Strategic Management Notes
STRATEGIC MANAGEMENT
UNIT - III
STRATEGIES
The generic strategic alternatives – Stability, Expansion, Retrenchment and
Combination strategies - Business level strategy- Strategy in the Global EnvironmentCorporate Strategy- Vertical Integration-Diversification and Strategic Alliances- Building
and Restructuring the corporation- Strategic analysis and choice - Environmental Threat
and Opportunity Profile (ETOP) - Organizational Capability Profile - Strategic Advantage
Profile - Corporate Portfolio Analysis - SWOT Analysis - GAP Analysis - Mc Kinsey's 7s
Framework - GE 9 Cell Model - Distinctive competitiveness - Selection of matrix - Balance
Score Card-case study.
Table of Contents
1.PORTER’S GENERIC STRATEGIC ALTERNATIVES (BUSINESS LEVEL STRATEGIES)
......................................................................................................................................................... 2
2.CORPORATE LEVEL STRATEGIES ........................................................................................ 2
1. Growth / Expansion Strategies
2. Stability Strategy ..................................................................................................................... 5
3.Retrenchment or Renewal Strategy .......................................................................................... 6
4. Combination Strategy .............................................................................................................. 6
3. MERGER .................................................................................................................................... 6
4. ACQUISTION............................................................................................................................. 6
5.STRATEGIC ALLIANCE ........................................................................................................... 8
6.STRATEGIC ANALYSIS – TOOLS .......................................................................................... 9
1. BCG MATRIX (Boston Consultancy Group Matrix) ............................................................ 9
2. The McKinsey 7S Framework............................................................................................... 14
3. The Seven Elements .............................................................................................................. 15
3. TOWS Matrix ........................................................................................................................ 15
4. GAP ANALYSIS .................................................................................................................. 16
5. The Strategic Position and Action Evaluation (SPACE) Matrix ........................................... 17
7. ANALYSIS & CHOICE ........................................................................................................... 19
8. Stages of Corporate Development Restructuring & Reengineering .......................................... 20
Saranya PB | Assistant Professor | KVIMIV
Strategic Management Notes
PORTER’S GENERIC
STRATEGIES)
STRATEGIC
ALTERNATIVES
(BUSINESS
LEVEL
There is no one way to market your products -- each business is unique and should have its own
unique strategy. There are, however, four generic strategies that a business can use to create a
general outline of its marketing strategy. When marketing a product you can target the broad
market or a niche, and you can compete on the basis of price or differentiation.
Cost Leadership
The cost leadership strategy is a high volume, low margin strategy. Cost leaders offer
lower prices than their competitors in order to gain a large share of the market. Although
profit margins may be small for companies using this strategy, a large volume can allow
for significant profits. Because this strategy requires a large volume, it is better suited to
large, multinational companies than to small businesses.
Differentiation
The differentiation strategy involves creating unique products that are different from any
other offerings. When a company develops a unique product that consumers want, it is
able to charge a premium price for it. This means that companies who use the
differentiation strategy generally sell products at a higher price. In order to develop
differentiated offerings a company needs to invest heavily in research and development.
The associated costs of research can make the strategy difficult for a small business.
Cost Focus
Like the cost leadership strategy, the cost focus strategy aims to offer products to
consumers at low prices. But unlike the cost leadership strategy, which aims at the entire
market, the cost focus strategy focuses on a limited niche. For instance, a business might
manufacture scissors designed for left-handed people. The company might not have the
lowest prices for scissors, but it could still be a cost leader in the left-handed niche.
Because the cost focus strategy caters to a smaller niche, it is ideally suited to small
businesses with limited resources.
Differentiation Focus
The differentiation focus strategy is like the differentiation strategy, but like the cost
focus strategy it focuses on a specific niche rather than the market as a whole. Instead of
creating unique new products that appeal to everyone, the company designs its offerings
for a narrow group. By focusing on a narrow group, the company faces less competition
than if it was developing products for the general public.
CORPORATE LEVEL STRATEGIES
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Strategic Management Notes
1.
Expansion or Growth Strategy
A growth strategy is when an organization expands the number of markets served or products
offered, either through its current business (es) or through new business(es). Because of its
growth strategy, an organization may increase revenues, number of employees, or market share.
Organizations grow by using concentration, vertical integration, horizontal integration, or
diversification.
Diversification
Diversification is a strategic approach adopting different forms. Depending on the direction of
company diversification, the different types are:




