MODULE-3

BUSINESS AWARENESS

Strategy is an action that managers take to attain one or more of the organization’s goals.
Strategy can also be defined as “A general direction set for the company and its various
components to achieve a desired state in the future. Strategy results from the detailed strategic
planning process”.

Strategic Management is a stream of decisions and actions which lead to the development of an
effective strategy or strategies to help achieve corporate objectives. Strategic management is the
strategic use of a business' resources to reach company goals and objectives. Strategic management
requires reflection on the processes and procedures within the organization as well as external factors
that may impact how the company functions.

Features of Strategy

1. Strategy is Significant because it is not possible to foresee the future. Without a perfect
foresight, the firms must be ready to deal with the uncertain events which constitute the
business environment.
2. Strategy deals with long term developments rather than routine operations, i.e. it deals
with probability of innovations or new products, new methods of productions, or new
markets to be developed in future.
3. Strategy is created to take into account the probable behavior of customers and
competitors. Strategies dealing with employees will predict the employee behavior.

Strategy is a well defined roadmap of an organization. It defines the overall mission, vision
and direction of an organization. The objective of a strategy is to maximize an organization’s
strengths and to minimize the strengths of the competitors.

Strategy, in short, bridges the gap between “where we are” and “where we want to be”.

Vision, Mission, and Values

To develop a business strategy, a company needs a very well-defined understanding of what it is

and what it represents. Strategists need to look at the following:

 Vision – What it wants to achieve in the future (5-10 years)

 Mission Statement – What business a company is in and rallies people
 Values – The fundamental beliefs of an organization reflecting its commitments and
ethics (CSR-corporate social responsibility).

After gaining a deep understanding of the company’s vision, mission, and values, strategists can
help the business undergo a strategic analysis. The purpose of a strategic analysis is to analyze an
organization’s external and internal environment, assess current strategies, and generate and
evaluate the most successful strategic alternatives.
1. Corporate Strategies – These are also explicitly mentioned in the organization’s Mission
Statement. They involve the overall purpose and scope of the business to help it meet the
expectations of stakeholders. These are important strategies due to the heavy influence of
investors. Further, corporate strategies act as a guide for strategic decision-making
throughout the business. At this highest level, corporate strategy involves high-level
strategic decisions that will help a company sustain a competitive advantage and remain
profitable in the foreseeable future. Corporate-level decisions are all-encompassing of a
company.

2. Business Unit Strategies – These are more about how a business competes successfully in a
particular market. They involve strategic decisions about:

o Choosing products

o Meeting the needs of the consumers

o Gaining an advantage over the competitors

o Creating new opportunities, etc.

At the median level of strategy are business-level decisions. The business-level strategy
focuses on market positions to help the company gain a competitive advantage in its own
industry or other industries.

3. Operational/Functional Strategies – These are about how each part of the business is
organized to deliver the corporate and business unit level strategic direction. Therefore,
these strategies focus on the issues of resources, people, processes, etc. At the lowest level
are functional-level decisions. They focus on activities within and between different
functions aimed at improving the efficiency of the overall business. The strategies are
focused on particular functions and groups.

Functions of SM

Defining Company Identity

Successful companies understand who they are and what they want to achieve. The first
function of strategic management is to define your company's identity in terms of the unique
capabilities it brings to the marketplace and also in terms of the specific role it will play in a
competitive landscape. This process usually takes the form of formulating a mission statement
or a concise articulation of your company's big picture reason for existing, such as a healthcare
company's objective to make patients healthier and more comfortable.
Formulating Overall Strategy
The mission statement sets the stage for practical actions and policies. Strategic management's
subsequent function is to develop a big picture understanding of the practical actions necessary
to translate your company's vision into reality. A business may choose to develop a series of
products or services based on its unique capabilities, the existing competition and opportunities
presented by customer needs and wants. Strategic managers conduct and review thorough
research to learn about opportunities and constraints before translating this information into a
comprehensive strategy.
Formulating Actionable Goals
Once a big picture strategy is in place, strategic management's function is to create a series of
quantifiable, actionable goals and communicate these goals to employees. "To grow
substantially during the coming year" is not a quantifiable, actionable goal, but "To grow 20
percent during the coming year by bringing two new products to market" communicates to
employees exactly what needs to be achieved and how your business intends to achieve it. If
your company does not achieve the strategic objectives it has outlined, strategic management's
function is to evaluate the outcome and determine whether the goals should be revised or
whether your business needs to approach them in a different way.

