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UNIT 1
Business Policy Introduction to BusinessPolicy & Strategic Management
Meaning
It refers to those set of perspective management measures
taken with a view to ensuring the survival and long term
success of an enterprise in a competitive environment
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Origin of Strategic Management
• The term is derived from the ancient
Anthenian position of ‘strategos.’ Strategos
was a compound of ‘Stratos’ which meant
army & ‘agein’ ‘to lead’.
• ‘Strategy’ as defined in the 1st century as
‘everything achieved by a commander, be it
characterized by foresight, advantage,enterprise, or a resolution’
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• 1970s & 1980s , a distinct academic field as
researchers began to study companies,
managers, & strategies.
• Two camps were evolved one for process (formed
and implemented) & other on content of
strategic mgmt(strategic choice & performance).
• 1980s strategic was used as a personal missionstatement of CEO’s, rationalized by board &
bought into the chief shareholders.
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• More line managers were becoming responsiblefor planning & strategies, decisions startedaffecting strategy.
• During this period the researchers & scholarsgave a broader emphasis into change the nameof the course from business policy to strategicmgmt.
• In Harvard business school, where it is a course,
the first half of the course considers theformulation of effective strategies, & second halffor implementation of the selected strategy
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• Terms such as Strategic mgmt, corporate
strategy & corporate planning are used
interchangeably. However, a distinction can be
drawn between them.eg. CRL
• Japanese practices such as TQM by using best
practice, competition based on operational
effectiveness (no strategic development)
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Definition
• Guleck defines strategy as a “unified,comprehensive & integrated plan relating thestrategic advantages of the firm to the challenges
of the environment. It is designed to ensure thatthe basic objectives of the enterprise areachieved”
• Strategic Management is defined as “that set of
decisions and actions which leads to thedevelopment of an effective strategy or strategiesto help achieve corporate objectives.”
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Key parts of definition of strategic
mgmt. are..
• It helps a company to reach its goals
• It is comprehensive, it covers all major aspects
of enterprise.
• In involves decisions & actions
• It is not a single, simple action but a series of
related decisions & actions• It should match the strength & weaknesses
with the environment opportunities & threats.
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Some related concepts
Strategic Planning & Tactical Planning:
• Strategic Planning is a process by which topmgmt determine organizational objectives,
strategies needed to reach these objectivesand short-range, top level actions necessary toimplement the strategy properly
•
Tactical Planning on the other hand refers toshort-range planning that is oriented towardsoperations & short-term details.
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Formal & Informal planning
• Formal –in a organized and formalized way
generally in large organization.
• Informal- commonly with small enterprises,
and sometimes with one man dominated not
so small enterprises, it is in casual way
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Enterprise strategy
• It is the organization’s plan for establishing the
desired relationship with other social
institutions and stockholder group and
maintaining the overall character of the
organization
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Policy
• A policy is a broad, general guide to action
which constrains or directs goal attainment.
They provide the boundaries within which the
objectives must be pursued. It serve to
channel and guide for implementation of
strategies
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Strategic Business Unit
• It is an operating divisions of a firm which
serves a distinct product/market segment or a
well defined set of customers or a geographic
area.
• There are different factors which decides
SBUs. Each product line or a group of related
product lines may form an SBU.
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Core Competence
• They are the collective learning in an
organization, especially how to coordinate
diverse production schemes & integrated
multiple streams of technologies.
• Eg. Assets, infrastructure, privilege access and
protected market are not core competencies
even though they may lead to higher than aaverage profits under some circumstances.
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Classes of Decision
• Operating Decisions: eg. Production,
inventory, marketing policies etc.
• Strategic decisions: expansion strategy,
marketing strategy, finance strategy etc.
• Administrative decisions: resource acquisition
& development, financing facilities and
equipment, personnel, raw materials etc.
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Need for Strategy
• Provide direction
• Helps in decision making
•
Co-ordination among all strategic initiatives• Optimal resource allocation
• Act as a pre-program/guide
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Need for Strategic Management
• Different School Thoughts
A. Formal vs. informal process
• Formal maintains disciplines, stricter review of
performance, unambiguous responsibility etc.
