M.

COM
(BUSINESS MANAGEMENT)
SEMESTER - I
REVISED SYLLABUS AS PER NEP 2020

STRATEGIC MANAGEMENT

MC 1.7
 © UNIVERSITY OF MUMBAI

Prof. Ravindra Kulkarni

Vice Chancellor
University of Mumbai, Mumbai
Prin. (Dr.) Ajay Bhamare Professor Shivaji Sargar
Pro Vice-Chancellor, Director,
University of Mumbai CDOE, University of Mumbai

Programme : Ms. Rajashri Pandit, Ph.D.

Co-ordinator Assistant Professor (Economics)
CDOE, University of Mumbai,
Vidyanagari, Santacruz (E), Mumbai.

Course Co-ordinator : Sambhaji Shivaji Shinde

Assistant Professor,
CDOE, University of Mumbai,
Vidyanagari, Santacruz (E), Mumbai.

Editor : Dr. Kiran Menghani,

Vice Principal,
Vedanta College Of Management, Vitthalwadi, Ulhasnagar,
Maharashtra 421003.
Course Writers : Dr. Madhuri Karamarkar
Ghanshyamdas Saraf Girls
College of Commerce, Malad (W), Mumbai
: Dr. Vinita Pimpale
R.A. Poddar College of Commerce &
Economics, Matunga, Mumbai - 400090

: Dr. B.B. Kamble

Chinoy College of Commerce & Economics,
Andheri (E), Mumbai - 400069

April 2024, Print - 1 ISBN 978-81-978075-9-6

Published by : Director,
Centre For Distance and Online Education,
University of Mumbai,
Vidyanagari,Mumbai - 400 098.

DTP composed and Printed by: Mumbai University Press

 CONTENTS

Chapter No. Title Page No.

1. Introduction to Strategic Management...............................................................1

2. Strategy Formulation Analysis and Choice......................................................35

3. Business, Corporate and Global Strategies and Issues ....................................62

4. Emerging Strategic Trends ..............................................................................88

 M.COM
( BUSINESS MANAGEMENT )
SEMESTER - I
STRATEGICMandatory
MANAGEMENT
1

SYLLABUS
Programme Name: M.Com ( Business Management )
Course Name: Strategic Management
TotalCredits:04 TotalMarks:100
Universityassessment:50 Collegeassessment:50
Prerequisite:
_______________________________________________________________

Learning Objectives
a) To enable the learners to understand new forms of Strategic Management
concepts and their use in business
b) The course would enable the students to understand the principles of strategy
formulation, implementation and control in organizations
c) To develop learning and analytical skills of the learners to enable them to
solve cases and to provide strategic solutions
d) To acquaint the learners with recent developments and trends in the business
corporate world

Course Outcomes
C1) Understand the basic concepts and process of strategic management
C2) Develop and prepare organizational strategies that will be effective for
today’s organisations
C3) Devise strategic approaches to managing a business successfully in a
global context

Module 1
Unit 1 Introduction to Strategic Management
a) Concept and process of Strategic Management, Benefits and Risks of
Strategic Management, Vision and Mission,
b) Functional Strategies: Human Resource Strategy, Marketing Strategy,
Financial Strategy, Levels of Strategies: Corporate, Business and Operational
Level Strategy
Unit 2 Strategy Formulation, Implementation and Evaluation
a) Strategic Formulation: Issues of strategic Choice, Stages and Importance of
strategic Formulation, Formulation of Alternative Strategies: Mergers and
Acquisitions, Joint Ventures, Diversification, Turnaround, Divestment and
Liquidation.
b) Corporate Portfolio Analysis- SWOT Analysis, BCG Matrix, GE Nine Cell
Matrix, Hofer’s Matrix, Importance and Problems of Strategic Implementation,
Importance, and Techniques of Strategic Evaluation and Control

Module 2
Unit 3 Business, Corporate and Global Strategies
a) Concept, Need and Forms of Corporate Restructuring, Concept, Internal and
External factors and Causes of Corporate Renewal Strategies

8
b) Concept, Types, Importance, and Problems of Indian Strategic Alliances and
International Businesses, Importance, Problems and Governing Strategies of
PPP Model.
Unit 4 Emerging Strategic Trends

a) Reasons for growing BPO and KPO businesses in India, Reengineering

Business Processes, contribution of IT sector in Indian Business, Concept,
Problems and Consequences of Disasters, Strategies for Managing and
Preventing disasters and Cope up Strategies
b) Process of business startups and its Challenges, Growth Prospects and
government initiatives in Make in India Model with reference to National
manufacturing, Contribution of Make in India Policy

Reference
 Strategic Management, A Dynamic Perspective -Concepts and Cases – Mason A.
Carpenter, Wm. Gerard Sanders, PrashantSalwan, Published by Dorling Kindersley
(India) Pvt Ltd, Licensees of Pearson Education in south Asia
 Strategic Management and Competitive Advantage-Concepts- Jay B. Barney, William
S. Hesterly, Published by PHI Learning Private Limited, New Delhi
 Globalization, Liberalization and Strategic Management - V. P. Michael
 Business Policy and Strategic Management – SukulLomash and P.K Mishra, Vikas
Publishing House Pvt. Ltd, New Delhi
 Strategic Management – Fred R. David, Published by Prentice Hall International
 Business Policy and Strategic Management – Dr AzharKazmi, Published by Tata
McGraw Hill Publications
 Business Policy and Strategic Management- Jauch Lawrence R & William Glueck
Published by Tata McGraw Hill
 Public Enterprise Management and Privatisation – LaxmiNarain Published by
S.Chand& Company Ltd, New Delhi
 Business Organisation – Rajendra P. Maheshwari, J.P. Mahajan, Published by
International Book House Pvt Ltd
 Disasters and Development- Cuny Fred C, Published by Oxford University Press,
Oxford
 At Risks Natural Hazards, People’s Vulnerability and Disasters- Wisner Ben P. Blaikie,
T Cannon and I.davis, Published by Wiltshire Routledge
 Mergers, Acquisitions and Corporate Restructuring – Strategies and Practices- Rabi
Narayan Kar, Published by International Book House Pvt Ltd, Mumbai
 Strategic Management- Awareness and Change, John. L. Thompson, Internal
Thomson Business Press
 Gaining and Sustaining Competitive Advantage, Jay B. barney, Eastern economy
Edition, PHI Learning Pvt Ltd, New Delhi
 Strategic Management by Prof N.H. Mullick, Enkay Publishing House New Delhi
 Public Sector Perspective, by Dr M.VeerappaMoily
 The Impact of Private sector participation in Infrastructure- Lights, shadows and the
Road ahead by Andres, Luis, Guasch, luis, J. Thomas, Haven & Foster, World Bank,
Washington
 1
INTRODUCTION TO STRATEGIC
MANAGEMENT
Unit Structure:
1.0 Objective
1.1 Introduction
1.2 Concept of Strategic Management
1.3 Strategic Management Process
1.4 Vision Mission and Goals
1.5 Benefits and Risks of Strategic Management
1.6 Levels of Strategies
1.7 Functional Strategies
1.8 Summary
1.9 Exercise

1.0 OBJECTIVES
After studying this unit the student will be able to -
• Understand the concept of strategy and strategic management.
• Know the process of strategic management
• Know the organizational vision, mission and goals statement
• Understand benefits and risks of strategic management.
• Explain Corporate, Business and Operational level strategy
• Discuss functional strategies of a business.
• Describe Business environment and Environmental Scanning

1.1 INTRODUCTION
Globalization of economy has brought about revolutionary changes in the
policy framework of both developed and underdeveloped countries. The
liberalization has removed artificial trade barriers and businesses have, now
truly become international and the competition has become very severe.
These developments gave rise to new paradigms in business policies and
strategic thinking. Due to this there are drastic changes in conventional
concept of business management. Businesses have realized that their
survival and success is depend on superior business strategies. They have
started focusing on customer satisfaction along with profit making. Early
1960’s corporate planning was popular but after 1980’s its place has taken
by strategic management to face stiff competition arisen by globalization.

1
Strategic Management 1.2 CONECPT OF STRATEGIC MANAGEMENT

Strategy:
The word ‘strategy’ has been derived from Greek word ‘Strategos’, which
means generalship. The word strategy, therefore, means the ‘art of the
general’.
The word strategy has entered in the field of business management more
recently. At first, the word was used in terms of Military Science. When the
term strategy is used in military sense, it refers to action that can be taken
in the light of action taken by opposite party. In business management, the
concept of strategy is taken slightly different form as compared to its usage
in military form.
In the field of business management, strategy refers to a plan to cope up
with challenges posed by changing business environment. Strategy enables
to take organization from present position to the desired position over the
period of time. Eg. If a business firm anticipates price-cut by the competitor
for his product, the business firm may device a strategy to launch an
advertising campaign to educate customers and convince them about
superiority of their product as compared to competitor’s product. This
proactive strategy enables business firm to survive and succeed in the
market.
Strategic Management:
Strategic management is the process which involves development and
implementation of business plans so as to achieve business objectives.
In other words, Strategic management is defined as a bundle of decisions
and acts which a manager undertakes and which decides the result of the
performance of business firm. The manager must have a thorough
knowledge and analysis of changing business environment so as to take
right decisions at right time. They should conduct a SWOT Analysis
(Strengths, Weaknesses, Opportunities, and Threats), i.e., they should
consolidate and make best possible utilization of strengths, minimize the
organizational weaknesses, grab opportunities arising from the business
environment and shouldn’t ignore the threats.
For example, If a gift articles selling Indian firm anticipates that the demand
is going to increase during Diwali festival. So the firm will undertake its
SWOT analysis. Accordingly the firm will undertake R&D to design
innovative gift articles. The firm will use sales promotion techniques such
as discount to induce customers to buy. They will also come up with
different varieties of gift articles to cater need of different customers. They
will approach retail shops to stock their gift articles in their store. Such
proactive strategy enables business firm to grow and succeed in the market.
Definition of Strategic Management: “Strategic management is a stream
of decisions and actions which leads to the development of an effective
2 strategy or strategies to achieve corporate objectives.” – Jauch and Glueck
1.3 STRATEGIC MANAGEMENT PROCESS Introduction to
Strategic Management

Strategic management is a dynamic process .it is continual, evolving,

iterative process. it means that it cannot be a rigid, stepwise collection of
few activities arranged in a sequential order rather it is a continually
evolving mosaic of relevant activities. Managers perform these activities in
any order contingent upon the situation they face at a particular time. And
this is to be done again & again over the time as the situation demands.
There are four major phases of strategic management process which are as
under.
A) Strategic intent.
B) Strategy Formulation
C) Strategy Implementation
D) Strategy Evaluation.

Strategy Strategy Strategy

Strategic Intent
Formulation Implementation Evaluation

A. Strategic Intent: Strategic intent gives an idea of what the

organization desires to attain in future. It answers the question what
the organization strives or stands for? It indicates the long-term
market position, which the organization desires to create or occupy. It
has a hierarchy as:

Vision

Mission

Goals and
Objectives

1) Vision: Vision implies the blueprint of the company’s future

position. It describes where the organization wants to land.
2) Mission: Mission delineates the firm’s business, its goals and
ways to reach the goals. It explains the reason for the existence
of the business. It is designed to help potential shareholders and
investors understand the purpose of the company. 3
Strategic Management 3) Goals and Objectives: Goals are the end results, that the
organization attempts to achieve. They are usually long-termed.
On the other hand, objectives are aim or target that the
organization wants to achieve within a limited period of time.
Objectives are kind of milestones that direct one to achieve their
goals. Sometimes objective can also be referred to as sub-goals.
B. Strategy Formulation: Formulation of strategy is relates to strategic
planning. It is the process by which an organization chooses the most.
appropriate courses of action to achieve its defined goals. This process
is. essential to an organization's success, because it provides a
framework for the. actions that will lead to the anticipated results. It
is done at different levels i.e. corporate, business, and operational
level. The strategic formulation consists of the following steps.

1. Framing of mission statement: Mission delineates the firm’s

business, its goals and ways to reach the goals. It explains the
reason for the existence of the business. And all most all
business frames the mission statement to keep its activities in
the right direction.
2. Analysis of internal & external environment: The
management must conduct an analysis of internal and external
environment.
Internal environment consists of mission and objectives of the
firm, goals and objectives of the firm, manpower, machines,
capital etc. which resides within the organization and easily
alterable and controllable. Its analysis helps to identify strength
and weakness of the organization.
External environmental factor includes government,
competitions, consumers, and technological developments.
Which resides outside the organization. These are not alterable

4
 and controllable. Its analysis helps to identify opportunities and Introduction to
Strategic Management
threats for organizations.
3. Setting of objectives: After SWOT analysis, the management
is able to set objectives in key result areas such as marketing,
finance, production, and human resources etc. While setting
objectivities in these areas the objectives must be SMART i.e.
Specific, Measurable, Attainable, Realistic and Time Bound.
4. Gap Analysis: By undertaking gap analysis management
compares and analyzes its present performance level with the
desired future performance. This enables the management to
find out exact gap between present and future performance of
the organization. If there is adequate gap then, the management
must think of strategic measures to bridge the gap.
5. Alternative strategies: After making SWOT analysis and gap
analysis management needs to prepare (frame) alternative
strategies to accomplish the organizational objectives. It is
necessary to have alternative strategies as if one strategy doesn’t
work another strategy can be implemented.
6. Evaluation of strategies: The management must evaluate
every alternative strategy on the basis of Cost and Benefit
Analysis (CBA). The benefits and costs of every alternative
strategy in term of sales, market share, profit, goodwill and the
cost incurred on the part of the strategy in terms of production,
administration, and distribution costs.
7. Choice of strategy: It is not possible to any organization to
implement all strategies therefore management must be
selective. It has to select the best strategy which incurs less cost
and more benefits.
C. Strategy Implementation : Strategy implementation refers to putting
the organization’s chosen strategy into action so as to achieve
strategic goals and objectives. The strategic implementation consists
of the following steps:

5
Strategic Management 1. Formulation of plans: Strategy itself does not lead to action.
So it requires formulation of proper plan to implement the
chosen strategy. Eg. If organization chose expansion strategy,
then various expansion plans needs to be framed. It may
include:

• Market Development – Offering same product in new

market

• Market Penetration – Modification in the same product

and offering in the same market

• Product Development –Offering new product in same

market
2. Identification of activities: After formulating plans, next stage
is to identify various activities need to undertake in order to
successful implementation of strategy. Eg. For market
development plan includes following, activities:

• Market Research: To understand market condition in

terms of customer requirements, competition, economic
condition etc.

• Selection of Intermediaries: They help to sell product to

final consumers.

• Decide Marketing Strategy: Decision about 4Ps i.e.

Product, Price, Promotion and Place.
3. Grouping of activities: The management must group related
activities under one department. Eg. All promotional activities
(Advertising, Sales Promotion, Personal Selling, Trade Fair and
Exhibition) may be assigned to a single department. Also all
logistics activities (Packaging, Transportation and
Warehousing) should be assigned to another department.
4. Organizing resources: For successful implementation of
strategy, there is need to organize:

• Physical Resources: Plant and machinery, tools and

equipments, Material etc.

• Financial Resources: Capital or Finance

• Human resources: Labour and Employees

These resources must be arranged from right sources.
5. Allocation of resources: The management must make proper
allocation of resources to various activities. All the
department/projects should be allocated required resources for
smooth functioning of activities.
6
D. Strategy Evaluation: The final stage in strategic management is Introduction to
Strategic Management
strategy evaluation and control. All strategies are subject to future
modification because of changing business environment.
Strategy evaluation and control process refers to determining the
effectiveness of given strategy in achieving the organizational
objectives and taking corrective action whenever required. The
strategic evaluation and control consists of the following steps:

1. Setting of standards/targets:- The strategists need to set

standards/targets to implement the strategies. It should be in
terms of quality, quantity, costs and time. The standard should
be definite and acceptable by employees as well as should be
achievable.
2. Measurement of Performance:- Here actual performances are
measured in terms of quality, quantity, cost and time.
3. Comparison Of Actual Performance With
standards/targets:- The actual performance needs to be
compared with standards/target and find out deviation (if any).
4. Analyzing Deviation: If any deviation is found in actual and
standard/target performance, then higher authorities tries to find
out the causes of such deviations.
5. Taking Corrective Measures:- Once the cause of deviation is
known, necessary corrective measures are taken so that
deviations are minimized to zero level.
(Notes: Process of Strategic Management is explained in detail for your
understanding. If question is asked in the exam, you have to just write four
stages with explanation. And write points without explanation for steps in
each stage.)

Know your progress:

Explain Strategic management process in detail.
7
Strategic Management 1.4 VISION, MISSION, GOALS

VISION
Vision is a big picture of what an organization wants to achieve It implies
the blueprint of the company’s future position. It describes where the
organization wants to land. It answers the question “where we want to be”.
It describes dreams and aspirations for future.
It gives us a reminder about what we attempt to develop. A vision statement
is for the organization and its members.
An effective vision statement must have following features-
• It must be unambiguous.
• It must be clear.
• It must harmonize with organization’s culture and values.
• The dreams and aspirations must be rational/realistic.
• Vision statements should be shorter so that they are easier to
memorize.

Organization Vision Statement

‘To provide access to the world’s information in
one click’

‘To be earth’s most customer-centric company; to

build a place where people can come to find and
discover anything they might want to buy online.
To generate skilled manpower for nation building
through excellent teaching, attracting talent,
fostering creativity, research, and innovation.

MISSION
Mission is a general statement of how the vision will be achieved. It defines
the fundamental reason for existence of the organization. It describes the
organization’s line of business, its products and specifies the markets it
serves within a time frame of 3 to 5 years.
Mission is an overall goal of the organization that provides sense of
direction and guide decision making at all the levels of management. It
defines the boundaries within which the organization will operate. It is
designed to help stakeholders to understand the purpose of the company.

8
An effective Mission statement must have following features- Introduction to
Strategic Management
• Mission must be feasible and attainable. It should be possible to
achieve it.
• It should be clear enough so that any action can be taken.
• It should be inspiring for the management, staff and society at large.
• It should be precise enough, i.e., it should be neither too broad nor
too narrow.
• It should be unique and distinctive to leave an impact in everyone’s
mind.
• It should be credible, i.e., all stakeholders should be able to believe it

Organization Mission Statement

‘To organize world’s information and make it
universally accessible and useful.’

‘To strive to offer customers the lowest possible

prices, the best available selection, and the
utmost convenience.

To provide free and conducive atmosphere for

creative thinking and impart deep disciplinary
knowledge with interdisciplinary bandwidth to
the learners in order to make them problem
solvers, leaders and entrepreneurs;

GOALS AND OBJECTIVES

Goals denote results that an organization seeks to accomplish in a future
period of time. Goal is a specific target that a firm intends to reach in long
term. To achieve vision and mission, the organization creates goals. It
describes clearly the activities and tasks to be completed by an individual,
a department or an organization. The goals should be SMART i.e. Specific,
Measurable, Attainable, Realistic and Time Bound.
The terms ‘objectives and goals’ are normally used inter-changeably.
However, some authors try to make a difference between the two terms.
They say goals are long term and objectives are short term in nature. They
also say that goals are usually broad and general whereas objectives are
precise. For example, a general goal might be to reduce waste. The
specific objective might be to reduce waste from 5% to 3% by the end of
2021.
Goals must have following features-
• It should be specific and describe time, quantity and variety of work
to be completed.
• It should be challenging but realistic. 9
Strategic Management • It should be acceptable by people.
• It should fix priority of actions.
• These must be achieved within a specific time frame.

GOALS OF
INDIA POST

1) Be the preferred, trusted and reliable service partner for all

customers.
2) Ensure that India Post acquire all required people capabilities to
deliver its chosen service portfolio.
3) Develop a scalable and flexible technology infrastructure to support
our operations.

1.5 BENEFITS AND RISKS OF STRATEGIC

MANAGEMENT
The strategic management has certain benefits or importance are briefly
explained as follows
1. SWOT Analysis:- Strategic management helps an organization to
make SWOT analysis. The organization undertakes thorough analysis
of internal business environment which enables to identify the
strength and weakness of the firm. The organization also undertakes
thorough analysis of external business environment which enables to
identify the opportunities and threats of the firm.
2. Facilitates in planning:- In strategic management goals of the
organization are set. To achieve those goals planning is made. So
strategic management facilitates planning to achieve organizational
goals.
3. Organizing Resources:- To achieve organizational goals, there is
need to allocated physical, financial and human resources. Strategic
management enables to organize and allocate these resources to
achieve organizational goals.
4. Choice of Strategy:- Strategic management helps to management to
select the best possible strategy option. Eg. Strategic management
enables the organization to select Growth Strategy or Stable Strategy
or Merger, Takeover and others.
5. Helps in Evaluation:- The important aspect of strategic management
is evaluation of strategy/plans. Here the actual performance will be
compared with standards set and if any deviation is found then the
corrective measures are taken to minimize deviations to zero level.
10
6. Improves Employee’s Efficiency:- Strategic management clarifies Introduction to
Strategic Management
the employees about what to do?, how to do?, when to do a particular
task?. This helps to employee to perform a job accurately and
expertise which leads to increase in efficiency.
7. Facilitates Communication and Coordination:- For proper
implementation of strategies there is need to have proper
communication and coordination at all levels of operations. So
strategic management facilitates proper communication and
coordination among different groups in the organization so that
strategy can be implemented as planned.
8. Helps to face Competition:- Liberalization, Privatization and
Globalization (LPG) has led to increased competition. The strategic
management enables the firm to develop effective business strategies
to face the competition.
9. Other Benefits:
• Achieve organizational goals
• Enhances Corporate Image of the firm
• Reduces Disputes
RISKS / LIMITATIONS OF STRATEGIC MANAGEMENT:
1. Problem in Analyzing Environment: - the success of strategic
management is depending on the correct analysis of internal as well
as external business environment. Especially the external
environment scanning is important which is not in control and is
unpredictable.
2. Unrealistic Mission and Objectives: - If the mission and objectives
are not realistic then the strategic management can’t be successful.
3. Problem of Setting Target: - Sometimes it happens that the
strategists may be very enthusiastic so they may set higher targets
which will be difficult to accomplish.
4. Problem in Implementation:- Proper implementation of strategy
required formulation of plan, identification and grouping of activities
as well as organization and allocation of resources. If this is not done
properly, the strategy may not give the desired result.
5. Lack of Commitment of Lower Level:- Generally the strategies are
framed by top level management and implemented by lower level. At
the time of framing of strategy, if top level management has not
consulted with lower level management then they may not be that
much supportive and committed.
6. Problem of Resistance: -The top management may set higher target
and there may be resistance on the part of employees to accept it.

11
Strategic Management 7. More theoretical in Nature:-As per experts opinion strategic
management is more theoretical. In practice there are different so it
remains unsuccessful.
8. Problem of Internal Politics:-in organizations, there are differences
among or between departments. So as there is no good relation, proper
coordination, strategies became unsuccessful.
9. Problem of Traditional Management:- The traditional management
has narrow approach towards development. Its philosophy is not
progressive. They want to run their business with the same fashion.
So the strategies are not fruitful in this case.

Know your Progress:

Write Example of Vision, mission and goals of any Company in India.
What are benefits of Strategic management.

1.6 LEVELS OF STRATEGIES – CORPORATE,

BUSINESS AND OPERATIONAL LEVEL STRATEGY
CORPORATE LEVEL STRATEGY.

