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Subject Strategic Management

Assignment No. 01

Discipline M.B.A. (Executive)

erm !!!

Submitte" B# Samiulla$ %$an

Examination &oll No. 0'

Q.1: Define strategic management. Write down process of evaluating

externally to any firm?

$e s#stematic anal#sis o t$e actors associate" *it$ customers an" competitors (t$e external

environment) an" t$e organixation itsel (t$e internal environment) to provi"e t$e basis or 

maintaining optimum management practices. $e objective o strategic management is

to ac$ieve better alignment o corporate policies an" strategic priorities.

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$e ormulation an" implementation o t$e major goals an" initiatives ta+en b# a compan#,s top

management on be$al o o*ners- base" on consi"eration o resources an" an assessment o t$e

internal an" external environments in *$ic$ t$e organiation competes. Strateg# is "eine" as

/t$e "etermination o t$e basic longterm goals o an enterprise- an" t$e a"option o courses o 

action an" t$e allocation o resources necessar# or carr#ing out t$ese goals. Strategies are

establis$e" to set "irection- ocus eort- "eine or clari# t$e organiation- an" provi"e

consistenc# or gui"ance in response to t$e environment.

Strategic management involves t$e relate" concepts o  strategic planning an" strategic t$in+ing.

Strategic planning is anal#tical in nature an" reers to ormalie" proce"ures to pro"uce t$e "ata

an" anal#ses use" as inputs or strategic t$in+ing- *$ic$ s#nt$esies t$e "ata resulting in t$e

strateg#. Strategic planning ma# also reer to control mec$anisms use" to implement t$e strateg#

once it is "etermine". !n ot$er *or"s- strategic planning $appens aroun" t$e strategic t$in+ing or 

strateg# ma+ing activit#.

Strategic management is oten "escribe" as involving t*o major processes

i.e.- ormulation an" implementation o strateg#. $ile "escribe" se2uentiall# belo*- in practice

t$e t*o processes are iterative an" eac$ provi"es input or t$e ot$er.

Formulation

3ormulation o strateg# involves anal#ing t$e environment in *$ic$ t$e organiation operates-

t$en ma+ing a series o strategic "ecisions about $o* t$e organiation *ill compete. 3ormulation

en"s *it$ a series o goals or objectives an" measures or t$e organiation to pursue.

Environmental anal#sis inclu"es t$e4

1. &emote external environment- inclu"ing t$e political- economic- social- tec$nological-

legal an" environmental lan"scape (5ES6E)7

8. !n"ustr# environment- suc$ as t$e competitive be$avior o rival organiations- t$e

 bargaining po*er o bu#ers9customers an" suppliers- t$reats rom ne* entrants to t$e

in"ustr#- an" t$e abilit# o bu#ers to substitute pro"ucts (5orter,s ' orces)7 an"

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:. !nternal environment- regar"ing t$e strengt$s an" *ea+nesses o t$e organiation,s

resources (i.e.- its people- processes an" ! s#stems).

Strategic "ecisions are base" on insig$t rom t$e environmental assessment an" are responses to

strategic 2uestions about $o* t$e organiation *ill compete- suc$ as4

  What is the organization's business?

  Who is the target customer for the organization's products and services?

  Where are the customers and how do they buy? What is considered "value" to the

customer?

  Which businesses, products and services should be included or excluded from the

 portfolio of offerings?

  What is the geographic scope of the business?

  What differentiates the company from its competitors in the eyes of customers and 

other stakeholders?

  Which skills and capabilities should be developed within the firm?

  What are the important opportunities and risks for the organization?

   ow can the firm grow, through both its base business and new business?

   ow can the firm generate more value for investors?

$e ans*ers to t$ese an" man# ot$er strategic 2uestions result in t$e organiation,s strateg# an"

a series o speciic s$ortterm an" longterm goals or objectives an" relate" measures.

 !mplementation

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$e secon" major process o strategic management is implementation- *$ic$ involves "ecisions

regar"ing $o* t$e organiation,s resources (i.e.- people- process an" ! s#stems) *ill be aligne"

an" mobilie" to*ar"s t$e objectives. !mplementation results in $o* t$e organiation,s resources

are structure" (suc$ as b# pro"uct or service or geograp$#)- lea"ers$ip arrangements-

communication- incentives- an" monitoring mec$anisms to trac+ progress to*ar"s objectives-

among ot$ers. &unning t$e "a#to"a# operations o t$e business is oten reerre" to as

/operations management/ or speciic terms or +e# "epartments or unctions- suc$ as /logistics

management/ or /mar+eting management-/ *$ic$ ta+e over once strategic management

Q.2: How are strengths and weanesses of any company determined? Write in

detail.

6isting o a compan#,s strengt$s an" *ea+nesses are a normal part o an# attempt at strategic planning or virtuall# all companies. No s$oc+ t$ere; But- *$# "o *e perorm t$ese anal#ses-

an" *$at "o *e expect to learn b# "oing t$em< o be sure t$e compan# is $ea"e" in t$e rig$t

"irection- a competent- t$oug$tul revie* an" up"ating o #our strengt$s an" *ea+nesses is a

un"amental element o goo" strategic planning.