Importance :

Allows Firms to Anticipate Changing Conditions:

Those who oppose this say that conditions change so fast, that managers cannot do any planning
especially the long-term planning. Some of the irony about change is that it makes planning more
difficult. However, firms need not just react to change, they can pro act or even make changes
happen.
It will also allow the firm to innovate in time to take advantage of new opportunities in the
environment and reduce the wish because the produce was anticipated. In addition, it helps to
ensure full exploitation of opportunities.
In sum strategic management allows an enterprise to base its decisions on long-range forecasts,
not spur-of-the moment reactions. It allows the firm to take action at an early stage of a new
trend and consider the lead time for effective management.
The strategic management process stimulates thinking about the future. Plans resulting from the
process should be flexible enough to allow for unanticipated change.
2. Provides Clear Objectives and Direction for Employers/ Increase in the Efficiency of the
Employees:
The officers and experienced employees of all the three levels of re-engagement are
included in strategic management process. The necessary inter-process in being done with
them and for the success of strategy necessary training is also given to them. By this there is
a notable increase in efficiency of employees and they get inspiration to work more.

Increase in Profitability: The profitability of a unit depends upon-the maximum use of

limited resources. Through strategically management process, the managers cannot only
make the maximum use of financial resources but also they can use maximum man power to
increase the overall productivity and profitability of the unit. Importance of Strategic
Management
Why is Strategic Management Important in Business?
Reduction in Fixed and Flexible Expense: The capital invested in the fixed assets is a
fixed capital. Instead of purchasing the fixed assets, the managers may buy such assets on
rent to decrease the fixed capital investment. In the same way, the flexible expenses can also
be reduced through collection arrangement. Making changes in packing, of making changes
in full, by acceptance, the strategy of machinery resources in management etc.
Motivation to Group Activity: By taking strategic decisions through the group, integration
between group members increases on accepting various optional strategies which result in to
co-operation and unity. Not only that, but the managers can also get the advantage of special
strength of group members.
Reduction in cost of capital: It is a fact that the unit which is successful in raising the
capital of the lowest possible cost is almost eligible to face the competition right from the
beginning. After getting the estimate of capital requirement the managers select the sources
of capital from where they can acquire the capital in a strategically manner. The strategic
management has been proved to be very useful to raise the estimated capital at lowest
possible rate, simple conditions for mortgage, return of borrowed capital and conversion of
borrowed capital into owner’s capital.
Acceptance of Organizational Changes: Normally the employees do not accept the
changes made in the organization, because due to that the change occurs in their roles also.
As a result the necessity to giving training of the new work to the employees arises. Not
only that but because of such changes many departments also have to be closed. In these
circumstances the problem of the safety of job arises. In strategic management process the
capability of employees is also considered. Not only that, but for its development, efforts
are made through training programmed so no question arises for the employees for not
accepting the changes.
Increase in rate of return on investment: Due to the strategic management there is a noble
increase in the rate of return on investment made in the project. On the basis of the
information received through analysis of internal and external environment the managers
can increase the rate of return on investment by making a maximum use of resources.
Prevention of Overlapping of Work: Due to the interaction with employees and officers
working at all the levels of the organization the question does not arise at all for the
distribution of one work to more than one employee or event he overlapping work is also
not possible. When the same activity is done by more than one employee. At that time there
is wastage of time and materials. The problem of co-ordination also arises. With the help of
strategic process, the managers can prevent the overlapping of work.
Prevention of Organizational Gap: Out of the departmental activities organization if any
activity is not allotted to any employee, that activity is known as organizational gap. If the
allotment of any work is left out by mistake, then none of the employees can be held
responsible for it. In strategic management process, because of the interacting process being
done with each employee, all the employees are given equal works and so there does not
arise a questions of organizational gaps.