A corporate-level strategy refers to a decision made by business that affects

the whole company. It affects a company's finances, management, human
resources, and where the products are sold. The purpose of a corporate-level
strategy is to maximize its profitability, maintain financial stability, increase
competitive advantage over its competitors and continue to offer quality
products or services to consumers.
In other words, corporate level strategies are principally about the decision
related to dispersion of resources among different businesses of an
organization, transforming resources from one set of business to others and
managing and nurturing a portfolio of businesses such that the overall
corporate objectives are achieved.
Corporate strategy typically fits within three main categories- stability,
growth, and retrenchment strategy. We will discuss these three strategies in
detail.

12
I. Stability strategy: Stability strategy is adopted by the firm when it Introduction to
tries to hold on to their current position in the market. This strategy Strategic Management

implies that an organization will continue in the same or similar

business. It aims at stability by causing the companies to marginally
improve its performance.
Under stability strategy company does not go for major internal
changes or restructuring. The firms using this strategy concentrate on
the current products and markets. This strategy is followed by those
firms which are satisfied with their present market position. For
example, If the firm is getting 10% growth in sales in Nashik market,
it may be satisfied with the same. Here the intention of the firm is to
achieve moderate growth and profits
Reasons for adopting Stability Strategy
• The firm may be satisfied with the present level of performance
• The firms may be satisfied with the current level of profit
• The firm does not want to take any risk
• The management follows traditional philosophy
• The economic condition is not conducive
II. Growth Strategy: This strategy is also known as expansion strategy.
Here the attempts are made to have substantial growth of business.
This strategy is s adopted by an organization when it attempts to
achieve a high growth as compared to its past achievements. .
To achieve higher target compared to past the firm may enter into new
/introduces new product lines, enter into additional market segment.
it involves more risk and efforts as compared to stability strategy.
E.g. Fair and Lovely initially concentrated on female gender but now
it also attracts male gender by introducing cream for this gender. (Fair
and Handsome) (Increasing customer base). Banks now gives more
importance to expand its retail business base by providing
personalized service.
Reasons for adopting Growth Strategy
• The firm may not be satisfied with the present level of
performance
• The firms may not be satisfied with the current level of profit
• The firm is ready to take any risk
• Change in the environmental factors
The growth strategy is divided into two parts namely
A) Internal growth strategy mainly consists of diversification
strategies and intensification strategy
B) External growth strategy. consists of merger, takeover,
foreign collaboration and joint venture. 13
Strategic Management A) INTERNAL GROWTH STRATEGY
i. Intensification Strategy: In intensification strategy, the
business tries to grow within the existing businesses. The
objective is to achieve further growth of existing products
and/or existing market. It involves market penetration,
market development and product development.
a) Market penetration means offering same product
in same market by undertaking aggressive efforts
like modification in product, high advertising, price
cutting, sales promotion etc. Eg. A toothpaste
selling firm in Mumbai market, makes changes in
the colour of toothpaste and offering in the Mumbai
market itself, is called market penetration
b) Market development means offering same product
in new markets. Here business units undertake
market research, effective pricing policy, effective
promotion mix and distribution chain. Eg. A four-
wheeler car selling company which was selling its
cars in India, now enters into American Market with
same car is called market development.
c) Product development means offering new product
in the same market. Eg. A mobile phone selling
company which was selling its mobile phones in
India, now comes up with new model of mobile
phone for Indian market itself, is called product
development.
ii. Diversification Strategy: Diversification is one type of
growth strategy. In this strategy company develops new
products in new markets. The purpose of this strategy is
risk sharing i.e. if one of the enterprises is taking a hit in
the market, one of your other business enterprises will
help offset the losses and keep the company viable..
For example, an auto company may diversify by adding a
new car model or by expanding into a related market like
trucks
TYPES OF DIVERSIFICATION:
a) Vertical diversification: When a company enters
into new business which is in similar lines of
activity of existing business is called vertical
diversification. Such extension is of two types
known as:
• Backward diversification:- It is a
diversification where company moves one
step back from the current line of business.
For example a car manufacturing unit enter
into it’s components such as seats, tyre, glass
14 etc. manufacturing unit.
 • Forward diversification: - In this case Introduction to
Strategic Management
company enters into the activity which is
extension of its current business. For example
cloth manufacturer enter into readymade
garment manufacturing.
b) Horizontal diversification: - In this case company
enters into a new business which is very closely
related with existing line of business and it is with
the help of the same technology and the market. For
example gent’s garments manufacture enter into
ladies garments manufacturing.
c) Concentric diversification: - When a company
enters into new line of business which is indirectly
related with existing business is called concentric
diversification. For example a car seller may start
finance company. So that the firm can offer finance
to the customers who are willing to purchase car.
d) Conglomerate diversification: - When a company
enters into new line of business which is not at all
related with existing business is called
conglomerate diversification. There is a no linkage
between old and a new business. For example
Transport operator entered into furniture
manufacturing
There are certain reasons because of company go for
diversification. The reasons are as under
1) Spreading of risk: - Diversification enables to
spread the risk. Since the business operates in a
different markets. If in one market business suffers
losses that can be compensated in other market and
the levels of profit will be maintained.
2) Improves corporate image: - Corporate image is
creating image of the firm in the mind of
stakeholder. It enables firm to get support from
stakeholders. Through the diversification company
introduces innovative products/services of better
quality which helps to create positive image of firm
among stakeholders..
3) Face competition effectively: - Due to the
diversification company introduce wide range of
products and services. This enables company to
maintain it’s sale level in the market and face
competition effectively.

15
Strategic Management 4) Customer satisfaction: - When the firm enters into
new business with new product, it assures to give
better qualitative product and services. This leads to
customer’s satisfaction.
5) Optimum Utilization of resources: -
Diversification enables company to make optimum
(maximum) use of physical, financial and human
resources. This is possible due to increase in
demand and production capacity of the firm.
6) Economies of scale: - Due to diversification
strategy there is increase demand to a products
which results in large scale production and
distribution. The firm purchases raw material in
large quantity and gets discount. So the firm saves
on raw material. The firm is also able to save on
transportation cost.
B) EXTERNAL GROWTH
1) Merger Strategy: The term ‘merger’ is used to mean
the unification of two or more business houses to form an
entirely new entity.
It is a strategy adopted by the company to maximise
company’s growth by expanding its production and
marketing operations, that results in synergy, increased
customer base, reduced competition, introduction to a
new market/product segment, etc.

Forms of Merger

• Merger through Absorption: When two or more

companies are combined and only one company
survives after the merger, while the rest of all cease
to exist as they lose their identity is called merger
through absorption. E.g. Tata Chemicals Limited
(TCL) absorbed Tata Fertilizers Limited (TFL).
16
 • Merger through Consolidation: When two or Introduction to
Strategic Management
more companies are combined and give birth to a
new company, it is known as merger through
consolidation. This implies that all the companies to
the merger are dissolved, i.e. they lose their identity
and a new company is created. E.g. Consolidation
of Hindustan Computers Limited, Indian
Reprographics Limited, Indian Software Company
Limited Hindustan Instruments Limited, to form a
new company HCL Limited.
Advantages of Merger:
I. It enables the pooling of resources and streamlining
of operations, thereby, resulting in improved
operational efficiencies.
II. The merged firms enjoy benefit of economies of
scale. Merger may result into increasing demand.
This in turn results into increasing production and
distribution capacity of firm. When production
increases the firm purchases raw material on large
scale and they get discount. So the firm saves on
raw material. The firm also save on transportation
cost as the transportation cost is mostly fixed..
III. Merger provides faster growth to business as it
offers advantages in several areas such as
marketing, production, finance, R&D and so on.
IV. When a company is having accumulated losses and
it is merged with another company. The newly
formed company gets benefit in taxation..
V. Merger allows companies to share technology and
other facilities such as plant, market, human
resources etc.
VI. The benefit of economies of large scale is shared
with customers in the form of reduced price. Also
due to R&D activity customers get better quality
and innovative product. So when customers get
better quality products at lesser price, it results into
customer satisfaction.
2) Joint Venture Strategy: Joint Venture can be described
as a business arrangement, wherein two or more
independent firms come together to form a legally
independent undertaking, for a stipulated period, to fulfill
a specific purpose such as accomplishing a task, activity
or project. In other words, it is a temporary partnership,
17
Strategic Management established for a definite purpose, which may or may not
uses a specific firm name..
For example, Maruti Ltd. of India and Suzuki Ltd. of
Japan come together to set up Maruti Suzuki India Ltd.

The firms joining hands in a joint venture are called Co-

venturers, which can be a private company, Government
Company or foreign company. The co-ventures come to a
contractual agreement for carrying out an economic
activity, which has shared ownership and control. They
contribute capital, pooling the financial, physical,
intellectual and managerial resources, participating in the
operations and sharing the risks and returns in the
predetermined ratio.
Advantages of Joint Venture
Answer same as “Advantages of Merger”
3) Acquisition Strategy: An acquisition takes place when
one of the company purchases mostly all of the shares of
the other company for gaining the control of other
companies. Purchasing the target company’s shares and
other assets by more than 50% allows the acquirer to take
the decisions of the acquired company without the
approval of the company’s shareholders. The acquisition
is considered to be a critical component and an important
change agent of any strategy of the business. Example -
Acquisition of the Company Ranbaxy by the Sun
Pharmaceuticals.:

Advantages of Acquisition Strategy: Answer same as

“Advantages of Merger”
B) Takeover strategy: A takeover is a special form of
acquisition that occurs when a company takes control of
18
 another company without the acquired firm’s agreement. Introduction to
Strategic Management
In other words, takeovers occur when a company takes
over and purchases a company without the permission of
the company or its Board of Directors.
There are two methods by which companies can
undertake takeover which are as follows:

• Tender Offers involve after the refusal from the

management of target company for the initial offer
proposed, the acquiring company purchases the
shares of the target firm directly from shareholders,
or on the secondary markets. Therefore, buying all
or a majority of the company’s shares allows the
acquiring company to possess ownership of the
target company. To purchase shares, the acquiring
corporation offers a higher price to shareholders
than the market value of the stock.

• Proxy Fight involves the acquirer company after

being refused for their initial offer for the
acquisition of the target company, tries to change
the members of management for the decision to be
in their favour. For such to happen, the acquirer
company will convince the shareholders to exercise
their proxy vote and try to change the members of
the management who are opposing the takeover and
replace them with the new members who are more
reliable and receptive to the decision of takeover
and give their decision for the change of ownership
of the business.
Advantages of Takeover: Answer same as “Advantages of
Merger”
III. RETRENCHMENT STRATEGY
1) Divestment Strategy: The Divestment Strategy is a
retrenchment strategy which includes the downsizing of
the scope of the business. The firm is said to have
followed the divestment strategy, when it sells or
liquidates a portion of a business or one or more of its
Strategic Business Units (SBU) or a major division, with
the objective to revive its financial position.
The divestment is the opposite of investment; wherein the
firm sells the portion of the business to realize cash and
pay off its debt. Also, the firms follow the divestment
strategy to shut down its less profitable division and
allocate its resources to a more profitable one.

19
Strategic Management An organization adopts the divestment strategy only when the
turnaround strategy proved to be unsatisfactory or was ignored
by the firm.
Example: Tata Communications is the best example of
divestment strategy. It has started the process of selling its data
center business to reduce its debt burden.
There is certain reason for divestment
a. Withdrawal of obsolete products:- Those products
which do not give adequate return to the firm will be
removed. And the products which are having good market
share and profitable will be continued.
b. Problem of Mismatch:- The business which is
undertaken by the company is not matching with the
existing business line. Therefore the company may take
initiative to gate red of newly acquired business
c. Problem of competition:- Some times due to tough
competition company may withdraw some products from
the market or sell the units producing such products.
d. Negative cash flows:- When business gets negative cash
flows from a particular business. The revenue collected
from such a business is lower as the expenditure incurred
on it therefore it is to be divested
e. Technology Up-gradation:- Technology Up-gradation
is important for survival of business. But the cost of up-
gradation is so high which is not affordable to business
therefore that business activity is to be divested
f. Concentration on Core Business:- When business
undertake number of activities at a time, then it may be
difficult to the business to manage all activities
satisfactorily. Due to this business ignore its over activity
which leads to loss in business therefore to concentrate on
core business divesting other activities is essential.
g. Alternative for Investment: - Some time, by divesting
certain activity company can invest its blocked fund into
some another investment alternative which will give good
return
h. Returns to Shareholders: - Company, by divesting may
increase shareholders return by giving shareholder hefty
dividend.
i. Attractive Offers from Other Firm: - Sometimes it
happens company may get offer from another company.
To invest in a good return giving from company may
divest current activity.

20
2) Liquidation Strategy: This is extreme case of Introduction to
Strategic Management
divestment strategy and is undertaken in the situation
when all the efforts of reviving the company have come
to an end. There is no possibility that the business can
made profit making unit again. In such situation business
takes decision to sell its entire business and the amount
realized from it can be invested in another business. When
it is done it is known is liquidation. Generally, small sized
firms, proprietorship firms and the partnership firms
follow the liquidation strategy. Example - MH Carbon
was established in September 2010 and went into
voluntary liquidation in May 2013.
There are certain reasons because of the liquidation
has taken place that reasons are –
1) Heavy Losses:- When business incurs heavy losses
continuously in the business. It decides to sell off
that such business.
2) Less Returns:- The company is not able to earn
sufficient profit to meet its expenditure. There is
piling up of losses. As a result of which the
company adopts liquidation strategy
3) Poor management: The top management of
company becomes non-supportive. The business
decisions taken are poor. All this affects the
functioning of the business. So liquidation takes
place.
4) Failure of corporate strategy: The corporate
strategy adopted by company fails badly. Which
result into liquidation of entire business functions.
5) Obsolete product: The product offered by
company is no more demanded by the market. This
is because of change in the preferences of
customers. This is one of the major reason for many
companies to go for liquidation.
3) Turnaround Strategy: Turnaround strategy is a
retrenchment strategy which includes converting loss
making unit into a profitable one. It is possible when
company restructure its business operations. Its aim is to
improve the declining sales, market share and profit
because of high cost of materials, or increase
competitions, recession, managerial inefficiency.

21
Strategic Management

Example: Dell is the best example of a turnaround strategy. In

2006. Dell announced the cost-cutting measures and to do so; it
started selling its products directly, but unfortunately, it suffered
huge losses. Then in 2007, Dell withdrew its direct selling
strategy and started selling its computers through the retail
outlets and today it is the second largest computer retailer in the
world.
Steps to Planning Turnaround Strategy
1) Control over cash flow: If the business spends cash for
unproductive purpose, take action to stop it as soon as is
possible. Spending cash only where there is productive
purpose or required is wise for business turnaround.
2) Turnaround Team: It is crucial to the success of a
turnaround plan to have the right team in place. The team
should have turnaround specialist with experience of
turning around their own businesses and supportive staff.
3) Prepare Business Plan: It is necessary to offer
appropriate product for current market requirement. The
manager should provide what customer wants and
accordingly design business plan to serve the market.
4) Control over cost: It is essential to reduce overheads and
waste. Cost control can be done on raw material,
promotional activities and so on.
5) Raising Turnaround Finance: The business can find out
finance partner who can finance to restore your business
by turnaround strategy. There are specialist providers of
all these types of finance available in the market place.
6) Communicate turnaround plan: it is necessary to
communicate turnaround plan to key stakeholders such as
employees, suppliers, customers, investors, shareholders
etc. It will help business to get their support.

22
IV. BUSINESS LEVELS STRATEGIES / STRATEGIC BUSINESS Introduction to
Strategic Management
UNIT (SBU) STRATEGY
Business strategies are the course of action adopted by an organization for
each of its businesses separately and aim at developing competitive
advantages. The multi-products and multi-geographic area company creates
strategic business divisions to manage effectively each of the products. For
example a multi-product firm likes Hindustan Unilever Ltd. have adopted
the concept of Strategic Business Unit (SBU). Each strategy is focusing on
particular products like toiletries, beverages, laundry products, cosmetics
and so on.
It is also known as Strategic Business Unit (SBU) strategy. This is
developed by General Electric Company of USA, to manage its multi-
product business. It is used by multi-product or multi geographic area
companies to manage effectively each of the product or a group of product
for example a multi-product firm like Hindustan Unilever Ltd. May adopt
the concept of SBU. Separate SBUs may be created, each focusing on
specific product like toiletries, beverages, ice-creams, laundry product,
cosmetics, and so on.

Every SUB has four major important aspects to manage its activities
efficiently that are –
a) Each unit has a separate management.
b) Every SUB formulates its own strategy with the line of
organizational strategy.
c) The SBU has its own resources and manage in tune of organizational
object.
d) The SBU should have inter competition between the other SBUs of
the same Organization.

23
Strategic Management 1.6.1 Advantages of SBUs:
The company which adopt the business level strategy has certain advantages
which are as under-
1. Effective Management:-The SUB being managed by an independent
management it can concentrate on its own product. It looks into its
planning, organization, proper direction and effective execution of its
own resources. It also sees its own marketing mixes for good
profitability.
2. Intra-competition:- The organization is divided into multiple SBUs.
Each SBU compete with each other. This helps to performance of
each SBU.
3. Higher efficiency:- Efficiency is measured in terms of ratio between
input and output. Under this, every SUB will try to minimize its cost
of production by reducing wastages, optimum utilization of resources
and increase the production and profit.
4. Better customer service:-Each SUB tries to provide effective
customer service. The SUB tries to identify customer’s needs and
problems, and accordingly undertake products design and
development so that the customer gets maximum satisfaction. With
this it develops customer relationship and offer good services to
customer.
5. Motivation to employees:- Every SUBs manager creates team spirit
among employees. The manager provides monetary and non-
monetary incentives for the better performance of employees. This
helps to motivate employees to work with application (mind) and
dedication (heart).
6. Corporate image:-it is a way of creating goodwill and reputation of
the organization among the people. This is possible with the help of-
a) Better customer services
b) New and innovative products
c) Market development through promotion, advertising etc.
1.6.2 Disadvantages of SBUs :
The business level strategy has certain disadvantages which are as follows.
1. Higher overheads:- As every SUB recruits its own staff there may
be excess number. of employees in organization which leads to higher
overheads in terms of salary, training cost and others. There may be
also duplication of work.
2. Internal rivalry:- In this system every SUB tries to prove that they
are more efficient. They try to pull more resources towards each other
and accordingly there is creation of disputes.
24
3. Bias based support from top management:- It is possible that there Introduction to
Strategic Management
could be favouritism by top management amongst SBUs in terms of
supply of material, recognition, rewards or allocation of resources.
4. Problem of inter unit comparison:- it is quite possible to do
comparison between two or more units of the organization. This will
lead to create diluted atmosphere in the organization.
5. Challenging to implement: For SBUs to be successful, everyone
should work as a team. Each worker must be held accountable for
their productivity. Everyone must focus on the mission and vision of
the SBU for it to be successful. There should also be support from the
top level management. Any gaps is there in this, may result into failure
of SBUs.

Know your Progress:

What is Strategic business unit? Explain its advantages and
disadvantages

1.7 FUNCTIONAL STRATEGIES – HUMAN RESOURCE

STRATEGY, MARKETING STRATEGY, FINANCIAL
STRATEGY, OPERATIONAL STRATEGY

OPERATIONAL LEVEL STRATEGIES

Operational strategy is concerned with overall operation of an organization.
Through the development of operational strategies, the firm can evaluate
and implement efficient systems to carry out business operations. Without
a stable operations strategy, companies may not be able to keep up with the
changing markets and could start to lose to trendier competitors. the overall
business strategy.
Example - Amazon began to use drones for delivery. It was a change from
its traditional brick-and-mortar approach coupled with physical deliveries.

25
Strategic Management Under the operations level strategy, each department has to contribute to the
mission statement and administer strategies which underlie e overall
business strategy.
Functional level strategies are the actions and goals assigned to various
departments that support your business level strategy and corporate level
strategy. There should be alignment of business functions (operations) and
overall organizational strategies.
The functional (operational) strategy mainly includes production strategies,
marketing strategies, financial strategy and human resources strategy.

A. PRODUCTION STRATEGIES: Production strategies are mainly

aimed at improving quality, increasing quantity and reducing cost of
production. For this purpose there is need to consider following
activities.
1) Production capacity: The organization must decide its
production capacity. This is subjective and depends on demand
of the product in market and fluctuations in the market due to
competition, changing economic condition etc. However some
organization decides it on the basis of its sales forecast. Now a
day some firms are producing some part of production and
remaining part they purchasing from others. So by considering
of all these aspects, the business should fix its production
capacity.
2) Location and size of plants: While taking decision on location
the business certain factors must be considered such as safety
and security of location, availability of raw materials nearness
to market law and order situation at the place, availability of
infrastructure facilities as well as competent work force. Size of
the plant will be decided on the basis of projected demand for
product. If the projected demand is more, the size of plant will
be larger. Size of plant is also affected by dependency of the
firm on other firms which are supplying partially manufactured
26 goods.
 3) Technology:- The technological changes are taking place Introduction to
Strategic Management
frequently. It affects to the production strategy of the business.
Better technology helps to improve quality and quantity of
production as well as reduces wastage of resources.
4) Research and development:- R&D is done to develop
innovative products and modify existing products. Firms spend
lots of money on R&D activity. So the business firm should
spend on R&D to improve quality of their products.
5) Quality of product:- production strategies are concerned with
the quality of the product. Quality means fitness of the product.
And this differs from customer to customer. Here the firm needs
to know its customer first and then decide the quality of the
product that a customer may find it suitable or not. They may
like its quality, price etc. and then go for production.
B. MARKETING STRATEGIES: Marketing refers to understand and
fulfil needs of customers. Customer satisfaction is a core of
Marketing. It is important aspects of any organization as its success is
mostly attributed to the performance of the marketing. Therefore,
every business needs to frame suitable marketing strategies in respects
of the following.
1) Product strategy: Product refers to anything that marketer
offers to its customer in exchange of price. The marketer needs
to undertaken R&D activity to come up with innovative and
quality product as well as modify existing product.
The marketer has to decide about colour, size, shape, packaging,
price etc. relating to the product. Eg. Customers buy a car by
considering colour and size of the car.
The marketer should offer better quality products to its
customers which results into customer satisfaction and leads to
brand loyalty. This in turn helps to increase profit of the
company.
2) Pricing strategy:- Price refers to exchange value of the product
at which seller is ready to sell and buyer is ready to buy the
product. It is very sensitive part of marketing. With a minor
change in price there would be greater set back to sales.
Therefore the business unit considers various sub variables of
the price element such as cost of production, demand, economic
condition, competitor’s pricing strategy, corporate image of
firm etc.
The marketer may consider various pricing methods available.
Marketer can adopt cost-oriented pricing methods such as
cost-plus pricing, mark-up pricing and so on. Marketer can also
adopt market-oriented methods such as going-rate pricing,
differential pricing and so on.
27
Strategic Management Following are some of the pricing strategies adopted by
marketers:
a) Skimming pricing strategy:- In this strategy product is
introduced in the market by charging very high price. This
pricing strategy is adopted by the firms who want to
recover their heavy expenditure incurred on the part of
research and development and earning huge profit at
initial stage itself.
b) Penetration pricing strategy:- In this strategy product is
introduced in the market by charging low price. This
pricing strategy is adopted by the firms who want to
capture larger market share and enjoy benefit of
economies of large scale due to increased demand.
c) Other pricing strategies:-
• Leader pricing strategy
• Follow the leader pricing strategy
• Psychological pricing strategy.
3) Promotion strategy:- promotion means communication or
supply of information to the customer about products and
services. For this firm uses various means or tools of promotion
/ promotion mix like advertising, sales promotion, publicity,
personal selling and so on.
The marketer needs to consider various factors while selecting
means or tools of promotion. For example in case of advertising
marketer should consider budget, availability of media, nature
of product, target audience and so on.
The objectives of promotion are as follows:
• To create awareness
• To develop positive attitude
• To enhance brand image
• To improve corporate image
• To face competition
• To increase sales and profit
4) Place / Physical Distribution strategy:- Distribution means
supple of goods from manufacturer to customer. Regular and
timely supply of goods helps to maintain price stability and
customer can satisfy his/her need. The marketer needs to
consider certain factors in the area of distribution such as
decision on channels of distribution, area of distribution,

28
 dealer’s network, and policies regarding dealer’s incentives, Introduction to
Strategic Management
commission rates etc.
The marketer can adopt direct channel of distribution or indirect
channel of distribution.
Under direct channel of distribution, the marketer supplies
product to customer without any intermediaries. For this
marketer needs to have well trained sales team, own vehicles,
warehouse etc.

