Notes on Strategic Management
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Transcript of Notes on Strategic Management
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STRATEGIC MANAGEMENT
Strategy - Definition and Features
The word “strategy” is derived from the Greek word “stratçgos”; stratus (meaning army) and “ago”
(meaning leading/moving).
Strategy is an action that managers take to attain one or more of the organization’s goals. Strategy can also be
defined as “A general direction set for the company and its various components to achieve a desired state in
the future. Strategy results from the detailed strategic planning process”.
An Objective strategy is all about integrating organizational activities and utilizing and allocating
the scarce resources within the organizational environment so as to meet the present objectives.
While planning a strategy it is essential to consider that decisions are not taken in a vaccum and
that any act taken by a firm is likely to be met by a reaction from those affected, competitors,
customers, employees or suppliers.
Strategy can also be defined as knowledge of the goals, the uncertainty of events and the need to
take into consideration the likely or actual behavior of others.
Strategy is the blueprint of decisions in an organization that shows its objectives and goals, reduces the key
policies, and plans for achieving these goals, and defines the business the company is to carry on, the type of
economic and human organization it wants to be, and the contribution it plans to make to its shareholders,
customers and society at large.
Strategy is a well defined roadmap of an organization. It defines the overall mission, vision and
direction of an organization. The objective of a strategy is to maximize an organization’s strengths
and to minimize the strengths of the competitors.
Strategy, in short, bridges the gap between “where we are” and “where we want to be”
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Strategic Intent
An organization’s strategic intent is the purpose that it exists and why it will continue to exist,
providing it maintains a competitive advantage.
Strategic intent gives a picture about what an organization must get into immediately in order to
achieve the company’s vision.
It motivates the people. It clarifies the vision of the vision of the company.
Strategic intent helps management to emphasize and concentrate on the priorities.
Strategic intent is, nothing but, the influencing of an organization’s resource potential and core
competencies to achieve what at first may seem to be unachievable goals in the competitive
environment..
Strategic intent includes directing organization’s attention on the need of winning; inspiring people
by telling them that the targets are valuable; encouraging individual and team participation as well as
contribution; and utilizing intent to direct allocation of resources.
Strategic intent differs from strategic fit in a way that while strategic fit deals with harmonizing
available resources and potentials to the external environment, strategic intent emphasizes on
building new resources and potentials so as to create and exploit future opportunities.
Mission Statement
Mission statement is the statement of the role by which an organization intends to serve it’s
stakeholders. It describes why an organization is operating and thus provides a framework within
which strategies are formulated. It describes what the organization does (i.e., present capabilities),
who all it serves (i.e., stakeholders) and what makes an organization unique (i.e., reason for
existence).
For instance, Microsoft’s mission is to help people and businesses throughout the world to realize
their full potential.
Wal-Mart’s mission is “To give ordinary folk the chance to buy the same thing as rich people.”
Mission statements always exist at top level of an organization, but may also be made for various
organizational levels.
In today’s dynamic and competitive environment, mission may need to be redefined. However, care
must be taken that the redefined mission statement should have original fundamentals/components..
Features of a Mission
Mission must be feasible and attainable. It should be possible to achieve it.
Mission should be clear enough so that any action can be taken.
It should be inspiring for the management, staff and society at large.
It should be precise enough, i.e., it should be neither too broad nor too narrow.
It should be unique and distinctive to leave an impact in everyone’s mind.
It should be analytical,i.e., it should analyze the key components of the strategy.
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It should be credible, i.e., all stakeholders should be able to believe it.
Vision
A vision statement identifies where the organization wants or intends to be in future or where it
should be to best meet the needs of the stakeholders. It describes dreams and aspirations for future.
For instance,
Microsoft’s vision is “to empower people through great software, any time, any place, or any
device.”
Wal-Mart’s vision is to become worldwide leader in retailing.
A vision is the potential to view things ahead of themselves. It answers the question “where we
want to be”.
An effective vision statement must have following features-
It must be unambiguous.
It must be clear.
It must harmonize with organization’s culture and values.
The dreams and aspirations must be rational/realistic.
Vision statements should be shorter so that they are easier to memorize.
In order to realize the vision, it must be deeply instilled in the organization, being owned and shared
by everyone involved in the organization.
Goals s
A goal is a desired future state or objective that an organization tries to achieve.
Goals specify in particular what must be done if an organization is to attain mission or vision.
Goals make mission more prominent and concrete.
They co-ordinate and integrate various functional and departmental areas in an organization. Well
made goals have following features-
1. These are precise and measurable.
2. These look after critical and significant issues.
3. These are realistic and challenging.
4. These must be achieved within a specific time frame.
5. These include both financial as well as non-financial components.
Objectives
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Objectives are defined as goals that organization wants to achieve over a period of time. These are
the foundation of planning. Policies are developed in an organization so as to achieve these
objectives. Formulation of objectives is the task of top level management. Effective objectives have
following features-
1. These are not single for an organization, but multiple.
2. Objectives should be both short-term as well as long-term.
3. Objectives must respond and react to changes in environment, i.e., they must be flexible.
4. These must be feasible, realistic and operational.
Some of the benefits of having a vision and mission statement are discussed below:
Vision and mission statements provide agreement of purpose to organizations and fill the
employees with a sense of belonging and identity.
Vision and mission statements spell out the context in which the organization operates and
provides the employees with a tone that is to be followed in the organizational climate.
The vision and mission statements serve as focal points for individuals to identify themselves
with the organizational processes and to give them a sense of direction
The vision and mission statements help to translate the objectives of the organization into
work structures and to assign tasks to the elements in the organization that are responsible for
actualizing them in practice.
To specify the core structure on which the organizational edifice stands and to help in the
translation of objectives into actionable cost, performance, and time related measures.
Vision and mission statements provide a philosophy of existence to the employees, which is
very crucial because as humans, we need meaning from the work to do and the vision and
mission statements provide the necessary meaning for working in a particular organization.
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Strategic Management Process - Meaning, Steps and Components
The strategic management process means defining the organization’s strategy. It is also defined as
the process by which managers make a choice of a set of strategies for the organization that will
enable it to achieve better performance.
Strategic management is a continuous process that appraises the business and industries in which the
organization is involved; appraises it’s competitors; and fixes goals to meet all the present and future
competitor’s and then reassesses each strategy.
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Strategic management process has following four steps:
1. Environmental scanning refers to a process of collecting, scrutinizing and providing
information for strategic purposes. It helps in analyzing the internal and external factors
influencing an organization. After executing the environmental analysis process,
management should evaluate it on a continuous basis and strive to improve it.
2. Strategy formulation is the process of deciding best course of action for accomplishing
organizational objectives and hence achieving organizational purpose. After conducting
environment scanning, managers formulate corporate, business and functional strategies.
3. Strategy implementation implies making the strategy work as intended or putting the
organization’s chosen strategy into action. Strategy implementation includes designing the
organization’s structure, distributing resources, developing decision making process, and
managing human resources.
4. Strategy evaluation is the final step of strategy management process. The key strategy
evaluation activities are: appraising internal and external factors that are the root of present
strategies, measuring performance, and taking remedial / corrective actions. Evaluation
makes sure that the organizational strategy as well as it’s implementation meets the
organizational objectives.
These components are steps that are carried, in chronological order, when creating a new strategic
management plan. Present businesses that have already created a strategic management plan will
revert to these steps as per the situation’s requirement, so as to make essential changes.
