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BA 7302- STRATEGIC MANAGEMENT
UNIT – 3: STRATEGIES
THE GENERIC STRATEGIC ALTERNATIVE
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Corporate-level strategies involve top management and address issues of concern to the
entire organization.
Business-level strategies deal with major business units or divisions of the corporate
portfolio. Business-level strategies are generally developed by upper and middle-level
managers and are intended to help the organization achieve its corporate strategies and
tactics to beat the competition.
Functional strategies address problems commonly faced by lower level managers and
deal with strategies for the major organizational functions (e.g., marketing, finance, and
production) considered relevant for achieving the business strategies and supporting the
corporate-level strategy
Corporate Level strategies (Corporate strategies)
Corporate strategies are basically about the choice of direction that the firm adopts in
order to achieve its objectives. They are basically about decision related to;
 allocating resources among the different businesses of a firm
 transferring resources from one set of businesses to others, and
 managing and nurturing a portfolio of businesses revolve
These decisions are taken so that the overall corporate objectives are achieved. Corporate
strategies help to exercise the choice of the direction that an organisation adopts.
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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Strategic alternatives (Grand strategies)
A corporation’s directional strategy is composed of three general orientations and which
are around the question of whether to continue or change the business or improve the efficiency
and effectiveness with which the firm achieves its corporate objectives.
There are four grand strategic alternatives (According to Glueck)
1. Expansion/ Growth strategies
2. Stability strategies
3. Retrenchment strategies and
4. Combination (of these three) strategies
These four grand strategic alternatives are further divided as follows;
1. Expansion/ Growth strategies/ Intensification strategies
a) Expansion through concentration
b) Expansion through integration
c) Expansion through diversification
d) Expansion through co-operation
e) Expansion through inter-nationalisation
f) Expansion through digitalisation
2. Stability strategies
a) No change strategies
b) Pause/proceed with caution strategies
c) Profit strategies
d) Endgame
e) Harvest
3. Retrenchment strategies and
a) Turnaround strategies
b) Disinvestment strategies (Sell-out)
c) Liquidation strategies (Bankruptcy)
4. Combination (of these three) strategies/Mixed/ Hybrid strategies
a) Simultaneous combination
b) Sequential combination
c) Combination of simultaneous and sequential strategies
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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1. Expansion Strategies (Growth/ Intensification strategies)
An organisation aims at high growth by substantially broadening the scope of one or more
of its businesses in terms of their respective customer groups, customer functions and alternative
technologies in order to improve its overall performance.
Ex.: A chocolate manufacturer expands its customer group to include middle-aged and old
persons to its existing customers comprising children and adolescents.
2. Stability strategies
It involves continuing the current activities without any significant change in direction. An
organisation attempts an incremental improvement of its performance by marginally changing
one or more of its businesses in terms of their respective customers group, customer functions
and alternative technologies.
Ex.: A Steel company modernizes its plant to improve efficiency and productivity
3. Retrenchment strategies
The organisation contraction (reducing) of its activities through a substantial reduction or
elimination of the scope of one or more of its businesses in terms of their respective customer
groups, customer functions and alternative technologies in order to improve its overall
performance.
Retrenchment involves total or partial withdrawal from a customer group, customer function
or use of an alternative technology.
Ex.: A corporate hospital decides to focus only on specialty treatment by reducing its
commitment to general cases.
4. Combination strategies (Mixed/ Hybrid strategies)
Combination strategies are a mixture of stability, expansion or retrenchment strategies,
applied either simultaneously (at the same time in different businesses) or sequentially (at
different times in the same business).
Multi-business organisations as most large and medium Indian companies are now have to
follow multiple strategies either sequentially or simultaneously.
Ex.: ITC Ltd. is a diversified conglomerate having varied corporate portfolio consisting of
FMCG, hotels, paper boards and packaging, agribusiness and IT.
Sub – Strategies of Corporate/Grand strategies
1. Expansion Strategies (Growth/ Intensification/Focus/ specialization strategies)
a) Concentration strategies
It involves converging (join) resources in one or more of a firm’s businesses in terms of their
respective customer needs, customer functions, or alternative technologies. In which
concentration of resources on those product lines, which have growth potential. In other words
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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the ‘stick to the knitting’ strategies, i.e., A firm that is familiar with an industry would
naturally like to invest more in known businesses rather than in unknown ones.
Ex.: Bajaj Auto has consistently concentrated on two and three wheelers since the last
several years as it finds it to be a high growth and attractive industry to invest it.
b) Integration strategies
Integration means combining activities related to the present activity of a firm. A company
attempts to widen the scope of its business definition in such a manner that it results in
serving the same set of customers.
i. Horizontal Integration – When an organisation takes up the same type of products at the
same level of production or marketing process. It expands geographically by buying a
competitor’s business, to increase the market share. It does not take the organisation
beyond its existing business and still remains in the same industry, serving the same
markets through existing products. A firm achieves horizontal growth by expanding its
operation into other geographical locations and/or by increasing the range of products
and services offered same type of customers.
ii. Vertical Integration – Vertical integration occurs when a company produces its own
inputs or disposes of its own outputs. It may be backward or forward integration.
Backward integration refers to performing a function previously provided by a supplier.
Forward integration means performing a function previously provided by a retailer. That
is taking over a functions previously provided by a supplier or by a distributor/retailer.
Ex.: 1. Backward Vertical Integration (BVI) – TV manufacturer started to making its
own TV picture tube.
Ex.: 2. Forward Vertical Integration (FVI) – A steel manufacturer can take to making
steel utensils (vessels).
c) Diversification strategies
A substantial (considerable) changes in business definition in terms of customer functions,
customer groups or alternative technologies of one or more of a firm’s businesses. It involves a
simultaneous departure from current business, familiar products and familiar markets.
i. Concentric (Related) Diversification – The firm enters into a new business activity,
which is linked to a company’s existing business activity by commonality between one or
more components of each activity’s value chain.
The linkages are based on manufacturing, marketing and technological
commonalities. The risk is considered to be less when the diversification is related to the
current business.
ii. Conglomerate (unrelated diversification) – A firm enters into a new business area that
has no obvious connection with any of the existing business. The new business/ product
are unrelated to process/ technology/functions of existing business. In simple words,
diversifying into an industry unrelated to its current one.
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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d) Internationalization strategies
In which, the organisations market their products or services beyond the domestic or
national market. For doing so, an organisation would have to assess the international
environment, evaluate its own capabilities and devise strategies to enter foreign market.
e) Co-operative strategies
Corporate strategies could take into account the possibility of mutual co-operation with
competitors, at the same time competing with them so that the market potential could expand.
The term co-operation’ expresses the idea of simultaneous competition and co-operation among
rival firms for mutual benefit.
Types of Co-operative strategies
i. Mergers and acquisitions (or takeovers)
ii. Joint ventures – Independent firm created by at least two other firms
iii. Strategic alliances (Partnership b/w firms whereby their resources, capabilities and core
competencies are combined to pursue mutual interest to develop).
f) Digitalisation Strategies
Organisations have adopted computerization to a considerable degree and computers have
become an integral part of the organisation and inevitable part of its information system.
Organisations using Computerization, Electronisation, Digitisation, networking and
telecommunication components are termed as digitalized enterprises and the process are called
digitalisation.
