Module 2 – Strategic Analysis & Formulation

Contents:

• Strategic Analysis & its tools

• SWOT analysis

• TOWS matrix

• Portfolio analysis - BCG matrix

• Strategic planning: Meaning, stages, alternatives

• Strategy formulation - Growth and defensive strategies –

Mergers and acquisitions, Joint venture, and strategic alliance -
Evaluation of strategic alternatives.

Contents
Introduction.......................................................................................................................................2
Strategic analysis.............................................................................................................................2
Tools of strategic analysis...............................................................................................................3
SWOT Analysis.............................................................................................................................3
TOWS Analysis.............................................................................................................................5
Portfolio Analysis / BCG Matrix.................................................................................................6
Strategic Planning............................................................................................................................9
Features...............................................................................................................................................9
Importance..........................................................................................................................................9
Elements of strategic planning..................................................................................................10
Stages of strategic planning / Strategic implementation........................................................10
Strategy formulation....................................................................................................................13
Strategy formulation process.......................................................................................................14
Corporate strategy implementation......................................................................................15
Growth strategies............................................................................................................................15
1. Merger.......................................................................................................................................15
 2. Acquisition................................................................................................................................17
3. Strategic alliance...................................................................................................................19
4. Joint venture..........................................................................................................................20
Defensive Strategies.......................................................................................................................21
1. Turnaround strategy..............................................................................................................22
2. Divestiture strategy..............................................................................................................22
3. Liquidation................................................................................................................................23
Evaluation of strategic alternatives & Strategic evaluation.....................................24
Evaluation of strategic alternatives..........................................................................................24
Criteria for evaluation of strategic alternatives.................................................................24
Strategic evaluation......................................................................................................................26
Importance:...................................................................................................................................26
Process (Strategy evaluation)...................................................................................................26

Introduction
After business environment knowledge, then move to strategic analysis using
three major tools, then strategic planning and formulate strategies to maintain
competitive edge.

Strategic analysis
Strategic analysis is a process in which an organization evaluates its internal and
external environments to assess its current position, capabilities, and competitive
landscape.

 Performance

 Current position

 What to do further?

Importance

• Informed Decision-Making: It guides well-informed choices

for organizational success.
• Risk Assessment: Identifies potential risks and vulnerabilities, aiding
risk management.
 • Resource Allocation: Optimizes resource distribution for efficient
utilization and cost savings.
• Competitive Advantage: Reveals areas where an organization can
outperform rivals.
• Adaptation to Change: Helps adapt to evolving market conditions and
industry shifts.
• Goal Achievement: Aligns strategies with objectives for greater goal
realization.

Tools of strategic analysis

SWOT Analysis
SWOT analysis assesses internal strengths, weaknesses, and external
opportunities, and threats for strategic decision-making.

1. Strengths: Internal advantages, like skills and assets, contributing to

success.
2. Weaknesses: Internal limitations or deficiencies affecting performance and
competitiveness.
3. Opportunities: External factors that can be leveraged for business growth.
4. Threats: External challenges and risks that may hinder company
progress. Importance of SWOT

• Understand the adaptability: When the possibilities are known, it is

easier to adapt to market trends.
• Better use of resources: Evaluating the company’s strengths will allow
to determine how to allocate your resources efficiently.
 • Improves business operations: It will identify the most vulnerable
areas that need improvement so the organization will be better able to
compete within the market.
• Brainstorming activity: SWOT analysis enables a business man to
collectively find out the aspects related to SWOT.
• Easy tool: An overview about the internal and external factors is SWOT
and can be easily used by any one.
Examples of SWOT factors

Limitations of SWOT

• Does not prioritize issues: SWOT analysis identifies strengths,

weaknesses, opportunities, and threats but doesn't inherently rank or
prioritize them, which can lead to a lack of focus on critical issues.
• Does not provide solutions or alternative decisions: SWOT mainly
focuses on assessment and doesn't offer concrete solutions or alternative
courses of action, leaving decision-makers searching for the right path.
• Generates too many ideas: SWOT often generates a long list of factors,
which can overwhelm decision-makers and make it challenging to select the
most relevant ones for strategic planning.
• Subjective Analysis: SWOT analysis heavily relies on subjective
judgments and personal biases, potentially leading to inaccurate or
incomplete assessments of the internal and external factors.
TOWS Analysis
TOWS analysis, begins by considering external threats and opportunities and
then looks at how an organization's internal strengths and weaknesses can be
leveraged to address these external factors.

