Continental Lite tried to match their
activities, the results were far from satisfactory as they could not replicate the
whole ecosystem of airlines operations.
It does not matter whether the product or the service is value based or
volume based, each organisation should create its unique positioning in its
market segment. We can give number of examples with contrasting
characteristics. Singapore Airlines Vs Southwest Airlines, Starbucks Vs Local
Coffee shop, Premium Wines Vs Yellow tail etc. The strategic positioning of a
company makes it difficult for its competitors to imitate its products or
services offerings. Here the strategy is all about going beyond the
boundaries of the traditional market place and create a market which makes
competition irrelevant.
Consider the strategic management process of an automobile company
trying to address a specific market segment, like for example the Tata Nano.
The first step is environment analysis, customer preference and assessment,
industry analysis and competition analysis.
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1.9 Strategic Decisions:

Developing a winning strategy is not an easy task, but not an impossible
one. How does an organisation think strategically and build a winning
strategy? What are the characteristics of strategic decisions? Here are the
key characteristics of strategic decisions.
1. It should be long term and future oriented, leveraging the company’s
wisdom & compassion
2. It should consider factors both internal and external influencing the
organisation
3. It should evaluate choices that could make winning proposition for the
organisation
4. It should be resilient enough to take advantage of favourable situations
by being discretely opportunistic
Strategic decisions could vary from choosing the right market segment, to
developing the right products and services, to building high levels skills to
differentiate the offerings, to generating cost effective financial resources, to
capex investments, to creating a partner ecosystem. It deals with multiple
dimensions and dynamics of the business environment. The top decision
makers in an organisation must understand the complex relationship
between the various factors across the business spectrum to take timely
decisions and create actions to see forward momentum in the company’s
progress. Not taking decisions can serve as bottle-necks to realise sustained
progress.
There could be situations wherein the decision makers would have to take
decisions that could impact the company’s profitability in the short term but
will bring in significant revenues and profits in the medium to long term if the
strategy is implemented properly.
For example, if the mission of the organisation is to develop a service that
needs highly skilled employees to perform the service, the decision might
increase the employee wages significantly but it is expected that highly
skilled employees deliver higher productivity and higher revenue realisation,
thereby offsetting the increase in employee cost in the long run. If the
mission of the organisation is to develop a high quality product with
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enhanced product features then the company would have to invest in state-
of-the-art technology equipment (that implies additional capex costs) to
enhance the quality of the product, but a higher quality product will attract
more customers thereby increasing the sales and revenues to the company
over a long term.
Keeping these complexities and sensitivities involved in mind, strategic
decisions are generally reserved for the top management team which is
expected to understand both the short term and long term implications of
certain decisions. Hence, for all practical purposes, the CEO, the SBU Head
and the Functional Head are collectively responsible for the organisation’s
strategic management. It is for these reasons that every organisation has an
Executive Council (EC) or Management Council (MC) represented by the top
management executives who strategically manage the organisation. It is
generally believed that the quality of strategic decisions improves
dramatically when more than one capable executive participates in the
process.
The quality of strategic inputs and the degree of involvement of top and
middle management leaders depend on the size of the organisation. Large
organisations generally take a structured approach to strategic management
process and have clearly defined guidelines for decision making process.
They even have delegation of authority (DoA) matrix to enable faster
decision making to support the business and its stakeholders. There is
greater awareness at different levels of the organisation structure the
importance of decision making and as to at what levels certain decisions are
made. It makes it easier to set expectations and turnaround time among
various stakeholders when such informed decisions are made.
The corporate level leaders do also engage outside consultants to help the
top management in the strategic management process. Once the strategic
guidelines are formulated at the corporate level, then the individual SBU
CEOs and its functional leaders like marketing, production, sales, marketing,
human resources, and finance spend quality time together to contribute
strategic inputs and ideas to take decisions within the corporate framework.
The degree of involvement of senior and middle managers in the strategic
management process will depend upon the corporate philosophy and how
far the process has matured over a period of time.
19
As part of the strategic management process, the top management seeks

inputs from the senior leadership and middle level leadership team members
directly and from other key employees indirectly. This process can be quite
beneficial as these inputs are incorporated in the strategic decision making
during the strategic management. Mostly, the market facing employees
contribute good ideas in new product development or new service
conceptualisation as these frontline employees understand the customers’
problems, requirements, preference and what the competition is offering or
doing in the market place. These inputs are presented to the top
management through their reporting managers. It is finally upto the
management council to decide whether to incorporate the ideas into the on-
going strategic planning process. This clearly explains how individual
employees play a role in the strategic management process.
Socio-economic concerns also play a critical role in the decision making
process. For example, any strategic decision to start a production facility on
a farm land or in a place where environmental clearances are required would
have an impact on a broader perspective. Similarly, the risk and reward
trade-off analysis is essential to take that strategic decision, as it involves
regulatory clearances, relocation, compensation, and it takes long time for
return on investments. Similarly, closing a facility and moving it to a lower
cost base will have impact on jobs and other economic concerns.
1.10 Levels of Strategy:

In a large business conglomerate or an enterprise having multiple lines of
business interests, there would be several Strategic Business Units (SBUs)
taking care of each line of strategic business and would also have different
functional units that drive the organisational strategy in tandem with the
corporate strategy. In a typical strategic management process, it is very
important to involve the SBU stakeholders and functional stakeholders to
arrive at the best road map for the organisation’s growth.
These levels of strategy are:
1. Corporate Strategy
2. SBU Strategy
3. Functional Strategy
20
Corporate Strategy:
Corporate strategy is the long term strategy encompassing the entire
organisation. Corporate strategy addresses the fundamental questions such
as what is the purpose of the enterprise, the vision, what businesses it
wants to pursue, and what is the expansion and diversification strategy of
each business mergers & acquisitions, define the business guidelines and
corporate governance to be followed by the SBUs and the functional units.
Organisational compliance is very important to achieve the stated goals. In
other words, corporate level strategic management is management of
activities which define the overall character and mission of the organization,
the products and service segments it will pursue or exit, the allocation of
resources and management of synergy among its SBUs and functions. The
corporate strategy is formulated by the top level corporate management
comprising of the chairman, the board of directors and the CEO. At the
corporate level, it is important that the firm communicates with all important
and relevant stakeholders about the various initiatives and events that
impact the organisation’s performance both positively and negatively in order
to gain trust and confidence.
SBU Strategy:
Every large corporate organization has interest in multiple lines of
businesses. Each business is of strategic importance to the achievement of
the corporate vision. Each strategic business will be responsible for the
creation of strategy for the products and services, critical decisions
pertaining to the product mix, defining the market segments, developing
competitive advantage for the SBU.
21
While corporate strategy decides the business portfolio, the SBU level
strategy decides the competitive advantage it needs to create to succeed
in the chosen business line(s). The SBU strategy has to conform to the
guidelines and governance mechanisms and the corporate philosophy and
strategy. The different SBUs in different lines of business segments work in
tandem with the Corporate to contribute to the overall organization success.
Functional strategy:
Functional level strategies are strategies that work in synchronization with
corporate strategy and SBU strategy for different functional areas like
production, sales and marketing, finance, human resources, customer
service etc. In other words, functional strategic management are meant to
create expertise, competence, competitive advantage, efficiency and
productivity which are vital to the achievement of the business goals.
Principles of good strategy:
According to Jack Welch, strategy is an organization’s ability to learn and
translate that learning into action rapidly for the ultimate competitive
advantage. A good strategy is a relative term depending on the stage in
which an organization is currently in and its evolution in the value chain.
The essence of strategy lies in creating tomorrow's competitive advantages
faster than competitors mimic the ones you possess today, as clearly
articulated by Gary Hamel & C. K. Prahalad.
As explained in the beginning of this chapter, there are three categories of
organizations from an industry evolution perspective; they are old economy,
traditional economy and new economy industries. A good strategy for a new
economy organization may be different from the old/traditional economy
organizations. Thus, it is relative to the structural evolution of the industry.
There is no one size fits all.
For example, the companies that operate in the traditional market place, a
good strategy is to create competitive products to beat the hyper
competition, while some companies are still able to create new market space
by introducing new products and services in their quest for staying ahead, by
expanding the boundaries of the market place.
22
The true purpose of an organisation is that it has to evolve a strategy that

goes beyond the competitive advantage, but also to really create a socio-
economic impact to human lives. This applies to all the categories of
Industries.
In the new world economy, a good strategy focuses on creating a unique
position and a unique value proposition either by staying unique or by
creating a new industry in itself. For eg Google, Facebook, Linkedin and
Twitter have created a unique space and leadership in the social media
industry, and they are able to demonstrate their leadership by going beyond
the competitive boundary and are well respected within their market space.
It is not just enough to be unique; a company has to evolve innovative
strategies to stay ahead in their industry. Like Steve Jobs said, "Innovation
distinguishes between a leader and a follower" ("The Innovation Secrets of
Steve Jobs," 2001). A good strategy is a thing that disallows the competition
to easily imitate or replicate its products and services (“Blue Ocean Strategy”
by W.Chan Kim, Renee Mauborgne).
1.11 Structure and Role of Stakeholders

Mission of an organisation decides the strategy and the strategy decides the
structure of the organisation. Structure is a carefully organised system of
different stakeholders at different levels, who have different levels of
authority to execute the strategy. The investors and shareholders in the
company participate in the profits of the company, without directly taking
responsibility for the operations. The management runs the company
professionally to achieve the strategy. The organization structure consists of
the following:
1. Board of directors
2. The top management consisting of the CEO, the SBU heads and the
Functional heads,
3. Finally, the operations team, comprising of the general managers and the
employees who are involved in the execution of the strategy.
23
Corporate structure is a mechanism established to allow different

stakeholders to contribute to the business like raising capital, building
expertise and developing resources to deliver corporate mission.
Board of Directors:
The investors or shareholders share the profits of the organisation, without
directly taking responsibility in the operations. However, their involvement
does include their right to elect / nominate the directors and create the board
of directors which is the supreme body of any corporate organisation, which
has a legal duty to represent the shareholders and protect their interests,
and hence play an important role in the corporate strategy making. As
representatives of the shareholders, the board of directors have both the
authority and responsibility to establish basic corporate policies and
guidelines, oversee governance, setting vision and direction of the company
and providing approvals to all critical decisions which might impact the
performance of the company in the long run. In other words, the board of
directors govern and oversee the top management and ensures that the
vision is translated into an executable strategy, with review by the board on
regular intervals.
The board does not formulate the strategy, but plays an important role in
setting the policies, corporate vision/ plans and guidelines that lead to the
strategy making. The board also plays a critical role in the planning,
evaluation, validation, review of the strategic management process and its
implementation at periodic intervals. The board has the power to appoint or
remove the Chief Executive Officer based on his ability to lead the top
management and performance in consistence with the board mandates. The
board effectively supervises these key components, in order to ensure the
top management follows them to deliver sustainable results:
1.! Governance
2.! Compliance
3.! Risk Management
24
Corporate Governance:
The term corporate governance refers to the management of relationship
between the three stakeholders in a corporate organisation namely: 1)
Shareholders 2) Board of directors and 3) Top management.
We have seen many instances of scandals and corruption charges
happening at the corporation level with examples such as Enron, WorldCom,
Global Crossing, Tyco, Qwest, Satyam Computer Services etc. It is because
of this, over the past decade, many shareholders and interest groups have
seriously questioned the role of directors in corporations and disclosures to
the shareholders. Their concerns include whether the fulltime directors and
independent directors possess sufficient knowledge, involvement in the
company and enthusiasm to adequately provide guidance to the top
management.
There are instances wherein the board is merely interested in keeping a
CEO happy for delivering performance at the cost of corporate governance,
overlooking standard best practices and exposing organisations to financial
and regulatory risks over a period of time. This includes strategic investment
decisions that are not evaluated properly leading to risks or boosting
performance of the organisation by artificially managing books and most
preposterously paying high salaries and incentives for such practices, which
is a breach of trust with all stakeholders keeping short term gains in mind.
The shareholders have of late become more aware of such malpractices
happening at the top management level and they force the board to remove
such errant CEOs.
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Case Analysis of Global Recession
The great recession in the U.S following the revelation of bankruptcy by the
global financial services firm Lehman Brothers, in 2008, marked the
beginning of another long drawn recession in the U.S and across the global
economies. The bursting of the U.S. housing bubble, also referred to as the
subprime crisis, caused the values of financial assets and securities tied to
U.S. real estate pricing to plummet, damaging financial institutions globally
and creating an interbank credit crisis.
25
This, as a result of the financial indulgence into sub-prime instruments and

unworthy derivatives, which were valued beyond its true worth (which led to
over inflated asset prices), showed the first signs of an interbank credit crisis
sometime in 2007, when the U.S subprime mortgage industry collapsed due
to higher-than-expected home foreclosure rates. More than 25 subprime
lenders declaring bankruptcy, announcing significant losses, or putting them
up for sale. It was also criticised the CEOs compensation was meteorically
high in the financial services sector companies and compensation paid for
the collateral damage to the world financial system.
The recession affected the entire world economy, with greater detriment to
some countries than others, but overall to a degree which made it the worst
global recession since World War II. It was a major global recession
characterised by various systemic imbalances, and was sparked by the
outbreak of the U.S. subprime mortgage crisis and financial crisis of 2007–
08. The economic side effects of the European sovereign debt
crisis, austerity, high levels of household debt, trade imbalances, high
unemployment, and limited prospects for global growth in 2013, continue to
provide obstacles for many countries to achieve a full recovery from the
recession.
The US mortgage-backed securities, which had risks that were hard to
assess, were marketed around the world. A more broad based credit boom
up till 2007 fed a global speculative bubble in real estate, equities and
derivative assets, which served to reinforce the risky lending practices. The
bad financial situation was made more difficult by a sharp increase
in oil and food prices across the world. The emergence of sub-prime
loan losses in 2007 began the crisis and exposed other risky loans and over-
inflated asset prices.
With loan losses mounting and the fall of Lehman Brothers on 15 September
2008, a major panic broke out on the inter-bank loan market. As share prices
and housing prices declined, many large and well
established investment and commercial banks in the United States
and Europe suffered huge losses and even faced bankruptcy, resulting in
massive public financial assistance. The global recession and financial
markets volatility still continues through the year 2013.
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26
Thus, it is very important to recognise that bad governance and lack of

checks and balances lead to erosion of investors’ confidence. It also causes
havoc in the world capital markets, stock prices of companies, market
capitalisation value and damages investors’ wealth in no time. Besides the
global recession, the cases of Lehman Brothers, Enron, WorldCom, Satyam
Computers etc are all different examples of badly managing the
organisations digressing from good practices and good governance.
As part of corporate governance and compliance and as per stock market
guidelines, it is important that the companies make regular disclosures to
market about the various initiatives and events that impact the organisation’s
performance both positively and negatively in order to gain trust with the
important stakeholders i.e., shareholders, investors, customers, employees,
partners etc. Bad decisions like an unfit acquisition can also erode the
market value of the company over time. The board has to be the watchdog of
corporate governance, compliance and risk management on a continual
basis.
There are two types of board directors. 1) Inside board director who are
fulltime executives and also hold a management position like a CEO or an
Executive Director in an organisation 2) Outside board director who are
industry experts and are independent Directors and hold no management
position. Independent directors provide independent perspective about the
evaluation, review and the direction of the company strategy. There could be
conflicts between the fulltime directors and independent directors at the
board level.
In a nutshell, the following are the primary responsibilities of the board:
1. Setting the Corporate strategy, overall direction, vision or mission.
2. Hiring, firing of the CEO and top management, succession planning and
continuity
3. Evaluation, controlling, monitoring, supervising of the top management
4. Reviewing and approving the use of resources and protecting them as
well
5. Involvement in major financial decisions and prudent actions regarding
corporate objectives’
27
6. Caring for shareholders’ interests and ensure the company is managed in

accordance with laws and regulatory policies
7. Above all, foster a culture of corporate social responsibility in the
organisation, beyond profitability as the only objective
Role of the board in strategic management:

The board is entrusted with three basic tasks to ensure strategic
management is governed as per the vision:
1. Monitor: By acting through its committees, a board can keep abreast of
development of what is happening in the organisation. It can bring to the
top management’s attention certain developments it might have
overlooked
2. Evaluate and influence: A board can examine the management’s
proposals, decisions and actions: agree or disagree with them: give
advice and direction and suggest alternatives. Most active boards actually
are good influencers in the top management operations that is reflected
on its performance
3. Initiate and determine: A board can delineate a corporation’s mission
and specify strategic options to its management to ensure effective
execution of the strategy.
There is a common perception that some of the Indian companies lack
transparency and are not highly effective as there are corporate governance
issues that have been reported every now and then. There are instances
when corporate frauds happen, like in the case of Satyam Computer
Services when its Chairman confessed to having done accounting fraud in
the company (after which the stock price of the company went down to Rs. 7
per share from over Rs 200 in a matter of just 2 days in January, 2009). The
regulatory bodies and the government intervened to take over the board and
installed an interim board till the time the open offers were floated to find the
right suitor to run the company.
There have been many companies which have been involved with wrong
doings in accounting to boost up their performance and to artificially boost
the share value to attract valuation. This doesn’t sustain too long before such
28
frauds are exposed even if the board has been passively watching what is
happening in the company. There have been conflicts within the board as to
following the path of governance and compliance. However, other corporate
dynamics prevail as promoters who hold majority stake in the company and
influence decisions at the board level.
Therefore, it is important to change the functioning and composition of the
board by allowing changes in the non-executive director nominations (by
allowing directors to retire within a specified period of time and elect new
directors who bring in new expertise and perspectives) and replace the very
old executive directors with younger ones with experience in marketing,
finance etc.
It is very essential that any company’s board should have some
independent, professionally qualified non-executive directors. At the same
time, there should be a regular retirement policy for non-executive directors
with a clear understanding of the period for which they are appointed so
there is no misunderstanding when the time comes for them to step down.
This is an essential part of corporate governance.
The next important thing in board composition is the quality of the board. It is
not easy to effect a change in the board arbitrarily but if an organisation has
to be rejuvenated, the first place to start is at the board level. It is to be noted
that the quality of leadership at the board level will have the single largest
impact on the performance of the organisation. If there is any event that
rocks the ship, it will be the board that will come under the scrutiny of the
government and regulatory agencies, hence quality and integrity of the board
must be unquestionable.
Top Management:
The role of the top management in strategic management is clear from the
fact that strategic management is a general management function. The top
management function consists of CEO, COO, Presidents of SBUs, Vice
Presidents/ General Managers of different vertical businesses and
Functional Heads who are responsible for the formulating the organisation
strategy in line with the board’s vision. They are also responsible for the
execution of the strategies for the success of the enterprise as well.
29
Specific top management tasks vary from organisation to organisation and

are developed from the analysis of vision, mission, objectives, strategies and
key mandates of the corporation. However, the following are in general, the
top management’s responsibilities in an organisation:
1. Provide executive leadership to the organisation
2. Translate the vision into mission, objectives and strategy
3. Manage the strategic planning process
4. Evaluate and Control the implementation process
 
The stakeholders in the top management are General Managers who are
strategic thinkers and map out strategy, develops an organisation plan to
implement the strategy and guide the employees to accomplish the
objectives using their vast experience and wisdom.
The typical characteristics of a General Manager is that he is an
entrepreneur (has a vision and sets goals), a strategist (builds plans),
organisation developer (builds teams), a great leader (leads and mentors/
coaches the teams below them) and chief implementer (reviews and
controls). The task is to lead the company or the SBU through unchartered
territory and takes on all the challenges on the way and find long lasting
solutions to achieve the organisation’s mission.
The highest profile of a GM is the CEO who heads the organisation or the
SBU. The other General Managers assume responsibilities at the business
unit or line of business level or functional level. Together the entire top
management is called the Management Council (MC) or Executive Council
(EC) of the organisation, the next only to the company’s board. This
Executive Leadership of the organisation directs all activities relevant and
important to the accomplishment of corporate mission, objectives and sets
the tone for the entire organisation.
As strategic vision is a description of what the company is capable of
becoming and what the purpose of the organisation is. It is translated into the
mission, objectives and strategy of the organisation. The top management
should communicate this strategic vision to the general employees so that
everyone in the organisation understands the vision and has a sense of what
the mission is. In short, “a leader’s job is to define the overall direction of the
30
organisation and motivate the employees to get there”, the importance of

executive leadership as illustrated by Steve Reinemund, CEO of PepsiCo.
Keeping tune with the fast changing economic conditions, it is better the top
management gives away it’s so called monopoly on strategic leadership.
This might lead to other capable leaders in the organisation to become just
followers or laggards. The top management should empower authority and
accountability to leaders at all levels to participate in the strategic leadership
to make an inclusive organisation.
For an organisation to succeed in the times of fast changes, every employee
at every level must be empowered to demonstrate leadership and
collaborate in the organisational growth process. In a knowledge based
economy as in the current environment, the workforce will no longer respond
to old style of leadership.
The heads of the organisation that have a clear strategic vision are often
perceived to be dynamic and charismatic leaders. We have many examples
to this. Mr. Ratan Tata of Tata group, Mr. NRN Murthy of Infosys
Technologies, Mr. Shiv Nadar of HCL group, Mr. Azim Premji of Wipro, Mr.
Sunil Bharti Mittal Chairman of Bharti Enterprises, Mr. Deepak Parekh of
HDFC group, Bill Gates of Microsoft, Steve Jobs of Apple Computers to
name a few, who have envisioned and energised their respective
organisations. This list is long with many renowned names of industry
captains.
These leaders have been able to inspire, command respect, and clearly
define vision for their companies and the corporate group and to influence
strategy formulation and implementation consistently and continually to take
their organisations from one level to another level.
There are three key characteristics a CEO brings to the organisation.
1. The CEO articulates a strategic vision and mission for his/her
organisation: The CEO envisions the company not as it currently is, but
as what it can become. The CEO’s leadership and vision puts activities
on higher momentum and resolves conflicts of different perspectives to
find resolution. It gives renewed meaning to everyone’s activities and
empowers employees to see beyond the details of their own jobs to the
holistic functioning of the organisation
31
2. The CEO presents a role for others to identify with and to follow: The
CEO sets an example in terms of organisation behaviour. He inspires the
people of the organisation with the values and culture in line with the long
term goal of the organisation. He is able to communicate the
organisation’s purpose, objectives and actions, both words and deeds, to
the people of the organisation in a simple and understandable manner.
3. The CEO not only communicates and demonstrates high performance
standards, but also shows confidence in the people’s abilities to meet
these standards. No leader ever improved performance by setting easily
attainable goals that provided no challenges. Most importantly, the CEO
must be willing to follow through by coaching people.
In a world that is changing at the speed of light, the leadership of the CEO
should bring in enormous value to the organisation consistently and
continually. The CEO should refresh himself on a regular basis in terms of
his personality, skills, knowledge, building relationships and most importantly
looking outwards with open mind to seek ideas as well as criticism, thus
bring in external perspectives.
Otherwise, in the present times when the tenure of CEOs is shrinking, he
becomes a victim of leadership obsolescence as boards view them critically,
as warned by Mr. Ram Charan, CEO Coach and Author of many leading
books on leadership (ET Corporate Dossier Dec 20, 2013). He also adds
that one lousy leader can change everything for the worse. Leadership in
turbulent times is the need of the hour in today’s world economic
environment.
Corporate Planning and Strategic Planning Process:
Strategic planning initiatives now form a part of any organisation which likes
to stay in business for the long term. Hence, large organisations have a
corporate planning division or cell to manage the planning process effectively
from the inception stage through the strategic management program
implementation phase and handover to the operations team when the steady
state is achieved. Unless the top management encourages and supports the
planning process, strategic management is not likely to deliver results.
In most organisations the top management must initiates and evaluate the
strategic planning process. It might first ask the business units and functional
units to submit their strategic plans for themselves, by drafting the guidelines
32
that explain the overall corporate plan within which the individual units can
build their own plans.
The planning cell typically consists of 6-8 people headed by a senior General
Manager level person who heads the strategic planning process. The
following are the functions and responsibilities of the corporate planning
division:
1. To keep track of the latest developments in the strategic management
process and disseminating the information to important stakeholders and
strategists. Also understand strategic issues.
2. To supply data points and analytical support needed for strategic
management process
3. Environment (both internal and external) analysis
4. Identifying new business opportunities
5. Helping to establish a planning system
6. Formulating guidelines for preparing the plans
7. Coordinating divisional plans
8. Assisting to evaluate and control strategies
Strategic Management Consultants:!
Some organisations, specifically those who do not have a corporate or group
planning cell, make use of the services of an external consultant who is
specialised in strategic management process. Several Indian companies
have sought the services of KPMG, Ernst & Young, PWC, McKinsey etc to
work on the corporate planning objectives as mentioned above.
1.12 Strategic Management Process:

The strategic management process is a comprehensive activity an
organisation takes up to ensure the vision of the organisation is translated
into reality, implemented on ground and financial results are achieved in line
with expectations. It consists of four stages:
33
1.! Environment Analysis

2.! Strategy formulation
3.! Implementation
4.! Review and Control
 
A typical strategic management process has been depicted in Fig 1.12. As
indicated it is a continuous process that happens as a result of any change
happening in any of the forces that influence the strategic making process.
In 1985, Ellen-Earle Chaffee summarized what she thought were the main
elements of strategic management theory. (Chaffee, E. “Three models of
strategy”, Academy of Management Review)
• Strategic management involves adapting the organization to its business

environment.
• Strategic management is fluid and complex. Change creates novel

combinations of circumstances requiring unstructured non-repetitive
responses.
• Strategic management affects the entire organization by providing direction.

• Strategic management involves both strategy formulation (she called it
content) and also strategy implementation (she called it process).
• Strategic management is partially planned and partially unplanned.

• Strategic management is done at several levels: overall corporate strategy,
and individual business strategies.
• Strategic management involves both conceptual and analytical thought

processes.
34
Strategic Management Process (Fig 1.12)
Environment Analysis:
The environment with which the organisation operates should be considered
as it will have impact on the many factors responsible for the success of the
company. There are factors external to the organisation and some are
internal to the organisation. Industry and competition are two major factors
external to the firm that affect the company’s performance and hence it
assumes highest priority in the formulation of strategy. This is discussed in
detail in a separate chapter later. Then, there are forces that are outside the
Industry and competition – called the macro-environment – should
necessarily be considered as it is important to study how they impact the
industry as a whole as well as the company in particular in pursuit towards its
vision.
Every organisation exists within the complex network of political, regulatory,
economic, social and technological forces. Together these elements
comprise the organisation’s macro-environment. The analysis of the macro-
environment factors may be referred to as the PEST analysis. The constant
changes in these forces present numerous challenges and opportunities to
35
strategic managers when they define their organisation’s strategy. The

impact of macro-environmental forces on the company’s strategy must be
well analysed and understood before the strategic options or alternatives are
evaluated. We will talk about it in detail about both external environment and
internal environment later in an exclusive chapter.
Strategy Formulation:
After a thorough analysis of the environment and once the strategic
managers have collated all the necessary inputs, the strategic managers
then move into the strategic formulation stage which involves four important
steps as below:
1. Determination of mission and objectives
2. Analysis of Strengths, Weaknesses, Opportunities and Threats (SWOT)
3. Consideration of strategic options and alternatives
4. Evaluation and choice of appropriate strategy
Determination of Mission and Objectives:
It is top management’s responsibility to define the mission of the organisation
in line with the vision set by the company’s board of directors. While vision of
an organisation defines the socio-economic purpose and reason for its
existence, mission deals with the objectives and the scope of the
organisation’s primary activities and actions to achieve the purpose.
The mission, in other words, should guide the actions of the organization,
spell out its overall goals, provide a path, and guide decision-making. It
provides "the framework or context within which the company's strategies
are formulated." It's like a goal for what the company wants to achieve in the
long term (which is vision).
Strategic management is an art and science, and strategy is a means to
achieve the mission, thus ultimately achieving the vision. Hence, it is
important that determining mission and defining the objectives is the first
step towards strategy formulation.
36
For example, the vision of a company is to become a trusted partner to its

customers in the information technology industry and mutually achieve
business results. The objective of mission is to translate the vision into
actionable components like what the company intends to do towards its
customers, products and services, employees, partners and shareholders,
by aligning those actions with the purpose of its vision. Mission is a detailed
description of the actionable components of vision.
The mission of an organisation is built around a set of specific objectives,
also called key result areas (KRAs), that provide direction and thus helps the
organisation to achieve the desired results. The objectives or the KRAs, as
defined by the mission, can be the financial performance, customer
experience, process and operational excellence, and people & culture.
The mission for customers could be “to remain committed to deliver
excellence in providing services first time and every time”. The mission for
employees could be “to provide them a dynamic and creative environment
to allow them to realise their full potential”. The mission for partners could
be “to provide leadership in the area of alliance and bring win-win proposition
in the area of marketing and operation. The mission for shareholders could
be “to deliver profitable growth consistently”.
All these objectives taken together actually form the mission, aligned with the
vision of the organisation. The objectives get broken down into SMART goals
(Simple, Measurable, Achievable, Realistic and Time bound) and it is the top
leadership to ensure that they foster a responsible environment to inspire
people to achieve their individual goals. Goals will have to be measurable
and achievable and should have distinctive milestones as defined by clear
timelines for accomplishment.
While objectives are general key result areas pertaining to the mission, the
goals set specific targets to be achieved within a stipulated time frame.
These goals may also be called key performance indicators (KPIs) and
distributed across the employees at all levels of the organisation. The key
performance indicators guide the behaviour of the organisation at all levels to
bring in synergy within the organisation to deliver the desired results. There
is a separate chapter each on Vision, Mission, Objectives and Goals later in
this book.
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SWOT Analysis:
In strategic management, it is prudent to analyse the company’s position in
the market place with respect to its strength and weakness, and also
understand the opportunities available there along with perceived threats.
This will decide what kind of strategies it should pursue to deliver the
mission.
In today’s economic scenario where the only constant is change. An
organisation should keep track of the changes happening in the market place
and prepare itself for adjusting itself proactively and to handle the future
changes. When the operating environment changes, the question is how the
company should respond to them? What are the inherent strengths of the
organisation and its resources? What are the opportunities in the
environment which can be exploited leveraging the company’s strengths?
What are the threats and how does the company combat them decisively?
What are the weaknesses and how the company can build additional
competence to overcome the weaknesses? How does the company build a
roadmap with innovative products and services so that it remains ahead of
the competition all the time?
For example, the economic emancipation in India, post liberalisation in 1991,
has opened doors to innumerable opportunities for Indian companies to
expand and diversify their businesses. Many companies have moved from
traditional businesses to new age businesses. Reliance Industries, known as
a large petrochemicals & refinery company, diversified its business into oil
and gas exploration, Retail and Telecom services etc. Tata group has been
expanding and diversifying its businesses from salt to software industries, to
acquiring Corus Steel, Jaguar and Land Rover etc. In the whole process,
many other companies entered into new ventures and also made an exit
from some of the new ventures after some time as they did not have relevant
strength to be successful or resources to sustain the business in the long
run.
On the contrary, King Fisher Airlines, once leading full service airlines, closed
down its operations because of huge debt and financial performance issues.
It left thousands of employees jobless and the banks and financial
institutions classified the KFA account into a non performing asset.
38
The SWOT analysis of a company is dealt with in detail in a separate chapter

later.
Strategic options and alternatives:
Given the mission and objectives, and having analysed the strengths and
weaknesses of the company and the environmental threats and
opportunities, the strategic managers move to identifying the strategic
options to finalise the overall strategy.
There may be different alternative strategies that could be considered for
accomplishing a particular objective, like marketing strategy, customer
acquisition strategy, cost optimisation strategy, etc. For example, in
marketing strategy, the growth in business could be achieved either by
increasing the share of wallet in the existing customers or by entering new
customer segments or by both. Also, the same can be achieved by
enhancing the existing products and services portfolio or introducing new
products and services in the marketplace.
Alternatively, the growth strategy could be through organic means by putting
up greenfield plants or through inorganic route by an M&A strategy. A new
business could be started afresh or created by a JV with a technology
partner or opt for an acquisition. There are competitive strategic alternatives
a company can think of as well.
Thus, there are number of strategic options and it is necessary to consider
all the possible options to finalise the relevant strategy in the strategic
management process. This is explained in detail in a separate chapter on
strategy formulation.
Evaluation and Choice:
Once the strategic options and alternatives are identified, the right decision
on the choice must be made. The purpose of considering different strategic
alternatives is to adopt the most appropriate strategy that will enable the
organisation to achieve its objectives and the mission. This implies the need
for a thorough evaluation of all the strategic options with reference to a
certain criteria defined in the mission.
39
The general framework for such criteria is 1) suitability 2) feasibility and 3)

acceptability. These three criteria are used to evaluate all the strategic
options.
1. ! Suitability: For assessing the suitability of the strategy, the following !!
! questions may be asked.
• Is the strategy aligned with the corporate philosophy?

• Does the strategy envisage actions to accomplish vision and mission of
the company?
• Does the strategy leverage the organization strengths and market

opportunities?
• Does the strategy equip the firm to combat market threats?

• Does the strategy empower the company and its people to overcome its
weaknesses?
• Is the strategy consistent with corporate goals and policies?  

2. ! Feasibility:
•Is the strategy realistic and workable to achieve the mission?
•Can the required resources like investment, people and technology be
made available?
•Does it estimate the business forecast and profits for sustainability? 
3.! Acceptability:
•What is the impact of the strategy on profitability and cash flow?
•What is the justification on return on investment criteria?
•How does the strategy affect the capital structure and shareholding
pattern?
•How does it affect the relationship with stakeholders like promoters,
employees and customers?
•How does it impact the brand and corporate image?
40
Implementation:
Implementation is the most important step in operationalizing the strategy.
The top management must ensure the strategy is internalized at different
levels of the organization. It needs clear communication, formulation and
assigning of key performance indicators for performance (KPIs), employee
empowerment through mobilization and allocation of resources, defining a
clear delegation of authority (DOA), assigning responsibility and
accountability (creating a responsibility matrix) and establishing workflows
and policies for effective implementation.
Implementation of strategy involves a number of administrative and
operational decisions on a real time basis; hence the delegation of authority
matrix must be clearly defined. It also needs smooth and seamless
functioning of different cross functions under the main SBU, hence there
should be cross functional teams that facilitate conflict resolutions and
information flow between the functions. Implementation is dealt with in detail
in a separate chapter.
Review and Control:
Review and control is the last phase of the strategic management process.
Under this stage the top management examines and reviews whether the
strategy is implemented in meeting the mission of the organisation or any
corrective measures are to be taken to steer the process to yield the desired
outcome. The top management or the management council must have
periodic reviews of the strategic management process to provide feedback to
the SBU and functional teams to improve the overall performance of the
organization.
As the strategic management process is an ongoing process, it is also
suggested that continuous monitoring of both the internal and external
environments is essential. Implementation of strategic management is a
continuous process and the review and control process actually connects
again to the environment analysis phase for continuous improvement. The
details o this is discussed in a separate chapter.
41
1.13 Strategic Management – Indian Context

India’s political, regulatory, social, economic and technological landscapes
have changed dramatically over the last couple of decades, some influenced
by inherent factors due to demographic and cultural changes, and many of
them influenced by global factors.
In this journey, Indian companies have clearly evolved in its maturity to take
on the global challenges. They have learnt to match global standards when it
comes to adoption of strategic management as part of their success stories.
Many companies have matured to become India based multi-nationals. Most
of them have already embraced strategic management. The strategic
practices adopted by them are no less than their counterparts in other parts
of the world. India’s top companies have group or corporate structures which
drive the Organisation or SBU or Functional strategies across the group.
The big groups like Tata Group, Birla Group, HDFC group, Bharti Group,
Sterlite Group, Essar Group etc have businesses interests in multiple
countries and they all have successfully formulated vision, mission, strategy
and objectives for their individual organisations. The large market capital
companies like, TCS, Infosys, Wipro, ICICI Bank, Tata Motors, Bharti Airtel,
HCL Technologies have proven practices when it comes to strategic
management and strategy implementation. In fact most of these companies
are listed in stock exchanges in other countries like the US and the UK, and
they strictly comply with financial reporting standards like IFRS, US GAAP,
other compliance and governance requirements.
In the last decade, many Indian corporates have set ambitious goals and
strategies to grow globally, pursuing their management vision. In the
process, most of these companies have acquired companies in their
industries to augment capacities and capabilities, diversify into
complimentary products and services, and to expand into new geographies.
Examples would be Tata Steel acquiring Corus Steel in UK, Tata Motors
acquiring Jaguar and Land Rover in UK, Bharti Airtel acquiring Zain Telecom
in Africa, Hindalco acquiring Novelis in Canada, Essar Group and ONGC
acquiring strategic oil and gas assets in the African continent, Reliance
Industries acquiring Shale Gas assets in the US, HCL Technologies
acquiring Axon consulting, and Infosys acquiring Lodestone AG in Europe to
name a few.
42
All of these mergers and acquisitions would not have been possible without
the Indian companies following a robust strategic management process
which has actually helped them pursue their vision of becoming a global
company. Expanding opportunities in the new markets and growing
competition at home have been instrumental for them to devise competitive
strategies to stay ahead in their respective industries.
As India has increasingly become part of the global environment due to free
economic policies and open market conditions, there have been changes
that have compelled Indian corporates to adopt strategic management more
seriously to build their capabilities and credentials in order to compete in the
global marketplace. The gradual economic liberalization initiatives
implemented by the Indian government post1991 have raised the bar for
Indian corporates to follow global standards in the governance, compliance
and risk management areas. This has tremendously improved the
competitiveness of Indian products and services in the global market.
With more liberal economic policies and opening up of foreign direct
investments (FDI) in the country, Indian companies have encashed upon the
opportunity of making large investments in new technologies, new plants by
entering into joint ventures with foreign partners, which otherwise was not
possible. These strategies of joint partnerships with foreign partners were
clearly visible in sectors like automobiles, pharmaceuticals, telecom,
infrastructure, capital goods, foods and beverages, healthcare, banking,
financial services and insurance sectors.
In the recent times, this trend is already pervading into other sectors like, civil
aviation, retail, pension fund, etc, for which the government is taking efforts
to open up the sectors or increase the FDI limits in these sectors.
Foreign companies have increasingly liked their Indian counterparts for their
products, services, and most importantly they do not want to be left out in the
Indian growth story. Foreign partnerships for technology and investments,
access to foreign capital markets to raise equity and debt, and liberalisation
in other countries have also helped Indian companies to bring in global best
practices and competitive advantages for their products and services not just
in India but also in international markets, both in terms of scale and value
proposition.
43
With the inclusiveness of the global economy, Indian companies have

already put in a robust strategic management process to steer their
companies to market leadership in India and even at global leadership
levels. Today, every organisation in India has aspiration to become a global
company and keeps its strategies and structures resilient enough to respond
to global challenges on its way to become one. This is a welcome change
and will go a long way in transforming India into a developed economy
sooner than later.
44
1.14 Summary
Strategic Management has become a critical success factor in any
organisation that aspires to be a long term player both nationally and
internationally. It is important understand the fundamentals of strategic
management and the strategic management process to design and
implement a sustainable business strategy for an organisation. In this
chapter, we also learnt about the four components of strategic management
process viz, environment analysis, strategy formulation, implementation and,
review and control.
This chapter also brought out the importance and limitations of strategic
management process. There are three levels of strategy in organisations
namely corporate strategy, SBU Strategy, and functional strategy. This
chapter also explains how strategic management plays an important role in
Indian companies.
45
1.15 Assessment Questions

1.) Which of the following is not pertaining to the definition of strategy in an
organisation?
a. To create a unique and valuable position for the organisation,
b. To make trade-offs to choose what not to do rather than just defining
what to do
c. To create “fit” among an organisation’s activities
d. To create orientation towards present conditions
2.) What are the key components of strategic management process?
a. Environment analysis, strategy formulation, and review
b. Strategy decision, corporate strategy, business strategy, functional
strategy
c. Strategy planning, operation management and review
d. Environment analysis, strategy formulation, implementation,
evaluation and control
3.) Mr. Anand Krishna, a Senior Marketing professional in consumer goods
industry has been recently inducted on the Board of Directors of Avion Retail
Limited. His role includes the following listed items. He needs your help to
identify which of the role is generally not a role of Board of Directors?
a. Formulate the business strategy of the company
b. Review the business strategy periodically with the management team
for its validity
c. Share insights with the management with respect to strategy risks and
mitigating the risks
d. Ensure the management has adequate contingency plan and
succession plan for management
46
4.) You are part of the strategy formulation team in ABC Automobiles Ltd.
You have to understand the strategy making process and present to your
team the sequence of the steps involved in it from below.
a. SWOT analysis, define mission and objectives, choose the most
appropriate strategy
b. Define mission and objectives, make SWOT analysis, formulate
strategic options, choose the most appropriate strategy
c. Define mission and objectives, formulate strategic options, choose the
d. Formulate Strategy, define mission and objectives, choose the
5.) What is the general framework used for evaluation of strategic
alternatives and choices?
a. Simplicity, manageability and process
b. Suitability, feasibility and acceptability
c. Manageability, profitability, accessibility
d. Complexity, changeability, manageability
6.) Ram is fresher in your company Zen Corporation, a mobile devices
company. He is often confused between strategic planning and tactical
planning. He needs help because he is required to engage with the senior
leadership. Please help him to identify which of the following plan is strategic
in nature?
a. Identification of the locations for setting up mobile towers in the
identified district
b. Diversification into Mobile VAS services segment to meet growing
market demand
c. Selection of vendor for one of the key operational process
d. Implementation of Six Sigma project to gain efficiencies
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References:
1.! Francis Cherunilam, Strategic Management (Prin. L.N. Welingkar
Institute of Management), P 2
2.! John A Parnell, Strategic Management, Theory and Practice (Biztantra
2003), P 3
3.! John A Parnell, Strategic Management, Theory and Practice (Biztantra
2003), P 5-6
5.! Michael Porter, Creating Tomorrow’s Advantages, in Rowan Gibson,
Rethinking Future (London Nicholoas Brealey Publishing), 1998, P 6-10
6.! Michae Porter, What is Strategy, Harvard Business Review
7.! W.Chan Kim, Renee Mauborgne, Blue Ocean Strategy
Institute of Management), P 13-15
9.! J.David Hunger, Thomas L Wheelen, Essentials of Strategic
Management (4 Ed) (Prentice Hall India), P 18-19
Management (4 Ed) (Prentice Hall India), P 18
Management (4 Ed) (Prentice Hall India), P 19-20
Institute of Management), P 28-32
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REFERENCE MATERIAL
Click on the links below to view additional reference material for this chapter
Summary
PPT
MCQ
Video1
Video2
Video3
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2
ANALYSIS OF INDUSTRY AND
COMPETITION
Objectives:
This chapter focuses on identifying the industry an organisation is operating
in and the competition scenario for its products and services. At the end of
the chapter, you will be able to understand the following:
•! Define the industry and competition
•! Evolution of Industry and Industry Lifecycle
•! Analysis of industry and competition, SWOT
•! Government policies for industry
•! Entry and exit barrier
•! Bargaining power of customers
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ANALYSIS OF INDUSTRY AND COMPETITION
Structure:
2.1! ! Introduction
2.2! ! Evolution of Industry
2.3! ! Analysis of Industry
2.4! Competition Analysis
2.5! Competition SWOT Analysis
2.6! Government policies for Industry
2.7! Entry of new Competitors
2.8! Bargaining Power of Customers
2.9! Constraints of Porter’s Model
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2.1 Introduction
An industry is defined as a group of companies that produce similar products
and services, but compete with each other to gain social, economic and
competitive advantage through its offerings. Each organisation operates in a
distinct industry which the company should clearly be able to define. Each
Industry has its own set of rules and regulations, governed by variables like
product quality, pricing models, place, promotion, people, process and
physical evidence etc.
In the earlier chapter we have already seen three broad categories of
Industries viz 1) Old economy Industries, 2) Traditional economy Industries
3) New economy Industries. Within each category, there are distinct
Industries to which a company belongs to.
1. Old economy industries: Core Industries like Steel, Mining, Coal,
Electricity, Oil & Gas, Power, Cement, Fertilisers, and Petrochemicals,
Infrastructure etc all come under the old economy industries. Banking and
financial Services also form the core sector driving the economy. They
are in fact the growth engines of an economy.
2. Traditional economy industries: The industries like hotels, automobiles,
aviation, consumer electronics, consumer durables, entertainment, retail,
real estate, healthcare etc all come under traditional economy industries.
3. New economy industries: The third category is the new world economy
where everything is powered by IT and Internet. This Industry has created
a virtual world around everyone. The new industries like IT Services,
Internet services, eCommerce, eRetail, online companies, Social media
companies etc.
It is important for strategic managers to understand the structure of the
industry in which the company is operating in and the competitive scenarios
before deciding on an appropriate strategy to position itself in the market
place. Each category and the industry within that category have distinct
characteristics and those attributes need to be considered as part of the
strategic management process. Industry analysis is the first step in the
strategic analysis of an organisation.
In a perfect world, it is quite expected that each company should operate in a
clearly defined and distinct industry. However, some companies with multiple
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Strategic Business Units (SBUs) might compete in multiple industries. Hence

it is important to note the differences pertaining to each industry and
strategic analysis of the industry needs to be carried out. For example, a
large IT services company would have different SBUs which operate in
different Industries like the core IT services, hardware business, internet
commerce, BPO / ITES services, etc. Within the Food industry, there are
different sub-industries like Fast food industry, Special cuisine industry,
traditional restaurant chains, etc. Each SBU or sub-industry needs to
consider the distinct information related to each of the industry when they
evaluate a particular industry (or sub-industry) and related competition
information while performing the analysis.
It might be useful to consider the concept of primary industry and secondary
industry while defining the industry strategy. The distinction between primary
and secondary industry may be based on objective criteria such as price,
specific product offerings, product quality, location, customer segments,
revenue mix etc.
If the organisation is able to clearly define its industry and determine where
to draw its industry lines, it will help identify its competitors and evaluate their
strategies as well. The strategic managers should assess all sources of
information and perform rigorous, systematic and periodic analysis of the
competition information to draw a successful competitive strategy. Hence,
identification of the industry and its competitors are keys to base-lining the
company strategy.
Just to explain this further, can the retail Industry in India be classified as a
department store or a grocery shop? Or is it a multi-brand retail store where
you can think of buying anything you want, from grocery to consumer
electronic goods to bakery products, fruits and vegetables to ready-made
garments to branded furniture etc. Then, who are the competition for such a
multi-brand retail store? The competition is not the standalone grocery shops
or standalone consumer electronic goods distributor? The comparison must
be drawn on the equivalent of the multi-brand retail companies in order to
have a fair analysis of inputs required for creating strategy. Examples here
are Future Retail, Bharti Retail, Walmart, Tesco etc.
There is another sub-industry under the retail industry that is eRetail which
predominantly conducts business through online channels. The examples
are eBay.com, amazon.com, flipkart.com, futurebazaar.com, Snapdeal.com,
53
Myntra.com etc. These companies work in a relatively new industry which

leverages the sudden growth in internet and technology based retail
business platforms and solutions available.
2.2 Evolution of Industry

A deep knowledge and understanding about an industry and the competition
landscape is very crucial to build a good strategy for an organisation.
Industries evolve and change over time and so are competitors in an
industry. There have been new industries evolving at constant pace in this
world. Shifts in demographic forces, cultural changes, social life style
changes, economic changes, technological advancements bring about
change in consumer tastes, requirements, buying power and patterns. As the
industry evolves, the company that operates in it needs to adopt itself to
survive and grow in new challenging environment; otherwise it has to exit the
industry it belonged to.
The nature and structure of the industry might also change as it matures and
the markets become clearly defined. An Industry’s developmental stage
influences the nature of competition and the potential profitability among the
players who compete in that industry. Theoretically, each industry passes
through five distinct stages of industry life cycle. Traditionally, these stages
are introduction, growth, shakeout, maturity and decline (see Fig 2.1)
In today’s world, there are many instances of an industry transition wherein
one particular industry transforms into another related industry by introducing
new products and services to meet the changing demands of the market
place. Such a transition is influenced by the changes in trends happening in
the industry and innovation in multiple technology areas. The industry
players sense the change in trends and devise new strategies to transform
themselves and recreate the industry before it hits the decline stage. Such
industries revive and reinvent their evolution into new avatar, influenced by
change in technological trends happening around the world.
This can be illustrated with many examples. A decade back, people used to
go to normal movie theatres to watch cinema. With competition from digital
channels like new age TV, Direct to Home (DTH), Internet based on-demand
services, and change in customer expectations about movie going
experience, nowadays there are multiplexes that have multiple screens
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showing different movies to suit the tastes of different audience with highly
enhanced ambience of a shopping mall turning the whole movie watching
into a true experience. Thus, the industry has transitioned from a traditional
cinema theatre to a full-fledged entertainment services experience for
customers.
Another example that we can relate here is the decline of pager industry and
the evolution of mobile industry which have contrasting life-cycle
characteristics. One must have heard of the pager industry that existed in
India between 1994 and 1998. The pager industry just preceded the mobile
industry, then overlapped with the mobile services launch, and served as a
cost-effective communication for end-users, when the mobile tariffs were
prohibitively as high as Rs.18 per minute and normal customers couldn’t
afford mobile services at that point of time.
In the initial years, the pager industry had experienced a sharp growth in
subscriber numbers. However the industry experienced heavy losses and
subsequent fall in mobile tariffs made them lose the industry value
proposition as it had limitations of functionalities as compared to a mobile
service and in the process started losing its customers. Eventually, from the
year 1998, the industry started witnessing decline and lost its place to the
mobile industry.
As we talk about mobile industry, an industry which started as mobile voice
services (based on 2G service) since its launch in 1996, it has transformed
into a full-fledged value added services industry with the advent of advanced
technologies like 3G, 4G etc. The industry from introduction in 1996 has
evolved into a converged communication services provider industry as of
today (year 2013-14) combining the power of voice, data and video
capabilities and offering anytime anywhere any application value proposition.
55
Fig 2.1 
Introduction stage:
An industry in its nascent stage that is beginning to form is considered to be
in the introduction stage. During this stage the demand for the industry’s
products is generally low as the product or service awareness is still
developing. All customers are actually first-time buyers, and tend to be risk
taking, to experiment with new products. Technology based industry falls
into this category. The industry generally seeks ways to improve the product
and bring in distribution efficiencies as they learn more about the market.
Growth stage:
Once the product or the service is accepted by large customer base, and key
technological issues are addressed, industry enters the growth stage. The
market demand for the product and service increases and more new
customers are acquired. Most of the companies are profitable, and the
profits are invested back into new technologies and facilities to create
product enhancements as well as for expansion and diversification of
business. During this stage, more and more competitors come up with
similar products/ business models.
Shake-out stage:
When the industry growth is no longer rapid enough to support more
competitors or when the market demand gets saturated, the industry goes
56
through a shake-out stage. Some of the weaker competitors go out of

business at this stage as they can no longer invest back in the business and
slowly they lose out on their competitive positioning because of high growth
rate within the industry. Only a small number of stronger players emerge as
leaders and marginal competitors are forced out of the industry.
Maturity stage:
This is the consolidation stage when the market demand is completely
saturated and the industry itself goes through adjustment. Here, the stronger
players might buy out small good companies with value proposition, and
weaker players completely exit from the industry. Eventually, the leaders of
the industry pursue product innovation, seek to expand into new markets,
diversify into new business areas and even some of them look out for global
expansion.
Decline stage:
This stage occurs when demand for an industry’s product and services
decreases, and consumers begin to turn to more advanced or higher quality
product offerings from new industries. Some companies may divest their
business units at this stage whereas others reinvent themselves and pursue
new innovative products and services to sustain in the business.
Indian Context:
Lifecycle model of an industry is useful for strategic analysis, not all
industries necessarily follow these stages nor can any predictable period for
an evolution be clearly defined. For example Indian infrastructure industry is
one such example, it has not fully reached a maturity stage but have been
going through challenging times since the year 2008 after witnessing rapid
growth between 2002-2008, due to uncertain macro-economic conditions
prevailing in the country.
While the infrastructure industry may take many years to go through this
lifecycle change, it cannot be said that it has reached a decline stage. India
with huge demographic potential will require huge investments to develop
sufficient infrastructure to meet the demand supply imbalances and the
growth trajectory projected or the next three decades.
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Innovating strategies in the infrastructure industry space have advantage for

a country like India. It is heartening to note India has emerged as the largest
market in the world in public private partnerships (PPP) in public
infrastructure development as an industry (Economic Times dated
09/11/2013). The PPP model has become one of the largest industries in
India, having investments in roads, airports, healthcare, water supply, ports,
telecom, urban and rural development etc.
Sometimes positive changes in macroeconomic environment may revitalise
an industry. For example, travel industry flourishes when the economy is
going strong, but when the economic growth stagnates or declines the
industry might face slow down and then during the next economic uptrend
the industry bounces back from its lows. Another example, the bicycle
industry fell into decline some years ago when the automobile industry
gained popularity, but has now been rejuvenated due to awareness about
health and physical fitness in the society.
India is not far behind any of the western countries when it comes to
development of technology driven industries like IT, ITES, BPO, Media,
Telecom, Online business etc. Indian IT Services companies like TCS,
Infosys, Wipro, HCL Technologies, CTS, Tech Mahindra etc all have multi-
year IT Outsourcing contracts and serve their global customers with an
innovative global services delivery model that delivers value and cost
optimisation to its clients.
In fact most of the large IT companies in the West like IBM, HP, Microsoft,
Google, Yahoo, Cisco, etc have all set up their R&D and Engineering centres
across India notably in Bangalore, Hyderabad, Gurgaon etc to leverage the
knowledge and expertise of India’s young engineering talent. It clearly shows
that Indian value as an Industry is attracting them to set up operations in
India and export services globally.
2.3 Analysis of Industry

As we have just understood the different types of industries and the lifecycle
of an industry, it is quite obvious to say that there are many industry factors
that play a critical role in the performance of a company. In any industry,
there are leaders, challengers, niche players and visionaries who take
their deserving position in the lifecycle of an industry. This can be used as a
58
strategic tool to analyse the industry and bench mark any organisation both
from abilities to envision and execute.
Leaders lead all the way with their vision, clear strategy and execution
capability to stay ahead in the value curve and hence keep moving up the
value chain. Leaders keep transitioning into new levels of the industry
evolution and their products/ services always have an edge over the other
competitors.
Challengers give equal fight to stay in the reckoning and match up to follow
the industry leaders. Niche players are ones who create a unique market
place for their products and services which meet specialised or customised
requirements of a market segment. Visionaries are ones who always stay
ahead and come up with new innovative ideas, but may lack execution
capabilities. Laggards are the players who lack vision and strong execution
capabilities.
Gartner’s Magic Quadrant
Analysis Example: Gartner, a leading industry analyst and consulting firm,
advocates a report every year for the IT industry and its sub-sectors, called
“Gartner’s magic quadrant” that brings out a map of different companies in a
particular industry within the broad IT industry and spells out the
completeness of vision and ability to execute the vision by the company.
The degree of a company’s abilities to build a complete vision and execute
the vision varies in a particular industry and such an exercise provides
insights into the strategic position it wants to take as compared to its
competitors.
This is a very important strategic tool for IT players to analyse and formulate
their industry strategies. In fact, this tool can be easily extrapolated for other
industries as well by applying the definition and the framework. In the
following diagram (Fig 2.3), this tool maps the position of various players in
Gartner’s magic quadrant in Business Intelligence platform industry.
59
Figure 2.3 
60
Figure 2.4
IDC Market Landscape 
Similarly, IDC also developed a report called IDC market landscape for
different industries (Figure Telecom Industry, much in the lines of Gartner’s
magic quadrant, to map the industry players with respect to their strategies
and capabilities and group them under leaders, major players, contenders
and participants categories.
Hence, an analysis of the industry and its competitors is very important to
understand these factors before actually deciding on the company’s strategy.
Strategic managers must use relevant analytical tools as appropriate for their
industry to draw important strategic decisions for their organisation.
Porter’s Five Forces Model
Michael Porter, a leading authority on strategy and industry analysis,
proposed a systematic means of analysing an industry’s potential profitability
known as “five forces model.
According to Porter, an industry’s overall profitability depends on five basis
competitive forces; the relative weights of each may vary from industry to
industry.
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1. The intensity of rivalry among incumbent firms

2. The threat of new competitors entering the industry
3. The threat of substitute products and services
4. The bargaining power of the buyers
5. The bargaining power of the suppliers
These five factors combine to form the industry structure and suggest the
profitability prospects of the companies that operate in the industry. The
above five forces also define the competition strategy of an organisation.
2.4 Competition Analysis

There is no industry where there is no competition. There is hardly any
industry which can boast of monopoly. However the intensity of competition
depends upon the concentration of companies in that industry. More the
intensity more the rivalry and each will fight for its dominance, less the
number of companies the industry will be less competitive.
The competitors of a company in an industry include not only the other
players who sell the same or similar products, but also from other related
industry players who all compete for the discretionary income of the
consumers. Every industry player wants to sell to the same set of customers.
The same customer is targeted by a TV manufacturing company & its
competitors but also targeted by automobile, air conditioners, refrigerators
washing machines etc
The competition among these products may be described as desire
competition as the primary task here is to influence the end consumer with
their respective products. Such desire competition is generally very high in
countries like India, characterised by limited disposable income and many
unsatisfied desires among the consumers.
Mobile industry is a classic example in India. The mobile tariffs in India are
unarguably the cheapest in the world, placed in the range of 45-60 paise per
minute for a voice call. The ARPUs, the average revenue per user of the
telecom companies have been falling since the industry inception because of
falling tariffs over the last many years due to very high competition, are less
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than Rs. 200 per month for many mobile companies. The mobile companies
in this industry had started waging a price war since 2008 to gain customer
market share, a prolonged rate war actually hurt the industry in a significant
manner and the profitability of these companies were eroded as a result of
this tariff war. Ultimately the business models became unsustainable.
The companies operating in this industry needed to have innovative
business models to survive among the hyper-competition that the mobile
industry witnessed in the period 2008 to 2012 when new mobile operators
who launched their services slashed the tariff to unforeseen levels, which
forced the incumbent operators also to cut the tariff steeply.
However, the aggressive and predatory pricing strategy hurt the profitability
of the industry and only the strong players with innovative business models
could stay in the business, rest marginal players actually exited the industry
due to high fixed costs like telecom licence fee, spectrum costs as well as
high operating costs and debts servicing costs.
Then, the entry of new players also impacted the market and the
competition landscape. If we analyse the automobile industry, till mid 1990s
there were only a couple of large automobile companies operating in the
Indian market. Maruti Suzuki was clearly a market leader which had just
three models of cars like M800 in the low end, Zen in the mid-market
segment, and Esteem in the high end segment. And, Hindustan Motors Ltd
(HML) was another market leader that had the marquee Ambassador series
of cars for the middle class and government services. However later, with the
liberalisation of the automobile industry in the ‘90s, there came Ford,
Hyundai, Honda, Toyota, General Motors, Fiat, Volkswagen etc, either
through joint venture with Indian partners or on their own. It changed the
landscape of Indian automobiles industry and competition landscape.
This also led to the diversity of competitors with Indian background and
also with foreign background having different culture, different business
goals and means of competition and marketing strategy. The number of
companies in the industry influences the industry’s intensity of rivalry. Each
player comes with different power levels of expertise and relative size of their
operations could cause shift in market positioning.
The industry players also strategized to ensure their customers stayed with
them for long duration of the relationship. The customer churn was very
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significant and evident in services industries like credit cards, mobile

services, internet services, financial services, airlines services etc. As a
result, the competitors resorted to acquiring customers at cheaper prices
rather than positioning themselves for competitive advantage. When
switching costs, the one-time costs that the customers incur, are low the
companies came under considerable price pressure for their products and
services, eroding their profitability. It is very difficult to satisfy the customers
who can easily switch to competitors. It is obvious that when the products
and services are less differentiated, purchase decisions are based on price
considerations resulting in hyper competition, as witnessed in the Indian
mobile industry.
This made the leading market players to devise a strategy by which the
customers are engaged with either through a value proposition or through
customer loyalty programs. Interestingly, more often the companies seek
to increase switching costs and encourage customer loyalty. Like the home
loan companies used to have loan switch costs in the range of 1.5% to 2% of
the principal loan amount outstanding. However, later the RBI ruled this as
not a competitive practice and asked all the Indian banks to remove this
surcharge of switching costs.
Other industries like credit card companies introduced reward points which
can be en-cashed later for gifts or cash credits, aviation industry came up
with frequent flyer programmes which enabled customers to accumulate their
mileage points which can be later converted into award tickets. Each industry
came up with its own innovative ideas like promotion codes, cash back
schemes to attract and retain their customers.
Certain companies in an industry create exit barriers from an economic,
strategic or emotional standpoint that keep them from leaving the industry
even though they are not profitable. Examples of exit barriers include fixed
assets that have no alternative uses or about agreements that cannot be
terminated or strategic partnerships within businesses of the company,
management’s unwillingness to exit the industry because of pride or
government pressure to continue operations to avoid adverse impact on
geography. This impacts the profitability of the company and the industry.
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2.5 Competition SWOT Analysis

Once the industry and the competition are defined clearly, the next step as
part of the strategic management process would be to prudently have a
structured approach to evaluate the relevant competition players about their
strengths, weaknesses, opportunities and threats. Gartner’s magic quadrant
type of tools also spells out the strengths and weaknesses of the competition
companies in an industry. It is suggested to draw a clear SWOT analysis
about each competitor and compare the position of the company against
each competitor in a specific industry or sub industry. The marketing mix
variables like product, promotion, place, price, people, process and physical
evidence can be used to draw the comparison.
It is also advisable to subscribe to industry reports that provide statistics on
the market size, the market share, the compounded annual growth rate, the
market forecast about various products and services of the related industry.
This provides a good visibility of business planning and the risks associated
with fighting the competition. Prudent decisions on whether the strategy is
based on price competitiveness or value proposition are to be made as part
of the competition strategy. This will help the organization to conserve its
resources and not get tempted to explore unchartered territory and end up
underperform versus the set objectives.
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2.6 Government Policies for Industries

Government’s policies, Regulatory organisation’s guidelines, Industry body -
all of these impact a company’s strategy. In India, each Industry is mostly
regulated by a regulator and each of them has an industry apex body to hear
their challenges and, represent and seek remedies from the government and
regulators for maintaining the health and growth of a sector.
The following table shows details of the regulator and the corresponding
industry body of that sector.
Sl No Sector Regulator Industry body
1 Banking Services RBI Indian Banks Association (IBA)

2 Mobile Services TRAI COAI
3 IT Services Ministry of IT NASSCOM
4 Insurance Services IRDA
5 Manufacturing CII, FICCI
6 Internet Services TRAI ISPAI
7 Stock Exchanges SEBI,
8 Pharma Industry FDA
In new industries like renewable energy, for example Solar energy and wind
energy, which is an upcoming industry, the government has offered
incentives like central tax credits worth 30% of its value. Such incentives
help motivate new companies to make new investments in the energy sector
help improve energy security of our country. Similar thing happened way
back in the last decade, the government gave tax breaks for IT services
exports, STPIs, EOUs etc to help local companies to export their products
and services to the global market.
The government and regulatory policy changes can impact the industry or a
particular organisation positively or negatively. The strategy management
process should consider these aspects and should be able to foresee the
policy, analyse the regulatory challenges and their impact on an
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organisation, factor in contingencies and clearly spell out the measures to

mitigate any risks associated with any unfavourable change in policies or
guidelines.
Keeping this in mind, the companies must be vigilant to capture the
statements and commentary made by various officials of the government
ministries and regulatory bodies on the forthcoming changes in government
policies and regulatory changes to ensure that these inputs are taken into
the strategic management process for a detailed analysis and impact on the
organisation.
2.7 Entry of new competitors

During the high growth phase of the lifecycle of an industry, new competitors
enter the market. The new entrants intensify the market competition while
fighting for market-share, lowering prices and ultimately impacting the
industry profitability. Large established payers have definite strategy to
retaliate the new entrants or begin to promote their products aggressively to
retain their market share.
With the emancipation of economy in India in the last couple of decades,
there have been new players from both domestic as well as international
markets who wanted to participate in the India growth story across industry
sectors. India being a consumption story with a large diversified population of
over 1.2 billion, everyone is vying for participating in the market even if the
market is concentrated, they think there is enough space for more players.
However, this strategy may not work if the firm that enters the market is
trying to market its products purely on the basis of aggressive pricing
strategy without any long term strategy and value proposition.
Entry barrier:
Entry barriers are generally created by existing strong competitors who have
large presence and a decent success story. Barriers to entry for a company
to entering a particular industry include:
1. Economies of scale
2. Brand identity
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3. Product differentiation
4. Capital requirements
5. Switching costs
6. Access to distribution channels
7. Cost disadvantages
8. Government policy.
One or many of these factors play a role in planning a viable business model
to enter a highly competitive market. Also in the industry, there is always
pressure for substitute products that can satisfy the customer needs from a
functionality, features and pricing perspectives. The strategic management
process should take into consideration these factors impacting the
successful entry of an organisation into the marketplace.
2.8 Bargaining power of customers

