Strategic Management ICSI

CHAPTER 1
CONCEPT OF STRATEGY
The word strategy has entered the field of
management more recently. The word
strategy has been derived from Greek
word ‘Strategos‘, which means
generalship. Firms use the strategic
management process to achieve strategic
competitiveness and earn above average
returns. Strategic competitiveness is
achieved when a firm has developed and
learned how to implement a value‐creating
strategy.
Kenneth Andrews: Strategy may be
defined as: ‐‐ the pattern of objectives,
purpose, goals, and the major policies
and plans for achieving these goals stated in such a way so as to define what business the
company is in or is to be and the kind of company it is or is to be.
Igor Ansoff: The concept of strategy is explained as ―the common thread among the
organization‘s activities and product markets… that defines the essential nature of business that
the organization was or planned to be in future.
William F Glueck: Strategy is defined precisely as unified, comprehensive and integrated plan
designed to assure that the basic objectives of the enterprise are achieved.
The FEATURES of strategy can be summarized as follows:
(i) Strategy is a relative combination of actions aimed at to meet a particular condition to
solve certain problems, or to achieve a desirable end.
(ii) Strategy is a major course of action through which an organization tries to relate itself with
environment to develop certain advantages which help in achieving its objectives.
(iii) Strategy may involve contradictory action. As the strategic action depends on
environmental variables, an organization may take contradictory actions either
simultaneously or with a gap of time.
(iv) Strategy is forward looking and it has orientation towards future. Strategic action is
required in a new situation.
GOVIND KUMAR MISHRA +91‐9911677371 govind@goacademy.in www.goacademy.in 1

STRATEGIC MANAGEMENT
Strategic management is the art
and science of formulating,
implementing and evaluating cross‐functional
decisions that will enable
an organization to achieve its
objectives.
It is the process of specifying the
organization's objectives,
developing policies and plans to
achieve these objectives, and
allocating resources to implement
the policies and plans to achieve
the organization's objectives.
Strategic management combines the activities of the various functional areas of a business to
achieve organizational objectives. It is the highest level of managerial activity, usually formulated
by the Board of directors and performed by the organization's Chief Executive Officer (CEO) and
his executive team. Strategic management provides overall direction to the enterprise.
Strategic management does not replace traditional management activities such as budgeting,
planning, monitoring, marketing, reporting, and controlling. Rather, it integrates them into a
broader context, taking into account the external environment, internal organizational
capabilities, and organization's overall purpose and direction.
Thus, strategic management is an ongoing process that assesses the business environment and
the industries in which the company is involved; its competitors and sets goals and strategies to
meet all existing and potential competitors; and then reassesses each strategy regularly to
determine how it has been implemented and whether it has succeeded or needs replacement.
LEVELS OF STRATEGY
CORPORATE‐LEVEL STRATEGY:
The top level of the organization consists of Executive Officer of the company, the Board of
Directors and administrative officers, the responsibility of the top management is to keep the
organization healthy. Major financial policy decisions involving acquisition, diversification and
structural redesigning etc. belong to the category of corporate level strategy. Corporate level
strategies translate to orientation of the shareholders and the society into the forms of strategies
for functional or business levels.

The substance of corporate‐level goals and action plans can be summarized as follows:
¾ Corporate‐level goals: It is the desired portfolio of business units by the end of the firm's
planning period.
¾ Corporate‐level action plans: It discusses, how to get from the present portfolio to that
targeted in terms of—
(a) business unit strategies to be retained.
(b) additions of business units expressed as either growth strategy parameters or
merger and acquisition strategy.
(c) business units to be divested.
BUSINESS‐LEVEL STRATEGY:
Business level management consists of primarily the business managers or managers of strategic
business units. The managers at this level translate the general statements of direction intent
whisked out at corporate level.
The corporate values, managerial capabilities, organizational responsibilities and administrative
systems that link strategic and operational decisional making stage at all the levels of hierarchy,
encompassing all business and functional lines of authority in a company are dealt with at this
level of strategy formulation. Thus, the content of business‐level strategy is a combination of
goals and action plans.
FUNCTIONAL‐LEVEL STRATEGY:
Functional level strategy involves decision making with respect to specific functional areas, say,
production, marketing, personnel, finance, etc. Decisions at the functional level are often
described as tactical decisions. Functional strategies emphasize on doing things correctly. But
these decisions are guided by overall strategic considerations and must be consistent with the
frame work of the business strategy.
Functional goals and action plans are developed for each of the functional areas of the firm to
guide the behavior of people in a way that would put the other strategies into motion.
EVOLUTION OF STRATEGIC MANAGEMENT
PHASE 1
In this phase, financial planning, management focuses on the preparation of budgets with an
emphasis on functional operations. Forecast‐based planning follows the managers to project
budget requirements beyond the one‐year cycle. This phase represents an effort to extend
managers' attention beyond the immediate future as scenarios are developed which describe
their expectations about future time periods.
PHASE 2
In this phase, planning is very "now" oriented. Current operations and characteristics are
stressed in analysis of the firm and there is little attention to or patience for considering
operational options or development of strategic changes.
PHASE 3
In this phase, external oriented planning, requires a significant change in management
viewpoint. Planners are required to adopt an external orientation and tools and procedures for

environmental and internal assessment. Concern arises in understanding the organization's
environment and competitive position and generating ideas about how the company might
better fit in its environment.
PHASE 4
In this phase, strategic management evolves as top management and senses the need to more
heavily invest in the planning process because of its lack of understanding of or involvement in
the details of earlier plan development.
STRATEGIC THINKING
Strategic thinking is one which generates creative, environmentally relevant ideas and concepts
about how to turn them into systematically managed action plans.
It has the following pre‐requisites:
(1) Input information is based on facts and logical data,
(2) Previously unquestioned assumptions are sought out and examined,
(3) A burning desire for resource conservation, and
(4) Indirect, spontaneous, and unexpected thought processes which are hard for competitors
to predict.

STRATEGIC THINKING vs. STRATEGIC PLANNING

FUNCTIONS OF STRATEGIC MANAGEMENT
As an explicit philosophy of managing an organization, strategic management discharge the
following functions:
¾ provides a framework for thinking about the business;
¾ creates a fit between the organization and its external environment;
¾ provides a process of coping with change and organizational renewal;
¾ fosters anticipation, innovation, and excellence;
¾ facilitates consistent decision making;
¾ creates organizational focus; and
¾ facilitates the process of organizational leadership.
BENEFITS OF STRATEGIC MANAGEMENT
1. Clarity in Objectives and Direction: Strategic Management with clarity in objectives provide
clear direction to persons in the organization who are responsible for implementing the
various courses of action.
2. Improvement in Financial benefits of Organization: Effective and sound strategic
management in an organization results in improvements in financial benefits to the
organizations in the form of increased profits and sales revenue.
3. Offsetting Environmental Uncertainty: Strategic management thus helps to overcome
environmental uncertainty by prescribing the future course of action in the light of various
forecasts made by the organization. It enables the organization to innovate in time to take
advantage of emerging opportunities in the environment and reduces its risk because it
anticipates the future.
4. Organisational Effectiveness: It may be noted that effectiveness, not only means that
resources are put to optimal efficiency but also they are put in a way which ensures their
maximum contribution to the achievement of organizational objectives.
5. Motivation and Satisfaction: It contributes towards employees motivation and satisfaction by
providing them opportunity for participation in decision‐making forums.
6. Improved Quality of Decisions: It facilitates to workout generation of alternative strategies
and better screening of options due to specialized exposures of group members. This enables
the organization to choose and act on the best available alternatives.
7. Discipline: Strategic management brings discipline in the organisation in terms of effective
use of manager‘s time. It induces a logical thinking process dovetailed with tasks that are
scheduled, thus raising vision of all managers in the organisation.
LIMITATIONS OF STRATEGIC MANAGEMENT
1. Uncertain Predictions: Due to increasing complexity and an accelerating rate of change, it
becomes more and more difficult to predict the future outcome with certainty i.e. in terms of
government policies, regulatory measures, change in technical know‐how, global scenario and
political conditions etc. Thus, under these conditions, strategic management is very difficult,
time consuming and costly exercise.
2. Non‐Flexibility: Strategies are selected and implemented in a given set of environment both
external as well as internal. The organization sets outs various parameters for its working,

after taking in to account both internal and external factors. In a situation when business unit
wants certain change in the light of change in the environment, it becomes difficult.
3. Contribution of Strategic Management: Another limitation of strategic management is a
situation when the managers in the organization are inadequately aware about its
contribution to the success of the organization objectives and the way in which strategic
management can be undertaken.
4. Implementation: The most important limitation of strategic management for a business unit
is its implementation. Implementation basically involves number of interrelated decisions,
choices and broad range of activities. It requires the commitment and cooperation of all units,
levels and members if it is to succeed.
STRATEGIC MANAGEMENT PROCESS
Strategic management process
can be described as a set of
managerial decisions and
actions which determines the
long run direction and
performance of the
organisation.
Normally, the model of strategic
management process contains
the following elements or
stages, such as setting
organizational mission and
developing objectives,
environmental analysis,
organisational assessment,
identification of strategic
alternatives, and choice of
appropriate strategy,
implementation of strategy and
performance evaluation.
1. Setting Organizational Mission and Objectives: Organisations’ are deliberate creations and
have a definite mission towards which all efforts, energies and resources are directed. In
strategic management, this includes strategic intent which consists of vision, mission, values
and objectives of an organisation. It provides broadest direction to the organization.
2. Environmental Analysis: A key premise of strategic management is that plans must be made
on the basis of what has happened, is happening, and will happen in the world outside the
organization with a focus on the threats and opportunities these external changes present to
the organization.
3. Organisational Assessment: Why the organization has succeeded in the past, what it will
take to succeed in the future, and how it must change to acquire the necessary capabilities to
succeed now in the present are issues to be analysed at this stage.
4. Identification of Strategic Alternative: Interactions of organization with its environment in
the light of its strengths and weaknesses will result in various strategic alternatives. This