TOWS analysis is more proactive and strategic as it combines internal

strengths and weaknesses with external opportunities and threats to create
specific strategies.

Four options are available:

I. Strength – Opportunities
II. Strength – Threats
III. Weakness – Opportunities
IV. Weakness – Threats

Logic of TOWS
• Use strengths to capitalize on opportunities (SO)
• Use strengths to mitigate threats (ST)
• Address weaknesses to capitalize on opportunities (WO)
• Address weaknesses to mitigate threats (WT)
• Strengths-Opportunities: Develop plans that leverage the strengths of
the company to capitalize on opportunities. Example: Diversify into new
markets, improve the quality of products and reduce the costs of top-selling
products.
• Weaknesses-Opportunities: After identifying weaknesses, focus on
ways to resolve them in a goal to take advantage of opportunities.
 Example: finding new and cheaper suppliers, developing more aggressive
marketing campaigns and reviewing operational processes to reduce costs.
• Strengths-Threats: Use the company's strengths to counter external
threats. Example: If the company has a strong research and development
department, start new product development projects to enter different
markets.
• Weaknesses-Threats: Find ways to minimize weaknesses and counter
threats. Examples: Closing out poor-selling products, terminating under-
performing employees and developing more aggressive selling
techniques.
Pros and Cons of TOWS

Portfolio Analysis / BCG Matrix

Analyzing every aspect of product mix to identify and evaluate all products or
service groups offered by the company on the market, to prepare the detailed
strategies for each part of the product mix to improve the growth rate.

• Management needs to create the organization’s entire portfolio to analyze

the present opportunities and threats to the market and the product.
• Portfolio analysis in strategic management helps in laying down the
strategy of expansion as well
• To determine which product should be retained longer and which product
should be removed from the product line.
BCG Matrix

BCG stands for the Boston Consulting Group, a well-respected management

consulting firm. The growth-share matrix aids the company in deciding which
products or units to either keep, sell, or invest more in.
 • It is also known as growth share matrix
• It has 4 quadrants
BCG matrix finds the relationship between:
i. Market share
ii. Market growth

Market growth rate:

 It is an industry metric.
 A higher market growth rate means more earnings for a product.
Relative market share:
 It is company specific.
 It is measured relative to a brands largest competitor. A higher market
share means higher cash return.

Example of BCG for Maruti Suzuki

• 1. Stars: Products in high-growth markets with high market share

[MARUTI BALENO] – Premium Hatchback
• 2. Cash cows: Products in low growth markets with high market share
[MARUTI ALTO] - Economy
 • 3. Question marks: Products in high growth markets with low market
share [MARUTI JIMNY] – MUV ?
• 4. Dogs: These are products with low growth or market share [MARUTI
ESPRESSO?] – Prem. Econ

Strategies

Importance / Benefits of BCG

• Framework to Analyze Product Portfolio: The BCG matrix is a

reasonably good framework for analyzing product portfolio of a business and
determining which businesses are most likely to generate growth.

• Helps Understand the Different Types of Marketing Strategies: The

four cells of the BCG Matrix helps in understanding the different types of
marketing strategies that can be employed by businesses i.e. strategies
like market penetration, market skimming etc.

• Clear Picture of Product Profitability: If a business has several

products or services, using BCG Matrix helps in understanding the
product profitability at a glance.

• Decision on Divestment or Acquisition: It is also used for deciding

which business unit should be divested and which one should be
acquired
 for further growth by looking at its market share, relative market size and its
earning ability.

Strategic Planning
Strategic planning is a process in which an organization's leaders define their
vision for the future and identify their organization's goals and objectives.

Features:
• Sequential – To reach vision, which goals are to be achieved first?
• Mid to long-term goals – Added 3 to 5 years or more goals to be achieved
• Updated – Dynamic business environment calls for updated plans.
• Aligned – It is aligned to short term business goals.
• Evaluation – It helps in evaluation of company’s achievements.

Importance
• Financial Benefits:

Firms that make strategic plans have better sales, lower costs, higher EPS (earnings
per share) and higher profits. Firms have financial benefits if they make
strategic plans.

• Guide to Organizational Activities:

It unifies organizational activities and efforts towards the long-terms goals. It

guides members to become what they want to become and do what they want
to do.

• Competitive Advantage:

In the world of globalization, firms which have competitive advantage (capacity to deal
with competitive forces) capture the market and excel in financial performance.

