EDU91

संजीवनी बट
ू
CA Inter SM Book

Neeraj Arora
सीखना शु तो जीतना शु

Page No. 1 of 247

Applicability- For May 2023 & Nov 2023 Exams

Teacher- Neeraj Arora

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 About the Faculty: Neeraj Arora

Neeraj Arora is an Indian Teacher & an Angel Investor.

By far, he has taught more than 1,00,000 students of

CA, ACCA, CS and CMA.

He has invested in around 8 Start-ups.

Subjects he is passionate to teach are Income Tax,

GST, Audit and Strategic Management.

Besides teaching the subjects in the course

curriculum, he is always keenly interested in learning
and teaching about Personal Finance including
Investing in Stock Markets, Habit Building, Meditation.

He is one of the most loved CA and ACCA faculty in India.

Currently, he is teaching-
● CA Inter Income Tax, GST, Audit and Strategic Management at www.edu91.org
● ACCA Business & Technology, Audit & Assurance and Strategic Business
Leader at www.learn91.com
● Excel, Time Management, Habit Building, Meditation at www.skill91.com
● Personal Finance, Investing in Stock markets at www.learnpersonalfinance.in

He has been invited to speak on topics related to Career Building, Stock markets in
various Events, Seminars etc organised by Colleges, Universities and institutions like
SRCC, Sri Venkateshara, ICAI, ICSI, HSNC University & many more.

He has also authored a simple book focussed on first principles of life with the
name of “Neeraj Arora Reflections”.

Cumulatively his social media following is above 2 million.

You can follow him on

Linkedin - https://in.linkedin.com/in/neerajarora91
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 Initiative for Students By Neeraj Arora

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 CA Inter SM Book by Neeraj Arora
Index
Chapter No. Chapter Name Page No.

1 Introduction to Strategic Management 3

2 Dynamics of Competitive Strategy 22

3 Strategic Management Process 69

4 Corporate Level Strategies 94

5 Business Level Strategies 128

6 Functional Level Strategies 151

7 Organisation and Strategic Leadership 186

8 Strategy Implementation and Control 213

 Chapter 1 - Introduction To Strategic Management

Chapter 1
Introduction To Strategic Management

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 Chapter 1 - Introduction To Strategic Management

Strategy

However, strategy is no substitute for sound, alert and responsible management.

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 Chapter 1 - Introduction To Strategic Management

Strategy can never be perfect, flawless and optimal.

○ It is in the very nature of strategy that it is flexible and pragmatic;
○ it is art of the possible;
○ it does not preclude second-best choices, trade-offs, sudden emergencies,
pervasive pressures, failures and frustrations.
○ That is why in a sound strategy, allowances are made for possible
miscalculations and unanticipated events.

Strategy is partly proactive and partly reactive

A company’s strategy is typically a blend of
● proactive actions on the part of managers
○ to improve the company’s market position and
○ financial performance and
● reactions to
○ unanticipated developments and
○ fresh market conditions.
● In other words, a company uses both proactive and reactive strategies to cope up with
the uncertain business environment.
● Proactive strategy is planned strategy whereas reactive strategy is adaptive reaction
to changing circumstances.

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 Chapter 1 - Introduction To Strategic Management

Management

Strategy is partly proactive and partly reactive. Discuss.

(RTP, May 2018, NA) (SA, Nov 2018, 5 marks) (MTP 1, Nov 2019, 5 marks) (RTP, Nov 2020, NA)
(MTP 1, May 2021, 5 marks) (Study Material)

Correct / Incorrect
Every strategic move is the result of proactive planning.
(MTP, May 2018, 2 marks)

Yummy Foods and Tasty Foods are successfully competing in the business of ready to eat snacks in
Patna. Yummy has been pioneer in introducing innovative products. These products will give them good
sale. However, Tasty Foods will introduce similar products in reaction to the products introduced by
the Yummy Foods taking away the advantage gained by the former.
Discuss the strategic approach of the two companies. Which is superior?
(RTP, Nov 2018, NA) (MTP 1, Nov 2021, 5 Marks) (Study Material)

Which of the following statement is not true with regards to strategy?

(a) Strategy reduces uncertainty.
(b) Strategy is long range blueprint of desired position.
(c) Strategy relates organisations to the external environment.
(d) Strategy is perfect and flawless.

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 Chapter 1 - Introduction To Strategic Management

(RTP, May 2019, NA)

Strategy helps in:

a. Unravelling complexity
b. Reduce uncertainty
c. Relate the goals with the resources.
d. All of Above.
(MTP 2, May 2019, 1 mark)

Strategy is-
(a) Proactive in action
(b) Reactive in action
(c) A blend of proactive and reactive actions
(d) None of the above
(RTP, May 2020, NA)

Which of the following is correct?

(a) Strategy is always pragmatic and not flexible
(b) Strategy is not always perfect, flawless and optimal
(c) Strategy is always perfect, flawless and optimal
(d) Strategy is always flexible but not pragmatic
(MTP 1, May 2021, 2 marks)

ALBELA' Foods and 'JustBE' Foods are successfully competing chain of restaurants in India. ALBELA'
s are known for their innovative approach, which has resulted in good revenues. On the other hand,
JustBE is slow in responding to environmental change. The initial stages of Covid-19 pandemic and
the ensuring strict lockdown had an adverse impact on both the companies. Realizing its severity and
future consequences. ALBELA, foods immediately chalked out its post lockdown strategies, which
include initiatives like:
(a) Contactless dinning
(b) New category of foods in the menu for boosting immunity
(c) Improving safety measures and hygiene standards
(d) Introducing online food delivery app
Seeing the positive buzz around these measures taken by ALBELA Food, JustBE Foods also thinks to
introduce these measures.
(i) Identify the strategic approach taken by 'ALBELA' Foods and 'JustBE' Foods.
(ii) Discuss these strategic· approach.
(iii) Which strategic approach is better and why?
(SA, May 2021, 5 marks)

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 Chapter 1 - Introduction To Strategic Management

An organisation during its strategy planning envisaged entire scenarios and created a strategy
framework. But in mean time after implementation, it realised that its framework is not effective in
certain unique scenarios. What is the reason for the same?
(a) Strategy is "partly proactive and Partly reactive”
(b) Lack of analysis and proper planning.
(c) Strategy is highly reactive and highly proactive.
(d) Improper creation of strategic framework
(RTP, Nov 2021, NA)

Strategic Management
The term ‘strategic management’ refers to the managerial process of
● developing a strategic vision,
● setting objectives,
● crafting a strategy,
● implementing and evaluating the strategy,
● and initiating corrective adjustments where deemed appropriate.

“Originally called, business policy, strategic management emphasises the monitoring and
evaluation of external opportunities and threats in the light of a company’s strengths and
weaknesses and designing strategies for the survival and growth of the company.”

Companies can operate successfully by creating and delivering superior value to target
customers and also learning how to adapt to a continuously changing business environment

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 Chapter 1 - Introduction To Strategic Management

The overall objectives of strategic management are two fold

● to create competitive advantage, so that the company can outperform the competitors
in order to have dominance over the market.
● To guide the company successfully through all changes in the environment.

Importance of Strategic Management

Formulation of strategies and their implementation have become essential for all organizations
for their survival and growth in the present turbulent business environment.

‘Survival of fittest ‘as told by darwin is the only principle of survival for organization, where
‘fittest’ are not the ‘largest’ or ‘strongest’ organizations but those who can change and adapt
successfully to the changes in business environment.

The major benefits of STRATEGIC MANAGEMENT are:

● Gives Direction / Define Goals And Mission, Realistic

Objective
○ The strategic management gives a direction to the company to move ahead.
○ It defines the goals and mission.
○ It helps management to define realistic objectives and goals which are in line
with the vision of the company.

● Proactive (Action, Control, Vagaries)

○ Strategic management helps organisations to be proactive instead of reactive in
shaping its future.
○ Organisations are able to analyse and
take actions instead of being mere
spectators.

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 Chapter 1 - Introduction To Strategic Management

○ Thereby they are able to control their own destiny in a better manner.
○ It helps them in working within the vagaries of environment and shaping it,
instead of getting carried away by its turbulence or uncertainties.

● Framework For Decisions (Decisions On ……, Better

Guidance)
○ Strategic management provides a framework for all major decisions of an
enterprise
■ such as decisions on businesses, products, markets, manufacturing
facilities, investments and organisational structure.
■ It provides better guidance to the entire organisation on the crucial
point - what it is trying to do.

● Face The Future And Act As Path Finder / Opportunity

○ Strategic management seeks to prepare the organisation to face the future and
act as pathfinder to various business opportunities.
○ Organisations are able to identify the available opportunities and identify ways
and means as how to reach them.

● Corporate Defense Mechanism

○ Strategic management serves as a corporate defence mechanism against
mistakes and pitfalls.
○ It helps organisations to avoid costly mistakes in product market choices or
investments.

● Longevity (दीघा󰇡यु) (ल󰌺ी उ󰇼)

○ Strategic management helps to enhance the longevity of the business.
○ It helps the organization to take a clear stand in the related industry and
makes sure that it is not just surviving on luck.

● Core Competencies And Competitive Advantage

○ Strategic management helps the organisation to develop certain core
competencies and competitive advantages that would facilitate assistance in its
fight for survival and growth.

Points Story

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 Chapter 1 - Introduction To Strategic Management

Limitations of Strategic Management

The presence of strategic management cannot counter all hindrances and always achieve
success. There are limitations attached to strategic management. These can be explained in the
following lines

Environment is difficult to understand

Environment is highly complex and turbulent. It is difficult to understand the complex
environment and exactly pinpoint how it will shape-up in future.

The organisational estimate about its future shape may awfully go wrong and jeopardise all
strategic plans.

The environment affects as the organisation has to deal with suppliers, customers, governments
and other external factors.

Time consuming
Strategic management is a time-consuming process.
Organisations spend a lot of time in preparing, communicating the strategies that may impede
daily operations and negatively impact the routine business.

Costly
Strategic management is a costly process.

● Strategic management adds a lot of expenses to an organization.

● Expert strategic planners need to be engaged, efforts are made for analysis of external
and internal environments, devise strategies and properly implement.
● These can be really costly for organizations with limited resources particularly when small
and medium organizations create strategies to compete.

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 Chapter 1 - Introduction To Strategic Management

Difficult to estimate response

In a competitive scenario, where all organisations are trying to move strategically, it is difficult
to clearly estimate the competitive responses to a firm’s strategies.

Define Strategic Management.

(RTP, May 2018, NA)

Correct / Incorrect
Strategic management involves huge cost.
(RTP, May 2018, NA)

The presence of strategic management cannot counter all hindrances and always achieve success for
an organisation. What are the limitations attached to strategic management?
(RTP, May 2018, NA) (MTP 1, May 2019, 5 Marks) (MTP 2, May 2021, 5 Marks) (MTP 1, May
2022, 5 Marks) (Study Material)

Or

Are there any limitations attached to strategic management in organizations? Discuss.

(RTP, May 2019, NA) (MTP 1, May 2020, 5 Marks) (Study Material)

Briefly explain the importance of strategic management.

(MTP 1, May 2018, 5 marks) (RTP, Nov 2018, NA) (MTP 2, Nov 2018, 5 marks)

Or

"Each organization must build its competitive advantage keeping in mind the business warfare. This
can be done by following the process of strategic management". Considering its statement, explain
major benefits of strategic management.
(SA, Nov 2021, 5 Marks)

Is strategic management a bundle of tricks and magic? Elucidate the statement.

(MTP 2, May 2018, 5 marks)

Define Strategic Management. Also discuss the limitations of Strategic Management.

(SA, May 2018, 5 Marks) (RTP, May 2021, NA) (RTP, Nov 2021, NA)

What benefits accrue by following a strategic approach to managing?

(RTP, Nov 2018, NA) (MTP 1, Nov 2020, 5 Marks)
What can be defined as the art and science of formulating, implementing and evaluating
cross-functional decisions that enable an organization to achieve its objectives?

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 Chapter 1 - Introduction To Strategic Management

a. Strategy formulation
b. Strategy evaluation
c. Strategy implementation
d. Strategic management
(MTP 1, MAY 2019, 1 Mark)

Which of the following statements correctly explain strategic management?

(i) Strategic management provides framework for major decisions.
(ii) Strategic management helps to enhance the longevity of the business.
(iii) Strategic management is an inexpensive process.
(iv) Strategic management helps organisation to be more reactive than proactive.
(A) (i) and (ii)
(B) (i), (ii) and (iii)
(C) (i), (ii) and (iv)
(D) (i), (iii) and (iv)
(RTP, Nov 2019, NA)

Ramesh Sharma has fifteen stores selling consumer durables in Delhi Region. Four of these stores
were opened in last three years. He believes in managing strategically and enjoyed significant sales of
refrigerator, televisions, washing machines, air conditioners and like till four years back. With shift to
the purchases to online stores, the sales of his stores came down to about seventy per cent in last
four years.
Analyse the position of Ramesh Sharma in light of limitations of strategic management.
(RTP, Nov 2019, NA) (RTP, Nov 2020, NA) (Study Material)

Strategic management helps an organization to work through changes in environment to gain

competitive advantage. In light of statement discuss its benefits.
(RTP, Nov 2019, NA) (MTP 2, Nov 2021, 5 Marks)

‘Strategic Management is not a panacea for all the corporate ills, it has its own pitfalls which can’t
counter all hindrances and always achieve success’.
Do you agree with this statement? Discuss.
(SA, May 2019, 5 Marks)

What is Strategic Management? What benefits accrue by following a strategic approach to managing?
(Study Material)

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 Chapter 1 - Introduction To Strategic Management

Strategic Management In Government And

Not-For-Profit Organisations

Educational Institution
● Education is considered to be a noble profession.
● An educational institution often functions as a not-for-profit organization managed by
trusts and societies. They include schools, colleges and universities.
● Being inherently non-commercial in nature, educational organisations do not have
cut-throat competition as in the case of their commercial counterparts.
● However, as the number of institutions belonging to both the public and private sector
are increasing, the competition is gradually rising.
● Through the use of strategic management techniques such institutions are expected to
concentrate attention towards

➢ Getting a better name and recognition.

➢ Attracting talented students.
➢ Designing better curriculum
➢ Appointing and retaining quality faculty for teaching.
➢ Preparing students for the future challenges by capacity building (public
speaking, interview skills, personality development).

The academic institutions have also joined hands with industries in order to deliver education
to make graduates more employable.

The educational delivery system has also undergone considerable changes with the introduction
of computers and internet technologies.

Online college degrees are becoming common and represent a threat to traditional colleges and
universities.

Non- Profit Organization

● Strategic management applies equally to profit as well as non-profit organizations.
● Similar to commercial organizations, ‘not-for-profit’ organizations must also have
strategies, purpose, vision and mission also.
● Strategic Management is required to give direction, focus and lead to efficient utilization
of resources.

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 Chapter 1 - Introduction To Strategic Management

● In many ‘not-for-profit’ organizations surpluses are important for their survival and
growth.

Medical Institution
● Medical organizations such as hospitals are often not-for-profit organizations.
● At the same time there is existence of medical organizations that have commercial
interests.
● Whether they are in for profit or are in charitable nature, the tools and techniques of
strategic management are equally important.
● The role of strategic management can be expressed as follows.
○ They work under a complex and turbulent environment with changes in
macroeconomic factors covering economic, social, legal, technological factors.
(SM will help to cope up)
○ They need to set their mission, look for strategic alternatives and implement
their chosen strategies, etc. In fact, all the steps in the process of strategic
management are relevant for them.
○ Medical organizations may also have survival and growth strategies.
○ Hospitals may diversify to form chain of pathological labs or open
pharmaceutical shops.
○ Strategic management can also help in providing better services to the
patients.
○ Like any organization, medical organizations also compete with each other.
Strategic management helps to function and succeed within the competitive
pressures.

Thus the role of strategic management in medical organizations is similar to any other
organization. In fact, Hospitals are creating new strategies today with advances in the
diagnosis and treatment methods.
Hospitals are bringing services to the patient as much as bringing the patient to the hospital.

Pathological laboratories have started collecting door-to- door samples. Providing

day-treatment facilities, electronic monitoring at home, user-friendly ambulatory services,
and laboratory testing.

General Note on Requirement of Strategic Management for Medical and Government

Organization.

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 Chapter 1 - Introduction To Strategic Management

Organizations can be classified as commercial and non-commercial on the basis of the interest
they have. Typically, a government or medical organization may function without any
commercial objectives.

A commercial organization has profit as its main aim.

We can find many organizations around us, which do not have any commercial objective of
making profits. Their genesis may be for social, charitable, or educational purposes.

The strategic-management process is being used effectively by countless non-profit and

governmental organizations. Many non-profit and governmental organizations outperform private
firms and corporations on innovativeness, motivation, productivity, and human resource.

Compared to for-profit firms, nonprofit and governmental organizations often function as a

monopoly, produce a product or service that offers little or no measurability of performance,
and are totally dependent on outside financing.

Especially for these organizations, strategic management provides an excellent vehicle for
developing and justifying requests for needed financial support.

Governmental agencies and departments

● Central, state, municipal agencies, Public Sector units, departments are responsible for
formulating, implementing, and evaluating strategies that use taxpayers’ money in
the most cost-effective way to provide services and programs.
● In addition, government agencies are using a strategic management approach to develop
and substantiate formal requests for additional funding.

Public sector units face the following challenges while designing strategies for their
organizations:
● Operating with less strategic autonomy.
● Cannot diversify into unrelated businesses or merge with other firms.
● Strategists usually enjoy little freedom while altering the organisation’s mission or
redirecting objectives when needed.
● Legislators and politicians control over major decisions and resources.
● Fear of media debate over the strategic issues.
● Chances of politicization of issues resulting fewer strategic choice

Health Wellnow is a Delhi based charitable organisation promoting healthy lifestyle amongst the
office-goers. It organises programmes to encourage and guide office-goers on matters related to stress

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 Chapter 1 - Introduction To Strategic Management

relief, yoga, exercises, healthy diet, weight management, work- life balance and so on. Many business
organisations and resident welfare associations like services of Health Wellnow. Its daily yoga sessions
are very popular in some of the big companies located in Delhi, Noida and Gurgaon. The Health
Wellnow has no commercial interest and does not charge any fees for its services. However, the
organisation is able to get good charities and has sufficient funds to meet its routine expenses.
Do you think the concepts of strategic management are relevant for Health Wellnow? Discuss.

(RTP, May 2018, NA) (RTP, May 2020, NA) (Study Material)

Correct / Incorrect
Non-profit organizations do not require Strategic Management.
(SA, May 2018, 2 marks)

Do you agree with the statement that “Strategic Management concepts are of no use to Government
organizations and Medical organizations”? Explain with reasons.
(MTP 1, Nov 2018, 5 marks)

Helpbuddy is a not-for-profit organisation providing medical facilities to poor and needy at highly
affordable costs. The organisation is dependent on Government grants and donations to manage its
affairs. Rohit who is running the organization, believes in taking things as they come and will change
the level of activities based on the funds available.

Do you think Rohit is right in taking things as they come? What will you advise him?
(MTP 2, Nov 2018, 5 marks) (Study Material)

`Do Good Group’ is a not-for-profit organization based in northern India working towards childcare. The
group educates people towards immunization, sanitation and works in coordination with local hospitals
or medical centers. Recently, a new team has taken over the management of its activities. Explain
whether tools of strategic Management are relevant for the group.
(RTP, May 2019, NA) (Study Material)

"Strategic Management concepts are useful for educational institutions." Explain with reasons.
(SA, Nov 2019, 5 marks)

"There is a need for Strategic Management for government and medical organization too." Comments.
(SA, Nov 2020, 5 marks)

How is the concept of strategic management useful in Government and medical organisations?
Discuss.
(Study Material)

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 Chapter 1 - Introduction To Strategic Management

Discuss the challenges faced by public sector units while designing for their organisations..
(RTP, May 2022, NA)

Strategic Levels In Organization

Corporate Level Management

● The corporate level of management consists of the chief executive officer (CEO), other
senior executives, the board of directors, and corporate staff.
● This role includes

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 Chapter 1 - Introduction To Strategic Management

○ defining the vision, mission and goals of the organization,

○ determining what businesses, it should be in
○ allocating resources among the different businesses,
○ oversee the development of strategies for the whole organization.
○ Providing leadership for the organisation.
○ Corporate-level managers provide a link between the people who oversee the
strategic development of a firm and those who own it (the shareholders).
○ Corporate- level managers, and particularly the CEO, can be viewed as the
guardians of shareholder welfare. It is their responsibility to ensure that the
corporate and business strategies that the company pursues are consistent with
maximizing shareholder wealth.

Business Level Managers

● The development of strategies for individual business areas is the responsibility of
business level managers.
● A business unit is a self- contained division with its own functions - for example,
finance, production, and marketing.
● The strategic role of business-level manager, head of the division, is
○ to translate the general statements of direction and
○ intent that come from the corporate level into concrete strategies for individual
businesses.

Functional Level Managers

● They are responsible for the particular business functions or operations (human
resources, purchasing, product development, customer service, and so on).
● Functional manager’s field of responsibility is generally confined to one organizational
activity
● Role is to develop functional strategies in their area that help fulfill the strategic
objectives set by business- and corporate-level general managers.
● Functional managers provide information that makes it possible for business- and
corporate-level general managers to formulate realistic and attainable strategies.
● An equally great responsibility for managers at the operational level is strategy
implementation: the execution of corporate and business level plans.

Define the role of corporate level managers.

(RTP, Nov 2018, NA)

Correct / Incorrect.
Control systems run parallel with strategic levels.

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 Chapter 1 - Introduction To Strategic Management

(RTP, Nov 2018, NA)

Distinguish between the three levels of strategy formulation.

(MTP 1, Nov 2018, 5 marks)

Or

Explain the difference between three levels of strategy formulation.

(RTP, May 2020, NA) (Study Material)

List the different strategic levels in an organisation.

( SA, Nov 2018, 2 marks)

Strategic decision making can take place at three common levels of an organisation as follows:
(a) Divisional, group and individual.
(b) Executive, leader and manager.
(c) Corporate, business and functional.
(d) Strategic, tactical and operational.
(RTP, May 2019, NA)

Which of the following statement is not true:

a. Strategic environment is complex
b. Strategic environment is turbulent.
c. High cost of strategy makes them useless for charitable organization.
d. Public sector units should implement business strategy.
(MTP 2, May 2019, 1 mark)

Enumerate the task to be performed as a strategic manager of a company.

(MTP 2, May 2019, 5 marks)

Which of the following are responsible for formulating and developing realistic and attainable
strategies?
(a) Corporate level and business level managers
(b) Corporate level and functional level managers
(c) Functional level managers and business level managers
(d) Corporate level managers, business level managers and functional level managers
(MTP 1, Nov 2019, 1 mark) (RTP, May 2020, NA)

ABC Limited is in a wide range of businesses which include apparels, lifestyle products, furniture, real
estate and electrical products. The company is looking to hire a suitable Chief Executive Officer.
Consider yourself as the HR consultant for ABC limited. You have been assigned the task to enlist the

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 Chapter 1 - Introduction To Strategic Management

activities involved with the role of the Chief Executive Officer. Name the strategic level that this role
belongs to and enlist the activities associated with it.
(SA, Jan 2021, 5 marks) (Study Material)

Dharam Singh, the procurement department head of Cyclix, a mountain biking equipment company,
was recently promoted to look after sales department along with procurement department. His seniors
at the corporate level have always liked his way of leadership and are assures that he would ensure
the implementation of policies and strategies to the best of his capacity but have never involved him
in decision making for the company.
Do you think this is the right approach? Validate your answer with logical reasoning around
management levels and decision making.
(RTP, May 2021, NA) (Study Material)

Mr. Mehta sharing with his friend in an informal discussion that he has to move very cautiously in his
organization as the decisions taken by him has organisation wide impact and involves large
commitments of resources. He also said that his decisions decide the future of his organisation. Where
will you place Mr. Mehta in the organizational hierarchy and explain his role in the organization.
(RTP, Nov 2021, NA)

ABC Ltd. currently sells its product in two major markets Europe and Asia. While it is a market leader
in Europe, ABC Ltd. has struggled to penetrate the more competitive Asian market. ABC Ltd. hired a
strategic consultant to analyze the situation and submit his report to them. After the report received
from the strategic consultant, it has therefore decided to pull out of Asia entirely and focus on its
European markets only. This decision relates to which level in ABC Ltd. and explain the role of
managers at this level in the organization.
(RTP, May 2022, NA)

Business Policy (Do It From Study Material)

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 Chapter 2 - Dynamics of Competitive Strategy

Chapter 2
Dynamics of Competitive Strategy
Competitive Strategy
- The external environment affects the internal environment of the firm.
- The economic, technical components and broader expectation of society of the external
environment are considered as major factors leading to new opportunities for the
organisation as well as creating threats to its existence.
- These factors play an important role in formulating the competitive strategy.
- Objective is to
- Generate Competitive Advantage.
- Increase the market share.
- Beat Competition.
- Can be achieved through
- Attract and retain customers by delivering value
- Withstand competitive pressures, and
- Strengthen its market position.

By knowing if it is a leader, challenger, or a follower in the market, it can adopt appropriate

competitive strategy.

Competitive Landscape

- Competitive landscape is about identifying and understanding the competitors

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 Chapter 2 - Dynamics of Competitive Strategy

- Understanding of competitive landscape requires an application of “competitive

intelligence”
- Helps in assessing the competitor’s strengths and weaknesses.
- Helps in choosing the strategy.
- Ultimately helps in building the competitive advantage.

Steps to understand Competitive Landscape

1. Identify the competitor
2. Understand the competitors
3. Determine the strengths of the competitors
4. Determine the weaknesses of the competitors
5. Put all of the information together

Identify the competitor

● First step is to identify
● Actual data about their respective market share
● Answers the question “Who are the Competitors”

Understand the competitors

● Understand the products and services
● Answers”What are their product and Service
● How - Reports, Internet, Newspaper, Industry reports etc.

Determine the strengths of the competitors

● Many Questions
○ Financial Position
○ Cost & Price Advantage
○ Next Move
○ Distribution Network
○ Human Resource Strength

Determine the weaknesses of the competitors

● Consumer reports
● Media Reports
● Answers “Where are they lacking”

Put all the information together

● Draw inferences

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○ Not offered by Competitor

○ Fill the gap
○ Areas to be strengthen
● Answers the questions
○ What will the business do with this information?
○ What improvements does the firm need to make?
○ How can the firm exploit the weaknesses of competitors?

Competitive landscape requires the application of-

a) Competitive advantage
b) Competitive strategy
c) Competitive acumen
d) Competitive intelligence
(Sample MCQs) (MTP1, Nov 2019, 1 Mark)

"Suresh Singhania is the owner of an agri-based private company in Sangrur, Punjab. His unit
is producing puree, ketchups and sauces. While its products have significant market share in
the northern part of country, the sales are on decline in last couple of years. He seeks help
of a management expert who advises him to first understand the competitive landscape.
Explain the steps to be followed by Suresh Singhania to understand competitive landscape."
(RTP, May 2018, NA)

Explain the steps to understand the competitive landscape?

(MTP2, May 2018, 5 Marks)

What do you understand by ‘Competitive Landscape’? What are the steps to understand the
competitive landscape?
(SA, May 2019, 5 Marks)

"Understanding the competitive landscape is important to build upon a competitive

advantage". Explain.
(SA, May 2021, 5 Marks)

Dinesh Yadav is the owner of a beverage-based private company in Sonipat, Haryana. His
unit is producing fruit juices, cold drinks, soda and lime. While its products have significant
market share in the northern part of country, the sales are on decline in last couple of years.
He seeks help of a management expert who advises him to first understand the competitive

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landscape. Explain the steps to be followed by Dinesh Yadav to understand competitive

landscape.
(MTP1, May 2019, 5 Marks)

STRATEGIC ANALYSIS
Meaning
For strategy formulation analysis of a firm's external environment and its internal resources
and capabilities is required.

The analysis of a co.’s external & internal situation is called strategic analysis keeping in mind
the 2 important situational considerations:
● Industry & competitive conditions
● Company’s own competitive capabilities, resources, internal strengths & weaknesses &
market position

Without a perceptive understanding of the strategic aspects of a company’s external and

internal environments, the chances are greatly increased that managers will finalise a strategic
game plan that doesn’t fit the situation well, that holds little prospect for building competitive
advantage, and that is unlikely to boost company performance.

Issues to be considered for strategic analysis

Strategy evolves over a period of time.

- Strategy evolves over a period of time. Strategy is a result of a series of small
decisions taken over an extended period of time.
- Strategy evolves from experience and needs constant review and revision as the
results start showing up.

Balance
- The process of strategy formulation is often described as one of matching the internal
potential of the organisation with the external environmental opportunities.
- There should be a workable (& not perfect as in reality the perfect match isn’t
feasible) match of the internal potential of org. with environmental opportunities.
Managers responsible for strategic decisions must balance opportunities, influences &
constraints.

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Risks
An important aspect of strategic analysis is to identify potential imbalances or risks and
assess their consequences.
Potential imbalances are created because of internal and external factors
● External risks- occur due to inconsistencies between strategies & forces in the
environment
○ Short-Time - Errors in interpreting the environment cause strategic failure
○ Long-Time - Changes in the environment lead to obsolescence of strategy.
● Internal risks- occur because of forces within the firm or are directly interacting with
org.
○ Short Time - Organizational capacity is unable to cope up with strategic
demands.
○ Long - Time - Inconsistencies with the strategy are developed on account of
changes in internal capacities and preferences.

Industry
Industry-“A group of firms whose products have same & similar attributes such that they
compete for the same buyers”

Industry is a consortium of firms whose products or services have homogenous attributes or

are close
substitutes such that they compete for the same buyer. For example, all paper manufacturers
constitute the paper industry.

Correct / Incorrect
It is evident that industries differ widely in their economic characteristics, competitive
situations, and future profit prospects.

Answer - Correct
It is evident that industries differ widely in their economic characteristics, competitive
situations, and future profit prospects. For example, the economic and competitive traits of
the fast-food business have little in common with those of Internet service providers. The
telecom business is shaped by industry and competitive considerations radically different
from those that dominate the aviation industry.

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Industry and Competitive Analysis

Provides a way of thinking strategically about any industry’s overall situation and drawing
conclusions about whether the industry represents an attractive investment for organisational
funds.

Industry and competitive analysis can be done using a set of concepts and techniques to
● get a clear picture on key industry traits,
● the intensity of competition,
● the drivers of industry change,
● the market positions and strategies of rival companies,
● competitive success, and profit prospects.

Industry and competitive analysis aims at developing insight in several issues. The issues are
discussed below:
1. Dominant economic features of industry
2. Nature & strength of competition
3. Triggers of change
4. Identifying companies that are in strongest/weakest positions
5. Likely strategic moves of rivals
6. Key factors for competitive success
7. Prospects & financial attractiveness of industry

Dominant economic features of industry

The factors which should be considered determining the economic features of industry can be
illustrated as follows:
1. Market Size
2. Market growth rate and position in the business life
3. Scope of Competitive rivalry
4. Number of rivals and their relative sizes.
5. The number of buyers and their relative sizes.
6. The types of distribution channels used to access consumers.
7. The pace of technological change in both production process innovation and new
product introductions.
8. Whether the products and services of rival firms are highly differentiated, weakly
differentiated, or essentially identical.
9. Whether key industry participants are clustered in a particular location, for example,
lock industry in Aligarh. Saris and diamonds in Surat, information technology in

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Bangalore. Similarly, there is also concentration of business in different countries on

account of graphical and other reasons.
10. Capital requirements and the ease of entry and exit.
11. Whether industry profitability is above/below par.

All of these considerations from economic perspective, help the management to decide on
various factors of strategy like viability of their product, location of production, consumer
preferences, cost of production, beneficial government support, etc.

"Industry and competitive analysis begins with an overview of the industry's dominant
economic features." Explain and also narrate the factors to be considered in profiling in
industry's economic features.
(SA, Nov 2019, 5 Marks)

Nature and strength of competition

1. Very important step for devising competitive strategy.
2. Discover what are the main sources of competition?
3. Competitive pressure varies from industry to industry.
4. The competitive process of all the industry is more or less alike therefore a common
analytical framework can be used for analysing it.

Triggers of change
These are trends and new developments that gradually produce changes important enough to
require a strategic response from participating firms.

- There is a lot of analytical value in identifying the specific factors causing

fundamental industry and competitive change.
- These factors (forces) create incentives or pressure for change.
- The most dominant forces are called driving forces because they have the biggest
influence on what kinds of changes will take place in the industry's structure and
competitive environment.
- Analyzing driving forces has two steps: identifying what the driving forces are and
assessing the impact they will have on the industry.
- Driving forces may be unique (industry specific) or general.
- Some of the general driving forces are
○ The internet and the new e-commerce opportunities and threats it breeds
industry.

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○ Increasing globalization.
○ Changes in the long-term industry growth rate.
○ Product innovation.
○ Marketing innovation.
○ Entry or exit of major firms.
○ Diffusion of technical know-how across more companies and more countries.
○ Changes in cost and efficiency.

Shridhar who is running a medium size cloth manufacturing business in Panipat wishes to
understand the driving forces that trigger change. He has sought advice from you and wishes
to know common driving forces.
(RTP, Nov 2019, NA)

Identifying the Strongest/Weakest Companies

(Strategic Group Mapping)
Strategic group mapping is a technique used for industry & Competitive analysis
1. Helps in Identifying companies that are in strongest/weakest positions
2. One technique for revealing the competitive positions of industry participants is
strategic group mapping.
3. It is a useful analytical tool for comparing the market positions of each firm separately
or group wise when an industry has so many competitors that it is not practical to
examine each one in depth.
4. A strategic group consists of those rival firms with
a. similar competitive approaches and
b. Positions in the market.
c. They resemble each other in several ways. (product , price etc)
5. The procedure (I-PAD) for constructing a strategic group map and deciding which firms
belong in which strategic group is straightforward:
a. Identify the competitive characteristics that differentiate firms in the industry
typical variables are price/quality range (high, medium, low);
b. Plot the firms on a two-variable map using pairs of these differentiating
characteristics.
c. Assign firms that fall in the same strategy space to the same strategic group.
d. Draw circles around each strategic group making the circles proportional to the
size of the group's respective share of total industry sales revenues.

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An industry contains only one strategic group when all sellers pursue essentially identical
strategies and have comparable market positions. At the other extreme, there are as many
strategic groups as there are competitors when each rival pursues a distinctively different
competitive approach and occupies a substantially different competitive position in the
marketplace.

"‘Strategic group mapping’ involves-

a) Identifying the strongest rival companies
b) Identifying weakest rival companies
c) Identifying weakest and strongest rival companies
d) None of the above"
(Sample MCQs) (RTP, May 2020, NA) (MTP1, Nov 2020, 1 Mark)

"Mr. Banerjee is head of marketing department of a manufacturing company. His company is

in direct competition with thirteen companies at national level. He wishes to study the
market positions of rival companies by grouping them into like positions.

Name the tool that may be used by Mr. Banerjee? Explain the procedure that may be used
to implement the technique."
(MTP1, May 2018, 5 Marks)

What is a Strategic Group? Discuss the procedure for constructing a strategic group map.
(RTP, May 2019, NA) (MTP2, May 2021, 5 Marks)

A manufacturing company is in direct competition with fifteen companies at national level.

Head of marketing department of this company wishes to study the market position of rival
companies by grouping them into like positions. Name the tool that may be used by him/her.
Explain the procedure that may be used to implement the techniques.
(SA, May 2021, 5 Marks)

Likely strategic move of Rivals

1. Unless a company pays attention to what competitors are doing, it ends up flying blind
into competitive battle.
2. As in sports, scouting the opposition is essential, same is the case with business.