2. Stability strategies
a) No change strategies – With a predictable and certain external environment and stable
organisational environment, an organisation decides to continue with its present strategy.
b) Pause/proceed with caution strategies – It is a tactics used by organisations that wish to
test the ground (market) before moving ahead with a full-fledged corporate strategy. (To
understand the market reaction, moving with few sample products). It is a deliberate and
conscious attempt to make incremental improvement till the environment changes.
c) Profit strategies – An organisation may assess the situation and assume that its problems
are short-lived and will adopt some measures (Cost cutting, disinvestment, raise prices,
increase productivity, etc.,) till then the organisation regain its profitability called profit
strategies.
d) Endgame – This when an organisation decides to remain in a sinking business in order to
reap benefits from the retirement of competition from the field.
e) Harvest – The organisation decides to sell (harvest) it’s older technology and go with the
new one.
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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3. Retrenchment strategies and
a) Turnaround strategies – improvement of operational efficiency and is probably most
appropriate when a company’s problems are constant but not yet critical. Here emphasis
is laid on improving internal efficiency. (Ex. The existing management team withdraws
temporarily and specialists are employed to do the job).
b) Disinvestment strategies (Sell-out/Divestiture/cutback) – The sale or liquidation of a
portion of a business, or major division or SUB.
c) Liquidation strategies (Bankruptcy) – Closing down an organisation and selling its
assets.
4. Combination (of these three) strategies/Mixed/ Hybrid strategies
i. Simultaneous combination – Applied a mixture of stability, expansion or retrenchment
strategies at the same time in different businesses.
ii. Sequential combination - Applied a mixture of stability, expansion or retrenchment
strategies at different times in the same business.
iii. Combination of simultaneous and sequential strategies
BUSINESS STRATEGIES/ BUSINESS-LEVEL STRATEGIES
Business strategies are the course of action adopted by an organisation for each of
its business separately, to serve identified customer groups and provide value to the
customer by satisfaction of their needs. In the process, the organisation uses its
competencies to gain, sustain and enhance its strategic or competitive advantage.
Business strategies focus on improving the competitive position of a company’s
products/ services within the specific industry, which the firm serves.
Dere. F. Abell’s three dimensions on which business strategies to be concentrated
a. Customer needs (What is to be satisfied)
b. Customer groups (Segment to be satisfied)
c. Distinctive competencies (How the needs are satisfied).
Competitive scope: The breadth of an organisation’s target within the industry. By the
breadth of an organisation’s target is meant the range of products, distribution channels,
types of buyers, the geographical areas served and the array of related industries in which
the firm would also compete.
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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Three generic Business strategies – Classification of Business strategies/ Competitive
strategies
1. Cost Leadership strategy (Low cost/ broad target)
2. Differentiation (Differentiation/ broad target)
3. Focus (Lower cost or differentiation/ narrow target)
1. Cost Leadership strategy (Low cost/ broad target)
In which a large business produces at the lowest cost possible, no frills (additions)
products and services for a large market with a relatively elastic demand. Organisations,
which adopt cost leadership strategy, try to produce goods/services at a lower cost than
other competitors and try to outperform others.
Competitive Scope
Porter’s generic business strategies
Broad
target
Cost Leadership
Narrow
target
Focused cost
leadership
Low cost
products/services
Differentiation
Focused
differentiation
Differentiated
products/ services
Competitive Advantage
Features
a. The cost leader charge lower price than immediate competitors and achieve higher
profit than competitors.
b. When competition increases with price reduction, cost leader maintain the
competitive forces and make profit.
c. Lower level of product differentiation
d. Cost leader ignores market segments and aims at limited amount of market
segmentation
e. Low cost strategy implies tight production controls and rigorous use of budgets to
control production process, etc.
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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Advantages
a. Low cost serves as a barrier to entry for new entrants and they are not able to
match the leader’s costs/price.
b. Arrival of substitutes can be managed by price reduction
c. Intense rivalry is avoided due to cost advantage
d. Powerful buyers and powerful suppliers have less influences due to large
purchases by cost leaders.
Disadvantages
a. Competitors may imitate this cost reduction strategy
b. Arrival of new low cost technology may be a threat
c. Obsolescence of technology may be a risk to cost leaders.
2. Differentiation (Differentiation/ broad target)
Wherein a larger business produces and markets to the entire industry products that
can be readily distinguished from those of competitors.
Companies following this differentiation strategy create products which are perceived
as unique by customers, and they charged premium price, which is above industry
average.
Features
a. Firms which adopt differentiation strategy, try to differentiate itself along as many
dimensions as possible
b. High level of product differentiation is pursued as a competitive advantage and it
is achieved in terms of quality, innovation and customer responsiveness.
Advantages
a. Differentiation develops brand loyalty and its safeguards from competitors
b. Powerful buyers and powerful sellers are less threat due to offering unique product
c. Difficult to imitate by competitors
d. Differentiation and brand loyalty also serve as an entry barrier.
Disadvantages
a. Need to spend much for R&D
b. Obsolescence on technology or model leads to loss
c. This type of customers switching easily
3. Focus strategy
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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This strategy tries to serve the needs of a limited customer groups or segment. A
focused company pays attention to serve a particular market niche, which may be defined
geographically, by type of customer, or by segment of product line.
Focus business strategies essentially rely on either cost leadership or differentiation,
but cater to a narrow segment of the total market. Therefore, focus strategies are niche
strategies.
The most commonly used bases for identifying customer groups are the demographic
characteristics (age, gender, income, occupation, etc.), geographical segmentation (rural,
urban, South India/ North India) or life style (traditional/ modern).
Features
i. A focus firm may adopt low cost or differentiation approach
ii. If adopts low cost approach, concentrates on small volume
iii. If adopts differentiation approach, concentrates on few segments
iv. It will serve niche segments instead of the whole market
v. Focusing the market where the cost leaders and differentiators are operating
vi. There is some type of uniqueness in the segment based on geographical,
demographic or life style
vii. There are specialized requirement for the product
viii. The major players in the industry are not interested in the niche
Advantages
a. A focused company is safeguarded from competitors till rivals copy the product
b. Customer loyalty is developed in the market niche
c. It allows the company to stay close to the customer and responds to changing needs
Disadvantages
a. Due to small volume, the production costs often exceeds
b. Powerful suppliers are threat to a focused company
c. Once focused on narrow market, it is difficult to move to next segment
d. Niches are often transient (temporary)
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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STRATEGY IN THE GLOBAL ENVIRONMENT
In which, the organisations market their products or services beyond the domestic or
national market. For doing so, an organisation would have to assess the international
environment, evaluate its own capabilities and devise strategies to enter foreign market.
Distinctive competencies
It refers to a set of unique strengths, which enable a company to attain superior quality,
efficiency, innovation and customer responsiveness in the overseas market. Those distinctive
competencies enable a company to lower the costs of production or to differentiation and go for
premium pricing.
A specific ability is possessed by a particular organisation exclusively or relatively in
large measure, it is called a distinctive competence.
Competitive pressures
Companies, which perform global business operations, are expected to two types
of competitive pressures:
a. Pressure for cost reduction – Demand on a firm to minimise its unit costs. By
doing so, the firm tries to derive full benefits from economies of scale and location
economies.
b. Pressure for local responsiveness – Companies to come-out with differentiated
products reflecting the buyer’s tastes and preferences.