The bargaining power of customers is an evolved concept which is a well
understood market force for any industry that decides the company’s
strategy to be in a particular business and gain or lose market share. The
customers generally pay a price for a product’s value. In a high competition
scenario, the customer gains the bargaining power by selecting or rejecting a
product or service on the merit of its quality and value perception. The
buyers can lower an industry’s profitability by bargaining for higher quality or
more services and by playing one company against another.
In today’s well connected world, the customers have complete information.
They are quite knowledgeable. They acquire knowledge by studying different
products available in the market place through the information available on
the internet.
It just takes the buyer to do a google search to find out the details of any
product or service by comparing the product models, features, promotion
schemes, price for product variations across multiple vendors. The
continuum of internet and the revolution of online business opportunities
have made the marketplace more transparent these days and customers
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have multiple choices to decide on the products or services that suit their
specific needs and requirements.
This phenomenal change applies to travel industry, hotel industry, airlines
industry, retail portals like eBay, amazon, flipkart, who promote a wide range
of products under compelling discount schemes which makes the buyer take
decisions on the fly and gain from promotion, offers available online. The
dynamics of pricing takes into account the customer behaviour during their
visit to such websites, product acceptability, price comparisons of other
competitors, customer buying patterns, volume of sales forecasted, volume
of sales closed etc. These companies, keeping the bargaining power of the
buyers in mind, have to have competitive pricing strategy to acquire and
retain customers.
The product companies have to work on the costs of their supply chain to
cater to the market requirements. The ability of the industry to right price a
product or service will decide the existence or extinction of the industry in the
market place. It also depends on the ability to offer standard and
differentiated products and services so the customers are able to make
choice depending on their requirements.
2.9 Constraints of Porter’s five forces model

The Porter’s five forces model is based on the assumptions of the industry
organisation perspective on strategy as opposed to resource based
perspective. While the model can be used as a strategic tool for analytical
purpose, it does have some limitations. Generally, it is difficult to recognise
an industry with a clear definition; hence an assumption of existence of a
clear industry definition is a challenge in most of the industries. As the
complexity of an industry increases, the ability to draw analytical inferences
from the model decreases.
Secondly, the Porter’s model addresses the behaviour of the organisations in
an industry and does not account for the role of partnerships or alliances,
which is a growing phenomenon today in many industries. When firms work
together, they create complex relationships that are not easily incorporated
into industry models. Besides, today with the creation of new industries and
new niche segments within an industry, there are new challenges to create
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new value propositions in line with technological changes and customer

expectations due to faster socio-economic changes.
Thirdly, the model does not take into account the fact that some enterprises,
especially the large ones, can often take steps to change the structure of the
industry or industry landscape, thereby increasing their prospects for
revenues and profits. For example, South West airlines in the U.S, created a
new industry structure by its own unique proposition of the market
requirements.
Fourthly, the Porter’s model assumes that industry factors, not the firm’s
resources, constitute the primary determinants of the company’s profits. This
limitation reflects the ongoing debate on industry organisation based
approach which emphasises industry specific structures, and resources
based approach which emphasises company specific characteristics besides
industry specific characteristics.
Finally, an organisation competes in the global markets across many
countries and hence it must be concerned about multiple industry structures.
The nature of industry competition in the international space differs among
nation and may present challenges that may not be present in the home
country.
While these challenges are there, it is critical to perform a thorough analysis
of the industry by using the five forces model in developing an understanding
of competition behaviour within an industry. Generally, Porter’s five forces
model provides the necessary insights into profit opportunities as well as
potential challenges within an industry.
Summary
In this chapter, we focused on identifying the industry an organisation is
operating in and the competition scenario for its products and services. We
also tried to define the industry and relevant competition for that industry. It
involves an understanding the evolution of industry and industry lifecycle. We
also did an analysis of industry and its competition through useful tools. This
chapter also discusses government policies for industry and how they impact
the strategy making process. Lastly we discussed about the entry and exit
barrier and also about the bargaining power of customers.
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Assessment Questions
1. What are the different stages of industry life cycle:
a) Introduction, evolution, growth and decline
b) Introduction, growth, maturity and decline
c) Introduction, growth, shake-out, maturity and decline
d) Introduction, growth maturity and shake-out
2. According to Porter’s theory, the forces that combine to form the industry
structure and impact the profitability prospects of the companies that operate
in the industry are:
a) The intensity of rivalry among incumbent firms
b) The threat of new competitors entering the industry
c) The threat of substitute products and services
d) The bargaining power of the customers and suppliers
e) All of the above
3. ABC Bank has challenge of customer churn in the credit card business.
As a strategic manager what would be your various suggestions to retain
customers and create a strategy for exit barriers?
a) Switch costs, discounts and customer service
b) Relationship management and customer service
c) Relationship management, service excellence, loyalty program,
reward points, cash-credits
d) Service excellence, retention program, discounts
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4. Extrapolating the Garter’s magic quadrant, what is your understanding of

two companies, one of which is challenger and the other is a leader in a
particular industry?
a) Challenger is low on vision and high on execution. Leader is
high on both vision and execution
b) Challenger is high on vision & low on execution. Leader is high on
both vision & execution
c) Challenger is both high on vision & execution. Leader is high on vision
and low on execution
d) Challenger is both low on vision and execution. Leader is high on both
vision and execution
5. What are the factors generally created by existing strong competitors who
have large presence, towards entry barriers to competition?
a) Economies of scale and distribution
b) Brand identity
c) Product differentiation
d) Capital requirements
e) All of the above
6. Between 2008 till 2012, Indian mobile industry faced hyper-competition in

the market. What do you understand by the term hyper-competition?
a) There were many competitors in the same industry and trying to gain
customers
b) New mobile operators launched their services and slashed the
tariffs to unforeseen levels, which forced the incumbent
operators also to cut the tariff steeply
c) Reduction in prices lead to customer acquisition at faster pace
d) It leads to decline of the industry
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References
1. John A Parnell, Strategic Management, Theory and Practice (Biztantra
2003), P 21
2. Gartner’s Magic quadrant for market position analysis, Gartner Inc and
IDC marktescape map
2003), P 22
2003), P 24-27
2003), P 28-29
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video
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3
EXTERNAL ENVIRONMENT
Objectives:
The previous chapter discussed the Industry and competition environment
within the industry that an organisation must define and analyse for
successful strategy formulation. After the industry has been clearly defined,
the macro-environment, the forces outside the industry, should be
considered. This chapter covers the macro-environment forces in detail. At
the end of the chapter, you will be able to understand the following:
•! Analysis of the macro-environment
•! Political and Regulatory forces
•! Economic forces
•! Social forces
•! Technological forces
•! Demographic forces
•! Environmental scanning
•! Forecasting the environment
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Structure:
3.1! ! Introduction
3.2! ! Analysis of Macro Environment
3.3! ! Political and Legal Forces
3.4! ! Regulatory Forces
3.5! ! Economic Forces
3.6! ! Social Forces
3.7! ! Technological Forces
3.8! ! Demographic Forces
3.9! ! Natural Environment
3.10! Environment Forecasting
3.11!! Summary
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3.1 Introduction
For any industry there are forces outside the industry that affect the
performance of the industry and the constituent companies significantly. It is
important that strategic management process must analyse the environment
external to the industry and to understand how the broad factors in the
macro-environment impact the industry as a whole.
It is important to be aware that every organisation exists within a complex
network of political, regulatory, economic, social, technological and
demographic forces. These elements together form an organisation’s macro-
environment. The analysis of the macro environment and its forces may be
referenced as PEST analysis, an acronym formed from the first letters of
these different forces. The constant changes in these forces present
numerous challenges and opportunities to strategic managers. The impacts,
both positive and negative, of macro-environmental forces on the industry
and company must be well understood, before all strategic options and risk
management initiatives are evaluated.
3.2 Analysis of Macroenvironment

PEST analysis is a structured way of capturing the different dynamics that
play into an industry. In today’s context such macro forces go beyond the
country in which the company is operating. The industries and the markets
across the world, today, are seamlessly connected with increasing free trade
agreements entered between different countries which have trade
relationships with each other to run their economies effectively and help
each other for trade balance.
There is a saying in the financial markets that if America sneezes, other
emerging markets like India catch cold. Such is the interdependence that
American government actions and regulatory policies have far reaching
impact on many emerging markets and hence its industries. It impacts
financial markets and currency markets on a real time basis. It also impacts
political developments in most vulnerable countries like Afghanistan, Iraq,
and Syria etc. Similarly, technological improvements have seamless
ramifications on different countries’ economies, thus impacting the social
lifestyles as well. Legal and regulatory policies of one country can impact the
77
other, for instance, the US Immigration bill, if passed, will impact the Indian
IT Industry in a big way. We will see this in detail later in this chapter.
The following are the categories of macro environmental forces:
1. Political and legal forces
2. Regulatory forces
3. Economic forces
4. Social forces
5. Technological forces
6. Demographic forces
 
Some challenges of the industry or a country may be classified into one
category, whereas others may be related to two or more issues. More often,
it is not possible to expect favourable actions happening across these
categories to have a synchronised positive impact on the industry. The
actions happening at each category at different points in time, will have
delayed or cascading impact on the overall industry and the company in that
industry. The dissemination of the effect will be seen as the industry evolves
and matures.
For example, the automobile industry has political (governments policy on
foreign direct investments, excise and custom duty guidelines etc),
regulatory (polices stipulating the safety standards be met), economic (how
the business impacts the country’s economy in terms of job creation, GDP
growth, income to the government’s revenues etc), social (consumers look
for new lifestyle features and expect safety standards to improve),
technological (innovations to improve overall performance and safety
features) and demographic (new products and services to suit the different
sections of the demography, for eg Tata Nano for first time buyers of cars or
a small family aspiring to transition from two wheeler based transport to a
mini car) dimensions.
Some industries are more influenced by government interference.
Government subsidy dependent industries like sugar, fertilisers, agriculture
related industries, oil, gas and other natural resources, where government
fixes the prices of the resources need government approvals to fix
procurement and selling prices, because of huge subsidies incurred by the
government to keep the procurement prices and selling prices at affordable
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levels to support people living under poverty line or the underprivileged

sections of the society. These industries face challenges in commanding
higher prices even if the demand goes beyond supply.
Thus, one needs to understand how the various macro environmental forces
combine to influence the industry’s behaviour and performance. The demand
for a particular product will be influenced by the government’s initiatives to
provide the right infrastructures like broader roads, bigger airports, more train
services, tax concessions, government subsidies, clearing approvals for
extracting natural resources and regulatory clearances to set up new
businesses to meet new demands getting created as a result of increasing
disposable incomes available with different strata of society etc.
Although large organisations and industry associations often attempt to
influence changes in the macro-environment, these macro forces are not
usually under the direct control of business organisations. In India, many
leaders and industry captains are part of the Prime Ministers Economic
Advisory Council (PMEAC) and hold Director Positions in several regulatory
bodies; it may be expected that they may be able to exert some degree of
influence over the different challenges facing the industry and the economy.
The strategic managers typically seek to enable an organisation to operate
effectively within largely uncontrollable environmental constraints while
capitalising on the opportunities presented by the environment. Hence, they
must first identify and analyse both the domestic and global macro-
environmental forces as explained above, and understand how each force
impacts the industry in which they operate in, before addressing the
challenges and strategy concerns related to the internal environment of the
organisation. These issues need to be considered as opportunities and
threats while formulating the strategic management process.
3.3 Political and Legal Forces

India being a large democratic country, the parliamentary system is the
supreme authority of enacting and legalising the government policies and
reforms in the economy. Over the last couple of decades, the major political
parties (either the Congress or the BJP) have been able to come to power
only with the support of smaller parties or the regional parties due to
fragmented election results. The major forces under his category that would
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impact the industry are outcome of elections, new legislations, judicial / court
decisions, economic reforms as well as the decisions recommended by the
various commissions and agencies at different levels of the governments.
Due to alliance-led political formation in our country, there have always been
compulsions on the ruling government to accommodate the interests of
various political parties in the alliance before enacting key legislations to
support the industries and the economy as a whole. As we have seen, there
have been many scams that have impacted the government’s credibility and
ability to take even good decisions to support the industry, like giving
clearance to making natural resources available to the industry like coal, iron
ore etc. Such events might at times lead to paralysis of government’s policy
making, which is essential to keep the economy growing at its potential.
For example, when the UPA government passed legislation in parliament for
allowing FDI in multi-brand retail in September 2012, there were major
opposition from all other parties including some of the ruling alliance parties
as well as opposition alliance parties. As a result, the foreign direct
investment in the multi-brand retail has still not taken shape in the country in
the last more than one year despite the bill being enacted in the parliament.
No major foreign investors have shown keen interest in making strategic
investments into India except Tesco from the UK, which recently tied with
Tata Enterprise Company Trent.
------------------------------------------------------------------------------------------------------
Case Study on the political implications of FDI in multiband Retail
The opposition parties have said "no" to majority foreign direct investment in
retail markets. The rationale is obvious: the main opposition party has always
been the party of small traders, and so is backing these traders. The other
smaller parties also have given priority to traders and middlemen over the
interest of consumers because, they claim this will affect employment.
Supermarkets have indeed killed small shops in rich countries like the US.
But in fast-growing developing countries like China and Indonesia,
supermarkets and small shops have flourished together. Why should India
be any different?
India already has dozens of large Indian-owned retail chains like Future
retail, More, Hypercity, Shoppers Stop etc. These are struggling to compete
against small shops, and have suffered big losses. Walmart in India lost
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hundreds of crores in its joint venture with the Bharti group, without killing
small shops. Why, then, raise the bogey of job losses?
Prosperity is created by rising productivity, which by definition means
producing more from less labour and capital. Rising productivity surely
causes some job losses in some areas, but creates jobs in other growing
sectors. Indian IT Industry is a great example of creating jobs which no other
industry has created before. Even we have heard of opposition to
computerisation in public sector bans in India in the 1990s when the
Information technology automation was opened up in public sector
enterprises
To understand this fully, consider the following. To protect jobs, should we
ban computers, which have displaced millions of clerical jobs? Why not ban
cell-phones which have killed the camera industry? Why not ban washing
machines, which have hugely reduced jobs in washing? Why not abolish
vacuum cleaners which substitute poor sweepers? Why not abolish luggage
with wheels, which deprives coolies of jobs? Why not abolish tractors and
harvest combines, which take jobs away from agricultural workers, the
poorest of the poor? Why not abolish cars and motorcycles, which have
displaced labour-intensive horse carts and bullock carts?
Answer: Indian workers were not better off in the old days without machines
or tractors, they were much poorer. Why did jobs-killing machines and mega-
companies (like Indian IT or automobile companies) create prosperity rather
than poverty? Because their development steadily replaced low-wage jobs
with higher-wage jobs and improved the living standards of people.
All technological and managerial progress kills old jobs and creates new
ones. To focus only the lost jobs is a recipe for staying poor, something
demonstrated by the Luddites in the 19th century. The creation of textile
machinery in Britain caused massive job losses in traditional handlooms. So,
the Luddites smashed textile factories in an idealistic effort to protect jobs.
They didn't realize that by stalling the industrial revolution — which ultimately
raised living standards tenfold — they were actually keeping people poor.
Economist Joseph Schumpeter demonstrated that capitalism succeeds
because of creative destruction. It constantly destroys old jobs and creates
new ones. This constantly replaces lower-productivity jobs with higher-
productivity jobs, and so the entire economy becomes more productive. The
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US loses over three million jobs every month but creates another three
million new ones, and this churning has made it the world's top economy.
The US has safety nets for those who get displaced. India needs safety nets
too (need political will and change). But it must also encourage every
mechanism that improves productivity, seeing it as a blessing and not a
curse. Myopic idealists like the Luddites could only see the immediate job
losses of technological change, not the huge productivity gains. Political
parties need to avoid Luddite illusions in banning any activity, including
foreign-majority retail chains. These can succeed only by reducing prices for
the common people.
Let us suppose that by cutting out middlemen and reaping some new
technological gains, foreign-owned chains can reduce prices 20%. This will
certainly mean some job losses in competing small shops. But it also means
that consumers will have an additional 20% in their pockets, which they will
spend on additional goods and services. This will create a multitude of jobs
in producing those additional goods and services. Rising productivity and
being competitive is always a good thing.
To truly serve the common man, the political parties must encourage
investment and competition of all sorts (including that from foreign
companies). Fast economic growth is by far the most important factor that
raises living standards. This needs to be supplemented by government
provision of high-quality public goods including roads, schools, health clinics,
safety nets and retraining facilities. India's biggest problem today is the lousy
quality of public goods. Major parties choose cynically to oppose FDI in
retail. If they really listen to small shopkeepers, they will find that their
biggest problem by far is lack of bank credit, not competition from
hypermarkets. Why not focus on that?
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The other Political forces that impact strategy, also include shifts in foreign
policies, critical decisions like engaging in wars and response to domestic
violence (like Kargil war, Maoists encounters, border disturbances, etc) can
affect the government’s focus on the industry and economy. Globally, such
scenarios can impact India as well. The Gulf war in early 1990s affected the
oil prices and brought about supply constraints, and so was the Iraq war in
2003.
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Geo-political tensions and disturbances, threats like nuclear warfare by North

Korea, alleged chemical weapons possessions with Syria are all forces that
fall under this category. While these are international forces, they have far
reaching ramifications to Indian industries in certain segments like oil and
gas, goods and services and industries sensitive to exports and imports.
In order to improve trade with other countries, the Indian government has
entered into free trade agreements (FTA) with many countries establishing
bilateral trade relationships. The policies around export and import from time
to time can also impact specific industries. Decisions on new taxation like
customs duty, excise duty, double taxation treaty can have implications on
specific industries. Any change in industrial policy, fiscal policy, tariff policy
may have profound impact on the businesses. Some policy developments
create opportunities to one industry as well as threats to another industry.
The legislations in other countries sometimes affect the Indian domestic
economy. The US immigration bill (this bill is believed to protect American
jobs in the US), if enacted by the US government is feared to affect the
Indian an IT workers working in the US and restrict the number of visa
clearances that will eventually affect the Indian IT industry’s business model
and its cost structures. Another example is, in the 1980s the US convinced
the Japanese manufacturers like Toyota, Honda to voluntarily restrict exports
of cars to the US in lieu of a tariff. Because of this particular tariff, the
Japanese automobile manufacturers established a large number of
production facilities to manufacture cars in the US thereby indigenizing the
foreign cars.
Such restrictive policies and protectionist measures by certain governments
hurt the economies of other countries which have trade relationships with
them. Hence there is a need for building consensus among the global
economies by negotiating with various member countries within the
acceptable trade framework. On the other hand, there are certain countries
like Iran, Syria, North Korea etc have trade sanctions by the United Nations
for violations of norms on global security, geo political events, civil wars,
human rights violation, nuclear/ chemical war threats or anything that poses
threat to the global peace process initiatives.
The World Trade Organization (WTO) is the only global international
organization dealing with the rules of trade between nations. At its heart are
the WTO agreements, negotiated and signed by the bulk of the world’s
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trading nations and ratified in their parliaments. The goal is to help producers
of goods and services, exporters, and importers conduct their business.
There are a number of ways of looking at the World Trade Organization. It is
an organization for trade opening and for formulating international trade
framework which would be followed by the member countries. It is a forum
for governments to negotiate trade agreements. It is a place for them to
settle trade disputes. It operates a system of trade rules.
Essentially, the WTO is a place where member governments try to sort out
the trade problems they face with each other. There have been negotiations
on multiple areas WTO is currently working on that will help the member
countries in the long run. And it is the individual country’s government’s
responsibility to take care of its consumer’s interests and industry interests
while negotiating at the WTO forums. The strategic management process of
an organisation must consider these aspects relevant to the business the
company wishes to pursue.
In India, there are many government bodies that are responsible for
approvals related to launching new businesses. They include Cabinet
Committee on Investments, Foreign Investment Promotion Board (FIPB),
Cabinet Committee on Economic Affairs (CCEA), Competition Commission
of India (CCI), Board of Industrial and Financial Restructuring (BIFR) etc.
Their role is to evaluate the investment proposals and recommend or
approve or disapprove them on the merit of their businesses.
3.4 Regulatory Forces

There are many regulatory organisations within a country which contribute to
the economy as a whole by regulating the industry from time to time to
ensure that the industry grows healthily. These organisations, in India,
include the Reserve Bank of India (RBI), Insurance Regulatory Development
Authority (IRDA), Pension Fund Regulatory Development Authority (PFRDA),
Securities and Exchange board of India (SEBI), TRAI (Telecom Regulatory
Authority of India), etc. Each industry has a regulator that ensures the
industry players conform to the policies and regulations in effect from time to
time.
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The primary function of a regulator in an industry is to formulate policies to

provide new licences in a particular industry after a detailed process of
evaluation of the bidders as well as operationally to ensure that the policies
and the legal framework an Industry needs to follow are complied with in
spirit and action. It also stipulates governance standards for the industry,
which are of high quality.
RBI is currently involved (in Oct 2013) in evaluating the aspirants who have
applied for new bank licences in India. This has set in motion the next round
of reforms in the banking sector. RBI is also seriously considering the
opening up of financial sector to global banking players to enter Indian
banking industry through Mergers and Acquisition (M&A) of Indian private
banks. The government and the RBI have been enforcing thrust on rural
banking and financial inclusion by ensuring the unbanked or under-banked
population in the country are covered under the banking system.
It is disheartening to note that only 26% of India’s population is currently
banked, which is far below expectations. In developed countries like the US,
only one-third of the population is unbanked. There is a dichotomy between
the developed nations and an emerging country like India. Hence, the
government and the RBI had initiated the financial inclusion programme
(FIP) a few years back.
Under RBI’s financial inclusion programme (FIP), banks are mandated to
offer financial services to the unbanked population and each village is to be
covered by a banking outlet. 
The banks are required to open a sufficient number of rural branches in such
a manner that there is one branch within a distance of 3-4 km to support
about 8-10 banking correspondents (BCs). 
Under FIP, banks need to adopt a planned & structured approach with the
clear objective of providing banking outlets in every village in the next 3
years through a mix of branches and branch less modes.
Similarly, Telecom sector is a high growth sector. The regulator TRAI has
been formulating polices to ensure industry became one of the key engines
of the economy. The evolution process ensured that the telecom coverage in
the country has now reached more than 80% of the human inhabited areas,
telecom tariff have been substantially brought down by bringing in more
competitors in the industry and most importantly supporting the sector to
venture into new service offerings by providing the 3G spectrum and 4G
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licences. Again, the price war in the Indian Telecom industry actually hurt the
industry very badly due to hyper-competition and the industry is currently in a
self-correction mode.
3.5 Economic Forces

India and China (part of BRICS nations) have been the fastest growing
emerging markets in the Asia region over the last decade. Both countries
have distinct economic fabric that drives the engines of their economies.
However, since the great recession that started in the fall of 2008 after
Lehman Brothers collapse that led to financial crisis in the US, the growth
rates in the emerging economies have fallen significantly from their peaks,
though the growth rates are still higher than the developed nations like the
US or countries in the Euro zone or Japan. Prior to 2008, India had been
clocking around 8-9% GDP growth rates and China was recording above the
magic double digit mark of 10% GDP growth rates.
Let us analyse why and how these growth rates have fallen despite
liberalisation of economies, economic development policies and an open
market approach. In a fast growing emerging economy, there are various
economic forces that affect the industry and its business operations
significantly. There could be growth or decline in gross domestic product,
increase or decrease in inflation, interest rates or currency exchange rates.
The fiscal and current account deficits also play a critical role in the country’s
economic growth or decline. These changes can present both opportunities
and threats to strategic managers who formulate strategies for their
companies, depending on the industry.
The economic conditions of a country, for example - the nature of the
economy, government policies, the stage of development of the economy,
economic resources, the levels of income, the distribution of income, savings
rate, asset and wealth creation - are among the very important determinants
of business strategies. There are many macro factors like Gross Domestic
Product, Inflation, Interest rates, Currency rates, Fiscal deficit, Current
Account deficit etc that play a critical role in the economic development of
the nation. We will see each one of these factors in detail.
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Gross Domestic Product

Gross Domestic product or GDP refers to the value of a country’s total
production of goods and services. A consistent GDP growth is fuelled by
increase in consumer spending in the domestic market as well as healthy
exports to international markets. In contrast, a GDP decline is an indication
of lower consumer spending and decreased consumer demand for goods
and services. Also, a high degree of volatility and unpredictability of the
economy is not a good thing for any country. India has been going through a
range bound volatile and fragile period from 2008 till 2013 due to a number
of domestic and global economic factors.
It is the responsibility of the government and regulatory agencies to intervene
appropriately to ensure stability in the economy over a period of time and
protect the interests of the consumers and the industry as a whole. The
government has to come out with policy interventions from time to time.
A rapidly growing economy is not all the time beneficial to the country. During
the fast paced growth of an economy, where the demand reaches a level
beyond the inherent supply, it stokes inflationary pressures leading to price
rise across products and services. This invariably prompts the central banks
to take actions and tighten the monetary policies, which will slow down the
demand cycle in anticipation that the inflationary pressures will ease out.
High inflation and high interest rates can slow down the economy as the cost
of operations of the firms increase and profitability takes a hit.
When the GDP of a country contracts for two consecutive quarters, the
country’s economy is generally considered to be in a recession. During this
time competitive pressures can lower profits for companies and make them
default on their financial commitments, thus resulting in business failure.
For example, during slow down, new car manufacturers tend to have a
challenging time in attracting prospective customers to their showrooms as
the industry goes through sluggishness, thus exerting pressure on costs and
the profitability of business. In entire 2013, Indian automobile sector saw a
sales decline of about 12% as compared to the year 2012. A prolonged slow
down can thus hurt the industry and the economy as a whole.
Hence, it is important to ensure that the slowdown in the economy does not
threaten the various industries and it is incumbent upon the government to
devise new policies and fiscal measures to revive the economy and the
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central banks to resort to benign monetary policy measures to support the

industry. All these actions will have profound impact on the industrial growth
and GDP growth.
During high growth phase, the income levels also increase considerably,
resulting in increased disposable income. The sale of a product for which the
demand is income-elastic naturally increases with an increase in the income.
During the slowdown period of an economy, the rate of increase in income
levels also slow down. Generally, with slow down, the demand also declines
resulting in over supply and reduction in prices.
Recessions can also create opportunities for businesses on the supply side
and it is for the industries to think creatively and innovatively to come out
with new compelling products and services before the next cycle of
economic growth.
Essentially, the following factors influence the growth drivers for a country:
1.! Economic reforms by the government
2.! Falling Interest rates
3.! Falling Inflation
4.! Low Fiscal deficit
5.! Low Current Account deficit, preferably surplus
 
In an emerging economy like India where more than 60% of the population
lives in the rural areas, the per capita income is very low and hence there is
no surplus to spend on other consumer discretionary products than the basic
needs to keep life going. India is a domestic consumption driven economy
and the bottom of the pyramid concept has been working well for many
Indian companies as well as multinational companies to do business in India.
Inflation
Inflation is a key force that impacts the economic growth in a significant
manner. In most of the markets, the inflation-growth dynamics play out
cyclically from time to time and have varied impact on the economy. There is
a tight correlation between inflation and growth, which we will see in detail in
this chapter. India has been seeing elevated inflation levels since the year
2011. There are typically four scenarios on how the combination of growth
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cycles and inflation cycles play out in an economy. We will discuss these in
detail.
High growth and low or moderate inflation
When the economy grows at a fast pace, it increases the income levels,
which in turn, enhances the buying power of consumers due to increase in
disposable incomes. This phenomenon, over time, gradually increases the
demand for goods and services. When the demand cycle overtakes the
supply cycle and is persistent with widening gap between demand and
supply, the prices of goods and services go up. This stokes inflationary
pressures on the economy. Inflation moves up from low to moderate levels
and then goes to elevated levels if the demand supply gap continues for an
extended period of time and is not corrected with additional supply or
augmented capacity by the industry.
FLOW DIAGRAM
High growth and high inflation

When inflation increases and goes to elevated levels, the central bank (The
Reserve Bank of India) starts tightening its monetary policy in anticipation of
inflationary expectations. They start increasing the interest rates (interest
rates like repo rate and cash reserve ratio are monetary tools that they use
generally) to bring the inflation under control and to contain it. The banks will
pass on the high interest rates to its customers, both corporates and
individuals.
High inflation rates have an adverse effect on most of the businesses in the
economy resulting in high cost of doing business due to increase in interest
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rates and costlier raw materials due to demand supply gap. Since the growth
is high during this period, the central bank has much better space to
administer the increase in policy rates suitably and continued rate of high
interest rates can hurt the growth of the economy.
An economic slowdown, on the other hand, can lead to favourable effects on
the industry due to the start of lower demand cycle vis-a-vis supply, and
hence fall in prices, resulting in the inflation coming down. This leads to the
central bank (RBI) loosening the monetary policies and thus the banks start
reducing the interest rates for their customers. Thus, slowdowns are
accompanied by central bank interest rate cuts, which reduces the bank
costs so that get passed on to consumers to revive the economy. The
Reserve Bank’s mandate is to foster sustainable growth through a balanced
approach towards financial sector reforms and through monetary/ price
stability – by bringing down inflation to acceptable levels to aid growth over a
reasonable period of time.
Low growth and high inflation
In the period between 2011 and 2013, India faced a peculiar situation in the
economy, wherein the growth started slowing down from 8-9% in FY 10-11 to
4.4% in Q1 and 4.8% in Q2 FY 13-14. However, the inflation was at elevated
levels during most part of this period in discussion. As per analysts, this was
the result of the government’s fiscal stimulus program and RBI keeping easy
monetary policies, post the 2008 financial crisis for an extended period of
time which in turn developed inflationary pressures within the economy
between 2009 and 2010.
Hence, the inflation had become deep rooted before the government rolled
back the fiscal stimulus and RBI started increasing the policy rates to control
inflation. The RBI was forced to increase the interest rates high during the
most part of 2012 and 2013, due to almost double digit inflation witnessed in
the economy. This is a complex situation where the GDP growth has fallen to
4.4% (as against our earlier growth of 8-9%), but the inflation was at
elevated levels at almost 9-10%.
In low growth and high inflation scenario, there will be inherent disinflationary
pressures acting on the economy as the high prices have already hurt the
economic growth. This tends to reduce pressure on the inflation and the
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prices should start coming down over a medium term, reviving the chances
for softening of interest rates and thus the GDP growth.
Low growth and low inflation
Similarly, when the economy is faced with low growth and low inflation for a
long period of time, as in the case of most of the developed economies like
the US, UK, Europe, Japan etc, their central banks have unleashed easy
monetary policies to stimulate the demand, thereby supporting growth to pick
up in their economies. Post the 2008 global recession, the central / federal
banks of these developed world economies have been keeping their interest
rates very low (near zero) and extending monetary stimulus (also called the
Quantitative Easing QE in the US) by bond purchase programs and
releasing money into the financial system to stimulate growth.
Interest Rates:
As explained above, we have seen the various scenarios of administrating
the interest rates. We have just seen the composite effect of inflation rates
and interest rates on an economy. There are both short term and long term
interest rates that affect the consumers spending pattern and the growth of
the economy.
Long term interest rates are for especially high value products that are
financed over an extended period of time such as home loans, car loans,
capital expenditure loans etc. Short term interest rates are for overnight
borrowing, credit cards, short term deposits etc. Some companies offer very
attractive short term interest rates for duration of 6 months or 12 months to
stimulate sales in the consumer durables and other discretionary spending
by offering EMI schemes through the customer’s credit cards. This is aimed
at encouraging consumer spending.
At corporate level, interest rates also influence strategic decisions related to
short term and long term financing of the capital investments and business
operations. High interest rates, for instance, tend to dampen the business
plans to expand (capex investments) or replace ageing facilities. Lower
interest rates, however, are more likely to encourage capital expenditure for
expansion, new business investments and other business development
initiatives by the company.
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Exchange Rates:
The currency exchange rates are influenced by the global economic
conditions, domestic and international bond yields and central banks’
monetary policies. It also depends on the coordinated economic policies of
various governments.
Today the US dollar is a largest exchange currency used as a common
denomination by many countries for trade. Strengthening of the US dollar
invariably puts pressure on the currencies of the emerging markets. During
this time, the US companies would find themselves at a competitive
disadvantage to do business internationally as the prices of their goods and
services rise in the foreign markets, especially it hurts imports of their goods
and services in the emerging markets. Also, during this time, the American
consumers may be inclined to buy products produced aboard which are less
expensive and competitive than the goods and services produced in the US.
Let us discuss about Indian currency situation. India’s Rupee had been
weakening on the back of strong US dollars since May 2013. The reasons
attributed were these. India’s high Current Account Deficit (CAD) is believed
to be a key reason for higher inflation in the country, as the cost of imported
goods became dearer with higher exchange rate for USD, as explained in
the previous paragraph. Secondly, the US had been having easy monetary
policy since the financial crisis in 2008 and due to the US Federal Reserve’s
(the US Central Bank) quantitative easing (QE) programme to stimulate the
slowing US economy since then.
When Fed announced that it was going to taper the QE in May 2013, the
investors were worried and started withdrawing their investments from their
emerging market portfolios like India which spooked the Indian equity and
money markets with huge dollar outflows from the Indian economy. The US
dollar which was at around 56-58 Rs per dollar till April 2013, started
appreciating all the way up to 68-69 Rs per dollar hurting the economy, more
particularly the import sector significantly.
However, In India, a weaker or depreciating Rupee helps higher exports as
Indian goods and services become more competitive in the international
market. For example, when the Indian currency was depreciating during
most part of 2013, the Indian IT services industry and other export oriented
industries like pharmaceuticals, textiles, leather, auto-components etc
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performed well during this period and the Indian exports started growing
healthily.
Current Account Deficit:
The Current Account Deficit (CAD) is the difference between the capital
inflows into and the capital outflows from the country, as measured as a
percentage of GDP. It is also referred to as the Balance of Payments (BoP)
for a country. A high CAD generally triggers higher inflation hurting economic
growth and lower CAD will help build a healthy foreign exchange reserve for
the country. A current account surplus situation puts the country to unleash
more reforms and attract more investments.
Trade deficit is one component of Current account deficit. Trade deficit is
calculated as the difference between the imports and exports a country is
making in a financial year. India’s main imports are crude oil, gold and capital
equipment and engineering goods etc. The Indian export industries range
from IT services, textiles, leather, garments, jewellery etc. The IT Services
industry contributes close to about $ 100 billion (as of FY 2013) and has
been the bellwether of Indian exports industry as well as for the economy.
India posted a current account deficit of 4.8% of India’s GDP in the financial
year 2012-13 and the CAD is expected to be around $ 45 bn or 2.5% of
India’s GDP for the financial year 2013-14. As one can understand, current
account deficit has implications beyond just imports and exports, into
impacting the country’s inflation and growth parameters. A well contained
CAD protects the country from the external risks like currency fluctuations
and US dollar flows.
Fiscal Deficit:
Fiscal deficit is the difference between the government’s revenue incomes
and expenditure, both planned and non-planned. Fiscal deficit is measured
as a % of the GDP. India’s fiscal deficit was 4.9% of GDP in the financial year
2012-13. In the current year, 2013-14, it is projected to be contained at 4.6%
of GDP. Higher the fiscal deficit, higher will be the chances of it bringing
inflationary pressures on the economy as a result of forcing the government
to borrow beyond its means to meet the expenditure. This situation will have
a spiralling effect on the GDP growth as higher inflationary situation will
make the Central bank to raise the policy rates to contain the inflation. This
will have an adverse effect on the Industrial production (IIP) and Rupee
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depreciation leading to costlier imports of essential commodities and lower

GDP growth.
Fiscal deficits result from governments populist initiatives like higher
subsidies and higher non-planned expenditures. The subsidy programs
include food subsidy (like food security), fertiliser subsidy (cheap fertilisers),
oil subsidy (like petrol, diesel, cooking gas, kerosene etc), farm loan waivers
etc. Another area that impacts the fiscal deficit comes from non-planned
expenditures of various ministries when there are no resources or no means
of higher government revenues to substantiate higher spending.
Higher fiscal deficit is not good for the economy. The global rating agencies,
like S&P, Moody’s and Fitch are likely to downgrade India’s rating to below
investment grade if the fiscal profligacy continues. This will severely impact
the foreign investors’ sentiment and investment flows in to the country and
on contrary many investors start pulling out their investments from the
country triggering more outflows and hence widening the current account
deficit as well. This situation is counter-productive to the economic growth of
the country. Thus higher fiscal deficit has major counter effects and
cascading impacts on other macro-economic factors like growth, inflation,
interest rates, investments, current account deficit, currency exchange rates
etc.
3.6 Social Forces

Society is the centre piece of the economy and for the industry, because that
is where the consumers belong to. They are a critical component of success
for any industry. Customer is king, as they say. Thus, social forces include
factors such as purchasing power, disposable incomes, customer behaviour
and acceptability, societal values, culture, traditions, religious practices and
beliefs of the members of the society.
The cultural values like individual freedom, fairness, secularism, free markets
and equality of opportunity all play a role in the consumer behaviour,
employment opportunities, and disposable incomes that impact the industry
in one way or the other. These values foster entrepreneurial spirit and
translate into people’s ability to aspire for higher quality life.
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In India, with wide strata of society, the income levels vary from the superrich
to the underprivileged. A 2013 UN report stated that a third of the world’s
poorest people live in India. Poverty in India is widespread, with the nation
estimated to have a third of the world's poor currently. A World Bank report
(2010) says that 32.7% of the total Indian population falls below the
international poverty line of US$ 1.25 per day (in PPP terms) while 68.7%
live on less than US$ 2 per day.
In fact, these figures have improved significantly over the last decade as
India’s economy has been growing at a higher pace. According to a 2011 UN
Poverty Development Goals Report, as many as 320 million people in India
and China are expected to come out of poverty in the next four years, while
India's poverty rate is projected to drop to 22% in 2015 from 32.7% in 2010.
The report also indicates that in Southern Asia, however, only India, where
the poverty rate is projected to fall from 51% in 1990 to about 22% in 2015,
is on track to significantly reduce poverty by half by the 2015 target date.
This is heartening news for Indian government and Indian corporates.
While it is painful to see the people under poverty line suffer on a day-to-day
basis, India’s economic liberalisation since 1991has helped the country
progress much faster than the other emerging world countries. Over the last
10 years, the government has come out with various schemes to alleviate
poverty as well as create more rural financial inclusion programs and create
employment opportunities for underprivileged people through MNREGA,
Direct transfer schemes etc.
What it means is that as the bottom of the pyramid population moves up the
value chain, it will have a cascading impact on the economy and stimulate
demand for products and services for the industry. Indian economy presents
a huge potential and opportunities to entrepreneurs, Indian companies as
well as global enterprises to build capacities, create new offerings,
participate in key social sectors like infrastructure, education, healthcare,
employment, women and childcare welfare etc.
Social trends present various opportunities and threats to businesses. With
increasing awareness around health and fitness in the last decade, there
emerged growth in a number of companies entering into making fitness
equipment, building gyms and fitness centres, creating new offerings in
healthy foods and drinks etc. This opportunity presented creation of new
industries as well as sub-industries offering new products and services. Cola
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companies introduced low calorie cokes; food producers introduced healthy

snacks and low fat offerings. Tea and coffee companies offer multiple
variations within the same product like Chinese green tea, flavoured coffee
etc in order to woo the discerning customers. Today, a visit to the
supermarket presents a wide choice to the consumers to pick and choose
what they want.
Indian market is bipolar in nature. For a business to be successful, its
strategy should be appropriate for the socio-cultural environment to meet the
varying tastes and aspirational needs of the different sections of the society
viz high, middle and low. The marketing mix will have to be so designed as
best suited to the environmental characteristic of the particular geography or
particular section of the society. For instance, the rural markets in India in
the not so recent past were not consumers of the products what the urban
India was consuming. The toothpowder, toothpaste and shampoos were
introduced in smaller packages and sachets to attract the rural populace.
They were made affordable enough to encourage them for daily use. These
initiatives were spearheaded by FMCG companies like HUL, CavinKare,
Colgate, and carried forward by the food and beverage companies like
ready-to-use meals.
Even internationally also, people of different cultures use the same product
in different modes of consumption and with different product attributes to suit
the characteristics of different cultures. For e.g. the two most important
foreign markets for Indian shrimp are Japan and the US. The consumers of
the US market look at attributes like weight, presentation and bacteriological
factors while consumers of Japan look at colour, freshness, uniformity of size
or the arrangement of the shrimp.
Government’s social initiatives like Women empowerment schemes have
created many opportunities for employment and also by creating self-help
groups, fostering entrepreneurial spirit among women. In November 2013,
the government launched the first Bhartiya Mahila Bank for women only, run
by women and for women. This is just one of the steps towards women
empowerment. These social changes have made significant impact on
women power and the economy as well. Today we see there has been a
gradual increase in women participation in senior leadership roles, including
CEO positions in many organisations as well as women representing at the
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board of director levels in many companies, as part of corporate governance

guidelines.
3.7 Technological Forces

If one thinks of innovation, creativity and dynamism, then the first thing that
comes to mind is the technology space. In today’s world, there is all around
transformation happening in the way products are produced, its capabilities
are enhanced. Technological advancements in various industries have
actually improved the lifestyles of people across various strata of society.
Many economists think that technological innovation is the most important
driver of long-term economic growth. The government and policy makers
need to support such innovation, but long-term growth in the economy is
unlikely in the absence of technological innovation. It is good that many new
technologies are emerging in the areas of social media, mobility, data
analytics, cloud services to support growth and created many possibilities
and opportunities to enhance the lifestyle of people. 
 
All these things have been triggered by the fast paced change happening
with the advent of new technologies in different industry sectors helping them
to stay ahead. Technological forces include scientific improvements and
innovations that create opportunities as well as present threats for
businesses. The rate of technological changes varies considerably from one
industry to another and can affect a firm’s operations.
Many industries deploy information technology services to empower their
businesses. Enterprises and medium companies invest heavily in advanced
computers, enterprise resource applications, satellite and terrestrial
communication, mobile technologies etc to automate their ‘people intensive
processes’ with an aim to lower their operating expenses and to deliver
higher customer satisfaction. Enterprise Resource Planning applications
(ERP) have large and medium size companies to really automate their
internal processes like manufacturing, finance, accounting, HR, marketing,
customer relationship etc under on unified business application. This has
tremendously improved the organisational efficacy.
IT services has become a large industry in India that caters to global
customers’ business needs. Leading Indian IT companies like TCS, Infosys,
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Wipro, HCL Tech, CTS, and Tech Mahindra provide innovative technology
solutions to their clients in the US and Europe, thereby bringing in
considerable forex revenues to India.
Industrial automation players like GE, Siemens, Rockwell Automation, etc
have really made breakthroughs in various industrial technologies to
increase the productivity, output and efficiency of many organisations across
industries like aviation, plant automation, medical equipment, infrastructure,
capital goods etc.
The widespread penetration of internet and mobile services over the past
decade is the most pervasive technological force positively impacting the
business organisations next only to the advent of personal computers and
laptops. Today, online booking of flight tickets, rail tickets, hotels, movie
shows, holidays, online banking, online bill settlement, e-commerce portals
like flipkart, future bazaar, myantra etc have all leveraged the internet
presence to provide competitive choice and convenience to customers,
besides improving the company’s revenues and profitability by reducing
operating costs.
Technology has spawned major changes in the customer services area as
well. Many contact centres, BPOs, real or virtual agents answer customer
calls, use speech recognition technology to either resolve a customer query
or provide product information to enhance the customer services. This has
improved the customer response time by more than 50% and per capita
productivity by over 40%. Customer Relationship application enables
companies to keep all customer related information, data and perform
analytics to provide real time information as and when the customer calls the
organisation for buying new products or getting services for the existing
products.
Technology also affects global business operations. For years companies in
developed nations had operations in developing countries with low labour
costs and raw material costs. Now with Information technology
advancements, the organisations in the US and Europe have started
outsourcing their manufacturing and services operations to global players in
emerging countries like Brazil, Mexico, China and India. For example, China
is known globally for outsourcing in manufacturing and India is well known
for its innovation in offshoring of IT Services.
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Examples of emerging technological trends that impact business

Manufacturing: Internet of Things
Internet of things, or M2M, is jargon for a network of machines. It is actually a
set of sensors and motors connected to each other, one for feeding
information and the other to act upon this information. Often a hyped
technology, Internet of Things will begin to become real shortly. Its impact will
be felt most in the manufacturing sector, as it improves productivity by
bringing an exquisite sense of timing to global supply chains. Internet of
Things is sometimes called Industry 4.0.
1.! Energy efficient transport: Electric Car
Energy efficient transport is going to drive the consumer preference going
forward. Like the trend seen with Tesla Model S, electric cars which had a
good 2013 in the US and business expansion into other countries, the other
automobile companies too—Honda, BMW, GM, Volkswagen—are expected
to launch new models to stay ahead. Electric cars are predicted to grow
steadily till 2020, and dominate after that. In 2014, gear boxes will disappear
in some cars, batteries will shrink and range on a single charge will increase.
Charging time will shrink too, though still not to the ideal.
2.! Life Sciences and healthcare: Wearable Devices
Personal health monitoring is growing in developed markets and even in
India, as people monitor their sleep, exercise impact, heart health, and
progress of pregnancy. The penetration of these devices will make a
significant advance as these devices begin to be connected to hospitals. A
wearable devices network can be considered an Internet of Things, and will
be influenced by SMAC (Social Media, Mobility, Analytics and Cloud) and is
thus a good illustration of how cutting-edge technologies reinforce each
other.
3.! Wearable devices are not just for health monitoring:
There are strong possibilities of cognitive Computing. Cognitive computing is
a process by which computers learn as they do their tasks— and engage
with humans like humans. This term was coined by IBM to distinguish it from
the more popular term 'artificial intelligence', and to stress the fact that there
is nothing artificial about cognitive computing. IBM's Watson is the most
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advanced cognitive computing platform, but a few others are also being
developed, mostly by start-ups.
These are some of the examples of new technology trends happening
across industries.
------------------------------------------------------------------------------------------------------
3.8 Demographic Forces

Markets like India and China with growing population, large young talent pool
and growing income are high growth markets, have attracted foreign
investors into these countries. These developing countries have tremendous
hidden potential because of its demographic diversity.
The demographic factors like population growth rate, age, sex, family size,
habitat, life expectancy, employment pattern, social status, young population,
talent and skills, economic stratification of the population, education,
language, caste and religion all affect the demand for goods and services.
These are all factors that impact the strategy of a business. The following
trends have really changed the way the economy is growing in India.
1) The disintegration of the joint family and the spurt in double income
families have given rise to new demands for services like child care
services, home care services, personalized services etc
2) India’s young talent pool have been recognised internationally for their
skills and competencies with increasing investments coming into the
country
3) New sunrise sectors like IT, BPO, retail, online business services, media
have presented new employment opportunities.
4) The penetration of internet and personal computers has spawned a host
of online services
5) With India being a diverse country with large population, it presents
challenges as well as opportunities.
6) India’s young talent pool is a real blessing to many industries to specialise
in certain services functions like off shore services deliver in our IT
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services industry, back office handling as in BPO Services Industry,

Medical and legal transcription services, Engineering centres, Research
and development centres.
7) India is already reaping the demographic dividends like increasing
disposable income, higher life expectancy with advancement in healthcare
etc.
8) The government has been encouraging the development of services
oriented industries like the IT sector and, other exports and services
sectors where the young talent pool could be employed.
9) Affordable labour and a fast growing market have encouraged many
multinationals like Microsoft, IBM, Cisco, Google, GE to invest heavily in
India considering the future potential.
10)Social trends have triggered demographic changes that can dramatically
change the consumption patterns benefitting most of the industries and
created new business opportunities.
More awareness about healthcare and fitness has created a new industry in
the last decade with Gyms and Fitness centres springing up all across the
country. For example, Talwalkers, a public listed pan-India leading company
in the fitness industry, have opened many branches of their gyms in highly
residential areas to attract the local residents to sign-up for fitness programs.
Now days the real estate developers are building the gym, fitness centres
swimming pools as part of their standard amenities while developing housing
societies.
As India evolves into a developed nation, it opens up more and more high
end products and services which are introduced by international fashion
brands like Zara, Tommy Hilfiger, Marks & Spencer, Benetton, Louis Viton
etc, as the upper middle class and rich people opt to improve their personal
branding, outlook, social status etc through the display of such fashion
brands. Even, middle class with higher disposable incomes also opt for
buying some of these luxury brands.
In fact the fashion industry in India has seen a growth anywhere between
25-56% for the various brands mentioned above (as per Economic Times
report 19/11/2013). Seeing the traction in fashion business due to fast
changing demographics, Indian companies like Future Retail are also
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entering into Fashion business seeing potential and opportunity in the new
segment, as per a recent report.
India's growing luxury brands market is set to exceed $10 billion-mark by
2014 boosted by a new class of wealthy termed as the 'closet customers'
who have joined the traditionally rich contributing to higher luxury sales,
according to a recent report said.
3.9 Natural environment

Environmental issues have been affecting business fortunes and strategies
for quite some time now. Large projects and investments have not taken off
the ground due to clearances from the government agencies due to
bureaucratic delays.
Geographical and ecological factors like natural resources, weather, climatic
conditions, topographical factors, location aspects from a global context, port
facilities are all relevant for the smooth conduct of business. Changes in
geographical conditions between different markets may sometimes call for
changes in the marketing mix.
Geographical and ecological factors also influence the location of certain
industries. For eg., industries with high raw material index need to be
located near the raw material source. Climate and weather conditions affect
the location of certain industries like cotton and textile industries.
Topographical factors may affect the demand pattern. For example in hilly
areas with difficult terrain, utility vehicles may be in greater demand than
normal cars.
Ecological and environmental factors like deforestation have recently
assumed greater importance. The depletion of the natural resources on the
one hand and deforestation and relocation of people in pursuit of new
sources of raw materials on the other hand, have created disturbances in
certain geographies. With growing industrialization, ecological imbalance
has become a great concern.
Government has been from time to time working on policies around
preservation of environment, balanced approach towards deforestation and
afforestation to allow mining of natural resources, conservation of non-
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renewable resources etc. Any change in policies will result in problems for
expansion of existing business and starting of new businesses and some of
these policies will increase the cost of production and marketing.
3.10 Environmental Change and Forecasting

We have seen the various factors that affect the business environment. It
can be easily seen that the environmental forces are dynamic in nature.
While the political changes happen once in five years after each general
election, technological changes happen frequently. Economic changes
happen cyclically once in 3-5 years depending on the country and its
economic policies. The consumer tastes, buying patterns and preferences
keep changing. The competitive situations change. Demographic factors like
population and age mix change over time. Socio-economic factors like
income, buying power change continuously. Government policies and
regulations also change with the changes in the domestic and global
environments.
Organisations must have a systematic approach of capturing these changes
and the new trends happening across the multiple environment factors. Not
only the organisation should collect, but also analyse the information relevant
to macro environmental trends. Such changes in these factors indicate that
an organisation’s business strategy must be dynamic enough to successfully
adapt to the changing macro environment.
The success of a business depends upon its ability and agility to forecast
these changes and diligently modify the business strategy to reflect both the
internal and external environmental changes. This is an ongoing process of
strategic management process.
The environmental scanning
The environmental scanning activities must include increased awareness of
environmental changes, better strategic planning and decision making,
greater interface and effectiveness in government matters, proper
diversification and resource allocation decisions. The organization should be
having a periodic and systematic way of capturing the inputs from various
sources in the environment.
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Sometimes, strategic managers have difficulty in maintaining the objectivity

when they evaluate information because they selectively perceive the
environment from their own experience perspective, thus leading to
subjectivity in organizational strategy. The environmental scanning activity
also must include changes in the political alliance formation, government
policies, regulators policies, financial markets and competitors.
Predicting the environment

Predicting the future of events is a challenge. However, an organization
must be able to have a reasonably reliable forecast on the macro-economic
environment in order to ward off any potential threats coming along the way
and risks to its business strategy in the long run. The organization must
subscribe to various analysts’ reports like Gartner, IDC, Frost and Sullivan,
Bloomberg, Reuters to analyse industry inputs and trends happening in the
industry. For e.g. if relevant consumer-related data are available, it is
possible to forecast the demand environment for the particular product or the
service.
There are a number of forecasting techniques available to strategic
managers to forecast future trends and changes
1. Time series analysis: It is an empirical forecasting procedure in which
certain historical trends are used to predict variables like a firm’s sales and
market share. Times series analysis relates factors such as seasonal
fluctuation, weather conditions, and other effects of economic cycles on
the organization’s sales and profits.
2. Delphi technique: This technique is often employed when specialized
expertise is required to forecast the future. In this forecasting procedure,
experts are independently and repeatedly questioned about the probability
of some event’s occurrence until a consensus is reached regarding a
particular forecast.
3. Judgemental forecasting: When relationships between variables are
complex and difficult to identify or quantify, then this forecasting model is
used. This forecasting procedure uses a variety of sources including
customers, employees, suppliers, trade associations and global partners
to provide qualitative information about future trends. For e.g., sales
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representatives and customers can be asked to forecast their

requirements from their knowledge of customer expansion plans. All such
data is then compiled to form a composite forecast.
4. Multiple scenario forecasting: In this forecasting procedure, strategic
managers formulate several competing descriptions of future events and
trends. In the process, they identify the key forces in the macro
environment; assess their influence on the future events by asking “what
if” questions for each scenario. Contingency plans can then be developed
for various outcomes from these multiple scenarios.
Each organisation might adopt any of the forecasting methods as part of
their macro environment analysis to ensure that the exercise contributes
healthily to the strategic management process.
3.11 Summary
This chapter provided the details of the various macro environmental forces
that affect the economy, industry and a company in particular. We studied
about the expanded version of the PEST analysis starting from Political,
Legal, Regulatory, Economic, Social, Technological, Demographic and
Ecological environment factors and the trends seen in both global and
domestic economy due the changes happening across these environments.
This chapter also briefly covered the environmental changes, environment
scanning and predicting the environment.
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1. What are the macro environment forces that impact an organisation?
a) Regulatory, Economic, Social and Demographic forces
b) Political, Regulatory, Economic, Social, Demographic and
Technological forces
c) Political, Environmental, Social and Technological forces
d) Growth, Inflation, Interest rates, Fiscal deficit and current account
deficit
2. What are the various macro-economic factors that influence the economy
of a country?
a) Low interest rates, high inflation, low fiscal deficit and high current
account deficit
b) High interest rates, low inflation, high fiscal deficit and low current
account deficit
c) Economic reforms, falling inflation, falling Interest rates, low
fiscal current account deficits
d) Political, environmental, social and technological factors
3. Which are the social forces that impact a company’s prospects of staying
competitive in the marketplace?
a) Low interest rates, high inflation, low fiscal deficit and high current
account deficit
b) High interest rates, low inflation, high fiscal deficit and low current
account deficit
c) Economic reforms, falling inflation, falling Interest rates, low fiscal
current account deficits
d) Purchasing power, disposable incomes, customer behaviour,
societal values, culture and traditions
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4. Etihad Airlines would like to enter into the Civil Aviation space in India by
acquiring a majority stake in Jet Airways. Before formulating an appropriate
entry strategy the company would like to understand the common entry
barriers. You are hired as a consultant to advise the company. Which of the
following do you think could most likely become a challenge to Etihad?
a) Government policies for foreign airlines and political objections
b) Increasing competition in the local civil aviation market
c) Shift in market trend towards low cost airline services
d) Increase in aviation fuel prices and cost of operations
5. What is called an empirical forecasting procedure in which certain
historical trends are used to predict variables like a firm’s sales and market
share?
a) Time Series Analysis
b) Judgemental forecasting
c) Multiple scenario forecasting
d) Delphi Technnique
6. Which of the following is not a characteristic of strategic decision
a) Consideration of present conditions
b) Consideration of future and uncertainty
c) Value orientation
d) Competitive orientation
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References:
1. John A. Parnel, Strategic Management, Theory and Practice, P 34-35
2. FDI in multi-brand retail, Economic Times, by Swaminathan A Aiyar dated
19/1/2014
3. Francis Cherunilam, Strategic Management (Prin. L.N. Welingkar Institute
of Management), P 104
5. John A. Parnel, Strategic Management, Theory and Practice) P 47-48
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
Video2
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4
MISSION, OBJECTIVES AND
GOALS
Objectives:
This chapter focuses on an organisation’s vision, mission, goals and
objectives. At the end of the chapter, you will be able to understand the
following:
•! Define the mission of the organisation
•! Importance and Relevance of Strategic Management
•! Strategic Planning and Strategic decisions
•! Levels of Strategy
•! Role of Stakeholders
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MISSION, OBJECTIVES AND GOALS
Structure:
4.1! ! Introduction
4.2! ! Vision and Mission
4.3! ! What is Mission?
4.4! ! Mission statement criteria
4.5! ! Formulation of mission
4.6! ! Mission and Strategy
4.7! ! Objectives
4.8! ! Goals
4.9! ! Levels of Objectives
4.10! Global influences
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4.1 Introduction
The ultimate purpose of an organisation is to create value for all its
stakeholders. Each organisation seeks to do so through different means of
vision, strategy and execution. If the strategy of an organisation is not
aligned with the purpose (vision) of the organisation and its resources, it will
be challenging to implement the same.
It is the responsibility of the organisation’s top executives to establish and
communicate its vision to the entire organisation and its people. The vision of
a company should integrate the views of the various stakeholders.
The vision is the statement of purpose of an organisation’s existence. The
vision is always in long term nature to create social-economic value, not only
to its shareholders but also to create a social and economic impact for a
country. In modern corporate context, although both vision and mission are
sometimes interchangeably used to refer to the organisation’s purpose,
sometimes a distinction must be made that mission evolves from the vision
which is defined at the board level.
Mission identifies the scope of an organisation’s operations and its offerings
to the various stakeholders. Various stakeholders include individuals or
groups, who are affected by or influenced by an organisation’s operations
and will have different perspectives on the purpose of the firm.
Objectives may be defined as those ends which the organisation seeks to
achieve by its existence and operations. In other words, objectives are long
term results an organisation seeks to achieve in pursuing its basic mission.
A goal is defined as an intermediate result to be achieved within a certain
time as part of the overall strategic plan or an objective. A plan or an
objective therefore can have many goals. Goals are generally short term
milestones or benchmarks that an organisation must achieve in order for
long term objectives are reached. The goals of an organisation should be
defined as specific, measurable, achievable, realistic and time-bound,
popularly called by the acronym SMART goals.
The vision of an organisation translates into strategy which has multiple
objectives to achieve the purpose. The objectives in turn lead to goals which
are quantitative in nature and are designed to achieve the objectives. Goals
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lead to targets which are assigned against each goal to achieve the set
goals.
The following diagram illustrates how mission, strategy, objectives, goals and
targets work in sequence formulation and achievement.
This chapter discusses the role that an organisation’s unique mission and
resources play in the strategic management process.
4.2 Vision and Mission

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

a well-developed vision and mission for their businesses. It is clearly
understood and recognised at the board level that the company needs a
clear vision to set the direction of the company for many years to come and
manage the business through a framework driven strategic management
process. There is enough evidence that a clear vision is able to enable many
Indian companies to grow or improve the company’s performance
phenomenally and also to have aspiration to become global companies.
The vision statement defines the organizations purpose in terms of the
organization's values rather than bottom line measures. Organisation values
are guiding beliefs about how things should be done, leading to the creation
of a unique culture for that organisation.
The vision statement communicates both the purpose and values of the
organization. For employees, it gives direction about how they are expected
to behave and inspires them to give their best. Shared with customers and
partners, it shapes customers' understanding of why they should work with
the organization
4.3 What is mission?

“A mission is an enduring statement of purpose that distinguishes one
business from other similar firms. A mission statement identifies the scope of
the company’s operations in product and market terms” (John A Pearce II,
“The Company mission as a Strategic Tool”, Sloan Management Review)
A mission statement reveals the long term vision of an organisation in terms
of what it wants to be and whom it wants to serve. It describes an
organisation’s purpose, customers, products, services, markets, philosophy
and value. What is the business the organisation is into? A comprehensive
answer to this question makes the strategy formulation, strategy
implementation and strategy evaluation activities easier.
Vision statements and mission statements are mostly inspiring words chosen
by successful leaders to clearly and concisely convey the direction of the
organization. By crafting a clear vision statement and mission statement, the
company can powerfully communicate its intentions and motivate the team
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and the organization to realize an attractive and inspiring vision for the
future.
A mission Statement defines the organization's purpose and primary
objectives. Its prime function is internal – to define the key measures of the
organization's success – and its prime audience is the leadership team and
stockholders.
According to Mc Ginnis, a mission statement should have the following
important attributes and have differentiating criteria in line with its purpose:
1. Should define what the organisation is and what the organisation aspires
to be
2. Should be limited enough to exclude some ventures and broad enough to
include creative growth
3. Should distinguish a given organisation from all others
4. Should serve as a framework for evaluating both current and prospective
activities and
5. Should be stated in sufficiently clear terms so as to be widely understood
by all stakeholders throughout the organisation.
A mission statement is often expressed at high levels of abstraction, because
they are not designed to express concrete ends, but to provide motivation,
general direction, an image, tone, value and a philosophy to guide the
enterprise. Precision might stifle creativity in the formulation of mission or
purpose. A true mission statement should foster creativity and inspiration,
while concreteness of vision might create rigidity in an organisation and
resist change.
The mission statement drives the strategy development and the strategic
management process of the organisation ensures that the strategic options
are evaluated, choices are made, and they are implemented, and
dynamically reviewed for course correction and improvement for long term
sustained performance of the company.
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4.4 Mission Statement Criteria:

Creating mission statement starts with asking the question what the purpose
is and why the company needs to have that purpose. The why question
helps an organisation reveal its underlying belief, value and the purpose. The
success of global companies like Apple, Google, Facebook or IBM clearly
shows that these companies have been able to identify their belief, value and
the purpose. They have evolved their vision to become great companies.
To create the mission statement, the organisation need to first identify its
purpose and a winning idea that helps it realise the purpose. This is the idea
or approach that will make the organization stand out from its competitors,
and is the reason that customers will come to them and they have
opportunity to make a positive impact. Next the company needs to identify
the key measures that will lead to mission’s success. It is very important to
choose the most important measures that are well focused on achieving the
mission. Then, combine the winning idea and success measures into
tangible and measurable goals.
It is advisable to refine the words and arrive at a concise and precise
statement of the mission, which expresses the ideas, measures and desired
result. The key elements of creating a mission statement are the following:
1. It should be clearly articulated
2. It should be relevant to the organisation’s culture and shared values
3. It should be current and should reflect internal and external environment
changes
4. It should be written in a positive and inspiring tone
5. It should be establish the individuality and uniqueness
6. It should be enduring and adapted to the target audience
Thus, mission statements embrace several elements. Ideally the mission
statement should define as pointed out earlier, its customers, employees,
society, products or services, philosophy and values. However, some
mission statements may not be comprehensive. While there are differences
of opinion regarding what a mission should reflect, the above elements are
the desirable parameters for an organisation that may go about creating a
mission.
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4.5 Formulation of mission

In large enterprises, the board of directors establish the vision and mission of
the organization. Sometimes, external consultants are engaged, either
through a consultative or participative process, for drawing up the mission
and by holding brainstorming sessions with the CEO and the senior
leadership team to develop the mission. Answering the following questions
will help the company formulate the mission:
• What is the basic purpose of the organization and how to envision the
future of the company?
• What is unique about the organization, and how does it create its unique
value proposition in the marketplace?
• What is the impact it wants to create on various stakeholders like

customers, employees, shareholders, society and country?
• What should be the organization’s principal economic concern?