3irst- *e must be sure *e are actuall# "oing t$e anal#sis o our strengt$s an" *ea+nesses

 properl#. Some teams just get toget$er an" t$ro* a bunc$ o i"eas on t$e page or lip c$art- t$en

go on to t$eir next exercise. 6ittle a""itional t$oug$t is given to t$e importance or impact o 

strengt$s an" *ea+nesses an" t$e reasons or "eining t$em an" anal#ing t$em.

o set t$e stage or anal#sis o strengt$s an" *ea+nesses- t$e team s$oul" irst "iscuss *$# t$e

team is loo+ing or t$em- *$at is being loo+e" or- an" *$at *ill be "one *it$ t$e results *$en

t$e# $ave complete" t$eir *or+.

Why does your team want to determine what your strengths are? 

Simpl# put- #our strengt$s are t$ose t$ings t$at #our compan# "oes *ell *$ic$ $elp #ou perorm

#our jobs- "eliver value to #our customers an"9or give #ou an a"vantage over #our competition.

$e# are some o t$e cornerstones #ou use to buil" #our business an" to buil" an" maintain

competitive a"vantages in t$e mar+et place.

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Why should your team determine your weaknesses? 

Most people ans*er t$at t$e team nee"s to correct *ea+nesses in or"er to remain competitive

an" eective. $e real reason #our team s$oul" "etermine *$at #our *ea+nesses are is to get

t$em out in t$e open- *it$ ever#one in basic agreement t$at t$ese are actuall# *ea+nesses- so t$e

team can "etermine *$at to "o about eac$ one- i an#t$ing.

Why wouldn't your team want to address and correct each weakness?  

$ere are ot$er consi"erations *$ic$ must be ta+en into account.

3irstl#- *e must recognie t$at *e can,t possibl# be goo" at ever#t$ing. Eac$ compan# ocuses

its eorts to maximie results in its o*n core business- an" "oes not get "istracte" into areas*$ere it ma# $ave limite" appeal an" expertise. e nee" to c$oose t$ose c$aracteristics

(strengt$s) *$ic$ $elp us buil" our business most eectivel# an" a""ress onl# t$ose critical

*ea+nesses *$ic$ trul# interere *it$ or prevent us rom being successul.

Secon"l#- t$in+ about t$e relations$ip bet*een strengt$s an" *ea+nesses. Almost all strengt$s

$ave osetting *ea+nesses o some +in". B# correcting t$e *ea+ness- *e ma# lessen t$e

strengt$ or eliminate it altoget$er. =e *oul" lose t$e strengt$s t$at ma+e $im one o t$e premier 

 pla#ers in t$e *orl" b# correcting a perceive" *ea+ness. $e conclusion rom t$is is t$at #our 

team must be ver# careul to "ierentiate bet*een *ea+nesses *$ic$ must be correcte"- an"

t$ose *$ic$ are t$e natural os$oots o t$e strengt$s on *$ic$ #ou are buil"ing #our business.

$ir"l#- #our team must be ver# careul to be objective in its anal#ses. !t is eas# to get into a sel

critical mo"e in *$ic$ ever#t$ing is a *ea+ness- or- conversel#- t$e team ma# lea" itsel into a

ros# scenario in *$ic$ its strengt$s are overstate" an" *ea+nesses un"erstate". !n ever# session-

it is a positive i"ea to $ave an experience" process lea"er *it$ no veste" interest in t$e process

 be#on" assuring t$at t$e rig$t t$ings are a""resse"- t$at conclusions are reac$e" objectivel# an"

ever# eort is ma"e to assure t$e inancial- p$#sical an" $uman assets o t$e compan# are use"

to obtain t$e $ig$est an" best results or t$e compan#. e $ave oun" t$at some companies are

too introspective- an" in loo+ing out at t$e real *orl"- t$in+ t$at t$e# are t$e onl# ones *it$

 problems an" c$allenges. >t$ers are just t$e opposite. $e# go blit$el# along- t$in+ing t$at t$e#

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are "oing ver# *ell- *it$ little consi"eration o *$at is $appening in t$e real *orl". ?our lea"er,s

 job is to assure t$at t$e team,s approac$ is air- balance" an" objective- so eac$ anal#sis obtains

t$e best- real *orl" result.

What areas of the company should be addressed? 

$ile t$is varies *it$in eac$ compan# "epen"ing on *$at t$e compan# "oes an" $o* it

operates- generall#- t$e team s$oul" loo+ at t$e overall compan# strengt$s an" *ea+nesses as

*ell as t$e strengt$s an" *ea+nesses o +e# areas *it$in t$e compan#. !t is important to loo+ at

$o* eac$ area interacts *it$ t$e customer *orl"- bot$ insi"e an" outsi"e t$e compan#- as *ell as

anal#ing t$e entit# as a *$ole. &ecognie t$at it ma# *ell $appen t$at some areas $ave "ierent

strengt$s or *ea+nesses *$en examine" in"ivi"uall#- but t$e compan# perormance ma# be

totall# "ierent *$en vie*e" as an integrate" unit.

$en #ou $ave lai" t$e groun"*or+ or #our team to begin anal#ing #our strengt$s an"

*ea+nesses b# setting out expectations an" limitations as "iscusse" above- #our lea"er s$oul"

t$ro* t$e loor open or i"eas.

Q.!: Write detail notes on the following?

