Syllabus

Unit –II Strategy formulation: Corporate Planning, Concept of Planning, Planning

Process, Types of Planning, Strategic Planning, Strategic Decision Making, Vision,
mission, and purpose, objectives and goals of a business organization. Types of
strategies – Guidelines for crafting successful business strategies. Corporate strategy;
Strategies for growth and diversification; Business level Strategy: Process of strategic
planning; Stages of corporate development; Functional level strategy; Core
competencies; Strategic choice.

Corporate Planning:
Corporate Planning is a strategic process used by organizations to set long-term
goals, define their mission and vision, and outline the steps needed to achieve these
objectives. It involves analyzing the current business environment, assessing internal
strengths and weaknesses, and identifying opportunities and threats in the market.
Corporate planning encompasses the creation of strategic plans, allocation of
resources, and development of policies to guide the organization towards its goals.
This process ensures that all departments and teams are aligned with the overall
business strategy, facilitating coordinated efforts and informed decision-making.
Effective corporate planning helps organizations anticipate future challenges, adapt to
changes, and achieve sustained growth and success.
Functions of Corporate Planning:
1. Strategic Goal Setting
Define long-term objectives and goals aligned with the organization’s mission and
vision. This provides a clear direction for the business and establishes benchmarks for
success.
 2. Environmental Analysis
Conduct comprehensive analyses of internal and external environments. This includes
SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis, market analysis, and
competitive analysis to inform strategic decisions.
3. Resource Allocation
Determine the optimal allocation of resources, including financial, human, and
technological assets, to achieve strategic objectives efficiently and effectively.
4. Policy Development
Develop policies and guidelines that govern the organization’s operations and ensure
consistency in decision-making across all levels of the business.
5. Risk Management
Identify potential risks and develop strategies to mitigate them. This involves
proactive planning to handle uncertainties and minimize adverse impacts on the
organization.
6. Performance Monitoring
Establish key performance indicators (KPIs) and other metrics to monitor progress
towards strategic goals. Regularly review performance data to assess effectiveness
and make necessary adjustments.
7. Coordination and Integration
Ensure that all departments and teams within the organization are aligned with the
overall strategic plan. Facilitate coordination and integration of efforts across different
functional areas.
8. Communication
Effectively communicate the strategic plan and objectives to all stakeholders,
including employees, management, investors, and customers, to ensure understanding
and alignment.
9. Adaptation and Flexibility
Maintain the ability to adapt and respond to changes in the external environment. This
involves revising strategies and plans as necessary to remain competitive and
resilient.
10. Innovation and Development
Foster a culture of innovation and continuous improvement. Encourage the
development of new ideas, products, and processes that can drive growth and improve
organizational effectiveness.
11.Long-term Planning
Focus on long-term sustainability and growth. This includes planning for future
market trends, technological advancements, and evolving customer needs to ensure
the organization remains relevant and successful over time.
Process of Corporate Planning:
1. Environmental Analysis:
 Internal Analysis: Assess the organization’s strengths and weaknesses, including
resources, capabilities, and organizational structure.
 External Analysis: Evaluate market trends, competitive landscape, regulatory
environment, technological advancements, and other external factors that may
impact the organization.
2. Mission and Vision Development:
Define the organization’s purpose, values, and long-term aspirations through the
development of a clear mission and vision statement.
3. Goal Setting:
Establish specific, measurable, achievable, relevant, and time-bound (SMART)
objectives aligned with the organization’s mission and vision. These objectives
provide a roadmap for strategic planning.
4. Strategy Formulation:
Develop strategies and action plans to achieve the defined goals. This involves
identifying strategic initiatives, competitive positioning, market penetration strategies,
and growth opportunities.
 5. Resource Allocation:
Determine the allocation of resources, including financial, human, and technological
assets, to support strategic initiatives effectively. Prioritize resource allocation based
on strategic objectives and anticipated returns.
6. Policy Development:
Develop policies, procedures, and guidelines that govern decision-making, operations,
and behavior within the organization. Ensure alignment with corporate objectives and
compliance with legal and regulatory requirements.
7. Risk Management:
Identify potential risks and develop strategies to mitigate them. This includes
assessing and monitoring risks associated with operations, market dynamics,
regulatory changes, and other factors that may impact the organization’s success.
8. Performance Measurement:
Establish key performance indicators (KPIs) and metrics to monitor progress towards
strategic objectives. Regularly measure and evaluate performance to identify areas for
improvement and track success.
9. Implementation Plans:
Develop detailed action plans and timelines to execute strategic initiatives effectively.
Assign responsibilities, set deadlines, and allocate resources to ensure successful
implementation of the corporate plan.
10. Communication and Alignment:
Communicate the corporate plan and objectives to all stakeholders, including
employees, management, investors, and customers. Foster alignment and commitment
across the organization to ensure collaboration and support for the strategic plan.
11. Monitoring and Evaluation:
Establish processes for monitoring progress, evaluating performance, and making
adjustments as needed. Conduct regular reviews and assessments to ensure that the
corporate plan remains relevant and effective in achieving organizational goals.

12. Feedback and Adaptation:

Solicit feedback from stakeholders and incorporate lessons learned into future
planning cycles. Remain flexible and adaptive to changes in the business
environment, emerging opportunities, and shifting priorities.
Challenges of Corporate Planning:
1. Uncertain Business Environment
Navigating through uncertain economic conditions, market volatility, regulatory
changes, and geopolitical risks can make it difficult to develop and execute long-term
plans effectively.
2. Complex Stakeholder Dynamics
Balancing the interests and expectations of diverse stakeholders, including
shareholders, employees, customers, suppliers, and communities, requires careful
alignment and communication.
3. Rapid Technological Advancements
Keeping pace with rapid technological advancements and digital disruptions can pose
challenges in adopting new technologies, leveraging data analytics, and innovating
products or services.
4. Globalization and Market Complexity
Expanding into new markets, managing global supply chains, and competing in
diverse cultural and regulatory environments require sophisticated strategies and risk
management approaches.
5. Resource Constraints
Optimizing resource allocation, including financial, human, and technological
resources, amidst budgetary constraints and competing priorities, is a continual
challenge in corporate planning.
 6. Organizational Silos
Breaking down silos and fostering collaboration across departments and business
units is essential for integrated planning and execution but can be hindered by
organizational culture and structural barriers.
7. Short-term Pressures
Balancing the need for short-term results with long-term strategic objectives can be
challenging, particularly in environments where quarterly financial performance is
heavily emphasized.
8. Resistance to Change
<
p style=”text-align: justify;”>Overcoming resistance to change within the
organization, whether from employees, management, or other stakeholders, is crucial
for implementing new strategies and initiatives effectively.
Types of Planning:
There are different levels of planning based on scope and focus:
Type Description Example
Strategic Long-term vision and Expanding into new markets
Planning business direction
Tactical Planning Mid-term, department- Improving supply chain
specific strategies efficiency
Operational Short-term, day-to-day Scheduling production shifts
Planning business processes
Contingency Preparing for unexpected Crisis management in case of
Planning situations economic downturn