MANUFACTURER CONSUMER

Under indirect channel of distribution, the marketer can

supply product to customers via intermediaries like agent,
wholesaler and retailer.

MANUFACTURER WHOLESALER RETAILER CUSTOMER

C. FINANCIAL STRATEGY: Finance is the back bone of every

business organization. Therefore the financial management of the
business units deals with planning, raising, utilizing and controlling
functions of the financial resources of the organization to attain its
goal. Generally financial policies are design from the view point of
1) Mobilization/raising of funds:- The finance manager needs to
decide source of mobilizing funds. The funds should be
arranged from right sources otherwise it may increase interest
burden of the organization. The finance manager can mobilize
funds by issue of shares, debentures, bonds. They can also
organize funds by borrowing loans from banks and financial
institutions.
2) Utilization/investment of funds: Once the business firm has
mobilized/raised required amount of capital, the finance
manager has to take decision regarding the use of the funds in
systematic manner so that it will bring maximum return for its
owners.
The business firm can invest its capital into
✓ Fixed Assets - Purchase of Furniture, Fixture, Land & Building,
Machinery, Tools, Equipment’s
✓ Working Assets - Purchase of Raw Material, Payment of
Utility Bills, Payment of Wages
⚫ Capital structure:- Capital structure refers to the composition
of firm’s long term funds comprising of equity shares,
29
Strategic Management preference shares and long term loans. There should be proper
ratio between owned and borrowed funds. It is to be noted that
one should not place too much emphasis on borrowed fund
because it puts burden on company’s financial aspects as there
should be regular payment of interest and repayment of loan.
Also too much emphasis on equity (own) capital is not good as
it dilutes the decision making power. In shot there should be
balance between borrowed and owned capital.
⚫ Depreciation policies: Depreciation is a activities which
provides compensation to the risk of wear and tear. There are
two methods of depreciation known as
• Fixed line method and
• Reducing balance method.
Under the company law both methods are accepted but for
income tax purpose, in certain cases written down method is
accepted and, in some cases, straight line method is accepted.
⚫ Dividend strategy:- Dividend is a return on investment given
to the shareholders. No doubt every shareholder wants to have
a good rate of return on their investment and most of the
companies are willing to do so. Here as per financial strategy
company should think of its effects on financial aspects and then
go for either liberal dividend policy or conservative dividend
policy.
⚫ Retained earnings strategy:- It is internal source of financing.
It is nothing but ploughing back of profit. Some part of profit is
transferred to ‘General Reserved’ every year which is used in
the future for expansion of business.
Here the company should have to think of that what portion of
profit is to be kept for future activities like:
• Future needs of funds for development.
• To provide stable dividend to the shareholders or
• To meet the restrictions of financial institutions etc.
D. HUMAN RESOURCE STRATEGY: Human resource is the most
important resource among all resources required by an organization.
This is the only alive and sensational resource. So every organization
those who want to develop and grow rapidly should be very cautious
about these resources and should plan for their best uses and
performances. If business is able to do so then it will attain its apex
level of success without any hurdles. For this the organization has to
take decisions in regards to:
1) Human Resource Planning (HRP): HRP is a primary activity
of HRM. HRP is the process by which the organization ensures
30
 that it has the right kind of people at the right time and at the Introduction to
Strategic Management
right place. HRM process involves:
• Review organizational goals
• Forecast HR requirements
• Forecast HR supply
• Comparison of HR requirement and supply and find out
deviation (if any).
• Take corrective action, if there is shortage or surplus of
manpower
2) Acquisition Function:
• Job Analysis: Collecting information related to the
operations and responsibilities of a specific job
• Recruitment: It is a process of searching for prospective
employees and stimulating them to apply for jobs in the
organization.
• Selection: Choosing the most suitable candidates from
those who have applied for the post.
3) Placement: It refers to placing right employees in the right
department. E.g. If the candidate has the knowledge of
accountancy, he should be placed in accounts department. Right
placement can bring job satisfaction, motivation and
commitment among employees.
4) Training and Development: Training and development refers
to the imparting of specific skills, abilities and knowledge to the
employees. It helps to improve employees’ performance.
Training can be on-job or off-job.
5) Compensation: Compensation refers to the reward given to
employees for their labour. It includes

• Monetary form of compensation like salary, bonus,

incentives etc.

• Non-monetary form of compensation like certificate,

award, hosting for lunch/dinner etc.
6) Performance Appraisal: It refers to systematic evaluation of
employees’ job related strengths and weaknesses. Such
evaluation is done with respect to certain predetermined criteria
such as job knowledge, quality and quantity of output, co-
operation, leadership abilities, versatility etc. Performance
appraisal helps to identify strengths and weaknesses of the
employees. This helps in framing training and development
programs.
31
Strategic Management 7) Promotion: It refers to vertical movement of employee with
higher pay and higher position. At higher level the promotion
can be on merit basis. At lower level promotion can be on
seniority basis.
8) Career planning and development: Career planning involves
deciding on the career goals of the employees and the route to
achieve these. Career development refers to programs designed
to match an individual’s needs, abilities and career goals with
opportunities in the organization.
9) Maintenance functions: It refers to protecting and promoting
the health and safety of the employees. For this the organization
adopts health and safety measures. It also provides other
benefits such as medical aid, provident fund, pension, gratuity,
medical benefits, accident compensation etc. to the employees.

1.8 SUMMARY
Strategic management provides the framework for all the major business
decisions of an enterprise such as decisions on businesses, products and
markets, manufacturing facilities, investments and organizational structure.
In a successful corporation, strategic planning works as the pathfinder to
various business opportunities; simultaneously, it also serves as a corporate
defence mechanism, helping the firm avoid costly mistakes in product
market choices or investments. Strategic management has the ultimate
burden of providing a business organization with certain core competencies
and competitive advantages in its fight for survival and growth.

1.9 EXERCISE
Select the most appropriate answer from the options given below
1) The word ‘strategy’ has been derived from Greek word
_____________
(Strategos, Strategist, Stratesto, Stratestee)
2) Strategic intent includes ____________________ of the organization.
(Vision, Mission, Goals, All of these)
3) The business objectives should be SMART, where ‘M’ stands for
_____________
(Minimum, Maximum, Measurable, Minor)
4) Offering same product in new market is know as _____________
(Market Penetration, Market Development, Product Development,
Market Diversification)
5) The vision statement should be _____________
(Ambiguous, Longer, Realistic, All of these)
32
6) Strategic Management helps in _____________ Introduction to
Strategic Management
(SWOT Analysis, Planning Activities, Organizing Resources, All of
these)
7) _____________ risk might be possessed by strategic management.
(Unrealistic Mission and Objectives, Problem of Setting Target,
Problem in Implementation, All of these)
8) _____________ strategy is adopted by the firm when it tries to hold
on to their current position in the market.
(Stability, Growth, Liquidation, All of these)
9) The objective of growth strategy is _____________
(Expansion of Business, Maximize Risk, Reduce efficiency, Exit
from market)
10) _____________ a temporary partnership, established for a definite
purpose, which may or may not uses a specific firm name.
(Merger, Turnaround, Joint Venture, Diversification)
State whether the following statements are True or False.
1) In merger strategy business takes decision to sell its entire business
and the amount realized from it can be invested in another business.
2) Diversification strategy refers to converting loss making unit into a
profitable one.
3) SBU stands for Specific Business Unit.
4) In penetration pricing strategy product is introduced in the market by
charging very high price.
5) Retained earnings strategy falls under Human Resource Strategy
6) Marketing strategy includes product strategy, pricing strategy,
Promotion strategy and Distribution strategy.
7) Hero-Honda is an example of Merger strategy.
8) Strategic management is the process which involves development and
implementation of business plans so as to achieve business objectives.
9) Strategic Management Process involves Strategic Intent, Strategy
Formulation Strategy Implementation and Strategy Evaluation.
10) Goals are the end results, that the organization attempts to achieve.

33
Strategic Management Match the Pairs

Group ‘A’ Group ‘B’

1. Market Penetration a. Multi-products company
2. Conglomerate b. Negative cash flows
Diversification
3. SBU c. Quality of Product
4. Production Strategy d. Offering same product in same market
5. Divestment e. New business is not related with
Strategy existing business
f. Offering new product in same market

Long Answers
1. Explain the concept of Strategic Management. Discuss the process
involved in Strategic Management.
2. Write a note on following
a. Vision
b. Mission
c. Goals
3. ‘Strategic Management is beneficial in the business management’
Discuss.
4. What are the risks posses to strategic management?
5. Discuss the Corporate Level Strategy with suitable examples.
6. Elaborate Business Level Strategy in detail.
7. Describe Operational Level of Strategy of an organization.
8. Explain the functional strategy with regards to:
a. Human Resource Strategy
b. Marketing Strategy
c. Financial Strategy



34
 2
STRATEGY FORMULATION
ANALYSIS AND CHOICE
Unit Structure:
2.0 Objectives
2.1 Introduction
2.2 Strategy Formulation
2.3 Strategic Analysis and Choice
2.4 Corporate Portfolio Analysis
2.5 Strategic Implementation
2.6 Strategic Evaluation and Control
2.7 Summary
2.8 Exercise

2.0 OBJECTIVES

After studying this unit the student will be able to

• Understand stages involved and importance of strategy formulation
• Explain the concept of Mergers, Acquisitions, Takeovers, Joint
Ventures, Diversification, Turnaround, Divestment and Liquidation
• Know the issues and structure of Strategic Analysis and Choice
• Explain concept of SWOT Analysis, BCG Matrix, GE Nine Cell
Matrix, Hofer’s Matrix,
• Know the concept of ETOP- Environmental Threat and Opportunity
Profile
• Explain factors and importance Strategic Choice

2.1 INTRODUCTION

Strategy formulation is the process by which an organization chooses the

most appropriate courses of action to achieve its defined goals. It is one of
the steps of strategic management. This process is essential to an
organization's success, because it provides a framework for the actions that
will lead to the anticipated results.
Strategic analysis and choice is a process that involves researching an
organization's business environment within which it operates and different
alternative strategies. After that choosing the best strategy which may bring
maximum prosperity for an organization.

35
Strategic Management Strategy Formulation, Strategy Analysis and Choice are discussed in detail
in this chapter.

2.2 STRATEGY FORMULATION - STAGES AND

IMPORTANCE

Meaning
Strategy formulation is the process of determining appropriate courses of
action for achieving goals of the organization and thereby accomplishing
mission of an organization. In a business context, strategy formulation
refers to type of products the organisation will deliver to customers, type of
market they will enter into, requirements of human resources, allocation of
resources, and returns expected by company. Strategic formulation is very
important as it is the crucial part in the strategic management.
In simple words, strategy formulation is the process of developing the
strategy.
Stages involved in Strategy Formulation

1) Framing of mission statement : Mission delineates the firm’s

business, its goals and ways to reach the goals. It explains the reason
for the existence of the business.. And all most all business frames the
mission statement to keep its activities in the right direction.
2) Analysis of internal & external environment: The management
must conduct an analysis of internal and external environment.
Internal environment consists of mission and objectives of the firm,
goals and objectives of the firm, manpower, machines, capital etc.
which resides within the organization and easily alterable and
controllable. Its analysis helps to identify strength and weakness of
the organization.

36
 External environmental factor includes government, competitions, Strategy Formulation,
Analysis and Choice
consumers, and technological developments. Which resides outside
the organization. These are not alterable and controllable. Its analysis
helps to identify opportunities and threats for organizations.
3) Setting of objectives: After SWOT analysis, the management is able
to set objectives in key result areas such as marketing, finance,
production, and human resources etc. While setting objectivities in
these areas the objectives must be SMART i.e. Specific, Measurable,
Attainable, Realistic and Time Bound.
4) Gap Analysis : By undertaking gap analysis management compares
and analyses its present performance level with the desired future
performance. This enables the management to find out exact gap
between present and future performance of the organization. If there
is adequate gap then, the management must think of strategic
measures to bridge the gap.
5) Alternative strategies : After making SWOT analysis and gap
analysis management needs to prepare (frame) alternative strategies
to accomplish the organizational objectives. It is necessary to have
alternative strategies as if one strategy doesn’t work another strategy
can be implemented.
6) Evaluation of strategies : The management must evaluate every
alternative strategy on the basis of Cost and Benefit Analysis (CBA).
The benefits and costs of each every alternative strategy in term of
sales, market share, profit, goodwill and the cost incurred on the part
of the strategy in terms of production, administration, and distribution
costs.
7) Choice of strategy : It is not possible to any organization to
implement all strategies therefore management must be selective. It
has to select the best strategy which incurs less cost and more benefits.
Importance of strategy formulation
1) Effective Communication: Strategy formulation enables to
communicate strategic plan to all the members of an organization. It
provides employees with a clear vision about purposes and objectives
of the firm.
2) Help to predict future changes: The formulation of strategy enables
an organization to examine the prospect of change in the foreseeable
future. Accordingly an organization can prepare itself for such change
rather than to wait passively until market forces adversely affect to
business functioning.
3) Helps in capital budgeting: Strategic formulation allows the firm in
capital budgeting. Companies should raise their fund from right
source and invest it wisely. The company must invest its capital funds

37
Strategic Management where they will be most effective and derive the highest returns on
their investments.
4) Provides Direction: A strategy formulation provides a clear strategic
plan which in turn gives its decision makers a proper direction. In
highly competitive markets, a firm without a clear strategy is likely to
be defeated by its rivals (competitors) and as a result of which the firm
may face declining market share or even declining sales.
5) Increase profitability: The organizations that use sound strategy
formulation may be more profitable than firms that do not have a
robust strategy formulation and plan. Strategy formulation enables the
organization to engage in forward-looking plans and allows the
organization to carefully evaluate its priorities. It results into increase
in profitability of an organization.
6) Helps to achieve organizational goals: Strategy formulation
provides a discipline within the organization. The top management
constantly evaluates its performance in reference to the future goals.
It gives the organization a better understanding of what needs to be
done to achieve its objectives.
7) Helps in decision-making: A strategy formulation provides a
structure within which all employees of an organization can make
everyday decisions and ensure that those decisions are all moving the
organization in a single seamless direction.
8) Enables measurement of progress: The strategic formulation
process enables an organization to establish objectives and to measure
progress in achieving those objectives. The formulation process
enables the organization to determine what is important and critical
for the progress of the organization.
Formulation of Alternative Strategies

38
MERGERS: The term ‘merger’ is used to mean the unification of two or Strategy Formulation,
Analysis and Choice
more business houses to form an entirely new entity.
It is a strategy adopted by the company to maximise company’s growth by
expanding its production and marketing operations, that results in synergy,
increased customer base, reduced competition, introduction to a new
market/product segment, etc.
Forms of Merger

• Merger through Absorption: When two or more companies are

combined and only one company survives after the merger, while the
rest of all cease to exist as they lose their identity is called merger
through absorption. E.g. Tata Chemicals Limited (TCL) absorbed
Tata Fertilizers Limited (TFL).

• Merger through Consolidation: When two or more companies are

combined and give birth to a new company, it is known as merger
through consolidation. This implies that all the companies to the
merger are dissolved, i.e. they lose their identity and a new company
is created. E.g. Consolidation of Hindustan Computers Limited,
Indian Reprographics Limited, Indian Software Company Limited
Hindustan Instruments Limited, to form a new company HCL
Limited.
Advantages of Merger :

• It enables the pooling of resources and streamlining of operations,

thereby, resulting in improved operational efficiencies.

• The merged firms enjoy benefit of economies of scale. Merger may

result into increasing demand. This in turn results into increasing
production and distribution capacity of firm. When production
increases the firm purchases raw material on large scale and they get
discount. So the firm saves on raw material. The firm also save on
transportation cost as the transportation cost is mostly fixed.

• Merger provides faster growth to business as it offers advantages in

several areas such as marketing, production, finance, R&D and so on.

• When a company is having accumulated losses and it is merged with

another company. The newly formed company gets benefit in
taxation.

• Merger allows companies to share technology and other facilities

such as plant, market, human resources etc.

• The benefit of economies of large scale is shared with customers in

the form of reduced price. Also due to R&D activity customers get
better quality and innovative product. So when customers get better
quality products at lesser price, it results into customer satisfaction.

39
Strategic Management ACQUISITIONS: An acquisition takes place when one of the company
purchases mostly all of the shares of the other company for gaining the
control of other companies. Purchasing the target company’s shares and
other assets by more than 50% allows the acquirer to take the decisions of
the acquired company without the approval of the company’s shareholders.
The acquisition is considered to be a critical component and an important
change agent of any strategy of the business. Example - Acquisition of the
Company Ranbaxy by the Sun Pharmaceuticals.
Advantages of Acquisition Strategy: Answer same as “Advantages of
Merger”
TAKEOVERS: A takeover is a special form of acquisition that occurs
when a company takes control of another company without the acquired
firm’s agreement. In other words, takeovers occur when a company takes
over and purchases a company without the permission of the company or
its Board of Directors.
There are two methods by which companies can undertake takeover
which are as follows:

• Tender Offers involve after the refusal from the management of

target company for the initial offer proposed, the acquiring company
purchases the shares of the target firm directly from shareholders, or
on the secondary markets. Therefore, buying all or a majority of the
company’s shares allows the acquiring company to possess ownership
of the target company. To purchase shares, the acquiring corporation
offers a higher price to shareholders than the market value of the
stock.

• Proxy Fight involves the acquirer company after being refused for
their initial offer for the acquisition of the target company, tries to
change the members of management for the decision to be in their
favour. For such to happen, the acquirer company will convince the
shareholders to exercise their proxy vote and try to change the
members of the management who are opposing the takeover and
replace them with the new members who are more reliable and
receptive to the decision of takeover and give their decision for the
change of ownership of the business.
Advantages of Takeover: Answer same as “Advantages of Merger”
JOINT VENTURES: Joint Venture can be described as a business
arrangement, wherein two or more independent firms come together to form
a legally independent undertaking, for a stipulated period, to fulfil a specific
purpose such as accomplishing a task, activity or project. In other words, it
is a temporary partnership, established for a definite purpose, which may or
may not uses a specific firm name.
For example, Maruti Ltd. of India and Suzuki Ltd. of Japan come together
to set up Maruti Suzuki India Ltd.
40
The firms joining hands in a joint venture are called Co-venturers, which Strategy Formulation,
Analysis and Choice
can be a private company, government company or foreign company. The
co-venturers come to a contractual agreement for carrying out an economic
activity, which has shared ownership and control. They contribute capital,
pooling the financial, physical, intellectual and managerial resources,
participating in the operations and sharing the risks and returns in the
predetermined ratio.
Advantages of Joint Venture
Answer same as “Advantages of Merger”
DIVERSIFICATION: Diversification is one type of growth strategy. In
this strategy company develops new products in new markets. The purpose
of this strategy is risk sharing i.e. if one of the enterprises is taking a hit in
the market, one of your other business enterprises will help offset the losses
and keep the company viable. For example, an auto company
may diversify by adding a new car model or by expanding into a related
market like trucks
Types of Diversification:

• Vertical diversification: When a company enters into new business

which is in similar lines of activity of existing business is called
vertical diversification. Such extension is of two types known as:

• Backward diversification: It is a diversification where company

moves one step back from the current line of business. For example a
car manufacturing unit enter into it’s components such as seats, tyre,
glass etc. manufacturing unit.

• Forward diversification: In this case company enters into the

activity which is extension of its current business. For example cloth
manufacturer enter into readymade garment manufacturing.

• Horizontal diversification: In this case company enters into a new

business which is very closely related with existing line of business
and it is with the help of the same technology and the market. For
example gent’s garments manufacture enter into ladies garments
manufacturing.

• Concentric diversification: - When a company enters into new line

of business which is indirectly related with existing business is called
concentric diversification. For example a car seller may start finance
company. So that the firm can offer finance to the customers who are
willing to purchase car.

• Conglomerate diversification: - When a company enters into new

line of business which is not at all related with existing business is
called conglomerate diversification. There is a no linkage between old
and a new business. For example Transport operator entered into
furniture manufacturing
41
Strategic Management There are certain reasons because of company go for diversification.
The reasons are as under
1) Spreading of risk: - Diversification enables to spread the risk. Since
the business operates in a different market. If in one market business
suffers losses, that can be compensated in other market and the levels
of profit will be maintained.
2) Improves corporate image: - Corporate image is creating image of
the firm in the mind of stakeholder. It enables firm to get support from
stakeholders. Through the diversification company introduces
innovative products/services of better quality which helps to create
positive image of firm among stakeholders.
3) Face competition effectively: - Due to the diversification company
introduce wide range of products and services. This enables company
to maintain it’s sale level in the market and face competition
effectively.
4) Customer satisfaction: - When the firm enters into new business
with new product, it assures to give better qualitative product and
services. This leads to customer’s satisfaction.
5) Optimum Utilization of resources: - Diversification enables
company to make optimum (maximum) use of physical, financial and
human resources. This is possible due to increase in demand and
production capacity of the firm.
6) Economies of scale: - Due to diversification strategy there is increase
demand to a products which results in large scale production and
distribution. The firm purchases raw material in large quantity and
gets discount. So the firm saves on raw material. The firm is also able
to save on transportation cost
TURNAROUND : Turnaround strategy is a retrenchment strategy
which includes converting loss making unit into a profitable one. It is
possible when company restructure its business operations. Its aim is to
improve the declining sales, market share and profit because of high cost of
materials, or increase competitions, recession, managerial inefficiency.
Example: Dell is the best example of a turnaround strategy. In 2006. Dell
announced the cost-cutting measures and to do so; it started selling its
products directly, but unfortunately, it suffered huge losses. Then in 2007,
Dell withdrew its direct selling strategy and started selling its computers
through the retail outlets and today it is the second largest computer retailer
in the world.
Steps to Planning Turnaround Strategy
1) Control over cash flow: If the business spends cash for unproductive
purpose, take action to stop it as soon as is possible. Spending cash
only where there is productive purpose or required is wise for business
42 turnaround.
2) Turnaround Team: It is crucial to the success of a turnaround plan Strategy Formulation,
Analysis and Choice
to have the right team in place. The team should have turnaround
specialist with experience of turning around their own businesses and
supportive staff.
3) Prepare Business Plan: It is necessary to offer appropriate product
for current market requirement. The manager should provide what
customer wants and accordingly design business plan to serve the
market.
4) Control over cost: It is essential to reduce overheads and waste. Cost
control can be done on raw material, promotional activities and so on.
5) Raising Turnaround Finance: The business can find out finance
partner who can finance to restore your business by turnaround
strategy. There are specialist providers of all these types of finance
available in the market place.
6) Communicate turnaround plan: it is necessary to communicate
turnaround plan to key stakeholders such as employees, suppliers,
customers, investors, shareholders etc. It will help business to get their
support
DIVESTMENT : The Divestment Strategy is a retrenchment strategy
which includes the downsizing of the scope of the business. The firm is said
to have followed the divestment strategy, when it sells or liquidates a
portion of a business or one or more of its Strategic Business Units (SBU)
or a major division, with the objective to revive its financial position.
The divestment is the opposite of investment; wherein the firm sells the
portion of the business to realize cash and pay off its debt. Also, the firms
follow the divestment strategy to shut down its less profitable division and
allocate its resources to a more profitable one.
An organization adopts the divestment strategy only when the turnaround
strategy proved to be unsatisfactory or was ignored by the firm.
Example: Tata Communications is the best example of divestment strategy.
It has started the process of selling its data centre business to reduce its debt
burden.
There is certain reason for divestment

• Withdrawal of obsolete products:- Those products which do not

give adequate return to the firm will be removed. And the products
which are having good market share and profitable will be continued.