• What are the basic beliefs, values, and philosophical priorities of the
company?
Let’s analyse the example of Bharti Airtel’s vision which was formulated in
the year 2010: “By 2015, Airtel will be the most loved brand, enriching the
lives of millions.” This vision statement envisions as to what the company
aspires to become in the next 5 years, and what it clearly wants to achieve.
To attain the status of the most loved brand in the global corporate world by
creating economic impact by contributing through economic growth,
employment, and corporate social responsibility.
The values associated with the brand are alive, inclusiveness, and respect
(AIR). The ultimate purpose envisaged in this vision is to enrich the lives of
millions of customers through its high-end converged voice, data, and video
communication services which would enhance the lifestyle of its customers.
Airtel has the maximum superior network coverage with 85% of the
population in the  
inhabited areas and is a number one telecom services provider with
leadership in mobile, voice, data and VAS services.
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Case analysis of Titan Industries:

What makes Tata group different is that its societal work is key part of its total
mission. Societal mission is broader than that of an organisation with a social
cause. Tata organisations identify the societal needs of the region where the
company operates. They identify what rests underneath the society each
individual company operates within and how it can create hope and value to
the society as well as generating economic value or wealth to its
shareholders and other stakeholders like employees, customers, partners
and the like.
Tata group today is a well-established international organisation. When we
explore the Tata mission and focus on the actual working of the company, we
see that while their purpose is truly societal, this purpose is also instrumental
to serve the economic interests of the organisation’s stakeholders. This is the
differentiating part of the Tata group. In most western countries the larger
part of an organisation is to create economic progress and most companies
work on the basis that the ‘business of business is business’. This is too
narrow approach and such companies should come to term with the idea
that societal work is an integral part of their total mission.
Tata group has demonstrated how they can develop the local society as well
as develop the local talent pool. An example of how Tata established its
mission and strategy by implementing their commitment to this idea can be
found in a southern Indian city called Hosur in Tamil Nadu. Here, in 1987, the
Tata group formed a joint venture with the government of the region and
opened the first factory of the watchmaker Titan Industries Ltd.
Tata management had to make an immediate decision in terms of where the
personnel for the factory would be sourced from. One choice is to hire
professional engineers from the city of Bangalore or Chennai to staff the
factory. This went against the belief and value that Tata stood for. Despite the
area around Hosur being very poor, agriculture almost the only industry and
no skilled labour available locally, the company knew that the local region
and its people were their responsibility. Despite the poverty, the local primary
education system was sound and was producing plenty of well-educated
boys and girls.
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Four hundred young people were recruited and brought to Hosur. Titan
immediately provided the support necessary. Many had never seen a city or
lived in anything but a simple hut. Accommodation was built and foster
parents lived with the young people teaching them the life skills necessary
for living in a city and work in a factory. Titan also provided sports and
cultural activities, and the facilities to help its works study degrees and even
take post graduate courses after the factory hours. At the factory, trainers
and engineers taught the young workers how to use precision machinery.
Titan is now a highly successful enterprise employing thousands of people in
Tamil Nadu and has three factories in Hosur alone, with nearly all the
workers coming from the surrounding villages. It provides employment
indirectly to thousands more in firms making watch strap, casings and other
components. In 2001, Titan was voted the most admired brand and proved it
was a truly societal organisation.
Thus, Tata group has resolved and proved all the time that having a societal
purpose does not in any way reduce its intensity to compete and win in the
business they are in. In fact all its companies, including Titan have
demonstrated significant financial and market performance. The company in
this case analysis Titan Industries, in fact, has created multi-fold economic
wealth to its stakeholders through excellent financial performance and stock
market performance.
4.6 Mission and strategy

As explained above, mission sets the direction for the strategy development
of an organization. As Peter Drucker says in his book, “Managing the
Future”, ‘the mission makes the organization focus on action. It defines the
specific strategies needed to attain the crucial goals. It creates a disciplined
organization. It alone can prevent the most common degenerative disease
of organizations, especially large ones, splintering their limited resources on
things that are interesting or look profitable rather than concentrating them
on a very small number of productive efforts’.
Corporate mission statements must be operational, ethical and financial
guiding lights of companies. They are not just fancy slogans. They articulate
the purpose, value, goals, dreams, behaviour, culture, and strategies of the
companies.
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Once the mission is clearly defined and articulated by the top management
(as the top management is held accountable for the mission), strategy is the
next important step in the strategy management process. Strategy has been
studied for years by business leaders and by business theorists. Yet, there is
no definitive answer about what strategy really is. One reason for this is that
people think about strategy in different ways.
For instance, some believe that the organisation must analyse the present
carefully, anticipate changes in its market or industry, and, from this, plan
how it will succeed in the future. Meanwhile, others think that the future is
just too difficult to predict, and they prefer to evolve their strategies
organically.
Gerry Johnson and Kevan Scholes, authors of "Exploring Corporate
Strategy," say that strategy determines the direction and scope of an
organization over the long term, and they say that it should determine how
resources should be configured to meet the needs of markets and
stakeholders.
Michael Porter, a strategy expert and professor at Harvard Business School,
emphasizes the need for strategy to define and communicate an
organization's unique position, and says that it should determine how
organizational resources, skills, and competencies should be combined to
create competitive advantage.
While there will always be some evolved element of strategy, it is believed
that planning for success in the marketplace is important; and that, to take
full advantage of the opportunities open to them, organizations need to
anticipate and prepare for the future at all levels.
Many successful and productive organizations have a corporate strategy to
guide the big picture. Each business unit within the organization then has a
business unit strategy and functional strategy, which its leaders use to
determine how they will compete in their individual markets.
In turn, each team should have its own strategy to ensure that its day-to-day
activities help move the organization in the right direction. At each level,
though, a simple definition of strategy can be: "Determining how we are
going to win in the period ahead." That is the most critical element of
formulating strategy.
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As said in the chapter 1, there are different levels of strategy, Corporate,

Business Unit and Functional level strategies. We will study these strategies
in detail in separate chapters later.
Tata Group is India’s brand:
India’s most respected and trusted corporate group the Tata begins with
value and ends with value. There is much more to the brand Tata than just
being one of the truly professionally managed firms in India. It focuses on
creating value to the society, fostering philanthropy, contributing immensely
to the economy and being India’s pride by representing the country globally.
Being a successful corporate brand, Tata focuses on three critical factors viz
strategic vision, organizational culture and stakeholders’ value. Once these
three elements are aligned, stakeholders will perceive the group companies’
vision and culture and identify with it. Moreover, the strategic vision focuses
on three particular values that foster the stakeholders perception, namely
trust, reliability and commitment to community.
A strong culture will encourage the development of a strategic vision, and a
clear strategic vision will allow the company to identify with the interests of its
stakeholders, thus creating a virtuous circle (Tata The evolution of a
corporate brand, Morgan Witzel).
TCS and Infosys:
TCS and Infosys are Indian multinational IT outsourcing companies. They
have demonstrated leadership in the Indian IT industry and have set an
example for the highest standards in business practices. They have
consistently delivered profitable growth through very focussed and innovative
strategies around off-shore delivery of IT Services for their global clients for
the last three decades. These two companies have been the darling of the
stock market. Their high standards and strategic leadership and values are
keys to their sustained growth and performance.
While TCS inherits its corporate value and mandate from Tata & Sons the
holding company of Tata group companies and has a focused vision and
strategy to be the number 1 leader in the Indian IT Services space, Infosys
carved its own unique position of professional ethics and leadership, and
differentiation under the mentorship of its Chairman N.R. Narayanamurthy to
become the second largest IT Service provider in terms of profitability. These
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companies have withered the global economic turmoil many times in the last
couple of decades and have demonstrated their leadership in financial
management, operational management, change management, talent
management and socio-economic responsibility over many years.
IBM’s Business Model:
Let us look at how IBM transformed from a pure hardware based company
selling computers to an innovation based company in the IT Services space
and established its leadership globally. Its mission is simple – “Let’s build a
smarter planet”. This mission is about creating smarter businesses, smarter
workforce, smarter communities, smarter cities, smarter transportation,
smarter finance etc. Everything they do is to optimise energy and resources
to make the planet a better place to live.
IBM was a company with hardware and related technology focused business
strategy till a decade back. In an industry characterized by a relentless cycle
of innovation and commoditization, one model for success is that of the
commodity player—winning through low price, efficiency and economies of
scale. The other model is creating value: the path of innovation, reinvention
and shift to higher value. These are choices for the company to create their
strategies.
IBM chose to shift to higher value: They developed a strategy to do so in
their portfolio of services, in their organic R&D investment, and through
targeted acquisitions and divestitures.
They remix the research and development: Two decades ago, 70 percent of
IBM’s researchers were working in materials science, hardware and related
technology as their focus. Even the one-in-ten working in software were
focused on operating systems and compilers. Today, 60 percent are in fields
that support key growth initiatives, such as the 400 mathematicians
developing algorithms for business analytics, as well as a diverse group of
specialists that include medical doctors, computational biologists, experts in
natural language processing, and weather and climate forecasters. Since the
beginning of 2010, IBM has spent $19 billion on R&D, and in 2012 IBM
earned the most U.S. patents for the 20th straight year, with a record total of
6,478.
IBM acquired newer capabilities. Organizations run into trouble when they
look to fulfil a new strategy or provide the basis for transformation through
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acquisitions. IBM practices a disciplined approach that asks three questions:

Does it build on or extend a capability IBM already has? Does the company
have scalable intellectual property? Can it take advantage of its reach into
170 countries? IBM’s balanced formula has built a strong track record since
2000, with more than 140 acquisitions.
It is also IBM’s strategy to divest nonstrategic assets in line with its mission:
Always moving to the future isn’t just about what you invent. It also involves
choices about when to move on. Over the past decade there has been a
cumulative divestment of almost $15 billion of annual revenue—businesses
that no longer fit its strategy. If they had not done so, they would be a larger
company today, but with lower margins and capabilities less essential to the
clients.
Hence the question, “what is our business, why we need to be in that
business and what is the purpose?” may lead to debates that help identify
the right strategies and will help realise its mission. The most important time
to ask this seriously is when a company has been doing well and keep the
strategies evolving proactively so as to avoid crisis when the environment
keeps changing fast as we experience in today’s economy. The mission and
strategy must indicate the company’s ability and resilience power to change
its business if the market so demands. IBM is a classic example of such a
transformation.
A look at other similar companies like, IBM, Apple, Google or Facebook
shows that all of them have very clear mission and purpose, and have been
thriving on innovation as the key strategy and been successful for many
years in their industries.
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4.7 Objectives
Once the mission and strategy are developed, the organization needs to
come out with a set of objectives that could translate the strategy into results
and enable the company to realize its mission. Objectives form the basis for
the functioning of the organization and help define the organisation in its
environment.
Objectives may be defined as those ends which the organization seeks to
achieve by its existence, operations and business results while pursuing its
mission. In other words, most organizations need to justify their existence,
and business to be accountable to various stakeholders like the investors,
shareholders, the government, customers, employees, partners and society
at large.
Once the strategy is defined, the company should come out with key
priorities and initiatives which can be translated into actionable goals.
Objectives cover long term aims of the company breaking down the strategy
into different and specific initiatives that the company should perform in order
to achieve specific SBU and functional strategies, and thus the organization
strategy.
Often, objectives of a particular nature indicate specific initiatives the
company must perform for its existence, operation and business results.
Broadly, there are four or five categories of objectives, under which the
organization can form several relevant initiatives, and prioritise them
depending on the importance and the time horizon available, as part of the
overall strategy. They are:
1. What initiatives the company should focus on to improve its financial
performance?
2. What initiatives the company should undertake to enhance customer
experience?
3. What initiatives the company should create to improve operational
excellence?
4. What initiatives the company should do to create employee satisfaction?
5. What initiatives the company should do to create a unique brand and
organizational culture?
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The objectives may be tangible or intangible. Tangible objectives include

achievement of financial targets, customer satisfaction index, operational
parameters etc. Intangible objectives include brand or company image,
employee morale etc. Objectives should not be static; they should be
dynamic so that changes in environments, both internal and external to the
organization, get reflected as the strategy keeps evolving. Objectives should
be clearly established at the corporate, SBU, and functional levels in a large
organization.
Various stakeholders in a company have different objectives to achieve.
Each stakeholder, like the board of directors, CEO, SBU heads, functional
heads, general managers, employees, suppliers, creditors, customers and
partners view the firm from a different perspective. Although rationality
suggests that each stakeholder has an established objective from their
perspective, it is obvious that the objectives might have conflicts with each
other. For example, shareholders of a company are generally interested in
maximum profitability, whereas financial institutions are more concerned with
the long-term serviceability of their loan.
The top management faces the difficult task of reconciling these differences
while pursuing its own set of objectives to achieve the mission and strategy.
Hence, balancing the various objectives of different stakeholders can be a
challenging task and top management should carefully manage the
balancing act. As stated earlier, essentially objectives help define the
organization in its environment.
4.8 Goals
A goal is defined as an intermediate result to be achieved by a certain time
as part of the overall objective or business plan. An objective or a plan,
therefore, can have many goals. Specific goals are sometimes referred to as
targets (like sales target, revenue target, customer satisfaction target,
marketing campaign target etc.)
Goals are short-term milestones or actions that the organisation must
achieve so as to reach the long term objectives. Goals should be specific,
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measurable, achievable, realistic and time-bound. Simply put in an acronym,

the goals should be SMART.
Like objectives, goals also should be established at the corporate, SBU, and
functional levels in a large organization. Goals should be clearly stated in
terms of the various teams namely management, marketing, finance,
production, and research and development. There should be a set of goals
for each objective for each of these functional teams.
Goals are specifically important in strategy implementation whereas
objectives are important for strategy formulation. Goals represent the basis
for allocating resources for each function and department. A set of goals
under each objective should be quantifiable in nature like sales quotas,
revenue target, margins, marketing budget, market share, employee attrition
etc.
While objectives are general key result areas pertaining to the mission, the
goals set specific targets to be achieved within a stipulated time frame.
These goals may also be called key performance indicators (KPIs). The key
performance indicators guide the behaviour of the organisation at all levels to
bring in synergy within the organisation.
4.9 Levels of Objectives

Organisations have different levels of stakeholders who lead the mission,
strategy and objectives. There are corporate objectives, SBU objectives,
functional objectives and individual objectives.
The corporate objectives are to be formulated and pursued by the board of
directors and the executive management team of the company. Then, it is
the SBU objectives which are formulated and owned by the SBU leadership
team. In a multi-SBU organisation, there will be separate set of objectives
that will be pursued by the respective SBUs. For example, if a company has
two SBUs namely B2B business and B2C business, there will be two distinct
set of strategies and objectives driven by the respective SBU leadership
teams.
Then comes the functional and departmental objectives which are formulated
for functions like sales, marketing, production, finance, HR, services, R&D
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etc. A function might have different geographical divisions like north zone,
east zone, west zone and south zone or several product divisions like
personal care division, home care division, food care division etc (in an
FMCG company).
Each such division will have its own marketing objectives and initiatives
which will contribute to the achievement of the overall marketing function’s
objectives. Each division or group then have their people with their
respective objectives which are specific in nature, like sales targets,
marketing campaign targets, revenue targets etc.
Thus, the organisation has a hierarchy of objectives for different levels of
leadership across the organisation. And the objectives of different levels are
designed to help achieve the overall objectives of the organisation. These
objectives are then translated into measurable goals or KPIs as explained
above in the goals section.
Socio-Economic Objectives
In any business there are important socio-economic objectives that define
the organisation value and culture. Every organisation has to have a
balanced approach towards both economic objectives and social objectives.
In fact, some of the social and economic objectives are so intertwined that it
is difficult to separate them from organisation’s vision and objectives. It is
only more appropriate to describe them as socio-economic objectives.
The economic objectives of an organization are survival of the organization,
return on investment, profitable growth, market share and innovation. The
promoters and the investors in an organization were generally considered to
be profit motivated. These objectives no longer reflect the organisation’s
value creation of investors’ wealth, without creating a positive impact on the
society it serves.
As we can see in modern economy, there is an evolving trend wherein most
organizations have a stated vision and objective which addresses both the
economic and social obligations of the company. For e.g., IBM’s vision of
creating a smarter planet, Bharti Airtel’s vision of enriching the lives of
millions, or Tata group companies’ mission and belief of returning wealth to
the society in which they serve.
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These visions and objectives clearly reflect what these companies stand for
and their commitment to social objectives and responsibility, not just merely
thriving upon its economic objectives. WE have seen that in the case
analysis studied earlier in this chapter.
The social objectives of a business are to protect customers’ interests,
interests of workers and employees and most importantly the interests of the
society. The social interests include, job creation for the people belonging to
bottom of the pyramid, free education to children, underprivileged in the rural
areas, women empowerment, health care for socially backward classes and
rural population etc.
Thus, Indian corporates have evolved into matured socio-economic power
houses that drive the economy with a view to social inclusion and economic
prosperity, besides creating economic value for its stakeholders. They also
take on the responsibility for the quality of life and upliftment of the society, in
addition to its traditional responsibility for economic performance of the
company. This is the best way to bridge the economic divide that separates
the haves and have-nots in our country. For this reason, corporate social
responsibility has been made mandatory for the public listed organisations in
India, as per new government guidelines.
4.10 Global influences

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

other countries, especially if a substantial portion of income is derived from
abroad. While doing so, the companies can provide their managers with a
critical understanding of the local markets. For example, Ford Motors
operates automobile manufacturing in India (near Chennai), which has
helped the company customise the various models to suite Indian
requirements and so are many other international players like Hyundai,
Honda, Volkswagen, General Motors etc.
4.11 Indian Scenario

As said earlier, the Indian businesses are evolving for their contribution to the
society. Increasingly more and more organisations are committing
themselves to corporate social responsibility. Each business group has their
own non-profit organisations that contribute to the social causes, like Tata
Trust, Azim Premji Foundation (Wipro), Bharti Foundation, these
organisations are engaged in investing in social sector programs like child
education, healthcare, women empowerment etc.
"I believe the Tata model of business is a more sustainable one — simply
because we really do care. If industry is numb to the concerns of civil society,
if it considers itself beyond the pale of public good, or even if it needs
government diktat and monitoring to do the right thing, then I don’t see how
such an industry can survive for long. Tata companies are different in this
respect because they have always done what is required by the letter and
the spirit of the laws of the land, and often times much more. India is still a
developing country, one burdened with enormous inequities. It’s our duty to
play whatever role we can, in whichever way we can, to diminish those
disparities. This is the guiding principle for all of us at Tata. We are not in it
for propaganda or visibility. Rather, we are in it for the satisfaction gained
from knowing that we have achieved something meaningful, that we have
put our shoulder to the wheel of nation building, that we are serving the
country that provides us sustenance. The Tata ethos demands no less", said
Ratan N Tata, Chairman, Tata Trusts.
It is heartening to note that Indian companies are increasingly getting
involved with the development of the society besides creating economic
wealth to its stakeholders. These CSR initiatives will put India on par with
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other developed nations and help the country soon become an economic
power house as has been forecasted by many global organisations.
4.12 Summary
This chapter has covered the definitions of vision, mission, objectives and
goals, and given different perspectives through different case analyses. A
mission statement is an enduring statement of purpose that distinguishes
one business from the other similar firms. The mission statement also
identifies the scope of an organisation’s operations in the chosen product
and market terms.
The mission statement should be clearly articulated, relevant, current and
unique. To achieve the mission, the organisation has to set its objectives and
goals/ targets for the short term, medium term and long term. Objectives are
long range a company aims and are combined with more specific
department or functional goals.
An organisation should look beyond its financial performance or market
performance to create shareholders’ wealth, but should also have the
purpose of sharing its wealth with the society and create socio-economic
value for the country.
This chapter provides few case studies to understand the definitions and
implications of vision, mission, objectives and goals.
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1. What is your understanding of a mission statement?
a) A mission is a statement that sets the business targets for the company
b) A mission statement provides the company necessary resources to
achieve its strategy
c) A mission statement is a comprehensive statement about a company’s
operations
d) A mission is an enduring statement of purpose that distinguishes
one business from other similar firms & identifies the scope of the
company’s operations in product & market terms
2. INS Limited a company in the Insurance industry is formulating a mission

statement. The CEO is seeking your assistance to know what should be the
key elements of a mission statement. Which of the following element you will
not recommend him for consideration?
a) Need a clear purpose and articulation
b) Alignment with competitor’s mission
c) Relevance to the culture of INS Ltd
d) Continue to guide, motivate and inspire
3. The mission of HXL Ltd, an FMCG company is to become the most loved
brand enriching the lives of millions of consumers. What impact do you think
this company must make to achieve the mission?
a) The company needs to create employment opportunities
b) The company needs to deliver financial performance
c) The company needs to focus on corporate social responsibility
d) The company needs to create economic impact by contributing
through economic growth, employment, and corporate social
responsibility.
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4. Which are the social forces that impact a company’s prospects of staying
competitive in the marketplace?
a) A mission is a statement that sets the business targets for the company
b) A mission statement provides the company necessary resources to
achieve its strategy
c) A mission statement is a comprehensive statement about a company’s
operations
d) A mission is an enduring statement of purpose that distinguishes
one business from other similar firms & identifies the scope of the
company’s operations in its business
5. What is corporate social responsibility (CSR) and why is the Tata group
different from the other companies?
a) Their financial performance is far superior than other companies
b) Tata organisations identify the societal needs of the region where the
company operates and their companies' performance is far beyond
just the financial performance
c) They are number one in the respective market segments
d) They have a great brand name and it is recognised by the society
132
References
of Management), P 46-47
2. Vern McGinni, “The mission statement: A key step in strategic planning of
Business”1981, P 41
4. Morgen Witzel, Tata, The Evolution of a Corporate Brand, Portfolio/
Penguin, (P x-xi)
5. Peter Drucker, Managing the Future, on mission statement
6. Morgan Witzel, Tata, The evolution of a corporate brand, P 13 and 16
7. Reference from IBM Chairman Virginia M. Rometty, letter to investors/
shareholders, March 2013
8. John A. Parnel, Strategic Management, Theory and Practice, P 56
------------------------------------------------------------------------------------------------------
Case Study on Tesco on Vision, Mission, Values and Strategy
Tesco was founded in 1919 by Jack Cohen from a market stall in London’s
East End. Today it is one of the largest retailers in the world. Tesco’s core
business is retailing in the UK, which provides 60% of all sales and profits.
Tesco has the widest range of food of any retailer in the UK. Its two main
food brands are its Finest and Everyday Value ranges, each sell over £1
billion per year.
The position of Tesco as a leading global brand is clearly illustrated by its
expansion of operations into 12 countries including China, Czech Republic,
India, Malaysia, Ireland, Hungary and Poland. In 2013 Tesco employed in
excess of 530,000 people. This level of success does not happen by chance.
Tesco’s leaders have always set high standards and clear goals, never
settling for anything less than the best.
Tesco’s ‘Every Little Helps’ philosophy puts customers, communities and
employees at the heart of everything it does. It prides itself on providing a
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great shopping experience for every customer it serves, whether in stores,

online or in its many other service provisions.
Core values
Tesco’s core values include a commitment to using its scale for good by
being a responsible retailer. In 2010, it opened the world's first zero-carbon
supermarket in Ramsey, Cambridgeshire and was awarded Green Retailer
of the Year at the Annual Grocer Gold Awards 2012. Tesco aims to be a zero-
carbon business by 2050.
Tesco’s continuing success depends on it reassessing and formulating clear
business strategies. Tesco aims to improve customer loyalty and its core UK
business in order to help it develop the shopping experience for its
customers. It committed £1 billion to an investment programme to achieve
this. Strategies to improve competitiveness were then developed. The driving
forces behind these strategies are price, quality, range and innovation as
well as delivering great multichannel customer service, for example, through
its ‘Click & Collect’ service.
This case study examines Tesco strategies, the reasons behind each
component and how vision, aims and cultural value interrelate to make the
strategies successful.
Vision and mission
Companies, like Tesco, that enjoy long-term success, are focused
businesses. They have a core vision that remains constant while the
business strategies and practices continuously adapt to a changing world. In
an increasingly competitive global environment, without a clear vision a
business will lack direction and may not survive. Tesco has a seven part
business strategy to help it achieve its vision.
A vision is an aspirational view of where the business wants to be over a
long term. It provides a benchmark for what the business hopes to achieve.
Tesco is a company built around customers and colleagues. Its vision guides
the direction of the organisation and the strategic decisions it makes. Tesco’s
vision is: ‘To be the most highly valued business by: the customers we serve,
the communities in which we operate, our loyal and committed colleagues
and of course, our shareholders’.
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Tesco’s vision has five elements

Tesco’s vision has five elements which describes the sort of company it
aspires to be. These are to be:
• wanted and needed around the world

• a growing business, full of opportunities
• modern, innovative and full of ideas
• winners locally whilst applying our skills globally
• Inspiring, earning trust and loyalty from customers, our colleagues and !!
communities.
The vision, mission statement and goals are interrelated and state ‘what’ an
organisation is seeking to achieve whereas the strategies and tactics show
‘how’ it will achieve them. Tesco’s core purpose (mission) is simple: ‘We
make what matters better, together.’
Once aims are established, functional areas within a business then devise
department-based strategies to ensure goals are achieved. The vision drives
the business and the values are embedded throughout the strategic planning
process.
Whilst a vision outlines the aspirations of senior managers, a mission
statement is a general expression of the overall purpose of the business. It
communicates the goals of a company to all stakeholders. The vision should
inspire all stakeholders and motivate employees towards achieving its stated
objectives. If well prepared, it should convince customers, suppliers and
external stakeholders of its sincerity and commitment to them.
Tesco’s management recognise the key role that its mission, vision and
strategies play in its success and use a range of key performance indicators
(KPIs) to monitor and evaluate its performance. These are explored in detail
later in the case.
Values
Whilst a vision is important and outlines the company’s aspiration, without
values a business such as Tesco would struggle to remain competitive.
Tesco’s values are:
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• No one tries harder for customers.

• We treat everyone how we like to be treated.
• We use our scale for good.
 
Tesco’s values are vital to its success, as shown in the quote below from
Group Chief Executive Officer (CEO) Philip Clarke:
‘The Tesco values are embedded in the way we do business at every level.
Our values let our people know what kind of business they are working for
and let our customers know what they can expect from us.’
Tesco is a community-focused global business. Corporate Social
Responsibility (CSR) is at the heart of its operations. This commitment is
referred to as ‘Tesco in Society’. In the competitive retailing world Tesco’s
success relies on its values. They are not just a list of ‘good attitudes’ but the
means to on-going success.
Tesco’s approach to working with communities helps it stand out from its
rivals. Its commitment to using its scale for good is demonstrated by Tesco’s
‘Three Big Ambitions’:
• To create new opportunities for millions of young people around the world.
• To improve health and through this help tackle the global obesity crisis.
• To lead in reducing food waste globally.
 
These are underpinned by what Tesco calls ‘The Essentials’:
• We trade responsibly.
• We are reducing our impact on the environment.
• We are a great employer.
• We support our local communities. 
The CEO summarises Tesco’s commitment to ‘living’ these values in the
following statement:
‘Tesco is an environment based on trust and respect...If customers like what
we offer, they are more likely to come back and shop with us again. If the
Tesco team find what we do rewarding, they are more likely to go that extra
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mile to help our customers. By living the values we create a good place to
work where great service is delivered.‘
These values drive everything Tesco does at every level and help make it
different from its competitors.
Strategy
A strategy is a plan which sets out how a business deploys its resources to
achieve its goals. The company’s values set the tone for the decision-making
process. In May 2011, Tesco committed £1 billion capital and revenue
investment to improve the shopping trip for customers.
It set out a seven part strategy designed to achieve its goals of being highly
valued by customers and enjoying strong long-term growth. The table shows
the main elements of this strategy.
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Seven Part Strategy Focus and Tactics
This involved increasing staff members by 20,000 over

two years, renovating existing stores and introducing
1 To grow the UK Core
more promotions. The core values of making customers
feel wanted and respected underpin this strategy.
This involves developing its own label brands such as
To be a creator of highly
2 F&F clothing and Tesco Finest to provide customers with
valued brands
quality products at competitive prices.
In 2012, its international businesses generated 30% of
To be an outstanding the Group's profits, the new strategy includes opening up
3 international retailer in to fifty new F&F franchise stores over the next five years
stores and online in the Middle East, Saudi Arabia, Kazhakhstan, Georgia,
Armenia and Azerbaijan.
Generating 1 billion BP in revenue in 2012, Tesco Bank is
To grow retail services in
4 a focal part of the potential for future growth in retail
all our markets
services.
To put our In 2011, Tesco made its responsibilities to the
responsibilities to the communities’ central to all it does, rather than just be a
5
communities we serve at part of it. This is demonstrated through its "Three Big
the heart of what we do Ambitions".
Tesco's most important asset is its people, who live by its
values to do their very best for customers. In keeping with
To build our team so that
6 its vision to be a highly values, innovative growth
we create more value
company, Tesco has committed to training effective
leaders in all areas within its Group.
To be as strong in Food is Tesco's heritage, but the business continues to
7 everything we sell as we diversify, adding a wide range of products and services
are in food in-store and online.
Monitoring and evaluating performance

Strategy, vision, values, aims and objectives are meaningless if their impact
is not monitored and evaluated. Tesco uses a range of methods to collect
data and evaluate progress against targets. It uses its Clubcard scheme,
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along with telephone based research and an online panel of customers, to

determine what customers want and how satisfied they are with Tesco’s
performance.
Its Executive Committee assess the progress of large-scale strategies. All of
its business units have ‘stretching targets’ which are aspirational targets for
certain KPIs. The performance of all business units is monitored continually
and reported monthly to the board of directors. The following table shows
how Tesco monitored its performance against targets using KPIs for the
2012/13 period.
Community promise Areas of focus Target Actual Variance

Supporting local Staff and customer 13.5 million 14 million +0.5 Mill
communities fundraising BP BP BP
Donate at least 1% os
Supporting local pre-tax profits to Minimum
2.20% 1.20%
communities charities and good 1%
causes
Supplier viewpoint: % of
Buying and selling scoers that are positive
74% 71% -3%
products responsibly to the question 'I am
treated with respect
Reduction in carbon
Caring for the emissions (CO2e ) from
3.50% 4.90% 1.40%
environment our stores built before
2006 year on year
Reduction in carbon
Caring for the emissions (CO2e ) from
32.00% 33.40% 1.40%
environment new stores built after
2006
Providing colleagues Colleagues and
+0.2
and customer with customer active with 9.3 million 9.5 million
million
healthy options Tesco
% of staff being trained
Creating good jobs and
for their next job using 6% 5.80% -0.20%
careers
'Options Scheme'
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These KPIs are used to assess current performance, make comparisons

with previous performance and help managers respond when targets are not
being met. For instance, following investigation, an explanation for narrowly
missing the staff training target was given:
‘Although narrowly missing this target, Tesco have also heavily invested in
our colleagues in the UK this year through our ‘Building a Better Tesco’ plan.
More than 250,000 colleagues in-store have received customer service
training, with additional technical training for 36,000 colleagues.’
Monitoring healthy options for customers and colleagues supports Tesco’s
commitment to helping employees and customers make healthy choices and
lead healthier lives. In a revolutionary scheme, using data from its Tesco
Clubcard, it has developed a 'healthy little differences' tracker. This
measures the health profile of a 'typical' shop by measuring the nutritional
value of what customers buy. This will be used to set targets to improve
customers' health by comparing how the profiles vary across different groups
in society and how healthy initiatives impact on customers' shopping over
time.
Conclusion
Tesco is one of the largest retailers in the world. This success has not come
about by chance but is the result of effective leadership and management.
The setting of a clear vision is central to Tesco’s success, supported by a
commitment to establishing and monitoring specific objectives and devising
strategies to ensure these are achieved. All aspects of the business are
regularly monitored and, when necessary, plans are adapted to ensure
targets are ultimately met.
At the heart of all Tesco does is a commitment to being a responsible retailer.
This is demonstrated through its focus on its ‘Three Big Ambitions’ and ‘The
Essentials’ to show how it is using its scale for good. Every decision taken
considers these areas to ensure customers, communities, suppliers and staff
are treated fairly and with respect. Tesco’s values underpin all that Tesco
does and, in turn, keeps customers satisfied with their shopping experience
and loyal to the brand. 
 
Source Reference: http://businesscasestudies.co.uk/tesco/vision-values-and-
business-strategies/
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video
141
5
CORPORATE LEVEL STRATEGY 
Objectives:
This chapter focuses on the key strategic decisions to be made at the
corporate level, to identify the corporate profile and determine whether the
company will operate in a single business or more than one related business
or venture into other unrelated businesses. At the end of the chapter, you will
be able to understand the following:
•! Define and identify the corporate profile
•! Making a decision on single business or multi business
•! Growth strategy
•! Stability strategy
•! Retrenchment strategy
•! BCG growth share matrix
•! Global corporate strategy
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CORPORATE LEVEL STRATEGY
Structure:
5.1! ! Introduction
5.2! ! The corporate profile
5.3! ! Growth strategy
5.4! ! Stability strategy
5.5! ! Corporate restructuring strategy
5.6! ! Turnaround strategy
5.7! ! Divestment strategy
5.8! ! BCG growth share matrix
5.9! ! Corporate involvement in SBU
5.10! Global Corporate strategy
5.11!! Summary
5.12! Assessment questions
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5.1 Introduction
With the scale and complexity of modern businesses increasingly becoming
volatile and global in nature, there is a necessity to have a sound strategic
management process in any corporate organisation. The markets expect
continuous innovation and unprecedented changes happening in macro-
economic factors that the corporates have to play with and reflect back in its
overall strategy. Thus, corporate strategy assumes highest importance in
creating strategy and defining leadership in the industry both locally as well
as globally.
While, the analysis of industry, competition, macro environment and
corporate mission are keys to building a strong foundation to the strategy
formulation process, the next critical step in strategic management process
is to review the organisation’s current strategy and direction. As we
discussed briefly in chapter 1, there are three levels of strategies viz
corporate level, SBU level and functional level in any organisation. This
chapter discusses what kind of strategy a corporation should pursue to
nurture and grow their various businesses. The various strategic options and
choices are being discussed. This chapter focuses on corporate level
strategy in particular.
Corporate strategy is the long term strategy encompassing the entire
organisation. It is the strategy that the top management formulates for the
overall corporation. Corporate strategy is an overarching strategy, which
precedes the business unit level and functional level strategies and sets new
direction for the entire organisation. Corporate strategy addresses the
fundamental questions such as what is the purpose of the enterprise, the
vision, what businesses it wants to pursue, and what is the expansion and
diversification strategy of each business, mergers and acquisitions, define
the business guidelines and corporate governance to be followed by the
SBUs and the individual Functions.
Corporate strategy must ensure organisational compliance to achieve the
stated goals. In other words, corporate level strategic management is
management of activities which define the overall character and mission of
the organization, the products and service segments it will pursue or exit, the
allocation of resources and management of synergy among its SBUs and
Functions. Corporate strategy is formulated by the top level corporate
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management comprising of the chairman, the board of directors and the

CEO.
5.2 The Corporate Profile

The top management is entrusted with clearly defining the corporate profile
of the organisation by identifying the type or types of businesses which the
company should be in as guided by the board’s vision. Like the profile of a
leader, the corporate profile is a function of the company’s vision and
mission, culture and values, strategy and direction, strengths and
weaknesses, opportunities and threats to stay ahead on the face of
challenges posed by the industry, competition and the macro environment.
As a result of the top management deliberations, the company may choose
to operate in any of the three types of businesses:
1.! To operate in a single industry
2.! To operate in multiple related industries
3.! To operate in multiple unrelated industries
 
Most of the large corporates in India started their operations as single
business companies, and later expanded and diversified into multiple related
industries as well as unrelated industries as their aspirations grew. The
companies operating in a single industry are more susceptible to cyclical
downturns and any adverse change in the macro environmental forces, thus
impacting the industry as a whole. For this reason, most forms eventually
diversify and compete in more than one industry. India being a fast
developing economy, Indian corporates have diversified business interests
both in India as well as in the international markets. In the process India has
produced many multi-national companies which have become truly global in
nature.
The motivation of a company to diversify comes from the fact that it
complements its core business and helps the organisation mitigate
uncertainty and risks associated with the operations of a single industry
business. The other motivation comes from the success of the core business
that inspires the promoters and investors to consider business expansion
and diversification into related fields and sometimes even to unrelated fields.
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Diversification enables a company to grow its revenues, profits, potentially

use its resources more effectively and build new products, new services and
new markets.
Tata group is a classic example of diversification into multiple related as well
as unrelated industries. Famously known as the ‘salt to software
conglomerate’ with revenue turnover in excess of $ 100 bn (FY 12-13), the
Tata group has practically diversified into almost all industry verticals as
many as 28 sectors. The industries vary from chemicals, steel, automobiles,
software, telecom, coffee, tea, retail, power, hospitality, etc. It is impossible to
understand the corporate profile and the Tata brand, without understanding
the symbiotic relationship that the brand has with the various group company
profiles and its products and services. There is a saying the Tata group talks
not of conquering markets but of serving people.
Tata group has been aggressively charting out growth strategy through
expansion of related businesses through M&A strategies and diversification
into unrelated industries through JV and alliance partnerships. For example,
let us talk about Tata group’s foray into the civil aviation sector. In fact Tatas
were the ones who started the first civil aviation company in the country, Air
India post-independence and later sold it to the government of India. Tata
group has been vying for re-entering this sector for quite some time with
failed attempts couple of times in the late 90’s and early last decade. In the
year 2013, Tata sons the holding company of Tata group companies decided
to forge two JVs in the civil aviation sector. The first one was a JV with Air
Asia to launch a no-frills airlines in the country and the second one was a JV
with Singapore Airlines to launch a full service carrier to meet the growing
demands of the market post the fall of Kingfisher Airlines early in 2012.
These two JVs were supposedly aimed to address clearly two
complementing segments of the marketplace without competing with each
other.
The key to becoming successful while diversifying into related industries
depends on the synergy the companies or business units within the group
are able to establish. While participating in related industry brings more value
and unlocks the companies hidden potential, more often diversifying into
unrelated industries may result in other unknown factors impacting the
business which results in the company losing focus on its core business.
When the corporates realise their inability to run the unrelated businesses
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successfully, they hive off their business and start looking for partners to sell
the non-core businesses to stay healthy in their core business.
Early last decade, many corporates diversified into new upcoming industries
which were flourishing, such as infrastructure services, telecom services,
civil aviation, retail services etc. However, when the competition became
very high and there were delays in government approvals etc., these
companies started feeling the challenges of their profitability getting eroded
and there was an economic slowdown post the financial market meltdown in
2008. They had to either sell of the non-core business or they had to scale
down and exit the unrelated businesses.
The strategy to become successful is to analyse the entire market landscape
and identify the right fit that complements the core business and that has the
potential to increase the combined value of the organisation, either from a
backward integration standpoint or forward integration standpoint or even
that helps complete the value chain in terms of offerings to the customers.
Thus, the strategy should enable the company to create a compelling value
proposition to stay profitable in both the core business as well as the
diversified business. The strategy should ensure that the diversified business
does not eat into the resources and profitability of the core business, thereby
making the whole business plan unsustainable.
The company should ensure it builds the overall competence that is difficult
to imitate. Generally, it is challenging to accomplish integration between
different business units when they do not share common cultural values. The
strategic managers have to work collaboratively to ensure such cultural
differences are smoothened out and they do not impact the overall value
proposition of the different related business units.
The corporate level strategies include the following:
1.! Growth Strategy
! a.! Organic growth
! b.! Inorganic growth
! ! i.! Horizontal integration
! ! ii.! Vertical integration
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! ! iii.! Conglomerate diversification

! ! iv.! Mergers and acquisitions
! c.! Strategic alliances
2.! Stability Strategy
3.! Retrenchment Strategy
4.! Turnaround Strategy
5.! Divestment Strategy
6.! Liquidation Strategy
5.3 Growth Strategy

The growth strategy of a corporate is designed to increase revenues, profits,
market share and build a larger brand value. The primary objective of growth
strategy is to create more value for the organisation, its stakeholders and the
society. An organisation should pursue growth strategy only if that growth is
expected to result in an increase in its value. It is all about creating value and
not destroying value. There are several ways to pursue growth. Generally,
the two important growth strategies that an organisation could pursue are
achieved either by organic means or by inorganic means.
Organic growth
Growth can be attained either by organically expanding the existing business
by increasing the production capacity, sales revenues, or its manpower or by
inorganically diversifying into new businesses by acquiring related or even
unrelated firms. The organic growth enables the company to leverage its
expertise and preserve its corporate culture and image as it grows. During
organic growth, the expansion of business happens at a controlled pace, by
growing the existing business or creating new business which the
organisation is capable of. Most of the corporate groups in India have grown
organically over time and have built a strong foundation in their core
businesses and then later diversified into other related and even unrelated
industries. They have built their own culture and values, and have
established as industry leaders in their respective primary (core) industries.
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Inorganic growth
Inorganic growth enables the company to grow more rapidly and the size of
the organisation can multiply depending on the size of the company being
acquired. In inorganic growth, the organisations might have diversified
organisation culture and value, expertise and the integration of which would
be challenging. The success in integration of such inorganic expansion lies
in choosing the right fit and identifying the right strategy to suggest whether
or not the integration should be carried out. In some corporate groups,
certain acquisitions happen for strategic reasons, mostly in unrelated areas
and the acquired company may continue to operate independently without
any integration to the core industry.
In the last decade when Indian economy witnessed high GDP growth in the
range of 8-9%, Indian corporates raised their aspirations to become global
companies. They developed corporate strategies to diversify into newer
business areas both related and unrelated industries and started looking at
large mergers and acquisitions to lead the industry growth, both nationally
and globally.
Most of the large corporates thus pursued their aspiration to expand their
geographical footprint beyond a country or a continent or to expand their
product portfolio, to truly become a global organisation. Examples would be
Tata Steel acquiring Corus Steel in the UK, Tata Motors acquiring Jaguar and
Land Rover (JLR) in the UK, Bharti Airtel acquiring Zain Telecom in Africa,
Hindalco acquiring Novelis in Canada, Essar Group and ONGC acquiring
strategic oil and gas assets in the African continent, Reliance Industries
acquiring Shale Gas assets in the US, HCL Technologies acquiring Axon
consulting, and Infosys acquiring Lodestone AG in Europe to name a few.
While organisations acquire other companies either in the same line of
business or unrelated line of business, there are challenges in terms of
integration of the new companies with the core business. Let us see some of
such scenarios in detail in this chapter.
Horizontal integration (expansion)
The company that acquires a company in the same line of business is
engaged in a process called horizontal integration. This process enables the
company, operating in a single industry, to grow rapidly without having to
expand organically. The primary focus of such a strategy is to multiply the
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market share of the combined entity, expand into new geographic markets
and customers, thus creating economies of scale, increase pricing power,
leverage its position to negotiate with suppliers to reduce costs, increase
margins and eventually enable the firm to market its products and services to
a larger and wider section of customers more efficiently and effectively.
Example would be Tata Steel acquiring Corus Steel in the UK and Bharti
Airtel acquiring Zain Telecom in Africa, both of which wanted to expand their
respective steel and telecom industries to global markets. The acquisition of
similar assets helped them expand the business contiguously into other
complementing geographies to grow revenues and profitability.
Horizontal integration (diversification)
The purpose of horizontal strategy (diversification) of a company is to create
synergy by transferring the capabilities and credentials of the target company
with the core business, thus adding compelling value in its go to market
strategy. The purpose is also for strategic reasons. The acquisition strategy
in this scenario is to identify businesses that complement its core capabilities
but in the same related industry. Infosys acquiring Lodestone AG in Europe
to acquire capabilities in consulting services business that complements its
core IT applications services business.
The key objectives driving such a strategy would be to acquire
complementing capabilities, new skills, new customers and long term
profitability, thus increasing the overall value proposition of the organisation.
In this case, the core business ideally should provide access to wider
geographies already, like in the case of Infosys which is already a global IT
Services company, but the end customer proposition gets more compelling in
the process by adding newer capabilities and customer offerings. Here, the
purpose was that certain key competencies were lacking in one or two areas
to complete its overall business strategy.
When such an acquisition happens, post integration the combined entity will
be in a position to demonstrate the complementary core competencies in the
market place, thus placing itself to be able to acquire more customers, and
deliver more quality products and services. The resultant synergy of the two
combined organisations provides higher effectiveness and efficiency, and
empowers the company to participate in more market opportunities to
increase revenues and profitability.
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Conglomerate diversification
When a company acquires a business in an unrelated industry to reduce
cyclical fluctuations in its revenues or cash flows, the scenario is called
conglomerate diversification. As seen above, while diversifying into related
business is more for strategic reasons, diversifying into unrelated industries
is mostly for financial reasons. Conglomerate diversification allows a
company to continue to grow even when its core business has matured and
revenues are saturated. Here, the challenge would be the core organisation
would lack the expertise to manage an unrelated business until it develops
it’s know how to run the new business unit effectively. The corporate has to
rely on the management of the acquired firm to deliver business results until
it develops its expertise to provide strategic direction. This is definitely a
pitfall often encountered in such diversifications.
Vertical Integration
Vertical integration refers to an organisational expansion by acquiring a
company in the distribution channel. The vertical integration varies from
industry to industry. As indicated earlier, a full vertical integration is achieved
when an organisation is able to perform all activities in the complete value
chain of its business operations, ranging from the procurement of raw
materials to the production of final outputs, to the distribution of the products
to the end customers in all markets, whereas firms that engage in some but
not all of these activities, are only partially integrated.
When a company acquires its suppliers, it engages in backward
integration, whereas if it acquires distribution channels or buyers, it
engages in forward integration. Vertically integrated companies have many
advantages. It can optimise sourcing costs, transportation costs, distribution
costs, production costs etc. The company is able to differentiate products
because of increased control on its operations right from input costs to
output costs including distribution because of scale. It greatly reduces
transaction costs between suppliers and buyers and lots of intellectual
property information gets secured to gain market advantage.
Vertical integration also has its own disadvantages. It reduces operational
flexibility as the organisation is heavily invested in both upstream and
downstream integrations. It can raise costs if the critical mass of volume in
production is not realised, impacting the overall profitability of the company.
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Overhead costs may also increase as a result and the company may
experience low productivity. Such integrations are high risk projects and can
impact the overall corporate’s success.
The success in integration of such an inorganic expansion lies in choosing
the right fit and identifying the right strategy to suggest whether or not the
integration should be carried out. Keeping this in mind, in some corporate
groups, certain acquisitions happen for strategic reasons, mostly in unrelated
area and the acquired company may continue to operate independently
without any integration to the core industry.
Mergers and acquisitions
Merger is a corporate level growth strategy in which a firm combines with
another firm through an exchange of stock, whereas acquisition is a form of
merger whereby one firm acquires another often with a combination of cash
and stock. Globally as well as in India, we have seen many mergers and
acquisitions. Generally, large enterprises often acquire smaller competitors in
order to expand its products and services lines by complementary
capabilities or same lines of products and services to increase its market
share.
The main advantage of mergers and acquisitions is that the combined entity
will possess all the strengths of the individual companies, to make more
offerings to customers and at the same time will be able to optimise costs
and increase value proposition and profitability. However, there are a few
disadvantages as well. Since the acquisition of a company is for a specific
strategic reason, like newer capabilities (of course complementary) and
credentials which the acquiring company is going to benefit from, the target
company commands a premium in its valuation.
In most M&As, the acquiring company has to pay higher price than the
current share price of the target company. Then, there could be challenges in
cultural synergy during integration, management restructuring, possible
retrenchment to increase productivity, top talent leaving the organisation etc.
These risks must be forecasted and possible actions to mitigate such risks
must be put in place to protect the value creation the M&A brings to the
overall organisation.
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Strategic Alliances or Partnerships

In today’s fast changing world, economically and technologically, it is always
challenging to keep the competitive advantage an organisation tries to
create. Every organisation talks about faster time to market for its products
and services. Collaboration is the new mantra of success, be it new
innovative products or services or even winning new markets. If the
philosophy of a corporation is not to build every capability in-house, then the
best way to address the growth strategy is through forging strategic
alliances, also called strategic partnerships.
When two or more companies partner to collaborate to form a partnership to
do business and agree to share the risks and rewards associated with
pursuing the new business strategy, it leverages each other’s strengths to
create synergy to maximise the outcome of such a partnership. Such
arrangements include joint ventures, franchises, licence agreements, long
term supplier agreements, marketing agreements, consortiums etc. Certain
partnerships agree to co-create new products and services leveraging each
other’s domain expertise.
Strategic alliances are of two types. One is short term based, purely entered
for a particular project duration and the alliance gets disbanded after the
project is finished. The other is long term based and there is continuous
engagement between the partners over an extended period of time based on
the growth strategy agreed at the beginning of the agreement.
Strategic alliances may be pursued for economic or technological reasons,
as part of the expansion or diversification of the organisation’s growth
strategy. In such scenario, the organisations work closely with each other to
pursue various business opportunities instead of attempting to purchase the
firms outright. Tata group’s strategic partnership with Air Asia and Singapore
Airlines are very good examples of creating unique market segments in the
same industry through diversification strategy.
The primary reason, as explained above, for forging an alliance is to co-
create value for all stakeholders – customers, employees, shareholders etc
and thus generate synergy. In some scenarios, partnerships or JVs are
formed in order to share the resources of individual organisations so that no
single company is burdened financially. In another scenario, the project may
require complex technology expertise which no single company possesses
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such an expertise. Thus, one company with complementary technology

expertise and the other company with financial and management capabilities
may combine forces to increase the value of such partnership to challenge
the competition
There are many examples of such partnerships. Microsoft and Nokia entered
into partnerships wherein Microsoft’s expertise in software domain and
Nokia’s expertise in mobile phone domain created a strong partnership to
deliver more value to compete in a fast growing smart phones market where
Apple and Samsung were indisputable leaders.
Mobile phone companies like Nokia, Motorola, Ericsson all had a consortium
partnership to do research and develop third generation mobile applications
called Edge, CDMA, Symbian technologies. Bharti Walmart was formed
where Bharti brought capabilities on India access while Walmart brought in
retail technology and domain expertise.
Strategic alliances work well when company’s growth strategy is based on
finding the best partner to grow its business, rather than reinventing the
wheel which the company is not having any expertise. It reduces the time to
market, developmental costs and other organisational inefficiencies. Here it
is a marriage of two like-minded complementing partners who need each
other for their success story.
Also, each company can share the risks and rewards without bearing the
risks on itself. The benefits can be easily multiplies if the synergy is
maximised. The strategic alliance must clearly stipulate the roles and
responsibilities of each partner and have a clear reward sharing agreement
proportionately, and it should be based on progressive partnership spirit.
5.4 Stability Strategy

Growth strategy is an important aspect of organisation sustenance over a
long horizon of time. However, a company may not be able to adopt growth
strategy always to be an effective strategy as there are many dependent
factors and risks that might impact the company’s ability to successfully
execute the same. Moreover growth strategy is a high risk strategy, not the
right strategy all the time. Hence, after a long period of growth, stability
strategy is preferred always to stabilise the business by focusing internally.
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The stability strategy is a strategy in which a company maintains its current

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

constraints on quality and customer service.
4. Certain large company has grown to be a high market share player in its
industry already and the government and regulatory bodies will not allow
any further increase in market share as a result of an acquisition of a
competitor as the combined market share will threaten competitiveness,
even if the company is financially capable of making such M&A
investments. In such cases, the organisation will have to pursue stability
strategy as even internal growths can be challenging at times.
5.5 Corporate Restructuring Strategy

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

When an organisation continues to perform below its potential or below
market growth, it requires a turnaround strategy to bring it back to health. In
other words, turnaround strategy transforms the company into a leaner,
meaner and effective organisation. During such tough times, the organisation
would need to undertake certain hard decisions and measures. The
measures include eliminating wastes, pruning assets, reducing the
workforce, cutting down the budgets and other costs like sales and
distribution and it might even have to rethink on its strategy of its current
product portfolios and other unprofitable business portfolios.
Turnarounds are often accompanied by changes in the macro environment,
industry order, competition behaviour etc. In most organisations both
turnaround and restructuring happen at the same time. The turnaround
strategy of an organisation depends on the actual problems it has been
going through. The reasons could be many, from performance to governance
issues.
Besides performance issues, the other reasons for a company to become a
potential candidate for turnaround strategy is that there have been instances
of corporate governance issues, allegations of top management
wrongdoings, scandals, corruption charges, and management integrity
issues that hamper the confidence of different stakeholders like investors,
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customers, employees, partners and most importantly the business

environment at large. These challenges exert greater pressure and onus on
the top management and the company board to respond to such issues
effectively and quickly come up with a turnaround strategy for the
organisation. Once the organisation reputation is damaged, it is almost
impossible or it takes a very long time to turnaround the brand name and its
reputation.
When companies have been caught in severe under performance for a long
time, turnarounds often involve employee layoffs, which is a sensitive issue
and companies must be prepared to address the impacts of such layoffs on
both departing employees and the survivors. As part of the turnaround and
restructuring strategy, the organisation must have proper communication
with all employees, customers, partners and other stakeholders.
Employees must be given opportunities to voluntarily retire or leave the
organisation to make the layoff process as congenial as possible. More
often, when layoffs are announced, the employee morale across all levels is
likely to suffer considerably. In the process, even good employees will start
leaving the organisation which will be left with less productive workforce. It is
always very challenging to implement a turnaround strategy than planned.
When layoffs are necessary, the top management should communicate
honestly and effectively with all employees, explaining why the downsizing
was necessary to the survival of the organisation. How the layoff employees
were selected and how the exit process would be handled. It must also be
made aware how the organisation intends to support the departing
employees including the survivors. Although these measures may not
completely eliminate the harsh feelings associated with layoffs, the process
might ensure that the impact is reduced.
Similarly, communication with customers and partners is very important to
articulate clearly what is the company’s strategy to overcome the current
challenges. In the case of Satyam Computers, the new management met
every customer to convince them to stay with the company and also had to
contest few class action lawsuits in the US. We will discuss the case study in
detail now.
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Case Study of Satyam Computer Services with Tech Mahindra:

Satyam Computers Services is a classic example of a combination of
corporate restructuring, turnaround strategy and M&A strategy. It was first
acquisition, then a restructuring and turnaround, and finally merger with its
new corporate parent Tech Mahindra. In the world of M&As, four years is a
long haul—from April, 2009 to June, 2013—it took that long for Tech
Mahindra to start the merger of Satyam Computer Services in its fold after it
acquired Satyam Computers in April 2009.
Erstwhile Satyam founder and chairman Mr. Ramalinga Raju confessed to
having perpetrated a huge accounting fraud in its books of accounts to the
tune of $1.47 billion and stepped down in January 2009. This revelation of
corporate fraud heavily damaged the company’s credibility, brand name and
its standing in the industry. The stock price of the company went down by
more than 90% in just 2 days in January, 2009.
Something drastic needed to be done. Prior to acquiring the company,
Mahindra & Mahindra Chairman and Managing Director Mr. Anand Mahindra
had claimed that Satyam presented him three things that he was looking for
despite the huge risks as an acquisition candidate. These factors were scale,
size and export orientation as most of Tech M businesses as of April, 2009,
were domestic in nature. The corporate philosophy and purpose of this
acquisition was aimed at creating a marriage of equals, as per the Mahindra
group’s top management.
It is understandable that Satyam was completely crippled by the time Tech
Mahindra took over the company. Alongside losing key accounts, like Coca-
Cola, BP and State Farm Insurance, Satyam faced a major legal class action
lawsuit and its actual business crumbled from $1,600 million as it lost some
of its marquee clients. In effect, Tech Mahindra bought over approximately
$1000 million worth company, which when its former chairman had claimed
was $2,200 million in revenue terms.
The top management of Mahindra group wanted a certain level of profitability
for Satyam before it could be fair to the shareholders of that company, who
had lost a great deal owing to the way the previous owners ran it. Back then,
Satyam employees felt a potpourri of emotions ranging from anguish,
disbelief, hurt and surprise. But when a Mahindra group company stepped in,
the looming uncertainty seemed to fade away. The government of the day,
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too, did a commendable job prior to the acquisition by acting swiftly on the
case, for a change. It reconstituted a 6-member board of top business minds
that included the likes of Deepak Parekh, Kiran Karnik, Tarun Das and S
Damodaran, who triggered the two Cs of rejuvenating, - communicating and
cleansing.
While there were turnaround challenges, the acquisition was considered to
be synergistic as the skills were complementary, the customer overlap was
zero and the geographic overlap was beautifully laid out. While Tech M was
a Europe centric company, Satyam's clients were chiefly in the American
market. Also, from a vertical standpoint, Tech M largely covered the telecom
space, British Telecom being a major client, and so looked vulnerable and
would have found it difficult to sustain and grow.
Apart from teeth, the merger gave Tech M a more balanced portfolio of
clients from different industry verticals (manufacturing, retail, healthcare, life
sciences, tech media, and entertainment), with A-grade enterprise capability
that Satyam had and the combined entity became the 5th largest Indian IT
services player (ex-Cognizant). However, Satyam founder’s largesse had
already burnt a hole in the organization.
From a customer base of 400, Tech M inherited 290 clients when it acquired
Satyam. The spirit of the employees, or associates as they are called in IT,
was severely compromised. From 45,000 people during its hay days, Tech M
had to take hard decisions and rationalize the employee strength to 28,000.
The rationalization as part of the turnaround strategy was done "in a nice
fashion" by inviting the competition over to hire directly from Satyam.
Nevertheless, Team Tech M was looked upon as barbarians at the gate, as
they were completely focused on earnings and cost control, which had
eluded the erstwhile Satyam because of corporate governance
mismanagement.
So on June 20, 2009, Mr. Nayyar, Vice Chairman Tech Mahindra and Mr
Gurnani, the Mahindra Satyam’s CEO mustered enough courage to
announce that he was reducing the 13 layers of management to six at
Satyam over the next three years. To oversee the transition, the corporation
set up a 10 people team from M&M in Satyam's leadership team.
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Tech M brought in some youngsters from our global leadership cadre and
ensured they didn't come with any baggage, as emphasized by Mr Gurnani.
Alongside, 5-6 leaders of Satyam were let go, particularly in the legal and
finance functions, where the toxicity was maximum, as top-level transfusion
became the need of the hour.
"In some areas, we were very clear that it has to be a Tech M representative
running it because from a good governance perspective, from shareholder
value protection, it was important people saw a face that was more aligned
to Tech M than the erstwhile management of Satyam," confides Mr. Gurnani.
Between them, Mr. Nayyar and Mr. Gurnani divided responsibilities. While
Mr. Nayyar was to look at legal and investor issues, Mr. Gurnani would be
focused on the customers and employees.
Yet another step toward "a marriage of equals" was taken in 2011 when Tech
Mahindra took 130 leaders to Thailand with an idea to get people from the
erstwhile Satyam and Tech Mahindra to sit together and thrash out a new
vision. At the end of the exercise, mission 2015 came up, which meant
doubling up revenues by 2015. "The aim was to bring up a new culture which
is not Tech Mahindra culture or Satyam culture but a New Tech Mahindra
culture," says Gurnani, creating a new code for 84,000 people.
It was as clear as during the formative stages of the acquisition when Nayyar
and Gurnani met up with heavyweight clients like AT&T, who would snidely
comment on Satyam and how Raju pulled the curtains. That was the first
year-and-a-half. "After that, there was a change in the meaning of Satyam,
which was synonymous with fraud and forgery. As per them, it gives the
greatest feeling that they have changed the meaning of Satyam from being
synonymous with fraud to rejuvenation.
While this merger was 'Rest In Peace' for the erstwhile Satyam, it was
'Recovery in Progress' for the Tech Mahindra management. And going by the
latest quarterly results (Jun-Sep, 2013), the marriage seems to have worked
fine, with revenues up about 5% sequentially at $758 mn (QoQ). The results
were liked by the market. Mahindra Satyam finally got merged into Tech
Mahindra in June 2013 with the approval of the shareholders of both the
companies and necessary regulatory and legal approvals, with the combined
entity to become the sixth largest IT Services Company in India.
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5.7 Divestment Strategy

When the industry is on the decline when a business unit is draining the
resources from other more profitable businesses and is not performing well
on its own, then divestment strategy may be pursued. Divestment strategy is
also used to pay-off corporate debt by a strategic stake sale. Over a period
of time, some businesses may become irrelevant to its corporate growth
strategy and lack synergy to the evolved vision of the corporation then the
company may seriously consider monetising its less productive assets or
businesses by divesting the business fully or partly through a stake sale, by
taking a strategic partner on board.
The divestment strategy can be aim at either to completely spin-off the
business and liquidate or to revive the business by taking a partner who has
the expertise to rejuvenate the business and then sell it off when the
business growth picks up. The liquidation or sell-off proceeds are utilised to
pay off the long term debt of the company.
The liquidation strategy is a last resort for the corporate to sell-off the entire
business unit and the assets. In effect liquidation represents the divestment
of the non performing business and should be considered only under
extreme conditions. Shareholders and creditors might face financial losses,
the top management and employees lose their jobs, the society experiences
increase in unemployment and the government gets less tax revenues. For
this reason, liquidation should be pursued only when other strategies of
revival are not working.
5.8 BCG Growth Share Matrix

The growth share matrix (also known as the corporate portfolio framework
or BCG-matrix, corporate portfolio diagram) is a chart that was created
by Bruce D. Henderson for the Boston Consulting Group in 1970 to help
corporations to analyse their business units and their product lines. This
framework was developed to provide guidelines for corporate strategists to
compare the various businesses to market growth.
This helps the company to allocate resources appropriately and the
framework is used as an analytical tool in strategic management in the areas
of brand marketing and portfolio analysis. Analysis of market performance by
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firms using its principles has called for its usefulness into question, however,
it is understood that company specific conditions may require exceptions to
these guidelines and it is recognised that these frameworks provide an
excellent starting point to consider strategy in large corporations having
multiple business interests. The Bosting Consulting Group (BCG)’s original
framework is the most used approach.
To use the chart, analysts plot a scatter graph to rank the business units (or
products) on the basis of their relative market shares and growth rates.
• Cash cow is where 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 staid and
boring, in a mature market, and every corporation would be thrilled to own
as many as possible. They are to be milked and harvested continuously
with as little investment as possible, since such investment would be
wasted in an industry with low growth.
• Dogs, more charitably called pets, are units with low market share in a
mature, slow-growing industry. These units typically "break even",
generating barely enough cash to maintain the business's market share.
Though owning a break-even unit provides the social benefit of providing
jobs and possible synergies that assist other business units, from an
accounting point of view such a unit is worthless, not generating enough
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cash for the company. They depress a profitable company's return on

assets (RoA) ratio, used by many investors to judge how well a company is
being managed. Dogs, it is thought, should be sold off.
• Question marks (also known as problem children) are business operating

in a high market growth, but having a low market share. They are a starting
point for most businesses which are start-ups or new businesses. Question
marks have a potential to gain market share and become stars in future,
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.
Question marks must be analysed carefully in order to determine whether
they are worth the investment required to grow market share.
• Stars are units with a high market share in a fast-growing industry. They

are successful question marks and become a market leader in a high
growth sector. The hope is that stars become next cash cows. Stars require
high funding to fight competitions, create marketing visibility and maintain a
growth rate. When growth slows, if they have been able to maintain their
category leadership stars become cash cows, else they become dogs due
to low relative market share.
As a particular industry matures and its growth slows, all business units shall
become either cash cows or dogs. The natural cycle for most business units
is that they start as question marks, then turn into stars. Eventually the
market stops growing thus the business unit becomes a cash cow. At the end
of the cycle the cash cow turns into a dog.
The overall goal of this ranking was to help corporate analysts decide which
of their business units to fund, and how much; and which units to sell.
Managers were supposed to gain perspective from this analysis that allowed
them to plan with confidence to use money generated by the cash cows to
fund the stars and, possibly, the question marks.
Only a diversified company with a balanced portfolio of businesses can use
its strengths and potential to truly capitalize on its growth opportunities. The
balanced corporate portfolio has:
• Stars whose high share and high growth assure the future
• Cash cows that supply funds for that future growth and
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• Question marks to be converted into stars with the added funds 
Relative market share