B. Differentiated vs. integrated tasks
split between those who formulate the policy
and those who implemented
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Benefits and Relevance of Strategic
Management
1. Envision an organization’s future
2. Articulation of the mission & objectives3. Facilitates better delegation, coordination,
monitoring etc.
4. Guide to take measures
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1. SWOT analysis
2. Constant monitoring
3. To meet competition4. Make Management dynamic, appropriate to
the environment
5. It is more effective than others (who do notfollow strategy)
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Misgivings
1. Based on fixed premises
2. SWOT analysis
3. Reflects in Mission & Objectives4. Over-ambitious
5. Opportunities are overlooked
6. Very rigid7. Results depends on implementation
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• 8. Lack of Commitment
• 9. Resistance to Management of Change
•
10. Requires expertise• 11. Expensive
• 12. May leads to failure of Firms
• 13. Misconception of the concepts
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Strategic Management Process
• Strategy Formulation
• A. Determination of Mission & Objectives
• B. SWOT analysis
• C. Strategic alternatives
• a. evaluation & choice
• b. suitability
• c. feasibility
• d. acceptability
D. Implementation
E. Evaluation & control
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Unit II
Strategic Intent
• Meaning of the term ‘Mission’:
The term mission, objectives and goals are
terms used many a time interchangeably.
However, in corporate literature they are often
used distinctively. Mission leads to objectives,
objectives leads to goals and goal leads to
targets(which are set to achieve the goals)
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Meaning of the term Mission
• A mission statement is an enduring statementof purpose that distinguishes one businessfrom other similar firms.
• A mission statement identifies the scope of afirms operations in product and market terms
. Mission is also know as vision, value statement
& principles• Mission & Vision are often used as
synonymous, mission evolves from the vision
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• Fred David observes, a mission statement
reveals the long term vision of an organization
in terms of what it wants to be and whom it
wants to serve. It describe an organization’spurpose, customers, products or services,
markets, philosophy, and basic technology
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• According to McGinnis, a mission statement:
1. should define what the organization is andwhat the organization aspires to be
2. should distinguish a given organization fromall other
3.Should serve as a framework for evaluating
both current and prospective activities4.Should be stated in such a manner that, it is
understood throughout the organization.
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Elements of Mission statement
1. Clearly Articulated: easy to understand so thatthe values of the organizations are clear toeverybody
eg. O.P. Jindal group, to be a globallycompetitive player with a burning desire tobecome the no 1 in the steel industry
2. Relevant: should be appropriate to theorganization in terms of its history, culture andshared values.
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3. Current: environmental factors andorganizational factors may necessitatemodification of the mission.
4. Written in a positive(inspiring) Tone: Astatement should be capable on inspiring andencouraging commitment towards fulfillingthe mission.
5. Unique: it should establish the individuality, ifnot uniqueness, of the company
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• 6. Enduring: it should continually guide and
inspire & be challenged in the pursuit of its
mission, never achieving its ultimate goal.
• 7. Adapted to the Target Audience: the target
audience has a bearing on the length, tone &
visibility of the statement.
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Formulation & communication of
Mission
• Founders establish the mission
• In some cases CEO & BOD or a committee
constituted for this purpose
• Joint consultation
It is communicated to the employee through
purposive meetings, notice boards, company
news letters, conversations, other meetings,
letters & badges.
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Mission & Strategy
• Sets direction for the strategy
• Focuses the organization on action
•
It creates disciplined organization• Mission statements are the operational,
ethical and financial guiding lights of
companies.
• Defines companies business
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Suggestion by Drucker
• What is our business?
• What will our business be?
• What should our business be?
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Vision
Johnson: vision is “a clear mental picture of a
future goal created jointly by a group for the
benefit of other people, which is capable of
inspiring & motivating those whose support isnecessary for its achievement”
Shoemaker: vision is “the shared understanding
of what the firm should be & how it mustchange”.