• Minimizes Risk:

Strategic planning provides information to assess risk and frame strategies to minimize
risk and invest in safe business opportunities. Chances of making mistakes and
choosing wrong objectives and strategies, thus, get reduced.
Elements of strategic planning

Stages of strategic planning / Strategic implementation

# Step 1 - Clarify vision, mission, and values

The first step of the strategic planning process is understanding organization’s

core elements like vision, mission, and values. Once established, these are the
foundation for the rest of the strategic planning process.

Questions to be asked:

• What do we aspire to achieve in the long term?

• What is our purpose or ultimate goal?
• What do we do to fulfill our vision?
• What key activities or services do we provide?
• What are our organization's ethics?
• What qualities or behaviors do we expect from employees?
# Step 2 - Conduct an environmental scan
This involves a long-term SWOT analysis, evaluating organization’s strengths,
weaknesses, opportunities, and threats. Then use TOWS matrix to map primarily
the ST, SW and SO.

Internal factors [SW]

Internal strengths and weaknesses help understand where organization excels

and what it could improve.

External factors [OT]

Externally, opportunities and threats in the market help to understand the power
of industry’s customers, suppliers, and competitors.

Based on this, ideal strategies can be ideated.

# Step 3 - Define strategic priorities

Prioritization puts the “strategic” in strategic planning process. Mission, vision,

values, and environmental scan serve as a lens to identify top priorities.
Limiting priorities ensures organization intentionally allocates resources.

These categories can help to rank strategic priorities:

 Critical: Urgent tasks whose failure to complete will have severe

consequences — financial losses, reputation damage, or legal consequences
 Important: Significant tasks which support organizational achievements
and require timely completion
 Desirable: Valuable tasks not essential in the short-term, but can
contribute to long-term success and growth
# Step 4 - Develop goals and matrix

Next, establish goals and metrics to reflect strategic priorities.

Goals should be:

 Purpose-driven
 Long-term
Actionable strategic planning goals should flow down through the organization,
with lower-level goals contributing to higher-level ones.
OKRs (Objectives & Key Results)

OKRs consist of objectives, qualitative statements of what want to achieve, and

key results, 3-5 supporting metrics that track progress toward objective.

• OKRs ensure alignment at every level of the organization, with tracking

and accountability built into the framework to keep everyone engaged.
• With ambitious, intentional goals, OKRs can help to drive the strategic
plan forward.
# Step 5 - Derive a strategic plan

The next step of the strategic planning process gets down to the nitty-gritty “how”
— outlining a clear, practical plan for bridging the gap between now and the
future.

 Feasibility: How realistic and achievable is it?

 Impact: How conducive is it to goal attainment?
 Cost: Can we fund this approach, and is it worth the investment?
 Alignment: Does it support our mission, vision, and values?

Elements of strategic plan:

 Timelines: When will we take each step, and what are the deadlines?
 Milestones: What key achievements will ensure consistent progress?
 Resource requirements: What’s needed to achieve each step?
 Responsibilities: Who's accountable in each step?
 Risks and challenges: What can affect our ability to execute our plan? How
will we address these?

# Step 6 - Communication

Writing and communicating strategic plan involves everyone, ensuring each team
is on the same page. All the levels of management should be communicated with.

# Step 7 - Implement / Monitor & Revise

Keeping a close eye on the timelines, milestones, and performance targets.

Certain indicators like completions, issues, and delays maintain visibility into how
process is going. Any bottlenecks / inefficiencies shall be adjusted.
Other indicators include customer preferences, competitive pressures, economic
shifts, and regulatory changes.
Key principles of Strategic planning

• Leaders to lead it: Strategic planning is central to the leaders and the top
management. It is the responsibility and the duty of the senior management
team to be fully participative and accountable in the process.

• Staff should own the plan: Keep the staff involved in the process. They
respect the plan and help in implementing it.

• Stakeholder analysis: Stakeholder expectations must be known. and

therefore you should engage them in the process.

• Keep the plan simple: The planning process should be kept simple, do
not unnecessarily complicate it by using technical tools, jargons etc.

Strategy formulation
Strategy formulation is the process of using available knowledge to document the
intended direction of a business and the actionable steps to reach its goals.

• PLAN: An organization uses strategy formulation to plan for success and

make improvements to workplace strategies as needed.

