Strategic Management

Semester III
UNIT – III STRATEGIES
The Generic Strategic Alternatives – Stability – Expansion – Retrenchment and
Combination Strategies – Business Level Strategy – Strategy in the Global
Environment – Corporate Strategy – Vertical Integration – Diversification and
Strategic Alliances – Building and Restructuring the Corporation – Strategic Analysis
and Choice – Environmental Threat and Opportunity Profile (ETOP) –
Organizational Capability Profile – Strategic Advantage Profile – Corporate
Portfolio Analysis – SWOT – GAP Analysis – McKinsey’s 7s Framework – GE 9 Cell
Model – Distinctive Competitiveness – Selection of Matrix – Balance Score Card

THE GENERIC STRATEGIC ALTERNATIVES: STABILITY, EXPANSION,

RETRENCHMENT AND COMBINATION STRATEGIES
Corporate strategy helps to exercise the choice of direction that an organization adopts.
There could be a small business firm involved in a single business or a large, complex
and diversified conglomerate with several different businesses. The corporate strategy
in both these cases would be about the basic direction of the firm as a whole.

Corporate-level strategies are basically about the choice of direction that a firm adopts
in order to achieve its objectives. There could be a small business firm involved in a
single business, or a large, complex and diversified conglomerate with several
different businesses.

According to Gluek, there are four strategic alternatives:

1. Expansion strategies
2. Stability strategies
3. Retrenchment Strategies
4. Combination strategies

1. Expansion strategies: The corporate strategy of expansion is followed when an

organization aims at high growth by substantially broadening the scope of one or more
of its businesses in terms of their respective customer groups, customer functions and
alternative technologies singly or jointly in order to improve its overall performance.

2. Stability strategies: The corporate strategy of stability is adopted by an organization

when it attempts an incremental improvement of its performance by marginally
changing one or more of its businesses in terms of their respective customer groups,
customer functions and alternative technologies respectively.

3. Retrenchment strategies: The corporate strategy of retrenchment is followed when an

organization aims at contraction of its activities through a substantial reduction or
elimination of the scope of one or more of its businesses in terms of their respective
customer groups, customer functions or alternative technologies either singly or jointly
in order to improve its overall performance.

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4. Combination strategies: The combination strategy is followed when an organization

adopts a mixture of stability, expansion and retrenchment strategies either at the same
time in its different businesses or at different times in one of its businesses with the aim
of improving its performance.

Major Reasons for Adopting Different Grand Strategies

The corporate strategy in both these cases is about the basic direction of the firm as a
whole. In the case of small firm it could mean the adoption of courses of action that
would yield a better profit for the firm. In the case of large firm the corporate-level
strategy is also about managing the various businesses to maximize their contribution
to the overall corporate objectives.

 Stability strategy is adopted because:

 It is less risky, involves fewer changes and people feel comfortable.
 The environment faced is relatively stable.
 Expansion may be perceived as being threatening.
 Consolidation is sought through stabilizing after a period of rapid
expansion.
 Expansion strategy is adopted because:
 It may become imperative when environment demands increase in pace of
activity.
 Psychologically, strategists may feel more satisfied with the prospectus of
growth from expansion.
 Increasing size may lead to more control over the market vis-à-vis
competitors.
 Advantage from the experience curve and scale of operations may accrue.
 Retrenchment strategy is adopted because:
 The management no longer wishes to remain the business either partly or
wholly due to continuous losses.
 The environment faced is threatening
 Stability can be ensured by reallocation of resources from unprofitable to
profitabile businesses.
 Combination strategy is adopted because:
 The organization is large and faces a complex environment.
 The organization is composed of different business, each of which lies in a
different industry requiring a different response.

BUSINESS LEVEL STRATEGY

A company selects and pursues a business model that will allow it to complete
effectively in an industry and grows its profits and profitability. A successful business
model results from business level strategies that create a competitive advantage over
rivals and achieve superior performance in an industry.

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Here we examine that competitive decisions involved in creating a business model that
will attract and retain customers and continue to do so over time so that a company
enjoys growing profits and profitability.

To create a successful business model, strategic managers must:

 Formulate business- level strategies that will allow a company to attract
customers away from other companies in the industry.
 Implement those business level strategies which also involve the use of
functional level strategies to increase responsiveness to customers, efficiency,
innovation and quality.

