TABLE OF CONTENTS

LESSON 1 INTRODUCTION TO STRATEGIC MANAGEMENT ............................................. 2

LESSON 2 ANALYZING THE EXTERNAL AND INTERNAL ENVIRONMENT .......................... 12
LESSON 3 BUSINESS POLICY AND FORMULATION OF FUNCTIONAL STRATEGY ............... 21
LESSON 4 STRATEGIC ANALYSIS AND PLANNING...................................................... 41
LESSON 5 COMPETITIVE POSITIONING ..................................................................... 68
LESSON 6 MANAGING THE MULTI-BUSINESS FIRM AND ANALYZING STRATEGIC EDGE ... 89
ALL CASE STUDIES AT ONE PLACE ......................................................................... 101

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Lesson 1 Introduction to Strategic Management
STRATEGIC MEANING:-
MANAGEMENT : Strategic Management is a discipline that deals with long-term
MEANING AND development of an organisation with a clear-cut vision about
PROCESS organisational purpose, scope of activities and objectives.

It can be understood from the analysis of mentioned definitions that

strategic management provides overall direction to the organisation and
includes specifying the organization’s objectives, developing policies and
plans designed to accomplish these objectives, allocating resources for
the implementation of such plans.

Michael Porter identifies three principles underlying strategy: creating a

“unique and valuable market position”, making trade- offs by choosing
“what not to do”, and creating “fit” by aligning company activities with
one another to support the chosen strategy.

STRATEGIC MANAGEMENT: PROCESS:-

The strategic management process is defined as the process by which
the managers’/decision makers’ are able to make a choice of a set of
strategies for the organization that will enable it to accomplish
improved performance. Strategic management is not a static but
continuous process as it involves continuous appraisal of the micro and
macro environment surrounding the organization and choosing between
alternatives that meet the objectives and thereafter re-assessment of
such strategy. The strategic management consists of different phases,
which are sequential in nature.

FOUR PHASES OF STRATEGIC MANAGEMENT PROCESS:-

There are four indispensable phases of every strategic management
process. The four phases can be listed as below.
1. Environmental Scanning- The Board of Directors and the top
management will have to review the current performance. To review,
the organization will have to scan the internal environment for the
strengths and weaknesses and the external environment for
opportunities and threats. The internal and external scan helps in
selecting the strategic factors. These have to be reviewed and
redefined in relation to the mission and objectives.
2. Strategy Formulation- Strategy formulation is the process of
deciding about the best course of action for accomplishing
organizational objectives and therefore, attaining organizational
purpose. After conducting environment scanning, managers
formulate corporate, business and functional strategies.
3. Strategy Implementation- Strategy implementation implies putting
the chosen strategy into action. Strategy implementation includes
designing the organization’s structure, distributing resources,
developing decision making process, and managing the human
resources.
4. Strategy Evaluation- 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 ascertains that the
organizational strategy as well as its implementation is in line with
the organizational objectives.

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STRATEGIC • Strategic Leadership is the ability to influence others to
LEADERSHIP voluntarily make decisions that enhance the prospects for the
organisation’s long-term success while maintaining long-term
financial stability.
• To successfully deal with change, all executives need the skills and
tools for both strategy formulation and implementation.
• Strategic leadership refers to a manager’s potential to articulate
the strategic vision for the organization, and to motivate, guide
and influence his subordinates to attain the objectives of that vision.
• Strategic leadership can also be defined as utilizing strategy in the
management of employees.
• Strategic leaders generate organizational structure, assign resources
and communicate strategic vision. Strategic leaders have to work in
an uncertain environment on various strategic issues.
• The main purpose of strategic leadership is strategic productivity.
Another aim of strategic leadership is to generate an environment in
which employees match the organization’s needs in context of their
individual job.
• Strategic leaders instill confidence to the employees in an
organization to follow their own ideas, yet, moving in the direction of
organisation’s overall goals.
• Strategic leaders make better use of reward and incentive system for
encouraging productive and quality employees. Functional strategic
leadership is about creativity, resourcefulness, and preparing to
assist an individual in realizing his objectives and goals.

FUNCTIONS AND IMPORTANCE OF A STRATEGIC LEADER:-

Following are the nine key strategic leadership roles and brief meaning
of each.
• Navigator – Clearly and quickly works through the complexity of
key issues, problems and opportunities to affect actions (e.g.,
leverage opportunities and resolve issues).
• Strategist – Develops a long-range course of action or set of goals to
align with the organization’s vision.
• Entrepreneur – Identifies and exploits opportunities for new
products, services and markets.
• Mobilizer – Proactively builds and aligns stakeholders, capabilities,
and resources for getting things done quickly and achieving complex
objectives.
• Talent Advocate – Attracts, develops, and retains talent to ensure
that people with the right skills and motivations to meet business
needs are in the right place at the right time.
• Captivator – Builds passion and commitment toward a common
goal.
• Global Thinker – Integrates information from all sources to develop
a well-informed, diverse perspective that can be used to optimize
organizational performance.
• Change Driver – Creates an environment that embraces change;
makes change happen – even if the change is radical – and helps
others to accept new ideas.
• Enterprise guardian – Ensures shareholder value creation through
courageous decision-making that supports enterprise – or unit-wide
interests.

STRATEGIC MANAGEMENT: FUNCTIONS AND IMPORTANCE FOR

PROFESSIONALS LIKE COMPANY SECRETARIES:-
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A brief discussion on some of the roles is as follows:
1) Advisory: As an advisor to the Board Members, the Company
Secretary must build a good relationship with them provide
impartial or unbiased advice which is in the best interest of the
company. He is required to offer necessary assistance to the
Chairman with all development processes including board
evaluation, induction and training.
2) Communication with Stakeholders: The company secretary is a
distinctive interface between the Board and management and as
such they act as an important link between the Board and the
business. The company secretary also has an important role in
communicating with external stakeholders, such as investors, and is
often the first point of contact for queries.
3) Flawless Disclosure and Reporting: The company secretary
usually has responsibility for drafting the governance section of the
company’s annual report and ensuring that all reports are made
available to shareholders according to the relevant regulatory or
listing requirements.
4) Management of Board Meetings and Committees: The company
secretary plays a leading role in good governance by helping the
Board and its committees function effectively and in accordance
with their terms of reference and best practice.
5) Compliances: In current scenario, a business has to adhere to
various laws and regulations failing which may invite various legal
hassles. A company secretary is required to ensure compliance with
various laws and regulations and for doing so he / she should be
conversant with the laws as well as the amendments that take place.
6) Representation: A Company Secretary has to represent before
various tribunals and courts in order to present the legal issue of
the company. In India, a company secretary appears before the legal
bodies inter-alia includes National Company Law Tribunal (NCLT);
National Company Law Appellate Tribunal (NCLAT); Competition
Commission of India (CCI); Registrar of Companies; Tax Tribunals
etc.

STRATEGIC As per Allison and Kaye (2005), “Strategic planning is an organization’s

PLANNING process of defining its strategy, or direction, and making decisions on
allocating its resources to pursue this strategy. It may also extend to
control mechanisms for guiding the implementation of the strategy.”

In 1960s, the concept of Strategic planning gained prominent in

strategic management in corporate sector and it has maintained its
importance in contemporary times too.

Although, strategic planning process may be unique as per the specific

requirements of any organisation, yet the Strategic Planning process is
modelled in cycle shown above contains the steps most commonly
followed by most of the organisations:
• Deliberating mission of the organisation;
• Developing goals based on chosen mission;
• Examining internal environment (strengths and weaknesses);
• Examine external environment (opportunities and threats);
• Summarize findings of SWOT analysis;
• Formulate final strategy based on SWOT.

Strategic planning is an iterative process; it may begin with one mission

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and end with another, depending on the outcomes of the process.
BENEFITS OF STRATEGIC PLANNING:-
Strategic planning can help your organization in a number of critical
ways:
• Improved results and confidence: A proper plan may positively
influence organizational performance and can contribute to a greater
sense of purpose, progress and accountability among its team.
• Focus: Good strategic planning forces future thinking and can
refocus and re-energise a disorientated organization.
• Problem solving: Strategic planning focuses on an organization’s
most critical problems, choices and opportunities.
• Teamwork: Strategic planning provides an excellent opportunity to
build a sense of teamwork, to promote learning, and to build
commitment across the organization.
• Communication: All stakeholders have an interest in knowing the
direction in which organisation is heading and also how their
contribution will fit in overall plan.
• Greater control: Strategic planning can provide an organisation
greater control the environment in which it operates.

LIMITATIONS OF STRATEGIC PLANNING:-

• Costs can outweigh benefits: Strategic planning can consume a lot
of time and money. This can be wasteful if the strategic planning is
not successful.
• Development of Poor plans: Faulty assumptions about the future,
poor assessment of an organization’s capabilities, poor group
dynamics and information overload can lead to the development of
poor plans.
• Implementation: if not implemented properly, whole planning
exercise will go futile. Disillusionment, cynicism and feelings of
powerlessness often result if people have contributed energy for
development of a plan which is not implemented.

BOARD OF ROLE OF BOARD OF DIRECTORS IN MAKING STRATEGIC

DIRECTORS AND DECISION:-
CORPORATE • The institution of board of directors was based on the premise that a
SOCIAL group of trustworthy and respectable people should look after
RESPONSIBILITY the interests of the large number of shareholders who are not
directly involved in the management of the company.
• The position of the board of directors is that of trust as the board is
entrusted with the responsibility to act in the best interests of the
company.
• The contribution of board of directors of companies is critical for
ensuring appropriate directions with regard to leadership, vision,
strategy, policies, monitoring, supervision, accountability to
shareholders and other stakeholders, and to achieving greater levels
of performance on a sustained basis as well as adherence to the best
practices of corporate governance.
• An effective board defines the company’s purpose and then sets a
strategy to deliver it, shapes its culture and the way it conducts the
business.
• It sets the main trends and factors affecting the long-term success
and future viability of the company – for example technological
change or environmental impacts – and how these and the
company’s principal risks and uncertainties have been addressed.
• The board should have sound understanding of how value is created
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over time, key strategies and business models towards a sustainable
future.
• Boards have a responsibility for the health of the company and need
to take a long-term view. This is in contrast to the priorities of some
investors, not all of whom will be aligned with the pursuit of success
over the long- term.
• An effective board will manage the conflict between short-term
interests and the long-term impacts of its decisions; it will assess
shareholder and stakeholder interests from the perspective of the
long-term sustainable success of the company.

The board’s role is to provide entrepreneurial leadership of the company

within a framework of prudent and effective controls which enables risk
to be assessed and managed. An effective board develops and promotes
its collective vision of the company’s purpose, its culture, its values and
the behaviour it wishes to promote in conducting its business. The role
of Board in particular includes:
➢ Providing direction for management;
➢ Demonstrate ethical leadership, displaying and promoting the
behaviour through which a company wishes to conduct its business
➢ Consistent with the culture and values it has defined for the
organisation;
➢ Create a performance culture that drives value creation without
exposing the company to excessive risk of value destruction;
➢ Make well-informed and high-quality decisions based on a clear line
of sight into the business;
➢ Create the right framework for helping directors meet their statutory
duties under the Companies Act, 2013 and/or other relevant
statutory and regulatory regimes;
➢ Being accountable, particularly to those that provide the company's
capital; and
➢ Think carefully about its governance arrangements and embraces
evaluation of their effectiveness.

Corporate Social Responsibility (CSR):-

CSR is understood to be the way by which firms integrate social,
environmental and economic concerns into their values, culture,
decision making, strategy and operations in a transparent and
accountable manner and thereby establish better practices within the
firm, create wealth and improve society.

The 1950s saw the start of the modern era of CSR when it was more
commonly known as Social Responsibility. In 1953, Howard Bowen
published his book, “Social Responsibilities of the Businessman”, and is
largely credited with coining the phrase ‘corporate social responsibility’
and is perhaps the Father of modern CSR. Bowen asked: “what
responsibilities to society can business people be reasonably expected
to assume?” Bowen also provided a preliminary definition of CSR “it
refers to the obligations of businessmen to pursue those policies, to
make those decisions, or to follow those lines of action which are
desirable in terms of the objectives and values of our society.

CSR is a concept whereby companies not only to consider their

profitability and growth, but also interests of society and the
environment by taking responsibility for the impact of their activities on
the society, environment and communities in which they operate.

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CSR aims to fulfill expectations that society has from business and it is
viewed as a comprehensive set of social policies, practices and
programs that are integrated throughout the business operations. The
concept of CSR has evolved over the years and it is now used as a
strategy and a business opportunity to earn stakeholders’ goodwill.

Essentially, Corporate Social Responsibility is an inter-disciplinary

subject in nature and encompasses in its fold:
1. Social, economic, ethical and moral responsibility of companies and
managers,
2. Compliance with legal and voluntary requirements for business and
professional practice,
3. Challenges posed by needs of the economy and socially
disadvantaged groups,
4. Management of corporate responsibility activities, and
5. Proper implementation of the projects taken up by the company so
that the benefit goes to people in need.

CSR is an important business strategy because, wherever possible,

consumers want to buy products from companies they trust; suppliers
want to form business partnerships with companies they can rely on;
employees want to work for companies they respect; and NGOs,
increasingly, want to work together with companies seeking feasible
solutions and innovations in areas of common concern. CSR is a tool in
the hands of corporates to enhance the market penetration of their
products, enhance its relation with stakeholders. CSR activities carried
out by the enterprises affects all the stakeholders, thus making good
business sense, the reason being contribution to the bottom line.

DEFINITION OF CSR UNDER COMPANIES ACT, 2013:-

As per rule 2(d) of the Companies (CSR Policy) Rules, 2014, “Corporate
Social Responsibility (CSR)” means the activities undertaken by a
Company in pursuance of its statutory obligation laid down in section
135 of the Act in accordance with the provisions contained in these
rules, but shall not include the following, namely:-
i. activities undertaken in pursuance of normal course of business
of the company.
ii. any activity undertaken by the company outside India except for
training of Indian sports personnel representing any State or Union
territory at national level or India at international level;
iii. contribution of any amount directly or indirectly to any political
party under section 182 of the Act;
iv. activities benefitting employees of the company as defined in
clause (k) of section 2 of the Code on Wages, 2019;
v. activities supported by the companies on sponsorship basis for
deriving marketing benefits for its products or services;
vi. activities carried out for fulfilment of any other statutory
obligations under any law in force in India.

BENEFITS OF CSR:-
Business cannot exist in isolation; business cannot be oblivious to
societal development. The social responsibility of business can be
integrated into the business purpose so as to build a positive synergy
between the two. Some of the points highlighting the benefits of CSR
are depicted below:
• CSR creates a favourable public image, which attracts customers.
Reputation or brand equity of the products of a company which
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understands and demonstrates its social responsibilities is very
high. Customers trust the products of such a company and are
willing to pay a premium on its products. Organizations that
perform well with regard to CSR can build reputation, while those
that perform poorly can damage brand and company value when
exposed. Brand equity, is founded on values such as trust,
credibility, reliability, quality and consistency.
• CSR builds up a positive image encouraging social involvement of
employees, which in turn develops a sense of loyalty towards the
organization, helping in creating a dedicated workforce proud of its
company.
• The company’s social involvement discourages excessive regulation
or intervention from the Government or statutory bodies, and hence
gives greater freedom and flexibility in decision-making.
• A business organisation has a great deal of power and money,
entrusted upon it by the society and should be accompanied by an
equal amount of responsibility. In other words, there should be a
balance between the authority and responsibility.
• The atmosphere of social responsiveness encourages co-operative
attitude between groups of companies. One company can advise or
solve social problems that other organizations could not solve.
• Companies can better address the grievances of its employees and
create employment opportunities for the unemployed.
• Financial institutions are increasingly incorporating social and
environmental criteria into their assessment of projects. When
making decisions about where to place their money, investors are
looking for indicators of effective CSR management.
• In a number of jurisdictions, governments have expedited approval
processes for firms that have undertaken social and environmental
activities beyond those required by regulation.

FACTORS INFLUENCING CSR:-

Many factors and influences, including the following, have led to
increasing attention being devoted to CSR:
• Globalization – coupled with focus on cross-border trade,
multinational enterprises and global supply chains – is increasingly
raising CSR concerns related to human resource management
practices, environmental protection, and health and safety, among
other things.
• Governments and intergovernmental bodies, such as the United
Nations, the Organisation for Economic Cooperation and
Development (OECD) and the International Labour Organization
(ILO) have developed compacts, declarations, guidelines, principles
and other instruments that outline social norms for acceptable
conduct.
• Advances in communications technology, such as the Internet,
cellular phones and personal digital assistants, are making it easier
to track corporate activities and disseminate information about
them. Non-governmental organizations now regularly draw attention
through their websites to business practices they view as
problematic.
• Consumers and investors are showing increasing interest in
supporting responsible business practices and environmental
issues.
• Numerous serious and high-profile breaches of corporate ethics
have contributed to elevated public mistrust of corporations and

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highlighted the need for improved corporate governance,
transparency, accountability and ethical standards. However, being
ethical and being socially responsible in making positive measurable
contribution to society may not be same.
• Citizens in many countries are making it clear that corporations
should meet standards of social and environmental care, no
matter where they operate.
• There is increasing awareness of the limits of government legislative
and regulatory initiatives to effectively capture all the issues that
corporate social responsibility addresses.
• Businesses are recognizing that adopting an effective approach to
CSR can reduce risk of business disruptions, open up new
opportunities, and enhance brand and company reputation.
• Ethical persons shall be attracted to join the company.
• Effective CSR will depend on the mindset of executives of the
corporate who are taking up CSR initiatives.
• CSR also depends on the implementing agencies with regard to their
seriousness, integrity, honesty and attitude.

CORPORATE • Corporate governance is the broad term used to describe the

GOVERNANCE processes, customs, policies, laws and institutions that direct the
organizations and corporations in the way they act or administer
and control their operations.
• It works to achieve the goal of the organization and manages the
relationship with the stakeholders including the board of directors
and the shareholders.
• Corporate governance means to steer an organization in the desired
direction by determining ways to take effective strategic decisions.
• It also deals with the accountability of the individuals through a
mechanism which reduces the principal- agent problem in the
organization.
• Good corporate governance promotes investor confidence, which is
crucial to the ability of entities listed on stock exchanges to compete
for capital.
• Good corporate governance is essential to develop additional values
to the stakeholders as it 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.

OBJECTIVES OF CORPORATE GOVERNANCE:-

Corporate Governance is aimed at creating an organization which
maximizes the wealth of shareholders. It envisages an organization in
which emphasis is laid on fulfilling the social responsibilities towards
the stakeholders in addition to the earning of profits. The objectives of
Corporate Governance is to ensure the following:
• Properly constituted Board capable of taking independent and
objective decisions.
• Board is independent in terms of Non-Executive and Independent
Directors.
• Board adopts transparent procedures and practices.
• Board has an effective machinery to serve the concerns of the
Stakeholders.
• Board to monitor the functioning of the Management Team.
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• Properly constituted Board capable of taking independent and
objective decisions.
• Board is independent in terms of Non-Executive and Independent
Directors.
• Board adopts transparent procedures and practices.
• Board has an effective machinery to serve the concerns of the
Stakeholders.
• Board to monitor the functioning of the Management Team.
• Board remains in effective control of the affairs of the Company.

CORPORATE Corporate governance offers a comprehensive, interdisciplinary

GOVERNANCE AND approach to the management and control of companies. Corporate
ROLE OF COMPANY professionals of today and tomorrow must imbibe in themselves the
SECRETARY evolving principles of good corporate governance across the globe on a
continual basis. Therefore Corporate Governance has emerged as an
important academic discipline in its own right, bringing together
contributions from accounting, finance, law and management.
Excellence can be bettered only through continuous study, research
and academic and professional interaction of the highest quality in the
theory and practice of good corporate governance.

The corporate world especially looks upon Company Secretaries to

provide the impetus, guidance and direction for achieving world-class
corporate governance. Company Secretaries are the primary source of
advice on the conduct of business. This can take into its fold everything
from legal advice on conflicts of interest, through accounting advice, to
the development of strategy/corporate compliance and advice on
sustainability aspects.

COMPANY SECRETARY:-
• acts as a vital link between the company and its Board of Directors,
shareholders and other stakeholders and regulatory authorities;
• plays a key role in ensuring that the Board procedures are followed
and regularly reviewed;
• provides the Board with guidance as to its duties, responsibilities
and powers under various laws, rules and regulations;
• acts as a compliance officer as well as an in-house legal counsel to
advise the Board and the functional departments of the company on
various corporate, business, economic and tax laws;
• is an important member of the corporate management team and
acts as conscience keeper of the company.

The company secretary being an important human capital of the

management of the business organization should put all the efforts to
ensure that through his roles the corporate governance prevails and the
business is able to attain astral heights.

However, to be an effective player of strategic management, a company

secretary needs to embrace the following core competencies:
i. Possessing a thorough knowledge of the company’s business.
ii. Sound knowledge of laws relating to company, capital markets,
industry related etc.
iii. Must have strong Communication and Professional Skills; Legal
Skills; Management Skills and IT Skills.
iv. Being intuitive and sensitive to the thoughts and feelings of board
directors and the CEO.

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v. Staying current with changes in corporate governance and giving the
board and managers a “heads up” about new developments.
vi. Being able to work and achieve a consensus within multidisciplinary
settings.
vii. Being flexible, creative and detailed.
viii. Remaining calm under pressure and not losing sight of perspective.

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Lesson 2 Analyzing the External and Internal Environment
ENVIRONMENTAL The term environment in context of business refers to all external forces
INFLUENCES OF or factors having a direct or indirect bearing on events related to
BUSINESS functioning of business. Business helps a country to accomplish
economic growth, generates employment opportunities and makes
available various types of goods and services for human consumption. A
business organisation does not exist in a vacuum but has to take into
account external and internal environment. Business environment may
offer opportunities for any firm or pose threats to the firm. A business
firm is also affected by a number of internal factors, which are forces
inside the business organisation. While the policy makers and the
managers on the top are concerned with the external environment, the
middle level and lower level management are more concerned with the
internal environment.

Business environment may be defined as:

“The sum total of all individuals, institutions and other forces that are
outside the control of a business enterprise but the business still
depends upon them as they affect the overall performance and
sustainability of the business.”

The forces which compose the business environment are its suppliers,
competitors, consumers, government, bankers, customers, economic
conditions, market conditions, investors, technologies, political parties,
international institutions and multiple other institutions working
externally of a business constitute its business environment. These
forces influence the business even though they are outside the business
boundaries.

For example, changes in income tax rate by the government while

announcing the budget may make the customers reduce their
consumption expenditure and reduce quantity of products purchased
earlier from the company. Due to this macro level change, the business
will need to re-work with its pricing policy to adapt to the tax rate
change. Here, even though the business had no participation in
initiating the tax rate change, still had to adapt to this change by re-
working its pricing policy to maintain its previous profits.

In short, business decisions are influenced by, broadly, two sets of

factors, viz., firm related factors (internal environment) and external
influence (external environment).

IMPORTANCE OF ENVIRONMENTAL STUDY:-

The benefits of studying business environment are as follows:
• Development of strategies, long-term policies and objectives of the
firm.
• Development of action plans to deal with changes in environment.
• To forecast the consequences of socio-economic changes at the
national and global levels on the company’s stability.
• Analysis of competitor’s strategies and formulation of effectual
counter measures.
• To keep the business dynamic and up-to-date.

CHARACTERISTICS CHARACTERISTICS OF BUSINESS ENVIRONMENT:-

AND COMPONENTS 1. Environment is dynamic in nature: The environment keeps on
OF BUSINESS changing as the changes occur. Frequently the environment

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ENVIRONMENT changes, more frequently it will impact the business.
2. It has direct and indirect impact: Environment gives direct and
sometimes indirect effect on the working of the business.
3. Two types of factors: Environment mainly consists of two type of
factors namely internal and external environmental factors.
4. Environment is integral part of business: Without the support of
either internal or external forces, the business can’t run or operate.
5. Impact on business decisions: Due to environment, business can
take proactive or reactive decisions in its operation to make
operation more beneficial.
6. Multi-dimensional: This it always considers both aspects of a force
i.e., its positive as well as negative impacts.

The various components of business environment are–

(i) External Environment
(ii) Internal Environment.

(I) EXTERNAL ENVIRONMENT:-

External environment consists of all those factors that affect a business
enterprise from outside its boundaries. It consists of shareholders,
legal, competitors, customers, society, government rules and
regulations, policies and technology etc. These are uncontrollable
factors and firms have to adapt to the components of this environment.

External environment can be sub-divided into micro environment and

macro environment. Different players in the micro environment
normally do not affect all firms of a particular industry equally.
However, sometimes micro environment of the various businesses may
remain more or less same.

A. EXTERNAL MICRO ENVIRONMENT:-

The micro environment consists of factors in the company’s immediate
environment. Micro environment includes those players whose
decisions and actions have a direct bearing on the company. Production
and sale of goods are the two important aspects of modern business.
The various constituents of micro environment are as under:
(a) Suppliers:
▪ These supply of resources (finances, raw materials, fuel, power and
other factors of production) and pave the way for smooth conduct of
the business.
▪ Firms should keep themselves updated about the policies of
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suppliers as rise in the cost of inputs will influence their sales
volume and profitability.
▪ The scarcity of inputs also has a bearing on the production
schedules.
(b) Customers:
▪ The people who buy and use products and services of business and
are an important part of external micro environment.
▪ A business may have diverse customers such as households,
producers, retailers, Government and foreign buyers on its portfolio.
(c) Marketing intermediaries:
▪ In the firm’s external micro environment, marketing intermediaries
play an essential role of selling and distributing its products to the
final customers.
▪ They are the physical distribution firms (transport firm), service
agencies (media firms), financial intermediaries (banks, insurance
companies) etc. that assist in production, marketing and insurance
of the goods against loss of theft, fire etc.
(d) Competitors:
▪ Different firms in an industry compete with each other for sale of
their products.
▪ This competition may be on the basis of pricing of their products
and also non- price competition through competitive advertising
such as sponsoring some events to promote the sale of different
varieties and models of their products.
(e) Public:
▪ A public is any group that has an actual or potential interest in or
impact on an organisation’s ability to achieve its interest.
▪ Environmentalists, media groups, women’s associations, consumer
protection groups, local groups, citizens association are some
important examples of publics which have an important bearing on
the business decisions of the firm.

B. EXTERNAL MACRO ENVIRONMENT:-

Apart from micro environment, business firms also come across some
other external environmental forces which are beyond their control and
operate at macro level. Because of the uncontrollable nature of such
macro forces, a firm has to adjust or adapt itself to harness the
opportunities thrown by such forces and mitigate the threats. These
factors are:
(a) Economic Environment:
▪ Economic environment includes all those forces which have an
economic impact on business.
▪ Accordingly, total economic environment consists of agriculture,
industrial production, infrastructure, and planning, basic economic
philosophy, stages of economic development, trade cycles, national
income, per capita income, savings, money supply, price level, fiscal
and monetary policies and population.
▪ Economic Factors:- Government Fiscal and tax policies, General
Economic Conditions, Economic Systems, Economic Policies,
Economic Growth, Unemployment Rate, Interest rates, Currency
exchange rates, Taxes.

(b) Political-legal Environment:

▪ The political- legal environment includes the activities of three
political institutions, namely, legislature, executive and judiciary
which usually play a useful role in shaping, directing, developing
and controlling business activities.
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▪ In order to attain a meaningful business growth, a stable and
dynamic political-legal environment is very important.

Political Factors Legal Factors

• Political climate – amount of • Minimum wage laws
government activity • Environment protection
• Political stability and risk laws
• Government debt • Worker safety laws
• Budget deficit or surplus • Labour laws
• Corporate and personal tax rates • Copyright and patent
• Payroll taxes laws
• Import tariffs and quotas • Anti-monopoly laws
• Export restrictions • Municipal licences
• Restrictions on international • Laws that favour
financial flows. business investment.

(c) Technological Environment:

▪ Technology implies systematic application of scientific or other
organised knowledge to practical tasks or activities. It includes
innovations too.
▪ As technology is changing fast, businessmen should keep a close
look on those technological changes for its adaptation in their
business activities.
▪ Technological Environment Factors:- Efficiency of infrastructure,
including: roads, ports, airports, rolling stock, hospitals, education,
healthcare, communication, etc., Industrial productivity, New
manufacturing processes, New products and services of competitors,
New products and services of supply chain partners, Any new
technology that could impact the company, Cost and accessibility of
electrical power.

(d) Global or International Environment:

▪ The Global environment or ‘border less world’ plays an important
role in shaping business activity.
▪ With the liberalisation and globalisation of the Indian economy in
1991, there have been significant economic and political changes
and increasing role for the private sector to play since then.

(e) Socio-cultural Environment:

▪ The social environment consists of the social values; concern for
social problems like protection of environment against pollution,
providing employment opportunities, health care for the aged and
old etc.; consumerism (indulging in fair trade practices) to satisfy
human wants.
▪ The cultural environment represents values and beliefs, norms and
ethics of the society. The buying habits, buying capacities, tastes,
preferences and many other factors are dependent on the cultural
environment.

(f) Demographic environment:

▪ The demographic environment includes the gender ratio, size and
growth of population, life expectancy of the people, rural-urban
distribution of population, the technological skills and educational
levels, language skills of labour force.
• Social Cultural and Demographic Factors:- Birth and death
rates, Life expectancy rates, Attitude towards work and organization,

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Attitude towards government, Attitude towards authority, Ethical
norms, Value system, Composition of work force, Attitude towards
income, savings and capital formation, Social ethos towards work
and organization.

(g) Natural Environment:

▪ The natural environment is the ultimate source of many inputs such
as raw materials and energy, which firms use in their productive
activity.
▪ The natural environment which includes geographical and ecological
factors such as minerals and oil reserves, water and forest
resources, weather and climatic conditions and port facilities are all
highly significant for various business activities.

(h) Ecological environment:

▪ Though natural resources such as air, water and solar energy can
be replenished, yet, business organisations are polluting these
resources by dumping chemical industrial wastes in water and
affecting the ozone layer.
▪ The environment damage to water, earth and air caused by
industrial activity of mankind is harmful for future generations.

(II) INTERNAL ENVIRONMENT:-

Survival and growth of a business depends upon its strengths and
adaptability to the external environment. The internal strengths
represent its internal environment. These consist of financial, physical,
human and technological resources. The factors in internal
environment of business are to a certain extent controllable because the
firm can change or modify these factors to improve its efficiency.
However, the firm may not be able to transform all the factors. The
various internal factors are:
(a) Value system:
▪ The value system of an organisation means the ethical beliefs that
guide the organisation in achieving its mission and objectives.
▪ The value system of a business organisation also determines its
behaviour towards its employees, customers and society at large.
▪ The value system of a business organisation makes an important
contribution to its success and its prestige in the world of business.

(b) Mission and objectives:

▪ The business domain of the company, direction of development,
business philosophy, business policy etc. are guided by the mission
and objectives of the company.
▪ The objective of all firms is assumed to be maximisation of profit.
▪ Mission is defined as the overall purpose or reason for its existence
which guides and influences its business decision and economic
activities.

(c) Organisation structure:

▪ The organisational structure, the composition of the board of
directors, the professionalism of management etc. are important
factors influencing business decisions.
▪ An efficient working of a business organisation requires that the
organisation structure should be conducive for quick decision-
making.
▪ The board of directors is the highest decision-making body in a
business organisation.
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(d) Corporate culture:
▪ Corporate culture and style of functioning of top managers is
important factor for determining the internal environment of a
company.
▪ In a closed and threatening type of corporate culture the business
decisions are taken by top level managers while the middle level and
lower- level managers have no say in business decision making.
▪ In an open and participating culture, business decisions are taken
by the lower- level managers and top management has a high degree
of confidence in the subordinates.
▪ Free communication between the top- level management and lower-
level managers is the rule in this open and participatory type of
corporate culture.

(e) Quality of human resources:

▪ Quality of employees that is of human resources of a firm is an
important factor of internal environment of a firm.
▪ The characteristics of the human resources like skill, quality,
capabilities, attitude and commitment of its employees etc. could
contribute to the strength and weaknesses of an organisation.

(f) Labour unions:

▪ Labour unions collectively bargains with the managers for better
wages and better working conditions of the different categories of
workers etc.
▪ For the smooth working of a business firm good relations between
management and labour unions is required.

(g) Physical resources and technological capabilities:

▪ Physical resources such as plant and equipment and technological
capabilities of a firm determine its competitive strength which is an
important factor for determining its efficiency and unit cost of
production.
▪ Research and development capabilities of a company determine its
ability to introduce innovations which enhances productivity of
workers.

PORTER’S FIVE DEFINITION:-

FORCES MODEL The tool was created by Harvard Business School professor Michael
Porter. Porter’s five forces model is an analysis tool that uses five
industry forces to determine the intensity of competition in an industry
and its profitability level. Since its publication in 1979, it has turned
into one of the most popular and highly regarded business strategy
tools.

Porter was of the firm viewpoint that the organizations should keep a
close watch on their rivals, but he also encouraged them to go beyond
the boundaries of their competitors and make an assessment of other
factors impacting the business environment. In this process, he
identified five forces that build competitive environment, and have a
take away its profitability.

The five forces identified are:

1. Threat of New Entrants
2. Bargaining power of suppliers
3. Bargaining power of buyers
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4. Threat of Substitutes
5. Rivalry among existing competitors

These five forces establish an industry structure and the level of

competition in that industry. The stronger the competitive forces are in
the industry, the less profitable it becomes ultimately. An industry with
low barriers to enter, having not many buyers and suppliers but many
substitute products and competitors will be viewed as highly
competitive and thus, lesser attractive due to its low profitability.

It is every strategic leader’s job to make an assessment of company’s

competitive position in the industry and to identify its strengths or
weaknesses to make stronger that position. The model is very valuable
in formulating firm’s strategy as it reveals the strength of each of these
five key forces.

❖ Threat of new entrants: This force determines the ease of new

entrants to enter a particular industry. If an industry is profitable
and there are hardly any barriers to enter, competition intensifies
rapidly. Therefore, with the entry of more rivals, firms begin to
compete for the fixed market share, profits start to decline. Hence, it
is critical for existing organizations in the industry to build high
barriers to enter to discourage new entrants. Threat of new entrants
is high when:
➢ Smaller capital is required to make an entry;
➢ Existing companies are not influential/dominant to prevent new
entrants;
➢ Existing firms do not have patents, trademarks or do not strong
brand value;
➢ There is no/little government regulation;
➢ Customer switching costs are low;
➢ There is low customer loyalty;
➢ Products are not being able to be differentiated; and
➢ Economies of scale can be effortlessly acquired.

❖ Bargaining power of suppliers: This is determined by the power of

the suppliers to raise their prices. It is also determined by the
volume of potential suppliers in case existing supplier increase the
price. Bargaining power will also be lower in case suppliers are not
supplying identical product/service but a unique one. And the cost
of switching from one supplier to another. Suppliers have dominant
bargaining power when:
➢ There are a small number of suppliers but plenty of buyers;
➢ Suppliers are large in number and pose a threat to forward
integrate;
➢ There are not many substitutes of raw materials;
➢ Suppliers hold scarce/unique resources;
➢ Cost of switching supplier is relatively high.

❖ Bargaining power of buyers: Bargaining power of the buyers

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would depend on the number of the buyers and the volume of their
order. It would also be a product of the cost of switching from
company’s products and services to products/services of the
competitors. Buyers exert strong bargaining power when:
➢ They buy in high volumes or control many access points to the
final customer;
➢ There are only few buyers in the market;
➢ Switching costs to competitors are low;
➢ They threaten to backward integrate;
➢ There are many close substitutes;
➢ Buyers are price sensitive.

❖ Threat of substitutes: This force is especially threatening when

buyers can easily find substitute products with attractive prices or
better quality and when buyers can switch from one product or
service to another with little cost.

For example, if a company supplies a unique software product that

automates data related to human resource records, the buyer/client
may substitute the software either by making the process manual or
outsourcing it.

❖ Rivalry among existing competitors: It refers to the number and

strength of competitors in the industry. How does the quality of their
products and services compare with the company? Where rivalry is
intense, companies can attract customers with aggressive price cuts
and high-impact marketing campaigns. On the other hand, where
competitive rivalry is minimal, and the product is differentiated,
there will be high monopoly and steady profits for the company. This
force is the major determinant on how competitive and profitable an
industry is. In competitive industry, firms have to compete
aggressively for a market share, which results in low profits. Rivalry
among competitors is intense when:
➢ There are several competitors;
➢ Exit barriers are high;
➢ Industry of growth is slow or negative;
➢ Products are not differentiated
➢ Products can be easily substituted;
➢ Low customer loyalty.

Although, Porter originally introduced five forces affecting an industry,

scholars have suggested including the sixth force: complements.
Complements increase the demand of the primary product with which
they are used, thus, increasing firm’s and industry’s profit potential.
For example, Amazon Prime complements Amazon and Jio TV
complements Jio telecom business. As a result, the sale of both
products shot up as compared to competitors.

IMPLEMENTING THE MODEL

The following steps are to be followed to implement the Porter’s Model:
• Step 1. Gather the information on each of the five forces.
• Step 2. Analyze the results and display them on a diagram.
• Step 3. Formulate strategies based on the conclusions.

Step 1. Gather the information on each of the five forces. What

managers should do during this step is to gather information about
their industry and to check it against each of the factors (such as
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“number of competitors in the industry”) influencing the force. We have
already identified the most important factors in the table below.