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BCG Matrix Boston Consulting Group
BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by BCG, USA. It is the most renowned
corporate portfolio analysis tool. It provides a graphic representation for an organization to examine different
businesses in it’s portfolio on the basis of their related market share and industry growth rates. It is a two dimensional analysis on management of SBU’s (Strategic Business Units). In other words, it is a comparative
analysis of business potential and the evaluation of environment.
According to this matrix, business could be classified as high or low according to their industry
growth rate and relative market share.
Relative Market Share = SBU Sales this year leading competitors sales this year.
Market Growth Rate = Industry sales this year - Industry Sales last year.
The analysis requires that both measures be calculated for each SBU. The dimension of business
strength, relative market share, will measure comparative advantage indicated by market dominance.
The key theory underlying this is existence of an experience curve and that market share is achieved
due to overall cost leadership.
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BCG matrix has four cells as shown in fig. with the horizontal axis
representing relative market share and the vertical axis denoting market growth rate. The mid-point
of relative market share is set at 1.0. if all the SBU’s are in same industry, the average growth rate of
the industry is used. While, if all the SBU’s are located in different industries, then the mid-point is
set at the growth rate for the economy.
Resources are allocated to the business units according to their situation on the grid. The four cells of
this matrix have been called as stars, cash cows, question marks and dogs. Each of these cells
represents a particular type of business.
1. Stars- Stars represent business units having large market share in a fast growing industry. They
may generate cash but because of fast growing market, stars require huge investments to
maintain their lead. Net cash flow is usually modest. SBU’s located in this cell are attractive as
they are located in a robust industry and these business units are highly competitive in the
industry. If successful, a star will become a cash cow when the industry matures.
2. Cash Cows- Cash Cows represents business units having a large market share in a mature, slow
growing industry. Cash cows require little investment and generate cash that can be utilized for
investment in other business units. These SBU’s are the corporation’s key source of cash, and are
specifically the core business. They are the base of an organization. These businesses usually
follow stability strategies. When cash cows loose their appeal and move towards deterioration,
then a retrenchment policy may be pursued.
3. Question Marks- Question marks represent business units having low relative market share and
located in a high growth industry. They require huge amount of cash to maintain or gain market
share. They require attention to determine if the venture can be viable. Question marks are
generally new goods and services which have a good commercial prospective. There is no
specific strategy which can be adopted. If the firm thinks it has dominant market share, then it
can adopt expansion strategy, else retrenchment strategy can be adopted. Most businesses start as
question marks as the company tries to enter a high growth market in which there is already a
market-share. If ignored, then question marks may become dogs, while if huge investment is
made, then they have potential of becoming stars.
4. Dogs- Dogs represent businesses having weak market shares in low-growth markets. They
neither generate cash nor require huge amount of cash. Due to low market share, these business
units face cost disadvantages. Generally retrenchment strategies are adopted because these firms
can gain market share only at the expense of competitor’s/rival firms. These business firms have
weak market share because of high costs, poor quality, ineffective marketing, etc. Unless a dog
has some other strategic aim, it should be liquidated if there is fewer prospects for it to gain
market share. Number of dogs should be avoided and minimized in an organization.
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SWOT Analysis
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. By definition,
Strengths (S) and Weaknesses (W) are considered to be internal factors over which you have some
measure of control. Also, by definition, Opportunities (O) and Threats (T) are considered to be
external factors over which you have essentially no control.
SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic position of
the business and its environment. Its key purpose is to identify the strategies that will create a firm
specific business model that will best align an organization’s resources and capabilities to the
requirements of the environment in which the firm operates.
In other words, it is the foundation for evaluating the internal potential and limitations and the
probable/likely opportunities and threats from the external environment. It views all positive and
negative factors inside and outside the firm that affect the success. A consistent study of the
environment in which the firm operates helps in forecasting/predicting the changing trends and also
helps in including them in the decision-making process of the organization.
An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given below-
1. Strengths - Strengths are the qualities that enable us to accomplish the organization’s
mission. These are the basis on which continued success can be made and continued/sustained.
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Strengths can be either tangible or intangible. These are what you are well-versed in or what you
have expertise in, the traits and qualities your employees possess (individually and as a team) and
the distinct features that give your organization its consistency.
Strengths are the beneficial aspects of the organization or the capabilities of an organization, which
includes human competencies, process capabilities, financial resources, products and services,
customer goodwill and brand loyalty. Examples of organizational strengths are huge financial
resources, broad product line, no debt, committed employees, etc.
2. Weaknesses - Weaknesses are the qualities that prevent us from accomplishing our mission
and achieving our full potential. These weaknesses deteriorate influences on the organizational
success and growth. Weaknesses are the factors which do not meet the standards we feel they should
meet.
Weaknesses in an organization may be depreciating machinery, insufficient research and
development facilities, narrow product range, poor decision-making, etc. Weaknesses are
controllable. They must be minimized and eliminated. For instance - to overcome obsolete
machinery, new machinery can be purchased. Other examples of organizational weaknesses are huge
debts, high employee turnover, complex decision making process, narrow product range, large
wastage of raw materials, etc.
3. Opportunities - Opportunities are presented by the environment within which our
organization operates. These arise when an organization can take benefit of conditions in its
environment to plan and execute strategies that enable it to become more profitable. Organizations
can gain competitive advantage by making use of opportunities.
Organization should be careful and recognize the opportunities and grasp them whenever they arise.
Selecting the targets that will best serve the clients while getting desired results is a difficult task.
Opportunities may arise from market, competition, industry/government and technology. Increasing
demand for telecommunications accompanied by deregulation is a great opportunity for new firms to
enter telecom sector and compete with existing firms for revenue.
4. Threats - Threats arise when conditions in external environment jeopardize the reliability
and profitability of the organization’s business. They compound the vulnerability when they relate to
the weaknesses. Threats are uncontrollable. When a threat comes, the stability and survival can be at
stake. Examples of threats are - unrest among employees; ever changing technology; increasing
competition leading to excess capacity, price wars and reducing industry profits; etc.
Advantages of SWOT Analysis
SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but it
involves a great subjective element. It is best when used as a guide, and not as a prescription.
Successful businesses build on their strengths, correct their weakness and protect against internal
weaknesses and external threats. They also keep a watch on their overall business environment and
recognize and exploit new opportunities faster than its competitors.
SWOT Analysis helps in strategic planning in following manner-
a. It is a source of information for strategic planning.
b. Builds organization’s strengths.
c. Reverse its weaknesses.
d. Maximize its response to opportunities.
e. Overcome organization’s threats.
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f. It helps in identifying core competencies of the firm.
g. It helps in setting of objectives for strategic planning.
h. It helps in knowing past, present and future so that by using past and current data, future
plans can be chalked out.
SWOT Analysis provide information that helps in synchronizing the firm’s resources and
capabilities with the competitive environment in which the firm operates.
SWOT ANALYSIS FRAMEWORK
Limitations of SWOT Analysis
SWOT Analysis is not free from its limitations. It may cause organizations to view circumstances as
very simple because of which the organizations might overlook certain key strategic contact which
may occur. Moreover, categorizing aspects as strengths, weaknesses, opportunities and threats might
be very subjective as there is great degree of uncertainty in market. SWOT Analysis does stress upon
the significance of these four aspects, but it does not tell how an organization can identify these
aspects for itself.
There are certain limitations of SWOT Analysis which are not in control of management. These
include-
a. Price increase;
b. Inputs/raw materials;
c. Government legislation;
d. Economic environment;
e. Searching a new market for the product which is not having overseas market due to import
restrictions; etc.