Positioning and the Business model:

a. To create a successful business model, managers must choose a set of business-
level strategies that work together to give a company competitive advantage
over its rivals
b. To craft a successful model a company must first define its business, which
entails decisions about
c. Customer needs or what is to be satisfied?
d. Customer groups or what is to be satisfied?
e. Distinctive competencies or how customer needs are to be satisfied?

The decision managers make about these three issues deter mine which set of strategies
they formulate and implement to put a company s business model into action and
create value for customers.

Formulating the Business model: Customer needs and product Differentiation

Customer needs are desires, wants that can be satisfies by means of the attributes or
characteristics of a product a good or service. For Example: A person s craving for
something sweet can be satisfied by chocolates, ice-cream, spoonful of sugar.

Factors determine which products a customer chooses to satisfy these needs:

1. The way a product is differentiated from other products of its type so that it
appeals to customers.
2. The price of the product
3. All companies must differentiate their products to a certain degree to attract
customer
4. Some companies however decide to offer customers low price products and do
not engage in much product differentiation
5. Companies that seek to create something unique about their product
differentiation, their products to a much greater degree that other’s so that they
satisfy customers’ needs in ways other products cannot.

• Product differentiation
• Customer groups
• Identifying customer groups and market segments

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Three Approaches to Market Segmentation:

1. No Market segmentation: First a company might choose not to recognize that
different market segments exist and make a product targeted at the average or
typical customer. In this case customer responsiveness is at a minimum and the
focus is on price, not differentiation.
2. High Market segmentation: Second a company can choose to recognize the
differences between customer groups and make a product targeted toward most
or all of the different market segments. In this case customer responsiveness is
high and products are being customized to meet the specific needs of customers
in each group, so the emphasis is on differentiation not price.
3. Focused Market segmentation: A company might choose to target just one or two
market segments and decide its resources to developing products for customers
in just these segments. In this case, it may be highly responsive to the needs of
customers in only these segments, or it may offer a bar e-bones product to
undercut the prices charged by companies who do focus on differentiation.

STRATEGY IN THE GLOBAL ENVIRONMENT

In international business operations business enterprises pursue global expansion to
support generic business level strategies such as cost leadership and differentiation.
Companies expand their operations globally in order to increase their profitability.
They perform the following activities towards this end.
o Transferring their distinctive competencies
o Dispersing various value creation activities to favorable locations
o Exploiting experience curve effects.

Global Strategies:
• International Strategy
• Multi- domestic strategy
• Global Strategy
• Transnational Strategy

Entry Mode: Global companies have five options to enter into a foreign market
1. Exporting
2. Licensing
3. Franchising
4. Subsidiary
5. Joint venture

Global Strategic Alliance:

A strategic alliance is a cooperative agreement between companies who are competitor
s from different companies. It may take the form of formal joint venture or short-term
contractual agreement with equity participation or issue-based participation.

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 To gain access to foreign market

 To reduce financial risk
 To bring complementary skills
 To reduce political risks
 To achieve competitive advantage
 To set technological standards

CORPORATE STRATEGY
Corporate-level strategies are basically about the choice of direction that a firm adopts
in order to achieve its objectives. There could be a small business firm involved in a
single business, or a large, complex and diversified conglomerate with several
different businesses. The corporate strategy in both these cases is about the basic
direction of the firm as a whole. In the case of small firm it could mean the adoption
of courses of action that would yield a better profit for the firm. In the case of large
firm the corporate-level strategy is also about managing the various businesses to
maximize their contribution to the overall corporate objectives.

The complexity of large firms arises from the fact that each of its businesses defined
along these three dimensions, will result in a variety of customer groups, customer
functions and alternative technologies that a firm is involved with. It is therefore
common to find multi-business firms with interests in serving a diverse base of
customer groups, performing a variety of customer functions for them and making use
of range of several different technologies.

Corporate-level strategies are basically about decisions related to allocating resources

among the different businesses of a firm, transferring resources from one set of
business to others and managing and nurturing a portfolio of businesses in such a way
that the overall corporate objectives are achieved. An analysis based on business
definition provides a set of strategic alternatives that an organization can consider.

VERTICAL INTEGRATION
Vertical integration benefits by protecting product quality enabling a company to be a
differentiated player. The example of McDonald is worth mentioning. When it
expanded its operations to Russia, it set up its own dairy farms, cattle farms, vegetable
cultivation and food processing plants in Soviet Union, since Russian gown potatoes
and meat was of poor quality.