• Problem of Mismatch:- The business which is undertaken by the

company is not matching with the existing business line. Therefore
the company may take initiative to gate red of newly acquired
business

43
Strategic Management • Problem of competition:- Sometimes due to tough competition
company may withdraw some products from the market or sell the
units producing such products.

• Negative cash flows:- When business gets negative cash flows from
a particular business. The revenue collected from such a business is
lower as the expenditure incurred on it therefore it is to be divested

• Technology Up-gradation:- Technology Up-gradation is important

for survival of business. But the cost of up-gradation is so high which
is not affordable to business therefore that business activity is to be
divested

• Concentration on Core Business:- When business undertake

number of activities at a time, then it may be difficult to the business
to manage all activities satisfactorily. Due to this business ignore its
over activity which leads to loss in business therefore to concentrate
on core business divesting other activities is essential.

• Alternative for Investment: - Some time, by divesting certain

activity company can invest its blocked fund into some another
investment alternative which will give good return

• Returns to Shareholders: - Company, by divesting may increase

shareholders return by giving shareholder hefty dividend.

• Attractive Offers from Other Firm: - Sometimes it happens

company may get offer from another company. To invest in a good
return giving from company may divest current activity.
LIQUIDATION: This is extreme case of divestment strategy and is
undertaken in the situation when all the efforts of reviving the company
have come to an end. There is no possibility that the business can made
profit making unit again. In such situation business takes decision to sell its
entire business and the amount realized from it can be invested in another
business. When it is done it is known is liquidation. Generally, small sized
firms, proprietorship firms and the partnership firms follow the liquidation
strategy. Example - MH Carbon was established in September 2010 and
went into voluntary liquidation in May 2013.
There are certain reasons because of the liquidation has taken place
that reasons are –
1) Heavy Losses:- When business incurs heavy losses continuously in
the business. It decides to sell off that such business.
2) Less Returns:- The company is not able to earn sufficient profit to
meet its expenditure. There is piling up of losses. As a result of which
the company adopts liquidation strategy
3) Poor management: The top management of company becomes non-
supportive. The business decisions taken are poor. All this affects the
44 functioning of the business. So liquidation takes place.
4) Failure of corporate strategy: The corporate strategy adopted by Strategy Formulation,
Analysis and Choice
company fails badly. Which result into liquidation of entire business
functions.
5) Obsolete product: The product offered by company is no more
demanded by the market. This is because of change in the preferences
of customers. This is one of the major reason for many companies to
go for liquidation.

Know your progress:

Write a note on:
Mergers, Acquisitions, Takeovers, Joint Ventures, Diversification,
Turnaround, Divestment and Liquidation

2.3 STRATEGY ANALYSIS AND CHOICE - ISSUES AND

STRUCTURES

Meaning
Strategy analysis and choice focuses on generating and evaluating
alternative strategies and selecting best strategy out of alternative strategies.
Strategy analysis and choice seeks to determine alternative courses of action
that could best enable the firm to achieve its mission and objectives.
Issues and structures of strategy analysis and choice
1) Environmental Constraints: The business environment is dynamic
in nature. It keeps on changing which affects the choice of strategy is
made. The choice of strategy is affected due to external factors of
business environment such as shareholders, customers, suppliers,
competitors, the government and the community. So if accurate
prediction of changes in environment is not made, the chosen strategy
may not give expected returns.
2) Intra-Organisational Factors: Organisational factors also affect the
strategic choice. These include mission, vision, goals, resources,
policies, etc. Besides these factors it also includes, organisational
strengths, weaknesses, and capability. If chosen strategy is not in line
with these intra-organizational factors, again it may not give expected
return to the organization.
3) Corporate Culture: Every organisation has its own corporate
culture. It is made of a set of shared values, beliefs, attitudes, customs,
norms, etc. The successful functioning of an organisation depends on
‘strategy-culture fit’. If chosen strategy mismatches the cultural
framework of a company, it may not give expected result.
4) Pressures from Stakeholders: The choice of strategy is influenced
by pressure from stakeholders. Creditors want to be paid on time.
Unions exert pressure for comparable wage and employment security.
45
Strategic Management Governments and interest groups demand social responsibility.
Shareholders want dividends. If chosen strategy doesn’t fulfil
requirements of these stakeholder, they will not support too.
5) Impact of Past Strategies: It has been noticed that the choice of
current strategy may be influenced by what type of strategies have
been used or followed in the past. The management may follow
traditional philosophy and may choose the strategy that closely
parallels past strategy. Because they have invested substantial time,
resources and interest in these strategies. But past strategy may not be
currently beneficial for an organization.
6) Personal Characteristics of strategist: Personal factors of strategies
like own perception, views, interests, preferences, needs, aspirations,
personal disposition, ambitions, etc., are important and play a vital
role in affecting strategic choice. But such strategy may not be
objective. It may have personal biasness on the part of strategist.
7) Managerial Attitude towards Risk: Managerial attitude towards
risk is an important factor that influences the choice of strategy.
Individuals differ considerably in their attitude towards risk taking.
Some are risk prone; others are risk averse and accordingly strategy
choice can be made. Managers who are risk averse, may choose
strategy with low risk and vice-versa. But such strategy may not be
always fruitful for an organization.
8) Governmental Policies: This includes the regulations, directives,
guidelines etc. of business environment. The government plays a
crucial role in setting down the priorities and projects of the business.
A change in government policies may affect the future prospects of a
business. Almost every industry depends on the governmental
policies to a great extent. So changes in government policies may
result into failure of a strategy of an organization.

2.4 CORPORATE PORTFOLIO ANALYSIS - SWOT

ANALYSIS, BCG MATRIX, GE NINE CELL MATRIX,
HOFER’S MATRIX

46
SWOT ANALYSIS: SWOT is stands for Strengths, Weaknesses, Strategy Formulation,
Analysis and Choice
Opportunities and Threats. Strengths (S) and Weaknesses (W) are
considered to be internal factors of business environment over which firm
has some measure of control. Opportunities (O) and Threats (T) are
considered to be external factors of business environment over which firm
has no control.
SWOT Analysis is the most renowned tool for audit and analysis of the
overall strategic position of the business and its environment. Its purpose is
to identify the strategies that will create a firm specific business model. Such
business model will best support an organization’s resources and
capabilities as well as the requirements of the environment in which the firm
operates. It views all positive and negative factors inside and outside the
firm that affect the success. A consistent study of the environment in which
the firm operates helps in forecasting/predicting the changing trends and
also helps in including them in the decision-making process of the
organization.

1. Strengths - Strengths are the qualities that enable us to accomplish

the organization’s mission. Strengths can be either tangible or
intangible. It refers to something in which a firm is well-versed
expertise in. Strengths are the beneficial aspects or the capabilities of
an organization, which includes human competencies, process
capabilities, financial resources, products and services, customer
goodwill and brand loyalty. Examples of organizational strengths are:
• Latest Technology
• Emphasis on R&D
• Broad product line
• No debt,
• Committed employees
• Huge financial resources
• Optimum use of resources
2. Weaknesses - Weaknesses are the qualities that prevent an
organization from accomplishing its mission and achieving their full
potential. These weaknesses deteriorate influences on the
organizational success and growth. Weaknesses are the factors which
47
Strategic Management do not meet the standards we feel they should meet. Examples of
organizational weaknesses are:
• Outdated technology
• Lack of emphasis on R&D
• Narrow product range
• Huge debts
• high employee turnover
• wastage of raw materials
• Poor decision-making
Weaknesses are controllable. They must be minimized and
eliminated. Example - to overcome obsolete machinery, new
machinery can be purchased.
3. Opportunities - Opportunities are presented by the environment
within which organization operates. Organization should be careful
and recognize the opportunities and grasp them whenever they arise.
Organizations can gain competitive advantage by making use of
opportunities. Opportunities may arise from market, competition,
industry/government and technology.
Example - Increasing demand for diet food accompanied by
healthcare awareness among people is a great opportunity for new
firms to enter die food production business and compete with existing
firms for revenue.
4. Threats - Threats arise when conditions in external environment
jeopardize (risk/endanger) the profitability of the organization’s
business. Threats are uncontrollable. When a threat comes, the
stability and survival can be at stake / at risk. Examples of
organizational threats are:
• Unrest among employees
• Ever changing technology
• Increasing competition leading to excess capacity
• Price wars and reducing industry profits
Advantages of SWOT Analysis
1) Builds organization’s strengths.
2) Reverse its weaknesses.
3) Maximize its response to opportunities.
4) Overcome organization’s threats.
5) It is a source of information for strategic planning.
6) It helps in identifying core competencies of the firm.
7) It helps in setting of objectives for strategic planning.
8) It helps in knowing past, present and future so that by using past and
current data, future plans can be chalked out.
48
BCG MATRIX: BOSTON CONSULTING GROUP MATRIX: BCG Strategy Formulation,
Analysis and Choice
Matrix was developed by Boston Consulting group, USA. According to this
technique, businesses or products are classified as low or high performers
depending upon:
• Industry Growth Rate
• Firm’s Market Share

1) The stars are market leaders and are usually able to generate enough
cash to maintain their high market share. When their market growth
rate slows, stars become cash cows. The main features of stars are:
• High industry growth rate.
• High market share
The firm may undertake various activities such as:
• R & D introduce better features
• Effective after sales service to enhance customer loyalty
2) The question marks are also called as wild cats. They are new
products with the potential for success, but they need a lot of cash for
development. The main features of question marks are:
• High industry growth
• Low market share
The firm may adopt growth strategy for question marks. Various
activities may be undertaken to transform question marks into stars.
• Penetration pricing strategy
• Effective sales promotion & other elements of promotion – mix
• Dealers incentives
• Enhancing customer relationship
3) The cash cows bring in far more money than is needed to maintain
their market share. In their declining life cycle, the money of cash
49
Strategic Management cows is invested in new question marks. The main features of cash
cows are:
• Low industry growth
• High market share
The company may adopt stability strategy. Various activities may be
undertaken such as:
• Retentive advertising to maintain customer loyalty
• Guarantees and warranties depending upon the nature of
product.
4) The dogs have low market share and do not have the potential to bring
in much cash. According to BCG matrix, dogs should be either sold
off or managed carefully for the small amount of cash they can
generate. At times, the dogs may be withdrawn from the market so
that the company concentrates its efforts on question marks or stars.
The main features of dogs are:
• Low industry growth
• Low market share
GENERAL ELECTRIC (GE) NINE CELL MATRIX: General Electric
of USA, with the support of the consulting firm McKinsey and Company
developed a more complicated matrix as a technique of portfolio analysis.
The GE screen includes 9cells based on two parameters – long term industry
attractiveness and business strength or competitive position.
The GE screen includes:
• Industry attractiveness in case of growth rate, profitability, seize,
pricing practices, other possible opportunities and threats.
• Business strength of a firm, which include its market share,
technological up gradation, profitability, and size, and other possible
strengths and weaknesses.
The GE Business Screen can be depicted in the following exhibit:

The nine cells of the GE matrix are grouped on the basis of low to high
industry attractiveness, and weak to strong business strength or competitive
50
position. Three zones are made, each indicating different combinations Strategy Formulation,
Analysis and Choice
represented by green, yellow and red colors.
• Green Zone: The green zone indicates firm’s competitive position is
strong and industry attractiveness is high in case of certain products
and firm’s competitive position is strong and the industry
attractiveness is medium in the case of certain products. The green
zone signal is to “Go ahead”.
• Yellow Zone: The yellow zone indicates firm’s competitive position
is strong and industry attractiveness is low in case of certain product
and its average and the industry attractiveness is medium in the case
of certain products. The yellow zone gives signal for “wait and
watch”.
• Red Zone: The red zone indicates the firm’s competitive position is
average and industry attractiveness is low in case of certain products
and firms competitive position is weak and the industry attractiveness
is low the case of certain products. The red zone gives the signal to
“stop”.
Overall the 9 cell GE Business Screen is an improvement over the BCG
Matrix.
HOFER’S MATRIX: Hofer matrix is one of the tools used to determine
the assessment of the Competitive position of the company, as determined
by its internal and external factors. 15 squares matrix was created by Ch.W.
Hofer.
Matrix is created on the basis of two criteria:
a) The maturity of the sector, divided into 5 phases
b) The competitive position of companies in the sector.
In this way circles are created, which represent different areas of activity in
the company, and the size of the circle is proportional to size of the sector.
Sometimes segments could be added to the circle, which reflect
the market share of company in the sector.
Below is a sample matrix constructed according to the principles set out by
Hofer. In its interpretation attention should be paid to possible strategies for
products, their life cycle phases and the markets in different sectors.

51
Strategic Management • Products A - Dilemmas that have chance of success with
appropriate marketing strategies and financial aid

• Products B - Winners, require appropriate marketing strategies and

financial aid, if company has limited resources for advertising
managers must make a choice between products A and B

• Products C - Potential losers, the weak position, the sector in the

growth phase - managers should make additional analyses to rule out
the possibility of going through the shock phase

• Products D - despite the current difficulties can become market

leaders or profitable producers

• Products E and F are profitable, so it is possible to introduce other

products in the phase of shock and generate considerable profits

• Products G and H are the losers are in the exit phase of the market,
ahead of the full withdrawal managers should use strategies for
"gathering the harvest"

Know your progress

1. Explain BCG matrix with the help of case example
2. Write Swot analysis of any company and explain it.

2.5 STRATEGIC IMPLEMENTATION - STEPS,

IMPORTANCE AND PROBLEMS

Strategy implementation refers to putting the organization’s chosen strategy

into action so as to achieve strategic goals and objectives.
Steps in Strategy Implementation

52
1) Formulation of plans: Strategy itself does not lead to action. So it Strategy Formulation,
Analysis and Choice
requires formulation of proper plan to implement the chosen strategy.
E.g. If organization chose expansion strategy, then various expansion
plans needs to be framed. It may include:
• Market Development – Offering same product in new market
• Market Penetration – Modification in the same product and
offering in the same market
• Product Development –Offering new product in same market
2) Identification of activities: After formulating plans, next stage is to
identify various activities need to undertake in order to successful
implementation of strategy. Eg. For market development plan
includes following, activities:
• Market Research: To understand market condition in terms of
customer requirements, competition, economic condition etc.
• Selection of Intermediaries: They help to sell product to final
consumers.
• Decide Marketing Strategy: Decision about 4Ps i.e. Product,
Price, Promotion and Place.
3) Grouping of activities: The management must group related
activities under one department. E.g. All promotional activities
(Advertising, Sales Promotion, Personal Selling, Trade Fair and
Exhibition) may be assigned to a single department. Also all logistics
activities (Packaging, Transportation and Warehousing) should be
assigned to another department.
4) Organizing resources: For successful implementation of strategy,
there is need to organize:
• Physical Resources: Plant and machinery, tools and
equipment’s, Material etc.
• Financial Resources: Capital or Finance
• Human resources: Labour and Employees
These resources must be arranged from right sources.
5) Allocation of resources: The management must make proper
allocation of resources to various activities. All the
department/projects should be allocated required resources for
smooth functioning of activities.
Importance of Strategy Implementation
Answer same as “Importance of Strategic Choice”
Problems of Strategy Implementation
1) Lack of Resources: Actual implementation of strategy requires:
53
Strategic Management • Physical Resources : Machinery, Tools, Equipment’s, Material
• Financial Resources: Capital
• Human Resources: Employees and Labour
If these resources are not available in sufficient quantity, successful
implementation of strategy would not be possible. Often, firms choose
a strategy but fail to organize resources that are needed to actually
implementation of strategy.
2) Poorly defined processes: The implementation stage is often the
most difficult stage of strategic management simply because the
implementation process is often poorly defined. A poorly defined
implementation process causes confusion and uncertainty. This
makes it difficult, and often impossible, to successfully implement the
strategy.
3) Lack of Support: The supportive employees and managers is needed
in order to successfully implement a strategy. When there is a lack of
support, people do not proactively make the changes that are needed
to adapt to the strategy. This creates large difficulties for strategy
implementation.
4) Lack of Follow-up: This is one of the difficulties occurred in
strategic management when there is no follow-up to the strategy
implementation. When this happens, managers simply enact a
strategy but fail to check if it has been successfully implemented.
5) Lack of communication: Communication is key in the
execution of any new strategy. There should be proper
communication plan must be initiated from the top down. Lack
of communication results in disordered teams and widespread
uncertainty.
It is the responsibility of senior management and the strategic
management team to communicate the organizational mission
and goals to every member of the workforce, and also make
them understand the strategy. Also the particular role of each
member’s should be made clear.
6) Ineffective training: Training imparts new skills or strengthens
existing skills, saves money by preventing costly losses and so
on. If proper training program is designed for employees,
strategy implementation can be done successfully. But often
training is not effective which result into failure in successful
implementation of strategy.
7) Weak Strategy: Sometimes strategy itself may be weak, that
its implementation may not give desired result to an
organization. Right choice of strategy should be done by
following systematic process so that it can be implemented
successfully.
54
 8) Lack of Accountability: Every activity in an organization must Strategy Formulation,
Analysis and Choice
have an owner. There is a lack of ownership, since the
employees do not feel that they have a stake in the plan, and this
result to poor implementation of the strategy.
So it is necessary to make everyone involved in decision making
process of implementing strategy. So that that everyone can
understand their responsibility and they will be held
accountable to fulfil it.
9) Lack of empowerment: Although accountability may provide
strong motivation for improving performance, employees must
also have the authority, responsibility, and tools necessary to
impact relevant measures. Otherwise, they may resist
involvement and ownership.
10) Other Problems:
• No progress report
• Confusing, complex, and overwhelming plan
• Lack of Attention

2.6 STRATEGIC EVALUATION AND CONTROL -

IMPORTANCE, LIMITATIONS AND TECHNIQUES

The final stage in strategic management is strategy evaluation and control.

All strategies are subject to future modification because of changing
business environment.
Strategy evaluation and control process refers to determining the
effectiveness of given strategy in achieving the organizational objectives
and taking corrective action whenever required.
Importance of Strategic Evaluation and Control
1) Performance Measurement: Strategic evaluations start setting
target/standard performance. Then actual performance is measures.
This actual performance is compared with standard/target to find out
deviation (if any). If deviations are found, they are analysed.
Corrective measures are taken to minimize such deviations. So this
way performance measurement is possible due to strategy evaluation
and choice.
2) Ongoing Analysis: Strategic evaluations work under the assumption
that because the business environment is constantly changing,
variances will commonly exist between standard/target and actual
performance. Regular strategic evaluations provide an objective and
effective way for a business to evaluate, analyze and modify
performance expectations. A positive variance can tell a business
what it’s doing right and confirm it’s on the right track. A negative
55
Strategic Management variance can be a signal that the performance of management and staff
needs to change.
3) Corrective Actions: When strategic evaluations pinpoint areas where
the business is not meeting strategic objectives, corrective actions can
be taken to solve the problem. For example, if a business discovers
that its strategic objectives are not being met because of ineffective
training provided to employees. The business can design training
programs that bring skillsets which will help to achieve strategic
objectives of an organization.
4) Provides direction: Strategy evaluation and control enables
management to make sure that the organization is heading in the right
direction and that corrective action is taken where needed.
5) Provides guidance: Strategy evaluation and control provides
guidance to everyone within the organization, both managers and
workers. They learn how their performance compares with
standards/target, and they can know they can keep up the good work
or improve performance. It also provides guidelines for the planning
of future projects.
6) Builds confidence: Strategic Evaluation and control provides
information about actual performance of everyone involved in
strategic management process. Those who have good performance,
their confidence is boosted. They are motivated to maintain and
achieve better performance in order to keep up their track record.
Those outside – customers, government authorities, shareholders –
are likely to be impressed with the good performance.
7) Provide constant feedback: Strategic Evaluation and control
provides constant feedback on the extent to which the strategies are
achieving their goals. It tells the strategist how close they are to the
goals. If the strategy falls far short of meeting its goals, the strategic
evaluation process is an opportunity to reflect on why this has
occurred and to then take corrective action. In such a case, strategic
evaluation process is an important opportunity for you to create a new
set of goals that will reflect your progress and challenge you in new
ways.
8) Other Importance: Identify potential problems at an early stage and
propose possible solutions. Monitor the efficiency with which the
different components of the strategy are being implemented and
suggest improvements.
Limitations of Strategic Evaluation and Control
1) Limits of control: It is never an easy task for ‘strategists to decide
the limits of control. Too much control may damage the ability of
managers; on the other hand, too less control may make the strategic
evaluation process ineffective.

56
2) Short-termism: Managers often tend to measure the immediate Strategy Formulation,
Analysis and Choice
results. As a result, the extended effect of strategy on performance is
ignored.
3) Corrective Action can increase cost: Sometimes there is deviation
in strategy and the organization must undertake corrective action
which completely overhauls (repair) the entire strategic plan. As a
result of which there is need for reformulating the strategic plan, its
goals and objectives. This requires more resources and time.
4) Lack of Cooperation: Strategy evaluation, like strategy
implementation, requires the cooperation and participation of
management and personnel. Unfortunately, strategy evaluation, being
the final stage of strategy management, is often overlooked. One of
the reasons that management and staff may not take strategy
evaluation seriously is because they perceive it as time consuming.
5) Problem of selecting appropriate result measurement tool: One of
the tasks in strategy evaluation is measuring the results of strategy
implementation. Maintaining objectivity in assessing and measuring
the results of strategic plans is a major challenge. Although strategists
use evaluation tools such as financial statements, questionnaires and
interviews. But there are some concepts such as manager opinions or
contributions are difficult to measure. If the right tools for measuring
are available, then the process of strategic evaluation becomes
simpler. Lack of appropriate measuring tools slows down strategic
evaluation.
6) Problem of objective reporting: Strategy evaluations have some
similarity with audit reports, which can deliver bad news sometimes.
Strategists face the challenge of presenting an honest report of the
progress of the strategic plan. As in methods of measuring results,
objectivity is also a challenge during the reporting of these results.
Techniques of Strategic Evaluation and Control
1) Gap Analysis: This is one of the techniques which can identify the
gap between the actual achieved performance and expected
performance of the organization as per the management strategy.
With the various business tools and ratio analyse, it can easily identify
the gap between actual and expected performance.

• Under the Financial measures the gap identifies with the help of
various ratio, relationship of business variables to each other’s
such as Net Sales to Working Capital, Current Ratio, Net profit
to net sales ratio, etc.