process may result in large number of alternatives through which an organization can relate
itself to environment. In fact, all alternatives cannot be chosen even if all of them produce the
same results. Strategic alternatives should be identified in the light of strategic opportunities
and threats generated through environmental analysis. Each of these types of strategic
alternatives holds a number of actions open to the strategic manager.
5. Choice of Appropriate Strategy: It is the stage of strategic decision process. It consists of
identifying the various alternatives and choosing the most appropriate and acceptable one.
Once the alternatives are available the next step is to choose the right strategy to tackle the
situation.
6. Implementation of Strategy: Strategy implementation is the process by which strategies and
policies are put into action through the developments of programs, budgets and procedures.
Strategy implementation is the step which leads to achievement of organizational objectives.
Implementation of strategy is the real use of the formulated strategy. To implement a
strategy, it needs to be translated into a more understandable form.
7. Performance Evaluation and Control: Performance evaluation and control is an important
step needed to support the strategic plan. Performance evaluation is the comparison
between actual results and desired results. This step keeps the planning and implementation
phases of the management system on target by helping the organization, adjust strategies,
resources, and timing, as circumstances warrant. In this step, a system is established to
monitor how well the organization is using its resources, whether or not it is achieving desired
results, and whether or not it is on schedule.
STRATEGIC MANAGEMENT IN GLOBAL BUSINESS SCENARIO
All these changes after 1990s’ in global and national economy and the resultant outcomes
brought strategic management at the core of the corporate management irrespective of their
location or scope of operation. The rate of this change is accelerating day by day and so the tools
and techniques of strategic management are increasingly being used to respond to these changes
and inherent dynamics of external environment.
Globalization coupled with liberalization and technological advancements have made the concept
of national boundaries irrelevant from the business perspective because most of the products
can be bought and sold anywhere in the world no matter how large or small the enterprise is.
Globalisation has offered opportunities to gain new customers overseas, to achieve lower costs
through overseas operations, and to achieve economies of scale.
Strategies for global business differ from those for domestic business because of difference in the
nature of competitive forces. A firm‘s decision to adopt strategies for global business depends on
two factors:
(i) extent of cost pressures to denote the demand on a firm to minimize its per unit costs;
and
(ii) extent of pressures for local responsiveness to denote to make a firm to tailor its
strategies to respond to national‐level differences in terms of variables like customer
preferences and tastes, government policies, and business practices.

All the above resulted in the following FOUR TYPES OF STRATEGIES for global business:
1. Global Strategy: In global strategy, assumptions are made that customer needs are similar
worldwide. It is argued that markets are converging and increasingly people‘s needs and
desires have homogenized. Therefore, firms can sell standardized products in the same way
everywhere. Thus, firms offering standardized products globally have competitive advantage
in the form of lower costs resulting from economies of scale in product development,
production and marketing.
2. International Strategy: At this stage of globalization, a company is really focused on the
domestic market and just exporting what is demanded abroad. As the product becomes
successful abroad, the company may set‐up manufacturing and marketing facilities with
certain degree of differentiation based on product customization. The key characteristic of
this strategy is that all control is retained at the home office regarding product and marketing
functions.
3. Multi‐domestic Strategy: In multi‐domestic strategy, companies try to achieve a high level of
local responsiveness by making their product/service offerings to the requirements of the
countries they operate in. Multi‐domestic strategy is essentially based on differentiation of
the products.
4. Transnational Strategy: Transnational strategy involves adopting a combined approach of low
costs and high local responsiveness simultaneously by the companies for their
products/services.
RISKS IN GLOBAL BUSINESS
1. Political and Regulatory Risks: Many countries of the world are not politically stable and
transfer of political power does not happen in smooth ways in these countries. Similarly,
many countries have different types of regulations for doing business. the regulations of the
host countries should be taken into account.
2. Cultural and Managerial Risks: Products/services have to be tailored according to the cultural
requirements of the host country. Further, since management practices are culture‐bound,
the kinds of management practices which are effective in the domestic country may not be
suitable in foreign countries.
REASONS FOR DOING BUSINESS GLOBALLY
1. Market Saturation: In case of advanced nation, market saturation is the immediate threat to
the successful operation of the firms engaged in manufacturing unlike underdeveloped or
developing countries where population grows faster than anything else‐leave aside
production of goods and services.
2. Foreign Competition: The international competition improves quality, reduces costs and
increases the consumer choice and satisfaction.
3. Trade Deficit: Trade deficit is a common feature of all under developed countries, through it
is a rare phenomenon in case of developed nations.
4. Foreign Programme: Both poor and rich countries cannot sustain in isolation for long period.
Hence, the privileged are to help the less privileged and the least privileged. Thus, advanced

countries have come out with foreign programmes on mutual exchange basis. This, indirectly
generates global trade opportunities also.
5. New Markets: For developed countries, the developing and the underdeveloped countries
and in case of developing countries the less developed or under‐developed countries
constitute a major market for their products and services.
6. Business Adversities: Business is a game and is having the cycle of economic tide‐waves of
ups and downs. International business provides a safety net or a cushion during business
adversities.
7. Fiscal Concessions: Countries which are desirous of earning foreign exchange and creating
employment opportunities to their nationals invite or attract foreign nationals to their
countries by offering a package of special tax concessions. Thus, both the countries benefit by
a joint‐venture.
8. Savings in Costs: Among the elements of costs, labour is very predominant, as much as it
represents almost 50 per cent of the total cost. Profits can be easily increased where the
labour costs are the minimum.
9. Utilise Full Capacity: A large and assured market is a must in industries where economies of
scale are feasible. Many a times, the home market may not be able to absorb the entire
output of an industry hence entry into foreign market hence becomes necessary.
10. Avail Product Technology, Raw‐Materials, etc.: A country that is exposed to global business
conditions is geared to have increased access to advances in technology, world‐wide raw‐materials
and diverse international economic groups.
11. Developing and Testing New Products: Many business firms prefer to develop and test their
products in countries than in the home country. This is to avoid exposure to home
competition and keep the development information as a secret till the product is taken up on
commercial basis.
ISSUES IN GLOBAL BUSINESS
Organisational Aspects: Resources can be allocated differently according to the treatment given
to the organisation. A global company can organise its activities on a global basis. But there are
certain forces such as economic, culture, etc. and varying national interests that operate against a
unified organizational systems.
Resource Allocation: Now‐a‐days, resource allocation is more complex because the financial and
technological resources are available from host countries and international capital markets. Entry
into foreign markets through licensing, franchising, joint ventures and subsidiaries are the orders
of the day. It has become a complex process.
Leadership: Leadership styles vary according to the nations and hence a company wants to have
business relation. A leadership style calling for specific skills and techniques may not work all the
time in the countries.
Plans and Policies: An organisation system has an impact on plans and policies for implementing
a strategy involving global activities, in the areas of finance, marketing, research and
development, operations.

CHAPTER 2
ENVIRONMENTAL SCANNING
AND INTERNAL APPRAISAL ANALYSIS
An organization's environment consists of two parts:
1. The macro environmental dimensions. These are the major external and uncontrollable
factors that influence an organizations decision making. eg. economic, technological,
legal, political, socio‐cultural and, global; and
2. The micro environment which refers mainly to the industry within which it operates (for
multi‐business firms, the industry is usually considered in the activity
in which the firm generates the majority of the revenue).
MACRO/ EXTERNAL MICRO/ INTERNAL
ENVIRONMENTAL SCANNING
• ENVIRONMENTAL SCANNING analysis is basically concerned with
• identification and analysis of
• environmental influences
• individually and collectively
• to determine their potential.
This analysis consists of tracing the sources of
any opportunity or threat to break the whole
into parts so as to examine its nature and its
inter‐relationship.
It is an important aspect of strategic
management because it serves as "the first link in the chain of perceptions and actions that
permit an organization to adapt to its environment".
Demographic
Economic
Government
Legal
Political
Cultural
Technological
Global
Consumer/
Customer
Competitors
Organization
Market
Suppliers
Intermediaries
Environmental
scanning
Identification Analysis Environmental
Influences

It is from such analysis that management can make decisions on whether to react to, ignore or
try to influence or anticipate future opportunities or threats discovered.
Thus, it is a holistic exercise which includes a view of environment i.e., 360 degree coverage. It
must scan the whole circumstance of its environment in order to minimize the chance of its
surprises and maximize its utility as an early warning system.
Environmental conditions affect the entire strategic management process. Management's
perceptions of present and future operating environments and internal strengths and
weaknesses provide inputs to goal and action plan choices. They can also affect the manner in
which implementation and internal circumstances will dictate the effectiveness of strategies as
they are implemented. The implementation stage of strategic management provides the real, as
opposed to the expected, interface between the firm and its environment.
ENVIRONMENTAL ANALYSIS
The dimensions of environment can be generally classified by a set of key factors that describe
the economic, technological, legal, political, socio‐cultural and, global surroundings. These, in
turn, can be overlaid by the various constituents of the firm, including shareholders, customers,
competitors, suppliers, employees, and the general public.
The classification of these factors must be in such a way that it presents some framework by
which to view the total situation with which the managers confront. This provides managers a
sharp focus on the relevant factors of the environment. They make decisions in the light of the
various environmental forces as perceived by them. This requires the classification of
environmental forces which distinguishes each element from others so that managers can
pinpoint the impact of each on their organizations. However, it can be emphasized here that
environmental factors are intertwined; they affect each other and are affected by others.
Analytical classifications of various ENVIRONMENTAL FACTORS are as follows:
Economic
environment
Technological
environment
Political‐legal
environment
Socio‐cultural
environment
Global
environment
ECONOMIC ENVIRONMENT
Economic environment is by far the most important environmental factor which the business
organizations take into account because a business organisation is an economic unit of operation.
The understanding of economic environment is of crucial importance to strategic management.
Economic environment covers all those factors, which give shape and form to the development of