Vertical growth occurs when one function previously carried over by a supplier or a
distributor is being taken over by the company in order to reduce costs, to maintain
quality of input and to gain control over scare resources. Vertical integration means
the degree to which a firm operates vertically in multiple locations on an industry’s
value chain from extracting raw materials to manufacturing and retailing. Vertical
integration may be either backward or forward integration.

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Backward integration refers to performing a function previously provided by a

supplier. Forward integration means performing a function previously provided by a
retailer. This is done to reduce costs, gain control over scarce resource, guarantee
quality of a key input and obtain access to potential customers. Forward integration
involves a firm’s acquisition of one or more of its buyers.

Backward integration involves moving into intermediate manufacturing and raw

material production and forward integration means movement into distribution. A
textile mill, which opens its own retail show room, is an example of forward
integration. When the textile mill starts it’s ginning and spinning mill, it is an example
of backward integration. At each stage in the chain, value is added to the product.

Advantages of Vertical Integration

 It helps company to exercise control over critical sources of supply.
 It limits competition in the concerned industry, thereby enables the company to
charge a high price for and make greater profits than before.
 It helps to make investments in specialized assets.
 The specialized assets are designed to perform a specific task, which will
reduce the cost of value creation.

Disadvantages of Vertical Integration

 Cost disadvantages sometimes occur when the firm is committed to purchase
from company owned sources when low cost external sources of supply are
available.
 Vertical integration proves to be a disadvantage when technology is changing
fast and the firm is ties to obsolete technology.
 Vertical integration proves to be a risky business if unstable or unpredictable
demand conditions prevail.

DIVERSIFICATION AND STRATEGIC ALLIANCES

Diversification is considered to be a complex one because it involves a simultaneous
departure from current business, familiar products and familiar markets.
Diversification makes addition to the portfolio of businesses. Firms choose
diversification when the growth objectives are very high and it could not be achieved
within the existing product/market scope. Firms consider diversification as a long-
term solution to the vulnerability inherent in a single, limited number of business
propositions.

Usually, firms with one business find themselves vulnerable under changing
environmental conditions. If the firm wants to counteract vulnerability, it opts for
diversification. The main attraction for diversification arises from new and fresh
opportunities, which hold promise of high profitability.

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With diversification, firms are committed to risks associated with unfamiliar business
and it requires meticulous preparations. It is a resource intensive strategy and requires
managerial competence to make it success. The chosen industry should be attractive.
The cost of entry barrier should be reasonable.

Expansion through Diversification: Diversification is a much-used and much-talked

about set of strategies. These strategies involve all the dimensions of strategic
alternatives. Diversification may involve internal or external, related or unrelated,
horizontal or vertical and active or passive dimensions.
• Concentric Diversification
• Conglomerate Diversification
• Expansion through Cooperation

The classic examples are:

 ITC – Tobacco, paper, etc.
 Essar Group – Shipping, marine construction, oil support services and iron and
steel
 Polar Group – Fans, marbles and granite
 TTK Group – Pressure cookers, chemicals, pharmaceuticals, hosiery

• Diversification strategies are adopted to minimize risk by spreading it over

several businesses.
• Diversification may be used to capitalize on organizational strength or
minimize weakness.
• Diversification may be the only way out if growth in existing businesses is
blocked due to environmental and regulatory factors.

The cooperation for the purpose of expansion could take place in various ways:
1. Mergers
2. Takeovers (or acquisition)
3. Joint ventures
4. Strategic alliance

STRATEGIC ALLIANCE
Strategic alliance means agreements between two or more companies to share the
costs, risks and benefits associated with development of new business opportunities.
Strategic alliance involves long-term cooperative relationship between two entities. It
differs from joint venture in that no joint stock holding is involved. No new entity is
formed as a result of alliance and only working arrangements on specific issues are
drawn out. The partners operate as individual companies. They are covered by certain
agreements in order to serve common purpose.

The alliance may be formed be formed between firms of the same industry or
members of different industries. The type of benefit expected by the partners mainly

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decides such alliances. The agreement may take the form of marketing alliance,
advertising alliances, R&D technology alliances and production sharing alliances are
common in India. Hotel chains enter into agreement with Airlines and Credit Card
Companies for making a better impact on customers and produce synergy.