Key factors for competitive success

1. An industry's Key Success Factors (KSFs) are those things that most affect industry
members' ability to prosper in the marketplace.

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2. These factors spell the difference between profit and loss and, ultimately, between
competitive success and failure.
3. KSFs by their very nature are so important that all firms in the industry must pay
close attention to them - they are - the prerequisites for industry success.
4. Misdiagnosing the industry factors critical to long-term competitive success greatly
raises the risk of a misdirected strategy.
5. Companies that stand out on a particular KSF enjoy a stronger market position
6. Key success factors vary from industry to industry and even from time to time within
the same industry as driving forces and competitive conditions change.
7. Only rarely does an industry have more than three or four key success factors at any
one time.
8. And even among these three or four, one or two usually outrank the others in
importance.

How to identify the KSF?

By answering the following questions
● On what basis do customers choose between the competing brands of sellers?
● What product attributes are crucial?
● What resources and competitive capabilities does a seller need to have to be
competitively successful?

Correct/Incorrect
Key success factors determine competitive success.
(RTP, May 2018, NA)

Examine the significance of KSFs (Key Success Factors) for competitive success.
(SA, Nov 2018, 3 Marks) (MTP1, May 2021, 5 Marks)

Prospects and financial attractiveness of industry

The final step of industry and competitive analysis is to use the results of analysis of previous
six issues to draw conclusions about the relative attractiveness or unattractiveness of the
industry.

The important factors on which to base such conclusions include (DISCUSS PREVIOUS SIX
STEPS of industry and competitive analysis HERE)

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As a general proposition, if an industry's overall profit prospects are above average, the industry
can be considered attractive; if its profit prospects are below average, it is unattractive.
Attractiveness is relative, not absolute.

‘Determinants Analysis’ falls in the purview of? -

a) External competitive strategy analysis
b) Internal competitive strategy analysis
c) Strategic risk
d) Competitive landscape
(Sample MCQs)

"‘Customer Analysis’ and ‘Market Analysis’ are the part of-

a) Internal analysis
b) Strategy identification and selection
c) External Analysis
d) None of the above"
(Sample MCQs)

"‘Attractiveness of firms’ while conducting industry analysis should be seen in-

a) Relative terms
b) Absolute terms
c) Comparative terms
d) All of the above"
(Sample MCQs)

Which of the following is not part of external analysis:

a. Customer segments.
b. Organizational constraints.
c. Entry barriers.
d. Competitors.
(MTP2, May 2019, 1 Mark)

Core Competencies

Meaning
● Core competencies are capabilities that serve as a source of competitive advantage for
a firm over its rivals.

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● An organisation’s combination of technological and managerial know-how, wisdom and

experience are a complex set of capabilities and resources that can lead to a
competitive advantage compared to a competitor.
● Core competencies distinguish a company competitively and reflect its personality.
● These competencies emerge over time through an organisational process of accumulating
and learning how to deploy different resources and capabilities
● According to C.K. Prahalad and Gary Hamel, major core competencies are identified in
three areas - competitor differentiation, customer value, and application to other
markets.

Three Areas

Competitor differentiation

● The company can consider having a core competence if the competence is unique and it
is difficult for competitors to imitate.
● This can provide a company an edge compared to competitors.
● It allows the company to provide better products or services to market with no fear
that competitors can copy it.

Competence does not necessarily have to exist within one company in order to define as core
competence. Although all companies operating in the same market would have the equal skills
and resources, if one company can perform this significantly better; the company has obtained
a core competence.

(disproportionate contribution to customer value)

Customer Value

● The second condition to be met is customer value.

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● When purchasing a product or service it has to deliver a fundamental benefit for the
end customer in order to be a core competence.
● It will include all the skills needed to provide fundamental benefits.
● The service or the product has to have real impact on the customer as the reason to
choose to purchase them

Application of competencies

● Unique set of skills and expertise,

● which will be used throughout the organisation
● to open up potential markets to be exploited.
● Must be applicable to a range of products.

If the three above-mentioned conditions are met, then the company can regard it competence
as core competency.

How To Build Core Competencies

Four specific criteria of sustainable competitive advantage that firms can use to determine
those capabilities that are core competencies.

1. Valuable
2. Rare
3. Costly to imitate
4. Non-Substitutable

Value / Valuable

● It should create value for customers.

● Allow the firm to exploit opportunities or avert the threats in its external environment.
● For example human capital is important in creating value for customers.

Rare
● Core competencies are very rare capabilities and very few of the competitors possess
this.
● Capabilities possessed by many rivals are unlikely to be sources of competitive
advantage for any one of them.
● Competitive advantage results only when firms develop and exploit valuable capabilities
that differ from those shared with competitors.

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Costly to imitate
● Costly to imitate means such capabilities that competing firms are unable to develop
easily.
● For example: Intel has enjoyed a first-mover advantage more than once because of its
rare fast R&D cycle time capability that brought SRAM and DRAM integrated circuit
technology, and brought microprocessors to market well ahead of the competitor.
● The product could be imitated in due course of time, but it was much more difficult to
imitate the R&D cycle time capability.

Non-substitutable
● Capabilities that do not have strategic equivalents are called non-substitutable
capabilities.

The concept of ‘core competence’ has been advocated by-

a) Gary Hamel and Peter Drucker
b) C.K. Prahlad and Gary Hamel
c) C.K. Prahlad and Michael Porter
d) C.K. Prahlad and Peter Drucker
(Sample MCQs)

Explain the meaning of core competencies.

(SA, May 2018, 2 Marks)

‘Value for Money’ is a leading retail chain, on account of its ability to operate its business at
low costs. The retail chain aims to further strengthen its top position in the retail industry.
Marshal, the CEO of the retail chain is of the view that to achieve the goals they should
focus on lowering the costs of procurement of products.
Highlight and explain the core competence of the ‘Value for Money’ retail chain.
(RTP, Nov 2018, NA)

Correct/Incorrect
A core competence is a unique strength of an organisation which may not be shared by
others.
(MTP1, Nov 2018, 2 Marks)

According to C.K. Prahalad and Gary Hamel, major core competencies are identified in three
areas - ________, ____________, and application to other markets.
(a) Competitor differentiation, customer value.

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(b) Competitor differentiation, focus.

(c) Cost leadership, differentiation.
(d) Profits, growth.
(RTP, May 2019, NA)

A core competence is all except?

a. Valuable
b. Rare
c. Impossible to imitate
d. Non-substitutable
(MTP2, May 2019, 1 Mark)

‘Speed’ is a leading retail chain, on account of its ability to operate its business at low
costs. The retail chain aims to further strengthen its top position in the retail industry. The
Chief executive of the retail chain is of the view that to achieve the goals they should focus
on lowering the costs of procurement of products. Highlight and explain the core competence
of the retail chain.
(MTP2, May 2019, 5 Marks) (RTP, Nov 2020, NA)

Which of the following is not true for core competency:

A. It distinguishes a company competitively.
B. It is a source of competitive advantage.
C. It is an individual skill and separate technique.
D. It is often visible in the form of organizational functions.
(RTP, Nov 2019, NA)

Major core competencies are identified in three areas - competitor differentiation, customer
value and application to other markets. Discuss.
(RTP, Nov 2019, NA)

Capabilities that are valuable, rare, costly to imitate, and non-substitutable are core
competencies. Explain these four specific criteria of sustainable competitive advantage that
firms can use to determine those capabilities that are core competencies.
(RTP, May 2020, NA)

HINT - Explain How to build Core competence.

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Core competencies provide an edge to a business over its competitors. Discuss. Also, briefly
state the three areas in which major core competencies are identified.
(SA, Jan 2021, 5 Marks)
HINT - Explain what is Core competence and three areas

Core competencies provide an edge to a business over its competitors.

(RTP, Nov 2021, NA)

HINT - Explain what is Core competence and three areas

Marketing and Sales of Hindustan Unilever Limited and lowering of operating cost by
Walmart
are examples of what?
(a) Competitive Advantage
(b) Core Competency
(c) Strategic Planning
(d) Key Performance Indicators (KPIs)
(MTP2, Nov 2021, 1 Mark)

COMPETITIVE ADVANTAGE
General Discussion
If a company’s strategies result in superior performance, it is said to have a competitive
advantage. It must be sustainable

It is a set of unique features of a company and its products that are perceived by the target
market as significant and superior to - the competition.

It is achieved when the firm successfully

- formulates and implements the value creation strategy and
- other firms are unable to duplicate it or
- find it too costly to imitate.

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If a firm possesses resources and capabilities which are superior to those of competitors, then
as long as the firm adopts a strategy that utilises these resources and capabilities effectively,
it should be possible for it to establish a competitive advantage.

In time, the benefits of any firm’s value-creating strategy can be duplicated by its competitors.
In other words, all competitive advantages have a limited life. The question of duplication is not
if it will happen, but when.

Types of Moat
1. Low - Cost Producer
2. Intangible Moats
3. Network
4. Switching Cost (Does the cost of switching to a competing product or service outweigh
the benefits?) - ERP System providers, Elevators.

Explain competitive advantage. (ICAI Question)

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● Competitive advantage is the position of a firm to maintain and sustain a favorable

market position when compared to the competitors.
● Competitive advantage is the ability to offer buyers something different and thereby
providing more value for the money.
● It is the result of a successful strategy.
● This position gets translated into
○ higher market share,
○ higher profits when compared to those that are obtained by competitors
operating in the same industry.
● Competitive advantage may also be in the form of
○ low cost providers in the industry or
○ being unique in the industry along dimensions that are widely valued
■ by the customers
■ in particular and the society at large.

Sustainability of competitive advantage

The sustainability of competitive advantage and a firm’s ability to earn profits from its
competitive advantage depends upon four major characteristics of resources and capabilities

1. Durability
2. Transferability
3. Imitability
4. Appropriability

(For Understanding - More durable the resources and capabilities, more the sustainable competitive
Durability
advantage)

- The period over which a competitive advantage is sustained depends in part on the rate
at which a firm’s resources and capabilities deteriorate.
- In industries where the rate of product innovation is fast, product patents are quite
likely to become obsolete.
- Similarly, capabilities which are the result of the management expertise of the CEO are
also vulnerable to his or her retirement or departure.
- On the other hand, many consumer brand names have a highly durable appeal.

Transferability
- Even if the resources and capabilities on which a competitive advantage is based are
durable, it is likely to be eroded by competition from rivals.
- The ability of rivals to attack a position of competitive advantage relies on their gaining
access to the necessary resources and capabilities.

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- The easier it is to transfer resources and capabilities between companies, the less
sustainable will be the competitive advantage which is based on them.

(If a company’s cost advantage is based on its investment in state-of-the-art automated

equipment, so long as the equipment is supplied by a third party, other companies can acquire
the same advantage)

Imitability
- If resources and capabilities cannot be purchased by a would-be imitator, then they
must be built from scratch.
- How easily and quickly can the competitors build the resources and capabilities on
which a firm’s competitive advantage is based?
- This is the true test of imitability.
- For Example: In financial services, innovations lack legal protection and are easily copied.
Here again the complexity of many organisational capabilities can provide a degree of
competitive defence.
- Where capabilities require networks of organisational routines, whose effectiveness
depends on the corporate culture, imitation is difficult.

Appropriability
- Appropriability refers to the ability of the firm’s owners to appropriate the returns on
its resource base.
- Even where resources and capabilities are capable of offering sustainable advantage,
there is an issue as to who receives the returns on these resources.

"Which of the following bases of competitive advantage is/are more sustainable:

a) Benefit-based competitive advantage
b) Price-based competitive advantage
c) Cost-based competitive advantage
d) All of the above"
(Sample MCQs)

Explain competitive advantage.

(MTP1, May 2018, 2 Marks) (SA, May 2018, 2 Marks) (MTP2, Nov 2018, 3 Marks) (MTP1,
May 2020, 5 Marks)

Competitive strategy is designed to help firms achieve competitive advantage.

(RTP, Nov 2018, NA)

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A thing that a firm does especially well in comparison to the rival firms is:
(a) Opportunity availed.
(b) Successful leadership.
(c) Competitive advantage.
(d) Comparative advantage.
(RTP, May 2019, NA) (MTP1, May 2019, 1 Mark) (MTP1, Nov 2019, 1 Mark)

Rohit Patel is having a small chemist shop in the central part of Ahmedabad. What kind of
competencies Rohit can build to gain competitive advantage over online medicine sellers?
(RTP, May 2019, NA)

The Telecom industry is growing at a rapid speed in India. There is a cut throat competition
among the service providers in the industry. Identify the capabilities that will best serve as a
source of competitive advantage for a firm over its rivals?
(MTP1, Nov 2019, 5 Marks)

Mohan has joined as the new CEO of XYZ Corporation and aims to make it a dominant
technology company in the next five years. He aims to develop competencies for managers
for achieving better performance and a competitive advantage for XYZ Corporation. Mohan is
well aware of the importance of resources and capabilities in generating competitive
advantage.
Discuss the four major characteristics of resources and capabilities required by XYZ
Corporation to sustain the competitive advantage and its ability to earn profits from it.
(SA, Jan 2021, 5 Marks)

What is Value Creation?

● Providing products and services to the customers with more worth (VALUE).

○ Value is measured by a
■ Product’s features,
■ Quality,
■ Availability,
■ Durability,
■ Performance and
■ by its Services
○ for which customers are willing to pay.

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● The value customers place on a product reflects the utility they get from a
product—the happiness or satisfaction gained from consuming or owning the product.

● It also includes value creation for stakeholders.

Many businesses now focus on value creation in the context

- for customers purchasing its products and services,
- as well as for stakeholders in the business who want to see their investment in
business appreciate in value.

Ultimately, this concept gives business a competitive advantage in the industry and helps them
earn above average profits/returns.

Companies are ultimately aiming to achieve sustainable competitive advantage, which enables
them to succeed in the long run.

Michael Porter used the concept of value chain to explore different functions of the
organisations and mutual interactions among those functions.

Value chain analysis provides an excellent tool to examine the origin of competitive advantage.

It divides the organisations into two different strategically important groups of activities,
namely, primary activities and supporting activities, which can help to comprehend the potential
sources for differentiation and to understand an organisation’s costs behaviour.

It is basically the value the consumer wants to pay, over and above the price that the business
wants to charge from the consumer. This excess amount is called value creation, wherein the
consumers value the product or service more than it actually costs them.

Value Chain Analysis for developing Core Competency

● Value Chain – Chain of activities through which organisation provide value to its
customers
● Value Chain Analysis
○ “Value chain analysis is a
■ Process
■ where a firm
■ Identifies
■ its primary and support activities

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■ that add value to its final product and

■ Then analyse these activities
● Value chain analysis helps in
○ maintaining the long-term competitive position of an organisation
○ To sustain value for-money in its products or service.
○ Identifying those activities which the organisation must undertake at a
threshold level of competence and those which represent the core competences
of the organisation.

Primary Activities
Inbound logistics
Inbound logistics are the activities concerned with
- receiving, storing and distributing the inputs to the product/service.
- This includes materials handling, stock control, transport etc. Like, transportation and
warehousing.

Operations
- Operations transform these inputs into the final product or service: machining,
packaging, assembly, testing, etc. convert raw materials into finished goods.

Outbound logistics
Outbound logistics
- collect, store and distribute the product to customers.
- For tangible products this would be warehousing, materials handling, transport, etc.

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- In the case of services, it may be more concerned with arrangements for bringing
customers to the service, if it is a fixed location (e.g. sports events).

Marketing and sales

- Marketing and sales provide the means whereby consumers/users are made aware of the
product/service and are able to purchase it.
- This would include
- sales administration, advertising, selling and so on.

Service
Services are all those activities, which enhance or maintain the value of a product/service, such
as installation, repair, training and spares.

Support Activities
Each of these groups of primary activities are linked to support activities. These can be divided
into four areas;

Procurement:
- This refers to the processes for acquiring the various resource inputs to the primary
activities (not to the resources themselves).

Technology development
- All value activities have a ‘technology’, even if it is simply know-how.
- The key technologies may be concerned directly with the product (e.g. R&D product
design) or with processes (e.g. process development) or with a particular resource (e.g.
raw materials improvements).

Human resource management

- Important area which covers all primary activities.
- Activities involved in HRM are recruiting, managing, training, developing and rewarding
people within the organization.

Infrastructure
- The systems of planning, finance, quality control, information management, etc. are
crucially important to an organization’s performance in its primary activities.
- Infrastructure also consists of the structures and routines of the organization which
sustain its culture.

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Managing of Linkages
Core competences in separate activities may provide competitive advantage for an
organization,
but nevertheless over time may be imitated by competitors.

Core competences are likely to be more robust and difficult to imitate if they relate to the
management of linkages within the organisation’s value chain and linkages into the supply and
distribution chains.

It is the management of these linkages which provides ‘leverage’ and levels of performance
which are difficult to match.

This management of internal linkages in the value chain could create a competitive advantage
in a number of ways

● Important linkages between the primary activities

● The management of the linkages between a primary activity and a support activity
● Linkages between different support activities

In addition to the management of internal linkage, competitive advantage may also be gained
by the ability to complement/co-ordinate the organisation’s own activities with those of
suppliers, channels or customers.

Vertical integration attempts to improve performance through ownership of more parts of the
value system, making more linkages internal to the organisation.

However, the practical difficulties and costs of co-ordinating a wider range of internal activities
can outweigh the theoretical benefits.

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Internal Analysis (Portfolio Analysis)

(Decision making technique for multi-product or multi
business Org)

Meaning
1. Decision making technique for multi-product and multi business organisation.
2. Helps in taking strategic decision w.r.t to individual products & businesses
3. It’s used for competitive analysis & planning in multi-product multi business firms. In
order to design the business portfolio,
a. the business must analyze its current business portfolio and
b. decide which businesses should receive more, less, or no investment.
4. Depending upon analyses businesses may develop growth strategies for adding new
products or businesses to the portfolio.
5. A business portfolio is a collection of businesses and products that make up the
company.
6. The best business portfolio is the one that best fits the company’s strengths and
weaknesses to opportunities in the environment.
7. The main advantage in adopting a portfolio approach in a multi-product, multi-business
firm is that resources could be channelised at the corporate level to those businesses
that possess the greatest potential.
8. There are three important concepts, the knowledge of which is a prerequisite to
understand different models of portfolio analysis:
a. SBU
b. Experience Curve
c. Product Life Cycle

QUESTION
Portfolio analysis helps the strategists in identifying and evaluating various businesses of a
company. T/F with reason.

Correct: A business portfolio is a collection of businesses and products that make up the
organisation. Portfolio analysis is a tool by which management identifies and evaluates its
various businesses. In portfolio analysis top management views its product lines and business
units as a series of investments from which it expects returns. The best business portfolio is
the one that best fits its strengths and weaknesses to the opportunities and threats in the
environment. Through portfolio analysis, organisations are able to compare its various

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businesses and categorise them in various strata as promising, growing, without a good future
and so on.

SBU (Strategic business Unit)

● These are the key businesses.
● It is a unit of the company
○ that has a separate mission & objectives &
○ which can be planned independently from other company businesses.
● It can be a company division, product line within a division etc.
CHARACTERISTICS:
1. Single business or collection of related businesses that can be planned for separately
2. Has its own set of competitors?
3. Has a manager who is responsible for strategic planning & profit.

After identifying SBUs, the management will assess their respective attractiveness and decide
how much support each deserves. For example, Reliance Industries has different SBUs for
petroleum, Internet services, clothing, retail, etc. headed by different individuals responsible for
that line of business.

Experience Curve
Explain the concept of Experience Curve and highlight its relevance in strategic management.

1. The concept is akin (similar) to a learning curve which explains the efficiency increase
gained by workers through repetitive productive work.
2. Experience curve is based on the commonly observed phenomenon that unit costs
decline as a firm accumulates experience in terms of a cumulative volume of production.
3. The implication is that larger firms in an industry would tend to have lower unit costs
as compared to those for smaller companies, thereby gaining a competitive cost
advantage.
4. Experience curve results from a variety of factors such as learning effects, economies of
scale, product redesign and technological improvements in production.

Experience curve has following features:

● As business organisation grow, they gain experience.
● Experience may provide an advantage over the competition. Experience is a key barrier
to entry

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● Large and successful organisation possess stronger “experience effect”. A typical

experience curve may be depicted as follows:

The concept of experience curve is relevant for a number of areas in strategic management. For
instance, the experience curve is considered a barrier for new firms contemplating entry in an
industry. It is also used to build market share and discourage competition.

Product Life Cycle

1. It is a useful concept for guiding strategic choice.
2. Essentially, PLC is an S-shaped curve which explains the relationship of sales with
respect to time.
3. It diagnoses the business portfolio or the product portfolio and establishes the stage.
4. Depending on the diagnosis, appropriate strategic choices could be made.
5. According to PLC a product passes through the four successive stages of
a. Introduction (slow sales growth),
b. Growth (rapid market acceptance)
c. Maturity (slowdown in growth rate) and
d. Decline (sharp downward drift).

The first stage of PLC is the introduction stage in which competition is almost negligible,
prices are relatively high, and markets are limited. The growth in sales is at a lower rate
because of lack of knowledge on the part of customers.

The second phase of PLC is the growth stage. In the growth stage, the demand expands
rapidly, prices fall, competition increases, and the market expands. The customer has knowledge
about the product and shows interest in purchasing it.

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The third phase of PLC is maturity stage. In this stage, the competition gets tough and the
market stabilises. Profit comes down because of stiff competition. At this stage, organisations
have to work for maintaining stability.

In the declining stage of PLC, the sales and profits fall down sharply due to some new
products replacing the existing product. So, a combination of strategies can be implemented to
stay in the market either by diversification or retrenchment.

Depending upon stage in which the business/ product exists,

a. Expansion may be a feasible alternative for businesses in the introductory and growth
stages.
b. Mature businesses may be used as sources of cash for investment in other businesses
which need resources.

ABC Ltd. manufactures and sells air purifier ‘Fresh Breath’. The ‘Fresh Breath’ has seen
sales growth of around 1% for the last two years, after strong growth in the previous five
years. This is due to new products entering the market in competition with the ‘Fresh
Breath’. ABC Ltd. is therefore considering cutting its prices to be in line with its major rivals
with a hope to maintain the market share. Market research indicates that this will now
cause a significant increase in the level of sales, even though in previous years price cuts
have had little effect on demand. ABC ltd. is also planning to launch a promotional campaign
to highlight the benefits of the ‘Fresh Breath’ against its rival products.
Identify and explain the stage of the product life cycle in which ‘Fresh Breath’ falls.
RTP May 2021

The emphasis on product design is very high, the intensity of competition is low, and the
market growth rate is low in the ______ stage of the industry life cycle.
(a) Maturity
(b) Introduction
(c) Growth
(d) Decline
(Sample MCQs)

Explain the concept of the experience curve and highlight its relevance in strategic
management.
(RTP, May 2018, NA) (MTP2, Nov 2018, 5 Marks)

Relevance of experience curve.

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(MTP2, May 2018, 4 Marks)

"A tool by which management identifies and evaluates the various businesses that make up a
company is termed as:
a) Value Chain Analysis
b) Portfolio Analysis
c) Competition Analysis
d) Strategic Analysis"
(Sample MCQs) (RTP, May 2020, NA)

During which stage of the Product Life Cycle will marketing strategies need to concentrate
on differentiating a product from competing products, building brand loyalty and offering
incentives
to attract competitor’s customers to switch?
(a) Decline
(b) Growth
(c) Maturity
(d) Introduction
(MTP2, Nov 2021, 2 Marks)

Portfolio Analysis techniques

Boston Consulting Group (BCG) Growth-Share Matrix
● The BCG growth-share matrix is the simplest way to portray a corporation's portfolio of
investments.
● It’s also known for its cow and dog metaphors.
● It is popularly used for resource allocation in a diversified company.
● Using it, a company classifies its different businesses on a two-dimensional
growth-share matrix.
● In the matrix:
○ The vertical axis represents market growth rate.
○ The horizontal axis represents relative market share and serves as a measure of
company strength in the market.
● Using the matrix, organisations can identify four different types of products or SBU as
follows:
○ Stars
■ are products or SBUs that are growing rapidly.

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■ They also need heavy investment to maintain their position and finance
their rapid growth potential.
■ They represent the best opportunities for expansion.

○ Cash Cows
■ are low-growth, high market share businesses or products.
■ They generate cash and have low costs.
■ They are established, successful, and need less investment to maintain
their market share.
■ In long run when the growth rate slows down, stars become cash cows.

○ Question Marks,
■ sometimes called problem children or wildcats, are low market share
business in high-growth markets.
■ They require a lot of cash to hold their share.
■ They need heavy investments with low potential to generate cash.
■ Question marks if left unattended are capable of becoming cash traps.
■ It is for business organisations to turn them stars and then to cash
cows when the growth rate reduces.
○ Dogs
■ are low-growth, low-share businesses and products.
■ They may generate enough cash to maintain themselves, but do not
have much future.
■ Sometimes they may need cash to survive.
■ Dogs should be minimized by means of divestment or liquidation.

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Problems and limitations with the BCG method

1. Difficult,
2. Time-consuming, and
3. Costly to implement.
4. Management may find it difficult to define SBUs and measure market share and
growth.
5. It also focuses on classifying current businesses but provide little advice for future
planning.
6. They can lead the company to place too much emphasis on market-share growth or
growth through entry into attractive new markets. This can cause unwise expansion into
hot, new, risky ventures or giving up on established units too quickly.

Strategies to applied in BCG Model

In the BCG growth-share matrix portfolio of investments are represented in two dimensional
space. The vertical axis represents market growth rate and the horizontal axis represents
relative market share. Using the matrix, organizations can identify four different types of
products or SBU as stars, question marks, cash cows and dogs. In the light of BCG Growth
Matrix, the four strategies that can be pursued are:

1. Build: Here the objective is to increase market share, even by forgoing short-term
earnings in favour of building a strong future with large market share. It is done by
increasing investment. For example, investments can be made to push question marks
into stars.

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2. Hold Here the objective is to preserve market share. It can be in situation where the
organization is not in position to invest or has other commitments.
3. Harvest: A relevant situation can be when the product or SBU is in position of being
Cash Cow. Here the objective is to increase short-term cash flow regardless of long-
term effect.
4. Divest: Divest is relevant in case of Dog quadrant. Here the objective is to sell or
liquidate the business because resources can be better used elsewhere.

Question - "B" in BCG Matrix stands for balance. T/F with reason
Incorrect: The acronym BCG stands for Boston Consulting Group, an organization that
developed a matrix to portray an organizational corporate portfolio of investment. This matrix
depicts growth of business and the business share enjoyed by an organization. The matrix is
also known for its cow and dog metaphors and is popularly used for resource allocation in a
diversified company.

Question - Growth share matrix is popularly used for resource allocation. T/F with reason
Correct: Growth share matrix also known for its cow and dog metaphors is popularly used for
resource allocation in a diversified company. Primarily it categorizes organizations/products on
the basis of two factors consisting of the growth opportunities and the market share
enjoyed.

A beverage company has more than 500 soft drink brands, but none of them is anywhere
close to its premium brand One Sip in awareness, revenue and profits. As per BCG's Matrix,
One Sip brand for the beverage company is?
(a) Star
(b) Dog
(c) Cash cow
(d) Question Mark
(MTP2, May 2021, 1 Mark)

An organization that has a low relative market share position and competes in a slow-growth
industry is referred to as a _____.
(a) Dog
(b) Question Mark
(c) Star
(d) Cash Cows
(Sample MCQs)

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The most probable time to pursue a harvest strategy is in a situation of

(a) High growth
(b) Decline in the market life cycle
(c) Strong competitive advantage
(d) Mergers and acquisitions
(Sample MCQs)

‘Build,’ ‘Hold,’ ‘Harvest,’ and ‘Divest’ are the strategies pursued in

a) Boston Consulting Group Growth-Share Matrix
b) Value chain Analysis
c) Managerial Grid Matrix
d) Ansoff’s Product Matrix Growth Matrix
(Sample MCQs)

"The low growth, low share businesses in BCG matrix are:

a) Cows
b) Dogs
c) Cats
d) Question Marks"
(Sample MCQs)

Under BCG an SBU with products having little market share but in an attractive industry is
referred to as:
(a) Cash cow.
(b) Star.
(c) Dog.
(d) Question mark.
(RTP, May 2019, NA)

What does Dogs symbolize in BCG matrix?

a. Invest
b. Harvest
c. Build
d. Divest
(MTP1, May 2019, 1 Mark)

The Specialist Clothing Company (SCC) is a manufacturer of a wide range of clothing.

Fashion is one of the five divisions of SCC. Fashion is operating in a market with high

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growth and is a market leader. By the next year, it is predicted to have 10% of the market
share in a growing market. Fashion should be classified as which of the following according
to the BCG matrix.
(a) Star
(b) Dog
(c) Cash cow
(d) Question mark
(MTP1, May 2021, 1 Mark)

Baba Pvt Ltd has seventeen factories, nine of which they recently gave to other producers
on lease. This has increased their cash inflows to a great extent, and they are enjoying this
surplus by investing the same in financial assets. Such a strategy can be termed as which of
the following?
(a) Divest
(b) Harvest
(c) Hold
(d) Build
(MTP1, Nov 2021, 2 Marks)

In context to BCG matrix, which of the following statements is not correct?

(a) The BCG assumes that all products will grow and mature.
(b) The BCG can be used to examine a company’s current product portfolio.
(c) A company with only cash cows and dogs has limited long-term prospects.
(d) All of the above
(MTP2, Nov 2021, 1 Mark)

Explain the strategic implications of each of the following types of business in a corporate
portfolio: (a) Stars
(b) Question Marks
(c) Cash Cows
(d) Dogs
(RTP, May 2022, NA)

General Electric model

Discuss General Electric model of analyzing current business portfolio.
- To analyze the business portfolio the General Electric Company used a model which is
also known as
- Business Planning Matrix,

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- GE Nine-Cell Matrix and

- GE Electric Model.
- The strategic planning approach in this model has been inspired from traffic control
lights.
- The lights that are used at crossings to manage traffic are:
- green for go,
- amber or yellow for caution,
- and red for stop.
- This model uses two factors while taking strategic decisions:
- Business Strength and
- Market Attractiveness.
- The vertical axis indicates market attractiveness and the horizontal axis shows the
business strength in the industry.
● If a product falls in the green section,
○ the business is in an advantageous position.
○ To reap the benefits, the strategic decision can be
■ to expand,
■ to invest and
■ grow.
● If a product is in the amber or yellow zone,
○ It needs caution and managerial discretion is called for making the strategic
choices.
● If a product is in the red zone,
○ it will eventually lead to losses that would make things difficult for
organizations.
○ In such cases, the appropriate strategy should be
■ retrenchment,
■ divestment or
■ liquidation.

This model is similar to the BCG growth-share matrix. However, there are differences. Firstly,
market attractiveness replaces market growth as the dimension of industry attractiveness and
includes a broader range of factors other than just the market growth rate. Secondly,
competitive strength replaces market share as the dimension by which the competitive position
of each SBU is assessed.

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Write a short note on GE Model to analyze the business portfolio.

Ansoff's Product Market Growth Matrix

● Proposed by Igor Ansoff
● Helps in deciding product & market growth strategy.
● Gives a fair idea about the growth of the business in terms of product and markets.
● It is also known as product market expansion grid
● It is a portfolio planning tool.
● Helps in identifying growth opportunities.

Market Penetration
● Market penetration refers to a growth strategy where the business focuses on selling
existing products into existing markets.
● It is achieved by making more sales to present customers without changing products in
any major way.
● It might require greater spending on advertising or personal selling.
● It is also done by effort on increasing usage by existing customers.

Market Development:
● Market development refers to a growth strategy where the business seeks to sell its
existing products into new markets.
● It is a strategy for company growth by identifying and developing new markets for
current company products.

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● This strategy may be achieved through new geographical markets, new product
dimensions or packaging, new distribution channels or different pricing policies to
attract different customers or create new market segments.

Product Development
● Product development refers to a growth strategy where business aims to introduce new
products into existing markets.
● It is a strategy for company growth by offering modified or new products to current
markets.
● It may require the development of new competencies and requires the business to
develop modified products which can appeal to existing markets.

Diversification
● Diversification refers to a growth strategy where a business markets new products in
new markets.
● It is a strategy by starting up or acquiring businesses outside the company's current
products and markets.
● This strategy is risky because it does not rely on either the company's successful
product or its position in established markets.
● Here business is moving into markets in which it has little or no experience.

As market conditions change overtime, a company may shift product-market growth strategies.
For example, when its present market is fully saturated a company may have no choice other
than to pursue a new market.

An advertisement says, ‘Have Roohafza with milk and lassi too’. Which strategy is the
company trying to use:
a) Market Development
b) Product Development
c) Market Penetration

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d) All of the above"

(Sample MCQs)

"ADL matrix has been propounded by:

a) Arthur D. Lowey
b) Arthur D. Little
c) Arthur D. Levin
d) Arthur D. Louise"
(Sample MCQs)

How Ansoff’s Product-Market Growth Matrix is a useful tool for business organizations?
(RTP, Nov 2018, NA) (MTP2, May 2019, 5 Marks) (MTP1, Nov 2021, 5 Marks)

"Ajanta & Sons Limited are manufacturers of domestic household security alarms for
high-income group homeowners in India. The company is currently reviewing two strategic
options.
Option 1: Selling the same alarms although with different coverings to smaller and
low-income group households at a lower price.
Option 2: Development of new, more sophisticated alarms and a wide range of security
services (guards and surveillance) for sale to industrial clients for higher prices.
The senior management team of Ajanta & Sons Limited are keen to analyse the two options
using Ansoff's Matrix."
(RTP, Nov 2021, NA)

ADL Matrix
- The ADL matrix (derived its name from Arthur D. Little) is a portfolio analysis
technique that is based on product life cycle.
- The approach forms a two-dimensional matrix based on stage of industry maturity and
the firms competitive position
- Stage of industry maturity is an environmental measure that represents a position in
industry’s life cycle.
- Competitive position is a measure of business strengths that helps in categorization of
products or SBU’s into one of five competitive positions
- Dominant
- Strong
- Favourable
- Tenable
- Weak

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It is four by five matrix

Competitive Stage of industry maturity Arthur D. Little (ADL) Matrix

position
Embryonic Growth Mature Ageing

Dominant Fast grow Fast grow Defend position Defend position

Build barriers Attend cost Attend cost Renew
Act offensively leadership leadership Focus •
Renew Renew Consider
Defend position Fast grow withdrawal
Act offensively Act offensively

Strong Differentiate Differentiate Lower cost Defend position

Fast Grow Lower cost Focus Renew
Attack small Differentiate Focus
firms. Grow with Consider
industry withdrawal

Favorable Differentiate Focus Focus Harvest

Focus Differentiate Differentiate Turnaround
Fast Grow Defend Harvest
Find niche
Hold niche
Turnaround
Grow with
industry Hit
smaller firms

Tenable Grow with Hold niche • Turnaround Divest

industry Turnaround Hold niche Retrench
Focus Focus Retrench
Grow with
industry
Withdraw

Weak Find Niche Turnaround Withdraw Withdraw

Catch-up Retrench Divest
Grow with Niche or
industry withdraw

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 Chapter 2 - Dynamics of Competitive Strategy

The competitive position of a firm is based on an assessment of the following criteria:

Dominant
This is a comparatively rare position and in many cases is attributable either to a monopoly or
a strong and protected technological leadership.

