Strategic Unit 1

Management
1.1 Understanding Strategy
1.2 Introduction to Strategic
Management
1.3Strategic Management Process
1.4 Hierarchy of Strategic Intent
1.5 Analyzing Company’s External
Environment
1.6 Analyzing Industry Environment
 Introduction

The word strategy came from the Greek word `strategia`, which means a
general, troop leader. At that time, strategy literally meant the art and science of
directing military forces. Today strategy is used in business to describe how an
organization is going to achieve its objectives.

Strategic management may be defined as a systematic approach to positioning

the business in relation to its environment to ensure continued success and
offer security from surprises. Strategic management is that set of managerial
decisions and actions that determine the long-run performance of a
corporation. Strategic mission consists of a long-term vision of what an
organization seeks to do and what kind of an organization it intends to become.

Development of organization completely rests on the efficiency of the decision-

makers. Strategic management always concentrates on the anticipated aim.
Hence, strategic decisions are always incomplete and are some- times based on
hypothetical information. It may lead to further problems.
2
 1.1 Understanding Strategy

The concept of strategy is central to understanding the process of strategic

management. The term ‘strategy’ is derived from the Greek word ‘strategia’,
which means generalship-the actual direction of military force, as distinct from
the policy governing its deployment. In business parlance, there is no definite
meaning assigned to strategy. It is often used loosely to mean a number of things.

A) Definitions:
1) Ansoff*:
"Strategy is a rule for making decisions. Ansoff also distinguishes between policy
and strategy .A policy is a general decision that is always made in the same way
whenever the same circumstances arise.”

2) Alfred D. Chandler*:
“Strategy can be defined as the determination of the basic long-term goals and
objectives of an enterprise, and the adoption of courses of action and the
allocation of resources necessary for carrying out these goals.“
3
 1.1 Understanding Strategy

B) Concept of Strategy:
Strategy is a high level plan to achieve one or more goals under conditions of
uncertainty. Strategy is important because the resources available to achieve
these goals are usually limited. Strategy is that which top management does
that is of great importance to the organization. Strategy refers to basic
directional decisions, that is, to purposes and missions. Strategy consists of the
important actions necessary to realize these directions. Strategy answers the
questions: like what should the organization be doing? What is the ends
company seeks and how should company achieve them?

C) Levels of Strategy:
Good managers observe their competition all the time and speculate on what
particular strategy those organizations are following. In fact, strategic planning
and management may be occurring at three or more different levels in an
organization. It will look like a cascading hierarchy of strategic initiatives that
build and depend upon each other.

4
 1.1 Understanding Strategy

C) Levels of Strategy:

Levels Structure Strategy

Corporate Corporate Office Corporate

Level Strategy
Strategic Business
Business Unit SBU SBU SBU Level Strategy
A B C

Functional Finance Marketing Functional

Level Strategy

Operations Personnel
5
 1.1 Understanding Strategy
C) Levels of Strategy:
1) Corporate Level Strategy:
Strategy at the corporate level is designated as corporate strategy. It is the top
management plan to direct and run the enterprise as a whole. Corporate level strategy
represents the pattern of entrepreneurial actions and intents underlying the
organisation’s strategic interests in different business, divisions, product lines,
customer groups, technologies etc. Corporate strategy emphasizes upon the fact that
how one should manage the scope, mix and emphasis of various activities and how the
resources should be allocated over the different priorities of the corporation.
2) Business Level Strategy:
For many companies which are dealing in number of product mix and dealing with
different types of market, for them a single strategy is not only inadequate but also
inappropriate. The need is for multiple strategies at different levels. In order to
segregate different units or segments each performing a common set of activities, many
companies organize on the basis of operating divisions, or simply divisions. The
divisions may also be known as Profit Centers or Strategic Business Units.
3) Functional Level Strategy:
Functional level strategy deals with a relatively restricted plan which provides the
objectives for a specific function. These objectives are
1) The allocation of resources among different operations within that functional area.
2) Enabling a co-ordination between them for an optimal contribution to the 6
achievement of business and corporate level objectives.
 1.2 Strategic Management

A) Meaning:
Strategic management is a comprehensive area that covers almost all the
functional areas of the organization. It is an umbrella concept of management
that comprises all such functional areas as marketing, finance & account,
human resource, production operation into a top level management discipline.
B) Definitions:
1) Sharplin*:
“Strategic management is the formulation and implementation of plans and
carrying out of activities relating to the matters which are of vital, pervasive or
continuing importance to the total organisation.”

2) Ansoff*:
“Strategic management is a systematic approach to a major and increasingly
important responsibility of general management to position and relate the firm
to its environment in a way that will assure its continued success and make it sure
from surprises.”
7
 1.2 Strategic Management

C) Characteristics: Flexible

Not
Long-Term
Operation
Issues
Specific

Stream of
Decisions Competitive
and Advantage
Actions

Effect on
Innovation
Operations

Shareholder
s Oriented

8
 1.2 Strategic Management
C) Characteristics:
1) Flexible:
A strategic management system must include a high degree of flexibility. Even
when managers use a decision matrix or another model for making decisions,
they need flexibility to break from the model when business conditions
demand it.
2) Long-Term Issues:
Strategic management deals primarily with long-term issues that may or may
not have an immediate effect. For example, investing in the education of the
company's work force may yield no immediate effect in terms of higher
productivity. Still, in the long run, their education will result in higher
productivity, and therefore enhanced profit.
3) Competitive Advantage:
Strategic management helps managers find new sources of sustainable
competitive advantage. Executives that apply the principles of strategic
management in their work continuously try to deliver products or services
economically, produce greater customer satisfaction and make employees more
satisfied with their jobs.
9
 1.2 Strategic Management

C) Characteristics:
4) Effect on Operations:
Good strategic management always has a sizable effect on operational issues.
For example, a decision to link pay to performance will result in operational
decisions being more effective as employees try harder at their jobs.
5) Shareholders Oriented:
Managing the organisation in a strategic fashion requires that the interests of
shareholders be put at the heart of all issues. Whether the question at hand is
expansion into a new market or negotiating mergers and acquisitions,
shareholder value should be at the core at all times.
6) Innovation:
Innovation or creativity is an important feature in the case of strategic
management. Environment is ever changing, that is way demand, taste, and
behavioral patterns of employers and employees are to be changed. Strategic
management controls and takes things forward by producing new strategic
planning and framing newer strategies.