Types of Strategic Alliances:

• Joint Venture
• Equity Strategic Alliance
• Non-equity Strategic Alliance
• Global Strategic Alliance

Stages of Alliance operation:

 Strategy Development
 Partner Assessment
 Contract Negotiation
 Alliance Operation
 Alliance Termination

Advantages of Strategic Alliance:

Allowing each partner to concentrate on activities that best match their capabilities.
Learning from partners developing competences that may be more widely exploited
elsewhere. Adequacy a suitability of the resources competencies of an organization for
it to survive

Disadvantages of strategic Alliance:

 Alliances are costly
 Alliances can create indirect costs by blocking the possibility of cooperating
with competing companies, thus possibly even denying the company various
financing options.
 Joint ventures also expose the company to its partners and the unique
technologies that it has are sometimes revealed to its partner company.

Japanese auto companies have entered into long-term agreement with their component
parts suppliers. This process involves the suppliers making substantial investments in
specialized assets in order to serve the auto components on Just-in-Time-Inventory
(JIT) basis. Companies which make investment in specialized assets usually, demand
a ‘hostage’ from a partner. Thus both partners are mutually dependant and each
company holds a hostage that can be used a insurance against the other company’s
unilateral actions.

BUILDING AND RESTRUCTURING THE CORPORATION

There are various methods for the firms to enter into a new business and restructure the
existing one.
Firms use following methods for building:

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 Start-up route: In this route, the business is started from the scratch by
building facilities, purchasing equipment, recruiting employees, opening up
distribution outlet and so on.
 Acquisition: Acquisition involves purchasing an established company, complete
with all facilities, equipment and personnel.
 Joint Venture: Joint venture involves starting a new venture with the help
of a partner.
 Merger: Merger involves fusion of two or more companies into one company.
 Takeover: A company which is in financial distress can undergo the
process of takeover. A takeover can be voluntary when the company requests
another company to take over the assets and liabilities and save it from
becoming bankrupt.

RE-STRUCTURING
Re- structuring involves strategies for reducing the scope of the firm by exiting from
unprofitable business. Restructuring is a popular strategy during post liberalization era
where diversified organizations divested to concentrate on core business.

Re-structuring Strategies:
 Retrenchment: Retrenchment strategies are adopted when the firm’s
performance is poor and its competitive position is weak.
 Divestment Strategy: Divestment strategy requires dropping of some of the
businesses or part of the business of the firm, which arises from conscious
corporate judgment in order to reverse a negative trend.
 Spin-off: Selling of a business unit to independent investors is known as spin-
off. It is the best way to recover the initial investment as much as possible. The
highest bidder gets the divested unit.
 Management Buyout: selling off the divested unit to its management is known as
management buyout.
 Harvest Strategy: A harvest strategy involves halting investment in a unit in
order to maximize short- to- medium term cash flow from that unit before
liquidating it.
 Liquidation: Liquidation is considered to be an unattractive strategy because the
industry is unattractive and the firm is in a weak competitive position. It is
pursued as a last step because the employees lose jobs and it is considered to be
a sign of failure of the top management.

STRATEGIC ANALYSIS AND CHOICE

Meaning of strategic choice: Choice of a strategy involves an understanding of choice
mechanism and issues involved in it.

Definition:
Gleuek has defined strategic choice as the process of selecting the best strategy out of
all available strategies.

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Steps in Strategic Choice:

a) Focusing on strategic alternatives
b) Evaluating strategic alternatives
c) Considering Decision factors
d) Choice of strategy

Factors are grouped into two categories:

Environmental factors: It includes volatility of environment, input supply from
environment and powerful stakeholders.
Organizational factors: It includes organization s mission, the strategic intent, its
business definition and its strengths and weaknesses.

Subjective Factors:
Various subjective factors may be classified as:
 Organization’s past strategies
 Personal factors
 Attitude to risks
 Internal political consideration
 Pressure from stakeholders

Process of Strategic choice:

Strategic choice involves evaluation of the pros and cons of each strategic alternative
and selection of the best alternative. Three techniques are used in the process of
selection of a strategy.
a) Devil’s Advocate
b) Dialectical Enquiry
c) Strategic shadow Committee

Devil s Advocate in strategic decision making is responsible for identifying the

following potential things:
 Pitfalls and problems in a proposed strategic alternative by making a formal
presentation
 Dialectical inquiry involves making two proposals with contrasting assumptions
for each strategic alternative. The merits and demerits of the proposal will be
argued by advocates before the key decision makers. Finally one alternative will
emerge viable for implementation.
 A strategic shadow committee consists of members drawn below executive
level. They serve the committee for two years. They inspect all materials and
attend all meetings of executive strategy. The members generate views
regarding constraints faced by management. Their report is submitted to Board
of Directors.

