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UNIT-7
STRATEGIC MANAGEMENT
What is strategy?


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Strategy is a tactical course of action which is designed to achieve long term objectives. It is an
art and science of planning and marshalling resources for their most efficient and effective use in a
changing environment.
 Strategy of a business enterprise consists of what management decides about the future
direction and scope of the business. It entails managerial choice among alternative action programmes,
competitive moves and different business approaches to achieve enterprise objectives.
 Strategy once formulated has long term implications. It is framed by top management in an
organization. In short, it may be called as the ‘game plan of management’.

Types of strategy
Strategy can be formulated on three different levels:
• Corporate level
• Business unit level
• Functional or departmental level
CORPORATE LEVEL:
At this level, strategic decisions relate to organization-wide policies and are taken care by top-level
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management (BOD) with a vision of determining ‘Where the company wants to be?’
• It has two main aspects- Formulation of Strategy (strategic planning) and Strategy Implementation
• The nature of strategy at this level tend to be value-oriented, conceptual and then other levels.
• There is also greater risk, cost and profit potential as well as greater need of flexibility associated with
this level.
• Major financial policy decisions involving acquisition, diversification and structural redesigning belong
to this level.
BUSINESS-LEVEL STRATEGY
• Business-level strategy is more likely related to a unit within the whole. It is concerned with
competition in a market.
• The concerns are about what products or services should be developed and offered to which markets
in order to meet customer needs and organizational objectives.
• At this level, multifunctional strategies developed at corporate level are formulated and implemented
for specific product market in which the business operates. Thus, managers at this level translate
general directions and intent into concrete functional objectives.
• Decisions at this level include policies involving new product development, marketing mix, research &
development, personnel, etc.
FUNCTIONAL/OPERATIONAL-LEVEL STRATEGY
• Functional strategy involves decision-making with respect to specific functional areas- production,
marketing, personnel, finance etc.
• While corporate and business level strategies are concerned with “Doing the right things”, functional
strategies stress on “Doing things right”.
• Operating level strategy is concerned with strategic approaches for managing frontline operating units
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(like plants, sales, etc) and for handling day to day tasks of strategic significance (like advertising
campaign, purchasing materials, inventory control, maintenance, etc.). Thus, it focuses on how the
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different functions of the enterprise contribute to the other levels of strategy.

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• Thus, functional level strategic management is the management of relatively narrow areas of activity,
which are of vital, pervasive or continuing importance to the total organization.

STRATEGIC MANAGEMENT
• Strategic management is a set of management decisions and actions that determines the long-run
performance of a corporation. It includes environmental scanning, strategy formulation, strategy
implementation and evaluation and control to achieve the objectives of an organization.
• The study of strategic management emphasizes the monitoring and evaluating of external
opportunities and threats in light of a corporation’s strengths and weaknesses.
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• As per Fred R. David, strategic management is an art and science of formulating, implementing and
evaluating cross functional decisions that enable an organization to achieve its objectives.

STRATEGIC MANAGEMENT PROCESS

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Step 1: Strategic Intent

• Vision- Vision is the statement that expresses organization’s ultimate long-run objectives. It is what
the firm ultimately like to become. Vision once formulated is for forever and long lasting for years to
come. Vision is closely related with strategic intent and is a forward thinking process. Eg- Microsoft- ’A
computer software on every desk and in every home’.
• Mission- It tells who we are and what we do as well as what we’d like to become. Mission of a
business is the fundamental, unique purpose that sets it apart from other firms of its kind and identifies
the scope of its operations in product and market terms. Eg Microsoft- ‘Empower every person and
every organization on the planet to achieve more’.
• Objectives- These are the end results of planned activity that state what is to be accomplished by
when and should be quantified if possible and their achievement should result in the fulfillment of a
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corporation’s mission. Objectives state specifically how the goals shall be achieved. Following are the
areas for setting objectives profit objective, marketing objective, production objective, etc
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Strategy Formulation
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Strategy formulation refers to the process of choosing the most appropriate course of action for the
realization of organizational goals and objectives and thereby achieving the organizational vision. For
choosing most appropriate course of action, appraisal of organization and environmental is done with
the help of SWOT analysis.
• Environmental Appraisal- The environment of any organization is "the aggregate of all conditions,
events and influences that surround and affect it". It is dynamic and consists of External & Internal
Environment. The external environment includes all the factors outside the organization which provide
opportunities or pose threats to the organization. The internal environment refers to all the factors
within an organization which impart strengths or cause weaknesses of a strategic nature.
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• Organizational Appraisal- It is the process of observing an organizational internal environment to

identify the strengths and weaknesses that may influence the organization's ability to achieve goals. The
analysis of corporate capabilities and weaknesses becomes a pre-requisite for successful formulation
and reformulation of corporate strategies. This analysis can be done at various levels: functional,
divisional and corporate.