This indicates the likely cash generation, because higher the share the more
cash will be generated. As a result of 'economies of scale' (a basic
assumption of the BCG Matrix), it is assumed that these earnings will grow
faster the higher the share. The exact measure is the brand's share relative
to its largest competitor.
Thus, if the brand had a share of 20 percent, and the largest competitor had
the same, the ratio would be 1:1. If the largest competitor had a share of 60
percent; however, the ratio would be 1:3, implying that the organization's
brand was in a relatively weak position.
If the largest competitor only had a share of 5 percent, the ratio would be 4:1,
implying that the brand owned was in a relatively strong position, which
might be reflected in profits and cash flows. If this technique is used in
practice, this scale is logarithmic, not linear.
On the other hand, exactly what is a high relative share is a matter of some
debate. The best evidence is that the most stable position (at least in fast-
moving consumer goods markets) is for the brand leader to have a share
double that of the second brand, and triple that of the third. Brand leaders in
this position tend to be very stable and profitable.
The reason for choosing relative market share, rather than just profits, is that
it carries more information than just cash flow. It shows where the brand is
positioned against its main competitors, and indicates where it might be likely
to go in the future. It can also show what type of marketing activities might be
expected to be effective.
Market growth rate
Rapidly growing in rapidly growing markets, are what organizations strive for;
but, as we have seen, the penalty is that they are usually net cash users –
they require investment. The reason for this is often because the growth is
being 'bought' by the high investment, in the reasonable expectation that a
high market share will eventually turn into a sound investment in future
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profits. The theory behind the matrix assumes, therefore, that a higher
growth rate is indicative of accompanying demands on investment.
The cut-off point is usually chosen as 10 per cent per annum. Determining
this cut-off point, the rate above which the growth is deemed to be significant
(and likely to lead to extra demands on cash) is a critical requirement of the
technique; and one that, again, makes the use of the growth–share matrix
problematical in some product areas. What is more, the evidence from fast-
moving consumer goods markets at least, is that the most typical pattern is
of very low growth, less than 1 per cent per annum. This is outside the range
normally considered in BCG Matrix work, which may make application of this
form of analysis unworkable in many markets.
Where it can be applied, however, the market growth rate says more about
the brand position than just its cash flow. It is a good indicator of that
market's strength, of its future potential (of its 'maturity' in terms of the market
life-cycle), and also of its attractiveness to future competitors. It can also be
used in growth analysis.
Balanced Strategy
A well-balanced business strategy ideally should have mostly stars and cash
cows, some question marks and few dogs. To attain this ideal scenario,
there could be four options of corporate strategies.
1. Strategic managers can have a strategy to build market share with stars
and question marks. The question marks have the potential to become
the future star of the corporation. So the corporate strategy should be to
identify and support the promising question marks so that they can be
transformed into stars. It may involve increasing the scale of volume or
aggressively price the products and services, which may impact the
overall profitability of the business in the short term.
2. The corporate strategy can be to hold market share with the cash cows,
thereby generating more cash flows from operations than building market
share. The corporate can use the cash flows contributed by the cash
cows to support the stars and potential question marks to grow their
market share.
3. In this, the corporate strategy is to harvest more or milk as much short
term cash from the business as possible while allowing its market share to
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decline or remain steady. It is a trade-off between cash flow and

profitability, and the market share. The cash generated from this strategy
can also be used to support the stars and promising question marks. In
this strategy, the businesses harvested usually include dogs, weak cash
flows and question marks with less business potential.
4. The strategy is to divest the business unit partially or completely to provide
cash back to the corporation and arrest the outflow of cash that would
have otherwise been spent on the business in future. In this strategy,
generally, the dogs and the less promising question marks are divested
and the corporation re-allocates to the stars and more promising question
marks.
Corporate strategy should be dynamic enough to maintain a balance
between multiple business units, some of which generate cash, and some
requiring funds for growth, for a healthy corporate profitability. So, the
corporate strategy is to analyse, identify and draw a line between the high-
growth, high cash-generating businesses within the group, from the ones
that are using the resources for its growth or sustenance. The balance of
businesses on both the lines can be a critical factor in decisions to acquire
new businesses or divest the old ones.
The BCG matrix gives importance to market share leadership as a
barometer for profitability which may not be the right corporate strategy to
take decisions related to corporate investments and divestments. In this
framework, some question marks are cultivated to become leaders, but less
promising question marks and dogs are usually targeted for harvesting or
divestment.
Limitations and Critical Evaluation
While theoretically useful, and widely used, several academic studies have
called into question whether using the growth–share matrix actually helps
businesses succeed. One study (Slater and Zwirlein, 1992) which looked at
129 firms found that those who follow portfolio planning models like the BCG
matrix had lower shareholder returns.
The matrix ranks only market share and industry growth rate, and only
implies actual profitability, the purpose of any business. (It is certainly
possible that a particular dog can be profitable without cash infusions
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required, and therefore should be retained and not divested.) The matrix also
overlooks other elements of industry.
With this or any other such analytical tool, ranking business units has a
subjective element involving guesswork about the future, particularly with
respect to growth rates. Unless the rankings are approached with rigor and
scepticism, optimistic evaluations can lead to a dot com mentality in which
even the most dubious businesses are classified as "question marks" with
good prospects; enthusiastic managers may claim that cash must be thrown
at these businesses immediately in order to turn them into stars, before
growth rates slow and it's too late. Poor definition of a business's market will
lead to some dogs being misclassified as cash cows.
Alternative marketing techniques
As with most marketing techniques, there are a number of alternative
offerings vying with the growth–share matrix although this appears to be the
most widely used. The next most widely reported technique is that developed
by McKinsey and General Electric, which is a three-cell by three-cell matrix—
using the dimensions of `industry attractiveness' and `business strengths'.
This approaches some of the same issues as the growth–share matrix but
from a different direction and in a more complex way (which may be why it is
used less, or is at least less widely taught). A more practical approach is that
of the Boston Consulting Group's Advantage Matrix, which the consultancy
reportedly used itself though it is little known amongst the wider population.
5.9 Corporate involvement in SBU

Most corporates define the vision and stipulate policy guidelines to control
the business unit level operations strategically. The extent to which the
corporates are involved with each business varies from one company to
another. Such participation is generally aimed at steering and grooming the
business in a healthy manner and it is mostly welcomed by the top
executives in the business units. However, in some companies, there is a
perception that the corporate involvement is considered as interference or
stifling its progress.
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But, either way, corporate involvement becomes necessary to take right

decisions at the right time related to the strategic matters, company
performance, decisions related to investment and divestment, in the interest
of creating value for the stake holders. In the process, some corporates
follow decentralization strategy, and some others follow centralization
strategy. And many corporations operate in between these two extremes by
finding a balance, which supports healthy performance.
In decentralization, the organizational decision making process in which
most strategic and operating decisions within the operating unit are made by
the top executives at the business unit level itself. This is administered
through a clear definition of policy guidelines and delegation of authority.
With most optimal delegation, decentralisation strategy greatly improves the
efficiency and speed of the decision making process. This can be helpful in
companies where the business units are highly performance driven and are
mostly stars or cash cows. In this strategy, there will be fewer corporate staff
required as most of the planning and execution are delegated to the
business unit managers.
In centralization, the organizational decision making process in which most
strategic and operating decisions are made by strategic managers at the top
of the organization structure at corporate headquarters. This can affect the
decision making process and the efficiency. Such organizations are
perceived to be bureaucratic.
Here, the decisions for day-to-day operations at functional level like
production, finance, marketing, procurement, human resources, its R&D etc
have to be referred to the corporate headquarters every time. The corporate
organisation attempts to control the activities of a diverse array of business
units which eventually creates delays in the decision making process and the
business unit becomes less agile. Also, as the organization grows, there will
be more number of corporate staff required to analyse the strategic
requirements and make decisions, thereby creating a major disconnect
between the corporate management and the business unit.
In today’s corporate world, most of the organizations operate in between
these two extremes by clearly defining the organizational authority matrix, a
strategy which allows the corporate to focus on its long term vision and step
in only on a calibrated manner with the individual business unit management.
However, the corporate involvement actually depends on the changes in the
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macro-economic environment like high growth or slowdown or other external

factors like political, regulatory changes happening in its environment.
5.10 Global Corporate strategy

Global MNCs who set up their presence in other countries including
emerging markets like India, China, Brazil etc bring in their global strategy,
expertise and best practices in areas like marketing, production, research
and development etc. Their product innovation and marketing strengths
combined with local people’s skills and cost advantages serve them to
capture the market by customising their product ideas to suit the country’s
culture. This idea or strategy, famously known as ‘think global and act local’,
has worked well for many global companies including Indian MNCs.
Many Indian corporates have forayed into global markets, with great success
stories to show case India as a potential domestic market for investment as
well as a potential market with aspirational corporates willing to pursue
global business strategy. This has led to expansion and diversification, ability
to build economies of scale and a relatively high market share.
The corporates which venture outside the domestic market has many options
in order to pursue their global aspirations. The first option is wherein some
companies choose to be involved on an inter-national basis by operating in
various countries but limiting their involvement to importing, exporting,
licencing, or by making strategic alliances.
Exports can significantly benefit a company to start their international
business foray. Some companies import their raw materials or semi-finished
goods from sources from international countries, which offer competitive
pricing and other government tax benefits for certain critical industries.
However, international joint ventures, a form of strategic alliance involving
cooperative agreements, may be desirable even when resources for direct
investment are available.
Strategic alliances provide a number of opportunities to an organisation.
They provide entry into a global market, access to the partner’s knowledge
about the market, and sharing risk with the partner. The alliance partnership
works well, when both the partners can learn from each other and they need
each other to complement their strengths and share common strategic
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objectives. Strategic alliances are preferred over direct investments as it

presents less risk than the latter.
Some corporates, which have aggressive strategies, with global aspirations
may decide to invest directly in facilities abroad to expand their global
involvement. We have seen many global automobile companies like
Hyundai, Ford, GM, and Toyota have made investments in their factories and
facilities in India with a long term view to do business in India and expand
their footprint into the country with second largest world population. Similarly,
many global companies in various other industries like single brand retail,
pharma, telecom companies have invested significantly in India as well.
Globally as well, Indian corporates have also made huge investments abroad
in their quest to expand and diversify their businesses into Europe, US,
Africa, Latin America etc. Examples would be Tata Steel acquiring Corus
Steel in UK, Tata Motors acquiring Jaguar and Land Rover in the UK, Bharti
Airtel acquiring Zain Telecom in Africa, Hindalco acquiring Novelis in
Canada, Essar Group and ONGC acquiring strategic oil and gas assets in
the African continent, Reliance Industries acquiring Shale Gas assets in the
US, HCL Technologies acquiring Axon consulting, and Infosys acquiring
Lodestone AG in Europe to name a few.
Indian companies have often understood the challenges in other markets by
learning about the domestic market potential abroad, regulatory conditions,
and consumer preferences, political and social factors. Indian companies
have withstood the long period of economic slowdown both in the west as
well as in India over the past five years (2008-2013) by diversifying into other
markets and by leveraging the differential risks related to macro-economic
factors in various markets.
The other conservative strategies available to a corporate company which
seeks international presence are through international licencing and
international franchising. International licencing is an arrangement whereby a
foreign licensee purchases the rights to produce a company’s products or
use its technology in the licensee’s country for a negotiated fee structure. For
example, this arrangement is very common in the pharmaceuticals industry.
Drug producers in one country typically allow producers in the other country
to produce and market their products abroad under a licence agreement.
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International franchising is a form of licensing in which a local franchisee

pays a franchiser in another country for the right to use the franchiser’s
brand names, promotions, materials and processes. Franchising is more
commonly employed in services industries like fast food restaurants.
Global orientation
Global orientation is a necessity for companies to remain in business for a
longer time and deliver innovative products and services in line with
international market trends. There are many reasons for a company to
change its strategy from domestic orientation to global orientation.
1. Pursuing global markets can reduce per capita production costs by
achieving economies of scale.
2. A global strategy helps extend the product life cycle whose domestic
markets may be declining
3. Setting up facilities abroad can help the company benefit from
comparative advantage, i.e the difference in local resources among
nations that provide cost advantage and labour arbitrage.
4. A global orientation can also help reduce risks because demand and
competitive factors tend to vary among nations.
5. The company can leverage technology expertise of the partner in another
country to produce products that otherwise would have taken many years
to implement.
Emerging economies like China, India, South Africa, Mexico are attractive
investment opportunities in many respects, however there are other
challenges as well like poor infrastructure, cumbersome government
regulations, local political system etc. There is significant foreign capital
flowing into these countries with global companies expanding into various
industry sectors. Indian corporates are growing their business by pursuing
expansion in other emerging economies as well, as those nations warrant
economic development. However, the advantages and disadvantages of
growth through global expansion must be considered carefully before
pursuing a strategy for expansion into an emerging market.
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5.11 Summary
This chapter has dealt with the key strategic decisions to be made at the
corporate level. Firstly, the corporate management must identify the
corporate profile and determine whether the company will operate in a single
business or more than one related business or venture into other unrelated
businesses.
There are benefits and challenges in each of these options. Secondly, the
corporation must make a choice of business strategy as per their laid down
vision viz: growth, stability or retrenchment. This chapter also has presented
the various growth and retrenchment strategies that help in addressing the
corporate strategy requirements.
Corporate portfolio frameworks like BCG matrix may help the strategic
managers to manage the various business units in relation to their revenues,
market share and cash flows. While engaging with various businesses, the
corporation must clearly decide on the extent to which it should involve itself
in the business operations of the various units.
While expanding into global markets, various options have been evaluated
here. International concerns represent a key consideration to a company’s
corporate strategy. There are various options, both aggressive and
conservative choice, available each with advantages and disadvantages,
depending on the level of aspiration a corporate has to expand into the
international markets.
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1. In horizontal integration with aim of diversification, what is the purpose of
the corporate strategy with regards to the acquisition of a company?
a) The purpose is to increase the market share of the business
b) The purpose is to provide a bigger brand name for the combined
entity
c) The purpose is to grow the existing business
d) The purpose was that certain key competencies were lacking in
one or two areas of its business, in order to complete and
complement its overall business strategy
2. What is the first step in formulating the corporate strategy?

a) To identify the corporate profile
b) To formulate growth strategy
c) To define the merger and acquisition strategy
d) To implement the BCG framework
3. You are entrusted with the job of defining the corporate profile and
relevant strategy of your organisation. What is your understanding of a
corporate profile and what would be your strategy?
a) To understand the macro environment and decide the strategy to suit
the organisation businesses
b) Corporate profile is a function of the company’s mission, culture
and values, strategy and direction, strengths and weaknesses,
opportunities and threats to stay ahead on the face of challenges
posed by the industry, competition and the macro environment
c) To create strategy for all the business units and make a centralised
strategy for all businesses
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d) To create an global business strategy and define a plan for mergers

and acquisitions to grow the businesses of various SBUs
4. What are the benefits of BCG growth share matrix with respect to
corporate strategy formulation?
a) It helps the company to allocate resources appropriately and the
framework is used as an analytical decision making tool in
corporate strategic management in the areas of brand marketing
and portfolio analysis of its various businesses.
b) It helps in creating a company’s market share and defining the market
growth rate
c) It helps in diversifying into various businesses to grow the corporate
business
5. What is the difference between stars and cash cows in an industry?

a) Star is a company with a high market share in a fast-growing
industry and Cash cow is a company has high market share in a
slow-growing industry
b) Star is a company with high revenue share in a slow growing industry
and Cash cow is a high revenue share in a fast growing industry
c) Star is a company with high profits in a fast growing industry and
Cash cow is one with low profits in a slow growing industry
d) Star is a high performer in the market and cash cow is a low
performer in the industry
6.! From the case study of Tech Mahindra acquiring Satyam Computers,
what type of corporate level strategy it is defined as?
a) It is a merger and acquisition
b) It is a restrucutrin strategy
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c) It is a turn-around strategy
d) It is an acquisition, restructuring, turn-around and merger
strategy
7.! __________________ is the analysis of a company as a collection of
different businesses with a view to identifying status and potentials of the
various business with regard to resource use and resource generation.
a) Transaction Analysis
b) Portfolio Analysis
c) SWOT Analysis
d) Event Analysis
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References:
1. Morgen Witzel, Tata - The Evolution of a Corporate Brand, P xvi
2. John A Parnel, Strategic Management, Theory and Practice, P 70-76
3. Corporate Dossier, Economic Times, 22/11/2013
4. John A Parnel, Straetgic Management, Theory and Practice, P 78-79
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
Video2
178
6
BUSINESS UNIT LEVEL STRATEGY
Objectives:
business unit level, to identify the appropriate strategy to compete in the
market. It explains the Porter’s generic strategy framework that helps define
the right business strategy, cost leadership model or differentiation
leadership model. It also introduces an alternative called Miles and Snow’s
strategy framework for discussion. At the end of the chapter, you will be able
to understand the following:
•! Understand Porter’s generic strategy framework
•! Cost leadership strategy
•! Differentiation strategy
•! Miles and Snow’s strategy framework
•! Choosing the right generic strategy for business
•! Social business strategy
•! Competitive advantage
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Structure
6.1! ! Introduction
6.2! ! Porter’s Generic strategy framework
6.3! ! Cost Leadership strategy
6.4! ! Differentiation strategy
6.5! ! Focus or Leadership strategy
6.6! ! Recent developments
6.7! ! Criticism of Generic strategy
6.8! ! Choosing the Right Generic strategy
6.9! ! Miles and Snow’s strategy framework
6.10! Social Business Strategy
6.11!! Competitive Advantage
6.12! Business Size and Competition Assessment
6.13! Global Scenario
6.14! Summary
6.15! Assessment
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6.1 Introduction
After the corporate level strategy has been decided, the strategic managers
will need to focus on the business unit level strategy. In a diversified
business where the organization is engaged in multiple businesses, there is
a need for unique strategies for individual businesses. The generic
strategies they need to focus on are the SBU’s mission, the competitive
landscape, competitive advantage, and the strategic objectives to achieve
the mission. While the corporate strategy drives the overall organization
strategy and thrust, the business unit strategy addresses the competitive
aspect in the market place. These include how to develop the business,
which are the target markets, and who are the target customers, what
strategy is required to deliver the products and services and how to develop
core competencies required for the business, and what positioning the
organization needs to take, so that the customers are able to identify the
business for their needs.
A business unit is an independent business entity with its own vision,
industry, and set of competitors. A single firm that operates within one single
industry is also considered as a business unit. Each business unit will have
a unique strategy. The SBU level strategy, also called business strategy or
competitive strategy is concerned with decisions pertaining to the product
mix, the marketing mix, and, defining and implementing competitive
advantage for the SBU. While corporate strategy decides the business
portfolio, the business unit strategy decides on the specific strategies
required to become successful in the chosen business. The SBU strategy
has to obviously conform to the corporate philosophy and the strategy.
The business unit strategies can be classified into a limited number of
generic strategies based on their similarities within the industry. Generic
strategies emphasize on the commonalities among different business
strategies, not their differences. After the corporate level strategy, the
responsibility for SBU strategy is with the top executives of the SBU who are
normally the second tier executives in the corporate hierarchy. In single SBU
organizations, the senior executives of the firm have both corporate and SBU
level responsibilities.
Strategic managers within the SBU devise the competitive strategies for
each business unit to create a sustainable competitive advantage thereby its
unique strategies cannot be easily duplicated by the competitors. In most
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industries, a number of competitive approaches can be successful,

depending on the business unit’s resources.
Let us take Airlines industry or Food industry for example; there are
competitive strategies to attract a specific segment of customers, on the one
side price sensitive and on the other side experience sensitive while
consuming the services. Both the approaches are competitive in nature and
both are successful. Indigo Airlines with low-frills strategy is successful and
so is Jet Airways who cater to high value customers who seek on-board
experience. Both are equally competitive and successful in their customer
segments.
There are challenges while formulating and implementing a generic strategy
as it is impacted by various internal and external factors. Selection of the
generic approach is only the first step in formulating a business strategy. It is
always necessary to fine tune the strategy with respect to the organisation’s
unique set of strengths. In this regard, Porter’s generic framework is a good
starting point for developing a business strategy.
6.2 Porter’s Generic Strategy

Figure: 6.1 
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A competitive strategy is about being different. It means deliberately

choosing to perform activities differently or to perform different activities than
rivals to deliver a unique mix of value - Michael Porter. Michael Porter, a
leading authority on corporate strategy and competitiveness of companies
across geographical regions, has developed a generic strategy framework
which is commonly used by many organisations to achieve and sustain
competitive advantage. These generic strategies are based on two basic
competitive dimensions:
a) Strategic scope: It is a demand side dimension and looks at the size and
composition of the market the companies intend to target. There are two
kinds of market it can address: broad market scope or narrow market
scope.
b) Strategic strength or advantage: It is supply side dimension and looks at
the core strength or core competency of the firm to differentiate its
offerings in the market place. It is either cost competency or unique
differentiation competency.
He identified two important competencies that he felt were most relevant for
a company’s mission and strategy: product differentiation and product cost.
Pl refer to the figure 6.1 above.
Firstly, the strategic managers of a business unit must determine whether it
should focus its efforts on an identified subset of the industry in which it
operates or it should seek to serve the entire market place as a whole.
Speciality food restaurants, Mainland China that focuses on a unique
concept and concentrate their efforts on specialised foods in their menu seek
to attract niche segment of customers. Here the customers get unique
experience of dining. In contrast, there are many large restaurants that
appeal to the general public seeks to serve the mass market with a wide
variety of menus to satisfy a broad segmentation of customers.
Secondly, the strategic managers should also determine whether the
business unit should compete primarily by a low cost strategy (relative to its
competitors) or by focusing on to offer unique products and services through
differentiation strategy. These two alternatives in general are mutually
exclusive because differentiation strategy need not always be cost effective
and vice versa.
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However, there could be a strategy that brings both cost leadership as well
as differentiation together to the market place. Also, some businesses bring
low-cost-differentiation as a viable alternative. Combining these two
strategies is difficult, but it can be a great strategy to create a new market
space.
In his 1980 classic Competitive Strategy: Techniques for Analysing Industries
and Competitors, Porter simplifies the scheme by reducing it down to the
three best strategies. They are:
1.! Cost leadership
2.! Differentiation
3.! Market segmentation (or focus)
Market segmentation is narrow in scope while both cost leadership and
differentiation are relatively broad in market scope. An empirical study on
the profit impact of business strategy indicated that firms with a high market
share were often quite profitable, but so were many firms with low market
share. The least profitable firms were those with moderate market share.
This was sometimes referred to as the hole in the middle problem.
Porter’s explanation of this is that firms with high market share were
successful because they pursued a cost leadership strategy and firms with
low market share were successful because they used market segmentation
to focus on a niche but profitable market strategy. Firms in the middle were
less profitable because they did not have a viable generic strategy.
Porter suggested that combining multiple strategies is successful in only one
case. Combining a market segmentation strategy with a product
differentiation strategy was seen as an effective way of matching a firm’s
product strategy (supply side) to the characteristics of the company’s target
market segments (demand side). But combinations like cost leadership with
product differentiation were seen as hard (but not impossible) to implement
due to the potential for conflict between cost minimization and the additional
cost of value-added differentiation.
Since that time, empirical research has indicated companies pursuing both
differentiation and low-cost strategies may be more successful than
companies pursuing only one strategy.
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Some commentators have made a distinction between cost leadership, that

is, low cost strategy and best cost strategies. They claim that a low cost
strategy can rarely provide a sustainable competitive advantage. In most
cases firms end up in price wars. Instead, they claim that a best cost strategy
is always preferred. This involves providing the best value for a relatively low
price.
6.3 Cost Leadership Strategy

Large businesses compete in a mass market which is composed of low cost
products or services. This strategy involves the firm winning market share by
appealing to cost-conscious or price-sensitive customers. The customers are
generally willing to pay only low to average prices form basic products and
services, and it is essential that businesses using this strategy keep their
overall costs as low as possible. This is achieved by having the lowest prices
in the target market segment, or at least the lowest price to value ratio (price
compared to what value customers receive).
To succeed at offering the lowest price while still being able to achieve
profitability and a high return on investment, the firm must be able to operate
at a lower cost than its rivals. There are three main ways to achieve this.
The first approach is achieving a high asset turnover. This means, in
service industries, for example, a restaurant that turns tables around very
quickly, or an airline that turns around flights very fast like the Southwest
Airlines. In manufacturing, it will involve production of high volumes of output.
Advance booking in airlines to capture customers during high demand
seasons like summer or new-year vacations.
This approach means fixed costs are spread over a larger number of units of
the product or service, resulting in a lower unit cost, i.e. the firm hopes to
take advantage of economies of scale and experience curve effects. For
industrial firms, mass production becomes both a strategy and an end in
itself. Higher levels of output both require and result in high market share,
and create an entry barrier to potential competitors, who may be unable to
achieve the scale necessary to match the firm’s low costs and prices.
The second dimension is achieving low direct and indirect operating costs.
This is achieved by producing and offering high volumes of
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standardized products, offering basic no-frills products and limiting

customization and personalization of service. Production costs are kept low
by using fewer components, using standard components, and limiting the
number of models produced to ensure larger production runs. Overheads are
kept low by paying low wages, locating premises in low rent areas, fostering
and establishing a cost-conscious culture, etc.
In this approach, we can quote Southwest Airlines’ strategy to produce high
volume, no frills airline seats as an example of standardizing the services
with higher turn-around of flights. Maintaining this strategy requires a
continuous search for cost reductions across all operational parameters and
in all aspects of the business. This will include outsourcing, controlling
production costs, increasing asset capacity utilization, operations turnover
and minimizing other costs including distribution, R&D and advertising. The
associated distribution strategy is to obtain the most extensive distribution
possible. Promotional strategy often involves trying to make a virtue out of
low cost product features.
The third dimension is control over the supply/procurement chain to ensure
low costs. This could be achieved by bulk buying to enjoy quantity discounts,
squeezing suppliers on price, instituting competitive bidding for contracts,
working with vendors to keep inventories low using methods such as Just-in-
Time purchasing or Vendor-Managed Inventory to reduce costs of inventory,
interests and operating capital.
For example, Wal-Mart is famous for squeezing its suppliers to ensure low
prices for its goods. Dell Computers initially achieved market share by a
unique low cost direct marketing strategy, keeping inventories low and only
building computers to order. Other procurement advantages could come
from preferential access to raw materials, or backward integration.
Some small and medium companies believe that cost leadership strategies
are only viable for large firms with the opportunity to enjoy economies of
scale and large production volumes. However, this takes a limited industrial
view of strategy. Small businesses can also be cost leaders if they enjoy any
advantages conducive to low costs. For example, a local restaurant in a low
rent location can attract price-sensitive customers if it offers a limited menu,
rapid table turnover and employs staff on minimum wages.
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Innovation of products or processes may also enable a start-up or small

company to offer a cheaper product or service where incumbents' costs and
prices have become too high. An example is the success of low-cost budget
airlines who despite having fewer planes than the major airlines, are able to
achieve market share growth by offering cheap, no-frills services at prices
much cheaper than those of the larger incumbents. Example: South West
Airlines.
A cost leadership strategy may have the disadvantage of lower customer
loyalty, as price-sensitive customers will switch once a lower-priced
substitute is available. A reputation as a cost leader may also result in a
reputation for low quality, which may make it difficult for a firm to rebrand
itself or its products if it chooses to shift to a differentiation strategy in future.
Tata Nano is a classic example.
Nano was marketed as the cheapest car and it impacted its reputation
resulting in bad sales. The Chairman Emeritus of Tata group, Mr. Ratan Tata
recently acknowledged to this fact and said the marketing strategy should
have been to position the Nano product as an affordable proposition for
lower middle class families to move from two wheelers to own a family car.
As per recent media report, Tata Motors is planning to re-launch the Nano in
Indonesia first before re-launching the same in India again with a new
positioning and value proposition.
There is a concern in low cost strategy, as the competitors can easily
duplicate the product if there is no proprietary feature(s) for its protection.
Low cost businesses are also usually vulnerable for obsolescence. The
companies that do not respond to new features and new market demands /
opportunities will eventually find their products to have become obsolete.
6.4 Differentiation Strategy

The approach here is to differentiate the products in some way in order to
compete successfully. Examples of the successful use of a differentiation
strategy are Hero Honda, Asian Paints, HUL, Nike athletic shoes, BMW
Group Automobiles, Apple Computer, Mercedes-Benz automobiles, and
Renault-Nissan Alliance.
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A differentiation strategy is appropriate where the target customer segment is

not price-sensitive, the market is competitive or saturated, customers have
very specific needs which are possibly under-served, and the firm has
unique capabilities and resources which enable it to satisfy these needs in
ways that are difficult to copy. These could include patents or other
Intellectual Property (IP), unique technical expertise (e.g. Apple's design
skills or Pixar's animation prowess), talented personnel (e.g. a sports team's
star players or a brokerage firm's star traders), or innovative processes.
Successful brand management also results in perceived uniqueness even
when the physical product is the same as competitors. This way, Chiquita
(Chiquita Brands International Inc. is an American producer and distributor of
bananas and other produce, under a variety of subsidiary brand names,
collectively known as Chiquita) was able to brand bananas, Starbucks
(Starbucks Corporation is an American global coffee company and
coffeehouse chain based in Seattle, Washington and has presence across
globe) could brand coffee, and Nike could brand sneakers and Apple for its
computers, iphones, ipads and ipods. Fashion brands rely heavily on this
form of image differentiation. We can quote many examples of companies
that follow differentiation strategy with sustained innovation in its products
and services strategy.
Variants on the Differentiation Strategy
The shareholder value model holds that the timing of the use of specialized
knowledge can create a differentiation advantage as long as the knowledge
remains unique and makes it impossible for the competition to copy it. This
model suggests that customers buy products or services from an
organization to have access to its unique knowledge. The advantage is
static, rather than dynamic, because the purchase is a one-time event.
The unlimited resources model utilizes a large base of resources that
allows an organization to outlast competitors by practicing a differentiation
strategy. An organization with greater resources can manage risk and
sustain profits more easily than one with fewer resources. This provides a
short-term advantage only. If a firm lacks the capacity for continual
innovation, it will not sustain its competitive position over time.
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6.5 Focus or Leadership

This dimension is not a separate strategy per se, but describes the scope
over which the company should compete based on cost leadership or
differentiation. The firm can choose to compete in the mass market segment
(like Wal-Mart) with a broad scope, or in a defined, focused market segment
with a narrow scope. In either case, the basis of competition will still be either
cost leadership or differentiation.
In this strategy, while adopting a narrow focus, the company ideally focuses
on a few target markets (also called a segmentation strategy or niche
strategy). These should be distinct groups with specialized needs. The
choice of offering low prices or differentiated products/services should
depend on the needs of the selected segment and the resources and
capabilities of the firm. It is hoped that by focusing the firm’s marketing
efforts on one or two narrow market segments and tailoring the marketing
mix to these specialized markets, the company can better meet the needs of
that target market.
In this case, the firm typically looks to gain a competitive advantage through
product innovation and/or brand marketing rather than efficiency. It is most
suitable for relatively small firms but can be used by any company. A focused
strategy should target market segments that are less vulnerable and are not
susceptible to substitutes or where a competition is weakest to earn above-
average return on investment.
Examples of firm using a focus strategy include Southwest Airlines, which
provides short-haul point-to-point flights in contrast to the hub-and-spoke
model of mainstream carriers.
In adopting a broad focus scope, the principle remains the same: the firm
must ascertain the needs and wants of the mass market, and compete either
on price (low cost) or differentiation (quality, brand and customization)
depending on its resources and capabilities. Wal-Mart has a broad scope
and adopts a cost leadership strategy in the mass market. Pixar also targets
the mass market with its movies, but adopts a differentiation strategy, using
its unique capabilities in story-telling and animation to produce signature
animated movies that are hard to copy, and for which customers are willing
to pay to see and own. Apple also targets the mass market with its iPhone
and iPod products, but combines this broad scope with a differentiation
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strategy based on design, branding and user experience that enables it to

charge a price premium due to the perceived unavailability of close
substitutes.
6.6 Recent developments

Michael Treacy and Fred Wiersema (1993) in their book The Discipline of
Market Leaders have modified Porter's three strategies to describe three
basic "value disciplines" that can create customer value and provide a
competitive advantage. They are operational excellence, product
leadership, and customer intimacy.
A popular post-Porter model was presented by W. Chan Kim and Renée
Mauborgne in their 1999 Harvard Business Review article "Creating New
Market Space". In this article they described a "value innovation" model in
which companies must look outside their present paradigms to find new
value propositions. Their approach complements most of Porter's thinking,
especially the concept of differentiation. They later went on to publish their
ideas in the book Blue Ocean Strategy. Thus, it is difficult, but not impossible
to create an uncontested marketplace or even to topple a firm that has
established a dominant standard in its industry or marketplace.
6.7 Criticisms of generic strategies

Several commentators have questioned the use of generic strategies
claiming they lack specificity, lack flexibility, and are limiting in its scope and
possibilities, which today’s world presents many challenges as well as
opportunities.
Porter stressed the idea that only one strategy should be adopted by a firm
and failure to do so will result in “stuck in the middle” scenario. He discussed
the idea that practising more than one strategy will lose the entire focus of
the organization; hence clear direction of the future trajectory could not be
established. The argument is based on the fundamental that differentiation
will incur costs to the firm which clearly contradicts with the basis of low cost
strategy and on the other hand relatively standardised products with features
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acceptable to many customers will not carry any differentiation hence, cost
leadership and differentiation strategy will be mutually exclusive.
Two focal objectives of low cost leadership and differentiation may clash with
each other resulting in no proper direction for a firm. However, there is a
viable middle ground between strategies. Many companies, for example,
have entered a market as a niche player and gradually expanded. According
to Baden-Fuller and Stopford (1992) the most successful companies are the
ones that can resolve what they call "the dilemma of opposites".
However, contrary to the rationalisation of Porter, contemporary research has
shown evidence of successful firms practising such a “hybrid strategy”, by
which firms employing the hybrid business strategy (low cost and
differentiation strategy) outperform the ones adopting one generic strategy.
Many challenge Porter’s concept regarding mutual exclusivity of low cost and
differentiation strategy and further argued that successful combination of
those two strategies will result in a sustainable competitive advantage.
In today’s fast changing world, multiple business strategies may be required
to respond effectively to any challenging environment condition. In the mid to
late 1980s where the environments were relatively stable there was no
requirement for flexibility in business strategies but survival in the rapidly
changing, highly volatile and unpredictable present global market contexts
will require flexibility to face any contingency.
Though Porter had a fundamental rationalisation in his concept about the
invalidity of hybrid business strategy, the highly volatile and turbulent market
conditions will not permit survival of rigid business strategies since long term
establishment will depend on the agility and the quick responsiveness
towards market and environmental conditions. Market and environmental
turbulence will make drastic implications on the root establishment of a firm.
If a firm’s business strategy could not cope with the environmental and
market contingencies, long term survival becomes unrealistic. To diverge the
strategy into different avenues with the view to exploit opportunities and
avoid threats created by market conditions will be a pragmatic approach for a
firm.
Critical analysis done separately for cost leadership strategy and
differentiation strategy identifies elementary value in both strategies in
creating and sustaining a competitive advantage. Consistent and superior
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performance than competition could be reached with stronger foundations in

the event “hybrid strategy” is adopted. Depending on the market and
competitive conditions hybrid strategy should be adjusted regarding the
extent which each generic strategy (cost leadership or differentiation) should
be given priority in practice.
6.8 Choosing the Right Generic Strategy

Large businesses usually employ multiple strategies or more than one
strategy to create a sustainable business model. An organisation’s choice of
which generic strategy to pursue underpins every other strategic decision it
makes, so it's worth spending time to get it right. The companies need to
make a decision based on their capabilities, competencies, resources and
risk appetite. However, Porter stressed the idea that only one strategy should
be adopted by a firm and failure to do so will result in “stuck in the middle”
scenario and specifically warns against trying to "hedge your bets" by
following more than one strategy. One of the most important reasons why
this is wise advice is that the things you need to do to make each type of
strategy work appeal to different types of people. Cost leadership requires a
very detailed internal focus on processes. Differentiation, on the other hand,
demands an outward-facing, highly creative approach.
Multiple strategies involve execution of two or more different generic
strategies, each tailored to the needs of an identified distinct market or class
of customer. For example, Airlines use multiple strategies whey they offer
both no-frills or limited-frills service (low or average priced) or highly
differentiated service (high priced). Hotels also use multiple strategies when
they offer basic rooms to most guests but offer reserve suites to other class
of customers.
Porter’s generic strategy offers a great starting point for strategic decision
making for organisations. Hence, when the company makes a choice which
of the generic strategies is right for the organisation, it is vital that the
strategic managers take the organization's competencies and strengths into
account by carrying out a comprehensive SWOT Analysis for the
organisation. We will discuss this in detail in the chapter strategy formulation
later.
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6.9 The Miles and Snow Strategy Framework

Besides Porter’s generic business strategies, there are other strategy
frameworks as well. The most commonly used framework, followed next only
to Porter’s generic strategy, is introduced by Miles and Snow which
considers four types of strategies: prospectors, defenders, analysers and
reactors. The Miles and Snow framework is an alternative to Porter’s
approach to generic strategy.
Prospector
Raymond Miles and Charles Snow suggest that business level strategies
generally fall into one of four categories: prospector, defender, analyser, and
reactor. An organization that follows a prospector strategy is a highly
innovative firm that is constantly seeking out new markets and new
opportunities and is oriented towards growth and risk taking. They perceive a
dynamic and uncertain environment and maintain flexibility to combat
environment challenges and changes. Thus they tend to possess a loose
structure, a low division of labour, and low formalisation and low
centralisation. They encourage entrepreneurship and new ventures that
come up with new business ideas. They accept the risks associated with
new ideas. Prospectors must develop expertise in innovation and evaluate
risk scenarios effectively to ensure competitors are not able to easily catch
with their business. Prospectors typically seek first mover advantage, being
first to introduce the product or service in the market.
For example, 3M is an excellent firm that uses prospector strategies. Over
the years, it has prided itself on being one of the most innovative major
corporations in the world. Employees at 3M are constantly encouraged to
develop new products and ideas in a creative and entrepreneurial way. This
focus on innovation has led 3M to develop a wide range of products and
markets, including invisible tape and fabric treatments.
Another example: Johnson & Johnson links decentralization with a
prospector strategy. Each of the firm's different businesses is organized into
a separate business unit, and the managers of these business units hold full
decision-making responsibility and authority, developing entrepreneurship.
Often, these businesses develop new products for new markets. As the new
products develop, and sales grow, Johnson & Johnson reorganizes so that
each new product is managed in a separate unit.
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Defender
Rather than seeking new growth opportunities and innovation, an
organization that follows a defender strategy concentrates on protecting its
current markets, maintaining stable growth, and serving its current
customers. Defenders are almost opposite of prospectors. They perceive the
environment to be stable and they control in their operations to achieve
maximum efficiency. Defenders incorporate an extensive division of labour,
high formalisation and high centralisation. They concentrate on only one
segment of the market.
BIC Corporation used defender strategies, despite its history as an
innovative firm (the original BIC "crystal" and the BIC "biro" pen were
significant innovations in the writing instruments industry). Since the late
1970's, with the maturity of the market for writing instruments, BIC has
adopted a less aggressive, less entrepreneurial style of management and
has chosen to defend its substantial market share in the industry. It has done
this by emphasizing efficient manufacturing and customer satisfaction.
Another example: Often a firm implementing a prospector strategy will
gradually switch to a defender strategy. This happens when the firm
successfully creates a new market or business and then attempts to protect
its market from competition. Mrs. Fields Inc. was one of the first firms to
introduce high quality, high-priced cookies. Mrs. Fields sold its product in
special cookie stores and grew very rapidly. This success, however,
encouraged numerous other companies to enter the market. Increased
competition, plus reduced demand for high-priced cookies, has threatened
Mrs. Fields's market position. To maintain its profitability, the firm has slowed
its growth and is now focusing on making its current cookie operation more
profitable.
This is the reason why prospectors must develop expertise in innovation,
continuous improvement and evaluate risk scenarios effectively to ensure
competitors are not able to easily catch with their business.
Analyser
Analysers look for stability and flexibility, and attempt to capitalize on the
best of the prospector and defender strategy types. They exert tight control
over existing operations and lose control for new businesses. Analysers have
strength and ability to respond to prospectors while maintaining efficiency in
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operations. An organization that follows an analyser strategy both maintains

market share and seeks to be innovative, although usually not as innovative
as an organization that uses a prospector strategy. Analyser seeks a second
mover advantage and leverages market learnings and experience from the
prospector and defender strategies.
Most large companies fall into this third category, because they want both to
protect their base of operations and to create new market opportunities. IBM
uses analyser strategies. Thousands of customers have purchased IBM
computers over the last several decades. It is in IBM's interest to keep these
customers satisfied and to introduce new products and services that update
their computer facilities. Whenever IBM introduces a new computer system,
for example, it develops procedures that help its customers to move from the
older system to the new system. In this way IBM maintains its customer
base. However, IBM also tries to create new markets. Its line of personal
computers represents an effort to expand beyond its traditional base of
mainframe computers.* IBM has also invested in biotechnology,
superconductivity technology, and other projects which are very innovative.
Another example: As a major food products company, Proctor & Gamble
(P&G) has established numerous name brand products, such as Crest
toothpaste, Tide laundry detergent, and Sure deodorant. It is important for
P&G to continue to invest in its successful products, in order to maintain
financial performance. But P&G also needs to encourage the development of
new products and brand names. In this way, it can continue to expand its
market presence and have new products to replace those whose market falls
off. Through these efforts P&G can continue to grow.
Reactor
According to Miles and Snow, an organization that follows a reactor
strategy has no consistent strategic approach and no strategic choice; it
drifts with environmental events, reacting to but failing to anticipate or
influence those events. Not surprisingly, these organizations usually do not
perform as well as organizations that implement prospector, defender, or
analyser strategies. Reactor organisation lacks an appropriate set of
response mechanisms with which to confront any environment change.
There is no strength in the reactor strategic type. Most organizations would
probably deny using reactor strategies.
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Strategy Type Definition

Is innovative and growth oriented, searches for new markets and
Prospector
new growth opportunities, encourages risk taking
Protects current markets, maintains stable growth, serves current
Defender
customers
Maintains current markets and current customer satisfaction with
Analyser
moderate emphasis on innovation
No clear strategy, reacts to changes in the environment, drifts with
Reactor
events
If we study the Porter’s typology and Miles & Snow’s typology closely, there
are similarities. Miles and Snow’s prospector business strategy is likely to
emphasise differentiation, whereas defender business strategy typically
emphasises low costs. There are fundamental differences as well. Porter’s
approach is based on economic principles associated with the cost
differentiation dichotomy whereas Miles and Sow’s approach describes the
philosophical approach of the business to its environment.
6.10 Social Business Strategy

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

• Customer Experience Strategy
• Operational Excellence Strategy
• People and Culture Strategy
Business KRAs Operational KPIs
Business Development, Pipeline, Revenues, Profitability, RoI,

Financial Performance
TCO, Market share
Customer Relationship Management, Customer Services

Customer Experience
Management, Customer Satisfaction Survey
Marketing Management, Business Process Management,

Operational Excellence
Branding and Positioning
Talent Attraction, Empowerment, Learning & Development,

People & Culture
Career Progression, Resources and Tools
6.11 The Competitive Advantage

People are assets of an organisation. An ‘employees-first’ attitude of the
organisation will foster a culture of ‘customer-first’ behaviour in their minds
and actions, thus enabling a sustained business performance. When an
organisation looks at their employees as investments, they tend to maximise
the value by managing them strategically and to keep investing on their
learning and development. On the contrary when the organisation perceives
its employees as expenses, they tend to minimise the costs. Strategic
managers have started to assess the value of human capital, i.e. the sigma
of the capabilities of the individuals in an organisation, as a source of
competitive advantage.
Many organisations have a process called Knowledge Management and
Talent Management. It is increasingly felt that people’s skills and
competencies are key to any organisation’s development and cannot be
easily reproduced. People’s capabilities become a source of competitive
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advantage for companies, especially for services oriented companies. High

performing organisations must leverage their human capital if they are to
remain successful over the long term. Organisation talent assessment and
Learning and development (L&D) have become critical success factor to
sustained organisation development (OD).
In recent times, Human Resources department has gradually become a
business and customer facing function, moving away from being just an
administrative function in the earlier days. Regardless of the choice of
generic strategy, the acquisition and development of human resources and
knowledge can be a source of competitive advantage. There are five
operating principles for utilising knowledge as part of the competitive strategy
in an organisation:
1. Knowledge based strategies begin with strategy, not knowledge.
Knowledge can support the traditional mechanisms for serving customers
and delivering value, but not replace them.
2. Knowledge based strategies must be linked to traditional measures of
performance, like the KPIs. Quantifying the value of knowledge as a
resource or an investment is difficult. However, performance can be
evaluated only with quantifiable and objective measures.
3. Executing knowledge based strategy is about nurturing people with
knowledge, not managing knowledge per se. Companies must develop
internal cultures conducive for learning, sharing, and personal growth.
Otherwise its collective knowledge, of all its people, will remain unutilised
4. Organisations leverage knowledge through networks of people who
collaborate. Social media has become a powerful platform for
organisations to develop knowledge based collaboration and transform
human knowledge into market viable innovation
5. The growth engine for knowledge development comes from workers
aspiration and need for help in resolving complex business problems.
Company’s efforts to disseminate knowledge to its employees must
ensure the there is no information overload.
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Organisational Development
Organisation development is a key competitive advantage to ensure that the
business strategy is focused on long term results. Very often organisations
invest heavily in transformational change programmes or organisational
development interventions that fail to deliver performance in a sustainable
way. Organisation Development believes that every part of an organisation is
integral to a system that relies on and impacts other elements of the internal
and external environment in which the organisation operates.
OD helps organizations deliver sustainable performance improvement
through people. Those who practice OD usually have a strong humanistic
and democratic approach to organizational change. People and collaboration
are key features of any OD intervention.
To deliver a sustainable environment for performance there are a number of
organisational development and design elements that may be relevant to
delivering the performance outcomes required. The OD practitioner will get
involved in any number of intervention including; organization diagnostic,
evaluation, strategic thinking, culture change, change management,
coaching, mentoring, leadership development, team building, organizational
design, evaluation, performance management, talent management, HR
processes, learning and development, sales effectiveness, and customer
services as part of a holistic OD intervention.
6.12 Business Size and assessing the competitors

The size of the business has implications on a company’s ability to adjust
itself to market forces like competition and environmental changes. There
have been some studies carried out to examine the relationship between the
size of a business unit and its performance, in relation to that of its
competitors. It would be interesting to note that the mid-sized business units
underperform in comparison with small and large competitors, because they
generally do not possess the advantages of being flexible like their small
rivals or possessing strong resources like their large rivals.
Small businesses have the flexibility to change its ability to meet specific
market demands and to respond quickly to environmental changes. Also,
small businesses, by virtue of their comparatively smaller investments may
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be able to make both tactical and strategic moves quickly to pursue revenue
opportunities that may not be profitable for mid-size or large businesses.
Similarly, as large businesses has their advantage of economies of scale of
lower costs per unit, they may be able to bargain with suppliers for the input
materials and with customers for better premiums, to win price wars in the
market.
Mid-size businesses, as they lack the advantages of being a small or large
business, generally seek to expand their business to achieve economies of
scale to take advantage of lower price per unit, or scale down their
operations by taking retrenchment strategy to fit them into the shoes of a
small business, to take advantages of flexibility of a small business. These
options may be challenging for mid-size businesses due to various external
market forces. Not all mid-size businesses perform poorly and should
attempt to increase or decrease the size of their business. It is upto the
strategic managers to understand the relationship between size and
performance, and evaluate the specific needs and opportunities of their
business units.
Formulating an effective competitive strategy may not be ideally achieved,
without a clear knowledge of the primary competitors of its business as well
as their specific strategies. It is very important to understand the specific
strategies of each rival, what they are trying to achieve, how they view the
industry, what are their strengths and weaknesses relative to other
competitors in the industry. Developing such an understanding not only helps
the strategic managers in formulating the positioning strategy of its business,
but can also help them predict and respond to any competitive challenges
that the competitors might pose to the business. This will also help creating
mitigation plans to counter any threat posed by the competition.
Collaboration with Competitors
In today’s world, competition is a relative word and area of competition
depends from business to business. Two companies view each other as
competition in certain areas of business and yet collaborate in some other
areas of business where they see some value. There are no permanent
enemies in business considering the challenges and opportunities present in
the marketplace. This perspective on the market helps an organisation to
respond to the challenges by optimising internal cost structures and go to
market strategies to increase the market reach, by identifying partners with
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whom it can collaborate effectively through long term or short term contracts.
For example, in airlines industry, code sharing agreement enables an airlines
company to diversify its operations into sectors where it did not have any
service, but core sector are serviced by its own network which is the most
cost effective way of serving the overall market. Each industry has its own
collaborative alliances.
Another example is, Bharti Airtel’s recently changed its strategy, from
acquiring customers at any cost in large numbers that impacted its average
revenue per user (ARPU) and hence the profitability of the company, to take
care of customers who pay higher revenues to the company. Recently the
company has embarked into cost reduction programme internally, with a
focus on well-paying users' and to promote data plans to its existing
customers, to implement this new strategy. Thus it has potentially changed
its earlier plans, Airtel from a mass brand churning out dozens of minutes on
its networks to a service provider that makes money through selling
megabytes of data. It's making understanding consumer behaviour analytics
critical for Airtel's strategy and the company needs to predict which kind of
customers will be big consumers of data.
In order to complement this strategy to optimise its operations, Bharti Airtel
built was to monetise its network assets like the tower and fibre optic
infrastructures by finding strategic partners with long term contracts. As a
result, in Dec 2013, it entered into a deal with Reliance Jio to share the fibre
optic infrastructure resources. Analysts who closely study the company aren't
sure as they feel Reliance Jio is likely to have gained from tie-up with Bharti
and that Bharti has little to gain beyond fat rentals from the tower-fibre optic
sharing deal. Reliance Jio gets to use Bharti's existing network and get a fast
roll out while Bharti waits for Reliance Jio to lay down its fibre optic network.
While Bharti waits, Reliance Jio, thanks to Bharti's towers, may make a huge
market impact — that's what analysts reckon.
But Bharti says use of Reliance Jio's fibre network is exactly what the
company needs for its data plans. They argue the deal with Reliance Jio will
help reduce capex and provide Bharti a good play in the data business and
they are confident of expanding their data market.
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6.13 Global Scenario

Most of the Indian companies operate global businesses, and identifying a
competitive strategy for the global markets can be challenging and a
complex task. Each market has unique characteristics of domestic
environmental factors and marketing mix. It is not a simple formula for
developing and implementing successful business strategies across multiple
countries and multiple businesses. There are different strategies required for
emerging markets and developed markets. For e.g., Suzuki has strategy of
high-end models in developed markets like Japan and U.S., whereas for
emerging markets like India and Africa, it has a wide range of attractively
priced low and mid-segment cars to enter and gain market share.
Many corporates take an approach and strategy of “think globally, but act
locally” for their businesses, meaning develop and customize products and
services for the local market. This also means the organization would create
a synergy by serving multiple global markets, but formulate unique
competitive strategy for each specific market that is customized to the unique
requirements of the people there.
It is also important that the strategy has to have consistency in terms of
quality, which is critical for the sustenance of the business strategy. For e.g.,
global fast food restaurant chains McDonalds, KFC, Pizza Hut have
customized products for Indian market, meeting the varying taste
requirements of Indian customers. Apart from the product strategy, the
pricing strategy has also been made compelling. The brand recognition and
the business models have been successful in almost all geographies in
India. The product strategy, the pricing strategy, and the quality and
consistency have helped these fast food chains to comply with their vision of
globalizing their brand as well as localizing their product to gain market
share. (HOW ABOUT AN IDEA THAT FAILED TO CLICK WHAT WENT
WRONG?).
Customizing a business strategy to meet the unique demands of different
markets requires that the strategic managers understand the similarities and
differences between the markets from both industry and cultural
perspectives. For e.g., Japanese, Korean and American manufacturers like
Honda, Hyundai, Ford etc all have brought in their automobile technology to
car building with sensitivity to Indian customers culture and values. In fact,
these multinational companies operate their own facilities in various parts of
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India to produce a wide range of customized models suited for the Indian
roads. Indian customers are highly cost conscious and sensitive to higher
mileage giving cars. Car models are also redesigned for Indian roads and
the widely fluctuating weather conditions from Kashmir to Kanyakumari.
These global companies face intense competition in most markets with the
local producers of goods and services who offer their products at much
cheaper rates. In India, for instance, these global brands have to compete
with established brands like Tata Motors, Mahindra and Mahindra, and
Maruti Suzuki, who have gained the trust and goodwill of the customers over
the decades. The strategy should take into consideration of competition
strategy in the local markets.
Hence, the strategic managers must remain abreast of opportunities and
challenges that may exist in new markets, especially the emerging markets
like China, India, Brazil, Africa, Mexico, Russia etc. The emerging market
dynamics may be entirely different from the developed markets. And so,
they need to pursue strategies relevant to each market considering the stiff
competition from the local players.
In today’s economic scenario, global companies are scrambling for entering
new markets and gain market shares for their businesses, while the growth
in developed markets have plateaued for a long time. The emerging market
strategy is to derisk their overall corporate level strategy to expand and
diversify into new markets with new innovative products and services.
Emerging markets present huge potential with a prospective long term
outlook. The fast demographic changes happening in emerging markets
present great opportunity to many global companies to expand their foot
prints into those markets and tap the growth opportunities.
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6.14 Summary
From a business level strategy perspective, the strategic managers must
determine how the business unit needs to compete effectively in the market
place. As per Porter’s framework, the strategic managers must decide
whether to focus on a segment of the market or whether to emphasise on
cost leadership or differentiation. Each approach has its own advantages
and disadvantages. Sometimes, the business units may choose to combine
the low cost and differentiation strategies to find their market space, though
this approach may be difficult to implement.
In Miles and Snow’s framework, the strategic managers may select either of
these strategies: a prospector or an analyser, or defender or reactor
strategies. While each approach may be effective for different businesses,
the reactor strategy is a sub-optimal choice.
One needs to examine each major business unit of an organisation carefully
and identify which generic strategy that best describes the strategy of each
business unit. Both strategy typologies, Porter’s and Miles and Snow’s,
should be applied appropriately. Each business has its own unique strategy
based on its own combination of resources. Hence, this chapter reinforces
that importance of discussing how the organisation’s business unit level
strategy differs from others in the industry. Companies must ensure that they
do consider this phase of strategic management process crucial and do not
neglect a quality time being spent on their business unit strategies.
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1. What is your understand on Porter’s generic strategy?
a) The business unit should try to gain market share by cutting down on
prices
b) The business unit should try to gain market share by creating
differentiation
c) The business unit should compete primarily by a low cost
strategy (relative to its competitors) or by focusing on to offer
unique products and services through differentiation strategy, by
addressing a broad market scope or narrow market scope
d) The business unit should try to gain market share through a focused
market approach
2. Velocity Technologies Limited is in the process of creating software Supply

chain sector. There are number of players in the same business segment.
The CEO is keen to differentiate the organization in the industry. What
requirements will you not recommend the CEO of BNG to achieve this
objective?
a) Enhance innovative marketing capabilities
b) Develop brand and reputation for technological capabilities
c) Adopt best practices of competition
d) Invest in Research and Development activities
3. What are the three basic "value disciplines" that can create customer
value and provide competitive advantage to the organisation?
a) Price, quality and service
b) Price, differentiation and quality
c) Price, Product and Service
d) Operational excellence, product leadership, and customer
intimacy
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4. Mc Ronald is a global food retail company. You’ve joined the company

recently as a management consultant. What strategy would you recommend
to their management for their India strategy?
a) Introduce their global food products in India and create a low cost
strategy
b) Formulate a unique competitive strategy for India’s specific
market that is customized to the unique requirements of the
people here in India
c) Create a narrow market scope strategy
d) Create a broad market scope strategy
5. What are the four strategic business objectives for an organisation?

a) Revenues, Profitability, Market share, Share price
b) Customers, Employees, Partners, Shareholders
c) Financial Performance, Customer Experience, Operational
Excellence, People and Culture
d) Growth, Profitability, Brand, Market share
6. SBA Finance, a corporate strategy consulting firm, has recently hired

Gaurav from a leading management school. He has been assigned a task to
conduct review of one of its financial services clients and assist the client in
selection of right business strategy. Being a fresher he needs your guidance
to sequence the steps correctly so that he can provide services to the client.
a)! Choose the most appropriate strategy b) SWOT Analysis c)
Formulation of alternative strategies and d) Determination of mission
and objectives
1.! (b), (d), (a) and (c)
2.# (d), (b), (c) and (a)
3.! (a), (b), (d) and (c)
4.! (a), (c), (b) and (d)
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References:
1) Reference: “Porters Generic Strategies” for developing business unit
strategies
2) Excerpted from Barney, J.B. & Griffin, R.G. "The management of
organizations: Strategy, structure, behavior." Houghton Mifflin, 1992
3) W. Chan Kim and Renée Mauborgne in their 1999 Harvard Business
Review article "Creating New Market Space"
4) John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 95
5) John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 97
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video
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7
FUNCTIONAL UNIT LEVEL
STRATEGY
Objectives:
functional level, to identify the appropriate strategy to compete in the market
place. It explains the importance of cross functional collaboration and
synergy required from different functions in order to achieve the business
unit’s strategy. It provides the attributes of each function and responsibilities
of strategic managers to work on interrelationships as the same business
objective needs involvement of different functions for the execution of the
business goals. It deals with different function in detail: Marketing, Finance,
Human resource, Production, Quality management, Research and
development, Supply chain management, Information systems etc. At the
end of the chapter, you will be able to understand the following:
•! Understand the importance of functional synergy
•! Cross functional collaboration
•! Understand the different functions and responsibilities
•! Role of Stakeholders
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FUNCTIONAL UNIT LEVEL STRATEGY
Structure:
7.1! ! Introduction
7.2! ! Marketing
7.3! ! Finance
7.4! ! Human Resource
7.5! ! Production
7.6! ! Quality Management
7.7! ! Research and Development
7.8! ! Supply Chain Management
7.9! ! Information Systems
7.10! Summary
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7.1 Introduction
Once the corporate and business unit level strategies are identified and
developed, then the strategic managers should formulate the functional
strategy of the business unit. Functional strategies should support the
implementation of the corporate and business unit level strategies. Each
functional area of the organisation should integrate its activities with other
functional groups in order to seamlessly facilitate the overall performance of
the organisation. In short, the ultimate execution of the corporate and
business unit level strategies should happen at different functional levels in a
coordinated manner.
As seen briefly in Chapter 1, the functional level strategies are strategies that
work in synchronization with corporate strategy and business unit strategy
for different functional areas like marketing, sales, production, finance,
human resources, supply chain, customer service, information systems etc.
In other words, functional strategic management are meant to create
organisational expertise, competence, competitive advantage, efficiency and
productivity which are vital to the achievement of the business goals.
Functional strategy for various areas must be developed in alignment with
the corporate and business unit strategies. In fact, the extent to which all of
the business unit’s functional strategies integrate would determine the
effectiveness of the business unit as well as corporate level strategies.
Hence, it is important that building capabilities of the various functional areas
is necessary when corporate and business strategic options are being
considered.
The strategic managers in each functional area often may not understand
the interrelationships among the functions. For example, marketers who do
not understand production may promise customers some product features
that the production department cannot readily or economically integrate into
the product’s design. In contrast, production managers who do not
understand marketing may not actually understand the changes in market
trends and customers’ actual needs.
For this reason, managers in all functional areas need to understand how the
various functional areas integrate and they should work together to formulate
functional strategies that eventually support the business and corporate level
strategies. It is for this reason that many organisations have a central team
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called cross functional team (CFT) which is represented by key members

of the various functions in order to facilitate flow of information, joint
meetings, decision making, communication, change management and
conflict management within the functions.
In this chapter, we will see in detail how functional strategies work in various
areas like marketing, finance, production, supply chain, human resources,
information systems etc. Many of the issues in these departments are cross
functional in nature and therefore concern more than one functional area.
For example, product features, product warranty are key concerns of both
the production and marketing departments and so are many other issues.
Thus, this chapter discusses the functional strategies of different
departments, the cross functional issues and synergy that need to be
developed, that are appropriate for formulating functional strategy and how
functional strategy translates the corporate mission into reality.
7.2 Marketing
Marketing is a key function that serves as the interface between the market
and the business unit and its functions. From a competitive standpoint,
marketing is the most critical of the functional strategy and should be
considered early in the development of the overall business strategy.
Marketing strategy is defined as a process that allows an organization to
concentrate its resources on the optimal opportunities with the objective of
increasing sales and at the same time achieving a sustainable competitive
advantage for the organisation. Marketing strategies include all basic and
long-term activities in the field of marketing that deal with the analysis of the
strategic situation of a firm and the formulation, evaluation and selection of
market-oriented strategies, and therefore contribute to the goals of the
business unit as well as the corporate marketing objectives.
Marketing strategies serve as the fundamental underpinning of marketing
plans designed to identify and fill market needs proactively and
reach marketing objectives. Plans and objectives are generally tested for
measurable results. Commonly, marketing strategies are developed as multi-
year plans, with a tactical plan detailing specific actions to be accomplished
in the current year. Time horizons covered by the marketing plan vary by
company, by industry and the markets, however, time horizons are becoming
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shorter as the speed of change in the environment increases. Marketing

strategies are dynamic and interactive. They are partially planned and
partially unplanned. Marketing strategy needs to take a long term view, and
tools such as customer lifetime value models can be very powerful in helping
to simulate the effects of strategy on customer acquisition, revenue per
customer and churn rate.
Marketing strategy involves careful and precise scanning of the internal and
external environments. Internal environmental factors include the marketing
mix and marketing mix modelling, plus performance analysis and strategic
constraints that pose challenges. External environmental factors include
customer analysis, competitor analysis, target market analysis, as well as
evaluation of any elements of the political/ legal, economic, technological,
and socio-cultural environments likely to impact success as discussed in
detail in the earlier chapter on external environment. A key component of
marketing strategy is often to keep marketing in line with a company's
overarching mission statement.
Once a thorough environmental scan is complete, a strategic plan can be
constructed to identify business alternatives, establish challenging goals,
determine the optimal marketing mix to attain these goals, and detail
implementation. A final step in developing a marketing strategy is to create a
plan to monitor progress and a set of contingencies if problems arise in the
implementation of the plan.
Marketing strategies may differ depending on the unique situation of the
individual business. However, there are a number of ways of categorizing
some generic strategies. A brief description of the most common categorizing
schemes is presented below:
Strategies based on market dominance - In this scheme, firms are classified
based on their market share or dominance of an industry. Typically there are
four types of market dominance strategies:
• Leader – Clearly an industry leader in the given product and services

segment, both from ability to lead the industry with a vision and ability to
execute the vision, characterised by high innovation (Refer Gartner’s Magic
quadrant in Chapter 5)
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• Challenger – Has ability to challenge the leader and has high potential to
become a leader with ability to introduce new products and services and
the company is already on fast growth trajectory
• Follower - Innovation distinguishes between a leader and a follower, as said

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

specialised products or services and seek to attract niche segment of
customers
According to Shaw, Eric (2012), marketing strategy, from the origin of the
concept to the development of a conceptual framework, there are four
marketing strategies:
Market introduction strategies
At market introduction, the marketing strategist has two principle strategies
to choose from: penetration or niche.
Market growth strategies
In the early growth stage, the marketing manager may choose from two
additional strategic alternatives: segment expansion (Smith, Ansoff) or brand
expansion (Borden, Ansoff, Kerin and Peterson, 1978).
Market maturity strategies
In maturity, sales growth slows, stabilizes and starts to decline. In early
maturity, it is common to employ a maintenance strategy (BCG), where the
firm maintains or holds a stable marketing mix.
Market decline strategies
At some point the decline in sales approaches and then begins to exceed
costs. And not just accounting costs, there are hidden costs as well; as
Kotler (1965, p. 109) observed: 'No financial accounting can adequately
convey all the hidden costs.' At some point, with declining sales and rising
costs, a harvesting strategy becomes unprofitable and a divesting strategy
necessary".
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Marketing Mix Modelling

