By Palak Rana
Terminologies
• Strategy:
Strategies are developed to achieve the goals, objectives and hence the Mission of the
Organization.
• Strategic Management:
How an organization manages its strategies i.e. creating strategies, implementing them,
monitoring them, and revising them if strategies are not getting the desired results.
By Palak Rana
Terminologies
• Goals:
Goals are smaller targets to achieve the Mission. Goals are generally qualitative in nature. E.g.
increase sales, reduce costs, increase customer satisfaction, new products, etc.
• Objectives:
Objectives are more specific targets to achieve the Mission, i.e., quantitative in nature.
Objectives should be S-M-A-R-T (Specific, Measurable, Achievable, Result-Oriented, Time-Bound).
E.g., increase sales quantity by 20% p.a.)
By Palak Rana
Environmental Analysis
• Every business has to analyze its environment, to prepare strategies. As there are two types of
environment, BOTH environments have to be analyzed. Following two models are used to
analyze the environment:
➢ General environment: PESTEL
Immediate environment: PORTER’S 5 FORCES
➢
Types of External Environment
General (macro) environment pertains to the entire country.
The immediate (micro) environment pertains to the industry in which we operate
By Palak Rana
PESTEL (Macro Environment)
• Political Situation Includes
▪ Stable business environment
▪ Law and order situation
▪ Government policies (e.g. liberal, investment friendly)
• Economic Situation Includes
▪ Disposable income (necessity vs luxury)
▪ Economic growth / recession
▪ Rate of returns
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PESTEL (Macro Environment)
• Social Situation Includes
▪ Age / gender groups
▪ Believes / Religious systems
▪ Standard of living
▪ Unemployment
• Technological Situation Includes
▪ Availability of technology
▪ Tech Infrastructure of the country
▪ Internet / online
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PESTEL (Macro Environment)
• Ecological Situation Includes
▪ Protection of Earth and its environment
▪ Talks about pollution, global warming, ozone layer, harmful waste material, carbon footprint, green
products, etc.
▪ Ecological factors are getting important, and more and more customers are becoming ‘green’
Conscious and aware about manufacturing processes.
▪ Several Green Groups or Pressure Groups have been formed.
▪ Products related Concerns
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PESTEL (Macro Environment)
• Legal Situation Includes
▪ Company Law
▪ Environmental laws
▪ Competition / monopoly Acts
▪ Data Protection Act
▪ Employment / Labor Laws
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5 Forces Model( Micro Env)
1. The bargaining powers of Customers
Customers want to buy high quality product at low price. On the other hand, business wants to sell lowquality product at high price. This “tug of war” directly
affects the profitability of the business.
Now, who will win, the customer or the business? This depends on the following factors:
❖ How critical is the product to the customer (e.g. medicine vs makeup)
❖ Size of customer vs size of business
❖ Number of vendors of the same product available in the market
❖ Is there any switching cost.
❖ Customer affordability
❖ Customer’s own knowledge and bargaining skills
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5 Forces Model( Micro Env)
2. The bargaining powers of Suppliers
Suppliers want to sell low quality product at high price. On the other hand, you (business) wants
to buy high quality products at low price. This “tug of war” directly affects the profitability of the
business.
Now, who will win, the supplier or you (business)? That depends upon the bargaining power
By Palak Rana
5 Forces Model( Micro Env)
3 . Threats of new- entrants (and barriers)
New entrants directly reduce the market share of existing companies and hence the profits. That is why it is iimportant that some
‘entry’ barriers are created so that new companies do not enter the industry.
How can we create barriers to entry in any industry? Examples to barriers are:
❖ License / Government approval required
❖ Trademarks / patents
❖ High capital or investment required
❖ Strong brand, corporate image or goodwill
❖ Switching cost involved (e.g. customized product)
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5 Forces Model( Micro Env)
4. Threats of substitute products
(A substitute product is manufactured by another industry, but satisfies the same customer needs, e.g., petrol vs CNG, planes vs
trains, etc.).
The availability of substitute produces directly affects the profitability of the Organization. Options to deal with substitute
products includes:
❖ Start dealing with substitute products yourself (e.g. petrol pumps now offer CNG as well)
❖ Innovation of cheaper or better products, so that the customer does not have to look for cheaper or
better ‘substitute’ products
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5 Forces Model( Micro Env)
5. Current competition / rivalry
Competition directly affects market share and profitability. The more the number of competitors, the more intense the level of
competition will be. Intense competition has several forms, such as price cutting, advertising battles, sales promotions / deals,
introducing new products, improving after sales service, guarantees / warranties, etc.