Strategy Implementation
Strategy implementation is the action stage of strategic management. It refers to decisions that are
made to install new strategy or reinforce existing strategy.
• Designing structure, process & system- Strategy implementation includes the making of decisions
with regard to organizational structure, developing budgets, programs and procedures in order to
accomplish certain activities.
• Functional Implementation- Functional implementation is carried out through functional plan and
policies in five different areas- marketing, finance, and operation, personnel and Information
management.
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• Behavioral Implementation- It denotes mobilizing employees and managers to put and formulate
strategies into action and require personal discipline, commitment and sacrifice. It depends upon
manager’s ability to motivate employees.
• Operationalizing strategy- It includes establishing annual objectives, devising policies, and allocating
resources.

Strategy Evaluation & Control

• Strategy evaluation- It is the primary means to know when and why particular strategies are not
working well. It is the process in which corporate activities and performance results are monitored so
that actual performance can be compared with desired performance. Thus strategic evaluation activities
include reviewing external and internal factors that are the basis for current strategies.
• Strategic control- In this step, organizations Determine what to control i.e., which objectives the
organization hopes to accomplish, set control standards, measure performance, Compare the actual
with the standard, determine the reasons for the deviations and finally taking corrective actions and
review the policies and activities if needed.

STRATEGIC ANALYSIS
“Developing a theoretically informed understanding of the environment in which an organization is
operating, together with an understanding of the organization’s interaction with its environment in
order to improve organizational efficiency and effectiveness by increasing the organization’s capacity to
deploy and redeploy its resources intelligently”.
The two most important situational considerations are:
• Industry and Competitive Conditions
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• Company’s own competitive capabilities, resources, internal strength, weakness, and market position.
Understanding company’s environment (both internal and external) will create a winning strategy or
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else company will loose its competitive advantage and companies performance will be affected.

Issues to Consider for Strategic Analysis

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• Strategy evolves over a period of time: It involves study of possible implications of small routine
decisions taken over a extended period of time and these decisions must be balanced.
• Balance: Strategic analysis involves workable balance between diverse and conflicting considerations.
For example matching internal potential of firm with environmental opportunities. Constraint forces
vary in nature, degree, magnitude, and importance. These factors can be managed
to certain extent.
• Risk: As competitive markets grows, liberalization, globalization, technological advancements, inter
country relations pose risks at varying degree. Thus strategic analysis should identify potential
imbalance / risk and assess their consequences.
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Methods of Industry and Competitive Analysis

Industry and Competitive analysis aims at developing insight into several issues like industry traits,
intensity of competition, drivers of industry change, market position, and strategy of rival companies,
industry profit outlook etc. It is thus thinking strategically about investing into some company. The
issues to look into are:
• Dominant Economic Features of Industry
• Nature and Strength of Competition
• Triggers of Change
• Identify the Companies that are in Strongest / Weakest Positions
• Likely Strategic Moves of Rivals
• Key factors of Competitive Success
• Prospects and Financial Attractiveness of Industry.

PEST Analysis
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PEST Analysis is the analysis of external macro environments, which influence all the organizations in an
industry. PEST is an acronym of the following four words, P for Political, E for Economic, S for Social and
T for Technological. These External Macro Environment Factors are out of control of every organization
& therefore considered as threats for the organization. Mostly this analysis is called PEST analysis, but
sometimes it may also re-arrange as STEP analysis.

Political Analysis

In political analysis of PEST analysis, the government intervention in the economy is studies. The extent
& potential of the government intervention in the economy is highlighted.
Political factors exert severe effects on the working of the organization. The organization should
consider the political factors at their strategic level so that the current & future legislation can be
respond by the proper adjustments in the marketing policy.

Following are included in the political analysis.

 Risk of military attack

 Political stability
 Trade tariffs & regulations
 Anti-trust laws
 Tax rates & incentives in taxation
 Intellectual property protection
 Contract enforcement in legal framework
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 Minimum wage & overtime in wage legislation

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Economic Analysis
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The working of the organization is seriously influenced by the economic factors. In fact the profitability
of the organization greatly depends on these economic factors. Economic factors may be interest rates,
exchange rates, economic growth, disposable income of customers and inflation etc.

Economic analysis is further divided into two main categories which include micro-economic factors &
macro-economic factors. The management of demand in any particular economy is considered by the
macro-environmental factors. Government of the country employs taxation policy, government
expenditure and interest rate control as the controlling forces to manage this aspect of economic
portion of PEST analysis.
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Economic analysis include the following examples:

 Efficiency of financial markets

 Stability of the currency of the host country & exchange rate
 Economic growth rate
 Inflation rate
 Unemployment rate
 Interest rate

Social Analysis

The shared beliefs & attitudes of the people of the certain population are included in the socio-cultural
factors that are generally called social factors. The social factors are important forces of the PEST
analysis as they greatly influence the smooth running of business organizations.