 Strategy management can help organizations that struggle to achieve their projected strategic
outcomes by focusing on the details of planning
 Provides solid guidance for creating clear, simple and understandable plans that are well
structured and achievable
 Capture critical information and establishing consistent ways to represent, analyze and review
the quality of a given plan
 Provides standardized approaches to evaluating potential strategic initiatives, providing
consistent information to leadership for prioritization and selection of strategic initiatives
 Manages the transition between design and implementation using the information captured
during the design phase.
 Provides implementation management oversight, tracking progress, monitoring health, and
addressing emerging risks
 Provides dynamic off-cycle review of ad-hoc events and requests, leveraging the same
standardized prioritization assessment and applying change management rigors to the process
 Monitors key performance indicators, leading indicators predicting risk, lagging indicators
tracking performance outcome, and external triggers that indicate potential market changes
 Provides consistent stakeholder engagement and review processes, fully supported by detailed
informatics and analytics that provide status, alerting, and recommendations

SWOT Analysis

SWOT analysis focuses on Strengths and Weaknesses in the internal environment and
Opportunities and Threats in the external environment. It helps you determine where you stand
within your industry or market.

How to conduct:

1. Gather around a team from relevant teams/ departments who have knowledge of the gap/s
prevailing in the organization.
2. List down the internal strengths and weaknesses of your business.
3. Note down the opportunities and threats present in the industry/ market
4. Rearrange each element in the order of highest priority at the top, and lowest at the
bottom.
5. Analyze how you can use your strengths to minimize weaknesses and fight off threats,
and how you can use the opportunities to avoid threats and get rid of weaknesses
The economic world is dynamic, how does a company manage in economic crisis.

PEST Analysis

A PEST analysis is a strategic business tool used by organizations to discover, evaluate,

organize, and track macro-economic factors which can impact on their business in present
and in the future.

here are many variations of this framework, which look at different external factors, depending
on which industry or market the organization operates in. Examples include PESTLE,
STEEPLE, STEER, and STEEP.

IMPORTANCE OF PEST ANALYSIS

• Helps to evaluate how the strategy fits into the broader environment and
encourages strategic thinking.
• Provides an overview of all the crucial external influences on the organization.
• It helps to spot business or personal opportunities and gives advanced warning of
significant threats.
• It reveals the direction of change within the business environment. This helps to
shape what the organization is doing, so that it gets easy to work with change,
rather than against it.
 • It helps the organization to avoid starting projects that are likely to fail, for reasons
beyond control.

In PEST analysis, 'P' stands for Political environment. It includes government regulations or any
defined rules for that particular industry or business. It also involves study of tax policy which
includes exemptions if any, employment laws, environment laws, etc.

The letter 'E' in PEST analysis stands for economic factors. It gauges the economic environment
by studying factors in the macro economy such as interest rates, economic growth, exchange rate
as well as inflation rate. These factors also help in accessing the demand, costing of the product,
expansion, and growth.

'S' stands for social factors that form the macro environment of the organisation. It includes the
study of demographics, as well as the target customers. These factors help in gauging the
potential size of the market. It includes study of population growth, age distribution, career
attitude, etc.

The letter 'T' in PEST analysis stands for technology. As we all know, technology changes very
rapidly, and consumers are hungry to adopt new technology. It involves understanding factors
which are related to technological advancements, rate at which technology gets obsolete
(Example: the operating system in mobile phones), automation, and innovation.

PEST analysis is the most general version of all PEST variations created. It is a very dynamic
tool as new components can be easily added to it in order to focus on one or another critical force
affecting an organization. Although following variations are more detailed analysis than simple
PEST, the additional components are just the extensions of the same PEST factors. The analysis
probably has more variations than any other strategy tool:

STEP = PEST in more positive approach.