Strong
By virtue of this position, the firm has a considerable degree of freedom over its choice of
strategies and is often able to act without its market position being unduly threatened by its
competitions.

Favourable
This position, which generally comes about when the industry is fragmented and no one
competitor stand out clearly, results in the market leaders a reasonable degree of freedom.

Tenable
Although the firms within this category are able to perform satisfactorily and can justify
staying in the industry, they are generally vulnerable in the face of increased competition from
stronger and more proactive companies in the market.

Weak
The performance of firms in this category is generally unsatisfactory although the opportunities
for improvement do exist.

Write a short note on the role of ADL Matrix in assessing competitive position of a firm.
(RTP, Nov 2020, NA) (RTP, May 2022, NA) - ADL Matrix

"ADL matrix has been propounded by:

a) Arthur D. Lowey
b) Arthur D. Little
c) Arthur D. Levin
d) Arthur D. Louise"
(Sample MCQs)

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SWOT Analysis
Meaning
The identification and analysis of strengths, weaknesses, opportunities, and threats is normally
referred to as SWOT analysis.

SWOT analysis is a tool used by organizations for evolving strategic options for the future.

While strength and weakness are internal to any business, threats and opportunities exists in
its external environment.

● Strength- It is an inherent capability of an organisation to gain strategic advantage

over its competitors.
● Weaknesses-inherent limitation/ constraint of org. which creates strategic disadvantage
to it.
● Opportunities-favourable conditions in an organisation's environment which enables it to
strengthen its position.
● Threat- Unfavourable condition in organisation environment which causes risks &
damages to organisation.

The major purpose of SWOT analysis is to enable the management to create a firm-specific
business model that will best match an organisational resources and capabilities to the
demands of the environment in which it operates.

Why SWOT Analysis?

SWOT analysis helps managers to craft a business model (or models) that will allow a
company to gain a competitive advantage in its industry (or industries). Competitive advantage
leads to increased profitability, and this maximizes a company's chances of surviving in the
fast-changing, competitive environment.

Key reasons for SWOT analyses are:

● It provides a logical framework.
○ For understanding the issues having an impact on business.
● It presents a comparative account.
○ Makes it possible to compare external opportunities and threats with internal
strength and weakness.
● It guides the strategist in strategy identification.

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○ SWOT analysis guides the strategist to think of the overall position of the
organization that helps to identify the major purpose of the strategy under
focus.

Potential Resource Strengths and Potential Resource

Competitive Capabilities Weaknesses and Competitive
Deficiencies

Potential Company Opportunities Potential External Threats to

Company’s Well-Being

Which of the following is not a limitation of SWOT (Strengths, Weaknesses, Opportunity,

Threats) analysis?
(a) Organizational strengths may not lead to competitive advantage
(b) SWOT gives a one-shot view of a moving target
(c) SWOT's focus on the external environment is too broad and integrative
(d) SWOT overemphasizes a single dimension of strategy
(Sample MCQs)

What is an opportunity?
(RTP, May 2018, NA)

Write a short note on SWOT analysis.

(SA, May 2018, 3 Marks) (RTP, Nov 2018, NA) (RTP, May 2021, NA)

Why is it necessary to do a SWOT analysis before selecting a particular strategy for a

business organization?
(MTP1, Nov 2018, 5 Marks)

Internal __________ are activities in an organization that are performed especially well.
a. Opportunities
b. Competencies
c. Strengths
d. Management
(MTP1, May 2019, 1 Mark)

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What is the purpose of SWOT analysis? Why is it necessary to do a SWOT analysis before
selecting a particular strategy for a business organisation?
(RTP, May 2020, NA)

"ABC is a marketing consultancy business. ABC's most recent corporate analysis has
identified that three new businesses have recently entered its market and started aggresively
targeting ABC's key client. As part of ABC's corporate analysis, these three new businesses
would be a
(a) Strength
(b) Opportunity
(c) Weakness
(d) Threat"
(RTP, Nov 2021, NA)

TOWS MATRIX
It has been criticized that after conducting the SWOT Analysis managers frequently fail to
come to terms with the strategic choices that the outcomes demand.

In order to overcome this, TOWS Matrix was advocated, which, while using the same inputs
(Threats, Opportunities, Weakness and Strengths) reorganizes them and systematically
identifies relationships between these factors and selects strategies on their basis.

Options in TOWS
The TOWS Matrix is a tool for generating strategic options. Through the TOWS matrix four
distinct alternative kinds of strategic choices can be identified.

SO(Maxi-Maxi) – Aggressive strategy

SO is a position that any firm would like to achieve. The strengths can be used to capitalize or
build upon existing or emerging opportunities. Such firms can take lead from their strengths
and utilize the resources to build up the competitive advantage.

ST(Maxi-Mini) -Conservative strategy:

ST is a position in which a firm strives to minimize existing or emerging threats through its
strengths.

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WO(Mini-Maxi) – Competitive strategy

The firm needs to overcome internal weaknesses and make attempts to exploit opportunities to
the maximum.

WT(Mini-Mini) – Defensive strategy

WT is a position that any firm will try to avoid. A firm facing external threats and internal
weaknesses may have to struggle for its survival. WT strategy is a strategy which is pursued to
minimize or overcome weaknesses and as far as possible, cope with existing or emerging
threats.
1. It matches the strengths & weaknesses of an organization with the external
opportunities & threats. (SWOT helped in comparing)
2. It helps in systematically identifying relationships between these factors & selecting
strategies on their basis. (In SWOT we were just listing Ss, Ws, Os, Ts)
3. It’s a simple tool for generating strategic options. (SWOT never gave ready made
solutions)
4. It is an action tool. (SWOT was a planning tool)

Which section of the SWOT Matrix involves matching internal strengths with external
opportunities?
(a) The WT cell
(b) The SW cell
(c) The SO cell
(d) The ST cell
(Sample MCQs)

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Globalisation

Global strategy
Global strategy, addressing how to expand operations outside the home country to grow and
prosper in a world where competitive advantage is determined at a global level.

Meaning of Globalisation

A company which has gone global is called a multinational (MNC) or a transnational (TNC).

An MNC
- gains R&D, production, marketing and financial advantages in its costs and reputation
that are not available to purely domestic competitors.

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Characteristics of Global Company

Super National Enterprise

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Why do companies go global

"Which of the following is true of a transnational Corporation:

a) They have subsidiaries but do not have centralized management system
b) They have no subsidiaries but have centralized management system
c) They do not have subsidiaries and do not have centralized management system
d) They have subsidiaries and have a centralized management system"
(Sample MCQs)

Why companies should go global? Mention any five reasons.

(SA, Nov 2020, 5 Marks)

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Chapter 3
Strategic Management Process
Strategic Decision Making

The major dimensions of strategic decisions are as follows:

● Strategic decisions require top-management involvement: Strategic decisions involve

thinking in totality of the organization. Hence, problems calling for strategic decisions
require to be considered by the top management.
● Strategic decisions involve commitment of organizational resources: For example,
Strategic decisions to launch a new project by a firm requires allocation of huge funds
and assignment of a large number of employees.

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● Strategic decisions necessitate consideration of factors in the firm’s external

environment: Strategic focus in organization involves orienting its internal environment
to the changes of external environment.
● Strategic decisions are likely to have a significant impact on the long-term prosperity of
the firm: Generally, the results of strategic implementation are seen on a long-term
basis and not immediately.
● Strategic decisions are future oriented: Strategic thinking involves predicting the future
environmental conditions and how to orient for the changed conditions.
● Strategic decisions usually have major multifunctional or multi-business consequences:
As they involve organization in totality they affect different sections of the
organization with varying degree.

Rohit Seth in an informal discussion with his friend shared that he has to move very
cautiously in his organisation as the decisions taken by him have organisation wide impact
and involve large commitments of resources. He also said that his decisions decide the future
of his organisation.
Where will you place Rohit Seth in organisational hierarchy? What are the dimensions of the
decisions being taken by him?
(RTP, May 2018, NA) (RTP, May 2020, NA)

What is strategic decision making? What are its major dimensions?

(MTP 1, May 2018, 5 Marks)

What is Strategic Decision Making? Briefly explain the major dimensions of strategic
decisions.
(MTP 2, Nov 2018, 7 Marks)

Which of the following statement is not true about strategic decisions?

(a) They need top-management involvement.
(b) Involve commitment of organisational resources.
(c) They are based on external environment
(d) They have insignificant impact on the long-term prosperity
(RTP, May 2019, NA)

Shri Alok Kumar is having his own medium size factory in Aligarh manufacturing hardware
consisting handles, hinges, tower bolts and so on. He has a staff of more than 220 in his
organisation. One of the leading brand of Hardware seller in India is rebranding and selling

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the material from his factory. Shri Alok Kumar, believes in close supervision and takes all
major and minor decisions in the organisation.

Do you think Shri Alok should take all decisions himself? What should be nature of decisions
that should be taken by him.

(RTP, May 2019, NA) (MTP 1, May 2021, 5 Marks) (MTP 2, Nov 2021, 5 Marks)

A owner of medium size factory in Aligarh manufacturing hardware consisting handles,

hinges, tower bolts and so on has a staff of about 200 in his organisation. One of the
leading brand of Hardware seller in India is rebranding and selling the material from his
factory. The owner believes in close supervision and takes all major and minor decisions in
the organisation.

Do you think the owner should take all decisions himself? What kind of decisions should be
taken by person at the level of owner of a medium size factory.
(MTP 2, May 2019, 5 Marks)

What is strategic decision making? What tasks are performed by a strategic Manager?
(MTP 1, Nov 2019, 5 Marks) (RTP, Nov 2020, NA)

“Strategic decisions are different in nature than all other decisions.” In the light of this
statement, explain any three major dimensions of strategic decisions.
(RTP, May 2020, NA) (SA, May 2021, 5 Marks)

How strategic decisions differ in nature from other routine decisions taken in day-to-day
working of an organization? Explain.
(RTP, Nov 2021, NA)

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Strategic Intent

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Define strategic intent. Briefly explain the elements of strategic intent.

(RTP, May 2018, NA)

What are the elements in strategic intent of organisation?

(RTP, May 2019, NA) (RTP, May 2020, NA)

Which one is not the element of strategic intent?

(a) Business model
(b) Vision
(c) Business definition
(d) Business standard
(MTP 1, Nov 2019, 1 Mark) (RTP, May 2020, NA)

The philosophical base of strategic management falls within the concept of-
(a) Strategic Intent

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(b) Portfolio Analysis

(c) Globalisation
(d) Vision statement
(MTP 1, Nov 2021, 1 Mark)

Vision

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Some examples of Vision are:

● ICAI: World's leading accounting body, a regulator and developer of trusted and
independent professionals with world class competencies in accounting, assurance,
taxation, finance and business advisory services.
● Reliance Industries: Through sustainable measures, create value for the nation, enhance
quality of life across the entire socio-economic spectrum and help spearhead India as a
global leader in the domains where we operate.
● TATA Power: To be the most admired and responsible Integrated Power Company with
international footprint, delivering sustainable value to all stakeholders.
● TATA Motors: To be a world class corporate constantly furthering the interest of all its
stakeholders.

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Mission
Meaning
● Mission statement is an answer to the basic question ‘what business are we in and
what do we do’.
● Mission statements broadly describe an organization's present
○ Capabilities,
○ customer focus,
○ activities, and business makeup.
● An organisation’s mission states what customers it serves, what need it satisfies, and
what type of product it offers.
● Focus on on present business scope
● It is an expression of the growth ambition of the organisation.
● If there is no clear mission business will fail

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Points to be considered while writing a mission statement

Difference between Mission and Vision

● A Mission statement tells you the fundamental purpose of the organization.
● It concentrates on the present.
● On the other hand, a Vision statement outlines what the organization wants to be. It
concentrates on the future.
● A mission statement can resemble a vision statement in a few companies, but that can
be a grave mistake. It can confuse people. Following are the differences between vision
and mission:

1. The vision describes a future identity while the Mission serves as an ongoing
and time- independent guide.
2. The vision statement can galvanize the people to achieve defined objectives,
even if they are stretch objectives, provided the vision is specific, measurable,
achievable, and relevant and time bound.
3. A mission statement provides a path to realize the vision in line with its values.
These statements have a direct bearing on the bottom line and success of the
organization.
4. A vision statement defines the purpose or broader goal for being in existence or
in the business and can remain the same for decades if crafted well while a
mission statement is more specific in terms of both the future state and the
time frame. Mission describes what will be achieved if the organization is

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successful. (Example - Right now we are providing ebook reader, but

ultimately we will make a complete knowledge delivery platform - This
example will be explained in class.)

Importance
Why should an organization have a mission?
1. To ensure unanimity of purpose within the organization.
2. To provide a basis for motivating the use of the organization's resources.
3. To develop a basis, or standard, for allocating organizational resources.
4. To establish a general tone or organizational climate, for example, to suggest a
businesslike operation.
5. To serve as a focal point for those who can identify with the organization's purpose
and direction, and to deter those who cannot form participating further in the
organization's activities.
6. To specify organizational purposes and the translation of these purposes into goals in
such a way that cost, time, and performance parameters can be assessed and
controlled.
7. To facilitate the translation of objectives and goals into a work structure involving the
assignment of tasks to responsible elements within the organization.

Examples
Some examples of Mission are:

ICAI
ICAI will leverage technology and infrastructure and partner with its stakeholders to
● Impart world class education, training and professional development opportunities to
create global professionals.
● Develop an independent and transparent regulatory mechanism that keeps pace with
the changing times.
● Ensure adherence to highest ethical standards.
● Conduct cutting edge research and development in the areas of accounting, assurance,
taxation, finance and business advisory services.
● Establish ICAI members and firms as Indian multi-national service providers.

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Tata motor - Vision and Mission

Members of Infinite Care, an NGO, have met and determined that they need to formulate a
philosophical basis for their activities. Thereby they have come up with a statement:“Provide
children till age 12, living in homeless or low-income situations, with the essential items they
need to thrive – at home, at school and at play” Identify the area of strategic intent, which
the members have stated?
(a) Vision
(b) Business Definition
(c) Goal and Objective
(d) Mission
(MTP 1, Nov 2020, 2 Marks)

Which of these basic questions should a vision statement answer?

(a) What is our business?
(b) Who are our competitors?
(c) Where we are to go?
(d) Why do we exist?
(Sample MCQs) (MTP 1, May 2019, 1 Mark)

Distinguish between the following - Vision and Mission -

(RTP, May 2018, NA)

Answer - Source ICAI Publications as published on www.icai.org

The vision describes a future identity while the Mission serves as an on-going and
time-independent guide.

The vision statement can galvanize the people to achieve defined objectives, even if they are
stretch objectives, provided the vision is specific, measurable, achievable, and relevant and

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time bound. A mission statement provides a path to realize the vision in line with its values.
These statements have a direct bearing on the bottom line and success of the organization.

A mission statement defines the purpose or broader goal for being in existence or in the
business and can remain the same for decades if crafted well while a vision statement is
more specific in terms of both the future state and the time frame. Vision describes what
will be achieved if the organization is successful.

What is strategic vision?

(MTP 1, May 2018, 2 Marks) (RTP, Nov 2018, NA)

Distinguish between vision statement and mission statement.

(MTP 2, May 2018, 5 Marks) (MTP 1, Nov 2018, 5 Marks)
Answer - Source ICAI Publications as published on www.icai.org
A Mission statement tells you the fundamental purpose of the organization. It concentrates
on the present. It defines the customer and the critical processes. It informs you of the
desired level of performance. On the other hand, a Vision statement outlines what the
organization wants to be. It concentrates on the future. It is a source of inspiration. It
provides clear decision -making criteria.
A mission statement can resemble a vision statement in a few companies, but that can be a
grave mistake. It can confuse people. Following are the major differences between vision and
mission:
1. The vision describes a future direction while the mission serves as ongoing intent.
2. The vision statement can galvanize the people to achieve defined objectives, even if they
are stretch objectives, provided the vision is specific, measurable, achievable, relevant and
time bound. A mission statement provides a path to realize the vision in line with its values.
These statements have a direct bearing on the bottom line and success of the organization.
3. A vision statement defines the purpose or broader goal for being in existence or in the
business and can remain the same for decades if crafted well while a mission statement is
more specific in terms of both the future state and the time frame. Mission describes what
will be achieved if the organization is successful.
Describe the term 'Strategic Vision'.
(SA, May 2018, 2 Marks)

Correct/Incorrect.
For a small entrepreneur vision and mission are irrelevant.
(RTP, Nov 2018, NA)

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Essentials of a strategic vision.

(RTP, Nov 2018, NA)
Mission:
(a) is an internally-focused definition of the organization's societal goals.
(b) is a statement of a firms unique purpose and scope of operations.
(c) does not relate to the industry in which the firm intends to compete.
(d) is developed by a firm before the firm develops its strategic intent.
(RTP, May 2019, NA) (MTP 2, May 2019, 1 Mark)

Statement that is typically focused on present business scope and broadly describes an
organizations present capabilities, customer focus, activities, and business makeup is:
A. Vision
B. Mission
C. Strategy
D. Goals
(RTP, Nov 2019, NA)

Mr Raj has been hired as a CEO by XYZ ltd a FMCG company that has diversified into
affordable cosmetics. The company intends to launch Feelgood brand of cosmetics. XYZ
wishes to enrich the lives of people with its products that are good for skin and are produced
in ecologically beneficial manner using herbal ingredients. Draft vision and mission statement
that may be formulated by Raj.
(RTP, Nov 2019, NA) (RTP, Nov 2020, NA)

Why an organisation should have a mission? What considerations are to be kept in mind
while writing a good mission statement of a company?
(SA, Nov 2019, 5 Marks)

What is strategic vision? Describe the essentials of strategic vision.

(SA, Nov 2020, 5 Marks)

What is the first step in the comprehensive strategic-management model?

(a) Developing vision and mission statements
(b) Performing external audits
(c) Measuring and evaluating performance
(d) Establishing long-term objectives
(MTP 1, Nov 2019, 1 Mark) (MTP 2, May 2021, 1 Mark)

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Mission statement of a company focuses on the question: ‘who we are’ and ‘what we do’.
Explain briefly.
(MTP 2, May 2021, 5 Marks)

Drishti Care is a not-for profit eye hospital and research centre. Which one of the following
statements is likely to relate to Drishti Care's vision, rather than its missionstatement?
(a) Drishti Care places patient care before all else.
(b) Drishti Care will be the global leader in cutting edge eye surgery.
(c) Drishti Care offers the highest level of patient care throughout country.
(d) Drishti Care consultants strive to continually improve surgical techniques.
(RTP, Nov 2021, NA)

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Goals & Objectives

ICAI has used these two interchangeably

Objectives, to be meaningful to serve the intended role, must possess the following
characteristics:
● Objectives should define the organization’s relationship with its environment.
● Objectives should be facilitative towards achievement of mission and purpose.
● Objectives should provide the basis for strategic decision-making.

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● Objectives should provide standards for performance appraisal.

● Objectives should be understandable.
● Objectives should be concrete and specific.
● Objectives should be related to a time frame.
● Objectives should be measurable and controllable.
● Objectives should be challenging.
● Different objectives should correlate with each other.
● Objectives should be set within constraints.

Short-term and long-term objectives

● A company’s set of financial and strategic objectives ought to include both short-term
and long-term performance targets. Having quarterly or annual objectives focuses
attention on delivering immediate performance improvements.
● Targets to be achieved within three to five years’ prompt considerations of what to do
now to put the company in position to perform better down the road.
● Short-range objectives can be identical to long-range objectives if an organisation is
already performing at the targeted long-term level.
● In case long-term and short-term objectives are not coinciding, Short-range objectives
then serve as steps toward achieving long term objectives.
● Long-term objectives represent the results expected from pursuing certain strategies.
Strategies represent the actions to be taken to accomplish long-term objectives.
● The time frame for objectives and strategies should be consistent, usually from two to
five years

Long-term objectives: To achieve long-term prosperity, strategic planners commonly establish

long-term objectives in seven areas.

- Profitability
- Productivity.
- Competitive Position.
- Employee Development.
- Employee Relations.
- Technological Leadership.
- Public Responsibility.

Self-Reading
Objectives should be quantitative, measurable, realistic, understandable, challenging, hierarchical,
obtainable, and congruent among organisational units. Each objective should also be associated
with a timeline. Objectives are commonly stated in terms such as growth in assets, growth in

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sales, profitability, market share, degree and nature of diversification, degree and nature of
vertical integration, earnings per share, and social responsibility. Clearly established objectives
offer many benefits. They provide direction, allow synergy, aid in evaluation, establish priorities,
reduce uncertainty, minimize conflicts, stimulate exertion, and aid in both the allocation of
resources and the design of jobs.

‘Objectives’ and ‘Goals’ provide meaning and sense of direction to organizational endeavour.
Explain.
(RTP, Nov 2018, NA)

Answer
Business organization translates their vision and mission into objectives. Objectives are
open-ended attributes that denote the future states or outcomes. Goals are close -ended
attributes which are precise and expressed in specific terms. Thus, the goals are more specific
and translate to objectives to short term perspective.
All organizations have objectives. The pursuit of objectives is an unending process such that
organizations sustain themselves. They provide meaning and sense of direction to
organizational endeavour. Organizational structure and activities are designed and resources
are allocated around the objectives to facilitate their achievement. They also act as
benchmarks for guiding organizational activity and for evaluating how the organization is
performing.

Objectives should be:

(i) Concrete and specific.
(ii) Related to time frame.
(iii) Standards for performance appraisal.
Which of the above statements are true:
a. (i) & (ii).
b. (ii) & (iii).
c. (i) & (iii).
d. (i), (ii) and (iii)
(MTP 2, May 2019, 1 Mark)

What are the characteristics which must be possessed by objectives, to be meaningful to

serve the intended role?
(SA, May 2019, 5 Marks)

What are 'objectives'? What characteristics must it possess to be meaningful?

(RTP, May 2021, NA) (RTP, May 2022, NA)

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Meba Ltd. had a huge capacity of 40,000 Kilo Litres production of Kerosene Oil, and they
were able to achieve 90% of it almost always, while the teams were also aware that they
could achieve 100% capacity with very less efforts, but always kept margins. Further, the
business team was planning to setup two more plants of 20,000 Kilo Litre capacity each in
the next five years. This
was a welcomed move from state governments as well. From the above, which of the
following
aspects of objectives is missing by production team?
(a) They should be clear and quantifiable.
(b) They should be concise.
(c) They should be challenging.
(d) They should provide standards for comparative appraisal.
(MTP 2, Nov 2021, 2 Marks)

Explain briefly the key areas in which the strategic planner should concentrate his mind to
achieve desired results.
(RTP, May 2021, NA)

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Strategic Management Model

Meaning

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Stages in Strategic Management Model

1. Strategic Vision, Mission and Objective

○ Organization must determine what directional path it should take and what
change would improve its current market position and future prospects.
○ In this stage organization should decide it’s strategic intent, vision, mission and
objectives

2. Environmental and Organizational Analysis

○ Diagnostic phase
○ Environmental Scanning
○ Organizational Analysis
○ Systematically analyze various elements of the environment to determine
opportunities and threats for the firm in future.
○ This would reveal organisational strengths and weaknesses which could be
matched with the threats and opportunities in the external environment.

3. Formulating Strategy
○ Developing strategic alternatives in the light of organization strengths and
weaknesses and opportunities and threats in the environment.

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○ Deep analysis of various strategic alternatives for the purpose of choosing the
most appropriate alternative which will serve as strategy of the firm.

A company may be confronted with several alternatives such as:

1. Should the company continue in the same business carrying on the same volume of
activities?
2. If it should continue in the same business, should it grow by expanding the
existing units or by establishing new units or by acquiring other units in the
industry.
3. If it should diversify, should it diversify into related areas or unrelated areas?
4. Should it get out of an existing business fully or partially?

4. Implementation of Strategy
○ Operations-oriented
○ Most demanding and time-consuming part of the strategy-management
process.
○ Convert strategic plans into actions and results manager has to do many tasks
○ In most situations, strategy-execution process includes the following principal
aspects:
i. Developing budgets that steer ample resources into those activities
critical to strategic success.
ii. Staffing the organization with the needed skills and expertise,
consciously building and strengthening strategy-supportive competencies
and competitive capabilities, and organizing the work effort.
iii. Ensuring that policies and operating procedures facilitate rather than
impede effective execution.
iv. Using the best-known practices to perform core business activities and
pushing for continuous improvement.
v. Installing information and operating systems that enable company
personnel to better carry out their strategic roles day in and day out.
vi. Motivating people to pursue the target objectives energetically.
vii. Creating a company culture and work climate conducive to successful
strategy implementation and execution.
viii. Exerting the internal leadership needed to drive implementation
forward and keep improving strategy execution.

Good strategy execution involves creating strong “fits”

● between strategy and organizational capabilities,
● between strategy and the reward structure,

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● between strategy and internal operating systems, and

● between strategy and the organization’s work climate and culture.

5. Strategic Evaluation and Control

○ Evaluating the performance of the organisation
○ Assessing the impact of new external development
○ Making Corrective Adjustments
○ Simply fine-tuning the strategic plan and continuing with ongoing efforts to
improve strategy execution are sufficient.
○ But whenever a company encounters disruptive changes in its external
environment, questions need to be raised about the appropriateness of its
direction and strategy.

Describe the principal aspects of strategy-execution process, which are included in most
situations.
(SA, May 2018, 5 Marks)

To convert strategic plans into actions and results, a manager must be able to direct
organizational change, motivate people, build and strengthen company competencies and
competitive capabilities, create a strategy-supportive work climate, and meet or beat
performance targets.
Explain the principal aspects of strategy-execution process.
(RTP, Nov 2018, NA) (MTP 1, May 2019, 5 Marks)

Present a diagrammatic representation of a Strategic Management model.

(SA, Nov 2018, 2 Marks)

The strategic management process is:

(a) a solution that guarantees prevention of organizational failure.
(b) concerned with a resources, capabilities, and competencies, but not the conditions in its
external environment.
(c) not to be used in the not-for-profit organisations.
(d) full set of commitments, decisions, and actions related to the firm.
(RTP, May 2019, NA)

During what stage of strategic management are a firm’s specific internal strengths and
weaknesses determined?
a. Formulation

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b. Implementation
c. Evaluation
d. Feedback
(MTP 1, May 2019, 1 Mark)

With the help of a model explain strategic management process.

(RTP, Nov 2019, NA)

What is the first step in the comprehensive strategic-management model?

(a) Developing vision and mission statements
(b) Performing external audits
(c) Measuring and evaluating performance
(d) Establishing long-term objectives
(MTP 1, Nov 2019, 1 Mark) (MTP 2, May 2021, 1 Mark)

In which phase of strategic management are annual objectives especially important?

(a) Formulation
(b) Control
(c) Evaluation
(d) Implementation
(RTP, May 2020, NA)

Strategy execution is an operations-oriented activity which involves a good fit between

strategy and organizational capabilities, structure, climate & culture. Enumerate the principal
aspects of strategy execution process which are used in most of the situations.
(SA, Jan 2021, 5 Marks) (Question 8, Study Material)

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STRATEGIC PLANNING
Meaning of planning
Planning means deciding what needs to be done in the future (today, next week, next month,
next year, over the next couple of years, etc.) and generating blueprints for action.

Good planning is an important constituent of good management.

It bridges the gap between where we are to where we want to go. Thus, planning is future
oriented in nature.

Strategic and Operational planning

Planning can be strategic or operational.

Strategic Planning Operational planning

Strategic planning shapes the organisation Operational planning deals with current
and its resources. deployment of resources.

Strategic planning assesses the impact of Operational planning develops tactics rather
environmental variables. than strategy.

Strategic planning takes a holistic view of Operational planning projects current

the organisation. operations into the future.

Strategic planning develops overall objectives Operational planning makes modifications to

and strategies. the business functions but not fundamental
changes.

Strategic planning is concerned with the Operational planning is concerned with the
long-term success of the organisation. short-term success of the organisation.

Strategic planning is a senior management Operational planning is the responsibility of

responsibility. functional managers.

Dealing with uncertainty (Strategic)

● It has long-term (Far-Reached) implications.
● It is a key construct in strategy formulation.
● A typical external analysis will emerge with dozens of strategic uncertainties.

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To be manageable, they need to be grouped into logical clusters or themes. It is then useful to
assess the importance of each cluster in order to set priorities with respect to Information
gathering and analysis.

Strategic uncertainty that has inherent unpredictability

Sometimes, strategic uncertainty is represented by a future trend or event that has inherent
unpredictability. Information gathering and additional analysis will not be able to reduce the
uncertainty.

In that case, scenario analysis can be employed. Scenario analysis basically accepts the
uncertainty as given and uses it to drive a description of two or more future scenarios.
Strategies are then developed for each.

Impact of uncertainty
Each element of strategic uncertainty involves potential trends or events that could have an
impact on present, proposed, and even potential businesses.

A trend toward natural foods may present opportunities for juices for a firm producing aerated
drinks on the basis of a strategic uncertainty.

The impact of a strategic uncertainty will depend on the importance of the impacted SBU to a
firm. Some SBUs are more important than others. The importance of established SBUs may be
indicated by their associated sales, profits, or costs. However, such measures might need to be
supplemented for potential growth as present sales, profits, or costs may not reflect the true
value.

How a company can deal with strategic uncertainty?

(RTP, May 2018, NA) (MTP 1, Nov 2018, 3 Marks)

Correct/ Incorrect.
Information gathering and deep analysis can eliminate uncertainty.
(RTP, May 2018, NA)

Differentiation between Strategic Planning and Operational Planning.

(RTP, May 2022, NA)

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 Chapter 4 - Corporate Level Strategies

Chapter 4
Corporate Level Strategies

Overview of Strategic Management Chapters

Types of Strategy - An Overview

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 Chapter 4 - Corporate Level Strategies

In this chapter we will study corporate level strategies. They are also known as grand
strategies and meant for providing direction to the company. Sometimes they are also called
“directional’ strategies.

These strategies were initially discussed by William F Glueck and Lawrence R Jauch. They are
also known with name of
● Glueck and Jauch Strategies
● Generic Strategies

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Stability Strategy
Meaning & Concept
One of the important goals of a business enterprise is stability -
● to safeguard its existing interests and strengths,
● to pursue well established and tested objectives,
● to continue in the chosen business path,
● to maintain operational efficiency on a sustained basis,
● to consolidate the commanding position already reached, and
● to optimise returns on the resources committed in the business.

Stability strategy is not a ‘do nothing’ strategy.

It involves keeping track of new developments to ensure that the strategy continues to make
sense. This strategy is typical for those firms whose products have reached the maturity stage
of the product life cycle. Small organizations may also follow a stability strategy to consolidate
their market position and prepare for the launch of growth strategies.

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Characteristics of Stability Strategy

1. A firm opting for stability strategy stays with the same business, same product
market posture and functions, maintaining same level of effort as at present.
2. The endeavour is to enhance functional efficiencies in an incremental way, through
better deployment and utilization of resources.
3. Stability strategy does not involve a redefinition of the business of the corporation.
4. It is basically a safety-oriented, status quo oriented strategy.
5. It does not warrant much of fresh investments.
6. It involves minor improvements in the product and its packaging.
7. The risk is also less.
8. With the stability strategy, the firm has the benefit of concentrating its resources
and attention on the existing businesses/products and markets.
9. The growth objective of firms employing this strategy is quite modest.

Major Reasons for Stability Strategy

● A product has reached the maturity stage of the product life cycle.
● It is less risky as it involves less changes and the staff feels comfortable with things
as they are.
● Expansion may be perceived as being threatening.
● Consolidation is sought through stabilizing after a period of rapid expansion.

Correct/Incorrect.
Stability strategy is not a ‘do-nothing’ strategy.
(RTP, Nov 2018, NA)

Stability strategy is a ____________ strategy.

(a) Functional level.
(b) Business level
(c) Corporate level.
(d) implementation.
(RTP, May 2019, NA)

What is stability strategy? What are the reasons to pursue stability strategy?
(RTP, Nov 2019, NA)

Justify the statement "Stability strategy is opposite of Expansion strategy".

(RTP, May 2021, NA) (MTP 1, May 2021, 5 Marks)

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Expansion Strategy
Characteristics of Growth/Expansion Strategy
1. Expansion strategy involves a redefinition of the business of the corporation.
2. Expansion strategy is the opposite of stability strategy.
3. While in stability strategy, rewards are limited, in expansion strategy they are very
high.
4. In the matter of risks, too, the two are the opposites of each other.
5. A firm with a mammoth growth ambition can meet its objective only through the
expansion strategy.
6. Fresh investment is required for expansion strategy.
7. Expansion strategy is a highly versatile strategy; it offers several permutations and
combinations for growth.
8. A firm opting for the expansion strategy can generate many alternatives within the
strategy by altering its propositions regarding products, markets and functions and pick
the one that suits it most.
9. Expansion strategy holds within its fold two major strategy routes: Intensification
Diversification. Both of them are growth strategies; the difference lies in the way in
which the firm actually pursues the growth.

Major Reasons for Growth/Expansion Strategy

● It may become imperative when environment demands increase in pace of activity.
● Strategists may feel more satisfied with the prospects of growth from expansion; chief
executives may take pride in presiding over organizations perceived to be
growth-oriented.
● Expansion may lead to greater control over the market vis-a-vis competitors.
● Advantages from the experience curve and scale of operations may accrue.

Type of growth or expansion

● Internal Growth Strategy
○ Intensification
○ Diversification
● External
○ Mergers and Acquisition
○ Strategic Alliance

Expansion through Intensification (Internal Growth Strategy)

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Igor Ansoff gave a framework as shown in the figure which describes the intensification options
available to a firm.

Market Penetration Product Development

Increase market share Add product features, product refinement
Increase product usage Develop a new-generation product
Increase the frequency used Develop new product for the same market
Increase the quantity used
Find new application for current users

Market Development Diversification

Expand geographically target new segments Involving new products and new markets
Same Product, New Market Related / Unrelated

Intensification
Market Penetration Market Development Product Development

Highly common expansion It consists of marketing Product development involves

strategy is market present products to substantial modification of
penetration/ concentration on customers in related market existing products or creation
the current business. areas by adding different of new but related items
channels of distribution or by that can be marketed to
The firm directs its resources changing the content of current customers through
to the profitable growth of advertising or the promotional established channels.
its existing product in the media.
existing market.

Diversification (Internal Growth Strategy)

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Vertically Integrated Diversification

Forward and Backward Integration

Backward integration is a step towards,
● Creation of effective supply by entering business of input providers.
● Strategy employed to
○ expand profits and
○ gain greater control over production of a
product
■ whereby a company will
● purchase or
● build a business
■ that will increase its own supply
capability or lessen its cost of
production.

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 Chapter 4 - Corporate Level Strategies

● For example, A large supermarket chain considers to

purchase a number of farms that would provide it a
significant amount of fresh produce.

On the other hand, forward integration

● is moving forward in the value chain and
○ entering business lines that use existing products.
○ Forward integration will also take place where
organizations enter into businesses of distribution channels.
● For example, A coffee bean manufacture may choose to merge with a coffee cafe.

Horizontal Integrated Diversification

Through the acquisition of one or more similar businesses operating at the same stage of the
production-marketing chain that is going into complementary products, by-products or taking
over competitors’ products.