Internal limitations may include-
a. Insufficient research and development facilities;
b. Faulty products due to poor quality control;
c. Poor industrial relations;
d. Lack of skilled and efficient labour; etc
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Porter’s Five Forces Model of Competition
Michael Porter (Harvard Business School Management Researcher) designed various vital
frameworks for developing an organization’s strategy. One of the most renowned among managers
making strategic decisions is the five competitive forces model that determines industry structure.
According to Porter, the nature of competition in any industry is personified in the following five
forces:
i. Threat of new potential entrants
ii. Threat of substitute product/services
iii. Bargaining power of suppliers
iv. Bargaining power of buyers
v. Rivalry among current competitors
Porter’s Five Forces model
The five forces mentioned above are very significant from point of view of strategy formulation. The
potential of these forces differs from industry to industry. These forces jointly determine the
profitability of industry because they shape the prices which can be charged, the costs which can be
borne, and the investment required to compete in the industry. Before making strategic decisions, the
managers should use the five forces framework to determine the competitive structure of industry.
Let’s discuss the five factors of Porter’s model in detail:
1. Risk of entry by potential competitors: Potential competitors refer to the firms which are
not currently competing in the industry but have the potential to do so if given a choice.
Entry of new players increases the industry capacity, begins a competition for market share
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and lowers the current costs. The threat of entry by potential competitors is partially a
function of extent of barriers to entry. The various barriers to entry are-
Economies of scale
Brand loyalty
Government Regulation
Customer Switching Costs
Absolute Cost Advantage
Ease in distribution
Strong Capital base
2. Rivalry among current competitors: Rivalry refers to the competitive struggle for market
share between firms in an industry. Extreme rivalry among established firms poses a strong
threat to profitability. The strength of rivalry among established firms within an industry is a
function of following factors:
Extent of exit barriers
Amount of fixed cost
Competitive structure of industry
Presence of global customers
Absence of switching costs
Growth Rate of industry
Demand conditions
3. Bargaining Power of Buyers: Buyers refer to the customers who finally consume the
product or the firms who distribute the industry’s product to the final consumers. Bargaining
power of buyers refer to the potential of buyers to bargain down the prices charged by the
firms in the industry or to increase the firms cost in the industry by demanding better quality
and service of product. Strong buyers can extract profits out of an industry by lowering the
prices and increasing the costs. They purchase in large quantities. They have full information
about the product and the market. They emphasize upon quality products. They pose credible
threat of backward integration. In this way, they are regarded as a threat.
4. Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the
industry. Bargaining power of the suppliers refer to the potential of the suppliers to increase
the prices of inputs( labour, raw materials, services, etc) or the costs of industry in other
ways. Strong suppliers can extract profits out of an industry by increasing costs of firms in
the industry. Suppliers products have a few substitutes. Strong suppliers’ products are
unique. They have high switching cost. Their product is an important input to buyer’s
product. They pose credible threat of forward integration. Buyers are not significant to strong
suppliers. In this way, they are regarded as a threat.
5. Threat of Substitute products: Substitute products refer to the products having ability of
satisfying customers needs effectively. Substitutes pose a ceiling (upper limit) on the
potential returns of an industry by putting a setting a limit on the price that firms can charge
for their product in an industry. Lesser the number of close substitutes a product has, greater
is the opportunity for the firms in industry to raise their product prices and earn greater
profits (other things being equal).
The power of Porter’s five forces varies from industry to industry. Whatever be the industry, these
five forces influence the profitability as they affect the prices, the costs, and the capital investment
essential for survival and competition in industry.
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Blue Ocean Strategy and its Implications for Businesses
Introduction
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Blue Ocean Strategy is a concept that has been pioneered by INSEAD Professors, W. Chan Kim,
and Renee Mauborgne..
Red Oceans that are saturated markets where differentiation or cost competition is prevalent,
companies can instead create Blue Oceans or entirely new markets for themselves through value
innovation, which would create value for its entire stakeholder chain including employees,
customers, and suppliers.
The key premise of the Blue Ocean strategy is that companies must unlock new demand and make
the competition irrelevant instead of going down the beaten track and focusing on saturated markets.
Blue Ocean vs. Red Ocean
If we compare the Blue Ocean with the Red Ocean we find that whereas the former denotes all the
industries not in existence now and hence, are potential opportunities for companies to enter and
unlock demand, the latter denotes the existing industries and the known market space, which is
characterized by reduced profits and growth because of saturation. This results in the the intense and
ruthless competition in the existing markets turns them bloody, or makes the ocean red. On the other
hand, Blue Oceans represent many opportunities for growth and where the irrelevance of
competition is the norm because the markets are yet to be saturated.
Further, Blue Oceans represent markets where demand is large and unmet and where growth
and profits can be actualized through value innovation, which is the simultaneous pursuit of
low differentiation and low cost.
Examples of Blue Ocean Strategy in Practice
For instance, the authors provide the example of the Canadian Circus Company, Cirque du Soleil
which came up with a game changing business model in the 1980s and which resulted in the altering
of the dynamics of the circus industry. A Blue Ocean strategy wherein it replaced the animals and
reduced the importance of individual stars and created an entirely new business model based on a
combination of music, dance, and athletic shows to innovate and create value for itself.
Conclusion
The example of the Blue Ocean strategy described above is clearly indicates that Cirque du Soleil
did not try to battle the competition but instead, created an entirely new market for itself. In short,
this is the essence of the Blue Ocean Strategy that hinges on creating value and taking it to the next
level by a game changing approach to competition. In conclusion, once a company actualizes the
Blue Ocean Strategy, it usually results in opening up new markets instead of stagnating in the
existing markets.
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Corporate Social Responsibilities of Managers
Social responsibility is defined as the obligation and commitment of managers to take steps for
protecting and improving society’s welfare along with protecting their own interest. The
managers must have social responsibility because of the following reasons The four major considerations are
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1.Economically manager must do to add value to the organization
2.Legally Have to do as an obligatory one
3.Ethically should do to reflect socially attached behavior in the society
4.Discretionarily Might do on voluntary basis to show their existence in the society
1. Organizational Resources - An organization has a diverse pool of resources in form of men,
money, competencies and functional expertise. When an organization has these resources in
hand, it is in better position to work for societal goals.
2. Precautionary measure - if an organization lingers on dealing with the social issues now, it
would land up putting out social fires so that no time is left for realizing its goal of producing
goods and services. Practically, it is more cost-efficient to deal with the social issues before
they turn into disaster consuming a large part if managements time.
3. Moral Obligation - The acceptance of managers’ social responsibility has been identified as a
morally appropriate position. It is the moral responsibility of the organization to assist solving
or removing the social problems
4. Efficient and Effective Employees - Recruiting employees becomes easier for socially
responsible organization. Employees are attracted to contribute for more socially responsible
organizations. For instance - Tobacco companies have difficulty recruiting employees with best
skills and competencies.
5. Better Organizational Environment - The organization that is most responsive to the
betterment of social quality of life will consequently have a better society in which it can
perform its business operations. Employee hiring would be easier and employee would of a
superior quality. There would be low rate of employee turnover and absenteeism. Because of all
the social improvements, there will be low crime rate consequently less money would be spent
in form of taxes and for protection of land. Thus, an improved society will create a better
business environment.
But, manager’s social responsibility is not free from some criticisms, such as -
1. High Social Overhead Cost - The cost on social responsibility is a social cost which will not
instantly benefit the organization. The cost of social responsibility can lower the
organizational efficiency and effect to compete in the corporate world.
2. Cost to Society - The costs of social responsibility are transferred on to the society and the
society must bear with them.
3. Lack of Social Skills and Competencies - The managers are best at managing business
matters but they may not have required skills for solving social issues.