Horizontal Diversification - acquiring or developing new products or offering new
services that could appeal to the company’s current customer groups. In this case the
company relies on sales and technological relations to the existing product lines. For
example a dairy, producing cheese adds a new type of cheese to its products.
Vertical Diversification – occurs when the company goes back to previous stages of its
production cycle or moves forward to subsequent stages of the same cycle - production of
raw materials or distribution of the final product. For example, if you have a company
that does reconstruction of houses and offices and you start selling paints and other
construction materials for use in this business. This kind of diversification may also
guarantee a regular supply of materials with better quality and lower prices.
Concentric Diversification - enlarging the production portfolio by adding new products
with the aim of fully utilising the potential of the existing technologies and marketing
system. The concentric diversification can be a lot more financially efficient as a strategy,
since the business may benefit from some synergies in this diversification model. It may
enforce some investments related to modernizing or upgrading the existing processes or
systems. This type of diversification is often used by small producers of consumer goods,
e.g. a bakery starts producing pastries or dough products.
Conglomerate diversification - is moving to new products or services that have no
technological or commercial relation with current products, equipment, distribution
channels, but which may appeal to new groups of customers. The major motive behind
this kind of diversification is the high return on investments in the new industry.
Furthermore, the decision to go for this kind of diversification can lead to additional
opportunities indirectly related to further developing the main company business - access
to new technologies, opportunities for strategic partnerships, etc.
Vertical integration
Vertical integration (VI) is simply a type of strategy that is implemented by a firm. Although just
one of many possible strategies, it is a major strategic concern when formulating corporate level
strategy. The important question in corporate strategy is, whether the company should participate
in one activity (one industry) or many activities (many industries) along the industry value chain.
For example, the company has to decide if it only manufactures its products or would engage in
retailing and after-sales services as well. Two issues have to be considered before integration:

Costs. An organization should vertically integrate when costs of making the product
inside the company are lower than the costs of buying that product in the market.
Saranya PB | Assistant Professor | KVIMIV
Strategic Management Notes

Scope of the firm. A firm should consider whether moving into new industries would not
dilute its current competencies. New activities in a company are also harder to manage
and control.
Forward
integration
Backward
integration
Balanced
integration
1. Vertical integration is a strategy that allows a firm to gain control over its suppliers or
distributors in order to increase the firm’s power in the marketplace, reduce transaction
costs and secure supplies or distribution channels.
2. Forward integration is a strategy where a firm gains ownership or increased control
over its previous customers (distributors or retailers)
3. Backward integration is a strategy where a firm gains ownership or increased control
over its previous suppliers
Forward integration
If the manufacturing company engages in sales or after-sales industries it pursues forward
integration strategy. This strategy is implemented when the company wants to achieve higher
economies of scale and larger market share. Forward integration strategy became very popular
with increasing internet appearance. Many manufacturing companies have built their online stores
and started selling their products directly to consumers, bypassing retailers. Forward integration
strategy is effective when:

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


Few quality distributors are available in the industry.
Distributors or retailers have high profit margins.
Distributors are very expensive, unreliable or unable to meet firm’s distribution needs.
The industry is expected to grow significantly.
There are benefits of stable production and distribution.
The company has enough resources and capabilities to manage the new business.
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Strategic Management Notes
Backward integration
When the same manufacturing company starts making intermediate goods for itself or takes over
its previous suppliers, it pursues backward integration strategy. Firms implement backward
integration strategy in order to secure stable input of resources and become more efficient.
Backward integration strategy is most beneficial when:

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

Firm’s current suppliers are unreliable, expensive or cannot supply the required inputs.
There are only few small suppliers but many competitors in the industry.
The industry is expanding rapidly.
The prices of inputs are unstable.
Suppliers earn high profit margins.
A company has necessary resources and capabilities to manage the new business
Difference between vertical and horizontal integration
VI is different from horizontal integration, where a corporate usually acquires or mergers with a
competitor in a same industry. An example of horizontal integration would be a company
competing in raw materials industry and buying another company in the same industry rather than
trying to expand to intermediate goods industry. Horizontal integration examples: Kraft Foods
taking over Cadbury, HP acquiring Compaq or Lenovo buying personal computer division from
IBM.
Advantages

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Lower costs due to eliminated market transaction costs
Improved quality of supplies
Critical resources can be acquired through VI
Improved coordination in supply chain
Greater market share
Secured distribution channels
Facilitates investment in specialized assets (site, physical-assets and human-assets)
New competencies
Disadvantages