Marketing Mix Modelling is often used to help determine the optimal
marketing budget and how to allocate it across the resources to achieve
these strategic goals. Moreover, such models can help allocate spend across
a portfolio of brands and manage brands to create value.
Thus, marketing mix broadly consists of seven dimensions most commonly
referred to as the seven Ps, viz product, price, promotion, place (channels),
people, process and physical evidence. While the first “four Ps” are critically
considered for product marketing strategy, all the “seven Ps” are considered
for services marketing strategy, as services marketing is unique and always
characterised by attributes like intangibility, perishability, inseparability and
heterogeneity. The particular generic strategy adopted by the business unit
influences how these various dimensions are planned and executed, and
how the firm grows its business successfully in a given market place.
Marketing function has to be truly cross functional as it needs to deal with
product design function, production function, finance function etc in order to
ensure that the marketing strategy is effectively formulated and
implemented. The cross functional synergy is the most critical component for
a marketing strategy to be successful. In many organisations, marketing
function takes leadership in influencing key decisions and builds
interrelationships by seeking support from other functions.
Pricing Strategy
Many businesses compete with the low cost generic strategy and thrive on
high volumes and low prices to garner maximum market share. Some
companies follow a marketing strategy to offer low prices work in products
that are undifferentiated and consumed in large scale, in a highly competitive
market. Wal-Mart is a known example of its highly effective large volume and
low cost strategy. Another example is the ecommerce companies like
amazon.com, e-Bay.com in the US or flipkart.com, Myntra, Snapdeal in India
also follow a similar strategy by offering special discounted prices in an effort
to gain economies of scale through high volumes.
Businesses that use low-cost differentiation strategy must market quality
products and services that are distinguishable from the competition. For
example, Indigo Airlines is considered to be low-cost, no-frills airlines. But its
strategy is to differentiate its service by delivering a higher on-time
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performance as compared to its peers like Spice Jet, Go Air, and even the
full service carriers like Jet Airways, Air India. This strategy has worked very
well for Indigo since its inception, and it has become number one with over
30% market-share in the Indian civil aviation sector (as per October 2013
aviation industry report). In short time, Indigo Airlines has become a
formidable player in the Indian aviation industry. Business units that have a
focus strategy either with differentiation or low cost differentiation tend to
emphasize other factors in their marketing strategy. These businesses offer
unique high quality products and services to meet the specialized need of
the market.
Promotional Strategy
The next key marketing strategy after pricing strategy is promotional
strategy. Promotion strategy is used to communicate the information about
the products and services to target market audience. This involves promoting
the product or the service, building the brand value, and ensuring that the
customers associate their needs with the company brand.
Today, there are a number of ways to promote a company’s product or
service besides traditional advertising. These include various digital
marketing initiatives like social media marketing, e-Commerce platforms etc.
This largely depends on the demographic profile of the customers like age,
sex, income etc. that are being targeted as explained in the PEST analysis in
earlier chapters. This functional area needs to constantly scan the market,
gather data, identify the purchasing patterns of the customer and match the
promotion strategy with these assessment findings. This helps in designing
the promotional strategy for the business.
Product Strategy
Product concept is critical and the product design should include compelling
features that improves product’s ability to meet the customers’ needs and
expectations, and deliver performance. A well-designed product addresses
both the functional and aesthetic requirements of the consumers including
other factors like how the product works, how it feels to own the product, how
easily the product can be used or assembled or fixed, and how it provides a
competitive advantage for the consumer.
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The mobile handset industry is a revolutionary industry and is a very good

example of product concept and design aimed at addressing a wide range of
customer requirements and tastes, both from cost perspective and value
perspective. The companies like Apple, Samsung, Nokia and Blackberry
have their unique strategies to attract different segments of customers and
retain them with their unique and wide range of products. In fact, the mobile
business is a fast changing, high growth and competitive industry. The
product strategy is highly dynamic and interactive one, with market trends
changing at a fast pace, with key differentiation being innovation and
creativity to launch new products with faster time to market.
For example, in the early days of messaging on mobile phones, it was a
challenging job to sell the push mail concept to enterprise customers and
consumers. Bharti Airtel, the number one mobile services company,
pioneered this market in the Black Berry Mai Services by providing Black
Berry mobile devices to their sales personnel and demonstrated how the
push mail concept actually contributed to the enterprise productivity of
mobile workforce.
Place Strategy
Place strategy is all about building channels and distribution strategy for the
products and services that create the target market for a business. While
low-cost businesses typically seek to meet the basic needs of the target
market and minimise costs, the businesses with differentiation often select
the most appropriate means of distribution strategy regardless of cost. In
some cases, differentiated business uses the means of distribution as a way
of differentiating their business. For example, fast food restaurant Domino’s
Pizza uses the delivery time of 20 minutes for a pizza order by having an
effective distribution and delivery system in place as a differentiation
strategy. Now, in fact, most of the fast food restaurants have started following
this strategy.
Services Strategy
Service is a product that refers to certain activities that a company offers to
perform, which results in satisfaction of a need of a target customer or an
experience that the target customer goes through. Because of its
intangibility, perishability, heterogeneity and inseparability, it has an
expanded marketing mix as compared to tangible goods like products. As
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seen earlier, while products have 4 Ps marketing mix strategy, the services
have a 7 Ps marketing mix strategy.
In services marketing strategy, the emphasis is on the factors like people,
process and physical evidence. In services, people constitute the most
vital role in the service encounter with customers. This includes the
company’s employees and other partners in the services value chain. The
attitudes and actions of the employees can certainly affect the success of the
service engagement with the customer. It is also likely that the response of
the customers will have a cascading impact on the service experience of the
other customers. It is imperative that the employees are trained, and they
have adequate skills and empowerment to deliver service to customers. The
employees should have commitment, attitude, and ability to use discretion
while dealing with customers.
The important objective of service marketing is to identify and fulfil the needs
of the customer. This requires the marketing function to design a service
process to ensure how the service is delivered. It reflects how all the
marketing mix elements are co-ordinated to provide consistent and quality
service to the customer. Thus, the process will ensure that the service
encounter delivers positive customer experience and consistent service
quality is maintained. The service process should also be responsible for
quality control in the services delivery.
The intangible nature of service, unlike physical products, means that
potential customers are unable to judge a service before it is consumed, thus
increasing the risk involved in the purchase decision. In a competitive
environment, services can make or break customer relationship, and hence
cannot be taken for granted. Therefore, an important element of service
marketing mix strategy is to mitigate this risk by offering tangible evidence of
the nature of the service. A good or excellent customer experience while
consuming the services becomes the one key deciding factor for the
customer to return to buy more services from the organisation.
The physical evidence can be in different forms. The service environment
where the service is delivered becomes the foremost important factor to
show tangible evidence. A clean and hygienic environment in a restaurant
can help to reassure potential customers regarding their decision to visit the
restaurant for dinner. A tidily dressed employee suggests responsibility and
professionalism.
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Some companies adopt a neatly designed brochure that describes important

elements of the service scope and testimonials from important customers
endorsing the quality of service. These are some of the elements among
many that provide credible evidence about the nature and quality of the
service.
7.3 Finance
In modern business, the finance and HR functions are considered to be the
two eyes of the CEO as both deals with strategies related to the most critical
resources of the organization namely, money and people. The financial
strategy of a business needs to address factors related to managing cash
flow, raising capital, and making investments. Some businesses generate
cash internally through business operations to support its growth strategy,
while others resort to securing fresh capital / financial resources by raising
equity from the public, or avail loans from banks and other financial
institutions. The different means of raising funds will depend on the priorities
and objectives of the corporate and business strategies selected.
The businesses that pursue low cost strategy pursue financial strategies that
are intended to minimize their cost. They emphasize on keeping costs within
the limits of the funds they are able to generate from business operations.
When borrowing becomes necessary, they usually try to tie up funds where
the credit costs are low, or try to defer the expansion plans till the credit
environment becomes benign. In contrast, differentiated businesses pursue
financial strategies that fund initiatives like quality improvements and
research and development even when the cost of securing funds is relatively
higher. The key business strategy here is to maintain quality and enhance
product differentiation and not just looking at minimizing the cost of funds.
The finance function strategy is characterised by clearly measurable metrics
and financial ratios that are constantly reviewed and improved to deliver the
financial performance of the company. It is also important to compare the
metrics with those of key competitors or the industry averages. The key
financial ratios that can support the strategic managers while evaluating the
financial position of the organization are current assets versus current
liabilities, gross profit margins and EBITDA profit margins, total debt versus
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total equity, total debts versus total assets, day’s sales outstanding, net
profit etc.
Students’ work
What is the financial position of an organisation? Kindly do a study and
research, and present your finding to your class.
7.4 Human resources

In a knowledge economy, many modern businesses consider “employees
first, customer second” strategy for successful business performance. The
underlying essence of the strategy is to develop its human resource by
unlocking their wisdom and compassion by ensuring that employees are well
empowered to serve their customers and deliver high performance.
The human resource function includes activities such as planning,
recruitment, compensation and benefits, performance appraisal, assessment
of employee satisfaction, learning and development, and talent
management. HR also has the responsibility to create a brand for future
human resource needs of the organization. A company is truly only as great
as the people who embody the mission of the organization; employees are
those who go above and beyond to see the company succeeds and to make
the customers happy.
Strategic HR function seeks to build an employee work force that enables
the organization to achieve its goals. The HR also creates an environment
for employees to come out with innovative ideas to make the organization a
creative work place of work. Many companies seek to become “the best
place to work” in order to attract high calibre employees. Today, many
employees no longer anticipate or desire to have a life-long employment with
a single firm. Employees look for new challenges to unlock their potential.
So, the HR strategy should be to clearly understand and identify the high
performing employees’ aspirations, design a career succession planning,
and develop leadership qualities in them.
The HR department also fosters a work culture which adds value to the
overall organization brand value. At the same time, all organizations are
challenged to develop employee commitment to the company and to the job.
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Fostering commitment and developing a strong, competitive work force

requires the creation of an attractive working environment that may include
providing customized benefits like health care, child day care, maternity and
paternity leave, flexible working hours as well as strategic needs of the
organization like training and development, job rotation, career progression
and international travel opportunities.
Some companies have several HR programmes, which are institutionalised,
to develop people’s leadership competencies as an ongoing practice.
Coaching is a powerful intervention that improves employees’ performance
considerably. When and where do the companies use coaching and for
what? Here are some obvious opportunities to applying coaching at work:
motivating staff, delegating, problem solving, conflict resolution, relationship
issues, team building, appraisals & assessments, task performance,
planning & reviewing, employee leadership development and team working.
The list is endless and the opportunities can be tackled by using a highly
structured approach, the formal coaching session or the coach/manager can
equally choose to retain a degree of structure but be less formal -
discussions might sound like a normal conversation and the term coaching
might not be used.
As the companies expand their businesses into the global markets, in
modern workforce, there are other strategic dimensions evolving like code of
conduct, gender equality, compliance, increased employee security (post
9/11 and 26/11 terrorist attacks), cultural diversity etc. The other concerns
like sexual harassment at workplace have assumed greater significance and
most of the corporates have laid down very clear, strict and transparent rules
governing this aspect as there have been many instance of such assaults.
Over the last decade or so, there have been many mergers and acquisitions
done by Indian corporates which involves massive restructuring of the
businesses and hence HR had to play a very crucial role in organisation
restructuring, layoffs, retrenchment, and optimisation of HR function itself.
These are sensitive issues which the HR functional strategy had to deal with.
Most importantly, the HR strategic managers must learn to help employees
of diverse backgrounds, perceptions and facilitate functional areas work
effectively as cross functional teams. The success of such collaborative
endeavours as cross functional teams, quality circle and other functional
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activities, require unity of actions that can be achieved only through mutual
understanding, respect and team spirit among employees.
Today, many organisations seek to deliver more value to their customers.
This effort needs high calibre and high potential employees. Such
organisations really feel the need to attract the best talent, as the
prerequisite for enhancing its differentiation. High performing employees
enhance efficiency and differentiation by increased productivity, innovative
ideas and demonstrate excellence in job performance.
A business unit’s generic strategy can influence specific components of its
human resource program. For example, the business unit’s rewards and
recognition program should be tied to employee behaviour that helps
achieve its business goals. Hence low-cost business units should reward its
employees who help reduce operating costs, create differentiation in
products or services that help encourage output improvements and
innovations, and most importantly help deliver highest level of customer
experience.
7.5 Production
Functional strategy for production department, also called operations
management, is vital for a manufacturing company. There is a wide range of
production strategies that help organisations grow their business. The
primary mission of production strategies is planning the production
schedule within budgetary limitations and time constraints. Companies do
this by analysing the plant’s personnel and capital resources to select the
best way of meeting the production quota.
Production strategies determine (often using mathematical formulae) what
capital expenditure would be required, whether new machines need to be
purchased, whether overtime or extra shifts of personnel and planning of raw
material or resources are necessary, and what the sequence and scheduling
of production will be. They monitor the production run to make sure that it
stays on schedule and correct any problems that may arise.
Because the work of many functions is interrelated, production managers
have to work closely with heads of other departments such as sales and
marketing, procurement, and logistics to plan and implement company goals,
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policies, and procedures. For example, the production manager works with
the procurement department to ensure that plant inventories are maintained
at their optimal level. This is vital to a firm’s operation because maintaining
the right inventory of materials necessary for production ties up the firm’s
financial resources, yet insufficient quantities cause delays in production.
Therefore a major component of a production strategy is inventory
management and control. Similarly production managers also have to work
with logistics teams closely to make timely and effective distribution of the
goods produced to the market, without letting inventories to pile up.
The production function is one of the key concepts of mainstream business,
used to define marginal product and to distinguish allocative efficiency, the
defining focus of economics. The primary purpose of the production function
is to address allocative efficiency in the use of factor inputs in production and
the resulting distribution of income to those factors, while abstracting away
from the technological problems of achieving technical efficiency, as an
engineer or professional manager might understand it.
As an organisation grows, the range of production strategies that it can think
of also increases. Specifically large business units can capitalise on a
number of factors that accompany their large size. Each of these factors is
associated with the experience curve, i.e. the reduction in per-unit costs that
the organisation is able to achieve as it gains experience producing a
product or service.
Each time, as the production of a company’s output doubles the production
costs decline by a specific percentage depending on the industry. Many
companies leverage economies of scale to gain market share as well as
reduce production costs and distribution costs thereby increasing their
profitability. The experience curve has been observed in a wide range of
manufacturing and service industries, including automobiles, personal
computers and airlines industries. The original equipment manufacturers
(OEMs) will be in a better position to negotiate higher discounts with their
ecosystem of sub-component makers, using the economies of scale.
The experience curve, that helps manufacturing companies to improve their
per-unit costs with experience, involves three underlying concepts: learning,
economies of scale and capital labour substitution possibilities. The
organisation gains learning experience over time and its employees become
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more efficient as they the gain expertise in doing the various tasks over and
again. This applies to all employees in the organisation, the staff,
managerial, non-managerial across corporate, business unit and functional
levels. Moreover, most companies are able to create and institutionalise the
production process that results in better productivity in terms of product
output.
The next important reasoning is economy of scale i.e reduction in per-unit
costs as volume increases, esp where the volumes are in big numbers like
two-wheeler industry or mobile services industry. Then, capital labour
substitution refers to an organisation’s ability to substitute labour for capital
or vice versa as volume increases depending on which combination
minimises the overall costs and / or maximises productivity and output
effectiveness. For example, many companies shift their manufacturing
operations to another country where labour costs or interest costs are much
lower.
The recent advancements in technology in the production area have
changed the capital labour dichotomy. Industrial automation and business
process reengineering have significantly improved the way products are
manufactured with less or no manpower in the production facilities. The role
of workers in these facilities is limited to other administrative and distribution
related responsibilities.
Low cost businesses with large market shares tend to benefit the most from
the experience curve. Differentiated businesses often attempt to gain a
similar advantage by charging higher than average prices, seeking to gain
market share and eventually reduce costs by offering higher quality products.
However, differentiators do not always capitalise on the opportunities
presented by low costs whereas strategic managers of businesses that
compete low-cost-differentiation do.
Production strategy assumes very high importance to leverage the
experience curve and a lack of any such strategy could be risky. If the
company in low cost business seeks to increase in volume, it often involves
substantial investments in plant and equipment and a commitment to the
latest technology of the strategy has to succeed. The strategy should also
consider capital requirements arising as a result of the technological
changes and obsolescence over time, to upgrade or refresh the plant
equipment. Such a balancing strategy to utilise the current and future
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technological changes will prompt such companies to plan for investments in

flexible manufacturing systems that can be retooled quickly to respond to
changes in market trends.
Business Process Reengineering
Business process re-engineering is a business management strategy,
originally pioneered in the early 1990s, focusing on the analysis and design
of workflows and processes within an organization. BPR aimed to
help organizations fundamentally rethink how they do their work in order
to dramatically improve customer service, cut operational costs, and become
world-class organisations. In the mid-1990s, as many as 60% of the Fortune
500 companies claimed to either have initiated reengineering efforts, or to
have plans to do so.
BPR seeks to help companies radically restructure their organizations by
focusing on the ground-up design of their business processes. According to
Davenport (1990) a business process is a set of logically related tasks
performed to achieve a defined business outcome. Re-engineering
emphasized a holistic focus on business objectives and how processes
related to them, encouraging full-scale recreation of processes rather than
iterative optimization of sub-processes.
The BPR is also the application of technology and creativity involved in an
effort to eliminate unnecessary operations or drastically improve those that
are not performing well to the standards. In order to improve speed to
market, companies seek to eliminate any process that does not add any
value to the organisation’s good and services. For example, many consumer
foods manufacturers have brought in changes in their packaging operations,
by eliminating the costly cumbersome packaging to cost effective shrink
wrapping.
An organisation’s ability in its speed to develop, manufacture, market and
distribute products and services can be the source of a significant
competitive advantage. The companies that can deliver quality products and
services in a timely manner become problem solvers for their customers and
more likely to succeed in their overall business strategy. Speed is a critical
success factor to the success of an organisation.
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Services Production
In today’s modern economy, services constitute nearly 60% of the country’s
GDP growth, which has grown from sub 40% in1999-2000 and still has a
huge potential for growth. Services function is an important function in the
organisation’s business strategy. Service is a product that refers to certain
activities that a company offers to perform, which results in satisfaction of a
need of a target customer or a real time experience that the target customer
goes through.
A service has different unique characteristics. Because of its intangibility,
perishability, heterogeneity and inseparability, it has an expanded marketing
mix as compared to tangible goods like products. As seen earlier, while
products have 4 Ps i.e product, price, promotion and place as the marketing
mix, the services have a 7 Ps as marketing mix strategy that includes
people, process and physical evidence.
Services marketing and services production are two unique functions that
Indian companies have started to gaining expertise on. Today companies like
TCS, Infosys, HCL, Wipro, CTS, Tech Mahindra etc have developed different
services production and delivery models, pioneering in the global IT
outsourcing industry. These companies have a unique off-shore services
delivery model by which they are able to provide compelling business
models to their end clients in the US, Europe and other parts of the world.
Using this model, services production happens in India and delivery and
consumption happens at the clients’ place in the US or Europe.
India has been established as a hub for IT innovation and professional
services, focusing on IT engineering services, remote infrastructure services
delivery, research and development services, strategic outsourcing services
etc. The Indian IT companies’ strategy is also to deepen the IT-Business
Process Management industry’s footprint in its core markets and beyond, by
building strategic partnerships with their customers and facilitate growth and
maintain India’s leadership position as a trusted and safe place to do
business in the IT Services space.
Industry body Nasscom works with government to shape policy in all key
areas of activities such as skill development, trade and business services
and provides platforms for members and other stakeholders to interact and
network. This has facilitated opportunities to expand the country’s pool of
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relevant and skilled talent and harness the benefits of ICT to drive inclusive
and balanced growth
‘Transform Business, Transform India’ is the overall objective of NASSCOM
and its member organisations, and thus make India as the global hub for IT
services outsourcing, like China is considered to be the global manufacturing
outsourcing hub at present. With India’s youth population and abundant
technical skills, India is not far away from becoming a formidable player on
the manufacturing outsourcing space as well.
7.6 Quality Management

Quality management consists of organization-wide efforts to install and make
permanent a climate in which an organization continuously improves its
ability to deliver high-quality products and services to customers. Any
organisation’s reputation and brand image is dependent on the quality of
products and services it delivers to its customers. Many companies position
quality as a marketing strategy to differentiate their products and services,
when all things are being equal with competition. In fact quality can be
demonstrated as physical evidence in the product or service marketing
strategy.
Historically, quality has been viewed largely as a controlling activity at the
core of the production process and used as a measurement of post-
production success. It used to be called quality control function. However,
this practice of measuring quality after an output is produced has changed
and quality is now seen as an essential ingredient of the product or service
being provided and an integral part of any production process. It has become
all pervasive across the company concerning all members and stakeholders
of the organisation.
Today every organisation adopts quality management, also called operation
excellence and have made it as the de facto standard that help them
improve overall quality, performance and efficiency. The strategic managers
followed the concept known as quality circles from Japanese companies that
helped in implementing production changes which led to improving the
quality and efficiency. Total Quality Management (TQM) is a broad based
program designed to improve product and service quality and to increase
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customer satisfaction by incorporating a holistic commitment to quality as

perceived by the end customers.
In other words, TQM refers to the characteristics of a product or service that
bear on its ability to satisfy the customer’s needs. From a product standpoint,
producing a quality product drastically reduces the defects and minimises
rework time, thereby increasing productivity and efficiency. In addition, it
eliminates the need to customary inspection of the products produced post
production.
Sig Sigma
One of the extensions of TQM philosophy is Six Sigma in quality
management. Six Sigma seeks to improve the quality of process outputs by
identifying and removing the causes of defects (errors) and minimising the
variability in manufacturing and business processes. Six Sigma is used
widely in many companies and is a set of quality management methods,
including statistical methods, and creates a special infrastructure of people
within the organization ("Champions", "Black Belts", "Green Belts", "Yellow
Belts", etc.) who are experts in the methods. Each Six Sigma project carried
out within an organization follows a defined sequence of steps and has
quantified value targets, for example: reduce process cycle time, reduce
pollution, reduce costs, increase customer satisfaction, and increase profits.
The term Six Sigma originated from terminology associated
with manufacturing, specifically terms associated with statistical modelling of
the manufacturing processes. The maturity of a manufacturing process can
be described by sigma rating indicating its yield or the percentage of defect-
free products it creates. The fundamental objective of the Six Sigma
methodology is the implementation of a measurement-based strategy that
focuses on process improvement and variation reduction through the
application of Six Sigma improvement projects.
A six sigma process is one in which 99.99966% of the products
manufactured are statistically expected to be free of defects (3.4 defective
parts/million), although, as discussed below, this defect level corresponds to
only a 4.5 sigma level. Motorola set a goal of "six sigma" for all of its
manufacturing operations, and this goal became a by-word for the
management and engineering practices used to achieve it.
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One key innovation of Six Sigma involves the absolute "professionalizing" of

quality management functions. Prior to Six Sigma, quality management in
practice was largely relegated to the production floor and to statisticians in a
separate quality department. Formal Six Sigma programs adopt a kind of
elite ranking terminology (similar to some martial arts systems, like Kung-Fu
and Judo) to define a hierarchy (and special career path) that kicks across all
business functions and levels.
Six Sigma identifies several key roles for its successful implementation.
• Executive Leadership includes the CEO and other members of top

management. They are responsible for setting up a vision for Six Sigma
implementation. They also empower the other role holders with the freedom
and resources to explore new ideas for breakthrough improvements.
• Champions take responsibility for Six Sigma implementation across the

organization in an integrated manner. The Executive Leadership draws
them from upper management. Champions also act as mentors to Black
Belts.
• Master Black Belts, identified by champions, act as in-house coaches on

Six Sigma. They devote 100% of their time to Six Sigma. They assist
champions and guide Black Belts and Green Belts. Apart from statistical
tasks, they spend their time on ensuring consistent application of Six Sigma
across various functions and departments.
• Black Belts operate under Master Black Belts to apply Six Sigma

methodology to specific projects. They devote 100% of their valued time to
Six Sigma. They primarily focus on Six Sigma project execution and special
leadership with special tasks, whereas Champions and Master Black Belts
focus on identifying projects/functions for Six Sigma.
• Green Belts are the employees who take up Six Sigma implementation

along with their other job responsibilities, operating under the guidance of
Black Belts.
Some organizations use additional belt colours, such as Yellow Belts, for
employees that have basic training in Six Sigma tools and generally
participate in projects and "White belts" for those locally trained in the
concepts but do not participate in the project team. "Orange belts" are also
mentioned to be used for special cases.
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Thus it is very critical that any change in competitive environment can trigger
quality decisions among competitors in a given industry and the companies
must turn challenges into opportunities to emphasise quality as the success
mantra of the organisation and seek to develop long term competitive
advantage in the market place.
7.7 Research and Development

For any progressive organisation, the key strategy is to invest in the most
important function, which is close to the production function, called Research
and Development (R&D). The investment in this direction is to foster
innovation and leadership in products and the services that organisation is
planning to provide in the market place for the present and future.
Product and Service R&D seeks to develop efforts towards improvements or
innovation in the quality and uniqueness of a company’s product or service.
Process R&D seeks to reduce operational costs and make the production
processes more efficient. In the fast changing world, the organisations are
always on their feet to bring continual changes in their offerings to remain
competitive. While low cost business units seek to emphasise on process
R&D to reduce or optimise their operations costs, the differentiators tend to
emphasise on product or service R&D to bring out improved and innovative
offerings to their customers.
Organisations might face risk in product and services innovation as the new
products or services that were envisaged may not generate the level of
demand sufficient to justify the R&D investment. Some of the R&D decisions
are strategic, long term and well debated decisions taken at the board or
executive management level. Today, in order to mitigate risks arising out of
R&D investment, many companies work jointly with partners to develop new
product designs and share the risks and rewards.
7.8 Supply Chain Management

In modern businesses, as companies battle to achieve the objectives like
reducing costs, improving time to market and enhance the distribution
system, one important function that contributes to business success is the
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supply chain management function. In earlier days, organisations used to

have disparate departments like purchasing that focused on procuring raw
materials (input components) and despatch that focused on distribution of
finished products (output components). These two departments work as
adjunct to the most important function which is the production department.
However, these were silos and were not equipped to handle the entire go-to-
market process from sourcing to distribution in an effective and smooth
manner so as to realise the objectives set forth by the organisation.
In manufacturing industries, the purchasing department procures the raw
materials and input components so that the production department process
them into finished products. The despatch department schedules the
shipment of the finished products from the production department to the
customers. This process had multiple handovers and the functions were silos
which resulted in delays and challenges in the smooth functioning of the
three functions. To build synergy between the functions on the overall
production value chain, today’s organisations have integrated these two
departments into a unified function called supply chain management (SCM).
The primary function of the SCM department is to identify the potential
suppliers, evaluate them techno-commercially and contractually, solicit bids
and price quotes, negotiate prices and terms & conditions, place orders,
manage the order process, inspect the incoming shipments, inventory
management and pay the suppliers. In addition, the SCM also looks after
seamlessly the distribution of the finished products to the target customers
and channel partners. Thus the SCM’s functional strategy is integrated into
the business units to have a competitive strategy. Low cost businesses seek
to purchase materials and supplies of basic quality at the lowest costs
possible. Large organisations are able to lower the costs further through
their ability to demand volume discounts. In addition, buyers who are larger
than their suppliers and whose purchases represent a significant percentage
of their supplier’s revenue may possess considerable negotiation powers.
However, smaller companies often have a different strategy to achieve their
low cost business model, through other means like working with smaller
suppliers in the same industry and have long term contracts etc. It is
important to note that low costs are not the only consideration in SCM
activities. There are other parameters that must be considered in the overall
supply chain engagement. These include, quality standards of the
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components or supplies, turn-around time to manage inventory costs,

consistent quality and pricing models (like there should not be major
variations in pricing due to other factors like inflation, fuel costs, electricity
costs etc from time to time) etc. Organisations must prefer best costs rather
than low costs to have a sustained commitment from loyal suppliers and
partners.
Differentiators tend to emphasise on quality products to ensure they are able
to deliver customer experience which the customers are willing to pay. In
such cases, the quality of the components and the end product takes
precedence over cost considerations, although cost minimisation is also one
of the desirables and part of their strategy. In differentiators it is also
advisable to have a long term partner to design and customise products to
meet the changing market requirements from time to time and there could be
sensitive intellectual property exchange between the company and partners
a under confidentiality agreement.
Material management from the beginning till the end is a fundamental
process of supply chain management function. However, there are more
important factors that carry more strategic importance to an organisations
ability to improve the profitability of the business. That is the control and
management of the inventory both at the input side as well as the output
side. An effective method of managing inventory is called just in time
inventory. The just in time inventory demonstrates managing the
interrelationships.
In fact, the Japanese companies have pioneered and popularised this
concept in order to reduce the materials management costs in the entire
supply chain process. This technique helps the organisation to hold
inventory, storage, and warehousing costs to a minimum just enough to meet
the assembly or production requirements of a product as per the forecasts of
the marketing department.
Maruti Suzuki is a classic example of managing the just-in-time inventory
concept for many years and that has helped the company sustain its profits
even during the toughest economic times. In fact, many manufacturing
organisations have started following this concept and have benefited from
reduced costs of managing the entire supply chain process.
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Information Systems
In the age of internet, cloud, social media, mobility and customer data
analytics, organisations are increasingly investing in Information technology
and systems in order to improve the way every function works in the
organisation. An effective information system should benefit all the functional
areas of a business unit. Today, the IT department has been viewed as a
strategically important function enabling the organisation’s business. IT
systems reduce costs, improve organisations ability to differentiate its
products and services, and enable faster time to market.
Each function in an organisation can be mapped and integrated by various IT
systems to support the automation and function of that department. For
example, most organisations have deployed Enterprise Resource Planning
(ERP) systems to integrate the various functions and smoothly handle the
various transactions happening across the organisation.
ERP is business management software—usually a suite of integrated
applications—that a company can use to store and manage data from every
stage of business, including:
•! Product planning, costing and development
•! Manufacturing and Production
•! Marketing and Salesforce Automation
•! Inventory management
•! Supply chain management
•! Customer relationship management
•! Human Resource Management
•! Mobile value added Applications
ERP provides an integrated real-time view of core business processes, using

common databases maintained by a database management system. ERP
systems track business resources—cash, raw materials, production capacity
—and the status of business commitments: customer data, orders, purchase
orders, and employee data, payroll etc.
The applications that make up the system share data across the various
departments (manufacturing, purchasing, sales, accounting, etc.) that
entered the data. ERP facilitates information flow between all business
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functions and the management, and also manages connections to

authorised persons within and outside the organisation. These include
employees, customers, partners, suppliers etc.
Enterprise system software is a multi-billion dollar industry that produces
components that support a variety of business functions. IT investments
have become the largest category of capital expenditure in United States-
based businesses over the past decade. Though early ERP systems focused
on large enterprises, smaller enterprises also have started increasingly to
use ERP systems.
Organizations consider the ERP system a vital organizational tool because it
integrates varied organizational systems and facilitates error-free
transactions and production. However, ERP system development is different
from traditional systems development. ERP systems run on a variety
of computer hardware and network configurations, typically using
a database as an information repository.
Whether the IT function is handled by the company or outsourced to any IT
service provider, the strategy is to help the business unit achieve its strategy.
While the company invests heavily into hardware and software systems, the
objective is to enable the organisation’s ability to improve its market
presence, production, inventory, sales, profitability and customer experience.
With advancements in internet technologies, most of the companies have
invested in e-Commerce portals to enable customers to transact business on
a self-service mode without having to having to go through manual
interactions. Today, social media business strategy is one of the
cornerstones of any organisations which aim to become social friendly to
attract more customers for its products and services. Similarly mobile value
added applications (VAS) have changed the market place strategy to engage
with customers who would like to do business on the go, besides big data
analytics application hep an organisation to analyse the customer data on a
real time basis.
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Summary
This chapter has provided a detailed insight of the various strategies across
different functions within a business unit of a corporate organisation. It talks
about how strategic managers must align their activities in the functional
areas to ensure that the various departments are well coordinated and
collaborate together for the organisation success. The functions like
marketing, finance, production, supply chain management, human resources
and information systems are increasingly looking at an integrated strategy to
exploit the advent of new technologies like internet, e-commerce, social
media, mobility etc to implement their business initiatives.
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1.! What is a cross functional team and the purpose of a cross functional !
! team (CFT)?
a) It helps in solving business problems
b) It convenes meeting between different functions
c) It takes care of operational excellence of the strategy management
d) A CFT is represented by key members of the various functions in
order to facilitate flow of information, joint meetings, decision
making, communication, change management and conflict
management within the functions
2.! What are the typical characteristics in services marketing strategy?
a) Attributes like intangibility, perishability, inseparability and
heterogeneity
b) Services cannot be stored in inventory
c) Service Providers have to deliver services to consumers proactively
d) Focus on product marketing mix to improve services experience
3.! HXL is one of the large FMCG companies and would like to focus on its !
! core competence of FMCG products. They have a huge IT operations !
! team and the costs are increasing year on year. As a management ! !
! consultant, you have to advise the company to reduce cost and provide !
! strategic options?
a) Reduce IT costs by reducing the IT personnel in the operations team
b) Suggest a cut in the capex budgets of the company for the coming
financial year
c) Suggest to evaluate multiple IT outsourcing vendors, outsource
IT operations and reduce costs by 25%, as the company wants to
focus on its core business i.e. FMCG
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4.! An organisation, which is profitable, is planning to venture into a new !

! geography. As a strategic management consultant what would you not !
! advise the management as an immediate strategy?
a) To understand the local market an customer needs o the industry
b) To understand the macro environment actors o the country
c) To Start a strategic alliance with a reliance partner to go-to-market
strategy
d) To build a factory to manufacture the products rom there
5.! In today’s modern world, which are the two functions of a company that !
! are very important to a CEO?
a) Finance and Human Resources
b) Marketing and Production
c) Commercial and Supply chain
d) Marketing and Quality
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References
1. John A. Parnel, Strategic Management, Theory and Practice), Business
Unit Strategy P 97
2. Business Process Reengineering
3. Sig Sigma Process Excellence
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video
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8
STRATEGY FORMULATION 
Objectives:
This chapter focuses on the SWOT Analysis and strategy formulation. After
defining the corporate, business unit and functional strategies, it is
appropriate to formulate the strategy with reference to the organisation
strengths, weaknesses, opportunities and threats. Strengths and
weaknesses are based on internal environment and capabilities, whereas
opportunities and threats are related to the external environment. SWOT
analysis is the prime step in strategy formulation process and positioning of
the organization in order to compete in the market place. At the end of the
chapter, you will be able to understand the following:
•! Understand the SWOT Analysis
•! The Resources that impact the strategic options
•! Understand the Opportunities and threats
•! Choosing the best strategic alternatives
•! Organisation culture and its impacts on strategy formulation
•! Corporate ethics and social responsibility
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STRATEGY FORMULATION
Structure:
8.1! ! Introduction
8.2! ! SWOT Analysis
8.3! ! SWOT Analysis diagram
8.4! ! How to use SWOT Analysis
8.5! ! Human Resources
8.6! ! Organisational Resources
8.7! ! Physical Resources
8.8! ! Opportunities and Threats
8.9! ! SW / OT Matrix
8.10! Choosing the Best Strategic Alternatives
8.11!! Organisation Culture
8.12! Corporate Ethics
8.13! Corporate Social Responsibility
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8.1 Introduction
Competitive strategy is about being different. It means deliberately choosing
to perform activities differently or to perform different activities than rivals to
deliver a unique mix of value, as advocated by Michael E. Porter. Therefore,
organisations must identify and analyse the different alternatives and
possibilities available to formulate a winning strategy appropriate for them.
Strategy formulation, as some organisations call it the strategy development,
is the important stage in the strategic management process. In the strategic
management process, once the industry and competition evaluation, external
and internal environment analysis have been carried out, it is time to map the
organisation’s internal capabilities with the external environment, and ensure
that the organisational vision and goals are compatible with the internal
characteristics and its external environment and challenges. Reviewing the
current strategic initiatives is the next step in deciding what the strategic
roadmap of the organisation should be, considering its vision and goals.
Thus, strategic management involves an analysis of the organisational
characteristics like the strengths and weaknesses and the environmental
factors such as the opportunities and threats for the business. This important
stage involves an analysis commonly known as the SWOT analysis. This
analysis enables the organisation to position itself to take advantage of
specific opportunities in the environment while mitigating or minimising
certain environmental threats. In this process, the firm attempts to identify
and leverage its strengths and develop areas that were lacking
(weaknesses).
The SWOT analysis is also useful in unlocking certain hidden strengths that
have not yet been fully utilised and also in identifying weaknesses that can
be corrected as they go forward. The purpose of this analysis is to match the
analysis of the market environment with the organisation’s capabilities
thereby enabling the strategic management to formulate realistic and
effective strategic options to attain the mission and goals.
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8.2 SWOT Analysis

SWOT Analysis is a valuable tool for analysing an organisation’s internal
environment, characterised by its strengths and weaknesses (areas for
development) and draws an understanding on how those capabilities can be
translated into a sustainable competitive advantage for the organisation. The
tool also maps the capabilities and constraints with the external environment
from opportunities and threats perspectives, so that the organisation is well
prepared to execute the strategy.
Originated by Albert S Humphrey in the 1960s, SWOT Analysis is as useful
now as it was then. The SWOT analysis, along with PEST analysis describes
the activities that comprise of economic performance and capabilities of the
company. SWOT analysis is also the primary step in the strategy formulation
of strategic management process. This analysis can be used in two ways –
as a simple teamwork helping the strategic managers get together to "kick
off" the strategy formulation workshop, or in a more sophisticated way as a
serious strategy tool.
Strength or weakness of an organisation is defined as its internal
competencies specifically in comparison with that of the competitors.
Strengths and weaknesses may include the company image, brand,
products and services, market share, specific expertise in different functions
like marketing, finance, human resources, production, customer services,
R&D etc. The organisation should have greatest awareness about its
capabilities and credentials as well as its perceived weaknesses clearly
before stepping into the strategy formulation process.
The SWOT analysis, which must be done religiously for individual function of
an organisation, identifies the primary activities and secondary activities that
create value for customers as well as the organization. The primary
activities are those directly related to the company’s product or service, and
the secondary activities are those that support the implementation of the
primary activities.
Strategic managers have to consider all of the firm’s resources and
processes within each function to identify the strengths and weaknesses in
order to match them with the environmental opportunities and challenges.
The firm’s resources include factors in three basic categories:
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1. Human resources: The experience, capability, knowledge, skills, any

intellectual property rights.
2. Organizational resources: These include systems and processes,
strategy at various levels, structure and organizational culture.
3. Physical resources: Plant capacity, equipment, geographic presence,
access to raw materials, distribution network and technology.
These three types of resources must work together to create a sustained
competitive advantage for the organization. A firm must invest in and utilize
resources that are long-lasting and are not easily replicated by the
competition through imitation or transfer. If the firm’s success is dependent
on resources that can be easily acquired by competitors, then the company
cannot sustain its performance in the long run. A SWOT analysis is an
important means of objectively assessing the organization’s resource base
across these three categories.
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8.3 SWOT Analysis diagram

# # # # # # Fig 8.1
!
The above diagram (Fig 8.1) represents a typical generic SWOT analysis
that could be considered for any company. This analysis captures the
important areas a strategic manager might have to possibly consider while
building the SWOT table for his organisation. It must be noted that there
could be other factors specific to his organisation. We will discuss this in
detail in the following sub chapters.
8.4 How to Use SWOT Analysis

As seen from the above diagram (Fig 8.1), while strengths and weaknesses
are often internal to an organization, the opportunities and threats generally
relate to external factors. For this reason the SWOT Analysis is sometimes
called Internal-External (IE) Analysis and the SWOT Matrix is sometimes
called an IE Matrix.
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Strengths:
The following are some of the questions the strategic mangers must ask to
analyse the strengths of an organisation.
• What competitive advantages does the organization have?

• What does the organisation do better than the competitor?
• What unique or lowest-cost resources can it draw upon that others can't?
• What do people in the market see as the company’s strengths?
• What factors mean that the company can get the sale?
• What is the organization's Unique Selling Proposition (USP)?
The strategic managers must consider the company’s strengths from both an
internal perspective, and from the point of view of the customers and people
in the marketplace. While looking at the strengths, the analysis must be done
in relation to the competitors. For example, if all the competitors of the
company provide high quality products, then a high quality production
process would not be strength in the organization's market, it's a necessity.
Therefore, the company must innovate and bring out new ideas to create a
distinction and differentiation to gain competitive advantage, otherwise it
cannot command the price point it wants, as the product might be viewed as
a commodity which can be sourced from any company.
Weaknesses:
Weaknesses are often considered as areas where the company needs a
critical look and improve to add relevant competencies to compete effectively
in the marketplace. The following questions may be asked to identify the key
areas that it lacks and initiate actions to fill those gaps in the long run.
• What are the capabilities the company lacks and how could those
capabilities be improved?
• What should the company avoid in its product or go-to-market strategy?

• What are the factors that impact the company’s sales?
• Who are the people in the market likely to see as weaknesses?
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Again, consider this from an internal and external basis: Does the market
seem to perceive weaknesses that the company doesn’t see? Are the
competitors doing any better than the company? It's best to be realistic now,
and create awareness and actions, or face any unpleasant truths later.
Opportunities:
The following questions help find answers to opportunities the company
should identify in the marketplace.
• What are the good opportunities can the company spot?

• What are interesting trends there in the market place that the company
needs to track and be aware of?
• What are the market segments and product segments that the competitors
are not addressing currently?
Useful opportunities can come from such things as changes in technology
and markets on both a broad and narrow scale. Changes in government
policy related to the industry or field and changes in social patterns,
population profiles, lifestyle changes, and so on.
A useful approach when looking at opportunities is to look at company’s
strengths and explore whether these open up any new opportunities for the
company. Alternatively, look at the weaknesses and explore whether the
company could open up opportunities by eliminating them.
Threats
• What are obstacles the company is facing? What are the competitors
doing?
• Are quality standards or specifications for the products or services

changing?
• Is changing technology threatening the company’s position?

• Does the company have bad debt or cash-flow problems?
• Could any of the company’s weaknesses seriously threaten the business?
• Are the government and regulator’s policy guidelines changing that will
impact the business
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When looking at opportunities and threats, PEST analysis can help to ensure

that one doesn't overlook external factors, such as new government
regulations, or technological changes in the industry.
8.5 Human resources

Human resources present a huge potential for creating differentiation and
strength for the organisation. This analysis must be done meticulously. The
human resource function must be analysed at three levels: the board of
directors, top management and middle management.
Board of directors
Board is considered to be the highest level of corporate authority involved in
giving direction to the company. They can influence the company’s
effectiveness based on the collective strength of the board. The following
strengths and weaknesses must be examined and considered in the strategy
formulation.
1. Contribution of board members: They need to possess knowledge,
experience, and industry and regulatory connections
2. Tenure and experience: Long term stability of board members enables
organisation to gain knowledge but new members must be inducted to
bring in fresh perspectives to strategic issues
3. Ability to represent various stakeholders: The board must consist of
diverse stakeholders like top managers, minority stakeholders, strategic
customers, financial institutions or local community etc. Such a diversity
will bring in different perspectives and ideas to the executive
management
4. Level of investment in the company: Balanced stockholding and
bondholding gives strengths to both on board’s responsiveness as well as
its concern on credit worthiness on strategic issues.
Executive Management
The following issues should be considered in the SWOT analysis relative to
strengths and weaknesses of the executive leadership/ management of a
company.
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1. Background and capabilities of top managers: Experience, leadership

style, decision making ability, personality and presence, team
empowerment, etc are some of the key strengths expected from the top
management. Executives from diverse industries and complementary
backgrounds may help create innovative ideas for the organisation, which
will be a critical strength as well.
2. Tenure on the top management: While lengthy tenure may help in stable
and consistent strategy development and implementation, short tenure
may increase the turnover of the leadership team leaving with inefficacy,
complacency, and failure to identify new opportunities. The CEO and top
management turnover is desirable only when the company’s performance
is not up to the targets.
3. Individual top managers: Some executives may be good in strategy
formulation but weak in implementation. The company needs to identify
the key strengths and weaknesses of the members of the top
management in order to have the right job responsibilities for the right
executive. Some may be good in internal operations and some may focus
on external markets. The executive leadership team should possess
complementary skills to function efficiently as a team. Some
organisations have long term incentive plans (LTIPs) to retain top
executives who have expertise very critical to the firm’s success.
Line Managers and Employees
The middle management and employees are very crucial in the strategy
execution. Even the best formulated strategy would fail if the right skilled
employees are not available to implement them at the right time. The key
strengths at this level include knowledge, skills and commitment. Individual
and team performance are key to the overall strategic management of the
organisation. The following factors must be examined and considered in the
SWOT analysis.
1. A comprehensive resource planning program: The company should have
a well-defined organisation structure, job requirements and forecast for
the right people with right skills at the right place at the right time is very
important as part of the strategic plan
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2. Talent Management and retention program: Ongoing talent review, key

talent program to retain high quality individuals, career progression, long
term incentive plans (LITPs)
3. Training and Development: This is a strategic area for any organisation,
while this could be a weakness for many organisations, which they should
correct. With fast changing market environment and technology, it is very
essential to have a skills assessment and training calendar planned for all
the employees. Training must be considered not as a short term
necessity, but a long term investment and not as an expense.
4. Attrition: High attrition relative to the industry reflects inherent problems in
HR function of the organisation. Like poor employee engagement, poor
management, low compensation and benefits and low motivation
because of low job satisfaction.
5. Effective Performance Appraisal: Emphasis on performance appraisals
and interventions to improve individual’s performance are key to success.
There should be a professional feedback system between managers and
employees, link rewards to actual performance and provide challenging
work environment and equal employment opportunity for employees. The
company must ensure to appraise high performers and reward them and
retain them for long term.
8.6 Organisational Resources

Organisational resources include systems and processes, strategy at various
levels, structure and organizational culture. It is important to establish
alignment between organisational resources and such a business strategy is
crucial for long term success of the organisation. The organisation should be
in a position to build dynamic capabilities in terms of specific processes i.e.
new product development process and strategic decision making process
etc. The following issues need to be carefully examined and considered for
building long term strengths for the organisation.
1. Consistency in corporate, business and functional level strategies:
strategic managers should ensure to facilitate strategy integration among
these three levels right from the strategy planning stage, and influence
strategy formulation at the other levels as well.
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2. Consistency in organizational strategy and mission: the mission, goals

and strategies must be compatible and integrated to reflect a clear sense
of identity and purpose for the organization.
3. Consistency between organization strategy and its culture: the
organization should foster an appropriate culture and environment which
emphasises on values and behaviour of the people. This is essential for
the organizational strategy to be effective.
4. Consistency between organization strategy and its structure: it is
important to align the structure with the strategy and any major change in
strategy should be supported by appropriate change in the structure to
support the organization growth.
5. Position in the industry: With all external factors being equal, a firm that
has strong market position is in a better position to implement strategic
changes than those in weak positions. For companies operating globally
this assessment must be made for different countries of operation.
6. Product and service quality: it is important that the quality of the products
and services either compares or betters with those of the competition
firms.
7. Reputation of a firm: the customers should be able to associate attributes
like product quality and customer service, thereby help in establishing the
reputation of the company. Otherwise, it can be detrimental to the
company’s image and brand in the long run.
8.7 Physical resources

Physical resources refer to the company’s capital assets, use of technology,
production capacity, distribution network, access to raw materials, and
locations of operations. This differs from industry to industry, and
organization to organization. For instance, these parameters for a software
industry would be different from that of a manufacturing industry. However,
the following issues pertaining to the strengths and weaknesses must be
examined and considered in strategy formulation.
1. Currency of technology: technology being a fast changing parameter, the
competitive advantage would be to stay current with superior technology.
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This requires constant up-gradation and refreshing of the outdated

technology from time to time. This applies to companies with global
presence and should be appropriate for the country of operation
2. Distribution network: the organization must ensure the quality and
sophistication of distribution network for its products and services with
faster turnaround time to have a competitive advantage.
3. Production capacity: production capacity must be dynamic and flexible
enough to take care of the changing demands of the market. The
continued backlog of orders may indicate that the demand for the product
is growing in the market, or it may indicate insufficient capacity to produce
more, which is not a good indicator either. The capacity must be
managed optimally to stay competitive and exceed delivery expectations.
4. Access to cost effective supplies: the organization should ensure cost
effective and reliable sourcing for its input components. The supplier
should have quality products supplied at competitive costs.
5. Locations: the company should identify locations in favourable places
where skilled labour, suppliers and customers are readily available.
Thus, the strengths, capabilities and credentials across human resources,
organisational resources and physical resources form the unique value
proposition for an organisation and should be emphasised while formulating
the strategy. Within the existing resources and new resources acquired by
the company from time to time will emerge synergies to maximise the
potential for performance. Each organisation will have a unique combination
of these resources that would differ from others. The top management
should ensure that these synergies are leveraged to create sustained
competitive advantage for the organisation.
8.8 Opportunities and Threats

In the chapter 3 on external environment, we discussed in detail how an
organisation is impacted by the external environment, also called the macro
environment. It is important to be aware that every organisation exists within
a complex network of political, regulatory, economic, social, technological
and demographic forces. We have also studied about the analysis of the
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macro environment and its forces (referred as the PEST analysis) in the
same chapter.
The constant changes in these forces present numerous opportunities and
threats to the strategic management process. The strategic managers should
be able to draw the difference between the strengths and weaknesses, and
opportunities and threats. While strengths and weaknesses are internal
factors such as brand image, marketing strategy, financial position,
employee expertise, whereas all the external factors such as regulatory
changes, demographic or social changes, technology evolution will be
classified as opportunities and threats.
For example, any change in government or regulatory policy on specific
industries with respect to tax concession, M&A reforms, foreign direct
investment (FDI) relaxation etc. would result in many opportunities for the
companies operating in that industry. At the same time, to increase
transparency the government might stipulate certain tough conditions which
might be viewed as threat to the firm.
It is important to distinguish between opportunities and alternatives as it may
seem to be of minor difference. In strategy management, opportunities
represent the application of macro environmental factors to a specific
organisation. Alternatives emanate from the SW / OT matrix and represent
specific courses of action that the organisation might choose to undertake.
The two are related but must be differentiated.
For example, an organisation has huge cash from internal accruals on its
balance sheet along with high credit rating (which are treated as strengths),
and there is an opportunity to grow the market share in the given industry,
then the strategy would be to acquire a suitable firm or establish a greenfield
unit to increase the production to meet the high demand. We will study this in
detail in the following sub-chapter.
8.9 SW and OT Matrix

It is a tool used for generating alternative courses of actions by identifying
relevant combinations of internal characteristics like strengths and
weaknesses and external forces like opportunities and threats. Once the
SWOT analysis has been completed successfully, SW/OT matrix is used to
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generate alternative courses on actions or the company’s strategy. A matrix

is created as shown in Fig 8.2 as below.
FIG 8.2
Opportunities Threats
1. Fast growth in  
1. Increasing  
Service 
Strategic alternatives or options competition 
2. A competition with  
2. Government Policy  
complement  
on taxation hitting  
products 
margins 
3. Demand from  
3. Customer churn
global markets
1. Financial stability 
2. Brand name and  
recognition  1. Acquire a competition with complementing  
3. Large internal cash   products (Combination of S1, S3, W2, O2) 
Strengths 2. Exit business with high competition and low  
balance 
4. Technology and   margin (W4, T1, T2) 
product capability  3. Leverage customer service and services  
5. Customer Service marketing to arrest customer churn (S5, O1,  
T3) 
1. Loss of market share   4. Acquire modern technology and expand,  
in one biz  launch new product lines (S3, S4, O1) 
2. Gaps in product mix  5. Form strategic alliance with a suitable  
3. No international   foreign firm having marketing capability (S1,  
Weaknesses presence   S2, W3, O3) 
4. Low margin business   6. Initiate lobbying with government to address  
line  policy issues (S1, S2, W1, O1, T2)
5. Over dependence on  
partners
For example, an organisation with strengths of balance sheet, large internal

accruals and high credit rating by creditors, in a market where there are
opportunities for expanding the various businesses under its strategy, can
seek to acquire a competitor with complementing product lines which will
help in addressing the market growth opportunities and attempt to increase
the market share. Similarly, if there is a growing demand for the products
from international markets, the strategy should be to explore a strategic
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alliance or a joint venture with suitable foreign firm(s) with excellent

marketing capabilities to launch the product in the respective countries.
These alternatives are worth considering during the strategy formulation
stage.
We can quote the examples of Mc Donald’s or any other fast food restaurant
having strategic partner-ships with Indian partners to launch their fast food
chain in India. Similarly, companies like Bajaj Auto or Maruti produce
automobiles in India and have strategic alliances with foreign partners in
other countries to distribute their products to the customers in those
countries. Ultimately the strategy is that the strengths of these companies in
their core business, whether fast foods or automobiles, are clearly leveraged
to address the opportunities identified in other markets thereby expanding
their business. The SW / OT matrix is a systematic means of developing
strategic alternatives available to the organization. This requires
brainstorming and creative discussions among the strategic managers.
SW / OT matrix analysis
The SW / OT matrix helps top managers to position a company in its
environment so that it leverages its strengths and develops new strengths
which were hitherto weak areas for the company, thereby it tries to minimise
the detrimental effects due to these weaknesses. Firstly, alternatives are
company’s courses of actions that are worth considering as they present
potentially alternate options and positive benefits for the company’s strategy.
Secondly, these alternatives are within the realms of possibilities for the
organisation.
As explained in the above table, generally there are different alternatives
emerge from this exercise, each representing a combination of one or more
strengths or weaknesses with one or more opportunities or threats. It is not
suggested that the same number of alternatives should be developed in
each category. Actually it is left to the strategic managers to be creative in
identifying the different alternatives, as many as they can discover in different
categories.
Typically, as seen from the figure 8.2, several different combinations of
internal factors (strengths and weaknesses) and external factors
(opportunities and threats) can produce the different alternatives. Mostly
individual internal or external factors may not produce viable alternatives. In
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the process, some combination may be eliminated for further consideration

for obvious reasons as they may not be suitable for the company’s vision,
but the other ones that are relevant to the vision must be considered for the
strategy formulation and for further analysis. The success of the organisation
will depend on the ability of the strategic managers to be creative in this
brainstorming exercise.
It is worthwhile to note that the company may choose to continue and
implement its current strategy in the present form, as referred to as no
change option; however this could be one of the alternatives that may be
considered as well. It is necessary to analyse all the possibilities of
alternatives as critically as possible, before selecting the no change
alternative. Resisting change, by choosing no change option, may expose
the firm to greater threats from external factors than embracing the change.
The strategic mangers must keep this in mind.
In most organisations which aspire for growth strategy, especially in today’s
fast changing economic environment, to continue with the present strategy is
not an option. Every organisation has to look for changes and desirable
alternatives to keep their strategies dynamic to meet the investor
expectations.
Additional alternatives must be identified from the SW / OT matrix. Firstly, the
organisation should look to fully utilising its strengths to take advantage of
existing opportunities and mitigate the threats effectively if not already doing
so. For example, if the organisation has excess production capacity and
there are new markets which are not currently served, then making presence
into these markets will be a viable alternative. Secondly, the company should
take actions to develop new capabilities by improving on its weaknesses
identified earlier, to pursue new opportunities and minimise the threats as
well. It is very important to not include alternatives which are not feasible or
not within the realms of the organisation’s financial or technological
capabilities.
Student work:
Consider an organisation of your choice in any industry and discuss the
different strategic alternatives available to the organisation using the SW /
OT matrix, and the pros and cons of these alternatives.
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8.10 Choosing the Best Strategy Alternatives

There are many challenges that affect the strategy formulation process.
These factors include organisation’s prevailing culture, leadership team’s
quality and commitment, aspiration, ethical practice, financial performance,
brand equity etc.
Decision making during strategy formulation process is a difficult subject,
worthy of a chapter considering its various complexity. This section can only
offer a few suggestions. There are many issues surrounding the strategy
formulation. Here are some factors to consider when choosing among
alternative strategies:
1. It is important to get as clear as possible about company’s current
challenges, aspirations, objectives and “decision criteria” which make a
decision appropriate for the company’s strategy
2. The primary answer to the previous question, and therefore a vital
criterion, is that the chosen strategies must be effective in addressing the
"critical issues" the company faces currently as well as taking into
consideration its future aspirations
3. They must be consistent with the mission and other strategies of the
organization
4. The organisation culture and value systems must be of high order. It is
important to foster ethics and code of conduct at all levels and the top
leadership should be made accountable for the organisational ethics.
5. Communication strategy is a very important element in the overall
strategy making process
6. They need to be consistent with external environment factors, including
realistic assessments of the competitive environment and trends
7. They fit the company's product life cycle position and market
attractiveness/competitive strength situation
8. They must be capable of being implemented effectively and efficiently,
including being realistic with respect to the company's resources
9. The risks must be acceptable and in line with the potential rewards
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10.It is important to match strategy to the other aspects of the situation,

including: (a) size, stage, and growth rate of industry; (b) industry
characteristics, including fragmentation, importance of technology,
product orientation and innovation, international features; and (c)
company’s position in the market (dominant leader, leader, aggressive
challenger, follower, weak, "stuck in the middle")
11.Consider stakeholder analysis and other people-related factors (e.g.,
internal and external pressures, risk propensity, and needs and desires of
important decision-makers)
Sometimes it is helpful to do scenario construction, e.g., cases with
optimistic, most likely, and pessimistic assumptions. 
8.11 Organisation Culture

It is important to understand the culture of the organisation and how it
impacts any strategic decision taken by the top management. The strategic
decisions must be consistent with the organisation culture and be able to
foster a progressive working environment for the employees. Organisation
culture is generally defined as the shared values and beliefs, and the
behaviour that are accepted and practiced by the employees of an
organisation. Each organisation develops its own unique culture irrespective
of same or different industry and will exhibit distinctly different ways of
functioning. The organisational culture enables a firm to adapt to
environment changes and help coordinate and integrate internal operations.
The culture of an organisation is defined by clearly articulated values that are
easily understood by all the employees and percolate from the top
management. The values must be reinforced from time to time. The culture,
besides values and beliefs, also includes the organization visions, norms,
working language, systems, symbols, habits and behaviours. It is also the
pattern of such collective behaviours and assumptions that are taught to new
organizational members as a way of perceiving, and even thinking and
feeling. Organizational culture affects the way people and groups interact
with each other, with clients, and with stakeholders. An organization’s culture
has both negative and positive aspects internally and externally.
Some organisations culture is innovative and encouraging with openness to
new initiatives, whereas some may be conservative and closed. The most
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important influencer in an organisation’s culture is its founders and

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

political systems and legislation, etc. Hofstede suggests the need for
changing "mental programs" with changing behaviour first, which will lead to
value change.
When the external environment changes fast, the organisation also should
be in a position to modify its culture over time, with proactive sense of need
for change. Otherwise the organisation culture might become obsolete and
even dysfunctional. It is quite essential that new elements of culture get
added whereas the old elements get discarded, so as to stay relevant to the
environment. It may be that conservative firms do not become aggressive
entrepreneurial firms because they have formulated new goals and plans in
line with their conservative strategy and they might need substantial effort to
modify the culture and the way things are done in their organisations.
Changing strategy is easier and does not mean changing of culture which is
the most challenging task for any organisation. The new strategy to drive
change may not be implemented successfully as it might require changes in
assumptions, values and way of thinking as well as working. Hence, for an
organisation to be successful both change in strategy and change in culture
are absolutely necessary.
Studies have shown that organisational culture can facilitate or hinder a
firm’s strategic actions. Companies with strategically appropriate cultures,
such as PepsiCo and Wal-Mart, tend to outperform other companies whose
cultures do not fit as well with their strategies. Successful companies
develop cultures that lay emphasis for its important groups of stakeholders:
customers, employees and shareholders. The culture must be appropriate to
the company’s strategy and must create value to the stakeholders and help
the firm adapt to environmental challenges. The point is not that these
companies have strong cultures, but appropriate culture to suit the firm’s
strategy and it should contain necessary values that can help adapt to the
environmental changes.
Shaping the culture
Organisations become vulnerable to market competition if its culture is not in
tune with the fast changing world. Key values like entrepreneurship, quality,
innovation, inclusiveness, resilience, bold and risk-taking are considered to
be the facilitating factors as compared to being conservative, business-as-
usual attitude which are considered to be hindering to the progress.
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Fostering the right culture starts from the top management and the culture
should be evolved as the organisation grows.
Evolution of culture has to keep in tandem with the company’s progress. Top
leadership can influence and shape the organisation’s culture in many
different ways. Not by command but by inspiring, collaborating and fostering
a sense of ownership among employees to act on the values to be
demonstrated in their behaviour. The following are some of the suggestions
that could help the organisation achieve to constantly evolve the culture
relevant to its business:
1. The top management should systematically focus on areas of businesses
that are key to the strategy’s success. These specific areas should be
identified as critical to the firm’s long term performance and there should
be inclusiveness at all levels of leadership.
2. The top management’s response to certain critical events or crises that
potentially impact the company’s performance like declining sales,
workforce strike, technological obsolescence etc. For example, if quality
is the assurance the company makes in its mission statement, then the
company should respond to every challenge and create opportunity to
demonstrate that value.
3. The top management should become a role model for the rest of the
organisation. It fosters the behaviour across the organisation to adopt.
The message about “employees first” from the CEO makes a lots of
difference to the morale of the employees. They will go any extent to
ensure the performance of the organisation on a sustainable basis.
4. The top management should have clearly defined transparent process of
rewards and recognition, in line with the performance of the business,
function and individual employees. In fact, rewards and recognition
process brings the right behaviour and sends a message to everyone in
company to take performance seriously and eventually get ingrained into
the fabric of the company.
5. The top management should create HR processes that are well defined
about various employee engagement programmes within the company,
from recruitment to exit processes of employees.
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An organisation’s culture comes broadly from its employees, in the way how
the company is able to institutionalise the process of hiring the right talent,
career progression, and succession planning by encouraging and promoting
individuals whose values are similar to those of the organisation, and whose
beliefs and behaviours are appropriate for the organisation’s changing value
system.
There are many global challenges that might impact the culture of an
organisation. In an international organisation, the individual national culture
becomes the subset of the overall organisation’s culture. It can pose
challenges on leadership and other dynamics of culture prevailing in that
country. Some country’s leadership may be aggressive in innovation and
risk-taking etc, while some others may be very conservative to such
changes. Such companies reflect the culture of individual countries and
present a unique cultural diversity for other country’s to learn and adapt
certain good values and best practices thereby enriching the overall cultural
value of the organisation.
When M&As happen in organisations, it is often believed that the leadership
styles and organisational cultures of the acquiring company may not all the
time be compatible for the culture of the acquired company. It takes long time
to absorb such cultures into the mainstream of the parent company. Some
corporations take decisions to keep operations of such an acquisition as a
separate company till, leadership and other employees infusion happens
over a period time and then take decision to merge the acquired company.
Practically, many organisations have failed to merge the company
successfully because of cultural mismatch as any efforts to customise the
vales and culture may pose special challenges when companies from
different countries or other strategic acquisitions from related industries.
Such mergers are long drawn processes from culture perspective and it
might take many months to few years for a successful transition.
8.12 Management Ethics

In today’s organisations, Corporate Ethics Policy, as part of the company’s
strategy, is designed to promote employee awareness of the company’s
commitment to conduct business in compliance with the highest ethical
standards, adhering to the Code of Ethics and Business Conduct and
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pertinent laws and regulations. Every employee has to make business

decisions that are legal, honest, moral, fair and with highest integrity.
With more organisations getting exposed with on their bad governance and
performance affected by bad business ethics, there has been significant fall
out as a result of the questionable strategic decisions taken by the
management in its business strategy. The organisation’s reputation is critical
to all business relationships and is a vital asset which every company must
be committed to protecting, preserving and enhancing. Such a policy should
be included in the overall strategy making process.
Some of the ethical standards include:
1) Integrity – Individuals should be honest in all dealings and stand for what
is right
2) Respect – To show respect for one another by treating everyone with
dignity and fairness
3) Accountability – To be accountable for actions and honour commitments
4) Responsibility - To conduct business as responsible citizens in
accordance with applicable laws and regulations in each country where
the company operates
The organisation’s business purpose is not just to meet the financial interests
and profitability motive of the shareholders. In today’s economic world, the
expectation is also to serve the society and other stakeholders in all fairness.
The performance of the organisation can be directly linked to be the direct
result of the ethical or unethical decisions taken by the various strategic
managers at different points of time. These organisations which are
considered to be delinquent would soon get exposed through various
manifestations of such actions like scandals, corruption, etc
Generally, corporate ethical behaviour can be looked at a number of ways
how the organisation behaves during various challenges. If an individual in
the organisation pursues his or her own economic self-interest in
organisational activities it will impact the organisation’s interest in the long
run and will be against the interest of the organisation, and such violations
will be dealt with as per the code of ethics of the company, to be complied by
all the employees of the organisation.
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8.13 Social Responsibility