Factors affecting intensity of competition:
❖ Number of competitors
❖ Market share %
❖ Lifecycle stage of the industry (growth, maturity or decline phase?)
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Porters Diamond Model
To Identify how countries /area achieve international reputation in particular fields? Michael Porter
identified four principal determinants of national competitive advantage (drawn in a diamond
shape). Its primary purpose is to analyze the competitiveness of a nation:
1. Factor Conditions
Factor conditions means the resources which are required to do business in that country are easily
available, such as skilled labor, land, machinery, raw materials, roads, infrastructure,
communication/internet, technical expertise, etc.
For e.g., France has best climate and soil for grapes.
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Porters Diamond Model
2. Demand Condition
Demand condition means that there is a large demand for the products in which you plan to operate.
For e.g. people of France likes to drink a lot of wine.
3. Related and Supporting Industries
The main industry always benefits if related and supporting industries are present nearby. This
leads to specialization and cost efficiencies.
For e.g., in Germany, tires, paint and leather industries are also present around the car
manufacturing factories. Also auto engineering universities and institutes are present.
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Porters Diamond Model
4. Firm Strategy, Structure and Rivalry
It includes:
❖ Government’s role / attitude towards your industry (political factors)
❖ Existing level of competition in your industry
❖ How companies are incorporated, capital markets, corporate structures, nationalized / privatized
structure, etc.
Example, German Govt is supporting auto mobile industry and encouraging healthy competition.
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SWOT Analysis
SWOT: Strength, Weakness, Opportunities, Threats
S and W pertains to INTERNAL factors (e.g., motivated staff, weak accounting software)
O and T pertains to EXTERNAL factors (e.g., growing industry, tough competition)
SWOT Analysis combines results of: Environment (Opportunity and Threat) , Strategic Capability (Strength and Weakness)
By Palak Rana
Strategic Management Model
1. Strategic Position / Analysis
Review strategic position considering:
Current position of Your Business
External environment, e.g. Country (PESTEL)
Industry (Porter 5 Forces: customers, suppliers, competition
Internal resources – HR/IT resources
Financial Resources
Mission of our Organization by linking models like SWOT,PEST, 5 forces etc
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Strategic Management Model
2. Strategic Choice
Generate all possible options to reach mission.
Analyze pros and cons of all options.
Select the strategy that best suits you
3 .Strategy into Action
❖ Implement selected strategies.
❖ Monitor the results.
❖ Amend strategies if desired results are not being achieved.
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Strategic Drift
Strategic drift occurs when changes to the external environment of the organization is faster and changes in the organization’s
strategies are slower.
Due to this, the organization’s strategies become misaligned with the external environment. Strategic drift should be tackled
quickly before the gap increases.
E.g., Nokia
Strategic drift normally happens in those organizations where employees are not willing to change and adopt the changing
environment. In a “Learning Organization”, chances of strategic drift is lower as all employees are continuously acquiring new
knowledge and skills and updating themselves with the changes in the environment.
By Palak Rana
Strategy Evaluation Criteria
SFA Model is used to evaluate a proposed strategy.
1. Suitability
Evaluates whether the proposed strategy will solve the current problem or achieve the objectives. In other words, it means
whether the proposed strategy makes ‘sense’ keeping in mind the current issues. Normally it covers advantages and
disadvantages (opportunity and threats)
2. Feasibility
Evaluates whether the organization has the internal resources and competencies to implement the proposed strategy
Internal resources include - Human resource / expertise, Brand / corporate image, Financial resource, Ratio analysis of “our
existing” company to be done if financial data is provided, IT resources etc.
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Strategy Evaluation Criteria
3 . Acceptability
Evaluates whether the proposed strategy will be acceptable by our shareholders, particularly from
risk and return point of view (risk averse vs risk seeker shareholders). If it is a private limited / family
company with shareholders directly managing the company, then the proposed strategy will be
normally acceptable. In case of proposed acquisition, the ratio analysis of the “target” company is to
be done in this section if financial data is provided
Also consider any culture differences.
By Palak Rana
Marketing & 4 P’s
Marketing aims to satisfy customer needs profitably through an appropriate
Marketing Mix
Marketing Mix (4 P plus 3 Extended P for services)
Whenever a new product is launched, FIRST we must decide the 4Ps of
that product. These are also referred to as marketing strategies.
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Marketing & 4 P’s
1. Product (means satisfying customer needs) by considering
➢ Core design / features of the product
➢ Quality aspects
➢ Availability of choices e.g., colors, sizes, flavors, timings, etc.