Concentric Diversification
● Related
○ Concentric diversification too amounts to related
diversification.
● Linked
○ In concentric diversification, the new business is linked to
the existing businesses through process, technology or
marketing.
● Spin off
○ The new product is a spin-off from the existing facilities and
products/processes.
● Benefits
○ This means that in concentric diversification too, there are
benefits of synergy with the current operations.
● Different from Vertical
○ However, concentric diversification differs from vertically integrated
diversification in the nature of the linkage the new product has with the
existing ones.
○ While in vertically integrated diversification, the new product falls within the
firm’s current process-product chain, in concentric diversification, there is a
departure from this vertical linkage.
○ The new product is only connected in a loop-like manner at one or more points
in the firm’s existing process/technology/ product chain.

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Conglomerate Diversification (Unrelated)

● No Linkage
○ In conglomerate diversification, no such
linkages exist;
● Disjointed
○ the new businesses/ products are
disjointed from the existing
businesses/products in every way;
● Unrelated
○ it is a totally unrelated diversification.
● PTM No Connection
○ In process/technology/function, there is no connection between the new
products and the existing ones.
● No common thread
○ Conglomerate diversification has no common thread at all with the firm’s
present position.
● Example
○ For example, A cement manufacturer diversifies into the manufacture of steel
and rubber products.Expansion through merger and acquisition - External Growth
Strategy
Acquisitions and mergers are basically combination strategies. In which two or more
companies combines.
● Instant Means
○ Acquisition of or merger with an existing concern is an instant means of
achieving the expansion.
● Attractive & Tempting
○ It is an attractive and tempting proposition (OPTION) in the sense that it
circumvents (reduces)
■ the time, risks and skills involved
● in screening internal growth opportunities,
● seizing them and
● building up the necessary resource base required to materialize
growth.
● Synergy
○ Another main Objective
■ Achieving a measure of synergy between the parent and the acquired
enterprises is another main objective.
○ Synergy from

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■ Synergy may result from such bases as physical facilities, technical

and managerial skills, Distribution channels, general administration,
research and development and so on.
○ Synergy?
■ The positive effects of the merged resources are greater than the
effects of the individual resources before merger or acquisition.

Merger
● Merger is considered to be a process when two or more companies come together to
expand their business operations.
● In such a case the deal gets finalized on friendly terms and both the organizations
share profits in the newly created entity.
● In a merger two organizations combine to increase their strength and financial gains
along with breaking the trade barriers.

Acquisition
● When one organization takes over the other organization and controls all its business
operations, it is known as acquisition.
● In this process of acquisition, one financially strong organization overpowers the
weaker one.
● Acquisitions often happen during recession in economy or during declining profit
margins.
● The combined operations then run under the name of the powerful entity.
● A deal in case of an acquisition is often done in an unfriendly manner, it is more or
less a forced association where the powerful organization either consumes the
operation or a company in loss is forced to sell its entity.
Some of the recent / popular instances of acquisition are listed below:
● Tata’s acquisition of Anglo Dutch steelmaker Corus
● Tata’s acquisition of British Jaguar Land Rover
● Mittal Steel takeover of Arcelor
● HPCL’s acquisition of Kenya Petroleum Refinery Ltd.
● Hindalco’s acquisition of Canada based Novelis

Acquisition is a strategy. T/F with reason.

Correct: An acquisition is a strategy through which one firm buys a controlling or complete
interest in another firm. Acquisition of an existing concern is an instant means of achieving
growth through expansion and/or diversification. Ideally, acquisition strategy should be used
when the acquiring firm is able to enhance its economic value through ownership and the use
of the assets that are acquired.

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Types of Mergers
The types of mergers are similar to types of diversification.

Horizontal Merger
● Horizontal merger is a combination of firms engaged in the same industry.
● It is a merger with a direct competitor.
● The principal objective behind this type of merger is to
○ achieve economies of scale in the production process by shedding duplication of
installations and functions,
○ widening the line of products,
○ decrease in working capital and fixed assets investment,
○ getting rid of competition and so on.
● For example, formation of Brook Bond Lipton India Ltd. through the merger of Lipton
India and Brook Bond.

Vertical Merger
● It is a merger of
two organizations
that are operating in
the
○ same industry
○ but at different stages of the production or distribution system.
● This often leads to increased synergies with the merging firms.
● If an organization takes over its supplier/producers of raw material, then it leads to
backward integration.
● On the other hand, forward integration happens when an organization decides to take
over its buyer organizations or distribution channels.

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 Chapter 4 - Corporate Level Strategies

● Vertical merger results in many operating and financial economies. Vertical mergers
help to create an advantageous position by restricting the supply of inputs to other
players, or by providing the inputs at a higher cost.

Co-generic Merger
● In Co-generic merger two or more merging organizations are associated in some way or
the other related to the production processes, business markets, or basic required
technologies.
● Such mergers include the extension of the product line.
● It offers great opportunities to businesses to diversify around a common set of
resources and strategic requirements.
● For example, an organization in the white goods category such as refrigerators can
diversify by merging with another organization having business in kitchen appliances.

Conglomerate Merger
Conglomerate mergers are the combination of organizations that are unrelated to each other.
There are no linkages with respect to customer groups, customer functions and technologies
being used. There are no important common factors between the organizations in production,
marketing, research and development and technology.

Related vs. Unrelated Diversification

Related Unrelated

● Exchange or share assets or ● Investment in new product portfolios.

competencies by exploiting brand ● Employment of new technologies.
name. Focus on multiple products.
● Marketing skills. ● Reduce risk by operating in multiple
● Sales and distribution capacity product markets.
Manufacturing skills. ● Defend against takeover bids.
● R&D and new product capability. ● Provide executive interest.
● Economies of scale.

Expansion Through Strategic Alliance

Meaning

● A strategic alliance is a relationship between two or more businesses that enables

each to achieve certain strategic objectives which neither would be able to achieve on
its own.

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● The strategic partners maintain their status as independent and separate entities,
share the benefits and control over the partnership, and continue to make contributions
to the alliance until it is terminated.
● Strategic alliances are often formed in the global marketplace between businesses that
are based in different regions of the world.

Advantages of Strategic Alliance

Strategic alliance usually is only formed if they provide an advantage to all the parties in the
alliance. These advantages can be broadly categorised as follows:

Organizational
- Strategic alliance helps to learn necessary skills and obtain certain capabilities from
strategic partners.
- Strategic partners may also help to enhance productive capacity, provide a distribution
system, or extend supply chain.
- Strategic partners may provide a good or service that complements thereby creating a
synergy.
- Having a strategic partner who is well-known and respected also helps add legitimacy
and creditability to a new venture.

Economic
- There can be reduction in costs and risks by distributing them across the members of
the alliance.
- Greater economies of scale can be obtained in an alliance, as production volume can
increase, causing the cost per unit to decline.
- Finally, partners can take advantage of co-specialization, creating additional value, such
as when a leading computer manufacturer bundles its desktop with a leading monitor
manufacturer’s monitor.

Strategic
- Rivals can join together to cooperate instead of competing with each other.
- Vertical integration can be created where partners are part of the supply chain.
- Strategic alliances may also be useful to create a competitive advantage by the pooling
of resources and skills.
- This may also help with future business opportunities and the development of new
products and technologies. Strategic alliances may also be used to get access to new
technologies or to pursue joint research and development.

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Political
- Sometimes strategic alliances are formed with a local foreign business to gain entry
into a foreign market either because of local prejudices or legal barriers to entry.
- Forming strategic alliances with politically influential partners may also help improve
your own influence and position.

Disadvantages of Strategic Alliance

- The major disadvantage is sharing.
- Strategic alliances require sharing of resources and profits, and also sharing knowledge
and skills that otherwise organisations may not like to share.
- Sharing knowledge and skills can be problematic if they involve trade secrets.
- Agreements can be executed to protect trade secrets, but they are only as good as the
willingness of parties to abide by the agreements or the courts willingness to enforce
them.
- Strategic alliances may also create potential competition when an ally becomes an
opponent in future when it decides to separate out.

What is a joint venture? (MISC Question DIY)

A joint venture is a business agreement in which parties agree to develop, for a finite time, a
new entity and new assets by contributing equity. They exercise control over the enterprise
and consequently share revenues, expenses and assets.

Vertical integration may be beneficial when

(a) Lower transaction costs and improved coordination are vital and achievable through
vertical integration.
(b) Flexibility is reduced, providing a more stationary position in the competitive
environment.
(c) Various segregated specializations will be combined.
(d) The minimum efficient scales of two corporations are different.
(Sample MCQs) (MTP 1, May 2019, 1 Mark) (RTP, May 2020, NA)

One of the primary advantages of diversification is sharing core competencies. In order for
diversification to be most successful, it is important that
(a) The target market is the same, even if the products are very different.
(b) The products use similar distribution channels.
(c) The methods of production are the same.
(d) The similarity required for sharing core competencies must be in the value chain, not in
the product.
(Sample MCQs)

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Horizontal integration is concerned with

(a) Production
(b) Quality
(c) Product planning
(d) All of the above
(Sample MCQs)
The reasons for acquisition are
(a) Increased market power
(b) Increased diversification
(c) Increased speed to market
(d) All of the these
(Sample MCQs)

Conglomerate diversification is another name for which of the following?

(a) Related diversification
(b) Unrelated diversification
(c) Portfolio diversification
(d) Acquisition diversification
(Sample MCQs) (MTP 1, May 2019, 1 Mark)

When two organisations combine to increase their strength and financial gains along with
breaking the trade barriers is called-----------
(a) Hostile takeover
(b) Liquidation
(c) Merger
(d) Acquisition
(Sample MCQs) (MTP 1, Nov 2020, 1 Mark)

Entering into a ‘contract’ by MNCs is an example of:

a) Partial Ownership Alliance
b) Joint Venture Alliance
c) Non-Equity Alliance
d) Joint Ownership Alliance
(Sample MCQs)

Distinguish between the following:

Mergers and acquisitions

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(RTP, May 2018, NA)

Swift Insurance is a company engaged in the business of providing medical insurance

maintaining a market share of 25 to 30 per cent in last five years. Recently, the company
decided to enter into the business of auto insurance by having foreign collaboration. Identify
the strategy being followed by the Swift Insurance with its advantages.
(RTP, May 2018, NA) (Study Material)

Strategic alliances are formed if they provide an advantage to all the parties in the alliance.
Do you agree? Explain in brief the advantages of a strategic alliance.
(RTP, May 2018, NA)
Or
What are the advantages of a strategic alliance?
(MTP 2, Nov 2021, 5 Marks)

What do you understand by co-generic merger?

(MTP 1, May 2018, 2 Marks)
Or
Describe the term 'Co-generic merger'.
(SA, May 2018, 2 Marks)

Shoaib and Salim, two brothers are the owners of a cloth manufacturing unit located in
Lucknow. They are doing well and have substantial surplus funds available within the
business. Shoaib is interested in acquiring another industrial unit located in Lucknow
manufacturing tableware such as dinner sets, cups and saucers, bowls. etc. On the other
hand , Salim desires to start another unit to produce readymade garments. Discuss the
nature of corporate strategies being suggested by two brothers. Which one is better?
(MTP 2, May 2018, 5 Marks)

Write short note on Conglomerate merger.

(MTP 2, May 2018, 3 Marks)

Distinguish between the following:

Forward integration and backward integration.
(RTP, Nov 2018, NA)

Vastralok Ltd., was started as a textile company to manufacture cloth. Currently, they are in
the manufacturing of silk cloth. The top management desires to expand the business in the

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cloth manufacturing. To expand they decided to purchase more machines to manufacture

cotton cloth.
Identify and explain the strategy opted by the top management of Vastralok Ltd.
(RTP, Nov 2018, NA) (Study Material)

List the advantages of Strategic Alliances.

(SA, Nov 2018, 2 Marks) (RTP, May 2019, NA)

Correct/Incorrect.
Acquiring of ambulance services by a hospital is an example of forward integration strategy.
(SA, Nov 2018, 2 Marks)

Correct/Incorrect.
There is no such thing as backward integration.
(SA, Nov 2018, 2 Marks)

Which of the following is not a type of diversification strategy?

(a) Vertical diversification.
(b) Concentric diversification.
(c) Conglomerate diversification.
(d) Co-generic diversification.
(RTP, May 2019, NA)

An organization acquires its supplier is an example of:

(a) Horizontal integrated diversification.
(b) Forward integrated diversification.
(c) Backward integrated diversification.
(d) Conglomerate diversification.
(RTP, May 2019, NA)

Leatherite Ltd., was started as a leather company to manufacture footwear. Currently, they
are in the manufacturing of footwears for males and females. The top management desires
to expand the business in the leather manufacturing goods. To expand they decided to
purchase more machines to manufacture leather bags for males and females. Identify and
explain the strategy opted by the top management of Leatherite Ltd.
(MTP 1, May 2019, 5 Marks) (RTP, Nov 2021, NA)

Acquision of a company producing readymade garments by a company manufacturing yarn is.

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 Chapter 4 - Corporate Level Strategies

a. Horizontal integration
b. Horizontal Diversification
c. Forward integration
d. Backward integration
(MTP 2, May 2019, 1 Mark)

Conglomerate diversification can also be explained as:

a. Merger
b. Combination strategy
c. Related diversification
d. Unrelated diversification
(MTP 2, May 2019, 1 Mark)

Gautam and Siddhartha two brothers are the owners of a cloth manufacturing unit located in
Faridabad. They are doing well and have substantial surplus funds available within the
business. They have different approaches regarding corporate strategies to be followed to be
more competitive and profitable in future.
Gautam is interested in acquiring another industrial unit located in Faridabad manufacturing
stationery items such as permanent markers, notebooks, pencils and pencil sharpeners,
envelopes and other office supplies. On the other hand, Siddhartha desires to start another
unit to produce readymade garments.
Discuss the nature of corporate strategies being suggested by two brothers and risks involved
in it.
(SA, May 2019, 5 Marks) (Study Material)

Acquisition of another organisation that was using your product in their manufacturing is:
A. Horizontal integrated diversification
B. Forward integrated diversification
C. Backward integrated diversification
D. conglomerate diversification
(RTP, Nov 2019, NA)

If suppliers are unreliable or too costly, which of these strategies may be appropriate?
(a) Horizontal integration
(b) Backward integration
(c) Market penetration
(d) Forward integration
(MTP 1, Nov 2019, 1 Mark)

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Organo is a large supermarket chain. It is considering the purchase of a number of farms

that provides Organo with a significant amount of its fresh produce. Organo feels that by
purchasing the farms, it will have greater control over its supply chain. Identify and explain
the type of diversification opted by Organo?
(RTP, May 2020, NA) (Study Material)

Write short note on expansion through acquisitions and mergers.

(RTP, May 2020, NA) (MTP 1, Nov 2020, 5 Marks) (Study Material)

Explain the term Merger and Acquisition as a growth strategy. Differentiate between both of
them. State the situations in which such strategies are considered by any organization.
(RTP, Nov 2021, NA)

A rubber manufacturer starts making shoe soles and gum can be termed as?
(a) Conglomerate Diversification
(b) Concentric Diversification
(c) Horizontal Integration
(d) Vertical Integration
(MTP 2, Nov 2021, 1 Mark)

GWA, a leading Japan based automobile company decides to make India a hub for the
company's 250 cc motor cycle to be manufactured in collaboration with the TPR Group, a
leading Indian motorcycle manufacturer. The production is to be exported to the company's
home market as well as to other African countries.
What is this growth strategy called? Point out the most important advantages both the
companies expect from such strategy/ collaboration.
(SA, Nov 2021, 5 Marks)

A tea farm owners plan to open tea cafes in tourist spots and to sell their own premium tea
to build a brand. Which of the following can this be termed as?
(a) Backward Integration
(b) Forward Integration
(c) Diversification
(d) Horizontal Integration
(RTP, May 2022, NA)

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Diversification endeavours can be categorized into four broad classifications. State the basis
for this classification and name the four categories. How is concentric diversification different
from vertically diversification? Explain.
(RTP, May 2022, NA)

There has been fierce demand for both Gecko and FlyBee for the last 3 years. Gecko makes
mass consumption pens while FlyBee is a notebook and diary brand - both being
complementary goods of each other. But to grow further, FlyBee decided to take up
competition with Gecko in pens segment and thereby launched, FlyPens. Identify and explain
the growth strategy opted by FlyBee?
(MTP 1, May 2022, 5 Marks)

XYZ Co. was formed by the merger between a number of chemical companies. Since, it
amed at expanding its presence in a large number of value added specialty chemical
operations; within a few years, the company involved in activities like bulk chemicals,
explosives, fertilizers, paints and commodity plastics. But expanding the scope of business to
so many businesses; little it did for the bottom line. On analyzing, the top management
found that although many of the businesses were linked in some way to the chemical
industry, but there was little commonality between bulk chemicals and fertilizers, between
plastics and paints, between explosives and plastic materials. In other words, the value
created by the diversification was questionable. After reading this scenario, what do you
think has gone wrong in this case? How do you think this problem can be rectified?
(Study Material) - Expansion

Distinguish between concentric and conglomerate diversification.

(Study Material) - Expansion

What are acquisitions? Discuss with examples of two companies resorting to this strategy.
(Study Material) (Expansion)

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Retrenchment Strategy
● This is done through an attempt to find out the problem areas
● and diagnose the causes of the problems.
● Next, steps are taken to solve the problems.
● These steps result in different kinds of retrenchment strategies.
● If the organization chooses to focus on ways and means to reverse the process of
decline, it adopts at turnaround strategy.
● If it cuts off the loss making units, divisions, or SBUs, curtails its product line, or
reduces the functions performed, it adopts a divestment (or divestiture) strategy.
● If none of these actions work, then it may choose to abandon the activities totally,
resulting in a liquidation strategy.

Turnaround Strategy
● Retrenchment may be done either internally or externally.
● For internal retrenchment to take place, emphasis is laid on improving internal
efficiency, known as turnaround strategy.
● There are certain conditions or indicators which point out that a turnaround is needed if
the company has to survive. These danger signals are:
○ Persistent negative cash flow from business
○ Uncompetitive products or services
○ Declining market share
○ Deterioration in physical facilities
○ Over-staffing,
○ high turnover of employees, and
○ low morale
○ Mismanagement

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Action Plan for Turnaround

● For turnaround strategies to be successful, it is imperative to focus on the short and
long-term financing needs as well as on strategic issues.
● A workable action plan for turnaround would involve the following stages:

Stage One – Assessment of current problems

● Assess current problems & find the extent of damage caused by the problem. Resources
should be focused toward those areas which are essential.

Stage Two – Analyze the situation and develop a strategic plan (CBR)
● Identify appropriate strategies & develop preliminary action plan & look for viable core
businesses, adequate bridge financing & available organizational resources.

Stage Three Implementing an emergency plan (HR/F/M/O – Action – RD/IWC/RC/IBP)

● The plan typically includes human resource, financial, marketing & operations actions to
restructure debts, improve working capital, reduce costs, improve budgeting practices etc.
● Enough funds & +ve cash flow must be established to implement turnaround strategies.

Stage Four – Restructuring the business:

● "Product mix" must be changed to do some repositioning. Core products neglected over
time may require immediate attention to remain competitive.
● Organisation may withdraw from certain markets to target its products toward a
different ideal position.
● "People mix" -an important ingredient should also be enhanced by allowing rewards &
compensation that'll encourage employee’s dedication & creativity.

Stage 5- Returning to normal (P/ROI/EVA – NP, CS, CA, MS)

● In the final stage, the org should begin to show signs of profitability, return on
investments & enhancing economic value added. Adding new products, improving
customer service, creating alliances with other organizations, increasing market share
etc. shall be the areas of emphasis.

Elements of Turnaround Strategy

The important elements of turnaround strategy are as follows (Just Read them 3 Times before
Exams)

● Changes in the top management

● Identifying quick payoff activities
● Quick cost reductions
● Revenue generation

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● Asset liquidation for generating cash

● Mobilization of the organization's resources
● Better internal coordination.

DIVESTMENT
● It involves the sale or liquidation of a portion of business, or a major division, profit
center or SBU.
● It is usually a part of rehabilitation or restructuring plan and is adopted when a
turnaround has been attempted but has proved to be unsuccessful.
● The option of a turnaround may even be ignored if it is obvious that divestment is
the only answer.
● A divestment strategy may be adopted due to various reasons:
○ A business that had been acquired proves to be a mismatch and cannot be
integrated within the company.
○ Persistent negative cash flows from a particular business create financial
problems for the whole company, creating the need for divestment of that
business.
○ Severity of competition and the inability of a firm to cope with it may cause
it to divest.
○ Technological upgradation is required if the business is to survive but where it
is not possible for the firm to invest in it, a preferable option would be to
divest.
○ A better alternative may be available for investment, causing a firm to divest
a part of its unprofitable businesses.

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LIQUIDATION
● It is considered the most extreme and unattractive strategy, which involves closing
down a firm and selling its assets.

● It is considered as the last resort because it leads to serious consequences such as

○ loss of employment for workers and other employees,
○ termination of opportunities where a firm could pursue any future activities,
and the
○ stigma of failure.

● Many small-scale units, proprietorship firms, and partnership ventures liquidate

frequently but medium-and large-sized companies rarely liquidate in India.The
company management, government, banks and financial institutions, trade unions,
suppliers and creditors, and other agencies are extremely reluctant to take a
decision, or ask, for liquidation.

● Selling assets
○ Selling assets for implementing a liquidation strategy may also be difficult as
buyers are difficult to find. Moreover, the firm cannot expect adequate
compensation as most assets, being unusable, are considered as scrap.

● Good Proposition When …………………………………………………………….

○ Liquidation strategy may be unpleasant as a strategic alternative but when a
"dead business is worth more than alive", it is a good proposition.
○ For instance, the real estate owned by a firm may fetch it more money than
the actual returns of doing business. When liquidation is evident (though it is
difficult to say exactly when), an abandonment plan is desirable.

● Planned liquidation
○ Planned liquidation would involve a systematic plan to reap the maximum
benefits for the firm and its shareholders through the process of liquidation.

● Liquidation is the last resort for a biz org. T/F with reason. (T)
● Liquidation may be a pleasant strategic alternative. T/F with reason (F)

Correct/Incorrect.
Turnaround should succeed liquidation strategy.
(RTP, May 2018, NA)

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XYZ Ltd. is a multi-product company, suffering from continuous losses since last few years
and has accumulated heavy losses which have eroded its net worth.
What strategic option is available to the management of this sick company? Advise with
reasons.
(SA, May 2018, 5 Marks)

What is Divestment strategy? When is it adopted?

(RTP, Nov 2018, NA) (RTP, Nov 2020, NA) (Study Material)

Why a Turnaround Strategy is required for a business?

(MTP 2, Nov 2018, 5 Marks)

Or

Write a short note on need for turnaround strategy.

(MTP 1, Nov 2019, 5 Marks)

With the global economic recession Soft Cloth Ltd. incurred significant losses in all its
previous five financial years. Currently, they are into manufacturing of cloth made of cotton,
silk, polyster, rayon, lycra and blends. Competition is also intense on account of cheap
imports. The company is facing cash crunch and has not been able to pay the salaries to its
employees in the current month.
Suggest a grand strategy that can be opted by Soft Cloth Ltd.
(RTP, May 2019, NA) (Study Material)

Which of the following can be used in retrenchment strategy?

a. Reducing assets.
b. Operational improvement.
c. Cutting cost.
d. All of the above.
(MTP 2, May 2019, 1 Mark)

A company manufactures computers that are of low in production cost, competitive price, and
quality to their competitor’s product. Profits and market share are declining day by day.

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Shree, a senior executive realizes that drastic strategies have to be created for the survival of
a company. After SWOT analysis by assessing the strengths and weaknesses, they come up
with the conclusion that they cannot compete in the computers with the competitors. The
management directs Shree to act quick and develop a suitable strategic plan.
Discuss the strategy which can be opted by Shree.
(MTP 2, May 2019, 5 Marks)

Pizza Galleria was India's first pizza delivery chain enjoying monopoly for several years.
However, after entry of Modino and Uncle Jack it is struggling to compete. Both Modino and
Uncle Jack have opened several eateries and priced the product aggressively. In last four
years the chain has suffered significant losses. The chain wishes to know whether they
should go for turnaround strategy. List out components of action plan for turnaround
strategy.
(RTP, Nov 2019, NA) (Study Material)

Which strategy is implemented after the failure of turnaround strategy?

(a) Expansion strategy
(b) Diversification strategy
(c) Divestment strategy
(d) Growth strategy
(MTP 1, Nov 2019, 1 Mark) (MTP 2, May 2021, 1 Mark)

Differentiate between divestment and liquidation strategy.

(MTP 1, Nov 2019, 5 Marks) (MTP 2, May 2021, 5 Marks) (MTP 2, Nov 2021, 5 Marks)
(Study Material)

An XYZ Company is facing continuous losses. There is decline in sales and product market
share. The products of the company became uncompetitive and there is persistent negative
cash flow. The physical facilities are deteriorating and employees have low morale. At the
board meeting, the board members decided that they should continue the organization and
adopt such measures that the company functions properly. The board has decided to hire
young executive Shayamli for improving the functions of the organization. What corporate
strategy should Shayamli adopt for this company and what steps to be taken to implement
the corporate strategy adopted by Shayamli?
(SA, Nov 2019, 5 Marks) (Study Material)

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Retrenchment strategy in the organization can be explained as

(a) Reducing trenches (gaps) created between individuals.
(b) Divesting a major product line or market.
(c) Removal of employees from job through the process of reorganization.
(d) Removal of employees from job in one business to relocate them in other business.
(RTP, May 2020, NA)

Explain in brief the reasons to adopt turnaround strategy.

(MTP 1, May 2020, 5 Marks)

General public is discerning from buying air conditioning units based on the Health Ministry
guidelines regarding emergence of a contagious viral pandemic. Consequently, Nebula Pvt. Ltd,
a manufacturer of evaporation coils used in air conditioning units has faced significant loss in
working capital due to sharp fall in demand. The company conducted financial assessment
and developed a workable action plan based on short and long term financial needs. But for
immediate needs, an emergency plan has been implemented. It includes selling scrap, asset
liquidation and overheads cost reduction. Further, to avoid any such untoward event in future,
they plan to diversify into newer business areas along with its core business. Identify and
explain the strategy opted by M/s. Nebula Pvt. Ltd.?
(RTP, Nov 2020, NA)

Briefly describe the meaning of divestment and liquidation strategy and establish difference
between the two.
(SA, Nov 2020, 5 Marks)

X Pvt. Ltd. had recently ventured into the business of co-working spaces when the global
pandemic struck.. This has resulted in the business line becoming unprofitable and unviable,
and a failure of the existing strategy. However, the other businesses of X Pvt. Ltd. are
relatively less affected by the pandemic as compared to the recent co-working spaces.
Suggest a strategy for X Pvt. Ltd. with reasons to justify your answer.
(SA, Jan 2021, 5 Marks) (Study Material)

Mini theatre Ltd. was a startup venture of three young IIM graduates. They developed an
application to watch web-based content like web series, TV Shows, theatre shows, etc. after
purchasing their exclusive rights. They were successful in getting many consumers enrolled
with them. After a certain span of time, the company realized that some regional content
like ‘bangla movies’, ‘Gujarati shows’ etc. were having high cost and less viewership. The

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leadership team of Mini theatre Ltd. decided to sell the rights and curtail any further
content development in these areas.
Identify and explain the corporate strategy adopted by the leadership team of Mini theatre
Ltd.
(RTP, May 2021, NA)

The CEO of a textile mill is convinced that his loss making company can be turned around.
Suggest an action plan for a turnaround to the CEO.
(SA, May 2021, 5 Marks)

Mixfix was having a tough time with its operations and wanting to restructure itself from
scratch. For this, they consult a veteran in business strategy, Mrs. Sunita K, who post
analysis of their business said, " your dead business is worth more than alive". What did Mrs.
Sunita hint at?
(a) Restructuring Business
(b) Liquidation
(c) Business Process Re-engineering
(d) Divestment
(MTP 1, Nov 2021, 2 Marks)

"There are certain conditions or indicators which point out that a turnaround is needed if the
company has to survive." Discuss.
(SA, Nov 2021, 5 Marks)

Racers Ltd. manufactures bicycles. Until recently it has adopted a differentiation strategy,
offering high quality bicycles which Racers Ltd. sells at a high profit margin.
In recent years, Racers Ltd. has entered a period of decline due to the market becoming
flooded with cheaper, high quality bicycles from abroad, where labour costs are lower.
Racers Ltd. has therefore decided to adjust its strategy and adopt a focus approach,
targeting its bicycles towards professional athletes. This will allow Racers Ltd. to continue
earning high margins, though the size of its potential market will likely fall.
Identify and explain the need of adopting this strategy by Racers Ltd. to manage decline?
(RTP, May 2022, NA)

What strategic option is available to the management of a sick company dealing in an

electronic home appliance? Give reasons for your answer.
(Study Material)

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Combination Strategy
The above strategies are not mutually exclusive. It is possible to adopt a mix of the above to
suit particular situations. An enterprise may seek stability in some areas of activity, expansion
in some and retrenchment in the others. Retrenchment of ailing products followed by
stability and capped by expansion in some situations may be thought of. For some
organizations, a strategy by diversification and/or acquisition may call for a retrenchment in
some obsolete product lines, production facilities and plant locations.

Major Reasons for Combination Strategy

● The organization is large and faces complex environment.
● The organization is composed of different businesses, each of which lies in a
different industry requiring a different response.

Explain the meaning of the Combination strategies.

(RTP, May 2018, NA) (RTP, Nov 2018, NA)

Other Generic Questions from the chapter

Corporate level strategy is concerned with the following-

a) How do we want to compete?
b) Where do we want to compete?
c) How to support the strategy implementation?
d) All of the above
(Sample MCQs)

Geographical Diversification, Product diversification and Entry Mode are the domains of:
a) Functional Strategy
b) Business Strategy
c) Corporate Strategy
d) All of the Above
(Sample MCQs)

Arena Ltd. manufactures computers that are of low in production cost, competitive price, and
quality to their competitor’s product. Profits and market share are declining day by day.
Shreekanth, a senior executive realizes that drastic strategies have to be created for the

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survival of a company. After SWOT analysis by assessing the strengths and weaknesses, they
come up with the conclusion that they cannot compete in the computers with the
competitors. The management directs Shreekanth to act quick and develop a suitable
strategic plan.
Discuss the strategy which can be opted by Shreekanth.
(MTP 1, May 2018, 5 Marks) (Study Material)

Explain the meaning of Directional Strategy.

(SA, May 2018, 2 Marks)

Atrix Ltd. is a company engaged in the designing, manufacturing, and marketing of

mechanical instruments like speed meters, oil pressure gauges, and so on. Their products are
fitted into two and four wheelers. During the last couple of years, the company has been
observing a fall in the market share. This is on account of shift to the new range of
electronic instruments. The customers are switching away mechanical instruments that have
been the backbone of Atrix Ltd. As a CEO of Atrix Ltd., what can be the strategic options
available with you.
(MTP 1, Nov 2018, 5 Marks)

Arrange divestment, liquidation, stability and turnaround strategies in order of preference for
adoption by a typical organisation.
A. Turnaround, stability, liquidation and divestment.
B. Divestment, liquidation, stability and turnaround.
C. Stability, turnaround, liquidation and divestment.
D. Stability, turnaround, divestment and liquidation.
(RTP, Nov 2019, NA)

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Some Examples
Strategy Meaning Example

Forward Gaining ownership or increased control over the Reliance

Integration next Industries
level in the value chain (Manufacturing or (owning
intermediaries) refineries)
diversified into petrol pumps

Backward Gaining ownership or increased control over the An automobile manufactures

Integration previous diversifying
level in the value chain (Manufacturing or into tyre production.
suppliers)

Horizontal Seeking ownership or increased control of a ICICI Bank taking over Bank
Integration firm's of Rajasthan
competitors

Conglomerate Adding new, unrelated products or services Yash Birla Group (auto &
Diversification engineering)decides to enter
wellness, solar power and
schools.

Divestment Divestment strategy involves the sale or Godrej Group's withdrawal

liquidation of a from the JV
portion of business, or a major division, profit with Sara Lee from Africa
centre or
SBU.

Liquidation Liquidation strategy is an extreme and Those companies whose

unattractive products are no
strategy as it involves closing down a firm and more in demand sell all their
selling its assets.
assets. It is considered as the last resort when
all other
options fail.

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Concentric In concentric diversification, the new businesses Kotak Mahindra Bank gets
Diversification are added into insurance
that are linked to the existing businesses and asset man
through process,
technology or marketing.

A Bakery starts producing pastries and other similar products. What type of diversification
strategy is being followed by it and why?

A bakery normally is a small organization that produces and sells flour – based food baked in
an oven. A bakery produces bread, cake, cookies, pastries, pies, etc. A bakery that is not into
producing pastries starts producing them and other similar products is following concentric
diversification which is basically related diversification.

In this form of diversification, the new business is linked to the existing businesses through
existing systems such as processes, technology or marketing.

There are benefits of synergy with the current operations. The most common reasons for
pursuing concentric diversification are that opportunities in existing lines of business are
available.

Identify with reasons the type of growth strategies followed in the following cases:
1. A leading producer of confectionery products advertising the new uses of its product
‘Chokoo Mix’ aggressively.
2. A company in publishing industry deciding to revise college textbooks.
3. A renowned company in textile industry starting to manufacture PFY and PSF, critical
raw materials for textiles.
4. A business giant in auto manufacturing enters into edible oils, hotels, financial
services and dairy businesses. (4 Marks Nov.15)

Answer

1. The organization has adopted market penetration strategy (intensification) through

advertising the new uses of its product ‘chokoo mix’ aggressively. Here the
organization wants significant growth – within the current business by selling

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existing products in the existing markets without changing the product in a major
way.

2. THE COMPANY HAS ADOPTED product development strategy (intensification) by

deciding to revise college textbooks. The company is already in the publishing industry
and must be having appropriate competencies in dealer network and acceptance
amongst the student community. Revising the college textbooks (new product) would
help it to expand in the college textbooks segment (existing market)

3. The company has adopted backward integration strategy (vertically integrated

diversification) by starting to manufacture PFY and PSF, critical raw materials for
textiles. This strategy apart from overall growth of the organization ensures
uninterrupted supply of critical raw materials for the present business of the firm. It
will also enable the organization to retain the margins in dealing with the raw
materials which otherwise would have gone to its suppliers.

4. The business giant in auto manufacturing has adopted conglomerate diversification

strategy by entering into edible oils, hotels, financial services and dairy businesses. In
conglomerate diversification a business enters into new businesses that may have
little or no linkages with existing business. The organization has very high growth
ambition.

In the context of Ansoff’s Product-Market Growth Matrix, identify with reasons, the type of
growth strategies followed in the following cases:

1. A leading producer of toothpaste, advises its customers to brush teeth twice a day to
keep breath fresh.
2. A business giant in the hotel industry decides to enter into the dairy business.
3. One of India's premier utility vehicles manufacturing companies ventures to foray into
foreign markets.
4. A renowned auto manufacturing company launches ungeared scooters in the same
market.

The Ansoff's product marketing growth matrix is a useful tool that helps businesses decide
their product and
marketing growth strategy. This matrix further helps analyse different strategic directions.
According to
Ansoff there are four strategies that organizations might follow.

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1. Market Penetration: A leading producer of toothpaste, advertises its customers to

brush teeth twice a day to keep breath fresh. It refers to a growth strategy where
the business focuses on selling existing products into existing market.

2. Diversification: A business giant in hotel industry decides to enter into diary business.
It refer to a growth strategy where a business markets new products in new markets.

3. Market Development: One of India's premier utility vehicles manufacturing company

ventures to foray into foreign markets. It refers a growth strategy where the business
seeks to sell its existing products into new markets.

4. Product Development: - A renowned auto manufacturing company launches ungeared

scooter in the market. It refers to strategy where business aims to introduce new
product into existing markets.