Environmental Threat and Opportunity Profile (ETOP)

Meaning of Environmental Scanning: Environmental scanning can be defined as the
process by which organizations monitor their relevant environment to identify
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opportunities and threats affecting their business for the purpose of taking strategic
decisions.

Appraising the Environment: In order to draw a clear picture of what opportunities and
threats are faced by the organization at a given time. It is necessary to appraise the
environment. This is done by being aware of the factors that affect environmental
appraisal identifying the environmental factors and structuring the results of this
environmental appraisal.

Structuring Environmental Appraisal: The identification of environmental issues is

helpful in structuring the environmental appraisal so that the strategists have a good
idea of where the environmental opportunities and threats lie.

There are many techniques to structure the environmental appraisal. One such
technique suggested by Gluek is that preparing an ETOP for an organization. The
preparation of an ETOP involves dividing the environment into different sectors and
then analyzing the impact of each sector on the organization.

Environment threat and opportunity profile (ETOP) for a bicycle company

S.No Environmental Nature of Impact of each sector

sector Impact
1 Economic Up Arrow Growing affluence among urban
consumers rising disposable incomes
and living standards
2 Market Horizontal Organized sector a virtual oligopoly
Arrow with four major manufacturers, buyers
critical and better informed overall
industry growth rate not encouraging
unsaturated demand traditional
distribution system

3 International Down Arrow Global imports growing but India’s

share shrinking. Major importers are
the US and EU but India exports
mainly to Africa

 Up Arrow indicates Favorable Impact

 Down Arrow indicates unfavorable Impact
 Horizontal Arrow indicates Neutral Impact

The preparation of an ETOP provides a clear picture to the strategists about which
sectors and the different factors in each sector have a favorable impact on the
organization. By the means of an ETOP, the organization knows where it stands with
respect to its environment. Obviously, such an understanding can be of a great help to

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an organization in formulating appropriate strategies to take advantage of the

opportunities and counter the threats in its environment.

ORGANIZATIONAL CAPABILITY PROFILE

Meaning of Organizational Appraisal: The purpose of organizational appraisal is to
determine the organizational capability in terms of strengths and weaknesses that lie in
different functional areas. This is necessary since the strengths and weaknesses have to
be matched with the environmental opportunities and threats for strategy formulation
to take place.

Organizational Capability Profile (OCP): The organizational capability profile is drawn

in the form of a chart. The strategists are required to systematically assess the various
functional areas and subjectively assign values to the different functional capability
factors and sub factors along a scale ranging from values of -5 to +5

Summarized form of OCP

Capability Factors Weakness Normal Strength
Financial Capability -5 0 +5
Factors:
Sources of funds
Usage of funds
Management of fund

STRATEGIC ADVANTAGE PROFILE

A SAP can also be prepared directly when students analyses cases during classroom
learning, without making a detailed OCP. An SAP provides a picture of the more
critical areas which can have a relationship with the strategic picture of the firm in the
future.

Strategic Advantage Profile for a bicycle company

S. No. Capability Factor Nature of Impact Competitive strengths or
weaknesses

1. Finance Down Arrow High cost of capital, reserves

and surplus position
unsatisfactory
2 Marketing Horizontal Fierce competition in industry
Arrow and company
3 Information Up Arrow Advanced Management
information system in place,
most traditional functions such
as payroll and accounting
computerized, company website

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has limited scope for E-

commerce

 Up Arrow indicates Strength

 Down Arrow indicates Weaknesses
 Horizontal Arrow indicates Neutral

CORPORATE PORTFOLIO ANALYSIS

Corporate portfolio analysis could be defined as a set of techniques that help strategists
in taking strategic decisions with regard to individual products or business in a firm’s
portfolio. It is primarily used for competitive analysis and strategic planning in multi-
product and multi-business firms.