Strategic Planning: Strategic Planning, Nature, Process, Importance, Benefits

and Challenges
Strategic Planning is the process through which an organization defines its long-
term direction, sets goals, and develops plans to achieve these objectives. It involves
analyzing the internal and external environments, identifying opportunities and
threats, and establishing a clear vision and mission. This process includes setting
specific, measurable, achievable, relevant, and time-bound (SMART) objectives, and
creating strategies to reach these goals. Strategic planning ensures that all
organizational activities are aligned with the overall vision, fosters proactive decision-
making, and enables the organization to adapt to changing conditions, ensuring
sustainable growth and success.
Nature of Strategic Planning:
Long-term Perspective:
Strategic planning focuses on the organization’s long-term goals and objectives,
typically spanning three to five years or more. It involves forecasting future trends
and envisioning where the organization wants to be in the future.
Alignment with Mission and Vision:
Strategic plan aligns the organization’s actions with its mission and vision. It ensures
that every decision and activity contributes to the overarching purpose and direction
of the organization.
Environmental Analysis:
Strategic planning involves analyzing the organization’s internal and external
environment. This includes assessing factors such as market trends, competitor
actions, technological advancements, regulatory changes, and socio-economic
conditions.
Goal Setting:
Strategic planning establishes clear, measurable goals and objectives that the
organization aims to achieve. These goals are usually broken down into specific
targets and milestones to track progress over time.
Resource Allocation:
Strategic planning determines how resources, including financial, human, and
technological assets, will be allocated to support the organization’s goals. It involves
prioritizing initiatives and investments based on their strategic importance and
expected impact.
Risk Management:
Strategic planning identifies potential risks and uncertainties that may affect the
organization’s ability to achieve its objectives. It involves developing strategies to
mitigate risks and capitalize on opportunities, thereby enhancing the organization’s
resilience and adaptability.
Continuous Monitoring and Evaluation:
Strategic planning is an iterative process that requires ongoing monitoring and
evaluation of progress against established goals. It involves tracking key performance
indicators (KPIs) and adjusting strategies as needed to stay on course and respond to
changing circumstances.
Stakeholder Engagement:
Strategic planning involves engaging with various stakeholders, including employees,
customers, investors, regulators, and community members. By soliciting input and
feedback from stakeholders, organizations can ensure that their strategic decisions are
informed by diverse perspectives and aligned with stakeholders’ interests.
Importance of Strategic Planning:
Direction and Focus:
Strategic planning provides a clear direction for the organization, outlining its
mission, vision, and long-term goals. It ensures that everyone in the organization
understands where it is headed and what it aims to achieve, fostering alignment and
focus.
Resource Allocation:
By identifying priorities and setting strategic objectives, strategic planning helps
organizations allocate resources effectively. It ensures that resources such as finances,
personnel, and time are directed towards activities that support the organization’s
overall strategy, maximizing efficiency and productivity.
Adaptability to Change:
Strategic planning enables organizations to anticipate and adapt to changes in the
internal and external environment. By regularly assessing market trends, competitor
actions, and industry developments, organizations can proactively adjust their
strategies to remain competitive and responsive to shifting conditions.

Risk Management:
Strategic planning involves identifying potential risks and uncertainties that may
impact the organization’s ability to achieve its objectives. By developing contingency
plans and risk mitigation strategies, organizations can minimize the impact of
unforeseen events and enhance their resilience.
Innovation and Growth:
Strategic planning encourages innovation and fosters a culture of continuous
improvement within the organization. By setting ambitious yet achievable goals,
organizations can inspire creativity and experimentation, driving innovation and
facilitating growth.
Stakeholder Engagement:
Strategic planning provides a platform for engaging with stakeholders, including
employees, customers, investors, and partners. By soliciting input and feedback from
stakeholders, organizations can build trust, foster collaboration, and ensure that their
strategic decisions are informed by diverse perspectives.
Performance Measurement:
Strategic planning establishes clear metrics and key performance indicators (KPIs) to
track progress towards strategic objectives. It enables organizations to monitor
performance, evaluate outcomes, and identify areas for improvement, facilitating
accountability and transparency.
Long-Term Sustainability:
Strategic planning lays the foundation for long-term sustainability and success. By
taking a holistic view of the organization’s strengths, weaknesses, opportunities, and
threats, strategic planning helps identify sustainable growth strategies and strategic
initiatives that create value over the long term.
Strategic Decision Making
Strategic decisions are high-level, long-term choices that determine the future of an
organization. Unlike operational decisions, which deal with daily activities, strategic
decisions have far-reaching consequences for a company's growth, competitiveness,
and sustainability.
Key Characteristics of Strategic Decisions
Long-Term Impact – Affects the company's future for years or even decades.
Resource-Intensive – Requires significant financial, technological, or human capital
investment.
Irreversible or Costly to Reverse – Difficult to undo once implemented (e.g.,
mergers, expansions).
High Risk & High Reward – Involves uncertainty, market changes, and competitive
risks.
Future-Oriented – Considers market trends, technological advancements, and
consumer behavior.
Cross-Functional – Involves multiple departments (finance, marketing, operations,
HR, R&D).

3. The Strategic Decision-Making Process

Strategic decisions follow a structured 6-step process to ensure thorough evaluation
and risk management.
Step 1: Define the Problem or Opportunity
 Identify the issue or opportunity that requires strategic action.
 Example: Apple notices a growing demand for electric vehicles and wants to
explore entry into the market.
Step 2: Gather and Analyze Information
 Conduct SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats).
  Perform PESTEL Analysis (Political, Economic, Social, Technological,
Environmental, Legal) to assess external factors.
 Evaluate financial feasibility, market size, and competition.
 Example: Apple analyzes the competitive landscape, costs, and consumer
preferences for EVs.

Step 3: Generate Strategic Options

 Brainstorm multiple approaches to solving the problem or capitalizing on the
opportunity.
 Example: Apple could:
1. Develop an EV independently.
2. Partner with an existing automaker (e.g., Tesla).
3. Acquire an automotive company.
Step 4: Evaluate & Select the Best Strategy
 Assess the risks, costs, and benefits of each option.
 Use decision-making tools like Scenario Analysis, Cost-Benefit Analysis, and
Risk Assessment.
 Example: Apple evaluates the feasibility of building its own EV versus
partnering with Tesla.
Step 5: Implement the Strategy
 Allocate resources (financial, technological, human capital).
 Develop an implementation roadmap with timelines and responsibilities.
 Example: Apple builds an automotive R&D division and hires experts from
Tesla and other EV firms.
Step 6: Monitor, Adjust, and Evaluate
  Track KPIs (Key Performance Indicators) such as market share, revenue, and
customer adoption.
 Adjust strategies based on performance and external market conditions.
 Example: Apple refines its EV strategy based on technological breakthroughs
and regulatory changes.

4. Strategic Decision-Making Models

Companies use different decision-making frameworks to evaluate strategic choices
effectively.
1. Rational Decision-Making Model
 A structured, data-driven approach that minimizes risk.
 Steps: Define → Research → Compare Alternatives → Choose →
Implement → Evaluate.
 Example: Google follows data-driven decision-making for AI investments.
2. SWOT Analysis for Decision-Making
 Strengths: What internal advantages does the company have?
 Weaknesses: What are the internal limitations?
 Opportunities: What external trends can be leveraged?
 Threats: What external risks or challenges exist?
 Example: Tesla’s SWOT before expanding into India.
3. BCG Matrix (Growth vs. Market Share Analysis)
 Stars: High growth, high market share (e.g., Tesla’s Model 3).
 Cash Cows: Low growth, high market share (e.g., iPhones).
 Question Marks: High growth, low market share (e.g., Apple EVs).
  Dogs: Low growth, low market share (e.g., BlackBerry phones).
4. Porter’s Five Forces for Competitive Analysis
 Industry Rivalry – Competition level in the market.
 Threat of New Entrants – Barriers to entry.
 Bargaining Power of Suppliers – Dependence on suppliers.
 Bargaining Power of Buyers – Customer influence.
 Threat of Substitutes – Risk of alternative products.
Example: Apple uses Porter’s Five Forces before launching any new product.

Challenges in Strategic Decision-Making

1. Market Uncertainty
 Rapid technological advancements, changing consumer behavior.
 Example: Nokia failed to anticipate smartphone disruption.
2. High Risk & Cost
 Strategic decisions involve huge financial investments.
 Example: Uber’s expansion into China resulted in losses before exiting.
3. Resistance to Change
 Employees and stakeholders may resist new strategies.
 Example: Kodak failed to transition from film to digital cameras due to internal
resistance.
4. Competitive Pressure
 Rivals may respond aggressively to strategic moves.
 Example: Microsoft entered the AI chatbot market after Google’s success with
Bard and OpenAI’s ChatGPT.
Types of strategies –
Strategies: Stability, Expansion, Retrenchment and Combination strategies
Growth is essential for an organization. Organizations go through an inevitable
progression from growth through maturity, revival, and eventually decline. The broad
corporate strategy alternatives, sometimes referred to as grand strategies,
are: stability/consolidation, expansion/growth, divestment/ retrenchment and
combination strategies. During the organizational life cycle, managements choose
between growth, stability, or retrenchment strategies to overcome deteriorating trends
in performance.
At the core of strategy must be a clear logic of how the corporate objectives, will be
achieved. Most of the strategic choices of successful corporations have a central
economic logic that serves as the fulcrum for profit creation.
Some of the major economic reasons for choosing a particular type strategy are:
(a) Exploiting operational economies and financial economies of scope.
(b) Uncertainty avoidance and efficiency.
(c) Possession of management skills that help create corporate advantage.
(d) Overcoming the inefficiency in factor markets and
(e) Long term profit potential of a business.
The non-economic reasons for the choice of strategy elements include :
(a) Dominant view of the top management,
(b) Employee incentives to diversify (maximizing management compensation),
(c) Desire for more power and management control,
(d) Ethical considerations and
(e) Corporate social responsibility.