4. Profit Maximization - The main objective of many organizations is profit maximization. In
such a scenario the managers decisions are controlled by their desire to maximize profits for
the organizations shareholders while reasonably following the law and social custom.
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Core Competencies - An essential for Organizational Success
What is Core Competency?
Core competency is a unique skill or technology that creates distinct customer value. For instance,
core competency of Federal express (Fed Ex) is logistics management. The organizational unique
capabilities are mainly personified in the collective knowledge of people as well as the
organizational system that influences the way the employees interact. As an organization grows,
develops and adjusts to the new environment, so do its core competencies also adjust and change.
Thus, core competencies are flexible and developing with time. They do not remain rigid and fixed.
The organization can make maximum utilization of the given resources and relate them to new
opportunities thrown by the environment.
Resources and capabilities are the building blocks upon which an organization create and execute
value-adding strategy so that an organization can earn reasonable returns and achieve strategic
competitiveness.
Resources are inputs to a firm in the production process. These can be human, financial,
technological, physical or organizational. The more unique, valuable and firm specialized the
resources are, the more possibly the firm will have core competency. Resources should be used to
build on the strengths and remove the firm’s weaknesses. Capabilities refer to organizational skills at
integrating it’s team of resources so that they can be used more efficiently and effectively
Figure: Core Competence Decision
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.
Organizational capabilities are generally a result of organizational system, processes and control
mechanisms. These are intangible in nature. It might be that a firm has unique and valuable
resources, but if it lacks the capability to utilize those resources productively and effectively, then
the firm cannot create core competency. The organizational strategies may develop new resources
and capabilities or it might make stronger the existing resources and capabilities, hence building the
core competencies of the organization.
Core competencies help an organization to distinguish its products from it’s rivals as well as to
reduce its costs than its competitors and thereby attain a competitive advantage. It helps in creating
customer value. Also, core competencies help in creating and developing new goods and services.
Core competencies decide the future of the organization. These decide the features and structure of
global competitive organization. Core competencies give way to innovations. Using core
competencies, new technologies can be developed. They ensure delivery of quality products and
services to the clients.
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Corporate Governance - Definition, Scope and Benefits
What is Corporate Governance?
Corporate Governance refers to the way a corporation is governed. It is the technique by which
companies are directed and managed. It means carrying the business as per the stakeholders’ desires.
It is actually conducted by the board of Directors and the concerned committees for the company’s
stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and
social goals.
Corporate Governance is the interaction between various participants (shareholders, board of
directors, and company’s management) in shaping corporation’s performance and the way it is
proceeding towards. The relationship between the owners and the managers in an organization must
be healthy and there should be no conflict between the two. The owners must see that individual’s
actual performance is according to the standard performance. These dimensions of corporate
governance should not be overlooked.
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Corporate Governance deals with the manner the providers of finance guarantee themselves of
getting a fair return on their investment. Corporate Governance clearly distinguishes between the
owners and the managers. The managers are the deciding authority. In modern corporations, the
functions/ tasks of owners and managers should be clearly defined, rather, harmonizing.
Corporate Governance deals with determining ways to take effective strategic decisions. It gives
ultimate authority and complete responsibility to the Board of Directors. In today’s market- oriented
economy, the need for corporate governance arises. Also, efficiency as well as globalization are
significant factors urging corporate governance. Corporate Governance is essential to develop added
value to the stakeholders.
Corporate Governance ensures transparency which ensures strong and balanced economic
development. This also ensures that the interests of all shareholders (majority as well as minority
shareholders) are safeguarded. It ensures that all shareholders fully exercise their rights and that the
organization fully recognizes their rights.
Corporate Governance has a broad scope. It includes both social and institutional aspects. Corporate
Governance encourages a trustworthy, moral, as well as ethical environment.
Benefits of Corporate Governance
1. Good corporate governance ensures corporate success and economic growth.
2. Strong corporate governance maintains investors’ confidence, as a result of which, company
can raise capital efficiently and effectively.
3. It lowers the capital cost.
4. There is a positive impact on the share price.
5. It provides proper inducement to the owners as well as managers to achieve objectives that
are in interests of the shareholders and the organization.
6. Good corporate governance also minimizes wastages, corruption, risks and mismanagement.
7. It helps in brand formation and development.
8. It ensures organization in managed in a manner that fits the best interests of all.
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Ansoff Matrix
Introduction
The famous management expert, Igor Ansoff provided a roadmap for firms to grow depending
on whether they are launching new products or entering new markets or a combination of
these options. This roadmap has been presented in the form of a Matrix that has four quadrants with
the axes of products and markets being the determinants of the strategies.
As can be seen from the figure accompanying this section, the combinations of the two axes provide
the firms with options that they can pursue in search of market share.
17
The four quadrants (which are described in detail subsequently) pertain to increasing market share
through market penetration, venturing into new markets with the existing products or market
development, and launching new products in existing markets with product development, and
finally, diversification when firms seek to enter new markets with new products.
Market Penetration
As can be seen from the figure above, market penetration happens when the existing products are
marketed in a way to increase the market share of the firm. This is a minimal risk strategy as all that
a firm has to do is to increase its marketing efforts and improve on its market share. In other words,
the firm has to ensure that it leverages the current capabilities, resources, and gears towards a
growth-oriented strategy. However, market penetration has its limitations and these manifest when
the market is saturated and hence, growth diminishes for the products. Examples of market
penetration would include the Television Channels and Media Houses trying to maintain their
existing features in the existing markets and ensuring that they grow because of the growth in the
size of the market or because they have provided a value proposition that is better than their
competitors are.
Market Development
When firms seek to expand into new markets with their existing products, market development
happens. This is suitable for firms that have the capabilities and the resources to enter new markets
in pursuit of growth. Further, the firm’s core competencies must be aligned with the products rather
than the markets and wherein the firm senses an opportunity in the new markets for its existing
products. Market development is more risky than market penetration as the firm is entering
uncharted waters and therefore, it is in the interests of the firms to do their due diligence before
entering new markets. Examples of market development would be the mobile telephony companies
18
like Vodafone and Nokia entering African markets where these markets are yet to be tapped and
where these firms can leverage their existing expertise to enter these markets.
Product Development
When firms seek to launch new products in existing markets, product development happens. This
strategy can be successful when the firms have already established themselves in the existing
markets and all that they need to do is to launch new products, which leverage the brand image and
the brand value and meet the expectations of the customers in the existing markets. For instance,
whenever consumer giants like Unilever and Proctor and Gamble (P&G) launch new products in
existing markets, they have the advantage of a strong brand value and top of the mind recall among
the customers about them, which would help them to garner market share. When compared to the
previous two strategies, this strategy is more risky as it is not sure whether the transfer of customers
from the existing products to the new products would happen as seamlessly as the firms strategists
believe.
Diversification
When firms launch new products in new markets, diversification happens which entails both new
products to be developed and new markets to be tapped. This is the most risky of the four quadrant
strategies in the Ansoff Matrix as essentially the firms are not only testing the waters in uncharted
territory but they are also launching new products that may or may not be well received by the
customers. Indeed, diversification is a high-risk strategy and is only justified when there are chances
of high returns for the firms. Examples of diversification would include companies like Reliance
venturing into mobile telephony and retail segments where they not only have to move away from
their core competencies but also have to launch new products targeted at the new customer segment.
Management experts recommend diversification only when the firms are sitting on enough cash and
other resources, as the firms need to have deep pockets to stay the course until the time profits are
realized. Further, they also recommend firms with existing customer loyalty and customer base as
the cross migration from one segment to the other happens only when the customers are assured of
receiving value for their money. For instance, the TATA group in India is perceived as delivering
good value and this helped them to garner market share when they diversified into new markets and
new products.