"a# $orter%s five forces analysis&

"'# (trategic )anagement With *ong and (hort +erm ,'-ectives

"c# Diversification (trategy

"a# $orter%s five forces analysis:

5orter ive orces anal#sis is a rame*or+ to anal#e level o competition *it$in an in"ustr#

an" strateg# "evelopment. !t "ra*s upon in"ustrial organiation (!>) economics to "erive ive

orces t$at "etermine t$e competitive intensit# an" t$ereore attractiveness o an !n"ustr#.

Attractiveness in t$is context reers to t$e overall in"ustr# proitabilit#. An /unattractive/

in"ustr# is one in *$ic$ t$e combination o t$ese ive orces acts to "rive "o*n overall

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 proitabilit#. A ver# unattractive in"ustr# *oul" be one approac$ing /pure competition/- in

*$ic$ available proits or all irms are "riven to normal proit. $is anal#sis is associate" *it$

its principal innovator Mic$ael E. 5orter  o =arvar" @niversit#.

5orter reerre" to t$ese orces as t$e micro environment- to contrast it *it$ t$e more generalterm macro environment. $e# consist o t$ose orces close to a compan# t$at aect its abilit# to

serve its customers an" ma+e a proit. A c$ange in an# o t$e orces normall# re2uires a business

unit to reassess t$e mar+etplace given t$e overall c$ange in in"ustr# inormation. $e overall

in"ustr# attractiveness "oes not impl# t$at ever# irm in t$e in"ustr# *ill return t$e same

 proitabilit#. 3irms are able to appl# t$eir  core competencies-  business mo"el or net*or+ to

ac$ieve a proit above t$e in"ustr# average. A clear example o t$is is t$e airline in"ustr#. As an

in"ustr#- proitabilit# is lo* an" #et in"ivi"ual companies- b# appl#ing uni2ue business mo"els-

$ave been able to ma+e a return in excess o t$e in"ustr# average.

5orter,s ive orces inclu"e t$ree orces rom ,$oriontal, competition4 t$e t$reat o substitute

 pro"ucts or services- t$e t$reat o establis$e" rivals- an" t$e t$reat o ne* entrants7 an" t*o

orces rom ,vertical, competition4 t$e  bargaining po*er  o suppliers an" t$e bargaining po*er o 

customers.

5orter "evelope" $is 3ive 3orces anal#sis in reaction to t$e t$enpopular S> anal#sis- *$ic$

$e oun" unrigorous an" a" $oc. 5orter,s ive orces is base" on t$e Structureon"uct

5erormance para"igm in in"ustrial organiational economics. !t $as been applie" to a "iverse

range o problems- rom $elping businesses become more proitable to $elping governments

stabilie in"ustries.8C >t$er 5orter strategic rame*or+s inclu"e t$e value c$ain an" t$e generic

strategies.

 +hreat of new entrants:

5roitable mar+ets t$at #iel" $ig$ returns *ill attract ne* irms. $is results in man# ne*

entrants- *$ic$ eventuall# *ill "ecrease proitabilit# or all irms in t$e in"ustr#. @nless t$e

entr# o ne* irms can be bloc+e" b# incumbents (*$ic$ in business reers to t$e largest

compan# in a certain in"ustr#- or instance- in telecommunications- t$e tra"itional p$one

compan#- t#picall# calle" t$e /incumbent operator/)- t$e abnormal proit rate *ill tren" to*ar"s

ero ( perect competition).

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$e ollo*ing actors can $ave an eect on $o* muc$ o a t$reat ne* entrants ma# pose4

 otential factors#

1. $e existence o barriers to entr# ( patents- rig$ts- etc.). $e most attractive segment is

one in *$ic$ entr# barriers are $ig$ an" exit barriers are lo*. 3e* ne* irms can enter 

an" nonperorming irms can exit easil#.

8. overnment polic#

:. apital re2uirements

. Absolute cost

'. ost "isa"vantages in"epen"ent o sie

. Economies o scale

F. Economies o pro"uct "ierences

G. 5ro"uct "ierentiation

H. Bran" e2uit#

10. S*itc$ing costs or sun+ costs

11. Expecte" retaliation

18. Access to "istribution

1:. ustomer lo#alt# to establis$e" bran"s

1. !n"ustr# proitabilit# (t$e more proitable t$e in"ustr# t$e more attractive it *ill be to

ne* competitors)

+hreat of su'stitute products or service:

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$e existence o pro"ucts outsi"e o t$e realm o t$e common pro"uct boun"aries increases

t$e propensit# o customers to s*itc$ to alternatives. 3or example- tap *ater mig$t be consi"ere"

a substitute or o+e- *$ereas 5epsi is a competitor,s similar pro"uct. !ncrease" mar+eting or 

"rin+ing tap *ater mig$t /s$rin+ t$e pie/ or bot$ o+e an" 5epsi- *$ereas increase" 5epsi

a"vertising *oul" li+el# /gro* t$e pie/ (increase consumption o all sot "rin+s)- albeit *$ile

giving 5epsi a larger slice at o+e,s expense. Anot$er example is t$e substitute o tra"itional

 p$one *it$ a smart p$one.

 otential factors#

1. Bu#er propensit# to substitute

8. &elative price perormance o substitute

:. Bu#er   s*itc$ing costs

. 5erceive" level o pro"uct "ierentiation

'. Number o substitute pro"ucts available in t$e mar+et

. Ease o substitution

F. Substan"ar" pro"uct

G. Iualit# "epreciation

H. Availabilit# o close substitute

argaining power of customers "'uyers#:

$e bargaining po*er o customers is also "escribe" as t$e mar+et o outputs4 t$e abilit# o 

customers to put t$e irm un"er pressure- *$ic$ also aects t$e customer,s sensitivit# to price

c$anges. 3irms can ta+e measures to re"uce bu#er po*er- suc$ as implementing a lo#alt#

 program. $e bu#er po*er is $ig$ i t$e bu#er $as man# alternatives. $e bu#er po*er is lo* i 

t$e# act in"epen"entl# e.g. ! a large number o customers *ill act *it$ eac$ ot$er an" as+ to

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ma+e prices lo* t$e compan# *ill $ave no ot$er c$oice because o large number o customers

 pressure.

 otential factors#

1. Bu#er concentration to irm concentration ratio

8. Degree o "epen"enc# upon existing c$annels o "istribution

:. Bargaining leverage- particularl# in in"ustries *it$ $ig$ ixe" costs

. Bu#er s*itc$ing costs relative to irm s*itc$ing costs

'. Bu#er inormation availabilit#

. 3orce "o*n prices

F. Availabilit# o existing substitute pro"ucts

G. Bu#er    price sensitivit#

H. Dierential a"vantage (uni2ueness) o in"ustr# pro"ucts

10. &3M (customer value) Anal#sis

11. $e total amount o tra"ing

argaining power of suppliers:

$e bargaining po*er o suppliers is also "escribe" as t$e mar+et o inputs. Suppliers o ra*

materials- components- labor- an" services (suc$ as expertise) to t$e irm can be a source o 

 po*er over t$e irm *$en t$ere are e* substitutes. ! #ou are ma+ing biscuits an" t$ere is onl#

one person *$o sells lour- #ou $ave no alternative but to bu# it rom t$em. Suppliers ma# reuse

to *or+ *it$ t$e irm or c$arge excessivel# $ig$ prices or uni2ue resources.

 otential factors#

1. Supplier s*itc$ing costs relative to irm s*itc$ing costs

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8. Degree o "ierentiation o inputs

:. !mpact o inputs on cost or "ierentiation

. 5resence o substitute inputs

'. Strengt$ o "istribution c$annel

. Supplier concentration to irm concentration ratio

F. Emplo#ee soli"arit# (e.g. labor unions)

G. Supplier competition4 t$e abilit# to or*ar" verticall# integrate an" cut out t$e bu#er.

/ntensity of competitive rivalry:

3or most in"ustries t$e intensit# o competitive rivalr# is t$e major "eterminant o t$e

competitiveness o t$e in"ustr#.

5otential actors4

1. Sustainable competitive a"vantage t$roug$ innovation

8. ompetition bet*een online an" oline companies

:. 6evel o a"vertising expense

. 5o*erul competitive strateg#

'. 3irm concentration ratio

. Degree o transparenc#

0sage

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Strategic consultants occasionall# use 5orter,s ive orces rame*or+  *$en ma+ing a 2ualitative

evaluation o a irm,s strategic position. =o*ever- or most consultants- t$e rame*or+ is onl# a

starting point or /c$ec+list./ $e# mig$t use value c$ain or anot$er t#pe o anal#sis in

conjunction.:C 6i+e all general rame*or+s- an anal#sis t$at uses it to t$e exclusion o speciics

about a particular situation is consi"ere" naive.

Accor"ing to 5orter- t$e ive orces mo"el s$oul" be use" at t$e lineobusiness in"ustr# level7 it

is not "esigne" to be use" at t$e in"ustr# group or in"ustr# sector level. An in"ustr# is "eine" at

a lo*er- more basic level4 a mar+et in *$ic$ similar or closel# relate" pro"ucts an"9or services

are sol" to bu#ers. (See in"ustr# inormation.) A irm t$at competes in a single in"ustr# s$oul"

"evelop- at a minimum- one ive orces anal#sis or its in"ustr#. 5orter ma+es clear t$at or 

"iversiie" companies- t$e irst un"amental issue in corporate strateg# is t$e selection o in"ustries (lines o business) in *$ic$ t$e compan# s$oul" compete7 an" eac$ line o business

s$oul" "evelop its o*n- in"ustr#speciic- ive orces anal#sis. $e average lobal 1-000

ompan# competes in approximatel# '8 in"ustries (lines o business).

riticisms

5orterJs rame*or+ $as been c$allenge" b# ot$er aca"emics an" strategists suc$ as Ste*art Neill.

Similarl#- t$e li+es o AB- %evin 5. o#ne an" Somu Subramaniam $ave state" t$at t$ree

"ubious assumptions un"erlie t$e ive orces4

1. $at bu#ers- competitors- an" suppliers are unrelate" an" "o not interact an" collu"e.

8. $at t$e source o value is structural a"vantage (creating barriers to entr#).

:. $at uncertaint# is lo*- allo*ing participants in a mar+et to plan or an" respon" to

competitive be$avior.