Porter’s Five Forces Factors

Buyer power Supplier power
• Number of buyers • Number of suppliers
• Size of buyers • Suppliers’ size
• Size of each order • Ability to find substitute
• Buyers’ cost of switching materials
suppliers • Materials scarcity
• There are many substitutes • Cost of switching to
• Price sensitivity alternative materials
• Threat of integrating • Threat of integrating forward
backward
Threat of new entry Rivalry among existing
• Amount of capital required competitors
• Retaliation by existing • Number of competitors
companies • Cost of leaving an industry
• Legal barriers (patents, • Industry growth rate and
copyrights, etc.) size
• Brand reputation • Product differentiation
• Product differentiation • Competitors’ size
• Access to suppliers and • Customer loyalty
distributors • Threat of horizontal
• Economies of scale integration
• Sunk costs • Level of advertising expense
• Government regulation

Threat of substitutes
➢ Number of substitutes
➢ Performance of substitutes
➢ Cost of changing

Step 2. Analyze the results and display them on a diagram. After

gathering all the information, you should analyze it and determine how
each force is affecting an industry. For example, if there are many
companies of equal size operating in the slow growth industry, it means
that rivalry between existing companies is strong. Remember that five
forces affect different industries differently so do not use the same
results of analysis for even similar industries.

Step 3. Formulate strategies based on the conclusions. At this

stage, managers should formulate firm’s strategies using the results of
the analysis For example, if it is hard to achieve economies of scale in
the market, the company should pursue cost leadership strategy.
Product development strategy should be used if the current market
growth is slow and the market is saturated.

Although, Porter’s five forces is a valuable tool to analyze industry’s

structure and to formulate firm’s strategy, it has its limitations and
requires supplementary analysis to be done, such as SWOT, PEST or
Value Chain analysis.

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Lesson 3 Business Policy and Formulation of Functional Strategy
BUSINESS • Business policies are the guidelines developed by an organization to
POLICY – govern the actions of those who are a part of it.
INTRODUCTION • They define the potential limits within which decisions must be made.
• Business policy also deals with acquisition of resources with which
organizational goals can be achieved.
• Business Policy defines the scope within which decisions may be taken
by the subordinates in an organization.
• It permits the lower level management to deal with the routine
problems and issues on their own without reverting back to top
management for the purpose of decision making.
• Business policy is the study of the roles and responsibilities of top level
management, significant issues affecting organizational success and
the decisions affecting organization in long-run.
• The top management consists of those managers who are primarily
responsible for long-term decisions and carry designations such as
Chief executive, President, General Manager, or executive Director.
These are the persons who are not concerned with the day-to-day
problems but are expected to devote their time and energy for thinking
and deciding about the future course of action.

FEATURES OF BUSINESS POLICY

An effective business policy must have following features-
1. Specific – every policy must have a basic feature of being
specific/definite. If it is uncertain, then its implementation will become
difficult.
2. Clear – Policy must be unambiguous and as clear as possible in order
to guide the subordinates effectively. It should avoid frequent use of
jargons and connotations to create any chaos.
3. Reliable and Uniform – Policy must be uniform and reliable enough to
be efficiently followed by the subordinates.
4. Appropriate – Policy should be appropriate to the represent the
organizational goals.
5. Simple – A policy should be simple and easily understood by each and
every person in the organization.
6. Inclusive/Comprehensive – In order to have a wide scope, a policy
must be comprehensive.
7. Flexible – Policy should be flexible in application. It should be wide in
scope so as to ensure that the line managers use them in
repetitive/routine scenarios.
8. Stable – Policy should be stable so as to avoid the scope of any
indecisiveness and uncertainty in minds of those who look into it for
guidance.

EVOLUTION BASED ON MANAGERIAL PRACTICES

• The development in business policy as arising from the use of planning
techniques by managers. Starting from day- to-day planning in earlier
times, managers tried to anticipate the future through preparation of
budgets and using control systems like capital budgeting and
management by objectives.
• With the inability of these techniques to adequately emphasize the role
of future, long-range planning came to be used. Soon, long-range
planning was replaced by strategic planning, and later by strategic
management: a term is currently used to describe the process of
strategic decision – making.
• Strategic management is the theoretical framework for business policy

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courses today. Policy-making became the prime responsibility of
erstwhile entrepreneurs who later assumed the role of senior
management.

The Indian Scenario

• Formal management education started in India in the late fifties and
gained an impetus with the setting up of the Indian Institutes of
Management (IIMs) and the Administrative Staff College of India in the
early sixties. In the formative years of the IIMs, the curriculum and
philosophy of management education “…were borrowed substantially
from the American business schools”.
• The IIM, Ahmedabad based its teaching methodology on the Harvard
model of developing and using case studies as the major tool.
• With the setting up of three more IIMs at Bangalore, Calcutta and
Lucknow and the creation of university departments, management
education has experienced an unparalleled growth in the last three
decades.
• Different nomenclature used for the course title includes, besides
business policy; corporate planning, corporate strategy and planning,
management policy and, lately, strategic planning or strategic
management.

IMPORTANCE OF BUSINESS POLICY

To highlight the importance of business policy, we consider four areas
where this course proves to be beneficial.
• From the viewpoint of the Course itself
Business policy seeks to integrate knowledge and experience gained in
various functional areas of management. It enables the learner to
understand and make sense of the complex interaction that takes
place between different functional area.

Business policy deals with the constraints and complexities of the real-
life business. In contrast, the functional area courses are based on a
structured, specialized and well-developed body of knowledge resulting
from the simplification of the complexity of the overall takes and
responsibilities of management.

For the development of a theoretical structure of its own, business

policy cuts across the narrow functional boundaries and draws upon a
variety of sources; other courses in management curriculum and from
a wide variety of disciplines like economics, sociology, psychology,
demography, political science, etc. In doing so, business policy offers a
very broad perspective to its learners.

Business policy makes the study and practice of management more

meaningful as one can view business decision-making in its proper
perspective. For instance, in the context of business policy, a short-
term gain for a department or a sub-unit is willingly sacrificed in the
interest of the long-term benefit that may accrue to the organisation as
a whole.

• For the understanding of Business Environment

Regardless of the level of management where a person is, business
policy creates an understanding of how policies are formulated. This
helps in creating an appreciation of the complexities of the
environment that the senior management faces in policy formulation.

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By gaining an understanding of the business environment, managers
become more receptive to the ideas and suggestions of the senior
management. Such an attitude on the part of managers makes the
task of policy implementation simpler.

By being able to relate the environmental changes to policy changes

within the organisation, managers feel themselves to be a part of a
greater design. This helps in reducing their feelings of isolation.

• For understanding the Organisation

Business policy presents a basic framework for understanding
strategic decision-making while a person is at the middle level of
management. Such a framework, combined with the experience gained
in working in a specialized functional area, enable a person to make
preparations for handling general management responsibilities. this
benefits the organisation in a variety of ways.

Business policy, like most other areas of management, brings to the

organisation and also to its managers, the benefit of years of distilled
experience in strategic decision-making. Case study, which is the most
common pedagogical tool in business policy, provides illustrations of
real-life business strategy formulation and implementation.

FRAMEWORK OF • The terms vision/mission, objectives, goals and targets are used
STRATEGIC interchangeably many a time. However, in corporate world, they are
MANAGEMENT often used distinctively. However, it depends upon organization to
organisation, how they interpret.
• For example, while some organisations may opine that mission refers
to the current situation, many others consider them in a future (often
long term) perspective.
• Some companies state the mission after the vision statement as a
logical evolution from the vision whereas for some companies there is
only a mission statement that would reflect the vision.
• One who goes through the statements of vision, mission, purpose,
motto, objectives, values etc. of different organizations would be
amazed by the wide differences in the perception about the meaning of
each of these terms.
• A review of 622 mission statements by Graham and Havlik has
revealed that all mission statements varied in length as well as tone.
No two mission statements had the exact same formula, or pattern.
• There is a logical linkage and evolution between these different
concepts such as Vision leads to mission (which fosters the vision) and
mission leads to objectives (which are designed to achieve the mission),
objectives lead to goals (which are designed to achieve the objectives)
and goals lead to targets (which are set to achieve the goals).

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VISION • Vision serves the purpose of stating what an organization wishes to
achieve in the long run.
• It articulates the position that the organisation would like to occupy in
future.
• The vision is about looking forward and about formalizing where you,
and the business, are going. It is a future aspiration that leads to an
inspiration of being the best in one’s business sphere.
• It creates a common identity and a shared sense of purpose.
• A vision statement is a company’s road map, indicating both what the
company wants to become and guiding transformational initiatives by
setting a defined direction for the company’s growth.
• Vision statements undergo minimal revisions during the life of a
business, unlike operational goals which may be updated from year-to-
year.

FEATURES
❖ Concise: able to be easily remembered and repeated
❖ Clear: defines a prime goal
❖ Time horizon: defines a time horizon
❖ Future-oriented: describes where the company is going rather than the
current state
❖ Stable: offers a long-term perspective and is unlikely to be impacted by
market or technology changes
❖ Challenging: not something that can be easily met and discarded
❖ Abstract: general enough to encompass all of the organization’s
interests and strategic direction
❖ Inspiring: motivates employees and is something that employees view
as desirable.

PURPOSE
Vision statement may fill the following functions for a company:
• Serve as foundation for a broader strategic plan.
• Motivate existing employees and attract potential employees by clearly
categorizing the company’s goals and attracting like-minded
individuals.
• Focus company efforts and facilitate the creation of core competencies
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by directing the company to only focus on strategic opportunities that
advance the company’s vision.
• Help companies differentiate from competitors. For example, profit is a
common business goal, and vision statements typically describe how a
company will become profitable rather than list profit directly as the
long-term vision.

MISSION “A mission statement is an enduring statement of purpose that

distinguishes one business from other similar firms. A mission statement
identifies the scope of a firm’s operations in product and market terms.”

According to McGinnis, a mission statement:

• should define what the organisation is and what the organisation
aspires to be;
• should be limited enough to exclude some ventures and broad enough
to allow for creative growth;
• should distinguish a given organisation from all others;
• should serve as a framework for evaluating both current and
prospective activities; and
• should be stated in terms sufficiently clear to be widely understood
throughout the organisation.

A mission statement has certain desirable components. An ideal mission

statement of business should define its customers, products or services,
markets, technology, philosophy and self-concept. However, an
examination of the mission statement of different organisations shows that
the mission statements of several of them are not so comprehensive.

ELEMENTS OF MISSION STATEMENT

➢ Clearly Articulated
➢ Relevant
➢ Written in a positive tone
➢ Unique
➢ Enduring
➢ Adapted to the Target Audience.

The mission statement should define its customers, products or services,

markets, technology, philosophy and self-concept. The following questions
to be considered while preparing for a mission statement.
1. What is the basic purpose of your organisation?
2. What is unique about your organisation?
3. What is likely to be different about your business five years down the
line?
4. Who are, and who should be, your core customers?
5. What are, and what should be, your principal economic concerns?
6. What are the basic beliefs, values and philosophical priorities of your
firm?

Comparison
Mission Statement versus Vision Statement
Mission Statement Vision Statement
About A Mission statement talks about A Vision statement
HOW you will get to where you outlines WHERE you
want to be. Defines the purpose want to be.
and primary objectives related to Communicates both
your customer needs and team the purpose and

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values. values of your
business
Answer It answers the question, “What It answers the
do we do? What makes us question, “Where do
different?” we aim to be?”

Time A mission statement talks about A vision statement

the present leading to its future. talks about your
future.
Function It lists the broad goals for which It lists where you see
theorganization is formed. Its yourself some years
prime function from now. It inspires
is internal; to define the key you to give your best.
measure or measures of the It shapes your
organization’s success and its understanding of why
prime audience is the leadership, you are working here.
team and stockholders.

Developing What do we do today? for whom Where do we want to

a do we do it? What is the benefit? be going forward?
statement In other words, Why we? do what When do we want to
we do? Questions on What, for reach that stage? How
Whom and Why? do we want to do it?

Features Purpose and values of the Clarity and lack of

of organization: Who are the ambiguity: Describing
an organization’s primary “clients” a bright future (hope);
effective (stakeholders)? What are the Memorable and
statement responsibilities of the engaging expression;
organization towards the clients? realistic aspirations,
achievable; alignment
with organizational
values and culture.
OBJECTIVES • To accomplish the mission of the organization, a number of objectives
AND GOALS are formulated. Achievement of the organisational objectives, in turn,
requires the formulation and fulfillment of departmental and unit
goals.
• Used broadly, the word objectives cover “long-range company aims,
more specific department goals, and even individual assignments.
Thus, objectives may pertain to a wide or narrow part of an enterprise,
and they may be either long or short range.”
• Objectives should not be static, they should be dynamic. That is,
changes in the environment and/or changes in the organisational
strengths and weaknesses may call for modifications to objectives.
• A goal is defined as “an intermediate result to be achieved by a certain
time as part of the grand plan. A plan can, therefore, have many goals.”
Specific goals are sometimes referred to as targets.

IMPORTANCE OF OBJECTIVES
➢ Justify the organization
➢ Provide direction
➢ Basis for Management by Objectives
➢ Help Strategic Planning/Management
➢ Provide standards for assessment and control
➢ Help Decentralization.

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Objectives vs. Goals: The terms objectives and goals are differentiated by
some managers based on generality and specificity of what an
organisation seeks to achieve. For example, objective of an organisation is
to improve its profitability whereas one of the goals of the organisation is
to increase the net sales by 20% during FY 2023- 24 over FY2022-2023.
Thus, objectives are based on mission statement and open-ended
statements whereas goals are closed ended statements.

PROCESS OF FORMULATING MISSION AND OBJECTIVES

Environmental Analysis: A cross-functional analysis of data and
information and its results provide a basis for the establishment of
organisational direction in terms of mission and objectives. Environmental
analysis should provide managers with adequate information and data for
reflection. The data and information from all the levels of environment —
general, specific, operating and internal — should be collected.

Vision and Mission: Environmental analysis serves as a foundation for

the development and formulation of vision and mission. Managers should
understand the information and data derived from the environment, its
analysis and better equip themselves to have a visionary reflections. This
reflection helps them to formulate and write the organisational vision and
mission.

Organisational Objectives: Organisational vision and mission serve as

the basis for development of appropriate organisational objectives.
Managers view that objectives should be consistent with the
organisational vision and mission.

Specific targets: After the objectives are formulated by the top

management of the organisation, they should be translated into specific
targets by the middle and lower level management. These specific targets
help for the effective achievement of objectives at different levels.

STRATEGIC CORPORATE LEVEL STRATEGY

LEVELS OF THE • Corporate Strategy is the essence of strategic planning process. It
ORGANIZATION determines the growth objective of the company, i.e. direction,
timing, extent and pace of the firm’s growth.
• It highlights the pattern of business moves and goals concerning
strategic interest, in different business units, product lines, customer
groups, etc.
• It defines how the firm will remain sustainable in the long run.
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• Corporate level strategy occupies the highest level of strategic decision
making and covers actions dealing with the objective of the firm,
acquisition and allocation of resources and coordination of strategies of
various SBUs for optimal performance.
• Corporate Strategy can be explained as the management plan
formulated by the highest level of organization echelon, to direct and
operate the entire business organization.
• It alludes to the master plan that leads the firm towards the success.
So, the more the aptness in the degree of the corporate level strategy,
the higher will be the chances of firm’s success in the market.

BUSINESS-LEVEL STRATEGY
• Business level strategy is applicable in those organizations, which have
different businesses-and each business is treated as Strategic
Business Unit (SBU).
• the fundamental concept in SBU is to identify the discrete
independent product / market segments served by an organization.
• Since each product/market segment has a distinct environment, a
SBu is created for each such segment. For example, reliance Industries
Limited operates in textile fabrics, yarns, fibers, and a variety of
petrochemical products.
• For each product group, the nature of market in terms of customers,
competition, and marketing channel differs.
• Therefore, it requires different strategies for its different product
groups. thus, where SBu concept is applied, each SBU sets its own
strategies to make the best use of its resources given the
environment it faces.
• At such a level, strategy is a comprehensive plan providing objectives
for SBus, allocation of resources among functional areas and
coordination between them for making optimal contribution to the
achievement of corporate- level objectives.
• The corporate strategy sets the long- term objectives of the firm and the
broad constraints and policies within which a SBU operates. The
corporate level will help the SBU define its scope of operations and also
limit or enhance the SBUs operations by the resources the corporate
level assigns to it.
• Corporate strategy is not the sum total of business strategies of the
corporation but it deals with different subject matter.

FUNCTIONAL-LEVEL STRATEGY
• Functional strategy, as is suggested by the title, relates to a single
functional operation and the activities involved therein.
• Decisions at this level within the organization are often described as
tactical.
• Such decisions are guided and constrained by some overall strategic
considerations.
• Functional strategy deals with relatively restricted plan providing
objectives for specific function, allocation of resources among different
operations within that functional area and coordination between them
for optimal contribution to the achievement of the SBU and corporate-
level objectives.
• Below the functional-level strategy, there may be operations level
strategies as each function may be divided into several sub functions.
For example, marketing strategy, a functional strategy, can be
subdivided into promotion, sales, distribution, pricing strategies with
each sub function strategy contributing to functional strategy.
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Comparison Chart
Basis for Business Strategy Corporate Strategy
Comparison
Meaning Business Strategy is the Corporate Strategy is stated
strategy framed by the in the mission statement,
business managers to which explains the
strengthen the overall business type and ultimate
performance of the goal of the firm.
enterprise.
Created by Middle level Top level management
management
Nature Executive and Decisive and Legislative
Governing
Relates to Selection of plan to Business selection in which
fulfill the objectives the Company should
company of organization compete
Deals with Particular business unit Entire business
or division organization
Term Short term strategy Long term strategy
Focus growth Competing successfully Maximizing profitability and
in the Marketplace business growth
Approach Introverted Extroverted
Major Cost Leadership, Focus Expansion, Stability and
strategies and Differentiation. Retrenchment.
Differentiation

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FORMULATION FINANCE STRATEGY
OF FUNCTIONAL Financial metrics have long been the standard for assessing a firm’s
STRATEGY performance. financial goals and metrics are established based on
benchmarking the “best-in-industry” and include:
1. Free Cash Flow
• This is a measure of the firm’s financial soundness and shows how
efficiently its financial resources are being utilized to generate
additional cash for future investments.
• It represents the net cash available after deducting the investments
and working capital increases from the firm’s operating cash flow.
2. Economic Value-Added
• This is the bottom-line contribution on a risk-adjusted basis and helps
management to make effective, timely decisions to expand businesses
that increase the firm’s economic value and to implement corrective
actions in those that are destroying its value.
• It is determined by deducting the operating capital cost from the net
income.
3. Asset Management
• This calls for the efficient management of current assets (cash,
receivables, inventory) and current liabilities (payables, accruals)
turnovers and the enhanced management of its working capital and
cash conversion cycle.
4. Financing Decisions and Capital Structure
• Here, financing is limited to the optimal capital structure (debt ratio or
leverage), which is the level that minimizes the firm’s cost of capital.
• this optimal capital structure determines the firm’s reserve borrowing
capacity (short- and long-term) and the risk of potential financial
distress.
5. Profitability Ratios
• This is a measure of the operational efficiency of a firm.
• Profitability ratios also indicate inefficient areas that require corrective
actions by management; they measure profit relationships with sales,
total assets, and net worth.
6. Growth Indices
• Growth indices evaluate sales and market share growth and determine
the acceptable trade-off of growth with respect to reductions in cash
flows, profit margins, and returns on investment.
• Growth usually drains cash and reserve borrowing funds, and
sometimes, aggressive asset management is required to ensure
sufficient cash and limited borrowing.
7. Risk Assessment and Management
• A firm must address its key uncertainties by identifying, measuring,
and controlling its existing risks in corporate governance and
regulatory compliance, the likelihood of their occurrence, and their
economic impact.
• then, a process must be implemented to mitigate the causes and
effects of those risks.
8. Tax Optimization
• Many functional areas and business units need to manage the level of
tax liability undertaken in conducting business and to understand that
mitigating risk also reduces expected taxes.
• Moreover, new initiatives, acquisitions, and product development
projects must be weighed against their tax implications and net after-
tax contribution to the firm’s value. In general, performance must,
whenever possible, be measured on an after-tax basis.

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STRATEGY FINANCIAL MANAGEMENT
Strategic Financial Management (SFM) is concerned with development of a
finance strategy by identification of some key strategic alternatives which
are capable of maximizing entity’s Net Present Value (NPV) and by
allocation of scarce capital resources among the competing opportunities.
It is concerned with taking these three key financial decisions:

1. Investment Decision
In the course of business, the available finance with business is usually
limited but the opportunities to invest are plenty. Hence, the finance
manager is required to access the profitability or return of various
individual investment decisions and choose a policy which ensures high
liquidity, profitably of an organization. It includes short term investment
decisions known as working capital management decisions and long term
investment decisions known as capital budgeting decisions.
• Capital Budgeting:- It is the process of making investment decisions
in capital expenditure, benefits of which are expected over a long
period of time exceeding one year. Investment decision should be
evaluated in the terms of expected profitability, costs involved and the
risks associated. This decision is important for setting up of new units,
expansion of present units, reallocation of funds etc.
• Short Term Investment Decision:- It relates to allocation of funds
among cash and equivalents, receivables and inventories. Such
decision is influenced by trade-off between liquidity and profitability.
Proper working capital management policy ensures higher profitability,
proper liquidity and sound structural health of the organization.

2. Financing Decision
Once the requirement of funds has been estimated, the next important
step is to determine the sources of finance. The manager should try to
maintain a balance between debt and equity so as to ensure minimized
risk and maximum profitability to business.

3. Dividend Decision
Dividend is that part of profit, which is distributed to shareholders as a
reward to high-risk investment in business. It is basically concerned with
deciding as to how much part of profit will be retained for the future
investments and how much part of profit will be distributed among
shareholders. High rate of dividend ensures higher wealth of shareholders
and also increase market price of shares.

MARKETING STRATEGY
• Formulation of Marketing Strategy is the means by which a firm is
effectively able to differentiate itself from its competitors by capitalising
on its strengths to provide consistently better value to its customers
than its competitors.
• Marketing strategy is a long-term, forward-looking approach for
attaining sustainable competitive advantage.
• It involves an analysis of the company’s existing strategic situation
before the formulation, evaluation and selection of market-oriented
competitive position that contributes to the company’s goals and
marketing objectives.
• In short, the Strategic Marketing answers three ‘W’s:
1. Which markets to compete in;
2. What is the basis of the firm’s competitive; and
3. When to compete

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STRATEGIC THE STRATEGIC GAP
MARKETING Marketing strategy involves mapping out the company’s direction for the
PLANNING: future, be it three, five or ten years. It involves carrying out a 360° review
AN OVERVIEW of the firm and its operating environment with a view to identify new
business opportunities that the firm could potentially leverage for
competitive advantage. Strategic planning may also reveal market threats
that the firm may need to consider for long-term sustainability.

Strategic planning is concerned with identifying the business

opportunities that are likely to be successful and evaluates the firm’s
capacity to leverage such opportunities. It seeks to identify the strategic
gap; that is the difference between where a firm is currently situated
where it should be situated for sustainable, long-term growth.

MARKET POSITION AND STRATEGY

In terms of market position, firms may be classified as market leaders,
market challengers, market followers or market nichers.
❖ Market leader: The market leader is the one who controls significant
market share. the goal of a market leader is to reinforce their
prominent position through the use of branding to develop and
maintain their corporate image and to restrict the competitors brand.
Market leaders may adopt unconventional or unexpected approaches
to building growth and their tactical responses are likely to include:
product proliferation; diversification; multi-branding; erecting barriers
to entry; vertical and horizontal integration and corporate acquisitions.
❖ Market challenger: The market challenger holds the next highest
market share in the industry, following closely the most dominant
player. Their market posture is generally offensive because they have
less to lose and more to gain by taking risks. They will compete ‘neck
to neck’ with the market leader in an effort to grab their market share.
their overall strategy is to gain market share through product,
packaging and service innovations and new market.
❖ Market follower: Followers are generally content by taking a backseat
and follow the policy of wait and watch. they rarely invest in their own
funds in R&D and sit and relax to watch market leaders to bring out
novel and innovative products and afterwards adopt a “me-too”
approach. Their strategy is to maintain their market position by
preserving existing customer base. Their strategy is to maintain steady
profits by controlling costs.
❖ Market Nicher: The market nicher occupies a small niche in the
market in order to avoid ‘neck to neck’ competition. Their objective is to
build strong ties with the existing customer base and develop strong
loyalty with them. Their strategy is to develop and build the smaller
segment and protect it. Tactically, nichers are likely to improve the
product or service offering, leverage cross-selling opportunities, offer
value for money and build relationships through superior after sales
service, service quality and other related value adding activities.

ENTRY STRATEGIES
Marketing strategies may differ depending on the unique situation of the
individual business. According to Lieberman and Montgomery, every
entrant into a market – whether it is new or existing – is classified under a
Market Pioneer, Close follower or a Late follower.
• PIONEERS
o Market pioneers are known for innovative product development,
resulting into some early entry market share advantages than the

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followers as they have the first-mover advantage, pioneers must ensure
that they are having at least one or more of three primary sources:
technological Leadership, Pre-emption of assets or buyer switching
costs.
o Technological Leadership means gaining an advantage through either
Research and Development or the “learning curve” for using the
research and development as a key point of selling.
o Pre-emption of Assets can help gain an advantage through acquiring
scarce assets within a certain market, allowing the first-mover to be
able to have control of existing assets rather than those that are
created through new technology.
o By being a first entrant, it is easy to avoid higher switching costs
compared to later entrants.
• CLOSE FOLLOWERS
o If there is a profit potential in the innovation introduced by marker
pioneer, many businesses would step in offering the same product.
Such people are more commonly known as Close followers.
o These entrants into the market can also be seen as challengers to the
Market Pioneers and the Late followers. This is because early followers
are more than likely to invest a significant amount in Product Research
and Development than later entrants.
o Due to the nature of early followers and the research time being later
than Market Pioneers, different development strategies are used as
opposed to those who entered the market in the beginning, and the
same is applied to those who are Late followers in the market.
o By having a different strategy, it allows the followers to create their
own unique selling point and perhaps target a different audience in
comparison to that of the Market Pioneers.
• LATE ENTRANTS
o Those who follow after the close followers are known as the Late
entrants.
o Late entrant has certain advantages such as ability to learn from their
early competitors and improving the benefits or reducing the total
costs.
o This allows them to create a strategy that could essentially mean
gaining market share and most importantly, staying in the market.
o Late followers could have a cost advantage over early entrants due to
the use of product imitation.
o The requirements of individual customer markets are unique, and their
purchases sufficient to make viable the design of a new marketing mix
for each customer.
o If a company adopts this type of market strategy, a separate marketing
mix is to be designed for each customer. Specific marketing mixes can
be developed to appeal to most of the segments when market
segmentation reveals several potential targets.

FORMULATION • Human resource planning is a process that identifies current and future
OF HUMAN human resources needs for an organization to achieve its goals.
RESOURCE • Human resource planning should serve as a link between human
STRATEGIES resource management and the overall strategic plan of an organization.
• Human resource planning includes creating an employer brand,
retention strategy, absence management strategy, flexibility strategy,
(talent management) strategy, (recruitment) and selection strategy.
• Human resource planning is the ongoing process of systematic
planning to achieve the best use of an organisation’s most valuable
asset – its human resources.

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• the objective of human resource (HR) planning is to ensure the best fit
between employees and jobs, while avoiding workforce shortages or
spares.
• the three key elements of the HR planning process are forecasting
labour demand, analysing present labour supply, and balancing
projected labour demand and supply.

IMPLEMENTING HR STRATEGY
1. Assessing the current HR capacity
This includes taking stock of the skills of the existing human resources of
the organisation to have a clear understanding of the current skill set of
the company. This will help in forecasting future HR requirements.

2. Forecasting HR requirements
This step includes projecting what the HR needs for the future will be
based on the strategic goals of the organization and assessment of total
skill set of existing human resources. Some questions to be asked during
this stage include:
• The positions to be filled in the future period.
• The number of staff will be required to meet the strategic goals of the
organization.
• Effect of external environmental forces in getting new human
resources.

3. Gap analysis
In this stage, one will make a comparison between existing and desired
position of the organisation from strategic point of view. During this phase
you should also review your current Hr practices and if these require any
amendments.

4. Developing HR strategies to support the strategies of the

organization
The five HR strategies which may be adopted to attain the organizational
goals are given hereunder:
❖ Restructuring strategies
This includes reducing staff, regrouping tasks to create well-designed
jobs, and reorganizing work groups to perform more efficiently.

❖ Training and development strategies

This includes providing the current staff with training and development
opportunities to encompass new roles in the organization.

❖ Recruitment strategies
This includes recruiting new hires that already have the skills the
organization will need in the future.

❖ Outsourcing strategies
This includes outreaching to external individuals or organizations to
complete certain tasks.

❖ Collaboration strategies
This includes collaborating with other organizations to learn from how
others do things, allow employees to gain skills and knowledge not
previously available in their own organization.

❖ Retention strategy

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Every area of the employer-employee relationship in your organization
deserves your attention. embrace these key strategies to improve your
organization’s employee retention and boost employee satisfaction.

❖ Onboarding and orientation The job orientation is just one

component of onboarding, aim to develop an onboarding process where
new staff members not only learn about the job but also the company
culture and how they can contribute and thrive, with ongoing
discussions, goals and opportunities to address questions and issues
as they arrive.

❖ Mentorship programs
Pairing a new employee with a mentor is a great for retention. new
team members can learn from the experience of a senior.

❖ Employee compensation
The organisation should offer competitive compensation packages
which include salaries, bonuses, paid time off, health benefits,
retirement plans and all the other perks.

❖ Recognition and rewards systems

Every person wants to feel appreciated for what they do. When they go
the extra mile, they should be recognized. Some companies set up
rewards systems that incentivize great ideas and innovation.

❖ Work-life balance
A healthy work-life balance is essential. Companies should give a
serious thought for offering telecommuting or flexible schedules to
improve work-life balance for their employees.

❖ Training and development – Smart managers invest in their workers›

professional development and seek opportunities for them to grow.
Some companies pay for employees to attend conferences or industry
events each year, or provide tuition reimbursement or continuing
education training.

❖ Communication and Feedback

Lines of communication should be kept open for ensuring employee
retention. their ideas, questions and concerns must be welcomed.

❖ Dealing with change

If the organization is going through a merger, layoffs or other big
changes, the employees must be taken into confidence beforehand to
maintain their trust.

❖ Fostering teamwork
When people work together, they can achieve more than they would
have individually. foster a culture of collaboration by clarifying team
objectives, business goals and roles, and encouraging everyone to
contribute ideas and solutions.

❖ Team celebration
Celebrate major milestones for individuals and for the team. Whether
the team just finished that huge quarterly project under budget or an
employee brought home a new baby, seize the chance to celebrate
together with a shared meal or group excursion.

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FORMULATION The different types of production strategies are grouped, listed and
OF PRODUCTION explained under following three categories, viz.,
STRATEGY

The types of production strategies listed above are discussed as follows:

1. Differentiation strategy
• Under a differentiation strategy, the company tries to make a product
different and unique from that offered by its competitors in the market.
• Such a differentiation may be done in terms of enhanced quality,
quantity, pricing, appearance, and after sales-service than its rivals.
• Such a uniqueness and divergence in its product quality and customer
service may lead to fetching higher prices by the company in the same
market.

2. Cost leadership strategy

• Under a cost leadership strategy, the company tries to diminish its cost
of production by reaping economies of the scale on a larger volume of
production in a single batch.
• Higher the scale of production, lower will be the cost of production due
to reduction in fixed costs per unit of production be it raw materials,
labour, advertising, sales promotion, R & D etc.

3. Market segmentation strategy (also known as Focus Strategy)

• In market segmentation strategy, the company divides the market
according to the type of customers it has to focus and target.
• It sells different products and services to different types of customers.
• To achieve this goal, it produces and sells goods and services as per
the needs of the customers.
• For example, many detergent companies offer different variants of
detergents with different price brackets.

4. Price or cost strategy

• Under price or cost strategy, the company sells its product at a very
low price.
• This strategy is used when the products are homogeneous in nature
and company is not able to differentiate.
• That is, when the customers cannot distinguish the company’s
product from the competitors’ products. In this case, the company will
fix a low price to fetch maximum market share.
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• For example, match sticks; the customer will not care much about
brand while buying this and will easily switch to other brand, if his
current company tries to raise the price.

5. Quality strategy
• Under quality strategy, the company produces and sells ‘premium’
goods and services.
• The prices of such goods and services are naturally very high such as
luxury cars and bikes.
• However, this strategy attracts those customers who have huge
incomes and therefore prefer top quality products as a status symbol
and are ready to pay high prices intentionally.
• To gain success in the market, the company must smartly invest to
make quality innovative products that are free from any defects.

6. Delivery strategy
• Under delivery strategy, the company delivers its product and services
to their customers as early as possible within a fixed time period.
• The company gives top priority to fast delivery of products and
providing quickest accessibility of services.
• Delivery strategy is used as a selling tactic to fight cut-throat
competition.

7. Product mix or flexibility strategy

• Under this strategy, the company produces and sells a product mix.
• A product mix is a group of products, which are sold by the same
company.
• For example, Hindustan Lever, P& G etc. Here, the company does not
depend only on a single product for its survival and growth.
• It uses a product mix as it offers many advantages to the company.
• However, only large companies with huge production capacity can
adopt this strategy.

8. Service strategy
• Under this strategy, the company uses a service to attract the
customers.
• It gives quicker and better after- sales service.
• It gives around the clock, i.e. 24-hour customer service.
• It may render this service directly via the company or through the
network of call centres. Service is required for both consumer goods as
well as industrial goods.

9. Eco-friendly products
• Under eco-friendly strategy, the company produces and sells
environment-friendly products also called as Green Products.
• For example, producing and selling lead-free petrol to reduce pollution,
manufacturing mercury- free television panels, etc., are some good
steps to preserve nature. This is a new type of production strategy.
• Companies may also recycle certain materials like plastic, metals and
papers. The properly recycled products are later used for
manufacturing new products and in packaging. Companies use
biodegradable packing material to reduce the problem of waste
disposal.

10. Flexible response strategy

• Flexible response strategy is said to be used when a company makes
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required changes in its production plans in accordance with the
emerging changes in the market.
• Here, focus is given to speed and reliability. That is, the company must
make swift changes as per the emerging changes in the market
demand.
• It must also give a regular supply of goods to its customers. There
must not be any shortage of goods in the market. To achieve this, the
company must follow a strict production schedule.

11. Low cost strategy

• Under low cost strategy, the company fights massive market
competition by selling its products at very lower prices.
• Simultaneously, it must also maintain the quality of its products. A
company can only sell its goods at minimum prices if it maintains a
low cost of production and distribution.
• This can be done by producing and distributing goods on a large scale.
That is, company must take advantage of economies of large-scale
production.

FORMULATION • Logistics strategy is defined as “the set of guiding principles, driving

OF LOGISTICS forces and ingrained attitudes that help to coordinate goals, plans and
STRATEGY policies between partners across a given supply chain.”
• Logistics is not confined to tactical decisions about transportation and
warehousing. Longer-term decisions are needed to put in place the
capabilities that ensure that logistics plays a full role in supporting a
company’s products in the market place.
• When a company creates a logistics strategy, it defines the service
levels at which its logistics organization will be most cost effective.
• Because supply chains are constantly changing and evolving, a
company may develop a number of logistics strategies for specific
product lines, specific countries, or specific customers.

Strategic Level:
• By examining the company’s objectives and strategic supply chain
decisions, the logistics strategy should review how the logistics
organization contributes to those high-level objectives.
• The top level is the Strategic level that defines Customer service
strategy.
• Customer service strategy is the driving force behind the design and
operations of a company’s logistics supply chain.
• The key inputs that go into defining a customer service strategy are the
company’s products, its markets and its customer service goals.
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Structural and Functional Levels:
• In any Strategic planning exercise, there is an interplay between
strategy and functional operations.
• In our logistics strategy framework, functional layers provide important
inputs to finalize the Structural layer.

Channel Design:
Pertains to activities and functions that need to be carried out to achieve
the customer service goal.

Network Strategy:
Locations and missions of facilities and strategies for using these facilities
to achieve the customer service strategy.

The process of designing the structural element of the strategy is

integrated with the functional elements of the strategy as well. Warehouse
Operations, transportation Management and Material management
decisions are inputs to a detailed structural strategy.

Implementation:
In this final phase, people, business processes and IT come together to
support and execute the Logistics Strategy. Implementation is one of the
most important and challenging aspects of your Logistics strategy.

An example of one function is the Logistics Strategy plan:

ELEMENTS OF THE LOGISTICS STRATEGY PLAN

The Logistics Strategy plan is then developed within eight elements:

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1. Customer service policy – The appropriate level of service for
customers, by product group or market segment; considering: order
fulfilment requirements, enquiry and investigation capability and the
available information. The customer service policy informs the nodes
and links of the supply network.
2. Inventory location policy (Supply Network nodes) – Centralised or
decentralised inventory; whether to differentiate facilities by fast and
slow moving stock; location of sites; use of specific technologies and
layouts; company-owned or contracted facilities.
3. Inventory policy – Form and function of inventory by location; the
appropriate amount of stock to hold for various groups of inventory;
planning structure that links outbound and inbound materials.
4. Cost plan – Trade-off analysis between cost and service level
requirements; cost of Logistics operations.
5. Transport and distribution (Supply Network links) policy –
Affected by whether enterprise imports or exports and the size and
structure of conurbations being served. This incorporates transport
modes, delivery pattern and storage location considerations, based on
the time taken for deliveries.
6. IT and Communications capability: Technologies (including
software) that will be internally developed; buy planning and
scheduling applications from single supplier or obtain ‘best of breed’
applications.
7. Logistics organisation structure: Function or flow based; allocation
of responsibilities; managed or selfmanaged teams.
8. Logistics Targets and metrics: Measures of performance and
achievement targets; operations improvements process and
management.