International strategies/ Strategy in Global environment
According to Bartlett and Ghoshal, there are four types of International strategies, such as:
1. International strategy
3. Global strategy
2. Multi-domestic strategy
4. Transnational strategy
The suitability of the above strategy is determined by the extent of pressures on cost
reduction and local responsiveness.
1. International strategy
Transferring products and services to foreign markets, where those products and services are
not available. In this strategy, the international firms, by maintaining a tight control over its
overseas operations, offers standardized products & services in different countries, with little
or no differences.
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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2. Multi-domestic strategy
Firms following this strategy, customize their products and services according to the local
conditions operating in the different countries. It leads to a high-cost structure with more
differentiations matching with local market preferences (the country at which it operates).
High – Centralized
production
4 Strategies for Global competition
Global Strategy
Low Decentralised
Cost
pressure
Transnational
Strategy
Centralized production
Low cost – Standardized
product
(No differentiation)
Centralized production
Low cost – Customized
product (Differentiation)
International
Strategy
Multi-domestic
strategy
Decentralized production
High cost – Standardized
product
(No differentiation)
Decentralized production
High cost – Customized
product (Differentiation)
Low – Standardized
product
Pressure of Local
Responsiveness
High – Customized
product
3. Global strategy
Global firms focusing on low-cost structure and concentrating the production of standardized
products and services at a few favourable locations around the world. These products and
services are offered in an undifferentiated manner in all countries the global firm operates in ,
usually at competitive prices.
4. Transnational strategy
Firm adopts this strategy, follows a combined approach of low-cost and high local
responsiveness (Offering differentiated products as per local taste & preferences) of their
products and services. Bartlett and Ghoshal opine that this is possibly the only viable strategy in
a competitive world.
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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International Entry modes
When a firm adopts one or more of the international strategies, should decide about the
entry mode. Mode of entry means the manner in which the firm would commence its
international operations.
1. Export Entry modes
Under these modes, the firm produces in the home country and markets in the overseas
markets.
a. Direct exports – Do not involve home-country intermediaries and marketing is done
either through a direct agent/distributor or through a direct branch/subsidiary in the
overseas market.
b. Indirect exports – Involve intermediaries in the home country, who are responsible for
exporting the firm’s products.
2. Contractual Entry modes
These modes are non-equity associations between an international company and a company
or any other legal entity in the overseas markets.
a. Licensing – It is an arrangement where the international company transfers knowledge,
technology, patent, etc. for a limited period of time, to an overseas entity, in return for
some form of payment, usually a royalty payment.
b. Franchising – It involves the right to use a business format, usually a brand name, in the
overseas market, in return for the franchiser receiving some form of payment.
c. Other forms – Technical agreements (for technology transfers), service contracts (for
technical support or expertise provision), contract manufacturing, production sharing,
turnkey operations, build-operate-transfer (BOT) arrangements, etc.
3. Investment entry modes
It involves ownership of production units in the overseas market, based on some form of
equity investment or direct foreign investment.
a. Joint venture and Strategic alliances – It involves a co-operative partnership between
two or more firms, with financial interests as the basis of co-operation.
b. Independent venture or wholly subsidiaries – In which the parent international
company holds 100% equity and is in full control.
Disadvantages of international strategies
1. Higher risk – It is too risky compared to a firm operates in domestically. These risks are
related to uncertainty in the economic and political environment of the host countries.
2. Difficulty in managing cultural diversity – International firms face challenges of
managing cultural diversity within (through employees) and outside (through customers/
intermediaries).
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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3. High bureaucratic costs – International operations need co-ordination between the home
office and the foreign operations and subsidiaries. These result in higher bureaucratic costs
of coordination and communication.
4. Higher distribution costs – Firms operating internationally using home advantages, will
not setup manufacturing facilities abroad, and then it increases distribution costs.
5. Trade barriers – Possibility of trade barriers in the form of tariff, pricing restrictions,
different standards or local content requirements.
STRATEGIC ALLIANCE
According to Mehta and Samanta, Strategic alliances are, ‘Co-operation between two or
more independent firms involving, shared control and continuing contributions by all
partners for mutual benefit’.
Three necessary and characteristics
1. Two or more firms joined together to pursue a set of agreed goals, but remain independent
2. The partner firms share the benefits of the alliance and control over the performance of
assigned tasks
3. The partner firms contribute on a continuing basis, in one or more key strategic areas, such
as technology, product and so forth.
Reasons for strategic alliances
The primary reason for strategic alliances is to enhance their organisational capabilities
and thereby gain competitive or strategic advantage and to gain more profit by using the latest
technology and making optimum utilisation of resources.
Walter, Peters and Dess list several reasons as follows:
1. Entering new markets
A company has a successful product may wish to look for new markets and doing so on
one’s own capabilities may be difficult. It will be better to enter into a partnership with a local
firm which understands the markets better.
2. Reducing manufacturing costs
Strategic alliances are used to pool resources to gain economies of scale and make better
utilisation of resources in order to reduce manufacturing costs.
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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3. Developing and diffusing (spread) technology
Strategic alliances are used to develop technological capabilities and make use of technical
expertise of two or more firms. It accelerate product introduction and overcome legal and
trade barriers.
4. To bring complementary skills
5. To reduce political risks
6. To achieve competitive advantage
7. To set technological standards.
Pitfalls in Strategic alliances
1. Lack of trust, misunderstanding and commitment among partners
2. Conflicting goals and interests
3. Inadequate preparation for entering into partnership
4. Hasty implementation of plans
5. Focusing more on mutual benefits
6. Dynamic nature of external conditions
Examples
a. Blue star has entered into a strategic alliance with the Italian company ISA, for providing
super market and food refrigeration solutions.
b. IDBI and Andhra bank, aim to increase their automate teller machine reach. Following this
alliance, the customers of both IDBI and Andhra bank are able to use the services currently.
c. SBI and Bajaj Tempo manufacture tied up for promoting agricultural mechanization and
Agricultural loans.
BUILDING AND RESTRUCTURING THE CORPORATION
There are various methods for the firms to enter into a new business and restructure the existing
one, such as;
1. Start-up route
In this route, the business is started from beginning by building facilities, purchasing
equipments, recruiting employees, opening up distribution outlet and so on.
Problems in this method
 Chance of delay in market entry
 Entry barriers of product differentiation, investment, set-up intermediaries are difficult
 Cost overruns may affect competitive advantage
 Take several years to generate profits
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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Advantages
 Firm can control final quality of the product
 Can reduce the cost of production and price in future
 Chance to get Govt. concessions
2. Acquisition
Acquisition is a form of merger whereby one company purchases another, often with a
combination of cash and stock. It involves purchasing an established company, complete with all
facilities, equipment and personnel. It facilitates quick expansion.
3. Joint venture
It is a long term contractual agreement between two or more parties, to undertake mutually
beneficial economic activities, exercise joint control and contribute equity and share in the
profits or losses of the entity.
4. Merger
It involves fusion (combine) of two or more companies into one company. In merger, two
different firms from the same group combine to form a new company or two different firms from
totally outside come together to form a new entity. In which a firm combine with another firm
through an exchange of stock.