An important extension to 5orter *as oun" in t$e *or+ o A"am Bran"en burger an" Barr#

 Nalebu  o  ?ale Sc$ool o Management in t$e mi"1HH0s. @sing game t$eor#- t$e# a""e" t$e

concept o complementors (also calle" /t$e t$ orce/)- $elping to explain t$e reasoning be$in"

strategic alliances. omplementors are +no*n as t$e impact o relate" pro"ucts an" services

alrea"# in t$e mar+et. $e i"ea t$at complementors are t$e sixt$ orce $as oten been cre"ite"

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to An"re* rove-   ormer E> o !ntel orporation. Accor"ing to most reerences- t$e sixt$

orce is government or t$e public. Mart#n &ic$ar" Kones- *$ilst consulting at roup Bull-

"evelope" an augmente" ' orces mo"el in Scotlan" in 1HH:. !t is base" on 5orter,s mo"el an"

inclu"es overnment (national an" regional) as *ell as 5ressure roups as t$e notional t$

orce. $is mo"el *as t$e result o *or+ carrie" out as part o roupe Bull,s %no*le"ge Asset

Management >rganiation initiative.

5orter in"irectl# rebutte" t$e assertions o ot$er orces- b# reerring to innovation- government-

an" complementar# pro"ucts an" services as /actors/ t$at aect t$e ive orces.

!t is also per$aps not easible to evaluate t$e attractiveness o an in"ustr# in"epen"ent o t$e

resources a irm brings to t$at in"ustr#. !t is t$us argue" (ernerelt 1HG)   t$at t$is t$eor# be

couple" *it$ t$e &esourceBase" Lie* (&BL) in or"er or t$e irm to "evelop a muc$ more

soun" strateg#. !t provi"es a simple perspective or accessing an" anal#ing t$e competitive

strengt$ an" position o a corporation- business or organiation. 

"'# (trategic )anagement With *ong and (hort +erm ,'-ectives

Setting goals an" objectives or #our small business is important to ensure its gro*t$ an"

sustainabilit#. Deining goals an" putting toget$er a compre$ensive- emplo#eeocuse"

management strateg# represents an important part o strategic management. $is means

anal#ing t$e major initiatives t$at #our compan# ta+es an" putting translating initiatives into

reasonable an" *or+able goals.

)anagement 'y ,'-ectives

!n 1H'- lea"ers$ip an" management expert 5eter Druc+er intro"uce" t$e concept o 

/Management b# >bjectives-/ sometimes also calle" /Management b# &esults./ MB> is a

cooperative- business*i"e strateg# or setting goals an" implementing organiational c$ange.

!mportantl#- MB> compares progress to*ar" meeting goals *it$ t$e actual perormance o t$e

 business an" its emplo#ees. $e i"ea is t$at *$en emplo#ees are involve" in $elping to set t$eir 

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o*n goals an" t$ose o t$e business- t$e#,ll be more li+el# to meet t$e goals because a sense o 

 bu#in gets create".

(hort+erm ,'-ectives

S$ortterm objectives represent t$e goals an organiation sets t$at are centere" on tas+s t$at can

 be ac$ieve" *it$in t$e next six mont$s or- at t$e outset- *it$in one #ear. An example o a s$ort

term goal mig$t be to increase sales b# 10 percent. $is is an easil# measurable goal an"

emplo#ees can be $el" "irectl# accountable or ensuring t$at it is met.

*ong+erm ,'-ectives

6ongterm objectives "eine an# goal t$at $as a time rame excee"ing one #ear. Business goals

t$at are normall# consi"ere" long term inclu"e "eveloping a ne* pro"uct- gro*ing annual

revenue an" "eveloping a compre$ensive mar+eting an" public relations strateg#. !mportantl#-

longterm goals must not go on orever. $ile t$e# ta+e more time t$an s$ortterm objectives-

longterm goals must be realistic an" time boun".

(trategic )anagement

A business,s longterm an" s$ortterm goals can be put toget$er into a compre$ensive strategic

management plan or t$e compan#. $e concept o strategic management sa#s t$at goals s$oul"

conorm to t$e organiation,s mission an" vision statements an" t$at goals oug$t to relect t$e

"irection t$e business o*ner an" general managers *is$ to ta+e t$e compan#. Essentiall#- goals

t$at are superluous or *$ic$ "etract rom t$e compan#,s mission s$oul" pla# secon" i""le to

more serious an" beneicial objectives.

"c# Diversification (trategy

Diversiication is a corporate strateg# to enter into a ne* mar+et or in"ustr# *$ic$ t$e business

is not currentl# in- *$ilst also creating a ne* pro"uct or t$at ne* mar+et. $is is most ris+#

section o t$e Anso Matrix- as t$e business $as no experience in t$e ne* mar+et an" "oes not+no* i t$e pro"uct is going to be successul.

Diversiication is part o t$e our main gro*t$ strategies "eine" b# !gor Anso,s

5ro"uct9Mar+et matrix4

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Anso pointe" out t$at a "iversiication strateg# stan"s apart rom t$e ot$er t$ree strategies. $e

irst t$ree strategies are usuall# pursue" *it$ t$e same tec$nical- inancial- an" merc$an"ising

resources use" or t$e original pro"uct line- *$ereas "iversiication usuall# re2uires a compan#

to ac2uire ne* s+ills- ne* tec$ni2ues an" ne* acilities.

 Note4 $e notion o "iversiication "epen"s on t$e subjective interpretation o ne* mar+et an"

ne* pro"uct- *$ic$ s$oul" relect t$e perceptions o customers rat$er t$an managers. !n"ee"-

 pro"ucts ten" to create or stimulate ne* mar+ets7 ne* mar+ets promote pro"uct innovation.