10
 1.2 Strategic Management

C) Characteristics:
7) Stream of Decisions and Actions :
Strategic management is a stream of decisions and actions. It is a
process by which top-level management decides and does for the
success of the organisation. It helps to determine the best
possible strategy so that organisation could win the game in
competitive business environment.

8) Not Operation Specific:

Strategic management has organisation wide implication. It is not
operation specific. It is a systems approach. It involves strategic
choice.

11
 1.2 Strategic Management

D)Strategic Management Vs Operational Management:

No. Strategic Management Operational Management

Strategic management is an The operations management
organizational wide activity where is concerned of operations
the operations, sales and finance are as in production function of
concerned from the top level to the the organization at the
1)
bottom level of the organization. In operations/manufacturing
other words strategic management floor level of the
is concerned about all the activities organization.
in the organization as a whole
Strategic management is a long Operations management is
term process where it identifies the short term focused and
2)
long term desired level of handles day to day
performance and tries to achieve it. operations of an entity.

12
 1.2 Strategic Management

D)Strategic Management Vs Operational Management:

No. Strategic Management Operational Management

The strategic management The operations management
process involves involves day-to-day activities
Unstructured decisions of a business organization at the
3)
where the situation is operations level which is very
very ambiguous and routine-type and mechanical. It
dynamic in nature. does not involve any ambiguity.
Strategic management is a Operations management is a
complex process which fairly simple process and a
4) requires heavy manager with average skills can
management skills to handle the daily operations of
handle. the organization.
13
 1.2 Strategic Management

D)Strategic Management Vs Operational Management:

No. Strategic Management Operational Management

Survival of an organization is Operation management is not
directly linked to strategic directly related to the survival
management process as it of the organization rather it
manages critical success indirectly influences the
factors of an organization. It survival through
5)
identifies the factors that has cumulative performance on
direct link to the survival of a day to day basis.
an organization and manage
them to optimize
performance.

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 1.3 Phases in Strategic Management

Strategic management includes the determination or formulation,

implementation and evaluation of strategy. These activities constitute the most
important elements of top management’s strategic job; as such they form a
continuous process in organisational life. The process contains the setting up of
broad objective and establishment of plans and policies for their attainment.

A) Phases in Strategic Management Process:

The strategic management process is ways for businesses to build strategies
that help the company respond quickly to new challenges. It is not a static
concept, but an ongoing process. This dynamic process helps organizations find
new and more efficient ways to do business. The four key elements are:
Environmental scanning or situational analysis, strategy formulation, strategy
implementation, and strategy evaluation.

15
 1.3 Phases in Strategic Management
Establishing Strategic Intent
vision, mission, business definition,
and objective.

Formulation of Strategies
Environmental Organisational
Appraisal Appraisal
SWOT Analysis
A)Phases in Strategic Corporate - level strategies
Business - level strategies
Management Process: Strategic choice
Strategic plan

Strategic Implementatio
Project
Procedural
Resource allocation
Structural
Behavioural
Functional and operational

Strategic Evaluation 16
 1.3 Phases in Strategic Management

A) Phases in Strategic Management Process:

1) Establishing Strategic Intent:
The foundation for the strategic management is laid by the hierarchy
of strategic intent. The process of establishing the hierarchy of
strategic intent is very complex. In this hierarchy, the vision, mission,
business definition and objectives are established. Formulation of
strategies is possible only when strategic intent is clearly set up. This
step is mostly philosophical in nature. It will have long term impact
on the organization. Strategic intent is a high-level statement of the
means by which organization will achieve its vision. The hierarchy of
strategic intent lays the foundation for the strategic management of
any organisation. The elements in this phase are explained below:
a) The Vision:
b) Mission:
c) Defining the Business:
d) Setting Objectives:
17
 1.3 Phases in Strategic Management

A) Phases in Strategic Management Process:

2) Strategy Formulation:
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. The
process of strategy formulation basically involves seven main steps.
Though these steps do not follow a rigid chronological order, however
they are very rational and can be easily followed in same order. This
phase of the strategic management process consists of the following
elements:
a) Environmental Appraisal :
b) Organisational Appraisal :
c) SWOT Analysis:
d) Corporate Level Strategies:
e) Business Level Strategies:
f) Strategic Choice :
g) Strategic Plan : 18
 1.3 Phases in Strategic Management

A) Phases in Strategic Management Process:

3) Strategy Implementation:
Strategy implementation is the translation of chosen strategy into
organizational action so as to achieve strategic goals and objectives.
Strategy implementation is also defined as the manner in which an
organization should develop, utilize, and amalgamate
organizational structure, control systems, and culture to follow
strategies that lead to competitive advantage and a better
performance. For the implementation of a strategy, the strategic plan is
put into action through following six sub-processes:
a) Project Implementation:
b) Procedural Implementation :
c) Resource Allocation:
d) Structural Implementation:
e) Behavioural Implementation:
f) Functional and Operational Implementation:
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 1.3 Phases in Strategic Management

A)Phases in Strategic Management Process:

4) Strategy Evaluation:
Strategy evaluation is as significant as strategy formulation
because it throws light on the efficiency and effectiveness of the
comprehensive plans in achieving the desired results. The
managers can also assess the appropriateness of the current
strategy in today's dynamic world with socio-economic, political
and technological innovations. Strategic Evaluation is the final
phase of strategic management. This is the last phase of strategic
management process is strategic evaluation. It appraises the
implementation of strategies and measures organisational
performance.