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Lesson 4 Strategic Analysis and Planning
STRATEGIC • Strategic analysis and planning involve careful formulation of the
ANALYSIS AND strategies and goals taken by a company’s top management on behalf
PLANNING of the organization.
• It is based on deliberation of resources and an assessment of the
internal and external environments in which the organization
competes based on a variety of models.
• It aims at providing overall direction to the organisation and
specifying the organization’s objectives, developing policies and plans
designed to achieve these objectives, and then allocating resources to
implement the plans.
• All this requires a careful analysis of the vision, mission, objectives,
goals and resources of the organisation and in- depth analysis of the
external environment.

SITUATION ANALYSIS
Before developing any strategy, the foremost requirement is carrying out
a Situation Analysis. A Situation analysis or environmental analysis is an
essential component of any strategy formulation and it has to be assured
that such analysis is conducted periodically to keep the strategies up to
date. A complete situation analysis focuses on four areas i.e.:
• The problem (its severity and its causes)
• The people (potential stakeholders)
• The broad context (in which the problem prevails)
• Factors (facilitating behavior change)

A situational analysis takes into account the internal and external

environment of an entity or organization and clearly identifies its own
capabilities, customers, potential customers, competitors and the
business environment and the impact they are going to have on the
entity or organization.

It can also help in identifying strengths, weakness, opportunities and

threats to the organization or business which can help in forecasting the
choices required to be made keeping in view the environmental
developments.

Need of Situation Analysis

✓ A Situation Analysis paves the way for strategy development by
identification of priorities by bringing out a clear, detailed and
realistic picture of the opportunities, resources, challenges and
barriers regarding formulation of a business plan.
✓ The quality of the Situation Analysis will affect the success of the
whole plan.

Suitability of Situation Analysis

✓ A small, well knitted and focused team from different functional areas
of the organisation should conduct the situation analysis.
✓ Throughout the data collection process, team members should also
consider about engagement of concerned stakeholders including
opinion leaders, service providers, policy makers, partners, and
potential beneficiaries to reap maximum output.
✓ It may be done by conducting in-depth interviews, focus group
discussions, community dialogues, small group meetings, taskforce
engagements or participatory stakeholder workshops.

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Conducting of Situation Analysis
✓ A situation analysis should be conducted at the beginning of any
program or project but before developing a strategy.

Elements of Situation Analysis

• Product Situation
It relates with the products being offered by the business at present.
It may further be sub-divided into the core product and any
secondary/ancillary or supporting products/services. While doing so,
the needs of the customers should be taken into. This is so because,
now a days, consumer is the king, therefore, everything needs to be
tailor-made to the requirements of the customers.
• Competitive situation
This involves analysis of the competitive forces to identify the closest
competitors. It involves finding out core competencies of the
competitors as compared to our own organization and the areas in
which they have strong hold and the characteristics of the customers
segment that are attracted by the competitors.
• Distribution Situation
Review your distribution and logistics network.
• Environmental Factors
The external and internal environmental factors need to be taken into
account. This includes economic or sociological factors that impact
performance.
• Opportunity and Issue Analysis
Carrying out a SWOT analysis (Strengths, Weaknesses, Opportunity
and Threats). Current opportunities available in the market, the main
threats that business is facing and may face in the future, the
strengths that the business can rely on and any weaknesses that may
affect the business performance.

EFFECTIVENESS OF SITUATION ANALYSIS

The following questions may bring out the effectiveness of situation
analysis:
➢ Is currently adopted situational analysis simple and practical to use?
➢ Is it easy and clear for even an outsider to understand?
➢ Is it focused on key factors that are impacting my business both
internally and externally?
➢ Does it clearly identify future goals for the business?

SWOT/ TOWS Every manager is entrusted with the responsibility of setting up his/her
ANALYSIS organisation’s mission and goals and creating a strategic plan that will
guide the company to achieve its goals. For doing this, managers make
use a variety of tools and methods to make a basis for decision making
that includes SWOT and TOWS analysis, which are two closely related
brainstorming exercises.

SWOT is a tool for strategic analysis of any organization, which takes into
account examination of the company’s internal as well as its external
environment. It consists in recognition of key assets and weaknesses of
the company and marching them to exploit future opportunities and
combating threats. SWOT is quite helpful in formulating a company’s
strategy.

SWOT may be expanded as:

S – Strengths

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W – Weaknesses
O – Opportunities
T – Threats.

The origin of the SWOT analysis is supposed to be rooted in the concept

of ‘Force Field Analysis’ pronounced by K. Levin in 1950s. However,
‘Force Field Analysis’ concept was too complex to be practically applied.
Yet, it became a reference for scholars to develop some simpler methods,
that included the SWOT analysis as well. It is noteworthy that SWOT
may be successfully applied in any kind of organization, be it business or
corporate sector, political party, public institutions, sport club, schools
or universities etc.

TOWS Weihrich developed TOWS Matrix in 1982, as the next step of SWOT
Analysis in developing alternative strategies. TOWS Matrix is a
conceptual framework for identifying and analyzing the threats (T) and
opportunities (O) in the external environment and assessing the
organization’s weaknesses (W) and strengths (S). TOWS Matrix is an
effective way of combining a) internal strengths with external
opportunities and threats, and b) internal weaknesses with external
opportunities and threats to develop a strategy.

1. The TOWS analysis starts with the external environment. Specifically,

the listing of external threats (T) may be of immediate importance to
the firm as some of these threats may seriously threaten the
operation of the firm. These threats should be listed in quadrant T.
Similarly, opportunities should be shown in quadrant O. Threats and
opportunities may be found in different areas, but it is advisable to
carefully look for the more common ones which may be categorized as
economic, social, political and demographic factors, products and
services, technology, markets and, of course, competition.

2. The firm’s internal environment is assessed for its strengths (S) and
weaknesses (W), and then listed in the respective quadrants. These
factors may be found in management and organization, operations,
finance, marketing and in other areas.

Though TOWS was created through rearrangement of the letters of SWOT

analysis, yet, it may not be considered as just reversal of sequence of the
SWOT analysis. This is so because, while in the SWOT analysis, one
starts with evaluation of internal strengths and weaknesses and seeks
the manner of their best application taking into account the external
business environments, TOWS analysis scans opportunities and threats
existing in external environment of any organization, and then generates,
compares and selects strategies based on internal strengths and
weakness to utilize such opportunities and reduce threats.

Therefore, it is not just reversal of letters of SWOT, but, a tool for strategy
generation and selection. SWOT analysis is a tool for audit and analysis.
One would use a SWOT at the beginning of the planning process, and a
TOWS later as one decides upon ways forward.

❖ Who can use SWOT/TOWS ?

The SWOT/TOWS Matrix is not just meant for the top levels of
management in an organisation. Rather, these two can be very useful
tool for divisions, products, functions as well as departments. These
can also be used for individual employees on an operational level.
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(Campbell, 2017).

❖ Why SWOT/TOWS ?
The SWOT/TOWS analysis is a very simple yet valuable technique
which aids in identifying opportunities and threats from an external
environment, and analyzing its own strengths and weakness. Such a
review helps in establishing the relationship between threats,
opportunities, weaknesses, and strengths for developing strategies
and making decisions.

Further, use of TOWS by examining threats and opportunities before

analyzing strengths and weaknesses can further allow for more
productive analysis and interpretation of external environment leading to
more informed decisions (Watkins, 2007). The TOWS Matrix also helps in
brainstorming to bring out great ideas to generating effective strategies
and tactics.

FOUR TOWS STRATEGIES: PRODUCT OF TRADE-OFF BETWEEN

INTERNAL AND EXTERNAL FACTORS
As said earlier, whereas SWOT Analysis starts with an internal analysis,
the TOWS Matrix takes the other route, with an external environment
analysis; the threats and opportunities are examined first. Then, in
TOWS makes a trade- off between internal and external factors. As we
know, Strengths and weaknesses are internal factors and opportunities
and threats are external factors. This trade-off is the point where four
potential strategies derive their importance, these are
Strength/Opportunity (SO), Weakness/Opportunity (WO),
Strength/Threat (ST) and Weakness/Threat (WT) as shown in matrix
given below:

Strength/Opportunity (SO):
Strengths of the companies are utilized to exploit the opportunities.

Weakness/Opportunity (WO):
The organisation finds options that overcome weaknesses, and then take
advantage of opportunities. Therefore, it mitigates weaknesses, to exploit
opportunities.

Strength/Threat (ST):
Exploiting strengths to overcome any potential threats.

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Weakness/Threat (WT):
With Weakness/Threat (WT) strategies, one is attempting to minimise
any weakness to avoid possible threat.

STRATEGIES IN TOWS
There are 4 types of strategies differentiated:

1. Aggressive Strategy (maxi-maxi)

✓ the aggressive strategy (maxi-maxi) consists in maximum exploitation
of the synergy effect present between the strong sides of the
organization and opportunities generated by the environment.
✓ The aggressive strategy embraces actions such as: capturing
opportunities, strengthening position on the market, taking over
organizations of the same profile, concentration of resources on
competitive products.
✓ It is a strategy that exploits a synergy effect of company’s strong sides
and opportunities that appear in the environment.

2. Conservative Strategy (maxi-mini)

✓ It is present in an organization in a situation, when with high internal
potential, it undergoes unfavorable system of external conditions or
threats.
✓ The threats need to overcome with use of the strengths, e.g. the
competitors should be bought and its shares taken over.
✓ The conservative strategy embraces such actions as: selection of
products, market segmentation, reduction of costs, improvement of
competitive products, development of new products, searching for
new markets.
✓ It is a strategy, where success of an organization is mainly sought in
its strong sides and reduction of threats.

3. Competitive Strategy (mini-maxi)

✓ It is present in an organization, where weaknesses dominate over the
strengths still there are opportunities prevailing in the environment.
✓ The competitive strategy consists in “(…) elimination of weak sides of
company’s operation and construction of its competitive strength
through maximal exploitation of the existing opportunities that
support development”.

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✓ The competitive strategy embrace such actions as: expansion of
financial resources, improvement of commercial resources,
improvement of a line of products, improvement of productivity,
reduction of costs, maintenance of competitive advantage. It is a
strategy that embraces construction of a competitive strength of an
organization.

4. Defensive Strategy (mini-mini)

✓ This strategy enables survival in a situation, when an organization
works in an unfavorable environment, it is deprived of strengths. It
may lead to take maximal benefits from the company before its
liquidation, or to combine it with another enterprise.
✓ The defensive strategy encompasses such actions as: gradual
withdrawal, reduction of costs, reduction of productive ability, ceasing
the investment process.
✓ It is a strategy that provides survival, through counteracting weak
sides and threats.

PERT TECHNIQUES OF PROJECT MANAGEMENT

(PROGRAMME One of the most challenging jobs that any manager can take on is the
EVALUATION management of a large-scale project that requires coordinating numerous
REVIEW activities throughout the organization. A myriad of details must be
TECHNIQUE) considered in planning how to coordinate all these activities, in
AND CPM developing a realistic schedule, and then in monitoring the progress of
(CRITICAL PATH the project. Therefore, the managers have to rely on Project management
METHOD): techniques to handle such large scale projects. Project Management is a
systematic way of planning, scheduling, executing, monitoring,
controlling the different aspects of the project, in order to attain the goal
made at the time of project formulation.

PERT and CPM two complementary statistical techniques utilized in

Project management. These two are network based scheduling methods
that exhibit the flow and sequence of the activities and events. These
techniques make heavy use of networks to help plan and display the
coordination of all the activities.

First developed by the United States Navy in the 1950s to support the
U.S. Navy’s Polaris nuclear submarine project, PERT is commonly used
in conjunction with the Critical Path Method (CPM). After discovery by
Navy, it found applications all over industry. DuPont’s Critical Path
Method was invented at roughly the same time as PERT. Today, PERT
and CPM have been used for a variety of projects, including the following
types.
➢ Construction of a new plant
➢ Research and development of a new product
➢ NASA space exploration projects
➢ Movie productions
➢ Building a ship
➢ Government-sponsored projects for developing a new weapons system
➢ Relocation of a major facility
➢ Maintenance of a nuclear reactor
➢ Installation of a management information system
➢ Conducting an advertising campaign.

PERT/CPM identify the time required to complete the activities in a

project, and the order of the steps. Each activity is assigned an earliest
and latest start time and end time. Activities with no slack time are said
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to lie along the critical path–the path that must stay on time for the
project to remain on schedule.

CPM: KEY POINTS

The critical path method (CPM) is a project modeling technique developed
in the late 1950s by Morgan R. Walker of DuPont and James E. Kelley Jr.
of Remington Rand. CPM computes the longest path of planned jobs/
activities to logical end points/the end of the project, and the earliest and
latest time by which each activity can start and finish without making
the project longer. This process determines the activities that are
“critical” or on the longest path and having “total float” (i.e., can be
delayed without making the project longer).

Critical Path Analysis is an effective and powerful method of assessing:

➢ What jobs/activities must be carried out.
➢ Where parallel activities can be performed.
➢ The shortest time to complete a project.
➢ Resources needed for a project.
➢ The sequence of activities, scheduling and timings.
➢ Task priorities.
➢ The most efficient way of shortening time on urgent projects.

An effective Critical Path Analysis can make the difference between

success and failure on complex projects. It can be very useful for
assessing the importance of problems faced during the implementation of
the plan.

STEPS IN PERT AND CPM

(i) Each project consists of numerous independent jobs/activities. It is
vital to identify and distinguish the various activities required for
the completion of the project and list them separately.
(ii) After listing, the order of precedence for these jobs needs to be
determined. Certain jobs will have to be done first. Therefore, jobs
have to be completed before others should be determined. Also, a
number of jobs may be carried out simultaneously. All such these
relationships between the different jobs need to be clearly laid
down.
(iii) Then, a picture/graph portraying each of these jobs should be
drawn showing the predecessor and successor relations among
them. This graph shows the time required for completion of each
job. This is known as the project graph or the arrow diagram.

The three steps given above can be understood with the help of an
example. Suppose, a manger wishes to draw a project graph for
preparing an operating budget for a manufacturing firm. To accomplish
this project, the company salesmen must provide sales estimates in units
for the period to the sales manager who would consolidate it and provide
it to the production manager. He would also estimate market prices of
the sale and give the total value of sales of the units to be produced and
assign machines for their manufacture. He would also plan the
requirements of labour and other inputs and give all these schedules
together with the number of units to be produced to the accounts
manager who would provide cost of production data to the budget officer.

Using the information provided by the sales, production and accounting

departments, and the budget officer would make the necessary
arrangements for internal financing and prepare the budget. We have
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seen that the project of preparing the budget involves a number of
activities.

Advantages of PERT
1. Compels managers to plan their projects critically in considerable
detail from beginning to the end and analyse all factors affecting the
progress of the plan.
2. Provides management a tool for forecasting the impact of schedule
changes. The likely trouble spots are located early enough to take
preventive measures or corrective actions.
3. A considerable amount of data may be presented in a precise manner.
The task relationships are presented graphically for easier evaluation.
4. The PERT time is based upon 3-way estimate and hence is the most
objective time in the light of uncertainties and results in greater
degree of accuracy in time forecasting.
5. Results in improved communication with all concerned parties such
as designers, contractors, project managers etc. The network will
highlight areas that require attention of higher priority to the key jobs
without ignoring the lower priority tasks.

Limitations of PERT
1. Uncertainly about the estimate of time and resources as it is based on
assumptions.
2. The costs may be higher than the conventional methods of planning
and as it needs a high degree of planning skill and minute details
resulting in rise in time and manpower resources.
3. Not suitable for relatively simple and repetitive processes such as
assembly line work which are fixed sequence jobs.

BASIS PERT CPM

Meaning PERT is a project CPM is a statistical
management technique, technique of project
used to manage management that
uncertain activities of a manages well defined
project activities of a project
What is it? A technique of planning A method to control cost
and control of time and time
Orientation Event-oriented Activity-oriented
Evolution Evolved as Research & Evolved as Construction
Development project project
Model Probabilistic Model Deterministic Model
Main Focus Time Time-cost trade-off
Appropriateness High precision time Reasonable time
estimate estimate
Activities Unpredictable Activities Predictable activities
Management
Nature of jobs Non-repetitive nature Repetitive nature
Critical and No differentiation Differentiated
Noncritical
Suitability Research and Non-research projects
Development Project like civil construction,
ship building etc.
PORTFOLIO Majority of business organisations have a portfolio of products on offer to
ANALYSIS their customers, rather than individual products or brands, and will in
many cases have branded products which complement each other is
some way. Analysis of such portfolio becomes a necessity as the

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strengths and weaknesses of a company in such portfolio determine its
internal capabilities to compete in a market and fulfil customer
expectations. The tool to identify the strengths and weaknesses of a
company is a Product Portfolio Analysis. The Product Portfolio Analysis
was proposed in 1973 by Peter Drucker as a way to classify current and
expected profitability. Drucker classified the offerings of a particular
company into seven categories i.e. Today`s Breadwinners, Tomorrow`s
Breadwinners, Yesterday`s Breadwinners, Developments, Sleepers,
Investments in Managerial Ego, and Failures. He classified products in
the first three categories, “Today`s Breadwinners,” “Tomorrow`s
Breadwinners,” and “Yesterday`s Breadwinners,” as strengths of the
company while those in the last two categories, “Investments in
Managerial Ego” and “Failures,” as weaknesses. Then such portfolio
analysis was made by other renowned entities also. The most quoted
ones are:

BCG MATRIX
“A company should have a portfolio of products with different growth
rates and different market shares. The portfolio composition is a function
of the balance between cash flows.… Margins and cash generated are a
function of market share.”—Bruce Henderson, “The Product Portfolio”

The BCG Matrix was developed by the Boston Consulting Group (BCG)
and is used for the evaluation of the organization’s product portfolio in
marketing and sales planning. BCG analysis is mainly used for Multi-
Category/ Multi Product companies. All categories and products together
are said to be the part of a Business portfolio. It aims to evaluate each
product, i.e. the goods and services of the business in two dimensions:
• Market growth
• Market share

The combination of both dimensions creates a matrix into which the

products from the portfolio are placed:

1) CASH COWS
✓ Cash cows are products which have a high market share in a low
growing market.
✓ As the business growth rate of market is low, cash cow gains the
maximum advantage by generating maximum revenue due to its

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higher market share.
✓ Therefore, for any company, the cash cows is the category of products
which require minimal investment but ensure higher returns.
✓ These higher returns raise the level of overall profitability of the firm
because such excess revenue generation can be used in other
businesses which carry products falling in the category of Stars, Dogs
or Question marks.

Strategies for cash cow – Cash cows are the most stable
product/service line for any business and hence the strategy includes
retention of the market share for such category. As the market growth
rate is low and acquisition is less and customer retention is higher.
Thus, customer satisfaction programs, loyalty programs and other such
promotional methods form the core of the marketing plan for a cash cow
product.

2) STARS
✓ The products/services falling in this category are best
products/services in the product portfolio of any company.
✓ This is so because, for such category of products, both market share
as well as growth rate is high.
✓ Unlike cash cows, Stars cannot be complacent when they are top on
because they can immediately be overtaken by another company
which capitalizes on the market growth rate.
✓ However, if the strategies are successful, a Star can become a cash
cow in the long run.

Strategies for Stars – All types of marketing, sales promotion and

advertising strategies are used for Stars.Similarly in Stars, because of
the high competition and rising market share, the concentration and
investment need to be high in marketing activities so as to increase and
retain market share.

3) QUESTION MARKS
✓ Several times, a company might come up with an innovative product
which immediately gains good growth rate. However, the market
share of such a product is unknown.
✓ The product might lose customer interest and might not be bought
anymore in which case it will not gain market share, the growth rate
will go down and it will ultimately become a Dog.
✓ On the other hand, the product might increase customer interest and
more and more people might buy the product thus making the
product a high market share product.
✓ From here the product can move on to be a Cash Cow as it has lower
competition and high market share. Thus, Question marks are
products which may give high returns but at the same time may also
flop and may have to be taken out of the market. This uncertainty
gives the quadrant the name “Question Mark”.
✓ The major problem associated with having Question marks is the
amount of investment which it might need and whether the
investment will give returns in the end or whether it will be completely
wasted.

Strategies for Question marks – As they are new entry products with
high growth rate, the growth rate needs to be capitalized in such a
manner that question marks turn into high market share products. New
Customer acquisition strategies are the best strategies for converting
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Question marks to Stars or Cash cows. Furthermore, time to time market
research also helps in determining consumer psychology for the product
as well as the possible future of the product and a hard decision might
have to be taken if the product goes into negative profitability.

4) DOGS
✓ Products are classified as dogs when they have low market share and
low growth rate.
✓ Thus, these products neither generate high amount of cash nor
require higher investments.
✓ However, they are considered as negative profitability products mainly
because the money already invested in the product can be used
somewhere else.
✓ Thus, over here businesses have to take a decision whether they
should divest these products or they can revamp them and thereby
make them saleable again which will subsequently increase the
market share of the product.

Strategies for Dogs – Depending on the amount of cash which is already

invested in this quadrant, the company can either divest the product
altogether or it can revamp the product through rebranding /
innovation / adding features etc. However, moving a dog towards a star or
a cash cow is very difficult. It can be moved only to the question mark
region where again the future of the product is unknown. Thus, in cases of
Dog products, divestment strategy is used.

SEQUENCES IN BCG MATRIX

Success Sequence in BCG Matrix – The Success sequence of BCG

matrix happens when a question mark becomes a Star and finally it
becomes a cash cow. This is the best sequence which really give a boost
to the companies’ profits and growth. The success sequence unlike the
disaster sequence is entirely dependent on the right decision making.

Disaster sequence in BCG Matrix – Disaster sequence of BCG matrix

happens when a product which is a star, due to competitive pressure
might be moved to a question mark. It fails out from the competition and

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it is moved to a dog and finally it may have to be divested because of its
low market share and low growth rate. Thus, the disaster sequence might
happen because of wrong decision making. This sequence affects the
company as a lot of investments are lost to the divested product. Along
with this the money coming in from the cash cow which is used for other
products too is lost.

STEPS IN BCG MATRIX

BCG matrix is a framework to help understand, which brands the firm
should invest in and which ones should be divested. Following are the
steps involved:
• Step 1. Choose the unit
• Step 2. Define the market
• Step 3. Calculate relative market share
• Step 4. Find out market growth rate
• Step 5. Draw the circles on a matrix

Step 1. Choose the unit. BCG matrix can be used to analyze SBUs,
separate brands, products or a firm as a unit itself. Which unit will be
chosen will have an impact on the whole analysis. Therefore, it is
essential to define the unit for which you’ll do the analysis.

Step 2. Define the market. Defining the market is one of the most
important things to do in this analysis. This is because incorrectly
defined market may lead to poor classification. For example, if we would
do the analysis for the Daimler’s Mercedes-Benz car brand in the
passenger vehicle market it would end up as a dog (it holds less than
20% relative market share), but it would be a cash cow in the luxury car
market. It is important to clearly define the market to better understand
firm’s portfolio position.

Step 3. Calculate relative market share. Relative market share can be

calculated in terms of revenues or market share. It is calculated by
dividing your own brand’s market share (revenues) by the market share
(or revenues) of your largest competitor in that industry. For example, if
your competitor’s market share in refrigerator’s industry was 25% and
your firm’s brand market share was 10% in the same year, your relative
market share would be only 0.4. Relative market share is given on x-axis.
It’s top left corner is set at 1, midpoint at 0.5 and top right corner at 0
(see the example below for this).

Step 4. Find out market growth rate. The industry growth rate can be
found in industry reports, which are usually available online for free. It
can also be calculated by looking at average revenue growth of the
leading industry firms. Market growth rate is measured in percentage
terms. The midpoint of the y-axis is usually set at 10% growth rate, but
this can vary. Some industries grow for years but at average rate of 1 or
2% per year. Therefore, when doing the analysis you should find out
what growth rate is seen as significant (midpoint) to separate cash cows
from stars and question marks from dogs.

Step 5. Draw the circles on a matrix. After calculating all the

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measures, you should be able to plot your brands on the matrix. You
should do this by drawing a circle for each brand. The size of the circle
should correspond to the proportion of business revenue generated by
that brand.

STRATEGIES BASED ON THE BCG MATRIX.

There are four strategies possible for any product / SBU and these are
the strategies which are used after the BCG analysis. These strategies
are:
1) Build – By increasing investment, the product is given an impetus
such that the product increases its market share. Example – Pushing a
Question mark into a Star and finally a cash cow (Success sequence).
2) Hold – The company cannot invest or it has other investment
commitments due to which it holds the product in the same quadrant.
Example – Holding a star there itself as higher investment to move a star
into cash cow is currently not possible.
3) Harvest – Best observed in the Cash cow scenario, wherein the
company reduces the amount of investment and tries to take out
maximum cash flow from the said product which increases the overall
profitability.
4) Divest – Best observed in case of Dog quadrant products which are
generally divested to release the amount of money already stuck in the
business. Thus, the BCG matrix is the best way for a business portfolio
analysis. The strategies recommended after BCG analysis help the firm
decide on the right line of action and help them implement the same.

THE ORIGINAL The utility of the matrix in practice was two fold:
BCG MATRIX • The matrix provided conglomerates and diversified industrial
companies with a logic to redeploy cash from cash cows to business
units with higher growth potential. This came at a time when units
often kept and reinvested their own cash—which in some cases had
the effect of continuously decreasing returns on investment.
Conglomerates that allocated cash smartly gained an advantage.

• It also provided companies with a simple but powerful tool for

maximizing the competitiveness, value, and sustainability of their
business by allowing them to strike the right balance between the
exploitation of mature businesses and the exploration of new
businesses to secure future growth.

CRITICISM OF THE BCG MATRIX

The BCG Matrix has lost some of its popularity following the development
of other models, and drawn criticism for making some false suppositions
such as:
• It assumes that a business unit with a higher market share will
generate more cash. While it has been observed that a unit that has a
high market share needs to keep investing in itself to sustain this
share and, therefore, may absorb cash instead of generating it.
• Also, the matrix seems to ignore interdependencies among a
corporation’s business units. A dog, for example, may be helping a
question mark or a star with cash.
• The matrix also seems to use broad definitions of market share and
market growth overlooking niche market — a unit that makes scooter
tyres, for instance, may have a big market share in this niche
segment, but only a minuscule share of the overall tyre market. The
corporation that owns this unit may be using it as a cash cow for the

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benefit of a “star” or a “question mark” in its portfolio.
• The matrix has also been criticised for suggesting that all
corporations will identify units or products in the four quadrants, and
that units or products will travel through all the four quadrants in
their life
• The market growth rate is only one factor that makes an industry
attractive. Similarly, relative market share is only one factor that gives
a unit a competitive advantage. According to critics, the matrix
ignores other factors that determine profitability. At least some critics
suggest the use of the GE/McKinsey Matrix.
• The market share of the matrix does not guarantee profitability.
• The BCG matrix does not consider decreasing markets enough; Cash
Cows could disappear without reason.
• Both axes have been assigned the same value. In practice, this value
can depend on the strategy.
• The coherence as regards content between products and product
groups is not incorporated.
• The BCG matrix does not show what the competition is doing.
• The BCG matrix may oversimplify the assessments of the facts.

BCG’S RESPONSE TO CRITICISM : MATRIX 2.0

✓ In a paper published in 2014, the BCG, while defending the basic
principles of the matrix, acknowledges that the business world and
the distribution of companies across the matrix have changed.
✓ It recommends “strategic experimentation [with the original matrix] to
allow adaptation to an increasingly unpredictable business
environment.”
✓ The paper admits that in the modern business environment, the
matrix needs “a new measure of competitiveness to replace its
horizontal axis,” as market share cannot be relied upon as a strong
pointer to performance anymore.
✓ It says companies need to look at new markets and products to renew
their advantage and desist from wasting resources. They need to
invest in more question marks to help the promising ones grow into
stars.
✓ Responding to the marketplace, they should also cash out stars,
retire cows, and maximize the information value of pets.
✓ The BCG gives the example of Google, with its portfolio of AdWords,
AdSense, Android, and other products, and says that at that
company, portfolio management is “embedded in organizational
abilities that facilitate strategic experimentation.”
✓ At Google, questions marks are generated, and a few are selected and
tried out before they are scaled up.
✓ Making suggestions for using “BCG Matrix 2.0,” the paper puts
forward “four practical imperatives” that businesses can use in
strategic experimentation.

ANSOFF This matrix is also known as the Ansoff Product-Market Growth matrix
GROWTH or the four ways to grow a business model.
MATRIX – FOUR
WAYS TO GROW What is the Ansoff Growth Matrix?
A BUSINESS It first appeared in the Harvard Business Review in 1957 and was
created by strategist Igor Ansoff to help management teams to focus on
the options for business growth. In common with other popular strategy
models, it is build around a two by two matrix.

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• current products or new products
• current markets or new markets

The Four Growth Options of The Ansoff Growth Matrix

• Market penetration strategy – current products and current markets
• Product development strategy – new products and current markets
• Market development strategy – current products and new markets
• Diversification – new products and new markets.

These are best seen in a diagram

OPTION 1: MARKET PENETRATION

Market penetration strategy is the preferred route to growth for many
businesses because its focus is on selling more of the existing products
to:
• Current customers;
• Customers similar to current customer base but who are buying
competitors products;
• Customers similar to current customer base who have need of
product but aren’t buying it yet.

The emphasis is on escalating market share by making some rigorous

marketing promotions, or by creating more customer value.

The market penetration option within Ansoff’s growth matrix uses

existing resources and capabilities and can be thought of as “business as
usual but on steroids”.

The downsides of the market penetration strategy are:

• If a firm has already high market share, the opportunities for growth
may be limited. Some markets logically limit the share of the leading
player because they feature the concentration of market power.
• Aggressive market penetration strategies will add to competitive
rivalries in the industry and may provoke a price war which shrinks
industry profitability. To make significant increases in market share,
the business must be willing to throw the competitors out of the
market.
• Increasing exposure to one product-market segment can make the
business more susceptible to future changes in competition by
keeping “all the eggs in one basket”.

OPTION 2: PRODUCT DEVELOPMENT

In product development, businesses continue to focus on the needs of

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existing customer base and also the widen customer market they
represent but they seek to understand their underlying needs so they
can see opportunities for new products:
• To replace present product profile with new and better products.
• To provide products which complement the main product sold by the
business.
• To provide “one stop shop” by adding new products to value chain to
strengthen or leverage the relationship and to provide added
convenience.

You may attract new competitors into your market as a respond to you
offering the products they traditionally sell. Competition has shifted up a
level from coexistence selling your specific products to active competition
selling the same broader range.

OPTION 3: MARKET DEVELOPMENT

The third option suggested by Ansoff is to take the current products and
find new markets for them. There are different ways to do this:
• Opening up previously excluded market segments through pricing
policies e.g. discounts for students and old age pensioners at
theatres.
• New marketing and distribution channels. Making a product available
on the Internet with the necessary search engine optimisation means
that anyone looking can find it, rather than rely on your marketing
message to reach them by convention means. The supermarkets sell
financial services to people who wouldn’t contact a broker or agent.
• Entering new geographic markets by moving from local to regional to
national and finally international. This may require the business to
acquire new capabilities including exporting, understanding different
cultures and language skills.

OPTION 4: DIVERSIFICATION
This option is the most controversial since diversification involves taking
new products to new customers. There are three levels of diversification:
• Diversification into related markets – while the customers and
products are both new, there is a logic about the move that makes
sense to the outside world.
• Diversification into unrelated markets using existing resources and
capabilities – while the customers and products are different, they all
rely on the existing strengths of the business. Metal fabricators and
plastic extrusion manufacturers are able to move across markets and
produce custom designed products relatively easily because
customers are buying access to the core competences.
• Diversification into unrelated markets which require new resources
and capabilities.
• Diversification is the most risky growth strategy in Ansoff’s growth
matrix and especially if it requires the development of new resources
and capabilities. It has even been referred to as the “suicide cell”.

The big advantage of diversification is that while each move is risky, if it

is successful, it reduces the overall risk of the business to factors outside
of the control of the business like the wider economic environment,
climate change etc. It may also make the business much less seasonal –
think bikinis and other swimwear for the summer, umbrellas for the
spring and autumn and heavy overcoats for the winter.

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How to use Ansoff Growth Matrix
There are two ways to use the Ansoff Growth Matrix:
1. As a tool for brainstorming to help identify possible strategic options.
2. As a tool for assessing preferred strategic options to check for some
kind of balance. There aren’t right or wrong answers but you might be
shocked to discover that all six growth strategies you intend to follow
fall into the diversification box.

DEVELOPMENTS TO THE ANSOFF GROWTH MATRIX

The original matrix developed by Ansoff was the simple 2 x 2 matrix
presented above. Ansoff later refined the matrix into a 3 dimensional
version which is placed below.

Others have turned the matrix from 2×2 into 3×3 by introducing middle
categories for expanded markets and modified products to give more
flexibility to the tool. This allows shading from “a little different” to “very
different”.

ADL MATRIX The Arthur D. Little provides with the ADL matrix that is a portfolio
management method based on thought of product life cycle. The ADL
portfolio management involves the dimensions of environmental
assessment and business strength assessment. The environmental
assessment approaches to industry maturity whereas business strength
assessment leads to competitive position. In determining both
assessments, the matrix helps out the firms in analyzing their business
role in the market place.

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INDUSTRY MATURITY OR LIFE CYCLE STAGE
In ADL portfolio management, industry maturity is very close to the
product life cycle or it could be renamed as industry life cycle, though
with the industry segments are also considered. Industry maturity is
classified in four following divisions:
❖ Embryonic: It involves the introduction stage by following rapid
market growth, no or little competition, high prices and investments
and new technology.
❖ Growth: In this stage, market is strengthening as the sales
increases, few competitors make an appearance and company
achieves excellence in bringing up a new product.
❖ Mature: At maturity stage the market is completely stable with well
established base of customers and market shares are also stable.
Customers are making repeated orders, but, with a lot of
competitors, the company has to make efforts in differentiating their
product from competitors.
❖ Aging: The last stage of the market in which market volume shrinks
as the demand declines, snatching market shares from the
competitors becomes difficult, then company requires innovating or
modifying the product or to make an exit.

The assessments of the industry life cycle are based on the facts like
business market share, investment, profitability and cash flow.

COMPETITIVE POSITION
Competitive position is derived from different segments in which
Strategic Business Unit operates. It is more focused on the organization’s
competitive position which involves the strong strength of the product
and the dispersed geographical factors means that it works in the area of
product and place. Competitive position comprises of five categories that
are:
✓ Dominant: this is a rare phenomenon , as it is a near monopoly
situation, appears in results of innovative out of the box
product/technology is introduced in the market by a very strong
brand.
✓ Strong: market share is higher as the position of company is
comparably powerful although the competitors are working

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aggressively.
✓ Favorable: Company has a strong edge in certain limited segments of
its competitive strengths. Strength of the product and geographical
advantages are taken into consideration at this stage and need to be
constantly protected.
✓ Tenable: - The company keeps strong position in small niche, specific
geographic location or very focused product differences. The force of
competitors strengthens and causes difficulties for the company.
✓ Weak: The profitability is not satisfactory making position of the
company unattractive, the market share is declining though they
have opportunities in order to enhance their potion in the market and
becoming favorable.

HOW TO USE ADL MATRIX?

Following are the steps that are involved in using the ADL Matrix:
• Identify the industry maturity category;
• Determining competitive position;
• Plot the position of the matrix.

GE MCKINSEY GE McKinsey Matrix is a strategy tool for a multi business corporation

MATRIX used in brand marketing and product management that assists a
company to decide about the products to be added to its portfolio and
opportunities to be prioritized in the market for investment. It is a
framework that evaluates business portfolio, provides further strategic
implications and helps to prioritize the investment needed for each
business unit (BU).

Though it is conceptually similar to BCG analysis, but somewhat more

complicated than BCG Matrix. This is so because, in BCG analysis, a
two-dimensional portfolio matrix is created, while, with the GE model the
dimensions are multi-factorial. One dimension comprises industry
attractiveness measures; the other comprises of internal business
strength measures. The GE matrix helps a strategic business unit (SBU)
to evaluate its overall strength.

Understanding the tool

In the practical business world, the problem of resource scarcity has a
bearing on the decisions made by any business organisation. Among
such limited resources, as there are plenty of avenues to use such
resources for many opportunities available, the crucial question remains
how to use their cash best. Such a tussle takes place at every level in the
company i.e. between teams, functional departments, divisions or
business units.

This decision of resource allocation becomes even more crucial for a

diversified businesses which are supposed to manage complex business
portfolios involving as much as 50 to 100 products and services
simultaneously. The products or business units are diverse in
characteristics and future prospects. This makes it a tough decision to
choose products/services for allocating resources.

Keeping this in mind, the BCG matrix and its improved version GE-
McKinsey matrix was developed. In 1970s, General Electric was
managing a huge and complex portfolio of unrelated products and was
unsatisfied about the returns from its investments in the products. At
the time, companies usually relied on projections of future cash flows,
future market growth or some other future projections to make
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investment decisions, which was an unreliable method to allocate the
resources. Therefore, GE consulted the McKinsey & Company and
designed the nine-box framework.

The nine-box matrix plots the Business Units on 9 cells that indicate
whether the company should invest in a product, harvest/divest it or do
a further research on the product and invest in it if there’re still some
resources left. Both these tools have served the purpose by comparing
the business units and dividing them in suitable groups as per their
worth.

INDUSTRY ATTRACTIVENESS
Industry attractiveness indicates how hard or easy it will be for a
company to compete in the market and earn profits. The more profitable
the industry is the more attractive it becomes. When evaluating the
industry attractiveness, analysts should look how an industry will
change in the long run rather than in the near future, because the
investments needed for the product usually require long lasting
commitment.