Corporate strategy: Formulating Corporate level Strategy

Corporate level strategies generally pertain to large corporations with multi-
businesses as to how they manage and allocate resources among these businesses.
Such a strategy helps the management in balancing resources with market
opportunities in each business area. Top managers are responsible for formulating
corporate level strategy, and they generally look ahead for five years or longer.
Grand Strategy:
A “grand strategy” is a comprehensive general strategy which provides the basis for
strategic direction that will accomplish the organization’s long- term goals. Grand
strategies include three types of strategies, namely growth, stability and retrenchment.
While in stability strategy, management maintains the status quo if the company is
doing well and does not want to take risks associated with more aggressive growth,
both the growth strategy and retrenchment strategy have a number of different ways
to achieve the results.
Growth Strategies:
Growth means expansion of the operations of the company and addition of new areas
of operation. This would mean more sales, more revenues, more employees and more
of the market share.
This expansion can be achieved by introducing the existing product into new markets
or by differentiating the product or service and increasing the consumer base in the
existing market or new products can be developed to diversify a company’s product
line.
Growth strategies can be very risky and involve forecasting and analysis of many
factors that affect expansion such as availability of resources and markets. Growth is
not only necessary but also desirable since growth is an indication of effective
management and it attracts quality amployees as a result. However, growth must be
properly planned and controlled, otherwise organizations can fail. This is evident
from failure of Laker Airways and W.T. Grant Company. Both these companies tried
to expand without building the necessary infra-structure and resources to handle such
an expansion.
Among the possible growth strategies are concentration, vertical or horizontal
integration and diversification.
 Concentration:
This strategy focuses on effecting the growth of a single product or a few closely
related products or services. Also known as “market penetration strategy”, it directs
its efforts in gaining a larger share of the current market by expanding into new
markets with the same product or with developing closely related new products.
 Vertical integration:
Vertical integration means that a company is producing its own inputs (backward
integration), or delivering its own outputs (forward integration). A company can
acquire another company that supplies its resources or it can set up its own plant to
produce inputs.
This step would eliminate intermediary profits and secure the sources of materials.
For example, General Motors (GM) may be buying its tires from Firestone so that if
GM bought and acquired Firestone or if it produced its own tires then it would be
adopting backward integration strategy.
Similarly, if General Motors opened it own distribution channels rather than going
through the automobile dealers, it will be following forward integration. Liz
Claiborne Inc., a clothing producer, engaged in forward integration by opening its
own retail stores and sold directly to the consumers rather than selling through
department stores.
 Horizontal integration:
When managers expand their organizations by acquiring one or more competitors,
they are applying horizontal integration. It eliminates the threat of competitors and
also broadens the reach of the current product line by acquiring competitor’s
customers.
For example, when Giddings and Lewis, a machine tool manufacturer based in
Wisconsin, acquired rival Cross & Trecker, the combination resulted in a much
stronger global presence and higher market share.
 Diversification:
This strategy entails affecting growth through the development of new areas that are
different from current businesses. One reason to diversify is to reduce the risk that can
be associated with a single industry operation due to changes in environmental
conditions.
For example, Textron Inc. is in aerospace business as well as commercial products
such as auto parts and financial services. The aerospace business is down because of
cuts in defence spending but these losses are being cushioned by other businesses.
Banks are diversifying into stocks brokerages. Avon Products, a cosmetics company
has diversified into jewelry business. Philip Morris, a company producing tobacco
products acquired Miller Brewing Company producing beer and also acquired a soft
drink soda company Seven-Up.

Stability Strategy:
Stability strategy implies “to leave the well enough alone.” If the environment is
stable and the organization is doing well, then it may believe that it is better to make
no changes. An organization would apply stability strategy if it is satisfied with the
same product line, serving the same consumer groups and maintaining the same
market share and the management does not want to take any risks that might be
associated with expansion. The management may not be motivated and adventurous
to try new strategies to change the status quo.
Stability strategy is most likely to be pursued by small, privately owned businesses
which have established solid and satisfactory customer bases and are doing well as
per their expectations.
EXPANSION STRATEGY
Firms choose expansion strategy when their perceptions of resource availability and
past financial performance are both high. The most common growth strategies are
diversification at the corporate level and concentration at the business level. Reliance
Industry, a vertically integrated company covering the complete textile value chain
has been repositioning itself to be a diversified conglomerate by entering into a range
of business such as power generation and distribution, insurance, telecommunication,
and information and communication technology services.
Diversification is defined as the entry of a firm into new lines of activity, through
internal or external modes. The primary reason a firm pursues increased
diversification are value creation through economies of scale and scope, or market
dominance. In some cases firms choose diversification because of government policy,
performance problems and uncertainty about future cash flow. In one sense,
diversification is a risk management tool, in that its successful use reduces a firm’s
vulnerability to the consequences of competing in a single market or industry. Risk
plays a very vital role in selecting a strategy and hence, continuous evaluation of risk
is linked with a firm’s ability to achieve strategic advantage (Simons, 1999). Internal
development can take the form of investments in new products, services, customer
segments, or geographic markets including international expansion. Diversification is
accomplished through external modes through acquisitions and joint ventures.
Concentration can be achieved through vertical or horizontal growth. Vertical growth
occurs when a firm takes over a function previously provided by a supplier or a
distributor. Horizontal growth occurs when the firm expands products into new
geographic areas or increases the range of products and services in current markets.

Retrenchment Strategies:
Retrenchment primarily means reduction in product, services or personnel. This
strategy is generally useful in the face of tough competition, scarcity of resources and
declining economy. Under certain situations, retrenchment strategy becomes highly
necessary for the very survival of the company, even though it may reflect poorly on
the management of such a company. The Retrenchment Strategy is adopted when an
organization aims at reducing its one or more business operations with the view to cut
expenses and reach to a more stable financial position.
In other words, the strategy followed, when a firm decides to eliminate its activities
through a considerable reduction in its business operations, in the perspective of
customer groups, customer functions and technology alternatives, either individually
or collectively is called as Retrenchment Strategy.
The firm can either restructure its business operations or discontinue it, so as to
revitalize its financial position. There are three types of Retrenchment Strategies:
Retrenchment strategies include harvest, turnaround, divestiture, bankruptcy and
liquidation.
Harvest:
This strategy entails minimizing investments while at the same time attempting to
maximize short-run cash flow and profits with the intention of eventually liquidating
the company. A harvest strategy is often used when future growth in the market is
doubtful.
If this strategy becomes apparent, the morale of employees as well as the confidence
of customers and suppliers in the company declines, making it difficult for the
company to attain its short-term goals.
Turnaround:
This strategy is designed to shift from a negative direction to a positive one. This can
be achieved by restructuring the organizational operations in order to restore the
appropriate levels of profitability.
A successful turnaround can be achieved by giving high priority to the core business
area and divesting from diversified activities. Some of the common features in
turnaround situations are:
1. Changes in leadership
2. Redefining the company’s strategic focus.
3. Divesting or closing unwanted assets
4. Taking steps to improve the profitability of remaining operations.
5. Making acquisitions to rebuild core operations.
Divestiture:
It is a process of selling off divisions or subsidiaries to restructure a company around
a smaller but stronger portfolio of businesses. This strategy is especially useful when
these divisions are performing poorly.
Selling off a division or a unit is a frequently used strategy, when the unit is sold to a
company which is in the same line of business as the unit. The purchaser way be
willing to pay a higher price in such a case in order to increase the size of his own
business. The money thus realized can be used to restructure the declining business
into profitability.
Bankruptcy:
Bankruptcy is a form of court protection from creditors when an organization has
been in decline for a long period of time and is unable to meet its obligations and
needs time and opportunity to reorganize itself for a turnaround.
The time period for reorganization is determined by the court and during that period
the organization is protected from its creditors and other contract obligations while it
attempts to regain financial stability.
For example, when Continental Airlines filed for bankruptcy protection, it
renegotiated airline lease arrangement, received a $ 20 million cash infusion from a
major bank and cut costs to stay in business and win back customers to make the
airline more financially stable.
Liquidation:
Liquidation simply means end or termination of the business. The company moves to
exit the business either by liquidating its assets or by selling the whole business, thus
ending its existence in the current form.
Liquidation may be voluntary or it may be forced upon an organization by the court
when its liabilities exceed its assets so that a reorganization would not bring the
company back to financial stability. For example, Eastern Airlines, one of the major
U.S. air carriers, established in 1928, was forced to liquidate in 1991 when all other
remedies to reverse the airline’s huge losses failed.
1. Divestment
2. Liquidation
To further comprehend the meaning of Retrenchment Strategy, go through the
following examples in terms of customer groups, customer functions and technology
alternatives.
COMBINATION STRATEGY
The three generic strategies can be used in combination; they can be sequenced, for
instance growth followed by stability, or pursued simultaneously in different parts of
the business unit. Combination Strategy is designed to mix growth, retrenchment, and
stability strategies and apply them across a corporation’s business units. A firm
adopting the combination strategy may apply the combination either simultaneously
(across the different businesses) or sequentially. For instance, Tata Iron & Steel
Company (TISCO) had first consolidated its position in the core steel business, then
divested some of its non-core businesses. Reliance Industries, while consolidating its
position in the existing businesses such as textile and petrochemicals, aggressively
entered new areas such as Information Technology.