➢ After sale services
➢ Focus on Products can be drawn by doing proper Branding.
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Marketing & 4 P’s
2. Pricing (means setting the right price for the product):
For Pricing Focus on the -
➢ Costs
➢ Required profit margin
➢ Premium for any uniqueness, brand or goodwill
➢ Competitors’ price
➢ Value for money (from customer’s point of view)
➢ Customer affordability
By Palak Rana
Marketing & 4 P’s
3. Place (means how the product reaches the customers):
▪ Channel: sales outlets (e.g. supermarkets)
▪ Logistics: location of warehouse (speed of delivery, damages, cost of transportation)
▪ Distribution system (self, wholesaler, distributor, agent)
4 . Promotion (means marketing):
▪ Advertising: mass marketing to public (TV, newspapers, billboards, internet, radio, fliers)
▪ Direct marketing: one to one marketing (e.g., tele-sales, emails, SMS)
▪ Sales promotion: activities to convert customer’s interest into sales (e.g., discounts, loyalty schemes,
free trials, free gifts, buy 1 get 1 free, group discount, free demo)
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Marketing & 4 P’s
• There are 3 Extended P’s for Marketing –
Processes: efficient and fast processing directly affects the quality of service, e.g. long and slow-
moving line in a bank for utility bills
People: front line staff interacting with the customer plays a very important part, e.g. rude staff at the
bank for utility bills
Physical evidence: as money has been spent on a non-physical item, having physical symbols helps,
• e.g. a training certificate after completion of training, receipts
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Pricing Strategies
▪ Price Penetration:
Charge lower price to enter market and increase market share. Initial focus is to get sales volume and not
profit margin.
▪ Price Skimming:
Charge a higher price as premium for a unique or a new product. Focus is on earning high profit margin and
not sales volume. To do price skimming, it is important that your product must have some brand image or
uniqueness.
▪ Discriminate Pricing:
Charge different price to different customer groups. Options include different timings (e.g. day and night),
different country, different age, different currency, early bird discounts, etc.
By Palak Rana
Some Important Terminologies
Customers’ CSF are those features of your product due to which the customer buys your product (and leaves the competitors’
product). Organization should understand customers’ CSFs and then excel in those areas to beat competition
E.g. what do you expect from a good airline? Punctuality, Safety, Comfort
Key Performance Indicators (KPI)
CSF are measured through KPI
KPIs are quantifiable targets that organization must achieve to excel
E.g. what can be the KPI to measure the above-mentioned CSFs of a good airline?
▪ Punctuality: % of flights departing on time, Safety: # of accidents in a year, Comfort: # of complaints
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Product Life Cycle
According to PLC , sales of a Product passes over 5 Stages –
Development:
At this stage Cost will be very high with no immediate revenue Includes R&D Stage of Product, Product
designing.
Introduction:
Cost will be high mainly due to marketing expenses with minor sale revenue, will have high Losses due to low
volumes and high marketing costs, but will have Few competitors
Covers – Launch, Advertising and marketing
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Product Life Cycle
Growth:
In this stage the Sale revenue will start increasing and product will first break even and then start making profit. U can expect
Sharp growth along with More competitors
Maturity:
Cost will be low due to economies of scale and expertise with maximum sale revenue , The Competition is at peak.
U can see Growth slow down / saturation.
Decline:
Revenue will decrease and exit / long-tail costs will be incurred, including servicing, spare parts, warranties, etc. Falling sales
position .Consider to exit and utilize money in another area.
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Industry Life Cycle for Competition
Industry Lifecycle Nature of Competition
Inception None to few
Growth Many new entrants, competition is increasing.
Maturity Competition is at its peak, weak players exit.
Decline Few left, majority exits.
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Porters Value Chain
Terminologies –
Value: A feature for which the customer is willing to pay the price
Value Activity: An activity which adds “value” to the product
Value Chain: Entire chain of value activities which collectively adds value to the product.
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Porters Value Chain
▪ Inbound logistics:
❖ Physical transportation of raw materials from supplier’s premises to your premises
❖ Warehousing of raw materials in your premises
❖ E.g. of IT system includes inventory management software's, JIT concept, etc.
▪ Operations:
❖ Manufacturing process, i.e. converting raw materials into finished goods
❖ Includes manufacturing, packing, testing, etc.
E.g. of IT system includes Computer Aided Manufacturing software (CAMs), Robotics, etc.