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Higher costs if the company is incapable to manage new activities efficiently
The ownership of supply and distribution channels may lead to lower quality products
and reduced efficiency because of the lack of competition
Increased bureaucracy and higher investments leads to reduced flexibility
Higher potential for legal repercussion due to size (An organization may become a
monopoly)
New competencies may clash with old ones and lead to competitive disadvantage
2. Stability Strategy
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Strategic Management Notes
A stability strategy is a corporate strategy in which an organization continues to do what it is
currently doing. Examples of this strategy include continuing to serve the same clients by offering
the same product or service, maintaining market share, and sustaining the organization's current
business operations. The organization does not grow, but does not fall behind, either.
3.Retrenchment or Renewal Strategy
When an organization is in trouble, something needs to be done. Managers need to develop
strategies, called renewal strategies, which address declining performance. The two main types of
renewal strategies are retrenchment and turnaround strategies.
A strategy used by corporations to reduce the diversity or the overall size of the operations of the
company. This strategy is often used in order to cut expenses with the goal of becoming a more
financial stable business. Typically the strategy involves withdrawing from certain markets or the
discontinuation of selling certain products or service in order to make a beneficial turnaround.
4. Combination Strategy
Other Expansion Strategies
MERGER
Merger is a technique of business growth. It is not treated as a business combination. Merger is
done on a permanent basis. Generally, it is done between two companies. However, it can also be
done among more than two companies. During merger, an acquiring company and acquired
companies come together to decide and execute a merger agreement between them. After merger,
acquiring company survives whereas acquired companies do not survive anymore, and they cease
(stop) to exist. Merger does not result in the formation of a new company. The management of
acquiring company continues to lead (direct) the merger.
ACQUISTION
An acquisition or takeover occurs when one company purchases another. Companies perform
acquisitions for various reasons: they may be seeking to achieve economies of scale, greater
market share, increased synergy, cost reductions or for many other reasons. The acquiring
company would usually proceed with the corporate action by offering to purchase the shares from
the shareholders of the target company. Often, a cash offer is made but sometimes the acquiring
company may offer to trade its own shares in exchange for the target company's shares. Also, the
difference between mergers and takeovers/acquisitions are that mergers involve two companies of
roughly equal size that have decided to combine together to take advantage of expected
advantages of a being larger company. (Learn more about mergers in our article, The Wonderful
World Of Mergers.)
Difference between Merger and Acquisition
There is no tangible difference between an acquisition and a takeover; both words can be used
interchangeably - the only difference is that each word carries a slightly different connotation.
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Strategic Management Notes
Typically, takeover is used to reference a hostile takeover where the company being acquired is
resisting. In contrast, acquisition is frequently used to describe more friendly acquisitions, or used
in conjunction with the word merger, where both companies are willing to join together.
JOINT VENTURE
A joint venture is a strategic alliance where two or more people or companies agree to contribute
goods, services and/or capital to a common commercial enterprise. Sounds like a partnership,
doesn’t it? But legally, joint ventures and partnerships are not the same thing.
Joint Ventures versus Partnerships
The main difference between a joint venture and a partnership is that the members of a joint
venture have teamed together for a particular purpose or project, while the members of a
partnership have joined together to run "a business in common". Each member of the joint
venture retains ownership of his or her property. And each member of the joint venture shares
only the expenses of the particular project or venture. Tax-wise, there are also differences
between joint ventures and partnerships. As a member of a joint venture, you will receive a share
of the profits which will be taxed according to whatever business structure you have set up. So,
for instance, if you operate a sole proprietorship, your joint venture profits will be taxed just as
any other business income would.
Joint ventures enjoy tax advantages over partnerships, too. Capital Cost Allowance (CCA) is
treated differently. While those in partnerships have to claim CCA according to partnership rules,
those in joint ntures can choose to use as much or little of their CCA claim as they like.And joint
ventures don’t have to file information returns, unlike artnerships.
How to Get a Joint Venture Started

The first step to creating a joint venture is to set your goals and decide what you want
your joint venture to do. If you need help getting started with this, look at the four things
a joint venture can do that I've listed at the beginning of this article, pick one, and then
develop a goal that is as specific as possible.

Then it's time to look for the like-minded - people or firms that might be interested in the
same goal or goals you want to pursue. Look in the business groups you already belong
to, both in person and virtually. Use your social networking connections. Study business
listings in the phone book or on Web sites to find those that might share your goals.

And be open to being asked. Once you start talking to other people about what you might
do together, a joint venture idea you haven’t even thought of might pop up - one with a
lot of potential.