5ro"uct "iversiication involves a""ition o ne* pro"ucts to existing pro"ucts eit$er beingmanuacture" or being mar+ete". Expansion o t$e existing pro"uct line *it$ relate" pro"ucts is

one suc$ met$o" a"opte" b# man# businesses. A""ing toot$ brus$es to toot$ paste or toot$

 po*"ers or mout$*as$ un"er t$e same bran" or un"er "ierent bran"s aime" at "ierent

segments is one *a# o "iversiication. $ese are eit$er bran" extensions or pro"uct extensions

to increase t$e volume o sales an" t$e number o customers.

+ypes of diversification strategies:

$e strategies o "iversiication can inclu"e internal "evelopment o ne* pro"ucts or mar+ets-

ac2uisition o a irm- alliance *it$ a complementar# compan#- licensing o ne* tec$nologies-

an" "istributing or importing a pro"ucts line manuacture" b# anot$er irm. enerall#- t$e inal

strateg# involves a combination o t$ese options. $is combination is "etermine" in unction o 

available opportunities an" consistenc# *it$ t$e objectives an" t$e resources o t$e compan#.

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$here are three types of diversification# concentric, horizontal, and conglomerate%

&oncentric diversification

$is means t$at t$ere is a tec$nological similarit# bet*een t$e in"ustries- *$ic$ means t$at t$e

irm is able to leverage its tec$nical +no*$o* to gain some a"vantage. 3or example- a compan#

t$at manuactures in"ustrial a"$esives mig$t "eci"e to "iversi# into a"$esives to be sol" via

retailers. $e tec$nolog# *oul" be t$e same but t$e mar+eting eort *oul" nee" to c$ange.

!t also seems to increase its mar+et s$are to launc$ a ne* pro"uct t$at $elps t$e particular 

compan# to earn proit. 3or instance- t$e a""ition o tomato +etc$up an" sauce to t$e existing

/Maggi/ bran" processe" items o 3oo" Specialities 6t". is an example o tec$nologicalrelate"

concentric "iversiication.

$e compan# coul" see+ ne* pro"ucts t$at $ave tec$nological or mar+eting s#nergies *it$

existing pro"uct lines appealing to a ne* group o customers.$is also $elps t$e compan# to tap

t$at part o t$e mar+et *$ic$ remains untappe"- an" *$ic$ presents an opportunit# to earn proit.

 orizontal diversification

$e compan# a""s ne* pro"ucts or services t$at are oten tec$nologicall# or commerciall#

unrelate" to current pro"ucts but t$at ma# appeal to current customers. $is strateg# ten"s to

increase t$e irm,s "epen"ence on certain mar+et segments. 3or example- a compan# t$at *as

ma+ing noteboo+s earlier ma# also enter t$e pen mar+et *it$ its ne* pro"uct.

$en is =oriontal "iversiication "esirable<

=oriontal "iversiication is "esirable i t$e present customers are lo#al to t$e current pro"ucts

an" i t$e ne* pro"ucts $ave a goo" 2ualit# an" are *ell promote" an" price". Moreover- t$e

ne* pro"ucts are mar+ete" to t$e same economic environment as t$e existing pro"ucts- *$ic$

ma# lea" to rigi"it# or instabilit#.

=oriontal integration occurs *$en a irm enters a ne* business (eit$er relate" or unrelate") att$e same stage o pro"uction as its current operations. 3or example- Avon,s move to mar+et

 je*elr# t$roug$ its "oorto"oor sales orce involve" mar+eting ne* pro"ucts t$roug$ existing

c$annels o "istribution. An alternative orm o t$at Avon $as also un"erta+en is selling its

 pro"ucts b# mail or"er (e.g.- clot$ing- plastic pro"ucts) an" t$roug$ retail stores (e.g.-ian#,s).

!n bot$ cases- Avon is still at t$e retail stage o t$e pro"uction process.

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&onglomerate diversification or lateral diversification(

$e compan# mar+ets ne* pro"ucts or services t$at $ave no tec$nological or commercial

s#nergies *it$ current pro"ucts but t$at ma# appeal to ne* groups o customers. $e

conglomerate "iversiication $as ver# little relations$ip *it$ t$e irm,s current business.

$ereore- t$e main reasons or a"opting suc$ a strateg# are irst to improve t$e proitabilit# an"

t$e lexibilit# o t$e compan#- an" secon" to get a better reception in capital mar+ets as t$e

compan# gets bigger. $oug$ t$is strateg# is ver# ris+#- it coul" also- i successul- provi"e

increase" gro*t$ an" proitabilit#.

3oals of diversification

Accor"ing to alori an" =arvatopoulos (1HGG)- t$ere are t*o "imensions o rationale or 

"iversiication. $e irst one relates to t$e nature o t$e strategic objective4 Diversiication ma#

 be "eensive or oensive.

Deensive reasons ma# be sprea"ing t$e ris+ o mar+et contraction- or being orce" to "iversi#

*$en current pro"uct or current mar+et orientation seems to provi"e no urt$er opportunities or 

gro*t$. >ensive reasons ma# be con2uering ne* positions- ta+ing opportunities t$at promise

greater proitabilit# t$an expansion opportunities- or using retaine" cas$ t$at excee"s total

expansion nee"s.