They may also be used in less diversified firms, if these consist of a main business and
other minor complementary interests. The main advantages in adopting a portfolio
approach in a multi-product multi-business firm is that resources could be targeted at
the corporate level to those businesses that possess the greatest potential for creating
competitive advantage.

SWOT ANALYSIS
Every organization is a part of an industry. Almost all organizations face competition
either directly or indirectly. Thus the industry and competition are vital considerations
in making a strategic choice. I t is quite obvious that any strategic choice made by an
organization cannot be made unless the industry and competition have been
analyzed. The environmental as well organizational appraisal dealt with the
opportunities, threats, strengths and weaknesses relevant for an organization.

Consolidated SWOT profile for a bicycle company

ETOP Sector Impact SAP Impact factor
Economic Up Arrow Finance Down Arrow
Market Horizontal Arrow Marketing Horizontal Arrow
International Down Arrow Operations Up Arrow
Political Horizontal Arrow Personnel Horizontal Arrow
Regulatory Horizontal Arrow Information Up Arrow
management
Social Up Arrow General Up Arrow
Management

GAP ANALYSIS
In gap Analysis, the strategist examines what the organization wants to achieve
(desired performance) and what it has really achieved (actual performance). The gap
between what is desired and what is achieved widens as the time passes no strategy
adopted.

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MCKINSEY’S 7S FRAMEWORK
This was created by the consulting company McKinsey and company in the early
1980s. Since then it has been widely used by practitioners and academics alike in
analyzing hundreds of organizations. The Paper explains each of the seven components
of the model and the links between them. It also includes practical guidance and advice
for the students to analyze organizations using this model. At the end, some sources for
further information on the model and case studies available.

The McKinsey 7S model was named after a consulting company, McKinsey and
company, which has conducted applied research in business and industry. All of the
authors worked as consultants at McKinsey and company, in the 1980s, they used the
model to analyze over 70 large organizations. The McKinsey 7S Framework was
created as a recognizable and easily remembered model in business. The seven
variables, which the authors terms “levers”, all begin with the letter “S”.

Description of 7Ss:
 Strategy: Strategy is the plan of action an organization prepares in response to,
or anticipation of changes in its external environment.
 Structure: Business needs to be organized in a specific form of shape that is
generally referred to as organizational structure. Organizations are structured in
a variety of ways, dependent on their objectives and culture.
 Systems: Every organization has some systems or internal processes to support
and implement the strategy and run day-to-day affairs. For example, a company
may follow a particular process for recruitment.
 Style/culture: All organizations have their own distinct culture and management
style. It includes the dominant values, beliefs and norms which develop over
time and become relatively enduring features of the organizational life.
 Staff: Organizations are made up of humans and it’s the people who make the
real difference to the success of the organization in the increasingly knowledge-
based society. The importance of human resources has thus got the central
position in the strategy of the organization.

Shared Values/super ordinate Goals: All members of the organization share some
common fundamental ideas or guiding concepts around which the business is built.
This may be to make money or to achieve excellence in a particular field.

The seven components described above are normally categorized as soft and hard
components:
Hard components are: (1) Strategy (2) Structure and (3) Systems
Soft components are: (1) Shared values (2) Style (3) Staff and (4) Skills

GE 9 CELL MODEL
This corporate portfolio analysis technique is based on the pioneering efforts of the
General Electric Company of the United States, supported by the consulting firm of
McKinsey& company. The vertical axis represents industry attractiveness, which is a
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weighted composite rating based on eight different factors. These factors are: market
size and growth rate, Industry profit margin, competitive intensity, seasonality,
cyclicality, economies of scale, technology and social, environmental, legal and human
impacts.

The horizontal axis represents business strength competitive position, which is again a
weighted composite rating based on seven factors. These factors are: relative market
share, profit margins, ability to compete on price and quality, knowledge of customer
and market, competitive strengths and weaknesses, technological capability and caliber
of management.

DISTINCTIVE COMPETITIVENESS
Distinctive Competence is a set of unique capabilities that certain firms possess
allowing them to make inroads into desired markets and to gain advantage over the
competition; generally, it is an activity that a firm performs better than its competition.
To define a firm s distinctive competence, management must complete an assessment
of both internal and external corporate environments. When management finds an
internal strength and both meets market needs and gives the fir m a comparative
advantage in the market place, that strength is the fir m s distinctive competence.