economic activities and may include factors like nature of economic system, general economic
conditions, various economic policies, and various production factors.
From the analytical point of view, various economic factors can be divided into two broad
categories: General Economic Conditions and Factor Market.
1. General Economic Conditions
General economic conditions of a country determine the extent to which various economic
forces influence an organization. These economic conditions affect national income,
distribution of income, level of employment, factor market and product market. In turn, all
these factors taken together affect the working of business organizations.
(a) Economic system: An economic system refers to a particular set of social institutions
which deals with production, distribution and consumption of goods and services in a
particular society. The economic system of a country determines the extent to which the
organizations have to face different constraints and controls by the economic factors. An
economic system not only puts certain restrictions over the functioning of the
organization but also provides certain protections to an organisation depending on its
nature.
(b) National Income and its Distribution: National income is defined as the money value of
final goods and services produced in a country during a particular period of time normally
one year. National income determines the purchasing power of people and consequently
generate the demand for products. Per capita income determines the purchasing power.
(c) Monetary Policy: Monetary policy controlled by a Central Bank of a country regulates the
economic growth through the expansion or contraction of money supply in circulation.
There are three basic objectives of Indian monetary policy:
(i). To provide necessary finance to the industries, particularly in private sector;
(ii). To control the inflationary pressure in the economy; and
(iii). To generate and maintain high employment.
(d) Fiscal Policy: Fiscal policy deals with the tax structure and governmental expenditure.
Generally the fiscal policy is adopted for:
(i). Mobilizing maximum possible resources;
(ii). Optimal allocation of resources so as to attain rapid economic growth;
(iii). Attainment of greater equality in the distribution of income; and
(iv). Maintenance of reasonably possible stability of prices.
2. Factor Market Conditions
Organizations employ different factor inputs in the process of production such as land,
labour, capital, managerial personnel, etc. The easy availability of these resources facilitates
the organizational functioning. While analyzing the factor market aspect of economic
environment, following considerations should be taken into account:
(a) Natural Resources: The availability of natural resources i.e. land, minerals, fuel, etc.,
becomes a strategic planning factor for organizations requiring such resources in the

production process. In the absence of their proper exploitation and uses, these resources
are not able to give adequate benefits.
(b) Infrastructure Facilities: Infrastructure provides the supporting base for the efficient
functioning of an organization in the industry.
(c) Raw Materials and Supplies: An organization requires continuous flow of raw materials
and other things to maintain its operations.
(d) Plant and Equipment: An organisation invests money in plant and equipment because it
expects a positive rate of return over its investment in future. The availability of plant and
equipment is dependent on the technical development of the country and the
government’s approach towards foreign technical collaboration.
(e) Financial Facilities: Financial facilities are required to start and operate the organisation.
The availability of finance coupled with various incentives attached, is a facilitating factor.
However, such facilities have been utilized by only some large scale and medium scale
organizations.
(f) Manpower and Productivity: While the availability of factors of production affects the
development of the country as well as individual organizations, the level of productivity
affects the organizational efficiency and profitability.
TECHNOLOGICAL ENVIRONMENT
Technological environment refers to the sum total of knowledge providing ways to do things. It
may include inventions and techniques, which affect the ways of doing things, i.e., designing,
producing, and distributing products. From the strategic management point of view, technology
has following implications:
(i) Technology is a major source of increasing the productivity.
(ii) If there is a change in technology, the nature of jobs are changed because technology
determines the level of skills required.
(iii) The size of groups, membership of groups, patterns of interpersonal interactions,
opportunity to control the activities etc., are influenced by technology in a variety of
ways.
(iv) Organizations become secured by developing efficiency through the adoption of latest
and efficient technology.
(v) Technology influences the cost of production and quality of the product/service.
(vi) Within the industry, if a new technology is adopted by an organisation, others in the
same industry will follow the same, but because of time gap, the first organisation will
have some edge over others.
Thus, in analyzing the technological environment, the organisation may consider the following
aspects:
1. The level of technological development in the country as a whole and specific business
sectors.
2. The pace of technological changes and technological obsolescence.
3. The sources of technology.

POLITICAL‐LEGAL ENVIRONMENT
Political‐legal environment consists of laws and regulatory framework and political set‐up in
which a business unit is operating. The stable political set‐up and legal framework in the economy
influence the decisions of the organisation.
Political‐legal environment factor is particularly important in a mixed economy like India, and it
has significant effect in working of business organizations.
In analyzing political‐legal environment, an organisation may broadly consider the following
aspects:
1. Influence political system of the business;
2. Approaches of the Government towards business i.e., restrictive or facilitating;
3. Facilities and incentives offered by the Government;
4. Legal restrictions such as licensing requirement, reservation to a specific sector like public
sector, private or small‐scale sector;
5. Restrictions in importing technical know‐how, capital goods and raw materials;
6. Restrictions in exporting products and services;
7. Restrictions on pricing and distribution of goods;
8. Procedural formalities required in setting the business;
9. Economic and Financial Sector Reforms.
SOCIAL AND CULTURAL FACTORS
It basically refers to the set of values, ideals, attitudes, belief, desires, expectations which
distinguish one group from those of another. The organisation needs to be aware of how social
and cultural factors can directly influence the way they manage their operations particularly
human resources and marketing. Changes in aspirations, habits, customs and values lead to
generation of new opportunities and threats to the business organization.
In analyzing social and cultural factors, the organisation has to see the following aspects:
1. Approaches of the society towards business in general and in specific areas;
2. Influence of social, cultural and religious factors on acceptability of the product;
3. Life style of people and the products useful for them;
4. Level of acceptance of, or resistance to change;
5. Values attached to a particular product i.e. possessive value or functional value in the
product;
6. Demand of specific products for specific occasions;
7. The propensity to consume and to save.
GLOBAL ENVIRONMENT
Business organization in every industry is facing the rising tide of globalization. Today, business
organization needs to think about setting and producing goods for customers globally.
Globalization basically presents existing opportunities and challenges to many companies. There
is a need for scanning global environment. From strategic management point of view, the analysis
is required to open operations abroad and to understand the implications of entry of

multinational corporations in the country and the freedom of importing products and services
from abroad.
In analyzing global environment in the context of threats through import and operations of
multinational corporations in the country, the following factors are to be considered:
1. Comparative cost advantages through technological advancement and large scale
production.
2. Tariff structure.
3. Attitudes of exporting nations and companies in the form of dumping and other means to
take advantages over local companies.
4. Degree of subsidies and incentives, financial and non‐financial, available to exporting
companies.
5. Attitude of the customers abroad.
FORECASTING
Future is unknown and uncertain. So there is the need to translate environmental observations
into forecasts of the environment within which future goal and action plan formulation and
implementation will take place.
We forecast or predict environmental conditions in the context of opportunities and threats for
the purpose of establishing a set of strategic data. This data becomes the basis for goal and
action plan decisions. The general direction of change is addressed within the confines of
anticipated limits.
Forecasts can be made in the context of reasonable ranges. Here the analyst is less concerned
with anticipation of precisely what the future will bring than with the likely future nature of
environmental conditions. This is especially useful when the forecasting horizon is more distant.
The general direction of change is addressed within the confines of anticipated limits.
FORECASTING TECHNIQUES
1. Trend Extrapolation Technique: This involves picking a tracking factor or environmental
variable, noting its trend (statistically or otherwise), and extending that trend into the
future. This normally involves line fitting to historical data, and extending the line into
future periods.
2. Historical Analogy Technique: It involves identification of precursor or concurrent events
and simple recognition of the relationship. Under this technique a forecaster really
examines a series of analogous (though not identical) events. Because forecasting by
analogy is used where historical data are inadequate for the more formal trend
extrapolation, its validity and reliability are open to challenge.
3. Delphi Techniques: Under this technique, the divergent expert opinions are consolidated
to arrive at a compromise estimate of future. To be precise it basically involves the use of
expert opinion through anonymous, interactive, controlled feedback among a group of
participants. Normally the panel is polled by questionnaires in a search for opinions on

reasonably well‐defined issues. Each member responds with a forecast and reasons for it.
These responses are then statistically compiled and fed back anonymously to all members
of the panel. This technique is employed fairly widely in public and private sector
planning. The key to Delphi technique lies in the coordinator and experts. This technique
is employed fairly widely in public and private sector planning. The key to Delphi
technique lies in the coordinator and experts.
4. Econometric Models: The econometric models combine statistical tools with economic
and business theories to estimate various economic variables and to forecast the
intended variable. Basically the econometric models are designed as numerical
interpretations of real‐world systems. The forecast made on the basis of econometric
models are much more reliable as compared to other techniques. The unique advantage
of this technique is the ability to perform sensitivity analysis where the analyst changes
assumptions or estimations within the model to generate varying outcomes.
5. Cross‐Impact Analysis Technique: It is a forecasting technique which is designed to assess
the interactions among future environmental conditions. The analyst begins these
exercises by assuming that a set of future environmental circumstances will come true.
Through the use of matrix analysis, the analyst then attempts to assess the impact of
these circumstances on the possibility and timing of others. If nothing else, the analyst is
able to expose forecasting inconsistencies and to clarify underlying assumptions in the
forecasts themselves.
6. Scanning and Monitoring Technique: These are forecasting techniques which involve
future thinking. The scan is the equivalent of a 360‐degree radar sweep, but monitoring is
the choice for specific environmental variables or factors which are tracked over time.
7. Survey Technology: Under this technique, field surveys are conducted to collect
information on the intentions of the concerned people. The survey may be on census or
sample basis. The information collected by this technique may be useful to identify and
ascertain the attitudes of the consumers in regard to various items of expenditure and
consumption. On the basis of such surveys, demand for various goods can be projected.
8. Business Barometer Technique: Under this technique experts use economic indicators as
barometer to forecast trends in business activities. The basic approach applied under this
technique is to construct an index number of relevant economic indicator and to forecast
future trends on the basis of movements in the index of economic indicators over the
period. Index numbers are used to measure the stage of economy between two or more
periods. These index numbers, when used in conjunction with one another or combined
with one or more, provide indications as to the direction in which the economy is heading.
9. Time Series Analysis Technique: It refers to an arrangement of statistical data in a
chronological order in accordance with its time of occurrence. It basically reflects the
dynamic pace of steady movements of phenomena over a period of time. Time series
analysis should be used as a basis for forecasting when data are available for a long period