5. Takeover
A portion or a whole firm is acquired by another firm so that the acquiring firm exercises
control over the affairs of the taken over firm. If the management accepts the takeover is
considered to be a smooth takeover and if the management resists it is called hostile takeover.
RESTRUCTURING
It involves strategies for reducing the scope of the firm by exiting from unprofitable
business. Restructuring also called downsizing, rightsizing or de-layering involves reducing the
size of the firm in terms of number of employees, number of divisions or units and number of
hierarchical levels in the firm’s organisational structure.
In simple words, “Diversified firms divested (disassociated) to concentrate on core
businesses”. It involves an organisation refocusing on its primary business in order to reduce the
organizations’ risk profile.
Reasons for restructuring
1. Declining performance of over diversified firms due to over cost and inefficiency
2. The diversified firms faces hyper competition from new firms on core business area, so the
forced to concentrate on core area than diversified one
3. The innovation in management processes and strategy has reduced.
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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Leveraged Buyouts (LOB)
It refers to a restructuring action, whereby the management of the company and/or an
external party buys all of the assets of the business, largely financed with debt, and thus makes
the company private.
STRATEGIC ANALYSIS AND CHOICE
Strategic Choice
The decision to select from among the grand strategies considered the strategy which will
best meet the enterprise’s objectives.
This decision involves, focusing on a few alternatives, considering the selection factors,
evaluating the alternatives against these criteria and making actual choice.
Process of Strategic choice
Objective factors
1 . Focusing on
strate gic
alte rnative s
2 . Analysing the
strate gic
alte rnative s by
conside ring two
factors
3. Evaluating
strategic
alternatives
Subje ctive
factors
4. Strategic
choice/
Choosing from
among the
Strategic
alternatives
Process of Strategic choice
STEP -1: Focusing on Strategic alternatives
The aim of focusing on a few strategic alternatives is to narrow down the choice to a
manageable number of feasible strategies. A decision maker would, in practice, limit the choice
to a few alternatives which are relevant and feasible. This can be done through GAP analysis.
Focusing on alternatives could be done by visualizing the future state and working
backwards. By analysing the difference between the projected and desired performance, a gap
could be found.
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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Gap analysis for focussing on Strategic alternatives
Desired Performance
Performance Gap
Performance
Present
Performance
Time
T1
T2
The above diagram shows how gap analysis works. How wide or narrow the gap is, its
importance and the possibility of it being reduced, influence the focus on alternatives.
 Where the gap is narrow, stability strategies would be a feasible alternative
 If the gap is large, due to expected environmental opportunities, expansion strategies are
more likely.
 If it is large, due to expected bad performance, retrenchment strategies may be more
suitable.
 Where multiple reasons are responsible for the gap, combination strategies are likely.
STEP -2: Analysing the strategic alternatives
Narrowing down the strategic choice should lead to a few feasible alternatives. These
alternatives have to be subjected to a thorough analysis on the basis of selection factors.
The selection factors are broadly divided into two groups: The objective and the subjective
factors.
Objective factors are based on analytical techniques and data used to facilitate a strategic
choice. One of the examples of objective factor is Market share, expressed as a percentage of the
total market share of a company in an industry.
Subjective factors are based on one’s personal judgement, collective or descriptive factors.
An example of a subjective factor is the perception of the Top management people regarding the
prospects of the business in the next 2-3 years. The alternatives that are generated in the first step
are analysed on the basis of these selection factors.
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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I. Tools and techniques for strategic analysis (Objective factors)
There are many tools and techniques available to perform strategic analysis. It is done at
two levels. Corporate level strategic analysis focuses on techniques for analysing businesses
under the same corporate umbrella, which is done as Corporate Portfolio analysis/ Portfolio
analysis (Based on objective factors).
Where as, Business level strategic analysis focuses on individual business from the
perspective of the industry to which each of those businesses belong (Based on Subjective
factors).
A. Corporate portfolio analysis (Portfolio analysis)
It is a set of techniques that help strategists in taking strategic decisions with regards to
allocation of resources among multi-business firms under one corporate umbrella. (For
example; A diversified company may decide to divert resources from its most profitable
business to more prospective one to optimize its resources.
A business portfolio is the collection of Strategic Business Units (SBUs) that makes up a
corporation.
The aim of Portfolio analysis is
i. Analyse its current business portfolio and decide which SBUs should receive more or less
investment
ii. Develop growth strategies for adding new products and business to the portfolio
iii. Decide which businesses or products should no longer be retained.
There are a number of techniques are available, such as,
1. Boston Consulting Group (BCG) matrix or Product portfolio
2. General Electric’s Nine cell
3. Corporate parenting analysis
B. Other analysis
4. SWOT analysis
5. Industry analysis
6. PLC analysis
7. Environmental Threat and Opportunity Profile (ETOP)
8. Organisational Capability Profile (OCP)
9. Strategic Advantage Profile (SAP)
10. Mc Kinsey’s 7s Framework
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A. Corporate portfolio analysis (Portfolio analysis)
1. BCG Growth-Share Matrix
Companies that are large enough to be organized into strategic business units face the challenge
of allocating resources among those units. In the early 1970's the Boston Consulting Group
developed a model for managing a portfolio of different business units (or major product lines).
The BCG growth-share matrix displays the various business units on a graph of the market
growth rate vs. market share relative to competitors:
BCG Growth-Share Matrix
Resources are allocated to business units according to where they are situated on the grid as
follows:


Cash Cow - a business unit that has a large market share in a mature, slow growing industry.
Cash cows require little investment and generate cash that can be used to invest in other
business units.
Star - a business unit that has a large market share in a fast growing industry. Stars may
generate cash, but because the market is growing rapidly they require investment to maintain
their lead. If successful, a star will become a cash cow when its industry matures.
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
Question Mark (or Problem Child) - a business unit that has a small market share in a high
growth market. These business units require resources to grow market share, but whether
they will succeed and become stars is unknown.
 Dog - a business unit that has a small market share in a mature industry. A dog may not
require substantial cash, but it ties up capital that could better be deployed elsewhere. Unless
a dog has some other strategic purpose, it should be liquidated if there is little prospect for it
to gain market share.
There are typically four different strategies to apply:
 Build Market Share: Make further investments (for example, to maintain Star status, or to
turn a Question Mark into a Star).
 Hold: Maintain the status quo (do nothing).
 Harvest: Reduce the investment (enjoy positive cash flow and maximize profits from a Star
or a Cash Cow).
 Divest: For example, get rid of the Dogs, and use the capital you receive to invest in Stars
and Question Marks.
The BCG matrix provides a framework for allocating resources among different business units
and allows one to compare many business units at a glance. However, the approach has received
some negative criticism for the following reasons:



The link between market share and profitability is questionable since increasing market
share can be very expensive.
The approach may overemphasize high growth, since it ignores the potential of declining
markets.
The model considers market growth rate to be a given. In practice the firm may be able to
grow the market.
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2. GE / McKinsey 9 cell Matrix
In consulting engagements with General Electric in the 1970's, McKinsey & Company
developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic
business units (SBU). This business screen became known as the GE/McKinsey Matrix and is
shown below:
 Grow – Business units that fall under grow attract high investment. Firms may go for
product differentiation or Cost leadership. Huge cash is generated in this phase. Market
leaders exist in this phase.