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Characteristic of Vision
1. Possibility
2. Desirability
3. Actionability
4. Articulation
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Effective Vision Statement
• Must be easily communicable
• It must be graphic
• It must be directional
• Must be focused
• Must be appealing to(long term interest of
stakeholders)• Must be flexible
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Some leading examples of Vision
Statements
• “A Coke within arm’s reach of everyone on the
planet”(Coca Cola)
• “Become a Premier Company in the
World”(Motorola)
• “Eliminate what annoys our bankers and
Customers”(Texas Commerce Bank)
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How Does Vision Compare
Vision: Paints a picture of the future & is
inspirational
Mission: it Depicts what the organization is &
does not where it is headed in future
Philosophy: it articulates values & beliefs of an
organization without prescribing
what the future will look like
Goals & strategy: it defines specific outcomes.
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Importance of Vision
• A basis for performance
• Reflects core values
• Way to communicate
• A desirable challenge
• Beacon
•Helps to prepare for future
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Advantages of Vision
• Long-term thinking
• Creates a common identity and a shared sense
of purpose
• It is inspiring & exhilarating
• A good vision is competitive, original & unique
•
It represent integrity
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Vision Failure
• Too specific
• Too vague
• Too inadequate
• Too unrealistic
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Objectives, Goals & Targets
• Objectives may be defined as “those ends
which the organization seeks to achieve by its
existence and operations”
• 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” • Targets : referred to as specific goals
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IMPORTANCE OF OBJECTIVES
1. Justify the Organization: indicated the
purpose & aims for the existence of anorganization
2. Provide Direction: it should be clear as itaims to direction for achievement of thecommon purpose.
3. Basis for MBO: clearly formulated objectivesform the basis for MBO which is a way ofmgmt for results.
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4. Help Strategic Planning/ Management: it is a
means to achieve the objectives.
5. Help Co-ordination: objectives helps co-
ordinate decisions and decision-makers by
directing
6. Provide standard for assessment & Control:
without objectives, the organization has noobjectives basis for evaluating its success
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7. Help Decentralization: By making clear the
organizational objectives to various elements
in the organization.
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Guidelines for Ideal objectives
a. Participation
b. Clarity
c. Realism
d. Flexibility
e. Consistency
f. Ranking
g. Verifiability
h. Balance
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Factors affecting objectives
A. External Environment
• Government Policy
• Market Structure
• Competitors
• Legal restriction
•Political environment
• Social responsibilities
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• B. Internal environment
• Enterprise’s resources
• Internal Power
• Shareholders
• Management
•
Employee
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Promoter’s Vision
& value
Stockholder’s
Expectation
Environmental
factors
Mission
Corporate Objectives
SBU objectives
Departmental Objectives
Divisional objectives
Individual Objectives
Hierarchy of Objectives
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Classification of Objectives
• Economic objectives
1. Survival
2. ROI
3. Growth
4. Innovation
5. Market share
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Social objectives
• Towards consumers
• Towards employee
• Towards society
• Towards Govt.
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Primary & secondary Objectives
• Primary objectives:
1. Development & Expansion
2. Returns to Shareholders & employees
3. Reduction on price for consume
Secondary objectives
1. Bonus to workers
2. Promote education, R&D etc.
3. Assistance in developing the industry
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Short-run & long-run objectives
• Short-run objectives may be a means to
achieve long-run objective
• Long-run objectives example R&D
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Meaning of Goals
• A goal is considered to be an open-ended
statement of what one wants to accomplish
with no quantification of what is to be
achieved and no time criteria for itscompletion.
• ‘Increased Profitablity’
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Goals & Objectives
• General
• Qualitative
• Broad organization- Wide
target• Long term results
• Eg. Growth, efficiency,
profitability, utilization of
resources etc.
• Specific
• Quantitative, measurable
• Narrow targets set by
operating division• Immediate, short term
results
• Eg. 20% growth, 10%
efficiency, 100%utilization of resources
etc.
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Meaning of Strategic Intent
• A company with an ambitious goal with its full
resources and action on achieving the goal or
becoming a dominant company in the
industry, offering best customer service thatno one can surpass etc.
• Such strategic indent required sustained
efforts for a number of years to achieve them.