Industry attractiveness consists of many factors that collectively

determine the competition level in it. There’s no definite list of which
factors should be included to determine industry attractiveness, but the
following are the most common :
• Long run growth rate
• Industry size
• Industry profitability (by using Porter’s Five Forces)
• Industry structure (by using Structure-Conduct-Performance
framework)
• Product life cycle changes
• Changes in demand
• Trend of prices
• Macro environment factors (through use of PEST or PESTEL )
• Seasonality
• Availability of labor
• Market segmentation.
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COMPETITIVE STRENGTH OF A STRATEGIC BUSINESS UNIT OR A
PRODUCT
Along the X axis, the matrix measures how strong, in terms of
competition, a particular business unit is against its rivals. In other
words, managers try to determine whether a business unit has a
sustainable competitive advantage (or at least temporary competitive
advantage) or not. If the company has a sustainable competitive
advantage, the next question is: “For how long it will be sustained?”

The following factors determine the competitive strength of a

business unit:
➢ Total market share
➢ Market share growth compared to rivals
➢ Brand strength
➢ Profitability of the company
➢ Customer loyalty
➢ VRIO (Value, Rareness, Imitability, Organization) resources or
capabilities
➢ business unit strength in meeting industry’s critical success factors
➢ Strength of a value chain
➢ Level of product differentiation
➢ Production flexibility.

USING THE TOOL

There are no established processes or models that managers could use
when performing the analysis. Therefore, we designed the following steps
to facilitate the process:

Step 1. Determine industry attractiveness of each business unit

• Make a list of factors: The first thing you’ll need to do is to identify,
which factors to include when measuring industry attractiveness.
We’ve provided the list of the most common factors, but you should
include the factors that are the most appropriate to your industries.
• Assign weights: Weights indicate how important a factor is to
industry’s attractiveness. A number from 0.01 (not important) to 1.0
(very important) should be assigned to each factor. The sum of all
weights should equal to 1.0.
• Rate the factors: The next thing you need to do is to rate each factor
for each of your product or business unit. Choose the values between
‘1-5’ or ‘1-10’, where ‘1’ indicates the low industry attractiveness and
‘5’ or ‘10’ high industry attractiveness.
• Calculate the total scores: Total score is the sum of all weighted
scores for each business unit. Weighted scores are calculated by
multiplying weights and ratings. Total scores allow comparing
industry attractiveness for each business unit.

This is a tough task and one that usually requires involving a consultant
who is an expert of the industries in question. The consultant will help
you to determine the weights and to rate them properly so the analysis is
as accurate as possible.

Step 2. Determine the competitive strength of each business unit

‘Step 2’ is the same as ‘Step 1’ only this time, instead of industry
attractiveness, the competitive strength of a business unit is evaluated.
• Make a list of factors: Choose the competitive strength factors from
our list or add your own factors.
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• Assign weights: Weights indicate how important a factor is in
achieving sustainable competitive advantage. A number from 0.01
(not important) to 1.0 (very important) should be assigned to each
factor. The sum of all weights should equal to 1.0.
• Rate the factors: Rate each factor for each of your product or
business unit. Choose the values between ‘1-5’ or ‘1-10’, where ‘1’
indicates the weak strength and ‘5’ or ‘10’ powerful strength.
• Calculate the total scores: See ‘Step 1’.

Step 3. Plot the business units on a matrix

With all the evaluations and scores in place, we can plot the business
units on the matrix. Each business unit is represented as a circle. The
size of the circle should correspond to the proportion of the business
revenue generated by that business unit. For example, ‘Business unit 1’
generates 20% revenue and ‘Business unit 2’generates 40% revenue for
the company. The size of a circle for ‘Business unit 1’ will be half the size
of a circle for ‘Business unit 2’.

Step 4. Analyze the information

There are different investment implications you should follow, depending

on which boxes your business units have been plotted. There are 3
groups of boxes: investment/grow, selectivity/earnings and
harvest/divest boxes. Each group of boxes indicates what you should do
with your investments.

INVEST/GROW BOX.
✓ Companies should invest into the business units that fall into these
boxes as they promise the highest returns in the future.
✓ These business units will require a lot of cash because they’ll be
operating in growing industries and will have to maintain or grow
their market share.

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✓ It is essential to provide as much resources as possible for BUs so
there would be no constraints for them to grow.
✓ The investments should be provided for R&D, advertising,
acquisitions and to increase the production capacity to meet the
demand in the future.

SELECTIVITY/EARNINGS BOX.
✓ You should invest into these BUs only if you have the money left over
the investments in invest/grow business units group and if you
believe that BUs will generate cash in the future.
✓ These business units are often considered last as there’s a lot of
uncertainty with them.
✓ The general rule should be to invest in business units which operate
in huge markets and there are not many dominant players in the
market, so the investments would help to easily win larger market
share.

HARVEST/DIVEST BOX.
✓ The business units that are operating in unattractive industries, don’t
have sustainable competitive advantages or are incapable of achieving
it and are performing relatively poorly fall into harvest/divest boxes.
What should companies do with these business units?
✓ First, if the business unit generates surplus cash, companies should
treat them the same as the business units that fall into ‘cash cows’
box in the BCG matrix. it’s worth to invest into such business as long
as investments into it doesn’t exceed the cash generated from it.
✓ Second, the business units that only make losses should be divested.
If that’s impossible and there’s no way to turn the losses into profits,
the company should liquidate the business unit.

Step 5. Identify the future direction of each business unit

The GE McKinsey matrix only provides the current picture of industry
attractiveness and the competitive strength of a business unit and
doesn’t consider how they may change in the future. Further analysis
may reveal that investments into some of the business units can
considerably improve their competitive positions or that the industry may
experience major growth in the future. This affects the decisions we make
about our investments into one or another business unit.

For example, our previous evaluations show that the ‘Business Unit 1’
belongs to invest/grow box, but further analysis of an industry reveals
that it’s going to shrink substantially in the near future. Therefore, in the
near future, the business unit will be in harvest/divest group rather than
invest/grow box. Would you still invest as much in ‘Business Unit 1’ as
you would have invested initially? The answer is no and the matrix
should take that into consideration.

How to do that? Well, the company should consult with the industry
analysts to determine whether the industry attractiveness will grow, stay
the same or decrease in the future. You should also discuss with your
managers whether your business unit competitive strength will likely
increase or decrease in the near future. When all the information is
collected you should include it to your existing matrix, by adding the
arrows to the circles. The arrows should point to the future position of a
business unit.

Step 6. Prioritize your investments

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The last step is to decide where and how to invest the company’s money.
While the matrix makes it easier by evaluating the business units and
identifying the best ones to invest in, it still doesn’t answer some very
important questions:
• Is it really worth investing into some business units?
• How much exactly to invest in?
• Where to invest into business units (to R&D, marketing, value chain)
to improve their performance?

Doing the GE McKinsey matrix and answering all the questions takes
time, effort and money, but it’s still one of the most important product
portfolio management tools that significantly facilitate investment
decisions.

ADVANTAGES
• Helps to prioritize the limited resources in order to achieve the best
returns.
• Managers become more aware of how their products or business units
perform.
• It’s more sophisticated business portfolio framework than the BCG
matrix.
• Identifies the strategic steps the company needs to make to improve
the performance of its business portfolio.

DISADVANTAGES
• Requires a consultant or a highly experienced person to determine
industry’s attractiveness and business unit strength as accurately as
possible.
• It is costly to conduct.
• It doesn’t take into account the synergies that could exist between
two or more business units.

STRATEGIC There are many strategic alternatives that can be adopted by an

ALTERNATIVES organisation to attain its objectives. The most famous ones are Glueck &
Jauch Generic Strategic Alternative and Porter’s Generic Strategies as
discussed hereunder:

GLUECK & While developing generic strategic taxonomies, the work of Glueck and
JAUCH Jauch is widely referred to. These authors developed a complex matrix
GENERIC involving expansion/retrenchment and stability aspects across
STRATEGIC products/markets and functions. Using this matrix, Hitt et al. and
ALTERNATIVE Pearce et al. postulate that there exist four grand strategic alternatives:
➢ Stability;
➢ Internal growth;
➢ External acquisitive growth;
➢ Retrenchment.

STABILITY
The stability strategy involves the maintenance of the current business
definition by safeguarding the existing interests and strengths. It
continues to peruse its well established and tested objectives and goals
and optimizes the resources committed to attain such goals. It may also
change the pace of effort within its stable business definition in order to
become more efficient or effective. Pearce et al. operationalise the stability
strategy along four dimensions:
• Implemented wherein few functional changes are made in the

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products/markets;
• A business continues to serve existing customers in the same or
similar market segment with same portfolio of products;
• Instead of a “do nothing” strategy, it is a “do nothing new” strategy;
• It has its sharp focus on incremental improvement of functional
performance;
• It continues to pursue same set of objectives and goals; and
• The business adjusts the level of improvement he equivalent
proportion every year;
• Involves keeping track of new developments to ensure that strategy
continues to make sense.

AN INTERNAL GROWTH (EXPANSION) STRATEGY

An internal growth strategy involves re-defining of business definition by
substantially scaling the level of operations through internal development
and not taking help of other corporations or businesses. Market
penetration, market development and product development are
emphasised to develop new products, enter new markets and embracing
new technology.
• Implemented by redefining the business by adding business scope
substantially, which increases the efforts of current business;
• Promising and famous strategy, which may take company along
relatively less risky untraveled paths;

EXTERNAL EXPANSION
Glueck and Jauch note that there are a number of terms used for
external expansion. These include acquisitions, mergers (one business
loses its identity), consolidations (both businesses lose their identity, and
a new business arises) and joint ventures. The distinguishing feature of
all external growth strategies, though, is that they involve another
company or business.

RETRENCHMENT
Pearce et al. operationalise a retrenchment strategy along three
dimensions: improvement in performance by scaling down the level
and/or scope of product/market objectives; cut back in costs; and
reduction of the scale of operations through the divestment of some units
or divisions. Glueck and Jauch also suggest that retrenchment also
involves a reduction in functions. Internal retrenchment is, labelled as an
operating turnaround strategy where the emphasis is on reducing costs,
increasing revenues, reducing assets, and reorganising products and/or
markets to achieve greater efficiency. External retrenchment constitutes
a more serious form of strategic turnaround, including such measures as
divestiture and liquidation. Glueck and Jauch’s typology introduces the
concepts of stability and external versus internal aspects of growth and
retrenchment.

COMBINATION STRATEGIES
The above discussed strategies are not mutually exclusive but can be
used in a combination to suit the needs of the organization.

PORTER’S ✓ In 1985, in his book “Competitive Advantage: Creating and Sustaining

GENERIC Superior Performance” Michael Porter pronounced the three generic
STRATEGIES strategies namely “Cost Leadership” (no frills), “Differentiation”
(creating uniquely desirable products and services) and “Focus”
(offering a specialized service in a niche market).

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✓ Thereafter, he then sub-divided the ‘Focus’ strategy into two parts:
“Cost Focus” and “Differentiation Focus.”

THE COST LEADERSHIP STRATEGY

✓ This strategy also involves the firm winning market share by
appealing to cost-conscious or price-sensitive customers.
✓ This is achieved by having the lowest prices in the target market
segment, or at least the lowest price to value ratio (price compared to
what customers receive).
✓ To succeed at offering the lowest price while still achieving
profitability and a high return on investment, the firm must be able to
operate at a lower cost than its rivals.
✓ There are three main ways to achieve this:
✓ The first approach is achieving higher asset utilization. In
manufacturing, it will involve production of high volumes of output.
These approaches mean fixed costs are spread over a larger number
of units of the product or service, resulting in a lower unit cost, i.e.
the firm hopes to take advantage of economies of scale and experience
curve effects.
✓ The second dimension is achieving low direct and indirect operating
costs. This is achieved by offering high volumes of standardized
products, offering basic no-frills products and limiting customization
and personalization of service.
✓ The third dimension is control over the value chain including all
functional groups (finance, supply/procurement, marketing,
inventory, information technology etc.) to ensure low costs. Wal-Mart
is known for squeezing its suppliers to price its products reasonably
low.
✓ The greatest risk in pursuing a Cost Leadership strategy is that the
competitors may follow the same cost reduction strategies, therefore,
the company has always to be on its toes to continuously reduce its
cost. This can be done by adopting the Japanese Kaizen philosophy of
“continuous improvement” among other techniques of reducing cost.

THE DIFFERENTIATION STRATEGY

✓ A differentiation strategy is appropriate where the target customer
segment is not price-sensitive, the market is competitive or saturated,
customers have very specific needs which are possibly under-served,
and the firm has unique resources and capabilities which enable it to
satisfy these needs in ways that are difficult to copy.
✓ Differentiation is deemed to be successful when a company is able to
fetch a premium price for its products or services, has increased
revenue per unit, or is able to retain loyalty of its customers.

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✓ Adopting this strategy, Apple could brand its i-phones, computers
and i-pads; Mercedes-Benz C-Class could sell its cars as most
expensive ones, Café Coffee Day could differentiate its coffee, and
Nike could brand sports clothing and shoes. Fashion brands and
multinational companies have to depend greatly on this strategy.
✓ However, this is not an apt strategy as it is not suitable for smaller
companies but for big brands.
✓ However, for ensuring success of its Differentiation strategy, a
company must:
• Undertake high-quality research, development and innovation.
• Be able to deliver premium products/services.
• Rigorous branding and marketing about differentiated offerings.
• Need to stay agile with their new product development processes.

THE FOCUS STRATEGY (NICHE STATEGY)

✓ Companies adopting focus strategies focus on niche markets and, by
get hold of the dynamics of such niche market and unique
requirements of its customers.
✓ Based on such understanding, they develop exclusively low-cost
products particularly for such niche market.
✓ Due to this, a strong brand loyalty is developed with its customers
making it difficult for competitors to enter.
✓ Such a strategy is often used by small firms/companies.
✓ Further, such companies may either use a ‘cost focus’ or a
‘differentiation focus’. While cost focus makes the firm the lowest cost
producer in such niche or segment, differentiation focus creates
competitive advantage through differentiation within the niche or
segment.

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Lesson 5 Competitive Positioning
PORTER’S In 1985, Michael Porter in his book “Competitive Advantage: Creating and
GENERIC Sustaining Superior Performance” pronounced the three generic strategies
STRATEGIES namely “Cost Leadership” (no frills), “Differentiation” (creating uniquely
desirable products and services) and “Focus” (offering a specialized service
in a niche market). Thereafter, he then sub-divided the ‘Focus’ strategy into
two parts: “Cost Focus” and “Differentiation Focus.” These are shown in the
below figure:

COST LEADERSHIP STRATEGY

Example
Amazon is an excellent illustration of a cost leadership strategy. Even though
their profit margin is so tiny, economies of scale allow them to remain
profitable. They draw sizable crowds of customers by selling things for less
money.

Ways to achieve Cost leadership

• Quick demand forecasting for the product or service.
• Effective utilization of the firm’s resources to avoid wastage.
• Attaining economies of scale which results in lower per-unit cost.
• Investing in high-end technology for smart working.
• Product standardization for mass production, which leads to
economies of scale.

PROS OF USING COST LEADERSHIP STRATEGY

There are several potential benefits to using a cost leadership strategy.
1. Low costs enable low prices. To cut manufacturing costs, cost leaders
concentrate their efforts on making production processes more efficient.
They may cut prices while still turning a profit because to their cheap
costs.
2. Cost leaders are more able to withstand price wars. Cost leaders
are well-equipped to cut expenses, which can put the brakes on
competitiveness. If they cannot be certain they will succeed, higher-
priced competitors are less likely to want to actively compete with cost
leaders.
3. Increased market share. Customers that are sensitive to pricing tend
to favour businesses who sell products at the lowest prices.

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CONS OF USING COST LEADERSHIP STRATEGY
Using a cost leadership strategy can have several downsides. Consider the
potential drawbacks to cost leadership.
1. Risky Approach. Cost leaders must continually come up with fresh
strategies. Competitors are likely to copy an efficient cost-cutting
strategy as soon as it is discovered by a corporation. Cost leaders risk
suffering big losses if they are unable to maintain constant cost
reduction.
2. Difficult to maintain perceptions of quality. When the marketing
approach is based on providing the most affordable products, it
becomes challenging to maintain the perception of quality. Cost leaders
need to figure out how to provide affordable goods and services while
also upholding a strong reputation and fostering brand loyalty.
3. Dependent on a high volume of sales. Cost leaders inevitably operate
with thin profit margins. This means they have to maintain a high
volume of sales to be successful.
4. Cost leaders may be slow to adapt to market changes. When your
business-level strategy is centered around cost reduction, it can be
challenging to keep up with consumer trends and tastes.

DIFFERENTIATION STRATEGY

PROS OF USING DIFFERENTIATION STRATEGY

1. Lower Price Competition: Companies frequently engage in pricing
wars with rivals. But an organization can compete its rivals by
differentiating the product or service. Even if competitors’ costs are
cheaper, they will struggle to compete if the quality of our product is
unsurpassed.
2. Unmatched Products and Services: We can make our product
distinctive by using cutting-edge marketing and promotion techniques
and make our products stand out from the competition.
3. Greater Profit Margins: Company can increase the price of goods by
differentiating the offerings. It will increase in repeat business after
product becomes sticky with target market. This would imply that
company can generate more money even with fewer sales.
4. Brand Loyalty: The product carves out a special position in the
consumer’s mind if we differentiate the product with other ones.

CONS OF DIFFERENTIATION STRATEGY

While discussing the differentiation strategy advantages and
disadvantages, we must list these disadvantages that organizations must
watch out for:
1. Increased Cost: There is an undeniable increased cost component
every time a company considers utilising a differentiated marketing
strategy. There will always be an additional expense when you produce
different iterations of the same kind of product. Because of this, several
businesses find it challenging to differentiate their products.
2. consistency: Companies with significantly distinct offers frequently
suffer from poor communication. It’s crucial to have umbrella
communication, like cutting-edge technology and innovative leadership
in the case of Apple Inc., even though they deal with many areas and
niches, to get over this disadvantage of the differentiation strategy.
3. Affordability: The premium price of products reflects the intrinsic cost
of differentiated marketing strategy. Such products frequently face
competition from imitations of their own brand. Although such
products don’t have trouble sustaining their pricing point with proper
packaging, design, and communication.
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4. Cannibalization: While a few goods would have sufficed, businesses
frequently produce too many differentiated offerings. This can result in
brand cannibalization. It’s critical to produce a small number of
differentiated items in order to counteract this drawback of the
differentiation strategy.

FOCUS STRATEGY

TYPES OF A FOCUS STRATEGY

There are two types of focus strategy, a brief about each is as follows:
Focused Low-Cost Strategy
Companies choose for this approach when they first join the market. It
indicates that the business provides a unique product with additional
advantages to the clients at a low cost. Yet, this does not imply that
established businesses cannot or should not adopt this tactic; businesses
of all stripes could do so.

The best strategy for new businesses to enter the market and engage in
indirect competition is this one. Some businesses choose to join the market
with their products and services at low costs in order to gain market share.
They would find it challenging to carry out this plan over the long haul.

Focused Differentiation Strategy

It is a form of strategy approach that, as its name suggests, focuses on
developing a product that is unique for a certain client market group.
When a business adopts the differentiation strategy approach, it
concentrates on reducing the size of the targeted client segment by
providing unique and personalised features in the product.

A fantastic illustration of the focused differentiation strategic strategy in

action is Breezes Resort. The hospitality company fulfils the needs of
couples and business partners by providing them with a quiet, child-free
atmosphere. Partners and couples would adore to visit this location and
take advantage of their services.

PROS OF USING FOCUS STRATEGY

Some of the key benefits and advantages of focus strategy are as follows;
1) Availability of Resources: It is crucial to have the necessary financial
and other resources available when organization plan to adopt the targeted
strategic approach. The price of manufacturing the correct product for the
particular customer market segment is higher. Yet, if a business is using
scarce resources to create a rare product, it needs to ensure that those
resources are available.
2) Competitive Edge: Gaining a competitive edge is the crucial component
of putting the concentrated strategic approach into practise. When a
business makes a distinctive offer to a certain client market segment, it will
be easy to stand out from the competition. When organization provides its
clients something worthwhile, it will be tough for your rivals to quickly
imitate it.
3) High Growth: Companies and corporations should never forget that
there is always potential for expansion. Businesses and firms who are not
evolving with the times and the market find it challenging to thrive. The
organization should assess the segment’s growth prospects before focusing
on it as a target market segment.
4) Increased Profitability: The smaller client market niche is simple to
locate and cater to. Yet, it is important to consider whether the market
niche you are aiming for is profitable. It’s because making a profit is always
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a company or business’s primary goal. Such market groupings need to be
sizable enough to bring in money.

CONS OF USING FOCUS STRATEGY

Some of the main disadvantages and challenges of the focus strategy are as
follows:
1) Changing Preferences: Customers’ preferences and choices are always
shifting, and they strive to reflect the consensus opinion. When a business
provides a unique offering that matters to the customer, they will choose it
and it will last longer.
2) High Competition: A focused strategic strategy seeks to gain a
competitive edge by providing something special and worthwhile. Being
ahead of the competition is challenging since they are constantly trying to
get better. The organization must monitor its development and take the
offering seriously. The market’s increased completion reduces the
company’s profitability.

Distinctive Features of the Generic Competitive Strategies

Type of Low-Cost Differential Focus
Feature Leadership
Strategic A broad cross- A broad cross- A narrow market
target section of the section of the niche where the
market. market. buyer, needs
and preferences
are distinctively
different from
the rest
of the market.
Basis of Lower costs than An ability to offer Lower cost in
competitive competitors. buyers serving the niche
advantage something or an ability to
different from offer niche
competitors buyers
something
customized to
their
requirements
and tastes.
Product A good basic Many product Customised to fit
line product with few variations, wide the specialized
frills (acceptable selection, strong needs of the
Quality and emphasis target segment
limited on the chosen
selection). differentiating
features.
Production A continuous Invent ways to Tailor-made for
emphasis search for cost create value for the niche.
reduction buyers.
without
sacrificing
acceptable
quality and
essential
features
Marketing Try to make a • Build in Communicate
emphasis virtue out of whatever the focusser’s

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product features features unique ability to
that lead to low buyers are satisfy
cost. willing to pay the buyer’s
for. specialized
requirements.
• Charge a
premium
price to cover
the extra
costs of
differentiatin
g features.
Sustaining • Economical • Communicate Remain totally
the prices/ good the points of dedicated to
strategy value. difference in serving the niche
credible better than
• All elements ways. other
of strategy • Stress competitors;
aim at constant don’t blunt
contributing improvement the firm’s image
to a and use and efforts by
sustainable innovation to entering other
cost stay ahead of segments and
advantage — imitative adding other
the key is to competitors. product
manage costs • Concentrate categories
down, year on a few key to widen market
after year, in differentiatin appeal.
every area of g features;
the business. use them to
create a
reputation
and brand
image.
STRATEGIC ✓ Strategy implementation is a process through which a strategy is put
IMPLEMENTATION into action.
✓ Strategies are only ‘means’ to an ‘end’ i.e. accomplishment of
organization’s objectives which have to be activated through
implementation.
✓ This is because both strategic formulation and strategic implementation
process are intervened in real life situation.
✓ A good strategy without effective implementation is futile for success of
an organization.
✓ The implementation of policies and strategies is concerned with the
design and management of systems to achieve the best integration of
people, structures, processes and resources in reaching organization
objectives.
✓ Strategy implementation may also consist of securing resources,
organizing these resources and directing the use of these resources
within and outside the organization.
✓ In an action, the strategy chosen is a promise and implementation is to
turn the promise into performance. These tasks of transformation
warrant structural and administrative mechanism which can be
compatible and workable to be established to reinforce the chosen
strategic direction for action.
✓ Once the strategy has been determined; it is the job of the management

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to ensure that the strategy is implemented.
✓ The major task of implementation strategy is to create a fit between the
company goals and its other activities.
✓ Generally two types of fits need to be created—
(i) fits between the strategy and functional policies; and
(ii) fits between the strategy and the organizational structure, process
and systems.
✓ Implementation of strategy in an organization covers a number of inter-
related decisions, choices, and a broad range of activities such as the
commitments and cooperation of all units, sections and departments.
There are two inter-related tasks involved in the process, i.e.
differentiation and integration.
✓ An effective implementation of strategy is significant for an
organization’s growth, whereas failure in effective strategy
implementation may have negative consequences for an organization.

STRATEGY ✓ Strategy formulation is largely an intellectual process whereas strategy

FORMULATION implementation is more operational in character.
AND ✓ Strategy formulation requires good conceptual, integrative and
IMPLEMENTATION analytical skills but strategy implementation requires special skills in
motivating and managing others.
✓ Strategy formulation occurs primarily at the corporate level of an
organization while strategy implementation permeates all hierarchy
levels.
✓ In fact, they are not supplanting each other but supplementing each
other. In other words, they are not conflicting but contemporary to each
other.
✓ The relation between strategy formulation and implementation can be
best understood by their inter- dependence. There are two types of
linkages between strategy formulation and implementation i.e. forward
linkage and backward linkage.

Forward linkage is concerned with the influence of the formulation on

implementation. Strategy formulation has forward linkage with
implementation in the sense that total implementation activities are geared
according to strategy chosen for implementation. The nature and type of
organizational processes and systems are conditioned by the strategy for its
successful implementation. Thus, implementation is dependent upon
formulation.

Backward linkage, on the other hand, deals with the influence in the
opposite direction. Strategy formulation has backward linkage with
implementation as organization tends to adopt those strategies which can
be implemented with the help of existing structure of resources joined with
some additional efforts. The strategy is formulated in a particular
environment which is dynamic. The feedback from operations, a result of
strategy implementation gives notices of the changing environmental
factors to which strategy should be seen in continuity rather than in
discrete form.

STRATEGY IMPLEMENTATION – SUPPORTING FACTORS

The development and selection of strategies to pursue in an organization is
considered easier and less time consuming than implementing these
strategies once they have been chosen. An effective implementation of
strategy in an organization needs multiple supporting factors. Some of
these factors include the following:
(i) Action Planning: Organizations to be successful in strategy
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implementation need to develop a detailed action plan i.e., chronological
lists of action steps (tactics) which add the necessary detail to strategies
and assign responsibility to specific individual or group for
accomplishing those actions. They should also set a due date and
estimate the resources required to accomplish each of their action
steps. Thus, they translate their broad strategy statement into a
number of specific work assignments.
(ii) Organizational Structure: Successful strategists should also give
proper thought to their organizational structure and see whether the
current structure is appropriate for their intended strategy because
different structures suit the implementation of different strategies.
(iii) Human Resource Factors: Human Resource factors through framing
strategic plan play a vital role in successful implementation of strategies
in an organization. Strategist realize that the human resource issue is
really a two part story. The consideration of human resources requires
the management to think about the organization’s communication
needs. Further, managers successful at implementation are aware of
the effects each new strategy will have on their human resource needs.
(iv) Annual Business Plan: Organizations successful at implementation
are well aware of their need to fund their intended strategies. They
think about necessary financial commitment in the planning process.
For firming up their commitments to strategic plans, companies
monetize their strategy. That way, they link their strategic plan to their
annual business plan.
(v) Monitoring and Control: Monitoring and controlling the plan covers a
list of options to get back on course if company should veer off. Those
options include changing the schedule, changing the action steps,
changing the strategy or changing the objective.

Developing an effective strategic plan is only half the battle. Getting it

implemented is the other half – completing the tactics to accomplish the
strategies and objectives within the plan. Monitoring the implementation of
strategic plan is justified on the following grounds:
(i) It helps to assure the organization efforts conform to the plan.
(ii) It enables the organization to ensure that the results achieved
correspond to our quantified objectives.
(iii) Further monitoring allows for corrective action.
(iv) Since monitoring is part of control process, it encourages improved
performance.
(v) Monitoring provides the essential link between the written plan and the
day-to-day operations of the business. It demonstrates to all that
organization is really managing the business according to its strategic
plan.

To set functional area goals, the following steps should be taken:

1. For each functional area, compare present functional goals with new
enterprise, corporate and business- level goals.
2. Decide what new goal areas (functional variables) are needed for each
function.
3. Set new goal levels (values for each functional area’s variables).

ISSUES IN STRATEGY IMPLEMENTATION

An organization is confronted with a number of issues in the process of
strategy implementation. Some of the important issues are discussed as
follows:

(i) Project implementation

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Project is a highly specific program for which time schedule and specific
cause are determined in advance. Projects create all necessary conditions
and facilities required for the strategy implementation, the discipline of
project management. A project basically passes through various phases
which are given below before a set of task can be accomplished:
(a) Detailed planning related to different aspects of projects such as
infrastructure design, schedules, budgets etc., has to be completed.
(b) Ideas generated during the process of strategic alternatives and choice
consideration form the core of the future projects that may be
undertaken by the organization.
(c) After a set of projects have been identified and arranged according to
the priority, they have to be subjected to preliminary project analysis
pertaining to technical, financial, marketing and economic aspects.
After the screening, the viable projects are taken up and feasibility
studies are conducted.
(d) Detailed engineering, awarding contracts, civil and other types of
construction etc., are to be undertaken during the implementation
phase leading to the testing trail and commissioning of the plant.
(e) The final phase deals with disbanding the project.

(ii) Procedural implementation

▪ Strategy implementation also requires executing the strategy based on
the rules, regulations and procedures formulated by the Government.
▪ Though many procedures are simplified with the liberalization,
privatization, and globalization of the Indian economy, certain
procedures are still applicable in the process of strategic
implementation such as, licensing requirements, Foreign Exchange
Management Act requirements, collaboration procedures, import and
export requirements, incentives and benefits, requirements of Labour
Laws and other Legislations.

(iii) Organisational Structure and Strategies

Organizational structure is a means for achieving organization mission and
objectives. Thus, it is an important source of strategic implementation.
Organizational structure refers to the method of allocating duties and
responsibilities to individuals, and the ways these individuals are grouped
together into units, departments and divisions. Companies form structures
for their organizations based on their strategies. There are number of
methods in which the organizations can be structured. A simple strategy
requires simple structure whereas the growth strategies require a flexible
structure and complex strategies necessarily influence to build the matrix
structures.

(iv) Resource Allocation

▪ Resource allocation involves the process of allocating organizational
resources to various divisions, departments and strategic business
units.
▪ It deals with the procurement, commitment and financing the physical
and the human resources required to accomplish strategic tasks for the
achievement of organizational objectives.

(v) Functional Policies

▪ Functional policies describe functional guidelines to operating
managers so that coordination across functional units can take place.
▪ Once the strategy of the companies is decided, modification in
functional policies may become necessary to meet the demands of the
new business.
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(vi) Communication Strategy
▪ Communication strategy covering the mission, objectives, market scope,
technology and all the issues related to implementation, to different
levels in the organization is very important for its success.
▪ This is because strategy is implemented through people who ought to be
clear about their roles which they have to play in relation to each other.

(vii) Leadership
▪ Appropriate leadership is necessary for developing effective structure
and systems for the success of strategy.
▪ Leadership is the key factor for developing and maintaining right
culture and climate in the organization.

(viii) Challenges to Change

▪ The strategy implementation process generally involves a change. The
change can be minor or major.
▪ The process of change may cover in freezing, moving and refreezing.

(ix) Pre-implementation Evaluation Strategy

Before the implementation of the strategy, it is advisable to go for a final
scrutiny so as to avoid failure due to weaknesses in the analysis, if any and
to ensure that the strategy decided for the organization is optimum.

MANAGING Problems of overcoming resistance to change can be managed in the

STRATEGIC following ways:
CHANGES (i) Education and Communication: If misinformation and lack of
information create barriers to managing change, education and
communication might be appropriate. It requires an atmosphere of
mutual trust and confidence and respect between managers and
employees.
(ii) Participation: Participation helps to give people in organizational
change a feeling of importance. It creates the feelings among the
employees that the decision is their own. They realise that the change
process is a must. Those people who are directly affected by the change
should be given opportunity to participate in that change before the
final decisions are reached.
(iii) Obtaining commitment: Commitment to take part in changed
programme can be obtained in private from each individual. However,
getting a person to commit himself in private to a changed programme
may yield fewer results than if he voluntarily and publicly gives his
commitment to an idea of change.
(iv) Leadership: A transformational leader can use personal reasons for
change without arousing resistance. An effective leader tries to change
the psychological needs of his followers.
(v) Training and Psychological Counselling: Management can change
the basic values of the people by training and psychological counseling.
People should be educated to become familiar with change, its process,
and working. They must be taught new skills, helped to change
attitudes and indoctrinated in new relationships.
(vi) Coercion or Edict: Coercion or edict is the imposition of change or the
issuing of directives about change. It is the explicit use of power.
Coercion is the least successful style of managing change except in a
state of crisis or confusion.

STRATEGIC Strategic leadership is a type of leadership in which the leader persuades

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LEADERSHIP followers to support a broad vision for the success of the business. Since it
prioritises the greatest sustainability initiatives, strategic leadership is now
significant to the majority of firms. You may manage a company more
successfully if you are aware of the different approaches to show strategic
leadership. In this piece, we examine examples of strategic leadership and
pinpoint the competencies that are pertinent to this type of leadership.

It takes strategic leadership to identify your organization’s strengths so you

can set yourself out from the competition. It necessitates a more
imaginative strategy than only looking for simple answers. Future
organisational growth is highly dependent on leadership.

“Strategic leadership is defined as the ability to influence others to

voluntarily make day-to-day decisions that enhance the long-term viability of
the organization while maintaining its short-term financial stability”. (W.
Glann Rowe, 2001).

LEADERSHIP AND ITS FORMS

Types of Strategic Leadership

There are following three well-defined types of strategic leadership:
(a) Transactional Leadership
The transactional leaders make certain that everyone is aware of the
expectations for the procedures and results. They strike a balance
between strategic management and leadership by gauging employee
performance and inspiring them to do better. For good performance,
they employ incentives like increased pay, promotions, and bonuses.
But they may also discipline poor performance by cutting pay or
eliminating jobs. A leadership technique like this might provide results,
but not always the best ones.

Nonetheless, this kind of strategic leadership is incorporated to some

level in the majority of leadership philosophies. A leader’s reliance on
this approach affects whether or not they meet the criteria for
transactional leadership.

(b) Transformational Leadership

Transformational leaders integrate leadership and strategy, and they
use their vision to direct the employees’ activities and behaviours. They
affect both the organisation and the people within it to change. Such a
leadership tactic entails persuading people to change. The
organization’s advantage is the main goal of this innovative strategy.
The transformative leader builds the team’s confidence while helping
them recognise roles and set goals. Strategic leadership of this kind
encourages action and is adaptable.

According to Northouse (2001) “transformational leadership is a process

that changes and transforms people. Transformational leaders can
motivate people to change to improve their circumstances”.

(c) Charismatic Leadership

Charismatic leaders work their charm to persuade others. Charismatic
leaders have the drive and passion to get their work done. While
charismatic leaders share quite a few similarities with transformational
leaders, the focus of their work is a change in the status quo and not
necessarily a change in the organization.

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STRATEGIC LEADERSHIP SKILLS
According to Harvard Business Review, strategic leadership competencies
include six essential skills:
• Anticipate: Collect information from a wide range of sources both
inside and outside your company’s industry or function to predict
competitors’ moves and reactions to new initiatives or products.
• Challenge: View and reframe a problem from multiple angles to
understand its underlying causes.
• Interpret: Exhibit curiosity and openness when testing several working
hypotheses and involve others before coming to any conclusions.
• Decide: Weigh long-term investments for growth with short-term
pressure for results, as well as the risks and trade-offs for customers
and other stakeholders, when making decisions.
• Align: Examine stakeholders’ incentives and tolerance for change and
identify conflicting interests.
• Learn: Convey stories of success and failure to advocate learning.
Course-correct decisions after they have been made if there is refuting
evidence.

STRATEGIC THINKING SKILLS

All abilities that help you apply critical thinking to solve complicated
problems and make future plans are considered strategic thinking abilities.
These abilities are necessary to attain professional goals, get over
roadblocks, and deal with hurdles, especially if they are anticipated to take
weeks, months, or even years to complete. It contains:
❖ Analytical skills: You must be able to analyse a wide range of inputs,
from financial statements to market circumstances, developing
business trends, and internal resource allocation, in order to come up
with a plan that helps your organisation achieve its goals. To develop a
plan that is in line with the present situation your firm is facing, this
preliminary analysis is essential.
❖ Communication skills: Regardless of the size of your business,
developing a strategy will involve effective communication. Strategic
thinking is mostly based on the capacity to effectively convey
complicated concepts, interact with internal and external stakeholders,
forge agreement, and make sure that everyone is on the same page and
pursuing the same objectives.
❖ Problem-solving skills: Strategic planning is frequently utilised to
address issues or problems, such as unmet financial goals, ineffective
processes, or a new rival. You must first comprehend the issue and its
potential remedies in order to put into action a plan that solves the
primary obstacle you are facing. From there, you can develop a plan of
action to resolve it.
❖ Planning and management skills: In addition to thinking of a
solution, strategy also entails its implementation. To put everything
together after data analysis, problem comprehension, and solution
identification, you need to have good planning and management
abilities.

STRATEGIC • Strategic leadership is a type of leadership in which the leader

LEADERSHIP persuades followers to support a broad vision for the success of the
business.
• Since it prioritises the greatest sustainability initiatives, strategic
leadership is now significant to the majority of firms.
• You may manage a company more successfully if you are aware of the
different approaches to show strategic leadership. In this piece, we

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examine examples of strategic leadership and pinpoint the
competencies that are pertinent to this type of leadership.
• It takes strategic leadership to identify your organization’s strengths so
you can set yourself out from the competition. It necessitates a more
imaginative strategy than only looking for simple answers. Future
organisational growth is highly dependent on leadership.