 Hold – Business units that fall under hold phase attract moderate investment. Market
segmentation, Market penetration, imitation strategies are adopted in this phase.
Followers exist in this phase.
 Harvest - Business units that fall under this phase are unattractive. Low priority is given
in these business units. Strategies like divestment, Diversification, mergers are adopted in
this phase.
GE / McKinsey Nine Cell Matrix
Industry attractiveness
Business Unit Strength
High
Medium
Low
Strong
Average
Weak
Grow
Grow
Hold
Grow
Hold
Harvest
Hold
Harvest
Harvest
The GE / McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic
business units on a grid of the industry and the SBU's position in the industry. The GE matrix
however, attempts to improve upon the BCG matrix in the following two ways:


The GE matrix generalizes the axes as "Industry Attractiveness" and "Business Unit
Strength" whereas the BCG matrix uses the market growth rate as a proxy for industry
attractiveness and relative market share as a proxy for the strength of the business unit.
The GE matrix has nine cells vs. four cells in the BCG matrix.
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Industry attractiveness and business unit strength are calculated by first identifying criteria for
each, determining the value of each parameter in the criteria, and multiplying that value by a
weighting factor. The result is a quantitative measure of industry attractiveness and the business
unit's relative performance in that industry.
Industry Attractiveness
The vertical axis of the GE / McKinsey matrix is industry attractiveness, which is determined
by factors such as the following:
 Market growth rate
 Market size
 Demand variability
 Industry profitability
 Industry rivalry
 Global opportunities
 Macro environmental factors
Each factor is assigned a weighting that is appropriate for the industry. The industry
attractiveness then is calculated as follows:
Industry attractiveness
=
factor value1 x factor weighting1
+ factor value2 x factor weighting2
+ factor valueN x factor weightingN
Business Unit Strength
The horizontal axis of the GE / McKinsey matrix is the strength of the business unit. Some
factors that can be used to determine business unit strength include:
 Relative market share
 Ability to compete on price and quality
 Knowledge of customer and market
 Competitive strength and weakness
 Profit margins
 Technological capabilities
 Caliber of management
The business unit strength index can be calculated by multiplying the estimated value of
each factor by the factor's weighting, as done for industry attractiveness.
Plotting the Information
Each business unit can be portrayed as a circle plotted on the matrix, with the information
conveyed as follows:
 Market size is represented by the size of the circle.
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

Market share is shown by using the circle as a pie chart.
The expected future position of the circle is portrayed by means of an arrow.
The following is an example of such a representation:
The shading of the above circle indicates a 38% market share for the strategic business
unit. The arrow in the upward left direction indicates that the business unit is projected to gain
strength relative to competitors, and that the business unit is in an industry that is projected to
become more attractive. The tip of the arrow indicates the future position of the center point of
the circle.
Strategic Implications
Resource allocation recommendations can be made to grow, hold, or harvest a strategic
business unit based on its position on the matrix as follows:
 Grow strong business units in attractive industries, average business units in
attractive industries, and strong business units in average industries.
 Hold average businesses in average industries, strong businesses in weak industries,
and weak business in attractive industries.
 Harvest weak business units in unattractive industries, average business units in
unattractive industries, and weak business units in average industries.
There are strategy variations within these three groups. For example, within the harvest
group the firm would be inclined to quickly divest itself of a weak business in an unattractive
industry, whereas it might perform a phased harvest of an average business unit in the same
industry.
1. Corporate parenting analysis
Campbell, Goold and Alexander proposed the concept of corporate parenting to consider the
role of the corporate headquarters in managing a set of businesses in a portfolio. A diversified
corporations or a multi-business company is often manages and develops the individual
businesses in terms resources and capabilities is called Corporate parenting.
In multi business company’s corporate parenting enables the headquarters to focus on core
competencies and tries to create value among various business units by establishing relationship
and a good fit between needs and opportunities of units and resources and capabilities within the
firm.
Patenting fit matrix
Patenting fit matrix summarizes the various judgements regarding corporate/ business
unit for the corporation as a whole. This matrix emphasies their fit with the corporate parent fit.
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This matrix composes of 2 dimensions: Positive contributions that the parent can make and the
negative effects the parent can make.
The combination of these two dimensions creates 5 different positions.
a) Heartland Businesses
b) Edge-of-Heartland Businesses
c) Ballast Businesses
d) Alien Territory Businesses
e) Value Trap Businesses
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
Heartland Businesses: Heartland Businesses should be at the heart of the corporation’s
future. These Heartland Businesses have opportunities for improvement by the parent,
and the parent understands their critical success factors well. These businesses should
have priority for all corporate activities.

Edge-of-Heartland Businesses: In these businesses some parenting characteristics fit the
business, but other do not. The parent may not have all the characteristics needed by a
unit, or the parent may not really understand all of the unit’s strategic factors.
E.g.: a unit in this area may be very strong in creating its own image through
advertising – a critical success factor in its industry. The corporate may however not have
this strength and tends to leave this to its advertising agency. If the parent forced the unit
to abandon its own creative efforts in favor of using the corporation’s favorite ad agency,
the unit may struggle.

Such business units are likely to consume much of the parent’s attention, as the
parent tries to understand them better and transform them into Heartland Businesses
Ballast Businesses: Ballast Businesses fit very comfortably with the parent corporation
but contain very few opportunities to be improved by the parent. Like cash cows may be
important sources of stability and earnings. But if environmental changes, ballast could
move to alien territory. Therefore corporate decision makers should consider divesting
this unit as soon as they can get a price that exceeds the expected value of future cash
flows. E.g.: IBM’s mainframe business
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
Alien Territory Businesses: Alien Territory Businesses have little opportunities to be
improved by the corporate parent, and a misfit exists between the parenting
characteristics and the units’ strategic factors. There is little potential for value creation
but high potential for value destruction on the part of the parent. The corporation must
divest this unit while it still has value

Value Trap Businesses: Value Trap Businesses fit well with parenting opportunities, but
they are a misfit with the parent’s understanding of the units’ CSF. This is where the
corporate headquarters can make its biggest error. It mistakes what it sees as
opportunities for ways to improve the business units’ profitability or competitive
position. E.g.: To make the unit a world-class manufacturer (because the parent has
world-class manufacturing skills) it may not notice that the unit is primarily successful
because of its unique product development and niche marketing expertise.
B. Other Analysis
2. SWOT Analysis
SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. A SWOT
analysis, also called situational analysis, is a very useful tool that managers use in order to
evaluate the strengths and weaknesses in an organization’s internal environment and the
opportunities and threats in its external environment.
A scan of the internal and external environment is a crucial part of the strategic planning
process, which is being covered by SWOT analysis. It is used to evaluate the Strengths,
Weaknesses, Opportunities, and Threats involved in a project or in a business venture. The
analysis involves identifying the purpose of the business venture or project and recognizing the
internal and external factors that are favorable and unfavorable to achieve that goal. This method
is being developed by Albert Humphrey, who led a convention at Stanford University in the
1960s and 1970s using data from Fortune 500 companies.
1. Strengths: Internal attributes those are helpful to the organization to achieving its objective
and Uniqueness of the business or department that give it an advantage over others.
2. Weaknesses: Internal attributes that is harmful to the organization to achieving its objective.
These are characteristics that place the firm at a disadvantage relative to its peers.