$e secon" "imension involves t$e expecte" outcomes o "iversiication4 Management ma#

expect great economic value (gro*t$- proitabilit#) or irst an" oremost great co$erence *it$

t$eir current activities (exploitation o +no*$o*- more eicient use o available resources an"

capacities). !n a""ition- companies ma# also explore "iversiication just to get a valuable

comparison bet*een t$is strateg# an" expansion.

Q.4: 5xplain why strategy implementation is more difficult than strategy

formulation?

 

!t $as been oun" t$at companies ormulate strateg# ver# easil# but *$en it comes to

implementation o t$e strateg#- t$e# ace man# problems. $ere is big gap bet*een t$e strateg#

ormulation an" strateg# implementation. $e strateg# or t$e compan# is ormulate" b# t$e

management. $ere are $ar"l# 101' people *$o ormulate t$e strateg# or t$e compan#. >n t$e

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ot$er $an"- implementation o t$e strateg# is carrie" out b# ot$er set o people- *$ic$ *ere never 

consulte" b# t$e management *$ile ormulation o t$e compan# strateg#. Man# emplo#ees o 

t$e compan# resist c$anging. $e# $ar"l# too+ an# eects to implement t$e strateg#. A""ition to

t$is- management is una*are o t$e groun" realties o t$e mar+et. As a result t$e# "i" not

consi"er t$e obstacles- *$ic$ implementation team mig$t ace *$ile implementing t$e compan#

strateg#.All c$osen strategies- regar"less o t$e resulting positioning o t$e compan#- ten" to be

conceptual in nature an" associate" *it$ a mission an" vision t$at ma# be onl# un"erstoo" at a

$ig$ level.

Alt$oug$ it is a goo" t$ing or a

compan# to $ave a ocus an" a general "irection- t$e toplevel strateg# is

usuall# not suicient or ran+ an" ile emplo#ees in terms o provi"ing "irection

or t$eir "a#to"a# *or+. 3or t$is reason- eective execution o strateg# involves

t$e brea+ing "o*n o t$e toplevel strateg# into tangible *or+. 3or a large

compan# t$is can be rat$er "aunting. 3or example- imagine t$at #ou are a E>

o a compan# t$at emplo#s t$ousan"s o people. Since a compan# is onl#

 proitable *$en it is "oing *or+ t$at a"vances its strateg#- eac$ emplo#ee must

 be a"vancing t$e strateg# o t$e compan# ever# $our o ever# "a# b# "oing onl#

t$ose t$ings *$ic$ contribute to pro"ucts an" services t$at customers value an"

are *illing to pa# or. =o* is t$is "one< $e process starts *it$ critical success

actors.

ritical success actors spell out important strategic elements t$at must be in

 place in or"er or a compan# to ac$ieve its strateg#. 3or example- i t$e

compan# inten"s to compete using a $ig$en" pro"uct line- t$en a critical

success actor ma# be mar+eting a line o ulleature" pro"uct line *it$in t$e

next 1G mont$s. ! mar+eting suc$ a pro"uct line is critical or t$e success an"

 proitabilit# o t$e compan#- t$en it is correct to i"enti# t$is as a critical success

actor. Alt$oug$ t$is "oes brea+ "o*n a toplevel strateg# into a greater level o 

"etail- it is still not suicientl# elaborate" or an organiation to ta+e action. !t is

or t$is reason t$at objectives are so important. A critical success actor suc$ as

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mar+eting a ulleature" pro"uct line ma# involve a number o more "etaile"

objectives suc$ as creating an initial pro"uct "esign concept- or "eveloping a

 business plan- or inall#- increasing t$e researc$ an" "evelopment team b# 10O.

Are t$ese objectives signiicantl# "etaile" to allo* or action< ?ou coul" argue

t$at #et more "etail is nee"e"- an" it is or t$is reason t$at un"erneat$ t$e level

o objectives is more speciic "irection in t$e orm o critical business activities.

$ese are actions t$at a compan# must ta+e in or"er to ac$ieve its objectives.

As an example- i increasing t$e researc$ an" "evelopment team b# 10O is an

objective- t$en a critical business activit# associate" *it$ t$is objective *oul" be

to place a series o recruiting a"s in t$e top t$ree target mar+ets.

(trategy 6s a (eries of $ro-ects

@ltimatel#- all strategies ma# be bro+en "o*n to t$e point t$at in"ivi"uals can

actuall# "o somet$ing t$at contributes to t$e compan# strateg#. !t is at t$is

lo*est level t$at project management practices support t$e management o t$e

implementation o strategic initiatives. 5roject management processes spell out

$o* to ta+e ver# large pieces o *or+- an" brea+ t$em "o*n into units t$at one

 person- or a small team o people- can complete *it$in a timerame o about t*o

*ee+s. $e "etaile" "ecomposition o t$e top level *or+ is reerre" to as t$e

or+ Brea+"o*n Structure. $e smallest actionable unit o *or+ is reerre" to as

t$e *or+ pac+age. As #ou can see- a E> is able to gui"e a compan# in t$e

 pursuit o its strateg# b# successivel# brea+ing "o*n a top level strateg# into

critical success actors- objectives- critical business activities- an" inall# *or+ 

 pac+ages t$at emplo#ees can actuall# complete. !t is- in eect- a $ierarc$# o 

strategic implementation.

 olicies

Strategic objectives outline *$at t$e compan# $as to in or"er to ac$ieve

strategic success. =o*ever- suc$ objectives "onJt explicitl# state $o* t$ings

s$oul" be "one- or t$e basic approac$ t$e compan# *ill ta+e in its execution o 

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objectives. 5olices provi"e gui"ance in t$is area an" t$is is t#picall# $o*

companies use policies. Some companies- especiall# tra"itional manuacturing

companies- use an annual polic# s#stem as a means or carr#ing out strateg#.