“Strategic leadership is defined as the ability to influence others to

voluntarily make day-to-day decisions that enhance the long-term viability of
the organization while maintaining its short-term financial stability”. (W.
Glann Rowe, 2001).

LEADERSHIP AND ITS FORMS

Types of Strategic Leadership

There are following three well-defined types of strategic leadership:
(d) Transactional Leadership
The transactional leaders make certain that everyone is aware of the
expectations for the procedures and results. They strike a balance
between strategic management and leadership by gauging employee
performance and inspiring them to do better. For good performance,
they employ incentives like increased pay, promotions, and bonuses.
But they may also discipline poor performance by cutting pay or
eliminating jobs. A leadership technique like this might provide results,
but not always the best ones.

(e) Transformational Leadership

Transformational leaders integrate leadership and strategy, and they
use their vision to direct the employees’ activities and behaviours. They
affect both the organisation and the people within it to change. Such a
leadership tactic entails persuading people to change. The
organization’s advantage is the main goal of this innovative strategy.
The transformative leader builds the team’s confidence while helping
them recognise roles and set goals. Strategic leadership of this kind
encourages action and is adaptable.

(f) Charismatic Leadership

Charismatic leaders work their charm to persuade others. Charismatic
leaders have the drive and passion to get their work done. While
charismatic leaders share quite a few similarities with transformational
leaders, the focus of their work is a change in the status quo and not
necessarily a change in the organization.

STRATEGIC LEADERSHIP SKILLS

According to Harvard Business Review, strategic leadership competencies
include six essential skills:
• Anticipate: Collect information from a wide range of sources both
inside and outside your company’s industry or function to predict
competitors’ moves and reactions to new initiatives or products.
• Challenge: View and reframe a problem from multiple angles to
understand its underlying causes.
• Interpret: Exhibit curiosity and openness when testing several working
hypotheses and involve others before coming to any conclusions.
• Decide: Weigh long-term investments for growth with short-term
pressure for results, as well as the risks and trade-offs for customers
and other stakeholders, when making decisions.

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• Align: Examine stakeholders’ incentives and tolerance for change and
identify conflicting interests.
• Learn: Convey stories of success and failure to advocate learning.
Course-correct decisions after they have been made if there is refuting
evidence.

STRATEGIC THINKING SKILLS

All abilities that help you apply critical thinking to solve complicated
problems and make future plans are considered strategic thinking abilities.
These abilities are necessary to attain professional goals, get over
roadblocks, and deal with hurdles, especially if they are anticipated to take
weeks, months, or even years to complete. It contains:
❖ Analytical skills: You must be able to analyse a wide range of inputs,
from financial statements to market circumstances, developing
business trends, and internal resource allocation, in order to come up
with a plan that helps your organisation achieve its goals. To develop a
plan that is in line with the present situation your firm is facing, this
preliminary analysis is essential.
❖ Communication skills: Regardless of the size of your business,
developing a strategy will involve effective communication. Strategic
thinking is mostly based on the capacity to effectively convey
complicated concepts, interact with internal and external stakeholders,
forge agreement, and make sure that everyone is on the same page and
pursuing the same objectives.
❖ Problem-solving skills: Strategic planning is frequently utilised to
address issues or problems, such as unmet financial goals, ineffective
processes, or a new rival. You must first comprehend the issue and its
potential remedies in order to put into action a plan that solves the
primary obstacle you are facing. From there, you can develop a plan of
action to resolve it.
❖ Planning and management skills: In addition to thinking of a
solution, strategy also entails its implementation. To put everything
together after data analysis, problem comprehension, and solution
identification, you need to have good planning and management
abilities.

E-BUSINESS An e-business strategy is a long-term plan for implementing the

AND STRATEGY appropriate digital technology to enable a firm to manage all of its partners,
both internally through the intranet and outside through customers,
suppliers, and other partners. To put it another way, an e-business plan is
a detailed strategy for implementing effective digitization so that a company
may perform all of its computerised interactions with all stakeholders –
both internally via the web and globally via clients, vendors, and other
collaborators.

This tactic is not just applicable to online businesses. Any business that
transacts online needs to have an e-business strategy. It outlines all the
short-term and long-term goals that demand careful planning and
expertise.

E-BUSINESS STRATEGIC FRAMEWORK

The e-business strategic framework addresses three broad sets of
questions. These are:
1. Where do we (as a company) want to compete?
2. What type of value do we want to create?
3. How should we set up and organize our company to deliver the desired

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value?

The above three areas are interlinked and cannot answer one question
without considering the other two. Strategies are thus more likely to be
successful if managers take into consideration all relevant dimensions.

The first broad section in the e-business strategy framework deals with a
firm’s external environment. THE KEY QUESTION HERE IS: ‘WHERE DO
WE WANT TO COMPETE?’ Answering this question depends in part on the
following factors:
• The macro-environment: Analyzing the macro-environment helps us
to gain an understanding of trends within the political, economic, social
or technological spheres.
• Industry structure: Porter’s five forces offer a framework for figuring
out how appealing a particular industry is. This involves a review of
industry competition, entry obstacles, competing products, and the
bargaining power of customers and suppliers. The co-opetition value net
is also provided as an addendum to the five forces framework.
• Markets: Consumers have varying expectations and tastes. So, it is
beneficial to divide markets into several categories that correspond to
the features of clients’ purchasing behaviour, such as age, gender,
income level, etc.

Value generation is the subject of the second section of the e-business

strategy framework. WHAT TYPE OF VALUE DO WE WANT TO PRODUCE
FOR OUR CONSUMERS IS THE CRUCIAL QUERY HERE. We address two
relevant topics in order to respond to this query:
1) the concept of value creation in e-business; and
2) strategy options for value creation.

• The concept of value creation in e-business: We first need to examine

the economic value that a corporation generates in order to determine
its potential to gain a competitive edge. Understanding what drives
consumer benefits and what drives expenses is necessary for this.
• Strategy options for value creation: A company has a variety of
strategy options when choosing how to add value for its clients. These
two possibilities, cost leadership and distinction, are the two most
common choices. Additionally, businesses can aim to stray from
conventional forms of rivalry by creating new market niches and
reinventing their value propositions.

The third section of the e-business strategy framework deals with the
internal organization of a firm. THE KEY QUESTION HERE IS: ‘HOW
SHOULD WE SET UP AND ORGANIZE OUR FIRM TO DELIVER THE
DESIRED VALUE?’ In the context of the internal organization, we need to
look at three dimensions:
1) the horizontal boundaries of the firm,
2) the vertical boundaries of the firm, and
3) the internal organization.

• Horizontal boundaries: What scale and scope should our organisation

have is the first question we must address before talking about the
horizontal limits. Knowing the scale and the scope can help you
determine how big your company should be and how big of a market
you need to succeed. How swiftly should we aim to grow is the second
question, which has to do with horizontal boundaries. One of the

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guiding principles of the Internet boom years was growth at all costs.
Early market entry and rapid growth are favoured by a number of
benefits. Yet, there are a number of drawbacks that many ambitious e-
business start-ups ignored.
• Vertical boundaries: A lengthy discussion on how integrated a
company should be in the Internet era was sparked by the concepts of
deconstructing the value chain and unbundling the enterprise. During
the height of the Internet boom, it was widely believed that businesses
should concentrate on their core competencies (or core businesses) and
contract out all other value-creating tasks to other parties. This,
however, did not prove to be a miracle cure. Thus, how should we set
up our company’s value chain is the primary concern with respect to
vertical borders.
• Internal organization: This relates to how the company is structured
within. Thus, the key query is: “How should we internalise our firm?”
This speaks to the selection of organisational structures, distribution
methods, and online consumer interactions.

ARTIFICIAL INTELLIGENCE
• Artificial Intelligence (AI), or machine intelligence, is the field developing
computers and robots capable of parsing data contextually to provide
requested information, supply analysis, or trigger events based on
findings.
• Through techniques like machine learning and neural networks,
companies globally are investing in teaching machines to ‘think’ more
like humans.
• Artificial Intelligence, or simply AI, is the term used to describe a
machine’s ability to simulate human intelligence.
• Actions like learning, logic, reasoning, perception, creativity, that were
once considered unique to humans, is now being replicated by
technology and used in every industry.
• A common example of AI in today’s world is chatbots, specifically the
“live chat” versions that handle basic customer service requests on
company websites.
• The Artificial Intelligence and Business Strategy initiative explores the
growing use of artificial intelligence in the business landscape. The
exploration looks specifically at how AI is affecting the development and
execution of strategy in organizations.
• The initiative researches and reports on how AI is spurring workforce
change, data management, privacy, cross-entity collaboration, and
generating new ethical challenges for business. It looks at new risks
and threats in dependency, job loss, and security. And it seeks to help
managers understand and act on the tremendous opportunity from the
combination of human and machine intelligence.

NINE AREAS FOR DEVELOPING AI BUSINESS STRATEGY

1. Business strategy
Creating an AI strategy for the sake of it won’t produce great results. To get
the most out of AI, it must be tied to your business strategy and your big-
picture strategic goals. That’s why the first step in any AI strategy is to
review your business strategy. (After all, you don’t want to go to all this
trouble and apply AI to an outdated strategy or irrelevant business goals.)

In this step, ask yourself questions such as:

• Is our business strategy still right for us?
• Is our strategy still current in this world of smarter products and

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services?
• Have our business priorities changed?

2. Strategic AI priorities
Now that you’re absolutely clear on where your business is headed, you
can begin to identify how AI can help you get there.

In other words:
• What are our top business priorities?
• What problems do we want or need to solve?
• How can AI help us deliver our strategic goals?

The AI priorities that you identify in this phase are your use cases. To
ensure your AI strategy is focused and achievable, I’d stick to no more than
3–5 AI use cases.

Examples of AI priorities or use cases include:

• Developing smarter products and services.
• Making business processes and functions (such as accounts, sales and
HR) more intelligent.
• Automating repetitive or mundane tasks to free people up for more
value-adding activities.
• Automating manufacturing processes.

3. Short-term AI adoption priorities

Transforming products, services or processes is never going to be an
overnight task. It may take some time to deliver the use cases you’ve
identified. For that reason, I find it helps to also identify a few (as in, no
more than three) AI quick wins – short-term AI priorities that will help you
demonstrate value and gain buy-in for bigger AI projects.

Ask yourself:
• Are there any opportunities to optimise processes in a quick, relatively
inexpensive way?
• What smaller steps and projects could help us gather information or lay
the groundwork for our bigger AI priorities?

4. Data strategy
AI needs lots and lots of data to work. Therefore, you need to review your
data strategy in relation to each AI use case and pinpoint the key data
issues.

This includes:
• Do we have the right sort of data to achieve our AI priorities?
• Do we have enough of that data?
• If we don’t have the right type or volume of data, how will we get the
data we need?
• Do we have to set up new data collection methods, or will we use third-
party data?
• Going forward, how can we begin to acquire data in a more strategic
way?

5. Ethical and legal issues

Let’s not beat around the bush: the idea of super-intelligent machines
freaks people out. It’s therefore crucial that you apply AI in a way that’s
ethical and above board.

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Here, you’ll need to ask yourself questions like:
• How can we avoid invading people’s privacy?
• Are there any legal implications of using AI in this way?
• What sort of consent do we need from customers /users/ employees?
• How can we ensure our AI is free of bias and discrimination?

The ethical implications of AI is a huge topic right now. Notably, tech giants
including Google, Microsoft, IBM, Facebook and Amazon have formed the
Partnership on AI, a group that’s dedicated to researching and advocating
for the ethical use of AI.

6. Technology issues
Here you identify the technology and infrastructure implications of the
decisions you’ve made so far.

Consider:
• What technology is required to achieve our AI priorities (for example,
machine learning, deep learning, reinforcement learning, etc.)?
• Do we have the right technology in place already?
• If not, what systems do we need to put in place?

7. Skills and capacity

For those companies who aren’t Facebook or Google, accessing AI skills
can be a real challenge. Therefore, this step is about reviewing your in -
house AI skills and capabilities, and working out where you need a skills
injection.

For example:
• Where are our skills gaps?
• To fill those gaps, do we need to hire new talent, train existing staff,
work with an external AI provider or acquire a new business?
• Do we have awareness and buy-in for AI from leadership and at other
levels in the business?
• What can we do to raise awareness and promote buy-in?

8. Implementation
Here you need to think about how you’ll turn your AI strategy into reality.
This might surface questions such as:
• How will we deliver our AI projects?
• What are the key next steps?
• Who is responsible for delivering each action?
• Which actions or projects will need to be outsourced?

9. Change management issues

Because people are so wary of AI, particularly what it might mean for their
jobs, change management is a really important part of any AI project.

Example questions include:

• Which employees and teams will be impacted by this AI project?
• How can we communicate effectively with those people about the
change?
• How should the change process be managed?
• How will AI change our company culture, and how will we manage that
culture change?

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FINTECH
• Financial technology (Fintech) is used to describe new tech that seeks
to improve and automate the delivery and use of financial services.
• At its core, fintech is utilized to help companies, business owners and
consumers better manage their financial operations, processes, and
lives by utilizing specialized software and algorithms that are used on
computers and, increasingly, smartphones.
• Fintech, the word, is a combination of “financial technology”.
• Broadly, the term “financial technology” can apply to any innovation in
how people transact business, from the invention of digital money to
double-entry bookkeeping.
• When fintech emerged in the 21st Century, the term was initially
applied to the technology employed at the back- end systems of
established financial institutions. Since then, however, there has been a
shift to more consumer- oriented services and therefore a more
consumer-oriented definition.
• Fintech now includes different sectors and industries such as
education, retail banking, fundraising and nonprofit, and investment
management to name a few.
• Fintech now describes a variety of financial activities, such as money
transfers, depositing a check with your smartphone, bypassing a bank
branch to apply for credit, raising money for a business startup, or
managing your investments, generally without the assistance of a
person.
• Fintech also includes the development and use of crypto-currencies
such as bitcoin.

Some of the most active areas of fintech innovation include or revolve

around the following areas:
• Cryptocurrency and digital cash.
• Blockchain technology, including Ethereum, a distributed ledger
technology (DLT) that maintain records on a network of computers, but
has no central ledger.
• Smart contracts, which utilize computer programs (often utilizing the
blockchain) to automatically execute contracts between buyers and
sellers.
• open banking, a concept that leans on the blockchain and posits that
third-parties should have access to bank data to build applications that
create a connected network of financial institutions and thirdparty
providers. An example is the all-in-one money management tool Mint.
• Insurtech, which seeks to use technology to simplify and streamline
the insurance industry.
• Regtech, which seeks to help financial service firms meet industry
compliance rules, especially those covering Anti-Money Laundering and
Know Your Customer protocols which fight fraud.
• Robo-advisors, such as Betterment, utilize algorithms to automate
investment advice to lower its cost and increase accessibility.
• Unbanked/underbanked, services that seek to serve disadvantaged or
low-income individuals who are ignored or underserved by traditional
banks or mainstream financial services companies.
• Cybersecurity, given the proliferation of cybercrime and the
decentralized storage of data, cybersecurity and fintech are intertwined.

Regulation and Fintech

• Financial services are among the most heavily regulated sectors in
the world. Not surprisingly, regulation has emerged as the number one
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concern among governments as fintech companies take off.
• As technology is integrated into financial services processes, regulatory
problems for such companies have multiplied.
• For example, automation of processes and digitization of data makes
fintech systems vulnerable to attacks from hackers.
• Because of the diversity of offerings in fintech and the disparate
industries it touches, it is difficult to formulate a single and
comprehensive approach to these problems.
• For the most part, governments have used existing regulations and, in
some cases, customized them to regulate fintech.
• They have established fintech sandboxes to evaluate the implications
of technology in the sector.
• The passing of General Data Protection Regulation, a framework for
collecting and using personal data, in the EU is another attempt to limit
the amount of personal data available to banks.
• Several countries where ICOs are popular, such as Japan and South
Korea, have also taken the lead in developing regulations for such
offerings to protect investors.

BLOCKCHAIN TECHNOLOGY
• Blockchain is a series of data linked together.
• Every single transaction is linked to the chain using cryptographic
principles in batches, making blocks.
• The blocks are connected to each other and have unique identifier codes
(called hashes) that connect them to the previous and the subsequent
blocks. This forms a blockchain, usually in the form of a continuous
ledger of transactions.
• It isn’t owned by any one individual. The series is managed and stored
across several computer systems. Each ledger is shared, copied and
stored on every computer connected in the system.
• This decentralised nature of storage provides security, since changing
the details of one record will cause the hash of that block to change,
disconnecting it from the next one and causing the latter’s hash to
change, and further such disruptions.
• Since the data is stored on multiple systems, any person looking to
change the details on one system will have to do it for every other
system as well.

Importance of Blockchain
• Blockchain technology has been the backbone of bitcoin and other
cryptocurrencies.
• The transparency and the security offered by the technology are some of
the main reasons why cryptocurrency has become so popular.
• This technology is increasingly being adopted in the retail,
manufacturing and banking sectors due to its benefits, like
eliminating middlemen, providing data security, reducing corruption
and improving the speed of service delivery.
• It can be particularly useful in maintaining government data related
to public transactions. For instance, if all land records are moved on a
blockchain, with each subsequent buying and selling of a property
being recorded as a block that can be publicly accessed, corruption can
be arrested and governing will be made so much easier.
• Similarly, hallmarked gold jewellery can be moved on an open-source
blockchain ledger, which can be maintained by jewellers and viewed by
consumers.
• However, blockchain technology must be adopted in a gradual manner.
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Bitcoin and other cryptocurrencies have seen wild fluctuations in value,
due to the lack of regulatory supervision.
• The open nature of the technology implies that anyone can adopt it,
which is partly why the government is hesitant to go ahead and use it.
• Scalability, transaction speed and data protection are key technological
hurdles, along with the difficulty of integrating the technology into
existing financial systems. Many legal and regulatory challenges are
also involved.

THE THREE PILLARS OF BLOCKCHAIN TECHNOLOGY

The three main properties of Blockchain Technology which have helped it
gain widespread acclaim are as follows:
• Decentralization
• Transparency
• Immutability

Pillar 1: Decentralization
• In a decentralized system, the information is not stored by one single
entity. In fact, everyone in the network owns the information.
• In a decentralized network, if you wanted to interact with your friend
then you can do so directly without going through a third party. That
was the main ideology behind Bitcoins.
• You and only you alone are in charge of your money. You can send your
money to anyone you want without having to go through a bank.

Pillar 2: Transparency
• One of the most interesting and misunderstood concepts in blockchain
technology is “transparency.” Some people say that blockchain gives
you privacy while some say that it is transparent.
• A person’s identity is hidden via complex cryptography and represented
only by their public address.
• So, while the person’s real identity is secure, you will still see all the
transactions that were done by their public address.
• This level of transparency has never existed before within a financial
system. It adds that extra, and much needed, level of accountability
which is required by some of these biggest institutions.

Pillar 3: Immutability
• Immutability, in the context of the blockchain, means that once
something has been entered into the blockchain, it cannot be
tampered with.
• The reason why the blockchain gets this property is that of the
cryptographic hash function.
• In simple terms, hashing means taking an input string of any length
and giving out an output of a fixed length.
• In the context of cryptocurrencies like bitcoin, the transactions are
taken as input and run through a hashing algorithm (Bitcoin uses SHA-
256) which gives an output of a fixed length. So basically, instead of
remembering the input data which could be huge, you can just
remember the hash and keep track.

The blockchain gives internet users the ability to create value and
authenticates digital information. Following new business applications
will result from this:
• Smart contracts.
• Crowdfunding.
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• Governance.
• Supply chain auditing.
• Protection of intellectual property.
• Internet of Things (IoT).
• Anti-money laundering (AML) and know your customer (KYC).
• Data management.
• Land title registration.
• Stock trading.

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Lesson 6 Managing the Multi-Business Firm and Analyzing Strategic Edge
BUSINESS Also known as Business Process Redesign, Business Transformation,
PROCESS RE- or Business Process Change Management, Business Process
ENGINEERING Reengineering (BPR) is an endeavour to fabricate the operations of the
(BPR) business on an extensive scale and the act of recreating a core
business process with the goal of improving product output, quality, or
reducing costs.

Adopting BPR as a change management tool requires the organizations

to make an introspection about the fundamentals of the company itself
i.e. ‘What they do?’, ‘Why they do things?’ and ‘Why do we do things
the way we do it?’.

The primary objective of BPR is to:

• Eliminate redundancies or futile layers in the whole process.
• Eliminate enterprise costs.

Reengineering should not be about making marginal changes but

ensuring quantum leaps in performance. In other words, BPR is
another form of process innovation because it attempts to re-create
processes.

Origin
Business process reengineering became popular in the business world
in the 1990s, inspired by an article called Reengineering Work: Don’t
Automate, Obliterate, an article in Harvard Business Review which was
published in the Harvard Business review by Michael Hammer, the
then professor of Computer Science at MIT. Hammer tested BPR as an
examination of the manner Information Technology was having an
impact on business processes.

The underlying principle of BPR is that the managers must demolish

such components of work that do not make any value addition and
further automating it if possible. At the core of BPR was viewed as a
revolutionary, fast track and drastic change process (rather than
incremental one) that could trigger fundamental changes in the
business process itself such as job design, organizational structures, or
management systems.

After evolution of the concept, BPR was successfully implemented by a

few high-profile organisations such as Hallmark, a famous greeting
card company. Hallmark completely re-engineered its new product
process. Similarly, the popular company Kodak also re-engineered its
black-and-white film manufacturing process and cut the firm’s
response time of new orders to the tune of fifty per cent. Furthermore,
with the advent of enterprise resource planning (ERP) which enabled
electronic communications across company business processes, BPR
got more popularity.

Objectives of Business Process Reengineering

The following are the objectives for entities to opt for BPR:
• Boost effectiveness and produce higher quality products for end
customer.
• Improve efficiency in the production processes.
• Cost saving in the long run.
• Providing more meaningful work to employees.

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• To be more adaptable and flexible towards future changes.
• Enable new business growth and expansion.

TYPOLOGY OF BPR PROJECTS

Earl provides a four-strand typology of BPR projects which can be
applied across any organization irrespective of what business it is
involved in. These are:
❖ Core Processes: Core processes are central to business functioning
and represent the primary value chain activities which relate
directly to external customers. Examples being order fulfillment
processes.
❖ Support Processes: Support processes are back office processes
which reinforce the core processes. These are typically secondary
value-chain activities and relate more to internal customers. Typical
examples being information technology, financial systems, and
human resources systems.
❖ Business Network Processes: Business network processes are the
processes which extend beyond the boundaries of the organization
into other organizations such as suppliers and customers.
❖ Management Processes: Those processes through which firms
plan, organize and control resources. Examples include strategy
development, direction setting, and managing the organization.

FACTORS FOR SUCCESSFUL IMPLEMENTATION OF BPR

As per Hammer and Champy, “BPR is certainly a ‘Change Management’
approach that aims at bringing in fundamental improvements in the
business performance of any organisation. It is a detailed blueprint of
how the new processes are tested, the plan of redeployment of
employees, the re-arrangement of resources and controlling and
monitoring of its implementation plan.” Al-Mashari and Zairi have
identified five factors for a successful implementation of BPR i.e.
• Change in management
• Management competencies
• Organizational structure
• BPR project management
• IT sub-structures.

BPR is commonly termed as a bi-fold challenge viz. technical and socio-

cultural (Reijersa and Mansarb, 2005). The technical challenge consists
of creating radical process design to improve existing systems. The
sociocultural challenge stems from reaction against change from
organisational employees. Therefore, the reasons for failure of BPR may
be:
• Employees’ resistance against change
• Communication breakdown
• Personnel turnover during transition.

STEPS INVOLVED IN BUSINESS PROCESS REENGINEERING

A well-conducted execution of Business Process Reengineering can
prove to be a game-changer for an organization. BPR can revive a
failing entity and lead it to the path of profit maximization. However,
executing BPR may not be easy as it involves enforcing a change in the
entire organization. BPR comprises the following steps:
❖ Define : Objectives and Framework
There must be a clear definition of the objectives of choosing BPR.
Such objectives must be clearly laid out in qualitative and quantitative

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terms. After defining such objectives, the requirement for change must
be communicated to the employees to apprise them about the
upcoming processes. This becomes important as the willingness of the
employees to adopt the change is a key for the success of BPR.
❖ Identify : Customer Needs
The requirements and feedback of the customers must be given due
importance while designing the BPR. It must be ensured that the new
processes are able to deliver the added value to the customer.
❖ Study: The Existing Process
In order to re-engineer, the company must have to analyze its existing
business process. A SWOT should be carried out to have a clear view of
the strengths and weaknesses of the existing processes.
❖ Formulate: A Redesigned Business Plan
After an analysis of the prevailing business process, the modifications
to be made are chalked down. These modifications form a base for the
re-designing of process. Then, a plan is laid down by selecting the best
alternative.
❖ Implement: The Redesign
The last step is to implement the redesigned plan. Management should
make sure that the new process is operational and adopted by the
team. Such a support from the team is indeed critical to the success of
BPR.
BENCHMARKING Benchmarking : Definition
According to Camp, benchmarking is simply “Finding and
implementing the best business practices”.

Benchmarking is a strategy tool of comparison. It is used to compare

the performance of the business processes and products of a company
with that of the best performances of other companies inside and
outside the industry which the company is a part of. Managers use the
tool to identify the best practices in other companies and apply those
practices to their own processes in order to improve the company’s
performance. Improving company’s performance is, without a doubt,
the most important goal of benchmarking.

Understanding the tool

In order to know the standing of one’s business, it needs to be
compared with the competitors. For example, your top management
may be pleased with the fact that the rate of customer satisfaction for
your company till they come to know that industry average for this
variable is 95 per cent. In this situation, though the rate of 85 per cent
seemed too brilliant initially, yet, the will look dull when compared to
industry. Therefore, use of ‘benchmarking’ becomes obvious.

Such a type of comparison as mentioned above was not considered

important management tool until late 1980s and 1990s. Then, Xerox
introduced the process benchmarking technique. Such a comparison
proved very valuable and Xerox, AT&T and other companies stared to
compare the performance of their processes with that of the best
standards in the industry. The following table shows how
benchmarking evolved into a modern strategy tool:

Benchmarking history
1950-1975 Reverse engineering
1976-1986 Competitive benchmarking
1982-1986 Process benchmarking

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1988+ Strategic benchmarking
1993+ Global benchmarking

TYPES OF BENCHMARKING
Three major types of benchmarking were identified by Tuominen and
Bogan and English:
• Strategic benchmarking: This type of benchmarking is used to
identify the best way to compete in the market. In this type of
benchmarking, the companies identify the winning strategies
(typically outside the boundaries of their own industry) used by
successful companies and thereafter adopt them in their own
strategic processes.
• Performance benchmarking: Performance benchmarking
determines how strong a company’s products and services are when
compared to competition. According to Bogan and English, the tool
mainly focuses on product and service quality, features, price,
speed, reliability, design and customer satisfaction, but it can
measure anything that has the measurable metrics, including
processes.
• Process benchmarking: It requires to look at other companies that
engage in similar activities and to identify the best practices that
can be applied to your own processes in order to improve them. It
usually derives from performance benchmarking. This is because
companies first identify the weak competing points of their products
or services and then focus on the key processes to eliminate those
weaknesses.

APPROACHES
• Internal benchmarking: In large organizations that have
operations in multiple geographic locations within or outside
national and regional boundaries, or organsations managing
plentiful products and services, duplicating functions and processes
are usually performed among different teams, business units or
divisions of the same organsation. Internal benchmarking is used to
compare the work of such teams, units or divisions to identify the
ones that are best performing and share the knowledge throughout
the company to other teams to achieve higher performance.
• External or competitive benchmarking: Competitive
benchmarking refers to a process when a company compares itself
with the competitors inside its industry itself. External
benchmarking looks both inside and outside the industry to find
the best practices, thus, including competitive benchmarking.
• Functional benchmarking: Managers of functional departments
find it useful to analyze how well their functional area performs
compared to functional areas of other companies. It is quite easy to
identify the best marketing, finance, human resources or operations
departments, in other companies, that excel in what they do and to
apply their practices to one’s own functional area.
• Generic benchmarking: General benchmarking refers to
comparisons which “focus on excellent work processes rather than
on the business practices of a particular organization”. For
example, a company tries to improve its marketing capabilities and
benchmarks itself against company ‘X’. While observing company’s
‘X’s’ marketing processes, it also notices the efficiency in
management of its human resources by using ‘big data’ analytics.

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This gives it an idea to implement such analytics in its own HR
department to significantly improve its overall performance.

Advantages
➢ Easy to understand and use.
➢ If done properly, it’s a low cost activity that offers huge gains.
➢ Brings innovative ideas to the company.
➢ Provides with insight of how other companies organize their
operations and processes.
➢ Increases the awareness of costs and level of performance compared
to rivals.
➢ Facilitates cooperation between teams, units and divisions.

Disadvantages
➢ Requires identification of a benchmarking partner.
➢ Sometimes impossible to assign a metric to measure a process.
➢ Might need to hire a consultant.
➢ The initial costs could be huge.
➢ Managers often resist the changes.

BENCHMARKING WHEEL
The benchmarking wheel model was first brought out in an article
“Benchmarking for Quality”. This is a five stage process that was
created by analyzing more than 20 other models.

1. Plan: Clearly define what you want to compare and assign metrics
to it.
2. Find: Identify benchmarking partners or sources of information.
3. Collect: Choose the methods and gather the data for the metrics
defined.
4. Analyze: Compare the metrics to identify the gap in performance
between your company and the benchmarking partner. Provide the
results and recommendations.
5. Improve: Implement the changes to your own products, services,
processes or strategy.

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TOTAL QUALITY Total Quality Management (TQM) is a concept given by W. Edwards
MANAGEMENT Deming. Total Quality Management is a management approach that
originated in the 1950s and has steadily become more popular since
the early 1980s. It was originally introduced in Japan after World War
II to assist the Japanese companies to re-build their economy. The
main focus of TQM was and is continuous quality improvement in the
areas of product or service, employer-employee relations and
consumer-business relations. Total Quality is a description of the
culture, attitude and organization of a company that strives to provide
customers with products and services that satisfy their needs. The
culture requires quality in all aspects of the company’s operations, with
processes being done right for the first time to eradicate defects waste
from operations.

TQM Defined
“Quality” is “a degree of excellence”, it is a degree to which a product
lives up to its performance, endurance, maintainability, and other
attributes expected by a customer while buying that specific product.
For meeting such expectations of the customer, one must instill the
concept of TQM in product development process. The word “total”
means the sum total of every process, every job, every resource, every
output, every person, every time and every place.

TQM is a management philosophy that views an organization as a

collection of processes such as marketing, finance, design, engineering,
and production, customer service, etc. thereby, focussing on meeting
customer needs and organizational objectives.

The simple objective of TQM is “Do the right things, right the first time,
every time.” Although originally applied to manufacturing operations,
TQM is now becoming recognized as a Generic Management tool and is
being widely applied in a number of service and public sector
organizations all over the world.

Some examples of the companies who have implemented TQM include

Ford Motor Company, Phillips Semiconductor, SGL Carbon, Motorola
and Toyota Motor Company.

There are a number of evolutionary strands, with different sectors

creating their own versions from the common ancestor. TQM is the
foundation for activities, which include:
➢ Commitment by senior management and all employees.
➢ Meeting customer requirements.
➢ Reducing development cycle times.
➢ Just in time/demand flow manufacturing.
➢ Improvement teams.
➢ Reducing product and service costs.
➢ Systems to facilitate improvement.
➢ Line management ownership.
➢ Employee involvement and empowerment.
➢ Recognition and celebration.
➢ Challenging quantified goals and benchmarking.
➢ Focus on processes / improvement plans.
➢ Specific incorporation in strategic planning.

This shows that TQM must be practiced in all activities, by all

personnel, in manufacturing, marketing, engineering, R&D, sales,
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purchasing, HR, etc.

CHARACTERISTICS OF TOTAL QUALITY MANAGEMENT

The most practical implementations of Total Quality Management
involve the following most widely principles:
• Total involvement of employees: The most fundamental
characteristic of TQM is total employee involvement. Only
empowered and valiant employees who can take a stand for their
work and understand the mechanism of operations of their
organization operates as a whole can achieve desired level of
performance by improving their efficiency. Further, employee
involvement can also be attained by adopting a culture of
continuous improvement and team empowerment.
• Customer focus: TQM views end customers as the sole measure of
quality and success. Any effort, including employee training,
infrastructure upgrades, software investments, or product releases,
is worthwhile only if it aims at benefitting customers.
• Continual improvement: Organizations who practice TQM believe
that merely maintaining the same level of quality and customer
satisfaction is not enough to outperform competition. Rather, top
management has the responsibility for promotion of culture of
innovation and creativity to customers’ expectations and maintain
competitiveness.
• Process approach: It calls for breaking all processes into a series
of steps, be it internal or external. The rationale of this is that each
such step can be analyzed, measured and improved upon to attain
desired results.
• System Approach to Management: All inter-related processes
should be managed as a system to ensure that improvement efforts
are focused on ‘key’ processes and integrated to achieve the desired
results.
• Fact-based decisions: TQM requires organizations to collect data
to improve decision-making, reach agreements on key business
directions and make predictions based on historical data.
• Leadership/strategy definition: A strategic plan should be
developed to achieve organization’s vision, objectives and goals with
‘quality’ as a key component. Leadership is a key attribute as it
establishes the direction of the organization. TQM advocates that
leaders create an enabling environment for achieving business
objectives.
• Mutually beneficial relationship with suppliers: An organization
depends on its suppliers and this relationship should be
strengthened to ensure that a mutually beneficial relationship is
sustained.

PRINCIPLES OF TOTAL QUALITY MANAGEMENT

There are eight principles of Total Quality Management which are
discussed below:
• Customer-focused
The customer ultimately determines the level of quality. No matter
what an organization does to foster quality improvement – training
employees, integrating quality into the design process, upgrading
computers or software, or buying new measuring tools – the customer
determines whether the efforts were worthwhile.
• Total Employee Involvement
All employees participate in working toward common goals. Total

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employee commitment can only be obtained after fear has been driven
from the workplace, when empowerment has occurred, and
management has provided the proper environment. High-performance
work systems integrate continuous improvement efforts with normal
business operations. Self-managed work teams are one form of
empowerment.
• Process-centered
A fundamental part of TQM is a focus on process thinking. A process is
a series of steps that take inputs from suppliers (internal or external)
and transforms them into outputs that are delivered to customers
(again, either internal or external). The steps required to carry out the
process are defined, and performance measures are continuously
monitored in order to detect unexpected variation.
• Integrated System
Although an organization may consist of many different functional
specialties often organized into vertically structured departments, it is
the horizontal processes interconnecting these functions that are the
focus of TQM.
• Strategic and Systematic Approach
A critical part of the management of quality is the strategic and
systematic approach to achieving an organization’s vision, mission, and
goals. This process, called strategic planning or strategic management,
includes the formulation of a strategic plan that integrates quality as a
core component.
• Continual Improvement
A major thrust of TQM is continual process improvement. Continual
improvement drives an organization to be both analytical and creative
in finding ways to become more competitive and more effective at
meeting stakeholder expectations.
• Fact-based Decision Making
In order to know how well an organization is performing, data on
performance measures are necessary. TQM requires that an
organization continually collect and analyze data in order to improve
decision making accuracy, achieve consensus, and allow prediction
based on past history.
• Communications
During times of organizational change, as well as part of day-to-day
operation, effective communications play a large part in maintaining
morale and in motivating employees at all levels. Communications
involve strategies, method, and timeliness.

CONTINUOUS IMPROVEMENT BY TQM

TQM is mainly concerned with continuous improvement in all work,
from high level strategic planning and decision- making, to detailed
execution of work elements on the shop floor. It stems from the belief
that mistakes can be avoided and defects can be prevented. It leads to
continuously improving results, in all aspects of work, as a result of
continuously improving capabilities, people, processes, technology and
machine capabilities.

Continuous improvement must deal not only with improving results,

but more importantly with improving capabilities to produce better
results in the future. The five major areas of focus for capability
improvement are:
➢ Demand generation,
➢ Supply generation,

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➢ Technology,
➢ operations, and
➢ People capability.

IMPLEMENTATION PRINCIPLES AND PROCESSES

Assess the organization’s current reality: A preliminary step in TQM
implementation is to assess an organization’s current reality. Relevant
preconditions have to do with the organization’s history, its current
needs, precipitating events leading to TQM, and the existing employee
quality of working life. If an organization has a track record of effective
responsiveness to the environment, TQM will be easier to implement.

However, if there is no track-record of responsiveness, there will be

both employee skepticism and a lack of skilled change agents. If this
condition prevails, a comprehensive program of management and
leadership development may be instituted. A management audit is a
good assessment tool to identify current levels of organizational
functioning and areas in need of change.

An organization should be basically healthy before beginning TQM. If it

has significant problems such as a very unstable funding base, weak
administrative systems, lack of managerial skill, or poor employee
morale, TQM would not be appropriate. However, a certain level of
stress is probably desirable to initiate TQM.

A crisis, if it is not too disabling, can also help create a sense of

urgency which can mobilize people to act. In the case of TQM, this may
be a funding cut or threat, or demands from consumers or other
stakeholders for improved quality of service. After a crisis, a leader may
intervene strategically by articulating a new vision of the future to help
the organization deal with it. A plan to implement TQM may be such a
strategic decision. Such a leader may then become a prime mover, who
takes charge in championing the new idea and showing others how it
will help them get where they want to go. Finally, action vehicles are
needed and mechanisms or structures to enable the change to occur
and become institutionalized.