Conclusion
As can be seen from the preceding discussion, it is imperative for firms to grow as otherwise their
resources would not generate the returns needed for the firms to make profits as well as deliver value
to their shareholders. Moreover, firms need to continually look for ways and means to increase their
market share, which would help them create value for their stakeholders. This is the reason why the
Ansoff Matrix has become so popular because it charts the strategies that the firms must follow in
each option, which again is a combination of the firms’ current capabilities, and the possibility of
new market led growth. In conclusion, the Ansoff Matrix is very relevant in these recessionary times
as it can be applied by any firm wishing to either expand into newer markets or leverage its existing
capabilities.
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PESTLE Analysis of Samsung
PESTLE Means :- Political, Economical, Social, Technological, Legal, Environmental
19
Introduction
Samsung is a global conglomerate that operates in the “White Goods” market or the market for
consumer appliances and gadgets. The company that is a South Korean family owned business has
global aspirations and as the recent expansion into newer markets has shown, Samsung is not content
with operating in some markets in the world but instead, wants to cover as many countries as
possible. Therefore, the focus of this article is on the external environmental drivers of Samsung’s
strategy.
Political
In most of the markets where Samsung operates, the political environment is conducive to its
operations and though there are minor irritants in some of the foreign markets like India, overall
Samsung can be said to be operating in markets where the political factors are benign. However, in
recent months, it has faced significant political headwinds in its home country of South Korea
because of the country’s tensions with North Korea wherein the company has had to take into
account not only the political instability but also the threat of war breaking out in the Korean
Peninsula. Apart from this, Samsung faces political pressures in many African and Latin American
countries where the political environment is unstable and prone to frequent changes in the governing
structures. Of course, this is not yet a major cause for worry as the company has more or less
factored the political instability into its strategic calculations.
Economic
This dimension is especially critical for Samsung, as the opening up of many markets in the
developing world has meant that the company can expand its global footprint. However, this
dimension is also a worry since the ongoing global economic crisis has severely dented the
purchasing power of consumers in many developed markets forcing Samsung to seek profitable
ventures in the emerging markets. The key point to note here is that the macroeconomic environment
in which Samsung operates globally is beset with uncertainty and volatility leading to the company
having had to reorient its strategies accordingly. The saving grace for the company is that it has
adjusted rather well to the tapering off of the consumer disposable incomes in the developed world
by expanding into the emerging and the developing markets. Indeed, this is the reason Samsung has
begun an aggressive push into the emerging markets in the hope of making up for lost business from
the developed world.
Socio-Cultural
Samsung is primarily a South Korean Chaebol or a family owned multinational. This means that
despite its global footprint it still operates from the core as a Korean company. Therefore, there are
several aspects to its global operations some of which include adapting itself to the local conditions.
In other words, Samsung being a Global company has had to act locally meaning that it has had to
adopt a Glocal strategy in many emerging markets. Apart from this, Samsung has had to tailor its
products to the fast changing consumer preferences in the various markets where it operates. The key
point to note here is that Samsung operates in a market niche that is strongly influenced by the
lifestyle preferences of consumers and given the fact that socio cultural factors are different in each
country; it has had to reorient itself in each market accordingly.
Technological
Samsung can be considered as being among the world’s leading innovative companies. This means
that the company is at an advantage as far as harnessing the power of technology and driving
innovation for sustainable business advantage is concerned. This has translated into an obsessive
20
mission by the company to be ahead of the technological and innovation curve and a vision to
dominate its rivals and competitors as far being the first to reach the market with its latest products is
concerned. however, as we shall discuss later, this has also resulted in the company cutting corners
with its imitation of the legendary Apple’s product design and this has brought legal and regulatory
scrutiny and troubles for the company. There is a lesson here for other technology driven companies
from Samsung’s experiences and it is that no matter how fast you are to reach the consumer in this
age of Big Bang Disruption, doing the basics right is still the key to success.
Legal
As mentioned in the last section, Samsung has had to face heavy penalties for its alleged imitation of
the Apple’s iPad and iPhone and this has led to the company taking a beating as far as public
perceptions and consumer approval of its strategies are concerned. It remains to be seen as to how
the company would wriggle out of the legal maze that it finds itself in the developed markets
because of the various lawsuits.
Environmental
With the rise of the ethical consumer who wants his or her brands to source and make the products in
a socially and environmentally responsible manner, Samsung has to be aware of the need to make its
products to satiate the ethical chic consumer. This means that it has to ensure that it does not
compromise on the working conditions or the wages it pays to its labor who are engaged in making
the final product.
Conclusion
The preceding analysis clearly indicates that Samsung has its task cut out for itself as it navigates the
treacherous global consumer market landmine. Indeed, as the company prepares to expand its global
footprint, the stakes could not have been higher in a recessionary era and an uber competitive
technological market landscape.
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SWOT Analysis of Unilever
Introduction
Unilever operates in nearly 190 countries around the world and has been a traditional paragon of
excellence and quality in the Fast Moving Consumer Goods sector. The company derives its
competitive advantage from its global footprint and its track record of enhancing value for the
consumers around the world. Even in the current recessionary environment, it has managed to grow
at a respectable pace though as we shall discuss latter, Unilever cannot afford to ignore the emerging
threats from a wide range of global, regional, and local players. Apart from this, as the succeeding
SWOT Analysis makes it clear, the battle for the emerging markets is likely to escalate into a no
holds barred competition with a race to the bottom ensuing between the global giants like Unilever
and Proctor and Gamble and a array of local players.
Strengths
Unilever operates in nearly 190 countries around the world and hence, has a global footprint
combined with top of the mind brand recall among consumers worldwide.
21
It has a deep and broad portfolio of brands and a diversified product range, which makes it
uniquely, positioned to tap into the changing consumer preferences across the world.
Its Research and Development initiatives are heavily funded and manage to bring to the
market innovative and cutting edge products in tune and in line with consumer preferences.
Unilever has a distinct competitive advantage over its nearest competitor, Proctor and
Gamble because of its flexible pricing and expertise in distribution channels that manage to
reach the nook and the corner of the globe.
The company finds its strengths in leveraging the economies of scale arising from its breadth
of operations as well as synergies between its many manufacturing facilities, which totaled
270 locations around the world at last count.
Unilever combines global thinking with local execution, which means that it pursues Glocal
strategies that let it win the hearts and minds of consumers who would like to use its products
that are globally famous yet retain a distinct local flavor.
Weaknesses
The biggest weakness that Unilever faces is that it operates in an uber competitive market
where the other global giants like P&G and Nestle in addition to a host of local players
challenge its dominance at every turn and raise the stakes in the Trillion Dollar FMCG (Fast
Moving Consumer Goods) space.
The other weakness is that its products can easily be replaced with substitutes especially in
the emerging markets in Africa and Asia where the rural consumers in the hinterland often
use traditional and natural alternatives to the products that Unilever markets.
Opportunities
With the advent of globalization and the proliferation of global media, consumers in the
emerging markets are aspiring to western lifestyles and this means that Unilever has a
tremendous opportunity waiting for it as it taps into this large and diversified consumer base
that wants to join the league of westerners in taste and preferences for consumer goods.
Apart from that, capturing the “Newly Affluent Trillion Dollar Consumers” in China and
India means that it has a golden opportunity to leverage this huge and growing consumer
base, which often tries to imitate and mimic the consumerist preferences of the material west.
The emergence of the health conscious consumer in the developed world means that Unilever
can seize the opportunity to market to this segment with its existing and yet to be launched
product range that is specially geared for the health conscious consumer.