Defining and Building Distinctive Competence: To define a company s distinctive

competence, managers often follow a particular process.
1. They identify the strengths and weaknesses in the given marketplace.
2. They analyze specific market needs and look for comparative advantages that
they have over the competition.

SELECTION OF MATRIX
There are number of techniques that could be considered as corporate portfolio
analysis techniques. The most popular is the Boston Consulting Group (BCG) Matrix
(or) Product Portfolio Matrix.

BCG Matrix
The Boston Consulting Group (BCG) Matrix provides a graphic representation for an
organization to examine the different businesses in its portfolio on the basis of their
relevant market shares and industry growth rate. Business could be classified on the
BCG matrix as either low or high according to their industry growth rate and relative
market share. The vertical axis denotes the rate of growth in sales in percentage for a
particular industry. The horizontal axis represents the relative market share, which is
the ratio of a company’s sales to the sales of the industry’s largest competitor or
market leader.

The four cells of the BCG matrix have been termed as stars, cash cows, question
marks (or problem children) and dogs. Each of these cells represents a particular type
of businesses.

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Figure: A Typical BCG Matrix

High

Industry growth rate STARS QUESTION MARKS

CASH COWS DOGS

20%

15%

10%

5%

High Relative market share Low

Stars: Stars are high-growth-high-market-share businesses which may or may not be

self-sufficient in terms of cash flow.
Cash Cows: As the term indicates, cash cows are businesses which generate large
amounts of cash but their rate of growth is slow.
Question Marks: Business with high industry growth but low market share for a
company is ‘question marks’ or ‘problem children’.
Dogs: Those businesses which are related to slow-growth industries and where a
company has a low relative market share are termed as ‘dogs’.

BALANCE SCORE CARD

The balanced scorecard is a strategic performance management tool- a semi- standard
structured report supported by proven design methods and automation tools that can be
used by manager s to keep track of the execution of activities by staff within their
control and monitor the consequences arising from these actions.

History: The first balanced scorecard was created by Art Schneider man (an
independent consultant on the management of processes) in 1987 at Analog
Devices, a mid-sized semi- conductor company. Art Schniederman participated in an
unrelated research study in 1990 led by Dr. Robert S.Kaplan in conjunction with
US management consultancy Nolan-Norton, and during this study described his
work on balanced Scorecard.
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 Strategic Management

Subsequently, Kaplan and David P Norton included anonymous details of this use of
balanced Scorecard in their 1992 article on Balanced Scorecard. Kaplan &
Norton’s article wasn’t the only paper on the topic published in early 1992. But the
1992 Kaplan& Norton paper was a popular success, and was quickly followed by a
second in 1993. In 1996, they published the book The Balanced Scorecard. These
articles and the first book spread knowledge of the concept of Balanced Scorecard
widely, but perhaps wrongly have led to Kaplan & Norton being seen as the
creators of the Balanced Scorecard concept.
Four Perspectives:
 Financial: Encourages the identification of a few relevant high-level financial
measures.
 Customer: Encourages the identification of measures that answer the question
“How do customers see us?”
 Internal Business Process: Encourages the identification of measures that answer
the question “What must we excel at?”
 Learning and Growth: Encourages the identification of measures that answer the
question “Can we continue to improve and create value?”

Part ‘A’ Questions

1. Mention the four strategic alternatives.
2. What is stability strategy?
3. What is retrenchment strategy?
4. What do you mean by strategic alliance?
5. Define corporate level strategy.
6. What are the advantages of vertical integration?
7. Define ETOP.
8. Define SWOT.
9. What is GAP analysis?
10. What is meant by balance score card?

Part ‘B’ Questions

1. Explain in detail about business level strategy.
2. Discuss the global environment strategies.
3. Explain about diversification strategies.
4. Explain McKinsey’s 7S framework.
5. Discuss techniques of BCG matrix

************

Text Books and References:

1. Azhar Kazmi, “Strategic Management & Business Policy”, Tata McGraw Hill,
New Delhi, 3rd Edition, 2008.

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2. Dr.M.Jeyarathnam, “Strategic Management”, Himalaya Publishing House, 5 th

Edition, 2011.
3. Charles W.L.Hill & Gareth R Jones, “An Integrated Approach to Strategic
Management”, Cengage Learning India Private Ltd., New Delhi, 2008.

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