20
 1.3 Phases in Strategic Management

B) Stakeholders in business:
Stakeholders are people or groups that are affected by company's operations.
Shareholders or owners are a commonly recognized stakeholder group.
However, one also needs to consider how customers, community, employees
and business partners impact business. A well-rounded approach that shows
understanding of each stakeholder normally increases long-term viability and
success.
a) Meaning:
Stakeholders are the individuals or groups that have an interest in the
organization and are affected by its actions. Stakeholders are customers,
employees, and suppliers, board of directors, owners, shareholders,
government agencies, unions, political groups, the media, and others.
Stakeholders can be divided into internal and external stakeholders. Internal
Stakeholders are: stockholders and employees, including executive officers,
other managers and board members. External stakeholders include: all other
individual and groups that have some claim on the company, This group is
comprised of customers , suppliers , creditors , government , unions , local
communities and the general public. 21
 1.3 Phases in Strategic Management

B) Stakeholders in business:
b) Effect of Stakeholders on
Business:
Stakeholders are people or
groups that are affected by
company's operations. Customers
and Employees
Shareholders or owners are a Community
commonly recognized
stakeholder group.

Business
Shareholders
Partners
Effects of
stakeholde
rs in
business

22
 1.3 Phases in Strategic Management

B) Stakeholders in business:
b) Effect of Stakeholders on Business:
1) Shareholders:
Company owners usually have a strong voice in the direction company takes. In a
partnership, each owner-partner has a financial interest in the profit potential of the
business.
2) Customers and Community:
In the long run, ability to meet the needs of customers and community is key to success.
Customers provide the revenue and cash flow that business needs to operate and
ultimately earn a profit. One must understand customer wants and needs and meet them
on an ongoing basis.
3) Employees:
In the early 21st century, companies tend to place greater value on the contributions
employees make to business operations. If one operates a service-based business,
employees provide the consistent service that helps to attract and retain customers.
4) Business Partners:
Business partners and suppliers can also significantly influence business. Partners are
companies that collaborate with in joint ventures or shared investment opportunities.
Suppliers are companies that rely on for key resources used inside company and for
23
products to resell.
 1.3 Phases in Strategic Management

2. Providing
Detailed
Requirements
and a Financial
B) Stakeholders in business: 1. Plan 3. Committing
Understanding
c) Roles of Stakeholders in the Business
the Necessary
Resources
Strategic Management: Drivers

4. Taking
Ownership of
9. Project Appropriate
Closure Deliverables

5. Project
progress and
8.
Cascading
Communicating
Information to
Throughout the
Others Who
Life of the
Need to Know
Project

7. Identifying 6. Establish the

and Resolving Training and
any Project Support
Issues and Requirements
Risks
24
 1.3 Phases in Strategic Management

B)Stakeholders in business:
c) Roles of Stakeholders in Strategic Management:
1) Understanding the Business Drivers:
Understanding the Business drivers and Ensuring that the project fits with the
strategy for their area of the business is a fundamental responsibility of the
stakeholder. Stakeholder must be able to clearly explain the necessity for their
project to be taken on before others and prove its strategic merit.
2) Providing Detailed Requirements and a Financial Plan:
Every project must have these and is deemed to fail if they’re not completed up front.
3) Committing the Necessary Resources:
It’s key to have individuals from the affected areas involved on any project.
They can provide with instant answers and feedback as to how things do or
should work. They are the daily operational link to the eventual user base of the
project deliverables and cannot stress enough the importance and usefulness of
having them involved.
4) Taking Ownership of Appropriate Deliverables:
The stakeholder needs to take ownership of the appropriate deliverables and
make sure that they work pertaining to a number of key elements such as 25
 1.3 Phases in Strategic Management

B) Stakeholders in business:
c) Roles of Stakeholders in Strategic Management:
5) Project progress and Cascading Information to Others Who Need to
Know:
The stakeholder must not skip project meetings and rely upon others to keep
them up to speed. Similarly, they must also keep affected others or teams up to
date with frequent progress reports.
6) Establish the Training and Support Requirements:
The stakeholder must identify any affected individuals of their projects and
establish the necessary training and support requirements. This will be done in
harness with the relevant departments but the stakeholder is responsible for it.
7) Identifying and Resolving any Project Issues and Risks:
It’s up to the stakeholder to identify and acknowledge any potential risk and
change associated with their project during the proposal stages.
8) Communicating Throughout the Life of the Project:
Requirements or processes sometimes change during project development and
without having relevant resource or communication with the targeted business
areas a project will quickly loose resonance and relevance. 26
 1.3 Phases in Strategic Management

B) Stakeholders in business:
c) Roles of Stakeholders in Strategic Management:
9 ) Project Closure:
In accordance with good project governance, the stakeholder must perform
an analysis of the projects delivery against plan, budget and strategic
objectives and sign off and accept the project.

SINGUR TO SANAND, THE JOURNEY ON THORNS!

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 1.4 Hierarchy of Strategic Intent

Effective strategic management begins with the management by clearly

articulating its vision for the future. The concept of strategic intent,
popularized by Gary Hamel and C.K. Prahalad (1989), refers to the purpose
of the organization and the ends it wishes to pursue. The strategic intent
represents the organization’s belief about its state of the future. The
purpose or ends the organization wishes to pursue varies from being really
broad and long-term (vision and mission), to being narrow, with a focus on
the short or near-term (objectives of goals).

A) Meaning of Strategic Intent:

Prahlad and Hamel coined the term "strategic intent". It means an
"ambitious goal" of a firm to acquire a desired leadership position. A
company exhibits strategic intent when it relentlessly pursues an
ambitious goal and concentrates its full resources and actions on
achieving that goal. Strategic intent is focused on the ends, while the
means are left to be flexible. 28
 1.4 Hierarchy of Strategic Intent

B) Attributes of Strategic
Intent:
The specific relationship
between the long-term and
short-term intentions is
described in the hierarchy
of strategic intent.

29
 1.4 Hierarchy of Strategic Intent

B) Attributes of Strategic Intent:

1) Vision:
The vision of the organization refers to the broad category of long-term
intentions that the organization wishes to pursue. It is broad, all inclusive, and
futuristic. As the word ‘vision’ suggests, it is an image of how the organization
sees itself. It is in most cases, a dream; the aspirations the organization holds for
its future; a mental image of the future state. It might therefore be difficult for
the organization to actually achieve its vision even in the long-term, but it
provides the direction and energy to work towards it.

a) Definitions:
1) Kottler:
“Vision is a description of something (an organisation, a corporate culture, a
business, a technology or an activity) in the future.”