PESTEL = PEST + Environmental + Legal
PESTELI = PESTEL + Industry analysis
STEEP = PEST + Ethical
SLEPT = PEST + Legal
STEEPLE = PEST + Environmental + Legal + Ethical
STEEPLED = STEEPLE + Demographic
PESTLIED = PEST + Legal + International + Environmental + Demographic
LONGPEST = Local + National + Global factors + PEST
Industry Analysis using Porter’s 5 Forces Model

Industry analysis is a critical part of understanding a company’s market position.

Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E
Porter of Harvard Business School as a simple framework for assessing and evaluating the
competitive strength and position of a business organisation.

Strategic analysts often use Porter’s five forces to understand whether new products or services
are potentially profitable. By understanding where power lies, the theory can also be used to
identify areas of strength, to improve weaknesses and to avoid mistakes.

According to this framework, competitiveness does not only come from competitors. Rather, the
state of competition in an industry depends on five basic forces:

1. threat of new entrants,

2. bargaining power of suppliers,
3. bargaining power of buyers,
4. threat of substitute products or services
5. existing industry rivalry.

The collective strength of these forces determines the profit potential of an

industry
The five forces are:

1. threat from Supplier.

It refers to the pressure that suppliers can put on companies by raising their prices,
lowering their quality, or reducing the availability of their products.

Types of Suppliers

Depending on the industry, there are various types of suppliers. A list of types includes:

 Manufacturers and Vendors: Sell products to distributors, wholesalers, and retailers

 Distributors and Wholesalers: Purchase goods in medium/high quantity for sale to
retailers or local distributors
 Independent Suppliers : Sell unique products directly to retailers or agents
 Importers and Exporters: Purchase products from manufacturers in one country
and export to a distributor in a different country

Determining Factors: Bargaining Power of Suppliers

The major factors when determining the bargaining power of suppliers:

1. Number of suppliers relative to buyers

2. Dependence of a supplier’s sale on a particular buyer
3. Switching cost (switching costs of suppliers)
4. Availability of suppliers for immediate purchase

When is Bargaining Power of Suppliers High/Strong?

  Switching costs of buyers are high
 Threat of forward integration is high
 Small number of suppliers relative to buyers
 Low dependence of a supplier’s sale on a particular buyer
 Switching costs of suppliers are low
 Substitutes are unavailable
 Buyer relies heavily on sales from suppliers

When is Bargaining Power of Suppliers is Low/Weak?

 Switching costs of buyers are low

 Threat of forward integration is low
 Large number of suppliers relative to buyers
 High dependence of a supplier’s sale on a particular buyer
 Switching costs of suppliers are high
 Substitutes are available
 Buyer does not rely heavily on sales from suppliers

Purpose of Bargaining Power of Suppliers Analysis

When doing an analysis of supplier power in an industry, it is recommended that supplier power
must be low as it creates a more attractive industry and increases profit potential, as buyers are
not controlled by suppliers. High supplier power creates a less attractive industry and decreases
profit potential, as buyers rely more heavily on suppliers.

Bargaining Supplier Power in the Fast Food Industry

To determine whether McDonald’s faces high or low bargaining power from suppliers in the
fast-food industry, consider the following analysis:

1. The number of suppliers relative to buyers: There are a significant amount of suppliers
relative to buyers (companies). Therefore, supplier power is low.
2. Dependence of a supplier’s sale on a particular buyer: If we assume that suppliers
have few customers (e.g., a small/medium-sized firm), they are likely to give in to the
demands of buyers. On the other hand, if we assume suppliers have several customers,
they have more power over buyers. Since we do not know whether these suppliers have
few or many buyers, a middle ground would be a reasonable answer. Therefore, supplier
power is medium.
3. Switching costs: Since there are a significant amount of suppliers in the fast-food
industry, switching costs are low for buyers. Supplier power is low.
4. Forward Integration: There is low forward integration in the fast-food industry.
Overall, McDonald’s faces low bargaining power of suppliers. Therefore, supplier power is not
an issue for McDonald’s in the fast-food industry.