Following are some of examples of the social factors

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 Education
 Demographics
 Culture

Technological Analysis

Technological factors influence greatly on the way organizations market their products. The technology
in the world is changing at a rapid rate. The technological forces influence the management & marketing
of the organizations in the following three aspects.

 New methods of manufacturing goods & services

 New methods of distributing goods & services
 New Methods of communicating with the target market

PORTER’S APPROACH TO INDUSTRY ANALSIS

Porter's five forces analysis is a framework that attempts to analyze the level of competition within an
industry and business strategy development. It draws upon industrial organization (IO) economics to
derive five forces that determine the competitive intensity and therefore attractiveness of an Industry.

Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one
in which the combination of these five forces acts to drive down overall profitability. A very unattractive
industry would be one approaching "pure competition", in which available profits for all firms are driven
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to normal profit. This analysis is associated with its principal innovator Michael E. Porter of Harvard
University.
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Components of Poter’s Five Forces Model

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 Threat of new entrants

 Threat of substitutes
 Bargaining power of buyers
 Bargaining power of suppliers
 Rivalry inside the industry

1. Threat of new entrants: The market is full of competition. Not only the existing firms pose threat to
the business, but the arrival of new entrants is also a challenge. As per the ideal scenario, the market is
always open for entry and exits, resulting in comparable profits to all the firms. But, this is not applicable
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in the real picture market. In reality, all industries have some traits that protect their high profits and
help them in warding off potential new entrants by erecting barriers.

2. Threat of substitutes: The substitutes can be defined as the products of other industries that have the
ability to satisfy similar needs. Example: Coffee can be a substitute for tea, as it can be also used as a
caffeine drink in the morning. When price of a substitute product changes, the demand of a related
product also gets affected. When the number of substitute product increases, the competition also
increases as the customers have more alternatives to select from. This forces the companies to raise or
lower down the prices. Hence, it can be concluded that the competition created by the substitute firms
is ‘price competition’.

3. Bargaining power of buyers: This has an important effect on the manufacturing industry. When there
many producers and there is a single customer in the market, then that situation is called as
‘monopsony’. In these markets, the position of the buyer is very strong and he sets the price. In reality,
only a few monopsony markets exists. The bargaining power of the buyers compels the firms to reduce
the prices and may also demand a product or service of higher quality at low price.
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4. Bargaining power of suppliers: Since the company needs raw material for producing, therefore the
producers have to build a relationship with its suppliers. When suppliers have the power in their hands,
they can exert influence on the producing firms by selling them raw materials at higher prices. Example:
Wal-Mart as an organization thrives on the basis of its relationship with its suppliers.

5. Rivalry inside the industry: For most industries the intensity of competitive rivalry is the major
determinant of the competitiveness of the industry.

Potential factors:

• Sustainable competitive advantage through innovation

• Competition between online and offline companies
• Level of advertising expense
• Powerful competitive strategy
• Firm concentration ratio
• Degree of transparency

INTERNAL ANALYSIS:

Internal analysis is the methodical evaluation of the key internal features of an organization. Internal
Analysis recognizes and assesses resources, capabilities, and core competencies. Internal analysis has
four elements such as the organization's Current vision, Mission, Strategic objectives and Strategies.
Resources are the assets that an organization has for carrying out whatever work activities and
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processes relative to its business definition, business mission, and goals and objectives. These resources
include financial resources, Physical assets, Human resources, Intangible resources and Structural-
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cultural resources. Core competencies are the organization's major value-creating skills and abilities that
are shared across multiple product lines or multiple businesses. This internal sharing process is what
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differentiates core competencies from typical capabilities. Competitive advantage is the collection of
factors that sets a company apart from its competitors and gives it a unique position in the market

Internal Analysis is performed because it is the only way to identify an organization's strengths and
weaknesses it's needed for making good strategic decisions. In order to start the strategic management
process, managers are required to conduct an internal analysis. This involves ascertaining the business'
strengths and weaknesses, by analyzing its competencies. It also involves managers emphasizing
competitive advantage of the business. For effective strategies, the organization must exploit and
expand on its strengths, as well as reduce its weaknesses; thus promoting its competitive advantage to
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gain cost-effectiveness.

There are four major areas which needs to be considered for internal analysis:

• The organization's resources, capabilities.

• The way in which the organization configures and co-ordinates its key value-adding activities.
• The structure of the organization and the features of its culture.
• The performance of the organization as measured by the strength of its products.

RESOURCE-BASED APPROACH

The resource-based view (RBV) is a model that sees resources as key to superior firm performance. If a
resource exhibits VRIO attributes, the resource enables the firm to gain and sustain competitive
advantage.

RBV is an approach to achieving competitive advantage that emerged in 1980s and 1990s. The
supporters of this view argue that organizations should look inside the company to find the sources of
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competitive advantage instead of looking at competitive environment for it.