of time and tendencies disclosed by the trend and seasonal factors are fairly clear and
stable.
10. Regression Analysis: Regression analysis is the most popular and widely applied
forecasting technique used by the experts. It is a mathematical analysis which reveals the
relative movements of two or more interrelated series. It is used to estimate the changes
in one variable as a result of specified changes in other variable or variables.
11. Input‐Output Analysis: Input ‐output analysis considers inter industry relationship in an
economy depicting how the output of one industry goes to another industry where it
serves as an input and thereby makes one industry dependent on one another both, as
customer of output and as supplier of inputs. An input‐output model is a specific
formulation of input‐output analysis.
LIMITATIONS OF FORECASTING: Forecasting is an essential ingredient, but it should not be
understood that it is the only element of the strategic planning process in the organization.
1. Set of Assumptions or Axioms: Forecasting merely suggests that if an event has happened
in a particular way in the past, it will happen the same way in the future. This assumption
may not hold good in all the situations, there are multiple factors which influence the
occurrence of an event.
2. Inadequate Reliability of Forecast: They merely indicate and guide towards the trend and
directions of future events because the factors which have been taken into account for
making forecasts are also influenced by human factor which is highly unpredictable. They
can project the future trends, but cannot guarantee that this would happen in future.
3. Time and Cost Factor: Formal forecasting by an organization is subject to availability of
time and financial resources and cost benefit analysis. The collection of information and
conversion of qualitative data into quantitative ones involves a lot of time and money.
Therefore, managers have to trade off between the cost involved in forecasting and
resultant benefits.
INDUSTRY ANALYSIS
Industry analysis complements analysis of the other dimensions of a firm's environment. It
focuses on the industries in which the firm competes. The breadth and depth of industry analysis
and the boundaries for information gathered are defined by these industries. Thus, industry
analysis involves the same processes as those identified for environmental analysis, except that it
logically must be preceded by identification of the appropriate industries for analysis along with
descriptions of the various characteristics of those industries.
Industry analysis is relevant in any of these situations:
1. The firm's strategy defines the business in terms of specific industries.
2. The firm is facing new forms of extra‐industry competition.
3. The firm is contemplating entry into a new industry.

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BARGAINING POWER OF CUSTOMERS: This is another force that influences the competitive
condition of the industry. This force will become heavier depending on the possibilities of the
buyers forming groups or cartels. Mostly, this is a phenomenon seen in industrial products.
BARGAINING POWER OF SUPPLIERS: e bargaining power of suppliers determines the cost of raw
materials and other inputs of the industry and, therefore, industry attractiveness and
profitability.
RIVALRY AMONG CURRENT PLAYERS: It is obvious that for any player, the competitors influence
prices as well as the costs of competing in the industry, in production facilities product
development, advertising, sales force, etc.
THREATS FROM SUBSTITUTES: Substitute products are a latent source of competition in an
industry. Substitute products offering a price advantage and/or performance improvement to the
consumer can drastically alter the competitive character of an industry. And they can bring it
about all of a sudden.
The five forces together determine industry attractiveness/profitability. This is so because these
forces influence the causes that underlie industry attractiveness/profitability. collective strength
of these five competitive forces determines the scope to earn attractive profits. The strength of
the forces may vary from industry to industry.
STRATEGIC GROUP MAPPING
Strategic group mapping is another important tool to look at external environment, especially the
competition. The firms which constitute an industry are not alike. They have different products,
market shares, life cycle stage, profitability, and so on. Indeed, each one has a different strategy,
at least in its details. But there are always some similarities. There may be several people who
are striving to be market leaders. Some may be pursuing low profit margin‐high volume pricing.
Others may have succeeded in lowering per unit costs, or creating a high‐value‐for‐price image in
the market. They may consist of several groups that represent different extents of geographical
coverage or breadth of product line.
Following STEPS are involved in the construction of strategic group mapping:
1. Identification of two important competitive characteristics which strategically
differentiate firms in an industry from one another;
2. Plot the firms on the two‐variable map;
3. Draw circles around the firms that are clustered together;
4. Indicate potential movement of firms with arrows.

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SWOT analyses aims to identify the key internal and external factors seen as important to
achieving an objective. The factors come from within a company's unique value chain. SWOT
analysis groups key pieces of information into two main categories:
• Internal factors – the strengths and weaknesses internal to the organization
• External factors – the opportunities and threats presented by the environment external
to the organization.
Analysts may view the internal factors as strengths or as weaknesses depending upon their effect
on the organization's objectives. What may represent strengths with respect to one objective
may be weaknesses (distractions, competition) for another objective.
The external factors may include macroeconomic matters, technological change, legislation, and
socio‐cultural changes, as well as changes in the marketplace or in competitive position. The
results are often presented in the form of a matrix. In case the objective seems attainable, the
SWOT is used as inputs to the creative generation of possible strategies, by asking and answering
each of the following four questions:
• How can we use each Strength?
• How can we stop each Weakness?
• How can we exploit each Opportunity?
• How can we defend against each Threat?
SIGNIFICANCE OF SWOT
¾ It provides a logical framework for systematic and sound thrashing of issues having
bearing on the business situation, generation of alternative strategies and a choice of
strategy.
¾ It presents a comparative account: it provides information about both internal and
external environment in a structured form where it is possible to compare external
opportunities and threats with internal weaknesses and strengths.
¾ It guides the strategists in strategy identification: it helps the strategists to think of
overall position of the company that helps to identify the major purpose of strategy under
focus.

APPLE SWOT ANALYSIS 2013
Strengths Weaknesses
1. Customer loyalty combined with
expanding closed ecosystem
2. Apple is a leading innovator in mobile
device technology
3. Strong financial performance
($10,000,000,000 cash, gross profit
margin 43.9% and no debt)
4. Brand reputation
5. Retail stores
6. Strong marketing and advertising
teams
1. High price
2. Incompatibility with different OS
3. Decreasing market share
4. Patent infringements
5. Further changes in management
6. Defects of new products
7. Long‐term gross margin decline
Opportunities Threats
1. High demand of iPad mini and iPhone
5
2. iTV launch
3. Emergence of the new provider of
application processors
4. Growth of tablet and smartphone
markets
5. Obtaining patents through acquisitions
6. Damages from patent infringements
7. Strong growth of mobile advertising
market
8. Increasing demand for cloud based
services
1. Rapid technological change
2. 2013 tax increases
3. Rising pay levels for workers
4. Breached IP rights
5. Price pressure from Samsung over key
components
6. Strong dollar
7. Android OS growth
8. Competitors moves in online music
market
SITUATIONAL ANALYSIS
Situational analysis is used to determine where the organization is, as well as how far it
needs to go to reach its goals. Situational analysis is an exercise which involves great deal of
gathering, classifying, analysis and understanding of information.
This consists of three separate processes:
1. External environmental analysis;
2. Internal environmental analysis; and
3. The development of the organization‘s mission, vision, values, and goals.

The interaction and results of these processes form the basis for the development of strategy.
These three interrelated processes drive the strategy. The effort concentrates on generating solid
answers to a well defined set of strategic situation and second to identify what its realistic
strategic options are.
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Forces in the external environment suggest ―what the organizaƟon should do. That is, success is
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influenced by the internal resources, competencies, and capabilities of the organization and
represents ―what the organizaƟon can do.
Finally, strategy is driven by a common vision and set of common organizational values and goals.
Vision, values, and goals are the result of considerable thought and analysis by top management
and indicate ―what the organization wants to do. Together, these forces are the essential input
to strategy formulation.
PEST ANALYSIS
PEST analysis (Political, Economic, Social and
Technological analysis) describes a framework of macro‐environmental
factors used in the environmental
scanning component of strategic management. These
forces can create both opportunities and threats for an
organization.
The aim of doing PEST is to find out the current factors
affecting a company, what changes are going to happen
in the external environment and to exploit those
changes or defend against them better than competitors
would do.