SIX SIGMA Six Sigma is a disciplined, statistical-based, data-driven quality control

program. It is a methodology for continuous cycle time improvement
(the reduction of manufacturing defects to a level of no more than 3.4
per million) by eliminating defects in any product, process or service.
Developed by Motorola in middle 1980’s, Six Sigma is based on quality
management fundamentals. Due to its accuracy and merits, the
approach became popular at General Electric (GE) in the early 1990’s.
Today, thousands of organisations across the globe have adopted Six
Sigma. Six Sigma is:
• A Business Strategy: Using Six Sigma Methodology, a business can
strategize its plan of action and drive revenue increase, cost reduction
and process improvements in all parts of the organization.

• A Vision: Six Sigma Methodology helps the Senior Management create

a vision to provide defect free, positive environment to the organization.

• A Benchmark: Six Sigma Methodology helps in improving process

metrics. Once the improved process metrics achieve stability; we can
use Six Sigma methodology again to improve the newly stabilized
process metrics. For example: The Cycle Time of Pizza Delivery is
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improved from 60 minutes to 45 minutes in a Pizza Delivery process by
using Six Sigma methodology. Once the Pizza Delivery process
stabilizes at 45 minutes, we could carry out another Six Sigma project
to improve its cycle time from 45 minutes to 30 minutes. Thus, it is a
benchmark.

• A Goal: Using Six Sigma methodology, organizations can keep a

stringent goal for themselves and work towards achieving them during
the course of the year. Right use of the methodology often leads these
organizations to achieve these goals.

• A Statistical Measure: Six Sigma is a data driven methodology.

Statistical Analysis is used to identify root- causes of the problem.
Additionally, Six Sigma methodology calculates the process
performance using its own unit known as Sigma unit.

• A Robust Methodology: Six Sigma is the only methodology available in

the market today which is a documented methodology for problem
solving. If used in the right manner, Six Sigma improvements are
bullet-proof and they give high yielding returns.

Six Sigma can also be thought of as a measure of process performance.

once the current performance of the process is measured, the goal is to
continually improve the sigma level striving towards 6 sigma. Even if
the improvements do not reach 6 sigma, the improvements made from
one sigma level to other will still diminish costs and augment customer
satisfaction.

Why Six Sigma

With the budding costs cost of resources and rise in other factors such
as competition, the organizations are forced to look around for
alternative methods which add to efficiency. Adoption of Six Sigma
methodology helps in improving efficiency in any organization as it
meticulously identifies defects and minimizes the variations within a
process. This is because, each Six Sigma project is supposed to follow a
defined sequence of steps and includes specific improvement targets.
Some examples could include:
➢ Decrease in process cycle time.
➢ Decrease of scrap generated by a process.
➢ Growing customer satisfaction.
➢ Decline in the number of factory defects.
➢ Decrease or elimination of costly reworks.

The scope of Six Sigma is not curtailed to the manufacturing industry

rather the tools and techniques of Six Sigma are presently being used
to improve processes in all type of business organizations, routine
office operations, business processes and customer service processes

How does 6 Sigma work?

A typical Six Sigma project determines the existing state and enhances
the performance of the business process to a new and statistically
significant improved state with the use of statistical tools. There can be
two situations: First, the process already existing but it is not working
“reasonably” well; second, there is no process in existence at all.

Situation 1: The process already existing but it is not working

“reasonably” well. This scenario focuses on use of DMAIC (which
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stands for Define, Measure, Analyze, Improve and Control):
1. Define problem statement process goals in terms of key critical
parameters on the basis of customer requirements or Voice Of
Customer (VOC) and setting project boundaries.
2. Measure a complete picture of the current state of the process and
establishes a baseline through measurement of the existing system
in context of goals and collecting the data regarding possible causal
factors.
3. Analyze the current scenario in terms of causes of variations and
defects and determining the root cause.
4. Improve the process by systematically reducing variation and
eliminating defects and root causes.
5. Control future performance of the process and support and
maintain the gains realized.

Situation 2: This is the situation when there is no process in existence

at all and it has to be designed using Design For Six Sigma (DFSS)
approach. DFSS approach typically requires IDOV:
1. Identify process goals in terms of critical parameters, industry &
competitor benchmarks, Voice Of Customer (VOC).
2. Design involves enumeration of potential solutions and selection of
the best.
3. Optimize performance by using advanced statistical modeling and
simulation techniques and design refinements.
4. Validate that design works in accordance to the process goals.

Note, sometimes a DMAIC project may turn into a DFSS project

because the existing process may require complete re-design making
room for a new process due to lack of effectiveness of existing system.
Such a development may be discovered during ‘improvement phase’ of
DMAIC.

THE SIX SIGMA TRAINING AND CERTIFICATION LEVELS

The Six Sigma training and certification levels are emulated from the
martial arts. “Six Sigma” management has several levels of certification
i.e. Champion, Yellow Belt, Green Belt, Black Belt, and Master Black
Belt. Each level of certification is described below.

Champion
A Six Sigma Champion is the most basic form of Six Sigma
certification. A Champion understands the theory ofSix Sigma
management, but does not yet have the quantitative skills to function
as an active Six Sigma project
team member.

Yellow Belt
A Six Sigma Yellow Belt is an individual who has passed the Green Belt
certification examination but has not yet completed a Six Sigma
project. A Yellow Belt should have a basic understanding of Six Sigma,
statistical tools and DMAIC methodology. However, executives in Six
Sigma organizations function as champions of Six Sigma projects.

Green Belt
A Six Sigma Green Belt is an individual who works on projects part-
time either as a team member for complex projects, or as a project
leader for simpler projects. Green belts are the “work horses” of Six
Sigma projects.
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Green Belts receive training on DMAIC methodology, statistical tools,
proper data collection and analysis of the data collected. Most
managers in a mature Six Sigma organization are green belts.

Black Belt
A Black Belt receives the highest level of training in the statistical tools
of Six Sigma. Black Belts, as a rule, develop the plans for Six Sigma
project implementation. Their responsibilities include creating project
plans, leading cross- functional projects and directing team members,
including Green and Yellow Belts. Black Belts usually train other team
members on the proper use of Six Sigma tools and techniques, such as
control charts, histograms and Root Cause Analysis (RCA).

Master Black Belt

A Master Black Belt is classically trained in statistical tools, Six Sigma
methodology and management processes. Master Black Belts mentor
and direct groups of Black Belts and Six Sigma teams through various
problems that need to be reviewed.

A Comparison of Business Process Reengineering vs. Six Sigma

Features BPR Six Sigma
General Radical redesign Align and maintain
Tendency
Business Recession and Service bundling and
drivers changing market needs internet
Goals Streamlining Process alignment
Tools Process maps Statistical analysis
Method Challenge process Prioritize by COPQ (Cost
fundamentals of Poor Quality)
and Capability
Deployment Top-down Top-Bottom-middle
Key feature Outside consultants Internal experts
Impact Short and medium Short, medium and long-
term term
Role of Enabler Enabler
technology
Risk/return High-low Medium-high

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ALL CASE STUDIES AT ONE PLACE
CORPORATE SOCIAL RESPONSIBILITY (CSR)
RELIANCE INDUSTRIES LIMITED:-
Reliance Industries Limited (RIL) diverse projects and operations touch lives of people in
many ways and create value by helping in overall and holistic development of communities
across multiple geographies. Through its various initiatives, the group endeavors to play a
relevant role by serving communities and projects that address gaps in basic societal
requirements.

RIL has been involved in various Social Responsibility initiatives over the last many years.
These efforts have substantially improved the quality of lives of people through health care,
education, livelihoods and community development initiatives, making their living
experience dramatically better. These activities are spread across India and reach well
beyond our business locations impacting the lives of marginalized communities.

The key philosophy of all CSR initiatives of RIL is guided by three core commitments of SIS:
a) S – SCALE
b) I – IMPACT
c) S – SUSTAINABILITY

RIL seeks to strategically consolidate the company’s CSR initiatives to focus on discrete
social problems, all aimed at enabling lives, living and livelihoods. Owing to its long tradition
of social responsibility, the value of sustainable social impact at scale is instilled across the
conglomerate.

RIL has identified the following focus areas:

• Community Infrastructure & Environment
• Community Health care
• Education and Skills enhancement

RIL’s Board of Directors have formed a CSR&G Committee. This committee, along with the
CSR team, to be responsible for the decision making with respect to RIL CSR policy. CSR&G
Committee recommended the policy to RIL’s Board of Directors and the Board of Directors
have approved this policy. The Board level Committee to meet at least twice a year to review
the implementation of CSR projects/ programs and give suitable direction.

TATA STEEL:-
Tata Steel’s Vision strikes a balance between economic value as well as ecological and
societal value by aspiring to be “a Global Benchmark in Value Creation and Corporate
Citizenship”. In the initial years, Tata Steel’s CSR interventions were more as a ‘provider’ to
society where the community was given support for its overall needs, both for sustenance
and development. Gradually, the shift in approach led to Tata Steel being an ‘enabler’
focusing on building community capacity through training programmes; focusing on
providing technical support rather than giving aid. At present, CSR interventions of Tata
Steel focus on ‘sustainable development’ to enhance the quality of life of people. It guides
the Company in its race to excel in all areas of sustainability. J R D Tata the Chairman of
the Tata Group believed that, “to create good working conditions, to pay the best wages to
its employees and provide decent housing to its employees are not enough for the industry,
the aim of an industry should be to discharge its overall social responsibilities to the
community and the society at large, where industry is located.

Guided by this mandate, Tata Steel has for decades uses its skills and resources, to the
extent it can reasonably afford, to give back to the community a fair share of the product of
its efforts.

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It was the first to establish labour welfare practices, even before these were made statutory
laws across the world. The Company also instituted an eight-hour workday in 1912, free
medical aid in 1915, a Welfare Department in 1917, leave with pay, Workers Provident Fund
and Workmen’s Compensation in 1920 and Maternity Benefit for ladies in 1928.

The Company supports and propagates the principles of the United Nations Global Compact
as a Founder Member, is a signatory to the World steel Sustainability Charter and supports
the Affirmative Action programme of the Confederation of Indian Industry.

Tata Steel’s approach to business has evolved from the concept that the wealth created
must be continuously returned to society. The responsibility of combining the three
elements of society - social, environmental, and economic - is of utmost importance to the
way of life at Tata Steel. Today, Tata Steel’s CSR activities in India encompass the
Company’s Steel Works, Iron ore mines and collieries, reaching out to the city of
Jamshedpur, its peri-urban areas and over 800 villages in the states of Jharkhand, Odisha
and Chhattisgarh. Community involvement is a characteristic of all Tata Steel Group
companies around the world. It can take the form of financial support, provision of
materials and the involvement of time, skills and enthusiasm of employees. The Group
contributes to a very wide range of social, cultural, educational, sporting, charitable and
emergency assistance programmes. The Company works in partnership with the
Government, national and international development organisations, local NGOs and the
community to ensure sustainable development. The Corporate Services Division delivers
these responsibilities through several institutionalised bodies:
• Tata Steel Corporate Social Responsibility and Accountability Policy
• Corporate Social Responsibility
• Tata Steel Rural Development Society (TSRDS)
• Tribal Cultural Society (TCS)
• Tata Steel Family Initiatives Foundation (TSFIF)
• Tata Steel Skill Development Society (TSSDS)
• Education
• Medical Services
• Urban Services
• Sports Department
• Tata Steel Adventure Foundation
• JUSCO
• Other societies like Ardeshir Dalal Memorial Hospital, Blood Banks, Hospital etc.

Tata Relief Committee To assess the effectiveness of its social initiatives Tata Steel has
innovatively devised a Human Development Index (HDI). In 2012-13, HDI assessment was
completed for 230 villages. The Corporate Social Responsibility Advisory Council was also
created with the objective that this apex body along with the results of the measurement of
HDI will enable the Group to direct its social initiatives better and allocate resources more
efficiently.

Role of board of Directors in CSR related activities of a Company:-

CSR is a Board-driven process. The responsibilities of the Board of a CSR-eligible company,
inter-alia, include the following-
• approve the CSR policy;
• disclose contents of such policy in its report and also place it on the company’s website,
if any;
• ensure that the activities included in the CSR policy are undertaken by the company;
• ensure that the company spends, in every financial year, at least two per cent of the
average net profits of the company made during the three immediately preceding
financial years;
• satisfy itself regarding the utilisation of the disbursed CSR funds; and
• if the company fails to spend at least two per cent of the average net profits of the
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company, the Board shall, in its report made under clause (o) of sub-section (3) of
section 134, specify the reasons for not spending the amount and transfer the unspent
CSR amount as per provisions of sections 135(5) and 135(6) of the Companies Act, 2013.
• alter such annual action plan based on reasonable justification as per recommendation
of CSR committee.

Apart from the above, the Board of Directors of the Company also takes decision on the
following important matters related to CSR-
• Matters relating to monitoring for all projects – ongoing or otherwise
• Administrative Overheads
• Setting off excess amount
• Transfer of Capital Asset
• CSR Reporting
• Impact Assessment Report
• Disclosure on Website etc.

CSR and Corporate governance:-

The conceptualization of CSR was, initially, purely in terms of philanthropy or charity.
However, a fundamental shift has been seen from this philanthropy to integrated approach
towards CSR which is gradually getting infused into companies’ corporate governance
practices.

Corporate Governance as a concept has CSR embedded in it, whereby companies not only
consider their profitability and growth, but also the interests of society and the environment
by taking responsibility for the impact of their activities on stake holders, environment,
consumers, employees, communities, and all stake holders. Other members of the public
sphere. The basic premise is that when the corporations get bigger in size, apart from the
economic responsibility of earning profits, there are many other responsibilities attached to
them which are more non-financial/social in nature.

Companies that practice good corporate governance are also those that are socially and
environmentally responsible. That is to say, that unless there is good governance it is quite
unlikely that there is a conscientious approach towards their social responsibility. Both
Corporate Governance and CSR focus on the ethical practices in the business and the
responsiveness of an organization towards its stakeholders and the environment in which it
operates.

PORTER’S FIVE FORCES MODEL

CASE STUDY – PIZZA HUT
Porter’s Five Forces Model – Pizza Hut Case Study
Pizza Hut is world famous multinational fast food chain. It is a subsidiary of Yum! Brands (a
Fortune 300 company), the world’s largest restaurant company. It is an American
restaurant chain with more than 6,000 Pizza Hut restaurants in the United States, and
more than 5,600 store locations in 94 other countries and territories around the world. It
offers a range of different styles of pizza along with other dishes such as salads, pastas,
buffalo wings/potato rings, breadsticks, and garlic breads. It entered India in 1996, with its
first branch in Bangalore and expanding all over thereafter, creating a large customer base
for itself. The five forces model for Pizza Hut may be drawn as under:

Competitive Rivalry (Very High)

• Pizza Hut competes with some other large global pizza chains, Domino’s Pizza, and Papa
John. They all are similar in many respects such as deal in many countries across
Globe, fast food offerings, dine- in and delivery service, creating intense competition.
• Ferocious price discounting and coupons by these all rivals which creates intense
competition.

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• Except for those pizza companies, Pizza Inn competes with some small local pizza
restaurants as well. They offer low price products and faster service, taking the
competitive advantages of Pizza Inn.
• The pizza segment is made more challenging for traditional restaurants by other close
substitutions, including supermarkets, which not only sell frozen pizzas, but ready to
bake pizza, and warehouse clubs sell large size pizzas.

Threat of New Entrants (Low)

• Pizza chains are juggling with the side-effects of a deep recession, because of higher
ingredient prices, the thin margins and elevated competition from non-traditional
channels.
• Existing competitors keep lowering prices and discounting discounts, and expanding
distribution channels creating barriers to new entrants.
• Existing competitors have first-mover advantages such as mature technology in specialty
production, and a healthy relationship with distribution channels, therefore, second
mover can hardly survive without innovation in the industry.

Threat of Substitutes (High)

• Pizza is a fast food product having plenty of substitutes.
• Competition from other fast food chains such as sandwich chains, chicken fast food
chains, family owned local restaurants etc.
• Traditional food chains Bikano, Haldiram etc. offer customers’ fast, convenient and
cheap products and services that cater to Indian taste as well.
• Substitutes make price elasticity high since customers have more alternatives.

Power of Customers (Medium/Low)

• Being a large population fan of fast food, this makes bargaining power of customers.
• Every single customer is unlikely to purchase a large quantity of product, and it’s not
likely that each of them contributes a large proportion of sales.
• Fast food chains are in high demand in shopping centers, malls, residential areas,
college campuses and offices. In addition, customers are fragmented, with no particular
effect on product or price.
• Therefore, they will not be hurt by losing a petite number of customers.
• In the industry, customers are less sensitive to price fluctuations, which is relatively
inelastic, so that providers have large price controlling power.

Power of Suppliers (Low)

• The major suppliers of the fast food industry are raw material suppliers. As raw material
is common and available in plenty such as flour, cheese, vegetables, therefore,
bargaining power of suppliers is low.
• Raw material is perishable and can’t be stored for long.
• The industry is labor intensive. Labor is in abundant in India.
• Suppliers tend to keep a long term relationship with the concentrated purchasers.
• Many big fast food chain companies are vertically integrated with the suppliers in order
to maintain low costs and high quality products.

APPLE IN THE MARKETPLACE FROM A FIVE FORCES PERSPECTIVE

Through its Macintosh computers and operating system, the iPad, iPhone, and other
products, Apple, Inc. (NASDAQ: AAPL) has achieved massive success as a company despite
going through a number of up and down cycles since its founding in 1976. In 2018, Apple
achieved the notable distinction of being the first U.S. company to ever attain a market
capitalization greater than $1 trillion.

Apple’s success is attributed largely to its ability to innovate and bring unique products to
market that have engendered substantial brand loyalty. Its product development and
marketing strategies reveal an awareness of the need to deal with the major marketplace
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forces that can impact Apple’s market share and profitability.

A Five Forces analysis of Apple’s position in the technology sector shows industry
competition and the bargaining power of buyers as the two strongest marketplace forces
that can impact Apple’s profitability. The bargaining power of suppliers, the threat of buyers
opting for substitute products, and the threat of new entrants to the marketplace are all
weaker elements among the key industry forces.

Industry Competition
The level of competition among the major companies that compete directly with Apple in the
technology sector is high. Apple is in direct competition with companies such as Google,
Inc., the Hewlett-Packard Company, Samsung Electronics Co., Ltd., and Amazon, Inc. All of
these companies expend significant capital on research and development (R&D) and
marketing, just like Apple. Thus, the competitive force within the industry is strong.

One thing that makes the industry so highly competitive is the relatively low switching cost.
It does not require a substantial investment for a consumer to ditch Apple’s iPad for an
Amazon Kindle or other tablet computers. The threat of marketplace competition is a key
consideration for Apple, which it has dealt with primarily through continually developing
new and unique products to increase and strengthen its market share position.

Bargaining Power of Buyers

The element of low switching cost referred to above strengthens the bargaining power of
buyers as a key force for Apple to consider. There are essentially two points of further
analysis within this force: the individual bargaining power of buyers and their collective
bargaining power. For Apple, individual bargaining power is a weak force, since the loss of
any one customer represents a negligible amount of revenue for Apple.

However, the collective marketplace bargaining power of customers, the possibility of mass
customer defections to a competitor is a strong force.

Apple counters this strong force by continuing to make substantial capital expenditures in
R&D, enabling it to keep developing new and unique products such as the Airpods and the
Apple Watch, and by building significant brand loyalty. Apple has been very successful in
this area of competition, establishing a large customer base that, basically, would not
consider abandoning its iPhones in favor of another smartphone competitor.

The Threat of New Entrants to the Marketplace

The threat of a new entrant to the marketplace that could seriously threaten Apple’s market
share is relatively low. This is primarily due to two factors: the extremely high cost of
establishing a company within the industry and the additional high cost of establishing
brand name recognition.

Any new entrant to the marketplace of personal computing or smartphones needs to have a
massive amount of capital just to spend on R&D and manufacturing to develop and produce
its own product portfolio prior to ever bringing its products to market and beginning to
generate revenue. Such an entrant faces the already identified strong competition within the
industry that exists between Apple and its major competitors, all of which are large, well -
established firms.

The secondary challenge is establishing brand name recognition within an industry that
already has several companies, such as Apple, Google, and Amazon, with very strong brand
recognition.

Although it is possible some new company (perhaps a Chinese firm with financial backing
from the government), might eventually challenge Apple’s position within the industry, for
the immediate future, the likelihood of such a challenger arising is remote.
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Nonetheless, it is important for Apple to continue strengthening its competitive position
through new product development and building brand loyalty to place any potential new
entrants to the industry at a larger competitive disadvantage.

Bargaining Power of Suppliers

The bargaining power of suppliers is a relatively weak force in the marketplace for Apple’s
products. The bargaining position of suppliers is weakened by the high number of potential
suppliers for Apple and the ample amount of supply. Apple is free to choose from among a
large number of potential suppliers for component parts for its products. The industries of
its parts suppliers, such as the manufacturers of computer processors, are themselves
highly competitive.

The switching cost for Apple to exchange one supplier for another is relatively low and not a
significant obstacle. Plus, Apple is a major customer for most of its parts suppliers, and,
therefore, its suppliers are very reluctant to risk losing the company’s business. This
strengthens Apple’s position in negotiating with suppliers, while conversely weakening their
positions. The bargaining power of component parts suppliers is not a major consideration
for either Apple or its major competitors.

The Threat of Buyers Opting for Substitute Products

Substitute products, within the framework of Porter’s Five Forces Model, are not products
that directly compete with a company’s products but possible substitutes for them. In the
case of Apple, an example of a substitute product is a landline telephone that might be a
substitute for owning an iPhone.

This market force is relatively low for Apple due to the fact that most potential substitute
products have limited capabilities compared to Apple’s products, as in the example of a
landline telephone compared to an iPhone that has the capability to do much more than
just make telephone calls.

BUSINESS STRATEGY CASE STUDIES

1. How Mint Used Online Marketing to Successfully Launch a Digital Empire
When Mint first launched in 2006, it was nothing more than an account aggregation service.
Yet Mint has now become a household name with over 20 million users. Acquired by Intuit
for $170 million in 2009, Mint is a personal finance tracker that makes it easy for
customers to achieve their financial goals, track their budget, and find deals on credit cards,
loans, mortgages, and auto loans.

Mint faced an uphill battle, as it needed to convince users that it was safe to consolidate
their banking data under a single service. When the aggregation service first came out in
2006, this was something many users were told never to do.

Despite this, through a comprehensive online marketing campaign, Mint was able to
successfully start acquiring revenue through lead generation by 2008 — leveraging its
referral fees.

Mint’s challenges were two-fold: they needed to convince customers that this was a service
they needed and that they were a reputable, safe service to use. They were able to do this
through their multi-channel marketing, which built authority and brand awareness
throughout their targeted millennial audience.

Key aspects of their marketing strategy included the following:

The MintLife Blog

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Mint understood that their major customer demographics were likely to be millennials who
wanted to get a foothold on their finances. The MintLife blog was directed at bringing in
younger individuals who had questions about their finances.

What goes into a credit score? How do you get started buying a house? Is it possible to
purchase a car with bad credit? Blog-based content marketing brought in an audience
demographic that was likely to be interested in their services.

Social Media Interaction

Through social media, Mint became extraordinarily responsive. The team at Mint hosted
promotions, gave away free items and discounts, and engaged with the audience that they
expected to be most interested in its service.

By establishing relationships with known brands through social media — such as credit
card companies — Mint was also able to easily build its perceived authority with its
potential audience. Mint’s social media was not self-promoting; instead, it focused on giving
its millennial audience information about money saving tips, financial news, and more.

Explainer Videos
Finally, Mint still needed to tackle the concept of a financial tracker — showing its audience
that it needed the tool that it was providing. It was able to do this through a sequence of
explainer videos and articles designed to show the value of the website.

As a free website, Mint only needed to convince its users to convert to a free account — from
there, the value presentation was within the tool itself. Ultimately, Mint was able to grow its
business by establishing authority, creating a wide array of content marketing, and offering
clear, understandable explanations about the usability of its tool.

2. Dropbox Grows from 1 Million to 500 Million Users in Just 7 Years

Ranked as one of the most valuable startups in the world, Dropbox is currently one of the
most used digital utilities across the globe. Dropbox has a total of 500 million users, and its
usage has been growing steadily ever since. From 2009 to 2016, Dropbox was able to
achieve growth from 1 million to 500 million users. Much of this dramatic growth was
fuelled by online marketing.

As an online service, Dropbox’s online marketing was particularly important. Its users were
already there — it just needed to find a way to tap into them. It was able to do this in a
scalable, cost-effective way by essentially recruiting its own customers. Dropbox encouraged
customers to invite others through a variety of social media platforms, which turned the
ordinary user into a brand ambassador.

Further, Dropbox had to segregate its marketing campaigns. It wasn’t just a B2C utility; its
ultimate goals were to serve to businesses who would be more likely to pay for a premium
model.

This meant that Dropbox had to reach a certain saturation point. The more ubiquitous its
product became, the more likely it would be that commercial enterprises would invest in
premium services. This underscored the importance of fast, even chaotic, growth.

Key aspects of their marketing strategy included the following:

i) A Clean, Clear Landing Page
Dropbox’s landing page immediately describes its product in a single sentence and then
prompts users to commit. As a free product, Dropbox yields the best results by encouraging
users to test out their service. Once users test out their free service, ideally their company
will be encouraged to pay for a premium version.

ii) Built-In Marketing Incentives

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Dropbox encouraged users to connect with others and promote Dropbox as a service by
giving them more space for their files. By sharing content on Twitter, Facebook, and other
social media platforms, users could get an upgrade to the amount of space that they had.
Not only did this bring
users closer to the brand, but it also made for fast-paced grass roots growth.

iii) An Inspiring Market Platform

As an overall utility, Dropbox had to reach a very large audience. It geared up for this
audience engagement through a unique online marketing campaign that was designed to
show its values. Customers began to see the brand as standing for something, rather than
being yet another software utility.
Of course, none of this marketing would have gotten as far as it did if it wasn’t for the utility
of the service. The advantages of a freemium model really only work when the service is
clearly worth paying for. Nevertheless, the marketing strategies listed above were
instrumental in securing Dropbox incredible, sustainable, and exponential growth.

3. Golden Heart Senior Care Leverages Reputation Management to Build Trust

Plumbers, restaurants, and long-term care services — they all have something in common.
People seeking these services are likely to look up reviews, testimonials, and third-party
ratings before making a decision. Companies that offer personal services have a long road
ahead of them. Without an online reputation, few customers will be willing to give them a
chance.

Golden Heart Senior Care needed to make sure that customers saw them as trustworthy
and reliable. To that end, they turned to online marketing.

Through a digital marketing team, they were able to boost their online reviews as well as
develop themselves as a trustworthy authority regarding long-term senior care. Active social
media accounts, a polished blog, and reviews on multiple platforms were all able to bolster
the care service’s reputation.

Reputation management is the art of pushing positive content to the top. Not only do
reputation management companies need to promote positive contact, but they also need to
be able to bury content that may be incorrect or outdated. Nothing can ever be removed
from the Internet; instead, through SEO and content marketing, digital marketers have to
promote the best content first.

Key aspects of their marketing strategy included the following:

i) Managing Online Reviews
Through a curated online review platform, Golden Heart Senior Care was able to share
positive reviews as well as curating reviews that were incorrect. Golden Heart Senior Care
was offered the opportunity to address any negative reviews while also encouraging satisfied
clients to post their own reviews. The more reviews posted on an online review platform, the
more relevant it became to search engines — and therefore, the more it was pushed to the
top of results. Presently, Golden Heart Senior Care can be seen on multiple senior care
review websites, ranking at a 5 out of 5 stars.

ii) Posting Original and Curated Information

To establish themselves as an authority and reach out to their leading demographics,
Golden Heart Senior Care began to produce and share valuable content about seniors and
their abilities. In addition to this, Golden Heart Senior Care also shared curated
information, establishing themselves as an all-around resource and giving them additional
content to share beyond the custom content that they themselves had created. Together,
this made for an active, versatile social media presence.

iii) Engaging with Followers Online

A long-term care service is an intensely personal relationship. Golden Heart Senior Care was
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able to connect with potential clients or their loved ones directly through their social media.
One-on-one interaction with potential clients improved perception of the care centre, while
also addressing any questions or concerns that followers might have. Even potential clients
who did not have questions could see how responsive the care centre was online, which
mattered in terms of reputation.

As a relatively small company, Golden Heart Senior Care has a fairly specific demographic:
seniors (and their families) within their geographic area. This type of marketing requires an
extremely personal touch.

Through reputation management, Golden Heart Senior Care was able to capture an
audience who already knew that they needed their services, but who also had questions and
concerns about the process — and who wanted to find the most trustworthy service
available.

In a rating-filled world, companies need to be especially conscientious about positive and

negative reviews and how they may adversely impact them.

4. First Fruit Wellness Center Expands to Three Locations through Social Media
Engagement
Converting followers to leads is one of the major challenges of any marketing campaign. Yet
this wellness centre had a unique and personal take on social media marketing. By
engaging with followers one-on-one, First Fruit Wellness Center developed close
relationships with potential customers online. Social media campaigns don’t have to feel
impersonal — though they often do.

Wellness centres have a unique marketing challenge: they need to show their clientele that
there is a need for them. Wellness centres need to be able to reach out to those who are
interested in improving their health and show the value of their services before customers
walk in the door.

Most social media campaigns are primarily based around the idea of brand awareness:
making it known that your business is open and available. But First Fruit Wellness Center
went a step further by actively
engaging their followers — asking them questions about their health and their goals and
encouraging them one-on-one to come into the centre and see what it could do for them.

For larger enterprises, this type of constant one-on-one interaction might seem taxing. But
for a brickand-mortar wellness centre, these personalised interactions ultimately led to
leads.

Key aspects of their marketing strategy included the following:

i) Building Out their Content Marketing
It was through content marketing that the First Fruit Wellness Center was able to initially
build an audience. Engagement campaigns cannot work without followers already available.
Posting interesting content, sharing curated content, and interacting with similar brands
were the first step towards building First Fruit Wellness Center’s social media campaigns.

ii) Connecting Directly with Followers

When followers connected with First Fruit Wellness Center, the marketing team began to
interact with them immediately — asking them questions about their interests and their
goals. This type of personal interaction is extraordinarily rare on social media today and
served the purpose of not only establishing relationships with customers, but also showing
them that this company was different.

iii) Getting the Followers to Come In

Ultimately, to get leads the marketing team needed to get people in the door. Once
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relationships were sufficiently established, the marketing team of First Fruit Wellness
Center encouraged potential customers to come in to find out more about the centre and
what it could offer to them. By bringing in leads in this fashion, nearly all of the nurturing
was done through the online platform.

Despite the time commitment, these strategies are scalable. Many large brands — most
famously Wendy’s — have extremely active social media accounts, through which they
interact with customers and respond to customers regularly. Unique to First Fruit Wellness
Center, however, is the type of ongoing interactions, relationship building, and lead
generation that the marketing team engaged in. By establishing an individual rapport with
each follower, the centre was able to send a message that it valued them.

First Fruit Wellness Center is interesting in another way: shortly after expanding to multiple
locations, they appear to have discontinued their marketing campaigns. As a direct
consequence, their account can now be seen to be mostly inactive — and all of the social
media momentum they built died off. This is a sobering reminder that social media is a
living entity and that it needs to be continually refuelled and revised.

5. Roofstock Uses Press Releases, News Sites, and Paid Advertising to Disrupt
Real Estate Market
Not many individuals are interested in purchasing investment property sight unseen. Yet
this is exactly the premise that Roofstock needed to sell. Roofstock is a disruptive real estate
service, designed to make it easier for investors to purchase properties from anywhere in the
world.

Once properties are purchased online, they are managed by local property management
companies. Investors are able to reap the benefits of an investment property with none of
the negatives — at least, that’s the theory.

Of course, that’s a hard sell to a lot of investors. Experienced investors already have their
own networks in place, while inexperienced investors may fear such a high-risk strategy.
That’s where Roofstock’s digital marketing came in.

Rather than just focusing on traditional content marketing and social media, Roofstock
acquired coverage in magazines such as Forbes. Online press releases and news articles
were used to build both credibility and awareness.

This was further augmented by paid marketing campaigns on communities such as Reddit,
directed towards investors. Roofstock additionally embarked upon reputation management,
and presently there
are a number of solid reviews and ratings for the service — showing it as a reputable and
trustworthy resource. Together, these strategies were used to establish the company in a
disruptive space, providing a service that many had otherwise never heard of before.

Key aspects of their marketing strategy included the following:

i) Placement in Reputable Magazines and News Outlets
For Roofstock, traditional blog posts and content marketing wasn’t enough. A company
asking investors for tens (or hundreds) of thousands of dollars needed more. Positioning
themselves in Forbes, Business Insider, and other high-quality online venues allowed for a
better perceived reputation.

ii) Reviews and Reputation Management

Reputation was important for Roofstock as many would be looking up the company to make
sure it was legitimate. Roofstock invested in reputation management enough to ensure that
it had positive, reputable reviews showing up whenever potential clients searched for the
company on a search engine. It wasn’t enough for Roofstock itself to rank highly in terms of
SEO; its reviews and testimonials needed to as well.
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iii) Paid Advertising
For high-value companies such as Roofstock, the ROI of paid advertising is even more
extraordinary. A company can spend a great deal on procuring leads if each lead brings in
thousands of dollars. However, just general advertising often isn’t enough to bring in
interested leads. Roofstock was able to leverage the communities of Reddit for targeted
advertising services.

Disruptive businesses often face significant challenges when advertising, as they need to
show users that there is a new way to accomplish their goals. Roofstock was able to build its
reputation and credibility through the use of pre-existing finance and business venues.
Simultaneously they ran an education campaign that explained to prospective clients what
its service did and how its service was better than its predecessors.

SWOT ANALYSIS
1. AMAZON SWOT ANALYSIS
STRENGTH
• Brand Identity: Amazon is synonymous with online sales services, and Amazon focuses
on improving customer satisfaction during the business process.
• Pioneer Advantage: Amazon is undoubtedly the leader in the online Retail Industry.
• Cost Structure: Amazon effectively uses its cost advantage, operates on thin profits,
and is still profitable in trading.
• Business Development: Amazon continuously improves its service level and provides
diversified services.

WEAKNESS
• Low-Profit Margins: Amazon has a very thin profit margin to maintain its cost-leading
strategy. But low- profit margins make companies vulnerable to external shocks and
crises, as well as other market changes.
• Seasonality: There is a seasonal difference between Amazon’s revenue and business
scope, with sales and revenue peaking in the fourth quarter of each year.

OPPORTUNITY
• Today’s Diversification of E-Commerce Business.
• Continues to increase awareness of Its own branded products and services.
• Amazon develops more local websites to participate in the international market. With the
international expansion of Amazon, some local businesses have the opportunity to enter
the international market.
• Promoting the strategic cooperation between Amazon E-Commerce and its related
affiliated industries will drive positive development of the industry.

THREAT
• Loss of profits due to low-profit margins.
• Patent Infringement and other aspects of Amazon’s Litigation E-Commerce Industry
barriers to entry barriers.
• Cybersecurity Issues.

Amazon – Recent Development

Amazon has seized the opportunity to successfully transform itself from an e -commerce
company into a global leading technology company! When Amazon realized the limitations of
the retail industry, it expanded its business boundaries promptly. In addition to cloud
computing and smart voice, Amazon has also contacted third-party platforms such as
logistics and suppliers, and even invested in the film and television industry, making its
business model more diversify. In 2008, Amazon realized that content can attract and

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extend users’ time on the platform, and began to provide original content on Prime Instant
Video, Amazon’s mainstream media video platform, and as part of the Prime membership
service. Amazon’s ecology can be described as a rotating flywheel. This flywheel is centered
on Prime’s membership system, and new interests have been added to it, gradually creating
an all-encompassing ecology. While continuing to attract new users, it has promoted the
development of Amazon’s e-commerce and other new businesses, and it will continue to do
so.

2. COCA-COLA SWOT ANALYSIS

STRENGTH
• Most sponsored corporate partners.
• Spread across the world in 650 languages and regions.
• The market territory spans nearly 200 countries on five continents.
• To develop new products, the Coca-Cola Company not only sells cola but also other types
of beverages.
• Coca-Cola has a long history, so it has a certain status in the market.

WEAKNESS
• There is no certain integration and the common goal of strategic management.
• The failure to develop new tastes.
• The gradual transfer of customer loyalty.
• Loss of market development opportunities.

OPPORTUNITY
• Sponsor the Olympic Games, use this opportunity to replace their brands, products, and
make advertisements, especially The Olympic Games is a worldwide movement that
allows the world’s population to recognize this product, expand its market reach, and
raise awareness of its products.
• Participate in the World Cup, take this world-wide activity to pave the way for your
products and gain popularity.
• Enter the Chinese rural market.
• Enter the American film market.

THREAT
1. Pepsi is Coca-Cola’s biggest competitor.
2. The products produced by the company may not be favored by young people today.
3. Coca-Cola is not considered to be good for health by many people.

3. SKODA SWOT ANALYSIS

Introduction
In 1895 in Czechoslovakia, two keen cyclists, Vaclav Laurin and Vaclav Klement, designed
and produced their own bicycle. Their business became Skoda in 1925. Skoda went on to
manufacture cycles, cars, farm ploughs and airplanes in Eastern Europe. Skoda overcame
hard times over the next 65 years. These included war, economic depression and political
change.

By 1990 the Czech management of Skoda was looking for a strong foreign partner.
Volkswagen AG (VAG) was chosen because of its reputation for strength, quality and
reliability. It is the largest car manufacturer in Europe providing an average of more than
five million cars a year giving it a 12% share of the world car market.