2. Buyer power :

It refers to the pressure that customers/consumers can put on businesses to get them to
provide higher quality products, better customer service, and/or lower prices.

It is important to keep in mind that the bargaining power of buyers analysis is conducted
from the perspective of the seller (the company). The bargaining power of buyers would
refer to customers/consumers who use the products/services of the company.

Determining Factors: Bargaining Power of Buyers

Buyer power gives customers/consumers (buyers) the ability to squeeze industry margins by
pressuring firms (the suppliers) to reduce prices or increase the quality of services or products
offered.

1. Number of buyers relative to suppliers: If the number of buyers is small relative to that
of suppliers, the buyer’s power will be stronger.
2. Dependence of a buyer’s purchase on a particular supplier: If a buyer is able to get
similar products/services from other suppliers, buyers depend less on a particular
supplier. Therefore, the power of the buyer would be greater.
3. Switching costs: If there are not many alternative suppliers available, the cost of
switching is high. Therefore, buyer power would be low.

When is Bargaining Power of Buyers High/Strong?

 There are fewer buyers relative to that of suppliers

 The switching costs of the buyer are low
 If the buyer is able to backward integrate
 The buyer purchases product in bulk (high volume)
 The buyer is able to get similar product/services from other suppliers
 The buyer purchases the majority of the seller’s products
 Several substitutes are available on the market
 Product is not differentiated

When is Bargaining Power of Buyers Low/Weak?

 There are a significant amount of buyers relative to that of suppliers

 The switching costs of the buyer are high
 If the buyer is not able to backward integrate effectively
 The buyer is unable to get similar product/services from other suppliers
 Substitutes are not available on the market
 Product is heavily differentiated
 Buyer power is important as it provides an understanding of the profit potential in an
industry. High buyer power diminishes the industry’s profitability and lowers the
attractiveness of an industry. This may deter new entrants or cause existing firms to make
more strategic decisions to improve the profitability of their business.

4. Competitive rivalry :

This force examines how intense the competition is in the marketplace. It considers the
number of existing competitors and what each one can do.

Every market or industry is different. Take any selection of industries and you should be able to
find differences between them in terms of:

 Size (e.g. sales revenue, volumes, numbers of customers)

 Structure (e.g. the number of brands and competitors)
 Distribution channels (how the product gets from producer to final consumer)
 Customer needs and wants (the basis of marketing segmentation)
 Growth (the rate of growth and which businesses are growing faster or slower than the
market)
 Product life cycle (the stage of the life cycle for the industry as a whole and for products
and brands within it)
 Alternatives for the consumer (e.g. substitute products)

The result of the above differences is that industries vary in terms of how much profit they make.

Factors determining competitive rivalry

4. Threat of substitution :

Companies are concerned that substitute products or services may displace their own. The threat
of substitution is high when rivals, or companies outside the industry, offer more attractive
and/or lower cost products.

Analyzing the threat of substitutes can be tricky because any items being compared are not
exactly alike but vary either slightly or greatly in what they offer. An example of this is the
option to choose different modes of transportation when going from destination A to destination
B. If an airline operates on that route, it must compete with all other airlines on that route as well
as any possible ground routes such as car rentals, buses and trains.

Factors determining substitution threat :