It is a part of the external analysis when conducting a strategic analysis or doing market research,
and gives an overview of the different macro environmental factors that the company has to take
into consideration.
It is a useful strategic tool for understanding market growth or decline, business position,
potential and direction for operations.
The PEST analysis consists of following Five Main Steps:
1. Understand a category's relevant trends:
• Research the important variables of the organisation's strategy.
• Determine the long term trends that apply to these variables.
• Research the past behaviour of these variables.
• Analyse the predictability of the trend lines and their fluctuations.
• Assess the impact of these trends on the organization.
2. Understand trend interdependencies:
• Analyse which trends are interrelated.
• Determine which trends conflict by understanding movements in opposite directions.
3. Distill likely issues from the identified trends:
• Validate the impact of trends on the organization.
• Distill the most critical trends that have the greatest impact given the organisation's
objectives.
4. Forecast the direction of issues:
• Determine the fundamental drivers behind a critical trend.
• Assess the behaviour of the critical trend.
• Run a sensitivity test to assess impact.
5. Derive implications for the organization:
• Assess the affect of critical environmental changes on the industry.
• Assess affect of critical environmental changes on a firm's competitive position.
• Assess the affect of critical environmental changes on a direct competitor‘s position.
• Validate a firm's competitive nature.
GAP ANALYSIS
GAP analysis is a tool that helps companies
COMPARE ACTUAL PERFORMANCE WITH THE
POTENTIAL PERFORMANCE. If a company doesn’t
make the best use of current resources, or forgoes
investment in capital or technology, it may produce
or perform below its potential.
GAP analysis is the process of identifying the gap
between the optimized allocation and integration

of the inputs and the current level of allocation. This helps company provide insight into areas
that have room for improvement.
The gap analysis process involves determining, documenting and approving the variance
between business requirements and current capabilities.
Gap Analysis provides a framework for measuring of time, money and human resources required
to achieve a particular outcome.
Gap analysis naturally flows from benchmarking and other assessments. Once the general
expectation of performance in the industry is understood, it is possible to compare that
expectation with the level of performance at which the company currently functions. This
comparison becomes the gap analysis.
Once the gaps are properly identified, attention shifts to devising ways to close them. Gap
analysis has been advocated for strategic choice decisions within the following four primary
contexts: (1) Environmental analysis, (2) Functional‐level policy analysis, (3) Business‐level
strategy analysis, and (4) Corporate‐level strategy analysis.
1. Environmental GAP Analysis:
For purposes of environmental analysis, gap analysis is a way of focusing on differences
between the firm's strategy set and resources and the threats and opportunities that make
up its environment. This planning gap can be filled by implementing new action plans, or
strategic goals can be altered.
2. Function Level GAP Analysis:
A popular use for gap analysis is to compare actual and potential market variables for
marketing strategy purposes. this technique focuses attention on defining the various
elements of a firm's sales shortfall. This overall gap is made up of the following four
segments:
• Product‐line gap – the portion due to each product in the full product line.
• Distribution gap – the portion caused by an inadequate distribution system.
• Usage gap – the part caused by less than full usage.
• Competitive gap – the segment caused by sales that are lost to direct competitors.
3. Business Level GAP Analysis:
There are similarities between gap analysis at the business level, gap analysis for
environmental analysis and functional‐level analysis. The focus is on gaps between actual
and planned‐for results according to such criteria as various profit measures, cash flow
generation, management expertise, company image, and relative product quality.
4. Corporate Level GAP Analysis:
When applied to the corporate level, gap analysis focuses on the consolidated performance
of the portfolio of business units. Differences between desired values of performance
variables (gross, operating, or net profit on total assets or equity; growth rate of sales;
geographical coverage; and so on) and actual values can trigger portfolio modification
decisions i.e., corporate level strategic decisions

PLANNING OF GAP
The need for new products or additions to existing lines may have emerged from the portfolio
analysis. At some point a gap will have emerged between what the existing products offer the
consumer and what the consumer demands. That gap has to be filled if the organization is to
survive and grow. The planning may be divided into the following four elements:
1. USAGE GAP: This is the gap between the total potential for the market and the actual
current usage by all the consumers in the market. Market Potential and Existing Usage
figures are needed for this calculation.
Market Potential: The most difficult estimate to make is that of the total potential
available to the whole market, including all segments covered by all competitive brands. It
is often achieved by determining the maximum potential individual usage, and
extrapolating this by the maximum number of potential consumers.
Existing usage: The existing usage by consumers makes up the total current market, from
which market shares, are calculated.
Thus, Usage gap = Market potential – Existing usage
2. PRODUCT GAP: The product gap, also known as the segment or positioning gap, represents
that part of the market from which the individual organization is excluded because of
product or service characteristics. The product gap is probably the main element of the
planning process in which the organization can have a productive input; hence the emphasis
is given on correct positioning.
3. COMPETITIVE GAP: Competitive gap refers to the share of business achieved among similar
products, sold in the same market segment, and with similar distribution patterns or at least,
in any comparison, after such effects have been discounted.
4. MARKET GAP: Another perspective is to look for gaps in the 'market' in a variation on product
positioning', and using the multi ‐dimensional mapping', which the company could profitably
address, regardless of where it’s current products stand.
IMPACT ANALYSIS
Impact Analysis is a technique designed to unearth the "Unexpected" Negative Effects of a
change on an organization. It is a brainstorming technique which helps the users to think through
the full Impacts Of a Proposed Change. It is an essential part of the evaluation process for major
decisions.
It provides a structured approach for looking at a proposed change, so that you can identify as
many of the negative impacts or consequences of the change as possible. Firstly, this makes it
an important tool for evaluating whether you want to run a project. Secondly, and once the
decision to go ahead has been made, it helps you prepare for and manage any serious issues that
may arise.
Impact analysis either takes the form of what if analysis or the sensitivity analysis. What‐if
analysis is a brainstorming approach that uses broad, loosely structured questioning to (1)
postulate potential impacts that may result by changing a particular variable in a system or
model and (2) ensure that appropriate safeguards can be taken if the proposed changes create a
possible negative impact on the system.
Impact analysis identifies the existing requirements in the baseline and other pending
requirement changes where conflict with the proposed change continuously happens.

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4. Marketing and sales provide the means whereby consumers/users are made aware of the
product/service and are able to purchase it. This would include sales administration,
advertising, selling and so on. In public services, communication networks which help
users' access a particular service are often important.
5. Service are all those activities, which enhance or maintain the value of a product/service,
such as installation, repair, training and spares.
Each of these groups of primary activities are linked to SUPPORT ACTIVITIES. These can be
divided into four areas:
1. Procurement: This refers to the processes for acquiring the various resource inputs to the
primary activities (not to the resources themselves). As such, it occurs in many parts of
the organization.
2. Technology development: All value activities have a 'technology', even if it is simply
know‐how. The key technologies may be concerned directly with the product or with
processes or with a particular resource.
3. Human resource management: This is a particularly important area which transcends all
primary activities. It is concerned with those activities involved in recruiting, managing,
training, developing and rewarding people within the organization.
4. Infrastructure: The systems of planning, finance, quality control, information
management, etc. are crucially important to an organization's performance in its primary
activities. Infrastructure also consists of the structures and routines of the organization
which sustain its culture.
BUSINESS PROCESS RE‐ENGINEERING (BPR)
Business process re‐engineering is a business management strategy, originally pioneered in the
early 1990s, focusing on the analysis and design of workflows and processes within an
organization.
Business process re‐engineering (BPR) is a management approach aimed at improvements by
means of elevating efficiency and effectiveness of the processes which exists within and across
organizations. The key to business process re‐engineering organizations is to look at their
business processes from a clean perspective and determine how they can best construct these
processes to improve the conduct of their business.
Business process re‐engineering can be defined as the analysis and design of workflows and
processes within and between organizations. Business process re‐engineering is also known as
business process redesign, business transformation or business process change methodology.
OBJECTIVES of Business Process Re‐engineering
The basic objectives of business process re‐engineering in an organization include the following:
1. Elimination of Redundant Processes: to make the organization result oriented, the
processes which are irrelevant must be eliminated.

2. Reduction in Cycle Time: Business process re‐engineering also aim to reduce the cycle
timing of processing for completing the job.
STEPS for Business Process Re‐engineering:
Following steps are considered for business process re‐engineering:
1. Developing business vision and process objective: Under this process it is desirable that a
vision of organization is defined clearly so that one can put business process function in
tune with the vision. Basically organizational vision depicts the challenging position what
the organization will be in future. Thus, in the light of business vision, organization should
define the objective of business processes.
2. Identifying the process to be redesigned: Once business vision and process objectives are
clearly defined, the organization should focus and identify the process which needs
redesigning.
3. Measuring the performances of existing processes: Under this step, the organisation
should focus on various methods used to measure the performance of a process to
determine whether an opportunity exists to improve its efficiency, effectiveness and
adaptability.
4. Identification of the opportunity for application of information technology: Under this
step, the emphasis is placed on application of IT knowledge to support a process and
redesign the process accordingly.
5. Building prototype of new processes: Under this step, the organization should design a
new process on an experimental basis in the light of series of revision and improvement
until the redesign process is put in actual operation. The prototype must be tested to
measure this performance and incorporate needed changes
PRINCIPLES of BPR:
¾ Organise around outcomes, not tasks: Design a person’s or a department’s job around an
objective or outcome instead of a single task or series of tasks.
¾ Capture information once and at the source: Instead of having each unit develop its own
database and information processing activities, the information can be put on a network
so that all can access it.
¾ With computer‐based information systems, processes can now be reengineered so that
the people who need the result of the process can do it themselves.
¾ People or departments that produce information can also process it for use instead of just
sending raw data to others in the organization to interpret.
¾ With modern information systems, companies can provide flexible service locally while
keeping the actual resources in a centralized location for coordination purposes.
¾ Instead of having separate units perform different activities that must eventually come
together, have them communicate while they work so that they can do the integrating.
¾ Put the decision point where the work is performed and build control into the process:
The people who do the work should make the decisions and be self‐controlling.

CHAPTER 3
PLANNING AND FORMULATION
From planning point of view, an organization must define why it exists, how it justifies its
existence, and when it justifies the reasons for its existence. The answers to these questions lie in
the organization‘s vision, mission, objectives and goals.
VISION
A Strategic vision is a Road Map of a Company’s Future – providing specifics about technology
and customer focus, the geographic and product markets to be pursued, the capabilities it plans
to develop, and the kind of company that management is trying to create.
Strategic vision delineates management’s aspirations for the business, providing a panoramic
view of the “where we are going” and a convincing rationale for why this makes good business
sense for the company. A strategic vision thus points an organization in a particular direction,
charts a strategic path for it to follow in preparing for the future, and molds organizational
identity. A clearly articulated strategic vision communicates management’s aspirations to
stakeholders and helps steer the energies of company personnel in a common direction.
The three ELEMENTS of a strategic vision:
1. Coming up with a mission statement that defines what business the company is presently
in and conveys the essence of “Who we are and where we are now?”
2. Using the mission statement as basis for deciding on a long‐term course making choices
about “Where we are going?”
3. Communicating the strategic vision in clear, exciting terms that arouse organization wide
commitment.
PURPOSE of Developing strategic vision:
™ The entrepreneurial challenge in developing a strategic vision is to think creatively about
how to prepare a company for the future.
™ Forming a strategic vision is an exercise in intelligent entrepreneurship.
™ Many successful organizations need to change direction not in order to survive but in
order to maintain their success.
™ A well‐articulated strategic vision creates enthusiasm for the course management has
charted and engages members of the organization.
The best‐worded vision statement clearly and crisply illuminates the direction in which
organization is headed.