Business level Strategy: Business Strategies

A comprehensive business strategy creates a structure for companies to carry out their
organisational goals. It helps them remain relevant in the market and identify growth
opportunities. The business strategy weeds out threats and weaknesses, allowing
organisations to prosper on their strengths. It acts as a guide for major decisions, such
as hiring practices and training needs.
Different businesses have different goals and take different routes to fulfil those goals.
These routes constitute the business strategies of these businesses.
While it is easy to understand the definition of business strategy, sometimes it’s an
uphill task to form and execute a successful one.
A business strategy is a business document that describes a course of action to help
leaders achieve organisational objectives. The detailed plan defines business needs to
guide the hiring process and inform the allocation of company resources. It provides a
clear direction for different teams to pool together their talents to support the
company’s goals. As a result, businesses secure a competitive position in the market,
improve customer satisfaction and mobilise their business operations.
Importance
There are several reasons why a business strategy is important, including:
Trends
A business strategy allows decision-makers to identify trends and opportunities for
future growth. For businesses to remain competitive, they need to adjust and
reevaluate their tactics frequently. Thus, a business strategy is a dynamic resource that
businesses can modify and develop to address social and technological changes in the
market. It safeguards them from complacency.
Vision
A business strategy is important because it creates a vision for the whole organisation
to follow. You can lead and motivate your coworkers more effectively when they have
clearly defined roles and responsibilities. A strategy gives large groups of people a
shared purpose. It ensures that no individual loses sight of the organisational mission.
Competitive advantage
A business strategy encourages businesses to introspect. It offers a guide on how your
business is performing internally and externally. Businesses that can identify their
strengths and weaknesses understand themselves better. This is crucial to gaining a
competitive advantage and securing future profitability.
Levels of business strategy
Business strategy facilitates smooth operations at different levels of a business. It’s a
tool not just for top management but also for leaders across different business
functions to use. A business strategy can promote cohesion to business ideals and
collaboration among coworkers at every level. Here’s a detailed look at the three
levels of business strategy:
Business level strategy
General managers develop and implement business-level strategies. They translate the
direction of the business into more actionable goals. At this level, leaders plan how to
achieve the organisational mission rather than what the mission should be. For
example, if the corporate level strategy is to diversify business operations, a business
level strategy would be to rebrand a product for a new demographic.
Corporate level strategy
The corporate-level strategy is at the top of the planning pyramid. It’s concerned with
the destination towards which your business is moving. Business strategy at this level
is a comprehensive plan that impacts every level of an organisation. It’s formulated by
top management, such as board members, investors and c-suite executives. They
structure their goals around expansion plans, takeovers and mergers, diversification
and new areas of investment.
Functional level strategy
Functional level strategies are the roles and responsibilities assigned to teams to
support business-level strategy. At this level, supervisors and line-managers delegate
larger projects through smaller tasks among individual coworkers. These directives
are specific and catered to the skills and qualifications of individual employees. For
example, a functional level strategy would be to task a graphic designer with
designing new product packaging.
Major components of a business strategy
There are five key components to help you build an effective business strategy. They
include:
Core values
According to the organisation’s core values, your business strategy should
communicate clear guidelines on what people should and should not do. Articulating
these values on paper encourages coworkers to hold themselves accountable to the
organisation’s standards.
Business objective
Your business objective or mission statement identifies a gap in the market that your
business hopes to address. Any business strategy you set out to implement should
always link back to this vision. Think of a business strategy as an action plan with
detailed instructions on how those responsible should achieve the organisational goal.
SWOT analysis
SWOT stands for strengths, weaknesses, opportunities and threats. This analysis is
integral to your business strategy, as it represents a snapshot of the company’s current
situation. Identifying these four key areas prepares you for challenges you may
encounter along the way. It shows what strengths you can use to your advantage and
exposes weaknesses you need to address.
Measurement
To evaluate your business strategy’s effectiveness, you need to incorporate a means of
tracking your performance. A business strategy works best when you divide your
objective into smaller targets that you can measure regularly. For example, you can
measure your output through smaller financial milestones.
Operational tactics
A business strategy needs to transform a vision and plan into action. Once you
identify your resources through a SWOT analysis, you can then allocate them
accordingly. Operational tactics prioritise what needs to get done now and what can
wait for later. It helps you manage your time and resources efficiently.
Importance Of Business Strategy
A business objective without a strategy is just a dream. It is no less than a gamble if
you enter into the market without a well-planned strategy.
With the increase in the competition, the importance of business strategy is becoming
apparent and there’s a huge increase in the types of business strategies used by the
businesses. Here are five reasons why a strategy is necessary for your business.
Strengths and Weaknesses: Most of the times, you get to know about your real
strengths and weaknesses while formulating a strategy. Moreover, it also helps you
capitalise on what you’re good at and use that to overshadow your weaknesses (or
eliminate them).
Planning: Business strategy is a part of a business plan. While the business plan sets
the goals and objectives, the strategy gives you a way to fulfil those goals. It is a plan
to reach where you intend to.
Efficiency and Effectiveness: When every step is planned, every resource is
allocated, and everyone knows what is to be done, business activities become more
efficient and effective automatically.
Control: It also decides the path to be followed and interim goals to be achieved.
This makes it easy to control the activities and see if they are going as planned.
Competitive Advantage: A business strategy focuses on capitalising on the strengths
of the business and using it as a competitive advantage to position the brand in a
unique way. This gives an identity to business and makes it unique in the eyes of the
customer.

Process of Strategic Planning:

 Establishing the Planning Team:
Form a cross-functional team comprising key stakeholders, including senior
leadership, managers, and subject matter experts, to lead the strategic planning
process.
 Defining Mission, Vision, and Values:
Review or develop the organization’s mission statement (its purpose), vision
statement (long-term aspirations), and core values (guiding principles).
 Conducting Situation Analysis:
Assess the internal and external environments through tools such as SWOT analysis
(Strengths, Weaknesses, Opportunities, Threats), PESTEL analysis (Political,
Economic, Social, Technological, Environmental, Legal), and competitor analysis.
 Setting Objectives and Goals:
Based on the analysis, establish specific, measurable, achievable, relevant, and time-
bound (SMART) objectives and goals aligned with the organization’s mission and
vision.
 Formulating Strategies:
Develop strategies and action plans to achieve the objectives identified, considering
factors such as market positioning, competitive advantage, resource allocation, and
risk management.
 Implementing the Plan:
Communicate the strategic plan throughout the organization to ensure alignment and
understanding. Assign responsibilities, allocate resources, and establish timelines for
execution.
 Monitoring and Evaluation:
Monitor progress towards achieving strategic objectives through key performance
indicators (KPIs) and metrics. Evaluate the effectiveness of strategies and adjust plans
as necessary based on performance data and feedback.
 Reviewing and Updating:
Conduct periodic reviews of the strategic plan to assess its relevance, effectiveness,
and alignment with changing internal and external factors. Update the plan as needed
to reflect new priorities, opportunities, or challenges.
 Communication and Engagement:
Continuously communicate the strategic plan and its progress to stakeholders,
including employees, customers, investors, and partners, fostering engagement and
alignment.