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Porters Value Chain
▪ Outbound logistics:
❖ Warehousing of finished goods in your premises
❖ Physical transportation of finished goods from your premises to final consumer
❖ Order placing process (e.g. telephone, website, etc.)
❖ E.g., of IT system includes inventory management systems, Electronic Point of Sale (EPOS)/ barcoding, delivery scheduling
systems, route planning systems for delivery vans, etc.
▪ Marketing and Sales:
❖ Marketing activities to increase demand of your products.
E.g. of IT system includes E-Marketing, Customer Relationship Management software (CRMs), Cookies, etc
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Porters Value Chain
▪ After Sales Service:
❖ Includes activities such as repairs, warranties, guaranties, etc.
❖ E.g. of IT system includes complaints management software, etc.
▪ Procurement:
❖ Purchasing activities, such as inviting quotations from various vendors, evaluation,negotiation and then placing firm orders with
the vendors
❖ E.g. of IT system includes E-procurement, E-auction, Supplier Databases, Extranets, integrated procurement systems through
extranet, emails, etc.
▪ Technology:
❖ Use of technology in all areas of business
E.g. of IT systems include programming software, CADs (computer aided designing software), R&D software
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Porters Value Chain
▪ HR:
❖ Finding the right people for the right job
❖ E.g. of IT system includes Intranet, Human Resource Management Systems, E- Training, E Attendance, etc.
▪ Firm Infrastructure:
❖ Includes senior management / governance of the organization who makes strategies and decisions.
❖ Plus, all other departments which are not directly covered above e.g. finance, audit, legal, health & safety,
security, etc.
❖ E.g. of IT system includes Groupware, MIS, expert systems, data warehousing and mining.
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BCG Matrix
BCG Matrix / Boston Box is used to
analyze the current position of the
various business units within the Group
and what future course of action should
be taken for each business unit.
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BCG Matrix
Star: Star business unit has a high market share in a growing industry, which means that there is still a lot of growth potential in
future. ‘Build’ strategy is used for Stars, i.e. more money is invested now to seek long term gain.
Cash Cow: Cash Cow business unit has a high market share in a declining industry, which means that there is limited growth
potential in future. The industry has reached the maturity stage now. ‘Hold’ strategy is used for Cash Cows, i.e. maintain or extend the
current position as much as possible.
Dog: Dog business unit has a low market share in a declining industry, which means that there is no growth potential in future. The
industry has reached the maturity stage or decline stage. ‘Divest’ strategy is used for Dogs, i.e. close the business unit and use
resources somewhere else
Question Mark: Question Mark business unit has a low market share in a growing industry, which means that there is growth
potential in future. However, it is a decision point as the Parent needs to decide whether it is willing to take the risk and invest for
future gains? ‘Harvest’ strategy is used for Question Marks, i.e. whether some money should be invested or not?
By Palak Rana
Ansoff Growth Vector ▪ Market penetration: Increase market share
Strategy ▪ Product Development: Heavy R&D, customer needs,
marketing
▪ Market development: New geographical markets,
distribution channels
▪ Diversification: New product and new market
simultaneously
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Diversification means going for new products and
markets
Advantages of diversification:
Diversification ❖ Higher profits
❖ Risk spreading
❖ Economies of Scale
❖ Synergies with sister companies
Disadvantages of diversification:
❖ Lack of experience
❖ High risk
❖ Management problems (time, resources, lack of
concentration)
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Globalization
Advantages Disadvantages
▪ More customers ▪ Managing issues (vast operations, lack of
▪ Higher profits local experience)
▪ Economies of scale ▪ Legal differences / complexities
▪ Cheap resources and labor (country • Cultural issues
advantage)
▪ Favorable laws and government policies (e.g.
low taxes)
• Risk spreading
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Growth Strategy- Organic Growth
Advantages Disadvantages
▪ Less funds required than ▪ Growth is slow – time consuming.
acquisition.
▪ Slow economies of scale
▪ Less risky than acquisition (no
hidden issues)
▪ No management or cultural issues
▪ Slow but ‘steady’ strategy
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▪ Advantages:
▪ Quick growth
▪ Quick economies of scale
▪ Increase in market share by elimination competition.
Growth Strategy –
▪ Problems:
Acquisition & Merger ▪ Costly – high funds required as compared to organic growth.