• Under the marketing measures, the gap identify with the

analyses of Sales, Market share, Competitors performance, etc.
2) SWOT Analysis: It is the most renowned tool for audit and analysis
of the overall strategic position of the business and its environment.
57
Strategic Management Its purpose is to identify the strategies that will create a firm specific
business model. Such business model will best support an
organization’s resources and capabilities as well as the requirements
of the environment in which the firm operates. It views all positive
and negative factors inside and outside the firm that affect the success.
A consistent study of the environment in which the firm operates
helps in forecasting/predicting the changing trends and also helps in
including them in the decision-making process of the organization

3. PEST Analysis: PEST technique for a firm’s strategic evaluation

includes analysis of political, economic, social, and technical factors
of the environment.
• Political environment: Political factors are considered rules
and regulation, legislatures, and environmental norms etc.
Economic factors exhibits the economic conditions prevailed in
the market to identify opportunity and threats for the business..
• Economic Environment: Economical factors exhibits the
economic conditions, economic policies and economic system
prevailed in the market to identify opportunity and threats for
the business.
• Social environment: Social factors show the behaviour of
customers, demographic pattern of customers and about the
values and tradition of people for adopted best suitable strategy
• Technological environment: Technological factors are highly
sensitive and dynamic in nature. Today technology will be stale
for tomorrow exhibits the flexible or changing pattern of
technology. Due to rapid changes in technology cause the
obsolete our plans and business strategies.

4) Benchmarking: It is technique of strategic evaluation to identify

whether the organization is achieved the expected results or not. If it
is failed to achieve the expected result, then what is the difference
between actual result and expected result.
58
The organization must set the Standard performance is benchmark for the Strategy Formulation,
Analysis and Choice
measuring actual performance. The regular monitoring and measuring the
performance of strategic plan and collection of data, indicates actual result
of the given activity and set the benchmark of activity.

2.7 SUMMARY
Strategy formulation is the course of action companies take to achieve their
defined goals. All employees of an organization should be aware of the
company’s objectives, mission, and purpose. The business firm should
formulate alternative strategies such as merger, acquisition, take over, joint
venture and others depending on the situation.

The strategy formulated must be analysed by considering environmental

constraints, intra-organizational factors, corporate culture, past strategies
etc. The organization can use analysing methods such as SWOT analysis,
BGC Matrix, GE nine cell matrix, Hofer’s Matrix, ETOP etc. Finally best
strategy is selected.

Strategy implementation refers to putting the organization’s chosen strategy

into action so as to achieve strategic goals and objectives. Strategy
evaluation and control process refers to determining the effectiveness of
given strategy in achieving the organizational objectives and taking
corrective action whenever required.

2.8 EXERCISE

Select the most appropriate answer from the options given below
1) _______________ is the process of developing the strategy.
(Strategy Controlling, Strategy Formulation, Strategy
Implementation, None of these)
2) Strategy formulation facilitates ________________.
(Capital budgeting, Communication gap, Poor Decision-Making, All
of these)
3) __________ refers to the unification of two or more business houses
to form an entirely new entity.
(Merger, Market Penetration, Turnaround, Divestment)
4) __________ occurs when a company takes control of another
company without the acquired firm’s agreement.
(Merger, Acquisition, Takeover, Liquidation)
5) Maruti Suzuki India Ltd. is an example of ___________ strategy.
(Takeover, Joint Venture, Divestment, None of these)
59
Strategic Management 6) Gent’s garments manufacture enters into ladies garments
manufacturing is an example of ______________ diversification
strategy.
(Vertical, Horizontal, Concentric, Conglomerate)
7) In _______________ strategy business takes decision to sell its entire
business.
(Diversification, Acquisition, Takeover, Liquidation)
8) ____________ issue is involved in strategy analysis and choice.
(Corporate Culture, Impact of Past Strategies, Governmental Policies,
All of these)
9) In SWOT, ‘W’ stands for ____________
(Wide, Whole, Weakness, Where)
10) In BCG Matrix ________ are market leaders and are usually able to
generate enough cash to maintain their high market share.
(Star, Question Marks, Cash cows, Dogs)
11) ____________ refers to putting the organization’s chosen strategy
into action so as to achieve strategic goals and objectives.
(Strategy implementation, Strategy Formulation, Strategy Control,
Strategy Evaluation)
12) ___________ is a technique of strategy controlling.
(Gap analysis, SWOT Analysis, PEST Analysis, All of these)
State whether the following statements are True or False.
1) Diversification is one type of the retrenchment strategy.
2) Turnaround strategy planning requires control over cash flow.
3) Acquisition refers to downsizing of the scope of the business.
4) Committed employees and latest technology can be strength of an
business organization.
5) In GE nine cell matrix, Green zone gives signal for “wait and watch”.
6) ETOP involves dividing the environment into different factors and
then analysing the impact of each factor on the organization.
Match the Pair

Group ‘A’ Group ‘B’

1. Concentric a. converting loss making unit into a
diversification profitable one

60
 2. Hofer’s Matrix b. Low market share and do not have the Strategy Formulation,
Analysis and Choice
potential to bring in much cash
3. Dogs c. Car selling firm starts finance company
4. Turnaround d. Stages involved in Strategy Formulation
5. Gap Analysis e. 15 squares matrix
f. 9 squares matrix

Long Answers
1) Explain various stages involved in Strategy Formulation.
2) What is Strategy Formulation? Explain its importance
3) What is strategy Implementation? Explain its steps.
4) Write a note on techniques of Strategic evaluation and control.
5) Write a note on following:
• Mergers Strategy
• Acquisitions Strategy
• Takeovers Strategy
• Joint Ventures Strategy
• Diversification Strategy
• Turnaround Strategy
• Divestment Strategy
• Liquidation Strategy
6) Discuss the Issues and Structures of Strategic Analysis and Choice.
7) Write a note on following:
• SWOT Analysis
• BCG Matrix
• GE Nine Cell Matrix



61
 3
BUSINESS, CORPORATE AND GLOBAL
STRATEGIES AND ISSUES
Unit Structure:
3.0 Objectives
3.1 Introduction
3.2 Corporate Restructuring Strategies
3.3 Corporate Renewal Strategies
3.4 Strategic Alliance
3.5 Problems of Indian Strategic Alliances and International Businesses
3.6 Public Private Partnership
3.7 Governing Strategies of PPP Model
3.8 Summary
3.9 Exercise

3.0 OBJECTIVES

After studying this unit, the student will be able to

• Know the Concept and Need Corporate Restructuring
• Explain the various Forms Corporate Restructuring Strategies
• Understand Concept and Internal & External factors affecting
Corporate Renewal Strategies
• Know the causes of Corporate Renewal
• Explain the Concept and Types of Strategic Alliance
• Discuss the Importance Strategic Alliance
• Know the Problems of Indian Strategic Alliances and International
Businesses
• Describe the Importance and Problems of Public Private Participation
• Understand various Governing Strategies of PPP Model.

3.1 INTRODUCTION

An organizational restructuring strategy involves redesigning operations

and management reporting structures to address and correct the operational
issues that led to a company's distressed position.
A strategic alliance is an arrangement between two companies to undertake
a mutually beneficial project while each retains its independence. The
62
agreement is less complex and less binding than a joint venture, in which Business, Corporate
and Global Strategies
two businesses pool resources to create a separate business entity and Issues

A Public-private partnership (PPP) is often defined as a long-term contract

between a private party and a government agency for providing
a public asset or service.
Strategies as mentioned about could be adopted by businesses in modern
days. Its importance and issues involved are discussed in this chapter.

3.2 CORPORATE RESTRUCTURING STRATEGIES -

CONCEPT, NEED AND FORMS

Concept
Corporate Restructuring is made of two words Corporate and
Restructuring. Corporate is a company or a group whereas Restructuring is
reorganizing or redesigning. So, Corporate Restructuring means process of
redesigning one or more aspects of a company.
In other words, the process of reorganizing a company can be due to a
number of different factors such as a change in ownership or ownership
structure, difficulty in repaying the debts, positioning the company to be
more competitive or major change in the business.
The examples of Corporate Restructuring are that men are replaced with
machines to utilise resources in the best possible manner and
Facebook acquired WhatsApp to prevent it from eating Facebook’s market
share.
Corporate restructuring can be due to financial or organisational changes.
The reasons for Corporate Restructuring are as follows:
1) Enhancing the shareholder’s value by improving the profits of the
company.
2) Searching better avenues for growth either by acquisition, merger,
diversification, etc. Example - Gold Spot, an orange drink was
removed by Coke from the market in order to make space for Coca-
Cola & Fanta brand
3) Need to focus on new skills and capabilities so as to meet current or
expected requirements. Example - Jiomeet launched to meet the
demand for online platforms
4) By selling the loss-making units and utilising that money for core
business. Example BAJAJ decided to exit scooter segment and enter
motorcycles market.
5) Retrenching the surplus manpower of the business, this may reduce
the costs.
63
Strategic Management 6) Outsourcing few operations can help save cash. Many companies
outsource advertising as it is cost effective.
7) Re-organizing functions such as marketing, sales, and distribution for
handling present situation.
8) By eliminating certain divisions and subsidiaries not suitable with the
core strategy of the company.
Thus, it can be concluded that whichever corporate restructuring strategy is
adopted should serve its purpose and must be for the betterment of the
company because it is rightly said change is the only constant.
Need for Corporate Restructuring Strategies
1. Growth and Expansion: Corporate restructuring helps a firm to
grow and expand. For instance, merger may enable a company to
grow faster as compared to firms that undertake internal expansion.
2. Competitive Advantage: Corporate restructuring may enable an
organization to gain competitive advantage in the market. For
instance takeover or merger may enable a firm to gain economies of
large scale production and distribution. Therefore, a firm would be in
a better position to produce quality goods and at lower prices.
3. Corporate image: Corporate restructuring may be undertaken to
improve the performance of the firm. Improved performance enables
a firm to improve its image.
4. Concentration on core business: Corporate restructuring may be
undertaken to enable a firm to focus on core business. In some cases,
a firm may find it difficult to manage growing business, and therefore,
it may divest non-core business to concentrate on core business.
5. Debt servicing problem: Some firms may face the problem of debt
burden. They may find it difficult to service the debt like., repayment
of loan instalment and interest. Some firms may divest a part of the
business so as to generate funds for the purpose of repayment of debt.
6. Market Share: Corporate restructuring may be undertaken to
increase market share. For instance, firms may adopt the strategy of
merger or takeover in order to increase the market share. The merger
or takeover may enable the firm to take the advantage of goodwill of
enjoyed by the merged firms or takeover firm.
7. Mismatch Problem: Restructuring may be undertaken to overcome
the problem of mismatch of business. At times, a business firm may
take over another business or entered into a new line of business
which may not match with the current line of business.
8. Obsolete Products: At times, a firm may withdraw obsolete products
from the market. After withdrawing obsolete products the firm can
utilize its resources on existing bran
64
Forms of Corporate Restructuring Business, Corporate
and Global Strategies
and Issues

A. MERGERS, ACQUISITION AND TAKEOVERS

1) MERGERS : The term ‘merger’ is used to mean the unification
of two or more business houses to form an entirely new entity.
It is a strategy adopted by the company to maximise company’s
growth by expanding its production and marketing operations,
that results in synergy, increased customer base, reduced
competition, introduction to a new market/product segment, etc.
Forms of Merger

• Merger through Absorption: When two or more

companies are combined and only one company survives
after the merger, while the rest of all cease to exist as they
lose their identity is called merger through
absorption. E.g. Tata Chemicals Limited (TCL) absorbed
Tata Fertilizers Limited (TFL).

• Merger through Consolidation: When two or more

companies are combined and give birth to a new
company, it is known as merger through consolidation.
This implies that all the companies to the merger are
dissolved, i.e. they lose their identity and a new company
is created. E.g. Consolidation of Hindustan Computers
Limited, Indian Reprographics Limited, Indian Software
Company Limited Hindustan Instruments Limited, to
form a new company HCL Limited.

65
Strategic Management Advantages of Merger :
i) It enables the pooling of resources and streamlining of
operations, thereby, resulting in improved operational
efficiencies.
ii) The merged firms enjoy benefit of economies of scale.
Merger may result into increasing demand. This in turn
results into increasing production and distribution
capacity of firm. When production increases the firm
purchases raw material on large scale and they get
discount. So the firm saves on raw material. The firm also
save on transportation cost as the transportation cost is
mostly fixed..
iii) Merger provides faster growth to business as it offers
advantages in several areas such as marketing,
production, finance, R&D and so on.
iv) When a company is having accumulated losses and it is
merged with another company. The newly formed
company gets benefit in taxation.
v) Merger allows companies to share technology and other
facilities such as plant, market, human resources etc.
vi) The benefit of economies of large scale is shared with
customers in the form of reduced price. Also due to R&D
activity customers get better quality and innovative
product. So when customers get better quality products at
lesser price, it results into customer satisfaction.
2) ACQUISITIONS: An acquisition takes place when one of the
company purchases mostly all of the shares of the other
company for gaining the control of other companies. Purchasing
the target company’s shares and other assets by more than 50%
allows the acquirer to take the decisions of the acquired
company without the approval of the company’s shareholders.
The acquisition is considered to be a critical component and an
important change agent of any strategy of the
business. Example - Acquisition of the Company Ranbaxy by
the Sun Pharmaceuticals.
Advantages of Acquisition Strategy:
Answer same as “Advantages of Merger”
3) TAKEOVERS : A takeover is a special form of acquisition that
occurs when a company takes control of another company
without the acquired firm’s agreement. In other words,
takeovers occur when a company takes over and purchases a
company without the permission of the company or its Board of
66 Directors.
 There are two methods by which companies can undertake Business, Corporate
and Global Strategies
takeover which are as follows: and Issues

• Tender Offers involve after the refusal from the

management of target company for the initial offer
proposed, the acquiring company purchases the shares of
the target firm directly from shareholders, or on the
secondary markets. Therefore, buying all or a majority of
the company’s shares allows the acquiring company to
possess ownership of the target company. To purchase
shares, the acquiring corporation offers a higher price to
shareholders than the market value of the stock.

• Proxy Fight involves the acquirer company after being

refused for their initial offer for the acquisition of the
target company, tries to change the members of
management for the decision to be in their favour. For
such to happen, the acquirer company will convince the
shareholders to exercise their proxy vote and try to change
the members of the management who are opposing the
takeover and replace them with the new members who are
more reliable and receptive to the decision of takeover and
give their decision for the change of ownership of the
business.
Advantages of Takeover:
Answer same as “Advantages of Merger”
B. PORTFOLIO RESTRUCTURING: Portfolio restructuring
basically involves modifying the business portfolio divestiture and de
– merger.
1) Purchase of Division / Plant: A firm can purchase a division
or plant of another firm for the purpose of improving its market
or financial position. For instance, a large cement company can
purchase a cement division of a diversified firm, or a large food
and beverage company can purchase foods division of another
diversified company.
2) Divestiture: A divestiture involves the sale of a division or a
plant or a unit of one firm to another. From seller’s point of
view, it represents contraction of portfolio, and from the buyers
point of view it represents expansion.
Reasons of Divestiture:
• Raising capital
• Reduction of losses
• Concentration on core business
• Improvement in Efficiency
67
Strategic Management 3) De-merger: A demerger takes place, when a firm transfers one
or more of its units to another firm. The company whose unit is
transferred is called Demerger Company, and a firm to which
the unit is transferred is called the resulting company. A scheme
of demerger, is in effect a corporate partition of a company into
two undertakings, thereby retaining one undertaking with it and
by transferring the other undertaking to the resulting company.
It is a scheme of business reorganization
De-merger can takes place in two forms:
✓ In spin – off: A division or unit is spun-off into an
independent company.
✓ In split – up: An existing company is split up into two or
more independent companies.
Reasons of Demerger:
• Sharper focus
• Improved initiatives and accountability
There are 2 modes of demerger as follows:

• Partial demerger: In the case of a partial demerger, the

existing company also continues to maintain its separate legal
identity and the new company being a separate legal identity,
carries on the separated or spun off business and undertaking of
the existing company.

• Complete demerger: In the case of a complete demerger, the

existing company is voluntarily wound up and its entire
business, undertaking etc. are transferred to one or more new
companies.
C. FINANCIAL RESTRUCTURING: Financial restructuring of a
company involves a re-arrangement of its financial structure to make
the company‘s finances more balanced.
A company may re-organize its capital in different ways, such as
reduction of paid up share capital; conversion of one type of shares
into another; conversion of shares into debentures or other securities.
It involves a significant change in the financial structure of the firm
or the pattern of ownership and control.
1) Going Public: Private Limited companies, closely held public
companies, and even sole trading concerns and partnership
firms may go public. The main reason is mainly to access capital
for its growth and expansion plans.
2) Debt – equity Swap: When a firm finds it difficult to service
its existing debt, it may decide to convert debt into equity.
68
 3) Leveraged buyout: It normally involves an acquisition of a Business, Corporate
and Global Strategies
division or unit of a company; and occasionally, it involves the and Issues
purchase of an entire company.
4) Buy back of shares: A share buyback involves a firm’s
decision to repurchase its own shares from the market. The main
reasons of buy back are:
• Reduce Dilution and Increase Ownership
• It is a defensive strategy against a potential takeover.
• Enhancing Financial Ratios
D. ORGANIZATIONAL RESTRUCTURING: A good number of
firms are resorting to organizational restructuring to face competition
and to improve their financial position. Some of the ways are:
1) Regrouping of business: Firms are regrouping the existing
businesses into a few compact Strategic Business Units (SBUs),
which are often referred to as profit centres.
2) Business process re-engineering: It aims at improvements in
performance by redesigning the processes through which an
organization operates.
3) Downsizing: It involves retrenchment of surplus manpower
through voluntary retirement scheme and other schemes.
4) Outsourcing: Companies are resorting to outsourcing or sub
contracting, which helps to reduce manpower and convert fixed
costs into variable costs.
E. REHABILITATION SCHEMES: A sick unit can be revived to
improve its financial position by adopting revival schemes. Some of
the important revival schemes are:
1) Settlement with creditors: A sick units is normally not in a
position to honor its commitments, and therefore, it must enter
into a settlement with its creditors.
2) Divestment: A sick unit may divest or dispose of unprofitable
units, and plants, and other non – essential assets in order to
improve liquidity.
3) Strict control over costs: A sick unit should have a strict
control over costs, especially over its discretionary expenses.
4) Streamlining of operations: Business operation must be
reviewed to find out any unproductive activities
5) Provision of Additional capital: A sick unit normally requires
additional capital for working capital needs, repair and
modernization of plant and machinery.
69
Strategic Management 3.3 CORPORATE RENEWAL STRATEGIES - CONCEPT,
INTERNAL AND EXTERNAL FACTORS AND CAUSES
Concept

Corporate Renewal strategy is also known as turnaround strategy. This

strategy helps to transform underperforming organizations to achieve short
term profitability and long run success. Today’s increased competition,
cyclical and volatile financial markets, and economic trends have created a
climate in which no business can take stability for granted.

In other words, a corporate renewal strategy, or a corporate turnaround

strategy, is a response to a decline in the corporation's performance. If
customers start buying less of a company's products, or the company has
unexpected cost increases for materials and labor, the corporation can create
a strategy to alleviate these problems. Another corporation can buy out a
poorly performing firm, and use a corporate renewal strategy to make it
more productive.

Internal factors affecting Corporate Renewal

i) Value System: Values refers to principles or standards of behavior.

The value system is helm (the position of control) of affairs of the
founders. Therefore it is widely acknowledge fact that the extent to
which the value system is shared by all in the organization is an
important factor contributing to success. If the founder has
progressive value system, they will undertake corporate renewal
strategies and vice-versa.

ii) Human Resources : Human resources are most important resources

among all other resources required by the firm. These resources are
very sensible; therefore every business need to tackle them with
carefulness and cautiousness. The success of corporate renewal
strategy is largely depend on quality and quantity of human resources
in the organization.

iii) Physical Resources : Physical resources consist of machines,

equipment’s, buildings furniture’s and fixtures. These resources play
vital role in production activity. The analysis of these resources helps
in successful implementation of corporate renewal strategy.

vi) Financial resources: Finance is the back bone of every business. So

every business needs to have proper financial management, which
includes arrangement of finance and utilization of finance. Corporate
renewal strategy requires a firm to analyse financial resources.

iv) Labour-management relations: It is stated that the business flourish

to a greater extent, if it is supported by labour / human resources well.
Even if there are certain shortcomings on the part of other physical
and financial resources, but there is good relation between
70
 management and labour then there would not be a problem. To keep Business, Corporate
and Global Strategies
a good relationship with labours a management needs to take care of and Issues
all types of problems of the labour. This helps in successful
implementation of corporate renewal strategy

v) Inter-departmental Co-operation: There are various departments

functioning in an organization which includes purchase, sales,
finance, production, accounts etc. Each department is depend on
another. Eg. Production department is depend on purchase department
whereas purchase department is depend on finance department and
finance department is depend on sales department. So in order to reap
maximum benefit out of corporate renewal strategy, there has to be
inter-departmental co-operation.

External factors affecting Corporate Renewal

a) Customer preferences : Customer is the king of the market.

Therefore every company strives to create & sustain customers. So
that it can survive & be success in the market. In fact monitoring the
customer requirements is the pre-requisite for the business success.
corporate renewal strategy requires to know customer preferences and
accordingly serve them which may result into customer satisfaction.

c) Competitors: In simple word competitors means the firms which

market the same products. Corporate renewal strategy requires a
business firm should come up with effective marketing strategy to
have competitive advantage over its competitors. Business firm must
analyse marketing strategy of competitor from time to time.

d) Government Policies: A business firms intend to undertake

corporate renewal strategy must analyse various government policies.
If government policies are favourable, the firm must take advantage
and introduce corporate renewal strategy, to improve its performance.

e) International Environment: International environment includes

export-import policies, economic conditions, international
competition, foreign exchange regulations and so on. The firm should
analyse international environment to implement corporate renewal
strategy successful.

f) Suppliers: Suppliers supply inputs to business firm like raw

materials, components and other supplies. They place important role
in smoother functioning of the production department. corporate
renewal strategy requires a business firm to maintain good
relationship with suppliers.

g) Investors: Investors provide required funds for business for its

growth and expansion activities. Support of investors is necessary for
effective implementation of corporate renewal strategy.

71
Strategic Management h) Support of Society: A business firm must get support of society for
undertaking its corporate renewal strategy successfully. Without
support of society, it would be difficult to implement corporate
renewal strategy. Eg. Nano Car’s project of TATA which was shifted
from West Bengal to Gujrat due to objection by society and
politicians. It involved huge cost in shifting the project.