Once you've found the people to share in a joint venture, be sure to have it all put into
writing in a joint venture agreement. I strongly recommend hiring a legal professional to
do this.
So instead of dismissing an opportunity as out of your reach, start thinking instead about how you
could participate with a joint venture. Properly planned and executed, joint ventures can help your
small business go where it's never been able to go before.
Saranya PB | Assistant Professor | KVIMIV
Strategic Management Notes
STRATEGIC ALLIANCE
An arrangement between two companies that have decided to share resources to undertake a
specific, mutually beneficial project. A strategic alliance is less involved and less permanent than
a joint venture, in which two companies typically pool resources to create a separate business
entity. In a strategic alliance, each company maintains its autonomy while gaining a new
opportunity. A strategic alliance could help a company develop a more effective process, expand
into a new market or develop an advantage over a competitor, among other possibilities.
Turn around Strategies
Turnaround strategy means backing out, withdrawing or retreating from a decision wrongly taken
earlier in order to reverse the process of decline. There are certain conditions or indicators which
point out that a turnaround is needed if the organization has to survive. These danger signs are as
follows:
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Persistent negative cash flow
Continuous losses
Declining market share
Deterioration in physical facilities
Over-manpower, high turnover of employees, and low morale
Uncompetitive products or services
Mismanagement
Divestment Strategies
Divestment strategy involves the sale or liquidation of a portion of business, or a major division,
profit centre or SBU. Divestment is usually a restructuring plan and is adopted when a turnaround
has been attempted but has proved to be unsuccessful or it was ignored. A divestment strategy
may be adopted due to the following reasons:

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

A business cannot be integrated within the company.
Persistent negative cash flows from a particular business create financial problems
for the whole company.
Firm is unable to face competition
Technological up gradation is required if the business is to survive which company
cannot afford.
A better alternative may be available for investment
Liquidation Strategies
Liquidation strategy means closing down the entire firm and selling its assets. It is considered the
most extreme and the last resort because it leads to serious consequences such as loss of
employment for employees, termination of opportunities where a firm could pursue any future
activities, and the stigma of failure.
Generally it is seen that small-scale units, proprietorship firms, and partnership, liquidate
frequently but companies rarely liquidate. The company management, government, banks and
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Strategic Management Notes
financial institutions, trade unions, suppliers and creditors, and other agencies do not generally
prefer liquidation.
Liquidation strategy may be unpleasant as a strategic alternative but when a "dead business is
worth more than alive", it is a good proposition. For instance, the real estate owned by a firm may
fetch it more money than the actual returns of doing business.
Liquidation strategy may be difficult as buyers for the business may be difficult to find.
Moreover, the firm cannot expect adequate compensation as most assets, being unusable, are
considered as scrap.
Reasons for Liquidation include:





Business becoming unprofitable
Obsolescence of product/process
High competition
Industry overcapacity
Failure of strategy
STRATEGIC ANALYSIS – TOOLS
BCG MATRIX (Boston Consultancy Group Matrix)
BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic position
of the business brand portfolio and its potential. It classifies business portfolio into four
categories based on industry attractiveness (growth rate of that industry) and competitive position
(relative market share). These two dimensions reveal likely profitability of the business portfolio
in terms of cash needed to support that unit and cash generated by it. The general purpose of the
analysis is to help understand, which brands the firm should invest in and which ones should be
divested
“BCG matrix (or growth-share matrix) is a corporate planning tool, which is used to portray
firm’s brand portfolio or Strategic Business Units on a quadrant along relative market share axis
(horizontal axis) and speed of market growth (vertical axis) axis.”
“Growth-share matrix is a business tool, which uses relative market share and industry growth
rate factors to evaluate the potential of business brand portfolio and suggest further investment
strategies.”
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Strategic Management Notes
Relative market share.
One of the dimensions used to evaluate business portfolio is relative market share. Higher
corporate’s market share results in higher cash returns. This is because a firm that produces more,
benefits from higher economies of scale and experience curve, which results in higher profits.
Nonetheless, it is worth to note that some firms may experience the same benefits with lower
production outputs and lower market share.
Market growth rate.
High market growth rate means higher earnings and sometimes profits but it also consumes lots
of cash, which is used as investment to stimulate further growth. Therefore, business units that
operate in rapid growth industries are cash users and are worth investing in only when they are
expected to grow or maintain market share in the future.
There are four quadrants into which firms brands are classified:
Dogs.
Dogs hold low market share compared to competitors and operate in a slowly growing market. In
general, they are not worth investing in because they generate low or negative cash returns. But
this is not always the truth. Some dogs may be profitable for long period of time, they may
provide synergies for other brands or SBUs or simple act as a defense to counter competitors
moves. Therefore, it is always important to perform deeper analysis of each brand or SBU to
make sure they are not worth investing in or have to be divested.
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Strategic Management Notes
Strategic choices: Retrenchment, divestiture, liquidation
Cash cows.
Cash cows are the most profitable brands and should be “milked” to provide as much cash as
possible. The cash gained from “cows” should be invested into stars to support their further
growth. According to growth-share matrix, corporates should not invest into cash cows to induce
growth but only to support them so they can maintain their current market share. Again, this is
not always the truth. Cash cows are usually large corporations or SBUs that are capable of
innovating new products or processes, which may become new stars. If there would be no support
for cash cows, they would not be capable of such innovations.
Strategic choices: Product development, diversification, divestiture, retrenchment
Stars.
Stars operate in high growth industries and maintain high market share. Stars are both cash
generators and cash users. They are the primary units in which the company should invest its
money, because stars are expected to become cash cows and generate positive cash flows. Yet,
not all stars become cash flows. This is especially true in rapidly changing industries, where new
innovative products can soon be outcompeted by new technological advancements, so a star
instead of becoming a cash cow, becomes a dog.
Strategic choices: Vertical integration, horizontal integration, market penetration, market
development, product development
Question marks.
Question marks are the brands that require much closer consideration. They hold low market
share in fast growing markets consuming large amount of cash and incurring losses. It has
potential to gain market share and become a star, which would later become cash cow. Question
marks do not always succeed and even after large amount of investments they struggle to gain
market share and eventually become dogs. Therefore, they require very close consideration to
decide if they are worth investing in or not. Strategic choices:
Market penetration, market development, product development, divestiture
Advantages and disadvantages
Benefits of the matrix:



Easy to perform;
Helps to understand the strategic positions of business portfolio;
It’s a good starting point for further more thorough analysis.
Growth-share analysis has been heavily criticized for its oversimplification and lack of useful
application. Following are the main limitations of the analysis:
Saranya PB | Assistant Professor | KVIMIV
Strategic Management Notes

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
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
Business can only be classified to four quadrants. It can be confusing to classify an SBU
that falls right in the middle.
It does not define what ‘market’ is. Businesses can be classified as cash cows, while they
are actually dogs, or vice versa.
Does not include other external factors that may change the situation completely.
Market share and industry growth are not the only factors of profitability. Besides, high
market share does not necessarily mean high profits.
It denies that synergies between different units exist. Dogs can be as important as cash
cows to businesses if it helps to achieve competitive advantage for the rest of the
company.
How to perform BCG matrix analysis?
Although BCG analysis has lost its importance due to many limitations, it can still be a useful
tool if performed by following these steps:





Step 1. Choose the unit
Step 2. Define the market
Step 3. Calculate relative market share
Step 4. Find out market growth rate
Step 5. Draw the circles on a matrix
Step 1. Choose the unit. BCG matrix can be used to analyze SBUs, separate brands, products or
a firm as a unit itself. Which unit will be chosen will have an impact on the whole analysis.
Therefore, it is essential to define the unit for which you’ll do the analysis.
Step 2. Define the market. Defining the market is one of the most important things to do in this
analysis. This is because incorrectly defined market may lead to poor classification. For example,
if we would do the analysis for the Daimler’s Mercedes-Benz car brand in the passenger vehicle
market it would end up as a dog (it holds less than 20% relative market share), but it would be a
cash cow in the luxury car market. It is important to clearly define the market to better understand
firm’s portfolio position.
Step 3. Calculate relative market share. Relative market share can be calculated in terms of
revenues or market share. It is calculated by dividing your own brand’s market share (revenues)
by the market share (or revenues) of your largest competitor in that industry. For example, if your
competitor’s market share in refrigerator’s industry was 25% and your firm’s brand market share
was 10% in the same year, your relative market share would be only 0.4. Relative market share is
given on x-axis. It’s top left corner is set at 1, midpoint at 0.5 and top right corner at 0 (see the
example
below
for
this).
Step 4. Find out market growth rate. The industry growth rate can be found in industry reports,
which are usually available online for free. It can also be calculated by looking at average
revenue growth of the leading industry firms. Market growth rate is measured in percentage
terms. The midpoint of the y-axis is usually set at 10% growth rate, but this can vary. Some
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Strategic Management Notes
industries grow for years but at average rate of 1 or 2% per year. Therefore, when doing the
analysis you should find out what growth rate is seen as significant (midpoint) to separate cash
cows from stars and question marks from dogs.
Step 5. Draw the circles on a matrix. After calculating all the measures, you should be able to
map your brands on the matrix. You should do this by drawing a circle for each brand. The size
of the circle should correspond to the proportion of business revenue generated by that brand.
Example
Corporate ‘A’ BCG matrix
Brands Revenues
% of corporate Largest competitor’s Your brand’s
Relative
revenues
market share
market share Market Share
Market
Growth
Rate
1
$500,000
54%
25%
25%
1
3%
2
$350,000
38%
30%
5%
0.17
12%
3
$50,000
6%
45%
30%
0.67
13%
4
$20,000
2%
10%
1%
0.1
15%
This example was created to show how to deal with a relative market share higher than 100% and
with negative market growth.
Corporate ‘B’ BCG matrix
Brands Revenues
1
$500,000
% of corporate Largest competitor’s Your brand’s
Relative
revenues
market share
market share Market Share
55%
15%
60%
1
Market
Growth
Rate
3%
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Strategic Management Notes
2
$350,000
31%
30%
5%
0.17
-15%
3
$50,000
10%
45%
30%
0.67
-4%
4
$20,000
4%
10%
1%
0.1
8%
The McKinsey 7S Framework
The 7S model can be used in a wide variety of situations where an alignment perspective is
useful, for example to help you:




Improve the performance of a company.
Examine the likely effects of future changes within a company.
Align departments and processes during a merger or acquisition.
Determine how best to implement a proposed strategy.
The McKinsey 7S model can be applied to elements of a team or a project as well. The alignment
issues apply, regardless of how you decide to define the scope of the areas you study.
Saranya PB | Assistant Professor | KVIMIV
Strategic Management Notes
The Seven Elements

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Strategy
Structure
Systems
Shared Values
Skills
Style
Staff

Strategy: the plan devised to maintain and build competitive advantage over the
competition.
Structure: the way the organization is structured and who reports to whom.
Systems: the daily activities and procedures that staff members engage in to get the job
done.
Shared Values: called "superordinate goals" when the model was first developed, these
are the core values of the company that are evidenced in the corporate culture and the
general work ethic.
Style: the style of leadership adopted.
Staff: the employees and their general capabilities.
Skills: the actual skills and competencies of the employees working for the company.

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


TOWS Matrix
The WT Strategy (mini-mini).
In general, the aim of the WT strategy is to minimize both weaknesses and threats. A company
faced with external threats and internal weaknesses may indeed be in a precarious position. In
fact, such a firm may have to fight for its survival or may even have to choose liquidation. But
there are, of course, other choices. For example, such a firm may prefer a merger, or may cut
back its operations, with the intent of either overcoming the weaknesses or hoping that the threat
will diminish over time (too often ishfulthinking). Whatever strategy is selected, the WT position
is one that any firm will try to avoid.
Saranya PB | Assistant Professor | KVIMIV
Strategic Management Notes
The WO Strategy (mini--maxi).
The second strategy attempts to minimize the weaknesses and to maximize tile opportunities. A
company may identify opportunities ill the external environment but have organizational
weaknesses which prevent the firm from taking advantage of market demands. For example, an
auto accessory company with a great demand for electronic devices to control the amount and
timing of fuel injection in a combustion engine, may lack the technology required for producing
these microprocessors. One possible strategy would be to acquire this technology through
cooperation with a firm having competency in this field. An alternative tactic would be to hire
and train people with the required technical capabilities. Of course, the firm also has the choice of
doing nothing, thus leaving the opportunity to competitors.
The ST Strategy (maxi-mini)
This strategy is based on the strengths of the organization that can deal with threats in the
environment. The aim is to maximize the former while minimizing the latter. This, however, does
not mean that a strong company can meet threats in the external environment head-on, as General
Motors (GM) realized. In the 1960s, mighty GM recognized the potential threat posed by Ralph
Nader, who exposed the safety hazards of the Corvair automobile. As will be remembered, the
direct confrontation with Mr. Nader caused GM more problems than expected. In retrospect, the
initial GM response from Strength was probably inappropriate. The lesson to be learned is that
strengths must often be used with great restraint and discretion.
The SO Strategy (maxi-maxi).
Any company would like to be in a position where it can maximize both, strengths and
opportunities. Such an enterprise can lead from strengths, utilizing resources to take advantage of
the market for its products and services. For example, Mercedes Benz, with the technical knowhow and the quality image, can take advantage of the external demand for luxury cars by an
increasingly affluent public. Successful enterprises, even if they temporarily use one of the three
previously mentioned strategies, will attempt to get into a situation where they can work from
strengths to take advantage of opportunities. If they have weaknesses, they will strive to
overcome them, making them strengths. If they face threats, they will cope with them so that they
can focus on opportunities.
GAP ANALYSIS
In a business or a company GAP analysis compares the actual performance with the potential
performance. Sometimes it is referred as need-gap analysis, need analysis or need assessment. A
company will determine the factors that define its current state, list down the factors needed to
reach its target state and then plan on how to fill the gap between the two states. This is
important because it helps to identify if a company is performing to its potential and if not
performing, why it is not performing to its potential. This helps to identify flaws in resource
allocation, planning, production etc.
SWOT Analysis vs GAP Analysis
SWOT analysis and GAP analysis can be used in different context and they might give a different
meaning in those contexts. Below is a breakdown of SWOT analysis vs GAP analysis in the
context of a company.