• ACHIEVE: Strategy formulation is essential for achieving and measuring

the attainability of goals.

• COMMUNICATE: After creating strategies, an organization typically

educates its employees so they know the organization's purpose,
workplace objectives and goals.
Strategy formulation process
Corporate strategy implementation

Growth strategies
A growth strategy is an organization's plan for overcoming current and future
challenges to realize its goals for expansion.

There are four ways to achieve it which includes:

I. Merger – Two separate entities merge to have combined forces.

II. Acquisition – It refers to takeover of one entity by another.
III. Strategic Alliance - Arrangement between two companies to undertake a
mutually beneficial project while each retains its independence.
IV. Joint venture – Combination of two or more parties that seek the
development of a single enterprise for a specific time.
1. Merger
A merger is a corporate strategy to combine with another company and
operate as a single legal entity. The companies agreeing to mergers are
typically equal in terms of size and scale of operations.

Three key points:

• Combination
• Single entity
• Equal scale
WHY MERGER? (Importance / Benefits)
 • Increased operations: After the merger, companies will secure more
resources and the scale of operations will increase.
• New shares: The existing shareholders of the original organizations
receive shares in the new company after the merger.
• Diversification: Companies may agree to a merger to enter new markets
or diversify their offering of products and services, consequently increasing
profits.
• Remove competition: A merger between companies will eliminate
competition among them, thus reducing the advertising price of the
products.
• Better planning: Mergers may result in better planning and utilization of
financial resources.
TYPES OF MERGERS:

a) Conglomerate merger: A merger between firms that are involved in

totally unrelated business activities.

b) Horizontal merger: A merger occurring between companies in the same

industry.

c) Vertical merger: A merger between two companies producing different

goods or services for one specific finished product. E.g.: Dish TV & Zee
entertainment

d) Product extension (Congeneric) merger: A product extension merger

takes place between two business organizations that deal in products that
are related to each other and operate in the same market. E.g.: Pepsico,
Pizza Hut (1977-1997)

Drawbacks of Merger

• Raises prices of products or services: A merger results in reduced

competition and a larger market share. Thus, the new company can gain
a monopoly and increase the prices of its products or services.
 • Creates gaps in communication: The companies that have agreed to
merge may have different cultures. It may result in a gap in
communication and affect the performance of the employees.

• Creates unemployment: In an aggressive merger, a company may opt to

eliminate the underperforming assets of the other company. It may
result in employees losing their jobs.

• Low motivation: In cases where there is little in common between the

companies, it may be difficult to gain synergies. Also, a bigger company
may be unable to motivate employees and achieve the same degree of
control.

2. Acquisition
Strategic acquisition, also called an acquisition strategy, is a method that one
company uses to gain or purchase another, hoping the consolidation of both
companies can prove to be more profitable than one by itself.

Benefits

For the Acquiree

• Fewer risks: It allows them to remove some burdens of managing a

single company on their own.
• Ease of integration: Easy to integrate and provides a simpler process for
conducting business operation
• Finance security and simplicity: companies can gain higher financial
growth rates right after an acquisition occurs.
For the Acquirer

• Removes competition

• Consolidation

• Higher assets

TYPES OF ACQUISITION:
 a) Horizontal acquisition: When one company acquires another company
that is in the same business. E.g.: Zomato > Uber Eats

b) Vertical acquisition: One company acquires another company that is in

a different position on the supply chain.

c) Conglomerate acquisition: Acquirer and target are in unrelated

industries or engaged in unrelated activities. For Eg.: BMW acquired
Crocs (Hypothetical)

d) Congeneric acquisition: When the acquiring company and the acquired

company have different products or services but sell to the same customers.
For E.g.: Parker pen & Bril ink (Hypothetical)

Drawbacks of Acquisition

• Culture clashes: Acquiring a company that has a culture that conflicts

with yours can be problematic. Employees and managers from both
companies, as well as their activities, may not integrate as well as
anticipated.

• Duplication: When two similar businesses combine, there may be cases

where two departments or people do the same activity. This can cause
excessive costs on wages.

• Poorly matched businesses: A business that doesn’t look for expert

advice when trying to identify the most suitable company to acquire may
end up targeting a company that brings more challenges to the equation
than benefits.

Merger V/s Acquisition

3. Strategic alliance
A strategic alliance is an arrangement between two companies to undertake a
mutually beneficial project while each retains its independence or form as a
new company not branded among customers.