3. Opportunities: External factors that help the organization achieve its objective. These are the
external factors that will boost the sales or profitability of the organisation.
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4. Threats: External factors those are harmful to the organization to achieving its objective.
These external elements in the environment could cause trouble for the business.
The internal factors may be viewed as strengths or weaknesses depending upon their
impact on the organization's objectives. What may represent strengths with respect to one
objective may be weaknesses for another objective. Identification of SWOTs is essential because
subsequent steps in the process of planning for achievement of the selected objective may be
derived from the SWOTs. SWOT analysis is a tool for auditing an organization and its
environment. It is the first stage of planning and helps to focus on key issues.
The SWOT Matrix
A firm should not necessarily pursue the more lucrative (profitable) opportunities.
Rather, it may have a better chance at developing a competitive advantage by identifying a fit
between the firm's strengths and upcoming opportunities. In some cases, the firm can overcome a
weakness in order to prepare itself to pursue a compelling opportunity.
To develop strategies that take into account the SWOT profile, a matrix of these factors can be
constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:
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SWOT / TOWS Matrix
Opportunities
Threats




Strengths
Weaknesses
S-O strategies
W-O strategies
S-T strategies
W-T strategies
S-O strategies pursue opportunities that are a good fit to the company's strengths.
W-O strategies overcome weaknesses to pursue opportunities.
S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability
to external threats.
W-T strategies establish a defensive plan to prevent the firm's weaknesses from making
it highly susceptible to external threats.
3. Industry Analysis
Michael E.Porter has made immense contribution in the development of the ideas of industry
and competitor analysis and their relevance to the formulation of competitive strategies. A model
has been proposed consisting of five competitive forces – threat of new entrants, rivalry among
competitor, bargaining power of suppliers, bargaining power of buyers and threat of substitute
products – that determine the intensity of industry competition and profitability.
Michael Porter’s Five Forces
The stronger each of these forces restricts the established companies (existing) to raise
prices and earn greater profits. The strong competitive force can be regarded as a threat because
it depresses profits. A weak competitive force can be viewed as an opportunity because it allows
a company to earn greater profits.
The task facing managers is to recognize how changes in the five forces give rise to new
opportunities and threats and to formulate appropriate strategic responses.
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1. Threat of Potential entrants (New entrants)
The Entry of potential competitors to an industry is a threat to the profitability of
established players. The new entrants bring in new capacity, substantial resources and
aggressiveness to gain market share. The established companies try to discourage potential
competitors from entering to an industry by raising height of barriers.
2. Bargaining power of suppliers
Suppliers enjoy bargaining power by raising the price or reduce the quality of purchased
goods and services and thereby reduce the profitability of the company.
3. Bargaining power of buyers
Buyers are threat when the force the companies to
- Charge low price
- Demand higher quality
- Demand better service
According to Porter the buyers are powerful in the following circumstances
o Suppliers are more in numbers
o Buyers buy in large quantity
o More numbers of alternative suppliers –
o Cost of changing supplier is not much
o Supplier depends buyer for big order
o Purchased item is not important
o Buyer can able to produce the product
o Buyer uses the threat of vertical integration as a measure for forcing down prices.
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4. Substitute product
Substitutes are those products, which satisfy similar needs though appear to be different.
According to Porter, Substitute products limit the potential returns of any industry by placing a
ceiling on price, firms in the industry can charge. The existence of close substitutes is a threat, by
limiting the price and profitability of a company.
5. Rivalry among existing players
When the intensity of rivalry is weak among established players within an industry,
companies can raise prices and earn greater profits. If the rivalry is strong among the players,
price competition and price war will be possible and it will reduce the profit margin.
Reasons for strong rivalry among established companies:
o Industry competitive structure
o Demand conditions
o The height of exit barriers in the industry.
4. Product Life Cycle (PLC)
A new product passes through set of stages known as product life cycle. Product life
cycle applies to both brand and category of products. Its time period vary from product to
product. Modern product life cycles are becoming shorter and shorter as products in mature
stages are being renewed by market segmentation and product differentiation.
Companies always attempt to maximize the profit and revenues over the entire life cycle of a
product. In order to achieving the desired level of profit, the introduction of the new product at
the proper time is crucial. If new product is appealing to consumer and no stiff competition is out
there, company can charge high prices and earn high profits.
Stages of Product Life Cycle
Product life cycle comprises four stages:
1. Introduction stage
2. Growth stage
3. Maturity stage
4. Decline stage
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Product Life Cycle (PLC)
1. Introduction stage
Product is introduced in the market with intention to build a clear identity and heavy
promotion is done for maximum awareness. Before actual offering of the product to customers,
product passes through product development, involves prototype and market tests. Companies
incur more costs in this phase and also bear additional cost for distribution. On the other hand,
there are a few customers at this stage, means low sales volume. So, during introductory stage
company’s profits shows a negative figure because of huge cost but low sales volume.
At introduction stage, the company core focus is on establishing a market and arising
demand for the product. So, the impact on marketing mix is as follows:
Product
Branding, Quality level and intellectual property and protections are obtained to stimulate
consumers for the entire product category. Product is under more consideration, as first
impression is the last impression.
Price
High(skim) pricing is used for making high profits with intention to cover initial cost in a short
period and low pricing is used to penetrate and gain the market share. company choice of pricing
strategy depends on their goals.
Place
Distribution at this stage is usually selective and scattered.
Promotion
At introductory stage, promotion is done with intention to build brand awareness.
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Samples/trials are provided that is fruitful in attracting early adopters and potential customers.
Promotional programs are more essential in this phase. It is as much important as to produce the
product because it positions the product.
2. Growth Stage
In this stage, company’s sales and profits starts increasing and competition also begin to
increase. The product becomes well recognized at this stage and some of the buyers repeat the
purchase patterns. During this stage, firms focus on brand preference and gaining market share.
It is market acceptance stage. But due to competition, company invest more in advertisement to
convince customers so profits may decline near the end of growth stage.
Affect on 4 P’s of marketing is as under:
Product
Along with maintaining the existing quality, new features and improvements in product quality
may be done. All this is done to compete and maintain the market share.
Price
Price is maintained or may increase as company gets high demand at low competition or it may
be reduced to grasp more customers.
Distribution
Distribution becomes more significant with the increase demand and acceptability of product.
More channels are added for intensive distribution in order to meet increasing demand. On the
other hand resellers start getting interested in the product, so trade discounts are also minimal.
Promotion
At growth stage, promotion is increased. When acceptability of product increases, more efforts
are made for brand preference and loyalty.
3. Maturity stage
At maturity stage, brand awareness is strong so sale continues to grow but at a declining
rate as compared to past. At this stage, there are more competitors with the same products. So,
companies defend the market share and extending product life cycle, rather than making the
profits, By offering sales promotions to encourage retailer to give more shelf space to the product
than that of competitors. At this stage usually loyal customers make purchases.
Marketing mix decisions include:
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Product
At maturity stage, companies add features and modify the product in order to compete in market
and differentiate the product from competition. At this stage, it is best way to get dominance over
competitors and increase market share.
Price
Because of intense competition, at maturity stage, price is reduced in order to compete. It attracts
the price conscious segment and retains the customers.