According to RBV proponents, it is much more feasible to exploit external opportunities using existing
resources in a new way rather than trying to acquire new skills for each different opportunity. In RBV
model, resources are given the major role in helping companies to achieve higher organizational
performance. There are two types of resources: tangible and intangible.

Tangible assets are physical things. Land, buildings, machinery, equipment and capital – all these assets
are tangible. Physical resources can easily be bought in the market so they confer little advantage to the
companies in the long run because rivals can soon acquire the identical assets.

Intangible assets are everything else that has no physical presence but can still be owned by the
company. Brand reputation, trademarks, intellectual property are all intangible assets. Unlike physical
resources, brand reputation is built over a long time and is something that other companies cannot buy
from the market. Intangible resources usually stay within a company and are the main source of
sustainable competitive advantage.

The two critical assumptions of RBV are that resources must also be heterogeneous and immobile.

Heterogeneous. The first assumption is that skills, capabilities and other resources that organizations
possess differ from one company to another. If organizations would have the same amount and mix of
resources, they could not employ different strategies to outcompete each other. What one company
would do, the other could simply follow and no competitive advantage could be achieved. This is the
scenario of perfect competition, yet real world markets are far from perfectly competitive and some
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companies, which are exposed to the same external and competitive forces (same external conditions),
are able to implement different strategies and outperform each other. Therefore, RBV assumes that
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companies achieve competitive advantage by using their different bundles of resources.

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Immobile. The second assumption of RBV is that resources are not mobile and do not move from
company to company, at least in short-run. Due to this immobility, companies cannot replicate rivals’
resources and implement the same strategies. Intangible resources, such as brand equity, processes,
knowledge or intellectual property are usually immobile.

What is the value chain?

Porter’s definition includes all activities to design, produce, and market, deliver, and support the
product/service. The value chain is concentrating on the activities starting with raw materials till the
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conversion into final goods or services.

Value chain analysis is used as a tool for identifying activities, within and around the firm and relating
these activities to an assessment of competitive strength.

Two categories:

• Primary Activities (operations, distribution, sales)

• Support Activities (R&D, Human Resources)
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As shown in the figure, Michael Porter classified the entire value chain into nine activities which are
interrelated to one another. While primary activities include the activities that are performed to satisfy
external demand, secondary activities are those which are performed to satisfy internal requirements.

Classification of Value Chain Analysis

Value Chain Analysis is grouped into primary or line activities, and support activities discussed as
under:

Primary Activities: The functions which are directly concerned with the conversion of input into output
and distribution activities are called primary activities. It includes:
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Inbound Logistics: It includes a range of activities like receiving, storing, distributing, etc. which make
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available goods and services for operational processes. Some of those activities are material handling,
transportation, stock control, etc.
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Operations: The activity of transforming input raw material to final product ready for sale, is termed as
operation. Machining, assembling, packaging are the activities covered under operations.

Outbound Logistics: As the name suggests, the activities that help in collecting, storage and delivering
the product to the customer is outbound logistics.

Marketing and Sales: All the activities like advertising, promotion, sales, marketing research, public
relations, etc. performed to make the customer aware of the product or service and create demand for
it, comes under marketing.
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Service: Service means service provided to the customer so as to improve or maintain the value of the
product. It includes financing service, after-sales service and so on.

Support Activities: Those activities which assist primary activities in accomplishment are support
activities. These are:

Procurement: This activity serves the organization, by supplying all the necessary inputs like material,
machinery or other consumable items, that required by the organization for performing primary
activities.

Technology Development: At present, technology development requires heavy investment, which takes
years for research and development. However, its benefits can be enjoyed for several years and by a
multitude of users in the organization.

Human Resource Management: It is the most common plus important activity which excel all primary
activities of the organization. It encompasses overseeing the selection, retention, promotion, transfer,
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appraisal and dismissal of staff.

Infrastructure: This is the management system, which provides, its services to the whole organization
and includes planning, finance, information management, quality control, legal, government affairs, etc.

In the fast paced world, the main focus of the organization is customer satisfaction, and value chain
analysis is the technique that helps to attain that level. Under this, each business activity is considered
as essential, which contributes value and is constantly analyzed, to increase value as regards the cost
incurred.

USES OF VALUE CHAIN ANALYSIS:

• The sources of the competitive advantage of a firm can be seen from its discrete activities and
how they interact with one one another.
• The value chain is a tool for systematically examining the activities of a firm and how they
interact with one another and affect each other’s cost and performance.
• A firm gains a competitive advantage by performing these activities better or at lower cost than
competitors.
• Helps you to stay out of the “No Profit Zone”
• Presents opportunities for integration
• Aligns spending with value processes.