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Some leading examples
• Nike’s strategic intent during 1960’s was to
overtake Adidas, which they ultimately
achieved
• Wal-Mart’s strategic indent was to “overtake
Sears” as the largest American retailer, which
they achieved in 1991
• Honda’s strategic indent was “to crush, squash& slaughter Yamaha”.
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Corporate Strategy Formulation
• Four Basic Approaches for Strategy
Formulation
1. The Design approach
2. The Learning/ Experience Approach
3. The Power Approach
4. The Ideas Approach
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The learning/Experience approach
• It is dynamic in nature, flexible
• Once the organization has adopted particularstrategy, it tends to develop from & within that
strategy.• A strategy in such organization is not pre-
planned, rather it develops on the basis of aseries of action.
• It is the outcome of individual & collectiveexperience & cultural processes in & aroundorganization
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Power Approach
• This approach perceives strategy formulation as anegotiating process, intra-organizational politics &power.
• Lindbloom(1959) was an early proponent of this
approach he drew attention to the ways in which value judgments influence the planning process.
• On these observations, the power view argues thatstrategy-making is not a scientific, comprehensive or
rational process, but a negotiated process,characterized by restricted analysis & bargainingbetween the players involved.
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Ideas approach
• This approach sees strategy as emerging from
innovation that comes from the variety &
diversity which exist in & around
organizations.
• New ideas come, not from the top, but quite
likely from lower down in the organization.
More the experience more will be innovation.
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Summary of Strategic Approach
Design
Approach
Learning
Approach
Power Approach Ideas approach
It develops
through a
rational,
analytical,
structuralapproach
Change comes
from
implementatio
n of plannedstrategy
It develops
based on
individual &
collective
experience
Change is
incremental
with
resistance tomajor change
It develops through
the process of
bargaining &
negotiation among
powerful interestgroups
Incremental change
is adaptive
It develops through
innovation arising out
of variety & diversity
in & around the
organization
Change is incremental
but occasionally
sudden
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Conclusion
• Form the above discussion it may be notedthat design approach which emphasizesanalysis & control, is the orthodox approach.
•Other approaches are important as they posesignificant challenges in thinking about &managing Strategy.
• Learning approach highlights how strategiesare develop incrementally based onexperience
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• Power/political approach emphasizes how
strategies are the outcome of processes of
bargaining & negotiation among powerful
internal & external group.• Ideas approach helps an understanding of
where innovative strategies come from & how
organization cope with dynamic environment.
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Corporate Governance
• Defined as “the relationship among variousparticipants in determining the direction &performance of corporation”
•Participants being : SH, Mgmt, BOD.
• It also encompasses the combination of law,regulation, voluntary corporate practices thatenable the corporation to attract
• Capital, Perform Efficiently, achieve corporateobjectives, meet obligations.
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Importance of Corporate Governance
• Promote efficient use of Resources
• Compliance with laws, regulation &
expectation of society
• Reduce corruption in business dealings
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Need for Corporate Governance
• Attract investor
• Create competitive & efficient enterprises
• Enhance accountability
• Promote efficient & effective use of limited
resources.
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4 Pillars of Good Governance
1. Fairness
2. Transparency
3. Accountability
4. Responsibility
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Corporate Philosophy
• Corporate Philosophy (or creed) establishes
the values, belief, and guidelines for the
manner in which the organization is going to
conduct its business.• The most important factor in corporate
success is faithful adherence of these beliefs.
• It establishes the relationship between theorganization & its stakeholders.
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Corporate Culture
• Meaning
It is an organization comparable to personality ina person. Humans have fairly enduring &
stable traits that help them protect theirattitudes & behaviors. So do organizations.
It refers to the collective assumptions & beliefsof an organization’s employees that shape thebehavior of individuals & groups in theorganization
Developing Corporate/ organizational
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Developing Corporate/ organizational
Culture
• Origin of Organizational Cultures
a) History
b) Environment
c) Staffing Process
d) Socialization Process
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2. Identifying Organizational Culture:
a. Industrial Autonomy: independence, opportunities
b. Structure: Rules & Regulation
c. Support: Assistance & Warmth
d. Identification: employees identification towards co.
e. Performance Record: Salary, promotion etc.
f. Conflict Tolerance: degree of tolerance between peers
& work groupg. Risk Tolerance: encouragement to innovation.