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Chapter 5
Business Level Strategies
Porter’s Five Forces Model-Competitive Analysis

Basics
To understand the competitive environment of the company the managers need to focus only
on the important tasks rather than gathering bulk of unimportant information.

The task of focusing only on important task can be done with the help of some well-defined
concepts and
analytical tools.

A powerful and widely used tool for systematically diagnosing the significant competitive
pressures in a market and
assessing the strength and importance of each is the five-force model of competition.

This model holds that, the state of competition in an industry is a composite of competitive
pressures operating in five major areas of the market:

(कौन कौन से competitive pressure है और 󰏎कसक󰎪 󰏎कतनी strength and importance है )

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How to use it ?
The strategists can use the five-forces model to determine what competition is like in a given
industry by undertaking the following steps:
● Step 1: Identify the specific competitive pressures associated with each of the five
forces.
● Step 2: Evaluate how strong the pressures comprising each of the five forces are
(fierce, strong, moderate to normal, or weak).
● Step 3: Determine whether the collective strength of the five competitive forces is
conducive to earn attractive profits.

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Threat of New Entrants

● Profitability tends to be higher when other firms are blocked from entering the
industry.
● New entrants can reduce industry profitability because
○ they add new production capacity
■ leading to increase supply of the product
■ even at a lower price
○ and can substantially erode existing firm’s market share position.
● To discourage new entrants, existing firms can try to raise barriers to entry.
● Barriers to entry represent economic forces (or ‘hurdles’) that slow down or impede
entry by other firms.

Barriers to entry (New Entrants)

Capital Requirements
● When a large amount of capital is required to enter an industry,
○ firms lacking funds are effectively barred from the industry,
■ thus enhancing the profitability of existing firms in the industry.
➢ for example, huge investments are needed to build production
facilities and establish brand awareness among people for entry
into the pharmaceutical industry.
➢ This makes the entry of new companies into this sector very
difficult.

Economies of Scale
● Economies of scale refer to the decline in the per-unit cost of production (or other
activity) as volume grows.
● A large firm that enjoys economies of scale can produce high volumes of goods at
successively lower costs.
○ This tends to discourage new entrants.

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■ For example, in the semiconductor industry, larger companies, such as

IBM, Intel, Samsung and Texas Instruments, enjoy substantial economies
of scale in the production of advanced microprocessors, communication
chips and integrated circuits that power most consumer electronics,
personal computers (PCs) and cellular phones.
■ This acts as a barrier for new entrants.

Product Differentiation
● Product differentiation refers to the
○ physical or
○ perceptual differences,
○ or enhancements,
■ that make a product special or unique in the eyes of customers.
➢ Firms in the personal care products and cosmetics industries
actively engage in product differentiation to enhance their
products’ features.
➢ Differentiation works to reinforce entry barriers because the cost
of creating genuine product differences may be too high for the
new entrants.

Switching Costs
● New entrant must be able to persuade existing customers of other companies to switch
to its products.
● To make a switch,
○ buyers may need to test a new firm’s product,
○ negotiate new purchase contracts, and
○ train personnel to use the equipment, or
○ modify facilities for product use.
● Buyers often incur substantial financial (and psychological) costs in switching between
firms.
● When such switching costs are high, buyers are often reluctant to change.
● For example, high switching costs in moving away from Microsoft’s Windows operating
systems used in personal computers and corporate servers powered the company’s
stunning growth over the past decade in the software industry.

Brand Identity
● The brand identity of products or services offered by existing firms can serve as another
entry barrier.
● Brand identity is particularly important for infrequently purchased products that carry a
high unit cost to the buyer.

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● New entrants often encounter significant difficulties in building up the brand identity,
because to do so they must commit substantial resources over a long period.
● For example, during the 1970s, Japanese companies such as Toyota, Nissan, and Honda
had to spend huge sums on new product development and promotional activities to
overcome the American consumer’s preference for domestic cars.

Access to Distribution Channels

● The unavailability of distribution channels for new entrants poses another significant
entry barrier.
● Despite the growing power of the internet, many firms may continue to rely on their
control of physical distribution channels to sustain a barrier to entry to rivals.
● For example, because of control over distribution channels in India by HUL, P&G and
Godrej etc., small entrepreneurs find it very difficult to sell their products through the
existing channels.

Possibility of Aggressive Retaliation

Sometimes the mere threat of aggressive retaliation by incumbents can deter entry by other
firms into an existing industry. For example, introduction of products by a new firm may lead
incumbents firms to reduce their product prices and increase their advertising budgets.

Bargaining Power of Buyers

The bargaining power of the buyers influences not only the prices that the producer can charge
but also influences costs and investments of the producer.

This is because powerful buyers usually bargain for better services which involves more
investment on the part of the producer.

Buyers of an industry’s products or services can sometimes exert considerable pressure on

existing firms to secure lower prices or better services. This leverage is particularly evident when
● Buyers have full knowledge of the sources of products and their substitutes.
● They spend a lot of money on the industry’s products i.e. they are big buyers.
● The industry’s product is not perceived as critical to the buyer’s needs and buyers are
more concentrated than firms supplying the product. They can easily switch to the
substitutes available.

Bargaining Power of Suppliers

The more specialised the offering from the supplier, greater may be its clout.
Suppliers can influence the profitability of an industry in a number of ways. Suppliers can
command bargaining power over a firm when

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● Their products are crucial to the buyer and substitutes are not available.
● They can lead to high switching costs.
● They are more concentrated than their buyers.

The Nature of Rivalry in the Industry

● The intensity of rivalry in an industry is a significant determinant of industry
attractiveness and profitability.
● The competitors influence strategic decisions at different strategic levels.
● The impact is more evident at functional level, like in the prices being charged, more
aggressive advertising, and building pressures on costs, product and so on.
● The intensity of rivalry can influence the costs of suppliers, distribution, and of
attracting customers and thus directly affect the profitability.
● The more intensive the rivalry, the less attractive is the industry.
● Rivalry among competitors tends to be cutthroat and industry profitability low when

1. An industry has no clear leader.

2. Competitors in the industry are numerous.
3. Competitors operate with high fixed costs.
4. Competitors face high exit barriers.
5. Competitors have little opportunity to differentiate their offerings.
6. The industry faces slow or diminished growth.

Industry Leader: A strong industry leader can discourage price wars by disciplining initiators of
such activity. Because of its greater financial resources, a leader can generally outlast smaller
rivals in a price war. Knowing this, smaller rivals often avoid initiating such a contest. For
example, India’s domestic air travel industry has no definite leader, and hence, we often see cut
throat price wars.

Number of Competitors: Even when an industry leader exists, the leader’s ability to exert
pricing discipline diminishes with the increased number of rivals in the industry as
communicating expectations to players becomes more difficult. For example, majorly in
unorganised sectors like handicrafts, due to huge number of producers, the internal rivalry is
immense.

Fixed Costs: When organisations operate with high fixed costs, they are motivated to utilize
their capacity and therefore, are inclined to drop prices when they have excess capacity. Price
cutting causes profitability to fall for all firms in the industry, as the firms seek to produce
more to cover costs that must be paid regardless of industry demand, i.e. the fixed costs. For
this reason, profitability tends to be lower in industries (For example, airline,
telecommunications) characterized by high fixed costs.

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Exit Barriers: Rivalry amongst competitors declines, if a few competitors leave the industry.
Profitability therefore tends to be higher in industries with few exit barriers. Exit barriers come
in many forms. Assets of a firm considering exit may be highly specialized and therefore of
little value to any other firm. Therefore, such firm may not be able to find a buyer for its
assets. This discourages exit. When barriers to exit are powerful, competitors desiring exit may
refrain from leaving. Their continued presence in an industry exerts downward pressure on the
profitability of all competitors. The crux is, if an organisation cannot exit, it would fight for its
survival, and thus, intensify competition.

Product Differentiation: Firms can sometimes insulate themselves from price wars by
differentiating their products from those of its rivals. As a consequence, profitability tends to
be higher in industries that offer opportunity for differentiation. Profitability tends to be lower
in industries involving undifferentiated commodities such as, memory chips, natural resources,
processed metals and railroads. For example, ONGC and Indian Oil, cannot offer major product
differentiation in their products. Hence, the level of competition would always be high.

Slow Growth: Industries whose growth is declining tend to face more intense rivalry. It is so
because, as an industry’s growth declines, rivals would often fight harder to grow or sustain
their existing market share. The resulting intensive rivalry tends to reduce profitability for all.

Threat of Substitutes
● To predict profit pressure from this source, firms must search for products that perform
the same, or nearly the same, function as their existing products.
● Real estate, insurance, bonds and bank deposits for example are clear substitutes for
common stocks, because they represent alternate ways to invest funds.
● The threat of substitutes is great in many high tech industries as well.
● For example
○ introduction of digital filmless cameras virtually replace the film cameras and
threatened the existence of Eastman Kodak and Fuji Film.
○ Further, the introduction of smartphones has replaced cameras to a great
extent.

According to Porter, what is usually the most powerful of the five competitive forces?
(a) Rivalry among existing firms
(b) Potential development of substitute products
(c) Bargaining power of buyers and suppliers
(d) Potential entry of new competitors
(Sample MCQs)

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Competitive rivalry has the most effect on the firm's ____ strategies than the firm's other strategies.
(a) Business level
(b) Corporate level
(c) Functional level
(d) All of these
(Sample MCQs)

Correct/Incorrect.
Substitutes can also exert significant competitive pressures.
(RTP, May 2018, NA)

What are the common barriers that are faced by new entrants when an existing firm earns higher
profits?
(RTP, May 2018, NA)

Or

Rahul Sharma is Managing Director of a company which is manufacturing trucks. He is worried about
the entry of new businesses. What kind of barriers will help Rahul against such a threat?
(RTP, May 2019, NA) (Study Material)

Correct/Incorrect.
Economies of scale discourages new entrants.
(MTP 1, May 2018, 2 Marks) (SA, May 2018, 2 Marks)

Explain Porter’s five forces model as to how businesses can deal with the competition.
(MTP 2, May 2018, 6 Marks) (RTP, Nov 2018, NA) (MTP 1, May 2019, 5 Marks) (Study Material)

Explain briefly the competitive forces in any industry as identified by Michael Porter.
(SA, May 2018, 5 Marks)

Correct/Incorrect.
Porter’s five forces model considers new entrants as a significant source of competition.
(RTP, Nov 2018, NA)

According to Porter, which of the following is important to achieve competitive advantage?

(a) Differentiation and cost advantage.
(b) Outsourcing activities.
(c) Having strong relationship with buyer and sellers.
(d) Focus on most competitive businesses.

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(RTP, May 2019, NA)

What will happen in case many new businesses enter a market?

(a) Barriers to entry will rise.
(b) Competitive rivalry will intensify.
(c) Capacity of industry will fall.
(d) Industry will become more lucrative.
(RTP, May 2019, NA)

Buyers can exert considerable pressure on business. Do you agree? Discuss.

(RTP, Nov 2019, NA)

Discuss in what conditions rivalry among competitors tends to be cut-throat and profitability of the
industry goes down.
(SA, Nov 2019, 5 Marks)

Eco-carry bags Ltd., a recyclable plastic bags manufacturing and trading company has seen a potential
in the ever-growing awareness around hazards of plastics and the positive outlook of the society
towards recycling and reusing plastics.
A major concern for Eco-carry bags Ltd. are paper bags and old cloth bags. Even though they are
costlier than recyclable plastic bags, irrespective, they are being welcomed positively by the consumers.
Identify and explain that competition from paper bags and old cloth bags fall under which category of
Porter’s Five Forces Model for Competitive Analysis?
(RTP, May 2020, NA) (Study Material)

Competitive pressures operate as a composite in five areas of the overall market. Elaborate.
(RTP, May 2021, NA)

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Michael Porter’s Generic Strategies

● Strategies allow organizations to gain competitive advantage from three different bases:
○ cost leadership,
○ differentiation, and
○ focus.
● Porter called these base generic strategies.
● These strategies have been termed generic because they can be pursued by any type or
size of business firm and even by not-for-profit organisations.
○ Cost leadership emphasizes producing standardized products at a very low
per-unit cost for consumers who are price-sensitive.
○ Differentiation is a strategy aimed at producing products and services considered
unique industry wide and directed at consumers who are relatively
price-insensitive.
○ Focus means producing products and services that fulfill the needs of small
groups of consumers.

Cost Leadership Strategy

Cost leadership emphasizes producing standardized products at a very low per-unit cost for
consumers who are price-sensitive.

● It is a low cost competitive strategy that aims at a broad mass market.

● It requires vigorous pursuit of cost reduction in the areas of
○ procurement, production, storage and distribution of product or service and also
economies in overhead costs.

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● Because of its lower costs, the cost leader is able to change a lower price for its
products than its competitors and still make satisfactory profits.
● For example,McDonald’s fast food restaurants have successfully followed a low cost
leadership strategy.

A primary reason for pursuing forward, backward, and horizontal integration strategies is to gain
cost leadership benefits.

Cost leadership generally must be pursued in conjunction with differentiation. The low cost
leadership should be such that no competitors are able to imitate so that it can result in
sustainable competitive advantage to the cost leader firm.

Striving to be the low-cost producer in an industry can be especially effective

● when the market is composed of many price-sensitive buyers,
● when there are few ways to achieve product differentiation,
● when buyers do not care much about differences from brand to brand, or
● when there are a large number of buyers with significant bargaining power.

The basic idea is to underprice competitors and thereby gain market share and sales, driving
some competitors out of the market entirely.

A successful cost leadership strategy usually spread throughout the entire firm, as evidenced by
● high efficiency, low overhead,
● limited perks, intolerance of waste,
● intensive screening of budget requests,
● wide spans of control,
● rewards linked to cost containment, and broad employee participation in cost control
efforts.

Achieving Cost Leadership Strategy

To achieve cost leadership, following are the actions that could be taken:
1. Forecast the demand of a product or service promptly.
2. Optimum utilization of the resources to get cost advantages.
3. Achieving economies of scale leads to lower per unit cost of product/service.
4. Standardisation of products for mass production to yield lower cost per unit.
5. Invest in cost saving technologies and try using advanced technology for smart working.
6. Resistance to differentiation till it becomes essential.

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Advantages of Cost Leadership Strategy

1. Rivalry
○ Competitors are likely to avoid a price war, since the low cost firm will continue
to earn profits after competitors compete away their profits.
2. Buyers
○ Powerful buyers/customers would not be able to exploit the cost leader firm and
will continue to buy its product.
3. Suppliers
○ Cost leaders are able to absorb greater price increases before it must raise price
to customers.
4. Entrants
○ Low cost leaders create barriers to market entry through its continuous focus on
efficiency and reducing costs.
5. Substitutes
○ Low cost leaders are more likely to lower costs to induce customers to stay with
their product, invest to develop substitutes, purchase patents.

Disadvantages of Cost Leadership Strategy

1. Cost advantage may not be remaining for long as competitors may also follow cost
reduction technique.
2. Cost leadership can succeed only if the firm can achieve higher sales volume.
3. Cost leaders tend to keep their costs low by minimizing advertising, market research,
and research and development, but this approach can prove to be expensive in the long
run.
4. Technology changes are a great threat to the cost leader.

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Differentiation Strategy
● This strategy is
○ aimed at broad mass market and
○ involves the creation of a product or service
■ that is perceived by the customers as unique.
■ The uniqueness can be associated with
➢ product design,
➢ brand image,
➢ features,
➢ technology,
➢ dealer network or
➢ customer service.
● Because of differentiation, the business can charge a premium for its product.
● Product development is an example of a strategy that offers the advantages of
differentiation.

Differentiation strategy should be pursued only after a careful study of buyers’ needs and
preferences to determine the feasibility of incorporating one or more differentiating features
into a unique product that features the desired attributes.

Risk
A risk of pursuing a differentiation strategy is that the unique product may not be valued high
enough by customers to justify the higher price. When this happens, a cost leadership strategy
easily will defeat a differentiation strategy. Another risk of pursuing a differentiation strategy
is that competitors may develop ways to copy the differentiating features quickly.

Basis of Differentiation
There are several bases of differentiation, major being: Product, Pricing and Organization.

Product
Innovative products that meet customer needs can be an area where a company has an
advantage over competitors. However, the pursuit of a new product offering can be costly –
research and development, as well as production and marketing costs can all add to the cost of
production and distribution. The payoff, however, can be great as customer’s flock to be among
the first to have the new product.

For example, Apple iPhone, has invested huge amounts of money in R&D, and the customers’
value that. They want to be among the first ones to try the new offerings from the company.

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Pricing
It fluctuates based on its supply and demand, and may also be influenced by the customer’s
ideal value for a product. Companies that differentiate based on product price can either
determine to offer the lowest price or can attempt to establish superiority through higher
prices.

For example, Apple iPhone dominates the smart phone segment by charging higher prices for
its products.

Organisation:
Organisational differentiation is yet another form of differentiation. Maximizing the power of a
brand or using the specific advantages that an organization possesses can be instrumental to a
company’s success. Location advantage, name recognition and customer loyalty can all provide
additional ways for a company differentiate itself from the competition. For example, Apple has
been building customer loyalty since years and has a fanbase of consumers that are called
“Apple Fanboys/Fangirls”

Achieving Differentiation Strategy

To achieve differentiation, following are the measures that could be adopted by an organization
to incorporate:
1. Offer utility for the customers and match the products with their tastes and
preferences.
2. Elevate the performance of the product.
3. Offer the promise of high quality product/service for buyer satisfaction.
4. Rapid product innovation.
5. Taking steps for enhancing image and its brand value.
6. Fixing product prices based on the unique features of the product and buying capacity
of the customer.

Advantages of Differentiation Strategy

A differentiation strategy may help to remain profitable even with rivalry, new entrants,
suppliers’ power, substitute products, and buyers’ power.

1. Rivalry
○ Brand loyalty acts as a safeguard against competitors. It means that customers
will be less sensitive to price increases, as long as the firm can satisfy the
needs of its customers.
2. Buyers

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○ They do not negotiate for price as they get special features and also they have
fewer options in the market.
3. Suppliers
○ Because differentiators charge a premium price, they can afford to absorb
higher costs of supplies and customers are willing to pay extra too.
4. Entrants
○ Innovative features are an expensive offer. So, new entrants generally avoid
these features because it is tough for them to provide the same product with
special features at a comparable price.

5. Substitutes
○ Substitute products can’t replace differentiated products which have high brand
value and enjoy customer loyalty.

Disadvantages of Differentiation Strategy

1. In long term, uniqueness is difficult to sustain.
2. Charging too high a price for differentiated features may cause the customer to
switch-off to another alternative.
3. Differentiation fails to work if its basis is something that is not valued by the
customers.

Focus
A successful focus strategy depends on an industry segment that is
● of sufficient size,
● has good growth potential,
● and is not crucial to the success of other major competitors.

Strategies such as market penetration and market development offer substantial focusing
advantages.

Midsize and large firms can effectively pursue focus based strategies only in conjunction with
differentiation or cost leadership-based strategies.

Focus strategies are most effective when consumers have distinctive preferences or
requirements.

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Risks of pursuing a focus strategy include the possibility that numerous competitors will
recognize the successful focus strategy and copy it, or that consumer preferences will drift
toward the product attributes desired by the market as a whole.

Focused cost leadership

A focused cost leadership strategy requires competing based on price to target a narrow
market.

A firm that follows this strategy does not necessarily charge the lowest prices in the industry.
Instead, it charges low prices relative to other firms that compete within the target market.

Firms that compete based on price and target a narrow market are following a focused cost
leadership strategy.

Focused differentiation
A focused differentiation strategy requires offering unique features that fulfill the demands of a
narrow market.

Some firms using a focused differentiation strategy concentrate their efforts on a particular
sales channel, such as selling over the internet only. Others target particular demographic
groups. Firms that compete based on uniqueness and target a narrow market are following a
focused differentiation strategy.

For example, Rolls-Royce sells a limited number of high-end, custom-built cars.

Achieving Focused Strategy

To achieve focused cost leadership/differentiation, following are the measures that could be
adopted by an organization:

1. Selecting specific niches which are not covered by cost leaders and differentiators.
2. Creating superior skills for catering to such niche markets.
3. Generating high efficiencies for serving such niche markets.
4. Developing innovative ways in managing the value chain.

Advantages of Focused Strategy

1. Premium prices can be charged by the organisations for their focused product/ services.
2. Due to the tremendous expertise about the goods and services that organisations
following focus strategy offer, rivals and new entrants may find it difficult to compete.

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Disadvantages of Focused Strategy

1. The firms lacking in distinctive competencies may not be able to pursue focus strategy.
2. Due to the limited demand of product/services, costs are high which can cause
problems.
3. In long run, the niche could disappear or be taken over by larger competitors by
acquiring the same distinctive competencies.

A narrow market focus is to a differentiation-based strategy as a

(a) Broadly-defined target market is to a cost leadership strategy
(b) Growth market is to a cost-based strategy
(c) Technological innovation is to a cost-based strategy
(d) Growth market is to a differentiation-based strategy
(Sample MCQs)

A firm successfully implementing a differentiation strategy would expect:

(a) Customers to be sensitive to price increases.
(b) To charge premium prices..
(c) Customers to perceive the product as standard.
(d) To automatically have high level of power over suppliers.
(Sample MCQs) (MTP 1, May 2019, 1 Mark) (MTP 2, May 2021, 1 Mark)

The Niche strategy is the best way to enter a:

a) New market
b) Growing market
c) Matured market
d) None of the above
(Sample MCQs)

Advantages of Cost leadership strategy.

(RTP, May 2018, NA) (MTP 1, Nov 2018, 5 Marks)

Airlines industry in India is highly competitive with several players. Businesses face severe competition
and aggressively market themselves with each other. Luxury Jet is a private Delhi based company with
a fleet size of 9 small aircrafts with seating capacity ranging between 6 seats to 9 seats. There
aircrafts are chartered by big business houses and high net worth individuals for their personalised
use. With customised tourism packages their aircrafts are also often hired by foreigners. Identify and
explain the Michael Porter’s Generic Strategy followed by Luxury Jet.
(RTP, May 2018, NA) (RTP, Nov 2020, NA) (Study Material)

Distinguish between cost leadership and differentiation strategies.

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(MTP 1, May 2018, 5 Marks) (RTP, Nov 2018, NA) (MTP 1, May 2020, 5 Marks) (RTP, Nov 2020,
NA) (MTP 1, Nov 2020, 5 Marks) (Study Material)

Discuss differentiation strategy? How is it achieved?

(MTP 2, May 2018, 3 Marks) (SA, May 2019, 5 Marks)

Gennex is a company that designs, manufactures and sells computer hardware and software. Gennex is
well known for its innovative products that has helped the company to have advantage over its
competitors. It also spends on research and development and concerned with innovative softwares.
Often the unique features of their product, that are not available with their competitors helps them to
gain competitive advantage. Gennex using the strategy is consistently gaining its position in the
industry over its competitors.
Identify and explain the Porter’s generic strategy which Gennex has opted to gain the competitive
advantage.
(RTP, Nov 2018, NA) (MTP 2, May 2019, 5 Marks) (Study Material)

Sohan and Ramesh are two friends who are partners in their business of making biscuits. Sohan
believe in making profits through selling more volume of products. Hence, he believes in charging lesser
price to the customers. Ramesh, however of the opinion that higher price should be charged to create
an image of exclusivity and for this, he proposes that the product to undergo some change.
Analyse the nature of generic strategy used by Sohan and Ramesh.
(SA, Nov 2018, 5 Marks) (Study Material)

What do you understand by cost leadership? How is it achieved?

(RTP, May 2019, NA)

Or

Write a short note on the concept of cost leadership strategy and how to achieve it.
(SA, Nov 2019, 5 Marks) (RTP, May 2021, NA)

Infant care is a successful store chain that caters products for expectant mothers and new moms.
They offer everything from nursing classes to strollers, toys, infant clothes, diapers and baby furniture.
Due to a one-stop shop for infants, they are charging a premium for its products. Identify and explain
how the strategy adopted by infant care.
(MTP 1, May 2019, 5 Marks) (Study Material)

Michael Porter Generic strategies to gain competitive advantage include all except:
a. Cost leadership
b. Differentiation

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c. Focus
d. Revenue generation
(MTP 2, May 2019, 1 Mark)

Porter’ cost leadership is a ____________ strategy

A. Functional level
B. Business level
C. Corporate level
D. Implementation
(RTP, Nov 2019, NA)

A century-old footwear company “Mota Shoes” had an image of being the footwear choice for formal
occasions. In an attempt to reinvent its brand, it tied up with a foreign footwear giant “Buffrine” to
manufacture and sell its Hideseek brand in the country. Putting its best foot forward, it launched
extra soft, casual and relaxed footwear for young. Aiming at a brand and image makeover the “Mota
Shoes” decided to price the Hide Seek products at premium. What kind of Michael Porter business
level strategy is being used by “Mota Shoe company”? State its advantages.
(RTP, Nov 2019, NA) (Study Material)

In Michael Porter’s generic strategy _____________ emphasizes producing standardized products at

a very low per unit-cost for consumers who are price sensitive.
(a) Cheap leadership
(b) Inferior product leadership
(c) Cost leadership
(d) Cost benefit
(MTP 1, Nov 2019, 1 Mark)

Differentiation Strategy can be achieved by following measures:

1. Match products with tastes and preferences of customers.
2. Elevate the performance of the product.
3. Rapid product innovation
Which of the above is true?
(a) (1) and (2)
(b) (1) and (3)
(c) (2) and (3)
(d) (1), (2) and (3)
(RTP, May 2020, NA)

A differentiation strategy may help to remain profitable even with rivalry, new entrants, suppliers’
power, substitute products, and buyers’ power. Explain.
(RTP, May 2020, NA)

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Low cost, differentiation and focus are:

(a) SBU level strategies
(b) Corporate level strategies
(c) Business level strategies
(d) Functional level strategies
(MTP 1, Nov 2020, 1 Mark)

ABC Ltd. is a beverage manufacturing company. It chiefly manufactures soft drinks. The products are
priced on the lower side which has made the company a leader in the business. Currently it is holding
35 percent market share. The R & D of company developed a formula for manufacturing sugar free
beverages. On successful trial and approval by the competent authorities, company was granted to
manufacture sugar free beverages. This company is the pioneer to launch sugar free beverages which
are sold at a relatively higher price. This new product has been accepted widely by a class of
customers. These products have proved profitable for the company. Identify the strategy employed by
the company ABC Ltd. and mention what measures could be adopted by the company to achieve the
employed strategy.
(SA, Nov 2020, 5 Marks) (Study Material)

Spacetek Pvt. Ltd. is an IT company. Although there is cut throat competition in the IT sector,
Spacetek deals with distinctive niche clients and is generating high efficiencies for serving such niche
market. Other rival firms are not attempting to specialize in the same target market. Identify the
strategy adopted by Spacetek Pvt. Ltd. and also explain the advantages and disadvantages of that
strategy.
(SA, Jan 2021, 5 Marks) (MTP 1, Nov 2021, 5 Marks) (Study Material)

X-Olympus is a gaming software company specializing in developing games for ZBox and
GameStation-4. The company is facing stiff competition due to saturation of market and price wars,
which has excessively favor and highlight their dependence on gaming console manufacturers. Thereby,
the company desires to establish a competitive advantage over industry rivals by enhancing the
gaming experience by expanding into Edge-Cloud Gaming Service on a monthly subscription basis. This
service offering does not require dedicated gaming consoles yet provide customers game streaming in
4K resolution with an ample range of games to select from. This move is expected to insulate
X-Olympus from price wars and provide a competitive advantage. Identify and explain the generic
strategies adopted by X-Olympus?
(MTP 1, May 2021, 5 Marks)

Domolo is a premium cycles and cycling equipments brand which targets high spending customer with
a liking for quality and brand name. Their cycles range from rupees fifteen thousand to rupees one lac.
The recent trend of fitness through cycling has created humongous demand for cycles and peripherals
like helmets, lights, braking systems, fitness applications, etc. The customer base has grown 150% in
the last three months. Mr. Vijay, who is an investor wants to tap in this industry and bring about
cheaper options to people who cannot spend so much. Which business level strategy would best suit

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for Mr. Vijay’s idea and what are the major substrategies that can be implemented to capture
maximum market?
(MTP 2, May 2021, 5 Marks) (Study Material)

Trekking Poles is a small company based in the Himalayan ranges in India. It is known in the region
for its hill walking sticks. Trekking Poles sell specialist walking equipment in their small shop at the
foot of the mountains. They do not have a website yet are able to sell their products at premium
prices. Which of the following one of Porter’s generic strategies best fits Trekking Poles?
(a) Cost leadership
(b) Differentiation
(c) Focused cost leadership
(d) Focused differentiation
(RTP, Nov 2021, NA)

Explain in brief the various basis of differentiation strategy.

(RTP, Nov 2021, NA)

BHAVNAV is a business which makes and sells laptop computers in France. In recent years it has
been struggling to compete with its rivals and has seen a significant fall in its market share.
BHAVNAV’s managers identify that majority of its products launched by BHAVNAV’s rivals were high
specification, with good quality materials and many innovative design features. Products with inferior
quality, such as those sold by BHAVNAV have not sold well in France. This information led
BHAVNAV’s management team to decide to select a new business strategy based on Porter’s Generic
Strategic Model. Identify and suggest the best business strategy BHAVNAV’s management has to opt
for?
(MTP 2, Nov 2021, 5 Marks)

Inspite of high commodity inflation, shortage of components and the threat of a third wave of
Covid-19 pandemic in India, manufacturers of packaged goods, home appliances and consumer
electronics are expecting the business to grow by 12 to 25 percent in the coming months. After one
and a half years of disruption, manufacturers are now confident about managing their inventories
better, keeping their supply channels well stocked and preparing themselves to minimalize the impact
of any covid related restrictions even as they gear up for the festive season, which usually accounts
for 25 to 30 percent of their yearly sales.
The home appliances sector could be an example. After a dismal April-June quarter in the year 2021,
producers of air conditioners, refrigerators and washing machines are expecting their business to grow
by 15-20 percent in the months to come. All the companies operating in the sector have geared up to
grab the opportunities available in the market.
A leading company in the home appliances domain, XXP India, is planning to launch various innovative
product designs and offer loyalty programmes to lure cusumers.
With reference to Michael Porter's Generic strategies, identify which strategies XXP India has planned
for? Explain how this strategy wil be advantageous to the company to remain profitable?

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(SA, Nov 2021, 5 Marks)

A business consultancy firm specializes in environment management consultancy. It advises client

companies on how to set up environmental management accounting systems. For measuring recording
and analyzing environmental costs. A large part of its business involves performing environmental
audits to check whether companies have achieved an international assurance standard in
environmental management; this is something that rival consultancy firms do not do. The firm also
carries out other management consultancy projects for client, but these make up only a small
proportion of its total annual fee income.
Identify the strategy categories by Michael Porter which best describes the strategy of this firm.
(RTP, May 2022, NA)

A private Moneyload Ltd. Bank that targets high worth individuals. They offer a premium service with
many additional and personal services not normally available through other banks. They charge a
significant annual fee for these services. The company makes full use of information technology
throughout its operations in order to minimize costs. Identify and explain the generic strategy adopted
by Moneyload Ltd. Bank?
(MTP 1, May 2022, 5 Marks)

Best-Cost Provider Strategy

The new model of best cost provider strategy is a further development of above three generic
strategies. It is directed towards giving customers more value for the money by emphasizing
both low cost and upscale differences. The objective is to keep costs and prices lower than
those of other sellers of comparable products.

Best-cost provider strategy involves providing customers more value for the money by
emphasizing low cost and better quality difference. It can be done:

a. through offering products at lower price than what is being offered by rivals for
products with comparable quality and features or
b. charging similar prices as by the rivals for products with much higher quality and better
features.

Explain Best-cost provider strategy.

(RTP, May 2018, NA)

Best-cost provider strategy is related to providing customers more value for money by:
A. Highlighting low cost and low quality difference.

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B. Emphasizing low cost and better quality difference.

C. Producing high cost and low quality difference.
D. Managing high cost and low quality difference.
(RTP, Nov 2019, NA)
Or
Best-cost provider strategy involves providing customers more value for the money by emphasizing:
(a) Low cost and low quality difference
(b) Low cost and better quality difference
(c) High cost and low quality difference
(d) High cost and better quality difference
(MTP 1, Nov 2019, 1 Mark)

Best Cost provider strategies

(a) Seek to attract buyers on the basis of charging low price for low quality
(b) Aim at giving customers less value for more money
(c) Seek to attract buyers on the basis of charging high price for high quality
(d) Aim to giving customers low cost and better quality
(MTP 1, May 2022, 1 Mark)

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 Chapter 6 - Functional Level Strategies

Chapter 6
Functional Level Strategies
Functional Strategy
Meaning
● Strategies for different functions of management are known as functional level
strategy.
● Management has many functional areas. Some of the common functional areas are
○ Marketing
○ Finance
○ Production
○ Logistics
○ Research & Development
○ Human Resource
● They provide details to business strategy & govern how key activities will be managed.
● For each functional area: Major sub areas are identified.
● Then for each sub area,
○ contents of functional strategies,
○ important factors &
○ their importance in the strategy implementation process are identified.
● These strategies provide support to functional level managers.
● They spell out as to how functional managers will work so as to ensure better
performance in their respective functional areas.
● Strategy of one functional area cannot be looked at in isolation. (True or False
Question)

Importance / Need of functional strategy

The reasons why functional strategies are needed can be enumerated as follows:

Provides direction
Functional strategies lay down clearly what is to be done at the functional level. They provide a
sense of direction to the functional staff.

Facilitate implementation of corporate strategies

They are aimed at facilitating the implementation of corporate strategies and the business
strategies formulation at the business level.

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Basis of Controlling
They act as the basis for controlling activities in the different functional areas of business.

Harmony and Coordination

They help in bringing harmony and coordination as they are formulated to achieve major
strategies.

Consistency
These strategies help the functional managers in handling similar situations occurring in
different functional areas in a consistent manner.

Rohit Bhargava is the Managing Director of Smooth and Simple Pvt Ltd. The company established in
2011, with 35 employees grew very fast to become an organisation with 335 employees in the year
2016. With the increase in size Rohit started facing difficulty in managing things. Many a times he
finds that personnel at the functional level are not in sync with the strategies of the top. He felt
that strategies need to be segregated into viable plans and policies that are compatible with each
other and communicated down the line.
Why does Rohit need to segregate the strategies into functional plans? Discuss.
(RTP, Nov 2018, NA) (MTP 2, May 2019, 5 Marks) (Study Material)

ABC Ltd is a company that has grown eleven times its size in last five years. With the increase in
size the company is facing difficulty in managing things. Many a times functional level is not in sync
with the corporate level. What will you like to advise to the company and why?
(RTP, May 2019, NA) (RTP, May 2020, NA) (RTP, May 2021, NA) (Study Material)

A Ltd. has recently decided to install a new IT system to improve the efficiency of its payroll
function. A ltd. believes this will reduce the cost of running the payroll system by 20%. Which one of
the following levels of strategy is the above IT system most closely linked to?
(a) Corporate level
(b) Functional level
(c) Business level
(d) Strategic level
(RTP, Nov 2021, NA)

What is meant by Functional strategies? In term of level, where will you put them? Are functional
strategies really important for business?
(Study Material)

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MARKETING STRATEGY
Introduction
Marketing is a social and managerial process by which individuals and groups obtain what
they need and want through creating, offering and exchanging products of value with others.