Unilever has a good track record of social and environment responsibility and with the
emergence of the ethical chic consumer who like to buy and consume products and brands
that are responsibly made and sustainably complete.
Threats
The ongoing global economic crisis has severely dented the profitability of many FMCG
companies and Unilever is no exception. With the shrinking of the disposable incomes of the
global consumer, they are buying less and insisting on more value for their money or “more
bang for the buck”. This means that Unilever faces the threat of diminished revenues and
increasing costs, which is like a “Double Whammy” to its top-line, and bottom-line.
Though we had mentioned that Unilever succeeds and scores over P&G in the CSR or the
Corporate Social Responsibility aspect, the increased awareness among the global consumers
has turned the harsh glare into each and every strategic move that the company makes. Some
practices of the company have been criticized which means that Unilever has to ensure that it
sustains and maintains its focus especially when the spotlight is on it.
22
As mentioned earlier, Unilever operates in a market segment where local products and
alternatives to its brands proliferate especially in the emerging markets and hence, it faces a
threat from smaller and more nimble local upstarts who can provide more value for lesser
money without the associated costs that global giants like Unilever incur.
The entry of Asian multinationals into the global arena has upped the ante for Unilever and
raised the stakes in the global game for dominance in the FMCG market segment. This
means that Unilever faces the prospect of having to battle not only the recessionary blues but
also emerging threats from this new age and new breed of competition from Asian
conglomerates that are beginning to spread their wings internationally.
Conclusion
Unilever has been in the business of consumer fulfillment for many decades and hence, we are
confident that it can tide over the present gloomy conditions in the FMCG segment. Having said
that, we conclude the article with a cautionary note of not taking the threat from the Asian FMCG
majors lightly as they understand the continent better and at the same time are mastering the
intricacies of the global marketplace.
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ETOP ( Environmental Threat and Opportunity Profile)
Environmental Threat and Opportunity Profile (ЕТОР)
The Environmental factors are quite complex and it may be difficult for strategy managers to
classify them into neat categories to interpret them as opportunities and threats. A matrix of
comparison is drawn where one item or factor is compared with other items after which the scores
arrived at are added and ranked for each factor and total weight age score calculated for prioritizing
each of the factors.
This is achieved by brainstorming. And finally the strategy manger uses his judgment to place
various environmental issues in clear perspective to create the environmental threat and opportunity
profile.
Although the technique of dividing various environmental factors into specific sectors and
evaluating them as opportunities and threats is suggested by some authors, it must be carefully noted
that each sector is not exclusive of the other.
Each of the major factors pertaining to a particular sector of environment may be divided into sub-
sectors and their effects studied. The field force analysis goes hand in glove with ETOP, as here also
the contribution with regard to opportunities and threats posed by the environment is also a
necessary part of study.
ETOP Preparation:
The preparation of ETOP involves dividing the environment into different sectors and then
analyzing the impact of each sector on the organization. A comprehensive ETOP requires
subdividing each environmental sector into sub factors and then the impact of each sub factor on the
organization is described in the form of a statement.
A summary ETOP may only show the major factors for the sake of simplicity. The table 1 provides
an example of an ETOP prepared for an established company, which is in the Two Wheeler industry.
23
The main business of the company is in Motor Bike manufacturing for the domestic and exports
markets. This example relates to a hypothetical company but the illustration is realistic based n the
current Indian business environment.
Table 1: Environmental Threat and Opportunity Profile (ETOP) for a Motor Bike company:
Environmental Sectors Impact of each sector Social (↑) Customer preference for
motorbike, which are fashionable,
easy to ride and durable.
Political (→) No significant factor.
Economic (↑) Growing affluence among urban
consumers; Exports potential high.
Regulatory (↑) Two Wheeler industry a thrust
area for exports.
Market (↑) Industry growth rate is 10 to 12
percent per year, For motorbike
growth rate is 40 percent, largely
Unsaturated demand.
Supplier (↑) Mostly ancillaries and associated
companies supply parts and
components, REP licenses for
imported raw materials available.
Technological (↑) Technological up gradation of
industry in progress. Import of
machinery under OGL list
possible.
As shown in the table motorbike manufacturing is an attractive proposition due to the many
opportunities operating in the environment. The company-can capitalize on the burgeoning demand
by taking advantage of the various government policies and concessions. It can also take advantage
of the high exports potential that already exists.
Since the company is an established manufacturer of motorbike, it has a favorable supplier as well as
technological environment. But contrast the implications of this ETOP for a new manufacturer who
is planning to enter this industry.
Though the market environment would still be favorable, much would depend on the extent to which
the company is able to ensure the supply of raw materials and components, and have access to the
latest technology and have the facilities to use it. The preparation of an ETOP provides a clear
picture for organization to formulate strategies to take advantage of the opportunities and counter the
threats in its environment.
The strategic managers should keep focus on the following dimensions,
1. Issue Selection:
Focus on issues, which have been selected, should not be missed since there is a likelihood of
arriving at incorrect priorities. Some of the impotent issues may be those related to market share,
competitive pricing, customer preferences, technological changes, economic policies, competitive
trends, etc.
24
2. Accuracy of Data:
Data should be collected from good sources otherwise the entire process of environmental scanning
may go waste. The relevance, importance, manageability, variability and low cost of data are some
of the important factors, Which must be kept in focus.
3. Impact Studies:
Impact studies should be conducted focusing on the various opportunities and threats and the critical
issues selected. It may include study of probable effects on the company’s strengths and weaknesses,
operating and remote environment, competitive position, accomplishment of mission and vision etc.
Efforts should be taken to make assessments more objective wherever possible.
4. Flexibility in Operations:
There are number of uncertainties exist in a business situation and so a company can be greatly
benefited buy devising proactive and flexible strategies in their plans, structures, strategy etc. The
optimum level of flexibility should be maintained.
Some of the key elements for increasing the flexibility are as follows:
(a) The strategy for flexibility must be stated to enable managers adopt it during unique situations.
(b) Strategies must be reviewed and changed if required.
(c) Exceptions to decided strategies must be handled beforehand. This would enable managers to
violate strategies when it is necessary.
(d) Flexibility may be quite costly for an organization in terms of changes and compressed plans;
however, it is equally important for companies to meet urgent challenges
ETOP Model
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Balanced Scorecard?
Overview
25
The Balanced Scorecard is a strategic performance management framework that enables
organisations to identify, manage and measure its strategic objectives developed by Drs Robert
Kaplan and David Norton
Concept
Navigating and flying an airplane pilot need detailed information like fuel air speed altitude ,
learning, destination and predict environment , reliance on instrument can be a fatal. Complexity of
to-days scenario needs managers to perform several activities simultaneously.
Like most good ideas, the scorecard is conceptually simple. Kaplan and Norton identified four
generic perspectives that cover the main strategic focus areas of a company. The idea is to use this
model as a template for designing strategic objectives, measures, targets and initiatives within each
of the following perspectives:
The Financial Perspective covers the financial objectives of an organisation and enables
managers to track financial success and shareholder value.
The Customer Perspective covers the customer objectives such as customer satisfaction,
market share goals as well as product and service attributes.
The Internal Process Perspective covers internal operational goals and outlines the key
processes necessary to deliver the customer objectives.
The Learning and Growth Perspective covers the intangible drivers of future success such as
human capital, organisational capital and information capital including skills, training,
organisational culture, leadership, systems and databases.