SWOT ANALYSIS – It was developed in 1960`s at Stanford research institute. SWOT Analysis is a strategic
management technique to understand the internal and external environment of an organization in
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terms of its strengths, weaknesses, opportunities and threats. S = Strength W = Weakness O =

Opportunity T = Threat
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There are four sequential steps of conducting a SWOT Analysis –

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• Setting up objectives for the concerned organization

• Identifying the strengths, weaknesses, opportunities and threats of the business.

Answering the 4 major questions –

• How to maximize the internal strengths of the organization?

• How to minimize the internal weaknesses of the organization?
• How to capitalize on opportunities present in the external environment of the organization?
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• How to protect the organization from threats in the external environment?

• Based upon the results of the above analysis a SWOT matrix is prepared which consists of
Strengths, Weaknesses, Opportunities and Threats present in the Organization`s internal and external
environment and its impact on the business is studied.

A firm must direct its strengths towards exploitation of opportunities and blocking threats which
minimizing the exposure of weaknesses at the same time.

SWOT Analysis is an important tool for auditing the overall strategic position of a business and its
environment. The basic objective of SWOT Analysis is to provide a frame work to reflect a firm’s ability
to overcome barriers (threats) and avail opportunities emerging in the environment.
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Advantages of SWOT Analysis –

• It is simple to use low cost is involved it is flexible and can be adapted to varying situations
• It leads to clarification of issues
• It helps in development of goal oriented objectives
• It is useful as a starting point for strategic analysis
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DISADVANTAGES

• Realities may be more complex than represented by swat matrix due to simplicity of its use
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• It may result in compiling of lists rather than focusing on organizational objectives

• Strengths may sometimes be confused with opportunities
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• The Person conducting the analysis may be biased towards a view-point and may misinterpret
the situation

CORPORATE STRATEGY

Corporate strategy is hierarchically the highest strategic plan of the organization, which defines the
corporate goals and ways of their achieving within strategic management.

A vision and mission are parts of the strategy. When developing the strategy, numerous analytical
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techniques are used (PESTLE, SWOT, VRIO). When implementing the strategy. Sometimes, the global
strategy is distinguished as an overall plan, and specialized strategies dedicated to specific areas of
functioning of the organization (financial or personal strategy, etc.

There are four grand strategic alternatives. They are stability, expansion, retrenchment and any
combination of these three. These strategic alternatives are also called as grand strategies. A brief
description about them are as follows:

1. Stability Strategy– It is adopted by an organization when it attempts to improve functional

performance. They are further classified as follows:

 No change strategy
 Profit strategy
 Pause/Proceed with caution strategy

2. Expansion Strategy:– It is followed when an organization aims at high growth. They operate through
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 Concentration
 Integration
 Diversification
 Cooperation
 Internationalization

Mergers, takeovers, Joint ventures and strategic alliances come under expansion through cooperation.
International strategies are further classified into global strategy, transnational strategy, international
strategy and multi-domestic strategy.

3. Retrenchment Strategy:- It is followed when an organization aims at a contraction of its activities. It is

done through turnaround, divestment and liquidation in any of the following three modes:

 Compulsory winding up
 Voluntary winding up
 Winding up under supervision of the court

4. Combination Strategies:- They are followed when an organization adopts a combination of stability,
expansion and retrenchment either at the same time in different businesses or at different times in the
same business. The well known companies of the TTK group, based in Southern India, adopted a
restructuring plan in the late 1980s involving following strategies.

Business strategies are of three types:Cost leadership (lower cost/ broad target), differentiation
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(differentiation / broad target) and focus (lower cost or differentiation / narrow target).

Business Portfolio Analysis:

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Business Portfolio Analysis is an organizational strategy formulation technique that is based on the
philosophy that Organizations should develop strategy much as they handle investment portfolios.
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Portfolio analysis is a systematic way to analyze the products and services that make up an association's
business portfolio. In the way, in which the sound financial investments should be supported and
unsound ones discarded, sound organizational activities should be emphasized and unsound ones
deemphasized.

Purpose of Portfolio Analysis:

A viable strategy need for product-market scopes in determining how strategic objectives will be
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attained. In a diversified company, one well-accepted concept of product-market scope is the portfolio
approach to an organization's overall strategy. The optimal business portfolio is one that fits perfectly to
the company's strengths and helps to exploit the most attractive industries or markets. An SBU can
either be an entire mid-size company or a division of a large corporation. It normally formulates its own
business level strategy and often has separate objectives from the parent company.

The aim of a portfolio analysis is:

1) To Analyze: Analyze its current business portfolio and decide which SBUs should receive more or less
investment.

2) To Develop Growth Strategies: Develop growth strategies for adding new products and business to
the portfolio.

3) To Take Decisions Regarding Product Retention: Decide which business or products should no longer
be retained.
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Portfolio Analysis Techniques:

1) BCG Matrix: The basis for many of these matrix analyses grew out of work carried out in the 1960s by
the Boston Consulting Group (BCG). BCG observed in many of their studies that producers tend to
become increasingly efficient as they gain experience in making their product and costs usually declined
with cumulative production.