2) Miller and Dess:

“It is the category of intentions that are broad, all-inclusive and forward thinking.”
30
 1.4 Hierarchy of Strategic Intent

B) Attributes of Strategic Intent:

1) Vision:
b) Benefits of Vision:
According to Parikh and Neubouer, there are several benefits of having a vision.
They are as follows:
i. Good vision is inspiring and exhilarating.
ii. Good vision helps in the creation of common identity and a shared sense of
purpose.
iii. Good vision is competitive, original and unique. It makes sense in the market
place, as it is practical.
iv. Vision represents a discontinuity, a step function and a jump ahead, so that
the company knows what it is to be.
v. Good vision represents integrity. It is truly genuine and can be used for the
benefit of people.
vi. Good vision foster risk taking and experimentation.
vii. Foster long- term thinking.
[Link] vision represents integrity: they are truly genuine and can be used to
the benefit of the people. 31
 1.4 Hierarchy of Strategic Intent

B) Attributes of Strategic Intent:

1 )Vision:
c) Process of Envisioning:
Well- conceived vision

Core ideology Envisioned Future

Long- term
Core Values audacious goal,
Vivid description
of achievements

32
 1.4 Hierarchy of Strategic Intent

B) Attributes of Strategic Intent:

1) vision:
c) Process of Envisioning:
The process of envisioning is a difficult one, According to Collins and Porras
(1996), a well-conceived vision consists of two major components: core ideology
and envisioned future.
1) Core Ideology:
The core ideology defines the enduring character of an organization that
remains unchangeable as it passes through the vicissitudes of vectors such
as technology, competition or management fads. The core ideology rests on
the core values (the essential and enduring tenets of an organization) and
core purposes (an organization’s reason for being).
2) Envisioned Future:
The envisioned future too consists of two components: a 10—30 year’s
audacious goal and vivid description of what it will be like to achieve that
goal. The process of envisioning is shown in the below figure.

33
 1.4 Hierarchy of Strategic Intent

B) Attributes of Strategic Intent:

2) Mission:
The mission statement makes the vision statement more tangible and
comprehensible. In most cases, the vision statement is just a slogan, a
war cry, or even a short phrase containing superlatives.
a) Meaning:
Mission is a statement which defines the role that an organization plays
in the society. It refers to the particular needs of the society, for instance.
Its information needs. A mission statement clearly specifies:
i. Why the organization exists, or the purpose?
ii. What differentiates the organization from others, or the identity?
iii. The basic beliefs, values, and philosophy of the organization.
b) Definitions:
Thompson:
”Mission is the essential purpose of the organisation, concerning
particularly why it is in existence, the nature of the business (es) it is in, and
the customers it seeks to serve and satisfy.” 34
 1.4 Hierarchy of Strategic Intent

B) Attributes of Strategic Intent:

2) Mission:
c) Key Elements in Developing a Mission Statement:
Most organizations derive their mission statement from a
particular set of tasks they are called upon to perform in the light
of their individual, national or global priorities. Following are the
key elements considered while developing a mission statement.

History of the Distinctive

Organization's
Organisation Competencies of
Environment
the Organisation

35
 1.4 Hierarchy of Strategic Intent

B) Attributes of Strategic Intent:

2) Mission:
c) Key Elements in Developing a Mission Statement:
1) History of the Organisation:
Each and every organisation, whether it is a manufacturing or service
organisation, profit-oriented or non-profit based, big or small, has its own
history of objectives, policies, working, and mistakes.
2) Distinctive Competencies of the Organisation:
A company can do or produce many things, but they should decide what it can
do best and more efficiently. Thus, organisation with such distinctive
competencies can offer advantages over similar organisation. They must have
the competencies to capitalise the opportunities offered by the markets and
society.
3) Organisation’s Environment:
The opportunities and threats posed by the environment should be identified
by management, while developing a mission statement. For example -
advanced technology in communication industry can adversely affect on hotel
industry or transport industry. 36
 1.4 Hierarchy of Strategic Intent

B) Attributes of Strategic Intent:

2) Mission:
d) Characteristics of a Good It Should
Mission Statement: Indicate How
Objectives are to
It Should be
Feasible
be
Accomplished

It Should
It Should be
Indicate the
Precise
Major
Components of
Strategy

It Should be
It should be Clear
Distinctive

It Should be
Motivating 37
 1.4 Hierarchy of Strategic Intent

B) Attributes of Strategic Intent:

2) Mission:
d) Characteristics of a Good Mission Statement:
1) It Should be Feasible:
A mission should always aim high but it should not be an impossible
statement. It should be realistic and achievable; its followers must find it
to be credible. But feasibility depends on the resources available to work towards a mission.
2) It Should be Precise:
A mission statement should not be so narrow as to restrict the
organization’s activities, nor should it be too broad to make itself
meaningless.
3) It Should be Clear:
A mission should be clear enough to lead to action. It should not just be a
high-sounding set of platitudes meant for publicity purposes. Many
organizations do adopt such statements (some- times referred to as the
corporate positioning statement) but probably they do so for
emphasizing their identity and character. 38
 1.4 Hierarchy of Strategic Intent
B) Attributes of Strategic Intent:
2) Mission:
d) Characteristics of a Good Mission Statement:
4) It Should be Motivating:
A mission statement should be motivating for members of the organization and
of the society and they should feel it worthwhile working for such an
organization or being its customers.
5) It should be Distinctive:
A mission statement which is indiscriminate is likely to have little impact. If all
scooter manufacturers defined their mission in a similar fashion, there would
not be much of a difference among them.
6) It Should Indicate the Major Components of Strategy:
A mission statement, along with the organisational purpose should indicate the
major components of the strategy to be adopted.
7) It Should Indicate How Objectives are to be Accomplished:
Besides indicating the broad strategies to be adopted, a mission statement
should also provide clues regarding the manner in which the objectives are to
be accomplished.
39
 1.4 Hierarchy of Strategic Intent
B) Attributes of Strategic Intent:
3 )Core Values:
Core values of the organization represent the commonly held beliefs, mindsets,
and assumptions that shape how work is done in an organization. They clearly
specify the organization’s and its members' enduring preference for a mode of
conduct (in both their business processes, and their relationship with business
partners).