• Unique one-to-one relationship

• No sharing of ownership
• Each party bring some inputs
• Capital investment based on contract
• Pool resources and maintains ownership

Types of Strategic Alliance

• Joint Venture: A joint venture is established when the parent

companies establish a new child company. For example, Company A
and Company B (parent companies) can form a joint venture by creating
Company C (child company).

• Equity Strategic Alliance: An equity strategic alliance is created when

one company purchases a certain equity percentage of the other
company. If Company A purchases 40% of the equity in Company B, an
equity strategic alliance would be formed.

• Non-equity Strategic Alliance: A non-equity strategic alliance is created

when two or more companies sign a contractual relationship to pool their
resources and capabilities together.
4. Joint venture
A joint venture is a combination of two or more parties that seek the development
of a single enterprise or project for profit, sharing the risks associated with
its development.

• Economies of Scale: Joint Venture helps the organizations to scale up

with their limited capacity.

• Access to New Markets and Distribution Networks: It opens a vast

market which has a potential to grow and develop

• Innovation: Upgradation of products and services with respect to

technology.

• Low Cost of Production: When two or more companies join hands

together, the cost of production can be reduced or cost of services can be
managed

WHY JOINT VENTURE?

• New source of investment: A joint venture can help minimize the risk of
seeking opportunities for new investments. The joint venture partner is
expected to contribute a certain amount of funds, assets, and other
resources to the project or campaign, depending on the terms of the
arrangement.

• Save on more costs: In a joint venture, sharing of expenses take place

on a project or campaign, putting less of a financial burden on our
company.

• Enter a new market: Join venture enables a company to enter new

market using this mode which tries to capture new markets (AXA).

• Avoid competition: One of the main reasons why joint ventures work is
that many businesses would like to stay away from competition
temporarily.

• Acquire IPR: Small business can enter into a joint venture with a different
business and gain access to that asset.
 Defensive Strategies
Defensive strategies are some strategies used to protect / defend the company from
further downgrades / crisis. They are used when growth strategies are no longer
beneficial for the company.

There are three ways to achieve it which includes:

Retrenchment: Related to cutting down some operations

I. Turnaround: Improving business process, change in operation style

II. Divesture: Selling off some / part of business to use that money
elsewhere.

III. Liquidation: 100 % closure of business and decide later

Retrenchment refers to a strategic approach that organizations adopt when

they face financial difficulties, operational inefficiencies, or a decline in
their market position. Retrenchment is adopted to:

• Cost Reduction: To reduce operational costs by eliminating

excess resources, streamlining processes, and optimizing
efficiency.

• Financial Stability: Able to preserve cash flow, and improving overall

fiscal health.

• Focus on Core Competencies: By shedding non-core businesses or

activities, a retrenchment there by increasing competitiveness in its
primary markets.

• Debt Reduction: Retrenchment can be employed to retire debts and

improve the company's financial leverage, ensuring a healthier
balance sheet and reduced financial risk.

• Enhanced Shareholder Value: It improves profitability, reducing risk,

and ensuring that the company's resources are allocated to areas with
the highest potential for returns.
 1. Turnaround strategy
It is defined as a comprehensive plan implemented by a company facing
financial distress or underperformance to revitalize its operations and
restore profitability.

Primary objectives:

 Restructuring: Changing business process

 Repositioning: Rebranding, Changing mkt. strategy
 Cost reduction: Utilization efficiently
 Redeployment of assets: Based on priority
Features

• Turnaround involves restructuring the sick company.

• It is applicable to a loss-making unit.
• It needs consultation of internal and external experts.
• It is a long and time-consuming process.
• It involves in-depth planning with evidential testing.
• It is a capital-intensive strategy.
• It helps to utilize all available resources optimally.
• It leaves a permanent effect on the structure of the sick company.
• It needs full co-operation of people associated with the sick company for
its success.
2. Divestiture strategy
A divestiture is when a company or government disposes of all or some of its assets by
selling, exchanging, closing them down, or through bankruptcy.

 Part sale: A part of business is sold or divested to public or interested

parties.
 Stay focused: Some times, expansion goes wrong. It can be corrected by
reversing the process.
 Maintain profits: Too many diversifications may lead to lower profit. It
needs to be rectified.
Types of divestitures
 1. Spinoff: A company creates a subsidiary company. The shares of the new
entity are distributed to the parent company’s shareholders on a pro-rata
basis. However, the parent company also retains ownership of the spun-off
entity.