The growth-share matrix (the product portfolio, BCG-matrix, Boston matrix, Boston Consulting Group
analysis, and portfolio diagram) is a chart that had been created by Bruce D. Henderson for the Boston
Consulting Group in 1970 to help corporations with analyzing their business units or product lines.
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BCG Matrix:

a) Dogs: Low Market Share and Low Market Growth: Dogs are business units or products that
have low market share in a low-growth market. They often don't make much profit, but they
don't need much investment either. Much of the time, you'll need to offer a price discount to
sell Dog products.
b) Cash Cows: High Market Share and Low Market Growth: These businesses or products are well
established. They're likely to be popular with customers, which makes it easier for you to exploit
new opportunities. However, you should avoid spending too much effort on these, because the
market is only growing slowly, and opportunities are likely to be limited.
c) Stars: High Market Share and High Market Growth: Businesses and products in this quadrant
are seeing rapid growth. There should be some good opportunities here, and you should work
hard to realize them.
d) Question Marks: Low Market Share and High Market Growth: These are the opportunities that
no one knows how to handle. They aren't generating much revenue right now, because you
don't have a large market share.

2) GE Nine Cell Matrix:

GE Matrix also called McKinsey Matrix is a strategic management tool for conducting portfolio analysis.
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The portfolio which is analyzed with the matrix may include products, services or entire SBUs (strategic
business units) owned by the company. This tool is very similar to the BCG Matrix and you can actually
view the GE or McKinsey Matrix is a kind of extension of the BCG Matrix.
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a) The Vertical Axis: Industry Attractiveness: It represents industry attractiveness which weighs
composite rating based on eight different factors. These factors are:

 Market size and growth rate.

 Industry profit margin.
 Competitive intensity.
 Seasonability.
 Cyclicality.
 Economics of scale
 Technology and
 Social, environmental, legal and human impacts

b) The Horizontal Axis: Business Strength: It represents business strength competitive position which is
again a weighed composite rating based on seven factors. They are:

 Relative market share

 Profit margins
 Ability to compete on price and quality
 Knowledge of customer
 Competitive strengths and weaknesses
 Technological capability and
 Calibre of management.
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The GE / McKinsey Matrix are actually divided into nine cells. These 9 cells represent the nine
alternatives for positioning of any SBU or product / service offering. Based on clear understanding of all
of these factors decision makers are able to develop effective strategies.
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The nine cells in the matrix grouped into 3 major segments: Segment 1
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This is mostly the best segment. The business in this position is strong and the market is attractive. In
this case the company should allocate resources in this business and focus on growing the business and
increase its current market share.

Segment 2:
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The business is either strong but the market is not attractive or the market is strong and the business is
not strong enough to pursue potential opportunities. Decision makers should make judgment on how
to further deal with these SBUs or products. Some of them may consume too much resource and are not
really promising any strong potential while others may need additional resources and better strategy for
growth.

Segment 3:

This is the worst positioning segment. Businesses or products and services in this segment are very
weak and their market is not attractive. Decision makers should consider either repositioning these
SBUs into a different market segment, develop better cost-effective offering, or get rid of these SBUs
and invest the resources into more promising and attractive SBUs.
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Advantages of GE Matrix:

 It offers an intermediate classification of medium and average ratings.

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 It incorporates a larger variety of strategic variable like the market share and industry size.
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 It is a powerful analytical tool to channel corporate resources to businesses that combine

medium to high industry attractiveness with an average to strong business competitive position.

Disadvantages:

The major drawback of the GE matrix is that it only provides broad strategic prescriptions rather than
the specifics of business strategy.

Ansoff Matrix
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Ansoff's Matrix is a marketing planning model that helps a business determine its product and market
growth strategy.

By considering ways to grow via existing products and new products, and in existing markets and new
markets, there are four possible product-market combinations. Ansoff's matrix is shown below:
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Ansoff's matrix provides four different growth strategies:

 Market Penetration - the firm seeks to achieve growth with existing products in their current
market segments, aiming to increase its market share.
 Market Development - the firm seeks growth by targeting its existing products to new market
segments.
 Product Development - the firms develops new products targeted to its existing market
segments.
 Diversification - the firm grows by diversifying into new businesses by developing new products
for new markets.

Selecting a Product-Market Growth Strategy

The market penetration strategy is the least risky since it leverages many of the firm's existing
resources and capabilities. In a growing market, simply maintaining market share will result in growth,
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and there may exist opportunities to increase market share if competitors reach capacity limits.
However, market penetration has limits, and once the market approaches saturation another strategy
must be pursued if the firm is to continue to grow.
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Market development options include the pursuit of additional market segments or geographical
regions. The development of new markets for the product may be a good strategy if the firm's core
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competencies are related more to the specific product than to its experience with a specific market
segment. Because the firm is expanding into a new market, a market development strategy typically has
more risk than a market penetration strategy.