Philip Kotler and Gary Armstrom

In the present day business, marketing encompasses all the activities related to
● identifying the needs of customers and
● taking such actions to satisfy them in return for some consideration.

In marketing it is more important to do what is strategically right than what is immediately

profitable.

A business organization faces countless marketing variables that affect the success or failure of
strategy implementation. Some examples of marketing decisions that may require special
attention are as follows

1. The amount and the extent of advertising. Whether to use heavy or light advertising.
What should be the amount of advertising in print media, television or the internet?
2. The kind of distribution network to be used. Whether to use exclusive dealerships or
multiple channels of distribution.
3. Whether to be a price leader or a price follower?
4. Whether to offer a complete or limited warranty?
5. Whether to limit or enhance the share of business done with a single or a few
customers?
6. Whether to reward salespeople based on straight salary, straight commission, or on a
combination of salary and commission?

The marketing process is the process of analyzing market opportunities, selecting target
markets, developing the marketing mix, and managing the marketing effort.

Once the corporate strategy has defined the company’s overall mission and objectives,
marketing plays a role in carrying out these objectives by undertaking the following

● Delivering Value to Customers

○ Marketing alone cannot produce superior value for the customers.
○ It needs to work in coordination with other departments to accomplish this.

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○ Marketers are challenged to find ways to get all departments to think with
focus on customers.
○ In its search for competitive advantage, the firm needs to look beyond its own
chain of activities and into the chains of its suppliers, distributors, and
ultimately customers.
○ This “partnering” will produce a value delivery network.

● Connecting with customers

○ To succeed in today’s competitive marketplace, companies must be customer
centric
○ They must win customers from competitors and keep them by delivering greater
value.
○ Since companies cannot satisfy all customers in a given market,
■ they must divide up the total market (market segmentation),
■ choose the best segments (marketing target),
■ and design strategies for profitably serving chosen segments better than
the competitors (market positioning).

Marketing Mix
● The marketing mix is the set of controllable marketing variables that the firm blends to
produce the response it wants in the target market.
● These variables are often referred to as the “4 Ps.”
● The 4 Ps stand for product, price, place and promotion.
● An effective marketing program
○ blends all of the marketing mix elements
○ into a coordinated program
○ designed to achieve the company’s marketing objectives
■ by delivering value to consumers.
● The 4 Ps are from a marketer’s angle. When translated to the perspective of customers,
they may be termed as 4 Cs.
○ Product may be referred to as customer solution,
○ price as customer cost,
○ place as convenience and
○ promotion as communication.

Product
Goods or/and service that the company offers to the target market.

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Price
1. Amount of money customers have to pay to obtain the product.
2. The price of a product is its composite expression of its
○ value and utility to the customer,
○ its demand,
○ quality,
○ reliability,
○ safety,
○ the competition it faces,
○ the desired profit and so on.

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3. In an industry there would be organizations with low cost products and other
organizations with high costs.
4. The low cost organizations may adopt aggressive pricing strategy as they enjoy more
freedom of action in respect of their prices.
5. More and more companies of today have to accept the market price with minor
deviations and work towards their costs. They reduce their cost in order to maintain
their profitability.
6. For a new product pricing strategies for entering a market needs to be designed. In
pricing a really new product at least three objectives must be kept in mind.
○ Making the product acceptable to the customers.
○ Producing a reasonable margin over cost.
○ Achieving a market that helps in developing market share.
7. For a new product an organization may either choose to skim or penetrate the market.
○ In skimming
➢ Prices are set at a very high level.
➢ The product is directed to those buyers who are relatively price -
insensitive but sensitive to the novelty ( the quality of being new,
original, or unusual. ) of the new product.
➢ Since the initial off take of the product is low, high price, in a way,
helps in rationing of supply in favor of those who can afford it.
○ In penetration
➢ Firm keeps a temptingly low price for a new product which itself is
selling point.
➢ A very large number of the potential consumer may be able to afford
and willing to try the product.

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Place
● Place stands for company activities that make the product available to target
consumers.
● Strategies should be taken for the management of
○ channel(s) by which ownership of product is transferred from producers to
customers and in many cases,
○ the system(s) by which goods are moved from where they are produced from
they are purchased by the final customers.
● Strategies applicable to the intermediaries such as wholesalers and retailers must be
designed.
● The distribution policies of a company are important determinants of the functions of
marketing.
● The decision to utilize a particular marketing channel or channels sets the pattern of
operations of the sales force.

Promotion

● Activities that communicate the merits of the product and persuade target consumers
to buy it.
● It is simultaneously a communication, persuasion and conditioning process.
● Strategies are needed to combine individual methods such as advertising, personal
selling, and sales promotion into a coordinated campaign.
● In addition, promotional strategies must be adjusted as a product move from an earlier
stage from a later stage of its life.
● Modern marketing is highly promotional oriented.
● Promotion also acts as an impetus (stimulus) to marketing.

There are at least four major direct promotional methods or tools - personal selling, advertising,
publicity and sales promotion. They are briefly explained as follows:

Personal selling
● Oldest form.
● Face-to-face interaction.
● With the prospective customers and
● High degree of personal attention.
● Oral communication.
● Developing a relationship. End up with efforts for making a sale.
● High costs as sales personnel are expensive.
● Only one customer at a time.

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● The personal selling is used in all kind of industries for all products.

Advertising
● Advertising is a non-personal,
● Highly flexible and dynamic promotional method.
● The media for advertisements are several such as pamphlets, brochures, newspapers,
magazines, hoardings, display boards, radio, television and internet.
● Choice of appropriate media is important for effectiveness of the message.
● The media may be local, regional, or national.
● The type of the message, copy, and illustration are a matter of choice and creativity.
● Its effectiveness in respect to the expenditure cannot be directly measured.
● A sale is a function of several variables out of which advertising is only one.

Publicity
● Non-personal form.
● No payments are made to the media as in case of advertising.
● Placing information about it in the media without paying for the time or media space
directly.
● Negligible cost.
● Basic tools for publicity are press releases, press conferences, reports, stories, and
internet releases.
● These releases must be of interest to the public.

Sales promotion
● Sales promotion is an omnibus term
● Includes all activities that are undertaken to promote the business but are not
specifically included under personal selling, advertising or publicity.
● Activities like discounts, contests, money refunds, instalments, kiosks, exhibitions and
fairs constitute sales promotion.
● Sales promotion done periodically may help in getting a larger market share to an
organization.

Expanded Marketing Mix

● Above elements of the marketing mix are not exhaustive.
● Growth of services has its own share for the inclusion of new elements in the
marketing mix.
People
● Who play a part in delivery of the market offering and thus influence the buyer's
perception, namely the firm's personnel and the customer.

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Physical evidence
● The environment in which the market offering is delivered and where the firm and
customer interact.

Extra Reading - Not For Exams

Physical evidence refers to everything your customers see when interacting with your business. This includes:
● the physical environment where you provide the product or service
● the layout or interior design
● your packaging
● your branding.
Physical evidence can also refer to your staff and how they dress and act.

Process
● The actual procedures, mechanisms and flow of activities by which the product &
service is delivered.

Formulation of Marketing Strategy

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Marketing analysis
● It involves a complete analysis of the company’s situation.
● A company performs analysis by identifying environmental opportunities and threats.
● It also analyzes its strengths and weaknesses to determine which opportunities the
company can best pursue.
● A company must carefully analyze its environment in order to avoid the threats and
take advantage of the opportunities. Areas to be analyzed in the environment normally
include:
○ Forces close to the company such as its ability to serve customers, other
company departments, channel members, suppliers, competitors, and public.
○ Broader forces such as demographic and economic forces, political and legal
forces, technological and ecological forces, and social and cultural forces.

Strategic marketing planning

Strategic marketing planning involves deciding on marketing strategies that will help the
company attain its overall strategic objectives.

A detailed plan is needed for each business, product, or brand. A product or brand plan may
contain different sections: executive summary, current marketing situation, threats and
opportunity analysis, objectives and issues, marketing strategies, action programs, budgets, and
controls.

● The executive summary is a short summary of the main goals and recommendations to
be presented in the plan.
● The current marketing situation is the section of a marketing plan that describes the
target market and the company’s position in it. Important sections include:
○ A market description.
○ A product review.
○ Analysis of the competition.
○ A section on distribution.
● In the threats and opportunities section, managers give their assessment of important
developments that can have an impact, either positive or negative, on the firm.
● Having studied the product’s threats and opportunities, the manager can set objectives
and consider issues that will affect them.

Strategy Control
Strategic control involves monitoring and measuring of results and their evaluation. This would
lead to taking corrective actions in the 4 P’s of marketing.

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Marketing Strategy is the following type of strategy:

(a) Business Strategy.
(b) Functional Strategy.
(c) Growth Strategy.
(d) Product Strategy.
(RTP, May 2019, NA)

Correct/ Incorrect.
Publicity is personal form of promotion.
(RTP, May 2018, NA)

Ronit Roy has started a new business of manufacturing washing powder. Make a plan for him to
promote his product.
(RTP, May 2018, NA) (Study Material)

Correct/ Incorrect.
Marketing function has no relation with production function.
(MTP 2, May 2018, 2 Marks) (SA, May 2018, 2 Marks)

Define the term 'Marketing'. Distinguish between social marketing and service marketing.
(SA, May 2018, 5 Marks)

What are the objectives that must be kept in mind while designing a pricing strategy of a new
product?
(RTP, Nov 2018, NA) (MTP 1, Nov 2021, 5 Marks)

Correct/ Incorrect.
Marketers alone can deliver superior value to customers.
(MTP 2, Nov 2018, 2 Marks)

Explain the marketing mix in the context of modern marketing.

(SA, Nov 2018, 5 Marks)

Decisions with regards to marketing mix are related to:

a. Growth Strategy
b. Business level strategy
c. Functional strategy
d. Corporate decisions
(MTP 1, May 2019, 1 Mark)

For a new product, an organization may choose:

(a) Skimming pricing strategy

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(b) Penetration pricing strategy

(c) Both (a) and (b)
(d) None of these
(MTP 1, Nov 2019, 1 Mark)

Mr. Vicky Verma, a Gwalior based entrepreneur, has entered into an exclusive-retail deal with an
Italian company selling ‘Fantasy-3D’, a Hologram LED Fan, which is being used for advertising at
public places. Mr. Verma procured a total of 500 units of the product and paid upfront as per the
seller’s policy. This resulted in blocking of his working capital significantly and the shipment is
expected in a month. Meanwhile his continued efforts of establishing relations with the marketing
heads of corporates resulted in a series of meetings, where he demonstrated his specialist product
knowledge by changing the hologram images to personalise basis specifications of the customer. The
management of a big automative company was impressed with the quality and adaptability of the
product, and awarded a contract of 125 units to be displayed in the auto-maker’s showrooms. Identify
and explain the product promotion strategy adopted by Mr. Verma.
(RTP, Nov 2020, NA)

Elucidate Expanded Marketing Mix

(SA, Jan 2021, 5 Marks)

Write short note on Publicity and Sales Promotion.

(RTP, May 2021, NA) (RTP, Nov 2021, NA)

Or

Distinguish between the following: Publicity & Sales Promotion.

(MTP 1, May 2022, 5 Marks)

What do you understand by the term marketing mix? Briefly explain its various components.
(Study Material)

What do you understand by promotion? What are various promotion tools adopted by organization?
(Study Material)

Strategic Marketing Techniques

Social Marketing
Design, implementation, and control of programs seeking to increase the acceptability of a
social ideas, cause, or practice among a target group For instance, the publicity campaign for
prohibition of smoking in Delhi explained the place where one can and can't smoke in Delhi.

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Augmented Marketing
It is provision of additional customer services and benefits built around the core and actual
products that relate to introduction of hi-tech services like movies on demand, on-line
computer repair services, secretarial services, etc. Such innovative offerings provide a set of
benefits that promise to elevate customer service to unprecedented levels.

Direct Marketing
Marketing through various advertising media that interact directly with consumers, generally
calling for the consumer to make a direct response Direct marketing includes catalogue selling,
mail, tele-computing, electronic marketing, shopping, and TV shopping.

Relationship Marketing
The process of creating, maintaining, and enhancing strong, value-laden relationships with
customers and other stakeholder For example, Airlines offer special lounges at major airports for
frequent flyers. Thus, providing special benefits to select customers to strength bonds It will go
a long way in building relationships.

Services Marketing
It is applying the concepts, tools, and techniques, of marketing to services.

Person Marketing
People are also marketed. Person marketing consists of activities undertaken to create, maintain
or change attitudes or behavior towards particular people. For example, politicians, sports stars,
film stars, professional i.e., market themselves to get votes, or to promote their careers and
income.

Organization Marketing
It consists of activities undertaken to create, maintain, or change attitudes and behavior of
target audiences towards an organization. Both profit and non-profit organizations practice
organization marketing.

Place marketing
Place marketing involves activities undertaken to create, maintain, or change attitudes and
behavior towards particular places say, business sites marketing, tourism marketing.

Enlightened Marketing
A marketing philosophy holding that a company's marketing should support the best long-run
performance of the marketing system; its five principles include customer-oriented marketing,
innovative marketing, value marketing, sense-of-mission marketing, and societal marketing.

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Differential Marketing
A market-coverage strategy in which a firm decides to target several market segments and
designs separate offer for each. Differentiation can be achieved through variation in name,
color, size, brand names etc. For example, Hindustan Unilever Limited has Lifebuoy, Lux and
Rexona in popular segment and Dove and Pears in premium segment.

Synchro-marketing
When the demand for the product is irregular due to season, some parts of the day, or on hour
basis, causing idle capacity or overworked capacities, synchro-marketing can be used to find
ways to alter the same pattern of demand through flexible pricing, promotion, and other
incentives.

Concentrated Marketing:
A market-coverage strategy in which a firm goes after a large share of one or few sub-markets

Demarketing:
Marketing strategies to reduce demand temporarily or permanently-the aim is not to destroy
demand, but only to reduce or shift it. This happens when there is overfull demand. For
example, buses are overloaded in the morning and evening, roads are busy for most of times,
zoological parks are over-crowded on Saturdays, Sundays and holidays. Here de-marketing can
be applied to regulate demand.

A campaign advocating the message of ‘SAVE WATER’ is:

a) Services Marketing
b) Holistic marketing
c) Social Marketing
d) Direct Marketing
(Sample MCQs) (MTP 1, Nov 2019, 1 Mark)

Correct/ Incorrect.
Tele-shopping is an instance of direct marketing.
(RTP, Nov 2018, NA)

Define Augmented Marketing. Give two examples.

(SA, Nov 2018, 2 Marks)

The marketing strategy which is used to reduce or shift the demand is:
(a) Enlightened Marketing
(b) Synchro-Marketing
(c) Place Marketing

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 Chapter 6 - Functional Level Strategies

(d) Demarketing
(RTP, May 2020, NA)

A famous restaurant enjoys full occupancy during the lunch and dinner time for last few months. In
fact, many customers go back as they have to wait for their turn. Between 15:00 hours to 18:00
hours, the occupancy rate is near to nil. To raise the footfalls of customers during this lean time, the
owner offers a discount of 20% on total bill if a customer comes in these 3 hours. Whic type of
marketing strategy does the restaurant follow to attract the customers in the lean period?
(a) Differential Marketing
(b)Synchro-marketing
(c) Place Marketing
(d) Concentrated Marketing
(MTP 2, May 2021, 2 Marks)

Airlines providing special lounge access to loyal customers is a type of which marketing?
(a) Augmented Marketing
(b) Direct Marketing
(c) Relationship Marketing
(d) Services Marketing
(RTP, May 2022, NA)

FINANCIAL STRATEGY
● Relates to financial aspects of the business and are termed as financial strategies.
● The financial strategies of an organization are related to several areas
○ acquiring needed capital/sources of fund,
○ developing projected financial statements/budgets,
○ management/ usage of funds, and
○ evaluating the worth of a business.

Some examples of decisions that may require financial and accounting policies are
1. To raise capital with short-term debt, long-term debt, preferred stock, or common
stock.
2. To lease or buy fixed assets.
3. To determine an appropriate dividend payout ratio.
4. To extend the time of accounts receivables.
5. To establish a certain percentage discount on accounts within a specified period of time.
6. To determine the amount of cash that should be kept on hand.

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Major components of financial strategy

Strategising acquiring capital (sources of funds)

Successful strategy implementation often requires additional capital.

Determining an appropriate mix of debt and equity in a firm’s capital structure can be vital to
successful strategy implementation.

Debts can be used for products and projects earning more than the cost of the debt in order
to maximize the return on capital employed without diluting the ownership.

In low earning periods, too much debt in the capital structure of an organization can endanger
stockholders’ return and jeopardize company survival. Many debt-ridden real estate companies
find things very difficult at times of recession.

Issuing stock generally leads to dilution in ownership and control of the enterprise. This can
be a serious concern in today’s business environment of hostile takeovers, mergers, and
acquisitions.

The major factors regarding which strategies have to be made includes

● capital structure;
● procurement of capital and working capital borrowings;
● reserves and surplus as sources of funds; and
● relationship with lenders, banks and financial institutions.

Projected financial statements/budgets as an effective tool to implement

financial strategy
● It allows an organization to examine the expected results of various actions and
approaches. This type of analysis can be used to forecast the impact of various
implementation decisions
● Nearly all financial institutions require a projected financial statement whenever a
business seeks capital.
● A pro forma income statement and balance sheet allow an organization to compute
projected financial ratios under various strategy-implementation scenarios.

A financial budget is also a document that details

● how funds will be obtained and spent for a specified period of time.

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Annual budgets are most common, although the period of time for a budget can range from
one day to more than ten years.

Financial budgets can be viewed as the planned allocation of a firm’s resources based on
forecasts of the future.

There are several types of financial budgets used by different organizations. Some common
types of budgets include cash budgets, operating budgets, sales budgets, profit budgets, factory
budgets, capital budgets, expense budgets, divisional budgets, variable budgets, flexible budgets,
and fixed budgets.

Financial budgets have some limitations also.

● First, budgetary programs can become so detailed that they are cumbersome and overly
expensive.
● Second, financial budgets can become a substitute for objectives. A budget is a tool and
not an end in itself.
● Third, budgets can hide inefficiencies if based solely on precedent rather than on
periodic evaluation of circumstances and standards.
● Finally, budgets are sometimes used as instruments of tyranny that result in
frustration, resentment, absenteeism, and high turnover. To minimize the effect of this
last concern, managers should increase the participation of subordinates in preparing
budgets.

Strategising utilization/management of funds

Plans and policies for the usage of funds deal with investment or asset-mix decisions.
Usage of funds is important since it relates to the efficiency and effectiveness of resource
utilization in the process of strategy implementation.
The important factors regarding which plans, and policies are to be made are
● capital investment;
● fixed asset acquisition;
● current assets;
● loans and advances;
● dividend decisions; and
● relationship with shareholders.

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Evaluating the worth of a business

Establish the financial worth or cash value of a business to successfully implement strategies
such as acquisitions, mergers, retrenchment etc.

Various approaches for determining a business’s worth can be grouped into three main
approaches:

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Net worth or stockholders’ equity

● Net worth represents the sum of common stock, additional paid-in capital, and retained
earnings.
● After calculating net worth, add or subtract an appropriate amount for goodwill and
overvalued or undervalued assets.
● This total provides a reasonable estimate of a firm’s monetary value.

Future benefits
● The second approach to measuring the value of a firm grows out of the belief that the
worth of any business should be based largely on the future benefits its owners may
derive through net profits.
● A conservative rule of thumb is to establish a business’s worth as five times the firm’s
current annual profit.
● A five-year average profit level could also be used.

Letting the market determine

● The third approach, letting the market determine a business’s worth, involves three
methods.
○ First, base the firm’s worth on the selling price of a similar company. A
potential problem, however, is that sometimes comparable figures are not easy
to locate.
○ The second approach is called the price-earnings ratio method. To use this
method, divide the market price of the firm’s common stock by the annual
earnings per share and multiply this number by the firm’s average net income
for the past five years.
○ The third approach can be called the outstanding shares method. To use this
method, simply multiply the number of shares outstanding by the market price
per share and add a premium. The premium is simply a per-share amount that a
person or firm is willing to pay to control (acquire) the other company.

Financial objectives involve all of the following except:

a. Growth in revenues
b. Larger market share
c. Higher dividends
d. Greater return on investment
(Sample MCQs) (MTP 1, May 2019, 1 Mark)

“Evaluating the worth of a business is central to strategy implementation.” In the light of this
statement, explain the methods that can be used for determining the worth of a business.

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(MTP 1, May 2018, 5 Marks) (Study Material)

Or

Discuss the various approaches for evaluating the worth of a business.

(SA, Nov 2019, 5 Marks)

A web company initially started as an online marketplace for books. From “biggest E - Bookstore,” its
owners wants to expand into an e commerce platform selling electronic goods. Implementation of this
needs additional funds.
What are the different sources of raising funds and their impact on the financial strategy which you
as a financial manager will consider?
(RTP, Nov 2019, NA) (Study Material)

Or

Successful implementation of any project needs additional funds. What are the different sources of
raising funds and their impact on the financial strategy which you as a financial manager will
consider?
(Study Material)

What do you mean by financial strategy of an organization? How the worth of a business is
evaluated?
(RTP, May 2020, NA) (Study Material)

You are a manager of a firm, and you have to raise funds for a business project. From which sources
can you raise the funds for your company?
(RTP, May 2022, NA)

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PRODUCTION/OPERATIONS STRATEGY
The production/operations strategy is related to the production system, operational planning and
control and logistics management.

It considers the nature of product/service, the markets to be served, and the manner in which
the markets are to be served.

Understanding the Production System

The production system is concerned with the capacity, location, layout, product or service
design, work systems, degree of automation, extent of vertical integration, and such factors.

Therefore, all the decisions related to production of goods and services form the production
strategies. Strategies related to production affects the capability of the organisation to achieve
its objectives.

It involve decisions which are long-term in nature and influence not only the operations
capability of an organisation but also its ability to implement strategies and achieve objectives.

Production/Operations Planning and Control

Strategies related to operations planning and control are concerned with
● aggregate production planning;
● materials supply;
● inventory, cost, and
● quality management; and
● maintenance of plant and equipment.

Here, the aim of strategy implementation is to see how efficiently resources are utilized and in
what manner the day-to-day operations can be managed in the light of long-term objectives.

Operations planning and control is aimed at translating the objectives into reality.

Write short note on Production system

(RTP, May 2018, NA)

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Logistics Management

For a business enterprise, effective logistic strategy will involve raising and finding solutions to
the following questions:
● Which sources of raw materials and components are available?
● How many manufacturing locations are there?
● What products are being made at each manufacturing location?
● What modes of transportation should be used for various products.
● What is the nature of distribution facilities?
● What is the quality of materials handling equipment possessed? Is it ideal?
● What is the method for deploying inventory in the logistics network?
● Should the business organization own the transport vehicles?

What is logistics strategy? What are the areas to examine while developing a logistics
strategy? (IMP)

Management of logistics is a process that integrates the flow of supplies into, through and
out of an organization to achieve a level of service that facilitate movement and availability
of materials in a proper manner. When a company creates a logistics strategy it is defining
the service levels at which its logistics is smooth and is cost effective.

A company may develop a number of logistics strategies for specific product lines, specific
countries or specific customers because of constant changes in supply chains. There are

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different areas that should be examined for each company that should be considered and
should include:

1. Transportation: Does the current transportation strategies help service levels required
by the organization?
2. Outsourcing: Areas of outsourcing of logistics function are to be identified. The effect
of partnership with external service providers on the desired service level of
organisation is also to be examined.
3. Competitors: Review the procedures adopted by competitors. It is also to be judged
whether adopting the procedures followed by the competitors will be overall beneficial
to the organisation. This will also help in identifying the areas that may be avoided.
4. Availability of information: The information regarding logistics should be timely and
accurate. If the data is inaccurate then the decisions that are made will be incorrect.
With the newer technologies it is possible to maintain information on movement of
fleets and materials on real time basis.
5. Strategic uniformity: The objectives of the logistics should be in line with overall
objectives and strategies of the organization. They should aid in the accomplishment
of major strategies of the business organization.

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Supply Chain Management

Difference between logistics and supply chain management

Is logistic management same as supply chain management?

1. Supply chain management is an extension of logistic management. However, there is

difference between the two.
2. Logistical activities typically include management of inbound and outbound goods,
transportation, warehousing, handling of material, fulfillment of orders, inventory
management, supply/demand planning.
3. Although these activities also form part of Supply chain management, the latter has
different components.
4. Logistic management can be termed as one of its part.

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 Chapter 6 - Functional Level Strategies

5. Supply chain management includes more aspects apart from the logistics function.
6. It is a tool of business transformation and involves delivering the right product at the
right time to the right place and at the right price.
7. It reduces costs of organizations and enhances customer service.

Implementing Supply Chain Management Systems

It involves collaborative work between buyers and suppliers, joint product development, common
systems and shared information. A key requirement for successfully implementing supply chain
will be network of information sharing and management. Implementing and successfully running
supply chain management system will involve:

1. Product development

○ Customers and suppliers must work together in the product development

process. All partners will help in shortening the life cycles. Products are
developed and launched in shorter time and help organizations to remain
competitive.
2. Procurement

○ Procurement requires careful resource planning, quality issues, identifying

sources, negotiation, order placement, inbound transportation and storage.
Organizations have to coordinate with suppliers in scheduling without
interruptions. Suppliers are involved in planning the manufacturing process.
3. Manufacturing

○ Flexible manufacturing processes must be in place to respond to market

changes. They should be adaptive to accommodate customization and changes in
the taste and preferences. Manufacturing should be done on the basis of
just-in-time (JIT) and minimum lot sizes. Changes in the manufacturing
process be made to reduce manufacturing cycle.
4. Physical distribution

○ Delivery of final products to customers is the last position in a marketing

channel. Availability of the products at the right place at right time is
important for each channel participant. Through physical distribution processes
serving the customer become an integral part of marketing. Thus supply chain
management links a marketing channel with customers.
5. Outsourcing

○ Outsourcing is not limited to the procurement of materials and components, but

also includes outsourcing of services that traditionally have been provided within

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 Chapter 6 - Functional Level Strategies

an organization. The company will be able to focus on those activities where it

has competency and everything else will be outsourced.
6. Customer services

○ Organizations through interfaces with the company's production and distribution

operations develop customer relationships so as to satisfy them. They work with
customer to determine mutually satisfying goals, establish and maintain
relationships. This in turn helps in producing positive feelings in the organization
and the customers
7. Performance measurement

○ Supplier capabilities and customer relationships can be correlated with a firm

performance. Performance is measured in different parameters such as costs,
customer service, productivity and quality.

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Supply chain management is conceptually wider than logistic management. T/F with reason.
Correct: Supply chain management is an extension of logistic management. Logistic management is
related to planning, implementing and controlling the storage & movement of goods & services while
supply chain management is much more than that. It is a tool of business transformation and involve
delivering the right product at the right time to the right place and at the right price.

‘‘Inbound and Outbound logistics” are related to:

a) Supply Chain Management
b) Logistics Management
c) Value Chain Analysis

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 Chapter 6 - Functional Level Strategies

d) All of the above

(Sample MCQs)

Define logistics strategy.

(RTP, May 2018, NA) (RTP, Nov 2018, NA)

Distinguish between the following:

Inbound logistics and outbound logistics
(RTP, May 2018, NA)

Distinguish between logistic management and supply chain management.

(MTP 2, May 2018, 5 Marks) (RTP, Nov 2018, NA) (MTP 2, Nov 2018, 5 Marks) (MTP 1, May 2019,
5 Marks) (MTP 2, Nov 2021, 5 Marks)

What steps are to be considered for implementing the supply chain management in a business
organization? Explain.
(SA, Nov 2018, 5 Marks)

Discuss the major steps in implementing supply chain management system in a business organization.
(Study Material)

Implementing supply chain management in a business organization has several steps. Discuss.
(RTP, Nov 2019, NA)

The purpose of logistics management is

a. Provide customer satisfaction
b. Create automation
c. Procure better quality raw material
d. Manage inward and outward movement of goods
(MTP 2, May 2019, 1 Mark)

Supply chain refers to the linkages between:

(a) Suppliers
(b) Customers
(c) Manufacturers
(d) All the above
(RTP, May 2020, NA) (MTP 1, Nov 2020, 1 Mark)

What are the issues to· be resolved by a business enterprise to have an effective logistic strategy?
(SA, May 2021, 5 Marks)

What is supply chain management? Is it same as logistics management? Discuss.

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 Chapter 6 - Functional Level Strategies

(Study Material)

Research and Development

● Plays an integral role in strategy implementation.
● Role of Research and Development Team - Developing new products and improving old
products in a way that will allow effective strategy implementation.
● R&D employees and managers perform tasks that include
○ transferring complex technology,
○ adjusting processes to local raw materials,
○ adapting processes to local markets, and
○ altering products to particular tastes and specifications.
● R&D helps in shortening the product life cycle.
● It should be done in such a way that the organisation is able to match internal
strengths with external opportunities.
● Decision to be taken before Research and Development (Outcome of Research and
Development Strategy)
○ Emphasize product or process improvements.
○ Stress basic or applied research.
○ Be leaders or followers in R&D.
○ Develop robotics or manual-type processes.
○ Spend a high, average, or low amount of money on R&D.
○ Perform R&D within the firm or to contract R&D to outside firms.
○ Use university researchers or private sector researchers.

Acquire or Develop R&D

Many firms wrestle with the decision to acquire R&D expertise from external firms and develop
R&D expertise internally. The following guidelines can be used to help make this decision:
(Based on Rate of technical progress and Market Growth)
● If the rate of Technical Progress is slow, the rate of Market Growth is moderate, and
there are significant barriers to possible new entrants, then in-house R&D is the
preferred solution. The reason is that R&D, if successful, will result in a temporary
product or process monopoly that the company can exploit.
● If technology is changing rapidly and the market is growing slowly, then a major effort
in R&D may be very risky, because it may lead to the development of an ultimately
obsolete technology or one for which there is no market.

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 Chapter 6 - Functional Level Strategies

● If technology is changing slowly but the market is growing quickly, there generally is
not enough time for in-house development. The prescribed approach is to obtain R&D
expertise on an exclusive or nonexclusive basis from an outside firm.
● If both technical progress and market growth are fast, R&D expertise should be
obtained through acquisition of a well-established firm in the industry.

TP Slow Fast Slow Fast

MG Moderate Slow Fast Fast

Other Factors Significant R & D is Not enough time to do

Barrier Risky R&D

Decision In House Acquire Acquire Acquire

Approaches For Research and Development

There are at least three major R&D approaches for implementing strategies.
1. The first strategy is to be the first firm to market new technological products. This is a
glamorous and exciting strategy but also a dangerous one.
2. A second R&D approach is to be an innovative imitator of successful products, thus
minimizing the risks and costs of startup. This strategy requires excellent R&D
personnel and an excellent marketing department.
3. A third R&D strategy is to be a low-cost producer by mass-producing products similar
to but less expensive than products recently introduced. This R&D strategy requires
substantial investment in plant and equipment, but less expenditure in R&D than the
two approaches described earlier.

How would you argue that Research and Development Personnel are important for effective strategy
implementation?
(RTP, Nov 2020, NA) (Study Material)

Discuss the guidelines for selection of Research & Development expertise by an organization.
(SA, Nov 2020, 5 Marks) (Study Material)

Explain the three major R & D approaches to implement strategic decisions.

(MTP 1, May 2021, 5 Marks) (MTP 1, Nov 2021, 5 Marks)

"Business organizations face countless marketing challenges that affect the success or failure of
strategy implementation". In light of this statement, discuss some marketing decisions that require
special attention.

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 Chapter 6 - Functional Level Strategies

(SA, Nov 2021, 5 Marks)

ABC Ltd was facing problems in achieving efficiency and improving results. The functional managers
were called for a meeting to address the issue. After a lot of brain storming, it was decided to go for
a redesigning of the set systems by making the processes innovative. Hence, the redesigning of its
infrared sighting mechanism that it supplied to another company was undertaken. It was observed
that ABC Ltd. had reduced its number of parts from 37 to 10, the number of assembly steps from 27
to 12, the time spent fabricating metal on fabricating metal from 525 minutes per unit to 150
minutes per unit, and the unit assembly time from 129 minutes to 20 minutes. As a result, a
substantial decline in manufacturing costs occurs. This helped the company in attaining better sales
and bigger market share. To achieve the operational efficiency, which of functional areas must have
been involved and why?
(Study Material)

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 Chapter 6 - Functional Level Strategies

Human Resource Strategy Formulation

Human Resource Problems and Solutions
A well-designed strategic-management system can fail if insufficient attention is given to the
human resource dimension. Human resource problems that arise when business implement
strategies can usually be traced to one of three causes

1. Disruption of Social and political structures,

2. Failure to match individuals' aptitudes with implementation tasks, and
3. Inadequate top management support for implementation activities.

Disruption of social and political structures that accompany strategy execution must be
anticipated and considered during strategy formulation and managed during strategy
implementation.

Commonly used methods that match managers with strategies to be implemented include
transferring managers, developing leadership workshops, offering career development activities,
promotions, job enlargement, and job enrichment.

Strategists' formal statements about the Importance of strategic management must be

consistent with actual support and rewards given for activities completed and objectives
reached.

Otherwise, stress created by inconsistency can cause uncertainty among managers and
employees at all levels.

Best way is to actively involve as many managers and employees as possible in the process.

Disruption of Social & Failure to match Individuals Inadequate Top Management

Political Structure Aptitude with implementation Support For Implementation
task

● Anticipate such ● Use methods that ● Statements or

problems during match managers' commitments must
strategy formulation skills with strategies be consistent with
so that it can be to be implemented actual support and
managed during ● Transfer, workshops, rewards given for
implementation and Career development activities complete
execution activity, Promotions,

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 Chapter 6 - Functional Level Strategies

Job Enlargement, Job

Enrichment

Points which can have strong influence on employee

competence
An organization's recruitment, selection, training, performance appraisal, and compensation
practices can have a strong influence on employee competence the following points should be
kept in mind:
1. Recruitment and selection
○ successfully identify, attracts, and select the most competent applicants.
2. Training
○ employees are well trained to perform their jobs property.
3. Appraisal of performance
○ The performance appraisal is to identify any performance deficiencies
experienced by employees due to lack of competence.
○ Such deficiencies, once identified, can often be solved through counseling,
coaching or training.
4. Compensation
○ A firm can usually increase the competency of its workforce by offering pay and
benefit packages that are more attractive than those of their competitors. This
practice enables organizations to attract and retain the most capable people.

Strategic Role of Human Resource Management

1. Providing purposeful direction

○ Goals of an organization state the very purpose and justification of its existence.
○ The management has to ensure that the objects of an organization become the
object of each person working in the organization.

2. Creating competitive Advantage

○ There are two important ways of business can achieve a competitive advantage
over the others.
○ The first is cost leadership which means the firm aims to become a low cost
leader in the industry.
■ (Hire employees at low cost)

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 Chapter 6 - Functional Level Strategies

○ The second competitive strategy is differentiation under which the firm seeks to
be unique in the industry in terms of dimensions that are highly valued by the
customers.
■ (High Premium on highly competent & committed workforce)

3. Facilitation of change
○ The Human resource will be more concerned with
■ substance rather than form,
■ accomplishments rather than activities, and
■ practice rather than theory.
○ The personnel function will be responsible for
■ furthering the organization not just maintaining it.
○ Human resource management will have to devote more time to promote changes
than to maintain the status quo.