2. Splits: Dividing the company into two or more parts. This is done with an
aim to maximize profitability by removing stagnant units from the
mainstream business.

3. Disinvestment: Disinvestment occurs when a company sells or

liquidates stocks. (E.g. LIC sell off)

3. Liquidation
Liquidation strategy is the process of closing down a business and selling off
its assets to pay off its debts and obligations. It is a viable option for companies
that are unable to pay their debts, and their assets are not enough to cover their
liabilities. The primary aim of liquidation strategy is:

• To maximize the value of the company’s assets to pay off its creditors and
shareholders.

This is a least preferred defensive

strategy. Summary of three liquidation

strategies
Evaluation of strategic alternatives & Strategic
evaluation

Evaluation of strategic alternatives

It is defined as the process of studying in detail about the feasibility primarily
relating to its acceptability, suitability and capability of strategic alternatives.

Is merger Good?
Does it provide any value?
Does our stakeholders are OK with it?

Criteria for evaluation of strategic alternatives

1. Suitability

It indicate whether the strategic alternative make sense in relation to

environmental circumstances. It is also a basic of qualitative assessment
concerned with testing out the rational of strategy and is useful for screening
options. The assessment of suitability consists of two stages.
 • Establishing the rational: Various tools and techniques are used
to establish the rational which describes the ideas whether they
are good or not some of these tools are lifecycle portfolio matrix,
positioning, value chain analysis and portfolio analysis.

• Screening Options: Suitability of a specific strategic option is

relative to other available options. The methods used for
understanding suitability are ranking, decision tree and
scenarios.

2. Acceptability

It is strongly related to people expectations and therefore the issues of require

careful analysis.

 Return: Expected return from specific strategic options is assessed.

The various approaches to analyze return are:

 Profitability analysis: It assesses financial return to

investment. The tools used for this analysis are return on
capital employed, payback period, and discounted cash flow.

 Cost benefit analysis: It assesses the overall economic

impact of strategic options. This analysis attempts to put a
money value of all the costs and benefits of strategic options.

 Risk: It involves probably estimate about robustness of strategic

The level of risk is important for acceptability of strategic options.

 Stakeholder expectation: It provides political dimensions to the

organizations acceptability of a strategic alternative.

3. Feasibility

It determines an option implement ability and work ability in practice. It

assesses the organizations capability to make the strategic alternatives
succeed. The approaches for available to understand feasibility are:
  Funds flow analysis: It assesses financial feasibility. It forecasts
the funds required and the likely resources of funds for strategic
alternatives.

 Break even analysis: It studies costs volume profit relationships to

assess financial feasibility. This analysis identifies BEP when
revenue equal costs.

 Resource deployment analysis: It identifies need for resources

and competencies for specific strategic alternatives.

Strategic evaluation
It is related to measuring the efficiency and effectiveness of the comprehensive
plans in achieving the desired results.

Strategic Evaluation is the final phase of strategic management.

The significance of strategy evaluation lies in its capacity to co-ordinate the task
performed by managers, groups, departments etc, through control of performance.

Importance:

Process (Strategy evaluation)

Step 1 - Fixing standards:

 While fixing the benchmark, strategists encounter questions such as

- what benchmarks to set, how to set them and how to express
them.

 Need to discover the special requirements for performing the main

task.

 The organization can use both quantitative and qualitative

criteria for comprehensive assessment of performance.

 Quantitative criteria: Determination of net profit, ROI,

earning per share, cost of production, rate of employee
turnover etc.

Step 2 - Measuring actual performance:

 The measurement must be done at right time else evaluation will

not meet its purpose.

 For measuring the performance, financial statements like -

balance sheet, profit and loss account must be prepared on an
annual basis.

 The reporting and communication system help in measuring the

performance.

Step 3 - Analysing variance

 While measuring the actual performance and comparing it with

standard performance there may be variances which must be
analyzed.

 The strategists must mention the degree of tolerance limits

between which the variance between actual and standard
performance may be accepted.

 The positive deviation indicates a better performance but it is quite

unusual exceeding the target always.
Step 4 - Taking corrective action

 Once the deviation in performance is identified, it is essential to

plan for a corrective action.

 If the performance is consistently less than the desired

performance, the strategists must carry a detailed analysis of the
factors responsible for such performance.

 If the strategists discover that the organizational potential does not

match with the performance requirements, then the standards
must be lowered.