A product development strategy may be appropriate if the firm's strengths are related to its specific
customers rather than to the specific product itself. In this situation, it can leverage its strengths by
developing a new product targeted to its existing customers. Similar to the case of new market
development, new product development carries more risk than simply attempting to increase market
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share.

Diversification is the most risky of the four growth strategies since it requires both product and market
development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix
has been referred to by some as the "suicide cell". However, diversification may be a reasonable choice
if the high risk is compensated by the chance of a high rate of return. Other advantages of diversification
include the potential to gain a foothold in an attractive industry and the reduction of overall business
portfolio risk.

STRATEGY IMPLEMENTATION

Strategy implementation is a term used to describe the activities within an organization to manage the
execution of a strategic plan. Strategy implementation is the translation of chosen strategy into
organizational action so as to achieve strategic goals and objectives.

Simply put, strategy implementation is the technique through which the firm develops, utilizes and
integrates its structure, culture, resources, people and control system to follow the strategies to have
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the edge over other competitors in the market.

Strategy Implementation is the fourth stage of the Strategic Management process, the other three
being a determination of strategic mission, vision and objectives, environmental and organisational
analysis, and formulating the strategy. It is followed by Strategic Evaluation and Control.

Prerequisites of Strategy Implementation

Institutionalization of Strategy: First of all the strategy is to be institutionalized, in the sense that the
one who framed it should promote or defend it in front of the members, because it may be undermined.

Developing proper organizational climate: Organizational climate implies the components of the
internal environment that includes the cooperation, development of personnel, the degree of
commitment and determination, efficiency, etc., which converts the purpose into results.

Formulation of operating plans: Operating plans refers to the action plans, decisions and the programs,
that take place regularly, in different parts of the company. If they are framed to indicate the proposed
strategic results, they assist in attaining the objectives of the organization by concentrating on the
factors which are significant.

Developing proper organisational structure: Organization structure implies the way in which different
parts of the organisation are linked together. It highlights the relationships between various
designations, positions and roles. To implement a strategy, the structure is to be designed as per the
requirements of the strategy.
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Periodic Review of Strategy: Review of the strategy is to be taken at regular intervals so as to identify
whether the strategy so implemented is relevant to the purpose of the organisation. As the organization
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operates in a dynamic environment, which may change anytime, so it is essential to take a review, to
know if it can fulfill the needs of the organization.
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The McKinsey 7S Framework

Developed in the early 1980s by Tom Peters and Robert Waterman, two consultants working at the
McKinsey & Company consulting firm, the basic premise of the model is that there are seven internal
aspects of an organization that need to be aligned if it is to be successful.

The 7-S model can be used in a wide variety of ways:

 To help spot what you need to do to improve the performance of your company.
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 Very useful when planning for change in the organization

 Identify what’s not working in your organization.
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HARD ELEMENTS SOFT ELEMENTS

Strategy Shared values
Structure Skills
Systems Style
Staff

"Hard" elements are easier to define or identify and management can directly influence them: These
are strategy statements; organization charts and reporting lines; and formal processes and IT systems.

"Soft" elements, on the other hand, can be more difficult to describe, and are less tangible and more
influenced by culture. However, these soft elements are as important as the hard elements if the
organization is going to be successful.

Strategy is a plan developed by a firm to achieve sustained competitive advantage and successfully
compete in the market. What does a well-aligned strategy mean in 7s McKinsey model? In general, a
sound strategy is the one that’s clearly articulated, is long-term, helps to achieve competitive advantage
and is reinforced by strong vision, mission and values.

Structure represents the way business divisions and units are organized and includes the information of
who is accountable to whom. In other words, structure is the organizational chart of the firm. It is also
one of the most visible and easy to change elements of the framework.
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Systems are the processes and procedures of the company, which reveal business’ daily activities and
how decisions are made. Systems are the area of the firm that determines how business is done and it
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should be the main focus for managers during organizational change.

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Skills are the abilities that firm’s employees perform very well. They also include capabilities and
competences. During organizational change, the question often arises of what skills the company will
really need to reinforce its new strategy or new structure.

Staff element is concerned with what type and how many employees an organization will need and how
they will be recruited, trained, motivated and rewarded.

Style represents the way the company is managed by top-level managers, how they interact, what
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actions do they take and their symbolic value. In other words, it is the management style of company’s
leaders.

Shared Values are at the core of McKinsey 7s model. They are the norms and standards that guide
employee behavior and company actions and thus, are the foundation of every organization

Using the tool

The McKinsey 7s framework is often used when organizational design and effectiveness are at question.
It is easy to understand the model but much harder to apply it for your organization due to a common
misunderstanding of what should a well-aligned elements be like.