SWOT analysis evaluates a company against its peers, while GAP analysis is internal
evaluation to identify performance deficiencies.
Saranya PB | Assistant Professor | KVIMIV
Strategic Management Notes
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
SWOT analysis is done for long term planning while GAP analysis is often done to reach
short term goals.
SWOT analysis is often a comprehensive study evaluating many aspects and many
competitors. GAP analysis can be very simple targeted towards fine tuning one process.
The Strategic Position and Action Evaluation (SPACE) Matrix
The Strategic Position and Action Evaluation (SPACE) Matrix is another important tool of
formulation framework. It explains that what is our strategic position and what possible action
can be taken. It is prepared on graph.
It contains four-quadrant named aggressive, conservative, defensive, or competitive strategies.
The axes of the SPACE Matrix represent two internal dimensions
 financial strength [FS] and
 competitive advantage [CA]) a
And two external dimensions
 environmental stability [ES] and
 industry strength [IS]
These four factors are the most important determinants of an organization's overall strategic
position.
Steps for the preparation of SPACE Matrix
The steps required to develop a SPACE Matrix are as follows:
1. Select a set of variables to relating to financial strength, competitive advantage, environmental
stability, and industry strength.
2. Assign a numerical value ranging from +1 (worst) to +6 (best) to each of the variables that
make up the financial strength and industry strength dimensions. Assign a numerical value
ranging from - 1 (best) to -6 (worst) to each of the variables that make up the environmental
stability and competitive advantage dimensions.
3. Compute an average score and dividing by the number of variables
4. Plot the average scores in the SPACE Matrix.
5. Add the two scores on the x-axis and plot the resultant point on X. Add the two scores on the
y-axis and plot the resultant point on Y. Plot the intersection of the new xy point.
6. Draw a directional vector from the origin of the SPACE Matrix through the new intersection
point.
Saranya PB | Assistant Professor | KVIMIV
Strategic Management Notes
After the selection of variables the rating is assigned to each. After the addition of these variables
taking the average.
For example financial strength is explain below
Financial Strength (FS) Rating
High Return on investment
3
Large amount of capital
2
Consistently increasing revenue
4
Working capital condition
1
Financial strength average is
(3+2+4+1)/4 = 2.5
The industry strength is explained as follows
Industry Strength (IS) Rating
Demand and supply factors
5
Saranya PB | Assistant Professor | KVIMIV
Strategic Management Notes
Resource utilization
3
Profit potential
3
Technological know-how
6
Ease of entry into market
2
Industry strength average is
(5+3+3+6+2)/5 = 3.8.
This vector reveals the type of strategies recommended for the organization: aggressive,
competitive, defensive, or conservative.
ANALYSIS & CHOICE
Strategic analysis and choice are two important components of the implementation stage of the
strategic management plan. These two components are crucial links in the strategic management
implementation procedure. Strategic analysis involves a number of steps.
Strategic implementation is the penultimate stage of strategic management and strategic analysis
and choice are two significant constituents of that process. The strategy of a company refers to its
all-inclusive plan or program for the purpose of accomplishing its aims and targets in the long
run.
Different types of strategies include business unit strategy, corporate strategy, operational
strategy and others. Strategic analysis implies the examination of the present condition of a
business and consequently developing an appropriate business strategy.
Strategic analysis carries higher importance with regards to conglomerates that offer a wide range
of diversified products. Strategic choice refers to the selection of the appropriate business
strategy.
At the time of performing strategic analysis and arriving at strategic choices, long term goals are
fixed and different types of strategies are chosen that are most appropriate for the mission of the
company and the variable conditions.
Strategic analysis and choice of strategies are done with the help of a number of techniques. If the
appropriate strategy is chosen, a company would become more efficient to establish sustainability
in competitive advantage and maximize firm valuation.
Factors Taken into Consideration for Strategic Analysis and Choice
Key Internal Factors
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Marketing
Management
Operations/Production
Accounting/Finance
Computer Information Systems
Research and Development
Saranya PB | Assistant Professor | KVIMIV
Strategic Management Notes
Key External Factors
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Political/Governmental/Legal
Economy
Technological
Social/Demographic/Cultural/Environmental
Competitive
Techniques Used in Strategic Analysis
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Five Forces Analysis
PEST Analysis (Political, Economic, Social and Technological Analysis)
BCG Matrix
GE 9 Cell
Space Matrix
SWOT Analysis (Strength, Weaknesses, Opportunities, and Threats Analysis)