Volkswagen AG comprises the Volkswagen, Audi, Skoda, SEAT, Volkswagen Commercial

Vehicles, Lamborghini, Bentley and Bugatti brands. Each brand has its own specific
character and is independent in the market. Skoda UK sells Skoda cars through its network
of independent franchised dealers. To improve its performance in the competitive car
market, Skoda UK”s management needed to assess its brand positioning. Brand positioning
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means establishing a distinctive image for the brand compared to competing brands. Only
then could it grow from being a small player. To aid its decision-making, Skoda UK obtained
market research data from internal and external strategic audits. This enabled it to take
advantage of new opportunities and respond to threats.

The audit provided a summary of the business’s overall strategic position by using a SWOT
analysis. SWOT is an acronym which stands for:
➢ Strengths - the internal elements of the business that contribute to improvement and
growth.
➢ Weaknesses - the attributes that will hinder a business or make it vulnerable to failure.
➢ Opportunities - the external conditions that could enable future growth.
➢ Threats - the external factors which could negatively affect the business.

This case study focuses on how Skoda UK’s management built on all the areas of the
strategic audit. The outcome of the SWOT analysis was a strategy for effective competition in
the car industry.

Strengths
To identify its strengths, Skoda UK carried out research. It asked customers directly for
their opinions about its cars. It also used reliable independent surveys that tested
customers’ feelings.

For example, the annual JD Power customer satisfaction survey asks owners what they feel
about cars they have owned for at least six months. JD Power surveys almost 20,000 car
owners using detailed questionnaires. Skoda has been in the top five manufacturers in this
survey for the past 13 years.

In Top Gear’s 2007 customer satisfaction survey, 56,000 viewers gave their opinions on 152
models and voted Skoda the ‘number 1 car maker’. Skoda’s Octavia model has also won the
2008 Auto Express Driver Power ‘Best Car’.

Skoda attributes these results to the business concentrating on owner experience rather
than on sales. It has considered ‘the human touch’ from design through to sale. Skoda
knows that 98% of its drivers would
recommend Skoda to a friend. This is a clearly identifiable and quantifiable strength. Skoda
uses this to guide its future strategic development and marketing of its brand image.

Strategic management guides a business so that it can compete and grow in its market.
Skoda adopted a strategy focused on building cars that their owners would enjoy. This is
different from simply maximising
sales of a product. As a result, Skoda’s biggest strength was the satisfaction of its
customers. This means the brand is associated with a quality product and happy
customers.

Weaknesses
A SWOT analysis identifies areas of weakness inside the business. Skoda UK’s analysis
showed that in order to grow it needed to address key questions about the brand position.
Skoda has only 1.7% market share. This made it a very small player in the market for cars.
The main issue it needed to address was: how did Skoda fit into this highly competitive,
fragmented market?

a) Perceptions of the brand: This weakness was partly due to outdated perceptions of the
brand. These related to Skoda’s eastern European origins. In the past the cars had an image
of poor vehicle quality, design, assembly and materials. Crucially, this poor perception also
affected Skoda owners. For many people, car ownership is all about image. If you are a
Skoda driver, what do other people think?

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From 1999 onwards, under Volkswagen AG ownership, Skoda changed this negative image.
Skoda cars were no longer seen as low-budget or low quality. However, a brand ‘health
check’ in 2006 showed that Skoda still had a weak and neutral image in the mid -market
range it occupies, compared to other players in this area, for example, Ford, Peugeot and
Renault. This meant that, whilst the brand no longer had a poor image, it did not have a
strong appeal either.

b) Change of direction: This understanding showed Skoda in which direction it needed to

go. It needed to stop being defensive in promotional campaigns. The company had sought to
correct old perceptions and demonstrate what Skoda cars were not. It realised it was now
time to say what the brand does stand for. The marketing message for the change was
simple: Skoda owners were known to be happy and contented with their cars. The car -
buying public and the car industry as a whole needed convincing that Skoda cars were great
to own and drive.

Opportunities
Opportunities occur in the external environment of a business. These include for example,
gaps in the market for new products or services. In analysing the external market, Skoda
noted that its competitors’ marketing approaches focused on the product itself. Many
brands place emphasis on the machine and the driving experience:

❖ Audi emphasises the technology through its strapline, ‘Vorsprung Durch Technik’
(‘advantage through technology’).
❖ BMW promotes ‘the ultimate driving machine’.
❖ Skoda UK discovered that its customers loved their cars more than owners of competitor
brands, such as Renault or Ford.

Differentiation
Information from the SWOT analysis helped Skoda to differentiate its product range. Having
a complete understanding of the brand’s weaknesses allowed it to develop a strategy to
strengthen the brand and take advantage of the opportunities in the market.

It focused on its existing strengths and provided cars focused on the customer experience.
The focus on ‘happy Skoda customers’ is an opportunity. It enables Skoda to differentiate
the Skoda brand to make it stand out from the competition. This is Skoda’s unique selling
proposition (USP) in the motor industry.

Threats
Threats come from outside of a business. These involve for example, a competitor launching
cheaper products. A careful analysis of the nature, source and likelihood of these threats is
a key part of the SWOT process.
The UK car market includes 50 different car makers selling 200 models. Within these there
are over 2,000 model derivatives. Skoda UK needed to ensure that its messages were
powerful enough for customers to hear within such a crowded and competitive environment.
If not, potential buyers would overlook Skoda. This posed the threat of a further loss of
market share. Skoda needed a strong product range to compete in the UK and globally.

In the UK the Skoda brand is represented by seven different cars. Each one is designed to
appeal to different market segments. For example:
❖ the Skoda Fabia is sold as a basic but quality ‘city car’.
❖ the Skoda Superb offers a more luxurious, ‘up-market’ appeal.
❖ the Skoda Octavia Estate provides a family with a fun drive but also a great big boot.

Pricing reflects the competitive nature of Skoda’s market. Each model range is priced to
appeal to different groups within the mainstream car market. The combination of a clear
range with competitive pricing has overcome the threat of the crowded market.

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Environmental constraints
The following example illustrates how Skoda responded to another of its threats, namely,
the need to respond to EU legal and environmental regulations. Skoda responded by
designing products that are environmentally friendly at every stage of their life cycle. For
example:-
• recycling as much as possible. Skoda parts are marked for quick and easy identification
when the car is taken apart.
• using the latest, most environmentally-friendly manufacturing technologies and facilities
available. For instance, painting areas to protect against corrosion use lead-free, water
based colours.
• designing processes to cut fuel consumption and emissions in petrol and diesel engines.
These use lighter parts making vehicles as aerodynamic as possible to use less energy.
• using technology to design cars with lower noise levels and improved sound quality.

Outcomes and benefits of SWOT analysis

Skoda UK’s SWOT analysis answered some key questions. It discovered that:
• Skoda car owners were happy about owning a Skoda.
• The brand was no longer seen as a poorer version of competitors’ cars. However, the
following observations were found:
➢ The brand was still very much within a niche market
➢ A change in public perception was vital for Skoda to compete and increase its market
share of the mainstream car market.
➢ The challenge was how to build on this and develop the brand so that it was viewed
positively. It required a whole new marketing strategy.

Unique selling proposition

Skoda UK has responded with a new marketing strategy based on the confident slogan, ‘the
manufacturer of happy drivers’.

The campaign’s promotional activities support the new brand position. The key messages for
the campaign focus on the ‘happy’ customer experience and appeal at an emotional rather
than a practical level. The
campaign includes:
• The ‘Fabia Cake’ TV advert. This showed that the car was ‘full of lovely stuff’ with the
happy music (‘Favourite things’) in the background.
• An improved and redesigned website which is easy and fun to use. This is to appeal to a
young audience. It embodies the message ‘experience the happiness of Skoda online’.

Customers are able to book test drives and order brochures online. The result is that
potential customers will feel a Skoda is not only a reliable and sensible car to own, it is also
‘lovely’ to own.

Analysing the external opportunities and threats allows Skoda UK to pinpoint precisely how
it should target its marketing messages. No other market player has ‘driver happiness’ as its
USP.

By building on the understanding derived from the SWOT, Skoda UK has given new impetus
to its campaign. At the same time, the campaign has addressed the threat of external
competition by setting Skoda apart from its rivals.

TOWS MATRIX
CASE STUDY TOWS MATRIX FOR APPLE INC.
Strengths
• Market leader in an array of products and services
• Highly strong brand image

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• Financial strength
• Innovative and highly sophisticated supply chain
• High profit margins
• Large and loyal customer base.

Weaknesses
• Products not priced competitively
• Thin product range in comparison to the competitors
• Products incompatible with the other brands

Opportunities
• Rising demand for the electronic gadgets
• Product diversification

Threats
• Elevated competition
• Rise in cost of inputs

Apple TOWS MATRIX

Strengths (S) Weaknesses (W)

Opportunities(O) SO – Using strengths to WO – Overcome weaknesses to
capitalize on existing capitalize on opportunities.
opportunities. Use brand Attract middle class customers
image to diversify and develop by reducing price. Find new
partnership with other brands customer segments and
by introduce new products tailored
introducing compatibility for them.
feature.
Threats (T) ST – Use strengths to combat WT- Reduce weaknesses to
threats. Control cost to beat combat threats.
competition. Exploit existing supply chain
Focus on cultural change. capabilities to
reduce costs. Introduce
competitively priced
products.

NIKE TOWS MATRIX

Incorporated in 1967, Nike is known as a globally renowned brand in best sports shoe and
apparels in the world and its main strategic suppliers for footwear are 127 footwear factories
located in 15 countries. While it makes products mainly for athletic use, its products have
also been liked in casual wear segment. Apart from a strong image and a market leading
position, the brand is also known for its excellent marketing capabilities. However, that does
not mean it does not have changes in its way. Currently, Nike has outsourced its supply
chain operations entirely. It is focused on product innovation and extending its international
presence. However, US is still its largest market. More points in the brief SWOT analysis
below.

Strengths Weaknesses
• Brand Image • Over dependence on the US market
• Excellent Marketing capabilities • Increasing marketing and overhead
• Financial strength operating expenses
• International presence
• Huge well managed supply chain and
distribution network

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Opportunities Threats
• Digitization and product innovation • Stronger US dollar hurting earnings
• Acquisitions • Increased competitive pressure
• International expansion • Growing HR and marketing expenses
• Backward integration • Higher legal pressures

Strengths (S) Weaknesses (W)

Opportunities (O) SO – Using strengths to capitalize WO – Overcome weaknesses
on available opportunities. invest to
more in digitization and product capitalize on opportunities.
innovation. Expand faster in international
Explore Asian markets. markets by reducing
Take hold of supply chain. dependence on US market
alone.
Controlling operational costs.
Threats (T) ST – Use strengths to avoid WT- Reduce weaknesses to
threats. use its marketing and avoid threats. to invest more
innovation capabilities to keep the in marketing and grow its
competitive brand faster
pressure under control. keep
investing in marketing, R&D as
well as HR management. remain
focused on compliance using
internal compliance
teams to control legal and
regulatory pressures.

TOWS MATRIX OF PEPSI

We have discussed SWOT analysis of Pepsi-Co in our previous topic now here we are going
to discuss the TOWS Matrix of Pepsi-Co, keeping in mind its SWOT analysis. Following is
the detailed analysis of Pepsi- Cola TOWS matrix:

‘WT’ ANALYSIS
• One weakness that Pepsi possess is that it has very strong taste it really feels that
something highly toxic going inside the body, where as the same product of the coke is
not much strong.
• They also have a problem of imitators as receives complaints from customers that they
find take product in disguised of Pepsi’s product. During the last years, it was published
in financial post that there have been big complaints from the customers with regard to
the bad taste that they experienced. during the span of six months. If they soon pay no
attention towards that this will create a big problem for them.
• Large size may lead to conflicting interests.
• New one calorie products have no existing customer base; generic brands can make
similar drinks – cheaper. It is also big threat for any company people may like or dislike
new launching product.

‘WO’ ANALYSIS
• They have a lack of emphasis on this in their advertising such as currently when they
losses the bid for official drink in the 96 cricket world cup. They started a campaign in
which they highlight the factor such as “nothing official about it”. If they don’t focus on
sudden changing’s in their advertising then they can convert this weakness into
opportunity.
• They lack behind in catering the rural areas and just concentrating in the urban areas.
They should try to increase their distributions and also focus on capturing rural areas;
this will become a big opportunity for them.
• The other big weakness on Pepsi is that they don’t pay any attention towards garments.
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They may enter in garments business in order to promote their brand name, by making
sports cloths for players which represent their name by wearing their clothes. That must
increase the customer and income of the Pepsi.
• High expenses may have trouble balancing cash-flows of such a large operation. The
staff may show dishonesty. They should try to pay much attention towards their cash
flow, and audit their statements on regular basis.

‘ST’ ANALYSIS
• In many countries Pepsi had more expensive products than Coke; such a high price may
limit a lower income family from buying a Pepsi product, therefore which is a big threat
for Pepsi that may Pepsi have to face in the future.
• In western countries, Pepsi have many branches with different flavors as compare to
Asian countries, which has only 2 or 3 Pepsi products. Non-carbonated substitutes,
such as juices and tea brands are maintaining a strong foothold in the market. Pepsi has
a big threat from COKE, which are its main competitor from about 100 years.
• Pepsi is a multinational company therefore they have a big threat every time on them of
Political instability and civil unrest.
• The whole culture and business operating environment at Pepsi-Cola-West Asia has
quick access to a centralized database and they use computers as business tools for
analysis and quick decision making. Computer breakdowns, viruses and hackers can
reduce efficiency, and must constantly update products or other competitors will be
more advanced.

Continuous efforts to research trends an reinforce creativity, if they fail in their efforts then
there is a big threat for the company. The competitors may get benefit by their plans.

‘SO’ ANALYSIS
• The whole culture and business operating environment at Pepsi-Cola-West Asia has
quick access to a centralized database and they use computers as business tools for
analysis and quick decision making. Internet promotion such as banner ads and
keywords can increase their sales, and more computerized manufacturing and ordering
processes can increase their efficiency and that will become such a big opportunity for
Pepsi.
• Large number of diversity businesses is also its main strength as it has diversity in many
businesses such as Pepsi beverages, Pepsi foods, Pepsi Restaurants, and due to large
number of diversity they can capture more customer, therefore it will become such a big
opportunity for Pepsi.
• Pepsi is also a reputable organization, and is well known all over the world. Perception of
producing a high quality product and strength can become a big opportunity for Pepsi if
they use it in well arranged manner, such as advertising more and also by conducting
concerts to attract more customers.
• They maintain a high quality as Pepsi Cola International collect sample from its different
production facilities and send them for lab test in Tokyo, if they show test reports on
label of their products this will also attract customers.

They mainly use celebrities in their advertising campaigning like Imran Khan, Wasim
Akram, and Waqar Younas etc. Also sponsor social activates programmed like music etc.
this will become such a big opportunity to build such a large number of customers. So we
can say that it is one of the big strength that may become a big opportunity for Pepsi.

BUSINESS PROCESS RE-ENGINEERING

Infosys: Business process re-engineering for the commissions process

The client
An Australian corporation, which is among the top ten banking institutions and top five
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general insurers, has one of the highest cross-sell rates in the financial sector. The
insurance activities of the company cover personal insurance, corporate coverage, and
workers’ compensation.

Business need
Alliances and intermediaries were key growth drivers in the long-term strategy of the client.
In order to better manage the channel behavior and meet the organization’s objectives, the
ability to pay accurate and timely commissions was an important element. This was
considered a critical competitive edge and a weak link in the client’s back office capabilities.

Challenges and requirements

The following challenges were faced during implementation:
• The existing operations comprised of manual processes using band aid systems which
were highcost and presented serious risks.
• This organization paid about AUS$90 million per year in commissions, which was
approximately 20 percent of its profits before goodwill and taxes. At the same time, it lost
significant amount on overpayments and commission leakage.

Infosys role
Infosys studied the processes and identified improvement initiatives that would benefit the
client. Infosys recommended a centralized commission management organization and
articulated the desired business capabilities for a group commissions solution with the
following objectives:
• Coverage of
➢ Multiple businesses – insurance, wealth management, banking
➢ Multiple brands
➢ Different distribution models – multiple intermediary types
➢ Consolidation of several existing legacy systems
➢ Integration with product (Hogan, Cogen), payment (PeopleSoft), and CRM (Enterprise)
systems
➢ Scalability – large number of intermediaries (>5000) across BUs and 400,000
transactions per month.

Infosys assessed vendors in the enterprise incentive management space based on multiple
criteria. The vendors included Callidus, Synygy, Centive, Trilogy, and Siebel. Infosys
evaluated and selected a vendor as a recommended integrated commissions platform. At the
same time, Infosys also built the business case for the investment as well the
implementation plan for all initiatives.

Benefits
The benefits of the solution include:
• Identification of the most suitable solution based on a list of quantifiable criteria (cost,
project risk / ease of implementation timelines, functionality fit), and a complex
evaluation process.

• Creation and articulation to the executive team of the business benefits arising from
various initiatives including implementation of an integrated commissions platform.
Source: https://www.infosys.com/industries/insurance/case-studies/Pages/business-
process-reengineering.aspx

Business Process Reengineering – The case of Ford’s Accounts Payable

One of the companies that successfully utilised BPR in the initial years is Ford, for its
accounts payables system. Before implementation, Ford used the accounts payable as
shown in the figure below. Ford’s purchasing department initially sends a purchase order
for raw materials. It also sends a copy of the purchase order to the accounts payable
department. After sending the raw materials, the vendor raises an invoice to the accounts

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payable department. The accounts payable department tallies the purchase order, received
materials and invoices and makes payments to the supplier. Ford employed about 500
people to handle the entire process, whereas its competitor, Mazda, a Japanese car
manufacturer has managed the same process with 100 people, a remarkably low number of
employees even if the size is taken into consideration.

Ford Accounts Payable Process – Before Business Process Reengineering

Instead of making minor changes to the business processes. Ford has decided to use BPR
and information technology to radically change its accounts payable process. It has
implemented an invoice-less process.

The purchasing order will be raised by the purchasing departments and updated in the
database. As soon the materials have been received a warehouse man would update the
materials received and the payment will be automatically be made without waiting for the
invoice to be received from the vendor.

Ford Accounts Payable Process – After Business Process Reengineering

Through these changes in the business process, Ford had achieved a 75% reduction in
employees in the administration department.

Reengineering of the Product Development Process of Airbnb

Airbnb is known for their coolness. Want to sleep in a treehouse in the Balinese jungle? It’s
just a few clicks away. Looking to make some secondary income on your vacation home?
List it on Airbnb.

Behind the scenes, the company was struggling to find their internal identity in a design -
centric Silicon Valley, and to create a sustainable, quick to deliver, product development
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process.

Problem Definition
The three main functions which contributed to the Airbnb product development process —
designers, engineers, and researchers — worked in silos, only jumping into the process at
defined times.

Those defined times weren’t serving the end goal of delivering a great product on time.
Designers had to wait on engineers to write code before a mock-up could be visualized on
screen. In turn, engineers had to wait on researchers to validate product ideas, only to find
at the very end that project assumptions were off-base.

This was less so a failure of bulldozing researchers, needy designers or overly-coveted

engineers. It was a process failure. This triggered the need for more deep and consistent
engagement between teams. In this regard, the company devised three solutions which are
as under:

1. Treat Geographically Dispersed Resources as they were Centralized-

The product development process needed to be reengineered. Not optimized or automated,
but fundamentally redesigned. According to Alex Schleifer, Head of Design at Airbnb, he and
about 300 other people on Airbnb’s product team spent nine months doing just that.

The solution was to create one digital environment where designers and engineers would
work seamlessly together. Rather than each team working on separate systems, which
meant rounds and rounds of “quasi- prototypes” and “layers of abstraction”, this single
digital environment enables files to show updates in real time and reflect real data.

BPR Learning
Treat geographically dispersed resources as though they were centralized. In Airbnb’s case,
the way to centralize the product development process was to centralize the internal
development tool. Even if coworkers weren’t able to sit in the same room, they were looking
at the same product in real time. This virtual centralization supports the team in quick back
and forth product development.

2. Organize Around Outcomes, Not Tasks

Another part of the reengineering solution of Airbnb’s product development process was to
design product teams around outcomes, not features. This approach baked in an unfamiliar
step into the product development process — emotions. Teams were now pushed to talk
about outcomes from both a lofty, aspirational perspective, as well as a knitty gritty code
perspective.

BPR Learning
Organize around outcomes, not tasks. This principle holds true when applied to common
business processes such as Procure-to-Pay and Order-to-Cash, but also to Product
Development. When individual tasks (or in Airbnb’s case, features) become the
organizational priority, the larger outcome is mistakenly shelved for the immediate need of
the task.

3. Link Parallel Activities instead of Integrating their Results

A thought emerged that what about the researchers who would come in at the end of a
project and bulldoze everything designers and developers had built. Researchers became
deeply embedded into teams, as equal partners of on the product team, forming strong and
enduring relationships.

BPR Learning
Link parallel activities instead of integrating their results. By embedding researchers into
the process, they were able to validate development stages along the way. Rather than trying
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to massage in research outcomes to an already existing product, Airbnb links research
activities along with designer and engineering activities.(This case study was sourced from
the following articles: Wired, Wired, Airbnb, Firstround.)

BENCHMARKING
CASE STUDY
Benchmarking: XEROX PROCESS
Xerox has popularized benchmarking and was one of the first companies to introduce the
process of doing it. This 5-phase and 12-step process was created by Camp, R. the manager
of Xerox responsible for benchmarking.

TOTAL QUALITY MANAGEMENT

CASE STUDY
FORD MOTOR COMPANY – TOTAL QUALITY MANAGEMENT
Ford Motor Company total quality management or TQM practices started in the 1980s when
“Quality Is Job 1” was their slogan. How did TQM work at Ford and are they still standing
behind this process? Jean Scheid, a Ford Dealer talks with Ford management along with
some insights of her own.

When an invasion of Japanese imports threatened the American automobile industry, the
Ford Motor Company led a quality revival based on the management philosophy of W.
Edwards Deming, who was controversial then and is out of fashion now.

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The results of the movement, known as Total Quality Management, were stunning at Ford.
After racking up $3 billion in losses between 1979 and 1982, Ford hit a series of home runs,
including the aerodynamic Taurus- Sable cars, and by 1986 had become the most profitable
American auto company.

Now, though, Ford’s hard-won reputation for quality is being tarnished by a series of
setbacks, from the controversy over deadly rollovers of Ford Explorers equipped with
Firestone tires to costly recalls of several models and delays on the introductions of others.
Indeed, according to recent surveys by Consumer Reports and J. D. Power & Associates,
overall quality and customer satisfaction for Ford cars now lag the competition.

And so, once again, the company is embracing quality as the answer to its problems. This
time, it has seized on Six Sigma, a management tool that is sweeping corporate America. “It
was a good way to get a common language around innovation and marketing,” said Jacques
Nasser, Ford’s chief executive, who started the Six Sigma program in 1999.

Six Sigma was popularized by John F. Welch Jr. of General Electric in the 1990’s. Adopting
it does, however, point to a management problem. Too often, when it comes to management
tools for improving efficiency and worker productivity, companies have to reinvent the
wheel.

The customer knows best: AtlantiCare

TQM isn’t an easy management strategy to introduce into a business; in fact, many
attempts tend to fall flat. More often than not, it’s because firms maintain natural barriers
to full involvement. Middle managers, for example, tend to complain their authority is being
challenged when boots on the ground are encouraged to speak up in the early stages of
TQM. Yet in a culture of constant quality enhancement, the views of any given workforce are
invaluable.

Profits after quality improvement strategy

One firm that’s proven the merit of TQM is New Jersey-based healthcare provider
AtlantiCare. Managing 5,000 employees at 25 locations, AtlantiCare is a serious business
that’s boasted a respectable turnaround for nearly two decades. Yet in order to increase that
margin further still, managers wanted to implement improvements across the board.
Because patient satisfaction is the single-most important aspect of the healthcare industry,
engaging in a renewed campaign of TQM proved a natural fit. The firm chose to adopt a
‘plan-do-check-act’ cycle, revealing gaps in staff communication – which subsequently
meant longer patient waiting times and more complaints. To tackle this, managers explored
a sideways method of internal communications. Instead of information trickling down from
top-to-bottom, all of the company’s employees were given freedom to provide vital feedback
at each and every level.

AtlantiCare decided to ensure all new employees understood this quality culture from the
onset. At orientation, staff now receive a crash course in the company’s performance
excellence framework – a management system that organises the firm’s processes into five
key areas: quality, customer service, people and workplace, growth and financial
performance. As employees rise through the ranks, this emphasis on improvement follows,
so managers can operate within the company’s tight-loose-tight process management style.

After creating benchmark goals for employees to achieve at all levels – including better
engagement at the point of delivery, increasing clinical communication and identifying and
prioritising service opportunities – AtlantiCare was able to thrive. The number of repeat
customers at the firm tripled, and its market share hit a six-year high. Profits
unsurprisingly followed. The firm’s revenues shot up from $280m to $650m after
implementing the quality improvement strategies, and the number of patients being serviced
dwarfed state numbers.

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SIX SIGMA
CASE STUDY
Six Sigma Implementation in FORD MOTOR COMPANY
Ford Motor Company, an American Multinational automaker considered as the world’s,
largest and most successful automakers is famous for introducing revolutionary products.
The company is known for its innovative and dynamic approach to manufacturing by using
Total Quality Management approach to achieve its vision “Quality Is Job 1”. It has employed
such manufacturing concepts as standardization, assembly lines, which came to be known
as Fordism. Ford was ranked ‘seventh’ in terms of quality in automobile world in 2001, the
position which was soon elevated to third in the year 2003, which was viewed as a
remarkable improvement over this two-year period. The credit of such improvement was
awarded to quality initiatives taken by Ford in 1999, significant among which was the Six
Sigma techniques such as a data-driven problemsolving process, to devise solutions to
waste issues. Six Sigma saved Ford from its deep-rooted problems. These issues include
inadequate productivity, poor use of resources, low customer satisfaction, and
environmental unfriendliness.

Carrying Out the Six Sigma Approach

To actualize the vision of becoming a consumer products company, Ford Motor Company
implemented Six Sigma in late 1990s with the twin goals of enhancing vehicle quality and
improving the level of customer satisfaction. The initiative was called ‘Consumer-driven Six
Sigma’. Ford was the first major automobile company in the world to go for Six Sigma
initiative in a big way. In Ford’s view, there existed about 20,000 opportunities for defects in
manufacturing a car. Through Six Sigma, Ford aimed at attaining its defect rate to just one
for every 14.8 vehicles.

Reasons to adopt Six Sigma in Ford Motor Company

• Cost Reduction
• Quality Improvement
• Improve Customer Satisfaction
• Reduce solvent consumption to lower the environment impact

Roadblocks in Implementing Six Sigma

• Employee Commitment
• Resource challenge (time, money and productivity)
• Infrastructure to fully run the Six Sigma Initiative as it required enormous data and
internal measures.

FORD’s improvement after implementation of Six Sigma

• Elimination of more than $2.19 billion of wastage of resources since 2001.
• An increasingly dramatic impact on operations of the enterprise. After adopting six
sigma, Ford has completed more than 9,500 projects savings $1.7 billion worldwide,
including $731 million in 2003.
• Increase in customer satisfaction to five percentage points as disclosed by company’s
internal customer satisfaction survey.

CASE STUDIES FROM THE INDIAN CONTEXT TO ESTABLISH A STRATEGIC MINDSET

Case Study -1

A BETTER BUSINESS MODEL FOR FASHION FROM ZARA

One of the most well-known brands in the world and a major player in the global fashion
industry is Zara. They are a division of Inditex and the third-largest brand in the clothing
sector. Its headquarters are in Spain, and their flagship line of chain stores. In 1975, the

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first Zara store was established in Spain. Galicia is where the company is headquartered. In
the world, there are more than 2600 stores spread across 73 nations. The majority of the
parent company’s revenues come from the Zara apparel line.

Zara is recognised for developing items quickly rather than taking an eternity. They have a
reputation for developing items in about two weeks and producing 10,000 new designs
annually (which is an industry record). Instead of moving their whole manufacturing to
Third World or Developing countries, they have defied the trend by producing in Europe.
Yet, because some of their clothing has a longer shelf life, some of it is produced in Asia.
Since they operate numerous facilities in both Spain and Portugal, they produce the
majority of their goods domestically or in other European nations. They also don’t have to
depend on anyone else as they can get everything done by themselves.

Zara is distinctive in that it focuses on opening new stores rather than spending money on
marketing. They have earned a reputation as one of the most creative shops in the world
because to their daring efforts. When Zara first started off, its products were cheap
knockoffs of expensive apparel. Due to the success of this decision, Zara was able to grow by
adding more stores in Spain. The corporate management also managed to shorten the time
it required to generate new designs and came up with the term “instant fashions” which
allowed them to capitalise on new trends fairly rapidly. Instead than employing lone
designers, Zara is renowned for using design teams.

H&M, Gap, and Benetton are fierce competitors for Zara on the global market. Luckily Zara
is believed to be more fashionable than the rest of the brands despite the fact that its pricing
is cheaper than Benetton and Gap. Although being similarly stylish as Zara, H&M is
nonetheless more affordable. Less stylish and more expensive brands include Gap and
Benetton.

The fundamental tenet of Zara’s business strategy is that it can offer “moderately priced,
fashionable goods.” Fundamentally, Zara’s successful business strategy relies heavily on
vertical integration and the capacity to respond quickly; otherwise, they would not be where
they are now. The Zara process has been created in a way that includes all of the different
business system tasks, including designing, sourcing, production, distribution, and
retailing. They do all of things themselves and that is one reason why their growth is at a
good rate. Yet, everything that goes up must eventually fall down, and Zara is not immune
to the world’s issues. Due to the model they are now using, their methods of operation may
potentially prove to be their downfall. They have their own manufacturing facility and
distribution centre, which is a major weakness.

The management at Zara has identified four key success factors: a quick turnaround time
for product development, a small quantity per product (and not too much of the same
stock), a wide variety of products every season (so that customers can choose easily), and a
significant investment in ICT to help them stay on track.

Zara doesn’t lose money since they only order a small number of each item they think is
fashionable and will be harder to find seasonally. For instance, due of Europe’s brief
summer season, miniskirts in this design will only be available for a limited time. Other
clothing that can be worn all year long and whose trends don’t fluctuate is outsourced to
Asia because the price isn’t as high. The fact that these clothing have a longer shelf life
makes the outsourcing process more practical. The preparation of the clothing does not
require much time; the entire procedure, from design to finished product in the stores, only
takes around 4 weeks.

Zara has a significant advantage over their competitors since they are aware of the market
trends and are quick to adapt their business plan to keep up with changes in the fashion
sector. They can quickly alter their schedule to take into account changes in market
patterns. For any typical retailer, it typically takes 8 to 12 months to predict trends, develop
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a style, and send it for production. They lose badly because they are unable to compete with
Zara’s abilities. Even if a certain style doesn’t do well, Zara can still offer the items at a
discount. The fact that they lost a lot since there were so few clothing produced. They have a
very small number of discount sales each year, compared to a high rate for the rest of the
market, because to their low volume approach.

They do not have to worry about having greater stockpiles, but this results in higher
expenses, which is a drawback. With this approach, low inventories and large profit margins
are possible. They incur no cost savings here, yet they nevertheless make the most of their
clothes line. As Zara controls everything, it is difficult for them to expand or migrate
because they must remain in one spot or the entire operation will suffer, increasing the cost
of distributing the items.

A great aspect of Zara’s business strategy is that they have a very fashion -forward range
since they know which trends to capitalise on. They appear to possess the Midas touch,
turning anything they touch into gold. It is their policy to hire a crew that is primarily
youthful and stylish so that they can serve as trend setters. For instance, if a certain item at
a store does well, the management may decide to sell it in additional stores. The key is that
people believe there is a shortage of most products because they are in short supply, which
leads them to want to buy more.

The fact that Zara has acquired its goods from the correct regions is a major contributor to
its success. They have established offices for procurement in a few chic global locations. As
a result, they may see the trends for themselves and swiftly devise a remedy of their own.
They hire one of the procurement departments of their parent group to handle all of their
purchasing instead of buying all the raw materials themselves. One wise decision made by
them is that they purchase the majority of their cloth in grey to allow for more flexibility.
The process of preparing the fabric is quick.

The fact that they have vertical integration, however, gives them the greatest advantage
because it enables them to make and market their own products independently of suppliers.
It is not challenging to move any of their items as they have their own railway network
which allows them to move goods quickly to its distribution hub. Even though shipment
only happens twice a week, the goods are sent out right away once they are ready. While
other locations receive the goods in two days, European stores receive them sooner (between
24 and 36 hours). They have been able to reach a very high level of accuracy in their
shipments because to this technique. Another plus is that once the new clothing arrives at
the stores, it doesn’t take them long to display it, allowing them to exhibit new merchandise
to their patrons. In order for the employees to know where to put the clothing, they are also
color-coded. Customers now find it simpler to browse for things that match the colours they
want to purchase.

CASE STUDY -2

MCDONALD’S MARKETING TACTICS

The largest chain of fast-food restaurants in the world is McDonald’s. There are more than
30,000 of them spread throughout more than 100 nations. In comparison to 2006, more
than one billion additional clients were serviced in 2007. Although McDonald’s sales
increased 6.8% and revenue reached a record high of $23 billion in 2007, net profitability
fell by $1.1 billion. The System, which refers to the firm, its franchisees, and suppliers
collectively, is what has made McDonald’s successful over the years. The company’s
business approach enables it to continually provide consumers with relevant dining
experiences and to play a significant role in the communities it serves.

Plan to Win refers to McDonald’s entire strategic framework. Becoming the biggest fast-food
restaurant business is not their primary goal; instead, they are more concerned with being
the greatest. By the implementation of numerous initiatives centered around the five factors
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of great customer experiences — people, products, place, price, and promotion —
McDonald’s “strategic alignment behind this approach has delivered superior McDonald’s
experiences.” Also, McDonald’s uses geographically-based strategy planning. The strategic
priorities of McDonald’s in the United States are still breakfast, chicken, beverages, and
convenience. These are the main metropolitan regions in the US. McDonald’s has
introduced the Southern Style Chicken Sandwich for lunch and dinner as well as the
Southern Style Chicken Biscuit for breakfast. McDonald’s began rolling out fresh hot
specialty coffee options market by market in the beverage industry. McDonald’s employs a
tiered menu strategy in Europe. This menu offers upscale options, classic dishes, and
regularly priced items. Also, they “supplement these with fresh merchandise and transient
food specials.” McDonald’s strategy plan is centered on value, convenience, breakfast, core
menu additions, and the Middle East, Asia, and Africa. McDonald’s should start to
experience better financial results thanks to its overall strategy plan and its geographic
strategic plan.

McDonald’s uses a variety of organisational techniques. Better restaurant operations,

putting the client first, offering a variety of food and drinks, convenience and daypart
development, and continual restaurant reinvestment are a few organisational initiatives. In
2008 and beyond, McDonald’s plans to “continue to drive success by leveraging key
consumer insights and our global experience, while relying on our strengths in developing,
testing and implementing initiatives surrounding our global business drivers of convenience,
branded affordability, daypart expansion and menu variety.” McDonald’s must increase
restaurant operations’ efficiency while prioritising the needs of the customer as one strategy
to achieve a positive net income. McDonald’s is aiming for higher revenue and visitor counts
by strategically focusing on beverage options and menu variety. McDonald’s hopes to boost
productivity at its drive-thru pick-up window with their convenience and daypart expansion
plan. The corporation is also remaining open later to accommodate individuals who need a
quick meal after midnight. Also, McDonald’s has outlets that are locally owned and run,
which “are at the heart of their competitive edge and makes them not just a worldwide
brand but a locally relevant one,” according to the company. They are currently updating
and modernising their franchises. Also, the business is opening a McCafe’s in hopes that it
will help it get closer to its long-term objective of tripling sales at its current U.S.
restaurants. Affordability and staff development, which begins with hiring and training and
progresses all the way up to leadership and management, are two other organisational
concepts.

McDonald’s marketing initiatives are being influenced by their strategic plan through
enhancing brand transparency. They aim for worldwide recognition of their brand. They are
improving the clientele’s encounter.

“They are making it simpler for customers to have a wonderful McDonald’s experience in all
of their markets. In China and Russia, they are bringing drive-thrus to the more mobile
people, while in the United States and Canada, more efficient drive-thrus and double drive-
thru lanes allow them to quickly serve even more customers. McDonald’s has a rebranding
campaign in Germany that includes expanding by roughly 100 McCafes. Also, they are
setting up new kitchen operational systems to maintain their ability to produce high-quality
meals. Almost 10,000 McDonald’s locations have already undergone renovations worldwide.
They desire for their eateries to represent their brand. With new menu options, the business
is also giving the customer more value. “They generate value for customers and satisfy their
demand for choice and diversity by presenting a locally relevant balance of innovative goods,
premium salads and sandwiches, traditional menu favourites, and everyday cheap choices
around the world.”

Longer operation hours, everyday value meals, and drive-thru efficiency optimization are all
examples of the marketing mix types used by McDonald’s to fulfil their marketing objectives.
McDonald’s employs marketing initiatives as well. In 2007, McDonald’s offered kids the
option of milk, fruit, or veggies as part of their Happy Meal by referencing the Shrek movie.
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In addition to their dedication to working with kids, McDonald’s is enhancing the perception
of their brand “through innovative marketing that transports ideas across borders and uses
i’m lovin’ it to strengthen their connection with customers who love their cuisine and the
distinctive McDonald’s experience.” McDonald’s served the Beijing Burger, Carmel and
Banana Sundae, and Rice Sticks at the Beijing Olympics in 2008. On their package, they
have nine Olympians and Paralympians. The name of McDonald’s new hamburger was up
for public vote as part of a marketing drive in Australia. Backyard Burger was selected as
the winner. McDonald’s is attempting to improve the perception of its brand with marketing
initiatives like these.