Stages of corporate development

Corporate Development is the group at a corporation responsible for strategic
decisions to grow and restructure its business, establish strategic partnerships, and/or
achieve organizational excellence. The purpose of Corp Dev is to create opportunities
for the company through actions such as mergers and acquisitions (M&A),
divestitures, and deals that leverage the value of the company’s business platform.
Need
Corporate development is needed by a company to create and execute innovative
strategies that will help the company harness its competitive advantage and thereby:
 Enable the company to outperform its competitors
 Improve the financial and operating performance of the company
Models
Decentralized Model
A decentralized Corp Dev organizational model actually means there is no core
corporate development department. Instead, a corporate development team is put
together on a case-by-case, or ad hoc, basis, and is made up of individuals from
various internal departments.
The exact composition of the team is determined by the expertise required for the
specific corporate development project. For example, if the project were a divestiture,
then the Corp Dev team would be heavily populated with individuals from the
corporate finance and legal departments.
The centralized model is the most popular model of corporate development, while the
decentralized model is the least popular model
Centralized Model
Typically, corporate development is a centralized function because this gives the Corp
Dev team a birds-eye view of the organization which helps them to spot opportunities
and threats. This allows the company to take advantage of being a first-mover in case
of an opportunity, and take pre-emptive action against threats. Such a structure also
allows the corporate development team to structure deals with other businesses that fit
well into the company’s portfolio.
However, it should be noted that a centralized Corp Dev department does not imply
that the department works in complete isolation from other operational groups within
the company. For example, after acquiring a business, the corporate development
team helps integrate the acquisition into the company by collaborating with support
functions and business lines within the company and with vendors outside the
company.
Hybrid Model
Under this organizational model, the corporate development department is lean i.e., it
consists of very few Corp Dev professionals. This lean team depends on a network of
external and internal resources for providing subject matter expertise when evaluating
potential partnerships and strategic transactions.

Functional level strategy: Strategy Formulation: Corporate, Business,

Functional strategy
Strategy can be formulated at three levels, namely, the corporate level, the business
level, and the functional level. At the corporate level, strategy is formulated for your
organization as a whole. Corporate strategy deals with decisions related to various
business areas in which the firm operates and competes. At the business unit level,
strategy is formulated to convert the corporate vision into reality. At the functional
level, strategy is formulated to realize the business unit level goals and objectives
using the strengths and capabilities of your organization. There is a clear hierarchy in
levels of strategy, with corporate level strategy at the top, business level strategy
being derived from the corporate level, and the functional level strategy being
formulated out of the business level strategy.
In a single business scenario, the corporate and business level responsibilities are
clubbed together and undertaken by a single group, that is, the top management,
whereas in a multi business scenario, there are three fully operative levels.
Levels of Strategy
1. Corporate Level
Corporate level strategy defines the business areas in which your firm will operate. It
deals with aligning the resource deployments across a diverse set of business areas,
related or unrelated. Strategy formulation at this level involves integrating and
managing the diverse businesses and realizing synergy at the corporate level. The top
management team is responsible for formulating the corporate strategy. The corporate
strategy reflects the path toward attaining the vision of your organization. For
example, your firm may have four distinct lines of business operations, namely,
automobiles, steel, tea, and telecom. The corporate level strategy will outline whether
the organization should compete in or withdraw from each of these lines of
businesses, and in which business unit, investments should be increased, in line with
the vision of your firm.
2. Business Level
Business level strategies are formulated for specific strategic business units and relate
to a distinct product-market area. It involves defining the competitive position of a
strategic business unit. The business level strategy formulation is based upon the
generic strategies of overall cost leadership, differentiation, and focus. For example,
your firm may choose overall cost leadership as a strategy to be pursued in its steel
business, differentiation in its tea business, and focus in its automobile business. The
business level strategies are decided upon by the heads of strategic business units and
their teams in light of the specific nature of the industry in which they operate.
Functional Level
Functional level strategies relate to the different functional areas which a strategic
business unit has, such as marketing, production and operations, finance, and human
resources. These strategies are formulated by the functional heads along with their
teams and are aligned with the business level strategies. The strategies at the
functional level involve setting up short-term functional objectives, the attainment of
which will lead to the realization of the business level strategy.
For example, the marketing strategy for a tea business which is following the
differentiation strategy may translate into launching and selling a wide variety of tea
variants through company-owned retail outlets. This may result in the distribution
objective of opening 25 retail outlets in a city; and producing 15 varieties of tea may
be the objective for the production department. The realization of the functional
strategies in the form of quantifiable and measurable objectives will result in the
achievement of business level strategies as well.

Core competencies:
Definition
A core competency is a unique, valuable, and difficult-to-replicate capability that
enables a company to gain a competitive advantage. It represents the organization's
collective knowledge, skills, and technological expertise.
Key Characteristics of Core Competencies
Unique & Difficult to Imitate – Provides a competitive edge that rivals struggle to
replicate.
Valuable to Customers – Enhances product differentiation and customer loyalty.
Applicable Across Different Markets – Can be leveraged in multiple business areas.
Provides Sustainable Advantage – Long-term strategic importance.
Enhances Operational Efficiency & Innovation – Drives industry leadership.
Example:
Google’s search engine algorithm and AI technology are core competencies because
they:
1. Deliver superior search results faster than competitors.
2. Improve user experience through AI-driven personalization.
3. Are nearly impossible to replicate at the same scale.

2
. Types of Core Competencies
Type Description Example
Innovation & R&D Technological Apple’s iOS ecosystem
breakthroughs and patents & chip design
Branding & Customer Strong brand recognition & Coca-Cola’s brand
Loyalty emotional connection power
Operational Excellence Efficient supply chains & Amazon’s logistics
cost management network
Human Capital & Skilled workforce & Google’s AI and data
Knowledge industry expertise science team
Customer Experience & Data-driven insights to Netflix’s
Personalization enhance user engagement recommendation
algorithm

3. The Three-Point Test for Core Competencies

According to C.K. Prahalad and Gary Hamel (Harvard Business Review, 1990), core
competencies must pass three key tests:
1. Provides Access to a Wide Variety of Markets
  The competency should be applicable across different industries and product
categories.
 Example: Google’s AI algorithms power search, YouTube recommendations,
and Google Photos.
2. Contributes Significantly to Customer Benefits
 It must enhance product value and improve user experience.
 Example: Apple’s design and user experience differentiate iPhones from
competitors.
3. Difficult for Competitors to Imitate
 The competency should be complex, unique, and built over time.
 Example: Tesla’s battery technology and Supercharger network are not easily
replicable by rivals.
 YouTube (personalized recommendations).

Strategic choice: Strategic Choice

Strategic choice is a systemic theory of strategy. This theory is built on a notion of

interaction in which organizations adapt to their environment in a self-regulating,
negative-feedback (cybernetic) manner so as to achieve their goals. The dynamics, or
pattern of movement over time, are those of movement to states of stable equilibrium.
Prediction is not seen as problematic. The analysis is primarily at the macro level of
the organization in which cause and effect are related to each other in a linear manner.
Micro-diversity receives little attention and interaction is assumed to be uniform and
harmonious.
Importance of Strategic Choices
Whether a business succeeds or fails depends in large measure on the strategic
choices made by the owner. Spending large amounts of time and money introducing a
product that turns out to have a very limited market is an example of a bad strategic
choice. Anticipating a change in consumer tastes and introducing a service to take
advantage of that change before competitors do is an example of a good strategic
choice. The development of business strategy takes into account that all companies
must cope with limited resources to some extent. The most successful companies can
allocate scarce resources to the projects that have the greatest positive impact on
revenue growth or improvements in productivity and efficiency that can increase
profit margins.
Strategic Choice Process

(I) Focusing on strategic alternatives: It involves identification of all alternatives.