Distribution
New channels are added to face intense competition and incentives are offered to retailers to get
shelf preference over competitors.
Promotion
Promotion is done in order to create product differentiation and loyalty. Incentives are also
offered to attract more customers.
4. Decline stage
Decline in sales, change in trends and unfavorable economic conditions explain decline
stage. At this stage market becomes saturated so sales declines. It may also be due technical
obsolescence or customer taste has been changed.
At decline stage company has three options:
a) Maintain the product, Reduce cost and finding new uses of product.
b) Harvest the product by reducing marketing cost and continue offering the product to loyal
niche until zero profit.
c) Discontinue the product when there’s no profit or a successor is available. Selling out to
competitors who want to keep the product.
At declining stage, marketing mix decisions depends on company’s strategy. For example, if
company want to harvest, the product will remain same and price will be reduced. In case of
liquidation, supply will be reduced dramatically.
Limitations of Product Life Cycle (PLC)
Product life cycle is criticized that it has no empirical support and it is not fruitful in
special cases. Different products have different properties so their life cycle also varies. It shows
that product life cycle is not best tool to predict the sales. Sometimes managerial decisions
affect the life of products in this case Product Life Cycle is not playing any role. Product life
cycle is very fruitful for larger firms and corporations but it is not hundred percent accurate tools
to predict the life cycle and sales of products in all the situations
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Environment Threat and Opportunity Profile (ETOP)
Meaning of Environmental Scanning:
Environmental scanning can be defined as the process by which organizations
monitor their relevant environment to identify opportunities and threats affecting their
business for the purpose of taking strategic decisions.
Appraising the Environment:
In order to draw a clear picture of what opportunities and threats are
faced by the organization at a given time. It is necessary to appraise the environment. This is
done by being aware of the factors that affect environmental appraisal identifying the
environmental factors and structuring the results of this environmental appraisal.
Structuring Environmental Appraisal:
The identification of environmental issues is helpful in structuring the environmental
appraisal so that the strategists have a good idea of where the environmental opportunities and
threats lie. There are many techniques to structure the environmental appraisal. One such
technique suggested by Glueck is that preparing an ETOP for an organization.
The preparation of an ETOP involves dividing the environment into different sectors
and then analyzing the impact of each sector on the organization.
Environment threat and opportunity profile (ETOP) for a bicycle company
S.No
1
2
Environmental
Nature of Impact
sector
Economic
Market
Up Arrow
Horizontal
Arrow
Impact of each sector






Growing affluence (wealth/ richness) among
urban consumers
Rising disposable incomes and living standards
Organized sector a virtual oligopoly with
four major manufacturers,
buyers critical and better informed
overall industry growth rate not encouraging
unsaturated Demand
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
3
International
Down arrow
4
Supplier
Horizontal arrow



traditional distribution systems
 Global imports growing but India‟s share
shrinking Major importers are the US and
EU but India exports mainly to Africa
 Mostly ancillaries and associated companies
Up Arrow indicates Favorable Impact 
Down Arrow indicates unfavorable Impact 
Horizontal Arrow indicates Neutral Impact 
The preparation of an ETOP provides a clear picture to the strategists about which
sectors and the different factors in each sector have a favorable impact on the organization.
By the means of an ETOP, the organization knows where it stands with respect to its
environment. Obviously, such an understanding can be of a great help to an organization in
formulating appropriate strategies to take advantage of the opportunities and counter the
threats in its environment.
Meaning of organizational Appraisal:
The purpose of organizational appraisal is to determine the organizational capability in
terms of strengths and weaknesses that lie in different functional areas. This is necessary since
the strengths and weaknesses have to be matched with the environmental opportunities and
threats for strategy formulation to take place.
Strategic Advantage Profile (SAP)
A SAP can also be prepared directly when students analyses cases during classroom
learning, without making a detailed OCP. An SAP provides a picture of the more critical
areas which can have a relationship with the strategic picture of the firm in the future.
The SAP presented in the following table clearly shows that strengths and weaknesses in
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different functional areas.
Strategic Advantage Profile for a bicycle company
S.No.
Capability Factor
Nature of Impact
Down Arrow
1.
Finance
2
Marketing
Horizontal Arrow
3
Operational
Up arrow
4
Personnel
Horizontal arrow
5
General
management
Up arrow



Competitive strengths or weaknesses
High cost of capital, reserves and surplus
position unsatisfactory
Sever competition in industry, company’s
position secure at present
Plant and machinery in excellent condition
Quality of managers and workers
comparable with that in competitor
companies
High quality and experienced top
management generally adopts a proactive
stance with regards to decision-making
Up Arrow indicates Strength 
Down Arrow indicates Weaknesses 
Horizontal Arrow indicates Neutral 
Organizational Capability Profile (OCP)
The organizational capability profile is drawn in the form of a chart. The strategists
are required to systematically assess the various functional areas and subjectively assign
values to the different functional capability factors and sub factors, along a scale ranging from
values of -5 to +5
Summarized form of OCP
Capability Factors
Weakness
-5
Financial Capability
 Sources of fund
 Usage of fund
 Management of funds
Marketing capability factors
 Product related
 Price- related
 Promotion related
 Integrative and systematic
Operations capability factors
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0
Strength
+5
37
 Production system
 Operations and control system
 R&D system
Personnel capability factors
 Personnel system
 Employee characteristics
 Industrial relations
General management capability factors
 General management system
 External relations
 Organisational climate
After completion of the chart, the strategists are in a position to assess the relative
strengths and weaknesses of an organisation in each of the six functional areas and identify the
gaps that need to be corrected or opportunities that could be used.
The preparation of an OCP provides a convenient method to determine the relative
priorities of an organisation on its competitors, its vulnerability (impact) to outside influences,
the factors that support or pose threats to its existence and its overall capability to compete in a
given industry.
10. McKinsey’s 7S Model
This was created by the consulting company McKinsey and company in the early
1980s. Since then it has been widely used by practitioners and academics alike in analyzing
hundreds of organizations. The Paper explains each of the seven components of the model and
the links between them..
The McKinsey 7S model was named after a consulting company, McKinsey and
company, which has conducted applied research in business and industry. All of the authors
worked as consultants at McKinsey and company, in the 1980s, they used the model to analyze
over 70 large organizations. The McKinsey 7S Framework was created as a recognizable and
easily remembered model in business.
The seven variables, which the authors terms “levers”, all begin with the letter “S”
needed to be considered and strategy is usually successful when all the elements in the 7s
frame work fit into or support the strategy.
Successful implementation of a strategy depends on the right alignment of all the
seven elements. When 7 elements are in good alignment, an organisation is poised and
energized.
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Structure
System
Strategy
Shared
values
Style
Skills
Staff
Description of 7Ss:
Strategy: Strategy is the plan of action an organization prepares in response to, or anticipation
of changes in its external environment. The broad framework for the allocation of a firm’s
scarce resources, over time, to reach identified goals.
Structure: The way the organisation’s units relate to each other in accomplishing the
successful implementation of strategic; centralized, functional divisions, decentralsied, matrix,
network, holding, etc.
Business needs to be organized in a specific form of shape that is generally referred to as
organizational structure. Organizations are structured in a variety of ways, dependent on their
objectives and culture.