Creating stronger relationships of trust by being approachable and keeping an open

communication with customers and important stakeholders is another organisational and
marketing strategy. The corporation is investing about $1.9 billion in its restaurants, mainly
to remodel current locations and construct new ones. McDonald’s is also transitioning to a
less capital-intensive, heavily franchised business model. However, this is not permitted in
some nations, including China, due to official regulations.

Due to McDonald’s emphasis on the five components of excellent customer service and
expanding global brand recognition, their revenues and net income should rise. The
consumer will have a more welcoming and pleasant dining experience thanks to the
initiative to renovate and upgrade current franchisees. McDonald’s marketing strategy for
the 2008 Olympics made them feel like a vital part of the event, which only improved the
company’s reputation. This will enable McDonald’s to reduce its already high turnover
percentage through recruitment and training activities for current workers or poten tial
future hires.

CASE STUDY -3

SWOT ANALYSIS: THE FULCRUM OF STRATEGIC DECISION MAKING

Gujarat Cooperative Milk Marketing Federation Ltd. (GCMMF) is India’s largest food product
marketing organisation. It is the apex organisation of the Diary Cooperatives of Gujarat
popularly known as AMUL which aims to provide remunerative returns to the farmers and
also serve the interest of consumers by providing quality products. AMUL is considered as
one of the most well recognized and iconic brands in the country. It operates through 61
sales offices and has a network of 10000 dealers and 10 lakh retailers. Its product range
comprises milk, milk powder, health beverages, ghee, butter, cheese, Pizza Cheese, Ice
cream, Paneer, chocolates and traditional Indian sweets etc.

Based on the above information, do the SWOT analysis of AMUL is placed below:

SWOT Analysis of a Renowned Dairy Business – AMUL

Following is the SWOT analysis of AMUL, a strong and dominant brand in the dairy
business.

Strength Weakness
Investment in Technology; Market Share, High Operational Costs, Lack of success in
Production Capacity, Quality, Brand value, portfolio expansion, legal issues
Large Consumer Base

Opportunities Threats
High Milk Consumption, Global Expansion, Increasing Competition, growing trends of
Product Portfolio Expansion veganism

STRENGTHS OF AMUL

Investment in Technology
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Amul has experienced exponential growth in the last few decades. The company is
continually investing in adaptive and revolutionary technologies within the dairy industry.

Market Share
Amul has transformed itself into the market leader of milk and dairy products in the
country. Amul has expanded its ice cream product and business portfolio by opening
standalone Amul ice cream stores all over the country.

Production Capacity
Amul is one of the largest manufacturers of milk and dairy products in the world. The
company is managed by the Gujarat Co-operative Milk Marketing Federation Limited, which
is a dairy producers cooperative which supplies the company with almost 18 million liters of
milk daily.

Quality
One of the primary reasons for Amul being one of the most trusted brands in Indian and
having a strong and loyal consumer base is its quality. Amul has never faced any significant
issues pertaining to its quality within the Indian market. The company has also maintained
transparency concerning its quality control practices.

Strong Brand Value

Amul is one of the most recognizable and valuable brands in India. The Amul girl, the
company’s mascot which features on its advertisements is one of the oldest and most iconic
brand mascots which Amul uses even today.

Large Consumer Base

The company has a large consumer base which spreads across the urban and rural regions
of the country. This wide-reaching consumer base has allowed the company to maintain
distinct leverage over its competitors.

WEAKNESSES OF AMUL

High Operational Cost

Amul has a high operational cost due to its massive size and complex structure. This can
become problematic for the company if the company experiences fall in demand.

The company also heavily depends on the dairy unions and communities for its supply of
milk. As the needs of the dairy community are changing with them demanding higher prices
for their produce. These issues can
add up to the operational cost of the company and lower its profit margins.

Lack of Success in Certain Areas of Portfolio Expansion

Amul has expanded its product portfolio to add products such as butter, ghee, buttermilk,
flavored milk, ice cream, chocolates, cheese, creams, sweets and more.

However, not every product of Amul within its portfolio has same amount of success.

Frequent Legal Issues

The company has faced legal issues in the recent past wherein Amul chose to advertise its
products while disparaging the brand and products of its rivals. This caused the company a
lot of embarrassment and has also contributed to tarnishing the public image of the
company.

OPPORTUNITIES FOR AMUL

High per capita Milk consumption

India is a high milk consuming nation with milk and dairy products being an essential
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component of the Indian diet. India has 130 crore population which is only increasing. This
growth in population and high milk consumption opens up opportunities for AMUL to
expand its production capacities and acquire new consumers.

International Expansion
AMUL can serve global markets. The brand can expand into overseas markets such as the
Middle-East and the Asian markets by aggressively targeting Indian expats living in these
countries.

Expansion of Product Portfolio

AMUL can invest in research and development or adopt a mergers and acquisition strategy
to expand its product line. AMUL has an extensive distribution network which can be used
to sell its new products into the market, and the substantial brand value and trust of the
consumers will also enable easier acceptance from the consumers.

THREATS FOR AMUL

Increasing Competition
AMUL is facing increasing competition in milk and dairy products sector from brands such
as Mother Dairy, Kwality Ltd, HUL and other local players. AMUL is also facing increasing
competition within the ice cream
market from Kwality Walls, Baskin Robins, Havmor, London Dairy and other domestic
brands.

Growing trend of Veganism in India

Many people in India are turning towards veganism, which implies that these people do not
consume dairy or dairy products. This can impact the demand for Amul’s milk and dairy
products if the popularity of veganism
increases and spreads across different parts of the country.

Findings of SWOT Analysis of AMUL

As per the SWOT analysis of AMUL, the company can easily identify and analyse the
internal and external factor which help it to take the strategic decisions. The company can
achieve a dominant global position by maintaining its quality standards, investing in
advertising and promotions and localizing products as per the taste of the international
markets. Thus, it has the opportunity to go ‘Glocal’, i.e. think globally but act locally.

What are the quick tips, you will suggest for a successful SWOT analysis?

Following are the tips for a successful SWOT analysis

• Keep SWOT short and simple, but remember to include important details. For example, if
the staff in an organisation is a strength, include specific details, such as specific skills
and experience possessed by the concerned staff members, as well as why they are
strengths and how they can help to meet the goals of the organisation.
• When SWOT analysis is completed, prioritise the results by listing them in order of the
most significant factors that affect the business to the least.
• Obtain multiple perspectives for those SWOT analysis that have been given a final shape
and implemented; Ask for input from various stakeholders like employees, suppliers,
customers and partners.
• Apply SWOT analysis to a specific issue, rather than to the entire business. Then after
conduct separate SWOT analysis on individual issues and combine them.
• Look at where business is now and think about where it might be in the future.
• Consider the competitors and have a realistic assessment of the organisation’s
competitive strength in the industry.
• Think about the factors that are essential to the success of an organisation and the
products or any other services, like superior after sale services, free delivery, warranty /
guarantee etc. an organisation can offer customers that may exert an impact on the
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competitors, in order to have a competitive advantage. It is essential to take into
consideration the factors relating to competitive advantage while conducting the SWOT
analysis.
• Use goals and objectives from overall business plan in SWOT analysis.

Conclusion
The business world is highly competitive, traditional industries are getting shocked by the
rise of the technology businesses, thousands of start-ups blooming every day while
thousands of businesses withering every day. The key to the survival of the business is the
strategy an organisation adopts and implements.

SWOT analysis helps the organisation to specify the objectives of the business venture or
project and identifying the internal and external factors that are favourable and
unfavourable to achieve that objectives. Identification of SWOT is important because they
may be of immense assistance in chalking out the business plan to meet the objectives of
the business.

The significance of SWOT analysis is that it provides a good way for companies to examine
both positive and negative attributes within a single analysis, determining how best to
compete in the market at large. SWOT assists the management to map out the best possible
opportunity well in advance which helps business to begin planning to deliver a quality
solution and to make a marketing plan.

CASE STUDY -4

FUNCTIONAL LEVEL STRATEGIES – AN EFFECTIVE TOOL TO ACHIEVE

ORGANIZATIONAL GOALS

In 2017, a chain of coffee retailer, closed a decade of astounding financial performance.

Sales had increased from $700 million to $8 billion and net profits from $40 million to $600
million. In 2017, The Company’ was earning a return on invested capital of 25 %, which was
impressive by any measure, and the company was forecasted to continue growing earnings
and maintain high profits through to the end of the decade. How did this come about?

Thirty years ago Company was a single store in its local Market selling premium roasted
coffee. Today it is a global roaster and retailer of coffee with more than 12,000 retail stores,
some 3,000 of which are to be found in 40 countries outside its Home Country. The
Company set out on its current course in the 1980s when the company’s director of
marketing, Srinivas Santharaman, came back from a trip to Italy enchanted with the Italian
coffeehouse experience. Srinivas Santharaman, who later became CEO, persuaded the
company’s owners to experiment with the coffeehouse format – and the Coffee House
experience was born. Santharaman basic insight was that people lacked a “third place”
between home and work where they could have their own personal time out, meet with
friends, relax, and have a sense of gathering. The business model that evolved out of this
was to sell the company’s own premium roasted coffee, along with freshly brewed espresso-
style coffee beverages, a variety of pastries, coffee accessories, teas, and other products, in a
coffeehouse setting. The company devoted, and continues to devote, considerable attention
to the design of its stores, so as to create a relaxed, informal and comfortable atmosphere.

Underlying this approach was a belief that Santharaman was selling far more than coffee —
it was selling an experience. The premium price that the Company charged for its coffee
reflected this fact.

From the outset, Santharaman also focused on providing superior customer service in
stores. Reasoning that motivated employees provide the best customer service, Company
executives developed employee hiring and training programs that were the best in the
restaurant industry. Today, all Company’s employees are required to attend training classes
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that teach them not only how to make a good cup of coffee, but also the service oriented
values of the company. Beyond this, Company provided progressive compensation policies
that gave even part- time employees stock option grants and medical benefits – a very
innovative approach in an industry where most employees are part time, earn minimum
wage, and have no benefits.

Unlike many restaurant chains, which expanded very rapidly through franchising
arrangement once they have established a basic formula that appears to work,
Santharaman believed that Company needed to own its stores. Although, it has
experimented with franchising arrangements in some countries, and some situations its
home country such as at airports, the company still prefers to own its own stores wherever
possible.

This formula met with spectacular success in the Country, where Company went from
obscurity to one of the best known brands in the country in a decade. As it grew, Company
found that it was generating an enormous volume of repeat business. Today the average
customer comes into a Company’ store around 20 times a month. The customers
themselves are a fairly well- healed group – their average income is about $85,000.

As the company grew, it started to develop a very sophisticated location strategy. Detailed
demographic analysis was used to identify the best locations for Company’s stores. The
company expanded rapidly to capture as many premium locations as possible before
imitators. Astounding many observers, Company would even sometimes locate stores on
opposite corners of the same busy street— so that it could capture traffic going different
directions down the street.

By 2005 with almost 700 stores across the Country, Starbucks began exploring foreign
opportunities. First stop was Japan, where Starbucks proved that the basic value
proposition could be applied to a different cultural setting (there are now 600 stores in
Japan). Next, Company has embarked upon a rapid development strategy in Asia and
Europe. By 2011, the magazine Bigdemandchannel named Company one of the ten most
impactful global brands, a position it has held ever since. But this is only the beginning. In
late 2016, with 12,000 stores in operation, the company announced that its long term goal
was to have 40,000 stores worldwide. Looking forward, it expects 50% of all new store
openings to be outside of its Home Country.

Case Discussion Questions

1. What functional strategies help the company to achieve superior financial performance?
2. Identify the resources, capabilities, and distinctive competencies of Company?
3. Why do you think Company prefers to own its own stores wherever possible?
4. How secure is Company competitive advantage?

CASE STUDY -5

USING AIMS AND OBJECTIVES TO CREATE A BUSINESS STRATEGY

Introduction
When preparing a strategy for success, a business needs to be clear about what it wants to
achieve. It needs to know how it is going to turn its desires into reality in the face of intense
competition. Setting clear and specific aims and objectives is vital for a business to compete.
However, a business must also be aware of why it is different to others in the same market.
This case study looks at the combination of these elements and shows how Kellogg’s
prepared a successful strategy by setting aims and objectives linked to its unique brand.

Branding
One of the most powerful tools that organisations use is branding. A brand is a name,
design, symbol or major feature that helps to identify one or more products from a business
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or organisation. The reason that branding is powerful is that the moment a consumer
recognises a brand, the brand itself instantly provides a lot of information to that consumer.
This helps them to make quicker and better decisions about what products or services to
buy.

Product positioning
Managing a brand is part of a process called product positioning. The positioning of a
product is a process where the various attributes and qualities of a brand are emphasised to
consumers. When consumers see the brand, they distinguish the brand from other products
and brands because of these attributes and qualities.

Focused on Kellogg’s, this case study looks at how aims and objectives have been used to
create a strategy which gives Kellogg’s a unique position in the minds of its consumers.

The Market
The value of the UK cereals market is around L1.1 billion per year. Kellogg’s has a 42%
market share of the value of the UK’s breakfast cereal market. The company has developed a
range of products for the segments within this market, targeted at all age groups over three
years old. This includes 39 brands of cereals as well as different types of cereal bars.
Consumers of cereal products perceive Kellogg’s to be a high quality manufacturer.

As the market leader, Kellogg’s has a distinct premium position within the market. This
means that it has the confidence of its consumers.

Developing an aim for a business

Today, making the decision to eat a healthy balanced diet is very important for many
consumers. More than ever before people want a lifestyle in which the food they eat and the
activities they take part in contribute equally to keeping them healthy.

Research undertaken for Kellogg’s, as well as comprehensive news coverage and growing
public awareness, helped its decision-takers to understand the concerns of its consumers.
In order to meet these concerns, managers realised it was essential that Kellogg’s was part
of the debate about health and lifestyle. It needed to promote the message ‘Get the Balance
Right’.

Decision-takers also wanted to demonstrate Corporate Responsibility (CR). This means that
they wanted to develop the business responsibly and in a way that was sensitive to all of
Kellogg’s consumers’ needs, particularly with regard to health issues. This is more than the
law relating to food issues requires. It shows how Kellogg’s informs and supports its
consumers fully about lifestyle issues.

Any action within a large organisation needs to support a business direction. This direction
is shown in the form of a broad statement of intent or aim, which everybody in the
organisation can follow. An aim also helps those outside the organisation to understand the
beliefs and principles of that business. Kellogg’s aim was to reinforce the importance of a
balanced lifestyle so its consumers understand how a balanced diet and exercise can
improve their lives.

Creating Business Objectives

Having set an aim, managers make plans which include the right actions. These ensure that
the aim is met. For an aim to be successful, it must be supported by specific business
objectives that can be measured.

Each of the objectives set for Kellogg’s was designed to contribute to a specified aim.
Kellogg’s objectives were to:
• encourage and support physical activity among all sectors of the population.
• use resources to sponsor activities and run physical activity focused community
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programmes for its consumers and the public in general.
• increase the association between Kellogg’s and physical activity.
• use the cereal packs to communicate the ‘balance’ message to consumers.
• introduce food labelling that would enable consumers to make decisions about the right
balance of food.

SMART objectives
Well-constructed objectives are SMART objectives. They must be:
➢ Specific
➢ Measurable
➢ Achievable or Agreed
➢ Realistic
➢ Time-related.

Each of the objectives set by Kellogg’s was clear, specific and measurable. This meant
Kellogg’s would know whether each objective had been achieved. The objectives were
considered to be achievable and were communicated to all staff. This made sure that all
staff agreed to follow certain actions to achieve the stated aims. The objectives were set over
a realistic time-period of three years. By setting these objectives Kellogg’s set a direction that
would take the business to where it wanted to be three years into the future.

Strategy
Having created an aim and set objectives, Kellogg’s put in place a process of planning to
develop a strategy and a series of actions. These activities were designed to meet the stated
aim and range of business objectives.

Supporting improved food labeling

In the area of food labelling, Kellogg’s introduced the Kellogg’s GDAs to its packaging,
showing the recommended Guideline Daily Amounts. These GDAs allow consumers to
understand what amount of the recommended daily levels of nutrients is in a serving of
Kellogg’s food.

Working with a group of other major manufacturers, Kellogg’s introduced a new format in
May 2006, with GDAs clearly identified on brand products and packages. These GDAs have
been adopted by other manufacturers and retailers such as Tesco.

Sponsoring swimming programmes

For many years Kellogg’s has been working to encourage people to take part in more
physical activity. The company started working with the Amateur Swimming Association
(ASA) as far back as 1997, with whom it set some longer term objectives. More than twelve
million people in the UK swim regularly.

Swimming is inclusive as it is something that whole families can do together and it is also a
life-long skill. The ASA tries to ensure that ‘everyone has the opportunity to enjoy swimming
as part of a healthy lifestyle’. As a lead body for swimming, the ASA has been a good
organisation for Kellogg’s to work with, as its objectives match closely those of the company.

Kellogg’s became the main sponsor of swimming in Britain. This ensured that Kellogg’s
sponsorship reached all swimming associations so that swimmers receive the best possible
support. Kellogg’s sponsors the ASA Awards Scheme with more than 1.8 million awards
presented to swimmers each year. This relationship with the ASA has helped Kellogg’s
contribute in a recognisable way to how individuals achieve an active healthy balanced
lifestyle. This reinforces its brand position.

Promoting exercise
Working with the ASA helped Kellogg’s set up links with a number of other bodies and
partners. For example, Sustrans is the UK’s leading sustainable transport organisation.
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Sustrans looks at the different ways that individuals can meet their transport needs in a
way that reduces environmental impact. It is the co-ordinator of the National Cycle Network.

This provides more than 10,000 miles of walking and cycle routes on traffic-free paths
throughout the UK. To meet its business objective of encouraging and supporting physical
activity Kellogg’s is developing a promotion for a free cyclometer which will be advertised on
television in 2007.

Walking is one of the easiest ways for people to look after themselves and improve their
health. To encourage people to walk more often, Kellogg’s has supplied a free pedometer
through an offer on All-Bran so that individuals can measure their daily steps.

During 2006 more than 675,000 pedometers were claimed by consumers. From a research
sample of 970 consumers, around 70% said they used the pedometer to help them walk
further. Kellogg’s Corn Flakes Great Walk 2005 raised more than L1 million pounds for
charity on its way from John O’Groats, through Ireland and on to Land’s End. In 2004,
630,000 people took part in the Special K 10,000 Step Challenge.

Kellogg’s in the community

Kellogg’s has also delivered a wide range of community programmes over the last 20 years.
For example, the Kellogg’s Active Living Fund encourages voluntary groups to run physical
activity projects for their members. The fund helps organisations like the St John’s Centre
in Old Trafford which runs keep-fit classes,badminton and table tennis.

Since 1998 Kellogg’s has invested more than L500,000 to help national learning charity
ContinYou to develop nationwide breakfast club initiatives. These include start-up grants for
new clubs, the Breakfast Club Plus website, the Kellogg’s National Breakfast Club Awards
and the Breakfast Movers essential guide.

Breakfast clubs are important in schools because they improve attendance and punctuality.
They help to ensure that children are fed and ready to learn when the bell goes. Kellogg’s
promotes breakfast via these clubs, not Kellogg’s breakfast cereals. Together Kellogg’s and
ContinYou have set up hundreds of breakfast clubs across the UK, serving well over
500,000 breakfasts each year.

Communicating the Strategy

Effective communication is vital for any strategy to be successful. Kellogg’s success is due to
how well it communicated its objectives to consumers to help them consider how to ‘Get the
Balance Right’. It developed different forms of communication to convey the message ‘eat to
be fit’ to all its customers.

External communication
External communication takes place between an organisation and the outside world. As a
large organisation, Kellogg’s uses many different forms of communication with its
customers.

For example, it uses the cartoon characters of Jack & Aimee to communicate a message
that emphasises the need to ‘Get the Balance Right’. By using Jack & Aimee, Kellogg’s is
able to advise parents and children about the importance of exercise. These characters can
be found on the back of cereal packets. The company has also produced a series of leaflets
for its customers on topics such as eating for health and calcium for strong bones. These
are available on its website.

Internal communication
Internal communication takes place within an organisation. Kellogg’s uses many different
ways to communicate with its employees. For example, Kellogg’s produces a house magazine
which is distributed to everybody working for Kellogg. The magazine includes articles on
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issues such as getting the balance of food and exercise right. It also highlights the work that
Kellogg’s has undertaken within sport and the community.

To encourage its employees to do more walking, Kellogg’s supplied each of its staff with a
pedometer. Such activities have helped Kellogg’s employees to understand the business
objectives and why the business has created them. It also shows clearly what it has done to
achieve them.

Conclusion
Research undertaken by Kellogg’s as part of the 2005 Family Health Study emphasised that
a balanced diet as well as regular exercise were essential for good all round health and
wellbeing. Kellogg’s is demonstrating good corporate responsibility by promoting and
communicating this message whenever it can and by investing money in the appropriate
activities. This was the broad aim. To achieve this aim, Kellogg’s set out measurable
objectives. It developed a business strategy that engaged Kellogg’s in a series of activities
and relationships with other organisations. The key was not just to create a message about
a balanced lifestyle for its consumers. It was also to set up activities that helped them
achieve this lifestyle.

This case study illustrates how consumers, given the right information, have made informed
choices about food and living healthily.

CASE STUDY -6

MCDONALD’S CORPORATION MICHAEL PORTER FIVE FORCES MODEL

Objective:
The objective of this case is to understand the application of competitive forces prevailing in
the burger market.

Introduction:
McDonald’s Corporation expands internationally through strategies that account for the
external factors in the industry environment, as identifiable through a Five Forces analysis
of the business. Michael E. Porter’s Five Forces Analysis model provides valuable
information to support strategic management, especially in addressing relevant issues in the
external environment of the business. These issues are based on external factors that
represent the degree of competitive rivalry in the industry, the bargaining power of
customers or buyers, the bargaining power of suppliers, the threat of substitution, and the
threat of new entrants.

Application of Porter’s Five Forces Model

In this Five Forces analysis of McDonald’s, the forces are mainly within the fast food
restaurant industry. As the leading restaurant chain business in the world, the company is
an example of effective strategic management, especially in dealing with competition in
different markets worldwide. This status shows that McDonald’s strategic direction is
appropriate to the external factors, such as the ones identified in this Five Forces analysis.

In addressing the external factors determined in this Five Forces analysis, McDonald’s
Corporation ensures that its strategies are appropriate to combat external forces. The
company faces pressure from various competitors, including large multinational firms and
small local businesses. McDonald’s Corporation’s generic strategy and intensive growth
strategies satisfy business needs in competing against such firms as Burger King, Wendy’s,
Subway, and Dunkin’ Donuts, as well as food and beverage businesses like Starbucks
Coffee Company.

In this Five Forces analysis, McDonald’s experiences the effects of external factors at varying
intensities, based on the variations among markets around the world. For example, the U.S.
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market presents a competitive landscape different from that of the European market. The
company must implement strategies to meet these external factors and minimize their
negative impacts. Considering the combination of market conditions, this Porter’s Five
Forces analysis of McDonald’s establishes the following intensities of the five forces:
1. Competitive rivalry or competition – High
2. Bargaining power of buyers or customers – High
3. Bargaining power of suppliers – Low
4. Threat of substitutes or substitution – High
5. Threat of new entrants or new entry – Moderate.

Competitive Rivalry or Competition with McDonald’s (High)

McDonald’s faces tough competition because the fast food restaurant market is saturated.
This element of the Porter’s Five Forces analysis model tackles the effects of competing firms
in the industry environment. In McDonald’s case, the strong force of competitive rivalry is
based on the following external factors:
➢ High number of firms – Strong Force
➢ High aggressiveness of firms – Strong Force
➢ Low switching costs – Strong Force

The fast food restaurant industry has many firms of various sizes, such as global chains like
McDonald’s and local mom-and-pop fast food restaurants. This external factor strengthens
the force of rivalry in the industry. Also, the Five Forces analysis model considers firm
aggressiveness a factor that influences competition. In this business case, most medium
and large firms aggressively market their products. This factor increases the intensity of
competitive rivalry that McDonald’s Corporation experiences. In addition, low switching
costs make it easy for consumers to transfer to other restaurants, such as Wendy’s and
Burger King. This external factor adds to the force of competition. Thus, this element of the
Five Forces analysis of McDonald’s shows that competition is among the most significant
external forces for consideration in the strategic management of the business.

Bargaining Power of McDonald’s Customers/Buyers (High)

McDonald’s must address the power of customers on business performance. This element of
the Five Forces analysis deals with the influence and demands of consumers, and how their
decisions impact businesses. In McDonald’s case, the following are the external factors that
contribute to the strong bargaining power of buyers:
• Low switching costs – Strong Force
• Large number of providers – Strong Force
• High availability of substitutes – Strong Force

The ease of changing from one restaurant to another (low switching costs) enables
consumers to easily impose their demands on McDonald’s. In the Five Forces analysis
model, this external factor strengthens the bargaining power of customers. In relation,
because of market saturation, consumers can choose from many fast food restaurants other
than McDonald’s. This condition makes the bargaining power of buyers a strong force in
affecting the company’s external environment. Moreover, the availability of substitutes is
relevant in this external analysis. In this case, the availability of many substitutes adds to
the bargaining power of customers. For example, substitutes include food kiosks and
outlets, and artisanal bakeries, as well as microwave meals and foods that one could cook at
home. Based on this element of Porter’s Five Forces analysis, it is crucial to develop
strategies to increase customer loyalty, especially in the face of the sociocultural trends
outlined in the PESTEL/PESTLE analysis of McDonald’s Corporation.

Bargaining Power of McDonald’s Suppliers (Low)

Suppliers influence McDonald’s in terms of the company’s production capacity based on the
availability of raw materials. This element of the Five Forces analysis model shows the
impact of suppliers on firms and the fast food restaurant industry environment. In
McDonald’s case, the weak bargaining power of suppliers is based on the following external
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factors:
• Large number of suppliers – Weak Force
• Low forward vertical integration of suppliers – Weak Force
• High overall supply – Weak Force.

The large population of suppliers weakens the effect of individual suppliers on McDonald’s
Corporation. This weakness is partly based on the lack of strong regional and global
alliances among suppliers. In relation, most of McDonald’s suppliers are not vertically
integrated. This means that they do not control the distribution network that transports
their products to firms like McDonald’s. In Porter’s Five Forces analysis model, such low
vertical integration weakens the bargaining power of suppliers. Also, the relative abundance
of materials like flour and meat reduces individual suppliers’ influence on the company.
Thus, this element of the Five Forces analysis shows that external factors combine to create
the weak supplier power, which is a minimal issue in strategic management. McDonald’s
corporate social responsibility strategy and stakeholder management approaches help in
addressing this force from suppliers.

Threat of Substitutes or Substitution (High)

Substitutes are a significant concern for McDonald’s Corporation. This element of Porter’s
Five Forces analysis model deals with the potential effects of substitutes on firm growth. In
McDonald’s case, the following external factors make the threat of substitution a strong
force:
• High substitute availability – Strong Force
• Low switching costs – Strong Force
• High performance-to-cost ratio of substitutes – Strong Force.

There are many substitutes to McDonald’s products, such as products from artisanal food
producers and local bakeries. Also, consumers can cook their food at home. In the Five
Forces analysis model, this external factor contributes to the strength of the threat of
substitution in the fast food service industry. In addition, it is easy to shift from McDonald’s
to substitutes because of the low switching costs. For example, shifting from the company to
substitutes typically involves insignificant or minimal disadvantages, such as slightly higher
costs per meal in some cases, or additional time consumption for food preparation.
Moreover, substitutes are competitive in terms of quality and customer satisfaction (high
performance-to-cost ratio). In this element of the Five Forces analysis of McDonald’s
Corporation, external factors make substitutes a major strategic issue that requires
approaches like product quality improvement. In relation, the company’s efforts include
encouraging people to eat in fast food restaurants instead of resorting to substitutes. Such
efforts are evident in McDonald’s corporate mission and vision statements.

Threat of New Entrants or New Entry (Moderate)

New entrants can impact McDonald’s market share and financial performance. This element
of the Five Forces analysis refers to the effects of new players on existing firms. In
McDonald’s case, the moderate threat of new entry is based on the following external
factors:
• Low switching costs – Strong Force
• Highly variable capital cost – Moderate Force
• High cost of brand development – Weak Force.

The low switching costs allow consumers to easily move from McDonald’s toward new fast
food restaurant companies. In Porter’s Five Forces analysis model, this external factor
strengthens the threat of new entrants. Also, variable capital costs of establishing a new
restaurant empowers new businesses to enter the global fast food restaurant industry. For
example, small restaurant businesses involve low capital costs compared to major
corporations in the market. This external factor leads to the moderate threat of new entry
against McDonald’s. On the other hand, it is expensive to build a stron g brand in the

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industry. Many small and medium businesses lack the resources to create a strong brand to
match the McDonald’s brand. Thus, the external factors in this element of the Five Forces
analysis shows that the threat of new entrants is a considerable but not the most important
strategic issue.

Recommendations:
The results of this Five Forces analysis show that McDonald’s Corporation needs to
prioritize the strategic issues related to competition, consumers, and substitutes, all of
which exert a strong force on the company and its external environment. The other forces
(the bargaining power of suppliers and the threat of new entrants) are also significant to the
business, although to a lower extent. In this regard, a recommendation is to strengthen the
business by building on the strengths of the business. The company’s managers must focus
on reducing the effects of competitors and substitutes on revenues and market share.
Studying the McDonald’s marketing mix or 4Ps partly supports such effort. Also, it is
recommended that McDonald’s make its product innovation process more aggressive. While
the food service industry is saturated with aggressive firms, new products can attract new
customers and retain more customers. In relation, based on this Porter’s Five Forces
analysis, McDonald’s can implement higher quality standards to address the forces of
competition and substitution.

CASE STUDY -7

ASHWAMEDHA RUDRAPEETH LIMITED

As the world is speedily inclining towards pure and organic products, the most ancient
science of medicine, healthcare, personal care, food and beverages, Ayurveda is reliving its
glory. Many recent studies and report clearly explain that the revival of Ayurveda is not
restricted to India and China but spreading across all continents, Ayurveda is successful in
creating domino impact all across the globe.

As per a market research, the Indian Ayurveda market is all set to register 16% growth
(CAGR) till 2025. At present, the size of the domestic market is Rs. 30,000 Crores, and
Ayurveda’s market penetration is increasing in both rural and urban areas. A 2019 report
also conveys that 77% of Indian households are using Ayurvedic products as against 69% in
2015. The major chunk of the domestic revenue (75%) comes from the sale of Ayurveda
products whereas services/consulting contribute only 25% to the total business. The
industry whose market size was USD 3.4 billion in 2015 is expected to reach USD 9.7 billion
by 2024. Growing awareness among masses about potential side effects of present day
modern medicine, healthcare, personal care, food and beverages on various media platforms
has compelled them to switch to natural safer, and holistic alternative, Ayurveda. The future
of Ayurveda is looking fabulous as more and more players are entering the market with
innovative products, quality packaging, and strategic marketing activities. Earlier, Ayurvedic
companies failed to impress customers with presentation and promotional activities, but the
new generation of entrepreneurs is smartly working on these aspects to partake in growing
market competition.

One of the major companies in Indian Ayurvedic Industry, Ashwamedha Rudrapeeth

Limited (ARL) was founded by Rudra and his friend. ARL is consumer product giant that is
beating the world’s most recognised FMCG companies in India. ARL has managed to expand
an empire so big that it is shaking the fast-moving consumer goods industry in India to its
core. It is no mean achievement for someone like Rudra, who does not have any formal
education on brand and marketing could beat world class brand in a very short span of 10
years. The answer lies at the core of building a brand – being “Purpose” driven. The objective
of ARL was to develop a holistic approach to improve the quality of life of all beings, world
over. It was conceived with the objective of amalgamating the ancient wisdom of the Science
of Ayurveda with the modern scientific techniques of industrial management. Its intention
was to distribute quality, tested and hygienic products with wide ranging effects to the
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largest section of populace at reasonable prices enabling the common citizen to avail their
benefits. It also aimed to establish Ashwamedha Ayurveda as a science based, inventional,
problem-solving, natural and trusted for healthy lives.

Rudra and his friend knew that they have created a captive market with their efforts since
last one and a half decade, which values health, yoga, pranayama and above all, Rudra has
become brand ambassador for ARL. This captive market is health conscious, looks out for
affordable products, believes in the philosophy of swadeshi (home grown) and above all
considers Rudra as their idol. When Ashwamedha Ayurveda launched its products in the
Indian retail sector, this captive market was among the first to buy and use its products.
This captive market developed instant loyalty to Brand Ashwamedha. The role of this captive
market was not only limited to buying, using and spreading good word of mouth about ARL
products but they also became partners with ARL by becoming their franchisees. In the
initial days’ majority of the franchisees established by ARL came from this captive market.
These franchisees along with the distribution of products also advertised and promoted ARL
products in their respective regions, hence establishing brand Ashwamedha firmly into the
mind of local populace. When compared to an FMCG multinational which uses a traditional
distribution channel, ARL followed a different distribution strategy, effective in catapulting it
to its present position. Presently, Ashwamedha’s turnover stands close to Rs.7000 Crore
with a mammoth goal of reaching close to Rs.10,500 Crore in Financial Year ending 2024
and close to Rs. 21,000 Crore by Financial Year ending 2025. Ashwamedha Ayurveda’s
value creation and delivery strategy encompassing both the Strategic and Tactical Marketing
is instrumental in making it a force to reckon with in the Indian FMCG industry.

ARL’s target segment comprise of health-conscious people who prefer “value for money”
natural products. ARL has products targeted at children (health drinks) and elderly people
(some ayurvedic preparations). Almost all products of ARL are affordable (at a price 15%-
30% lower than the competition), hence the income segmentation strategy has worked.

Initially, the products were targeted at lower and middle-income groups but with the present
turnover of close to a billion dollars this fiscal, it is evident that ARL’s products have buyers
not only from the lower income and middle-income segments but also from health conscious
upper-middle and upper-income segments. These two segments have found value in ARL’s
natural and ayurvedic products. ARL’s market targeting strategy is that of “Selective
Specialization” as they cater to a large segment in their market but not the entire market.
The company is planning to venture into packaged cow milk, ‘Khadi’ and animal feed this
year. Ashwamedha uses natural ingredients and herbs to manufacture its products. They
have state of the art Research and Development (R&D) facility, involved in the latest
research on products which can benefit their target market. It has few star products in its
product portfolio. Ashwamedha’s cow ghee, Shampoo, Hair care and oral care products have
a combined tumover more than Rs.1500 Crore. One of the reasons Ashwamedha Ayurveda
has been able to garner market share so rapidly is because of low lead times between the
product concept and product launch. Ashwamedha Ayurveda’s R & D team has been able to
produce high quality products at low price in short duration. Ashwamedha Ayurveda’s
products are generally economically priced except for Ashwamedha Cow Ghee. This is sold
at a premium in the market, every other product has a market penetration pricing strategy.
The pricing strategy has helped Ashwamedha establish itself in the marketplace.
Established brands which did not consider it as a competition initially, are now forced to sit
and take note of it. Its core values are driven by Rudra’s beliefs and hence there is no
difference between the two. What drives Rudra, drives brand Ashwamedha Ayurveda.

Ashwamedha uses multiple distribution channels to cater to the market. Company has 2
Lakh outlets in India. ARL has a strong presence in the market through its 1200
Chikitsalayas, 2500 Arogya Kendras. For Rural market they have got 7000 stores in villages
and 5600 marketing vehicles which roams across all villages. ARL also plans to establish
250 mega stores in tier 1 and tier 2 cities in next 3 years. ARL also has a tie -up with
behemoths of modern retail Groups, which carry its entire product range in their exclusive
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retail chain across all stores in the country. ARL has embraced the e-commerce mode of
retailing products through Ashwamedhaayurved.net and has a strong presence in the
modern retail format. Rudra through his Yoga Camps not only talks about the different Yoga
postures and their benefits in curing the diseases but also about the Ashwamedha Ayurved
products aiding in a healthy lifestyle and a disease-free life. This is one of the most potent
promotion tools used by ARL. Word of mouth communication certainly has a higher
believability factor compared to other mediums of advertising. Rudra has created a strong
community of loyalists through the efforts of Ashwamedha Yogapeeth Trust and Yoga
Camps, which speak very high of Rudra and Ashwamedha products. Recently, Ashwamedha
Ayurveda has seen a spurt in its promotional outlay. Ashwamedha Ayurveda has its channel
on YouTube which features more than 1000 videos on Yoga and on product information.

Ashwamedha has made disruptive progress in the FMCG sector. Within a span of less than
10 years, it has displaced ayurvedic market leaders and has become synonymous with
ayurvedic products. Rudra’s charisma has pushed Ashwamedha to grow over 10 times in a
span of less than 10 years. The FMCG giants are also taking steps to check its
advancements. However, now it has gained public attention in the market and there is
overwhelming demand for its products, it will be difficult for them to win back their lost
market shares.

Case Questions for discussion:

(a) A successful business strategy is a combination of multiple elements. Explain.
(b) What do you understand by SMART objectives ? Elucidate in background of ARL’s
objectives.
(c) ‘Focus on quality and quantity of offerings while assuming that customers will seek out
and buy reasonably priced, well-made products’. Comment.
(d) “A communication strategy is designed to help you and your organization communicate
effectively and meet core organizational objectives”. Is the communication strategy of
Ashwamedha Ayurveda effective ?

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