$e polic# or t$e #ear becomes t$e strategic activities o ocus- to t$e exclusion

o ot$ers. Some companies use t$e annual polic# process as a means or rolling

out not onl# strateg#- but t$e annual business plan o t$e compan#.

&onflict 

!t is one t$ing to ormulate a strateg#- an" $ave a rame*or+ or its execution. !t

is 2uite anot$er to get all emplo#ees to support t$e state" strateg#. Emplo#ees

*$o $ave been *it$ a compan# or man# #ears- or example- ma# see+ to *or+ 

against a strateg# t$at brea+s *it$ t$e past in or"er to tr# somet$ing ne*.

6i+e*ise- ne* emplo#ees ma# see t$e compan# as living in t$e past an" ma#

 pus$ or a ne* approac$.

$ese are but t*o simple examples o a m#ria" o possible reasons or conlict

to exist in t$e "evelopment an" execution o strateg#. &egar"less o t$e source

o t$e conlict- it is essential to recognie t$at conlict *ill al*a#s exist among

an# *$o $ave an interest in t$e strategic "irection o t$e compan#. $is means

t$at it is not onl# emplo#ees t$at ma# $ave conlictPcustomers- investors- an"

even competitors- or an# sta+e$ol"ers (ie t$ose *$o $ave an interest in t$e

compan#) ma# $ave a role to pla#. $is iners t$at t$e E> must t$in+ about

conlict in t$e context o strateg#- an" consi"er $o* to "eal *it$ it.

 )ewards and &ulture

$en t$e sta+e$ol"ers o t$e compan# are progressing to*ar" t$e strategic

goals- t$e compan# is sai" to be in a state o strategic alignment. $is is not

eas# to ac$ieve- but re*ar"s an" culture go a long *a# to*ar" aligning t$e

eorts o emplo#ees. &e*ar"s incentivie *or+ t$at progresses to*ar" strategic

goals- an" are not available to t$ose *$o *or+ against t$e compan# strateg#.

3urt$er- $aving an environment con"ucive to strategic success is reall# *$at

successul culture is all about. Motivate" an" incentivie" sta+e$ol"ers can be

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contagious- an" as a result- success $as a *a# o sprea"ing t$roug$ t$e

compan#Pleaving strategic alignment in its *a+e;

+echni7ues of (trategy 5valuation

 !nternal Forces

Strateg# evaluation s$oul" begin *it$ an examination o t$e internal orces t$at *ill inluence

#ou compan#,s abilit# to ollo* t$e strategic plan. ?our evaluation s$oul" consi"er t$e value o 

compan# resources suc$ as inancial assets- proprietar# inormation an" t$e people *$o are

available to gui"e t$e compan# to meet its goals. $is evaluation *ill $elp #ou un"erstan" $o*

t$ese assets can be "evelope" to expan" t$e compan#,s capabilities. All o t$ese internal orces

combine" are *$at set #our compan# apart rom #our competitors.

 *xternal Forces

$e next tec$ni2ue or strateg# evaluation is to consi"er t$e external orces t$at *ill inluence

#our compan#,s abilit# to complete its mission. $e primar# external orce #our compan# must

ace are #ou customers. ustomers purc$asing t$e pro"ucts an" services #our compan# pro"uces

*ill "etermine t$e success o #our compan#. !s #our compan# meeting t$e expectations o #our 

customer base< Along *it$ t$e consi"eration o #our customers- #ou must evaluate t$e strengt$s

an" *ea+nesses o #our competitors. Do #our competitors $ave "ierentiating capabilities t$at*ill pull #our customers a*a#<

 +easuring erformance

$e Evaluation process *ill $elp #ou "etermine i t$e strateg# #ou $ave "evelope" is lea"ing t$e

compan# to meet its mission an" goals. Begin t$is evaluation tec$ni2ue b# evaluating i t$e

results t$at $ave been realie" t$roug$ compan# operations $ave been successul. Evaluate i t$e

sales orce $as been successul in meeting all o t$e sales goals. ! #ou $ave a manuacturing

acilit#- are pro"uction targets being met< Also evaluate i #our compan# $as been able to garner 

a greater s$are o t$e mar+et.

&orrecting erformance

Ater #our evaluation $as consi"ere" all o t$e compan#,s $istorical perormance "ata- t$e next

step is "etermine *$at corrective measures s$oul" be ta+en to insure compan# operations are

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correctl# aligne" *it$ t$e strategic plan. Man# times ma+ing corrections to strategic operations

*ill orce c$anges t$at *ill cause objections- #et c$ange is an essential element o t$e controlling

 process. ?ou must ensure t$e compan# *ill be able to meet all o its s$ort an" long term strategic

goals. A"justing strategic operations is an essential tec$ni2ue o strateg# evaluation.

+H5 58D