Corporate Social Responsibility is generally the expectation that the
corporate organisation should serve both the societal needs and the financial
interests of the shareholders in a fair manner. A firm’s position towards
social responsibility can be a critical factor in making strategic decisions. If
social responsibility is not considered, decisions of the firm may be aimed
only at profit or other narrow motives without a concern for the social
objectives.
Corporate social responsibility (CSR), also called corporate conscience
or social performance, or sustainable business/ responsible business, is a
form of corporate self-regulation integrated into a business model. CSR
policy functions as a built-in, self-regulating mechanism whereby a business
monitors and ensures its active compliance with the spirit of the law, ethical
standards, and international norms. In some models, a firm's implementation
of CSR goes beyond compliance and engages in "actions that appear to
perform social good, beyond the interests of the firm and that which is
required by law."
CSR is a process with the aim to embrace responsibility for the company's
actions and encourage a positive impact through its activities on the society,
environment, consumers, employees, communities, stakeholders and all
other members of the public sphere who may also be considered as
stakeholders. This, however, is beyond the general economic expectation
that businesses have always been expected to provide employment to
people and to meet customer needs.
The term "corporate social responsibility" became popular in the 1960s and
has remained a term used indiscriminately by many to cover legal and moral
responsibility more narrowly construed.
Proponents argue that corporations make more long term profits by
operating with a perspective, while critics argue that CSR distracts from the
economic role of businesses. McWilliams and Siegel's article (2000)
published in their Strategic Management Journal, cited by over 1000
academics, compared existing econometric studies of the relationship
between social and financial performance. They concluded that the
contradictory results of previous studies reporting positive, negative, and
neutral financial impact were due to flawed empirical analysis. McWilliams
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and Siegel demonstrated that when the model is properly specified; that is,
when you control for investment in Research and Development, an important
determinant of financial performance, CSR has a neutral impact on financial
outcomes.
Some argue that CSR is merely window-dressing, or an attempt to pre-empt
the role of governments as a watchdog over powerful multinational
corporations. Political sociologists became interested in CSR in the context
of theories of globalization, neo-liberalism, and late capitalism. Adopting a
critical approach, sociologists emphasize CSR as a form of capitalist
legitimacy and in particular point out that what has begun as a social
movement against uninhibited corporate power has been co-opted by and
transformed by corporations into a 'business model' and a 'risk management'
device, often with questionable results.
CSR is titled to aid an organization's mission as well as a guide to what the
company stands for and will uphold to its consumers. Development business
ethics is one of the forms of applied ethics that examines ethical principles
and moral or ethical problems that can arise in a business environment. ISO
26000 is the recognized international standard for CSR. Public sector
organizations (the United Nations for example) adhere to the triple bottom
line (TBL). It is widely accepted that CSR adheres to similar principles but
with no formal act of legislation.
In India, as per the new companies’ law, all public listed companies should
contribute 2% of their net profit for the CSR programs and social
development. Most corporate organisations are engaged in CSR initiatives.
As seen in an earlier chapter, Tata group believes being a societal
organisation rather than an organisation with social cause. Many
organisations and business leaders across industries devote their wealth to
the development of socially underprivileged in the areas of child education,
women empowerment, healthcare, rural jobs creation etc. This is a welcome
change to make the economic development an inclusive development.
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Summary
In this chapter we studied the importance of SWOT analysis and how it
forms the basis for the formulation of strategies at all levels. The SWOT
analysis also takes care of the organisation’s internal (strengths and
weaknesses) and external (opportunities and threats) attributes which must
be well analysed and mapped to the various important elements of the
organisation viz human, organisational, and physical resources. The SW/OT
matrix generates strategic alternatives or options by combining the internal
and external factors analysed in the SWOT analysis.
Social Responsibility and ethics should be integral parts of the strategic
decision making process. In addition, an organisation’s culture can facilitate
or hinder the firm’s strategic actions. Successful strategy implementation
requires strategically appropriate culture, the one that is appropriate and
supportive of the organisation’s long term strategy.
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1. According to Michael Porter, what is strategy formulation?
a) Creating a plan for the future of the organisation
b) It means deliberately choosing to perform activities differently or
to perform different activities than rivals to deliver a unique mix
of value to all stakeholders
c) Perform analysis about the strengths and weakness of an
organisation
d) Create an action plan to achieve its vision
2. The following process is designed to monitor a broad range of events
inside and outside company that are likely to threaten the course of the firm’s
strategy.
a) Operation monitoring
b) Strategic planning
c) Strategic surveillance
d) None of the above
3. The main advantage of strategic planning is that it will assist the
management to eliminate the business risk. True or False?
a) True
b) False
4. The strategic option for a company which has strengths on good financial
performance, internal cash accruals with weakness on complementing
product mix, and a good market opportunity is
a) To form a strategic alliance
b) Acquire a company with complementing products
c) Acquire modern technology and expand
d) Change the product mix to the company’s core strength
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5. Which is the right way to choose the best strategic alternative in strategy
formulation?
a) Consider the organisation’s importance to achieve the profitable
growth
b) Create a plan for the future of the organisation
c) To get as clear as possible about company’s current challenges,
aspirations, objectives and “decision criteria” which make a
decision appropriate for the company’s strategy
d) Analyse the various opportunities available for the organisation
6. What are the key standards or behaviours that define management ethics
in an organisation?
a) The financial interests and profitability motive of the shareholders
b) Respect, Integrity, Accountability and responsibility
c) Actions to improve reputation of the organisation
d) Work towards improving organisational culture
268
References
Unit Strategy P 125
Unit Strategy P 127
Unit Strategy P 132
4. C D Pringle and D F Jennings, Managing organisation functions and
behaviours, P 594
5. M. Driver, “Learning and Leadership in Organisation:”, Management
Learning (2002): 96-126
6. McWilliams and Siegel's article (2000) published in Strategic
Management Journal
269
REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
Video2
270
9
STRATEGY IMPLEMENTATION 
Objectives:
This chapter focuses on strategy implementation which is the next logical
step once the strategy formulation exercise has been completed. This
chapter talks about a number of challenges and issues that need to be
considered well in advance by the strategic managers during the execution
of strategy.
At the end of the chapter, you will be able to understand the following:
•! Understand different approaches to strategy implementation
•! The formulation of organisation structure
•! Understand the communication strategy
•! Choosing right organisation structure
•! Organisation culture, leadership and change management
•! Top changes in strategy implementation
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STRATEGY IMPLEMENTATION
Structure
9.1! ! Introduction
9.2! ! Approaches to Successful Strategy
9.3! ! Formulation of Organisation Structure
9.4! ! Leadership Implementation
9.5! ! Communicating the Strategy
9.6! ! Annual Operating Plans
9.7! ! Different Types of Organisation Structures
9.8! ! Policies an Guidelines
9.9! ! Rewards and Recognition
9.10! Strategy Implementation Approaches
9.11!! Strategy Implementation Stakeholders
9.12! Executive leadership an Change Management
9.13! Top Challenges in Strategy Implementation
9.14! Summary
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9.1 Introduction
“I’d rather have a first-rate execution and second-rate strategy any time than
a brilliant idea and a mediocre management”, said Mr. Jamie Dimon current
CEO and chairman of JPMorgan Chase & Co. This shows that execution is
the most important and vital part of success for an organisation’s strategy. In
other words, it is implied that even the best conceived strategic plans often
fail from lack of the leadership’s ability to implement them successfully. While
strategy formulation is mostly an intellectual process, strategy
implementation is all about actions and relentless execution.
During strategy implementation, the strategic mangers will face a number of
challenges and issues that need to be considered well in advance. The most
important aspect, for implementation to be successful, is to consider how the
organisation should be structured and how its current leadership practices
can facilitate or hinder the implementation process.
A brilliant strategy, blockbuster product, or breakthrough technology can put
the organisation on the competitive map, but only a solid execution can keep
it there sustainably. Execution is the result of thousands of decisions made
every day by the top management and employees acting according to the
information they have and the direction they have to take to reach the goals.
There are many moving parts which need to be monitored and controlled on
real-time basis during implementation. Hence, in practice, strategy execution
is a difficult task for many reasons.
Many leaders don’t know what strategy execution is or how they should
approach it, especially when there is change management which is part of
the strategy plan. The organisation may not have a well-developed or an
institutionalised process of managing change. There will be resistance to
change always. The strategic managers must recognise this as they build
their strategy plan and specific strategies should be formulated to overcome
these challenges. Also, it must be taken into account that certain home-
grown approaches may be incomplete if they fail to incorporate some of the
basic activities which are critical to the strategy execution.
There are several concerns in implementation which could be quite
challenging. As the environment changes rapidly, progressive organisations
take steps to capitalise on new opportunities and minimise any adverse
impact on the organisation. Strategic changes can be brought about in
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factors such as the need to address hyper competition, create product

innovation, and improve quality of service, the need to optimise costs, align
with the technology partners and learn their best practices. These
improvements would be required as part of the strategy when the
organisation transitions from their ‘current state’ to the ‘desired state’ and will
eventually lead to a transformation process. This happens when the
organisation changes its product lines, acquire new markets, or design a
new distribution strategy. This leads to strategic interventions which must be
carried out in order to operationalise the transformation strategy and create a
sustainable inclusive growth.
The first part of strategy implementation is creating the appropriate
organisation structure that supports the implementation of the strategy. This
could involve overhauling of the current structure to make it desirable for the
strategy. Such changes are not easy in nature. Sometimes shifting the
strategic intent or any structural changes should be accompanied by
communication to all important stakeholders like customers, employees,
partners etc.
The structural changes may involve major investments from the organisation
upfront, but results might or may not be seen later depending on how well
the strategy execution happens across the organisation. The incremental
costs arising out of any change program must be justified as a business case
and its benefits articulated as part of the strategy plan.
This chapter deals with the steps and the process involved in strategy
implementation and also tries to address the challenges faced during the
execution. It must be recognised that strategic change of large magnitude
could be daunting and difficult to implement. Most importantly any change
that involves the most sensitive human element of the organisation must be
handled very carefully. Employees resist every change for variety of reasons
including personal factors like lack of information about change or poor
design of the implementation or lack of any support system.
9.2 Approaches to successful Strategy Execution

As discussed, in reality, strategy execution is difficult, sometimes complex,
for many reasons. Many organisations often fail as they lack knowledge
about what strategy implementation is or how they should approach it,
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especially when there is a major organisational restructuring required and

change management required to propel organisation to a transition and
transformation path. Let us see the various approaches that could be used
practically towards successful implementation of strategy.
1. Formulation of the Strategy and structure
As discussed in the previous chapters, it is essential to design the corporate
level, business unit level, and functional strategies. The first step is to design
an appropriate organisational structure in tune with the strategy envisaged.
One of the key challenges in strategy implementation is the ability of
organisational stakeholders to understand what the strategy is. An effective
way to improve this understanding is to visualize the strategy via an
illustration that shows the important elements of the strategy, how each
element relates to the others, each manager and each employee’s
responsibilities and their actions and impact on the organisation.
2. Measure the Strategy
Key elements of the strategy should be assigned an easily understood
performance measure or a key performance indicator (KPI). The full set of
strategic performance measures can be organized into a dashboard, called a
Balanced Scorecard, or some other framework so the top management can
review and determine that progress is being made toward completion of the
strategy.
3. Report Progress
In the same way that a budget is reviewed monthly to ensure financial
commitments are being kept, the strategy should be reviewed regularly, but
with more of an eye toward determining if the strategy is producing results,
versus controlling performance.
4. Make Decisions
Strategy execution is much like setting the direction towards a planned
destination with clear milestones of achievement and timelines defined in the
beginning. A defined course and a full complement of navigational charts will
never eliminate the need to remain vigilant, to assess the environment, and
to make corrections as conditions change. As part of the regular reporting
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process leaders must make on-going strategic decisions to keep the strategy
current, dynamically aligned to changes and on course always.
5. Identify Strategic Projects
Companies roll-out many strategic interventions to complement and
strengthen the ongoing strategy. Hence, there are many ongoing projects at
any point, but they rarely have a firm grasp on the type and range of these
projects. The first step in improving project-oriented strategy execution is to
capture and organize them, strategy projects in particular, that are underway
throughout an organization.
6. Align Strategic Projects
Once projects are identified they must be aligned to the strategies or goals of
the organization. This step entails comparing each project, either proposed
or ongoing, to the strategic goals to determine if alignment exists. Only those
projects that directly impact the strategy should be resourced and continued.
7. Manage Projects
Organizations must develop a capability in project management if they are to
execute strategy effectively. In some settings, projects receive very little
management and fail to deliver desired results. In others, projects persist
well beyond their scheduled completion. The full list of projects in any
organization should be coordinated and controlled by a central project
management office or officer with the responsibility for monitoring both
progress and performance.
8. Communication Strategy
It is difficult to execute strategy when the strategy itself is not well
understood or articulated about its value, or when performance relative to the
strategy is not communicated from time to time. Leaders must communicate
their visualized strategy to the workforce in a way that will help them
understand not only what needs to be done, but why.
9. Align Individual Roles
Employees want to know they are making a meaningful contribution to their
organization’s success. It is up to strategic mangers and senior leaders to
ensure that employees at all levels can articulate and evaluate their personal
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roles with clearly defined KPIs towards achievement of specific strategic

goals. This is perhaps one of the most critical aspects of the execution
process.
10. Reward and recognition of Performance
In strategy execution, as in any other area of management, what gets
measured gets done. Taking this one step further, what get measured and
rewarded gets done faster. After explaining the strategy and aligning the
workforce to it, senior managers institute the incentives and rewards that
drive employees’ behaviours consistent with the strategy.
Rewards and recognition (generally called R&R program) are important
practices that help in effective implementation of the strategy. A successful
execution depends on the motivation of employees who are ultimately
responsible for delivering the results. Therefore, it is necessary to have a
system to recognise superior performance and reward the star performers,
thereby motivate the other employees to perform better next time.
9.3 Formulation of Organisation Structure

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

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

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

A formal and proper communication process is a prerequisite for successful
implementation of the strategy. When the strategy formulation exercise
happens at the top leadership team, only some of the strategic managers
from different lines of businesses and functions participate in the exercise.
However, when the strategy implementation process happens across the
broad in the organisation, it involves a number of people being part of the
process at different levels to make it a success. Many of them might not
have taken part in the strategy formulation exercise. This naturally creates a
divide between the ‘thinkers’ and the ‘doers’. This gap must be bridged by
following the right strategy implementation approach, discussed later in this
chapter and an effective communication strategy.
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Thus, it is necessary that all the employees who are expected to implement
the strategy must be informed about the strategy and the future plans of the
organisation. What the strategy means to the organisation must be clearly
understood by the employees. The key elements of strategy like the
company mission, values, strategic objectives, what and why changes are
being made, how it will affect the organisation, what are the broad roles and
responsibilities of key people and the expected results from the strategy that
the company wishes to implement.
The communication process is an essential component of the strategy
implementation phase. It is very important to instil a feeling of belongingness
and inclusiveness of the people in the organisation. Absence of such a
communication would render the employees lack of understanding about the
strategy and create a feeling of being left out in the process. This could lead
to disengagement of the employees with their leaders and dampen the
morale and motivation which could affect their willingness to change and
adopt the strategy implementation.
It is important that through the communication process, the CEO interacts
and engages with the various internal and external stakeholders of the
corporation, like the employees, customers, shareholders, partners,
suppliers, consultants, advisors, legal teams etc. Moreover, the CEO uses
communication to formulate and disseminate his/ her vision for the future of
the enterprise. A clear understanding of the strategy gives purpose to the
activities of each member of the organisation. It enables the individual
employees to relate his tasks and KPIs (Key Performance Indicators) to the
overall organisational goals and strategic direction. It also provides them
guidance to make appropriate decisions and enables them to direct his
efforts to the achievement of goals.
It however does not mean that all strategies or all the details of the strategy
should be communicated to the employees. Certain “classified information”
like competition strategy or discrete information on any new innovation or
product development which are proprietary in nature, unfinished and
confidential M&A discussions, etc. may be withheld and made available only
to limited number of people in the organisation. The company may decide to
communicate such information to the employees later at the appropriate
time.
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9.6 Annual Operating Plan (AOP)

The strategic plan and the long term objectives of the organisation must be
translated into an executable Annual Operating Plan (AOP). The annual
operating objectives are designed to deliver the yearly strategic plan of the
organisation, which contains the targets to be achieved by different people
within a specific time frame so that long term objectives will be achieved and
business performance comes from all stakeholders in the organisation.
While long term objectives are broadly stated, the annual operating plan
specifically lay down the annual goals and targets for the business,
functional and sub units. Annual goals should be clear, measurable,
consistent, reasonable, challenging and time bound, accompanied by
commensurate rewards and recognitions of the performers.
The annual goals are formulated for all the lines of businesses, all the
functional areas, and all the employees across different levels of hierarchy of
the organisation. The AOP collectively translates the annual objectives of the
organisation into individual goals, tasks and KPIs. The AOP has impact on
the company’s annual revenue and profitability performance and hence has
a high priority impact on the company’s strategic success. The AOP
exercises in most organisations are a combined activity of both top down and
bottom up approaches.
1. Systematic development of the AOP brings focus among the managers
and employees in agreeing to the common template that captures the
targets related to sales, margins, cash-flow etc. The exercise should be
carried out both top down as well as bottom up approach in order to have
clear understanding of the strategy, clarity of purpose and match it with
the market potential. The exercise brings out commitment of the
employees towards taking ownership of the targets, which they should
believe that they will deliver
2. The clarity of purpose and understanding of the AOP will be an
influencing factor in effectively mobilising resources and allocation of
budgets required for the business
3. The AOP becomes the framework for monitoring and reviewing the
progress towards achieving the annual goals which lead to the
achievement of long term objectives of the organisation
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4. When annual objectives are developed in collaboration with the

managers who are responsible for the achievement, they will be in a
position to address the challenges and conflicts that might crop up during
the implementation.
5. Effective annual objectives become the essential link between the
strategic intentions and operational realities of the business environment
9.7 Different Type of Organisation Structures

When the organisation grows, it expands its structure both vertically and
horizontally. Vertical growth refers to expansion in the hierarchy of the
organisation, i.e. the increase in the levels of management. The number of
employees reporting to each manager represents that manager’s span of
control.
A highly hierarchical organisation is composed of many layers of leadership
levels and narrow spans of control, a structure often called as a tall
organisation. Here, the managers exercise relatively higher degree of control
over their subordinates and the authority tends to be relatively centralised at
the top levels. The decision making process is a long drawn process.
On the contrary, a less hierarchical organisation has only a few levels of
leadership and a wide span of control from top to bottom, a structure often
called as a flat organisation. Converse to tall organisations, flat organisations
tend to offer more decentralised authority (with defined delegation of
authority), broad spans of control and therefore more flexibility to their
employees and decisions are more likely to happen at various levels
enabling more organisational resilience.
In reality, most organisations fall in between the two extremes and more
often depends on the size of its businesses. According to John Child, the
average number of hierarchical levels for an organisation with 3,000
employees is around seven (J Child, Organisation, a guide for Managers and
Administrators, NY: Harper and Row, 1977). One might consider such an
organisation with fewer than seven hierarchical levels to be relatively flat and
bring more effectiveness to the strategy execution. It is advisable for
employees to have a more generalist orientation.
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Both types of organisations have their own advantages and strategically

important to their business models and size of business. Centralised
organisations are able to have an effective process for communication with
employees about the organisation mission, objectives and goals to all
employees. Strategic planning and execution can be handled relatively
easier because all employees are directed centrally by the top management.
Hence, it was believed that tall organisational structures may be best suited
for companies that are relatively stable and predictable. Most experts believe
that tall structures do not yield the results in the present business context.
In flat structures, organisation costs tend to be less than that of tall
organisations. Moreover, because of fewer hierarchical levels and
decentralised decision making, the managers are more empowered with
clearly defined delegation of authority and distributed decision making
powers, which help in increasing employee satisfaction and motivation,
rather than they have to wait for approvals from the top management for
every business decision. Improved decision making also fosters more
creativity and innovation across the people in the organisation.
In today’s corporate world, which is faced with highly challenging economic
environment and uncertainties in business growth, it is relevant to have a
more nimble footed and resilient organisation structure that addresses the
challenges of a dynamic business environment, especially a fast growing
organisation or a company operating in a fast growing industry like retail,
telecom, media, information technology, internet ecommerce, etc. The
organisation culture tends to be innovative and creative. A faster decision
making environment fosters a culture that is well aligned to the strategy
execution as there is more awareness, action and accountability among the
managers and employees.
Functional Structures
In enterprises, functional structures are created to focus on the development
of more specialised capabilities to support the organisation strategy.
Functional structure is a form of structure wherein each subunit of the
organisation engages in specialised activities in different functions like
marketing, finance, human resources, production, customer service, quality,
research development, and supports the various business units in the go-to-
market strategy implementation and across the organisation.
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The employees are categorised according to their functional expertise and

the resources they use in their jobs. The functional structure brings in a
number of strategic benefits to the organisation. First of all, it brings focus to
develop specialised skills, improve efficiency and productivity of the people
who perform the functional tasks. Under each function, the specialists and
subject matter experts are organised to collaborate and evolve
improvements in products and services, and nurture innovation to address
the market trends and customer expectations. In addition, the functional
structure can also foster economies of scale by centralising all the functional
activities of the strategy.
Fig 9.2 Functional Structure
A functional organizational structure also addresses key activities such as

coordination, supervision and task allocation. While the organizational
structure determines how the organization performs or operates, the term
functional structure refers to how the people in an organization are grouped
by their functional expertise and to whom they report to. This organizing of
specialization leads to operational efficiencies where employees become
specialists within their own realm of expertise.
The most typical problem with a functional organizational structure is
however that communication within the company can be rather rigid, making
the organization slow and inflexible. Therefore, lateral communication
between functions becomes very important, so that information is
disseminated, not only vertically, but also horizontally within the organization
across functions.
The employees within the functional divisions of an organization tend to
perform a specialized set of tasks, for instance the software engineering
function within a company would be organised only with software engineers
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and a project management function would be staffed with project managers.

This leads to operational efficiencies within that group.
However, for delivering a project the software engineers will have to work
with the project managers to deliver the project services scope within the key
measurable parameters like quality, timelines and project costs. Hence,
cross functional collaboration comes into play to make an effective
performance between the functions.
As a whole, a functional organization is best suited as a producer of
standardized goods and services at large volume and low cost. Coordination
and specialization of tasks are centralized in a functional structure, which
makes producing a limited amount of products or services efficient and
predictable. Moreover, efficiencies can further be realized as functional
organizations integrate their activities vertically so that products are sold and
distributed quickly and at low cost. For instance, a small business could
make components used in production of its products instead of buying them.
Communication in organizations with functional organizational structures can
be rigid because of the standardized ways of operation and the high degree
of formalization. This can further make the decision-making process slow
and inflexible. Therefore, lateral communication between functions becomes
very important, so that information is disseminated, not only vertically, but
also horizontally within the organization across functions.
Even though functional units often perform with a high level of efficiency,
their level of cooperation with each other is sometimes compromised. Such
groups may have difficulty working well with each other as they may be
territorial and unwilling to cooperate. The occurrence of infighting among
units may cause delays, reduced commitment due to competing interests,
and wasted time, making projects fall behind schedule. This ultimately can
bring down production levels overall and thus impact customer service as
well, and the company-wide employee commitment toward meeting
organizational goals.
Strategic Business Unit or Divisional Structure
The Strategic Business Unit (SBU) or Divisional structure is a configuration
of an organization, which breaks down the company into business units or
divisions that are self-contained. A business unit or a division is self-
contained and consists of all relevant functions which work to produce,
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distribute and sell products segmented to address a particular market. It also

builds a business plan to compete and operate as a separate strategic
business unit or profit and loss (P&L) centre. According to many experts,
SBU structure or divisional structure is seen as the most common structure
for large organizations today.
The employees, who are responsible for certain market services or types of
products, are placed in the SBU / divisional structure in order to increase
their flexibility. The process can be further broken down into distinct business
divisions (for example in banking industry various business units like retail
banking, corporate banking, investment banking, internet banking etc.) or
geographic business divisions (for example U.S division, EU division or Asia
division etc.). Kindly refer to the structures represented in Fig 9.3 and Fig
9.4.
Fig 9.3 Divisional Structure
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Fig 9.4 SBU Structure
Some companies organise products and services categorised into different

target consumers like B2B or B2C (corporates or households). Another
example of divisional structure would be an automobile company which
utilizes a divisional structure. The company would have one division for
trucks and tractors, another for SUVs, and another for cars. Example:
Mahindra and Mahindra in India. The divisions may also have their own
functions such as marketing, sales, production, and engineering.
Each SBU or division for each business works with P&L responsibility. The
advantage of divisional structure is that it uses delegated authority so the
performance can be directly measured with each group. This results in
managers and teams performing better and with high employee morale.
Another advantage of using divisional structure is that it is more efficient in
coordinating work between different business divisions, and there is more
flexibility to respond, when there is a change in the market. Also, the
company will have a simpler process if they need to change the size of the
business by either adding or removing divisions through M&A activities.
When divisional structure is utilized, more specialization can occur within the
groups. When divisional structure is organized by product, the customer has
their own advantages especially when only a few services or products are
offered which differ greatly. When using divisional structures that are
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organized by either markets or geographic areas they generally have similar

function and are located in different regions or markets. It allows business
decisions and activities coordinated locally.
The disadvantages of the divisional structure are that it might support
unhealthy rivalries among divisions. This type of structure may increase
costs by requiring more qualified managers for each division. Also, there is
usually an over-emphasis and importance on divisional priorities more than
organizational goals which results in duplication of resources and efforts like
staff services, facilities, personnel, training and development.
Matrix Structure
Modern corporate organisations use matrix structure to suit the needs of
challenges associated with the fast changing business environment.
The matrix structure groups employees by both function and business unit or
product unit. This structure can combine the best of both separate structures.
A matrix organization frequently uses teams of employees to accomplish
work, in order to take advantage of the strengths, as well as make up for the
weaknesses, of functional and decentralized forms.
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An example would be a company that produces two products, "product A"

and "product B". Using the matrix structure, this company would organize
functions within the company as follows: "product A" sales department,
"product A" customer service department, "product A" accounting, "product
B" sales department, "product B" customer service department, "product B"
accounting department. Matrix structure is amongst the purest of
organizational structures, a simple lattice emulating order and regularity
demonstrated in nature.
Weak/Functional Matrix: A project manager with only limited authority is
assigned to oversee the cross functional aspects of the project. The
functional managers maintain control and authority over their resources and
project areas.
Balanced/Functional Matrix: A project manager is assigned to oversee the
project. Power is shared equally between the project manager and
the functional managers. It brings the best aspects of functional and project
organizations. However, this is the most difficult system to maintain as the
sharing of power is a delicate proposition.
Strong/Project Matrix: A project manager is primarily responsible for the
project execution Functional managers provide technical expertise and
assign resources as needed.
Matrix structure is only one of three major structures such as Functional and
Divisional structures. Matrix management is more dynamic than functional
management in that it is a combination of all the other structures and allows
team members to share information more readily across task boundaries. It
also allows for specialization that can increase depth of knowledge in a
specific sector or segment.
There are both advantages and disadvantages of the matrix structure; some
of the disadvantages are an increase in the complexity of the chain of
command. This occurs because of the differentiation between functional
managers and project managers, which can be confusing for employees to
understand who is next in the chain of command. An additional disadvantage
of the matrix structure is higher ‘manager to worker’ ratio that results in
conflicting loyalties of employees.
However, the matrix structure also has significant advantages that make it
valuable for companies to use. The matrix structure improves upon the “silo”
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critique of functional management in that it diminishes the vertical structure

of functional and creates a more horizontal structure which allows the spread
of information across task boundaries to happen much quicker. Moreover
matrix structure allows for specialization that can increase depth of
knowledge & allows individuals to be chosen according to project needs.
This correlation between individuals and project needs is what produces the
concept of maximizing strengths and minimizing weaknesses.
Review of organization structure
Today’s organisation structure combines the best of various structures like
SBU, divisional, functional, and matrix structures optimally to create a unique
structure tailored to the strategic needs of the organization. Mostly, they use
the SBU structure and functional structure with the matrix structure alignment
to suit the specific needs of the strategy implementation. Some
organizations use geography divisions in addition to the SBU and functional
structures. Most organisations do a periodic review of their organisation
structure to make necessary adjustments to suit changes in their strategy to
reflect the changes in market environment.
Strategic managers need to consider the following issues to help finalise an
appropriate organization structure suited for the proposed strategic direction:
• Alignment of the organization profile with corporate profile and corporate

strategy
• Relevant hierarchical levels required for the organization and need for
relevant structures
• The extent by which the organization permits appropriate grouping of

activities
• The extent by which structure promotes effective co-ordination and

improves organisation efficiency
• The extent to which the structure allows for appropriate centralization or

decentralization of authority
• To clearly define DoA, mobilisation and allocation of resources,

responsibility matrix, tasks, information and communication flows,
evaluation and control, and policies and guidelines.
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Resource Allocation
Timely resource allocation appropriate with the strategy is one of the
important factors that impact the strategy implementation. For an effective
implementation, the top management’s commitment and objectivity to
achieving the strategy is required in the process of resource allocation. The
resources must be allocated with as per the financial budgets and goals
agreed for different SBUs and Functional units.
The resources allocation process starts with financial plans and assessment
of resource requirements across different lines of businesses, divisions and
functional units. It must include financial, human resources, technological,
capital expenditure on facilities and materials. This translates into operations
budget, capital budgets and financial plans for the business to achieve the
set financial goals.
Evaluation and Control
To implement the strategy effectively, it is important to have an appropriate
system of evaluation and control. The objective is to review whether the
strategy is being implemented as per the organisation charter and it is
meeting the objectives set by the organisation at the beginning. If the review
process throws up gaps in the implementation process, then corrective
actions must be initiated immediately. Evaluation and control is discussed in
a separate chapter later.
9.8 Policies and Guidelines

The different entities in the organisation namely, corporate level, business
level and functional level entities, are generally guided by a set policies
designed by an organisation, so that the strategy implementation happens
smoothly without any conflicts or confusion among different stakeholders.
The policies serve to channelize and guide the organisation energy and
efforts towards the successful implementation of the strategies and eliminate
discretionary misuse by certain employees under certain circumstances.
The policies and guidelines capture various scenarios of conducting
business from time to time and clearly stipulate the expectations on how the
business should be conducted, including the governance, compliance and
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risk management practices by the organisation. Therefore, it is important that

every stakeholder follows the policy uniformly.
Policies and guidelines bring clarity to different stakeholders on their
respective roles and responsibilities, thus making coordination and control of
the implementation process smooth. They also help in harnessing the efforts
of the strategic managers and employees to focus on what they need to
pursue and what they should not focus on.
It also clearly defines the delegation of authority and clarity on certain critical
processes so that implementation activities are carried out between different
functions and businesses. Clear policies help to avoid any delays in decision
making, help minimise conflicting practices, and set standards and
consistent patterns of actions among various stakeholders.
The policies and guidelines also include ‘code of conduct’ to be signed by all
the employees in the corporate, business and function levels. This also
includes workplace harassment rules to protect the interests of women,
underprivileged or certain communities etc.
9.9 Rewards and Recognition System

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

divisions and functions, there should be a proper performance management
system (PMS) implemented to monitor, measure and evaluate at regular
periods (monthly, quarterly, half-yearly & annually) to assess the
performance of the individuals and advocate improvements and course
corrections to ensure that the financial and business budgets are achieved
from time to time, as part of the strategy implementation process.
The results of long term strategy will be spread over a period of long time
and it must be also recognised that it might take longer time for effective
implementation of the strategy. It must also include long-time retention of key
talent in the organisation. These rewards are generally referred as Long
Term Incentive Policy (LTIP).
9.10 Strategy Implementation Approaches

An effective implementation of strategy needs a clear and appropriate
approach that is based on factors such as assessment of objectives, change
required, supporting structure and organisation culture. David Brodwin and L.
J. Bourgeois III have identified five distinct basic approaches to strategy
implementation and strategic change, on the basis of their research on
management practices at a number of companies. These five approaches
are:
1.! Commander approach
2.! Organisational change approach
3.! Collaborative approach
4.! Cultural approach
5.! Crescive approach
 
These approaches vary from simply commanding the employees to
implementing the strategy formulated by the top management, to
empowering the employees to formulate and implement the strategy on their
own. We discuss about those approaches in the following subsection.
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Commander Approach
As discussed in the chapter on strategy formulation, the strategic manager
concentrates on formulating the strategy by applying rigorous logic and
analysis. The strategic manager either develops the strategy himself or
supervises a team of strategic planners charged with determining the optimal
course of action for the organization. He typically employs such tools as
experience curves, growth/share matrices and industry and competitive
analysis.
This approach addresses the traditional strategy management development
in support of the long term objective of the organisation and its business.
Once the best strategy is decided, the top management passes it on to the
subordinates who are instructed to execute the strategy. In the approach, the
top management does not take an active role in the implementation of the
strategy but oversee it. The strategic manager plays the role of a thinker or
planner rather than an implementer of the strategy.
The commander approach has a very important limitation as it does not
empower the employees enough to take decisions on a day-to-day basis for
the strategy implementation and fails to tap the organisational synergy. The
employees may not have the emotional commitment to ensure the strategy is
successfully implemented, as they are not involved in the strategy
development process.
In order to make the approach succeed, the strategic manager must wield
enough power to command implementation; or the strategy must pose little
threat to the current management, otherwise implementation will be resisted.
Accurate and timely information must be made available and the
environment must be reasonably stable to allow it to be assimilated. The
strategic manager should be insulated from personal biases and political
influences that might affect the content of the plan.
An important disadvantage of this approach is that it can lead to employee
demotivation. Secondly, this approach only considers the economic factors
of the company and ignores the social, political and behavioural
(psychological) dimensions of the strategy development and implementation.
It works better in small organisations or strategy development is confidential
and implementation is only a fulfilment and requires not much of change.
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Organisational Change Approach

In the organisational change approach, the strategy formulation is similar to
that of the commander approach, but differs considerably during the
implementation of the strategy. The strategic leaders formulate the strategy
and decide that major changes of the strategy will be under the top
management control. As the name indicates, many strategies of an
organisation require substantial change in the organisation structure, people,
systems and processes if the strategy is to be implemented effectively.
The most obvious change is to restructure the organisation and its people in
order to lead the firm in the desired direction. The role of the strategic
manager is that of an architect who designs administrative systems for
effective strategy implementation. The organisational change approach is
generally more effective than the commander approach and can be used to
implement more difficult strategies because of several behavioural science
techniques in the change management involved.
The techniques for introducing change in an organisation include key
behaviours in the way things are done: using demonstrations rather than
words to communicate the desired change activities; focusing early efforts on
the needs that are already recognised as important by the organisation; and
having solutions presented by leaders who have high credibility in the
organisation.
However, the important drawback of the organisational change approach is
that it doesn’t help managers to stay updated on rapid changes happening in
the environment. It might work adversely in uncertain or rapidly changing
conditions. Finally, as this method takes a ‘top down’ approach, it has the
same employee motivational challenges as in the case of commander
approach.
Collaborative Approach
The collaborative approach takes a collective participation by considering the
views of the senior managers in the organisation. The strategic leader has
interactive discussions with his key managers like business unit heads,
divisional heads, functional heads, with a view to formulating the strategic
changes. In the approach, the top management employs group dynamics
and brainstorming techniques to get the managers with different
perspectives to contribute to the strategic planning process. This approach
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allows fair amount of collaboration between various key stakeholders in the

strategy formulation and such an approach helps in improving chances of
better implementation.
The collaborative approach actually overcomes the two key limitations of the
previous two approaches. By collaborating with the managers closer to
operations and the marketplace, and by offering a forum for expressions of
their many view points, it can increase the quality and correctness of the
information incorporated into the strategy. It also enhances the senior
manager’s commitment to the strategy and significantly improves the
chances of efficient implementation.
However, the collaborative approach has few limitations. This approach may
gain more commitment than the foregoing approaches; it may also result in a
poorer strategy and it is also time consuming. If the views of some of the
mangers are not taken into the strategy they might emotionally get detached
with the strategy. The negotiated aspect of this approach brings with several
risks that the strategy can be more conservative and less visionary. And the
negotiation process can take so much time that an organization misses
opportunities and fails to react enough to changing environments.
A more fundamental criticism of the collaborative approach is that it is not
really collective decisions making from an organizational viewpoint because
top management managers often retain centralized control. In effect, this
approach preserves the artificial distinction between thinkers and doers, and
fails to draw on the full human potential throughout the organization.
Cultural Approach
This approach extends the collaborative approach to lower levels in the
organization as an answer to the strategic management question on how to
inspire the whole organization to get committed to its goals and strategies.
This requires major shift in the culture that requires transformation.
This approach begins to break down the barriers between the thinkers and
doers, a common divide in many organisations. The strategic manager
concentrates on establishing and communicating a clear mission and
purpose for the organization and the allowing employees to design their own
work activities with this mission. He plays the role of a coach or mentor in
giving general direction, but encourages individual decision-making to
determine the operating details of executing the plan.
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The implementation tools used in building a strong corporate culture range

from such simple notions as publishing a company credo and singing a
company song to much complex techniques. These techniques involve
implementing strategy by employing the concept of "third-order control."
First-order control is direct supervision; second-order control involves using
rules, procedures, and organizational structure to guide behaviour. Third-
order control is more subtle and potentially more powerful. It consists of
influencing behaviour through shaping the norms, values, symbols, and
beliefs that managers and employees use in making day-to-day decisions.
The cultural approach has a number of advantages which establish an
organization-wide unity of purpose. It appears that the cultural approach
works best where the organization has sufficient resources to absorb the
cost of building and maintaining the value system over time.
However, this approach also has several limitations. First, it only works with
informed and intelligent people. Second, it consumes enormous amounts of
time to implement. Third, it can foster such a strong sense of organizational
identity among employees that it becomes a handicap; for example, bringing
outsider in a top management levels can be difficult because they aren't
accepted by other executives.
The strongest criticism of this approach is that it has such an overwhelming
doctrinal air about it, and foster homogeneity and inbreeding.
Crescive Approach
This approach addresses the question "How can I encourage my managers
to develop, champion, and implement sound strategies?" (Crescive means
"increasing" or "growing"). The strategic manager is not interested in
strategizing alone, or even in leading others through a protracted planning
process. He encourages subordinates to develop, champion, and implement
sound strategies on their own.
The crescive approach differs from the others in several ways:
• First, instead of strategy being delivered downward by top management or
a strategy planning department, it moves upward from the "doers" (sales
team, engineers, production) and, lower and middle-level managers.
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• Second, "strategy" becomes the sum of all the individual proposals that
surface throughout the year.
• Third, the top management team shapes the employees' premises, their
notions of what would constitute supportable strategic projects.
• Fourth, the CEO functions more as a judge, evaluating the proposals that
reach his desk, than as a master strategist.
Brodwin and Bourgeois suggest use of the Crescive approach primarily for
managers of large, complex, diversified organizations. In these organizations
the strategic managers cannot know and understand all the strategic and
operating situations, facing each division.
If strategies are to be formulated and implemented effectively, the leader
must give up some control to spur opportunism, achievement and a
competitive environment within the company. Therefore, the Crescive
approach for strategic management suggests some generalizations
concerning how the chief executive of the large firm with multiple business
units should help the organization generate and implement sound strategies.
The recommendation consists of the following elements:
1. Maintain the openness of the organization to new and discrepant
information.
2. Articulate a general strategy to guide the firm's growth.
3. Manipulate systems and structures to encourage bottom-up strategy
formulation.
The Crescive approach has several advantages. For example, it encourages
middle-level managers to formulate effective strategies and gives them
opportunity to carry out the implementation of their own plans. Moreover,
strategies developed, as these are, by employees and managers closer to
the strategic opportunity are likely to be operationally sound and readily
implemented. However, this approach requires that funds be available for
individuals to develop good ideas unencumbered by bureaucratic approval
cycles and that tolerance be extended in the inevitable cases where failure
occurs despite a worthy effort having been made.
First, one of the most important and potentially elusive of these methods is
the process of shaping managers' decision-making premises. The strategic
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manager can emphasize a particular theme or strategic thrust to direct

strategic thinking. Second, the planning methodology endorsed by the top
management can be communicated to affect the way managers view the
business. Third, the organizational structure can indicate the dimensions on
which strategies should focus.
The choice of approach should depend on the size of the company, the
degree of diversification, the degree of geographical dispersion, the stability
of the business environment and finally, the managerial style currently
embodied in the company's culture.
Brodwin and Bourgeois's research suggests that the Commander, Change,
and Collaborative approaches can be effective for smaller companies and
firms in stable industries. The Cultural and Crescive alternatives are used by
more complex corporations.
Implementing Strategy and Evaluating Results
Thomas V. Bonoma suggests that successful implementation of strategies
requires four basic types of execution skills:
1. Interacting skills are expressed in managing one's own and others'
behaviour to achieve objectives.
2. Allocating skills are brought to bear in managers' abilities to schedule
tasks and budget time, money, and other resources efficiently.
3. Monitoring skills involve the efficient use of information to correct any
problems that arise in the process of implementation.
4. Organizing skills are exhibited in the ability to create a new informal
organization or network to match each problem that occurs.
9.11 Strategy Implementation and Stakeholders

The role of the management and the board of the directors sometimes have
been narrowly interpreted to mean maximization of financial returns to the
stockholder in the form of dividends and capital gains. Moreover, the articles
of incorporation of most corporations place a legal responsibility on the board
of directors to represent the interests of the stockholders, whose capital
made it possible for the organization in the first place.
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Many organizational theorists, however, take a broader view of the role of the
board (and management). This role includes many dimensions of corporate
social responsibility such as responsibility to employees, the community, and
the environment.
R. Edward Freeman, author of a book on stakeholder management, shows
how the process of managing relations with groups not traditionally
considered within strategic planning frameworks should be part of strategic
management.
These stakeholders include a firm's owners or stockholders, members of the
board of directors, managers and operating employees, suppliers, creditors,
customers, and other interest groups. At the broadest level, stakeholders
include the general public. Stakeholders have expectations about how the
firm should behave and what the firm should provide in terms of economic,
social, and psychological benefits.
Thus, stakeholder analysis is a consistent way of identifying, analysing, and
responding to these critical interdependencies. It represents an active,
integrated approach to achieving corporate purpose. Each group or
individual who either affects or is affected by the achievement of the firm's
mission has a stake in corporate decisions and actions.
Therefore, managers are increasingly expected to consider a growing
number of stakeholders when formulating and implementing strategy. An
important outcome from this analysis is determination of the timing and
degree of participation of stakeholders in decision making in the firm.
However, stakeholders' expectations of business present opportunities and
constraints. In a more limited sense, stakeholder groups may hold conflicting
expectations of business performance. Factors influencing the potential
power of stakeholders are outlined separately.
The following questions are relevant when determining the influence of
stakeholder interests:
•! Which stakeholder' interests are most important?
•! To which stakeholder should management give its loyalty?
•! Will any stakeholder be hurt by the proposed decisions?
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•! Should strategy be changed to meet stakeholder expectations?

•! It is possible to negotiate a compromise?
•! Should certain stakeholder be replaced?
On the other hand, stakeholders are affected by the activities of the
companies.
9.12 Executive Leadership and Change Management

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

communication process within the company to inform the employees about
the vision of the company, strategic direction, and inspire them to create
actions to move in that direction. This is a key enabler in strategy
implementation process. Anybody who is in the strategic leadership should
be able to balance both the long term objectives and short term goals or day-
today activities of the organisation in the right proposition to maintain
sustainability as well as profitable growth.
Leadership Style
Leadership style of the top management is considered to be an important
factor influencing the strategy implementation and performance of a
company. The senior management team spends time and resources
developing and promoting a visionary strategy, but their leadership style
does not inspire the employees of the organisation, this will only lead to let
down in its execution.
Leadership is the capacity of a top manager to secure the cooperation of the
people in the organisation in accomplishing organisational goals and to
demonstrate as a role model for others to get inspired and participate in the
strategy execution process. Leadership style is the consistent behaviour of a
leader which he exhibits in the process of leading an organisation, of
governance and decision making to keep the forward momentum in the
strategy adopted.
Every leader has a unique style of leadership. Some leaders are
conservative, and others aggressive while some others flamboyant or
reserved. Some leaders are autocratic and take decisions on their own with
very little consultation with his team while some good leaders build
consensus by seeking broad based participation of others while making
decisions and empower them to be leaders.
Participation of employees in the decision making indeed facilitates
employee commitment to the company’s strategy and goals and is generally
seen as a positive approach to decision making.
There are many versions of best leadership, as every leader has a unique
and distinctive leadership style, so there is no single best leadership.
However, there are broadly two basic categories that can be seen in today’s
corporate world. First is that where leaders employ transactional leadership
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style and use the authority of their office to exchange rewards and incentives
in reciprocity of the employee’s contribution to the company’s performance
steadily, but not dramatically. In contrast, some leaders employ a
transformational leadership style to inspire participation of employees in
mission, by setting a dream or vision thereby seeking more dramatic
changes in the organisational performance.
In effect, the transformational leader motivates followers to more than they
originally expected to do by stretching their abilities to think beyond obvious
and enhancing their self-confidence. Transformational leaders also tend to
influence innovation and entrepreneurship throughout the organisation.
A leader is categorised as transactional or transformational based on his
overall pattern of behaviour. The transformational leader may not be always
dynamic, vibrant charismatic in his personality type. A number of CEOs have
transformed their organisations during challenging and turbulent times
without being a strong transformational leader, however being
transformational is an asset to any organisation, but it is not a prerequisite to
success. It is also very evident that effective leaders bring in an integrated
leadership style, combining the components of both transactional and
transformational leadership styles.
For example, Jack Welch, as a leader knows how to win. He was chairman
and CEO of General Electric Co. between 1981 and 2001. He led the
company to year-after-year success around the globe in multiple markets
and against brutal competition. His honest, straight forward, aggressive and
be-the-best leadership style and management approach become the gold
standard in business with his relentless focus on people, teamwork and
profits. He is also described as optimistic, no-excuses, get-it-done mind-set
leader and a turn-around and transformational specialist who made GE one
of the most respected companies in the world.
During his tenure at GE, the company's value rose 4000%. Through the
1980s, Welch sought to streamline GE. In 1981 he made a speech in New
York City called "Growing fast in a slow-growth economy". Welch worked to
eradicate perceived inefficiency by trimming inventories and dismantling the
bureaucracy that had almost led him to leave GE in the past. He closed
factories, reduced payrolls and cut lacklustre old-line units. Welch's public
philosophy was that a company should be either No. 1 or No. 2 in a
particular industry, or else leave it completely. Welch's strategy was later
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adopted by other CEOs across corporate America. More can be learnt about
Jack Welch and his leadership style in his book “Winning”, which he wrote
with his wife Suzy Welch.
Emotional Intelligence
The probability of success in strategy implementation will be high if the
leader is able to exude emotional intelligence to effect a change
management in the organisation’s culture. In today’s fast changing economy,
a leader’s success is tied to emotional intelligence which is the ability to
inspire the psychological attributes like motivation, empathy, self-awareness,
confidence and social skills etc.
Executives who possess a passion for their work are emotionally and socially
oriented and understand their own needs as well as those of their employees
are more likely to gain the trust, confidence and support necessary to lead
the organisation.
9.13 Top Challenges in Strategy Execution

Strategy is formulated on certain assumptions but the environment may have
changed at some point of time during implementation. The assumptions too
would need periodic revisits and need changes to reflect changes in the
internal and external environment.
Vision, value statements and trust are emphasized during formulation of the
strategy but during implementation it tends to get forgotten or diluted
considerably. An ‘end justifies the means’ approach results in a compromise
of values and eroding ‘trust and shared values’. The answer lies in
transparency and communication and admitting mistakes.
Complacency and overconfidence in leaders can lead to loss of momentum.
The leaders and organizational members generally believe their brand is
more powerful than the competitors leading to complacency in
implementation. Forecasts are based on what may happen in future and are
often based on optimistic estimates of uncertainties. As such the strategic
managers must be careful and realistic while making such forecasts.
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Organizational trap is an excessive focus on efficiency with no flexibility to

adapt to changes. A no mistake-syndrome prevails with the top management
not being open to questioning or challenging the current strategy.
The strategic managers might work with the status quo bias with risk
aversion. It is the entrepreneurial spirit that helps overcome challenges and
take calibrated risk. This has to be built into the organisation culture by
constant encouragement.
Strategy before people: Strategy not aligned to organizational culture will
meet with resistance and opposition. Meaningful communication is the key.
Another thing that inhibits execution of strategy is that the structure of the
organisation is not in synchronisation with the strategy and structure, e.g., a
diversification strategy may have a better fit with a divisional structure.
Effective leadership: Failure occurs due to weak empowerment and lack of
perseverance. Focus on knowing rather than doing. Things might get worse
before they get better so inspiring the team with the vision and mission is
important.
High emotional intelligence in leaders: This will help eliminate negative
emotions from breeding in the workplace. What are needed are positive
energy and a calm mind to deal with the fluid situation.
The sunk cost effect: A familiar problem with investments is called the sunk-
cost effect, otherwise known as “throwing good money after bad.” When
large projects overrun their schedules and budgets, the original economic
case no longer holds, but companies still keep investing to complete them
rather than change.
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9.14 Summary
From this chapter, it is clearly understood that the structure of an
organisation is the single most important component of strategy
implementation. The structure of an organisation can greatly influence the
likelihood of success in the strategy execution process. Strategic managers
need to focus on evolving the right structure around organisation functions,
business units, divisional units, products and geography etc. Some
organisations choose a matrix structure depending on the type and size of
their business. It is also discussed that each structure has its own
advantages and disadvantages.
In order to increase probability of success in strategy execution, the
leadership style of management and at every level of leadership to inspire
and influence employee behaviour and actions to move towards achieving
the goals. Leadership style and emotional intelligence is closely linked to a
firm’s ability to implement a given strategy. Each leader has a unique
leadership style, some as transactional, some as transformational and a few
exhibiting a combination of both the leadership styles. Effective leaders use
both styles to appropriate extent. Finally, it is the effective leadership that
ensures to implement a major strategic change in any organisation, amidst
challenging and turbulent times.
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1. ! What is the first part of strategy implementation?
a) To create appropriate organisation structure that supports the
implementation of the strategy and a overhauling of the current
structure to make it desirable for the strategy
b) To build a team of resources that will be required for implementation
c) To do a SWOT Analysis
d) To implement the business unit strategy
2. ! A _________ communication process is a prerequisite for successful !

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

! called the
a) Organisation Structure
b) Organisation Culture
c) Organisation dynamic
4. ! An increase in the breadth of control of an organisation structure is ! !

! known as
a) Centralisation
b) Decentralisation
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c) Horizontal growth
d) Vertical Growth
5. ! The notion of a profit centre is consistent with which form of an ! ! !

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

! self-awareness and social skills is known as:
a) Emotional intelligence
b) Leadership traits
c) Leadership style
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References
Unit Strategy P 145
2. Francis Cherunilam, Strategic Management (L.N. Welingkar Institute of
Management), P 140
Unit Strategy P 147
4. J Child, Organisation, a guide for Managers and Administrators, NY:
Harper and Row, 1977
5. David Brodwin and L. J. Bourgeois III
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A case study on factors leading to successful strategy execution
A brilliant strategy, blockbuster product, or breakthrough technology can put
a company on the competitive map, but only solid execution can keep the
company there. Execution is the result of thousands of decisions made every
day by employees acting according to the information they have and their
own self-interest. You have to be able to deliver on your intent. Unfortunately,
as per an online research the employees at three out of every five
companies rated their organization weak at execution when asked if they
agreed with the statement “Important strategic and operational decisions are
quickly translated into action,” the majority answered no.
Execution is the result of thousands of decisions made every day by
employees acting according to the information they have and their own self-
interest. In this online research conducted in more than 1000 companies it
has been identified that there are four fundamental building blocks
executives can use to influence those actions—clarifying decision rights,
designing information flows, aligning motivators, and making changes to
structure. (referred as decision rights, information, motivators, and structure.)
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In efforts to improve performance, most organizations go right to structural

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

to gather empirical data to identify the actions that were most effective in
enabling an organization to implement strategy.
What particular ways of restructuring, motivating, improving information
flows, and clarifying decision rights that mattered the most? It was found
that traits like the free flow of information across organizational boundaries or
the degree to which senior leaders refrain from getting involved in
operational decision making mattered the most. The following are the key
factors for strategy execution.
• Everyone has a good idea of the decisions and actions for which he or she
is responsible.
• Important information about the competitive environment gets to
headquarters quickly.
• Once made, decisions are rarely second-guessed.
• Information flows freely across organizational boundaries.
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• Field and line employees usually have the information they need to
understand the bottom-line impact of their day-to-day choices.
Creating a Transformation Program
Execution is perennial challenge. Even at the companies that are best at
what we call as resilient organizations, only two-thirds of employees agree
that important strategic and operational decisions are quickly translated into
action. As long as companies continue to attack their execution problems
primarily with structural or motivational initiatives, they will continue to fail. As
we’ve seen, they may enjoy short-term results, but they will inevitably slip
back into old habits because they won’t have addressed the root causes of
failure. Such failures can almost always be fixed by ensuring that people
truly understand what they are responsible for and who makes which
decisions—and then giving them the information they need to fulfill their
responsibilities.
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video1
Video2
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10
STRATEGY EVALUATION AND
CONTROL
Objectives:
This chapter focuses on strategy control and evaluation. The approach is to
compare the actual performance of an organisation with the established
standards and benchmarks, and also to monitor and review the
implementation process. This is the next logical step during and after the
strategy implementation process. This chapter talks about a number of
challenges and issues that need to be considered well in advance by the
strategic managers during the execution of strategy management process.
•! Understand the Strategic Control Process
•! Cleary define what needs to be controlled
•! Setting Strategic Control Standards
•! Choosing Standards an Confirm Performance to Standards
•! Measure the deviation an take corrective actions
•! Strategic Control Audits an budgetary controls
•! Understand the Contingency and Crisis Management
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STRATEGY EVALUATION AND CONTROL
Structure:
10.1! ! Introduction
10.2! ! Strategic Control Process
10.3! ! Define What to Control
10.4! ! Setting Strategic Control Standards
10.5! ! Measure Performance
10.6! ! Confirm Performance to Standards
10.7! ! Taking Corrective Actions
10.8! ! Strategic Control Audits
10.9! ! Budgetary Control
10.10! ! Contingency an Crisis Management
10.11! ! Disaster Recovery an Business Continuity Panning
10.12! ! Summary
10.13! ! Case Study
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10.1 Introduction
According to R.T.Lenz, “organisations become most vulnerable when they
are at peak of their success”. Complacency sets in the top management, and
it may overlook the obvious mistakes and gaps in the strategy execution.
Wrong strategies can have severe and negative impact on the organisation’s
performance in the long run. The objective is to learn how to mitigate such
impacts through strategic evaluation and control.
Thus, the final and most critical stage in strategic management process is
strategy evaluation and control. Strategic control consists of evaluating the
extent by which the organisation’s strategies have been implemented
successfully to attain the goals and objectives. The implementation process
is reviewed periodically and adjustments are made as necessary to the
strategy. It is during the process of strategic control that the gaps between
the intended and realised strategies are identified and addressed. Even
though strategic control is the final step in the strategic management
process, it should be an ongoing process.
In any organisation, all strategies are subject to future modification because
internal and external factors keep changing constantly. In the strategy
evaluation and control process managers determine whether the chosen
strategy is achieving the organization's objectives. The fundamental strategy
evaluation and control activities are:
• To review internal and external factors that are the underlying base for
current strategies
• To measure performance that conforms to the plans (evaluating the
expected versus actual results)
• To do performance gap analysis and
• To suggest and take corrective actions
The traditional approach to control is to compare the actual performance with
the standards established and take corrective measures if there are any
deviations. This reactive measure is not sufficient to control a strategy that
takes a long period for implementation and to deliver results. The uncertain
future environment makes continuous planning and evaluation of the
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assumptions and underlying bases in order to steer the strategy

implementation in the right direction.
The purpose and need for strategic control and evaluation required in
organisations is twofold.
1) The need for stakeholders to know how well the organisation is
performing. Without the strategic control, there are no clear benchmarks
and ultimately no reliable measurements of how the company is doing.
Hence the purpose is to create those benchmarks comparable to the
industry
2) The need for mitigating the risks associated with organisational and
environmental uncertainty. The strategic managers are not always able to
accurately forecast the future, and hence strategic control serves as a
means to necessary changes during the implementation process.
The process of strategic control is to ensure all the levers of strategic
management process are used appropriately to steer the organisation in its
set course of direction to achieve its mission and goals. This includes
modifications or changes necessary in the strategy to reflect the changes in
the external environment. The idea of strategic control brings in a dimension
of ‘continuous improvement’ in which the strategic managers try to improve
the effectiveness of all the factors contributing to the successful
implementation of the strategy.
Generally, the strategic management process is controlled at the board of
directors and the CEO level, and sometimes reviewed by the business unit
or functional unit leaders. The roles played by the investors, the board and
the top management in strategic control differ from organisation to
organisation. However, the ongoing strategic control is largely a function
performed by the top management team.
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10.2 Strategic Control Process

While it is understood that strategic control process must be tailored to
specific situations, such systems generally follow a basic process. However,
irrespective of the types or levels of control systems an organization needs,
strategic control may be described in a broad framework of six-step feedback
model, as explained in Fig 10.2 and explained below:
1. Determine and focus on what to control: The top management must
focus on identifying the internal as well as external factors that will serve
as the effective measures for the success of a strategy, and those factors
that are likely to inhibit progress during strategy implementation. Also the
management must establish the objectives that the organization intends
to accomplish
2. Establish control standards: It is necessary to establish standards, by
clearly defining the targets, industry or global benchmarks, and tolerance
levels of the actual performance of the organisation
3. Measure performance: Managing the performance both quantitatively
and qualitatively, against the established standards
4. Compare performance to the established standards: How well does
the actual performance match the plan? The deviations must be captured
for further analysis.
5. Determine the reasons for the deviations: Are the deviations due to
internal shortcomings or due to external changes beyond the control of
the organization?
6. The most important step is to take corrective action. Are corrections
needed in internal activities to correct organizational shortcomings, or are
changes needed in objectives due to external events?
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FIG 10.2
10.3 Define what to control

The key to strategy implementation success is to determine what kind of
strategic control the organisation should focus on. This is the first step in the
strategic control process. The strategic managers usually base their major
controls on the organizational mission, goals and objectives developed
during the planning process, however the top management’s role is to align
the internal operations of the company with its external environment, hence
both the internal and external factors must be considered. Although
companies have little or no influence over the external environment, the
macro environmental, industry and competition forces must be continuously
monitored as continuous shifts in the macro environment can have strategic
implications for the firm. Thus strategic control serves to maintain proper
alignment between the internal and external environments.
The purpose of evaluating the external environment continuously is to check
whether the strategic assumptions made at the time of strategy planning are
still valid. The strategic control process enables the organisations to modify
the operations to more effectively mitigate the external risks that may arise or
were earlier unknown.
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Managers must make choices because it is expensive and virtually

impossible to control every aspect of the organization's activities. In deciding
what to control, the organization must communicate through the actions of its
executives that strategic control is an essential activity. Without the top
management's commitment to controlling activities, the control system may
not deliver results.
Keeping the company’s operations in mind the top management should
assess the strategy effectiveness in achieving the firm’s mission and goals.
For example, in case the organisation is aiming to gain market share by 2%
from 10% to 12%, through a low-cost strategy, the top management must
focus on key objectives like cost efficiency or production efficiency with that
of the competition and determine the extent of its achievement towards this
goal. Firstly, from a qualitative perspective, the top management must
assess the strategy’s effectiveness to achieve this said objective. This
assessment will help to determine by what extent the organisation is able to
achieve the incremental 2% gain in the market share. Secondly, from a
qualitative perspective, the organisation must set its objectives on the
product quality parameters and service quality parameters to command
leadership in that particular segment of market.
The top management must also compare the company’s performance i.e.
the current quarter operating results with those of the previous quarter
(quarter-on-quarter performance) as well as the previous year same quarter
(year-on-year performance). The company’s performance may be evaluated
based on many other quantitative parameters that affect the overall strategy
of the organisation in the long run. These measures may include: return on
investment (ROI), return on equity (ROE), return on assets (ROA), return on
sales (ROS), revenue and profit growths, and free cash flow.
10.4 Setting Strategic Control Standards

Setting benchmarks for various operational metrics is essential for exerting
strategic control on the performance of the organisation. A control standard is
a target against which the subsequent performance of the company will be
compared. There are a number of financial measures that can be monitored
in the strategic control process. Profitability is the most commonly used
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performance measure and is therefore a popular means of controlling

performance.
Once the internal factors for strategic control are identified as mentioned in
the previous step, it is important to establish standards or benchmarks for
each of the operational metrics. Often, strategic control standards are based
on competitive, industry or global benchmarking, a process of measuring
a company’s performance against that of top performers in the same
industry. After determining the appropriate benchmarks, the strategic
manager should set goals to achieve those benchmarks. The organisation
should follow best practices, processes or activities that have been found
successful in other companies and these practices may be adopted as a
means of improving performance. There are number of sources on
competitive benchmark standards available through reports published by
various industry analysts, consultants and industry forums.
The standards are the criteria that enable managers to evaluate future,
current, or past actions. They are measured in a variety of ways, including
physical, quantitative, and qualitative terms. The five aspects of the
performance can be managed and controlled are: quantity, quality, time cost,
and behaviour. Each aspect of control may need additional categorizing. An
organization must identify the targets, determine the tolerances for those
targets, and specify the timing of consistent with the organization's goals
defined in the first step of determining what to control. For example,
standards might indicate how well a product is made or how effectively a
service is to be delivered.
The performance or benchmark standards may also reflect specific activities
or behaviours that are necessary to achieve organizational goals. Goals are
translated into performance standards by making them measurable. An
organizational goal to increase market share, for example, may be translated
into a top-management performance standard to increase market share from
10 percent to 12 percent within a twelve-month period. Helpful measures of
strategic performance include: sales (total sales, and by division, by product
category, and by region), sales growth, net profits, return on sales, assets,
equity, and investment cost of sales, cash flow, market share, product quality,
valued added, and employees productivity.
Quantification of the objective standard is sometimes difficult. For example,
let us consider the goal of product leadership. An organization compares its
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product with those of competitors and determines the extent to which it

pioneers in the introduction of basis product and product improvements.
Such standards may exist even though they are not formally and explicitly
stated. Setting the timing associated with the standards is also a problem for
many organizations. It is not unusual for short-term objectives to be met at
the expense of long-term objectives.
Management must develop standards in all performance areas holistically
covered by established organizational goals. The various forms of standards
are dependent on what is being measured and on the respective managerial
level responsible for taking corrective action.
Commonly used as an example, the following eight types of standards have
been set by General Electric Company (GE).
• Profitability standards: These standards indicate how much profit General

Electric would like to make in a given time period.
• Market position standards: These standards indicate the percentage of

total product market that company would like to win from competitors.
• Productivity standards: These production-oriented standards indicate

various acceptable rates which final products should be generated within
the organization.
• Product leadership standards: Product leadership standards indicate

what levels of product innovation would make people view General Electric
products as leaders in the market.
• Personnel development standards: Personnel development standards

list acceptable of progress in this area.
• Employee attitude standards: These standards indicate attitudes that

General Electric employees should adopt.
• Public responsibility standards: All organizations have certain obligations

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

goals: Standards in this area indicate what the acceptable long- and short -
range goals are and the relationship among them.
10.5 Measure Performance

Once standards are determined, the next step is measuring performance.
Exerting strategic control requires that the actual performance must be
compared to the standards. In some work places, this phase may require
only visual observation. In other situations, more precise determinations are
needed. Many types of measurements taken for control purposes are based
on some form of historical standards. These measurements must be both
qualitatively as well as quantitatively evaluated on parameters such as
market share, product and service quality etc.
These standards can be based on data derived from the PIMS (profit
impact of market strategy) program, published database that contains
quantitative and qualitative information of thousands of firms and more than
5000 business units, which has publicly available ratings of product and
service quality, innovation rates, new products and services, and relative
market shares standings.
PIMS was developed by Professor Sidney Shoeffler of Harvard University in
the 1960s, as a result of General Electric’s efforts to determine which factors
drive profitability in a business unit. GE’s top managers and corporate team
started using this database to assess their business units’ performance in a
formal and systematic manner. In 1975, other companies were invited to join
the program and thus the Strategic Panning Institute was founded to manage
the effort. These data include market share, product and service quality, new
products and services developed, new product sales, relative prices of
products and services, marketing expenses as a percentage of sales, and
research and development as a percentage of sales.
The data uses the profitability measures to benchmark; these are net
operating profit before taxes as a percentage of sales (ROS), net profit
before taxes as a percentage of total investment (ROI) or as a percentage of
total assets (ROA). Participant organisations get access to these data in
aggregate form as industry average and non-participants only can access
limited data. The PIMS studies have found that the market perceived quality
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relative to that of competitors was the single best predictor of market share
and profitability. The proliferation of computers with internetworks has made
it possible for managers to obtain up-to-minute status reports on a variety of
quantitative performance measures.
The PIMS variables have implications on strategic control. Example, top
managers may discover that a business with low quality measures may also
be spending less on research, thereby the company can make efforts
towards R&D investment to enhance to address the deficiency. Strategic
managers should be careful to observe and measure in accurately before
taking corrective action.
Strategic control through competitive benchmarking
Strategic control standards are based on the practice of competitive
benchmarking - the process of measuring a firm's performance against that
of the top performance in its industry peers or global peers. Keeping this in
mind, realistic performance targets or benchmarks should be established for
managers throughout the organisation. They should be measurable and
controllable. At the company level or SBU level or functional level, the criteria
such as sales, profitability, market share and revenue growth must be
selected. The most appropriate performance benchmarks are those
associated with the strategy’s success and those over which the organisation
has control over them.
The benchmarks selected should be specific as well. For example, if the
market share at the product SBU or Organisational level, is a parameter
which is identified as a key indicator of success or failure of growth strategy,
then specific market share should be identified, based on past performance
and industry benchmarks. Without specificity, it will be challenging to assess
the effectiveness of a strategy after it is implemented and if clear targets are
not identified proactively.
Functional level control also needs to be benchmarked and assessed. These
may include factors like quality or defects in production or marketing lead
conversion rate or rating on customer satisfaction surveys. Like SBU level
benchmarks, the functional level targets should also be specific and easily
measurable, like Customer Satisfaction Index (CSI) as 90%. The next step is
to compare the standards with actual performance and identify the deviations
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in performance against the set standards. This helps strategic managers to

consider corrective measures in the strategy implementation.
Strategic control through performance
Relentless performance is a key leverage that helps organisation exerts
strategic control, by focusing on or comparing the parameters namely
profitability or market share growth with others in the market place. As the
individual measure of performance provides only a limited view on the overall
performance of the organisation, many companies have started using a
method called balanced scorecard to measure performance in a systematic
manner.
In this approach, it is a method of evaluating performance that emphasises
on factors that can create a long term economic value such as business
process, innovation and customer orientation, rather than only the traditional
financial measures. In this approach, measurement is not on a single
parameter but on an array of parameters or KPIs being evaluated both
quantitatively as we as quantitatively, such as return on assets, market
share, customer loyalty, customer experience, service quality, innovation,
business process effectiveness etc. These parameters ultimately lead to the
overall business performance and results which are comprehensive in
nature. The areas for improvement are clearly identified from the beginning
and enough corrective action pans with ownerships assigned and reviewed
periodically to ensure that each KPI is continually improved over a period of
time.
The key to employing a balanced scorecard is to select a combination of
performance measures, tailored specifically to a firm in line with its overall
strategy. This approach has helped a number of large organisations
understand the performance related issues and challenges, the gaps in their
capabilities and implement strategy in a better way and more effectively. This
strategic control is a practical and holistic approach that makes sustainable
progress in the strategy implementation process
As discussed earlier, the PIMS program provides a wide range of
benchmarks against which a company’s performance can be compared. The
strategic managers may also monitor the stock price of the company as
relative price fluctuations suggest how the investors value the overall
performance of the company. The stock price erosion makes the company
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become an attractive takeover target, whereas sudden increase in price may

improve the investor sentiment in the company.
Strategic control through formal or informal organizations
In formal organizations, strategic control happens through the official
structure of relationships and procedures to manage organizational activity.
This can facilitate or inhibit a company’s success in strategy execution. The
organization structure has to be appropriate for its mission and stated
objectives so that strategy implementation becomes easier. When the
organization structure is not appropriate for its mission, then the strategic
control process should initiate a change management so that the structural
changes aligning with the mission and strategy can take place. The
appropriate organization structure whether functional or a product business
structure or matrix structure, must be chosen and the strategic managers
must understand the complications associated with changing structures
during the course of strategic management.
In informal organizations, where there is no formal hierarchy of organization
structure, the interpersonal norms, behaviours, and expectations evolve
when individual employees and groups coming to contact with one another.
The informal organization is dynamic, flexible and does not require formal
policies to make changes in the norms. Informal relationships can promote
or impede strategy implementation and can pay a greater role than formal
organizations. However, management must recognize its limitations
concerning the informal organization.
Management can influence, but cannot control the informal organization.
The most effective means of influencing and controlling in the informal
organization is to develop and promote a formal organization that is
consistent with the mission and the core values of the firm.
10.6 Compare Performance to Standards

Exerting strategic control requires that performance be measured and
compared with previously established standards and followed by corrective
actions. The comparing step determines the degree of variation between
actual performance and the standard. If the first two phases have been done
well, the third phase of the controlling process - comparing performance with
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standards - should be straightforward. However, sometimes it is difficult to

make the required comparisons i.e. behavioural standards.
Some deviations from the standard may be justified because of changes in
environmental conditions, or others must be justified with reasons.
Determine the Reasons for the Deviations
This step of the control process involves finding out: "why performance has
deviated from the standards?" The causes of deviation can range from
wrong strategy being selected to not achieving organizational objectives.
Particularly, the organization needs to ask if the deviations are due to internal
shortcomings or external changes beyond the control of the organization.
The following questions can be helpful in determining the reasons for the
deviation in actual performance against set standards:
• Are the standards appropriate for the stated objective and strategies?
• Are the objectives and corresponding still appropriate in light of the current
environmental situation?
• Are the strategies for achieving the objectives still appropriate in light of the
current environmental situation?
• Are the firm's organizational structure, systems (e.g., information), and

resource support adequate for successfully implementing the strategies
and therefore achieving the objectives?
• Are the activities being executed appropriate for achieving standard?