The strategist examines what the organization wants to achieve (desired performance)
and what it has really achieved (actual performance). The gap between the two
positions constitutes the background for various alternatives and diagnosis. This is
gap analysis. The gap between what is desired and what is achieved widens as the
time passes if no strategy is adopted
(II) Evaluating strategic alternatives: The next step is to assess the pros and cons of
various alternatives and their suitability. The tools which may be used are portfolio
analysis, GE business screen and corporate Parenting
(iii) Considering decision factors:
(a) Objective factors:-
  Environmental factor
 Volatility of environment
 Input supply from environment
 Powerful stakeholders
 Organizational factors
 Organization’s mission
 Strategic intent
 Business definition
 Strengths and weaknesses
(b) Subjective factors:-
 Strategies adopted in the previous period
 Personal preferences of decision- makers
 Management’s attitude toward risk
 Pressure from stakeholder
 Pressure from corporate culture
 Needs and desires of key managers

BCG Matrix

BCG matrix (or growth-share matrix) is a corporate planning tool, which is used to
portray firm’s brand portfolio or SBUs on a quadrant along relative market share axis
(horizontal axis) and speed of market growth (vertical axis) axis.
Growth-share matrix is a business tool, which uses relative market share and industry
growth rate factors to evaluate the potential of business brand portfolio and suggest
further investment strategies.

Understanding the tool

BCG matrix is a framework created by Boston Consulting Group to evaluate the
strategic position of the business brand portfolio and its potential. It classifies
business portfolio into four categories based on industry attractiveness (growth rate of
that industry) and competitive position (relative market share). These two dimensions
reveal likely profitability of the business portfolio in terms of cash needed to support
that unit and cash generated by it. The general purpose of the analysis is to help
understand, which brands the firm should invest in and which ones should be
divested.
BCG matrix is divided into 4 cells: stars, question marks, dogs and cash cows.
Relative market share. One of the dimensions used to evaluate business portfolio is
relative market share. Higher corporate’s market share results in higher cash returns.
This is because a firm that produces more, benefits from higher economies of scale
and experience curve, which results in higher profits. Nonetheless, it is worth to note
that some firms may experience the same benefits with lower production outputs and
lower market share.
Market growth rate. High market growth rate means higher earnings and sometimes
profits but it also consumes lots of cash, which is used as investment to stimulate
further growth. Therefore, business units that operate in rapid growth industries are
cash users and are worth investing in only when they are expected to grow or
maintain market share in the future.
There are four quadrants into which firms brands are classified:
1. Dogs. Dogs hold low market share compared to competitors and operate in a
slowly growing market. In general, they are not worth investing in because they
generate low or negative cash returns. But this is not always the truth. Some
dogs may be profitable for long period of time, they may provide synergies for
other brands or SBUs or simple act as a defense to counter competitors moves.
Therefore, it is always important to perform deeper analysis of each brand or
SBU to make sure they are not worth investing in or have to be divested.
Strategic choices: Retrenchment, divestiture, liquidation
2. Cash cows. Cash cows are the most profitable brands and should be “milked” to
provide as much cash as possible. The cash gained from “cows” should be
invested into stars to support their further growth. According to growth-share
matrix, corporates should not invest into cash cows to induce growth but only to
support them so they can maintain their current market share. Again, this is not
always the truth. Cash cows are usually large corporations or SBUs that are
capable of innovating new products or processes, which may become new stars.
If there would be no support for cash cows, they would not be capable of such
innovations.
Strategic choices: Product development, diversification, divestiture, retrenchment
3. Stars. Stars operate in high growth industries and maintain high market share.
Stars are both cash generators and cash users. They are the primary units in
which the company should invest its money, because stars are expected to
become cash cows and generate positive cash flows. Yet, not all stars become
 cash flows. This is especially true in rapidly changing industries, where new
innovative products can soon be outcompeted by new technological
advancements, so a star instead of becoming a cash cow, becomes a dog.
Strategic choices: Vertical integration, horizontal integration, market penetration,
market development, product development
4. Question Marks. Question marks are the brands that require much closer
consideration. They hold low market share in fast growing markets consuming
large amount of cash and incurring losses. It has potential to gain market share
and become a star, which would later become cash cow. Question marks do not
always succeed and even after large amount of investments they struggle to gain
market share and eventually become dogs. Therefore, they require very close
consideration to decide if they are worth investing in or not.
Strategic choices: Market penetration, market development, product development,
divestiture
Benefits of the matrix
 Easy to perform
 Helps to understand the strategic positions of business portfolio
 It’s a good starting point for further more thorough analysis.
Following are the main limitations of the analysis
 Business can only be classified to four quadrants. It can be confusing to classify
an SBU that falls right in the middle.
 It does not define what ‘market’ is. Businesses can be classified as cash cows,
while they are actually dogs, or vice versa.
 Does not include other external factors that may change the situation
completely.
 Market share and industry growth are not the only factors of profitability.
Besides, high market share does not necessarily mean high profits.
  It denies that synergies between different units exist. Dogs can be as important
as cash cows to businesses if it helps to achieve competitive advantage for the
rest of the company.
Using the tool
Although BCG analysis has lost its importance due to many limitations, it can still be
a useful tool if performed by following these steps:
Step 1. Choose the unit. BCG matrix can be used to analyze SBUs, separate brands,
products or a firm as a unit itself. Which unit will be chosen will have an impact on
the whole analysis. Therefore, it is essential to define the unit for which you’ll do the
analysis.
Step 2. Define the market. Defining the market is one of the most important things
to do in this analysis. This is because incorrectly defined market may lead to poor
classification. For example, if we would do the analysis for the Daimler’s Mercedes-
Benz car brand in the passenger vehicle market it would end up as a dog (it holds less
than 20% relative market share), but it would be a cash cow in the luxury car market.
It is important to clearly define the market to better understand firm’s portfolio
position.
Step 3. Calculate relative market share. Relative market share can be calculated in
terms of revenues or market share. It is calculated by dividing your own brand’s
market share (revenues) by the market share (or revenues) of your largest competitor
in that industry. For example, if your competitor’s market share in refrigerator’s
industry was 25% and your firm’s brand market share was 10% in the same year, your
relative market share would be only 0.4.
Step 4. Find out market growth rate. The industry growth rate can be found in
industry reports, which are usually available online for free. It can also be calculated
by looking at average revenue growth of the leading industry firms. Market growth
rate is measured in percentage terms. The midpoint of the y-axis is usually set at 10%
growth rate, but this can vary. Some industries grow for years but at average rate of 1
or 2% per year. Therefore, when doing the analysis you should find out what growth
rate is seen as significant (midpoint) to separate cash cows from stars and question
marks from dogs.
Step 5. Draw the circles on a matrix. After calculating all the measures, you should
be able to plot your brands on the matrix. You should do this by drawing a circle for
each brand. The size of the circle should correspond to the proportion of business
revenue generated by that brand.