Public Sector and Not-for-Profit Balanced Scorecards
While the Balanced Scorecard was originally designed for commercial companies, the framework
has found widespread use in the public and not-for-profit sectors. However, it is important to make a
few changes to the Balanced Scorecard template in order to make it relevant to those organisations:
Conclusion
26
The idea of the Balanced Scorecard is simple but is extremely powerful if implemented well. An
organisation will almost certainly experience improved performance as long as management team
use the key ideas of the Balanced Scorecard to (1) create a unique strategy and visualise it in a
cause-and-effect map, (2) align the organisation and its processes to the objectives identified in the
Strategy Map, (3) design meaningful key performance indicators and (4) use these indicators to
facilitate learning and improved decision making. To ensure you get all the benefits and to facilitate
a smooth implementation it is also important to address the implementation challenges outlined in
the API management white paper: How to Avoid the Key Pitfalls of a Balanced Scorecard
Implementation‟ that can be found on the API website.
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Porter's Generic Strategies
If the primary determinant of a firm's profitability is the attractiveness of the industry in which it
operates, an important secondary determinant is its position within that industry. Even though an
industry may have below-average profitability, a firm that is optimally positioned can generate
superior returns.
A firm positions itself by leveraging its strengths. Michael Porter has argued that a firm's strengths
ultimately fall into one of two headings: cost advantage and differentiation. By applying these
strengths in either a broad or narrow scope, three generic strategies result: cost leadership,
differentiation, and focus. These strategies are applied at the business unit level. They are called
generic strategies because they are not firm or industry dependent. The following table illustrates
Porter's generic strategies:
Porter's Generic Strategies
Target Scope
Advantage
Low Cost Product Uniqueness
Broad
(Industry Wide)
Cost Leadership
Strategy
Differentiation
Strategy
Narrow
(Market Segment)
Focus
Strategy
(low cost)
Focus
Strategy
(differentiation)
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Cost Leadership Strategy
This generic strategy calls for being the low cost producer in an industry for a given level of quality.
The firm sells its products either at average industry prices to earn a profit higher than that of rivals,
or below the average industry prices to gain market share. In the event of a price war, the firm can
maintain some profitability while the competition suffers losses. Even without a price war, as the
industry matures and prices decline, the firms that can produce more cheaply will remain profitable
for a longer period of time. The cost leadership strategy usually targets a broad market.
Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining
unique access to a large source of lower cost materials, making optimal outsourcing and vertical
integration decisions, or avoiding some costs altogether. If competing firms are unable to lower their
costs by a similar amount, the firm may be able to susta
Integration strategies as means of expansion strategies
Tour wholesaler or tour operator can strengthen their market position by integration. Integration
takes place when companies merge or one company buys another. As it was outlined in Chapter 1
already, there are two main forms of integration:
1. Vertical integration
It takes place when two companies of different levels on the distribution chain merge. Examples
could be, when a supplier merges with a wholesaler/tour operator or a tour wholesaler merges with a
retail agent.
We speak of backward vertical integration, when a wholesaler merges with or buys an airline or with
a hotel. With this move a greater control over the source of supply is desired.
We speak of forward vertical integration, when a tour wholesaler merges or buys a travel agency. In
this case greater control over the distribution network is wanted.
(Lubbe 2000)
2. Horizontal integration
It means that tour wholesalers/ tour operator merges on the same level of distribution. For example a
tour wholesaler buys another tour wholesaler to improve their market share and reduce competition.
In general, horizontal integration always leads to economics of scale, in functions such as human
resources, purchasing, and thus to cost savings and price reductions. Through cost savings an
organisation may become more cost effective, allowing them to develop a better range of products
and to achieve better quality control.
(Lubbe 2000)
How integration works in the travel business (Lubbe 2000)
28
Mckinsey 7S framework
The McKinsey 7S model is a useful framework for reviewing an 28rganization’s marketing
capabilities from different viewpoints. The power of the McKinsey 7S model is that it covers the key
28rganization capabilities needed to implement strategy successfully, whether you’re reviewing a
business , marketing or digital strategy.
It also works well in different types of business of all sectors and sizes, although it works best in
medium and large businesses. The beauty of this framework is that the elements are self-explanatory,
although I have outlined some guidance for applying it later in the post.
Remember to manage the hard and soft factors separately:
Hard factors: Strategy, Structure and Systems.
Soft factors: Style, Staff, Skills, Systems and Shared values/ goals.
The 7S model can be used to:
Review the effectiveness of an 28rganization in its marketing operations.
Determine how to best realign an 28rganization to support a new strategic direction.
Assess the changes needed to support Digital Transformation of an 28rganization.
What are the 7S framework elements?
29
In summary, the 7S stand for:
Strategy: The definition of key approaches for an 29rganization to achieve its goals.
Structure: The 29rganization of resources within a company into different business groups
and teams.
Style: The culture of the 29rganization in terms of leadership and interactions between staff
and other stakeholders.
Staff: The type of employees, remuneration packages and how they are attracted and
retained.
Skills: Capabilities to complete different activities.
Systems: Business processes and the technical platforms used to support operations.
Shared Values: Summarised in a vision and or mission, this is how the 29rganization defines
its values
.
6. Strategy
The contribution of digital business in influencing and supporting 29rganization29’ strategy. The
key issues are:
Gaining appropriate budgets and demonstrating, delivering value and ROI from budgets.
Annual planning approach.
Techniques for using digital business to impact organization strategy.
Techniques for aligning digital business strategy with 29rganization29l and marketing
strategy.
2. Structure
The modification of 29rganization29l structure to support digital business. The key issues are:
Integration of digital marketing or e-commerce teams with other management, marketing
(corporate communications, brand marketing, direct marketing) and IT staff.
Use of cross-functional teams and steering groups.
Insourcing vs outsourcing.
3. Systems
30
The development of specific processes, procedures or information systems to support digital
business. The key issues are:
Campaign planning approach-integration.
Managing or sharing customer information.
Managing customer experience, service and content quality.
Unified reporting of digital marketing effectiveness and
In-house vs external best-of-breed vs external integrated technology solutions.
7. Staff
The breakdown of staff in terms of their background, age and sex and characteristics such as IT vs
marketing, use of contractors/ consultants. The key issues are:
Insourcing vs outsourcing.
Achieving senior management buy-in/involvement with digital marketing.
Staff recruitment and retention, and virtual working.
Staff development and training.
8. Style
Includes both the way in which key managers behave in achieving the 30rganization’s goals and the
cultural style of the 30rganization as a whole. The key issues are:
Defining a long-term vision for transformation.
Relates to role of the digital marketing or e-commerce teams in influencing strategy – is it
dynamic and influential or a service which is conservative and looking for a voice?.
9. Skills
Distinctive capabilities of key staff, but can be interpreted as specific skill-sets of team members.
The key issues are: staff skills in specific areas such as supplier selection, project management,
content management and specific e-marketing media channels.
10. Shared values
The guiding concepts of the digital business or e-commerce organization which are also part of
shared values and culture. The key issues are: improving the perception of the importance and
effectiveness of digital business amongst senior managers and staff it works with (marketing
generalists and IT).
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Market Entry Mode
1.Exporting –Ability realize location Economics Example: Sony Television
2.Licensing- Low development Cost and Risk Example:-US drugs by amgen licensed its key drugs
“Neprogene” to Kirin Japan
31
3.Frachsing—Low Development Cost & Risk Example :Mc Donalds
4.Joint Venture Xerox teamedup to sell photo copies with fuji Japan—Political dependency
Example
5.Wholly Owned—Technology Protection _ Dell Computers
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Global-Transnational-Multi Domestic- International Strategies
------------------------------------------------------------------------------------------------
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:
GE / McKinsey Matrix
Business Unit Strength
High Medium Low
32
High
Medium
Low
The GE / McKinsey matrix is similar to the BCG 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.