▪ Risky
Acquisition is the purchase of ▪ expected results not achieved post M&A
a controlling interest in ▪ hidden issues not identified at the time of M&A
another company
▪ Difference in management style or culture between the two
companies
Merger is joining of two
▪ Duplication of departments, processes and human resources
separate companies to form one which needs to be sorted out
single company
▪ M&A activity is also a time-consuming exercise
▪ No seller / right company available for sale
By Palak Rana
Other Growth Options
Joint Venture - Company ‘A’ and Company ‘B’ forms a new Company ‘C’ under partnership, sharing
equity as well as
management
Strategic Alliances- Two or more firms agree to work together to exploit common advantages, without
forming a separate company. E.g. -ATM machines shared between all banks globally
Franchise/Licenses - Company ‘A’ (Franchisor) gives license to Company ‘B’ (Franchisee) to use the brand
name of the
Franchisor and conduct business according to the process and techniques instructed by the Franchisor. Franchisor
defines core products, qualities, manufacturing processes, recipes and provides guidance
Franchisee responsible for initial capital investment and day to day operations of the business
By Palak Rana
Generic Competitive Strategies
Cost leadership
▪ Reduced cost to sell cheaper (targeting higher volumes)
▪ Options through which cost leadership could be achieved:
o Control over raw material cost (bargaining power with suppliers)
o Economies of scale (high volumes)
o Design of products and process (value engineering)
o Experience / learning curve
o Automation / Technologies
o Continuous cost reductions initiatives
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Generic Competitive Strategies
No Frill’ cost strategy
o Lowest price / minimum benefit
o Zero brand loyalty
o Appropriate where:
▪ Customers do not value differentiation / quality / service
▪ Customers are very price sensitive
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Generic Competitive Strategies
• Focus / Niche
▪ Concentrate on one segment of the entire market
▪ Can adopt a “cost focus” strategy OR “differentiation focus” strategy
▪ Advantages of a niche strategy:
o Specialization
o Identify segment too small to attract major competitors
o Easier to create customer goodwill, loyalty and barriers to entry
o Ability to charge higher prices
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Generic Competitive Strategies
Differentiation
▪ Focusing on quality or uniqueness.
▪ Reinvesting portion of profit into R&D and product improvement
▪ Creating switching cost for the customers
▪ Options through which differentiation could be achieved:
▪ Continuous research and innovation
▪ Brand image / goodwill
▪ Heavy marketing
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Benchmarking
▪ Benchmarking is establishment of targets against which to compare our performance.
▪ Types of benchmarking:
o Internal (own historic performance)
o Industry (market leader or other comparable competitors)
o Best-in-class (global leader). Also means that you just benchmark certain function
or activity instead of benchmarking with the whole organization.
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Divestment Strategy
▪ Divestment: Selling off full or part of the business
▪ Reasons for divestment:
o Objectives not being achieved (e.g., losses)
o Concentrate on core activities (undo diversification)
o Need funds to finance more profitable option (liquidity)
By Palak Rana
Organizational Culture
• Culture means the overall believes values, norms, attitude, etc. prevailing in a place.
• Organizational Culture is the believes, values, norms, attitude, etc. prevailing within an
organization. In other words, “the way we do things around here”. The culture prevailing
in any organization is influenced by the national culture and the founder / leader of the
organization.
Organizational Culture is very important as it affects its Strategies, Employees,
Customers etc.
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Cultural Web
• The Culture Web Model is
used to gain an understanding
of Organization’s culture.
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Cultural Web
▪ Power Structures covers
▪ Study of the leader or the organization
▪ What is the leader like? His believes attitude, approach, etc.
▪ Who has the real power and is it used / misused, Management style (e.g., strict or friendly)
▪ Organizational Structures
▪ Formal structure or informal structure
Tall or flat structure
▪ Control systems.
▪ Cost focus or quality focus
▪ Are employees controlled through reward style or punishment style?
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Cultural Web
Rituals & Routines
▪ Daily routine in the organization
▪ Practice and norms.
▪ E.g. office timings, punctuality, strictness, late sitting, long lunch hours, leaves, etc.
Stories
▪ Past events or history of the organization
▪ Heroes and Villains
Symbols
▪ External appearance of the organization
▪ Logos, staff titles, office premises, dress code, language, cars, etc.
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Some Cultural terminologies
❑ Under Role culture More focus is on roles. Common in large / government organizations. It leads
to bureaucracies and inflexibility.
❑ Under Task culture The Focus is on getting tasks done. This is the modern type of environment. It
encourages high teamwork, flexibility and motivation.
❑ Under Financial culture
All decisions based on cost-benefit analysis / financials / ROI. The focus is on tight budget and strict
cost control. The Accountants play a key role.
❑ Under Service culture- All decisions are based on customer need and satisfaction. The Focus is on
differentiation / innovation / quality.
By Palak Rana