FEATURES of an effective vision statement may include the following:
™ Clarity and lack of ambiguity.
™ Indicator of philosophy of organization.
™ Provides the guiding principles to the organization.
™ Well articulated and easily understandable.
™ Profiles the future and constitutes what the organization wants to do.
™ Memorable and engaging expression.
™ Realistic achievable aspirations.
™ Alignment with organizational values and culture.
™ Time bound if it talks of achieving any goal or objective.
MISSION
Mission defines the fundamental purpose of an organization or an enterprise, succinctly
describing why it exists and what it does to achieve its vision. A company’s Mission statement is
typically focused on its present business scope – “who we are and what we do”. Mission
statements broadly describe an organizations present capabilities, customer focus, activities, and
business makeup.
Peter Drucker says that asking the question, “What is our business?” is synonymous with asking
the question, “What is our mission?”
A mission is an enduring statement of purpose that distinguishes one organization from other
similar enterprises. The mission statement is a declaration of an organization’s “reason for
being.”
Sometimes called a creed statement, a statement of purpose, a statement of philosophy, a
statement of beliefs, a statement of business principles, or a statement “defining our business,” a
mission statement reveals what an organization wants to be and whom it wants to serve.
WHY ORGANIZATION SHOULD HAVE MISSION?
™ To ensure unanimity of purpose within the organization.
™ Provide a basis for motivating the use of the organization’s resources.
™ To develop a basis, or standard, for allocating organizational resources.
™ To establish a general tone or organizational climate, for example, to suggest a business
like operation.

™ To serve as a focal point for those who can identify with the organization’s purpose and
direction, and to deter those who cannot form participating further in the organization’s
activities.
™ To facilitate the translation of objective and goals into a work structure involving the
assignment of tasks to responsible elements within the organization.
™ To specify organizational purposes and the translation of these purposes into goals in such
a way that cost, time, and performance parameters can be assessed and controlled.
A Good Mission Statement should be of precise, clear, feasible, distinctive and motivating. It
should indicate major components of strategy.
Following points are useful while writing mission of a company:
™ One of the roles of a mission statement is to give the organization its own Special
Identity, business emphasis and path for development – one that typically sets it apart
form other similarly situated companies.
™ A company’s business is defined by what needs it trying to satisfy, by which customer
groups it is targeting and by the technologies and competencies it uses and the activities
it performs.
™ Technology, competencies and activities are important in defining a company’s business
because they indicate the boundaries on its operation.
™ Good mission statements are highly personalized – unique to the organization for which
they are developed.
PETER DRUCKER explained that towards facilitating this task, the firm should raise and answer
certain basic Questions concerning its business, such as:
™ What is our mission?
™ What is our ultimate purpose?
™ What do we want to become?
™ What kind of growth do we seek?
™ What business are we in?
™ Do we understand our business correctly and define it accurately in its broadest
connotation?
™ Do we know our customer?
™ Whom do we intend to serve?
™ What human need do we intend to serve through our offer?
™ What brings us to this particular business?
™ What would be the nature of this business in the future?
™ In what business would we like to be in, in the future?

GOALS AND OBJECTIVES
Mission statements are designed to make the organization‘s vision more concrete and real to its
people. However, mission statements still do not provide the tangible goals or objectives that
must be met to achieve an organization‘s broader purpose. Thus, goal and objectives are needed
to provide series of direct, measurable tasks that contribute to the organization mission. Goals
and objectives are the results to be achieved within specific time period, unlike the mission
statements that describe the firm‘s purpose more generally, goals and objective designate the
time period in which certain action and results are to be achieved.
OBJECTIVE GOALS
Objectives are timeless, enduring, and
unending. Objectives relate to the ongoing
activities of an organization, their achievement
tends to be open‐ended and not bound by time.
Whereas goals are temporal, time‐phased, and
intended to be superseded by subsequent
goals.
The objective of survival and growth of a
business organization is never completely
attained because non‐attainability is a
possibility.
A goal on the other hand is short‐lived as it is
time bound.
Objectives are stated in broad, general terms,
dealing with matters of image, style and self‐perception.
These are aspirations to be worked
in the future.
Goals are very specific, stated in terms of a
particular result that will be accomplished by a
specific date. Goals are more specific and time
bound.
Objectives are usually stated in terms of some
relevant environment which is external to the
organization.
Goals on the other hand, are more internally
focused and carry important implications about
how resources of the organization are utilized
or will be utilized in future.
Objectives are more generalized statements like
maintaining market leadership, striving
continuously for technological superiority, etc.,
Whereas a goal may imply a resource
commitment requiring the organization to use
those resources in order to achieve the desired
outcomes.
Quantitative objectives are set in relative terms. Quantitative goals are expressed in absolute
terms.

Eg., to acquire top position among the Indian
companies. This objective may not be achieved
in one year, but it is timeless and externally
focused, providing a continuing challenge for
the company.
Eg., say 20% increase in sales. The achievement
of this goal can be measured irrespective of
environmental conditions and competitors‘
actions.
FEATURES OF OBJECTIVES
(1) Each organization has some objectives as it is created basically to attain the same.
(2) Objectives may be broad or they may be specifically mentioned. They may pertain to a wide
or narrow part of the organization.
(3) They may be set either for the long term or for the short term.
(4) Objectives may be clearly defined and have to be interpreted by the behaviour of
organizational members, particularly those at top level.
(5) Objectives have hierarchy. All the level tries to achieve organizational objectives and each
level may contribute to the fulfillment of tasks assigned to it. Thus, a hierarchy of objectives is
established.
(6) Organizational objectives have social sanction; organizations are created within the social
norms. They must conform to the general needs of the society.
(7) An organization may have multiple objectives which may be functional and interrelated.
Sometimes, the objectives may be even incompatible. There is trade off among objectives.
The achievement of one may be at the cost of the other at one point of time, while at other
time, both can be integrated.
(8) Organizational objectives can be changed as new ones may replace old objectives. Since
objectives are formulated keeping in view the environmental factors and internal conditions,
any change in these may result into change in objectives.
OBJECTIVE SETTING
All organizations have a formal, clearly recognized and legally specified system or mechanism for
setting the initial objectives or their changes. The top management determines the overall
objectives, which the members of the organization unite to achieve.
The objectives are set through a complicated process involving various individuals and groups
within and outside the organization, and by reference to the values, which govern behaviour in
general, and the specific behaviour of the relevant individuals and groups in particular.
Organization identifies two types of objectives:

(1) General Objectives: The general objectives are quite broad in nature and show the
direction in which the organization will like to proceed. For example, the general
objectives of the business organizations may be survival, growth, contribution to the need
of the society, profit earning, etc.
(2) Specific Objectives: Most of these objectives tend to be of short range in character and
have definite time limits within which the organization has to achieve them. The specific
objectives may prescribe the manner in which the general objectives may be achieved.
These objectives may be in the form of diversification of the firm, liquidation of
unprofitable divisions, reorganization of the company, etc.
GUIDELINES FOR OBJECTIVE SETTING
(i). Objectives must be very clear and unambiguous.
(ii). Objectives must be set taking into account the various factors influencing their
achievement.
(iii). Objectives should be consistent with organizational mission and vision statements.
(iv). Objectives should be rational and realistic.
(v). Objectives should be achievable and must provide challenge to those responsible for
achievement.
(vi). Objectives should be result oriented.
(vii). Objectives should be desirable for those who are responsible for the achievement.
(viii). Objectives should be consistent with time period.
(ix). Objectives should be periodically reviewed.
DEVELOPING STRATEGIC ALTERNATIVES
An organization has to follow a strategy or a set of strategies to achieve its vision, mission, goals,
objectives, etc. A number of strategic options are available to an organization to achieve its
multiple objectives. An organization may choose one or a set of strategies meeting its
requirements.
Broadly strategies may be divided into number of categories such as:
¾ Offensive strategies,
¾ Generic Strategies/Focus strategies,
¾ Integration strategies,
¾ Diversification strategies,
¾ Defensive strategies, etc.
OFFENSIVE STRATEGIES

Offensive strategies are those strategies which are employed by management to reach goals
related to increase in sales or market share, and in some cases, profitability. It should be pointed
out that bringing about an increase in market share alone may not always satisfy performance
expectations.
1. CONCENTRATION POSTURES OR STRATEGIES
Concentration postures are primarily the marketing moves attempted to improve sales or
profitability by getting more out of resources currently available within the organization.
Following are some profound ADVANTAGES to build a strategy around a firm's present products
and market:
(i). A concentration posture enables the organization to develop heightened expertise in its
products and markets by specialization.
(ii). By focusing on one segment of the market, or on one product or a limited product line,
it helps the company to enhance its visibility.
(iii). The concentration increases operational flexibility by eliminating, or at least minimizing,
interaction effects.
(iv). Once competitive advantage is established, management can apply its superior
resources to achieve growth goals with far more dexterity.
2. MARKET PENETRATION
Market penetration is the percentage of a target market that consumes a product or service.
Market penetration can also be a measure of one company's sales as a percentage of all sales for
a product. Market penetration for a good or service indicates potential for increased sales. In
other words, the smaller a product's market penetration, the more a company should invest in its
strategy for marketing that item. For this reason, high market penetration indicates that a
product has become established and the company is a market leader. The father of Strategic
Management, H. Igor Ansoff defines Market Penetration as one of the four growth strategies of
the Product‐Market Growth Matrix.
In simple words, it is a marketing strategy used to sell the existing products to the existing
markets. Though market penetration is the least risky growth strategy, it depends upon some
CONDITIONS, which are:
(a) Unsaturated market
(b) An increase in industry growth rate, but decrease in competitive market share
(c) Existing customers’ willingness to purchase higher quality of existing products/services
(d) Economies of scale provide a competitive edge
3. MARKET DEVELOPMENT