SWOT Analysis

SWOT analysis is a strategic planning tool used by businesses to assess their internal
strengths and weaknesses, and to identify external opportunities and threats. It helps
organizations evaluate where they stand in the marketplace and how they can leverage
their strengths, improve weaknesses, seize opportunities, and mitigate potential risks.
This analysis is a fundamental component of business strategy development and
decision-making processes.
A detailed examination of each component—Strengths, Weaknesses, Opportunities,
and Threats—is essential to understand the full picture of the business environment.
Elements of a SWOT Analysis:
 1. Strengths
Strengths are the internal factors that give a business a competitive edge or position it
favorably in the market. These can be tangible, such as resources and technology, or
intangible, like brand reputation or intellectual property. Identifying strengths is
crucial because they are the foundation on which a company can build its strategies to
achieve success.
Key Aspects of Strengths:
 Unique Products or Services: Having a product or service that stands out in the
market is a major strength. This can include innovation, quality, or distinct
features that competitors cannot easily replicate.
 Strong Brand and Reputation: A well-established brand and a good market
reputation lead to customer loyalty and trust, which are invaluable assets.
 Efficient Processes and Operations: Businesses with optimized processes can
produce more efficiently and at a lower cost. This might include the use of
advanced technology or superior supply chain management.
 Skilled Workforce: A team of highly skilled, motivated, and experienced
employees is a significant asset to any company.
 Financial Stability: A strong financial position, including access to capital,
liquidity, and profitability, empowers businesses to invest in new opportunities
and weather economic downturns.
 Customer Loyalty: A loyal customer base ensures steady revenue and provides
free word-of-mouth marketing, which can help the business grow organically.
Example:
Apple Inc.’s strength lies in its brand loyalty, innovative product design, and seamless
integration across its ecosystem of devices and services. These elements have helped
it dominate the tech market.
 2. Weaknesses
Weaknesses are the internal factors that prevent a business from performing at its
best. They can hinder growth and may leave the company vulnerable to external
threats. Understanding weaknesses allows businesses to develop strategies to improve
areas that may be holding them back.
Key Aspects of Weaknesses:
 Lack of Resources: Insufficient financial resources, technology, or skilled
personnel can be significant obstacles to growth and operational efficiency.
 Inefficient Processes: If business processes are outdated or inefficient, they can
slow down production, increase costs, and negatively affect competitiveness.
 Weak Brand or Reputation: A weak brand presence or a negative public
perception can deter potential customers, limiting a company’s market share.
 Limited Product or Service Range: Companies that offer a narrow range of
products or services might struggle to attract a wider customer base or meet
changing market demands.
 High Employee Turnover: High levels of employee turnover can increase
operational costs and reduce the quality of the workforce.
 Poor Location: For businesses that rely on physical stores or geographic
presence, being located in an unfavorable area can limit customer footfall and
sales.
Example:
BlackBerry’s inability to adapt to the shift towards touchscreen smartphones was a
major weakness that contributed to its decline in the mobile phone market.
3. Opportunities
Opportunities are external factors in the environment that the business can capitalize
on to grow and succeed. They arise from changes in the market, technology,
regulations, or societal trends. Identifying and seizing opportunities can lead to
expansion and increased profitability.
Key Aspects of Opportunities:
 Market Growth: Expanding into new markets or regions can provide a
business with the chance to increase its customer base and revenue.
 Technological Advancements: New technology can streamline operations,
improve product offerings, or create new business models that were previously
unavailable.
 Changing Consumer Preferences: As consumer preferences evolve,
businesses that can quickly adapt can gain a competitive advantage. For
instance, the increasing demand for environmentally friendly products creates
opportunities for businesses offering sustainable solutions.
 Regulatory Changes: Changes in laws or regulations can sometimes present
opportunities, such as new government incentives for green energy or relaxed
trade restrictions.
 Partnerships and Alliances: Collaborating with other businesses or entering
strategic alliances can open up new revenue streams, improve product offerings,
or reduce costs.
 E-commerce Growth: With the increasing reliance on digital platforms,
businesses can take advantage of the growing online customer base by
expanding their e-commerce operations.
Example:
Tesla identified an opportunity in the growing demand for electric vehicles and
sustainable energy solutions, which has allowed the company to dominate the electric
car market and expand into energy storage and solar power.
4. Threats
Threats are external factors that could negatively impact the business. These are often
outside the company’s control and can stem from market conditions, competitors,
regulatory changes, or economic shifts. Recognizing threats is essential for risk
management and developing contingency plans.
Key Aspects of Threats:
 Intense Competition: High levels of competition can lead to price wars,
reduced market share, and lower profitability.
 Economic Downturns: A recession or economic slowdown can reduce
consumer spending, affecting sales and profitability.
 Technological Disruption: Rapid technological advancements can render
existing products or services obsolete. Businesses that fail to innovate may
struggle to stay relevant.
 Regulatory Changes: New laws or regulations, such as increased taxes or
stricter environmental regulations, can increase operational costs or limit growth
opportunities.
 Supply Chain Disruptions: Dependence on suppliers can pose a risk if there
are disruptions, such as natural disasters, political instability, or pandemics, that
interrupt the flow of materials or goods.
 Changing Consumer Behavior: Shifts in consumer preferences, such as the
move towards online shopping or a focus on health and wellness, can make
some products or services less desirable.
Example:
The rise of streaming services like Netflix and Disney+ has posed a significant threat
to traditional cable and satellite television companies, forcing them to rethink their
business models.
Conducting a SWOT Analysis:
Performing a SWOT analysis involves gathering data from various sources, including
internal reports, market research, customer feedback, and competitor analysis. Here’s
a step-by-step guide to conducting a SWOT analysis for a business:
1. Identify Strengths: List the company’s internal strengths, focusing on areas
such as product quality, customer satisfaction, operational efficiency, financial
stability, and brand reputation.
2. Identify Weaknesses: Assess the internal factors that are holding the business
back, such as poor processes, lack of resources, or skills gaps.
 3. Identify Opportunities: Explore external opportunities by examining market
trends, emerging technologies, and changes in regulations that could benefit the
business.
4. Identify Threats: Analyze the external threats, including competition, economic
shifts, and disruptive technologies, to develop strategies for mitigating risks.
5. Develop Strategic Actions: After identifying the key elements of SWOT,
develop strategies that:
 Leverage strengths to capitalize on opportunities.
 Address weaknesses to mitigate threats.
 Use strengths to overcome weaknesses.
 Prepare contingency plans for identified threats.

Ansoff Grid
Ansoff’s product/market growth matrix suggests that a business’ attempts to grow
depend on whether it markets new or existing products in new or existing markets.
The output from the Ansoff product/market matrix is a series of suggested growth
strategies which set the direction for the business strategy. These are described below:
Market Penetration
Market penetration is the name given to a growth strategy where the business focuses
on selling existing products into existing markets.
Market penetration seeks to achieve four main objectives:
Maintain or increase the market share of current products – this can be achieved by a
combination of competitive pricing strategies, advertising, sales promotion and
perhaps more resources dedicated to personal selling
 Secure dominance of growth markets
 Restructure a mature market by driving out competitors; this would require a
much more aggressive promotional campaign, supported by a pricing strategy
designed to make the market unattractive for competitors
 Increase usage by existing customers – for example by introducing loyalty
schemes
A market penetration marketing strategy is very much about “business as usual”. The
business is focusing on markets and products it knows well. It is likely to have good
information on competitors and on customer needs. It is unlikely, therefore, that this
strategy will require much investment in new market research.
Market Development
Market development is the name given to a growth strategy where the business seeks
to sell its existing products into new markets.
There are many possible ways of approaching this strategy, including:
 New geographical markets; for example exporting the product to a new country
 New product dimensions or packaging: for example
 New distribution channels (e.g. moving from selling via retail to selling using e-
commerce and mail order)
 Different pricing policies to attract different customers or create new market
segments
Market development is a more risky strategy than market penetration because of the
targeting of new markets.
Product Development
Product development is the name given to a growth strategy where a business aims to
introduce new products into existing markets. This strategy may require the
development of new competencies and requires the business to develop modified
products which can appeal to existing markets.
A strategy of product development is particularly suitable for a business where the
product needs to be differentiated in order to remain competitive. A successful
product development strategy places the marketing emphasis on:
 Research & development and innovation
 Detailed insights into customer needs (and how they change)
 Being first to market
Diversification
Diversification is the name given to the growth strategy where a business markets
new products in new markets.
This is an inherently more risk strategy because the business is moving into markets
in which it has little or no experience.
For a business to adopt a diversification strategy, therefore, it must have a clear idea
about what it expects to gain from the strategy and an honest assessment of the risks.
However, for the right balance between risk and reward, a marketing strategy of
diversification can be highly rewarding.
GE Nine Cell Planning
The GE McKinsey matrix is a product portfolio analysis matrix. When you have a
complex product portfolio, then it is difficult for you to take decisions. This is
because each product will have its own demands and requirements. But you yourself
have limited resources in the company. Thus, what you as a business manager have to
look at is to ensure that the firm grows at the optimum rate. For this, you will have to
support some products by investing money in them, hold some products by letting
them be as they are, and prune other products which are not working as well as you
thought. This decision making, on products, is done by the GE Mckinsey matrix.