Core values are derived out of the organization’s mission statement(s), and aid
in differentiating the organization from others, apart from spelling out the
organization‘s expectations and intended behaviors of people.

Good core value statements clearly delineate the observable norms of behavior
that reflect the desired core values of the organization. For instance, an
organization might have ‘customer responsiveness’ as its core value, but
without proper operationalization in terms of observable norms of behavior, it
might mean different things to different people.
40
 1.4 Hierarchy of Strategic Intent

B) Attributes of Strategic Intent:

4) Goals:
Goals provide the basis for action towards the achievement of the
organization’s mission, in the form of specific milestones. Goals are
financial and non-financial, and specify the route the organization
takes to achieve its vision and mission. It is often seen that
organizations pursue a range at financial and non-financial goals,
which are not always perfectly consistent with one another.

The goals statement also specifies the relative priorities and trade-
offs between the various goals the organization intends to pursue.
Goals that make the organization ‘stretch’ in order to achieve them
are called stretch goals, and are considered to be more effective in
extracting the best out of the people and the resources in control of
the organization.

41
 1.4 Hierarchy of Strategic Intent

B) Attributes of Strategic Intent:

5) Objectives:
Objectives are operational definitions of the organization‘s goals. They
provide the measurable parameters for monitoring/evaluating the
performance of the organization. Objectives also include a time
dimension that delineates the specific goals the organization intends to
achieve in defined periods.
By providing a series of time-bound objectives, the organization
demonstrates how it can move towards achievement of its goals,
through consistently and periodically achieving its objectives.

6) Plans:
Plans indicate the specific actions that will be taken by the
organization in order to achieve the objectives. Plans specify the roles
members of the organization will perform, the resource allocation
across different organizational sub-units and departments, and
prioritize and schedule the various activities. 42
 1.4 Hierarchy of Strategic Intent
B) Attributes of Strategic Intent:
5) Objectives:
Objectives are operational definitions of the organization‘s goals. They
provide the measurable parameters for monitoring/evaluating the
performance of the organization. Objectives also include a time
dimension that delineates the specific goals the organization intends to
achieve in defined periods.
By providing a series of time-bound objectives, the organization
demonstrates how it can move towards achievement of its goals,
through consistently and periodically achieving its objectives.

6) Plans:
Plans indicate the specific actions that will be taken by the
organization in order to achieve the objectives. Plans specify the roles
members of the organization will perform, the resource allocation
across different organizational sub-units and departments, and
prioritize and schedule the various activities. 43
 1.4 Hierarchy of Strategic Intent

C) Difference between Mission and Vision:

No. Vision Mission
Category of intension's are broad, Mission is the fundamental, unique purpose
all inclusive and forward that sets a business apart from other firms
1)
Thinking of its type and identifies the scope of its
operations in product and market terms
It states aspirations for the firm It states how it would achieve the vision of
2) without stating the means to the firm
achieve them
Vision is dream, little hazy and Mission is clear, tangibalize, or concretizes
3)
intangible vision.
It guides in formulation of It guides in formulation of business
4) mission. definition, goals and objectives.
5) It is futuristic in nature It is current in nature
Vision is a mental image of a Mission is enduring statement of philosophy
6) possible and desirable future and a creed statement.
stale of the organization.
Vision answers the question " Mission answers the question ‘what is our
7)
What we want to become" business.". 44
 1.4 Hierarchy of Strategic Intent
D) Business:
Business is a typical economic activity with the object of earning an income
i.e. profit.
a) Dimensions of Business Definitions:
According to Abell and Hammond, 1979),
a business may be defined by three
dimensions:
1. Customer groups describe the
categories of customers, or whom the
business satisfies.
2. Customer functions describe
customer needs, or what is being
satisfied.
3. Technologies describe the way the
firm satisfies customer needs.
45
 1.4 Hierarchy of Strategic Intent
D) Business:
a) Dimensions of Business Definitions:
1) Customer Groups:
Defining customer groups requires understanding customers’ identities. Some
common dimensions for describing identity include geography, demography,
socioeconomic class, life style, personality characteristics (in a consumer goods
situation), or user industry and size.
2) Customer Functions:
Products or services perform certain functions for customers. However,
functions must be separated conceptually from the way the function is
performed (i.e., technology), as well as the attributes or benefits that a customer
may perceive as important criteria for choice. In this sense, transportation is a
function: a taxi is a way of performing the function; and price, comfort, speed,
and safety are the attributes or benefits associated with the choices.
3) Alternative Technologies:
Technologies describe the alternative ways in which a particular function could
be performed for a customer. Therefore, in this context, a technology represents
the form of the solution to the customer’s problem. If the function is
transportation, the technologies might include road, rail, and/ or sea travel. 46
 1.4 Hierarchy of Strategic Intent
E) Linking Objectives to Missions and Visions:
Mission and vision statements are sometimes accompanied by statements of
enterprise values sometimes referred to as philosophies. Such statements are
not, however, integral elements of either mission or vision statements. The
trend is towards making statements short and memorable, expanding and
qualifying them with separate, detailed statements of corporate and business
objectives and strategies. Since most enterprises of any size now have websites,
it is easy to communicate these more comprehensive statements.

a) Enterprise Objectives:
Mission and vision statements require translation into tangible and specific
enterprise objectives to guide future actions and to provide milestones against
which to assess performance and progress. Objectives attract various names
including aims, ends, goals and targets, often used imprecisely. In popular
usage, aims are the broadest or highest level, in effect the enterprise mission,
leading to more detailed goals, objectives and targets. To set relevant, realistic
objectives and targets requires clarity of aims and goals. Since aims and
objectives exist at different levels, they signal actions of different degrees of
specificity. 47
 1.4 Hierarchy of Strategic Intent

F) Strategic Performance Management Process:

Key
Key Success
Performance Performance Key Result
Factors
Measurement Indicators Areas (KRA):
(KSFs):
(KPI)