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3. Changing corporate Culture:
Difficult task
Clear written statement of corporate philosophy
Important to practice, not just preached
Change the senior Management
Unit III
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Unit III
Internal & Environmental Analysis
• The organization in which organization
operates consists of two parts
1. External
2. Internal
Characteristics of Business
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Characteristics of Business
Environment
• Complex
• Dynamic
• Uncertain
• Turbulent (unpredictable)
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Environmental Analysis
• It is the process of monitoring the events &evaluating trends in external environment, toidentify both present & future opportunities &
threats that may influence the firm’s ability toreach its goal.
• It is from such an analysis that manager canmake decisions on whether to react to, ignore,
or try to influence or anticipate futureopportunities & threats discovered
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Opportunities & Threats
• Opportunities: “Attractive arena for company’s
action in which the particular company would
enjoy competitive advantage”
• Threats: Unfavorable situation in a firm’senvironment that creates a risk or cause
damage to the organization.
Importance of ENVIRONMENTAL
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Importance of ENVIRONMENTAL
Analysis
1. Helps to perceive opportunities & threats
2. Provides information on the nature of
competition
3. Avenues for productive cooperation
4. To assess their impact & influence
5. Adapt company’s direction & strategy as
needed
6. To set appropriate objectives
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7. To analysis & evaluate strategic alternative
8. To work out networks & cooperative ventures
9. To avoid strategic surprise & to ensure long
term health.
Environmental forecasting( inputs to
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Environmental forecasting( inputs to
forecasting)
Environment
Scanning
Environment
monitoring
Environment
intelligence
Forecast
C i
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• Environment Scanning: involves surveillanceof a firm’s external environment to predictchanges to come.
•
Environmental Monitoring: tracks the trends,sequence of events or stream of activities.
• Competitive intelligence: it provides criticalinformation on competitors, & helps a
company to avoid surprises by anticipatingcompetitor’s moves.
F f i l l i
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Features of environmental analysis
• Holistic exercise
• Continuous Activity
• Exploratory Process
C f E l E i
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Components of External Environment
• Mega or Macro environment1. Legal
2. Political
3. Economic
4. Technological
5. Socio-cultural
6. Demographic
7. Ecological
O i l i
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Operating or relevant environment
1. Suppliers
2. Markets intermediaries
3. Competition
4. E-commerce
5. Skill level of workforce
6. Financial institution7. Regulatory provision
I d d C i i i
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Industry and Competitive environment
• Structure and characteristic of the industry
• Competitive forces
Mi h l P t Fi F M d l
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Michael Porter Five Forces Models
Porter five forces analysis is a framework for industryanalysis and business strategy development . It drawsupon industrial organization (IO) economics to derivefive forces that determine the competitive intensityand therefore attractiveness of a market.
Attractiveness in this context refers to the overall industryprofitability. An "unattractive" industry is one in whichthe combination of these five forces acts to drive downoverall profitability. A very unattractive industry would
be one approaching "pure competition", in whichavailable profits for all firms are driven to normal profit
P t ’ Fi F M d l
http://en.wikipedia.org/wiki/Industrial_organizationhttp://en.wikipedia.org/wiki/Industrial_organizationhttp://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Industrial_organization
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Porter’s Five Forces Model
Bargaining PowerOf Suppliers
• Threats of new
entrant
Threats of SubstituteProducts or service
Potential
Entrants
Buyers
IndustryCompetitors
Rivalry among
existing firmsSuppliers
Sustitutes
C ti
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• Three of Porter's five forces refer to competitionfrom external sources. The remainder are internalthreats.