The locus of cause, either internal or external, has different implications for
the kinds of corrective actions require in the strategic control process.
10.7 Taking Corrective Action

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

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

geared to the problem at hand.
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• Proactive crisis mode - specifies a planned response in advance; this

approach lowers the response time and increases the capacity for handling
strategic surprises.
The below checklist suggest the following five general areas for corrective
actions:
• Revise the Standards. It is entirely possible that the standards are not in
line with objectives and strategies selected. Changing an established
standard usually is necessary if the standards were set too high or too low
are the outset. In such cases it is the standard that needs corrective
attention not the performance.
• Revise the Objective. Some deviations from the standard may be justified

because of changes in environmental conditions, or other reasons. In these
circumstances, adjusting the objectives can be much more logical and
sensible than adjusting performance.
• Revise the Strategies. Deciding on internal changes and taking corrective

action may involve changes in strategy. A strategy that was originally
appropriate can become inappropriate during a period because of
environmental shifts.
• Revise the Structure, System or Support. The performance deviation may

be caused by an inadequate organizational structure, systems, or resource
support. Each of these factors is discussed elsewhere in this chapter, or
other part of this thesis.
• Revise the Activity. The most common adjustment involves additional

coaching by management, additional training, more positive incentives,
more negative incentives, improved scheduling, compensation practices,
training programs, the redesign of jobs or the replacement of personnel.
Managers can also attempt to influence events or trends external to itself
through advertising or other public awareness programs. In such case, the
changes should be made only after the most intense scrutiny.
Management must remember that adjustments in any of the above areas
may require adjustments in one or more of the other factors. For example,
adjusting the objectives is likely to require different strategies, standards,
resources, activities, and perhaps organizational structure and systems.
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10.8 Strategic Control Audits

In order to better understand what strategic control performance measures
are and how a manager can take such measurements, there is a need to
understand about strategic audit. A strategic audit is an examination and
evaluation of areas affected by the operation of a strategic management
process within an organization. A strategy audit may be needed under the
following conditions:
Performance indicators show that a strategy is not working or is producing
negative side effects. It also analyses which high-priority items in the
strategic plan are not being accomplished and understand the shifts or
change occurs in the external environment.
Fig 10.3 
The following steps have to be taken (project example):

1. An analysis of the current strategy (analysis of the company and the
market, market trends, competitors, customers, products – marketing and
sales approaches)
2. SWOT analysis to map out the current position and the profile of the
company and brand
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3. Identification of the directions that can be taken to raise the brand profile
and generally achieve greater market exploitation by professionalizing
Marketing and Sales
4. Establishment of controlling ratios to ensure sustained throughput in
Marketing and Sales, as well as implementation of a strategic planning
process to improve international decision making
5. General improvement of the understanding of the work of the people
involved and sensitization for intercultural exchange
Management wishes: (1) to fine-tune a successful strategy and (2) to ensure

that a strategy that has worked in the past continues to be in tune with subtle
internal or external changes that may have occurred.
Effective evaluation and control system
In order to have an effective evaluation and control system, there are some
essential requirements, as described in the following parameters
1. Objective based: The purpose of evaluation and the objectives must be
clear to choose the appropriate evaluation system. Such an objective-
based system will provide useful and timely information or effective
control.
2. Objectivity: The standards and targets selected must reflect internal and
external realities. Thus, the evaluation system is not driven by
subjectivity. For example, a recession or boom or changes in competitive
environment must allow due consideration for revising the standards and
targets.
3. Economic: The strategy evaluation system must be economical, that is,
the cost must be justified with its utility. It is believed that too much
information can be just as bad as too little information. Also, too many
controls can also do more harm than good. It must be ensured that the
concern about the cost of an evaluation system does not affect the
objective of the evaluation system.
4. Pervasiveness: The strategy evaluation must be pervasive in the sense
that the need for it is appreciated throughout the organisation, the
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business and functional stakeholders and people directly associated with

it directly. Hence, communication is very essential to have
inclusiveness. Most importantly, the strategy evaluation system
should not dominate decisions but it should foster mutual
understanding, trust and common sense. No department should fail
to cooperate with another in evaluating strategies.
5. Simplicity: The extent of simplicity or complexity of the strategy
evaluation system depends upon a number of factors like the
purpose of evaluation, the variables to be monitored and measured,
and the size of the organisation and diversity of activities involved.
However, the underlying principle is that the evaluation system
should be simple as much as possible. A complex strategy
evaluation system often confuses the stakeholders and does not
yield desired results. The test of an evaluation system is in its
usefulness and not in its complexity.
6. Communication: We have stressed about the importance of
communication earlier in the chapter. It is necessary to take people
into confidence to ensure their positive and active involvement at
mental, emotional and physical levels. The stakeholders must be
made aware of the factors contributing to the success or failure in
achieving the strategic objectives. It is important to note that the key
to an effective strategy evaluation system is the leadership’s ability
to convince the participants that failure to accomplish the key
strategic objectives within a prescribed time is essential to long
term success of the organisation.
7. Congruence As per Peter Drucker, measurements have to be
congruent with the events to be measured. The scope, range,
magnitude and accuracy of measurement should be related to the
objective and usefulness.
8. Operational The controls must be focused on actions. Action rather
than information is their purpose. The findings of the control must
reach the persons responsible to take the corrective actions on
time.
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10.9 Budgetary Control

Budgets, a forward planning exercise, are considered to be the standards for
performance evaluation and control, which can be used for taking corrective
actions. A business budget can be described as a predetermined and
detailed plan of action, developed and distributed to different stakeholders as
a guide to run the operations. It is also a basis for subsequent evaluation of
performance and achievement of objectives in the business strategy. The
term budgetary control refers to the management measures taken to ensure
that the standards and norms laid own are maintained and the planned
results are achieved.
In any strategic management process, budgets and budgetary controls are
key indicators in the strategy planning and execution. An organisation may
have a master budget that governs the important functional areas and
strategic business plans for the whole organisation. The master budget is
further subdivided into business unit and functional unit budgets. The
importance of budgets is that they provide a clear direction for performance
to the business and functional units. It helps them to plan in advance the
resource requirements and their allocation at the beginning of the financial
year.
Formulation of a realistic budget is a challenging task in any organisation. A
budget is often based on certain assumptions and is valid as long as the
assumptions are valid. For example, a sales or financial budget is based on
certain estimates and assumptions of market demand conditions,
competition activity and government policies. Any change in these factors will
impact the achievement of the budget adversely or favourably. Thus strategic
evaluation and control becomes an integral part of budgets to reflect the
actions required for achieving the objectives within the specified timeframe.
10.10 Contingency Planning

In today’s world of uncertainties and complex business environment, the one
thing that an organisation must be prepared for as part of it strategy is to
deal with contingencies in order to ward of potential threats that may come
up during implementation. The contingency planning, or business continuity
planning, is a critical component of strategy planning to effectively handle
unforeseen situations or any other critical developments that might impact
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the organisation and its strategy. The impact may well be compared with the
likes of major changes in external environment, competition, government and
regulatory policy changes, strikes, boycotts, war, natural calamities etc. A
contingency plan, therefore, is a plan to cope up with these critical
developments which trigger major deviations in the strategy execution from
the original strategy planning done by the strategic managers.
Let us discuss some of the critical issues that may impact the strategy
implementation plan an organisation must build a contingency plan as part of
the strategy. (7 Main)
1. If a company is being taken over by another important company, what
strategy should the company employ to deal with the new situation?
2. If the government changes polices like export or import or tax related
policies unexpectedly, then how will the company be ready to handle the
competitive challenges caused by these changes?
3. What contingencies to be planned to take care of technological
obsolescence?
4. If there is a global recession that impacts the local economy and
continues beyond the anticipated period, what strategy the company
would employ to optimise costs and sustain profitability?
5. If the government brings new reforms that provide new expansion
opportunities, how will the company exploit it?
6. What if the government and regulatory approvals take longer than
expected time frame or not getting approved at all, how will the company
handle the capex and financial commitments?
7. If a natural calamity or war between nations or workers strike or
transporter’s agitation happens, what will the company do to mitigate the
impact of these forces beyond its management control?
8. What if the inflation and interest rates continue to exert pressure on
operations, what would the company do to make its products and
services competitive and still make the business profitable?
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9. How will the company take advantage of breakthroughs in technologies to

create innovation in its products and services in order to stay ahead of
curve?
10.What, if the demand spikes suddenly, would the company do to increase
its output in order to take advantage of the market opportunity?
These are some of the situations that one can think of, there could be many.
The advantage of contingency planning is that it is a structured or systematic
process of identifying the unknown situation of the future and start building
some scenarios around the overall business strategy. It is all about
capitalising on the situations and opportunities how the organisation is able
to implement the contingency plans quickly and resiliently, without having to
react, as and when the situations arise. It helps in quick response to change
and prevents panic in crisis situations, and most importantly enables
managers more adoptable by encouraging them to appreciate how uncertain
the future could be.
There are several ways to put in place a contingency planning or business
continuity planning and it involves some of the following steps to create a
process by which the organisation is able to respond to unforeseen changes
in the environment and prevent the organisation fall into panic or crisis
situations.
1. The strategic managers should be able to foresee and identify both the
favourable and unfavourable events that could possibly impact the
organisation strategy during implementation
2. Specify threshold levels and trigger points. Also the strategy managers
should be able to calculate with a fair degree of foresight on when these
events are likely to occur and how it would impact?
3. An assessment of these events is necessary and probability of them
happening and their impact.
4. Develop contingency plans for each of these events or situations. The
strategy managers must ensure that the contingency plans are in line with
the overall strategy and are economically viable.
5. Also, assess the counter impact of each contingency plan. It must be
estimated how each contingency plan will capitalise on or negate the
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unfavourable event. This quantifies the value of each contingency plan

and the resources allocation associated with them.
6. Prepare a system to determine early warning signals for each key
contingency event and monitor them regularly. Also develop advance
action plans to take advantage of the available lead time.
Crisis Management
In organisations, forecasting methods are generally used to project market
conditions and evaluate performance levels that are somewhat predictable.
Unfortunately, in today’s economic environment, organisations are mostly
faced with unpredictable and uncontrollable negative circumstances that can
threaten its very existence. Crisis management refers to the process of
planning for and implementing the response to the negative events,
described above, that could severely impact the organisation.
Terrorism is a potential event that could impact an economy as well as
organisations operating in it to a major way. Terrorist attacks like 9/11 (US
twin tower attacks) and 26/11 (Mumbai terror attacks) have highlighted the
need for organisations to anticipate, prepare for and respond to the crisis in
an effective manner. For example, post these unfortunate terror attacks,
most organisations have put in place a clear process for safety and security
measures within their originations, to help avert such events in their
premises. Such events have resulted in the tragic loss of a substantial
number of employees, but also a loss of key facilities and corporate data.
It is helpful to handle crisis management as a three step process. Before a
crisis, organisations should develop a crisis management team to build a
plan for worst case scenarios and define the standard operating procedures
that should be implemented prior to any crisis event. This is a proactive step.
For example, an organisation anticipating workers strike at the company
facility may hire additional security personnel to provide additional security.
Proactive organisations keep assessing their vulnerabilities and threats, and
develop crisis management plans that are adequately and proactively
equipped to handle such crisis when they occur. Prior information and
constant assessment of the internal and external environments is needed to
properly prepare for the crisis events. When managers understand which
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crisis events are more likely to occur, they plan for the event more effectively
and foster a culture within the organisation that is ready to meet the
challenge when the crisis occurs.
Secondly, during the crisis, the organisation must communicate effectively
with the internal employees and the external public to minimise the effect of
the crisis. During the major deluge in Mumbai in 2005 (happened on
26/7/2005), many people lost lives because of the flash floods and
employees in most organisation could not reach home for two days and had
to stay put in the office for almost two nights. The organisation used
communication to caution employees not to leave the office and also
informed the family members about the crisis in order to ensure safety of
everyone until the floods receded and people were safe to travel outside.
The organizations even organised foods to be served to their employees
during their stay at the offices.
Thirdly, after the crisis, continuous updates should be provided to all
stakeholders and the cause of the crisis should be uncovered.
Understanding of the cause can help the management to take preventive
steps and help improve adequate preparation if at all the crisis happens
again.
10.11 Disaster Recovery and Business Continuity Planning

During such disaster times like the Mumbai deluge, organisations need to
have a proper system to avert disruption in the business operations besides
ensuring safety and security. Disaster recovery and business continuity
planning are processes that help organizations prepare for disruptive events
—whether an event might be a hurricane, or flash floods or simply a power
outage caused by a grid failure. Management's involvement in this process
can range from overseeing the plan, to providing input and support, to
putting the plan into action during an emergency.
Disaster recovery is the process by which an organisation resumes business
after a disruptive event. The event might be something like an earthquake in
Bhuj or the terrorist attacks on the World Trade Centre or technical failure in
the primary Datacentre suddenly bringing business to a standstill.
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Given the human tendency to look on the bright side, many business
executives are prone to ignoring "disaster recovery" because disaster seems
an unlikely event. "Business continuity planning" suggests a more
comprehensive approach to making sure the organisation can keep doing
business. Often, the two terms are married under the acronym BCP/DR. At
any rate, DR and/or BCP determine how a company will keep functioning
after a disruptive event until its normal facilities are restored.
All BCP/DR plans need to encompass how the organisation and employees
will communicate, where they will go and how they will keep doing their jobs.
The details can vary greatly, depending on the size and scope of a company
and the way it does business. For some businesses, issues such as supply
chain logistics are most crucial and are the focus on the plan. For others,
information technology may play a more pivotal role, and the BCP/DR plan
may have more of a focus on systems recovery. For example, the plan at
one global manufacturing company would restore critical computer systems
with vital data at a backup site within four to six days of a disruptive event, or
set up a temporary call centre for 100 agents at a nearby training facility to
take care of customer services.
However, the critical point is that neither element can be ignored, and
physical, IT and human resources or financial plans cannot be developed in
isolation from each other. At its heart, BCP/DR is about constant
communication. Business leaders and IT leaders should work together to
determine what kind of plan is necessary and which systems and business
units are most crucial to the company. Together, they should decide which
people are responsible for declaring a disruptive event and mitigating its
effects. Most importantly, the plan should establish a process for locating and
communicating with employees after such an event. In a catastrophic event
(Hurricane Katrina being an example), the plan will also need to take into
account that many of those employees will have more pressing concerns
than getting back to work.
The first step is business impact analysis (BIA). It identifies the business's
most crucial systems and processes and the impact an outage would have
on the business. The greater the potential impact, the more money a
company should spend to restore the systems or processes quickly. For
instance, a stock trading company may decide to pay for completely
redundant IT systems that would allow it to immediately start operations from
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another location or datacentre. On the other hand, a manufacturing company

may decide that it can wait 24 hours to resume shipping. Thus BIA helps
companies set a restoration process, which is relevant to their business, to
determine which parts of the business should be restored first.
Here are 10 absolute basics an organisation should focus on:
1. Develop and practice a contingency plan that includes a succession plan
for CEO during disaster times. (Accidental or suicidal or natural death of
the CEO or Chairman)
2. Train backup employees to perform emergency tasks. The team slated to
lead in an emergency will not always be available. Have a contingency
plan within the team.
3. Determine offsite crisis meeting places for top executives.
4. Make sure that all employees-as well as executives-are involved in the
exercises so that they get practice in responding to an emergency.
5. Make exercises realistic enough to tap into employees' emotions so that
you can see how they'll react when the situation gets stressful.
6. Practice crisis communication with employees, customers and the outside
world stakeholders.
7. Invest in an alternate means of communication in case the phone
networks go down.
8. Form partnerships with local emergency response groups-firefighters,
police and EMTs-to establish a good working relationship. Let them
become familiar with the company and site.
9. Evaluate the company's performance during each test, and work toward
constant improvement. Continuity exercises should reveal weaknesses.
10.Test the continuity plan regularly to reveal and accommodate changes.
Technology, personnel and facilities are in a constant state of flux at any
company.
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The organisation should be prepared to handle the following pitfalls.

1. Inadequate planning: The organisation should have identified all the
critical systems that need to be covered under the disaster recovery plan,
and have detailed plans to recover them to the current day.
2. Failure to bring the business into the planning and testing of the recovery
efforts.
3. Failure to gain support from senior-level managers.
Summary
As discussed in this chapter, the strategic evaluation and control process
helps in determining the extent to which the company’s strategies are
successful in attaining its strategic goals. This process is accomplished
through six steps. The top management must identify the critical factors that
need to be measured for strategy’s success and therefore need to be
controlled. Once that is done, they need to establish the standards of
performance, by setting some industry or global benchmarks available for
these parameters. The management then must measure and compare the
actual performance against these benchmarks / standards both qualitatively
and quantitatively. After the measurement, the deviations between the actual
performance and standards are analysed and corrective actions are taken to
resolve any gaps where performance needs to be improved.
We have also discussed about the essential requirements of an effective
evaluation and strategic control in an organisation. Besides, contingency
planning and crisis management are two critical cornerstones for any
strategy’s success and refer to the process of proactive planning and
keeping a response ready for any wide range of adverse events that could
severely impact an organisation’s strategy implementation. Strategic
evaluation, strategic control, contingency planning and crisis management
are an ongoing process in any organisation, as part of the broader strategic
management process. Finally, disaster recovery and business continuity
planning are processes that help organizations prepare for disruptive events
– every organisation should have a clear plan in their overall business
strategy.
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1. Strategic evaluation and control in an organisation is important because:
a) It is difficult to know how well the firm is performing well without it
b) The organisation’s environment is uncertain and always changing /
challenging
c) The managers need an effective means of providing feedback to the
management
d) a & b only
2. Crisis management involves a series of steps that an organisation should

take before a crisis occurs while it is occurring and after it has passed
a)! True b) False
3. Crisis Management refers to efforts made to eliminate the possibility that

the organsiation can be negatively impacted by unforeseen events.
a)! True b) False
4. The strategic control process begins by:

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

performers is known as:
a) Competitive positioning
b) Performance measurement
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c) Benchmarking
d) PIMS analysis
6. Benchmarks should be
a) Broad and not specific
b) Associated with the strategy’s success
c) Outside the firm’s control
d) All of the above
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References
1. Strategic Management and Business Policy | Essentials of Strategic
Management .Thomas L. Wheelen and J. David Hunger (Prentice Hall
2004)
Unit Strategy P 163
3. Eight types of standards have been set by General Electric Company
(GE)
4. Strategic Management: Formulation and Implementation by Ryszard
Barnat, LLM, DBA, PHD
Unit Strategy P 164
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video
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11
GLOBALISATION STRATEGY
Objectives:
This chapter focuses on globalisation of strategy. Based on corporate profile,
an organisation or a corporate group may choose to be involved only in the
domestic market or it may choose to aggressively design a strategy to
compete in the global markets depending on its risk profile. This chapter
talks about a number of challenges and issues that need to be considered
well in advance by the strategic managers while creating a compelling global
strategy.
•! The Globalisation an global market pace
•! Dimensions of global strategy
•! Understand the stages of globalisation
•! The challenges and enablers of globalisation
•! Globalisation culture
•! Case study
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Structure:
11.1 ! Introduction
11.2 ! Global Industry
11.3 ! Dimensions of Global Strategy
11.4 ! Stages of Globalisation
11.5 ! Enablers of Globalisation
11.6 ! Globalisation Strategies
11.7 ! Globalisation Culture
11.8 ! Case Studies
11.9 ! Summary
11.10 ! Assessment Questions!
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11.1 Introduction
Based on its corporate profile and vision, an organisation or a corporate
group may choose to be involved only in the domestic market or it may
aggressively design a strategy to compete in the global markets depending
on its risk profile. Indian companies are increasingly getting globalised and
so are the other global companies aspiring to invest in India to grow their
businesses. India, next to China, presents a great demographic advantage
with its 1.2 billion populations and potential for the next several decades as a
fast growing economy.
Organisations set up their production, research and development,
engineering, marketing and other relevant functions globally to become more
competitive and create more value for all its stakeholders. Globalisation, in
its true sense, is a way of corporate growth facilitated and nourished by the
trans-nationalisation of the world economy by executing compelling
corporate strategies. Globalisation is an attitude of mind, a mind-set which
views the entire world as a single market so that a corporate strategy is
based on the dynamics of the global business environment. International
marketing or international investment alone does not amount to globalisation
unless it results in economic value and global orientation.
Global strategy, as defined in business terms, is an organization's strategic
guide to globalization. A sound global strategy should address these
questions: what must be (versus what is) the extent of market presence in
the world's major markets? How to build the necessary global presence?
What must be (versus what is) the optimal locations around the world for the
various value chain activities? How to run global presence into global
competitive advantage?
Academic research on global strategy came of age during the 1980s,
including work by Michael Porter and Christopher Bartlett & Sumantra
Ghoshal. Among the forces perceived to bring about the globalization of
competition were convergences in economic systems and technological
change, especially in information technology, that facilitated and required the
coordination of a multinational firm's strategy on a worldwide scale.
A global strategy may be appropriate in industries where firms are faced with
strong pressures for cost reduction but with weak pressures for local
responsiveness in terms of demand for products and services. Therefore, it
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allows these firms to sell a standardized products worldwide creating scale of

economies. However, fixed costs (capital equipment) are substantial.
Nevertheless, these firms are able to take advantage of scale of economies
and experience curve effects, because it is able to mass-produce a standard
product which can be exported (provided that the demand is greater than the
costs involved).
Global strategies require firms to tightly coordinate their product and pricing
strategies across international markets and locations, and therefore firms
that pursue a global strategy are typically highly centralized and at the same
time bring in cultural diversity and creativity as well as best practices. Thus,
firms change from domestic oriented strategies to a global orientation for
numerous reasons. Pursuing global markets can reduce per-unit production
cost by increasing volume. A global strategy can extend the life cycle of
products whose domestic markets are declining.
There are still challenges that persist when companies pursue global
aspirations. These factors include complex government approval processes,
high costs, sourcing of huge investments, poor infrastructure, poor image of
the countries, sourcing problems, cultural problems etc.
At the same time, there are factors that enable globalisation, like young
population, demographics, vast talent pool, growing entrepreneurship, high
savings rate for investments, innovation and skills – these factors definitely
help in facilitating the globalization process.
Establishing facilities abroad can also help a firm benefit from comparative
advantage (Tata Steel Case study is being discussed later in this chapter),
the difference in resources among nations that provide cost advantages or
the production of some but not all goods in a given country. For example,
athletic shoes can be produced more efficiently in parts of Asia where rubber
as the main raw material is plentifully available and cheaper, and also the
labour is less costly.
11.2 Global industry

A global orientation for an organisation can lessen the risk of its business
profile, because demand and competitive factors tend to vary among
nations. A global industry can be defined as:
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• An industry in which firms must compete in all world markets of that product
in order to survive
• An industry in which a firm’s competitive advantage depends on economies
of scale and economies of scope gained across markets
• Global markets are international markets where products are largely

standardised.
Michael Porter argued that industries are either multi-domestic or global.
Multi-domestic industries: firms compete in each national market
independently of other national markets.
Global industries: competition is global. The same firms compete with each
other everywhere.
In general businesses adopt a global strategy in global markets and a multi-
local strategy in multi domestic markets.
Global strategy
Companies such as Sony and Panasonic pursue a global strategy which
involves:
• Competing everywhere
• Appreciating that success demands a presence in almost every part of the  
 
world in order to compete effectively
• Making the product the same for each market
• Centralised control
• Taking advantage of customer needs and wants across international  
 
borders
• Locating their value adding activities where they can achieve the greatest  
 
competitive advantage
• Integrating and co-ordinating activities across borders
• A global strategy is effective when differences between countries are small  
 
and competition is global.
• It has advantages in terms of economies of scale, lower costs, co- 
 
ordination of activities and faster product development
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Multi domestic strategy
• A multi-domestic strategy involves products tailored to individual  

 
countries. Innovation comes from local R&D
• There is decentralisation of decision making within the organisation
• One result of decentralisation is local sourcing
• Responding to local needs is desirable but there are disadvantages: for  
 
example high costs due to tailored products and duplication across  
 
countries
Comparison of the two strategies

Four drivers determine the extent and nature of globalisation in an industry:
(1) Market drivers
• Degree of homogeneity of customer needs

• Existence global distribution networks
• Transferable marketing
 
(2) Cost drivers
• Potential for economies of scale

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

• Foreign direct investment policies
• Compatible technical standards and common marketing regulations
• Privatisation
 
(4) Competitive drivers
• The greater the strength of competitive drivers the greater the tendency for
globalisation
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11.3 Dimensions of Global Strategy

A truly global company views the entire world as a single market. There is
nothing like local market and foreign market, but there is only one market
called the global market. However, they have customised or appropriate
strategies to suit for different geographic regions depending on consumer
needs, sensitivity and local cultures. Companies which adopt global strategy
generally stop thinking of themselves as national marketers who venture
abroad and start thinking of themselves as global marketers. They look for
ideas and best practices from global industry peers and try to innovate new
business ideas on their own to create a unique marketplace in the global
market.
Most of the Indian companies operate global businesses, and identifying a
competitive strategy for the global markets can be challenging and a
complex task. Each market has unique characteristics of domestic
environmental factors and marketing mix. It is not a simple formula for
developing and implementing successful business strategies across multiple
countries and multiple businesses. There are different strategies required for
emerging markets and developed markets. For e.g., Suzuki has strategy of
high-end models in developed markets like Japan and U.S., whereas for
emerging markets like India and Africa, it has a wide range of attractively
priced low and mid-segment cars to enter and gain market share.
Many corporates take an approach and strategy of “think globally, but act
locally” for their businesses, which means developing and customizing
products and services for the local market. This also means the organization
would create a synergy by serving multiple global markets, but formulate
unique competitive strategy for each specific market that is customized to the
unique requirements of the people there.
The strategic mangers are involved in the global strategy and making
policies related to global manufacturing facilities, marketing, financial, HR,
logistical processes that help in the execution of the strategies. The global
business units, the operations units report directly to the CEO, or the
Executive Council of the organisation. Executives are trained in world-wide
operations and management is recruited from many countries and resources
are sourced from least cost locations and financial investments are availed
from international financial institutions or investors.
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In short, globalisation encompasses the following attributes
• Strategy and Planning to expand business globally

• Developing a global outlook for the business and have a clear vision
• Identify global production facilities considering the global dynamics rather
than national considerations. This will help in optimising both costs and
margins
• Base-lining product development and production planning on global best

practices and market considerations. Tap those global markets where price
realisation for the products is higher.
• Global sourcing of raw materials, technology, raise finance, recruit best

people etc to maximise the cost an productivity efficiency of business
operations
• Global orientation of organisational structure and management culture to

manage diversity.
• Forge global strategic alliances to complete the value chain of products and
services
As discussed earlier, a global orientation can also lessen the risk of a
company’s businesses because demand and competitive factors tend to vary
among nations. There are number of parameters to be considered, let us see
some of them.
• Are customer needs abroad similar to those in the firm’s domestic market?
If so, the firm may be able to develop economies of scale (discussed in
detail in the Chapter Business Unit strategies) by producing a higher
volume of the same goods or services for both the markets.
• Are differences in transportation and labour costs abroad favourable and

conducive to produce goods and services abroad? Are these differences
favourable and conducive to exporting and importing goods from one
country to another?
• Are the firm’s customers or partners already involved in the global

business? If so, the firm may need to become equally involved.
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• Will distributing goods and services abroad be difficult? If competitors

already control distribution channels in another country, expansion into the
country will be difficult.
• Will government trade policies facilitate or hinder the global expansion? Is

the taxation regime favourable for foreign companies to do business in the
country?
• Will managers in one country be able to earn from managers in the other
countries? If so global expansion may improve efficiency and effectiveness,
both abroad and in the host country.
Corporate growth is often pursued through expansion into fast growing
emerging markets and those nations that have achieved enough
development to warrant further expansion but whose markets are not yet
fully served. The advantages and disadvantages of growth through global
expansion should be considered carefully before pursuing expansion into an
emerging market which lack basic infrastructure or has complex government
policies and tax regimes or hard regulatory regime.
11.4 Stages of Globalisation

A company goes through different stages of development before it becomes
a truly global organisation. An export to another country is generally
considered as the first step towards starting to do international business.
Later, it may create strategic alliances and partnerships to distribute or
manufacture its products. Then it moves on to establish joint ventures and
subsidiaries abroad to set up production facilities to manufacture its
products. Thus, a company from being an international firm develops into a
multi-national firm and then finally becomes a global organisation.
Kenichi Ohmae identifies five different stages of development a firm goes
through to become a global organisation.
• The arm’s length service activity of essentially domestic company which

moves into new markets internationally by forging tie-ups with local dealers
and distributors.
• The company takes over these marketing and distribution activities on its
own by making small presence in those countries of operations
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• The company begins to carry out its own manufacturing, marketing and
sales in key foreign markets.
• The company starts full-fledged operations in these markets, supported by
complete business systems including R&D, Engineering besides production
facilities replicating the home market. It extends the reach of all centralised
functions likes HR, Finance etc to new markets.
• Finally, the company moves towards a genuinely global mode of

operations. In this context, Ohmae points out that the company’s ability to
serve local customers in new markets around the globe depends on its truly
responsive way of addressing their true needs, as well as its ability to
demonstrate the global character of its industry. The company must have
the ability to strike a balance between these two organisational and market
compulsions, also called global localisation. The company should create a
new orientation that is simultaneously aligned in its strategy towards both
the directions.
To become a truly global organisation, an organisation should be ready to
venture into new ground altogether. Ohmae argues that to make an
organisation transition in this globalisation journey, it must denationalise their
operations and create a system of values shared by corporate managers in
global organisations around the world.
Today’s global corporations are made of cultural diversity and have learned
to serve the global customers’ interests to differentiate themselves and
create a unique marketplace for their products and services. As discussed in
earlier chapters, Indian IT Industry is a classic example of globalisation of a
particular industry, not just a single company. These companies make
significant investments in business development, new product development,
employee training, research and development, build necessary infrastructure
to expand operations, build relationships with local governments and
regulatory bodies and create partner ecosystem to deliver the best value to
their customers in all the countries where they do business.
IBM, for instance, in India provides an employment in excess of 100,000
people, considered one of the largest employers in the Indian IT Sector.
Similarly, as discussed in earlier chapters many Indian firms have already
gone global across industries like information technology, steel, automobiles,
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pharmaceuticals, cement, oil and gas, mining, etc. and many others have
aspirations to expand their businesses globally as well.
11.5 Enablers of Globalisation

Any company that aspires to go global will have to depend on many factors
that are essential on the part of domestic economy as well as the foreign
country for successful globalisation of its business. There are factors that
facilitate the globalisation process and at the same time there are factors that
impact the progress of globalisation.
There are still challenges that persist when companies pursue global
aspirations. These factors include complex government approval processes,
high costs, sourcing of huge investments, poor infrastructure, poor image of
the countries, sourcing problems, cultural problems etc.
At the same time, there are factors that enable globalisation, like young
population, demographics, vast talent pool, growing entrepreneurship, high
savings rate for investments, innovation and skills – these factors definitely
help in facilitating the globalization process. Let us see some of these
factors:
Business Climate: The economic climate should be conducive enough to
facilitate the entry of global companies to set up business operations. There
should not be unfavourable conditions like import restrictions, restrictions on
sourcing of raw materials, restrictions on foreign direct investments or
restrictive labour laws. They should have liberal trade laws to facilitate new
industry creation and employment creation. Economic liberalization is
regarded as the first step towards globalization.
Infrastructure: The country should have state-of-the-art infrastructure
facilities like ports, airports, transport network, commercial developments so
that the enterprise can develop its business operations locally. Emerging
economy like China has very good infrastructure, India is catching up on that
front.
Government support: The government interference should be minimal; in
fact, the government should support and encourage globalization.
Government support may take the form of policy making, financial market
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reforms and procedural reforms, development of public facilities like world

class infrastructure, policy guidelines for public private partnership,
environment clearance, and land acquisition reforms for setting up
production facility, create employment and up-liftment of society.
Resources: It is one of the important factors that decide the ability of a firm
to grow globally. Resourceful companies generally find it easier to
implement its global strategy across different markets. Resources include
human capital, finance, technology, research and development capabilities,
leadership expertise, company brand image, profitability etc. It should,
however, be noted that many small firms have been very successful in
international business because of their unique value proposition for their
business, like agility and resilience.
Competitive advantage: The competitive advantage of a company is a key
factor that determines the success of the company in global business. A firm
may derive competitive advantage from many factors such as low cost,
product quality, product differentiation, technological superiority, customer
service, marketing strength, and brand value etc. Small firms may have
other specific advantages like nimble footedness, resilience, faster time to
market etc. Large companies can emulate these good attributes of small
companies to increase their competitive advantage with their peers.
Competition: The growing competition, both from within the country and
other countries, may make companies to consider other markets seriously to
improve competitive positioning and increase their business share.
Sometimes, companies enter international markets to create credentials to
fight competition back home and build more competitive strength.
Integration of world economy: Integration of different country’s economy
into world economy is a key factor in globalization of markets. Trade barriers
have been significantly reduced, thanks to World Trade Organization (WTO)
and its member countries, and global trade agreements (WTA) have
improved trans-nationalization of different economies, as there has been a
growing interdependence on countries with increasing globalization of
markets.
Resistance to change: There are several factors that act as resistance to
change and come in the way of globalization. Socio-political factors and
cultural factors are some of the factors that act as a resistance to change.
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Organisations should take note of these factors and start addressing them
through effective strategies.
Country’s image: Factors such as stringent government policies, complex
approval process, political and bureaucratic corruption, poor infrastructure,
too much of protectionist policies can dissuade companies from making
investments in their globalization strategies.
11.6 Globalisation Strategies

From Indian industry perspective, many corporates have expanded their
businesses into many global markets. They have adopted different strategies
such as developing exports markets, foreign investments including joint
ventures, mergers and acquisitions, strategic alliance, franchising and
licencing etc. We have discussed these strategies in the chapter 5 on
corporate level strategy in details.
Growth Strategy
a. Exports
b. Foreign Direct Investments
c. Joint ventures
d. Mergers and acquisitions
e. Strategic alliances
f. Franchising
g. licencing
11.7 Globalising Culture

The new economy of globalisation means a more stable and longer growth,
with more jobs, lower inflation and interest rates, explosion of free markets
worldwide, the unparalleled access to knowledge through the internet, social
media technologies and new type of organization which affects
organizational change.
Organizational change is the adoption of an organizational environment for
the sake of survival on an ongoing basis; thereby the organisation is able to
transform itself to the needs of global changes taking place. Namely, the old
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principles no longer work in the age of Globalization. Businesses have

reached the old model's limits with respect to complexity and speed. At the
same time, the challenge which new economy brings to businesses
managers is the use of new business approach and the strong will for
organizational changes and adaptation to global market demands.
There are several types of organizational changes that can occur such as
strategic changes, organizational cultural changes; involve organizational
structural change, a redesign of work tasks and technological changes. In
line with these changes, there is strong expectation of employee to
permanently improve their knowledge and become an integral part of
successful business formula in order to respond to the challenges brought by
the global economy.
It means a request for learning organization which is characterized as an
organization creating, gaining and transferring the knowledge, and thus
constantly modifying the organizational behaviour. 
This will refine the understanding of globalization in three domains:
organizational culture, behaviour, and gender.
11.8 Case Study – Tata Steel Globalisation

Tata Steel uses some of the world's best practices in operations, business
processes and marketing and has sought the best benchmarks for
management, manufacturing excellence, operating practices, training,
branding and, customer and retail value.
Tata Steel is amongst the lowest-cost steel producers in the world. It has
been exporting its products for more than 25 years already. It uses some of
the world's best practices in operations, business processes and marketing.
Over the years, the company has sought the best benchmarks for
management, manufacturing excellence, operating practices, training,
branding and customer and retail value with the help of several leading
consultants and steel manufacturing companies.
What then would be the implication of globalisation, which means different
things to different people, for this company that is almost 100 years old?
Most companies are global in some way or other. Does Tata Steel consider
itself global? "Not significantly enough. We are planning our business model
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to become more global," says B Muthuraman, former managing director, Tata

Steel. As Tata Steel charts out its journey on the world map, let’s take a look
at the why, what, and where of their global strategy:
Why?
Even though Tata Steel can meet its growth aspiration within the current
marketplace, it is looking at taking on the world more as a strategic option.
Chetan Tolia, Chief (strategy and planning), says "We are looking at how
Tata Steel should position itself in the globalising steel industry, so that we do
not remain as a very good but small regional player."
Globalisation is very relevant to Tata Steel’s growth trajectory because the
steel market is increasingly becoming global. "A global market is one where
a single price holds and all customers can buy that product at this price
excluding the transaction and transportation costs. In the steel industry, in
every region the regional prices are increasingly being set by global trends.
"Over 25 per cent of the world’s steel production is globally traded. This was
less than about 15 per cent only about a decade ago. The steel industry has
been globalising very rapidly. The minerals business is also global. While
iron ore has been traded for almost over a century, ferro-alloys have been
traded for over 50 years," Mr Tolia says.
Tata Steel is advantageously poised to make the entire world its playing field.
Natural resources like iron ore, ferro alloys are not available in many
geographical locations and India has them in plenty. The company can
monetise some of these resources and use the cash-flow to support global
initiatives. Secondly, not many steel plants can adapt to market conditions as
well as Tata Steel. The company can use its world-class marketing abilities to
replicate its success all over the world.
The next natural sequence of questions, then, include what, where and how
to globalise. Mr Muthuraman says that these issues are very closely linked to
how a company looks at its business. "A truly global company is one where
global thinking prevails and decides every aspect of business – where to
manufacture, where to research, and what type of people to employ, and
where and how to market the products and services. It is fundamental to
think through every aspect of the business in a global context to maximise
profits.
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"In order to do this, one must have a very good understanding of the value
chain and the potential of each of its parts. At the end of an exercise to
determine which part of the value chain creates the maximum value at which
location and how, you may find that manufacturing is best done in one place
while the market is in another, research should be done somewhere else and
methods of serving the customer are different in each place. But at the end
of such an exercise, one may also come to the conclusion that the most
value creating opportunity is to be at home. If you have applied the global
test for arriving at such a decision, you are a global company. So
globalisation should be seen as a means of value creation and not merely as
a means of physical presence," he says.
"Carrying out such an exercise will throw up the model that best suits us," he
adds. The company is keeping its time-honoured tradition of thinking each
step out.
What?
Tata Steel has decided, first of all, that it wants to be in the business of steel,
minerals and related areas. It believes that even though there are many
applications where steel has to give way to some other material, there are
also many new uses of steel to be encouraged. "I see a situation where steel
usage will increase," says Mr Muthuraman.
Where?
Having zeroed in on its product of focus, Tata Steel would be in a position to
figure out where the markets lie and understand the growth potential in these
areas. A share of a market relevant enough to make an impact on Tata
Steel's bottom line is what the company is concentrating on.
"India and China are growing. The East European countries have been
bottled up for a long time and have just perked up. Activities like construction
of infrastructure and sale of more cars here are going to increase their steel
consumption. There is going to be a market in the US for a long time
because it comprises almost 300 million people with a very high quality of
life," says Mr Muthuraman. "It is necessary to evaluate each one of the large
and-or fast growing regions," says Mr Tolia.
Currently, China accounts for a quarter of the steel consumption in the world
at over 200 million tonnes. North America is at 100 million tonnes, Europe at
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150 million tonnes, South East Asia, including Japan, Korea and Taiwan, is
at another 200 million tonnes. The Middle East, the CIS and East Europe,
and Africa consume about 30 million tonnes each while S. America
consumes about 20.
The crucial question, according to Mr Muthuraman, is how best to serve the
identified markets. What are their characteristics? What are the keys to
creating value in these markets? What are the requirements of end users in
terms of product quality, delivery and service? It is also important to figure
out from where these markets are best served and where steel should be
manufactured taking the cost and logistics for service and delivery into
account.
The US, for instance, may have a good steel market but if a manufacturing
facility is set up there, it will probably run at a loss. "It is very important to
understand where value gets added in a market place. If I manufacture in
India because it is easier to dominate the Chinese market by being here I
would consider myself global because I have applied a global mind-set to
take that decision. Just by setting up a ferro chrome project in South Africa, I
do not become global," says Mr Muthuraman.
How?
As the global steel industry is fragmented and awash with extra capacity
worth 15 to 20 per cent of consumption, setting up greenfield ventures may
not always be a justifiable strategy. So Tata Steel plans to take the
acquisition route to globalisation in the immediate future. It could then use
the acquired plant or capability as a foothold for the greenfield approach.
"It is necessary to look at establishing local manufacturing presence backed
with a strong supply chain and sound marketing around the plant and in that
region. This will enable us to leverage the capabilities we have built up in
Jamshedpur. Plus, steel has historically been a nationalistic industry and
people won't start shedding their mind-set overnight. So it is going to be
important to establish local capacities to go beyond the few percentage
points of market share that we could establish through only exports," Mr Tolia
says.
Tata Steel does not wish to overlook the fact that historically, a third of the
acquisitions worldwide do not make profits, deliver the objectives for which
they have been made or to create value. It plans to tread carefully in
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identifying the opportunity, negotiating the deal and then merging that
acquisition into the parent with speed. "Each of these stages is critical to
successfully achieving and sustaining the gains," says Mr Tolia. But given
Tata Steel's record for rock solid strategizing, it seems unlikely that its
blueprint for globalisation will leave any stone unturned.
Corus Steel Acquisition

On 20th October 2006 the board of directors of Anglo-Dutch
steelmaker Corus accepted a $7.6 billion takeover bid from Tata Steel, the
Indian steel company, at 455 pence per share of Corus. The following
months saw a lot of negotiations from both sides of the deal.
Tata Steel's bid to acquire Corus Group was challenged by CSN, the
Brazilian steel maker. Finally, on January 30, 2007, Tata Steel purchased a
100% stake in the Corus Group at 608 pence per share in an all cash deal,
cumulatively valued at USD 12.04 Billion. The deal is the largest Indian
takeover of a foreign company and made Tata Steel the world's fifth-
largest steel group.
There were a lot of apparent synergies between Tata Steel which was a low
cost steel producer in fast developing region of the world and Corus which
was a high value product manufacturer in the region of the world demanding
value products.
Some of the prominent synergies that could arise from the deal are as
follows :
• Tata was one of the lowest cost steel producers in the world and had self-
sufficiency in raw material. Corus was fighting to keep its productions costs
under control and was on the lookout for sources of iron ore. This is a
compelling synergy for both the companies.
• Tata had a strong retail and distribution network in India and SE Asia. This
would give the European manufacturer an in-road into the emerging Asian
markets. Tata was a major supplier to the Indian auto industry and the
demand for value added steel products was growing in this market. Hence
there would be a powerful combination of high quality developed and low
cost high growth markets.
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• There would be technology transfer and cross-fertilization of R&D

capabilities between the two companies that specialized in different areas
of the value chain.
• There was a strong culture fit between the two organizations both of which
highly emphasized on continuous improvement and ethics. Tata steel's
Continuous Improvement Program ‘Aspire’ with the core values:
Trusteeship, integrity, respect for individual, credibility and excellence.
Corus's Continuous Improvement Program ‘The Corus Way’ with the core
values: code of ethics, integrity, creating value in steel, customer focus,
selective growth and respect for our people.
Thus, given Tata Steel's track record for rock solid strategizing, it is highly
unlikely that its blueprint for globalisation will leave any stone unturned.
Today, Tata Corus is one of India’s successful M&A stories that put Tata Steel
on the highest pedestal in the global steel industry, despite challenges in
integration, global economic turmoil, rising supply etc.
Student work: Write a case study on any leading Indian corporate company
which has globalised its business and also expanded their business
successfully through a merger and acquisition.
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11.9 Summary
Substantial liberalisation of international trade and investments over the time,
have strengthened the forces of globalisation. Most countries have made
economic reforms and liberalised their economies to allow international trade
to happen freely. It helps the countries to expand the possibilities of
economic cooperation.
Any company that truly aspires to become global leader in their industry can
look forward to different ways of entering the global markets. First and
foremost is that it should look at the whole world for its markets as well as for
sourcing and processing its factors of production. They should develop
capabilities to think global and act local to realise their aspiration.
There are five stages of development with which an organisation can move
into true globalisation gradually and in a planned manner. It ranges from
exports, to foreign direct investment to mergers an acquisition to strategic
alliance to franchising. We have discussed the details of these stages in this
chapter.
We also discussed about the factors that facilitate the globalisation process
and at the same time impact on the progress of globalisation. There are still
challenges that persist when companies pursue global aspirations. These
factors include complex government approval processes, high costs,
sourcing of huge investments, poor infrastructure, poor image of the
countries, sourcing problems, cultural problems etc. At the same time, there
are enablers like young population, demographics, vast talent pool, growing
entrepreneurship, high savings rate for investments, innovation and skills –
these factors definitely help in facilitating the globalization process.
From Indian industry perspective, many corporates have expanded their
businesses into many global markets. They have adopted different strategies
such as developing exports markets, foreign investments including joint
ventures, mergers and acquisitions, strategic alliance, franchising and
licencing etc
365

 
1. Name a few globalisation strategies?
a) Exports and Foreign direct investments
b) Joint ventures and M&As
c) Strategic alliances and licencing
d) All of the above
2. Which of the following is not an advantage of international joint ventures?

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

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

a) Multi-domestic or global
b) International and domestic
c) Vertical and horizontal
d) Forward and backward integration
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References:
1. Vijay Govindarajan and Anil K. Gupta 'The Quest for Global Dominance:
Transforming Global Presence into Global Competitive Advantage'
Jossey Bass. (2008). p. 20-21
2. Michael Porter (ed.) 'Competition in Global Industries' Harvard Business
School Press. (1986)
3. Christopher A. Bartlett and Sumantra Ghoshal 'Managing across Borders:
The Transnational Solution' Harvard Business School Press. (1989)
Management), P 292
Unit Strategy P 81
6. Kenchi Ohmae, The Borderless World (London: Fontana, 1991)
7. Tata Steel case study from Tata Steel website
Management), P 296
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Six Mistakes Companies Make When Going Global

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

probably won't appreciate all the resources you have access to in your
home territory until you set up operations overseas and realize they're
absent. Infrastructure can be relatively lacking in any number of areas,
including transportation, financing, health care and the law. But the one
that's most likely to bite you is an absence of skilled, experienced
personnel in your particular business. You can import your own people,
but good luck with that—many home employees won't want to make the
switch for long or at all. You'll need a plan for recruiting and training
overseas.
5) Being insensitive to culture. As obvious an error as it may sound,
business leaders typically fail to adequately appreciate just how important
it is to learn about what people in other cultures consider respectful, and
what offends them. In the United States, having the right product or
service at the right price usually trumps all. Not so in other countries,
where you can kill deals by, depending on the region, bringing up
business too quickly, handling a business card too casually, crossing your
legs the wrong way, shaking someone's hand, or politely refusing a
second drink. That sort of sensitivity has to be developed and applied to
everything your company does. (And yes, everyone speaks English
everywhere today, but a few hours spent learning a handful of poorly
pronounced phrases in your host's language is usually considered a nice
gesture.)
6) Intolerance of ambiguity and uncertainty. There is no way you'll be
able to march into another country and set up shop without encountering
all sorts of confusing and unpredictable situations. You're simply not going
to understand a lot of what's going on around you, or be able to know
what the consequences of all your decisions will be. Some leaders are so
used to being on familiar, controllable territory that they find the ambiguity
disorienting to the point of defeat. But if you accept those limitations going
in, and are prepared to work through them, you'll probably do fine. All of
the mysteries of doing business overseas are solvable with time and
effort. But there are no shortcuts, so don't bet your success overseas on
finding them.
(The author is Steven J. Thompson, leadership and management guru)
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video
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12
STRATEGIC LEADERSHIP
Objectives:
This chapter focuses on the importance of strategic leadership and corporate
governance for effective implementation of strategy. The quality of strategic
leadership at the top management level is key to the effective
implementation of strategy. An organisation needs to be a learning
organisation.
Corporate governance is the lifeline of any business that needs to sustain its
existence. This chapter talks about a number of challenges and issues that
need to be considered well in advance by the strategic managers while
complying with corporate governance.
•! Understand the importance of leadership and corporate governance
•! How to build a learning organisation as part of strategy
•! Understand the importance of emotional intelligence
•! Leadership vision, values and culture
•! Organisation and corporate governance
•! Corporate ethics and social responsibility
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Structure:
12.1! Introduction
12.2! Leadership and Management
12.3! Learning Organisation
12.4! Leadership Skills
12.5! Emotional Intelligence
12.6! Leadership vision and values
12.7! Leadership and culture
12.8! Assessing current leadership culture
12.9! Leadership culture change
12.10! Chaos in Leadership
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12.1 Introduction
Jack Welch once said in his book Winning, ‘before you become a leader,
success is all about growing yourself, but when you become a leader,
success is all about growing others and the organisation’. The quality of
leadership at the top management level is key to the effective
implementation of strategy. It is all about providing strategic leadership to the
people and the organisation. Even a best formulated strategy would fail if it is
not implemented properly. In this context, employee communication is highly
important that the strategy gets adopted at all levels of leadership and
employees in the organisation. The ability of leaders to communicate the
organisational goals and clearly chart out a focused plan and guide their
attention to achieving the goals is crucial to success.
It must be recognised that without effective leadership at the top of the
organisation, the individual employees are less likely to be empowered and
therefore less likely to develop their own leadership skills. The leader of an
organisation is ultimately responsible for the successful implementation of
the organisation strategy and therefore he should create an organisational
culture that empowers the employees to respond to challenges and
opportunities on the way to the execution of strategy.
There are many ways to empower the employees like training and
development, appropriate rewards and recognition, leadership development,
systems and processes to guide employees to demonstrate appropriate
behaviour, milestones achievement of strategic goals etc. We might reinforce
that systems and processes, and policies may help in the implementation of
strategy but it must be remembered that ultimately it is the individual
employee who actually implements the strategy. Hence, it is the individuals,
groups and teams in an organisation, who must be ready to accept the
change that the strategy seeks out of them.
In this chapter, we will discuss in detail about the roles and responsibilities of
the top leadership team that plays an important role in the implementation of
strategy. In fact, we will discuss the differences between leadership and
management. How leadership facilitates the direction of change with right
behaviour and institutionalising a culture that fosters change. We also
discuss about the role of leaders in creating a learning organisation.
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There are many challenges a leader faces while creating an organisation in

which people continually learn. We also evaluate the impact of emotional
intelligence on effective leadership and the link between emotional
intelligence and organization’s performance.
We also discuss the role of leaders in developing a shared vision and
creating values that an organisation stands for, in the industry. The values
actually help guide the behaviour of the employees and hence constitute the
organisation culture. Generally, the effects of national culture on people’s
beliefs and hence behaviour play an important role in shaping the
organisation culture. We will also study the different leadership approaches
to this effect.
Any organisation that aspires for high growth and globalisation of vision,
there are always complexities and uncertainties, it is always the great
leadership that mitigates these risks and plays a critical role in directing the
strategic change management process and guide the organisation into the
future. This chapter also takes a look at some of the leadership skills and
competencies necessary to achieve change. Also discuss the impact of
innovation in the strategic management implementation across the
organisation. There will be a case study to understand the importance of
innovation in modern marketplace to continually reinvent the organisational
success for the long term.
The reason is that leaders are generally not judged on their personal output.
What would be the point of evaluating them like individual contributors?
Rather, most leaders are judged on how well they have hired, coached, and
motivated their people, individually and collectively—all of which show up in
the results. That’s why it is highly important to sign up the right / top
performers and unlock their energy to see sustained performance in the
organisation.
12.2 Leadership and Management

According to John Kotter, management is all about coping with complexity to
produce orderly and consistent results, whereas leadership is concerned
about dealing with change and creating a shared vision which the
organisation is trying to reach, and formulating sustainable strategies to bring
about the changes needed to achieve this vision.
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Management’s practices and procedures, according to John Kotter’s Change

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

• Planning and budgeting
• Operational control
• Implementing strategy
• Organizing and staffing to achieve the strategy
• Controlling and problem solving to ensure strategy is implemented in a  
 
timely manner
• Taking complex systems of people and technology and making them run  
 
efficiently and effectively, hour after hour, day after day
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Leadership creates the systems that managers manage and changes them
in fundamental ways to take advantage of opportunities and to avoid
hazards. It focuses on means as well as the ends. It truly empowers the
employees to take self-directed decisions and actions to perform the
execution of strategy. It deals with preparing the organisation to face
changes and new challenges.
• Creating vision and setting a direction for the organisation

• Formulating strategy
• Communicating with stakeholders to align them with the set vision
• Dealing with change
• Motivating and inspiring actions
• Recognising and rewarding people
 
The vision need not be complex, but should be clear and readily understood
by all within the organisation. Creating systems and processes that
managers can manage and transforming them when needed to allow for
growth, evolution, opportunities, innovation and hazard avoidance.
What happens when organizations have different amounts of

management and leadership?
When organizations have high competencies in management and
leadership, they’re able to meet challenges of today as well as tomorrow.
However, most organizations are usually lacking one or the other. When
management exists without leadership, the company is often unable to
change. And when leadership exists without management, the company is
only as strong as its charismatic leader. Most of the time, organizations are
overstaffed with managers, but lacks enough leadership to help them deal
with constant change.
How do organizations change over time?
When they are formed, organizations are often long on leadership and short
on management. The savviest organizations gradually add management
capabilities over time while still preserving that spark of leadership that led
them to rapid growth in the first place. But inevitably, over time, the most
passionate leaders move on to do something else, while layers of
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management build up in their place. Organizations gradually transition to a

complacent mentality, where management reigns supreme and leadership is
in short supply.
One of the critical things about leadership is change management. Change
requires an adjustment in people’s behaviour. Unlike in management where
control mechanisms are used to implement strategy, leadership motivates
and inspires people by empowering them with needs required for
achievement, by fostering a sense of belongingness, and by recognising and
rewarding the performers. An effective leader will ensure that the
organisation’s vision is in line with its employees’ own value system and
culture. As such employees will derive intrinsic satisfaction by working
towards achievement. This satisfaction is likely to increase where individuals
are involved in discussions on how the strategy can be implemented and
vision can be achieved, and in the process they get rewarded for this efforts
and contribution.
As discussed, whereas management involves dealing with organisational
complexity and managing various tasks, leadership involves dealing with
change. Change management includes dealing with change in regulatory
and policy environment, faster technological change, change or shift in
demographics, shifting social trends etc.
The role of leadership is to create a shared vision which the organisation is
trying to achieve and to formulate relevant strategies to bring about the
changes needed to achieve the set vision. Effective leaders encourage
leadership at a level of management and throughout the organisation at
every employee level, by empowering participants to make decisions without
fear of reprisals. The dissemination of leadership allows an organisation to
deal effectively with increasing change in its competitive environment. The
challenge is to blend the distinct characteristics and actions of leadership
and management to their advantage so that they complement each other
within the organisation in their efforts to achieve the vision.
There is general agreement that management and leadership involve
different functions. Generally, most people in leadership positions are better
characterised as managers rather than leaders. However, the leaders
perform three broad functions:
1. An organisational function
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2. An interpersonal function
3. A decision making function
The organisational function involves the leader inspiring people in the

organisation to behave in a way that is desirable to achieve the vision. A
leader can do this by influencing the process of setting goals in an
organisation and creating a recognition and rewards system, so that people
are quite aware of their roles and responsibilities and their individual goals.
This is required to achieve the vision finally. The leader is actively involved in
creating the vision, setting the direction and in creating the goal structure.
The second function, interpersonal function, involves the leader in ensuring
that the morale of the participants is maintained. This is more of an
empathetic role which the leader is supposed to perform and address the
concerns of the people in the organisation. This helps him to connect with
them at emotional intelligence level. The third function, decision making
function, involves the leader in taking assertive and timely decisions and
allow the organisation to achieve its goals.
An organisation is made of collection of individuals. It is the people who
actually make up the organisation, and help in implementing the strategy and
achieving the vision, regardless of the aspirational vision the organisation
sets for itself. It is ultimately the leaders who inspire and ensure that the
participants in the organisation behave in a desirable manner to achieve the
vision.
Leaders accomplish this by influencing the attention of the employees,
helping them to stay their attention focused on the goals and inspiring them
to create actions to achieve the goals. The attention of individuals may be
drawn in many different ways. Organisations operate in dynamic
environments. Leader has to deal with changes constantly happening in the
environment so there will be changes in vision too. Hence, he must ensure
that the changes are communicated well, individual’s attention and their
behaviour is also modified to reflect these changes. Similarly, the leader
should ensure that the entire organisation is focused on the single goal
structure and speak in one voice and in such that any conflicts between
different stakeholders are quickly and amicably resolved. This ensures that
everyone in the organisation works towards the common goals and same
outcome.
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In every organisation, the leaders seek to improve the performance of the

organisation. In today’s dynamic external environment, there is always need
to change organisation structure to keep aligning with the changes in
strategy to reflect the changes in the environment both internal and external,
from time to time. This will have an impact on the attention and focus of the
employees. Any change in organisation structure should be undertaken with
a view to its impact on the attention focus of the participants. Fostering
‘attention focus is central to the organisational function of leadership’ and
predictable and consistent performance.
Similarly, at the interpersonal function level, the style adopted by a leader in
his interaction with the employees of the organisation is also important.
Generally, the leadership style should be open, warm and friendly and
empathetic, however it should seek and allow the members to focus their
attention on the issues that the leader feels are important.
The third function of leadership is about decision making function. A leader
takes decision with a view to making the priorities and guide and modify the
individual’s behaviour by focusing on areas which individuals to apply their
attention on. The decisions taken by leaders and individuals should ensure
that the bottlenecks to the progress are removed and the supportive in
achieving the organisational goals. This is considered to be the most critical
function of leadership as it fosters forward momentum in the organisation. By
empowerment, leaders enable every employee to look at the broad contours
of the workplace demands and take decisions at their levels to ensure the
forward momentum is sustained at all levels.
12.3 The Learning Organisation

Learning is a key success factor in organisation development. An
organisation will be considered progressive if it has the ability to learn
continually and apply it in business performance. The speed of learning
becomes a competitive advantage and these organisations create great
leaders.
The traditional hierarchical structures that ensure the command and control
of individuals are no longer conducive to competing in more dynamic
environments for creating a learning environment for an organisation. A
learning organisation, according to Senge (1990), comprises of both
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adaptive learning and generative learning. Adaptive learning is about the

ability to cope with changes in one’s environment, while generative learning
is about creating change and being prepared to question the way the
organization works.
For example, a transition from adaptive learning to generative learning can
be seen in the total quality management (TQM), as originated in Japan.
Initially the focus was on producing consumer products that were fit for the
purpose. In other words, the product would perform according to its
specifications. This then evolved into understanding the customer’s needs
and reliably creating products that meet those requirements. In modern
economy, the focus has shifted to creating what the customers want but may
not have realized yet. This requires organizations to look at the competitive
environment differently.
This is evidenced in the success of Japanese carmakers such as Toyota and
Honda who had the ability to view issues in manufacturing in a systematic
way. They adopt a way of thinking that does not focus on one aspect of
manufacturing, but look at the issues as part of an integrated ecosystem,
which is a clear evidence of not being stuck in adaptive learning but
transitioning into generative learning.
Building a learning organization
In any organization, the role of a leader is to develop a shared vision of
where the organization wishes to get to. In the process, the leader has to
communicate explicitly to the people of the organization and challenge the
assumptions on which decisions are made. In other words, a leader has to
challenge the mental models of how the world is viewed, and to encourage
the people into a more systemic pattern of thinking.
The leadership role in a learning organization is one of designer, teacher,
and steward. The leader’s role is to facilitate learning in the organization.
This requires the reader to develop a vision for the organization and
juxtapose this with the current reality of where the organization actually is.
The difference between the “as-is” and “to be” presents the need for a
creative change in an organisation. This creates a need for learning, to
translate this learning into reality, thereby preparing the organization to
achieve the vision. With creative change, the motivation for change is
intrinsic and not extrinsic. Hence, the issue with this approach is that as soon
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as the change requirement is addressed, the momentum for further change

decelerates. However, once a particular level of transformation is reached,
then it follows with another set of environment changes that lead to another
set of changes required for the organisation to undertake.
Leadership roles
There are three distinct leadership roles in an organization. These are the
leader as designer, the leader as teacher, and the leader as steward.
• The leader as a designer: The leader is generally regarded as the leader

of an organization, be it designing the design strategy and structure or the
core values, purpose and culture of the organization. The leader is also
who empowers the organization to achieve the goals and helps in
facilitating business decisions. The efforts of leadership will have an
enduring impact on the organization for the future. He should be a man who
has the knack of seeing “big picture” as well as delving into the details of
execution.
• The leader as a teacher: Creating awareness is the most important thing

in strategy execution. The leader generally creates awareness by
constantly communicating with the employees about the vision, strategy
and goals, and the assumptions on which these are based. This awareness
allows people to continually challenge their views of reality so that they can
see beyond the superficial issues and build ability to discern the underlying
causes of problems and take appropriate remedial actions. This, in turn,
fosters empowerment in the employees and take decisions and be
accountable for actions. Leaders in learning organizations influence the
employee’s perception of reality at three levels: events, patterns of
behaviours and systemic structure.  
 