Organizations with strategies aimed at market development seek to expand the geographical
regions or the number of market segments they serve with their existing product. Some of the
important strategies which may be followed for increasing sales through market development
include the following:
(a) Identification of new segments of the existing market area to which an appeal will be
made, and then appropriately modify the advertising budgets and related strategies to
develop a new series of advertisements.
(b) Establishment of the necessary supply and distribution systems, along with promotion
and advertising strategies, to take the product to a different geographical area; and
(c) Development of new versions of the product to appeal to a new segment.
4. PRODUCT DEVELOPMENT
Product development is a way to increase the sales in present segments by augmenting the
present product line. Product development strategies can be operationalised by:
(a) Developing new features for the existing products as often seen with various detergents,
toothpastes, and cosmetics.
(b) Designing additional models and sizes of the product such as different models of digital
cameras by the same manufacturers.
(c) Creating improved versions of products such as air conditioning systems, window and
door installation units for the home etc.
5. HORIZONTAL MERGER: is a business consolidation that occurs between firms who operate
in the same space, often as competitors offering the same good or service. Horizontal
mergers are common in industries with fewer firms, as competition tends to be higher and
the synergies and potential gains in market share are much greater for merging firms in such
an industry. This type of merger occurs frequently, because of larger companies attempting to
create more efficient economies of scale. The amalgamation of Daimler‐Benz and Chrysler is a
popular example of a horizontal merger.

GENERIC/FOCUS STRATEGIES
1. NICHING OR FOCUS STRATEGY:
• A niche is a need in the market place that is currently unsatisfied.
• A niche market is a focused targetable sub‐set of a market.
• A business organization which focuses on a niche market addresses a need for product
or service which is not being addressed by main stream providers.
• A niche market may be thought of a narrowly defined group of potential customers.

• Niche market ventures may become profitable even though they are by nature small in
comparison to the mainstream market place due to the benefits of specialization and
focus on identifiable small market segment even without benefit of economy of scale.
• For big companies, these market segments are too small in order to serve them
profitably as these market segments often lack economies of scale.
2. LOWER COST
A pricing strategy in which a company offers a relatively low price to stimulate demand and
gain market share. It is one of three generic marketing strategies that can be adopted by any
company, and is usually employed where the product has few or no competitive advantage or
where economies of scale are achievable with higher production volumes. Also called low
price strategy.
If a business is able to achieve and maintain comprehensive cost management, then it can
make the price equal to or close to the average price level of the industry. When the leading
enterprise cost their price equal to or less than its competitors, its low cost position can be
transformed into high‐yield.
3. DIFFERENTIATION
• Approach under which a firm aims to develop and market unique products for
DIFFERENT CUSTOMER SEGMENTS.
• Usually employed where a firm has clear competitive advantages, and can sustain an
expensive advertising campaign.
• It is one of three generic marketing strategies that can be adopted by any firm.
• A strategy employed by businesses to increase the perceived value of their brand or
products as a way to entice buyers to choose their products over similar products
offered by their competitors.
• Differentiation can be achieved through competitive pricing, enhancements to
functional design or features, distribution timing, expanded distribution channels,
distributor location, brand reputation, product customization, and enhanced customer
support.
INTEGRATION STRATEGIES
1. BACKWARD INTEGRATION
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ACTIVITIES. Backward integration effective when:
• present suppliers are especially expensive or unreliable
• number of suppliers is small and the number of competitors is large
• competes in an industry growing and expected to continue to grow

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Synergy may be achieved by combining firms with complementary marketing, financial,
operating, or management efforts. Breweries have been able to achieve marketing synergy
through national advertising and distribution. By combining a number of regional breweries
into a national network, beer producers have been able to produce and sell more beer than
had independent regional breweries.
Financial synergy may be obtained by combining a firm with strong financial resources but
limited growth opportunities with a company having great market potential but weak
financial resources. For example, debt‐ridden companies may seek to acquire firms that are
relatively debt‐free to increase the lever‐aged firm's borrowing capacity. Similarly, firms
sometimes attempt to stabilize earnings by diversifying into businesses with different
seasonal or cyclical sales patterns.
Strategic fit in operations could result in synergy by the combination of operating units to
improve overall efficiency. Combining two units so that duplicate equipment or research and
development are eliminated would improve overall efficiency. Quantity discounts through
combined ordering would be another possible way to achieve operating synergy. Yet another
way to improve efficiency is to diversify into an area that can use by‐products from existing
operations.
2. CONGLOMERATE DIVERSIFICATION OR UNRELATED DIVERSIFICATION:
Conglomerate diversification occurs when a firm diversifies into AREAS THAT ARE
UNRELATED TO ITS CURRENT LINE OF BUSINESS. Synergy may result through the application
of management expertise or financial resources, but the primary purpose of conglomerate
diversification is improved profitability of the acquiring firm. Little, if any, concern is given to
achieving marketing or production synergy with conglomerate diversification.
One of the most common reasons for pursuing a conglomerate growth strategy is that
opportunities in a firm's current line of business are limited. Finding an attractive investment
opportunity requires the firm to consider alternatives in other types of business. Philip
Morris's acquisition of Miller Brewing was a conglomerate move. Products, markets, and
production technologies of the brewery were quite different from those required to produce
cigarettes.
Firms may also pursue a conglomerate diversification strategy as a means of increasing the
firm's growth rate. As discussed earlier, growth in sales may make the company more
attractive to investors. Growth may also increase the power and prestige of the firm's
executives. Conglomerate growth may be effective if the new area has growth opportunities
greater than those available in the existing line of business.
Probably the biggest disadvantage of a conglomerate diversification strategy is the increase in
administrative problems associated with operating unrelated businesses. Managers from
different divisions may have different backgrounds and may be unable to work together
effectively. Competition between strategic business units for resources may entail shifting

resources away from one division to another. Such a move may create rivalry and
administrative problems between the units.
3. INTERNAL DIVERSIFICATION:
One form of internal diversification is to MARKET EXISTING PRODUCTS IN NEW MARKETS. A
firm may elect to broaden its geographic base to include new customers, either within its
home country or in international markets. A business could also pursue an internal
diversification strategy by finding new users for its current product. Finally, firms may attempt
to change markets by increasing or decreasing the price of products to make them appeal to
consumers of different income levels.
Another form of internal diversification is to MARKET NEW PRODUCTS IN EXISTING
MARKETS. Generally this strategy involves using existing channels of distribution to market
new products. Retailers often change product lines to include new items that appear to have
good market potential. Johnson & Johnson added a line of baby toys to its existing line of
items for infants. Packaged‐food firms have added salt‐free or low‐calorie options to existing
product lines.
It is also possible to have conglomerate growth through internal diversification. This strategy
would entail marketing new and unrelated products to new markets. This strategy is the least
used among the internal diversification strategies, as it is the most risky. It requires the
company to enter a new market where it is not established. The firm is also developing and
introducing a new product. Research and development costs, as well as advertising costs, will
likely be higher than if existing products were marketed. In effect, the investment and the
probability of failure are much greater when both the product and market are new.
4. EXTERNAL DIVERSIFICATION:
External diversification occurs when a firm looks OUTSIDE OF ITS CURRENT OPERATIONS AND
BUYS ACCESS TO NEW PRODUCTS OR MARKETS. Mergers are one common form of external
diversification. MERGERS occur when two or more firms combine operations to form one
corporation, perhaps with a new name. These firms are usually of similar size. One goal of a
merger is to achieve management synergy by creating a stronger management team. This can
be achieved in a merger by combining the management teams from the merged firms.
ACQUISITIONS, a second form of external growth, occur when the purchased corporation
loses its identity. The acquiring company absorbs it. The acquired company and its assets may
be absorbed into an existing business unit or remain intact as an independent subsidiary
within the parent company. Acquisitions usually occur when a larger firm purchases a smaller
company. Acquisitions are called friendly if the firm being purchased is receptive to the
acquisition. (Mergers are usually "friendly.") Unfriendly mergers or hostile takeovers occur
when the management of the firm targeted for acquisition resists being purchased.

5. VERTICAL INTEGRATION:
The steps that a product goes through in being transformed from raw materials to a finished
product in the possession of the customer constitute the various stages of production. When
a FIRM DIVERSIFIES CLOSER TO THE SOURCES OF RAW MATERIALS IN THE STAGES OF
PRODUCTION, it is following a backward vertical integration strategy.
RATIONAL FOR DIVERSIFICATION AND INTEGRATION
(i) PSYCHOLOGICAL PRESSURE: Business owners as well as managers simply get tired of doing
the same thing.
(ii) OPTIMAL SIZE: Diversification and integration enable the organization to attain its optimal
size and avail all economies.
(iii) INCREASE IN PROFITABILITY: Organizations which integrate can then operate the new
business as a profit center while also serving the needs of the old business. Integration by
merger rather than internal development tends to reduce the costs also.
(iv) INCREASE CONTROL: A related integration pressure is the desire to increase control of
supply streams to correct inconsistencies in quality or delivery schedules, or unreliability of
distributors, when they become intolerable.
(v) FASTER GROWTH: Diversification offers to an organization an opportunity for faster growth
in terms of rapid expansion, economies of scale and learning new skills.
(vi) PROFITABILITY: The desire for higher profitability also leads organization to search for new
terrain. New terrain may be less competitive thereby enabling an organization to earn a
higher rate of return.
(vii) STABILITY: The new terrain may be more stable than a organization base business in terms
of the cyclical nature and fluctuations of output. Diversification into businesses with
different industry cycle enables a firm to generate to more predictable level of sales and
profits. By expanding to a field with more characteristics an organization sometimes moves
away from problems in its core business.
(viii) ACCESS TO RESOURCES: By acquiring an organization which possesses a scare resources or
market position, a business unit can significantly improve its own competitive position.
Similarly, a business unit which possesses a critical resource can often improve the position
of another business unit by acquiring and transferring the resources to it.
(ix) SHARING ACTIVITIES: Sharing an activity produces greater economy of scale and thus lower
total cost of production. Sharing also offers the prospects of faster learning and application
of new scales and technology to new areas, thus effective sharing of key resources among
business units lays the strong foundation for building sound, strong highly inimitable core
competencies.