• It consist of those forces close to a company that
af fect its ability to serve its customers and makea profit. A change in any of the forces normallyrequires a business unit to re-assessthe marketplace given the overall change
in industry information. The overall industryattractiveness does not imply that every firm inthe industry will return the same profitability
C ti
http://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Marketplacehttp://en.wikipedia.org/wiki/Industry_informationhttp://en.wikipedia.org/wiki/Industry_informationhttp://en.wikipedia.org/wiki/Industry_informationhttp://en.wikipedia.org/wiki/Industry_informationhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Firmhttp://en.wikipedia.org/wiki/Industry_informationhttp://en.wikipedia.org/wiki/Marketplacehttp://en.wikipedia.org/wiki/Profit_(economics)http://en.wikipedia.org/wiki/Company
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• Porter's five forces include - three forces from'horizontal' competition: the threat of substitute
products or services, the threat of established
rivals, and the threat of new entrants; and twoforces from 'vertical' competition: the bargaining
power of suppliers and the bargaining power of
customers.
•
Ad t f M d l
http://en.wikipedia.org/wiki/Bargaining_powerhttp://en.wikipedia.org/wiki/Bargaining_powerhttp://en.wikipedia.org/wiki/Bargaining_powerhttp://en.wikipedia.org/wiki/Bargaining_power
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Advantages of Model
• It is a powerful tool that helps managers tothink strategically
• it leads managers to think systematically
about the way their strategic choices will beaffected by the forces of competition & howtheir choices will affect the five forces &change conditions in the industry.
• Helps in improvement of firm’s competitivepositions
C ti
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• Helps in taking long term decisions
• Helps in resource planning
C iti l A t f P t ’ M d l
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Critical Assessment of Porter’s Model
• It is based on assumption of Industrialorganization perspective on strategy as
opposed to the resources based view (RBV) of
the firm• It does not take into the fact that some firms,
most notably the large ones, can take step to
modify the industry structure, there byincreasing the prospects for profits.
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• It overlooks the many potential benefits ofdeveloping constructive win-win partnershipswith suppliers & customers.
•
A firm that competes internationally must beconcerned with multiple industry structures.
• The nature of industry competition in theinternational area differs among nations, &
may present challenges that are not present ina firm’s host country
Internal Analysis
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Internal Analysis
• It is referred to as “internal appraisal”,“organizational audit”, internal “corporate
assessment” etc.
• Research has shown that the overall strength& weaknesses of a firm’s resources &
capabilities are more important for a strategy
than environmental factors.
Importance of Internal Analysis
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Importance of Internal Analysis
• To find where it stands in terms of itsstrengths & weakness
• To exploit the opportunities that are in line
with its capabilities
• To correct important weaknesses
• To defend against threats
• To asses capabilities gaps & take steps to
enhance its capabilities
Strength & Weaknesses Meaning
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Strength & Weaknesses Meaning
A. Strengths: these are the resources, skills orother advantages a firm enjoys relative to its
competitors.
• It is also something a company is good atdoing. These are
1. A skill or an important attribute
2. Valuable physical assets
3. Valuable intangible assets etc.
Weaknesses
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Weaknesses
B. It is limitation or deficiency in resources, skills& capabilities that seriously impede effectiveperformance.
•
It is a constraint or an obstacle that checksmovement in certain direction, and may alsoinhibit organization in gaining a distinctiveadvantage. A weaknesses can be
1. Inferior skills or lack of expertise
2. Lack of intellectual capital.
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• 3. deficiencies in physical, organizational orintangible assets.
• 4. inferior capabilities in key functional areas
• “While a company’s resource strengths
represent competitive assets, its resource
weaknesses represent competitive liabilities”
Internal Organizational Analysis
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Internal Organizational Analysis
1. Financial position2. Product position
3. Marketing capability
4. R&D capability5. Organizational structure
6. Human resources
7. Conditions of facilities & equipments8. Past objectives & strategies
Strength Weaknesses
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Brand image
High quality products
Latest technology
High intellectual capital
Cordial industrial relations
Weak distribution network
Narrow product lines
Rising costs
Poor marketing plan
Opportunities
New market
Profitable new acquisitions
R&D skills in new areas
New businesses
Threats
Increase in competition
Barriers to carry
Change in consumer tastes
New or substitutes products
Threats of takeover
Critical assessment of SWOT analysis
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Critical assessment of SWOT analysis
i. Basic technique for analyzing
ii. Act as a raw material for analyzing
iii. Aid to strategic analysis
iv. Summarizes key issues
v. Basis for judging future courses of action
vi. Understand opportunities