Causes of adopting Corporate Renewal Strategy

Internal Causes
1) Production-related causes
• Poor Quality Management
• Inappropriate plant location
• Outdated technology
• Lack of Research and Development activity
2) Marketing related causes
• Poor quality product
• Faulty pricing strategy
• Ineffective promotion-mix
• Faulty distribution channels
3) Finance related causes
• Obtaining funds from wrong sources where there is higher rate
of interest
• Investing funds in unprofitable business
• Personal use of funds by some managers
• Defective capital structure
• Faulty credit and dividend policies
4) HR related causes
• Lack of Human resource planning
• Unscientific recruitment and selection of employees
• Lack of training to employees
• Faulty promotion policies
• Inappropriate compensation policy
External Causes
1) Unhealthy Competition: It includes unethical ad campaigns to
deteriorate image of the firm, duplication of products to malign name
of firm, pressure on dealers for not promoting product of a firm, price
war etc. can affect corporate renewal strategy.
72
2) International problems: International environment includes export- Business, Corporate
and Global Strategies
import policies, economic conditions, international competition, and Issues
foreign exchange regulations etc. may not be favourable which
adversely affects corporate renewal strategy.
3) Government Policies: Alternations in government policies may
adversely affect corporate renewal strategy. Eg. Entry of Amazon in
Indian market has created threat for Indian businesses.
4) Other Causes
• Infrastructure related
• Law and order related
• Brand Piracy

Know your progress:

• Explain the various Forms Corporate Restructuring Strategies
• Describe Concept and Internal & External factors affecting
Corporate Renewal Strategies

3.4 STRATEGIC ALLIANCE - CONCEPT, TYPES AND

IMPORTANCE

Concept
The term alliance can be derived from the word ‘ally’ or the old French
word ‘aligre’ which mean ‘to associate with’ or ‘to bind or to co-operate
with another with some common cause or interest’. An alliance therefore
is an association that involves co-operation and collaboration and merging
of complementary interests to achieve individual and mutual goals and
objectives.
A strategic alliance is an arrangement between two companies that has come
together to share their resources. Two organisations or individuals join
hands to achieve a common goal. In this strategy there is co-operation rather
than competition. Both companies maintain their independent identity and
keep on pursuing their objectives. Now strategic alliances are becoming
popular because of the competitive market environment.
Strategic alliances include non-equity agreements, and joint ventures which
undertake joint R & D, joint product - development, knowledge sharing,
marketing and distribution sharing and joint quality control and research.
Strategic alliance is a relationship between corporations that is
characterized by merging of complementary interests, the sharing of
privileged information and meaningful collaboration and co-operation to
achieve strategic goals and objectives. The strategic alliance may provide
technical, operational and / or financial benefits to the corporations.
73
Strategic Management Strategic alliances are common in business world. They are significant to
achieve synergy. Strategic alliance leads to synergy due to sharing of
resources and combined efforts of various parties. However, due to
involvement of various parties, certain problems or difficulties can occur
such as conflicts between parties, government interference, delay in
decision making, difference in values & culture, loss, unfair terms and
conditions and so on.
Business jargons defines, “Strategic alliance refers to the agreement
between two or more firms that unite to pursue the common set of goals but
remain independent after the formation of the alliance. In other words, when
two companies come together to achieve the common objective by sharing
the particular strengths (resources) with each other is called as a strategic
alliance.”
Types of Strategic Alliance
a) Based on the parties to alliance :

• Horizontal Strategic Alliance - It formed by companies

working in the same area. It is done by competitors to
consolidate their position in the market. Research and
Development collaborations and Logistics companies generally
form such an alliance.

• Vertical Strategic Alliance – It is formed as a partnership

between suppliers and distributors. Such alliances help in
improving relationships and enlarging the company's network.
Many car manufacturers form close relation with their
suppliers.
b) Based on financial involvement :

• Non - Equity Strategic Alliance – It is created when two or

more companies sign a contractual relationship by combining
their resources and capabilities together. Such alliances are
more of informal type and majority are of this type. Nokia and
Microsoft entered into an agreement utilising the very
complementary assets of both the companies. Non-equity is
through contract rather than ownership. Example - Nike
contract with UPS, a supply chain manager to arrange the entire
delivery process from factory to even collecting the money from
the customer.

• Equity Strategic Alliance - It is created when one company

purchases a certain equity percentage of the other company. It
is a formal type of agreement and entering into such an alliance
generally solves the financing needs of the parties involved.

• Joint Venture Strategic Alliance - A Joint venture is a

commercial enterprise undertaken jointly by two or more parties
which otherwise retain their distinct identities. It can be
temporary association for the purpose of achieving a specific
74
 task. Google's parent company Alphabet announced a Joint Business, Corporate
and Global Strategies
Venture with GlaxoSmithKline to research treating diseases and Issues
with electrical signals.
c) Based on Participation of the Government :

• Host Country’s Government - It acts as local partner in

strategic alliance. Such strategic alliances are effective in
socialist - countries.

• Public - Private Venture - This involves partnership between

a government and a private company. This type of Strategic
Alliance is created under the following circumstances –
✓ When a country allows entry of foreign companies only
through Strategic Alliances with the government.
✓ When the priority of the Government for development
matches with the competence of a private company.
✓ Firms can enter centrally controlled economies like China
and Sweden only through Strategic Alliances with the
Government.

• Private Partners - In this case private companies enter into

Strategic Alliance agreement.
Importance of Strategic Alliance
For companies there are many reasons to enter a strategic alliance:
1. Shared Knowledge - A separate single business will never be able to
pool the amount of resources which an alliance business can bring.
Synergistic advantage can be utilised to the fullest.
2. Reduced Competition – Strategic alliance companies reap the
benefit of avoiding production of similar products and reduced
competition. This benefit is passed to the customers in the form of
reduced prices.
3. Specialisation - Each partner can help focus on their on core
specialisation and take the benefit of the other party without losing its
identity. Eg. Starbucks coffee took a wise decision to enter India by
entering into an agreement with Tata.
4. Entering New Markets - One of the most popular reasons to agree
for an alliance is access to new segments and markets. Without
investing a huge amount, company can expand its business with the
help of its alliance partner.
5. Increase in Number of Products and Services - If the strategy is to
increase the number of products and services in the new market,
company can select a partner who offers complementary products
or services. Such similar business can serve the common customers
and take benefit of the reduced costs. 75
Strategic Management 6. Growth Opportunities - The growth opportunities of a company is
manifold with an alliance. Right from brand name to taking advantage
of partner's marketing and distribution strategies helps a company
grow faster as compared to a single identity.
7. Shared Risk - Strategic Alliances works best for companies handling
complementary portfolio and not exactly competitors. Coming
together can strengthen their market position and helps them face the
risks jointly.
8. Other Benefits: A strategic alliance gives access to new markets;
technology, combine valuable expertise and resources which
sometimes is not possible without the alliance hence should be
considered as an opportunity for expansion of the business.

3.5 PROBLEMS OF INDIAN STRATEGIC ALLIANCES

AND INTERNATIONAL BUSINESSES
Strategic Alliances are common in business world. They are significant to
achieve synergy. Synergy means increased effectiveness or achievement
gained by combined action or cooperation. Strategic Alliances provide
synergy due to sharing of resources and combined efforts of different
parties.
However problems or difficulties in the operations of Strategic Alliances
can occur due to the following reasons.
1. Conflict between Partners – Strategic Alliance can result into
conflict between Partners. Conflicts can be due to differences in
opinion, difference in values and attitude and so on. Such conflicts
can affect the functioning of alliance.
2. Government Interference – There may be loss of control over
strategic alliance operations when the local government is a partner in
the Strategic Alliance. This situation occurs in industries considered
important to national security such as broadcasting, infrastructure and
defence. The profitability of the Strategic Alliance could suffer
because the local Government would have motives that are based on
national interest, which may compel them to interfere in the
operations of the Strategic Alliances.
3. Delay in Decision Making - Decision making is normally slowed
down due to involvement of a number of parties. This may lead to
inefficient - operations. Opportunities may be lost which may affect
the growth of the business.
4. Differences in Work Culture - The work culture of the companies
forming Strategic Alliances are different. MNCs who generally are
parties to the Strategic Alliances are profit cantered. All decisions are
taken from economic angle. This may conflict with the culture of the
local company as it’s decisions may be socially oriented. This may
make functioning of the Strategic Alliances difficult.
76
5. Losing of Secrecy – There can be some alliances regarding complex Business, Corporate
and Global Strategies
transactions requiring extensive coordination and intensive and Issues
information sharing. It may create a a risk of losing secrecy of
proprietary information.
6. Expensive and Time Consuming - The procedure for formation of
Strategic Alliances is lengthy, complicated and time consuming. The
formation of Strategic Alliance can increase costs because of the
absence of a formal hierarchy and administration within the strategic
alliance. Even costs can rise due to the element of hidden costs and
activities outside the scope of original agreement and inefficiency in
management.
7. Problems Due to Changes in Government Policies - The changes
in government policies relating to foreign exchange and technology
transfer may create problems in the formation of Strategic Alliances.
8. Unfair Terms and Conditions - The terms and conditions laid down
in the agreement may not be fair and reasonable to both partners.
Thus, there are several risks and limitations associated with Strategic
Alliances. Failures are often caused due to lack of mutual trust and
confidence, unrealistic expectations, lack of commitment, cultural
differences, and so on.
PROBLEMS OF INTERNATIONAL BUSINESSES
International business refers to trade of goods and services across the
national borders. It is cross border transaction between two or more
countries. Advent of technology has made a world a very much connected
place. Going international has its own pros and cons, but now going global
is inevitable. Some of the problems of international businesses are discussed
as follows:
1. Faulty Planning - Planning is a must for every activity. To achieve
success, planning along with the correct implementation is necessary.
Planning for an international market is an expensive process.
Expected risks can be thought of and alternative plans should be kept
ready.
2. Problem of Market Research - What may work in the local country
may not work in the global work, hence market research is the first
major step for going at international level. If market is not analysed
properly, it may not yield the desired results. Companies and brands
fail without research. It is not only expensive but a wrong analysis
may ruin the business. Trained executives and personnel is an asset
for this function especially while entering the foreign market. Is
selling saree profitable outside India? Such questions are best
answered with market research.
3. International Laws and Regulations - Every country has its own
laws and paper work which may not be easy. Right from business
77
Strategic Management registration and actual start of the business all such legal formalities
have to be followed so that there are no legal complications in the
future. Thorough understanding is needed otherwise they may pose
problem any time. It takes time and sometimes they are very
confusing too.
4. Competition - Going global is handling and facing competition not
only from local people but also from third countries. To gain
competitive edge, needs thorough understanding and research of the
competitors in those markets. Survival of the fittest is the rule. But,
when it comes to international level, any wrong step may lead to the
failure of the business. Eg. Kellogs cornflakes are still finding its
place in the Indian market.
5. Cultural and Language Barriers – This is something very sensitive
and must be taken care of before entering the market. International
businesses require studying culture of other countries. Culture
sensitive market does not easily accept the unacceptable things to
their culture. Eg. Mc Donalds cannot sell beef in such countries where
not acceptable. Language can also affect international businesses.
Most countries where English is not the accepted language may be a
challenge.
6. Issues related to HR - People moving from one country to the other
need a lot of patience as well adaptability to that place. The way
Human Resource Department functions in that country may be
completely different. HR people need to be very cautious as such
challenges may be difficult to tackle and may affect the employees
badly, which ultimately may not go well for the business in the near
future. Managing workforce diversity is never an easy task.
7. Heavy Tariffs and Duties - The production and the product may
become more expensive owing to the tax rate or structure of that
country. Few products may become difficult to buy if the tariffs are
excessively levied. The business if unable to generate money may not
be able to survive the taxation in the long run.
8. Political Risks - Entering a new territory or place has its own risks.
If there is no political stability in the country, the venture may suffer
badly. Issues can arise because of the government and the political
scenario in that country. Trading partners need to share amicable
relations.
International business helps a nation earn money and goodwill too.
Customers also want better products. Apple would have remained a
fruit only, but all thanks to foreign markets we know that it is a phone
brand too.

Know your progress:

What is strategic alliances? Explain its types and importance.

78
3.6 PUBLIC PRIVATE PARTNERSHIP (PPP) Business, Corporate
and Global Strategies
and Issues
IMPORTANCE AND PROBLEMS

Concept
The advent of PPP framework can be dated back to 1980s, when
governments in countries like U.K and Chile, post success of privatization
in sectors like electricity, telecommunication and sanitation, sought to
extend benefits of privatization to sectors deemed exceedingly difficult to
privatize, such as transportation, schools, and hospitals under suitable PPP
models.
A public private partnership is a contract between a government agency and
a private sector company. It is a co-operative arrangement involving
government and business to complete a project typically of a long term
nature.

PPP are contractual arrangements of varied nature in which the two parties
share rights and responsibilities during the duration of the contract.
Different forms of PPPs may exist involving various combinations of public
and private sector finance and exposure to project risk. The role of the
private party varies according to the type of sector and the nature of the
market.
PPP are often confused with Privatisation. There is a clear difference
between these two forms of private sector engagement. Privatisation
involves the permanent transfer of a previously publicly owned asset to the
private sector, where as a PPP necessarily involves a continuing role for the
public sector as a `Partner’ in an ongoing relationship with the private
sector.
Under a PPP, accountability for provision of the service remains the public
sector, and there is a direct contractual relationship between the
Government and private sector provider. With Privatisation, immediate
accountability for providing the service may often be transferred to the
private provider (although ultimately the citizen may hold government
accountable.) If the telephone in a privatized telecommunications utility
does not work, the citizen will normally complain to the private provider
but if a PPP hospital is closed, the citizen will still hold the government
immediately accountable.
79
Strategic Management There are PPP in which a private party provides public infrastructure under
a long-term contract with a public sector body. Under such an arrangement,
the private sector party usually agrees to undertake the following.
1) Design and build, expand or upgrade the public sector infrastructure.
2) Assume substantial financial, technical and operational risks.
3) Receive a financial return through payments over the life of the
contract from users, from the public sector, a from a combination of
the two.
4) Usually return the infrastructure to public sector ownership at the end
of the contract.
Terms such as BOT (build, operate and transfer) and DBFO (design, build,
finance & operate) are often used to describe such schemes. Such terms also
apply to long term concessions where the private sector is responsible for
the operation, maintenance and expansion of existing assets. When the
underlying asset is not returned to the public sector, it is sometimes referred
to as a BOO (build, own and operate) contract, and the procedures to select,
prepare and bid these types of projects are usually no different. Each sector
may have its own particular issues, but these approaches can apply across a
wide range of infrastructure provision.
Whether in power generation, the building and maintenance of roads, or the
provision of schools or hospitals, the broad nature of the PPP is determined
by what rights, obligations and risks are assumed by the public or private
parties within the partnership.
Examples of PPP in India
1) Second Vivekananda Bridge (now Sister Nivedita Bridge) in
Kolkata - This bridge is one the first BOT projects, undertaken in
1995. The concession agreement was signed in September 2002. The
consortium members are from USA, UK, Mauritius and India.
2) Mumbai Metro - First MRTS project in India being implemented on
Public Private Partnership (PPP) format. DMRC (Delhi Metro Rail
Corporation) prepared the master plan for Mumbai Metro. The Private
party involved was- Reliance Energy Ltd.
3) DND Link Road - The 4 lane 1.5 km long road will intersect the
Delhi Noida link road at the intersection of the proposed Mayur Vihar
District Centre.
4) Underground Car Parking System City- Kolkata, West Bengal -
The Kolkata Municipal Corporation (KMC) decided to utilize the
rights to underground space and undertake the parking project as a
Public Private Partnership project on a Build-Own-Operate-Transfer
(BOOT) basis for 20 years. The Private parties involved were- KMC
and Simplex
80
Importance of Public Private Participation (PPP): Business, Corporate
and Global Strategies
and Issues
1. Each participant gives best to the partnership: When two entities
work for one mutual goal, both combine their best and get better
returns as compared to a single project. Each may give best to what it
is specialised at.
2. Mutual sharing of benefits: Such projects are one with long
gestation period and even very expensive. All this is easily carried out
with a good business partner. The risks and the benefits are easily
shared and both parties benefit mutually.
3. Government can focus on its socio-economic activities: With
someone sharing the project costs and the actual work, government
can focus on other important socio-economic areas.
4. Smooth and faster completion of project: As generally PPP is for
long term, coming together of two parties help in smooth and faster
completion of the project.
5. Benefit to nation: Although such projects are not very easy to carry
out but definitely involving a reliable private party not only helps in
sharing the costs and risks but benefits the nation in the long run.
6. Strengthen small town enterprises: Small enterprises in rural small
towns of developing countries do not usually get opportunities to
subcontract with large organizations which often are foreign-owned
and keen on subcontracting with other foreign firms or developing
their own subsidiaries in the host country, without such opportunities
for experience and investments, the enterprises fail to develop strong
track records for growth and potential competition. Strategic
government policy and regulatory mechanisms that encourage a
variety of public-private partnership in these areas would strengthen
small-town enterprises while at the same time stimulating
entrepreneurial interest.
7. Other Importance:

• Government may find it difficult to invest in capital intensive

projects but a private entity may be interested in exchange for a
long term benefit.

• Exploring PPPs as a way of introducing private sector

technology and innovation in providing better public services
through improved operational efficiency

• They provide better infrastructure solutions than an initiative

that is wholly public or wholly private. Each participant does
what it does best.

• A public-private partnership would typically improve

efficiency in the public sector and increase capacity
development for local business. 81
Strategic Management As outlined in its XII Five Year Plan (2012–2017), India has an ambitious
target of infrastructure investment (estimated at US$1 trillion). In the face
of such an enormous investment requirement, the Government of India is
actively promoting PPPs in many sectors of the economy.
A country prospers quickly if both public and private work in co-operation.
Such models typically improves efficiency of the public sector and
increases the capacity development of the local business.
Problems of Public Private Participation (PPP)
1. Problem of common interest: As government works for social
welfare and private sector for profits there should be a common
interest on the project to be initiated. The initial excitement or the
interest may decline in the long run if differences crop up because of
this mind-set.
2. Lack of Ownership - This model is a joint effort. In case either of the
party does not contribute equally, one of them will always have more
pressure than the other. Such problem exists especially more when the
project fails to deliver what it promised.
3. Dominance of private party- It may happen government takes a
backseat and the private party may dominate due to the share of the
capital. With this government is at an inherent disadvantage.
Generally companies with more funding tries to take the lead for
which sometimes the public may be at a loss.
4. Problem of communication and objectives - Lack of
communication and unclear of objectives may impact the delivery of
the project. Initial level comfort and maintaining complete
transparency helps in smooth running of the project. Realistic
objectives along with proper decision may help solve this problem.
5. Different style of workings: Private sector may be more cautious
with the delay in such capital intensive projects. Their style of
working and execution may not go well with the government party as
such huge projects may turn costly if not executed as per the projected
time.
6. Differences - Large projects involves a proper planning before the
execution. There may be differences of opinion and competing
objectives may have an impact on the relationship of the people
involved. If there is lack of discipline the entire team suffers and result
may be not as planned.
7. Poor Control - Lack of discipline and poor control owing to multiple
participants is one of the disadvantage of any business. Regular and
proper control over the resources not only saves time but helps in
delivering the best.
8. Every PPP involves more risk for private partner either due to the
system or long waiting approvals which may affect the business
relationship and the private partner may expect the government to
82 compensate.
3.7 GOVERNING STRATEGIES OF PPP MODEL Business, Corporate
and Global Strategies
and Issues
1) Joint Venture Strategy: Joint Venture can be described as a business
arrangement, wherein two or more independent firms come together
to form a legally independent undertaking, for a stipulated period, to
fulfil a specific purpose such as accomplishing a task, activity or
project. In other words, it is a temporary partnership, established for
a definite purpose, which may or may not uses a specific firm name.
In PPP model joint venture, the government and private firm come
together and establish temporary partnership for a definite purpose of
undertaking project.
Example - To create a special purpose vehicle (SPV), Pipavav
Railway Corporation Ltd (PRCL) was set up in May 2000 under the
Companies Act, 1956, as a joint venture (JV) company with Indian
Railways and Gujarat Pipavav Port Ltd (GPPL – which was formed
by signing Memorandum of Understanding between Sea King
Infrastructure Ltd's, Gujarat Maritime Board and Government of
Gujarat in 1992).
PRCL is a unique example of public-private participation (PPP) in the
development of infrastructure. The SPV was assigned the task of
converting the metre gauge line between Surendranagar and Rajula
City to broad gauge and its further extension to Pipavav Port. The
company is also entrusted the task of managing all operations and
commercial functions in connection with the carriage of freight traffic
on the 271 km Pipavav Railway connecting port of Pipavav.
2) Build-Operate-Transfer (BOT) Strategy: It contract is a model
used to finance large projects, greenfield infrastructure projects
developed through public-private partnerships.
Under a build-operate-transfer (BOT) contract, an entity—usually a
government—grants a concession to a private company to finance,
build and operate a project for a period of 20-30 years, hoping to earn
a profit. After that period, the project is returned to the government.
Example - Setting up 20 MW hydel based power unit at Telbeila in
Pune. This BOT project was between Water Resources Department,
Maharashtra and Satind Infrastructures Pvt. Ltd. signed in 2013.
3) Turnkey Project Strategy: In this a private party agrees to fully
design, construct and equip the project and turn it over to the
government when it is ready for operation. Generally the finance is
provided by the government. After transferring the project to
government, operation part is looked after by government. But project
maintenance is part is looked after by private party.
This is very common adopted practice in Oil AND Gas Sector, Power
Plant Sector, Port Development, Railway Network or Station
Development, Metro Rail etc. Project. 83
Strategic Management Deliveries in the form of turn-key projects are used in many areas,
e.g. in IT (turn-key implementation of information systems),
engineering, large construction projects, civil engineering and a
number of other areas.
4) Build-Own-Operate (BOO) Strategy: BOO (build, own, operate) is
a public-private partnership (PPP) project model in which a private
organization builds, owns and operates project with some degree of
encouragement from the government. Although the government
doesn't provide direct funding in this model, it may offer other
financial incentives such as tax-exempt status. The private party is
allowed to recover the total investment by collecting user fees from
the facility users. The developer owns and operates the facility
independently. Unlike the build-operate-transfer (BOT) structure,
the private sector party owns the project and does not have to transfer
it to the government entity at the end of the term.
5) Concession Contract Strategy: In this strategy the private party
(concessionaire) is responsible for fully design the project. The
government is responsible for establishing service standards and to
ensure that private party charges the right user fees. The private party
is responsible for investment. In some cases government may provide
finance. A concession contract is for longer period of time say 20-30
years, so that the private party gets enough time to recover their
investment plus fair Return on Investment (RoI).
6) Lease Contract Strategy: Under this strategy, the Government
allows the private party to use the existing assets of the project. This
contract is generally for 10 years and renewed further for more 10
years.
7) Management Contract Strategy: Under this contract private party
is responsible for the management of public services facilities like
hospital, utilities (water supply, power supply, transport) port etc.
The public sector is responsible for investment in fixed assets, and the
private sector provides working capital to manage the facilities. The
public sector pays to the private party a certain rate for operating
expenses. This contract is signed for 3 to 5 years and may be renewed
further.
8) Service Contract Strategy: Under this contract, the public sector
enters in a contract with private sector party relating to provisions of
certain services such as maintenance of and repairs of roads, highways
and other infrastructure. This contract is signed for a period of 1 to 3
years and may be renewed further. The Government pays the private
party a predetermined fee for services which may be one-time fee
during the contract period.
9) Design-Finance-Build-Operate (DFBO) Strategy: This strategy is
variation of Build-Own-Operate (BOO)
84
10) Design-Build Strategy: This strategy is variation of Turnkey Project Business, Corporate
and Global Strategies
Strategy and Issues

Know your progress:

Write a note on Problems of PPP model.
Explain Governing strategies of PPP model.

3.8 SUMMARY

A restructuring involves radically changing a company's organizational,

financial and operating structure to permanently and swiftly address serious
financial and operational issues that could lead to a corporation's shutdown
or liquidation. Restructuring essentially acts as an in-depth reorganization
conducted for the primary purpose of returning a corporation to profitability
and productivity. Restructuring strategies can be Merger, acquisition,
takeovers, Portfolio restructuring, Financial restructuring, organizational
restructuring, rehabilitation scheme etc.
When A corporate strategy designed to address declining performance, then
this type of strategy is called renewal strategy. This type of strategy helps
an organization stabilize operations, revitalize organizational resources and
capabilities, and prepare to compete once again.
A strategic alliance is an arrangement between two companies to undertake
a mutually beneficial project while each retains its independence. The
agreement is less complex and less binding than a joint venture, in which
two businesses pool resources to create a separate business entity. Indian
strategic alliance face certain problems such as Conflict between Partners,
Government Interference, Delay in Decision Making, Differences in Work
Culture etc.
PPP is an arrangement between government and private sector for the
provision of public assets and/or public services. ... These
partnerships work well when private sector technology and innovation
combine with public sector incentives to complete work on time and within
budget.