48
 1.4 Hierarchy of Strategic Intent
F) Strategic Performance Management Process:
1) Performance Measurement:
The process of performance measurement considers collection, consolidation,
and distribution of performance data to compile the performance information.
Such performance information then gets related to the critical success factors
(CSFs) and/or the performance indicators (KPIs).
2) Key Success Factors (KSFs):
Key success factors (KSFs) or Critical success factors (CSFs) relate to the specific
strategy elements, product or service attributes resources, capabilities,
competencies, and/or business outcomes that influence a firm’s profitability
and/or survival in a particular industry. The KSFs are, by definition, important
for all firms in that industry to possess and pay attention to.
Major Sources of KSFs:
Rockart (1979) identified four major sources of KSFs:
a) Structure of the Industry:
b) Competitive Strategy, Industry Position, and Geographic Location:
c) Environmental Factors:
d) Temporal Factors:
49
 1.4 Hierarchy of Strategic Intent
F) Strategic Performance Management Process:
3) Key Performance Indicators:
Performance indicators are well understood as being metrics or measures in
terms of which performance is measured, evaluated or compared. Key
performance indicators (KPIs) are the metrics or measures in terms of which
the critical success factors are evaluated. What makes the KPIs ‘key' is their
relationship to the CSFs and ultimately, to the vision of the organization.
The company has to determine which combinations of metrics it would use to
determine and whether it is successful. KPIs thus, help to quantify critical
success factors.
Benefits of KPI:
KPIs have gained importance as well as popularity in the corporate world as
they have several benefits as follows:
a) Helps in Shaping the Organisation:
b) Clear Understanding to Accomplish Objectives:
c) As a Motivational Factor:
d) To Measure Business Trends:
e) Easy in use:
f) Can be used as a Benchmarking tool: 50
 1.4 Hierarchy of Strategic Intent

F) Strategic Performance Management Process:

4) Key Result Areas (KRA):
These are sometimes called Operational Objectives. There is no complete
agreement on what the key result areas of a business should be. They
may differ for various enterprises. These are normally short term
objectives that have a time horizon of one or two years, and if necessary
are renewed from time no time.
They form the bread and butter of the organization. Generally, they are
subservient to the strategic Objectives and often to the Business Process
Objectives. These are areas where performance is essential for the
ongoing success of the enterprise. In these areas, managements
normally attach financial objectives as well as operational objectives. Say
if Marketing/ Sales is a Key Result Area; it would have objectives that are
financial as well as those that relate to the measure of success in the
market.

51
 1.5 Analyzing Company’s External Environment

Most firms face external environments that are highly turbulent,

complex, and global- conditions that make interpreting those
environments increasingly difficult. To cope with often ambiguous
and incomplete environmental data and to increase understanding
of the general environment, firms engage in external environmental
analysis, the continuous process includes four activities: scanning,
monitoring, forecasting, and assessing.

A) Environmental Appraisals:
In order to draw a clear picture of what opportunities and threats
are faced by the organization at a given time, it is necessary to
appraise the environment. This is done by being aware of the factors
that affect environmental appraisals, identifying the environmental
factors and structuring the results of this environmental
appraisal.

52
 1.5 Analyzing Company’s External Environment

A) Environmental Appraisals:
a) Factors Affecting Environmental Appraisals:

Geographic
Power of the Dimensions of
Organisation Organisation
Environmental-
Related Factors
Organization-
Related
Factors
Strategist-
Related
Factors

53
 1.5 Analyzing Company’s External Environment
A) Environmental Appraisals:
a) Factors Affecting Environmental Appraisals:
1) Strategist-Related Factors:
There are many factors related to the strategist, which affect the process
of environmental appraisals. Since strategists play a central role in the
formulation of strategies, their characteristics such as age, education,
experience, motivation level, cognitive styles, ability to withstand
time pressures and strain of responsibility have an impact on the
extent to which they are able to appraise their organization’s
environment and how well they are able to do it.
2) Organization-Related Factors:
These characteristics are the nature of business the organization is in,
its age, size and complexity, the nature of its markets and the
product or services that it provides. Another variable identified is of
information climate, which as assessed through the information
infrastructure implemented, i.e. the processes, technologies and
people used in information acquisition and handling.
54
 1.5 Analyzing Company’s External Environment
A) Environmental Appraisals:
a) Factors Affecting Environmental Appraisals:
3) Environmental-Related Factors:
The nature of environment facing an organization determines how its appraisal
could be done. The nature of the environment depends on its complexity,
volatility or turbulence, hostility and diversity. Information processing
perspectives suggest that scanning activity will increase in response to
increasing environmental uncertainty.
4) Power of the Organisation:
The relative power of the organisation vis-a-vis its external environment
determines the extent to which the organisation can control or is controlled
by the environmental forces. If the organisation is strong in respect of certain
environmental factors, it is unlikely to focus attention on this aspect.
5 )Geographic Dimensions of Organisation:
The geographic dimensions of the organisation affect the type of interaction
which the organisation has with its environment. Generally, the organisation
having greater area of operation will require more information because the
environmental factors may differ from place to place.
55
 1.5 Analyzing Company’s External Environment
A) Environmental Appraisals:
b) Importance of Environmental Appraisal:

Importance of Environmental Appraisal

Helpful in Assessing the

Facilitates
Evaluation of Impact of Assessment of
Planning and
Present Environmental Future
Strategies
Strategy Change

56
 1.5 Analyzing Company’s External Environment

A) Environmental Appraisals:
b) Importance of Environmental Appraisal:
1) Helpful in Evaluation of Present Strategy:
The importance of environmental appraisal lies in its usefulness for evaluating the
present strategy, setting strategic objectives and formulating future strategies. The
fortunes of business enterprises are determined by changes in the social, economic,
political, business and industrial conditions.
2) Assessing the Impact of Environmental Change:
An alert management continually tunes in to the environmental forces that influence
the demand for existing products and services and create opportunities for new ones.
Environmental change affects much more than the products or services offered by
an institution.
3) Assessment of Future:
To assess the future is a difficult task and all eventualities cannot be anticipated. But
to some extent, the future events can be predicted by systematic appraisal and
monitoring of the environment.
4) Facilitates Planning and Strategies:
Environmental appraisal comprises information processing and forecasting of social,
economic, political and even international conditions besides technological and product
market conditions. 57
 1.5 Analyzing Company’s External Environment

B) Scenario- Planning:
To manage risks related to innovation investments that extend long into the future,
managers must be willing to look ahead and consider uncertainties. But rather than
doing that, many people react to uncertainty with denial. They take an unconsciously
deterministic view of events. They take it for granted that something’s will or will not
happen.
a) Meaning:
Scenario Planning is a strategic planning method that some organisations use to make
flexible long-term plans. It is one of the methods which strategic planners have
found useful for the interpretation of a fluid, rapidly changing business environment
with an uncertain future. Scenarios constitute an effective device for sensing,
interpreting, organising and bringing to bear diverse information about the
future in planning and strategic decision-making.
b) Definition:
Pierre Wack, Royal Dutch/Shell:
“Scenario planning is a discipline for rediscovering the original entrepreneurial power of
creative foresight in contexts of accelerated change, greater complexity and genuine
uncertainty.”