Events are primarily short term in structure, sometimes dramatic. For
example, an increase in interest rates has an increase in inflation. Patterns
of behaviour bring about changes because of events which might bring
about a trend analysis. The systemic structure deals with the explanations
for the underlying causes of behaviour, therefore, the leader’s focus is
predominantly on systemic change. The leader should always set an
example which is followed by the organizational members.
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• The leader as a steward: The leader assumes the role of stewardship for
all the people in the organization that he leads. This also involves not just
the people, but also the purpose of the organization and the core values
and culture of the organization. A leader in a learning organization actively
seeks to change how the competitive environment works in favour of
creating a more successful organization with more satisfied employees
than would be achieved in a traditional organization.
12.4 Leadership skills

Besides the above three leadership roles, it is important to develop
leadership skills at different levels of the organization. We will discuss some
of the very important skills the leaders and the employees of an organisation
must possess to steer the organisation to success and achieve its purpose.
Building a Shared Vision:
Creating a shared vision is an ongoing process which involves the leader
conceptualising and sharing the vision with the members of the organisation.
This process ensures that it aligns the people of the organisation to harness
all their efforts and energies towards the common vision. In this way, the
shared vision is more likely to be adopted by everyone. Strong leaders can
create a vision which allows themselves and others in the organisation to
clearly take steps to build newer capabilities to move from current position to
the future position as per the vision charter. This process fosters a
collaborative culture within the organisation. Hence, it is important to
recognise that developing vision is a continuous and a collaborative process.
Overcome Challenges:
The leaders should be able to identify and overcome obstacles using their
personal leadership. They should develop strategies and plans to enhance
the team’s leadership skills and complete new assignments. As managers
take on new roles and responsibilities, the risks and consequences of failure
become much greater. They should develop skills in identifying and
overcoming the obstacles and pitfalls they may face at different stages of
their careers. They should have a personal Leadership Development Plan
(LDP) to guide them through leadership transitions and make them more
effective managers and leaders of their organizations. They should also
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develop strategies for helping their team of direct reports grow and change
when faced with new assignments.
Creating Mental Models:
The leader has to attract new and innovative ideas, a skill which needs to be
disseminated throughout the organisation. The leader needs to ensure that
members of the organisation can differentiate between generalisations and
the observable facts on which they are based on. In challenging the mental
models, he needs to inspire and create awareness among employees on
what is being generalised and what is actually based on facts, thus building
discerning capability in them.
Systemic thinking:
To engage in systems thinking, leaders need to move beyond a blame
culture and should be able to discern the interrelationships between actions.
They should recognise that small well-focused efforts or actions can have
magnified results for the organisation. A visionary leader who deals only with
events or patterns of behaviour will disseminate reactive culture rather than a
generative one.
Effective decision making:
In today's fast-paced, competitive business climate, executives need to be
prepared to make swift and smart decisions quickly and decisively. Making
calculated strategic business decisions involves weighing and minimising
risks, considering long term implications for the organization. The leader
should make a formal decision making process and learn to make smart
choices with limited time and resources. The employees should also learn
how to apply formal decision-making processes in order to reduce risk and
maximize benefit, and learn best practices and techniques for gathering data
and making critical decisions with limited time and resources, which are
constraints that impede the progress.
Managing Change:
With emerging technologies and expanding global marketplaces, it is
imperative that organizations become highly proficient in driving their change
agenda to benefit their business and all its stakeholders. Whether
diversifying, downsizing, merging, reorienting or restructuring the business,
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or developing new management structures, organizations must be able to

effectively carry out change initiatives to remain productive and competitive
in a dynamic environment. The leader should have personal ability and
charisma to facilitate any strategic change.
The leader should be able to assess organizational readiness, and his own
ability to facilitate change. Working with a comprehensive organizational
change scenario, he should foster a culture of change in the entire
organisation and learn by doing and assessing its own effectiveness in
facilitating change.
The gap between the “as-is” and “to be” states of an organisation presents
the need for a creative change in an organisation. The status quo needs to
be always challenged. This creates a need for learning, to translate this
learning into reality, thereby preparing the organization to achieve the vision.
With creative change, the motivation for change is intrinsic and not extrinsic.
Coaching for engaging and developing others:
Being a proactive coach is a fundamental component to being a good leader
in the workplace. Coaching implies that leaders not only supervise, but
develop the capacities and skills of all employees. A coaching mind-set
implies that leaders approach employees not simply as subordinates, but
protégés, resources to be developed, expanded and challenged. Coaching
actually unlocks the hidden potential of the employees, in order to unleash a
fresh flow of positive energy and actions to the advantage of the organisation
and its people. It fosters enthusiasm and motivation.
Coaching is critical to good workplace leadership. It must be recognised that
not all styles of coaching are suitable for the workplace, being in the best
practices for most appropriate coaching for organizational leaders. This also
emphasizes the importance of supplementing the traditional supervisory
mind-set with the coaching mind-set.
It is believed that corporate executives and managers who are good coaches
could easily inspire and challenge their teams and other employees in their
organizations to grow and develop their leadership capabilities. Ultimately,
such employees/ managers are capable of achieving stronger business
results for their organisations than those less supportive and less
collaborative.
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Hence, coaching is a powerful business tool for executives / managers to

become empowered and be more effective, while transforming into
successful business leaders in future and be able to collaborate with other
leaders in the organisation. The leaders should be able to have a coaching
dialogue with effective techniques for listening, asking questions, and
providing feedback. He should also provide tools and processes, including
instruction on how to recognize and use the language of coaching.
Through coaching, leaders are able to support and encourage their team
members to learn skills and acquire knowledge that helps improve job
performance. Coaching works laterally too, in that a leader can apply
coaching techniques when working with colleagues. The organization as a
whole benefits from a solid coaching culture.
Without the right coaching principles in place, employees may not reach their
full proactive capacity and potential, rendering the organization less able to
execute its goals. Coaching approach maximizes the proactive capacity of
employees by showing leaders how to integrate the coaching mind-set into
their leadership style.
Unlock leadership potential:
Leaders are not born; they are developed. Managers must identify and
enhance, early on, the particular leadership style that matches their personal
strengths. By providing participants with a range of assessment tools,
including an online 360-degree evaluation, the organisation should build
critical leadership competencies essential to career development and
advancement, by doing a 360-degree evaluation designed to identify
participant's management strengths and weaknesses. Participants will create
a Leadership Development Plan (LDP) designed to guide their career
development. This process is called organisation talent review (OTR) and
becomes an integral part of performance management system process
(PMS).
Performance Management:
Strategy and Performance Reporting introduces managers to the basics of
measuring and reporting on the performance of an organization, whether it's
a for-profit business, not-for profit, or governmental or a corporate
organization. There are different types of reporting systems an organization
can use, with a focus on performance reporting systems.
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The systems that lay out an organization's strategy and report on how well
that strategy is being executed are part of the performance evaluation
system. There are most important tools for performance reporting, the
Balanced Scorecard, which we discussed in an earlier chapter.
Motivating through vision and culture:
Leaders need to provide the vision, exercise political agility, and establish the
organizational culture necessary to keep their initiatives vital, motivate the
employees and keep them moving forward. Proactive leaders must have the
skills to keep the "soul" of their coalition alive and relevant to the needs of
the organization.
Leaders must create and manage the organizational culture to sustain
momentum and become politically agile in ensuring continued support for
their agenda, and manage their coalition—and their agenda—for the long-
term. As discussed above, coaching culture is one of the most proven ways
to enthuse the employees and challenges their potential so as to be
unlocked.
12.5 Emotional Intelligence

The thrust of Emotional Intelligence can be summed up in the following:
• Through the application of intelligence to emotion, we can improve

employees’ lives immeasurably
• Emotions are habits, and like any habit can undermine our best intentions
• By unlearning some emotions and developing others, we gain control of our
lives
If this were all there was to it, it would not be a very interesting book, but
Emotional Intelligence is one of most successful self-help tomes of the last
20 years, and has reached well beyond what would normally be considered
a traditional self-help reading audience. Researchers had been expanding
our idea of what intelligence is for some time, but it took Goleman's book to
catapult the idea of emotional intelligence into the mainstream. In saying that
IQ is not a particularly good predictor of achievement, that it is only one of
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many 'intelligences', and that emotional skills are statistically more important
in life success, Emotional Intelligence was bound to be well-received.
Daniel Goleman's five components of emotional intelligence
Emotional Intelligence, as a psychological theory, was developed by Peter
Salovey and John Mayer.
"Emotional intelligence is the ability to perceive emotions, to access and
generate emotions so as to assist thought, to understand the emotions and
emotional knowledge, and to reflectively regulate emotions so as to promote
emotional and intellectual growth." - Mayer & Salovey, 1997
The following steps describe the five components of emotional intelligence at
work, as developed by Daniel Goleman. Goleman is a science journalist who
brought "emotional intelligence" on the bestseller list and has authored
a number of books on the subject, including "Emotional Intelligence,"
"Working With Emotional Intelligence," and, lately, of "Social Intelligence: The
New Science of Human Relationships."
The Five Components of Emotional Intelligence
Self-awareness is the ability to recognize and understand personal moods
and emotions and drives, as well as their effect on others. Hallmarks include
self-awareness, self-confidence, realistic self-assessment, and a self-
deprecating sense of humour. Self-awareness depends on one's ability to
monitor one's own emotional state and to correctly identify and name one's
emotions.
[*A hallmark is a sure sign: since self-awareness is necessary for, say,
realistic self-assessment, that is, without self-awareness no realistic self-
assessment, the presence of realistic self-assessment is a sure sign
(sufficient to conclude that there is) self-awareness.]
Self-regulation: It is the ability to control or redirect disruptive impulses and
moods, and the propensity to suspend judgment and to think before acting.
Hallmarks include trustworthiness and integrity; comfort with ambiguity; and
openness to change.
Internal motivation: It refers to the passion exhibited by an employee to
work for internal reasons that go beyond money and status -which
are external rewards, - such as an inner vision and purpose of what is
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important in life, a joy in doing something, curiosity in learning, a flow that

comes with being immersed in an activity. It is also the propensity to pursue
goals with energy and persistence. Hallmarks include a strong drive to
achieve, optimism even in the face of failure, and organizational
commitment.
Empathy: It is the ability to understand the emotional makeup of other
people and is the skill in treating people according to their emotional
reactions. Hallmarks include expertise in building and retaining talent, cross-
cultural sensitivity, and service to clients and customers. (In an educational
context, empathy is often thought to include, or lead to, sympathy, which
implies concern, or care or a wish to soften negative emotions or
experiences in others.) See also Mirror Neurons.  
It is important to note that empathy does not necessarily imply compassion.
Empathy can be 'used' for compassionate or cruel behaviour.
Social skills: It refers to the proficiency in managing relationships and
building networks, and an ability to find common ground and build rapport.
Hallmarks of social skills include effectiveness in leading change,
persuasiveness, and expertise building and leading teams.
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12.6 Leadership vision and values

Besides the capability and personality traits that define the characteristics of
an effective leader, there is a need to address the role of leaders in relation
to an organization’s vision and values. Studies show that the characteristics
of a visionary organization demonstrate its ability to manage change and
continuity simultaneously in order to deliver sustained performance. As
discussed in Chapter 4 on mission, values and objectives of corporate
strategy, visionary companies have core values and purpose. The core
values are generally the principles based on which the firm was founded,
and an organization’s purpose is the reason why it exists.
The core values of an organization generally do not change drastically over
time, but will facilitate the actualization of its vision. Such organizations
pursue their purpose and vision knowing that it is a continuous process, and
that the journey will never be fully achieved. Core values and purpose are
important cornerstones of a visionary organization because they help guide
business continuity, and provide stimulus or change.
For example, “we are here to put a dent in the universe. Otherwise, why else
even be here?” and “Innovation distinguishes a leader from a follower” -
these famous quotes by Steve jobs aptly sum up the purpose and value
system of Apple Computers Inc. Apple became a leader in its industry with its
innovative products with a clear focus on differentiating itself from the rest of
its competitors.
12.6.1 Case Study on Innovation

Let us study the innovation takeaways of Apple Computers Inc. The
company is built on a philosophy of leadership, vision and values as
described below. Apple leverages a combination of both top down and
bottom-up approach innovation strategy to create new opportunities. The
strategy is management driven and overall organisation driven having a well-
structured and process oriented approach. The company is also focused on
delivering a unique experience to the customers, with a deep understanding
of customer needs and expectations.
The following are the objectives of the company:
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• Build Products that are cool, intuitive, simple to use and provide the most
amazing experience
• Take calculated risks and boldly enter new markets / products. E.g. iPod,
iPhone
• Change the playing field by creating new business models. E.g. iTunes
• Capture the changing landscape and ecosystem of the markets and
customers
• Grow the market share with buyers as they grow and their needs grow
• Target kids, teenagers, young adults, adults, parents....
The strategy is also to provide multiple products and touch points to buyers
so they can buy and subscribe to more products all glued through iTunes.
This includes creation of an innovation culture.
• Creativity begins with asking questions…

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

An organization is made of a unique culture which is a combination of
values, believes, and behaviour of individuals within the organization. An
understanding of different national cultures and their impact on behaviours is
important for leaders to guide the organization successfully. The culture is
made of different dimensions.
A company’s leadership culture is a distinct and powerful part of its
organizational culture. Specifically, leadership culture is the system of often
unspoken norms and assumptions that guide how managers take leadership
(or fail to take leadership) in a particular organization. To enjoy sustained
success, an organization needs to operate at a level of agility that matches
the degree of complexity and the pace of change in its business
environment. Leadership culture plays a pivotal role in determining whether
the organization is agile enough to meet this challenge.
An unbiased assessment of an organization’s current leadership culture can
be an extremely helpful step in developing a culture that powerfully supports
agile organizational functioning. Among other things, this assessment
identifies the current and the desired “levels of agility” in the leadership
culture.
Levels of Agility in Leadership Cultures
As with individual leaders, leadership cultures are capable of evolving
through distinct levels of agility. So far, the most common configuration we’ve
found in client organizations is an Achiever-level culture at the executive
levels and an Expert-level culture at the middle levels. Yet, in most instances,
sustained high performance in today’s increasingly complex, fast-paced
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business environment requires a Catalyst-level culture at the top levels and

an Achiever-level culture at the middle levels:
• In Expert leadership cultures managers operate within silos with little
emphasis on cross-functional teamwork. Organizational improvements are
mainly tactical and incremental. Managers are overly involved in their
subordinates work, fighting fires and interacting with direct reports one-on-
one. As a result, managers have little time to approach their own role
strategically.
• In Achiever leadership cultures managers articulate strategic objectives

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

includes high levels of participation, empowerment, and teamwork.
Collaboration, decisiveness, and candid, constructive conversation are
norms. Senior teams become living laboratories that create this kind of
culture within the team and work together to promote and encourage this
culture in the organizations they lead. Leaders not only coach their people,
they also actively solicit informal feedback and work to change their
behaviour in ways that are beneficial to the organization and to them.
Case Study
Breaking Down Barriers and Speeding Time to Market in a Financial
Software Division
The Problem
The Financial Software Division, a key business unit of about 300 people
within a $100 million computer services company, was generating good
revenue from its core business, however,
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• Because its software managers and marketing managers not working

together effectively, it’s new software products were always very late, and
customers (financial institutions) were constantly complaining.
• The division’s top managers usually maintained a veneer of politeness, but

they did not work effectively cross-functionally and, under the surface, there
was actually a good deal of distrust.
• The VP of the division frequently learned of problems at the lower levels of

the organization in a delayed manner, often when there was little that could
be done about them. The division did not have a good process for
communicating effectively up and down the hierarchy.
• The division’s managers needed to manage cross-functional projects more

effectively.
Because of its difficulties delivering new products on time, the parent
company had begun to treat the division like a “cash cow” that couldn’t
handle new strategic challenges.
The Project
The initial idea of the division’s head was to do some team-building to help
front-line software and marketing groups call a truce long enough to get the
three new products out the door as quickly as possible. But as they talked
with him, he realized this would only address the symptoms, not the
underlying root causes of the problem. To his credit, he realized that the way
he and his management group worked together was a major cause of the
division’s repeated project delays. After discussion with the group, they
decided to create a more agile organization, by developing a more agile
leadership culture. It had to start with them.
They began their work with the division by conducting a diagnostic process
that provided:
• An objective assessment of the division’s current agility level and the

dynamics underlying its business difficulties, along with recommended
changes.
• A facilitated forum where the top management group could come to its own
conclusions about what its issues were and how to tackle them. The result
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was a strong alignment between and commitment from all members of the
group.
Meeting with them to discuss our report, the top management group
confirmed that the unit was caught in a vicious cycle of non-collaborative
individual behaviour, dysfunctional group dynamics, and problematic
procedures. From an “agility level” perspective, the top group, whose
members had Achiever-level capacities, was operating primarily at the
(previous) Expert level, as was the rest of the division. To be successful,
they needed to transform to the Achiever level and, if possible the (next)
Catalyst level.
This assessment helped them stop the finger-pointing to others, take
collective responsibility for their problems, and decide on the leadership
initiatives needed to solve them. They took action in several areas
simultaneously:
• Under the SVP’s leadership, they facilitated several meetings where his
group made important structural changes that increased the division’s
agility and performance. These changes included new cross-functional
teams of marketing and software design managers.
• The top management group was engaged in a Team Development

Process that included selective facilitation of key business meetings.
• Provided Executive Coaching to the VP and the members of his

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

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

implement. Good ideas may fail unless they are aligned with the
organization’s business strategy, its people, and the prevailing culture. For
an organization to be effective, the alignment must occur between strategy,
leadership and culture.
It is important to baseline the organisation culture and to understand the
reasons for people’s readiness and willingness to adopt change. According
to Schneider (2000), there are four reasons why good management ideas
may not be adopted in an organization.
All organizations are living social organisms.
Each organization is formed as communities of people with multi-cultural
diversity and brings in different characteristics. They are not to be considered
as machines.
They grow and develop their capabilities inside-out. They start from their
core and develop outwards. We can draw a parallel between biological
systems and organizations. Similarly, people, organization and society exist
in relation to each other. They have their unique patterns which are non-
linear and development occurs from core to the periphery. The point is, for
any idea to work, it must be based on the non-linear nature of the
organization.
Culture is more powerful than anything else in an organization.
An organization can have a brilliant strategy, but if it does not align with the
organization culture, it often fails. Hence, for any idea of change to succeed,
it must align with one of the four different types of cultures. These are
control, collaboration, competence, and cultivation. There should be an effort
to baseline the current culture and the change perceived as necessary for
the given business strategy. Hence, regardless of the validity of any given
idea, it must align with the particular type of culture prevalent in an
organization if it is to succeed.
System-focussed interventions work, while component-focussed
interventions do not
As we have seen earlier, the best practice in any leadership is to take a
system-based approach that emphasizes alignment between different parts
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of the organization rather than taking a piecemeal approach. A system-

focussed approach is more likely to succeed in implementing change. It must
be recognized that one-size-fits-all does not apply.
Interventions that are clearly linked to an organization’s business
strategy, work
We have seen earlier that a good strategy creates value to an organization.
Therefore, all new ideas have to be clearly aligned with organization
strategy; otherwise, there is a danger of digressing from the path of the
strategic goals. Thus, the alignment of new ideas with strategy enables the
change process and creates stakeholders value for the organization.
The challenge in strategic change is that every organization competes in fast
changing environments, but, the individuals who make up these
organizations are resistant to change. There are many external factors like
competitors, customers, and partners who put pressure on the organization
while there are other internal factors such as high employee turnover, poor
leadership, lack of investments etc. add to these pressures in order to adopt
change across the organization. These factors may eventually begin to bring
about urgency to do something different to sustain the performance of the
organization. In organizations, often the need for change becomes
increasingly apparent whenever the employee resistance to change
becomes greatest.
The first challenge for any leader is to manage employee resistance and
expectations. The leadership of an organization should have the power and
authority to drive change and initiatives. A leader will be considered a change
agent only if he is able to combine his architectural role with his charismatic
qualities to inspire the entire organisation and bring about the desired
change.
For example, Mr. NR Narayanamurthy’s return to Infosys as Executive
Chairman in June 2013, saw major changes in the strategy and structure of
the organization as he brought back both wisdom, power and authority to
effect the necessary changes to bring back confidence about the
performance of the company with all the stakeholders viz investors,
customers, employees, partners etc. This case study is of Infosys turnaround
is progressing well and there has been optimism and positive sentiment
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returning on the company’s ability to once again become the bellwether of

the Indian IT Industry.
12.10 The impact of chaos on leadership

The most difficult task, perhaps any leader will face, is leading complex,
large-scale transformational change successfully. The stakes are high in
transformation, with both tremendous potential for ROI, and a huge cost of
failure. However, research shows that most transformational changes fail to
return their desired ROI and the good news is that superb change leadership
skills can greatly elevate the probability of success.
Leading transformation requires more advanced “people and process” skills.
It is messy, often chaotic, and has serious human impact. In transformation,
what the leader is attempting to create is radically different than your current
state of operation, and your outcomes are often unclear when you begin.
Therefore, numerous course corrections are required as you discover where
you need to go and how to get there. This process is nonlinear and full of
challenges.
The psychological and cultural dynamics of transformation increase its
messiness. Transformation always impacts people significantly, requiring a
shift of mind-set, behaviour, and culture to implement the new direction.
Handling the people dynamics is essential for maximum ROI. For example,
supply chain optimization requires people to collaborate across boundaries
far more than they are accustomed. Restructuring from autonomous regions
to a centralized system requires people to give up some degree of power
and view their world more holistically and less myopically.
Without these shifts in the hearts and minds of the people, the organisation
and its leadership will not realize its intended outcomes and sustained
business performance.
If the external environment is rational and predictable with known patterns of
events happening, then strategic management process is little easy to
implement. However, if the world is non rational, accompanied by volatility
and random periods of stability alongside periods of instability, then this may
require leaders to adopt a different model while developing the strategic
management process. As explained above, when we see an organisation as
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part of a larger dynamic system we are concerned with how it changes over
time and complex patterns of changes that develop during the process of
implementation. The challenge is to differentiate the patterns whether they
are stable or unstable and predictable or unpredictable.
Generally, chaos is an irregular pattern of behaviour created by certain non-
linear feedback rules commonly found in nature and human society. As
systems move away from their equilibrium state they are prone to significant
changes in their environment which can cause major changes in the
behaviour of the system itself.
In the business world, a leader may accord greater importance to changes in
customer requirements and thus develop highly differentiated products and
services. Under the influence of chaos, the long term future of an
organisation is assumed to be unknowable. If the leaders cannot know what
the future holds, then chaos theory impacts the long term plans, goals, and
the vision itself. Hence, it is highly essential to understand the patterns of
such chaotic events and make sense of addressing those unknowns during
the strategy implementation process, it becomes a paramount importance.
This may be slightly overstating the case, since the future may be
unpredictable at a specific level but at a general level there are recognizable
patterns. It is the ability to recognise the patterns at a general level that
allows a leader to cope up with chaos. In fact, this ability may be highly
developed in some than in others.
For example, although Bill Gates and Steve Jobs were unable to state the
specifics, they did envision in the early 1980s that a time would come when
we would have computers at home. It is these boundaries around these
events that allow us to make sense of the world. The use of reasoning,
intuition, and experience helps the leader to cope with change and therefore
improves their ability to handle chaos effectively.
Chaos theory sees that a traditional planning approach of strategic
management process benefits the organisation over the short term. Over
long term however, the lack of link between organisational actions an outputs
means that the role of leadership should be to create an environment
characterised by spontaneity and self-organisation. Chaos theory does not
make traditional approach of strategic management obsolete, but rather it
places it in a much more constraint of time horizon.
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There are some best practices that deal with chaos, in leading the
transformation in an organisation. Here are four key ones to reduce the
chaos and support an organisation’s efforts towards success.
1. Build a change integration plan to increase speed and efficiency, and
lower the costs of change.
2. Set realistic timelines for change based on the organisation’s true
capacity.
3. Develop an understanding of the human and cultural dynamics of
change.
4. Build a critical mass of support by really engaging stakeholders.
Summary
In this chapter, we discussed in detail about the roles and responsibilities of
the top leadership team that plays an important role in the implementation of
strategy. We also discussed the differences between leadership and
management. How leadership facilitates the direction of change with right
behaviour and institutionalising a culture that fosters change. We also
discussed about the role of leaders in creating a learning organisation and
about many challenges a leader faces while creating an organisation in
which people continually learn. And we analysed the impact of emotional
intelligence on effective leadership and the link between emotional
intelligence and organization’s performance.
We also discussed the role of leaders in developing a shared vision and
creating values that an organisation stands for, in the industry. The values
actually help guide the behaviour of the employees and hence constitute the
organisation culture.
Any organisation that aspires for high growth and globalisation of vision,
there are always complexities and uncertainties, it is always the great
leadership that mitigates these risks and plays a critical role in directing the
strategic change management process and guide the organisation into the
future. This chapter also looked at some of the leadership skills and
competencies necessary to achieve change. Also discuss the impact of
innovation in the strategic management implementation across the
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organisation. We discussed a case study to understand the importance of

innovation in modern marketplace to continually reinvent the organisational
success for the long term.
References
1. Anthony E Henry, Understanding Strategic Management, P 353
2. John Kotter International Change leadership
3. Daniel Goleman's emotional Intelligence
4. EBTIC, Etisalat BT Innovation centre, in partnership with Halifa University
5. Bill Joiner’s article, “Creating a Culture of Agile Leaders”
6. A case study from ChangeWise
7. Anthony E Henry, Understanding Strategic Management, Second Edition,
P 384
8. Anthony E Henry, Understanding Strategic Management, Second Edition,
P 385
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REFERENCE MATERIAL
Summary
PPT
MCQ
Video
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13
CORPORATE GOVERNANCE
Objectives:
This chapter focuses on the importance corporate governance for effective
implementation of strategy. The quality of corporate governance at the top
management level is key to the effective implementation of strategy. An
organisation needs to be compliant organisation in order to gain reputation
as a leader in corporate governance and gain investor confidence.
Corporate governance is the lifeline of any business that needs to sustain its
existence. This chapter talks about a number of challenges and issues that
need to be considered well in advance by the strategic managers while
complying with corporate governance.
•! Understand the importance of corporate governance
•! Understand the definition of corporate governance
•! Understand the purpose of corporation
•! Organisation and corporate governance
•! Corporate ethics and corporate social responsibility
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Structure:
13.1! Introduction and Importance of Corporate governance
13.2! Definition of Corporate governance
13.3! Modern Corporation
13.4! Principles of Corporate governance
13.5! Regulation, Codes and Guidelines
13.6! Corporate governance in India
13.7! Purpose of corporation
13.8! Corporate social responsibility
13.9! Summary
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13.1 Introduction
Governance, in general, is over and beyond law and regulation in the domain
of corporate affairs. It helps to foster transparency and trust amongst
organisational stakeholders. Any good corporate performance must be the
outcome of good corporate governance. In the earlier chapters, we
discussed about the various elements of strategic management process, and
also discussed the evaluation and control of the same. In this chapter, as an
extension of strategic leadership, we shall talk about corporate governance,
various approaches towards good corporate governance. Corporate
governance is reflected on how a business is defined, conducted, and
business ethics are followed.
If the purpose of a business is defined as maximizing the benefit and
profitability for the owners or shareholders of the business, then the role of
corporate governance will be relatively narrow, and will have a restricted
approach. However, if the purpose of the business is defined as creating
long term value for its stakeholders such as customers, the employees,
partners, and at large, the society, then the role of corporate governance will
be wider and will have an inclusive approach.
Corporate governance is a function of various business decisions which are
strategic in nature, and therefore affects all aspects of the strategic
management process. As discussed in the earlier chapter on strategic
leadership, corporate governance requires change in the attitude of the
leaders, both at the boardroom level, and also at the executive management
level. As we evaluate corporate governance in this chapter, we will explore
the best practices to make it an integral part of the strategic management
process in organizations.
Corporate governance is tightly tied with the purpose of the organization and
how the firm defines its business. While there are different definitions of
corporate governance, we look at them in the context of the purpose of the
corporation and how the business is defined. We discuss the origins of
corporate governance and explain the reasons for following a disciplined
approach to adopting them while executing business strategy.
In modern corporations, we observe an increasing trend in the separation of
organizational ownership and executive management. This is not just
keeping profitable growth as the only measure of success while executing
405
the business strategy. This divide clearly underlines the importance that
exists between those who adopt a shareholder approach, and those who
adopt a stakeholder approach towards corporate governance. We evaluate
the different perspectives that exist on the role of corporations in
institutionalizing corporate governance in their organizations.
There are a number of cases where major corporations have collapsed
because of bad corporate governance and because the organizations have
put corporate governance as just the boardroom agenda. Examples include
Enron, WorldCom, Arthur Anderson, Satyam computers. We discuss such
collapse of corporate governance and how mighty organizations have failed
and how subsequently corporate governance was restored to revive the
corporations.
There are corporate governance codes like Sarbanes-Oxley Act that have
helped lessen the likelihood of such failures. The composition of board with
executive, and non-executive or independent directors pays a crucial role in
ensuring corporate governance. We also discuss a case study on the
collapse of an organization, and assess the role of independent directors in
upholding the corporate governance standards. The governance standards
and issues also include review of excessive executive compensation, as a
multiple of average worker salary. We also discuss the reforms of corporate
governance in the context of modern management.
13.2 Definition of Corporate Governance

Corporate governance is defined as the way by which a corporation is
directed and controlled or a process by which a corporation is made
responsive to the rights and wishes of its stakeholders by being transparent
and making disclosures regularly. Corporate governance has also been
defined as "a system of law and sound approaches by which corporations
are directed and controlled focusing on the internal and external corporate
structures with the intention of monitoring the actions of management and
directors and thereby mitigating agency risks which may stem from the
misdeeds of corporate officers.
Corporate governance has been in existence for many years, but the use of
the term corporate governance gained prominence in the UK following the
publication of the Report Committee on the Financial Aspects of Corporate
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Governance in 1992, commonly referred to as the Cadbury Report

(Cadbury 1992) (1 – Anthony E Henry, Understanding Strategic
Management, Second Edition P 392)
For example, in Jan 2009 Satyam Computer Services’, a leading IT Services
company then, stock price plummeted more than 90% in a matter of few
weeks following the admission of wrong doing by its Founder Chairman
Ramalinga Raju in the book of accounts of the company. The annual report
of accounts, signed off by external auditors, showed almost no signs of its
true financial state, thereby the revelation came as a rude shock to its
shareholders. The Chairman confessed to having perpetrated a huge
accounting fraud in its books to the tune of $1.47 billion and he stepped
down in January 2009. This revelation of corporate fraud heavily damaged
the company’s credibility, brand name and its standing in the industry.
There have been substantial failures of global corporations such as Enron,
Worldcom, Lehman etc which have threatened the stability of world financial
and stock markets. Corporate governance is all about authority and
accountability. They involve where power lies in the corporate system and
what degree of accountability there is for the leadership to exhibit and
exercise. In other words, corporate governance is concerned with ensuring
that the investors receive value back from the managers to whom they
entrust their investments (i.e. assuring them a return on their investment).
Companies like Infosys Technologies, Tata group are leading examples of
highest level of corporate governance in Indian Industry.
(2 same, P392), As per Organisation of Economic Cooperation and
Development (OECD), there is a set of guidelines that to govern the
principles of corporate governance. It defines that corporate governance
involves a set of relationships between a company management, board,
shareholders and other important stakeholders like employees, partners,
society etc. It also describes that corporate governance should provide
proper incentives to the board and management to pursue the objectives that
are in the interests of the company and different stakeholders.
Thus, corporate governance provides a structure through which an
organisation is able to set its objectives and monitor its performance on a
regular basis. OECD sees the main governance problems as arising from the
separation of ownership and control. However, it does recognise that a
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corporation should be aware of the interests of communities in which it

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

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

In contemporary business corporations, the main external stakeholder
groups are shareholders, debt holders, trade creditors, suppliers, customers
and communities affected by the corporation's activities. Internal
stakeholders are the board of directors, executives, and other employees.
Much of the contemporary interest in corporate governance is concerned
with mitigation of the conflicts of interests between stakeholders. Ways of
mitigating or preventing these conflicts of interests include the processes,
customs, policies, laws, and institutions which have an impact on the way a
company is controlled. An important theme of governance is the nature and
extent of corporate accountability.
A related but separate thread of discussions focuses on the impact of a
corporate governance system on economic efficiency, with a strong
emphasis on shareholders' welfare. In large firms where there is a separation
of ownership and management and no controlling shareholder, the principal–
agent issue arises between upper-management (the "agent") which may
have very different interests, and by definition considerably more information,
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than shareholders (the "principals"). The danger arises that rather than
overseeing management on behalf of shareholders, the board of directors
may become insulated from shareholders and beholden to management.
This aspect is particularly present in contemporary public debates and
developments in regulatory policy.
Economic analysis has resulted in a literature on the subject. One source
defines corporate governance as "the set of conditions that shapes the ex
post bargaining over the quasi-rents generated by a firm." The firm itself is
modelled as a governance structure acting through the mechanisms of
contract. Here corporate governance may include its relation to corporate
finance.
13.4 Principles of Corporate Governance

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

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

have legal, contractual, social, and market driven obligations to non-
shareholder stakeholders, including employees, investors, creditors,
suppliers, local communities, customers, and policy makers.
• Role and responsibilities of the board: The board needs sufficient

relevant skills and understanding to review and challenge management
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performance. It also needs adequate size and appropriate levels of

independence and commitment.
• Integrity and ethical behaviour: Integrity should be a fundamental
requirement in choosing corporate officers and board members.
Organizations should develop a code of conduct for their directors and
executives that promotes ethical and responsible decision making.
• Disclosure and transparency: Organizations should clarify and make

publicly known the roles and responsibilities of board and management to
provide stakeholders with a level of accountability. They should also
implement procedures to independently verify and safeguard the integrity of
the company's financial reporting. Disclosure of material matters
concerning the organization should be timely and balanced to ensure that
all investors have access to clear, factual information.
13.5 Regulation, Codes and Guidelines

Corporate governance principles and codes have been developed in
different countries and issued from stock exchanges, corporations,
institutional investors, or associations (institutes) of directors and managers
with the support of governments and international organizations. We will see
some of these regulations, codes and guidelines.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 was enacted in the wake of a series of high
profile corporate scandals in the corporate world. It established a series of
requirements that affect corporate governance in the U.S. and influenced
similar laws in many other countries. The law required, along with many
other elements, that:
• The Public Company Accounting Oversight Board (PCAOB) be established

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

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

directors to serve as a more effective check on management, the non-
management directors of each listed company must meet at regularly
scheduled executive sessions without management." (Section 303A.03)
• Boards organize their members into committees with specific

responsibilities per defined charters. "Listed companies must have a
nominating/corporate governance committee composed entirely of
independent directors." This committee is responsible for nominating new
members for the board of directors. Compensation and Audit Committees
are also specified, with the latter subject to a variety of listing standards as
well as outside regulations. (Section 303A.04 and others)
Other guidelines
The investor-led organisation International Corporate Governance Network
(ICGN) was set up by individuals centred on the ten largest pension funds in
the world 1995. The aim is to promote global corporate governance
standards. The network is led by investors that manage 18 trillion dollars and
members are located in fifty different countries. ICGN has developed a suite
of global guidelines ranging from shareholder rights to business ethics.
The World Business Council for Sustainable Development (WBCSD) has
done work on corporate governance, particularly on accountability and
reporting, and in 2004 released Issue Management Tool: Strategic
challenges for business in the use of corporate responsibility codes,
standards, and frameworks. This document offers general information and a
perspective from a business association/think-tank on a few key codes,
standards and frameworks relevant to the sustainability agenda.
In 2009, the International Finance Corporation and the UN Global Compact
released a report, Corporate Governance - the Foundation for Corporate
Citizenship and Sustainable Business, linking the environmental, social and
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governance responsibilities of a company to its financial performance and

long-term sustainability.
Most codes are largely voluntary. An issue raised in the U.S. since the 2005
Disney decision is the degree to which companies manage their governance
responsibilities; in other words, do they merely try to supersede the legal
threshold, or should they create governance guidelines that ascend to the
level of best practice. For example, the guidelines issued by associations of
directors, corporate managers and individual companies tend to be wholly
voluntary but such documents may have a wider effect by prompting other
companies to adopt similar practices.
13.6 Corporate Governance in India:

Sebi tightens corporate governance norms:
In India, Market regulator Sebi (Securities and Exchange Board of India) has
approved a series of decisions to increase transparency in corporate
governance, a move that will have far-reaching implications for top honchos
of India Inc. Sebi mandated that there should be more disclosures about the
remuneration of senior executives and also asked companies to put in place
a system to evaluate the performance of independent directors and other
board members.
The market regulator also reiterated that there should be at least one woman
director on the board of every company, something already mandated under
the Companies Act 1956. The regulator removed some of the contradictions
in Sebi rules and the New Companies Act and, in some cases, the new
provisions are even stricter for listed entities.
The Sebi board also has approved the proposal for a compulsory whistle-
blower mechanism in every company and to expand the role of the audit
committee. It has also prohibited offering stock options to independent
directors, and asked companies to have separate meetings of independent
directors and put in place a stakeholders' relationship committee.
Sebi stipulates that a person can be an independent director in seven
companies at the most and three in case he or she is already a whole-time
member in a listed company. It also capped the total tenure of an
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independent director to two terms of five years each. "However, if a person

who has already served as an independent director for five years or more in
a listed company as on the date on which (this amendment) becomes
effective, he shall be eligible for appointment for one more term of five years
only," according to a Sebi note.
What SEBI has mandated as per corporate governance changes

1 Compulsory Whistle-blower mechanism in each company
2 No Stock options for independent directors
3 Separate meetings of independent directors
4 Setting up of stakeholders' relationship committee
5 Enhanced disclosure of remuneration policies
6 System to evaluate performance of all directors
7 Prior approval of audit committee for all party transactions
8 Shareholders special resolution from material related transactions
9 At least one woman director on the board of every listed company
In addition, Sebi made regulations for related-party transactions stricter. It

said that companies should seek prior approval of the audit committee for all
material related-party transactions. Besides, they should also seek the nod
of shareholders for all material related-party transactions through a vote on a
special resolution in which all the related parties should not participate.
Sebi also mandated that all companies should have nomination and
remuneration committees, with the chiefs of such committees being
independent directors on the board of the companies. 
"The amendments propose to align the provisions of Listing Agreement with
the provisions of the newly enacted Companies Act, 2013 and also provide
additional requirements to strengthen the corporate governance framework
for listed companies in India," Sebi said.
"There were some contradictions with the earlier Sebi rules and the new
Companies Act. The amendments by Sebi will now take care of those. In
some cases, Sebi even raised the bar higher for listed companies,"
The Sebi board also increased the minimum net worth of mutual funds to Rs
50 crore. It also asked all the fund houses to invest at least 1% of the
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amount raised in each open-ended scheme from their own corpus. As of

now, of the 42 fund houses only a select few invest their own money in each
of the funds they manage. Sebi also made it compulsory for fund houses to
disclose separately the breakup of assets under management (AUM) for
various categories of schemes such as equity, debt, etc.
13.7 Purpose of Corporation

As discussed earlier, the purpose of a corporation is not just to meet the
financial interests and profitability motive of the shareholders. In today’s
economic world, the expectation is also to serve the society and other
stakeholders in all fairness.
The performance of the organisation can be directly linked to be the direct
result of the ethical or unethical decisions taken by the various strategic
managers at different points of time.
Generally, corporate ethical behaviour can be looked at a number of ways
how the organisation behaves during various challenges.
13.8 Corporate Social Responsibility (CSR)

Societal mission is broader than that of an organisation with a social cause.
As seen in the earlier chapters 4 and 8, for example, Tata organisations
identify the societal needs of the region where the company operates. They
identify what rests underneath the society each individual company operates
within and how it can create hope and value to the society as well as
generating economic value or wealth to its shareholders and other
stakeholders like employees, customers, partners and the like.
Corporate Social Responsibility is generally the expectation that the
corporate organisation should serve both the societal needs and the financial
interests of the shareholders in a fair manner. A firm’s position towards
social responsibility can be a critical factor in making strategic decisions. If
social responsibility is not considered, decisions of the firm may be aimed
only at profit or other narrow motives without a concern for the social
objectives.
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Corporate social responsibility (CSR), also called corporate conscience

or social performance, or sustainable business/ responsible business, is a
form of corporate self-regulation integrated into a business model. CSR
policy functions as a built-in, self-regulating mechanism whereby a business
monitors and ensures its active compliance with the spirit of the law, ethical
standards, and international norms. In some models, a firm's implementation
of CSR goes beyond compliance and engages in "actions that appear to
perform social good, beyond the interests of the firm and that which is
required by law."
CSR is a process with the aim to embrace responsibility for the company's
actions and encourage a positive impact through its activities on the society,
environment, consumers, employees, communities, stakeholders and all
other members of the public sphere who may also be considered as
stakeholders. This, however, is beyond the general economic expectation
that businesses have always been expected to provide employment to
people and to meet customer needs.
The term "corporate social responsibility" became popular in the 1960s and
has remained a term used indiscriminately by many to cover legal and moral
responsibility more narrowly construed.
Proponents argue that corporations make more long term profits by
operating with a perspective, while critics argue that CSR distracts from the
economic role of businesses. McWilliams and Siegel's article (2000)
published in their Strategic Management Journal, cited by over 1000
academics, compared existing econometric studies of the relationship
between social and financial performance. They concluded that the
contradictory results of previous studies reporting positive, negative, and
neutral financial impact were due to flawed empirical analysis. McWilliams
and Siegel demonstrated that when the model is properly specified; that is,
when you control for investment in Research and Development, an important
determinant of financial performance, CSR has a neutral impact on financial
outcomes.
Some argue that CSR is merely window-dressing, or an attempt to pre-empt
the role of governments as a watchdog over powerful multinational
corporations. Political sociologists became interested in CSR in the context
of theories of globalization, neo-liberalism, and late capitalism. Adopting a
critical approach, sociologists emphasize CSR as a form of capitalist
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legitimacy and in particular point out that what has begun as a social
movement against uninhibited corporate power has been co-opted by and
transformed by corporations into a 'business model' and a 'risk management'
device, often with questionable results.
CSR is titled to aid an organization's mission as well as a guide to what the
company stands for and will uphold to its consumers. Development business
ethics is one of the forms of applied ethics that examines ethical principles
and moral or ethical problems that can arise in a business environment. ISO
26000 is the recognized international standard for CSR. Public sector
organizations (the United Nations for example) adhere to the triple bottom
line (TBL). It is widely accepted that CSR adheres to similar principles but
with no formal act of legislation.
In India, as per the new companies’ law, all public listed companies should
contribute 2% of their net profit for the CSR programs and social
development. Most corporate organisations are engaged in CSR initiatives.
As seen in an earlier chapter, Tata group believes being a societal
organisation rather than an organisation with social cause. Many
organisations and business leaders across industries devote their wealth to
the development of socially underprivileged in the areas of child education,
women empowerment, healthcare, rural jobs creation etc. This is a welcome
change to make the economic development an inclusive development.
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13.9 Summary
In this chapter we have studied the various aspects of corporate governance
and its impact on the company’s long term sustenance strategy. Corporate
governance is defined as the way by which a corporation is directed and
controlled or a process by which a corporation is made responsive to the
rights and wishes of its stakeholders by being transparent and making
disclosures regularly.
Corporate governance has also been defined as "a system of law and sound
approaches by which corporations are directed and controlled focusing on
the internal and external corporate structures with the intention of monitoring
the actions of management and directors and thereby mitigating agency risks
which may stem from the misdeeds of corporate officers.
We have also seen the importance of corporate governance an about the
various regulations, rules and guidelines. We have also seen how it applies
to Indian corporate governance as guided by Sebi. We also studied the
importance of corporate social responsibility that defines the company’s
purpose and vision over a long period of time by becoming a societal
organisation beyond just the profitability motives.
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Additional Case Studies

1. Case Study Strategy Execution (Economic Times: 03/01/2014)
What do President Barack Obama, outgoing Microsoft CEO Steve Ballmer
and former Nokia CEO Olli-Pekka Kallasvuo all have in common? All three
had ambitious and laudable strategies - universal health care for the United
States, dominating the world software industry and dominating the mobile-
telephone industry respectively - yet all three had serious difficulties in
executing their strategies successfully.
Time and time again, senior executives spend time and resources
developing and promoting a visionary strategy only to be let down by its
execution. For many executives strategy execution seems nothing more than
straightforward operational project management to organizational change:
Break it down into different tasks, assign various project managers, allocate
appropriate resources such as people, equipment and money, and set up a
schedule for delivery. Then, once the project planning structure is
established, they assume that their mission is accomplished and that things
will automatically unfold as planned.
Too often, however, they fail to take into account the hidden traps related to
"soft" human factors, including the collective emotions of middle managers
and others who influence the process of strategy execution and have a
critical impact on the outcome, as illustrated by Obama's fall in popularity as
a result of poor information technology implementation for Obamacare, and
the exits of Ballmer and Kallasvuo as their companies failed to execute their
intended business strategies.
Emotional and political issues tend to be taboo subjects in the corporate
world. People may talk about them in corridors or around the water cooler,
but rarely in the boardroom. There are no automated project-management
models that allow executives to accurately, comprehensively diagnose,
detect or think systematically about these issues, and many executives
continue to believe that emotional suppression and task focus are the best
ways to deal with emotional situations.
Similarly middle managers, concerned that top executives might doubt their
leadership ability and motivation, often are reluctant to display negative
emotions in connection with change or to express personal concerns that are
not linked to organizational effectiveness.
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Yet, as research in neurology and psychology has shown, emotions can

influence human thinking and behaviour in powerful ways and effect the way
we perform in businesses. Studies suggest that emotions driven
underground tend to incubate and resurface later. During times of
transformation - and strategy often entails considerable organizational
transformation - these negative group feelings can come to the fore and
influence strategy implementation.
To manage collective emotion you first have to understand the nature of it
and be able to differentiate collective emotion from personal emotion. As
human beings we all have emotions. Our moods swing. These personal
emotions can be managed by talking to peers or co-workers, and people
soon realize that expressing personal feelings such as anger or pessimism
within a company is usually not a good thing for their careers.
Collective emotions, however, are different. They are the emotions shared by
a large number of people about a cause or new strategy, and are not likely to
dissipate so easily. If a middle manager is unhappy about something a CEO
has intentionally or unintentionally done and speaks about it, the feeling can
fester and be reinforced during conversations about similar incidents with
other middle managers.
The feelings will be validated, amplified and in the course of time -
sometimes taking years - can expand to become a vast coalition of
individuals sharing negative emotions about the strategy because they
believe that it can harm their group's welfare, even if their personal welfare is
not at stake. For example, thousands of football fans may feel collective
anger about the defeat of their team and break into a riot, even if it is unlikely
that such a loss would affect their professional jobs or the welfare of their
families. This phenomenon is called "group-focus emotions."
It is not even necessary for group-focus emotions to be expressed or shared
with other people. It is possible for many members of a group to feel the
same group-focus emotions if, for instance, they interpret an event in a
similar way.
In corporate settings these group-focus emotions can prompt middle
managers, even those elevated to powerful positions by top executives, to
withhold support for or even covertly sabotage the implementation of a
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strategy, even when their immediate personal interests are not directly under
threat.
Managing collective emotions and taking appropriate emotion-management
action is a key, albeit often ignored role for executives who want to increase
the odds of successful strategy execution. More specifically, managers and
leaders can create norms of experiencing and expressing a wide range of
emotions and their causes by carefully re-examining taken-for-granted
beliefs, languages and practices that devalue, discourage or constrain those
feelings.
Actively removing cognitive, normative and behavioural barriers in business
organizations may require much re-education and unlearning. Managers also
should look at increasing their emotional self-awareness by understanding
the causes and consequences of various emotions such as anger, guilt, joy,
pride and shame so they can recognize them, regulate them and express
them to others in an articulated way. Although learning about emotional
intelligence could help executives deal with emotions in interpersonal
interactions or in a small group, dealing with the various patterns of collective
emotions of hundreds or even tens of thousands of people requires what we
call "emotional capital" skills.
Obviously freedom of emotional expression needs to be balanced with
respect to other individuals' sensitivities and the company's interests. By
accurately perceiving patterns of emotions in a company, however, leaders
will have a greater chance of identifying and channelling negative emotions
toward constructive ends.
It is impossible to overemphasize the urgency of attending to the collective
emotions of middle managers, whose cooperation is vital to implementing
change, by giving them greater voice and ownership in the design and
implementation of the myriad of details that ensure successful strategy
execution. 
 
Source: Mr. Quy Huy is an associate professor of strategy at the international
business school Insead.  
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2. Case Study on new business idea strategy: Flipkart.com

 
Flipkart was founded in 2007 by Sachin Bansal and Binny Bansal, both
alumni of the Indian Institute of Technology Delhi. They had been working
for Amazon.com previously. The business was formally incorporated as a
company in October 2008 as Flipkart Online Services Pvt. Ltd.
During its initial years, Flipkart focused only on books, and soon as it
expanded, it started offering other products like electronic goods, Air
Conditioners, Air coolers, stationery supplies and life style products and e-
books. The first product sold by them was the book, Leaving Microsoft to
Change the World, bought by VVK.Chandra from Andhra Pradesh.
Flipkart now employs more than 10,000 people. Flipkart's offering of
products on Cash on Delivery is considered to be one of the main reasons
behind its success. Flipkart also allows other payment methods-
Credit or Debit card transactions, net banking, e-gift voucher and Card
Swipe on Delivery.
The Indian ecommerce flag bearer Flipkart has now hit $1 billion in sales as
of March 2014. Last week, the web site, which now sells everything from
books to electronics, apparel and jewellery, reached the milestone, a full year
ahead of the target. This is a coming of age for Indian ecommerce as the
market leader hits the target a year ahead of schedule. Global ecommerce
giant Amazon reached the same target seven years after its launch. Flipkart,
launched in October 2007, has achieved this milestone a few months faster.
"We are really proud and excited to announce that we have hit a run rate of
$1 billion GMV (gross merchandise value) one year before our target," said
cofounders Sachin Bansal and Binny Bansal, in a joint message. "In March
2011 we announced that by 2015 we wanted to hit $1bn in GMV. At that point
in time our run rate was $10 million."
Flipkart, which started out as an online retailer of books, has raised over
$550 million in risk capital funding. The company, which is backed by South
African internet major Naspers and investments funds like Dragoneer
Investment Group, Morgan Stanley Investment Management, Tiger Global
and Accel Partners, was valued at $1.6 billion when they raised $360 million
last year. 
 
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The company, which started out as an inventory retailer, pivoted to an online

marketplace in 2012. The company, which ships out over 1 lakh orders a day
on an average, now has about 1,000 merchants on its platform.
The Bangalore-based firm has also grown beyond ecommerce. It spun out
its payment solution PayZippy into a separate entity last year. This service is
used by other internet companies like MakeMyTrip, Zansaar and Yepme. The
company is also opening up its logistics arm, eKart, which supplies to 150
cities, to other online retailers.
The company is also increasingly focusing on mobile commerce, as over
20% of its sales already comes from handheld devices. The company’s
aspiration is that in the near future Flipkart.com would be an m-commerce
based marketplace." It will also have to continue to maintain its lead in
technology, customer experience, supply chain management and consumer
logistics to hold onto leadership.
Questions:
1. Who is flipkart.com’s competition? Is it possible to identify the industry
flipkart.com is operating in?
2. Can flipkart.com succeed in its business model in the long run as an e-
retailer and compete with the traditional industry?
3. What are the inherent pros and cons of internet base retail industry and
please analyse if flipkart.com’s success can be replicated?
4. With various options now available in online commerce with price
compaisons, is it possible for the company to develop a strong customer
base without resorting to predatory pricing approach?
Source: http://economictimes.indiatimes.com/articleshow/31549992.cms
3. Case Study on innovative marketing strategy

Volkswagen (VW) is one of the world’s leading automobile manufacturers
and the largest carmaker in Europe. As Volkswagen pursues its goal of
becoming the number one automaker in the world by 2018, India has
become a key component of its strategy. India is currently the world’s second
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fastest growing car market, with shipments expected to more than double by
2018.
As a relatively recent entry into the Indian automotive market, VW needed to
raise brand awareness. To address this challenge, Volkswagen’s marketing
team focused one of its key brand pillars, innovation, to make a strong
impact throughout the roll-out in India. Innovation was showcased not only in
Volkswagen’s product introductions, but also in its communications and
advertising.
Innovative marketing strategies raise awareness
VW India created ground-breaking campaigns such as the world’s first
‘talking newspaper’, which used light-sensitive chips to speak to readers
about Volkswagen as they turned the pages of their morning newspaper. The
talking newspaper ad created a sensation in India, and garnered worldwide
attention for taking print advertising to a new level. In one year, brand
awareness more than quadrupled, increasing from 8 percent to a high of 37
percent. Volkswagen next turned to digital media to extend its success and
create new opportunities for customers to connect with the brand.
Lutz Kothe, Head of Marketing for VW India, says, “At Volkswagen,
innovation is woven into everything we do. In formulating our digital strategy,
we looked beyond the obvious for innovative ways to engage our audience.
We knew that for many people, their car affects their professional life and
their professional identity affects their car choices. This made LinkedIn a
natural choice to connect with current and potential car buyers among the
growing Indian professional population.”
Engaging working professionals on LinkedIn
LinkedIn approached Volkswagen India with an opportunity to be the first
auto major to establish a presence on LinkedIn Company Pages. ‘Company
Pages’ provide a branded home base within the LinkedIn community where
businesses can showcase their company, products, and services in a
trusted, professional environment.
Volkswagen India participated in the worldwide launch of Company Pages in
November 2010, and soon after opened up their pages to allow LinkedIn
members to post reviews and recommendations of their car line in India
including the New Beetle, Vento, and Polo. Mr. Lutz Kothe, Head of
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Marketing & PR, Volkswagen Passenger Cars says “We were pleasantly
surprised to see how easy it was to create our Company Page on LinkedIn
and start engaging with customers among the LinkedIn community.
Furthermore, the quality of interaction was very high.
Recommendation Ads get people talking
Next, Volkswagen launched a series of Recommendation Ads encouraging
more customers to join the conversation. Each ad showcased endorsements
of actual LinkedIn members, and invited the community to recommend their
favourite Volkswagen model. Volkswagen used LinkedIn’s broad reach (100
million members worldwide, 9 million in India) and precise targeting
capabilities to connect with professionals who matched the buyer profiles for
their different models.
Lutz said, “Volkswagen was the first company in India to use LinkedIn
Recommendation Ads, and the campaign was a success. We went in with a
goal of inspiring 500 recommendations among current and prospective car
buyers. In less than 30 days, over 2,700 Volkswagen fans had stepped
forward to recommend their favourite cars and share these
recommendations with their professional networks. In the same time period,
we gained over 2,300 followers who asked to stay abreast of the latest news
and developments from Volkswagen.
Kothe concludes, “In a world where people spend an increasing amount of
time at work, thinking about work, and interacting with their work colleagues,
we believe it’s important to foster discussion about Volkswagen products in a
professional context. Our innovative partnership with LinkedIn lets our
customers learn about Volkswagen products and provides insights”
Copyright LinkedIn Marketing Solutions http://marketing.linkedin.com/contact
4. Case Study on creating a new market space - Starbucks

Starbucks was founded in 1971 in Seattle by Gordon Bowker, Jerry Baldwin,
and Ziv Siegl. By 1982, Starbucks had 5 retail stores and was selling high
quality whole bean and ground coffee products to restaurants and espresso
stands in the Seattle area. In that same year, Howard Schultz joined
Starbucks to manage retail sales and marketing. After convincing the firm to
426
open a down town Seattle coffee bar in 1984 which was successful, Schultz
left Starbucks to open his own coffee bar which served Starbuck coffee.
Schultz acquired Starbucks in 1987, and locations were opened in Chicago
and Vancouver. The company published its first mail order catalogue in 1988,
and in 1991, Starbucks became the first US-based privately held company to
offer stock options to its employees. Subsequently, the company went public
in 1992.
Today, Starbucks coffee shops and kiosks can be found in a variety of
shopping centres, office buildings, book stores, and other outlets across
multiple countries in multiple continents. Starbucks product line includes
food and beverage items such as coffee, coffee beans, pastries, as well as
accessories such as Starbucks mugs and coffee grinders. Starbucks beans
are also marketed to restaurants, airlines, hotels, and directly to the public
through mail order and online catalogues. Interestingly, Starbucks is
capitalizing on taste changes that predate the company’s founding.
In the early 1960s, American adults consumed an average of three cups of
coffee each day. Today, the consumption has declined to about 2 cups, and
with only half of American adults as coffee drinkers. During this time,
decaffeinated coffee sales soared. In addition, a new category of intensely
loyal coffee drinkers was born. This group of adults consume speciality or
premium coffees including regular, and decaffeinated versions with a variety
of origins and flavours. Sales of speciality coffee have climbed from about
$45 million annually to more than $2 billion today, accounting for about 20%
of all coffee sales.
Because Starbucks markets whole beans and coffee beverages, its
competition comes from two distinct groups of firms: a number of regional
coffee manufacturers distribute premium coffees in local markets, while
several large coffee manufacturers such as Nestle, Procter and Gamble, and
Kraft Foods market and distribute speciality coffees in supermarkets. Coffee
beverages are distributed by restaurants, grocery stores and coffee retailers.
Chairman Howard Schultz projects that Starbucks will grow to more than
20,000 stores, 75% of which are in the United States. The company added
280 international locations and adding additional 650 stores in Europe and
900 locations in Latin America. Starbucks has already moved into India and
China. The uniqueness about Starbucks is the coffee drinking experience in
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their stores which attract many customers despite the coffee’s premium
pricing, as well as marketing whole beans and coffee beverages from the
same stores.
1. What are some of the challenges associated with Starbucks’ aggressive
growth strategy?
2. What is the unique value proposition of Starbucks?
3. Could a change in coffee drinking pattern disrupt Starbucks’ growth
strategy?
4. Write a similar case study about a company that created a new product or
service concept?
Reference: John A. Parnel, Strategic Management, Theory and Practice),
Case Studies P 214
5. Case Study on Nintendo WII – Blue Ocean Strategy

Looking at the past 15 years in video game history, it would have been
difficult to predict that Nintendo would make it into the top 10 of the 2008
Business Week/ BCG Most Innovative Companies. This ranking, led by
Apple and Google, finds Nintendo in the 7th spot.
How did the company get back in shape after so many years of being a mere
follower in the console arena? How did it create a unique space as
compared to other competitors like Sony (Play Station) and Microsoft (xBox)
Nintendo has been a major contender in the video game industry for the past
several decades, and has faced the challenge of developing and maintaining
competitive advantage over the years. With the introduction of the Nintendo
Wii console, the company gained a stronghold as a leader in the video
gaming industry. To maintain a competitive advantage, Nintendo looks
toward influencing the customers of Sony and Microsoft, continue developing
innovative technologies, and also consider the impact of social networking
and mobile devices on the gaming industry.
Nintendo identified a new market of buyers and users, many of whom had
never considered gaming. To attract this new segment of noncustomers,
Nintendo designed the Wii, a console which appealed to a far greater
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segment of users than conventional gaming, even going beyond the “regular”
target age groups, with cost effective offerings. This gave the game a whole
new dimension of buyers, enabling Nintendo to effectively tap into the
“casual gamers” category – reaching far beyond “hard-core gamers”.
Nintendo regained market share with a vengeance and spun the industry on
its head with its new, holistic videogame approach. By redesigning the
console and simplifying the experience, Nintendo was able to attract a mass
of casual gamers. Gaming became a social experience to be enjoyed with
families and friends of all ages – thus attracting a new group of older players
who found the game and console easy to use, easy to play and fun!
Nintendo’s current strategy focuses on creating consoles and games geared
toward non-gamers and families. The company’s important resources include
research and development team, marketing team, manufacturing processes,
and the company’s management, headed by Satoru Iwata. These resources
create valuable capabilities and the management’s ability to predict the
future of video gaming and be better prepared to create differentiation.
The company’s R&D gives it the capability in innovative technology, and new
game concepts, while marketing allowed it the company to create an
effective brand. Efficient manufacturing processes allow Nintendo to build
economies of scale and produce the Wii console at a cost lower than the
cost of production of competitors’ game systems. Nintendo’s core
competencies lie among these capabilities.
These capabilities are core competencies as they are valuable, rare and
temporarily non-replicable. Therefore, Nintendo’s Wii console and the video
games developed for the game system gave company temporary
competitive advantages until competitors developed comparable imitations.
However, Sony and Microsoft have been trying to introduce comparable
products that mimic Nintendo’s Wii game system. Another core competency
is Nintendo’s brand name. The company is perceived as a classic leader in
the video gaming space, which is a valuable and rare capability of Nintendo.
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6. Case Study – Tata Motors Acquisition of Jaguar and Land Rover

Tata Motors has made both strategic and economic gains from the
acquisition of both Jaguar and Land Rover. First and foremost, the deal
would assist the company in acquiring a global footprint as well as entering
the prestigious segment of the worldwide automobile market. After this deal,
Tata Motors owned the cheapest car in the world (the Nano) costed at
around $ 2,500 as well as some of the most expensive and luxurious
vehicles such as Land Rover and the Jaguar.
Though the deal solicited some scepticism based on the fact that Tata was
an Indian company that was about to display the luxury brands and
ownership should not be a major issue in terms of the marketing. It is also
worth noting that the acquisition of Jaguar and Land Rover both of which
have global presence as well as a good repertoire in terms of established
brands, Tatar Motors will be promoted to become a major player in this
industry.
The deal would also assist Tata Motors in reducing the dependence of the
company to the Indian market which was at 90% of the company's sales
before the acquisition. It is in this view that the company stands to gain a lot
from the deal as its market would be spread out to other geographical
regions across the globe. The opportunities in terms of the diverse customer
segments would also be increased.
Tata Motors prospected that the acquisition of the two marquee brands
would enable it to have an all-inclusive line up of products ranging from
cheapest to the most expensive automobiles in the market.
The company has marked its presence in the local market (India) in the low
as well as the mid-class market segments and after the acquisition; the
company is likely to experience some of the segmentation of the markets
that it has never plunged into. Jaguar cars are prestigious and luxurious and
as a result the cars have an established market for most of the celebrities.
Through Tata Motor's acquisition of two of the most respected and iconic
British brands that is Land Rover and Jaguar from the Ford Motors based in
the United States, Tata motors stands to enjoy some gain on several
grounds from that deal. This acquisition came in handy for Tata since it
helped the company in acquiring a global foundation hence ushering them
into a more extended premier segment in regard to the global market of auto
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mobile products. Through this acquisition Tata would have a range of

possession of the cheapest car in the world thus the Nano at $2,500 in
addition to recognized and well respected luxurious brands like the Land
Rover and the Jaguar.
Students’ work: Please do a SWOT analysis of this merger and acquisition
and a detailed strategic analysis of his acquisition.
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REFERENCE MATERIAL
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Strategic Management

Program Design and Advisory Team

Prof. B.N. Chatterjee Mr. Manish Pitke

Prof. Kanu Doshi Prof. B.N. Chatterjee

Prof. Dr. V.H. Iyer Mr. Smitesh Bhosale

Prof. B.N. Chatterjee Prof. Vineel Bhurke

Prof. Venkat lyer Dr. Pravin Kumar Agrawal

Prof. Dr. Pradeep Pendse Mrs. Margaret Vas

Prof. Sandeep Kelkar Mr. Anuj Pandey

Prof. Dr. Swapna Pradhan Course Editor

Prof. Bijoy B. Bhattacharyya Prof. B.N. Chatterjee

Mr. P.M. Bendre Course Coordinators

Mr. Ajay Prabhu Ms. Kirti Sampat

Mr. A.S. Pillai Mr. Kishor Tamhankar

COPYRIGHT © by Prin. L.N. Welingkar Institute of Management Development & Research.

NOT FOR SALE. FOR PRIVATE CIRCULATION ONLY.

1st Edition(Jan-2014) 2nd Edition(Jan-2016)

1.! Fundamentals of Strategic Management

2.! Analysis of the Industry and Competition

3.! External Environment Analysis

4.! Vision, Mission, Strategy and Objectives

5.! Corporate Level Strategy

6.! Business Unit Level Strategy

7.! Functional Level Strategy

8.! Strategy Formulation

9.! Strategy Implementation

10.! Strategy Evaluation and Control

11.! Globalisation of Strategy

12.! Strategic Leadership

13.! Corporate Governance

Strategic Management is a four step process starting with the environment

1.2 Global Economic Scenario

have been facing many challenges in terms of predictability of their

The world is shrinking with the introduction and availability of innovative

1.3 Strategic Management Definition

the strategy. Strategic Management also assesses whether or not the

This course discusses in detail and assesses the environment, its

1.4 Concepts and Approaches of Strategic Management:

• A large Enterprise or a global (MNC) organization may employ a more

• An SME (Small and Medium Enterprise) may employ

• Whittington (2001) highlighted four approaches to strategic management.

1.5 Importance and Relevance of Strategic Management

2. The strategic management process helps the people to understand its

management may not eliminate risks completely as there could be many

1.6 Limitation of Strategic Management:

crucial in building credibility, trust and inspiration of its people. Frequent

1.7 What is Strategy?

on the company’s competitive advantage, traditionally within the boundaries

1.8 Strategic Positioning:

1.9 Strategic Decisions:

As part of the strategic management process, the top management seeks

1.10 Levels of Strategy:

The true purpose of an organisation is that it has to evolve a strategy that

1.11 Structure and Role of Stakeholders

Corporate structure is a mechanism established to allow different

This, as a result of the financial indulgence into sub-prime instruments and

Thus, it is very important to recognise that bad governance and lack of

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

Role of the board in strategic management:

Specific top management tasks vary from organisation to organisation and

organisation and motivate the employees to get there”, the importance of

1.12 Strategic Management Process:

1.! Environment Analysis

• Is the strategy consistent with corporate goals and policies?  