Systems: Every organization has some systems or internal processes to support and implement
the strategy and run day-to-day affairs. For example, a company may follow a particular
process for recruitment.
Style/culture: All organizations have their own distinct culture and management style. It
includes the dominant values, beliefs and norms which develop over time and become
relatively enduring features of the organizational life.
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Staff: Organizations are made up of humans and it’s the people who make the real difference to
the success of the organization in the increasingly knowledge-based society. The importance of
human resources has thus got the central position in the strategy of the organization, away from
the traditional model of capital and land.
Shared Values/super ordinate Goals: All members of the organization share some common
fundamental ideas or guiding concepts around which the business is built. This may be to
make money or to achieve excellence in a particular field.
Skills: Distinctive capabilities of personnel of the organisation. Potential skills of the
members of the organisation
The seven components described above are normally categorized as soft and hard components:
 Hard components 
 Soft components 
Hard components are: Easy to identify
 Strategy 
 Structure 
 Systems 
Soft components are: - Difficult to describe
 Shared values 
 Style 
 Staff 
 Skills 
II. Tools and techniques - Subjective factors
There are six types of subjective factors as given below;
a) Considerations for governmental policies
b) Perception of critical success factors (CSFs) and distinctive competencies
c) Commitment to past strategic actions
d) Strategist’s decision styles and attitude to risk
e) Internal political consideration
f) Timing and competitor considerations
a) Considerations for governmental policies
Government policies have a significant impact on the choice of strategic alternatives. The
Expansion, Growth or retrenchment types of corporate strategies can only be feasible if the
government policies act as a major subjective factor in screening alternatives.
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b) Perception of critical success factors (CSFs) and distinctive competencies
CSF referred as strategic factors or key factors for success, are those which are crucial for
organisational success. (Example: Low cost of production/ Ensured raw material supply, quality
of after sale service)
CSFs and Distinctive competencies are important issues in alternative choices and there must
be a match exists between these two.
c) Commitment to past strategic actions
The strategic choice is more likely to be for those alternatives which arise out of past
strategic actions. Generally, strategists choosing the strategic alternatives which are closely
relating to existing one. Only under pressing circumstances and threat from the environment does
the company move or forced to move, away from its existing position.
d) Strategist’s decision styles and attitude to risk
The decision style adopted by strategists, particularly by the chief executive officer (CEO)
and their attitude to risk is a determining subjective factor in strategic choice.
e) Internal political consideration
It means that the strategists’ interrelationship and power structure and balance. A dominant
CEO is able to affect strategic choice, where the CEO is perceived as weak, the interest groups
affect the choice process.
f) Timing and competitor considerations
The time element and competitor consideration is another set of important subjective factors
that influence strategic choice.
STEP -3: Evaluating strategic alternatives
Selection factors (Objective & Subjective) are the criteria on the basis of which a final choice
of strategy has to be made. Evaluation of strategic alternatives basically involves bringing
together the analysis done on the basis of the objective and subjective factors. Each of the
alternatives is evaluated for its capability to help the organisation achieve its objectives.
STEP -4: Choosing from among the Strategic alternatives
The final step is, therefore, of making the strategic choice. One or more strategies have to be
chosen for implementation. Besides the chosen strategies, some contingency strategies would
also have to be formulated.
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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Balanced scorecard (BSC)
The Balanced Scorecard measures organizational performance using financial and nonfinancial measurements in four perspectives: financial, customer, internal process, and learning
and growth. It provides the opportunity to select metrics that are a balanced mix of both financial
and non-financial measures important to the sustainability of the business.
A "balanced scorecard"- a set of measures that gives top managers a fast but
comprehensive view of the business. The balanced scorecard includes financial measures that tell
the results of actions already taken. And it complements the financial measures with operational
measures on customer satisfaction, internal processes, and the organization's innovation and
improvement activities-operational measures that are the drivers of future financial performance.
The balanced scorecard allows managers to look at the business from four important
perspectives. It provides answers to four basic questions:
• How do customers see us? (customer perspective)
• What must we excel at? (internal business perspective)
• Can we continue to improve and create value? (Innovation and learning perspective)
• How do we look to shareholders? (financial perspective)
Design of a balanced scorecard ultimately is about the identification of a small number of
financial and non-financial measures and attaching targets to them, so that when they are
reviewed it is possible to determine whether current performance 'meets expectations'. The idea
behind this is that by alerting managers to areas where performance deviates from expectations,
they can be encouraged to focus their attention on these areas, and hopefully as a result trigger
improved performance within the part of the organization they lead.
The four perspectives
The method proposed by Kaplan and Norton was based on the use of three non-financial topic
areas as prompts to aid the identification of non-financial measures in addition to one looking at
financial. Four "perspectives" were proposed:
 Financial: encourages the identification of a few relevant high-level financial measures.
In particular, designers were encouraged to choose measures that helped inform the
answer to the question "How do we look to shareholders?"
 Customer: encourages the identification of measures that answer the question "How do
customers see us?"
 Internal business processes: encourages the identification of measures that answer the
question "What must we excel at?"
 Learning and growth: encourages the identification of measures that answer the
question "How can we continue to improve, create value and innovate?".
Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.
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The balanced scorecard suggests that we view the organization from four perspectives,
and to develop metrics, collect data and analyze it relative to each of these perspectives:
The Financial Perspective
Kaplan and Norton do not disregard the traditional need for financial data. Timely and
accurate funding data will always be a priority, and managers will do whatever necessary to
provide it. In fact, often there is more than enough handling and processing of financial data.
With the implementation of a corporate database, it is hoped that more of the processing can be
centralized and automated. But the point is that the current emphasis on financials leads to the
"unbalanced" situation with regard to other perspectives. There is perhaps a need to include
additional financial-related data, such as risk assessment and cost-benefit data, in this category.
The Customer Perspective
Recent management philosophy has shown an increasing realization of the importance of
customer focus and customer satisfaction in any business. These are leading indicators: if
customers are not satisfied, they will eventually find other suppliers that will meet their needs.
Poor performance from this perspective is thus a leading indicator of future decline, even
though the current financial picture may look good.
In developing metrics for satisfaction, customers should be analyzed in terms of kinds of
customers and the kinds of processes for which we are providing a product or service to those
customer groups.
The Business Process Perspective
This perspective refers to internal business processes. Metrics based on this perspective
allow the managers to know how well their business is running, and whether its products and
services conform to customer requirements (the mission). These metrics have to be carefully
designed by those who know these processes most intimately; with our unique missions these are
not something that can be developed by outside consultants.
The Learning & Growth Perspective
This perspective includes employee training and corporate cultural attitudes related to
both individual and corporate self-improvement. In a knowledge-worker organization, people -the only repository of knowledge -- are the main resource. In the current climate of rapid
technological change, it is becoming necessary for knowledge workers to be in a continuous
learning mode. Metrics can be put into place to guide managers in focusing training funds where
they can help the most. In any case, learning and growth constitute the essential foundation for
success of any knowledge-worker organization.
Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things
like mentors and tutors within the organization, as well as that ease of communication among
workers that allows them to readily get help on a problem when it is needed. It also includes
technological tools; what the Baldrige criteria call "high performance work systems."
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Strategic Management/Unit: 2 – Dr.P.Mohanraj, Associate Professor/MBA/Chettinad Tech.