58
 1.5 Analyzing Company’s External Environment

B) Scenario- Planning:
c ) Process of Scenario Planning:

59
 1.5 Analyzing Company’s External Environment
B) Scenario- Planning:
c ) Process of Scenario Planning:
The Scenario Planning Process works as follows:
1) Uncovering the Decision:
Management has to understand its choices. Each company has to take decisions in
the near or immediate future. Their response will determine its future performance
or survival. So in this first step the covered strategic decisions are to be uncovered.
2) Information Hunting and Gathering:
To create scenarios, observations from the real world must be built into the story.
Thus, this process involves research-skilled hunting and gathering of information.
3) Identifying Driving Forces of a Scenario:
The first task in building the scenario itself is to look for driving forces. Such driving
forces influence the key factors identified earlier.
4) Uncover Predetermined Elements:
Predetermined elements are developments and logics that work in scenarios without
being dependent on any particular chain of events. It means that a predetermined
element is something that seems certain. For example, the most commonly
recognised predetermined element is demographics because it is changing so slowly.

60
 1.5 Analyzing Company’s External Environment

B)Scenario- Planning:
c ) Process of Scenario Planning:
5) Identify Critical Uncertainties:
In every plan critical uncertainties exist. Scenario planners seek them to prepare for
them. Critical uncertainties are often related to predetermined elements. They are the
variables in scenario planning and are the basis to create different scenarios in parallel.
6) Composing Scenarios:
Scenarios describe how the driving forces might plausibly behave which is useful to
explain the future. They are based on the assumption of predetermined elements and
critical uncertainties. Important uncertainties are used to describe the different scenarios
and their plots.
7) Analysis of Implications of Decisions:
Once the scenarios have been developed in some detail, then it is time to return to the
decision identified in step one.
8) Selection of Leading Indicators and Signposts:
It is important to know as soon as possible which of several scenarios is closest to the
course of history as it actually unfolds. For this purpose, a few indicators should be
selected to monitor the strategy or decision in an ongoing way. Monitoring these
indicators will allow a company to know what the future holds for a given industry and
how that future is likely to affect strategies and decisions in the industry. If the scenarios
61
 1.5 Analyzing Company’s External Environment

C) Preparing an Environmental Threat and Opportunity Profile ( ETOP):

Environmental Threats and Opportunities Profile (ETOP) gives a summarized
picture of environmental factors and their likely impact on the organization.
ETOP is generally prepared as follows.
1) List Environmental Factors:
The different aspects of the general as well as relevant environmental factors are
listed. For example, economic environment can be divided into rate of economic
growth, rate of inflation, economic policy etc.
2) Assess Impact of each Factor:
At this stage, the impact of each factor is assessed closely and expressed in
qualitative (high, medium or low) or quantitative factors (1, 2, 3). It is to be
noted that not all identified environmental factors will have the same degree of
impact. The impact is assessed as positive or negative.
3) Get a big picture:
In the final stage, the impact of each factor and its importance is combined to
produce a summary of the overall picture.

62
 1.5 Analyzing Company’s External Environment
C) Preparing an Environmental Threat and Opportunity Profile ( ETOP):
a) Example:
ETOP Profit of a Bicycle Company Ltd
Environmental
Impact
Sectors
Economic High export potential.
Political No significant factor.

Social Preference for sports cycles and fashionable cycles

Technological up gradation of industry in progress.
Technological Import of machinery is possible.
Ancillaries and associated companies supply parts and
Supplier components. Imported raw material available.
Liberalisation for technology import and a thrust area
Government for export.
For sport cycles growth rate is 25% while others it is 7
Market to 9 per cent Increasing demand. 63
 1.5 Analyzing Company’s External Environment

C) Preparing an Environmental Threat and Opportunity Profile

( ETOP):
a) Example:
ETOP of a Bicycle Company Ltd
Looking to above chart, it can be concluded that many
opportunities are operating in the environment for a bicycle
company. A company can take advantage of Government policies
and increase its production as per demand in the market. It can
also take advantage of high expert potential. Though, all
conditions are favourable for settled company, but for a new
company much would depend upon supply of raw materials and
how company can be able to acquire latest technology. ETOP
provides very useful information to a strategist. With the help of
ETOP, organisation knows where it stands with respect to its
environment and this helps the strategist in formulation of an
appropriate strategy. 64
 1.6Analyzing Industry Environment
An analysis of the external environment includes an industry analysis and an examination of
key external stakeholders and the broad environment.
Industry Analysis:
Environmental analysis should begin with an industry analysis. The first step in industry
analysis is to provide a basic description of the industry and the competitive forces that
dominate it.
A) Porter’s Five Forces Model of
Competition:
A key concept in porter’s five
forces model is the view that
some industries are more
attractive and others are less
attractive. Therefore, the ability to
identify industry attractiveness
is important. Porter argues that
industries can be characterized
and evaluated by looking at and
analyzing the following five
forces:
65
 1.6Analyzing Industry Environment
A) Porter’s Five Forces Model of Competition:
1) The Threat of Substitute Products:
If the product of an industry can be substituted by that of another, the
purchaser of that product has choices that extend beyond rival products. For
example, going to the cinema can be a substitute for a meal at a restaurant.
Substitute products are a strong threat when:
a) They offer a similar level of benefits at proximate prices.
b) The consumer will not incur switching cost in moving between alternatives.
c) The consumer is price sensitive.
2) The Threat of New Entrants:
When new entrants enter an industry, they bring extra capacity to the Industry.
If demand is increasing the new entrants can use this capacity to meet the
increased demand. This is frequently the case during the growth stage of an
industry, but as the industry matures demand growth slows and new entrants
will have to start competing with existing companies for a share of existing
demand. In this situation, the new entrants will have to gain market share by
offering similar products at competitive prices or by redefining the market to
increase products demand.
66
 1.6Analyzing Industry Environment