DEFENSIVE STRATEGIES
Not all strategies have expansion orientation. Very often the strategist is forced to control the
firm's operations. Except for the rare attempt by a firm's owners to simplify their lives by
shrinking their business's size, contraction is usually a defensive response to adversity. There are
three basic types of defensive strategies i.e., retrenchment, divestment and liquidation.
1. RETRENCHMENT STRATEGIES
It includes those strategies which attempts to Regain Control Of A Faltering Business or to
prevent it from faltering in the first place by temporarily reining in its operations.
Retrenchment can generally take two major forms i.e.:
(a) SHALLOW RETRENCHMENT: This is a response to adversity characterized by small but
significant reduction in expenditures for expense items, asset investment, or both. It
would normally follow a decision to lighten emphasis on sales growth for a certain time
period. To illustrate, this strategy would be appropriate for a growing firm facing a cash
flow shortage. Shallow retrenchment would continue until a targeted level of net cash
flow or some other goal met. Then the former growth strategy, or a variation, would
replace it. As such, shallow retrenchment is an emphasis switching exercise to build
internal strength. The kinds of activities which would characterize shallow retrenchment
generally include reducing hiring rates, laying workers off, delaying asset replacement,
dropping narrow margin products or lines, reducing inventory levels, stretching payables
or other moves aimed at decreasing operating expenses, increasing net cash flows, and
reducing asset investment rates.
(b) DEEP RETRENCHMENT: This involves severely curtailing operations as a defense against
major economic adversity, financial reverses, competitive disadvantage, or a drastic
threat to sales growth or profitability that cannot be met with an offensive move. By
contrast, deep retrenchment is characterized by the intention to change at least part of
strategy, usually by surgery in the product, market, or business‐definition areas. The
company would plan to exit from deep retrenchment as a different company, with fewer
or different product/lines, different organization structure, fewer or different markets or
segments, and so forth. Clearly the distinction between shallow and deep retrenchment is
subjective and a matter of degree, the idea of intended change in strategy provides a
useful distinction.
2. DIVESTMENT STRATEGIES:
Sometimes, it may not be possible for the organization to carry on a particular line of a
business because it does not offer any potential event after turnaround action. In that case,
the organization tries to get rid off that business by pursuing a divestment or divestiture

strategy. Divestiture or divestment means ridding the organization or sub‐unit usually by
selling it.
The three fundamental types of divestment are –
(a) SELL‐OFF: The distinction between a sell‐off and a spin‐off is blurred because both can be
accomplished by the sale of a subsidiary. The difference seems to be the intentions of the
parent firm. If it sells a business unit that it had ORIGINALLY INTENDED TO KEEP, it is
typically a sell‐off. However, if the intention in acquiring or growing the subsidiary had
been subsequently to sell it, then it is labeled a spin‐off.
(b) SPIN‐OFF: To be more precise, spin‐off is a form of corporate restructuring where an
organization sells those units or parts of a business which no longer contribute to or fit
the organization‘s distinctive competence. Spinoffs can involve sales of assets to another
organization or to the public. The rationale of spin off is to unlock the hidden value of
assets or business which in turn flounder with excessive diversification and reduced
corporate focus.
(c) SPLIT‐OFF: By contrast a split‐off is a divorce of two approximately equal sized business
units or divisions. Once share ownership is shuffled the two units do separate business.
3. LIQUIDATION:
Liquidation means converting an asset, sub unit or organization to cash. When a firm or unit
of a firm is not to continue the business, it can be liquidated. Of course, when this happens,
the firm ceases to exist. Firms are liquidated due to financial distress or failure to locate a
buyer for divestment. Its assets are sold item by item and the proceeds are distributed among
creditors. Funds left over after payment to creditors and meeting liquidation costs are
distributed among shareholders.
Liquidation can be accomplished via one of three possible avenues:
(a) VOLUNTARY CLOSURE: Voluntary closure takes place when a firm simply pays off its
creditors, closes its doors, and quietly goes out of business. Voluntary closure basically
implies that the firm or its owner has sufficient cash or liquid assets to pay off creditors.
Typically, voluntary closure is more prevalent among small businesses than large ones.
(b) ASSIGNMENT: Assignment involves the transfer of title of assets to a third party. The
trustee or assignee then sells the assets and distributes the proceeds among creditors,
according to the magnitude of their claims.
(c) INSOLVENCY: Liquidation under the Insolvency Laws of the country is
appropriate when the liquidating value of assets is exceeded by debt; that
is, when the firm is insolvent and the market value of assets is insufficient to
pay outstanding debt.

OTHER STRATEGIES
1. JOINT VENTURE
A joint venture or strategic alliance is a business unit or competitive effort established for a
specific purpose, the ownership of which is shared by two or more businesses. It can be used
as a way to own and control a business, product line, market, or activity that does not really
fit the strategy of either parent. Ideally joint ventures are formed by organizations with
complementary or supplementary capabilities, which are unified in the joint venture.
Business units join together because of a mutual need for the results of its operation.
The REASONS for companies to enter in joint ventures are as follows:
(i) To enter new markets and gain access to some critical resources.
(ii) Policy of various governments to insist that foreign competitors participate in joint
ventures with local partners rather than set up a wholly owned subsidiary.
(iii) Higher degree of financial risks, in project.
(iv) Insufficient skills and inadequate resources to make the business a success to
undertake the project independently.
(v) Only way for partners to reach acceptable economies of scale in research,
marketing, or production.
The three common types of joint ventures may be:
UNRELATED PARTNERS RELATED PARTNERS DUAL‐NATIONALITY
PARTNERS
These are the firms which are
independent and usually in
different industries. They pool
their respective contributions
resources, skills, technologies,
and so on in the joint venture
and share contractually in the
results of its operation.
Joint ventures by related
partners are aggregations of
similar activities or business
units which could not survive
alone.
Under this form of joint
ventures, organizations
join one another to overcome
political, social, or cultural
obstacles.
2. HARVESTING STRATEGY
Harvesting strategy is used to reduce investment in the hope of cutting costs and improving
cash flow. Harvesting strategy basically refers to a strategy which is concerned with the
systematic removal of cash and other assets from a slow growth or declining business. It may
be thought of a “milking” business before it loses all its value. The basic objective of
harvesting is to generate as much cash from business as possible before the adverse
consequence of an environmental threat operates.

Mergers and acquisitions strategies
Mergers and acquisitions are the popular strategies followed by organizations for their
growth. A merger is simply the combination of two or more business units. The merger may
be achieved by the organization broadly in two ways:
(i) Acquisition of one business unit by another business unit.
(ii) Creation of a new company by consolidation of two or more units.
The RATIONALE for merger and acquisitions by the organization may be any of the following:
(a) Quick entry into markets and industries;
(b) To avail opportunities for faster growth rate;
(c) To avail diversification advantages;
(d) To avail tax benefits;
(e) To purchase a unit for better use of investible funds;
(f) To reduce competition by acquiring competing form;
(g) To improve the efficiency of operations and attain higher profitability through
synergistic effect;
(h) To fill‐up the gap in the existing product line;
(i) To enhance price earnings ratio and market price of shares.
EVALUATION OF STRATEGIC ALTERNATIVES
Once the organization identifies various strategic alternatives, the next important step of
strategic management process is to make a choice among available alternative strategies.
Different approaches are developed by experts to evaluate strategic alternatives and choose the
best among them subject to given conditions. Evaluation approach can be classified in the
following categories:
(i). SIMPLE APPROACH: Let the strategic alternatives be grouped on the basis of key variables,
viz., potential market growth and the firm‘s competitive position. The alternative strategies
may thus be said to comprise the following combinations of the two variables:
(1) Low market growth potential/Weak competitive position.
(2) High market growth potential/Weak competitive position.
(3) Low market growth potential/Strong competitive position.
(4) High market growth potential/Strong competitive position.
High

Market Growth
Mixed
(2)
Growth
(4)
Defensive
(1)
Neutral
(3)
Low Weak ← CompeƟƟve PosiƟon → Strong
QUADRANT 1 represents the DEFENSIVE situation, which shows low market growth potential and
weak competitive position. The organization may seriously consider the defensive retrenchment
or divestment—and use excess cash to invest in areas where profit potential is greater.
QUADRANT 2 depicts the MIXED situation where an organization has high market growth
potential and weak competitive position. In this situation, some variant of the combination or
mixed strategy is called for.
QUADRANT 3 the organization is in neutral situation where the organizations having low market
growth potential but strong competitive position. In this situation, organization should normally
favour a stable growth strategy so as to maintain its market share.
QUADRANT 4 depicts growth situation which reflects high market growth potential and strong
competitive position. These strategies are ideally suited for growing organization situation. The
organization in this situation should aim at maximizing market share so as to prevent competitors
from gaining a foothold.
(ii).ANALYTICAL MODELS APPROACH:
Number of analytical conceptual models has been developed by experts for managers to evaluate
strategic alternatives before making a choice. Some of them include: Growth share Matrix—
Boston Consulting Group (BCG) Model, General Electric‘s Stoplight Grid, Life Cycle Theory, etc.
BCG MATRIX OR GROWTH SHARE MATRIX(GSM)

Strategic Management ICSI

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