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
Macroenvironmental factors
Each factor is assigned a weighting that is appropriate for the industry. The industry
attractiveness then is calculated as follows:
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:
Market share
Growth in market share
Brand equity
33
Distribution channel access
Production capacity
Profit margins relative to competitors
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.
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 industies.
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.
While the GE business screen represents an improvement over the more simple BCG growth-share
matrix, it still presents a somewhat limited view by not considering interactions among the business
units and by neglecting to address the Core competency leading to value creation. Rather than
serving as the primary tool for resource allocation, portfolio matrices are better suited to displaying a
quick synopsis of the strategic business units.
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Profit and Non profit Organisations
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For-Profit (Business) Organizations
A for-profit organization exists primarily to generate a profit, that is, to take in more money than it spends.
The owners can decide to keep all the profit themselves, or they can spend some or all of it on the business
itself. Or, they may decide to share some of it with employees through the use of various types of
compensation plans, e.g., employee profit sharing.
(We'll read later about the legal forms of a for-profit, including sole proprietorships, partnerships and
corporations. More information is available back in the main category
Nonprofit Organizations
A nonprofit organization exists to provide a particular service to the community. The word "nonprofit" refers
to a type of business -- one which is organized under rules that forbid the distribution of profits to owners.
"Profit" in this context is a relatively technical accounting term, related to but not identical with the notion of
a surplus of revenues over expenditures.
Most nonprofits businesses are organized into corporations. Most corporations are formed under the corporations laws of a particular state. Every state has provisions for forming nonprofit corporations; some
permit other forms, such as unincorporated associations, trusts, etc., which may operate as nonprofit
businesses on slightly (but sometimes importantly) different terms.
The Internal Revenue Service (IRS) gets involved because corporations are, in general, required to pay federal corporate income taxes on their net earning (another technical term, pointing to a slightly different way to the
idea of a surplus of revenue over expenses).
Section 501 of the Internal Revenue Code lists several circumstances under which corporations are exempt
from these taxes. Section 501(c)(3) -- the famous one -- describes corporations (1) serving charitable,
religious, scientific or educational purposes (2) no part of the income of which "inures to the benefit of"
anyone.
Tax-exempt nonprofit corporations can, and do, operate in all other particulars like any other sort of business.
They have bank accounts; own productive assets of all kinds; receive income from sales and other forms of
activity, including donations and grants if they are successful at finding that sort of support; make and hold
passive investments; employ staff; enter into contracts of all sorts; etc.
There are some specialized tax rules and accounting practices that apply to nonprofit corporations. If they are
of a certain size, they are required to disclose many details of their operations to the general public and to
state regulators and watchdog agencies using IRS form 990. This form shows any salaries paid to officers or
directors and to the five highest-paid employees and contracts if any receive over $50,000 in the tax year (at the time of this writing in 1998). The form also requires the organization to divide its expenses into
"functional categories" -- program, administration and fund-raising -- and report the totals for each along with
the amounts expended on each program activity.
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The Product Life Cycle
A new product progresses through a sequence of stages from introduction to growth, maturity, and
decline. This sequence is known as the product life cycle and is associated with changes in the
marketing situation, thus impacting the marketing strategy and the marketing mix.
The product revenue and profits can be plotted as a function of the life-cycle stages as shown in the
graph below:
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Product Life Cycle Diagram
Introduction Stage
In the introduction stage, the firm seeks to build product awareness and develop a market for the
product. The impact on the marketing mix is as follows:
Product branding and quality level is established, and intellectual property protection such
as patents and trademarks are obtained.
Pricing may be low penetration pricing to build market share rapidly, or high skim pricing
to recover development costs.
Distribution is selective until consumers show acceptance of the product.
Promotion is aimed at innovators and early adopters. Marketing communications seeks to
build product awareness and to educate potential consumers about the product.
Growth Stage
In the growth stage, the firm seeks to build brand preference and increase market share.
Product quality is maintained and additional features and support services may be added.
Pricing is maintained as the firm enjoys increasing demand with little competition.
Distribution channels are added as demand increases and customers accept the product.
Promotion is aimed at a broader audience.
Maturity Stage
At maturity, the strong growth in sales diminishes. Competition may appear with similar products.
The primary objective at this point is to defend market share while maximizing profit.
Product features may be enhanced to differentiate the product from that of competitors.
Pricing may be lower because of the new competition.
Distribution becomes more intensive and incentives may be offered to encourage preference
over competing products.
Promotion emphasizes product differentiation.
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Decline Stage
As sales decline, the firm has several options:
Maintain the product, possibly rejuvenating it by adding new features and finding new uses.
Harvest the product - reduce costs and continue to offer it, possibly to a loyal niche segment.
Discontinue the product, liquidating remaining inventory or selling it to another firm that is
willing to continue the product.
The marketing mix decisions in the decline phase will depend on the selected strategy. For example,
the product may be changed if it is being rejuvenated, or left unchanged if it is being harvested or
liquidated. The price may be maintained if the product is harvested, or reduced drastically if
liquidated.
Various type of Strategies at a Glance
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Strategy and Technological Change
Technological Forces
Technological forces influence organizations in several ways. A technological innovation can have a
sudden and dramatic effect on the environment of a firm. First, technological developments can
significantly alter the demand for an organization's or industry's products or services.
Technological change can decimate existing businesses and even entire industries, since its shifts
demand from one product to another. Moreover, changes in technology can affect a firm's operations
as well its products and services.
These changes might affect processing methods, raw materials, and service delivery. In international
business, one country's use of new technological developments can make another country's products
overpriced and noncompetitive. In general,
Technological trends include not only the glamorous invention that revolutionizes our lives,
but also the gradual painstaking improvements in methods, in materials, in design, in
application, unemployment, and the transportation and commercial base. They diffusion into
new industries and efficiency" (John Argenti).
The rate of technological change varies considerably from one industry to another. In electronics, for
example change is rapid and constant, but in furniture manufacturing, change is slower and more
gradual.
Changing technology can offer major opportunities for improving goal achievements or threaten the
existence of the firm. Therefore, "the key concerns in the technological environment involve
building the organizational capability to (1) forecast and identify relevant developments - both
within and beyond the industry, (2) assess the impact of these developments on existing
operations, and (3) define opportunities" (Mark C. Baetz and Paul W. Beamish).
These capabilities should result in the creation of a technological strategy. Technological strategy
deals with "choices in technology, product design and development, sources of technology and
R&D management and funding" (R. Burgeleman and M. Maidique).
The effect that changing technology can have upon the competition in an industry is also dealt with
other chapters. Technological forecasting can help protect and improve the profitability of firms in
growing industries. During Technological Environment a new process Produce faster, at lower cost
or better quality Internet banking Solve a complex problem Do something competitors find hard to
master Google search engine A new product The first product to market The iPod Protect a valuable
idea Have something others can only sell if they pay for a licence Pfizer’s Viagra Rewrite the rules
A completely new approach which makes other products and markets redundant Digital cameras
.Potential Impact of Technology Barriers to entry May reduce economies of scale – encouraging new
entrants (e.g. digital publishing) In some case barriers may rise – as products become more complex
and processes difficult to copy Substitutes New products may displace old – e.g. DVD for videotape
Technology in other markets may “steal” customer spending from other markets – e.g. more
spending on games consoles v less spending on days out Power of customers (buyers) & suppliers
Technology may free businesses from a single source of supply – e.g. Open Source software v
Microsoft Competitive rivalry Rivalry is diminished is technology is successfully patented and
licensed
Prof.Dr.S.Sakthivel