4. Diversified workforce
○ Diverse workforce is a great challenge.
○ Workforce diversity can be observed in terms of male and female workers, young
and old workers, educated and uneducated workers, unskilled and professional
employee, etc. Moreover, many organizations also have people of different castes,
religions and nationalities.
○ Money will no longer be the sole motivating force for majority of the workers.
■ Non-financial incentives will also play an important role in motivating
the workforce.

5. Empowerment of human resources

○ It involves giving more power to those who, at present, have little control on
what they do and little ability to influence the decisions being made around
them.

6. Building core competency (Managing Linkage)

○ A core competence is a unique strength of an organization which may not be
shared by others.
○ This may be in the form of human resources, marketing, capability, or
technological capability.
○ If the business is organized on the basis of core competency, it is likely to
generate competitive advantage.
○ It needs creative, courageous and dynamic leadership having faith in the
organization's human resources.

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 Chapter 6 - Functional Level Strategies

7. Development of works ethics and culture

○ (Job Redesign for providing challenge & job satisfaction)
○ Flexible starting and quitting times for employees may be necessary.
○ Focus will shift from extrinsic to intrinsic motivation.
○ A vibrant work culture will have to be developed in the organizations to create
an atmosphere of trust among people and to encourage creative ideas by the
people.

State the factors of human resource that have influence on employee’s competence.
(RTP, May 2018, NA) (MTP 1, Nov 2019, 5 Marks) (SA, Nov 2020, 5 Marks) (MTP 2, May 2021, 5
Marks) (RTP, Nov 2021, NA) (MTP 2, Nov 2021, 5 Marks) (Study Material)

Correct/ Incorrect.
Human resource management aids in strategic management.
(MTP 1, May 2018, 2 Marks)

Correct/ Incorrect.
Human Resource Manager's role is significant in building up core competency of the firm.
(SA, May 2018, 2 Marks)

Explain the prominent areas where human resource manager can play a strategic role.
(MTP 1, Nov 2018, 6 Marks) (RTP, May 2019, NA) (SA, May 2019, 5 Marks) (MTP 1, May 2020, 5
Marks)

Explain any three prominent areas where human resource manager can play a strategic role.
(Study Material)

You are the Human Resource Manager of a Company. What are the prominent areas where you can
play strategic role?
(RTP, May 2022, NA)

Sport Spirit (SS) is a medium sized sports retailer. It currently operates three shops in the city at
centre locations. The management of Sport Spirit (SS) has a very careful recruitment policy; any
applicant must have a ‘passion for sport’. Which one of the following functional strategies would best
describe by SS?
(a) Human Resource Strategy
(b) Financial Strategy
(c) Operation Strategy
(d) Marketing Strategy
(MTP 1, Nov 2020, 1 Mark)

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 Chapter 7 - Organisation and Strategic Leadership

Chapter 7
Organisation and Strategic Leadership

Basics
An organisational Structure defines how activities such as
● Task allocation
● Coordination
● Supervision
Are directed towards the achievement of organisational aims

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 Chapter 7 - Organisation and Strategic Leadership

A competitive advantage is created when there is a proper match between strategy and
structure.
effective strategic leaders seek to develop an organizational structure and accompanying
controls that are superior to those of their competitors.

Changes in strategy often require changes in the way an organization is structured for two
major reasons

1. Structure largely dictates how objectives and policies will be established.

○ If an organisation is structured geographically objectives and policies will be
established accordingly
2. Structure dictates how resources will be allocated.
○ If an organization’s structure is based on customer groups, then resources will
be allocated in that manner. Similarly, if an organization’s structure is set up
along functional business lines, then resources are allocated by functional areas.

Structures are designed to facilitate the strategic pursuit of a firm and, therefore, follows
strategy. Without a strategy or reason for being, it will be difficult to design an effective
structure. Strategic developments may require allocation of resources and there may be a need
for adapting the organisation’s structure to handle new activities as well as training personnel
and devising appropriate systems.

Structure undeniably can and does influence strategy.

Simple Structure
● Simple organizational structure is most appropriate for companies that follow
○ a single-business strategy and

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 Chapter 7 - Organisation and Strategic Leadership

○ offer a line of products

○ in a single geographic market.

● Appropriate for companies implementing

○ focused cost leadership or
○ focused differentiation strategies.

● A simple structure is an organizational form in which

○ the owner-manager makes all major decisions directly and
○ monitors all activities,
○ while the company’s staff merely serves as an executor.

● Some key features/Characteristics

○ Little specialization of tasks,
○ few rules,
○ little formalization,
○ unsophisticated information systems and
○ direct involvement of owner-manager in all phases of day-to-day operations

● In the simple structure,

○ communication is frequent and direct,
○ and new products tend to be introduced to the market quickly,
○ which can result in a competitive advantage.

● However, if they are successful, small companies grow larger.

● As a result of this growth, the company outgrows the simple structure.
● To coordinate more complex organizational functions, companies should abandon the
simple structure in favour of the functional structure.
● The functional structure is used by larger companies and by companies with low levels
of diversification.

Functional Structure
The functional structure consists of a chief executive officer or a managing director and limited
corporate staff with functional line managers in dominant functions such as production,
accounting, marketing, R&D, engineering, and human resources.

A functional structure groups tasks and activities by business function.

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 Chapter 7 - Organisation and Strategic Leadership

Functional structure is widely used because of its simplicity and low cost.

Disadvantages of a functional structure are that it forces accountability to the top, minimizes
career development opportunities, etc.

Most large companies abandoned the functional structure in favor of decentralization and
improved accountability. (Difficult to add new products)

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 Chapter 7 - Organisation and Strategic Leadership

Divisional Structure

Conflicts between divisional managers

Certain regions, products, or customers may sometimes receive special treatment, and it may be
difficult to maintain consistent, company-wide practices.

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 Chapter 7 - Organisation and Strategic Leadership

Multidivisional Structure
Multidivisional (M-form) structure is composed of operating divisions where each division
represents a separate business to which the top corporate officer delegates responsibility for
day-to-day operations and business unit strategy to division managers.

By such delegation, the corporate office is responsible for formulating and implementing overall
corporate strategy and manages divisions through strategic and financial controls.

Multidivisional or M-form structure was developed in the 1920s, in response to coordination-

and control-related problems in large firms.

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 Chapter 7 - Organisation and Strategic Leadership

Functional departments often had difficulty dealing with distinct product lines and markets,
especially in coordinating conflicting priorities among the products. Costs were not allocated to
individual products, so it was not possible to assess an individual product’s profit contribution.
Loss of control meant that optimal allocation of firm resources between products was difficult
(if not impossible). Top managers became over-involved in solving short-run problems (such as
coordination, communications, conflict resolution) and neglected long-term strategic issues.

Multidivisional structure calls for:

● Creating separate divisions, each representing a distinct business

● Each division would house its functional hierarchy;
● Division managers would be given responsibility for managing day-to-day operations;
● A small corporate office that would determine the long-term strategic direction of the
firm and exercise overall financial control over the semi-autonomous divisions.

This would enable the firm to more accurately monitor the performance of individual businesses,
simplifying control problems, facilitate comparisons between divisions, improving the allocation
of resources and stimulate managers of poorly performing divisions to seek ways to improve
performance.

An increase in diversification strains corporate officers’ abilities to understand the operations of

all of its business units and divisions are then managed by financial controls, which enable
corporate officers to manage the cash flow of the divisions through budgets and an emphasis
on profits from distinct businesses.

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 Chapter 7 - Organisation and Strategic Leadership

Hourglass Structure
● Hourglass Structure In the recent years information technology and communications
have significantly altered the functioning of organizations.
● The role played by middle management is diminishing as the tasks performed by them
are increasingly being replaced by the technological tools.
● Hourglass organization structure consists of three layers with constricted middle layer.
The structure has a short and narrow middle-management level.
● Information technology links the top and bottom levels in the organization taking away
many tasks that are performed by the middle level managers.
● Contrary to traditional middle level managers who are often specialist, the managers in
the hourglass structure are generalists and perform wide variety of tasks. They would be
handling cross-functional issues emanating such as those from marketing, finance or
production
● Hourglass structure has obvious benefit
○ of reduced costs.
○ It also helps in enhancing responsiveness by simplifying decision making.
○ Decision making authority is shifted close to the source of information so that
it is faster.
● However, with the reduced size of middle management
○ the promotion opportunities for the lower levels diminish significantly.
○ Continuity at same level may bring monotony and lack of interest and it
becomes difficult to keep the motivation levels high. Organizations try to
overcome these problems by assigning challenging tasks, transferring laterally
and having a system of proper rewards for performance.

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 Chapter 7 - Organisation and Strategic Leadership

SBU Structure
● The concept is relevant to multi-product, multi-business enterprises.
● An SBU is a grouping of related businesses.
● As per this concept, a multi-business enterprise groups its multitude of businesses into
a few distinct business units in a scientific way.
● The purpose is to provide effective strategic planning treatment to each one of its
products/businesses.

The three most important characteristics of a SBU are:

● It is a single business or a collection of related businesses which offer scope for

independent planning and which might feasibly stand alone from the rest of the
organization.
● It has its own set of competitors.
● It has a manager who has responsibility for strategic planning and profit performance,
and who has control of profit-influencing factors.

A strategic business unit (SBU) structure consists of at least three levels, with a corporate
headquarters at the top, SBU groups at the second level, and divisions grouped by relatedness
within each SBU at the third level.

SBU is a part of a large business organization that is treated separately for strategic
management purposes. The concept of SBU is helpful in creating an SBU organizational
structure.

It is separate part of large business serving product markets with readily identifiable
competitors. It is created by adding another level of management in a divisional structure after
the divisions have been grouped under a divisional top management authority based on the
common strategic interests.

Very large organisations, particularly those running into several products, or operating at distant
geographical locations that are extremely diverse in terms of environmental factors, can be
better managed by creating strategic business units. SBU structure becomes imperative in an
organisation with increase in number, size and diversity.

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 Chapter 7 - Organisation and Strategic Leadership

Importance of SBU / Advantages of SBU Structure

● Establishing coordination between divisions having common strategic interests.
● Facilitates strategic management and control on large and diverse organizations.
● Fixes accountabilities at the level of distinct business units.
● Helps allocate corporate resources to areas with greatest growth opportunities.
● Makes the task of strategic review by top executives more objective and more effective.
● Allows strategic planning to be done at the most relevant level within the total
enterprise.

Matrix Structure
In matrix structure, functional and product forms are combined simultaneously at the same
level of the organization. Employees have two superiors, a product / project manager and a
functional manager. The “home” department - that is, engineering, manufacturing, or

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 Chapter 7 - Organisation and Strategic Leadership

marketing - is usually functional and is reasonably permanent. People from these functional
units are often assigned temporarily to one or more product units or Projects.

The product units / projects are usually temporary and act like divisions.

The matrix structure may be very appropriate when organizations conclude that neither
functional nor divisional forms, even when combined with horizontal linking mechanisms like
strategic business units, are right for the implementation of their strategies.

Matrix structure was developed to combine the stability of the functional structure with
flexibility of the product form. It is very useful when the external environment (especially its
technological and market aspects) is very complex and changeable.

It is widely used in many industries like construction, healthcare, research & defense.

Can be used where many projects are running at a time and people are required for limited
time period

Davis and Lawrence Three Phase Development

For development of matrix structure Davis and Lawrence, have proposed three distinct phases:

1. Cross-functional task forces

➢ Temporary cross-functional task forces are initially used when a new product
line is being introduced. A project manager is in charge as the key horizontal
link.

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 Chapter 7 - Organisation and Strategic Leadership

2. Product/brand management
➢ If the cross-functional task forces become more permanent, the project manager
becomes a product or brand manager and a second phase begins.
➢ In this arrangement, function is still the primary organizational structure, but
product or brand managers act as the integrators of semi permanent products or
brands.
3. Mature matrix
➢ The third and final phase of matrix development involves a true dual-authority
structure.
➢ Both the functional and product structures are permanent.
➢ All employees are connected to both a vertical functional superior and a
horizontal product manager. Functional and product managers have equal
authority and must work well together to resolve disagreements over resources
and priorities.
However, the matrix structure is not very popular because of difficulties in implementation and
trouble in managing.

Network Structure
Network structure is a newer and somewhat more radical organizational design. The network
structure could be termed a "non-structure" as it virtually eliminates in-house business
functions and outsource many of them. An organization organized in this manner is often
called a virtual organization because it is composed of a series of project groups or
collaborations linked by constantly changing non-hierarchical, cobweb-like networks.

The network structure becomes most useful when the environment of a firm is unstable and is
expected to remain so.

Under such conditions, there is usually a strong need for innovation and quick response.
Instead of having salaried employees, it may contract with people for a specific project or
length of time.

Long-term contracts with suppliers and distributors replace services that the company could
provide for itself through vertical integration.

The network structure provides organization with increased flexibility and adaptability to cope
with rapid technological change and shifting pattern of international trade and competition.

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Companies like Nike; Reebok uses the network structure in their operations functions by
subcontracting manufacturing to other companies at low cost.

What type of organizational structure do most small businesses follow?

(a) Divisional structure
(b) Functional structure
(c) Hour Glass structure
(d) Matrix structure
(Sample MCQs) (MTP 1, May 2019, 1 Mark)

Change in company’s ----------------- gives rise to problems necessitating a new ---------------

to be made.
(a) Structure, Strategy
(b) Strategy, Structure
(c) Structure, Structure
(d) Strategy, Strategy
(Sample MCQs)

Explain the concept of Network structure.

(RTP, May 2018, NA)

Write short note on Characteristics of strategic business unit (SBU).

(MTP 2, May 2018, 3 Marks)

Explain strategic business unit (SBUs).

(RTP, Nov 2018, NA)

Correct/ Incorrect.
Strategies may require changes in organizational structure.
(RTP, Nov 2018, NA)

Davis and Lawrence have proposed three distinct phases to develop matrix structure. Explain.
(RTP, Nov 2018, NA)

Correct/ Incorrect.
Structure has no impact on the strategy of the organization.
(SA, Nov 2018, 2 Marks)

Manoj started his telecom business in 2010. Over next five years, he gradually hired fifty people for
various activities such as to keep his accounts, administration, sell his products in the market, create
more customers, provide after sales service, coordinate with vendors.

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 Chapter 7 - Organisation and Strategic Leadership

Draw the organization structure Manoj should implement in his organization and name it.
(SA, Nov 2018, 5 Marks) (Study Material)

Discuss the concept of Multi Divisional Structure.

(RTP, May 2019, NA) (MTP 2, May 2019)

What is an Hourglass structure? How is it beneficial for an organization?

(SA, May 2019, 3 Marks) (Study Material)

Or

Discuss the concept of Hourglass Structure

(RTP, Nov 2019, NA)

Which of the following is not true for SBUs

A. It is relevant for multi-product, multi-business enterprises.
B. It provides for more control at enterprise level with centralised strategic planning.
C. A SBU has its own set of competitors.
D. SBUs can be created for units at distant geographical locations.
(RTP, Nov 2019, NA)

What is a strategic business unit? What are its advantages?

(RTP, May 2020, NA) (MTP 1, May 2020, 5 Marks) (Study Material)

Delta is an organization specializing in Information Technology enables Services (ITeS) and

Communications business. Previous year the organization had successfully integrated an Artificial
Intelligence (AI) tool named ‘Zeus’ into the existing ERP system. The AI tool using Deep Learning
technique provided a digital leap transformation in various business processes and operations. It has
significantly diminished the role played by specialist managers of the middle management. This
technological tool in addition to saving organisational costs by replacing many tasks of the middle
management, has also served as a link between top and bottom levels in the organization and assists
in faster decision making. The skewed middle level managers now perform cross-functional duties.
Which type of organisational structure is the company transitioning into?
(RTP, Nov 2020, NA) (MTP 1, Nov 2020, 5 Marks)

Moonlight Private Limited deals in multi-products and multi-businesses. It has its own set of
competitors. It seems impractical for the company to provide separate strategic planning treatment to
each one of its product or businesses. As a strategic manager, suggest the type of structure best
suitable for Moonlight Private Limited and state its benefits.
(SA, Jan 2021, 5 Marks) (Study Material)

Elucidate Matrix Structure

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 Chapter 7 - Organisation and Strategic Leadership

(SA, Jan 2021, 5 Marks)

A corporation organized in network structure is often called

(a) Virtual organization
(b) Hierarchical organization
(c) Structured organization
(d) Simple organization
(MTP 1, May 2021, 1 Mark)

Davis and Lawrence have proposed three distinct phases for development of matrix structure. These
phases are (1) Cross-functional task forces (2) Product/brand management and (3) ______.
(a) Market/external management
(b) Functional matrix
(c) Mature matrix
(d) Internal management
(MTP 2, May 2021, 2 Marks)

Bunch Pvt Ltd is dealing in multiproduct like electronics and FMCG and are having outlets in different
cities and markets across India. Due to scale of operation, it is having technical difficulty in dealing
with distinct product line and markets especially in coordination and control related problems. Identify
and suggest an ideal organizational structure for Bunch Pvt Ltd in resolving the problem?
(RTP, Nov 2021, NA)

Maadhyam, a hearing aid manufacturer recently introduced an AI based management tool in its
organization which are having the qualities and capabilities of managing teams across functions. This
technological tool in addition to saving organisational costs by replacing many tasks of the middle
management has also served as a link between top and bottom levels in the organisation and assists
in quick decision making. The skewed middle level managers now perform cross -functional duties.
What could be their new organizational structure post implementation of AI based management tool?
How can this structure benefit the organization?
(MTP 1, Nov 2021, 5 Marks)

ABC Pvt Ltd is dealing in multiproduct like electronics and FMCG and are having outlets in different
cities and markets across India. Due to scale of operation, it is having technical difficulty in dealing
with distinct product line and Markets especially in coordination and control related problems. Which
of following technique which was introduced in 1920 can be used to resolve the problem?
(MTP 2, Nov 2021, 5 Marks)

A chennai based fast moving consumer goods (FMCG) major CDE Ltd. recently announced
restructuring its business. The company indicated that the business would be split into mainly four
different streams- FMCG, E-commerce, Retail and Reasearch and development. The company
management has decided that these four units will operate as separate businesses. The top corporate

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 Chapter 7 - Organisation and Strategic Leadership

officer shall delegate responsibilty for day to day operations and business unit strategy to the
concerned managers.
Identify the organization structure that CDE Ltd. has planned to implement. Discuss any four
attributes and the benefits the firm may derive by using this organization structure.
(SA, Nov 2021, 5 Marks)

Maadhyam, a hearing aid manufacturer recently introduced an AI based management tool that has the
capabilities of managing teams across functions. What could be their new organisational structure post
this implementation?
(a) Divisional Structure
(b) Matrix Structure
(c) Hourglass Structure
(d) Network Structure
(RTP, May 2022, NA)

How the 'Strategic Business Unit (SBU), structure becomes imperative in an organization with
increase in number, size and diversity of divisions?
(RTP, May 2022, NA)

"A network structure is suited to unstable environment." Elucidate this statement

(RTP, May 2022, NA)

J&P, a western wear brand has contracted Pee Kaw marketing firm from Singapore, product design
team working as an outsource company from Mexico and Humans branding company taking care of its
people’s operations. What kind of structure is this?
(a) Hourglass Structure
(b) Outsourcing
(c) Network Structure
(d) Tree Branch Structure
(MTP 1, May 2022, 2 Marks)

What do you understand by functional structure?

(MTP 1, May 2022, 5 Marks)

Correct/ Incorrect.
Network Structures eliminate many in-house functions.
(RTP, May 2018, NA)

Draw 'Divisional Structure' with the help of a diagram. Also, give advantages and disadvantages of this
structure in brief.
(SA, Nov 2020, 5 Marks) (Study Material)

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Strategic Leadership
● Strategic leadership
○ sets the firms direction by developing and communicating vision of future,
○ formulate strategies in the light of internal and external environment,
○ brings about changes required to implement strategies and inspire the staff to
contribute to strategy execution.

Leadership word is used to address

● The group of people leading the organisation
● The activity of leading

Leadership role for good strategy execution

Leaders/ Managers have five leadership roles to play in pushing for good strategy execution

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Responsibilities of Strategic Leader

Two approaches to leadership style?

Strategic leadership is the
● ability of influencing others
● to voluntarily make decisions
● that enhance prospects for the organization’s long-term success
● while maintaining short-term financial stability.
It includes
● determining the firm's strategic direction,
● aligning the firm's strategy with its culture,
● communicating high ethical standards, and
● Initiating changes in the firm's strategy, when necessary.

Strategic leadership sets the firm's direction by developing and communicating a vision of future
and inspires organization members to move in that direction.

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 Chapter 7 - Organisation and Strategic Leadership

Unlike strategic leadership, managerial leadership is generally concerned with the short-term,
day-to-day activities.

Approaches to leadership
Transformational Leadership

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Transactional Leadership
Transactional leadership style focus more on designing systems and controlling the
organization's activities and are more likely to be associated with improving the current
situation.

Transactional leaders try to build on the existing culture and enhance current practices.

Transactional leadership style USES the authority of its office to exchange rewards, such as pay
and status.

They prefer a more formalized approach to motivation, setting clear goals with explicit rewards
or penalties for achievement or non- achievement.

Transactional leadership style may be appropriate in settled environment, in growing or mature

industries, and in organizations that are performing well.

The style is better suited in persuading people to work efficiently and run operations smoothly.

Distinguish between the following:

Transformational and transactional leadership
(RTP, May 2018, NA) (SA, Nov 2019, 5 Marks) (MTP 1, Nov 2021, 5 Marks)

Suresh Sinha has been recently appointed as the head of a strategic business unit of a large
multiproduct company. Advise Mr Sinha about the leadership role to be played by him in execution of
strategy.
(RTP, May 2018, NA) (MTP 2, May 2021, 5 Marks) (Study Material)

Ritchwick, located in Mumbai, Maharashtra, is owner of a popular brand of ready to eat snack
‘Trendy’. Yash, his son after completing Chartered Accountancy started assisting his father in running
of business. The approaches followed by father and son in management were very different. While
Ritchwick preferred to use authority and having a formal system of defining goals and motivation with
explicit rewards and punishments, Yash believed in involving employees and generating enthusiasm to
inspire people to deliver in the organization. Discuss the leadership style of Ritchwick and Yash.
(MTP 2, May 2018, 5 Marks)

Ram and Shyam are two brothers engaged in the business of spices. Both have different approaches
to management. Ram prefers the conventional and formal approach in which authority is used for
explicit rewards and punishment. While, on the other hand, Shyam believes in democratic participative
management approach, involving employees to give their best.
Analyse the leadership style followed by Ram and Shyam.

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(SA, May 2018, 5 Marks)

KaAthens Ltd., a diversified business entity having business operations across the globe. The company
leadership has just changed as Mr. D. Bandopadhyay handed over the The company leadership has just
changed as Mr. D. Bandopadhyay handed over the pedals to his son Aditya Bandopadhyay, due to his
poor health. Aditya is a highly educated with an engineering degree from IIT, Delhi. However, being
very young he is not clear about his role and responsibilities,
In your view, what are the responsibilities of Aditya Bandopadhyay as CEO of the company.
(RTP, Nov 2018, NA) (RTP, May 2020, NA) (Study Material)

Mathew & Sons Ltd. is a diversified business entity having business operations across the globe.
Presently, Mr. Mathew is the CEO of Mathew & Sons Ltd. He is going to retire in next 4 months, so
he has decided to change the company’s leadership and hand over the pedals to his elder son Marshal.
Marshal is a highly educated with an engineering degree from USA. However, being very young he is
not clear about his role and responsibilities.
In your view, what are the responsibilities of Marshal as CEO of Mathew & Sons Ltd.
(MTP 1, Nov 2018, 5 Marks)

Which of the following situation will most likely suit a transformational leader?
(a) An organization that is in trouble.
(b) A growing organization.
(c) An organization in a stable environment.
(d) An organization at maturity stage of product life cycle.
(RTP, May 2019, NA)

Ramesh, is owner of a popular brand of Breads. Yashpal, his son after completing Chartered
Accountancy started assisting his father in running of business. The approaches Chartered
Accountancy started assisting his father in running of business. The approaches followed by father
and son in management were very different. While Ramesh preferred to use authority and having a
formal system of defining goals and motivation with explicit rewards and punishments, Yashpal
believed in involving employees and generating enthusiasm to inspire people to deliver in the
organization.
Discuss the difference in leadership style of father and son.
(RTP, May 2019, NA) (Study Material)

Who is a transformational leader?

a. Someone who is involved in organizational change.
b. A leader, who provides new ways of carrying out management.
c. A leader who inspires the workers to new levels by offering them a vision of a better future.
d. A leader who tries to transform their staff by giving them rewards for what they do.
(MTP 2, May 2019, 1 Mark)

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 Chapter 7 - Organisation and Strategic Leadership

Discuss the leadership roles played by the managers in pushing for good strategy execution.
(SA, May 2019, 5 Marks) (Study Material)

______________ leadership style may be appropriate in turbulent environment.

(a) Transactional
(b) Transformational
(c) Autocratic
(d) None of these
(MTP 1, Nov 2019, 1 Mark)

In strategic management, there are two main styles of leadership. These are transformational and:
(a) Transparent
(b) Transitional
(c) Translational
(d) Transactional
(RTP, May 2020, NA)

How can you differentiate between transformational and transactional leaders?

(RTP, Nov 2020, NA) (RTP, Nov 2021, NA) (Study Material)

Suraj Prakash and Chander Prakash are two brothers engaged in the business of spices. Both have
different approaches to management. Suraj Prakash prefers the conventional and formal approach in
which authority is used for explicit rewards and punishment. While, on the other hand, Chander
Prakash believes in democratic participative management approach, involving employees to give their
best.
Analyse the leadership style followed by Suraj Prakash and Chander Prakash.
(RTP, May 2021, NA)

Greg was heading the Global Biscuits SBU for Jonky’s Ltd. and he got an email congratulating him for
being promoted as the head of entire business of Jonky’s in India. Which of the following statements
is true about Greg’s position?
(a) Greg was a business level manager but now he is a corporate level manager
(b) Greg was a functional level manager but now he is a corporate level manager
(c) Greg was a business level manager and now also he is a business level manager
(d) Greg was a corporate level manager and now also he is a corporate level manager
(MTP 1, May 2022, 2 Marks)

What do you mean by strategic leadership? What are two approaches to leadership style?
(Study Material)

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 Chapter 7 - Organisation and Strategic Leadership

Strategy Supportive Culture

Meaning of Corporate Culture
Corporate culture refers to a company’s values, beliefs, business principles, traditions, way of
operating and internal work environment. Every corporation has a culture that exerts powerful
influences on the behaviour of managers.

Culture as a strength
Culture can facilitate communication, decision making and control and create cooperation and
commitment. An organisation’s culture could be strong and cohesive when it conducts its
business according to clear and explicit set of principles and values. The management devotes
considerable time in communicating values & principles to employees and sharing them widely
across the organisation.

Culture as a weakness
Culture as a weakness can obstruct the smooth implementation of strategy by creating
resistance to change. An organisation’s culture can be characterised as weak when many sub
cultures exist, few values and behavioural norms are shared and traditions are rare. In such
organisations, employees do not have a sense of commitment, loyalty and a sense of identity.

Role / Importance of Culture

A culture grounded in values, practices, and behavioral norms that match what is needed for
good strategy execution helps energize people throughout the organization to do their jobs in a
strategy-supportive manner.

A culture where creativity, embracing change, and challenging the status quo are pervasive is
very conducive to successful execution of a product innovation and technological leadership
strategy.

A culture built around such business principles as listening to customers, encouraging employees
to take pride in their work, and giving employees a high degree of decision-making
responsibility is very conducive to successful execution of a strategy of delivering superior
customer service.

A strong strategy-supportive culture nurtures and motivates people to do their jobs in ways
conducive to effective strategy execution; it provides structure, standards, and a value system

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 Chapter 7 - Organisation and Strategic Leadership

in which to operate; and it promotes strong employee identification with the company’s vision,
performance targets, and strategy.

All this makes employees feel genuinely better about their jobs and work environment and the
merits of what the company is trying to accomplish.

Employees are stimulated to take on the challenge of realizing the company’s vision, do their
jobs competently and with enthusiasm, and collaborate with others as needed to bring the
strategy to success.

Corporate culture in Different Business Organisation

It is incorrect to say that Corporate culture is always identical in all the business organizations.

Every company has its own organisational culture. Each has its own business philosophy and
principles, its own ways of approaching to the problems and making decisions, its own work
climate, work ethics, etc.

Therefore, corporate culture is not identical in all organisations. Organisations over a period of
time inherit and percolate down its own specific work ethos and approaches.

Changing a problem culture

Changing problem cultures is very difficult because of deeply held values and habits. It takes
concerted management action over a period of time to replace an unhealthy culture with a
healthy culture or to root out certain unwanted cultural obstacles and instil ones that are more
strategy -supportive.
● The first step is to diagnose which facets of the present culture are strategy supportive
and which are not.
● Then, managers have to talk openly and forthrightly to all concerned about those
aspects of the culture that have to be changed.
● The talk has to be followed swiftly by visible, aggressive actions to modify the
culture-actions that everyone will understand are intended to establish a new culture
more in tune with the strategy.
Management through communication has to create a shared vision to manage changes. The
menu of culture-changing actions includes revising policies and procedures, altering incentive
compensation, shifting budgetary allocations for substantial resources to new strategy projects,
recruiting and hiring new managers and employees, replacing key executives, communication on
need and benefit to employees and so on.

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 Chapter 7 - Organisation and Strategic Leadership

Creating a strong fit between strategy and culture

It is the responsibility of those who develop a company's strategy to choose one that is
compatible with the "sacred" or unchangeable elements of its culture. Once a strategy has been
chosen, it is the job of those who are tasked with implementing it to change any aspects of
the culture that may hinder its effective execution.

Perils of Strategy-Culture Conflict

When a company's culture is not aligned with its strategic goals, the culture must be changed
as quickly as possible.

This assumes that the problem lies with the culture rather than the strategy itself.

In some cases, changing the strategy to better fit the culture may be necessary, but more
often it involves changing the aspects of the culture that are misaligned with the strategy.

The more deeply rooted these mismatched cultural elements are, the more difficult it will be to
implement new or different strategies until better alignment is achieved.

A significant and prolonged conflict between a company's culture and its strategy can weaken
and even undermine efforts to make the strategy successful.

Entrepreneurship And Intrapreneurship

Entrepreneurship
Entrepreneurship involves
● identifying a potential business opportunity,
● taking on the appropriate level of risk,
● and using management skills to bring together the necessary financial, human,
technological and material resources
to create an enterprise that creates value.

Entrepreneurship involves giving practical shape to the idea.

The person who perceives the business idea and take steps to implement the idea is known as
an entrepreneur.

Entrepreneurship is a mindset that involves

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 Chapter 7 - Organisation and Strategic Leadership

● seeking out opportunities,

● taking calculated risks, and
● striving to achieve benefits by starting and running a venture.

It encompasses the various activities involved in conceiving, creating, and managing an

enterprise.

An entrepreneur is a person who searches for a business opportunity and starts a new
enterprise to make use of that opportunity.

An entrepreneur is one who:

➢ Initiates and innovates a new concept.
➢ Recognises and utilises opportunity.
➢ Arranges and coordinates resources such as man, material, machine and capital.
➢ Faces risks and uncertainties.
➢ Establishes a startup company.
➢ Adds value to the product or service.
➢ Takes decisions to make the product or service a profitable one.
➢ Is responsible for the profits or losses of the company.

Intrapreneurship
Entrepreneur and Intrapreneur are used interchangeably by many people. They are not the
same.

While the former refers to a person who starts his own business with a new idea or concept,
the latter represents an employee who promotes innovation within the limits of the
organisation.

An intrapreneur is nothing but an entrepreneur who operates within the boundaries of an

organisation.

He is an employee of a large organisation, who is vested with authority of

● initiating creativity and innovation in the company’s products, services and projects,
● redesigning the processes, workflows and systems.

Intrapreneurs are individuals who believe in and embrace change, and are not afraid of failure.
They are constantly on the lookout for new ideas and opportunities that can benefit their
organization, and are willing to take risks to promote innovation and improve the organization's
performance and profitability.

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 Chapter 7 - Organisation and Strategic Leadership

The work of an intrapreneur can be challenging, but those who are successful are often
recognized and rewarded for their achievements.

It has now become a trend that large corporations appoint intrapreneurs within the
organisation, to bring operational excellence and gain competitive edge in the market.

Define Entrepreneur. What are the characteristics of an entrepreneur?

(RTP, May 2018, NA)
Or
Write short note on Entrepreneur
(MTP 1, Nov 2018, 5 Marks)
Or
"Entrepreneur is an individual who conceives the idea of starting a new venture." In light of this
statement discuss who is an entrepreneur.
(SA, May 2021, 5 Marks)

Always Fit is a company that operates in pharmacy store chains. Its stores are specialized in providing
prescribed medicines, health and wellness products etc. in the country. The store chain is having
surplus space which can be utilized for other purposes. Azad, a senior executive of the research and
development wing in the company conceives an idea to manufacture and sell the cosmetic products for
utilizing the surplus space available i n the pharmacy stores.
Identify and explain the role of Azad in company.
(MTP 1, May 2018, 5 Marks) (Study Material)

Distinguish between Entrepreneurs and Intrapreneurs.

(MTP 2, Nov 2018, 5 Marks)

A person who searched for business opportunity and starts a new enterprise to make use of that
opportunity is called
(a) Employee
(b) Entrepreneur
(c) Intrapreneur
(d) Investor
(MTP 1, Nov 2019, 1 Mark)

An entrepreneur is one who:

(a) Initiates and innovates a new concept.
(b) Does not recognize and utilizes opportunities.
(c) Does not want to face risks and uncertainties.
(d) None of these.
(RTP, May 2020, NA)

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 Chapter 8 - Strategy Implementation and Control

Chapter 8
Strategy Implementation and Control
1. Strategy Implementation
2. Issues in strategy implementation
3. Strategic change
4. Organisational Control
a. Operational Control
b. Management Control
c. Strategic control
i. Premise
ii. Strategic Surveillance
iii. Special alert control
iv. Implementation control
5. Strategy Audit
6. Business Process Re-engineering
7. Benchmarking

Strategy Implementation
Meaning of Strategy implementation
● Strategy implementation concerns the managerial exercise of putting a freshly chosen
strategy into action.
● Converting Strategic Thoughts Into Action
● Allocation of resources as per the new course of action
● Adapting the organisation’s structure to handle the new activities.
● Training personnel and devising appropriate systems.
● Many managers fail to distinguish between strategy formulation and strategy
implementation. Yet, it is crucial to realize the difference between the two because
they both require very different skills.
● A company will be successful only when the strategy formulation is sound and the
implementation is excellent.

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 Chapter 8 - Strategy Implementation and Control

Difference between strategy formulation and strategy

implementation

It is to be noted that while strategy formulation is primarily an entrepreneurial activity, based

on strategic decision-making, the implementation of the strategy is mainly an administrative
task based on strategic as well as operational decision-making.

Strategy formulation Strategy implementation

1. Strategy formulation is positioning Strategy implementation is managing forces
forces before the action. (A) during the action.
2. Strategy formulation focuses on Strategy implementation focuses on efficiency.
effectiveness. (E)
3. Strategy formulation is primarily an Strategy implementation is primarily an
intellectual process. (I) operational process.
4. Strategy formulation requires good Strategy implementation requires special
intuitive and analytical skills. (U) motivation and leadership skills
5. Strategy formulation requires Strategy implementation requires combination
coordination among a few individuals among many individuals.
(O)

Linkage between Strategic Formulation and Implementation

● The division of strategic management into different phases is only for the purpose of
orderly study.
● In real life, the formulation and implementation processes are intertwined.
● Two types of linkages exist between these two phases of strategic management.
○ The forward linkages deal with the impact of strategy formulation on strategy
implementation.
○ For instance, the
■ organizational structure has to undergo a change in the light of the
requirements of the modified or new strategy.
■ The style of leadership has to be adapted to the needs of the modified
or new strategies.
● The backward linkages are concerned with the impact in the opposite direction.While
dealing with strategic choice, remember that past strategic actions also determine the
choice of strategy.