The GE Mckinsey matrix has two main variables which are plotted on the X and Y
axis of the matrix. These variables are the “Market attractiveness” and the “Business
unit strength”. Once each product is given a value for its market attractiveness as well
as the business unit’s strength, than it is plotted in its right place in the graph. The GE
Mckinsey matrix is also known as the nine box matrix, because in the graph, there are
nine boxes where the product can be plotted. Once the product is in its place, you can
decide the strategy for the product. There are 3 main strategies in the GE McKinsey
matrix which are grow, hold and harvest.
Grow – If the business unit is strong against a strong attractiveness, you grow the
business. This means, that you are ready to invest a higher percentage of your
resources in these businesses. These business units have high market attractiveness
and high business unit strength. They are most likely to be successful if backed up
with more resources. The quadrants marked in green are the places where you can
grow your business.
Hold – If the business unit strength or attractiveness is average, than you hold the
business as it is. It might be that the market is dropping in value, or that there is much
high competition which the business unit will be hard put to catch up. In both the
cases, the business unit might not give optimum returns even if resources are
invested. Thus, in this case, you wait and hold the business unit to see if the market
environment changes or if the business unit gains importance in the market as
compared to other players.
Harvest – If the business unit or market has become unattractive, than you either sell
or liquidate the business or you can hold it for any residual value that it has. This
strategy is used in the GE McKinsey matrix when the business unit strength is weak
and the market has lost its attractiveness. The best measure in this case is to harvest
the weak businesses and reinvest the money earned into business units which are in
growth.
Challenges for the GE McKinsey Matrix
Like any other strategy, the GE McKinsey matrix has its own challenges. Some of
them are mentioned below.
(1) Determining market attractiveness is a tough task especially looking at the fast
paced market environment. During the dotcom bust, the online market was least
attractive. But look where the online market is now.
(2) Similarly, determining the strength of the business unit and weighing it against the
attractiveness is difficult. Thus, if the variables are not matched properly, you might
grow a business which is supposed to be held back and waste unnecessary resources
on this business. This might happen if the top management does not know the core
competency of the business units.
(3) Companies will be limited by resources even if the business unit falls in the
growth criteria. Thus, out of 50 products, if 25 fall in growth criteria, what does the
management do when it has limited resources? Taking decisions again becomes
difficult
Porter’s Five Forces Model

Porter’s Five Forces is a business analysis model that helps to explain why different
industries are able to sustain different levels of profitability. The model was originally
published in Michael Porter’s book, “Competitive Strategy: Techniques for Analyzing
Industries and Competitors” in 1980.
The model is widely used to analyze the industry structure of a company as well as its
corporate strategy. Porter identified five undeniable forces that play a part in shaping
every market and industry in the world. The forces are frequently used to measure
competition intensity, attractiveness and profitability of an industry or market.
These forces are:
 1. Competition in the industry;
2. Potential of new entrants into the industry;
3. Power of suppliers;
4. Power of customers;
5. Threat of substitute products.
 Threat of new entrants.
This force determines how easy (or not) it is to enter a particular industry. If an
industry is profitable and there are few barriers to enter, rivalry soon intensifies.
When more organizations compete for the same market share, profits start to fall. It is
essential for existing organizations to create high barriers to enter to deter new
entrants. Threat of new entrants is high when:
Low amount of capital is required to enter a market;
 Existing companies can do little to retaliate;
 Existing firms do not possess patents, trademarks or do not have established
brand reputation;
 There is no government regulation;
 Customer switching costs are low (it doesn’t cost a lot of money for a firm to
switch to other industries);
  There is low customer loyalty;
 Products are nearly identical;
 Economies of scale can be easily achieved.
 Bargaining power of suppliers.
Strong bargaining power allows suppliers to sell higher priced or low quality raw
materials to their buyers. This directly affects the buying firms’ profits because it has
to pay more for materials. Suppliers have strong bargaining power when:
 There are few suppliers but many buyers;
 Suppliers are large and threaten to forward integrate;
 Few substitute raw materials exist;
 Suppliers hold scarce resources;
 Cost of switching raw materials is especially high.


 Bargaining power of buyers.

Buyers have the power to demand lower price or higher product quality from industry
producers when their bargaining power is strong. Lower price means lower revenues
for the producer, while higher quality products usually raise production costs. Both
scenarios result in lower profits for producers. Buyers exert strong bargaining power
when:
 Buying in large quantities or control many access points to the final customer;
 Only few buyers exist;
 Switching costs to other supplier are low;
 They threaten to backward integrate;
 There are many substitutes;
 Buyers are price sensitive.
  Threat of Substitutes.
This force is especially threatening when buyers can easily find substitute products
with attractive prices or better quality and when buyers can switch from one product
or service to another with little cost. For example, to switch from coffee to tea doesn’t
cost anything, unlike switching from car to bicycle.
 Rivalry among existing competitors.
This force is the major determinant on how competitive and profitable an industry is.
In competitive industry, firms have to compete aggressively for a market share, which
results in low profits. Rivalry among competitors is intense when:
 There are many competitors;
 Exit barriers are high;
 Industry of growth is slow or negative;
 Products are not differentiated and can be easily substituted;
 Competitors are of equal size;
 Low customer loyalty.
Although, Porter originally introduced five forces affecting an industry, scholars have
suggested including the sixth force: complements. Complements increase the demand
of the primary product with which they are used, thus, increasing firm’s and
industry’s profit potential. For example, iTunes was created to complement iPod and
added value for both products. As a result, both iTunes and iPod sales increased,
increasing Apple’s profits.
Application of Porter’s Five Forces Model
 Competitive Analysis:
Companies use the model to assess the competitive dynamics within their industry.
By evaluating the intensity of each force, businesses can gain insights into the level of
rivalry, bargaining power of suppliers and buyers, threat of substitutes, and barriers to
entry.
  Market Entry Strategy:
Before entering a new market, businesses can apply the Five Forces Model to assess
the potential risks and opportunities. This analysis helps in making informed
decisions about the feasibility and attractiveness of entering a specific market.
 Strategic Planning:
Companies use Porter’s model as a strategic planning tool. It helps in formulating
business strategies that capitalize on industry strengths and mitigate weaknesses. For
example, a company might focus on differentiation strategies if there is high rivalry,
or explore cost leadership if there is significant supplier power.
 Mergers and Acquisitions (M&A):
When considering M&A activities, firms evaluate the industry’s competitive forces to
understand how the acquisition target fits into the broader competitive landscape. This
analysis informs decisions about potential synergies and risks associated with the
acquisition.
 Supplier and Buyer Negotiations:
Understanding the bargaining power of suppliers and buyers allows companies to
negotiate more effectively. If suppliers have high power, companies might seek
alternative sources or negotiate for better terms. Similarly, if buyers have high power,
companies might focus on adding value to their products or services.
 Product Development and Innovation:
Companies use the model to identify opportunities for innovation and new product
development. By assessing the threat of substitutes and understanding customer
preferences, businesses can create products that meet specific market demands.
 Risk Assessment and Management:
The Five Forces Model helps companies identify potential risks and vulnerabilities
within their industry. This includes risks associated with intense competition, supplier
disruptions, changes in customer preferences, and the emergence of new substitutes.
  Market Positioning and Differentiation:
The analysis of competitive forces informs decisions about how a company positions
itself in the market. It helps in identifying areas where differentiation can provide a
competitive advantage. For example, a company facing high rivalry might focus on
unique value propositions to stand out.
 Regulatory and Policy Impact Assessment:
Changes in regulations and government policies can have a significant impact on
industry dynamics. Companies use the model to assess how regulatory changes might
influence the competitive forces in their industry and adjust their strategies
accordingly.
 Investment Decisions:
Investors utilize Porter’s Five Forces Model to assess the attractiveness of an industry
before making investment decisions. By evaluating the competitive forces, investors
can gauge the potential returns and risks associated with investing in a particular
sector.
 Scenario Planning:
Companies use the model for scenario planning, evaluating how changes in
competitive forces might impact their business in different future scenarios. This
helps in preparing for potential shifts in industry dynamics.