1. Switching Costs: If there are little of no switching costs for a consumer, then
there is more of a chance that they may explore and move over to a more
attractive substitute. In the absence of other factors such as brand loyalty or
differentiation, the choice to move will not be a difficult one. For example, if a
consumer wants to replace cable subscriptions with online streaming site
subscription, they may be able to do so easily unless there is some cost associated
with discontinuing the cable service.
2. Product Price: If substitutes are priced more reasonably, then there may be more
risk of consumers switching products. In addition, this can act as a barrier to how
 much a company can raise the prices for its own product. Any move to price
higher than substitutes may lead to consumer migration and loss profits.
3. Product Quality: If the quality of substitute products is higher than that of any
product, then it is more likely that consumers will want to make use of this
difference and switch over.
4. Product Performance: If a substitute products functions at the same level or at a
better level than a product than there is a chance that consumers will want to
switch over. For example, in travelling short distances, if an airline’s flights are
always delayed, while a train or bus is on time, customers may choose to travel by
road rather than wait endlessly for a plane to take off.
5. Substitute Availability: All of the above factors can only come into play if there
are actually substitutes available in the market. To identify potential threats, the
company needs to be creative in its thought process and look beyond traditional
competitors.

Identifying substitute threat is important because a company may not immediately

recognize competitors from outside the industry a company. This is why there
needs to be special attention paid towards identifying the threat of substitutes and
developing strategies to counter it in the long term. There is always the danger
that a company may be too focused on handling its direct competitors and may
miss the imminent threat of a substitute.

there are certain steps that a company can undertake to prevent customers from needing to
explore alternates or substitutes. These include:

 Differentiation: Through creating a unique product offering, customers will be able to satisfy a
need through only a specific product and will not be easily swayed by substitute products. There
could be additional features or benefits that may not be available in a substitute product.

 Customer Value: Customers often look for the product that provides the best value for money.
This means that maximum benefits are being gained by spending the least amount of money. If
this value is created for a customer than they may not need to look at other products

 Brand Loyalty: Most companies strive to create and maintain a strong brand loyalty among
their customers. This helps prevent easy switchovers to other brands or substitute products.

Coca- Cola Substitution threat

The soft drink industry faces intense competition from within its industry as well as from
substitutes. The most major of its competitors is Pepsi Cola which competes in all the same
markets and even outsells it in some of them. Other direct competition comes from local cola
drinks, as well as other soft drinks. Close competition comes from items like fruit juices and
other similar beverages. Alternates or substitutes can include water or even coffee or tea as
sources of caffeine.

There is medium to high pressure from substitutes in the beverage industry. As a product, most
people cannot differentiate the taste from other similar cola products. So for many, it is an
interchangeable product. There are low switching costs associated with a move from the product
to another. While Coca Cola does enjoy some brand loyalty, this usually extends to refusal to
drink another cola but not a refusal to consume another beverage altogether.

5. Threat of new entry :

It refers to the threat that new competitors pose to current players within an industry.

When new competitors enter into an industry offering the same products or services, a
company’s competitive position will be at risk. Therefore, the threat of new entrants refers to the
ability of new companies to enter into an industry.

Barriers to entry include:

 Brand loyalty: Customers in the industry show a strong preference for the products
and/or services of existing companies.
 Cost advantages: Existing companies can easily produce and offer their products and/or
services at a lower cost/price than that of new entrants.
 Government regulations
 Capital requirement: A high fixed cost to enter into an industry, e.g.,
telecommunications.
 Access to suppliers and distribution channels: Existing companies own exclusive
rights to suppliers and distribution channels.
 Retaliation: Existing companies may collude and deter new entrants.

High Threat of New Entrants When:

 Low brand loyalty in the current industry

 Current brand names are not well-known
 Low initial capital investment required
 Access to suppliers and distribution channels is easy to obtain
 Weak government regulations
 No threat of retaliation
 Proprietary technology is not required

Low Threat of New Entrants When:

 High brand loyalty in the current industry

 Brand names are well-known
 High initial capital investment required
 Little to no access to suppliers and distribution channels
 Strong government regulations
 Threat of retaliation from existing competitors
 Proprietary technology is required to be successful
Barriers to Entry and the Threat of New Entrants:

A low threat of new entrants makes an industry attractive – there are high barriers to entry.
Therefore, existing companies are able to enjoy increased profit potential.

A high threat of new entrants makes an industry less attractive – there are low barriers to entry.
Therefore, new competitors are able to easily enter into the industry, compete with existing
firms, and take market share. There is a reduced profit potential as more competitors are in the
industry.