Characteristics of Strategic Analysis and Choice
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Producing strategy options
Establishment of long term goals
Choosing strategies to act on
Selecting the best option and accomplishing mission and goals
Stages of Corporate Development Restructuring & Reengineering
Restructuring
Restructuring is the corporate management term for the act of partially dismantling and
reorganizing a company for the purpose of making it more efficient and therefore more profitable.
It generally involves selling off portions of the company and making severe staff
reductions.Restructuring is often done as part of a bankruptcy or of a takeover by another firm,
particularly a leveraged buyout by a private equity firm
Characteristics
The selling of portions of the company, such as a division that is no longer profitable or which
has distracted management from its core business, can greatly improve the company's balance
sheet. Staff reductions are often accomplished partly through the selling or closing of unprofitable
portions of the company and partly by consolidating or outsourcing parts of the company that
perform redundant functions (such as payroll, human resources, and training) left over from old
acquisitions that were never fully integrated into the parent organization.
Other characteristics of restructuring can include:
• Changes in corporate management (usually with golden parachutes)
• Sale of underutilized assets, such as patents or brands
Saranya PB | Assistant Professor | KVIMIV
Strategic Management Notes
• Outsourcing of operations such as payroll and technical support to a more efficient third
party
• Moving of operations such as manufacturing to lower-cost locations
• Reorganization of functions such as sales, marketing, and distribution
• Renegotiation of labor contracts to reduce overhead
• Refinancing of corporate debt to reduce interest payments
• A major public relations campaign to reposition the company with consumers
Results
A company that has been restructured effectively will generally be leaner, more efficient, better
organized, and better focused on its core business. If the restructured company was a leverage
acquisition, the parent company will likely resell it at a profit when the restructuring has proven
successful.
Firms often employ restructuring when various ratios appear out of line with competitors as
determined through benchmarking exercises. Benchmarking simply involves comparing a firm
against the best firms in the industry on a wide variety of performance-related criteria. Some
benchmarking ratios commonly used in rationalizing the need for restructuring are headcount-tosales-volume, or corporate-staff-to-operating employees, or span-of-control figures.
The primary benefit sought from restructuring is cost reduction. For some highly bureaucratic
firms, restructuring can actually rescue the firm from global competition and demise.
The downside of restructuring can be reduced employee commitment, creativity, and innovation
that accompany the uncertainty and trauma associated with pending and actual employee layoffs.
Another downside of restructuring is that many people today do not aspire to become managers,
and many present-day managers are trying to get off the management track
Reengineering
Reengineering (or re-engineering) is the radical redesign of an organization's processes,
especially its business processes. Rather than organizing a firm into functional specialties (like
production, accounting, marketing, etc.) and looking at the tasks that each function performs, we
should, according to the reengineering theory, be looking at complete processes from materials
acquisition, to production, to marketing and distribution. The firm should be re-engineered into a
series of processes.
Re-engineering is the basis for many recent developments in management. The cross-functional
team, for example, has become popular because of the desire to re-engineer separate functional
tasks into complete cross-functional processes. Also, many recent management information
systems developments aim to integrate a wide number of business functions. Enterprise resource
planning, supply chain management, knowledge management systems, groupware and
collaborative systems, Human Resource Management Systems and customer relationship
management systems all owe a debt to re-engineering theory.
Saranya PB | Assistant Professor | KVIMIV
Strategic Management Notes
Creating a cost advantage based on the value chain:
A firm may create a cost advantage:
• By reducing the cost of individual value chain activities, or
• By reconfiguring the value chain.
Note that a cost advantage can be created by reducing the costs of the primary activities, but also
by reducing the costs of the support activities. Recently there have been many companies that
achieved a cost advantage by the clever use of Information Technology.
Once the value chain has been defined, a cost analysis can be performed by assigning costs to the
value chain activities.
Porter identified 10 cost drivers related to value chain activities:
1. Economies of scale.
2. Learning.
3. Capacity utilization.
4. Linkages among activities.
5. Interrelationships among business units.
6. Degree of vertical integration.
7. Timing of market entry.
8. Firm's policy of cost or differentiation
Saranya PB | Assistant Professor | KVIMIV