We provide the following steps that should help you to apply this tool:

Step 1. Identify the areas that are not effectively aligned

During the first step, your aim is to look at the 7S elements and identify if they are effectively aligned
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with each other.

Step 2. Determine the optimal organization design

With the help from top management, your second step is to find out what effective organizational
design you want to achieve. By knowing the desired alignment you can set your goals and make the
action plans much easier.

Step 3. Decide where and what changes should be made

This is basically your action plan, which will detail the areas you want to realign and how would you like
to do that.

Step 4. Make the necessary changes

The implementation is the most important stage in any process, change or analysis and only the well-
implemented changes have positive effects. Therefore, you should find the people in your company or
hire consultants that are the best suited to implement the changes.

Step 5. Continuously review the 7s

The seven elements: strategy, structure, systems, skills, staff, style and values are dynamic and change
constantly. A change in one element always has effects on the other elements and requires
implementing new organizational design. Thus, continuous review of each area is very important.
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PERT and CPM

PERT and CPM are techniques of project management useful in the basic managerial functions of
planning, scheduling and control. PERT stands for “Programme Evaluation & Review Technique” and
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CPM are the abbreviation for “Critical Path Method”.

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The techniques of PERT and CPM help greatly in completing the various jobs on schedule. They minimize
production delays, interruptions and conflicts. These techniques are very helpful in coordinating various
jobs of the total project and thereby expedite and achieve completion of project on time.
PERT is a sophisticated tool used in planning, scheduling and controlling large projects consisting of a
number of activities independent of one another and with uncertain completion times. It is commonly
used in research and development projects.

The following steps are required for using CPM and PERT for planning and scheduling:
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(i) Each project consists of several independent jobs or activities. All these jobs or activities must be
separately listed. It is important to identify and distinguish the various activities required for the
completion of the project and list them separately.

(ii) Once the list of various activities is ready the order of precedence for these jobs has to be
determined. We must see which jobs have to be completed before others can be started. Obviously,
certain jobs will have to be done first.

Many jobs may be done simultaneously and certain jobs will be dependent upon the successful
completion of the earlier jobs. All these relationships between the various jobs have to be clearly laid
down.

(iii) The next step is to draw a picture or a graph which portrays each of these jobs and shows the
predecessor and successor relations among them. It shows which job comes first and which next. It also
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shows the time required for completion of various jobs. This is known as the project graph or the arrow
diagram.

The three steps given above can be understood with the help of an example. Suppose, we want to
construct a project graph of the simple project of preparing a budget for a large manufacturing firm. The
managing director of this company wants his operating budget for the next year prepared as soon as
possible.

To accomplish this project, the company salesmen must provide sales estimates in units for the period
to the sales manager. The sales manager would consolidate this data and give it to the production
manager.

He would also estimate market prices of the sales and give the total value of sales schedules of the units
to be produced and assign machines for their manufacture. He would also plan the requirements of
labour and other inputs and give all these schedules together with the number of units to be produced
to the accounts manager who would provide cost of production data to the budget officer.

Using the information provided by the sales, production and accounting departments, and the budget
officer would make the necessary arrangements for internal financing and prepare the budget. We have
seen that the project of preparing the budget involves a number of activities.

 PERT was developed by the US Navy for the planning and control of the Polaris missile program
and the emphasis was on completing the program in the shortest possible time. In addition PERT
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had the ability to cope with uncertain activity completion times (e.g. for a particular activity the
most likely completion time is 4 weeks but it could be anywhere between 3 weeks and 8 weeks).
 CPM was developed by Du Pont and the emphasis was on the trade-off between the cost of the
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project and its overall completion time (e.g. for certain activities it may be possible to decrease
their completion times by spending more money - how does this affect the overall completion
time of the project?)
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Definition: In CPM activities are shown as a network of precedence relationships using activity-on-node
network construction

 Single estimate of activity time

 Deterministic activity times

USED IN: Production management - for the jobs of repetitive in nature where the activity time
estimates can be predicted with considerable certainty due to the existence of past experience.
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GANTT CHART
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Advantages

- Gantt charts are quite commonly used. They provide an easy graphical representation of when
activities (might) take place.

Limitations

 Do not clearly indicate details regarding the progress of activities

 Do not give a clear indication of interrelation ship between the separate activities

CPM/PERT

These deficiencies can be eliminated to a large extent by showing the interdependence of various
activities by means of connecting arrows called network technique. Overtime CPM and PERT became
one technique

ADVANTAGES:

 Precedence relationships
 large projects
 more efficient
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Use of nodes and arrows

Arrow: An arrow leads from tail to head directionally. Indicate ACTIVITY, a time consuming effort that is
required to perform a part of the work.

Nodes: A node is represented by a circle. Indicate EVENT, a point in time where one or more activities
start and/or finish.
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