3.9 EXERCISE

Select the most appropriate answer from the options given below
1) _______________ means process of redesigning one or more aspects
of a company.
(Corporate Restructuring Strategy, Public Private Participation,
Strategic Alliance, None of these)
2) Corporate restructuring involves ________________.
(Purchase of Division, Divestiture, De-merger, All of these) 85
Strategic Management 3) __________ affects to the corporate renewal strategy of a firm.
(Value system of management, Customers, International
Environment, All of these)
4) __________ is an arrangement between two companies that has come
together to share their resources.
(Corporate Restructuring Strategy, Public Private Participation,
Strategic Alliance, None of these)
5) _______________ is a strategic alliance based on financial
involvement.
(Equity Strategic Alliance, Vertical Strategic Alliance, Horizontal
Strategic Alliance, All of these)
6) _________ problem can be involved in Indian strategic alliance.
(Differences in work culture, Reduced Competition, Entry in new
market, Growth Opportunities)
7) __________ is a contract between a government agency and a private
sector company
(Corporate Restructuring Strategy, Public Private Participation,
Strategic Alliance, None of these)
8) ____________ issue is involved in strategy analysis and choice.
(Corporate Culture, Impact of Past Strategies, Governmental Policies,
All of these)
9) _______ is one of the Public Private Participation (PPP) models.
(Build-Operate-Transfer, Sole Trading Concern, Joint Hindu Family
Business, Co-operative Societies)
State whether the following statements are True or False.
1) Merger is one of the forms of Corporate Restructuring Strategy.
2) Poor quality of product can be a cause for a firm to adopt Corporate
Renewal Strategy.
3) Culture and Language barrier can never be the problems of
International Businesses
4) Public Private Participation strategy enables Government can focus
on its socio-economic activities.
5) Mumbai Metro is an example of Public Private Participation strategy.
6) In turnkey project, the private party does not handover project to
Government after it is completed.
86
Match the Pair Business, Corporate
and Global Strategies
and Issues
Group ‘A’ Group ‘B’
1. Financial Restructuring a. Public Private Participation
(PPP) Model
2. Build-Operate-Transfer b. Form of Corporate Restructuring
(BOT) Strategy Strategy
3. Take Over c. Issues related to HR
4. Problems of International d. Debt-equity swap
Business
e. Outsourcing

Long Answers
1) Explain the concept of Corporate Restructuring Strategy and its need.
2) What different forms of Corporate Restructuring Strategy.
3) What is Corporate Renewal Strategy? Discuss internal and external
factors affecting it.
4) Describe the causes of Corporate Renewal Strategy.
5) Highlight the types of Strategic Alliance.
6) Elucidate importance of Strategic Alliance.
7) Explain various problems of Indian Strategic Alliances.
8) Discuss the problems of International Businesses.
9) Describe the importance of Public Private Participation Strategy.
10) ‘Public Private Participation Strategy involves problems’. Explain.
11) Write a note on Governing Strategies of PPP Model.



87
 4
EMERGING STRATEGIC TRENDS
Unit Structure:
4.0 Objectives
4.1 Introduction
4.2 Business Process Outsourcing and Knowledge Process Outsourcing
4.3 Reengineering Business Processes
4.4. Contribution of IT in Indian business sector
4.5. Disaster Management
4.6. Start-Up Concept and Process
4.7. Make in India
4.8. Contribution of Make in India Policy
4.9. Summary
4.10. Exercise

4.0 OBJECTIVES

After studying this unit the student will be able to

• Know the concept of Business Process Outsourcing (BPO) and
Knowledge Process Outsourcing (KPO)
• Explain Strategies of BPO and KPO
• Understand the reasons for growing BPO and KPO businesses in
India
• Describe Business Process Reengineering
• Contribution of IT in Indian sector
• Understanding Concept of Disaster, Problems and Consequences of
Disaster, Strategies for Managing and Preventing disasters, disaster
cope up Strategies.
• Analysing Process of business start-ups and its Challenges
• Knowledge about Growth Prospects and government initiatives in
Make in India Model with reference to National manufacturing
• Contribution of Make in India Policy in overcoming industrial
sickness

4.1 INTRODUCTION

Outsourcing is subcontracting a process, such as product design or

manufacturing, to a third-party company. The decision to outsource is often
88 made in the interest of lowering firm or making better use of time and
energy costs, redirecting or conserving energy directed at the competencies Emerging Strategic
Trends
of a particular business, or to make more efficient use of land, labor, capital,
(information) technology and resources
Business Process Reengineering involves the radical redesign of
core business processes to achieve dramatic improvements in productivity,
cycle times and quality. In Business Process Reengineering, companies
start with a blank sheet of paper and rethink existing processes to deliver
more value to the customer.
This chapter discusses about the outsourcing and Business Process
Reengineering strategy of business.

4.2 BUSINESS PROCESS OUTSOURCING AND

KNOWLEDGE PROCESS OURSOURCING

Concept:
BPO is the contracting of a business task to a third party service provider.
Back office outsourcing refers to internal business functions like billing or
purchasing, while front-office outsourcing includes customer-related
services such as technical support, marketing and customer service. The
focus in BPO is on reducing transaction costs, optimizing process efficiency
and providing size and scale to handle a large volume of transaction
processing engagements.
BPO provides an array of services such as:
• Customer care, i.e. call center, help desk, etc.
• Human resources, i.e. recruitment and selection, training and
placement, payroll processing, etc.
• Technical support
• Services related to finance and accounting.
• Website services, i.e. web hosting, etc.
• Transcription

89
Strategic Management Strategies of BPO in India
1) The Global Delivery Model – Global Delivery Model is usually
associated with organizations involved in the IT industry including
consulting and business services. It is the process of executing IT
projects with the help of teams located at multiple locations across the
globe. The teams might be located at the client site or at a remote site
(onshore or nearshore or offshore). The tasks associated with the
project could be divided among different teams. This model could
also be used to deliver customized projects based on the requirements
of the clients.
Also called Blended outsourcing. It combines. There are different
types of models such as:

• Onsite delivery model - Here the consultants are located on the

client’s site(s), from the initial consultation to the completion of
the project. The representatives will have face-to-face
interaction with the client.

• Offsite delivery model - In this model, a consultant works

remotely but resides in the same city or country as that of the
client.

• Offshore delivery model - All the tasks, from the start until
completion will be accomplished at one or more offshore sites
using an outsourcing team.
Example - Accenture, EDS, and IBM
2) The Hybrid Delivery Model or Dual-shore Model - It takes
advantage of onsite and offshore services to deliver results to clients
at reduced costs. Midsize service providers headquartered offshore
commonly adopt this delivery model. Ideally, 20%–30% of work is
done onsite and 70%–80% is sent offshore, depending upon the
criticality of the project. The purpose of this model is to save the cost
as well as getting expertise services.
Let us understand how Hybrid Delivery Model works - A software
development project undertaken by a hybrid provider would go
something like this: A local team stationed onsite with the client
would control the defined portion of the project that required
interaction with experts and software architects onsite. Meanwhile,
the team based at the provider’s offshore facilities would take care of
the coding, testing, and bug fixing etc.
3) The Offshore Multi-Sourcing Model or Hub-and-spoke Model -
In the Multi-sourcing model, the company enters into separate,
parallel agreements with different suppliers/vendors to satisfy all the
needs of the business. The multisource approach is usually in contrast
with full in-house facilities and outsourcing to a single vendor. A
typical multi-sourcing model involves having various suppliers
90
 offering different services needed for the successful running of the Emerging Strategic
Trends
business. It provides access to the services from best in breed
suppliers and often offers a way around the common pitfalls of being
locked in a long-term deal with a single vendor.
A classic example of the multi-sourcing model could be the
following: if supplier A is performing data center functions, supplier
B might be performing desktop functions while supplier C could be
handling network functions. One such company that is following this
outsourcing model is German utility E. ON. It is outsourcing its data
center and desktop environments to Hewlett Packard and its network
environment to T-systems.
4) The Build-operate-transfer or BOT Model - This model typically
has three phases: Build phase, Operate phase and transfer phase. The
Build phase involves setting up an operation unit that includes
everything – from selecting the buildings, installing the infrastructure,
employing the staff, maintaining the required administration and legal
framework. The Operate phase is mainly about managing offshore
projects. It involves program management, development,
maintenance, enhancements, and product support. The third phase of
this model is the Transfer phase in which the project owner is handed
over to the client. Generally, project ownership is transferred when
the client is fully ready to control the project or when the contract
expires. This phase involves transferring the assets and handing over
the other operations.
5) The Global Shared Services Model - Global shared services is a
collaborative strategy which involves delegating or centralizing a
subset of business functions to a new and separate, semi-autonomous
business center. This model of outsourcing could also define the
partnerships formed between the separate businesses located in
different locations. Services that could be outsourced and shared
among various business units include finance, purchasing, payroll,
inventory management, hiring process, and information technology.
KNOWLEDGE PROCESS OUTSOURCING : Knowledge process
outsourcing (KPO) is the outsourcing of core, information-related business
activities. KPO involves outsourcing work to individuals that typically
have advanced degrees and expertise in a specialized area.
KPO involves outsourcing of core functions which may or may not give
cost benefit to the parent company but surely helps in value addition. The
processes which are outsourced to KPOs are usually more specialized and
knowledge based as compared to BPOs. Services included in KPO are
related to R&D, Capital and insurance market services, legal services,
biotechnology, animation and design, etc. are the usual activities that are
outsourced to KPOs.
KPO provides an array of services such as:
• Investment research services
91
Strategic Management • Market research services
• Data analytics
• Business research services

The basic difference between BPO and KPO is discussed below

Basis for BPO KPO

comparison
Meaning BPO refers to the KPO is another kind of
outsourcing of non- outsourcing whereby,
primary activities of the functions related to
organization to an external knowledge and
organization to minimize information are
cost and increase outsourced to third party
efficiency. service providers.
Requirement Process Expertise Knowledge Expertise
Talent Good communication Professionally qualified
required in skills workers are required
employees
Focus on Low level process High level process
Strategies of KPO in India
Answer same as “Strategies of BPO in India”
Reasons for growing BPO and KPO businesses in India
1) Cost-advantage: India is chosen by many developed countries to
outsource their activities is because of availability large fluent
English-speaking workforce at lower cost and availability of tech-
savvy manpower. Outsourcing activities reduces the expenses without
affecting the profit. Indeed that is quite beneficial from a company’s
perspective.
2) Competent Talent Pool: Despite the stiff competition from The
Philippines, Vietnam and other Asian countries, the Indian BPO
industry still remains an attractive destination. This is because of the
92
 availability of vast skilled labour and their proficiency in Emerging Strategic
Trends
understanding progressive technology. Companies, lately, have
started realizing that outsourcing is more than just saving cost.
Thereby choosing India for enhancing the business productivity along
with efficiency.
3) Government Support: Government of India has extended its support
to the BPO and KPO Sector in India resulted in growing its
importance. The Government of India has introduced various policy
concessions and initiatives to accelerate the growth of the IT-enabled
outsourcing market. Eg. he Government of India (Central Board of
Direct Taxes — CBDT) has allowed total income tax exemption on
the export of IT enabled outsourcing services under Sections 10A/10B
of the Income Tax Act, 1961.
4) Ability to Focus on Core Business: Many businesses are outsourcing
their activities to specialized agency so that they can focus on their
core business. This can result into customer satisfaction. This also
ends in better employee productivity and allows them make better and
greater informed business decisions.
5) Different time zones: The client and the vendor can operate in two
different time zones that are far apart. Many Indian outsourcing
agencies working 24X7. It enables them to adjust their shifts to match
the office hours of the client company.
6) Reliability and High-Quality Standards: Indian outsourcing
companies provide high-quality work, meeting all the international
standards. They follow the best international standard practices, that
includes:

• The International Standard Organization (ISO 9000) that

assures quality in design, development, production and
installation.

• Total Quality Management (TQM)

• Six Sigma Quality Certification

Know your progress:

Explain BPO and explain its strategies in India.
What are the reasons of BPO and KPO Growth in India.

4.3 REENGINEERING BUSINESS PROCESSES

Business Process Re-engineering (BPR) is also known as Business Process

Re–design, Business Transformation, or Business Process Change
Management. Business Process Re-engineering (BPR) is more than just
business improvising’. It is an approach for re-design the way work is done
to better support the organization’s mission and reduce costs.
93
Strategic Management According to Hommor and Champy, “BPR is a fundamental rethinking
and radical redesign of business processes to achieve dramatic
improvements in critical contemporary modern measures of performance,
such as quality, cost, service and speed”.
Business process reengineering is the act of recreating a core business
process with the goal of improving product output, quality, or reducing
costs. Typically, it involves the analysis of company workflows, finding
processes that are sub-par or inefficient, and figuring out ways to get rid of
them or change them.
It is a business management strategy, originally pioneered in the early
1990s, focusing on the analysis and design of workflows and business
processes within an organization. BPR aimed to
help organizations fundamentally rethink how they do their work in order
to improve customer service, cut operational costs, and become world-
class competitors.
Example - Many companies like Ford Motors, GTE, and Bell Atlantic tried
out BPR during the 1990s to reshuffle their operations. The reengineering
process they adopted made a substantial difference to them, dramatically
cutting down their expenses and making them more effective against
increasing competition.
Business Process Reengineering
1) Define Objectives and Framework: First of all, the objective of re-
engineering must be defined in the quantitative and qualitative terms.
The objectives are the end results that the management desires after
the reengineering. Once the objectives are defined, the need for
change should be well communicated to the employees because, the
success of BPR depends on the readiness of the employees to accept
the change.
2) Identify Customer Needs: While, redesigning the business process
the needs of the customers must be taken into prior consideration. The
process shall be redesigned in such a way that it clearly provides the
added value to the customer. One must take the following parameters
into the consideration:
• Type of Customer and customer groups.
• Customer’s expected utilities in product and services
• Customer requirements, buying habits and consuming
tendencies.
• Customer problems and expectations about the product or
service.
3) Study the Existing Process: Before deciding on the changes to be
made in the existing business process, one must analyze it carefully.
The existing process provides a base for the new process and hence
94
 “what” and “why” of the new process can be well designed by Emerging Strategic
Trends
studying the right and wrongs of the existing business plan.
4) Formulate a Redesign Business Plan: Once the existing business
process is studied thoroughly, the required changes are written down
on a piece of paper and is converted into an ideal re-design process.
Here, all the changes are chalked down, and the best among all the
alternatives is selected.
5) Implement the Redesign: Finally, the changes are implemented into
the redesign plan to achieve the dramatic improvements. It is the
responsibility of both the management and the designer to
operationalise the new process and gain the support of all.

4.4 CONTRIBUTION OF IT SECTOR IN INDIAN

BUSINESS

Information Technology in India is an industry consisting of two major

components: IT services and business process outsourcing (BPO).
The sector has increased its contribution to India's GDP from 1.2% in
1998 to 7.7% in 2017. As of 2020, India's IT workforce accounts for 4.36
million employees. This data very well reflects contribution of IT sector in
Indian Business.
With the introduction of technology, the working of any business has
changed drastically. It is no longer the way it was before the advent of
computers. Information Technology (IT) is used almost everywhere and
with the pace technology changes, what makes it challenging is how we
upgrade and how we protect us from its negative aspects. The contribution
of IT sector is discussed as below:

1. IT in Education - We never thought our classrooms will shift into

our mobile devices. Yes, but it has!!! With this lockdown of COVID-
19 pandemic situation, we all started studying and learning online. 95
Strategic Management Electronic devices are used by instructors and students everywhere in
the world. It is a boon to people who cannot access actual classrooms.
We have so many apps now for all such learning purpose. SWAYAM,
BYJUS, VEDANTU all have changed the way we studied.
2. IT in Health Care - Whether it is seeking consultation or sometimes
doctors sharing some information with their colleagues, everything is
online now. By adopting digital technology and processes, healthcare
providers are focusing on giving better quality and time to patients.
E-diagnosis may soon become the future of the health care sector. All
records are digitalised and soon we may have BOTS (known as
internet robots) as health assistants too.

3. IT in Agriculture - Government is assisting farmers in India for

improvement in the way they practise farming. DD Kisan TV channel
launched in 2015 is exclusively for farmers which help them with real
time inputs on new farming techniques, water conservation, organic
farming and many more information for better farming practises.

4. IT in Banking - Customers are benefitting with easy access by new

technology like ATMs, online banking, mobile banking etc. Many
things have been streamlined due to IT and machines. No longer for
every activity we need to rush to the bank. It has helped save bank's
time as well customer's time.

5. IT in Retail Sector - Buying and shopping was never so easy. We

can order at midnight also to buy our favorite products. The moment
we surf or browse the internet, chat bots and advertisements pop up
and helps us in directing us to the right websites. Retailers use
technology in serving customers in an efficient manner. The choice of
customers and what they want is easily tracked with the help of IT.

6. Remote Sensing: It is a blessing for mankind. It is scanning off earth

by satellite or high flying aircraft in order to obtain information about
it without physical contact. Researchers can easily sense things about
the earth because of its help. Our daily use Global Positioning System
(GPS) is widely used in many applications related to surveying and
navigation.

7. Media Industry: IT has opened doors for Media Industry too.

Advertising, broadcasting, telecasting, e-papers, animation, etc.
everything is now only possible through this advance system.
Technology has revolutionised the print and electronic medium. We
can easily access all information online without even moving from
our homes.

Know your progress:

Explain Steps of BPR.
Write a note on Contribution of IT in business in India.
96
4.5. DISASTER MANAGEMENT Emerging Strategic
Trends

Disaster means the occurrence of a sudden and major misfortune that

disrupts and damages normal functioning of a society or community in the
form of loss of life and property. Such event can be natural and/or manmade.
The natural disasters take place due to imbalance in the natural environment
such as storm, flood, earthquake, drought etc. Manmade disasters are
created by human beings because of imbalance in their behavior such as
greed to acquire a get something, ignorance or negligence, and desire to get
control over something. These can be war, riots, accidents of vehicles,
deforestation, air pollution and so on.

Disaster management is a specialized and professional activity requiring the

expertise of different professionals such as engineers, doctors, architects,
social workers and administrators. The impact of disasters can be
minimized through advance planning, developing, working system as well
as prompt implementation Disasters especially natural disasters cannot be
avoided altogether but advance planning can mitigate sufferings. With
necessary safety precautions, research, analysis and documentation are also
required. Concrete action plan is required to avoid lunge economic losses
miseries and somas which can be prevented.
Concept
The term `Disaster’ is derived from French word `Disaster’ which is the
combination of two terms `des’ meaning bad or evil and `astre’ meaning
`star’. The combined expression is `Bad or Evil Star’ In the earlier days, a
disaster was considered to be the loss due to some unfavorable star.
A disaster is a sudden, calamitous event that seriously disrupts the
functioning of a community or society and causes human, material, and
economic or environmental losses that exceed the community’s or society’s
ability to cope using its own resources. Though often caused by nature,
disasters can have human origins. 97
Strategic Management The United Nations defines disasters as, “the occurrence of a sudden or
major misfortune which disrupts the basic fabric and normal functioning of
a society or community”.
The Webster’s Dictionary, defines disaster as, “any event that over
whelms existing resources to deal with the event”.
Classification of Disaster
Disasters can basically be classified into two ‘Categories i.e.
1) Natural Disasters – such as

• Wind related - Storm, Cyclone, tornado, Hurricane, Tidal

waves, Storm surge.

• Water related - Flood, cloud burst, Flash flood, excessive

rains, Drought, Communicable diseases,

• Earth related - Earthquake, Tsunamis, Avalanches, Land

slides, Volcanic eruptions.
2) Man-made Disasters: Such as: war, battle, enemy actions, riots,
Accidents of vehicles, Industrial accidents, Fire and Forest Fires.
Nuclear explosion, Ecological disasters like deforestation, soil
erosion air, water pollution, HIV / AIDS, Life Style diseases,
Violence and so on.
Problems and Consequences of Disasters

1) Impact on human life: In a disaster, you face the danger of death or

physical injury. You may also lose your home, possessions, and
98 community. Such stressors place you at risk for emotional and
 physical health problems. Stress reactions after a disaster look very Emerging Strategic
Trends
much like the common reactions seen after any type of trauma.
2) Impact on Health: Natural and manmade disasters have the direct
and indirect impact on the health of the population, resulting in
physical trauma, acute disease and emotional trauma along with
increase in the morbidity and mortality associated with chronic
diseases.
3) Impact on Environmental: The disasters such as wildfires, floods,
and cyclones can completely destruct forests and cause other types of
structural changes to ecosystems. Wildlife can be killed by the force
of the disaster or impacted indirectly through changes in habitat and
food availability.
4) Impact on Economy: Natural disasters such as earthquakes, floods,
typhoons, and hurricanes inflict serious damage and so seem to be bad
for the economy. For firms, natural disasters destroy tangible assets
such as buildings and equipment – as well as human capital – and
thereby deteriorate their production capacity.
5) Impact on Agriculture: According to preliminary findings of a new
study of the Food and Agricultural Organization (FAO) - Nearly a
quarter of damages caused by natural disasters in the developing
world are borne by the agriculture sector. The findings, released at the
UN World Conference on Disaster Risk Reduction, say more than 22
per cent of the damages caused by natural hazards—such as drought,
floods, storms or tsunamis—are accounted for by the agriculture
sector.
According to study, during drought period, agriculture absorbs up to
84 percent of all economic impacts. Within the agricultural sector, 42
per cent of assessed losses were that of crops.
6) Impact on Development: Disasters have a devastating impact on
development. Families lose homes, livelihoods and loved ones,
communities lose businesses, jobs and services, children and
particularly girls miss school and are at risk of early marriage – the
list of impacts goes on. Disasters can cancel progress on poverty
reduction.
Strategies for managing disasters
There is no doubt that hazards are integral aspects of our environment.
Disaster management is normally viewed as a post disaster mitigation
focusing on rescue, relief and rehabilitation in the events such as
earthquakes, cyclones, floods, droughts and fires. It has been realised that
effects of disasters on human population can be mitigated if not avoided
altogether, by integrating disaster prevention and mitigation with
development planning. Some of the strategies to cope up with disaster are
discussed below:

99
Strategic Management

1) Prevention – actions undertaken in advance. Sometimes this is

referred to as mitigation. Examples include back-burning or
constructing sea walls to protect from tidal waves, having alternative
sources of electricity or alternative communication systems in place.
Prevention activities should be happening all the time.
2) Preparedness – making arrangements, creating and testing plans,
training, educating and sharing information to prepare communities
should an emergency eventuate. These are also ACTIONS and they
are happening all the time.
3) Response – the assistance and intervention during or immediately
after an emergency. Focus is on saving lives and protecting
community assets (buildings, roads, animals, crops, infrastructure).
Usually measured in hours, days or weeks.
4) Recovery – the coordinated process of supporting emergency-
affected communities in reconstruction of physical infrastructure and
restoration of emotional, social, economic and physical wellbeing.
Usually measured in months and/or years
Disaster Cope Up strategies

• Effective and efficient administration and commitment by all

i.e. Government, People and Voluntary organizations.