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 Chapter 8 - Strategy Implementation and Control

Strategy formulation and Implementation Matrix

Organizational success is a function of good strategy and proper implementation

An organisation will be successful only when the strategy formulation is sound and
implementation is excellent.

● Square A
○ The situation where a company apparently has formulated a very competitive
strategy, but is showing difficulties in implementing it successfully.
○ This can be due to various factors,
■ such as the lack of experience (e.g. for startups),
■ the lack of resources,
■ missing leadership and so on.

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 Chapter 8 - Strategy Implementation and Control

○ In such a situation, the company will aim at moving from square A to square B,
given they realize their implementation difficulties.

● Square B
○ The ideal situation where a company has succeeded in designing a sound and
competitive strategy and has been successful in implementing it.

● Square D
○ The situation where the strategy formulation is flawed,
○ but the company is showing excellent implementation skills.
○ When a company finds itself in square D the first thing they have to do is to
redesign their strategy before readjusting their implementation/execution skills.

● Square C
○ Denotes for companies that haven’t succeeded in coming up with a sound
strategy formulation and in addition are bad at implementing their flawed
strategic model.
○ Their path to success also goes through business model redesign and
implementation/execution readjustment.

Principal Combination of Effectiveness and Efficiency

● An organization that finds itself in cell 1

○ is well placed and thrives,
○ since it is achieving what it aspires to achieve with an efficient output/ input
ratio.

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 Chapter 8 - Strategy Implementation and Control

● An organization
○ in cell 2 or 4 is doomed,
○ unless it can establish some strategic direction.
○ The particular point to note is that cell 2 is a worse place to be than is cell 3
■ since, in the latter,
■ the strategic direction is present to ensure effectiveness
■ even if too much input is being used to generate outputs.
■ To be effective is to survive whereas to be efficient is not in itself
either necessary or sufficient for survival.

In crude terms, to be effective is to do the right thing, while to be efficient is to do the thing
in the right manner.

Successful strategy formulation does not guarantee successful strategy implementation.

It is always more difficult to do something (strategy implementation) than to say you are
going to do it (strategy formulation)

Issues in Strategy Implementation

The implementation tasks put to test the strategists’ abilities to allocate resources, design
organisational structure, formulate functional policies, and to provide strategic leadership.

Issues in implementation covers everything included in the discipline of management studies

The different issues involved in strategy implementation are

● Strategies, by themselves, do not lead to action. Strategies, therefore, have to
be activated through implementation. Strategies are intent statements and
through implementation organisations try to realise that intent.
● Strategies should lead to plans. (will give milestones, and how strategies will be
converted into actions)
(Goals, Policy, Procedures, Rules to convert plan into
● Plans result in different kinds of programmes.
action)

(Specific Programme with predetermined time

● Programmes lead to the formulation of projects.
schedule and costs)

○ It requires separate allocation of funds, and is to be completed within a

set time schedule.

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 Chapter 8 - Strategy Implementation and Control

○ Projects create the needed infrastructure for the day-to-day operations

in an organization.
● After that is provided,
○ it would be essential to see that a proper organizational structure is
designed,
○ systems are installed,
○ functional policies are devised,
○ and various behavioral inputs are provided so that plans may work.
● Given below in sequential manner the issues in strategy implementation which
are to be considered:
○ Project implementation
○ Procedural implementation
○ Resource allocation
○ Structural implementation
○ Functional implementation
○ Behavioral implementation

It should be noted that the sequence does not mean that each of the above activities are
necessarily performed one after another.

Divisional and functional managers be involved as much as possible in the strategy-formulation

process. strategists should also be involved as much as possible in strategy-implementation
activities.

Management issues central to strategy implementation include

● establishing annual objectives,

● devising policies,
● allocating resources,
● altering an existing organizational structure,
● restructuring and reengineering,
● revising reward and incentive plans,
● minimizing resistance to change,
● developing a strategy supportive culture,
● adapting production/operations processes,
● developing an effective human resource system and,
● if necessary, downsizing.

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 Chapter 8 - Strategy Implementation and Control

Management changes are necessarily more extensive when strategies to be implemented

move a firm in a new direction.

Question Marks - 5- MTP-2 May 19

"HQ is a service company. Two years back the company hired a reputed management
consultant to formulate its strategy. The consultant recommended an aggressive expansion
plan. Now in an internal review meeting the company finds that many of the suggestions
are not even fully considered.
Which part of the strategic management process is missing in HQ?

Question - Marks - 5 - SA May 19

Distinguish between Strategy Formulation and Strategy Implementation.

Question - Marks - 5 - MTP-1 May 21

Distinguish between Strategy Formulation and Strategy Implementation.

Question - Marks - 5 - SA Jan 21

Strategy execution is an operations-oriented activity which involves a good fit between
strategy and organizational capabilities, structure, climate & culture. Enumerate the principal
aspects of the strategy execution process which are used in most of the situations.

Strategic Change
Meaning of Strategic Change
Strategic Change
● Changing the existing strategies
● and bringing out new strategies
● because of environmental changes
● is called strategic change.

Strategic change is a complex process and it involves a corporate strategy focused on

● new markets,
● products,
● services and
● new ways of doing business.

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Steps for initiating Change

For initiating strategic change, three steps can be identified as under
Recognize the need for change
● The first step is to diagnose which parts of the present corporate culture are strategy
supportive and which are not.
● This basically means going for environmental scanning
○ involving appraisal of both internal and external capabilities, can be done
through SWOT analysis and
○ then identify the problems/improvement areas and determine scope for change.

Create a shared vision to manage change:

● Objectives and vision of individuals and organizations should coincide. (They must not
be in conflict with each other), can be done only if they follow a shared vision.
● Strategy implementers have to convince all those concerned that the change in
business culture is not superficial or cosmetic.
● The actions taken have to be fully indicative of management's seriousness to new
strategic initiatives and associated changes.

Institutionalize the change: (Action stage / Implementation / Attitude /

MRA after effects / Discrepancy)
● This is basically an action stage
○ which requires implementation of a changed strategy.
● Creating and sustaining a different attitude Towards change.
● Besides, change process must be regularly
○ monitored,
○ review,
○ analyze
■ the after-effects of change.
○ Any discrepancy or deviation
■ should be appropriately addressed.

Kurt Lewin model of Change

● The changes in the environmental forces often require businesses to make modifications
in their existing strategies and bring out new strategies.

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● To make the change lasting, Kurt Lewin proposed 3 phases of the change process for
moving the organization from the present to the future.
● These stages are unfreezing, changing and refreezing.

Unfreezing the situation

The process of unfreezing simply makes the individuals or organizations aware of the necessity
for change and prepares them for such a change. Lewin proposes that the changes should not
come as a surprise to the members of the organization. Sudden and unannounced change would
be socially destructive and morale lowering. The management must pave the way for the
change by first "unfreezing the situation", so that members would be willing and ready to
accept the change.

Unfreezing is the process of breaking down the old attitudes and behaviors, customs and
traditions so that they start with a clean slate. This can be achieved by making
announcements, holding meetings and promoting the ideas throughout the organization.

Changing to New situation

Once the unfreezing process has been completed and the members of the organization
recognize the need for change and have been fully prepared to accept such change, their
behavior patterns need to be redefined. H.C. Kellman has proposed three methods for
reassigning new patterns of behavior. These are compliance, identification and internalization.

1. Compliance: It is achieved by strictly enforcing the reward and punishment strategy for
good or bad behavior. Fear of punishment, actual punishment or actual reward seems to
change behavior for the better.
2. Identification: Identification occurs when members are psychologically impressed upon to
identify themselves with some given role models whose behavior they would like to
adopt and try to become like them.

3. Internalization: Internalization involves some internal changing of the individual's

thought processes in order to adjust to a new environment. They have been given
freedom to learn and adopt new behavior in order to succeed in the new set of
circumstances.

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Refreezing

Refreezing occurs when the new behavior becomes a normal way of life. The new behavior
must replace the former behavior completely for successful and permanent change to take
place. In order for the new behavior to become permanent, it must be continuously reinforced
so that this new acquired behavior does not diminish or extinguish.
Change process is not a one time application but a continuous process due to dynamism and
ever changing environment.
The process of unfreezing, changing and refreezing is a cyclical one and remains continuously in
action.

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Question Type Descriptive Marks - NA RTP Nov 2020

Discuss three methods for reassigning new patterns of behavior as proposed by H.C. Kellman.

Question Marks 7 SA Nov 18

Write a short note on strategic change and explain the process of strategic change

Question Marks 5 MTP-1 May 20

"Dr. Raman has been running a nursing home for about twenty two years now, and has
gained enormous name for his benevolence in Balram district of Chhattisgarh. Recently, his
daughter, Dr. Radhika completed her medicine degree from the United States of America
and returned to her hometown to be a part of her father’s practice. She has been given the
baton to promote modern medicine and retain the local skilled youth in their practice.
However, their nursing home’s skilled youth has been more inclined
to E-Commerce employment opportunities. Dr. Radhika has taken it as a challenge to imbibe
the very essence of service in them, by being employed as nurses and caretakers of the ill.
This shall be very crucial in growing the practice as desired. Which of the following phases
of Kurt Lewin’s Model of Change will be most challenging for Dr. Radhika to strategically
position her father’s nursing home?"

(NOTE - This is a very important question, the answer will be discussed in class. I don’t find
ICAI answer appropriate in this case)

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Organisational Control
*As per ICAI study material they have named the topic as strategic control

Meaning of Control
● Controlling is one of the important functions of management, and is often regarded
as the core of the management process.
● It is a function intended to ensure the performance of planned activities and to
achieve the predetermined goals and results.
● Control helps in measuring the progress
● It also helps in ensuring translation of plans into results, optimum utilisation of
resources and safeguarding of assets.
● The controlling function involves
○ monitoring the activity and
○ measuring results against pre-established standards,
○ analysing and
○ Correcting deviations or taking actions as necessary and maintaining/adapting
the system.

● Important function of ___________

● ________ of Mgt process
● Ensure performance of ______________ activities
● Ensure achievement of predetermined ______________ and _____________
● Helps in measuring the ___________________
● Translation of ________ into __________
● ________________________ of resources
● ___________ of assets

Elements of Organisational Control

The process of control has the following elements:
● Objectives of the business system which could be operationalized into measurable and
controllable standards.
● A mechanism for monitoring and measuring the performance of the system.
● A mechanism
○ for comparing the actual results with reference to the standards
○ for detecting deviations from standards and
○ for learning new insights on standards themselves.

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● A mechanism for feeding back corrective and adaptive information and instructions
to the system, for effecting the desired changes to set right the system to keep it on
course.

Primarily there are three types of organizational control, viz.,

● Operational control,
● Management control and
● Strategic control.

Operational Control
● The thrust of operational control is on individual tasks or transactions as against total
or more aggregative management functions.
● For example, procuring specific items for inventory is a matter of operational control, in
contrast to inventory management as a whole.
● One of the tests that can be applied to identify operational control areas is that there
should be a clear-cut and somewhat measurable relationship between inputs and
outputs which could be predetermined or estimated with least uncertainty.
● Some of the examples of operational controls can be
○ Stock control (maintaining stocks between set limits),
○ production control (manufacturing to set programmes),
○ quality control (keeping product quality between agreed limits),
○ cost control (maintaining expenditure as per standards),
○ budgetary control (keeping performance to budget).

Management Control
● When compared with operational control, management control is more inclusive and
more aggregative.
● The basic purpose of management control is the achievement of enterprise goals –
○ short range and
○ long range –
○ in a most effective and efficient manner.
● The term management control is defined by Robert Anthony as
○ ‘The process by which managers assure the resources are obtained and used
effectively and efficiently in the accomplishment of the organisation’s
objectives.

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Strategic Control
Strategic Control focuses on the dual questions of whether
● The strategy is being implemented as planned (जैसे 󰌎ान 󰏎कया था वैसे Implement भी
󰏆आ ); and
● The results produced by the strategy are those intended. (जैसे 󰏋रज󰍒 सोचे थे वो अचीव
भी 󰏆ए)

Types of Strategic Control: There are four types of strategic control as follows:

Premise control
● A strategy is formed on the basis of certain assumptions or premises about the
organizational environment.
● Premise control is a tool for systematic and continuous monitoring of the environment
to verify the validity and accuracy of the premises on which the strategy has been
built.
● It primarily involves monitoring two types of factors.
○ Environmental factors such as economic, technological, social and regulatory.
○ Industry factors such as competitors, suppliers, substitutes.

Strategic surveillance
● Contrary to the premise control,
○ strategic surveillance is unfocused.
● It involves
○ general monitoring
○ of various sources of information
○ to uncover unanticipated information
○ having a bearing on the organizational strategy.
● It involves
○ casual environmental browsing.
○ Reading
■ financial and other newspapers,
■ business magazines,
○ meetings, conferences, discussions at clubs or parties and so on
● Strategic surveillance may be a loose form of strategic control, but is capable
of uncovering information relevant to the strategy.

Special alert control

● At times unexpected events may force organizations to reconsider their strategy.

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● Keeping an eye on such unexpected events is known as special alert control.

● Sudden changes in government, natural calamities, terrorist attacks, unexpected
merger/acquisition by competitors, industrial disasters and other such events
○ may trigger an immediate and intense review of strategy.
○ Organizations to cope up with these eventualities, form crisis management
teams to handle the situation.

Implementation control
● Managers implement strategy by converting major plans into concrete, sequential
actions that form incremental steps.
● Implementation control is directed towards
○ assessing the need for changes in the overall strategy
○ in light of unfolding events and results associated with incremental steps
and actions.
● Strategic implementation control continuously monitors the basic direction of the
strategy.
● The two forms of implementation control

○ Monitoring strategic thrusts: Monitoring strategic thrusts help managers to

determine whether the overall strategy is progressing as desired or whether
there is need for readjustments.

○ Milestone Reviews: All key activities necessary to implement strategy are

segregated in terms of time, events or major resource allocation. It assesses
the need to continue or refocus the direction of an organization.

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Source - https://brainmass.com/file/298420/Strategic_Management_Ch13.pdf - Date of link 5/6/2021

Question Marks NA RTP May 18

State with reasons which of the following statements are correct/incorrect
Strategic surveillance is highly focussed and organised control activity.

Question Marks NA RTP May 18

Short note on Implementation control

Question Marks 3 SA May 18

Explain different types of strategic control in brief.

Question Marks NA RTP Nov 18

Control systems run parallel with strategic levels. Correct incorrect.

Answer - Source ICAI RTP Nov 18

There are three strategic levels in an organisation – corporate, business and functional.
Control systems are required at all the three levels. At the top level, strategic controls are
built to check whether the strategy is being implemented as planned and the results
produced by the strategy are those intended. Down the hierarchy management controls and

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operational controls are built in the systems. Operational controls are required for day-to-day
management of business.

Question Marks NA RTP Nov 18

Differentiate between Operational control and management control

Question Marks 5 MTP-2 Nov 18

Write a short note on Implementation Control.

Question Marks NA RTP Nov 18

Explain premise control

Question Marks 5 MTP-1 May 19

Write a short note on Implementation Control.

Question Marks NA RTP Nov 19

What is implementation control? Discuss its basic forms

Question Marks NA RTP May 20

What is strategic control? Briefly explain the different types of strategic control?

Question Marks 5 SA Nov 20

What is strategic control? Kindly explain the statement that "premise control is a tool for
systematic and continuous monitoring of the environment.

Question Marks 5 SA Jan 21

Sanya Private Limited is an automobile company. For the past few years, it has been
observed that the progress of the company has become stagnant.. When scrutinized, it was
found that the planning department was performing fairly well but the plans could not be
implemented due to improper use of resources, undesirable tendencies of workers and
non-conformance to norms and standards. You are hired as a Strategic Manager. Suggest the
elements of the process of control to overcome the problem.

(Hint : Discuss the elements of Organisational Control)

Question Marks NA RTP May 21

"Why is Strategic Control important for organizations? Discuss briefly 4 types of strategic
control that can be implemented to achieve the enterprise goals"

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General MCQ Marks 1 MTP April 2021

"Which one is NOT a type of strategic control?
(a) Operational control
(b) Strategic surveillance
(c) Special alert control
(d) Premise control"

Strategy Audit
Meaning

● A strategy audit helps an organization

○ identify problem areas and
○ correct the strategic approaches that have not been effective so far.
● It also identifies the
○ need to adjust the existing business strategies and plans.
● The strategy audit ensures that
○ all necessary information for the development of the company is included in
the business plan
○ and that the management supports it.
● A strategy audit is an
○ examination and evaluation
○ of areas affected by the operation of a strategic management process
○ within an organization.

When Needed
A strategy audit is needed under the following conditions
● When the performance indicators reflect that a
○ strategy is not working properly or
○ is not producing desired outcomes.
● When the goals and objectives of the strategy are not being accomplished.
● When a major change takes place in the external environment of the organization.
● When the top management plans
○ to fine-tune the existing strategies and introduce new strategies and
○ to ensure that a strategy that has worked in the past continues to be in-tune
with subtle internal and external changes that may have occurred since the
formulation of strategies.

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Adequate and timely feedback is the cornerstone of effective strategy audit. Strategy audit
can be no better than the information on which it is based

Activities - Strategy Audit includes three basic activities:

1. Examining the underlying bases of a firm’s strategy,

2. Comparing expected results with actual results, and
3. Taking corrective actions to ensure that performance conforms to plans.

Richard Rumelt’s Criteria for Strategy Audit

● Consistency
● Consonance
● Feasibility
● Advantage

Consistency
● A strategy should not present inconsistent goals and policies.
● Three guidelines help determine if organizational problems are due to inconsistencies in
strategy:
○ Managerial problems continue despite changes in personnel and if they tend to
be issue-based rather than people-based, then strategies may be inconsistent.
○ Success for one organizational department means, or is interpreted to mean,
failure for another department, then strategies may be inconsistent.
○ Policy problems and issues continue to be brought to the top for resolution,
then strategies may be inconsistent.
Consonance (Examine Trends)
● Consonance refers to the need for strategists to examine sets of trends, as well as
individual trends, in auditing strategies.
● A strategy must represent an adaptive response to the external environment and to
the critical changes occurring within it.
● One difficulty in matching a firm’s key internal and external factors in the
formulation of strategy is that most trends are the result of interactions among
other trends.
● For example, the day-care school/centre came about as a combined result of many
trends that included a rise in the average level of education, need for different
education pedagogy, increase in income, inflation, and an increase in women in the
workforce.

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Feasibility
● The final broad test of strategy is its feasibility;
● that is,
○ can the strategy be attempted within the physical, human, and financial
resources of the enterprise?
● The financial resources of a business are the easiest to quantify and are normally the
first limitation against which strategy is audited.
● A less quantifiable, but actually more rigid, limitation on strategic choice is that
imposed by individual and organizational capabilities.
● In auditing a strategy, it is important to examine whether an organization has
demonstrated in the past that it possesses the abilities, competencies, skills, and
talents needed to carry out a given strategy

Advantage
● A strategy must provide for the creation and/or maintenance of a competitive
advantage in a selected area of activity.
● Competitive advantages normally are the result of superiority in one of three areas
○ Resources
○ Skills
○ Position

Why is Strategy Audit difficult?

The difficulties in strategy audit can be explained in terms of following trends
● A dramatic increase in the environment’s complexity.
● The increasing difficulty of predicting the future with accuracy.
● The increasing number of variables in the environment.
● The rapid rate of obsolescence of even the best plans.
● The increase in the number of both domestic and world events affecting
organizations.
● The decreasing time span for which planning can be done with any degree of
certainty.

E - Environment
O - Obsolescence
F - Future
T - Time Span
E - Event
N - Number of Variable

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Question Case Based Marks NA RTP May 18

"Kewal Kapadia is the Managing Director of KK industries located in Kanpur. In a review
meeting with the head of finance, Kuldeep Khaitan he said that in the first five years of last
decade the company grew between 8-10 percent every year, then the growth rate started
falling and in previous year the company managed 1 per cent. Kuldeep replied that the
company is facing twin issues, one the strategy is not being implemented as planned; and
two the results produced by the strategy are not in conformity with the intended goals.
There is a mismatch between strategy formulation and implementation. Kewal disagreed and
stated that he takes personal care in implementing all strategic plans. You have been hired
as a strategy consultant by the KK Industries. Advise way forward for the company to
identify problem areas and correct the strategic approaches that have not been effective."

Question Descriptive Marks 7 MTP-1 May 18

What is strategy audit? Explain the criteria for strategy audit as given by Richard Rumelt.

Question Correct/Incorrect Marks 2 MTP-2 May 18

Consonance in strategy audit refers to the need for strategists to examine sets of trends.

Question Descriptive Marks 7 SA May 18

Explain the concept and need of Strategy Audit. Why is it more difficult in the present
scenario?

Question Descriptive Marks NA RTP Nov 18

What is Strategy Audit? Explain briefly the criteria for strategy audit given by Richard
Rumelt’s.

Question Case Based Marks NA RTP Nov 19

"Zumba Robots, an electronic robot manufacturing company is a leader in its business
segment.Over a period of time, it started losing its grip on the market as its overall position
started to weaken. Discuss the type of audit that you would like to suggest to analyse the
situation of the company?"

Question Case Based Marks NA RTP May 20

"Kewal Kapadia is the Managing Director of KK industries located in Kanpur. In a review
meeting with the head of finance, Kuldeep Khaitan he said that in the first five years of last
decade the company grew between 8-10 percent every year, then the growth rate started

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falling and in previous year the company managed 1 per cent. Kuldeep replied that the
company is facing twin issues, one the strategy is not being implemented as planned; and
two the results produced by the strategy are not in conformity with the intended goals.
There is a mismatch between strategy formulation and implementation. Kewal disagreed and
stated that he takes personal care in implementing all strategic plans. You have been hired
as a strategy consultant by the KK Industries. Advise way forward for the company to
identify problem areas and correct the strategic approaches that have not been effective."

Business Process Re-engineering

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What is a Business Process?

● Business processes are simply a set of activities that transform a set of inputs into a set of
outputs for another person or process.
● Business process or business activities are not discrete or unrelated pieces of work
● A process is a set of logically related tasks or activities oriented towards achieving a specified
outcome or value for customer or other processes.
● A Process is not limited to a particular department.
● A business process involves a number of steps performed by different people in different
departments.
● For example, one common process found in almost every organization is the order fulfilment.
○ Order fulfilment begins with procuring an order and ends with delivery of goods to the
customer.
● A set of interconnected processes comprise a business system.
● Some processes turn out to be extremely critical for the success and survival of the enterprise
and they are known as core business processes.
● BPR focuses on such critical business processes out of the many processes that go on in any
company.
● They are crucial for generating competitive advantages for a firm in the marketplace.
● While some core business processes are easily identifiable, some core Business processes may
not always be immediately apparent.
● Processes having an impact on competitiveness of the organisation must be identified
carefully.

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Concept of BPR

● Refers to the
○ analysis and
○ redesign of
■ workflows and processes
■ both within and between the organizations.
● The orientation of the redesign effort is
○ radical, i.e.,
○ it is a total deconstruction and
○ rethinking of a business process in its entirety,
○ unconstrained by its existing structure and pattern.
● Its objective is to obtain
○ quantum gains
○ in the performance of the process
■ in terms of
● time,
● cost,
● output,
● quality, and
● responsiveness to customers through the use of IT systems.
● Business process reengineering means starting all over, starting from scratch.
● Reengineering is about business reinvention - not business improvement, business
enhancement, or business modification.

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Rationale of BPR
Improving business processes is paramount for businesses to stay competitive in today’s
marketplace. Over the last three decades several factors have accelerated the need to improve
business processes.

1. Technology
The most obvious is technology. New technologies (like Information Technology) are rapidly
bringing new capabilities to businesses, thereby raising the strategic options and the need to
improve business processes dramatically.

2. Opening up of Indian economy

After the opening up of Indian economy, companies have been forced to improve their business
processes because of increased competition. More companies have entered the marketplace,
and competition has become harder and harder.

3. Customer Demand for better product and service

Customers are also demanding better products and services. If they do not receive what they
want from one supplier, they have many others to choose from. They are ready to try new
brands.

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Elements of BPR

Reengineering begins with a fundamental rethinking.

● In doing reengineering people must ask some most basic questions about their
organizations and about their operations.
● They try to find out answers to such questions like “Why do we do what we do? And
why do we do it the way we do?” An attempt to find out answers to such questions
may startlingly reveal certain rules, assumptions and operational processes as
obsolete and redundant.
● Reengineering does not begin with anything given or with any assumptions.
● Reengineering first determines what a company must do.
● And then it decides on how to do it.
● Reengineering ignores what the existing process is and concentrates on what it should
be.
● If something is not required to be done it is outright discarded.

Reengineering involves radical redesigning of processes.

● Radical redesigning means going to the root of the problem areas and not attempting
to make any superficial changes.
● Radical redesign involves completely discarding all existing structures and procedures
and evolving completely new ways of doing the work. “Reengineering is about business
reinvention – not business improvement, business enhancement, or business
modification.”

Reengineering aims at achieving dramatic improvement in performance.

● If an organization feels the need for marginal improvement in any area of operation at
any point of time, the same can be achieved by conventional methods of adjustments
in operating processes and reengineering is not the answer.
● Reengineering is meant for replacement of the old process by an altogether new one
to achieve dramatic improvement in the performance.

Steps in BPR are as follows

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1. Determining scope, Objectives are the desired end results of the redesign process
which the management and organization attempts to realize.
objectives and Framework
This will provide the required focus, direction, and motivation
(Builds sound foundation) for the redesign process.

2. Identify customers and Designers of BPR have to understand customers - their

profile, their steps in acquiring, using and disposing a product.
determine their needs:

3. Study the existing process The existing processes will provide an important base for the
re-designers. The purpose is to gain an understanding of the
'what', and 'why' of the targeted process.

4. Formulate a redesign The information gained through the earlier steps is translated
into an ideal redesign process. Formulation of the redesign plan
process plan: (Creation of
is the real crux of the reengineering efforts. Customer focused
Vision) redesign concepts are identified and formulated. In this step
alternative processes are considered and the best is selected.

5. Implement the redesign: It is the joint responsibility of the designers and management
to operationalize the new process.

The Role of Information Technology in BPR

Impact of IT-systems is identified as:
● Compression of time
● Overcoming restrictions of geography and/or distance
● Restructuring of relationships.

IT-initiatives, thus, provide business values in three distinct areas:

● Efficiency - by way of increased productivity,
● Effectiveness - by way of better management,
● Innovation - by way of improved products and services.

Information technology (IT) is a critical factor in the success of bringing this change.

Central Thrust of BPR

● Its thrust area may be identified as "the reduction of the total cycle time of a
business process."
● Total cycle may be explained in terms of

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○ Customer Need
○ Time to manufacture product or provide service
○ Customer satisfaction

BPR and other processes

While reengineering may lead to restructuring of organization, any restructuring does not
necessarily mean reengineering. The basic principles that differentiate reengineering from any
other drive on improving organizational efficiency may be summarized as follows

Discontinuous thinking.
Reengineering does not have any scope for any partial modification or marginal improvement
in the existing business processes

Assumptions
The BPR approach recognizes that most of the existing rules and procedures of work methods
are based on certain assumptions about technology, people and the goals of the organization.
These assumptions may not be valid any more.

BPR aims at utilizing information technology for evolving a new process, instead of automating
the existing process.

Pervasive
While reengineering starts with the process it does not end there. The fundamental and
radical changes that takes place while reengineering the process has its own implication on
other parts of the organization – almost on every part of it.

Massive Change
BPR efforts involve managing massive organizational change Practically every aspect of the
organization changes beyond recognition.

Problems in BPR
Reengineering is a major radical improvement in the business process. Only a limited number of
companies are able to have enough courage for having BPR because of the challenges posed

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● It disturbs established hierarchies and functional structures Involves resistance

among the work-force.
● Reengineering takes time and expenditure, at least in the short run, many companies
are reluctant to go through the exercise. Even there can be loss in revenue during the
transition period.
● Setting targets is tricky and difficult, if targets are not properly set or If
transformation is not properly carried out, reengineering efforts may turn-out as a
failure.

Issues on Need for change that forms the premises of BPR

● The operational excellence of a company is a major basis for its competitiveness.
● The business strategy of a company should be oriented towards leveraging its
operational excellence into the marketplace.
● Processes need to be managed, not functions.
● Continuous improvement is a deficient approach when a company is far behind the
industry standards, and needs rapid quantum leaps in performance.
● A customer-focussed organization needs to be realigned in terms of a process
orientation.
● For considering totally new ways of redesigning processes, each and every concept,
assumption, purpose, and principle, needs to be abandoned temporarily.
● How to compete is more important than deciding where to compete.
● Dramatic improvement in performance is the prerequisite for overcoming competition.

Question Descriptive Marks 7 MTP-1 Nov 18

What is the rationale behind Business Process Reengineering (BPR)? What steps would
you recommend to implement BPR in an organization?

(Answer to be discussed in class)

Question Case Based Marks 5 MTP-2 Nov 18

"Slow Ltd. is a fifty year old organisation engaged in manufacturing of consumer
products. Over a time, its processes have lengthened making it very slow in decision
making, production, product and service delivery.As a manager, you have been asked to
suggest how the processes of Slow Ltd. can be improved?"

(Answer to be discussed in class)

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Question Descriptive Marks 3 SA Nov 18

Identify three aspects of the impact of IT Systems on Business Process Reengineering and
list three areas where it provides business value.

Question Case Based Marks NA RTP Nov 19

"India's luxurious domestic airline Indijet in an attempt to retain its leadership in the aviation
sector has hired J S Dutta as its Chief Executive. Mr Dutta wishes to reorient the company
to make it a domestic discount carrier. He desires to introduce a no frills business model by
offering extremely low fares and improving margins by cutting down traditional amenities
such as reclining seats and complimentary meals. At the same time setting the stage for a
new air revolution, he wishes to brand itself as on-time airlines having proper systems in
place and removing additional and wasteful activities and processes.
What steps will you advise Mr Dutta?"

Question Descriptive Marks 5 SA Nov 19

Explain concept and nature of BPR

Question Descriptive Marks RTP Nov 20

Identify three aspects of the impact of IT Systems on Business Process Reengineering and
list three areas where it provides business value.

Question Descriptive Marks 5 MTP-1 Nov 20

Identify three aspects of the impact of IT Systems on Business Process Reengineering and
list three areas where it provides business value.

Benchmarking (शमा󰇡 जी क󰎪 लड़क󰎪 )

Benchmark
A benchmark may be defined as a
● standard or a
● point of reference
○ against which things may be compared and
○ by which something can be measured and judged.

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 Chapter 8 - Strategy Implementation and Control

The scientific studies conducted by Frederick Taylor in the latter part of the nineteenth
century represent an early use of the benchmarking concept. However, the term got popular
much later in the seventh decade of the twentieth century. Initially, the concept evolved in
companies operating in an industrial environment. Over a period of time it covered other
spheres of business activity. In recent years, different commercial and non-commercial
organizations are discovering the value of benchmarking and are applying it to improve their
processes and systems.

Benchmarking
● An approach of
○ setting goals and
○ measuring productivity
○ based on best industry practices.
● Example - Standard time taken to provide support to customers.
● Benchmarking is a process of continuous improvement in search for competitive
advantage.
● It measures a company’s products, services and practices against those of its
competitors or other acknowledged leaders in their field.

Why Benchmarking?
● Benchmarking helps in improving performance by learning from best practices and the
processes by which they are achieved.
● It involves regularly comparing different aspects of performance with the best practices,
identifying gaps and finding out novel methods to not only reduce the gaps but to
improve the situations so that the gaps are positive for the organization.
● Benchmarking is not a panacea for all problems. Rather, it studies the circumstances
and processes that help in superior performance.
● Better processes are not merely copied. Efforts are made to learn, improve and evolve
them to suit the organizational requirements.
● Further, benchmarking exercises are also repeated periodically so that the organization
does not lag behind in the dynamic environment.

Steps in Benchmarking Process

Benchmarking processes used by different organisations lack standardization. However, common
elements are as follows:

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 Chapter 8 - Strategy Implementation and Control

Identifying the need for benchmarking

● This step will define the objectives of the benchmarking exercise.
● Organizations identify realistic opportunities for improvements.

Clearly understanding existing business processes

● This step will involve compiling information and data on performance. 󰉇ा
● This will include mapping processes. कैसे
● Information and data is collected by different methods such as interviews, visits and
filling of questionnaires. अजी कहाँ से

Identify best processes

● The best processes are identified as per requirements.
● These may be within the same organization or external to it.

Compare own processes and performance with that of others

● Identify Gaps - While comparing gaps in performance between the organization and
better performers is identified.
● Analyse Gaps - Further, gaps in performance are analysed to seek explanations.
● Feasibility of making the improvements in the light of the conditions that apply
within the organization is also examined.

Prepare a report and Implement the steps necessary to close the

performance gap
● A report on the Benchmarking initiatives containing recommendations is prepared.
● Such a report includes the action plan(s) for implementation.

Evaluation
● A business organization must evaluate the results of the benchmarking process in
terms of improvements, objectives and other criteria set for the purpose.
● It should also periodically evaluate and reset the benchmarks in the light of changes
in the conditions that impact its performance.

Question Descriptive Marks NA RTP May 18

What is Benchmarking? Explain briefly the elements involved in the Benchmarking process.

Question Descriptive Marks 7 MTP-2 May 18

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 Chapter 8 - Strategy Implementation and Control

What is benchmarking? Explain briefly the elements involved in the benchmarking process.
Question Correct/Incorrect Marks NA RTP Nov 18
Benchmarking and business process reengineering are one and the same.

Question Case Based Marks NA RTP Nov 18

Swift Ltd and Quick Ltd are two companies that are in the business of light industrial
machines. While Swift is the market leader the sales of Quick have been falling. In the year
2017-18 the market share of the two companies was forty per cent and five per cent
respectively. During the last five years the market share has quickly reduced from third to
sixth position. As an immediate corrective measure, top management of Quick decided to
emulate the successful standards of Swift Ltd and set them as their own yardsticks. With
the help of standards they intended to compare, measure and judge their performance.What
is the strategic tool Quick Ltd is adopting? How is it implemented?

Question Marks 2 SA Nov 18

There is no distinction between Benchmarking and Business Process Reengineering.

Question Descriptive Marks NA RTP May 19

What is Benchmarking? Explain briefly the elements involved in the Benchmarking process.

Question Descriptive Marks 5 SA May 19

What is Benchmarking? Explain the various steps in the Benchmarking process.

Question Descriptive Marks 5 MTP-1 May 20

“Firms can use a benchmarking process to achieve improvement in a diverse range of
management functions.” Elucidate."

Question Descriptive Marks NA RTP May 21

Do you agree with the statement that 'Benchmarking is a process of continuous improvement
in search of competitive advantage'? Discuss.

Question Descriptive Marks NA RTP May 21

Do you agree with the statement that 'Benchmarking is a process of continuous
improvement in search of competitive advantage'? Discuss.

Question Descriptive Marks 5 MTP-2 May 21

Explain the various steps in the Benchmarking process.

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