A)Porter’s Five Forces Model of Competition:

3) The Bargaining Power of Buyers:
Buyers or customers are powerful when the following conditions
exist:
a) There are few buyers who purchase in large quantities.
b) Buyer has low switching costs.
c) Buyer has choices because there is a large volume of sellers.
d) The product or service supplied is not an important one.
e) The buyer has the ability to produce the product supplied.
f) The buyer has information about the costs of production and
other buyer’s prices.
g) The impact of powerful buyers can be significant because they
can negotiate prices down and reduce industry profitability.

67
 1.6Analyzing Industry Environment

A)Porter’s Five Forces Model of Competition:

4) The Bargaining Power of Suppliers:
The factors that influence buyer’s power are similar to those that
influence supplier power; they just act in the opposite direction.
Supplier power is high when:
a) There are few alternative sources of supply and there are many
buyers.
b) Particular buyer is not an important customer to the supplier.
c) The product or service supplied is an important input for the
buyer.
d) The buyer cannot make the produce cheaper that the supplier
can.
e) There are no substitutes for the supplied products.
f) The supplied product has a good brand reputation, especially
when this branding is important to the final product.
68
 1.6Analyzing Industry Environment
A) Porter’s Five Forces Model of Competition:
5) The Rivalry Amongst Industry Members:
There are two extreme possibilities
a) Competition between industry members is low. Each industry member is
content with its market share and gets involved only minimally with
competitive activity. The main concern is to maintain industry profitability
by tacit co-operation.
b) Competitive rivalry is high and is manifested in direct and indirect price
cutting, promotional activities and discounted products.

Rivalry tends to be high when:

a) Demand is growing slowly or declining.
b) Customers can switch over to other products easily.
c) New entrants are seeking to gain market share by price cutting.
d) Industry members are of similar size and have similar market power.
e) There is excess capacity. In this situation, some industry members may be
prepared to sell at prices that exceed variable costs but do not necessarily
cover total costs.
69
 1.6Analyzing Industry Environment
B) Entry and Exit Barriers:
A barrier to entry is something that blocks or impedes the ability of a
company (Competitor) to enter an industry. A barrier to exit is
something that blocks or impedes the ability of a company (competitor)
to leave an industry.
a) Barriers to Entry:
1) Economies of Size:
The need for a large volume of production and sales to reach the cost
level per unit of production for profitability is a barrier to entry.
2) Capital Intensive::
A large capital investment per unit of output in facilities tends to limit
industry entry.
3) Intellectual Property:
Patents and other types of proprietary intellectual property are very
effective in limiting industry entry.
4) High Switching Costs:
The tendency for buyers of an industry`s products to be reticent about 70
switching to a new supplier tends to limit entry.
 1.6Analyzing Industry Environment

B) Entry and Exit Barriers:

a) Barriers to Entry:
5) Established Brand Identity:
Industries dominated by branded products are difficult to enter
due to the large amount of time and money required to create a
competing branded product.
6) Permitting Requirements:
Industries where permitting and licenses are required to establish
production tend to have limited entry.
7) Government Standards:
Industries where rigid industry standards exist tend to have
limited entry.

71
 1.6Analyzing Industry Environment
B) Entry and Exit Barriers:

b) Barriers to Exit:

1) Investment in Specialist Equipment:

An investment in specialized equipment that cannot readily be
used in other industries tends to be an impediment to leaving the
industry.
2) Specialized Skills:
Highly specialized skills by industry participants that cannot be
utilized in other industries tend to be an impediment to leaving the
industry.

3) High Fixed Costs:

High levels of dedicated fixed costs tend to be an impediment to
leaving an industry 72
 1.6Analyzing Industry Environment

C) Strategic Group Analysis:

After analysing the environment it is necessary for a firm to analyse their
competitors. The aim here is to focus on the group of firms that are the closest
rivals to the organization in respect of the strategy positions they find
themselves in. Specifically, a strategy group will generally share similar strategic
characteristics, follow similar strategies and compete on similar bases.

a) Meaning:
Strategic groups are "conceptually defined clusters of competitors that share
similar strategies and therefore compete more directly with one another than
with other firms in the same industry". They are conceptual as they are not
formally identified groups or part of an industry association.

73
 1.6Analyzing Industry Environment

C) Strategic Group Analysis:

b) Benefits of Strategic Group Analysis:

Helps in Predict
the Future
Opportunities

Helps in Provide a
Predict the Formula for
Threat Success
Benefits

Predict
Helps in
Important
Identifying
Market
Competitors
Dimensions
74
 1.6Analyzing Industry Environment

C) Strategic Group Analysis:

b) Benefits of Strategic Group Analysis:
1) Helps in Identifying Competitors:
It serves as a purpose of indentifying the strategic groups and then analysing
the industry from the view-point of the differences in the business strategies
employed. This facilitates a direct comparison among the group of firms that
compete directly with each other.

2) Helps in Predict the Threat:

It helps to understand the variance of threats and opportunities and competitive
dynamics among firms within an industry.

3) Helps in Predict the Future Opportunities:

It helps to indentify strategic opportunities by revealing area in the industry I
which no or very few firms currently compete.

75
 1.6Analyzing Industry Environment

C) Strategic Group Analysis:

b) Benefits of Strategic Group Analysis:
4) Provide a Formula for Success:
It indicates a formula for success for a service category. Such
insight may broader manager’s view of important market needs.

5) Predict Important Market Dimensions:

It indicates important market dimensions or niches that are not
being capitalized on by the existing competitors. Lack of attention
to critical success factors by other competitive organizations
offering the same or a similar service may provide an opportunity
for management to differentiate its services.

76
Thank You

77