• Treatment and care of victims through provision of goods and

services and especially sympathy.

• Restoration of essential services such as communications,

water supply and power supply as early as possible.

• Information and advice to the public.

• Maintenance of public morale and motivation.

• Counselling of victims and their relatives.

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 • Measures for long-term rehabilitation. Emerging Strategic
Trends

• Goods Inventory Management.

• Monitoring at regular intervals.

• Allocation of duties and responsibilities clearly to avoid

ambiguity & duplication.

• Provision of shelters for human beings & animals.

• People’s participation in their own welfare.

Know your progress:

Explain strategies for managing disasters.

4.6. START UP- CONCEPT AND PROCESS

The term startup refers to a company in the first stage of its operations.
Startups are founded by one or more entrepreneurs who want to develop a
product or service for which they believe there is a demand. These
companies generally start with high costs and limited revenue which is why
they look for capital from a variety of sources such as venture capitalists.
Example - Ola Cabs, Zomato, Paytm, FreshToHome etc. are top Indian
start-ups.

PROCESS OF BUSINESS START UPS

1) Ideation: At this stage an entrepreneur undertake following in order
to select and validate his idea:
101
Strategic Management • Generate business concept that has information relating to
service/product, the target audience, and a unique value
proposition that gives a company an advantage over
competitors.
• Get an idea of a start-up by recognise that the problem they
wish to get solved. It is is actually a start up idea
• It is always advisable to segment customers according to their
demographics, psychographics, geographics, and behaviour and
direct all or most of your marketing efforts to the most
profitable segment. This is because needs, demands, and
luxuries are different for different customer segments.
• Market research provides him with the relevant data to help
him solve the challenges he’ll face during his business tenure.
2) Co-Founder: Start-ups with 2 or more co-founders are more likely to
succeed. The co-founder is necessary for moral and emotional
support, funding, better decision making, division of responsibility,
complementary skills, complementary skills, risk mitigation etc.
3) Prototype: A prototype is a basic working sample, model, or just a
simulation of the actual product based on which the final product is
developed. The main motive behind prototyping is to validate the
design of the actual product. Sometimes, creating a prototype is called
materialization as it is the first step of transforming the conceptualized
design into the real physical form. The prototype is required because
of
• Presenting to Investors
• Intellectual Property Protection
• Remove problems in manufacturing
• Testing and refining product
4) Business Plan: A business plan is a guide which outlines the goals of
the business and roadmap of how to achieve them. It is the written
description of your business’s future. Business Plan includes
following elements:
• Executive Summary
• Market Overview and Customer Analysis
• Product / Service overview
• Business and Revenue Model
• Competitive Analysis
• Marketing Plan
• Management Teams
• Funding and Financials
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5) Branding: A brand is not just the name of the product/organization Emerging Strategic
Trends
but the whole perception you consciously and sub-consciously have
of the entity. Thus, a brand constitutes of :
• Brand Name
• Brand Logo
• Brand Image
• Brand Perception
• Brand Personality
• Brand Experience
It is a known fact that the launch of your product is going to be the
biggest factor that will decide whether your product is going to
skyrocket or have a crash landing. Maximum impact is attained by
marketing a brand that the target demographic relates to. This can be
proven by a lot of examples.
Let’s take the example of Indian Motor Vehicle manufacturer TATA
Motor’s economy range TATA Nano. When launched, TATA Nano
was the most pocket-friendly car. This created ripples in the
automobile industry all over the world. India was considered the best
market for such a product but the response received in the Indian
market was underwhelming. It didn’t garner enough market attention.
The marketing flaw that TATA Nano had was that they branded the
car as the cheapest car in the world. No one wants to drive around a
car which everyone else can identify as the cheapest car in the world.
The branding didn’t allow it to make a huge splash in the Indian
market.
6) Registration of Firm: The business should always be registered
before launching your idea in the market. Moreover, registering a firm
is not a tedious task as it used to be. Different firms can be registered
under different acts such as
• Sole Trading Concern – No need to register
• Partnership Firm – Indian Partnership Act, 1932
• Joint Hindu Family Business – Hindu Succession Act
• Joint Stock Company – Indian Companies Act, 2013
• Co-Operative Society – Co-operative Society Act
7) Capital Raising: At this stage capital raising is done from different
sources which include:
• Initial Public Offer (IPO)
• Loans from Banks and Financial Institutions
• Crowd funding
• Personal Finance and others 103
Strategic Management 8) Starting functions of start-up: At this stage the start-up can start
functioning. AT initial stage the profit may be less. But the
entrepreneur must keep patience. He should focus on customer
satisfaction which will enable him to achieve his goal of higher profit
and sales, expansion of business, corporate image, etc.
CHALLENGES OF BUSINESS START UPS
1) Competition from giant companies: There is always a competition
going on between the giants. Competition poses one of the biggest
challenges for the survival of start-up businesses. Due to lack of
capital and other problems they cannot compete with giants and may
result into close down of start-ups.
2) Finding right Partner: Going into a partnership may benefit the
start-ups in many ways such as finance, moral and emotional support,
better decision making, division of responsibility, complementary
skills, complementary skills, risk mitigation etc. But they need to
consider a variety of factors before making partnership. There may be
difference in opinion and other such problems may arise which may
affect functioning of the start-up.
3) Financial Management: Financial management includes raising of
finance from right source and investing it for productive purpose.
Many start-ups have lack of financial management skills. The
inappropriate use of funds can increase the interest burden of the start-
up entrepreneur.
4) Wining trust of customers: Customer is the king. Winning a
customer’s trust is one of the most important challenges that
businesses in general – and start-ups in particular – face today. With
a highly satisfied and loyal customer base, start-ups can scale and
make progress towards excellence. But start-ups may not be able to
satisfy customers may be due to:
• Poor quality product
• Higher prices
• Ineffective promotions
• Poor channel of distribution etc.
5) Handling Space and Equipment Problems: A precondition for a
successful business is a good location, with enough space and proper
equipment. However, it’s not easy to find and to renovate, if
necessary. Start-up entrepreneur also have to think about the
accessibility of their location, mostly because of the clients,
customers, and suppliers.
6) Time Management: A start-up entrepreneur should master decision-
making skill. Entrepreneur can’t waste time! Therefore, entrepreneur
needs to prioritize all tasks, decide on the best approach for each of
them and start working immediately. Entrepreneur should not delay
104 anything unless required. Start-up entrepreneur need to be productive
 as much as possible if he/she want his/her start-up to become Emerging Strategic
successful. Trends

7) Finding the right People: Selecting associates and employees is one

of the vital tasks of any start-up. Before choosing a person for each
position, start-up entrepreneur has to know how many full-time
employees he/she needs and how many part-timers or freelancers. In
many cases (but not always, and not for every business), the best
option is to hire more freelancers than full-time employees in the
beginning. Mostly because it is going to save a lot on the hiring costs
and salaries. Also, think about the vital skills that are needed by
startup and try to find the right candidates as soon as possible. Delays
can only eat up and waste time, and you can’t afford that to happen.
8) Understand the Power of a Business Plan: People often
underestimate the fact that they have to write a thorough business
plan before getting into the business. The strategy has to cover all
segments of business in order to be useful and successful. Some of the
crucial areas are finance, staff, suppliers, marketing, and sales. Also,
each segment has to be realistic and has to follow the exact budget
limits. The start-up entrepreneur can take his/her time, think about
every possible outcome, and should not start any work until he/she
find the right approach. He/she can also consider hiring business
advisors to help in creating a good business plan.

Know your progress:

Explain The process of Business start ups
What are challenges of startups?

4.7. MAKE IN INDIA

The Make in India initiative was launched by Prime Minister in September

2014 as part of a wider set of nation-building initiatives. It was devised to
transform India into a global design and manufacturing hub.
Make in India was a timely response to a critical situation. By 2013, India’s
growth rate had fallen to its lowest level in a decade. The promise of the
BRICS Nations (Brazil, Russia, India, China and South Africa) had faded.
India was tagged as one of the so-called ‘Fragile Five’ (Fragile Five
represent emerging market economies that have become too dependent on
unreliable foreign investment to finance their growth ambitions. The five
members of the Fragile Five include Turkey, Brazil, India, South Africa
and Indonesia).

105
Strategic Management Global investors debated whether the world’s largest democracy was a risk
or an opportunity. India’s 1.2 billion citizens questioned whether India was
too big to succeed or too big to fail. India was on the edge of severe
economic failure, desperately in need of a big push.
Make in India was launched by Prime Minister against the backdrop of this
crisis and quickly became a rallying cry (encourages people to unite and to
act in support) for India’s innumerable stakeholders and partners. It was a
powerful, stimulating call to action to India’s citizens and business leaders,
and an invitation to potential partners and investors around the world.
But Make in India is much more than an inspiring slogan. It represents a
comprehensive and unique overhaul (repair/renovation) of outdated
processes and policies. Most importantly, it represents a complete change
of the government’s mindset – a shift from issuing authority to business
partner, in keeping with Prime Minister's principle of ‘Minimum
Government, Maximum Governance’.
GROWTH PROSPECT AND GOVERNMENT INITIATIVES IN
MAKE IN INDIA MODEL WITH REFERENCE TO NATIONAL
MANUFACTURING
The need to raise the global competitiveness of the Indian manufacturing
sector is vital for the country’s long term-growth. The National
Manufacturing Policy is by far the most comprehensive and significant
policy initiative taken by the Government. The policy is the first of its kind
for the manufacturing sector as it addresses areas of regulation,
infrastructure, skill development, technology, availability of finance, exit
mechanism and other pertinent factors related to the growth of the sector.
SALIENT FEATURES OF NATIONAL MANUFACTURING
POLICY
1) Focus Sectors:
• Employment-intensive industries like textiles and garments,
leather and footwear, gems and jewellery and food processing
industries.
• Capital goods industries like machine tools, heavy electrical
equipment, heavy transport, earthmoving & mining equipment.
• Industries with strategic significance like aerospace, shipping,
IT hardware & electronics, telecommunication equipment,
defence equipment and solar energy.
• Industries where India enjoys a competitive advantage such as
automobiles, pharmaceuticals & medical equipment.
• Small & medium enterprises.
• Public sector enterprises.

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2) National Investment & Manufacturing Zones (NIMZ): Emerging Strategic
Trends
• The National Investment and Manufacturing Zones are being
conceived as giant industrial greenfield townships to promote
world-class manufacturing activities.
• The minimum size is 5000 hectares (50 square kilometres)
wherein the processing area has to be at least 30%.
• The central government will be responsible for bearing the cost
of master planning, improving/providing external physical
infrastructure linkages including rail, road, ports, airports and
telecom, providing institutional infrastructure for productivity,
skill development and the promotion of domestic and global
investments.
• The identification of land will be undertaken by state
governments. State governments will be responsible for water
requirement, power connectivity, physical infrastructure, utility
linkages, environmental impact studies and bearing the cost of
resettlement and rehabilitation packages for the owners of
acquired land.
• The state government will also play a role in its acquisition if
necessary.
• In government, purchase preferences will be given to units in
the national investment and manufacturing zones
3) Simplification of Regulatory Environments
• Timelines will be defined for all clearances.
• Central & State governments to provide exemptions from rules
and regulations related to labour, environment etc. subject to the
fulfilment of certain conditions.
• Mechanisms for the cooperation of public or private institutions
with government inspection services under the overall control
of statutory authorities to be developed.
• Process of clearances by centre and state authorities to be
progressively web-enabled.
• A combined application form and a common register to be
developed.
• The submission of multiple returns for different departments
will be replaced by one simplified monthly/quarterly return.
• A single window clearance for units in NIMZ.
4) Acquisition of Technology & Development

• The policy intends to leverage the existing incentives/ schemes

of government and also introduce new mechanisms to introduce
green technologies.
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Strategic Management • A technology acquisition and development fund has been
proposed for the acquisition of appropriate technologies, the
creation of a patent pool and the development of domestic
manufacturing of equipment used for controlling pollution and
reducing energy consumption.
• The fund will also function as an autonomous patent pool and
licensing agency. It will purchase intellectual property rights
from patent holders. Any company that wants to use intellectual
property to produce or develop products can seek a license from
the pool against payment of royalties.
5) Industrial Training & Skill Upgradation Measures:
• Skill-building among large numbers of a minimally educated
workforce.
• Relevant vocational and skill training through establishment of
Industrial Training Institute (ITI) in Public Private Partnerships
(PPP) mode.
• Specialized skill development through the establishment of
polytechnics.
• Establishment of instructors’ training centre in each NIMZ.

4.8 CONTRIBUTION OF MAKE IN INDIA POLICY

Make in India
Make in India is a Government of India scheme launched by Prime Minister
Narendra Modi in 2014 intended to boost the domestic manufacturing sector
and also augment investment into the country.
The government wants to revive the lagging manufacturing sector and spur
the growth of the economy. The GOI also intends to encourage businesses
from abroad into investing in the country and also manufacture here, by
improving the country’s ‘Ease of Doing Business’ index. The long-term
vision is to gradually develop India into a global manufacturing hub, and
also boost employment opportunities in the country.
Why Make in India?
There are multiple reasons why the government has chosen to focus on
manufacturing. The key ones are discussed below:
1. For the past two decades, India’s growth story seems to have been led
by the services sector. This approach paid off in the short-run, and
India’s IT and BPO sector saw a huge leap, and India was often
dubbed the ‘back office of the world’. However, even though the
share of the services sector in the Indian economy rose to 57% in
2013, it contributed to only 28% in the share of employment. So, the
manufacturing sector needed to be augmented in order to boost
employment. This is because the services sector currently has low
108
 absorption potential considering the demographic dividend in the Emerging Strategic
country. Trends

2. Another reason to launch the campaign is the poor condition of

manufacturing in India. The share of manufacturing in the overall
Indian economy is only about 15%. This is way lower than our
neighbours in East Asia. There is an overall trade deficit when it
comes to goods. The trade surplus in services hardly covers one-fifth
of India’s trade deficit in goods. The services sector alone cannot hope
to answer this trade deficit. Manufacturing will have to chip in. The
government is hoping to encourage businesses, both Indian and
foreign to invest in manufacturing in India, which will help this sector
and also generate employment in both skilled and unskilled levels.
3. To focus on manufacturing is that no other sector seems to have such
a huge multiplier effect on economic growth in a country, according
to various studies. The manufacturing sector has larger backward
linkages and hence, growth in demand in manufacturing spurs growth
in other sectors as well. This generates more jobs, investments and
innovation, and generally leads to a higher standard of living in an
economy.
Make in India – Objectives
There are several targets aimed by the Make in India mission. They are:
1) Raise in manufacturing sector growth to 12-14% per year.
2) Create 100 million additional jobs in the manufacturing sector by
2022.
3) Increase in the manufacturing sector’s share in the GDP to 25% by
2022.
4) Creating required skill sets among the urban poor and the rural
migrants to foster inclusive growth.
5) A rise in the domestic value addition and technological depth in the
manufacturing sector.
6) Having an environmentally-sustainable growth.
7) Augmenting the global competitiveness of the Indian manufacturing
sector.
Make in India – Initiatives
1) For the first time, the sectors of railways, insurance, defence and
medical devices have been opened up for more Foreign Direct
Investment (FDI).
2) The maximum limit in FDI in the defence sector has been raised to
49%.

109
Strategic Management 3) In construction and specified rail infrastructure projects, 100% FDI
under the automatic route has been permitted.
4) There is an Investor Facilitation Cell that assists investors from the
time of their arrival in India to their departure from the country. This
was created in 2014 for giving services to investors in all phases such
as pre-investment phase, execution, and also after delivery services.
5) The government has taken steps to improve India’s ‘Ease of Doing
Business’ rank. India climbed 23 points in the Ease of Doing Business
index to 77th place in 2019, becoming the highest-ranked in South
Asia in this index.
6) The Shram Suvidha Portal, eBiz portal, etc. have been launched. The
eBiz portal offers single-window access to eleven government
services connected with starting a business in India.
7) Other permits and licenses required to start a business have also been
relaxed. Reforms are being undertaken in areas like property
registration, payment of taxes, getting power connection, enforcing
contracts, and resolving insolvency.
8) Other reforms include licensing process, time-bound clearances for
applications of foreign investors, automation of processes for
registration with the Employees State Insurance Corporation and the
Employees Provident Fund Organization, adoption of best practices
by states in granting clearances, decreasing the number of documents
for exports, and ensuring compliance through peer evaluation, self-
certification, etc.
9) The government hopes to improve physical infrastructure chiefly
through the PPP mode of investment. Ports and airports have seen
increased investment. Dedicated freight corridors are also being
developed.
Make in India – Schemes
Several schemes were launched to support the Make in India programme.
These schemes are discussed below:
1) Skill India: This mission aims to skill 10 million in India annually in
various sectors. Make in India to turn into a reality, there is a need to
upskill the large human resource available. This is important
considering the fact that the percentage of formally skilled workforce
in India is only 2% of the population.
2) Startup India: The main idea behind this programme is to build an
ecosystem that fosters the growth of startups, driving sustainable
economic growth and creating large-scale employment.
3) Digital India: This aims to transform India into a knowledge-based
and digitally empowered economy. To know more on Digital India,
click on the linked page.
110
4) Pradhan Mantri Jan Dhan Yojana (PMJDY): The mission Emerging Strategic
Trends
envisages financial inclusion to ensure access to financial services,
namely banking savings & deposit accounts, remittances, credit,
insurance, pension in an affordable manner. Click the linked article to
know more about Pradhan Mantri Jan Dhan Yojana (PMJDY).
5) Smart Cities: This mission aims to transform and rejuvenate Indian
cities. The goal is to create 100 smart cities in India through several
sub-initiatives.
6) AMRUT: AMRUT is the Atal Mission for Rejuvenation and Urban
Transformation. It aims to build basic public amenities and make 500
cities in India more livable and inclusive.
7) Swachh Bharat Abhiyan: This is a mission aimed at making India
cleaner and promoting basic sanitation and hygiene. For more
information on Swachh Bharat Mission, click on the linked article.
8) Sagarmala: This scheme aims at developing ports and promoting
port-led development in the country. Read more on the Sagarmala
Project in the linked article.
9) International Solar Alliance (ISA): The ISA is an alliance of 121
countries, most of them being sunshine countries, which lie either
completely or partly between the Tropic of Cancer and the Tropic of
Capricorn. This is India’s initiative aimed at promoting research and
development in solar technologies, and formulating policies in that
regard.
10) AGNII: AGNII or Accelerating Growth of New India’s Innovation
was launched to push the innovation ecosystem in the country by
connecting people and assisting in commercialising innovations.
So in long run this can help in reducing industrial sickness in India to greater
extend.

Know your progress:

What is contribution of Make in India policy in India?

4.9 SUMMARY

Outsourcing is an allocation of specific business processes to a specialist

external service provider. Most of the times an organization cannot handle
all aspects of a business process internally. Additionally, some processes
are temporary and the organization does not intend to hire in-house
professionals to perform the tasks.
Business Process Reengineering seeks to help companies radically
restructure their organizations by focusing on the ground-up design of their
business processes.
111
Strategic Management Disaster management is primarily the responsibility of the State
Governments. The Government of India supplements their efforts by
providing financial and logistic support in case of disaster of exceptionally
severe magnitude.
While managing disaster, generally confusion and crisis are caused by lack
of co-operation and interaction between governmental and
nongovernmental/organizations giving relief at all levels.
The term startup refers to a company in the first stage of its operations.
Startups are founded by one or more entrepreneurs who want to develop a
product or service for which they believe there is a demand. These
companies generally start with high costs and limited revenue which is why
they look for capital from a variety of sources such as venture capitalists.
The Make in India initiative was launched by Prime Minister in September
2014 as part of a wider set of nation-building initiatives. It was devised to
transform India into a global design and manufacturing hub.
Make in India was a timely response to a critical situation. By 2013, India’s
growth rate had fallen to its lowest level in a decade. The promise of the
BRICS Nations (Brazil, Russia, India, China and South Africa) had faded.
India was tagged as one of the so-called ‘Fragile Five’ (Fragile Five
represent emerging market economies that have become too dependent on
unreliable foreign investment to finance their growth ambitions.

4.10 EXERCISE
Select the most appropriate answer from the options given below
1) ____________ refers to subcontracting a process, such as product
design or manufacturing, to a third-party company.
(Outsourcing, Turnaround, Marketing, HRM)
2) ___________ is a strategy of BPO business in India
(Global Delivery Model, Hybrid Delivery Model, Offshore Multi-
sourcing Model, All of these)
3) KPO provides an array of services in the area of ____________
(Customer care, Human resources, Data Analytics, Website service)
4) __________ is one of the reasons for growing BPO and KPO
businesses in India.
(Lack of Indian Government Support, Higher Cost, Lack of Talent
Pool, Different time zones)
5) __________ is an approach for re-design the way work is done to
better support the organization’s mission and reduce costs.
(Turnaround, Marketing, HRM, Business Process Re-engineering)
6) Today Information Technology (IT) contributes in ____ business.
(Health Care, Education, Agriculture, All of these)
112
7) ____________ is an example of man-made disaster. Emerging Strategic
Trends
(Storm, Riots, Flood, All of these)
8) Disaster has impact on _____________.
(Human Life, Environment, Economy, All of these)
9) _________ is not the strategy for Managing and Preventing Disasters.
(Ignorance, Preparedness, Response, Prevention)
10) _____________ Challenge is faced by start-up businesses in India.
(Competition from giant companies, Finding right Partner, Financial
Management, All of these)
11) The Make in India initiative was launched on _________.
(September 2010, September 2012, September 2013, September
2014)
State whether the following statements are True or False.
1) Global Delivery Model takes advantage of onsite and offshore
services to deliver results to clients at reduced costs.
2) BPO is another kind of outsourcing whereby, functions related to
knowledge and information are outsourced to third party service
providers.
3) Business Process Re-engineering requires to study the existing
process.
4) Make in India initiative opened up FDI for the sectors of railways,
insurance, defence and medical devices etc.
Match the Pair

Group ‘A’ Group ‘B’

1. BPO a. Business Transformation
2. Different time zones b. Good communication skills
3. Business Process c. Global Delivery Model
Re-engineering
4. IBM d. Reasons for growing BPO and
KPO businesses in India
e. Knowledge Expertise

Long Answers
1) What is BPO? Explain its business strategies.
2) Explain the various reasons for growing BPO and KPO businesses in
India. 113
Strategic Management 3) Write a note on “Business Process Re-engineering”.
4) ‘How of IT sector contributes in Indian Business’ Discuss with
examples
5) Explain the various Strategies for Managing and Preventing disasters.
6) Write a note on “Disaster Cope up Strategies”.
7) Write a note on “Growth Prospects and government initiatives in
Make in India Model with reference to National manufacturing”.
8) Discuss the Contribution of Make in India Policy in overcoming
industrial sickness.
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5649.asp
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73062.html
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meaning-types-and-characteristics/
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73062.html
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restructuring/#:~:text=The%20most%20common%20forms%20of,more%
20aspects%20of%20the%20company.
https://efinancemanagement.com/corporate-restructuring
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reorganization/
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international-trade/7-main-problems-of-international-business/13949
https://www.hult.edu/blog/international-business-challenges/
https://en.wikipedia.org/wiki/Public%E2%80%93private_partnerships_in_
India
https://www.orfonline.org/research/the-role-of-public-private-
partnerships-in-innovation-for-development-lessons-from-africa-
48960/#:~:text=By%20helping%20firms%20overcome%20various,one%2
0way%20or%20the%20other.
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